FINANCIAL & OPERATING STATISTICS

Transcription

1 2001 FINANCIAL & OPERATING STATISTICS Overview 2 System Map 5 Agricultural Products 6 Automotive 8 Chemicals 10 Energy 12 Industrial Products 14 Intermodal 16 Mexico 18 Financial and Operating Statistics 20 UNION PACIFIC RAILROAD 25 Overview 27 Financial and Operating Statistics OVERNITE TRANSPORTATION Cautionary Information 30

2 001 UNION PACIFIC RAILROAD OVERVIEW Union Pacific is the largest railroad in North America, covering 23 states across the western two-thirds of the United States. The Union Pacific franchise has a strategically advantageous route structure that serves customers in critical and fast-growing markets. That network, combined with a well-balanced and diverse traffic mix, makes Union Pacific the premier rail franchise in North America. A key strength of the franchise is access to the coal fields in the Powder River Basin (PRB) region of northeastern Wyoming. Growth of PRB coal tonnage hauled by UP has averaged 8% over the past five years, reflecting this coal s low-production cost and low-sulfur content. UP s rail lines in the Midwest and Plains states provide direct routes from major grain-producing areas to domestic markets, Mexico and to ports of export in the Gulf Coast and Pacific Northwest. Union Pacific also has broad coverage of the large chemical-producing areas along the Gulf Coast. To handle growing east-west intermodal and automotive traffic, Union Pacific has competitive long-haul routes between all major West Coast ports and eastern gateways. In addition to directly serving all six major gateways to Mexico, the Railroad has the fastest and most direct route to and from the industrial Midwest and Mexico. UP also reaches north into Canada through the Eastport gateway, as well as through exchange points in Minnesota, Wisconsin and Illinois. The merger of Union Pacific and Southern Pacific routes in the South and Southwest produced a single-line rail network serving the rapidly growing population in this part of the country. Leveraging the strengths of this broad franchise allows Union Pacific to improve customer service,grow market share and achieve improved financial returns. FINANCIAL REVIEW The Railroad achieved solid financial performance in 2001 in a very difficult economic environment. Our diverse business mix paid off as commodity revenue grew 1%, to a record $10.4 billion. Strong revenue gains in energy and agricultural products more than offset the declines seen in the more economically sensitive commodities. Employee productivity levels reached an all-time high in 2001, driving the operating ratio for the Railroad and other operations down to 81.4% from 81.7% in 2000, excluding a $115 million pre-tax work force reduction Commodity Revenue $ Millions 9,072 9,851 10,270 10,391 UNION PACIFIC RAIL AND OTHER OPERATIONS Financial Summary (b) 1999 Operating Revenue (millions of dollars) $10,830 $10,765 $10,175 Operating Income (millions of dollars) $2,018 $1,965 $1,784 Operating Ratio 81.4% 81.7% 82.5% Operating Ratio Percent * 81.4 Total Carloads (thousands) 8,916 8,901 8,556 Average Employees 48,632 50,523 52,539 Capital Investments (a) (millions of dollars) $1,701 $1,867 $1,942 (a) Includes long-term operating leases (b) 2000 excludes the impact of a $115 million pre-tax work force reduction charge. Excludes results from Overnite and Motor Cargo * Excluding $115 million pre-tax work force reduction charge 2

3 UNION PACIFIC RAILROAD FINANCIAL REVIEW (continued) Mission: charge. With some improvement in fuel prices and continued focus on cost control measures, the operating ratio during the last half of 2001 improved to 79.7%. Earnings momentum continued in 2001 as net income increased to a best-ever $920 million, up 6% from $871 million in 2000, excluding a $72 million after-tax work force reduction charge. Capital spending at the Railroad, excluding long-term operating leases, decreased during 2001 to $1.69 billion from $1.74 billion in 2000, while free cash flow after dividends increased 6% to $321 million. These successes were achieved in a year that had many challenges a recession, continued high fuel prices and tragically, the events of September 11. Union Pacific is committed to be a railroad where: Customers want to do business Employees are proud to work Shareholder value is created SERVICE QUALITY Reliable, consistent service is the key to capturing share from trucks, a market estimated to be $90 billion annually. Along the Interstate 5 corridor on the West Coast, Union Pacific s service provides guaranteed transportation of industrial products from the Pacific Northwest to Northern California in 5 days, Southern California in 7 days and Nevada and Arizona in 9 days. The focus on taking variability out of the delivery schedule has resulted in a 25% improvement in on-time performance and has taken direct aim at this service-sensitive truck market, resulting in 3% revenue growth even during this economic downturn. One metric used by UP to gauge service levels is the Customer Satisfaction Index. Based on direct feedback from customers, the 77% rating in 2001 was an all-time best (post merger) and indicative of improved service levels, ease of doing business and new product strategy. In addition to improved service reliability, customers benefited from continued enhancements made on the technology front. Energy customers now have real-time information regarding the status of coal trains via Internet access to the Bulk Train Planner system. Simplified Web pages also improved the customer experience and contributed to a 95% increase in Internet transactions. By delivering what customers need, even during a challenging year, Union Pacific has been able to achieve continued top line growth. Those efforts, combined with a constant focus on operational initiatives, have resulted in continued improvement in employee productivity. The locomotive modernization program was a key driver in improving asset utilization, as 500 new units purchased in 2001 contributed to a reduced fuel consumption rate by over 3% and a dramatic decrease in maintenance costs. Union Pacific s commitment to providing employees with a safe working environment had an impact as reportable injuries per man hour declined by 7%. I-5 Variability Percent Span (Hrs): May 00=54.0 Dec. 01=24.2 Customer Satisfaction Percent Gross Ton-Miles Per Employee Millions Hours

4 UNION PACIFIC RAILROAD GROWTH The Express Lane service continued to expand and draw market share from trucks in This service, in partnership with CSX, transports fresh and frozen fruits and vegetables from the Pacific Northwest to eastern destinations. With on-time performance exceeding 90%, demand for this product resulted in the addition of new eastern destinations in The introduction of the Blue Streak intermodal service also resulted in share gains from the long-haul truck market. In alliance with Norfolk Southern, this five-day coast-to-coast service runs between Los Angeles and Atlanta. With three distinct service levels standard, premium and super flyer offering increasing performance and equipment availability guarantees, customers choose which product will meet their needs. The demand for this 99% on-time service has resulted in additional southeastern destinations being targeted for Intent on shortening the delivery cycle for chemical customers, Union Pacific partnered with two customers, Dow Chemical and Occidental Chemical, to develop the new Pipeline service. By holding small numbers of cars at the originating plant in Gregory, Texas, until a full train is assembled, the train is moved in one unit to the final destination in Freeport, Texas, avoiding several intermediate terminal stops along the way. This joint effort has improved the car cycle time by 60%, resulting in significant asset utilization improvements for all parties. LOOKING TO THE FUTURE Although 2001 was a difficult year with the recession and the events of September 11, Union Pacific is poised to meet the near-term economic challenges. With reliable service, expanded product offerings and more efficient operations, the Railroad expects to continue to achieve tremendous benefits for its customers, employees and shareholders. Pacific Northwest Boston Eastern Idaho Express Lane Chicago Pittsburgh New York Philadelphia Jessup San Joaquin Valley St. Louis Charlotte Los Angeles Atlanta Houston Lakeland Jacksonville Miami 4

5 UNION PACIFIC RAILROAD Single and Double Track Triple and Quadruple Track Major Classification Yards Major Intermodal Trailer/Container Terminals Auto Facilities Auto Assembly Centers & Facilities Tacoma Seattle Eastport Spokane Portland Hinkle Silver Bow Duluth Pocatello Powder River Basin Shawnee Jct. Minneapolis Milwaukee Oakland San Francisco Reno Roseville Stockton Fresno Las Vegas Ogden Salt Lake City Cheyenne Denver Pueblo North Platte Omaha Gibbon Marysville Topeka Des Moines St. Joseph Kansas City St. Louis Chicago Wichita Los Angeles Colton Long Beach Calexico Phoenix Tucson Tucumcari Amarillo Oklahoma City Little Rock Pine Bluff Memphis Dallas Nogales El Paso Fort Worth Livonia San Antonio REVENUE MIX Commodity Revenue: $10.4 Billion Eagle Pass Laredo Houston New Orleans Brownsville Intermodal 18% Agricultural Products 14% Industrial Products 19% Automotive 11% 6 Agricultural Products 8 Automotive 14 Industrial Products 16 Intermodal Chemicals 15% 10 Chemicals 18 Mexico Energy 23% 12 Energy 5

6 AGRICULTURAL PRODUCTS 2001 Review Whole grain carloadings declined 1% because of weak export demand, especially to the Pacific Northwest (PNW), and low commodity prices for corn and wheat. However, strong domestic grain traffic and increased exports to Mexico partially offset the decline. Carloads of grain products were virtually flat versus 2000 levels. Gains in whole cottonseed shipments due to improved demand were negated by a poor sugar beet crop and reduced corn syrup demand. The introduction of the Wine Connection, with service from vineyards in California and the PNW to the Northeast, Southeast and central states, combined with increased demand for imported beer drove a 23% improvement in beverage carloads. The Express Lane, with 90% on-time performance, continued to capture truck share as french fry shippers moved over 1 billion pounds of fries by rail, driving an 8% growth in food products volume. KEY MARKET FACTORS Union Pacific offers a critical link between producing areas in the Midwest and West and the Pacific Northwest and primary Gulf ports, as well as to Mexico. UP s domestic markets include grain processors and feeders in the Midwest, West, South and Rocky Mountain states. Producers and consumers of food and beverages are distributed broadly across the Railroad system Carloads Whole Grain Corn & Feed Grains (33%) Wheat & Food Grains (15%) Grain Products Meals & Oils (12%) Sweeteners (10%) Proteins & Feed (6%) Food Grain Products (5%) Food Canned/Packaged/ Beverages (10%) Fresh & Frozen Products (9%) 33% 9% 10% 5% Mexico 13% 6% Export 11% Arrow colors correspond to pie chart colors. 15% 12% 10% Domestic 76% Note: Grain Products and Food move in the same lanes. 6

7 AGRICULTURAL PRODUCTS (continued) KEY MARKET FACTORS (continued) Domestic and foreign crop production, grain prices and shipping rate spreads between the Gulf Coast and the PNW are primary factors affecting export grain traffic. Union Pacific s domestic traffic is more stable and driven largely by consistent service performance. Grain moves most efficiently in unit trains that shuttle continuously between producers and export terminals or domestic markets. Smaller shipments, including grain products and food and beverages, typically move in the manifest train network OUTLOOK Sustained focus on Express Lane and Wine Connection services should allow Union Pacific to further expand and draw market share from trucks. To support the growth in this servicesensitive market, the existing fleet is being refurbished and equipped with technology to pinpoint the location of a car and monitor air temperature and quality. Continued focus will be on improving efficiency and cycle times of grain shuttle trains. In partnership with Ferrocarril Mexicano (FXE) and Transportation Ferroviaria Mexicana (TFM), Union Pacific expects to expand its current shuttle train network into Mexico, which should enhance shipments of sweeteners, malt and northbound beer. As export demand continues to fluctuate widely, alliances with other railroads will enable Union Pacific to compete in previously unserviced markets in the upper Midwest. COMMODITY REVENUE (millions of dollars) Quarterly Cumulative ,072 1, ,047 1, ,042 1,419 REVENUE TON-MILES (millions) Quarterly 17,314 16,537 17,003 18,172 17,563 16,417 16,956 16,259 16,914 16,329 17,874 18,298 Cumulative 17,314 33,851 50,854 69,026 17,563 33,980 50,936 67,195 16,914 33,243 51,117 69,415 CARLOADINGS (thousands) Quarterly Cumulative AVERAGE REVENUE/CARLOADING (dollars) Quarterly 1,687 1,632 1,667 1,651 1,582 1,568 1,673 1,595 1,552 1,536 1,576 1,565 Cumulative 1,687 1,660 1,662 1,659 1,582 1,575 1,607 1,604 1,552 1,544 1,555 1,558 Pacific Northwest Gulf Mexico Export Grain by Terminal (percent of total grain traffic) Total 39% 35% 29% 33% 33% 30% 7

8 AUTOMOTIVE 2001 Review Automotive shipments of finished vehicles and auto parts declined 6%. The decrease, due to a 10% reduction in North American vehicle production, was somewhat offset by market share gains and improved service. With improved service focused on taking time out of the delivery cycle, UP won key multi-year contracts in For example, Toyota named UP as its primary rail provider in the West and General Motors chose UP as its single-source rail provider in the West. The four largest North American automotive manufacturers each recognized Union Pacific as their rail carrier of the year in Union Pacific and DaimlerChrysler formed Insight Network Logistics to deploy VIN Vision technology to monitor approximately 2.5 million vehicle movements annually, driving waste and non-value added time from the distribution chain. Cooperation between UP, Pacer Stack Train and CSX provided enhanced just-in-time service on parts moving to Mexico. Direct service was established between Detroit and several points in Mexico, improving efficiencies for all parties Carloads Assembled Autos (67%) Auto Materials (33%) 33% International 5% Canada 10% 67% Domestic 55% Mexico 30% Arrow colors correspond to pie chart colors. 8

9 AUTOMOTIVE (continued) KEY MARKET FACTORS Union Pacific is the largest carrier of finished vehicles west of the Mississippi River. The Railroad has facilities that serve 80% of western U.S. cities, including 45 vehicle distribution centers. Union Pacific also directly serves six assembly centers and distributes import vehicles from four West Coast ports and two Gulf ports. Mexico is an important automotive market for the Railroad as companies continue to locate both vehicle manufacturing and material facilities throughout the country. Automotive materials flow north and south across the border bound for assembly centers in Mexico, the U.S. and Canada OUTLOOK Because of the slow economy, North American vehicle sales are expected to decline in Union Pacific anticipates that strong production levels combined with market share gains and strength in certain markets will offset this industry decline. Supply chain logistics services, using VIN Vision as a foundation, will continue to enhance customers Fast-to-Market strategies. These products, combined with further technology advances, will facilitate improvements in velocity and reliability for the entire distribution network. The auto parts business should provide an opportunity for growth as UP continues to develop supply chain management solutions and new rail services that help capture market share from trucks. COMMODITY REVENUE (millions of dollars) Quarterly Cumulative , , ,048 REVENUE TON-MILES (millions) Quarterly 3,694 3,961 3,473 4,092 4,229 4,298 3,853 4,136 3,748 3,965 3,555 4,080 Cumulative 3,694 7,655 11,128 15,220 4,229 8,527 12,380 16,516 3,748 7,713 11,268 15,348 CARLOADINGS (thousands) Quarterly Cumulative AVERAGE REVENUE/CARLOADING (dollars) Quarterly 1,486 1,514 1,429 1,428 1,456 1,437 1,425 1,483 1,491 1,492 1,430 1,507 Cumulative 1,486 1,501 1,478 1,465 1,456 1,446 1,439 1,450 1,491 1,492 1,472 1,481 U.S. Light Vehicle Sales/UP Finished Vehicle Carloads* Compound Annual Growth Rate 5.7% 2.6% UP Carloadings (thousands) * UP, SP & CNW pro forma for Light Vehicle Sales (millions)

10 CHEMICALS 2001 Review The deepening recession throughout 2001 resulted in a 5% reduction in shipments of industrial chemicals and plastics. The high price of natural gas and petroleum products, coupled with oversupply and weak demand in the chemical industry, resulted in a 7% decrease in liquid and dry carloadings. Liquid petroleum products carloadings declined by 2% due to high natural gas prices and a warm winter. Soda ash carloads increased 2% as exports offset sagging domestic sales. Domestic demand appeared to stabilize by the end of Depressed demand for farm commodities drove fertilizer carloads down 5% for the year. High natural gas prices and lower nitrogen production rates contributed to the decline. Demand for Mexican sulphuric acid in conjunction with Union Pacific s strong market position, drove carloadings up 10%. Sulphur, a key ingredient in fertilizer production, helped offset the decline in nitrogen fertilizer production. 10% 2001 Carloads Liquid and Dry (31%) Plastics (26%) Liquid Petroleum Products (16%) Fertilizers and Related Products (17%) Soda Ash (10%) 31% 17% Mexico 4% International 13% 26% 16% Domestic 83% Arrow colors correspond to pie chart colors. 10

11 CHEMICALS (continued) KEY MARKET FACTORS Plastics customers depend on reliable rail service and railroad-provided storage-in-transit (SIT) yards for intermediate storage of plastic resins. UP s SIT capacity leads the industry. Fertilizer and related products are produced and imported in the Gulf Coast and the western U.S. and Canada and are shipped to major agricultural areas. The liquid and dry market consists of 22 different segments of various intermediate chemicals produced by and shipped to a multitude of large and small customers. UP directly serves Green River, Wyoming, the largest soda ash producing region in the world. Domestic demand for soda ash is relatively constant. Export markets to Asia, Europe and Mexico, though volatile, provide growth opportunity OUTLOOK Plastics and liquid and dry chemicals shipments are expected to strengthen, contingent upon an economic rebound. Fertilizer demand is expected to improve. Liquid petroleum products are expected to strengthen through the development of market opportunities (petrochemical industry) domestically and in Mexico, however, growth could be moderated by the warmest winter on record. Rising export and domestic demand for soda ash should provide continued growth. Expansion of the Pipeline service to new destinations in 2002 will further improve asset utilization for customers and UP. COMMODITY REVENUE (millions of dollars) Quarterly Cumulative ,170 1, ,248 1, ,195 1,595 REVENUE TON-MILES (millions) Quarterly 12,803 12,877 12,957 12,576 13,532 13,623 13,168 12,897 13,153 13,096 13,238 13,761 Cumulative 12,803 25,680 38,637 51,213 13,532 27,155 40,323 53,220 13,153 26,249 39,487 53,248 CARLOADINGS (thousands) Quarterly Cumulative AVERAGE REVENUE/CARLOADING (dollars) Quarterly 1,779 1,749 1,745 1,756 1,777 1,741 1,738 1,753 1,781 1,701 1,673 1,708 Cumulative 1,779 1,764 1,757 1,757 1,777 1,759 1,752 1,752 1,781 1,741 1,717 1,715 Plastics Trend UPRR Tons Hauled (thousands) Plastic Resin Production (billions of pounds) Source: American Plastics Council 11

12 ENERGY 2001 Review In 2001, Union Pacific coal volume grew 12% to 238 million tons. Growth in Wyoming s Powder River Basin (PRB) coal led the way with a record 164 million tons originated, a 14% increase over Colorado/Utah coal volume increased 3 million tons or 8% over 2000 levels. Continued efforts to increase average train length and leverage high-capacity aluminum cars has resulted in a 3% improvement in PRB coal train productivity to 14,077 tons per train in Capacity expansion was undertaken on the Powder River and South Morrill subdivisions as the second main line between South Morrill and Shawnee Junction was completed improving fluidity through this corridor. Strong coal train cycle time performance continued in 2001, with PRB cycle times averaging 95% for the year Carloads Powder River Basin (74%) Colorado/Utah (19%) Other (includes coke) (7%) 7% Arrow colors correspond to pie chart colors. 74% 19% Power Generation South 41% Industrial 9% Power Generation East 11% Power Generation North 39% 12

13 ENERGY (continued) KEY MARKET FACTORS Union Pacific provides transportation service between most of the coalproducing regions in the western U.S. and utilities and industrial facilities in 27 states. The PRB represents the largest and fastest growing segment of the market, as utilities continue to favor the low cost and low-sulfur content of the coal mined there. The Railroad also moves high-btu low-sulfur coal from Colorado and Utah to domestic utilities and through West Coast ports for export to the Pacific Rim. Colorado coal is exported to Mexico via Eagle Pass, Texas and PRB coal is exported to Europe through Mississippi River barge terminals OUTLOOK Coming out of one of the warmest winters on record, weather and the economy will be key drivers for 2002 coal volume. Recent capacity improvements and strong service performance support growing demand for low-sulfur western coal. Growth is expected both from new and existing customers. Productivity improvement should continue from increased utilization of aluminum cars and distributed-power (DP) trains, as well as more efficient train routing. Expansion of western coal is expected to eastern utilities through UP s partnership with the eastern carriers. COMMODITY REVENUE (millions of dollars) Quarterly Cumulative 593 1,170 1,781 2, ,019 1,605 2, ,097 1,656 2,168 REVENUE TON-MILES (millions) Quarterly 54,943 53,318 56,574 58,258 48,580 44,934 54,323 50,879 47,608 45,654 48,222 47,890 Cumulative 54, , , ,093 48,580 93, , ,716 47,608 93, , ,374 CARLOADINGS (thousands) Quarterly Cumulative 537 1,053 1,602 2, ,432 1, ,403 1,872 AVERAGE REVENUE/CARLOADING (dollars) Quarterly 1,106 1,117 1,113 1,107 1,103 1,115 1,141 1,101 1,183 1,188 1,172 1,090 Cumulative 1,106 1,111 1,112 1,111 1,103 1,109 1,120 1,116 1,183 1,185 1,181 1,158 Originated Other Powder River Basin Coal Moved by UPRR (millions of tons) capital spending will focus on double tracking half the remaining single track on the South Morrill subdivision and the last single-track section between North Platte and Chicago. Total

14 INDUSTRIAL PRODUCTS 2001 Review A weak economy in 2001 contributed to a 2% decline in carloads, offset somewhat by a 1% improvement in average revenue per car. Improved service levels, particularly due to the successful implementation of the Strategy, enabled UP to capture truck share in lumber, paper and cement. Construction products revenues increased significantly over the prior year due to strength in highway construction and market penetration in the Southwest and mid-south. The steel market softened considerably in 2001, with heavy imports resulting in customer shutdowns and bankruptcies, and causing a decrease in revenue versus Lumber revenues were up slightly as housing starts remained strong and uncertainty surrounding the Canadian import quota shifted demand to UP served domestic producers. High electricity prices in California and the PNW resulted in numerous plant shutdowns, which significantly affected paper and aluminum producers. 5% 8% 40% 15% International 3% Mexico 7% 2001 Carloads Minerals (40%) Metals & Ores (17%) Paper/ Paper Products (15%) Lumber/ Building Materials (15%) Consumer/ Government (8%) Waste (5%) Arrow colors correspond to pie chart colors. 17% 15% Domestic 90% 14

15 INDUSTRIAL PRODUCTS (continued) KEY MARKET FACTORS Industrial products covers a broad range of commodities from bulk products like stone, cement, minerals, waste and scrap to higher-value shipments like lumber, paper and consumer goods. For most commodities, trucks provide a competitive transportation alternative. Market share growth hinges on providing consistent, reliable service. Bulk commodities like rock often move in unit train service from origin to a transload facility in major metropolitan areas. Demand is driven by construction activity and peaks during the warmer months. Other commodities move in manifest trains and rely on UP s extensive network of rail terminals to move between thousands of shippers and customers across North America. Demand is driven primarily by macro-economic conditions but experiences seasonal peaks OUTLOOK The slow economy is expected to impact demand in the first half of 2002, with volumes improving in the second half of the year contingent upon an economic rebound. Continued strength in highway construction projects in the Southwest and mid-south should continue to create growth opportunity in the stone, sand, and gravel business. Population growth in key markets served by the UP system should continue to increase lumber, cement, and roofing products demand. An increase in imported steel and non-ferrous metals has led to the pursuit of an aggressive strategy to increase penetration into these markets. COMMODITY REVENUE (millions of dollars) Quarterly Cumulative ,508 1, ,017 1,519 1, ,416 1,896 REVENUE TON-MILES (millions) Quarterly 18,417 20,340 19,899 17,849 20,310 20,723 19,401 18,322 17,950 19,180 19,573 19,794 Cumulative 18,417 38,757 58,656 76,505 20,310 41,033 60,434 78,756 17,950 37,130 56,703 76,497 CARLOADINGS (thousands) Quarterly Cumulative ,078 1, ,094 1, ,045 1,398 AVERAGE REVENUE/CARLOADING (dollars) Quarterly 1,405 1,396 1,399 1,410 1,387 1,398 1,383 1,382 1,373 1,345 1,350 1,360 Cumulative 1,405 1,400 1,400 1,402 1,387 1,392 1,389 1,387 1,373 1,359 1,356 1,357 Industrial Products: Western Market Share Other Rail 42% UP 58% Western Rail Share Water 7% Rail 15% Truck 78% Transportation Mode A majority of the western industrial products market currently moves by truck. This provides significant opportunity to increase market share through new service offerings and improvements in cycle time and service variability. The troubled domestic steel industry will be aided by the Section 201 tariff. 15

16 INTERMODAL 2001 Review The challenging economic climate in 2001 lead to a 3% decrease in intermodal volume. However, due to demand driven price increases, average revenue per car increased 3%, resulting in flat revenues versus The international market segment continued its double-digit revenue growth fueled by a strong US dollar. The Blue Streak (see page 4) contributed to price improvement in UP s domestic intermodal business as this long-haul truck competitive service has been virtually sold out since its inauguration. While the recession drove doubledigit declines in Intermodal Marketing Companies (IMC) and truckload volumes, price increases, new product development and lane and yield management efforts held revenues flat Carloads Domestic: Container and Trailer (44%) Premium (6%) 6% International (50%) 50% 44% Arrow represent key intermodal lanes. 16

17 INTERMODAL (continued) COMMODITY REVENUE (millions of dollars) KEY MARKET FACTORS International: Consists of international container traffic handled for steamship customers. Domestic: Two key domestic market segments: Domestic container and trailer: Includes domestic container traffic handled by IMC and truckload carriers. The EMP product line continues to grow in this market segment due to our success in converting trailer business to EMP containers (see graph below). Premium: Primarily less-thantruckload and package carriers with time-sensitive business needs. Service performance and reliability drive premium business growth OUTLOOK Continued import/export growth is anticipated for our International segment, contingent upon economic improvement in the second half of the year. New products and market expansion activities will continue through Blue Streak products and UP s Outreach program targeting truck business near UP s ramps. This will extend market reach and should increase penetration into the truckload market. Premium, third-party and truckload domestic market segments offer opportunities for growth, contingent upon U.S. economic conditions. Phase 1 of the Rochelle, Illinois intermodal facility, to be completed in the third quarter, will improve the efficiency of UP s service in the growing rail-truck freight market in the Chicago area. Quarterly Cumulative ,412 1, ,418 1, ,273 1,725 REVENUE TON-MILES (millions) Quarterly 16,547 16,995 17,666 17,458 17,029 17,832 18,370 17,818 16,014 17,472 17,886 17,847 Cumulative 16,547 33,542 51,208 68,666 17,029 34,861 53,231 71,049 16,014 33,486 51,372 69,219 CARLOADINGS (thousands) Quarterly Cumulative 683 1,372 2,113 2, ,414 2,181 2, ,307 2,026 2,738 AVERAGE REVENUE/CARLOADING (dollars) Quarterly Cumulative EMP Domestic Container Loads (in thousands) EMP is an equipment management program sponsored by Union Pacific and Norfolk Southern that provides intermodal containers to shippers using an Internet reservation system. EMP offers customers a truck-equivalent container and the economic benefits of double-stack train service. Full-year utilization of last year s fleet additions and improvements in cycle times are expected to help meet projected growth in demand in

18 MEXICO 2001 Review In spite of the economic downturn, rail revenue with Mexico increased 1% to $860 million in Increases in agricultural products, up 25% primarily due to increases in beer and grain, and industrial products, up 6%, were somewhat offset by the decline in finished automobile shipments due to sluggish car production. During 2001, Union Pacific continued its capacity improvements in the Laredo and Brownsville areas. To improve the northbound throughput from Mexico, two new receiving/ departure tracks, five classification NORTH AMERICAN RAIL LINK UNION PACIFIC tracks and a new siding were added at Port Laredo. At Brownsville track was relocated to improve operations via that gateway. Union Pacific s investment in Mexican gateways and system infrastructure continues to yield rewards. With the completion of the General Motors contract in 2001, UP handles over 90% of all auto related rail business with Mexico. Improvements in service and operational efficiency increased the customer satisfaction index for Mexican customers to 86%. Security and throughput at the Laredo gateway improved with the installation of a VACIS gamma-ray machine by U.S. Customs. This machine allows railcar movements to flow smoothly through the interchange while checking the contents of each car Carloads Automotive (44%) Intermodal (21%) Industrial Products (15%) Agricultural Products (14%) Chemicals (4%) 2% 4% 14% Energy (2%) 44% 15% Arrow colors correspond to pie chart colors. 21% 18

19 MEXICO (continued) Calexico Traffic by Gateway KEY MARKET FACTORS Union Pacific serves all six major gateways to Mexico, connecting to the two largest Mexican railways. Union Pacific has the most efficient route between Mexico and the Chicago connections to Canada and the eastern railroads. The Mexican rail network comprises five railroads each providing efficient transportation service to compete for the northbound and southbound business opportunities created by the North American Free Trade Agreement (NAFTA). The Mexican railroads continue to make substantial investments in track structure, equipment and facilities to improve service, equipment utilization, safety and damage prevention. The Mexico land transportation market is estimated to be over $6 billion per year and consists of a broad range of commodities from raw materials to finished goods. Trucks are the dominant transportation mode with a 63% share OUTLOOK The rail market is well positioned for growth as the Mexican economy expands and rail service within the country continues to improve. Continued foreign investment in manufacturing and further privatization in the petrochemical and utility industries provide opportunities. Growth in 2002 will be facilitated by capturing additional market share currently held by trucks and by focusing on the ease of doing business. The business development group, established in 2001, will target auto parts, industrial products and intermodal opportunities. Implementation of Automatic Mexico Traffic (carloads in thousands) Nogales Hermosillo FXE TFM FSE Shortlines FXE Trackage Rights on TFM TFM Trackage Rights on FXE Culiacán 317 El Paso Guadalajara Chihuahua Torreón Manzanillo Aguascalientes Lázaro Cárdenas Monclova Saltillo Northbound Southbound 2001 Total Manifest System (AMS) is complete at all gateways. AMS automates the customs clearance process for rail import shipments and permits rail carriers, customs brokers and U.S. Customs to electronically exchange shipment information allowing advance review of shipments for release or examination. TFM completed implementation of the Interline Settlement System (ISS) and FXE, in which UP has a 26% ownership interest, is progressing San Luis Potosí Eagle Pass Mexico City Monterrey Queretaro Laredo Puebla Brownsville Tampico Salina Cruz 55% Veracruz Coatzacoalcos % Mérida 6% % 15% Colors in pie chart correspond to color of gateway locations their implementation plan. ISS allows shippers to use through rates for shipments to/from Mexico similar to domestic shipments, while the railroad collects from the shipper/ receiver and electronically pays the other railroads in the route. UP, TFM and FXE continue to work with receivers of grain products to improve their facilities to receive trainloads of agricultural products so they can benefit from improved service and economies of rail. 19

20 FINANCIAL AND OPERATING STATISTICS UNION PACIFIC - RAIL AND OTHER OPERATIONS for the year ended December TOTAL TOTAL FINANCIAL AND REVENUE STATISTICS Operating Revenues (millions of dollars) $2,663 $2,708 $2,734 $2,725 $10,830 $2,637 $2,683 $2,767 $2,678 $10,765 Operating Expenses (millions of dollars) (a) $2,233 $2,230 $2,178 $2,171 $8,812 $2,186 $2,157 $2,217 $2,355 $8,915 Operating Ratio (%) (a) Salaries and Benefits (millions of dollars) (a) $914 $888 $886 $898 $3,586 $900 $875 $894 $992 $3,661 Salaries and Benefits/Operating Revenues (%) (a) Commodity Revenue/Employee (thousands of dollars) $52.3 $52.4 $53.8 $55.2 $213.8 $49.5 $50.1 $51.8 $52.0 $203.4 Fuel Expense (millions of dollars) $297 $291 $272 $266 $1,126 $263 $266 $299 $335 $1,163 Average Fuel Price Per Gallon (cents) Commodity Revenue (millions of dollars) $2,551 $2,596 $2,626 $2,618 $10,391 $2,514 $2,551 $2,649 $2,556 $10,270 Average Commodity Revenue Per Car (dollars) $1,171 $1,173 $1,155 $1,163 $1,165 $1,156 $1,153 $1,155 $1,151 $1,154 Average Commodity Revenue/Revenue Ton Mile (cents) Passenger Revenue (millions of dollars) $28 $28 $27 $28 $111 $27 $25 $29 $28 $109 OPERATING STATISTICS Revenue Carloads (thousands) 2,179 2,211 2,274 2,252 8,916 2,174 2,213 2,293 2,221 8,901 Revenue Ton-Miles (billions) Gross Ton-Miles (billions) Fuel Consumed (millions of gallons) , ,293 Average Employees (thousands) Gross Ton-Miles Per Employee (millions) SURFACE TRANSPORTATION BOARD-BASIS OPERATING EXPENSE (millions of dollars) (b) Transportation Expense $1,041 $1,029 $1,004 $1,016 $4,090 $997 $991 $1,039 $1,121 $4,148 Engineering Expense , ,438 Mechanical Expense , ,401 General and Administrative Expense (a) a) Includes the impact of a work force reduction charge of $115 million pre-tax ($72 million after-tax) in b) UPRR only. Excludes results from Overnite and Motor Cargo. Refer to the Union Pacific Corporation 2001 Annual Report for additional information. 20

21 FINANCIAL AND OPERATING STATISTICS UNION PACIFIC - RAIL AND OTHER OPERATIONS (millions of dollars, unaudited) for the year ended December 31, TOTAL OPERATING REVENUES Transportation $2,663 $2,708 $2,734 $2,725 $10,830 OPERATING EXPENSES Salaries and Benefits ,586 Equipment and Other Rents ,214 Depreciation ,126 Fuel and Utilities ,249 Materials and Supplies Other Costs ,150 Total Operating Expenses 2,233 2,230 2,178 2,171 8,812 Operating Income $430 $478 $556 $554 $2,018 for the year ended December 31, TOTAL OPERATING REVENUES Transportation $2,637 $2,683 $2,767 $2,678 $10,765 OPERATING EXPENSES Salaries and Benefits (a) ,661 Equipment and Other Rents ,184 Depreciation ,092 Fuel and Utilities ,278 Materials and Supplies Other Costs ,155 Total Operating Expenses 2,186 2,157 2,217 2,355 8,915 Operating Income $451 $526 $550 $323 $1,850 a) Includes the impact of a work force reduction charge of $115 million pre-tax ($72 million after-tax) in Excludes results from Overnite and Motor Cargo. Refer to the Union Pacific Corporation 2001 Annual Report for additional information. 21

22 FINANCIAL AND OPERATING STATISTICS UNION PACIFIC RAILROAD COMPANY (millions of dollars, unaudited) as of December 31 ASSETS CURRENT ASSETS Cash and Temporary Investments $87 $88 $83 Accounts Receivable - Net Inventories Other Current Assets Total Current Assets 1,253 1,391 1,260 INVESTMENTS Investments PROPERTIES Cost 35,440 34,613 33,536 Accumulated Depreciation (7,177) (6,881) (6,490) Net Properties 28,263 27,732 27,046 OTHER Other Assets Total Assets $30,563 $29,993 $29,184 LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Accounts Payable $498 $558 $496 Accrued Wages and Vacation Accrued Casualty Costs Income and Other Taxes Debt Due Within One Year Interest Payable Other Current Liabilities Total Current Liabilities 2,302 2,512 2,445 OTHER LIABILITIES AND SHAREHOLDERS EQUITY Intercompany Borrowings-Net 5,003 5,082 5,357 Debt Due After One Year 2,166 2,397 2,419 Deferred Income Taxes 8,430 8,117 7,570 Accrued Casualty Costs Retiree Benefits Obligation Other Long-Term Liabilities Redeemable Preference Shares Common Shareholders Equity 10,826 9,979 9,247 Total Liabilities and Shareholders Equity $30,563 $29,993 $29,184 Refer to the Union Pacific Railroad Company 2001 Form 10-K for additional information. 22

23 FINANCIAL AND OPERATING STATISTICS UNION PACIFIC RAILROAD COMPANY (millions of dollars, unaudited) for the year ended December 31 OPERATING ACTIVITIES Net Income $1,058 $926 $854 Depreciation 1,120 1,089 1,034 Deferred Income Taxes Other-Net (509) (333) (519) Change in Current Assets and Liabilities (73) (59) 25 Cash Provided by Operating Activities 2,024 2,079 1,986 INVESTING ACTIVITIES Capital Investments (1,687) (1,735) (1,777) Proceeds from Asset Sales and Other Investing Activities Cash Used in Investing Activities (1,503) (1,577) (1,566) FINANCING ACTIVITIES Dividends Paid (200) (200) (200) Debt Repaid (368) (224) (239) Financings - Net 46 (73) 67 Cash Used in Financing Activities (522) (497) (372) Net Change In Cash and Temporary Investments (1) 5 48 Cash and Temporary Investments at Beginning of Year Cash and Temporary Investments at End of Year $87 $88 $83 CHANGES IN CURRENT Accounts Receivable $(47) $25 $76 ASSETS AND LIABILITIES Inventories 97 (18) 8 Other Current Assets 87 (133) 48 Accounts, Wages and Vacation Payable (97) 73 - Debt Due Within One Year (13) (3) 32 Other Current Liabilities (100) (3) (139) Net Change in Current Assets and Liabilities $(73) $(59) $25 Refer to the Union Pacific Railroad Company 2001 Form 10-K for additional information. 23

24 FINANCIAL AND OPERATING STATISTICS UNION PACIFIC RAILROAD COMPANY for the year ended December CAPITAL EXPENDITURES (millions of dollars, includes long-term operating leases) Track $1,125 $1,066 $961 $989 $1,030 Locomotives Freight Cars Facilities and Other Total $1,691 $1,851 $1,939 $2,393 $2,285 EQUIPMENT OWNED OR LEASED AT YEAR-END Locomotives 6,886 7,007 6,969 7,083 6,966 Freight Cars: (a) Covered Hoppers 33,901 37,607 39,212 40,097 41,149 Box Cars 15,561 18,342 20,864 23,263 24,718 Open-Top Hoppers 17,202 18,683 19,828 20,324 20,674 Gondolas 15,431 17,480 18,099 17,828 16,083 Other 14,681 16,557 16,726 18,264 17,143 Total Freight Cars 96, , , , ,767 Work Equipment 6,950 6,616 9,927 9,218 10,045 Bad Order Ratio (percent) A VERAGE AGE OF EQUIPMENT (years) Locomotives Freight Cars TRACK MILES AT YEAR-END Main Line 27,553 26,914 26,963 27,197 27,421 Branch Line 6,033 6,121 6,378 6,509 7,526 Yards, Sidings and Other Main Line 21,669 21,564 21,660 21,597 21,588 Total 55,255 54,599 55,001 55,303 56,535 Track Miles of Continuous Welded Rail at Year-End 25,488 24,855 24,771 23,647 23,392 Track Miles Under Centralized Traffic-Control at Year-End 17,538 17,163 16,199 15,944 15,590 TRACK MILES OF RAIL INSTALLED AND REPLACED New Used Track Miles Ballasted 8,746 6,967 4,579 3,259 3,557 Ties Installed and Replaced (thousands) 3,648 3,332 3,293 2,691 3,853 (a) Includes owned and leased freight cars with Union Pacific System marks. Refer to the Union Pacific Corporation 2001 Annual Report for additional information. 24

25 001 OVERVIEW OVERNITE TRANSPORTATION Overnite Transportation, a nationwide regional carrier with premium long-haul capabilities and more than 165 service centers, is one of the nation s largest less-than-truckload (LTL) carriers. Overnite has approximately 11,600 full-time equivalent employees, and serves more than 45,000 points in all 50 states, Canada, Mexico, the U.S. Virgin Islands, Puerto Rico, and Guam. Union Pacific s purchase of Motor Cargo Industries, a strong LTL carrier with 30 service centers in 10 western states, complements Overnite s nationwide network and further improves its regional service capabilities. FINANCIAL REVIEW Operating revenues grew $20 million or 1.8 percent in 2001 to $1.13 billion. This revenue growth was attributable to yield-enhancing initiatives, such as contract renegotiations, a general rate increase, and a fuel surcharge, which all helped to offset lower volumes. Operating expenses grew 1.8 percent or $19 million. Net income grew 5.5 percent to $45.5 million, and the operating ratio remained flat with 2000 at 95.2%. During 2001, Overnite continued to improve its regional and inter-regional service products, reduced customer service response times, made significant improvements in billing, rating, and collections while maintaining an on-time service performance standard that is rated among the best in the industry. In spite of the effects of a global recession and the aftermath of the attacks of September 11, Overnite was one of the few LTL carriers to report improved earnings in Salaries, Wages, and Benefits expense increased by 5 percent due to the annual wage increase, medical insurance inflation, and changes in the freight mix. Fuel and utilities expense decreased 8 percent or $6 million due to lower prices and improved fuel economy, offset by increased miles driven. Equipment and other rent expense decreased 5 percent or $5 million due to lower linehaul expense, associated with changes in linehaul mix, and reduced local purchased transportation expense, due to reduced strike activity in Materials and Supplies increased slightly due to an increase in maintenance costs. Other costs decreased $6 million due to a reduction in additional costs incurred as a result of the Teamster job action, which dwindled in Summary Shipments (thousands) 7,906 Tonnage (thousands) 3,959 Revenue (per hundredweight) $13.74 Total Revenue (millions) $1,133 Operating Ratio (%) 95.2 Capital Expenditures (millions) $38 Employees 11,600 Fleet: OVERNITE TRANSPORTATION (excluding Motor Cargo) Tractors 4,900 Trailers 19,000 25

26 DELIVERING VALUE IN TRANSPORTATION In 2001, Overnite has continued its focus on improving service by enhancing transit times in over 3,000 lanes, improving its regional and inter-regional product, reducing customer service response times and adding new features to its Web site. In order to improve its strategic position as a nationwide regional carrier with premium long-haul service, Overnite opened three new service centers, two in California and one in Missouri. As evidence of Overnite s success, all of these efforts were achieved in spite of a difficult economic environment and while maintaining its 97-98% on-time performance. Overnite s services include: Advantage Overnite is Overnite s standard dependable service which provides nationwide coverage to more than 45,000 points including 100 percent direct full-state On-time Service Performance 95.9% 96.0% 95.8% 97.5% 97.5% Overnite Transportation Mission: To be the most successful company in the industry, with the best equipment and facilities. With this success, over time, comes the best jobs in the industry in terms of job security, wages, benefits and job satisfaction. coverage in 32 states, more than 15,500 one- and two-day lanes and threeand four-day Quantum Leap transcontinental sleeper service. Overnite Advantage Guaranteed is for time-sensitive shipments; Advantage Guaranteed service will guarantee delivery based on the Company s published transit times. It s on time, or it s free. Overnite Advantage Expedited is for customers needing expedited service for emergency, time-critical shipments to any point in the world through a single transportation provider.overnite s team of freight specialists coordinate and track expedited shipments from origin to destination. Special Services Division is Overnite s dedicated truckload service division, which utilizes Overnite s LTL expertise to expand into niche segments of the growing truckload market. Assembly & Distribution is a special logistical function for shippers requiring consolidation and distribution services. Overnite s Assembly and Distribution service provides these functions by leveraging the broad distribution capabilities of the Overnite network. International and Ocean Shipping services provide single carrier contact for transportation services to Alaska, Hawaii, Guam, Canada, Puerto Rico, the U.S. Virgin Islands and Mexico with competitive transit times and price. LABOR RELATIONS A Teamster campaign to organize all Overnite employees culminated in the union calling for a nationwide walkout on October 24, The job action, which continued through 2001, was ignored by 97 percent of Overnite employees. The union is the certified and recognized bargaining agent for about 1,800 Overnite drivers and freight handlers out of an 11,600 full time equivalent employee work force. Employees at 18 of the 22 Teamsterrepresented service centers have petitioned the National Labor Relations Board to decertify the Teamsters as their bargaining agent. Despite the walkout, all locations continue to be served and on-time service levels continue to improve. The Company is currently engaged in negotiations with the Teamsters, but has not entered into any bargaining agreements. For more information concerning Overnite s products and services visit Revenue (millions of dollars) st Q 283 2nd Q rd Q th Q 26