Union Pacific 2011 Annual Report Download - page 24

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24
nearly all of the remaining increase in fuel expense, reflecting a relatively flat year-over-year fuel
consumption rate.
Free Cash Flow – Cash generated by operating activities totaled $5.9 billion, yielding record free
cash flow of $1.9 billion in 2011. 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 2011 2010 2009
Cash provided by operating activities $ 5,873 $ 4,105 $ 3,204
Receivables securitization facility [a] - 400 184
Cash provided by operating activities
adjusted for the receivables securitization facility 5,873 4,505 3,388
Cash used in investing activities (3,119) (2,488) (2,145)
Dividends paid (837) (602) (544)
Free cash flow $ 1,917 $ 1,415 $ 699
[a] Effective January 1, 2010, a new accounting standard required us to account for receivables transferred under our receivables
securitization facility as secured borrowings in our Consolidated Statements of Financial Position and as financing activities in
our Consolidated Statements of Cash Flows. The receivables securitization facility is included in our free cash flow calculation
to adjust cash provided by operating activities as though our receivables securitization facility had been accounted for under the
new accounting standard for all periods presented.
2012 Outlook
Safety – Operating a safe railroad benefits our employees, our customers, our shareholders, and the
communities we serve. We will continue using a multi-faceted approach to safety, utilizing technology,
risk assessment, quality control, training and employee engagement and targeted capital
investments. We will continue using and expanding the application of TSC throughout our operations.
This process allows us to identify and implement best practices for employee and operational safety.
Derailment prevention and the reduction of grade crossing incidents are critical aspects of our safety
programs. We will continue our efforts to increase rail detection; 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 local community 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, 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
us in a position to handle demand changes. We also will continue utilizing industrial engineering
techniques to improve productivity and network fluidity.
Fuel Prices – Uncertainty about the economy makes projections of fuel prices difficult. We again
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 expand our fuel conservation efforts.
Capital Plan – In 2012, we plan to make total capital investments of approximately $3.6 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.)