Union Pacific 2009 Annual Report Download - page 25

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• Asset Utilization – In response to economic conditions and lower revenue in 2009, we implemented
productivity initiatives to improve efficiency and reduce costs, in addition to adjusting our resources
to reflect lower demand. Although varying throughout the year, our resource reductions included
removing from service approximately 26% of our road locomotives and 18% of our freight car
inventory by year end. We also reduced shift levels at most rail facilities and closed or significantly
reduced operations in 30 of our 114 principal rail yards. These demand-driven resource adjustments
and our productivity initiatives combined to reduce our workforce by 10%.
• Fuel Prices – As the economy worsened during the third and fourth quarters of 2008, fuel prices
dropped dramatically, reaching $33.87 per barrel in December 2008, a near five-year low.
Throughout 2009, crude oil prices generally increased, ending the year around $80 per barrel.
Overall, our average fuel price decreased by 44% in 2009, reducing operating expenses by $1.3
billion compared to 2008. We also reduced our consumption rate by 4% during the year, saving
approximately 40 million gallons of fuel. The use of newer, more fuel efficient locomotives;
increased use of distributed locomotive power; fuel conservation programs; and improved network
operations and asset utilization all contributed to this improvement.
• Free Cash Flow – Cash generated by operating activities totaled $3.2 billion, yielding free cash flow
of $515 million in 2009. Free cash flow is defined as cash provided by operating activities, less cash
used in investing activities and dividends paid.
Free cash flow is not considered a financial measure under accounting principles generally accepted
in the United States (GAAP) by SEC Regulation G and Item 10 of SEC Regulation S-K. 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 2009 2008 2007
Cash provided by operating activities $ 3,234 $ 4,070 $ 3,277
Cash used in investing activities (2,175) (2,764) (2,426)
Dividends paid (544) (481
)
(364)
Free cash flow $ 515 $ 825 $ 487
2010 Outlook
• Safety – Operating a safe railroad benefits our employees, our customers, our shareholders, and the
public. We will continue using a multi-faceted approach to safety, utilizing technology, risk
assessment, quality control, and training, and by engaging our employees. We will continue
implementing Total Safety Culture (TSC) throughout our operations. TSC is designed to establish,
maintain, reinforce, and promote safe practices among co-workers. This process allows us to identify
and implement best practices for employee and operational safety. Reducing grade-crossing incidents
is a critical aspect of our safety programs, and we will continue our efforts to maintain, upgrade, and
close crossings; install video cameras on locomotives; and educate the public about crossing safety
through our own programs, various industry programs, and other activities.
• Transportation Plan – To build upon our success in recent years, we will continue evaluating traffic
flows and network logistic patterns, which can be quite dynamic from year-to-year, to identify
additional opportunities to simplify operations, remove network variability and improve network
efficiency and asset utilization. We plan to adjust manpower and our locomotive and rail car fleets to