Union Pacific 2009 Annual Report Download - page 26

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26
meet customer needs and put us in a position to handle demand changes. We will also continue
utilizing industrial engineering techniques to improve productivity.
• Fuel Prices – Uncertainty about the economy makes fuel price projections difficult, and we could see
volatile fuel prices during the year, as they are sensitive to global and U.S. domestic demand, refining
capacity, geopolitical issues and events, weather conditions and other factors. To reduce the impact of
fuel price on earnings, we will continue to seek recovery from our customers through our fuel
surcharge programs and to expand our fuel conservation efforts.
• Capital Plan – In 2010, we plan to make total capital investments of approximately $2.5 billion,
including expenditures for PTC, which may be revised if business conditions or new laws or
regulations affect our ability to generate sufficient returns on these investments. See further
discussion in this Item 7 under Liquidity and Capital Resources – Capital Plan.
• Positive Train Control (PTC) – In response to a legislative mandate to implement PTC by the end
of 2015, we expect to spend approximately $200 million during 2010 on the development of PTC.
We currently estimate that PTC will cost us approximately $1.4 billion to implement by the end of
2015, in accordance with rules issued by the FRA. This includes costs for installing the new system
along our tracks, upgrading locomotives to work with the new system, and adding digital data
communication equipment so all the parts of the system can communicate with each other.
• Financial Expectations – We remain cautious about economic conditions but expect volume to
increase from 2009 levels. In addition, we anticipate continued pricing opportunities and further
productivity improvements.
RESULTS OF OPERATIONS
Operating Revenues
Millions of Dollars 2009 2008 2007 % Change
2009 v 2008 % Change
2008 v 2007
Freight revenues $ 13,373 $ 17,118 $ 15,486 (22)% 11%
Other revenues 770 852 797 (10) 7
Total $ 14,143 $ 17,970 $ 16,283 (21)% 10%
Freight revenues are revenues generated by transporting freight or other materials from our six
commodity groups. Freight revenues vary with volume (carloads) and average revenue per car (ARC).
Changes in price, traffic mix and fuel surcharges drive ARC. We provide some of our customers with
contractual incentives for meeting or exceeding specified cumulative volumes or shipping to and from
specific locations, which we record as a reduction to freight revenues based on the actual or projected
future shipments. We recognize freight revenues on a percentage-of-completion basis as freight moves
from origin to destination. We allocate freight revenues between reporting periods based on the relative
transit time in each reporting period and recognize expenses as we incur them.
Other revenues include revenues earned by our subsidiaries, revenues from our commuter rail operations,
and accessorial revenues, which we earn when customers retain equipment owned or controlled by us or
when we perform additional services such as switching or storage. We recognize other revenues as we
perform services or meet contractual obligations.
Freight revenues and volume levels for all six commodity groups decreased during 2009, reflecting
continued economic weakness. We experienced the largest volume declines in automotive and industrial