Union Pacific 2012 Annual Report Download - page 23

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 Free Cash Flow – Cash generated by operating activities totaled $6.2 billion, reduced by $3.6 billion
for cash used in investing activities and a 37% increase in dividends paid, yielding free cash flow of
$1.4 billion. 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 and may not be defined
and calculated by other companies in the same manner. We believe free cash flow is important to
management and investors 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 2012 2011 2010
Cash provided by operating activities $ 6,161 $ 5,873 $ 4,105
Receivables securitization facility [a] - - 400
Cash provided by operating activities
adjusted for the receivables securitization facility 6,161 5,873 4,505
Cash used in investing activities (3,633) (3,119) (2,488)
Dividends paid (1,146) (837) (602)
Free cash flow $ 1,382 $ 1,917 $ 1,415
[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 unde
r
the new accounting standard for all periods presented.
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2013 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 deployment of Total Safety Culture
throughout our operations, which 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 defect detection; improve
or close crossings; 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 across our network.
 Network Operations – We will continue focusing on our six critical initiatives to improve safety,
service and productivity during 2013. We are seeing solid contributions from reducing variability,
continuous improvements, and standard work. Resource agility allows us to respond quickly to
changing market conditions and network disruptions from weather or other events. The Railroad
continues to benefit from capital investments that allow us to build capacity for growth and harden our
infrastructure to reduce failure.
 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 seeking cost recovery from our customers through
our fuel surcharge programs and expanding our fuel conservation efforts.
 Capital Plan – In 2013, 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.)