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1962 IN REVIEW
Operating results were better, but tax savings were major factor in improved net income.

The Financial Picture

Great Northern's 1962 net income of $25.0 million, equal to $4.12 per share, compares with $18.6 million or $3.07 per share earned in 1961. The improvement was about what had been expected, but the means of attainment was unusual.

Normally a rise of nearly $6.4 million in net would indicate substantially improved operating results. However, traffic did not materialize in the volume anticipated for 1962, and we experienced only a relatively minor step-up in operations.

The principal factor in our higher net income was a decrease in Federal income taxes resulting from the new depreciation guidelines of the U.S. Treasury and the 7% tax credit enacted by Congress in 1962. The effect of these two changes, with the consequent reduction in income tax payments, was a net income $5 million greater than otherwise would have been reported. There is a possibility, however, that these benefits will have to be repaid at least in part at some time in the future, although the eventual long-run effect is by no means clear.

Operating revenues in 1962 totaled $238.9 million, up $6.0 million or 2.6% from 1961. In performing additional service we incurred operating expenses of $187.9 million, an increase of $2.7 million over the previous year.

Employment costs, including wages and fringe benefits, were of course our largest expense factor, the average hourly cost, including fringe benefits, rising from $3.59 in 1961 to $3.70 in 1962. Despite a decrease in the number of employes, total employment costs rose to $132.4 million, an increase of $800,000 from 1961.

Dividends of $18.2 million in 1962 were substantially the same as the previous year, with the annual dividend continued at $3.00 per share.

Report on Operations

Just where were scored our improvement in operating revenues in 1962 is shown in the following comparison of sources:

Source of Operating Revenues (in Millions):

Freight

1962...$209.2
1961...$204.9
Percent change is +2.1%

Passenger

1962...$11.7
1961...$10.1
Percent change is +16.1%

Mail and express

1962...$10.3
1961...$10.1
Percent change is +1.9%

All other operating

1962...$7.7
1961...$7.9
Percent change is -2.4%

Total

1962...$238.9
1961...$233.0
Percent change is +2.6%

Great Northern's year began disappointingly in that we failed to follow the trend of improvement in the national economy. This was primarily because of reduced grain tonnage from the poor 1961 harvest. The picture brightened with the coming of spring, however, and even though traffic generally fell short of expectations, by the end of 1962, we had reversed the downward trend of the previous year. Also, an excellent grain harvest in much of our territory, stored in near-record amounts, will have a favorable carry-over effect on 1963 revenues as it moves to market.

Freight produced 90% of Great Northern's operating revenue in 1962. These are some of our principal commodities and how they fared:

Commodity Revenues (in Millions):

Grain and grain products

1962...$47.1
1961...$50.0
Percent change is -5.7%

Lumber and wood products

1962...$39.2
1961...$37.1
Percent change is +5.8%

Iron ore, including dock charges

1962...$18.2
1961...$18.3
Percent change is -0.3%

Paper

1962...$13.5
1961...$13.2
Percent change is +2.7%

Forwarder traffic and less-than-carload traffic

1962...$10.1
1961...$10.4
Percent change is -2.9%

Aluminum ore and products

1962...$8.7
1961...$6.5
Percent change is +33.0%

Crude petroleum, petroleum products and asphalt

1962...$8.4
1961...$9.0
Percent change is -6.3%

Iron and steel products

1962...$5.9
1961...$5.4
Percent change is +8.9%

Automobiles and trucks

1962...$5.2
1961...$3.4
Percent change is +53.4%

Coal and coke

1962...$5.2
1961...$4.9
Percent change is +4.3%

Potatoes

1962...$3.4
1961...$3.4
Percent change is 0%

Great Northern's traffic fortunes are determined primarily by the overall state of the national economy. While a diversity of industries and widely-separated agricultural areas do tend to produce a balancing effect between increases and decreases, as noted here, any marked change in the volume of the more important commodities can affect the total revenue picture considerably.

A highly successful Seattle World's Fair can be credited, of course, with stimulating much of the 16.1% increase in passenger revenues scored in 1962. Transcontinental passenger trains ran at capacity during the summer months, and a second section of the Western Star was required. Many other areas benefited indirectly, as indicated by the increase of almost 100% in rail arrivals at Glacier Park.

Our $11.7 million passenger revenues in 1962 also received a helpful boost from The Big Mountain ski resort at Whitefish, Montana, which reported rail patronage up 16% from 1961.

It should not be overlooked, however, that the net result of this improvement was the reduction of a loss, since our 1962 revenues fell short of expenses related solely to passenger service by $2.4 million. Considering that the loss solely related to passenger train operations stood at a peak of $9 million as recently as 1957, we have made encouraging progress in the direction of profitable operation by continuing to attract patronage while reducing unneeded and unpatronized service.

Great Northern's operating efficiency improved markedly in 1962. Gross ton miles per freight train hour, which reflects the best possible loading of trains and their speed, topped all previous records when it rose to 72,820 from 68,670 in 1961 - up 46% for the decade. Another important index of efficiency is freight train speed, which averaged a record 22.6 miles per hour on the GN in 1962 - an increase of 32% in the past 10 years.

While our program of capital expenditures for improvement was...


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