Union Pacific 2005 Annual Report Download - page 24

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ŠSignificant Weather Events – In 2005, we faced a year filled with significant weather-related challenges:
In early January, a massive storm hit California
and Nevada. Our rail system suffered significant
damage, temporarily closing five of our six routes in
and out of Los Angeles. We embargoed traffic to and
from Southern California and the Las Vegas area
until service could be restored, and we rerouted a
number of trains.
In May, unprecedented rainfall and snow,
combined with accumulated coal dust in the
roadbed, created track instability on the SPRB Joint
Line. The extensive and ongoing maintenance and
restoration program disrupted and reduced
shipments beginning mid-May and continuing
throughout most of the year.
In August and September, Hurricanes Katrina
and Rita hit the New Orleans and Houston areas.
Hurricane Katrina caused minimal damage to our
rail system. However, Hurricane Rita impacted 17
operating subdivisions, five classification yards, and
the Houston terminal complex. More than 150 of
our customers temporarily ceased operations
resulting in lost revenue and higher operating
expenses.
On October 1, a severe storm hit northeastern
Kansas. The storm dropped 10 to 12 inches of rain
in one day, causing track and bridge washouts as
well as erosion damage to four main lines in this
region. These major corridors serve as the primary
connection to the East and South from the western
part of our system. Average train speed and average
terminal dwell time for October deteriorated 1 mph
and 4%, respectively, from September levels.
ŠFuel Prices – Fuel prices increased dramatically in 2005, raising our average system fuel price by 45% and
adding $740 million of operating expenses compared to 2004. Fuel prices soared in the latter part of the year,
as crude oil prices topped out over $70 per barrel in September, compounded by high diesel conversion
spreads and large, regional spreads resulting from refinery shutdowns following Hurricanes Katrina and Rita.
Prices decreased slightly in November and December, but to levels considerably higher than 2004. Although
we had no fuel hedges in place in 2005, our fuel surcharge programs helped mitigate the impact of these
higher fuel prices. Our fuel surcharge programs allow us to recover from customers a portion of the increase
in fuel expense in the form of higher revenue. In addition, our fuel conservation efforts allowed us to handle
a 1% increase in gross ton miles while burning 2% less fuel.
ŠFree Cash Flow – Cash generated by operating activities totaled a record $2.6 billion, yielding free cash flow
of $234 million in 2005. Free cash flow is defined as cash provided by operating activities, less cash used in
investing activities and dividends paid.
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