Union Pacific 2010 Annual Report Download - page 25

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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 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 2011, we plan to make total capital investments of approximately $3.2 billion,
including expenditures for Positive Train Control (PTC), which may be revised if business conditions
warrant or if 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 – In response to a legislative mandate to implement PTC by the end of 2015,
we expect to spend approximately $250 million during 2011 on developing 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 Federal Railroad Administration (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. During 2011, we plan to begin testing the technology to evaluate its effectiveness.
• Financial Expectations – We remain cautious about economic conditions, but anticipate volume to
increase from 2010 levels. In addition, we expect volume, price, and productivity gains to offset
expected higher costs for fuel, labor inflation, depreciation, casualty costs, and property taxes to drive
operating ratio improvement.
RESULTS OF OPERATIONS
Operating Revenues
Millions 2010 2009 2008
% Change
2010 v 2009
% Change
2009 v 2008
Freight revenues $ 16,069 $ 13,373 $ 17,118 20% (22)%
Other revenues 896 770 852 16 (10)
Total $ 16,965 $ 14,143 $ 17,970 20% (21)%
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 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 increased during 2010 as a result of
economic improvement in many market sectors. We experienced particularly strong volume growth in
automotive, intermodal, and industrial products shipments. Core pricing gains and higher fuel surcharges
also increased freight revenues and drove a 6% improvement in ARC.
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