Union Pacific 2005 Annual Report Download - page 36

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program was $600 million as of December 31, 2005. Access to commercial paper is dependent on market
conditions. Deterioration of our operating results or financial condition due to internal or external factors could
negatively impact our ability to utilize commercial paper as a source of liquidity. Liquidity through the capital
markets is also dependent on our financial stability.
At December 31, 2005 and 2004, we had a working capital deficit of $1,059 million and $226 million,
respectively. A working capital deficit is common in our industry and does not indicate a lack of liquidity. We
maintain adequate resources to meet our daily cash requirements, and we have sufficient financial capacity to
satisfy our current liabilities.
Financial Condition
Cash Flows
Millions of Dollars 2005 2004 2003
Cash provided by operating activities ................................... $ 2,595 $ 2,257 $ 2,443
Cash used in investing activities ........................................ (2,047) (1,732) (877)
Cash used in financing activities ....................................... (752) (75) (1,406)
Net change in cash and cash equivalents ................................. $ (204) $ 450 $ 160
Cash Provided by Operating Activities – Higher income, lower management incentive payments in 2005 (executive
bonuses, which would have been paid to individuals in 2005, were not awarded based on company performance
in 2004 and bonuses for the professional workforce were significantly reduced), and working capital performance
generated higher cash from operating activities in 2005. A voluntary pension contribution of $100 million in 2004
also augmented the positive year-over-year variance. This improvement was partially offset by cash received in
2004 for income tax refunds. Cash provided by operating activities decreased in 2004 driven by lower income
from continuing operations, the pension contribution, and cash from discontinued operations recognized in
2003, which were partially offset by working capital performance.
Cash Used in Investing Activities – Increased capital spending, partially offset by higher proceeds from asset sales,
increased the amount of cash used in investing activities in 2005. The comparative increase in 2004 primarily
resulted from the beneficial impact of the $620 million received in 2003 for the sale of our trucking interest, which
reduced cash used in investing activities in 2003. The permanent financing of locomotives and freight cars under
long-term operating leases (as referenced in the Operating Lease Activities section in this Item 7) had no impact
on investing cash flows during the period as all financings were completed in 2005.
Cash Used in Financing Activities – The increase in cash used in financing activities results from no cash inflows
from the issuance of debt in 2005 (compared to $745 million in 2004) and higher debt repayments ($699 million
in 2005 compared to $588 million in 2004), partially offset by higher net proceeds from equity compensation
plans ($262 million in 2005 compared to $80 million in 2004). The decrease in 2004 resulted from lower debt
repayments of $588 million in 2004 compared to $2.1 billion in 2003 (including $1.5 billion of CPS), partially
offset by a decrease in net proceeds from equity compensation plans ($80 million in 2004 compared to $216
million in 2003) and higher dividend payments ($310 million in 2004 compared to $234 million in 2003) due to
the increase of our dividend rate from $0.99 per share in 2003 to $1.20 per share in 2004.
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