Union Pacific 2005 Annual Report Download - page 25

Free cash flow is a non-GAAP financial measure under SEC Regulation G. We believe free cash flow is
important in evaluating our financial performance and measures our ability to generate cash without
additional external financings. Free cash flow should be considered in addition to, rather than as a substitute
for, cash provided by operating activities. The following table reconciles cash provided by operating activities
(GAAP measure) to free cash flow (non-GAAP measure):
Millions of Dollars 2005 2004 2003 2002 2001
Cash provided by operating activities ................ $ 2,595 $ 2,257 $2,443 $ 2,237 $ 1,886
Cash used in investing activities .................... (2,047) (1,732) (877) (1,374) (1,403)
Dividends paid ................................. (314) (310) (234) (201) (198)
Free cash flow .................................. 234 215 1,332 662 285
Proceeds from sale of discontinued operations. ........ - - (620) - -
Net free cash flow ............................... $ 234 $ 215 $ 712 $ 662 $ 285
2006 Outlook
ŠSafety – Operating a safe railroad benefits our employees, our customers, and the public. Our 2006 employee
safety program addresses the key drivers of 2005 performance. The large number of new employees and
managers will be trained, tested, and participate in quality assurance activities. We continue to apply
technology to enhance safety. From a public safety standpoint, we will continue our efforts to upgrade and
close crossings, install video cameras on locomotives, and educate the public on crossing safety, along with
other activities. We will continue our derailment prevention efforts, emphasizing the use of key factor
analysis.
ŠCommodity Revenue Growth – We expect record revenue levels to continue in 2006 based on current
economic indicators, forecasted demand, and the opportunity to reprice 13% of our business. We have
established a target for year-over-year commodity revenue growth over 10% percent. We are projecting yield
increases in all of our major commodity groups and we intend to manage total volume growth to 3% in an
effort to improve returns. Volume growth is expected to occur in the energy, intermodal, and industrial
products commodity groups.
ŠTransportation Plan – In 2005, we continued to implement the Unified Plan, which streamlined segments
of our transportation plan. In 2006, we will continue to evaluate traffic flows and network logistic patterns to
identify additional opportunities to simplify operations and improve network efficiency. We plan to
maintain adequate manpower and locomotives, improve productivity using industrial engineering
techniques, and improve our operating margins.
ŠFuel Prices – We expect that fuel prices will remain high, with crude oil prices hovering in the range of $60
to $65 per barrel throughout the year. To reduce the impact of fuel price on earnings, we will continue to
increase the amount of traffic subject to fuel surcharge programs.
ŠCapital Plan – In 2006, we expect our cash capital expenditures to be approximately $2.2 billion and the net
present value of additional long-term operating leases to be approximately $500 million. These expenditures
will be used to maintain track and structures, continue capacity expansions on our main lines in constrained
corridors, remove bottlenecks, upgrade and augment equipment to better meet customer needs, build and
improve facilities and terminals, and develop and implement new technologies. Major capital projects in
2006 include expanding double track on the Sunset Corridor; continuing enhancements on the SPRB Joint
Line; improving the freight car terminal infrastructure in San Antonio, Dallas/Fort Worth, and Houston; and
continuing installation of centralized track control across Iowa. We expect to fund our 2006 cash capital
expenditures through cash generated from operations, the sale or lease of various operating and
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