Union Pacific 2010 Annual Report Download - page 24

Download and view the complete annual report

Please find page 24 of the 2010 Union Pacific annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 101

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101

24
2009 levels, we returned a portion of these assets to active service. At the end of 2010, we continued
to maintain in storage approximately 17% of our multiple purpose locomotives and 14% of our freight
car inventory, reflecting our ability to effectively leverage our assets as volumes return to our network.
• Fuel Prices – Fuel prices generally increased throughout 2010 as the economy improved. Our
average diesel fuel price per gallon increased nearly 20% from January to December of 2010, driven
by higher crude oil barrel prices and conversion spreads. Compared to 2009, our diesel fuel price per
gallon consumed increased 31%, driving operating expenses up by $566 million (excluding any
impact from year-over-year volume increases). To partially offset the effect of higher fuel prices, we
reduced our consumption rate by 3% during the year, saving approximately 27 million gallons of fuel.
The use of newer, more fuel efficient locomotives; increased use of distributed locomotive power (the
practice of distributing locomotives throughout a train rather than positioning them all in the lead
resulting in safer and more efficient train operations); fuel conservation programs; and efficient
network operations and asset utilization all contributed to this improvement.
• Free Cash Flow – Cash generated by operating activities (adjusted for the reclassification of our
receivables securitization facility) totaled $4.5 billion, yielding record free cash flow of $1.4 billion in
2010. Free cash flow is defined as cash provided by operating activities (adjusted for the
reclassification of our receivables securitization facility), 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 U.S. (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 2010 2009 2008
Cash provided by operating activities $ 4,105 $ 3,204 $ 4,044
Receivables securitization facility [a] 400 184 16
Cash provided by operating activities
adjusted for the receivables securitization facility 4,505 3,388 4,060
Cash used in investing activities (2,488) (2,145) (2,738)
Dividends paid (602) (544) (481)
Free cash flow $ 1,415 $ 699 $ 841
[a] Effective January 1, 2010, a new accounting standard required us to account for receivables transferred under ou
r
receivables securitization facility as secured borrowings in our Consolidated Statements of Financial Position and a
s
financing activities in our Consolidated Statements of Cash Flows. The receivables securitization facility is included in ou
r
free cash flow calculation to adjust cash provided by operating activities as though our receivables securitization facilit
y
had been accounted for under the new accounting standard for all periods presented.
2011 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 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 and
close crossings; install video cameras on locomotives; and educate the public and law enforcement
agencies about crossing safety through a combination of our own programs (including risk
assessment strategies), various industry programs, and engaging local communities.
• 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, 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 meet customer needs and put