Union Pacific 2011 Annual Report Download - page 25

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25
Positive Train Control – In response to a legislative mandate to implement PTC by the end of 2015,
we expect to spend approximately $335 million during 2012 on developing and deploying PTC. We
currently estimate that PTC in accordance with implementing rules issued by the Federal Rail
Administration (FRA) will cost us approximately $2 billion by the end of 2015. 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 2012, we plan to continue testing the technology to evaluate its effectiveness.
Financial Expectations – We are cautious about the economic environment but anticipate slow but
steady volume growth that will exceed 2011 levels. Coupled with price, on-going network
improvements and operational productivity initiatives, we expect earnings that exceed 2011 earnings.
RESULTS OF OPERATIONS
Operating Revenues
Millions 2011 2010 2009
% Change
2011 v 2010
% Change
2010 v 2009
Freight revenues $ 18,508 $ 16,069 $ 13,373 15% 20%
Other revenues 1,049 896 770 17 16
Total $ 19,557 $ 16,965 $ 14,143 15% 20%
We generate freight revenues 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 reductions to freight revenues based on the actual or projected future shipments. We
recognize freight revenues as shipments move 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 for all six commodity groups increased during 2011 compared to 2010, while volume
increased in all except intermodal. Increased demand in many market sectors, with particularly strong
growth in chemical, industrial products, and automotive shipments for the year, generated the increases.
ARC increased 12%, driven by higher fuel cost recoveries and core pricing gains. Fuel cost recoveries
include fuel surcharge revenue and the impact of resetting the base fuel price for certain traffic, which is
described below in more detail. Higher fuel prices, volume growth, and new fuel surcharge provisions in
renegotiated contracts all combined to increase revenues from fuel surcharges.
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.
Our fuel surcharge programs (excluding index-based contract escalators that contain some provision for
fuel) generated freight revenues of $2.2 billion, $1.2 billion, and $605 million in 2011, 2010, and 2009,
respectively. Higher fuel prices, volume growth, and new fuel surcharge provisions in contracts
renegotiated during the year increased fuel surcharge amounts in 2011 and 2010. Furthermore, for
certain periods during 2009, fuel prices dropped below the base at which our mileage-based fuel
surcharge begins, which resulted in no fuel surcharge recovery for associated shipments during those
periods. Additionally, fuel surcharge revenue is not entirely comparable to prior periods as we continue to
convert portions of our non-regulated traffic to mileage-based fuel surcharge programs.
In 2011, other revenues increased from 2010 due primarily to higher revenues at our subsidiaries that
broker intermodal and automotive services.