UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
(Mark One)
[X]
[ ]
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number 1-6075
UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
UTAH
(State or other jurisdiction of
incorporation or organization)
13-2626465
(I.R.S. Employer
Identification No.)
1400 DOUGLAS STREET, OMAHA, NEBRASKA
(Address of principal executive offices)
68179
(Zip Code)
(402) 544-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Common Stock (Par Value $2.50 per share)
Name of each exchange on which registered
New York Stock Exchange, Inc.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes (cid:31) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
(cid:31) Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes (cid:31) No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes (cid:31) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer (cid:31) Non-accelerated filer (cid:31) Smaller reporting company (cid:31)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
(cid:31) Yes No
As of June 29, 2012, the aggregate market value of the registrant’s Common Stock held by non-affiliates (using the
New York Stock Exchange closing price) was $56.2 billion.
The number of shares outstanding of the registrant’s Common Stock as of February 1, 2013 was 469,298,732.
Documents Incorporated by Reference – Portions of the registrant’s definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 16, 2013, are incorporated by reference into Part III of
this report. The registrant’s Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A.
UNION PACIFIC CORPORATION
TABLE OF CONTENTS
CEO’s Letter ........................................................................................................... 3
Directors and Senior Management ......................................................................... 4
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business ................................................................................................................. 5
Risk Factors ............................................................................................................ 10
Unresolved Staff Comments ................................................................................... 13
Properties ................................................................................................................ 13
Legal Proceedings .................................................................................................. 16
Mine Safety Disclosures ......................................................................................... 18
Executive Officers of the Registrant and Principal Executive
Officers of Subsidiaries ..................................................................................... 18
Item 5.
Market for the Registrant’s Common Equity, Related
PART II
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Stockholder Matters, and Issuer Purchases of Equity Securities .................... 19
Selected Financial Data .......................................................................................... 21
Management’s Discussion and Analysis of Financial
Condition and Results of Operations ................................................................ 22
Critical Accounting Policies ..................................................................................... 42
Cautionary Information ............................................................................................ 47
Quantitative and Qualitative Disclosures About Market Risk .................................. 48
Financial Statements and Supplementary Data ...................................................... 49
Report of Independent Registered Public Accounting Firm .................................... 50
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................................................................ 83
Controls and Procedures ........................................................................................ 83
Management’s Annual Report on Internal Control Over
Financial Reporting ........................................................................................... 84
Report of Independent Registered Public Accounting Firm .................................... 85
Other Information .................................................................................................... 86
PART III
Directors, Executive Officers, and Corporate Governance ..................................... 86
Executive Compensation ........................................................................................ 86
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ............................................... 87
Certain Relationships and Related Transactions and
Director Independence ..................................................................................... 87
Principal Accountant Fees and Services ................................................................. 87
PART IV
Exhibits, Financial Statement Schedules ................................................................ 88
Signatures ............................................................................................................... 89
Certifications ........................................................................................................... 99
2
February 8, 2013
Fellow Shareholders:
Last year was a historic milestone for Union Pacific, marking 150 years of building America. It was our
most profitable year on record, leading the U.S. rail industry in overall financial performance. Our 2012
results are a testament to the strength and diversity of our franchise and the dedication and commitment
of our employees. For the first time, we achieved a sub-70 operating ratio of 67.8 percent, contributing to
record earnings per share of $8.27, and a best-ever return on invested capital of 14.0 percent.
Shareholders were rewarded with increased financial returns, including a 29 percent increase in
dividends declared per share compared to 2011 and $1.5 billion in share repurchases. UP’s stock price
reached new highs in 2012, increasing 19 percent and outpaced the S&P 500 by 5 points.
Despite a challenging economic environment and a significantly weaker coal market, our diverse portfolio
of business, including shale-related crude oil and frac sand moves, automotive shipments, chemicals, and
domestic intermodal traffic, offset the 14 percent decline in coal volumes. Operationally, we successfully
managed the shifts in business mix, improved network efficiency and fluidity, and operated a safer
railroad.
We achieved these record results by following a very straightforward strategy - an unrelenting focus on
creating value for our customers by providing safe, efficient, and reliable service. In turn, customers
rewarded us with record satisfaction ratings, clearly valuing our service offerings and the efficiencies we
provide as part of their total supply chain. In addition, with our Total Safety Culture and The UP Way
infused throughout the Company, employee injuries hit a record low in 2012, capping more than a decade
of significant improvement.
Our capital investments play a critical role in meeting the long-term demand for freight transportation in
the U.S. In 2012, we invested a record $3.7 billion across our network, supported by our best-ever
financial returns. Over half was spent on replacing and hardening our infrastructure to further enhance
safety and reliability. The balance was invested to increase customer value, support business growth,
and advance efforts on Positive Train Control (PTC) implementation, a federally mandated program.
Through 2012, we have invested nearly $750 million dollars of our estimated $2 billion spend on PTC.
A significant portion of our growth capital investment in 2012 was targeted to the southern region of our
network to meet growing demand for new business, particularly in the shale-related energy arena. The
increasing development of oil production in various domestic shale formations is providing an emerging
market opportunity for rail with shipments of inbound frac sand and pipe, and outbound crude oil. In
2012, the impact was substantial - our crude oil shipments grew more than three fold compared to 2011.
Going forward, we anticipate continued opportunities for growth in this market driven by our proven ability
to provide an efficient and flexible transportation solution for growing demand.
In an evolving marketplace, our franchise diversity remains an absolute core strength of Union Pacific.
An increasing U.S. population base will stimulate long-term growth for many of the goods we carry. To
meet this growing demand, we anticipate continued opportunities to convert freight from the highway,
supported by our integrated network, competitive service offerings, and environmental advantages. We
also play a vital role in the global supply chain, with international trade currently representing more than
30 percent of our revenue base. In particular, as the only railroad to serve all six major gateways to
Mexico, we are in an excellent position to benefit from economic growth in that country.
The men and women of Union Pacific are proud of the Company’s 150-year history, but we’re squarely
focused on the opportunities the future presents, as well as its challenges. The results achieved in 2012
demonstrate the power and potential of our franchise as we continue to run an even safer railroad, help
our country grow, create value for our customers, and increase financial returns for our shareholders.
Our future is bright as we see even greater prospects in the years to come.
President & Chief Executive Officer
3
DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS
Andrew H. Card, Jr.
Acting Dean
The Bush School of
Government & Public Service,
Texas A&M University
Board Committees: Audit, Finance
Erroll B. Davis, Jr.
Superintendent
Atlanta Public Schools
Board Committees: Compensation
and Benefits (Chair), Corporate
Governance and Nominating
Thomas J. Donohue
President and
Chief Executive Officer
U.S. Chamber of Commerce
Board Committees: Compensation
and Benefits, Corporate Governance
and Nominating
Archie W. Dunham
Retired Chairman
ConocoPhillips
Board Committees: Corporate
Governance and Nominating,
Finance
SENIOR MANAGEMENT
James R. Young
Chairman
Union Pacific Corporation and
Union Pacific Railroad Company
John J. Koraleski
President and
Chief Executive Officer
Union Pacific Corporation and
Union Pacific Railroad Company
Eric L. Butler
Executive Vice President-
Marketing and Sales
Union Pacific Railroad Company
Diane K. Duren
Executive Vice President
Union Pacific Corporation
Charles R. Eisele
Senior Vice President–Strategic
Planning
Union Pacific Corporation
Lance M. Fritz
Executive Vice President–
Operations
Union Pacific Railroad Company
Judith Richards Hope
Distinguished Visitor from Practice
and Professor of Law
Georgetown University Law Center
Board Committees: Audit (Chair),
Finance
John J. Koraleski
President and
Chief Executive Officer
Union Pacific Corporation and
Union Pacific Railroad Company
Charles C. Krulak
General, USMC, Ret.
President
Birmingham – Southern College
Board Committees: Audit, Finance
Michael R. McCarthy
Chairman
McCarthy Group, LLC
Board Committees: Audit, Finance
Michael W. McConnell
General Partner
Brown Brothers Harriman & Co.
Board Committees: Audit,
Finance (Chair)
Mary Sanders Jones
Vice President and Treasurer
Union Pacific Corporation
D. Lynn Kelley
Vice President–Continuous
Improvement
Union Pacific Railroad Company
Robert M. Knight, Jr.
Executive Vice President–Finance
and Chief Financial Officer
Union Pacific Corporation
Joseph E. O’Connor, Jr.
Vice President–Purchasing
Union Pacific Railroad Company
Patrick J. O’Malley
Vice President–Taxes and General
Tax Counsel
Union Pacific Corporation
Michael A. Rock
Vice President–External Relations
Union Pacific Corporation
4
Thomas F. McLarty III
President
McLarty Associates
Board Committees: Compensation
and Benefits, Corporate Governance
and Nominating
Steven R. Rogel
Retired Chairman
Weyerhaeuser Company
Lead Independent Director
Board Committees: Compensation
and Benefits, Corporate Governance
and Nominating (Chair)
Jose H. Villarreal
Advisor
Akin, Gump, Strauss, Hauer &
Feld, LLP
Board Committees: Compensation
and Benefits, Corporate Governance
and Nominating
James R. Young
Chairman
Union Pacific Corporation and
Union Pacific Railroad Company
Barbara W. Schaefer
Senior Vice President–Human
Resources and Secretary
Union Pacific Corporation
Lynden L. Tennison
Senior Vice President and
Chief Information Officer
Union Pacific Corporation
Gayla L. Thal
Senior Vice President–Law
and General Counsel
Union Pacific Corporation
Jeffrey P. Totusek
Vice President and Controller
Union Pacific Corporation
Robert W. Turner
Senior Vice President–
Corporate Relations
Union Pacific Corporation
William R. Turner
Vice President–Labor Relations
Union Pacific Railroad Company
Item 1. Business
GENERAL
PART I
Union Pacific Railroad is the principal operating company of Union Pacific Corporation. One of America's
most recognized companies, Union Pacific Railroad links 23 states in the western two-thirds of the
country by rail, providing a critical link in the global supply chain. The Railroad’s diversified business mix
includes Agricultural Products, Automotive, Chemicals, Coal, Industrial Products and Intermodal. Union
Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast
and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad
serving all six major Mexico gateways. Union Pacific provides value to its roughly 10,000 customers by
delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner.
Union Pacific Corporation was incorporated in Utah in 1969 and maintains its principal executive offices
at 1400 Douglas Street, Omaha, NE 68179. The telephone number at that address is (402) 544-5000.
The common stock of Union Pacific Corporation is listed on the New York Stock Exchange (NYSE) under
the symbol “UNP”.
For purposes of this report, unless the context otherwise requires, all references herein to “UPC”,
“Corporation”, “we”, “us”, and “our” shall mean Union Pacific Corporation and its subsidiaries, including
Union Pacific Railroad Company, which we separately refer to as “UPRR” or the “Railroad”.
Available Information – Our Internet website is www.up.com. We make available free of charge on our
website (under the “Investors” caption link) our Annual Reports on Form 10-K; our Quarterly Reports on
Form 10-Q; eXtensible Business Reporting Language (XBRL) documents; our current reports on Form 8-
K; our proxy statements; Forms 3, 4, and 5, filed on behalf of directors and executive officers; and
amendments to such reports filed or furnished pursuant to the Securities Exchange Act of 1934, as
amended (the Exchange Act), as soon as reasonably practicable after such material is electronically filed
with, or furnished to, the Securities and Exchange Commission (SEC). We also make available on our
website previously filed SEC reports and exhibits via a link to EDGAR on the SEC’s Internet site at
www.sec.gov. Additionally, our corporate governance materials, including By-Laws, Board Committee
charters, governance guidelines and policies, and codes of conduct and ethics for directors, officers, and
employees are available on our website. From time to time, the corporate governance materials on our
website may be updated as necessary to comply with rules issued by the SEC and the NYSE or as
desirable to promote the effective and efficient governance of our company. Any security holder wishing
to receive, without charge, a copy of any of our SEC filings or corporate governance materials should
send a written request to: Secretary, Union Pacific Corporation, 1400 Douglas Street, Omaha, NE 68179.
We have included the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) certifications
regarding our public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits
31(a) and (b) to this report.
References to our website address in this report, including references in Management’s Discussion and
Analysis of Financial Condition and Results of Operations, Item 7, are provided as a convenience and do
not constitute, and should not be deemed, an incorporation by reference of the information contained on,
or available through, the website. Therefore, such information should not be considered part of this report.
OPERATIONS
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment.
Although we provide revenue by commodity group, we analyze the net financial results of the Railroad as
one segment due to the integrated nature of our rail network. Additional information regarding our
business and operations, including revenue and financial information and data and other information
regarding environmental matters, is presented in Risk Factors, Item 1A; Legal Proceedings, Item 3;
Selected Financial Data, Item 6; Management’s Discussion and Analysis of Financial Condition and
Results of Operations, Item 7; and the Financial Statements and Supplementary Data, Item 8 (which
include information regarding revenues, statements of income, and total assets).
5
2012 Freight Revenue
Operations – UPRR is a Class I railroad
operating in the U.S. We have 31,868 route
miles, linking Pacific Coast and Gulf Coast
ports with the Midwest and eastern U.S.
gateways and providing several corridors to
key Mexican gateways. We serve the western
two-thirds of
the country and maintain
coordinated schedules with other rail carriers
to move freight to and from the Atlantic Coast,
the Pacific Coast,
the
Southwest, Canada, and Mexico. Export and
import traffic moves through Gulf Coast and
Pacific Coast ports and across the Mexican
and Canadian borders. Our freight traffic
consists of bulk, manifest, and premium
business. Bulk traffic is primarily coal, grain, rock, or soda ash in unit trains – trains transporting a single
commodity from one source to one destination. Manifest traffic is individual carload or less than train-load
business and includes commodities such as lumber, steel, paper, food and chemicals. The transportation
of finished vehicles, intermodal containers and truck trailers is part of our premium business. In 2012, we
generated freight revenues totaling $19.7 billion from the following six commodity groups:
the Southeast,
Agricultural – Transportation of grains, commodities produced from these grains, and food and beverage
products generated 17% of the Railroad’s 2012 freight revenue. The Company accesses most major
grain markets, linking the Midwest and western producing areas to export terminals in the Pacific
Northwest and Gulf Coast ports, as well as Mexico. We also serve significant domestic markets, including
grain processors, animal feeders and ethanol producers in the Midwest, West, South and Rocky
Mountain states. Unit trains, which transport a single commodity between producers and export terminals
or domestic markets, represent approximately 35% of agricultural shipments.
Automotive – We are the largest automotive carrier west of the Mississippi River and operate or access
over 40 vehicle distribution centers. The Railroad’s extensive franchise serves vehicle assembly plants
and connects to West Coast ports and the Port of Houston to accommodate both import and export
shipments. In addition to transporting finished vehicles, UP provides expedited handling of automotive
parts in both boxcars and intermodal containers destined for Mexico, the U.S. and Canada. The
automotive group generated 9% of Union Pacific’s freight revenue in 2012.
Chemicals – Transporting chemicals generated 16% of our freight revenue in 2012. The Railroad’s
unique franchise serves the chemical producing areas along the Gulf Coast, where roughly two-thirds of
the Company’s chemical business originates, terminates or travels. Our chemical franchise also accesses
chemical producers in the Rocky Mountains and on the West Coast. The Company’s chemical shipments
include three broad categories: Petrochemicals, Fertilizer and Soda Ash. Petrochemicals include
industrial chemicals, plastics and petroleum products, including crude oil and liquid petroleum gases. The
petroleum products primarily originate from the Bakken shale formation in North Dakota and the Permian
and Eagle Ford shale formations in Texas, which we also deliver to the Gulf Coast area. Fertilizer
movements originate in the Gulf Coast region, the western part of the U.S. and Canada for delivery to
major agricultural users in the Midwest, western U.S. and abroad. Soda ash originates in southwestern
Wyoming and California, destined for chemical and glass producing markets in North America and
abroad.
Coal – Shipments of coal and petroleum coke accounted for 20% of our freight revenue in 2012. The
Railroad’s network supports the transportation of coal and petroleum coke to utilities and industrial
facilities throughout the U.S. Through interchange gateways and ports, UP’s reach extends to eastern
U.S. utilities, Mexico, Europe and Asia. Water terminals allow the Railroad to move western U.S. coal
east via the Mississippi and Ohio Rivers, as well as the Great Lakes. Export coal moves through West
Coast ports to Asia and through Mississippi River and Gulf Coast terminals to Europe. Coal traffic
originating in the Southern Powder River Basin (SPRB) area of Wyoming is the largest segment of UP’s
coal business.
Industrial Products – Our extensive network facilitates the movement of numerous commodities between
thousands of origin and destination points throughout North America. The Industrial Products commodity
group consists of several categories, including construction products, metals, minerals, paper, consumer
6
goods, lumber and other miscellaneous products. In 2012, this group generated 18% of Union Pacific’s
total freight revenue. Commercial and highway construction drives shipments of steel and construction
products, consisting of rock, cement and roofing materials. Oil and gas drilling generates demand for raw
steel, finished pipe, frac sand and drilling fluid products. Industrial manufacturing plants receive
nonferrous metals and industrial minerals. Paper and consumer goods, including furniture and
appliances, move to major metropolitan areas for consumers. Lumber shipments originate primarily in the
Pacific Northwest and Canada and move throughout the U.S. for use in new home construction and
repair and remodeling.
Intermodal – Our Intermodal business includes two shipment categories: international and domestic.
International business consists of imported and exported container traffic that mainly passes through
West Coast ports served by UP’s extensive terminal network. Domestic business includes container and
trailer traffic picked up and delivered within North America for intermodal marketing companies (primarily
shipper agents and logistics companies), as well as truckload carriers. Less-than-truckload and package
carriers with time-sensitive business requirements are also an important part of these domestic
shipments. Together, international and domestic business generated 20% of UP’s 2012 freight revenue.
Seasonality – Some of the commodities we carry have peak shipping seasons, reflecting either or both
the nature of the commodity, such as certain agricultural and food products that have specific growing
and harvesting seasons, and the demand cycle for the commodity, such as intermodal traffic, which
generally has a peak shipping season during the third quarter to meet holiday-related demand for
consumer goods during the fourth quarter. The peak shipping seasons for these commodities can vary
considerably from year to year depending upon various factors, including the strength of domestic and
international economies and currencies and the strength of harvests and market prices for agricultural
products. In response to an annual request delivered by the Surface Transportation Board (STB) of the
U.S. Department of Transportation (DOT) to all of the Class I railroads operating in the U.S., we issue a
publicly available letter during the third quarter detailing our plans for handling traffic during the third and
fourth quarters and providing other information requested by the STB.
Working Capital – At December 31, 2012 and 2011, we had a working capital surplus. This reflects a
strong cash position, which provides enhanced liquidity in an uncertain economic environment. In
addition, we believe we have adequate access to capital markets to meet any foreseeable cash
requirements, and we have sufficient financial capacity to satisfy our current liabilities.
Competition – We are subject to competition from other railroads, motor carriers, ship and barge
operators, and pipelines. Our main rail competitor is Burlington Northern Santa Fe LLC. Its rail subsidiary,
BNSF Railway Company (BNSF), operates parallel routes in many of our main traffic corridors. In
addition, we operate in corridors served by other railroads and motor carriers. Motor carrier competition
exists for five of our six commodity groups (excluding coal). Because of the proximity of our routes to
major inland and Gulf Coast waterways, barges can be particularly competitive, especially for grain and
bulk commodities. In addition to price competition, we face competition with respect to transit times and
quality and reliability of service. While we must build or acquire and maintain our rail system, trucks and
barges are able to use public rights-of-way maintained by public entities. Any future improvements or
expenditures materially increasing the quality or reducing the costs of these alternative modes of
transportation, or legislation releasing motor carriers from their size or weight limitations, could have a
material adverse effect on our business.
Key Suppliers – We depend on two key domestic suppliers of high horsepower locomotives. Due to the
capital intensive nature of the locomotive manufacturing business and sophistication of this equipment,
potential new suppliers face high barriers of entry into this industry. Therefore, if one of these domestic
suppliers discontinues manufacturing locomotives for any reason, including insolvency or bankruptcy, we
could experience a significant cost increase and risk reduced availability of the locomotives that are
necessary to our operations. Additionally, for a high percentage of our rail purchases, we utilize two
suppliers (one domestic and one international) that meet our specifications. Rail is critical for both
maintenance of our network and replacement and improvement or expansion of our network and facilities.
Rail manufacturing also has high barriers of entry, and, if one of those suppliers discontinues operations
for any reason, including insolvency or bankruptcy, we could experience cost increases and difficulty
obtaining rail.
Employees – Approximately 86% of our 45,928 full-time-equivalent employees are represented by 14
major rail unions. During the year, we concluded the most recent round of negotiations, which began in
7
2010, with the ratification of new agreements by several unions that continued negotiating into 2012. All
of the unions executed similar multi-year agreements that provide for higher employee cost sharing of
employee health and welfare benefits and higher wages. The current agreements will remain in effect
until renegotiated under provisions of the Railway Labor Act. The next round of negotiations will begin in
early 2015.
Railroad Security – Our security efforts rely upon a wide variety of measures including employee
training, cooperation with our customers, training of emergency responders, and partnerships with
numerous federal, state, and local government agencies. While federal law requires us to protect the
confidentiality of our security plans designed to safeguard against terrorism and other security incidents,
the following provides a general overview of our security initiatives.
UPRR Security Measures – We maintain a comprehensive security plan designed to both deter and to
respond to any potential or actual threats as they arise. The plan includes four levels of alert status, each
with its own set of countermeasures. We employ our own police force, consisting of more than 200
commissioned and highly-trained officers. Our employees also undergo recurrent security and
preparedness training, as well as federally-mandated hazardous materials and security training. We
regularly review the sufficiency of our employee training programs. We maintain the capability to move
critical operations to back-up facilities in different locations.
We have an emergency response management center, which operates 24 hours a day. The center
receives reports of emergencies, dangerous or potentially dangerous conditions, and other safety and
security issues from our employees, the public, and law enforcement and other government officials. In
cooperation with government officials, we monitor both threats and public events, and, as necessary, we
may alter rail traffic flow at times of concern to minimize risk to communities and our operations. We
comply with the hazardous materials routing rules and other requirements imposed by federal law. We
also design our operating plan to expedite the movement of hazardous material shipments to minimize
the time rail cars remain idle at yards and terminals located in or near major population centers.
Additionally, in compliance with Transportation Security Agency regulations, we deployed information
systems and instructed employees in tracking and documenting the handoff of Rail Security Sensitive
Material with customers and interchange partners.
We also have established a number of our own innovative safety and security-oriented initiatives ranging
from various investments in technology to The Officer on the Train program, which provides local law
enforcement officers with the opportunity to ride with train crews to enhance their understanding of
railroad operations and risks. Our staff of information security professionals continually assesses cyber
security risks and implements mitigation programs that evolve with the changing technology threat
environment.
Cooperation with Federal, State, and Local Government Agencies – We work closely on physical and
cyber security initiatives with government agencies that include the DOT and the Department of
Homeland Security (DHS), as well as local police departments, fire departments, and other first
responders. In conjunction with DOT, DHS, and other railroads, we sponsor Operation Respond, which
provides first responders with secure links to electronic railroad resources, including mapping systems,
shipment records, and other essential information required by emergency personnel to respond to
accidents and other situations. We also participate in the National Joint Terrorism Task Force, a multi-
agency effort established by the U.S. Department of Justice and the Federal Bureau of Investigation to
combat and prevent terrorism.
We work with the Coast Guard, U.S. Customs and Border Protection (CBP), and the Military Transport
Management Command, which monitor shipments entering the UPRR rail network at U.S. border
crossings and ports. We were the first railroad in the U.S. to be named a partner in CBP’s Customs-
Trade Partnership Against Terrorism, a partnership designed to develop, enhance, and maintain effective
security processes throughout the global supply chain.
Cooperation with Customers and Trade Associations – Along with other railroads, we work with the
American Chemistry Council to train approximately 200,000 emergency responders annually. We work
with many of our chemical shippers to establish plant security plans, and we continue to take steps to
more closely monitor and track hazardous materials shipments. In cooperation with the Federal Railroad
Administration (FRA) and other interested groups, we are also working to develop additional
improvements to tank car design that will further limit the risk of releases of hazardous materials.
8
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
Governmental Regulation – Our operations are subject to a variety of federal, state, and local
regulations, generally applicable to all businesses. (See also the discussion of certain regulatory
proceedings in Legal Proceedings, Item 3.)
The operations of the Railroad are also subject to the regulatory jurisdiction of the STB. The STB has
jurisdiction over rates charged on certain regulated rail traffic; common carrier service of regulated traffic;
freight car compensation; transfer, extension, or abandonment of rail lines; and acquisition of control of
rail common carriers. In 2012, the STB continued its efforts to explore whether to expand rail regulation.
The STB has requested parties to submit studies that describe and quantify the potential impact of
expanded reciprocal switching or trackage rights arrangements on railroads. Although several bills
involving railroad regulation expired during the last session of Congress, we continually monitor any
legislative activity involving rail and transportation regulation.
The operations of the Railroad also are subject to the regulations of the FRA and other federal and state
agencies. On January 12, 2010, the FRA issued initial rules governing installation of Positive Train
Control (PTC) by the end of 2015. The final regulation is still forthcoming. Although still under
development, PTC is a collision avoidance technology intended to override locomotive controls and stop
a train before an accident. Following the issuance of the initial rules, the FRA acknowledged that
projected costs will exceed projected benefits by a ratio of at least 22 to one, and we estimate that our
costs will be higher than those assumed by the FRA. In August 2012, the FRA provided Congress with a
status report regarding implementation of PTC. This report indicated that the rail industry will likely
achieve only partial deployment of PTC by the current deadline due to significant technical and other
issues. Through 2012, we have invested nearly $750 million in the development of PTC.
DOT, the Occupational Safety and Health Administration, and DHS, along with other federal agencies,
have jurisdiction over certain aspects of safety, movement of hazardous materials and hazardous waste,
emissions requirements, and equipment standards. The Rail Safety Improvement Act of 2008, among
other things, revised hours of service rules for train and certain other railroad employees, mandated
implementation of PTC, imposed passenger service requirements, addressed safety at rail crossings,
increased the number of safety related employees of the FRA, and increased fines that may be levied
against railroads for safety violations. Additionally, various state and local agencies have jurisdiction over
disposal of hazardous waste and seek to regulate movement of hazardous materials in ways not
preempted by federal law.
Environmental Regulation – We are subject to extensive federal and state environmental statutes and
regulations pertaining to public health and the environment. The statutes and regulations are
administered and monitored by the Environmental Protection Agency (EPA) and by various state
environmental agencies. The primary laws affecting our operations are the Resource Conservation and
Recovery Act, regulating the management and disposal of solid and hazardous wastes; the
Comprehensive Environmental Response, Compensation, and Liability Act, regulating the cleanup of
contaminated properties; the Clean Air Act, regulating air emissions; and the Clean Water Act, regulating
waste water discharges.
Information concerning environmental claims and contingencies and estimated remediation costs is set
forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies – Environmental, Item 7 and Note 17 to the Consolidated Financial
Statements in Item 8, Financial Statements and Supplementary Data.
9
Item 1A. Risk Factors
The information set forth in this Item 1A should be read in conjunction with the rest of the information
included in this report, including Management’s Discussion and Analysis of Financial Condition and
Results of Operations, Item 7, and Financial Statements and Supplementary Data, Item 8.
We Must Manage Fluctuating Demand for Our Services and Network Capacity – If there is significant
demand for our services that exceeds the designed capacity of our network, we may experience network
difficulties, including congestion and reduced velocity, that could compromise the level of service we
provide to our customers. This level of demand may also compound the impact of weather and weather-
related events on our operations and velocity. Although we continue to improve our transportation plan,
add capacity, improve operations at our yards and other facilities, and improve our ability to address
surges in demand for any reason with adequate resources, we cannot be sure that these measures will
fully or adequately address any service shortcomings resulting from demand exceeding our planned
capacity. We may experience other operational or service difficulties related to network capacity,
dramatic and unplanned increases or decreases of demand for rail service with respect to one or more of
our commodity groups or operating regions, or other events that could have a negative impact on our
operational efficiency, any of which could have a material adverse effect on our results of operations,
financial condition, and liquidity. In the event that we experience significant reductions of demand for rail
services with respect to one or more of our commodity groups, we may experience increased costs
associated with resizing our operations, including higher unit operating costs and costs for the storage of
locomotives, rail cars, and other equipment; work-force adjustments; and other related activities, which
could have a material adverse effect on our results of operations, financial condition, and liquidity.
We May Be Affected by General Economic Conditions – Prolonged severe adverse domestic and global
economic conditions or disruptions of financial and credit markets, including the availability of short- and
long-term debt financing, may affect the producers and consumers of the commodities we carry and may
have a material adverse effect on our access to liquidity and our results of operations and financial
condition.
We Are Required to Transport Hazardous Materials – Federal laws require railroads, including us, to
transport certain hazardous materials regardless of risk or potential exposure to loss. Any rail accident or
other incident or accident on our network, at our facilities, or at the facilities of our customers involving the
release of hazardous materials, including toxic inhalation hazard (or TIH) materials such as chlorine,
could involve significant costs and claims for personal injury, property damage, and environmental
penalties and remediation, which could have a material adverse effect on our results of operations,
financial condition, and liquidity.
We Face Competition from Other Railroads and Other Transportation Providers – We face competition
from other railroads, motor carriers, ships, barges, and pipelines. In addition to price competition, we face
competition with respect to transit times and quality and reliability of service. While we must build or
acquire and maintain our rail system, trucks and barges are able to use public rights-of-way maintained
by public entities. Any future improvements or expenditures materially increasing the quality or reducing
the cost of alternative modes of transportation, or legislation releasing motor carriers from their size or
weight limitations, could have a material adverse effect on our results of operations, financial condition,
and liquidity. Additionally, any future consolidation of the rail industry could materially affect the
competitive environment in which we operate.
We Are Subject to Significant Governmental Regulation – We are subject to governmental regulation by a
significant number of federal, state, and local authorities covering a variety of health, safety, labor,
environmental, economic (as discussed below), and other matters. Many laws and regulations require us
to obtain and maintain various licenses, permits, and other authorizations, and we cannot guarantee that
we will continue to be able to do so. Our failure to comply with applicable laws and regulations could have
a material adverse effect on us. Governments or regulators may change the legislative or regulatory
frameworks within which we operate without providing us any recourse to address any adverse effects on
our business, including, without limitation, regulatory determinations or rules regarding dispute resolution,
business relationships with other railroads, calculation of our cost of capital or other inputs relevant to
computing our revenue adequacy, the prices we charge, and costs and expenses. Significant legislative
activity in Congress or regulatory activity by the STB could expand regulation of railroad operations and
prices for rail services, which could reduce capital spending on our rail network, facilities and equipment
and have a material adverse effect on our results of operations, financial condition, and liquidity. As part
10
of the Rail Safety Improvement Act of 2008, rail carriers must currently implement PTC by the end of
2015, which could have a material adverse effect on our ability to make other capital investments. Rail
carriers may not meet the mandatory deadline for PTC implementation. One or more consolidations of
Class I railroads could also lead to increased regulation of the rail industry.
We Rely on Technology and Technology Improvements in Our Business Operations – We rely on
information technology in all aspects of our business. If we do not have sufficient capital to acquire new
technology or if we are unable to develop or implement new technology such as PTC or the latest version
of our transportation control systems, we may suffer a competitive disadvantage within the rail industry
and with companies providing other modes of transportation service, which could have a material adverse
effect on our results of operations, financial condition, and liquidity. Additionally, if a cyber attack or other
event causes significant disruption or failure of one or more of our information technology systems,
including computer hardware, software, and communications equipment, we could suffer a significant
service interruption, safety failure, security breach, or other operational difficulties, which could have a
material adverse impact on our results of operations, financial condition, and liquidity.
Strikes or Work Stoppages Could Adversely Affect Our Operations as the Majority of Our Employees
Belong to Labor Unions and Labor Agreements – The U.S. Class I railroads are party to collective
bargaining agreements with various labor unions. Disputes with regard to the terms of these agreements
or our potential inability to negotiate acceptable contracts with these unions could result in, among other
things, strikes, work stoppages, slowdowns, or lockouts, which could cause a significant disruption of our
operations and have a material adverse effect on our results of operations, financial condition, and
liquidity. Additionally, future national labor agreements, or renegotiation of labor agreements or provisions
of labor agreements, could compromise our service reliability or significantly increase our costs for health
care, wages, and other benefits, which could have a material adverse impact on our results of operations,
financial condition, and liquidity.
Severe Weather Could Result in Significant Business Interruptions and Expenditures – As a railroad with
a vast network, we are exposed to severe weather conditions and other natural phenomena, including
earthquakes, hurricanes, fires, floods, mudslides or landslides, extreme temperatures, and significant
precipitation that may cause business interruptions, including line outages on our rail network, that can
adversely affect our entire rail network and result in increased costs, increased liabilities, and decreased
revenue, which could have a material adverse effect on our results of operations, financial condition, and
liquidity.
We May Be Subject to Various Claims and Lawsuits That Could Result in Significant Expenditures – As a
railroad with operations in densely populated urban areas and other cities and a vast rail network, we are
exposed to the potential for various claims and litigation related to labor and employment, personal injury,
property damage, environmental liability, and other matters. Any material changes to litigation trends or a
catastrophic rail accident or series of accidents involving any or all of property damage, personal injury,
and environmental liability could have a material adverse effect on our results of operations, financial
condition, and liquidity.
We Are Subject to Significant Environmental Laws and Regulations – Due to the nature of the railroad
business, our operations are subject to extensive federal, state, and local environmental laws and
regulations concerning, among other things, emissions to the air; discharges to waters; handling, storage,
transportation, and disposal of waste and other materials; and hazardous material or petroleum releases.
We generate and transport hazardous and non-hazardous waste in our operations, and we did so in our
former operations. Environmental liability can extend to previously owned or operated properties, leased
properties, and properties owned by third parties, as well as to properties we currently own.
Environmental liabilities have arisen and may also arise from claims asserted by adjacent landowners or
other third parties in toxic tort litigation. We have been and may be subject to allegations or findings that
we have violated, or are strictly liable under, these laws or regulations. We could incur significant costs as
a result of any of the foregoing, and we may be required to incur significant expenses to investigate and
remediate known, unknown, or future environmental contamination, which could have a material adverse
effect on our results of operations, financial condition, and liquidity.
We May Be Affected by Climate Change and Market or Regulatory Responses to Climate Change –
Climate change, including the impact of global warming, could have a material adverse effect on our
results of operations, financial condition, and liquidity. Restrictions, caps, taxes, or other controls on
emissions of greenhouse gasses, including diesel exhaust, could significantly increase our operating
11
farmers and
including chemical producers,
costs. Restrictions on emissions could also affect our customers that (a) use commodities that we carry
to produce energy, (b) use significant amounts of energy in producing or delivering the commodities we
carry, or (c) manufacture or produce goods that consume significant amounts of energy or burn fossil
food producers, and automakers and other
fuels,
manufacturers. Significant cost increases, government regulation, or changes of consumer preferences
for goods or services relating to alternative sources of energy or emissions reductions could materially
affect the markets for the commodities we carry, which in turn could have a material adverse effect on our
results of operations, financial condition, and liquidity. Government incentives encouraging the use of
alternative sources of energy could also affect certain of our customers and the markets for certain of the
commodities we carry in an unpredictable manner that could alter our traffic patterns, including, for
example, the impacts of ethanol incentives on farming and ethanol producers. Finally, we could face
increased costs related to defending and resolving legal claims and other litigation related to climate
change and the alleged impact of our operations on climate change. Any of these factors, individually or
in operation with one or more of the other factors, or other unforeseen impacts of climate change could
reduce the amount of traffic we handle and have a material adverse effect on our results of operations,
financial condition, and liquidity.
The Availability of Qualified Personnel Could Adversely Affect Our Operations – Changes in
demographics, training requirements, and the availability of qualified personnel could negatively affect our
ability to meet demand for rail service. Unpredictable increases in demand for rail services and a lack of
network fluidity may exacerbate such risks, which could have a negative impact on our operational
efficiency and otherwise have a material adverse effect on our results of operations, financial condition,
and liquidity.
Rising or Elevated Fuel Costs and Whether We Are Able to Mitigate These Costs with Fuel Surcharges
Could Materially and Adversely Affect Our Business – Fuel costs constitute a significant portion of our
transportation expenses. Diesel fuel prices are subject to dramatic fluctuations, and significant price
increases could have a material adverse effect on our operating results. Although we currently are able to
recover a significant amount of our increased fuel expenses through revenue from fuel surcharges, we
cannot be certain that we will always be able to mitigate rising or elevated fuel costs through surcharges.
Future market conditions or legislative or regulatory activities could adversely affect our ability to apply
fuel surcharges or adequately recover increased fuel costs through fuel surcharges. International,
political, and economic circumstances affect fuel prices and supplies. Weather can also affect fuel
supplies and limit domestic refining capacity. If a fuel supply shortage were to arise, higher fuel prices
could, despite our fuel surcharge programs, have a material adverse effect on our results of operations,
financial condition, and liquidity.
We Utilize Capital Markets – Due to the significant capital expenditures required to operate and maintain
a safe and efficient railroad, we rely on the capital markets to provide some of our capital requirements.
We utilize long-term debt instruments, bank financing and commercial paper from time-to-time, and we
pledge certain of our receivables. Significant instability or disruptions of the capital markets, including the
credit markets, or deterioration of our financial condition due to internal or external factors could restrict or
prohibit our access to, and significantly increase the cost of, commercial paper and other financing
sources, including bank credit facilities and the issuance of long-term debt, including corporate bonds. A
deterioration of our financial condition could result in a reduction of our credit rating to below investment
grade, which could prohibit or restrict us from utilizing our current receivables securitization facility or
accessing external sources of short- and long-term debt financing and significantly increase the costs
associated with utilizing the receivables securitization facility and issuing both commercial paper and
long-term debt.
We Are Subject to Legislative, Regulatory, and Legal Developments Involving Taxes – Taxes are a
significant part of our expenses. We are subject to U.S. federal, state, and foreign income, payroll,
property, sales and use, fuel, and other types of taxes. Changes in tax rates, enactment of new tax laws,
revisions of tax regulations, and claims or litigation with taxing authorities could result in substantially
higher taxes and, therefore, could have a material adverse effect on our results of operations, financial
condition, and liquidity.
We Are Dependent on Certain Key Suppliers of Locomotives and Rail – Due to the capital intensive
nature and sophistication of locomotive equipment, potential new suppliers face high barriers to entry.
Therefore, if one of the domestic suppliers of high horsepower locomotives discontinues manufacturing
locomotives for any reason, including bankruptcy or insolvency, we could experience significant cost
12
increases and reduced availability of the locomotives that are necessary for our operations. Additionally,
for a high percentage of our rail purchases, we utilize two suppliers (one domestic and one international)
that meet our specifications. Rail is critical to our operations for rail replacement programs, maintenance,
and for adding additional network capacity, new rail and storage yards, and expansions of existing
facilities. This industry similarly has high barriers to entry, and if one of these suppliers discontinues
operations for any reason, including bankruptcy or insolvency, we could experience both significant cost
increases for rail purchases and difficulty obtaining sufficient rail for maintenance and other projects.
We May Be Affected by Acts of Terrorism, War, or Risk of War – Our rail lines, facilities, and equipment,
including rail cars carrying hazardous materials, could be direct targets or indirect casualties of terrorist
attacks. Terrorist attacks, or other similar events, any government response thereto, and war or risk of
war may adversely affect our results of operations, financial condition, and liquidity. In addition, insurance
premiums for some or all of our current coverages could increase dramatically, or certain coverages may
not be available to us in the future.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We employ a variety of assets in the management and operation of our rail business. Our rail network
covers 23 states in the western two-thirds of the U.S.
13
TRACK
Our rail network includes 31,868 route miles. We own 26,020 miles and operate on the remainder
pursuant to trackage rights or leases. The following table describes track miles at December 31, 2012
and 2011.
Route
Other main line
Passing lines and turnouts
Switching and classification yard lines
Total miles
HEADQUARTERS BUILDING
2012
31,868
6,715
3,124
9,046
2011
31,898
6,644
3,112
8,999
50,753
50,653
We maintain our headquarters in Omaha, Nebraska. The facility has 1.2 million square feet of space for
approximately 4,000 employees and is subject to a financing arrangement.
HARRIMAN DISPATCHING CENTER
The Harriman Dispatching Center (HDC), located in Omaha, Nebraska, is our primary dispatching facility.
It is linked to regional dispatching and locomotive management facilities at various locations along our
network. HDC employees coordinate moves of locomotives and trains, manage traffic and train crews on
our network, and coordinate interchanges with other railroads. Over 900 employees currently work on-site
in the facility. In the event of a disruption of operations at HDC due to a cyber attack, flooding or severe
weather or other event, we maintain the capability to conduct critical operations at back-up facilities in
different locations.
RAIL FACILITIES
In addition to our track structure, we operate numerous facilities, including terminals for intermodal and
other freight; rail yards for train-building (classification yards), switching, storage-in-transit (the temporary
storage of customer goods in rail cars prior to shipment) and other activities; offices to administer and
manage our operations; dispatching centers to direct traffic on our rail network; crew quarters to house
train crews along our network; and shops and other facilities for fueling, maintenance, and repair of
locomotives and repair and maintenance of rail cars and other equipment. The following tables include
the major yards and terminals on our system:
Top 10 Classification Yards
North Platte, Nebraska
North Little Rock, Arkansas
Englewood (Houston), Texas
Fort Worth, Texas
Proviso (Chicago), Illinois
Livonia, Louisiana
Pine Bluff, Arkansas
Roseville, California
West Colton, California
Neff (Kansas City), Missouri
Avg. Daily
Car Volume
2011
2,200
1,600
1,400
1,300
1,400
1,300
1,200
1,200
1,100
1,000
2012
2,300
1,600
1,500
1,400
1,300
1,300
1,200
1,200
1,100
1,000
14
Top 10 Intermodal Terminals
ICTF (Los Angeles), California
East Los Angeles, California
Global 4 (Joliet), Illinois
Dallas, Texas
Global I (Chicago), Illinois
Yard Center (Chicago), Illinois
Marion (Memphis), Tennessee
Global II (Chicago), Illinois
Mesquite, Texas
LATC (Los Angeles), California
RAIL EQUIPMENT
2012
448,000
427,000
347,000
310,000
306,000
273,000
271,000
253,000
236,000
230,000
Annual Lifts
2011
432,000
428,000
298,000
261,000
295,000
277,000
283,000
273,000
232,000
226,000
Our equipment includes owned and leased locomotives and rail cars; heavy maintenance equipment and
machinery; other equipment and tools in our shops, offices, and facilities; and vehicles for maintenance,
transportation of crews, and other activities. As of December 31, 2012, we owned or leased the following
units of equipment:
Locomotives
Multiple purpose
Switching
Other
Total locomotives
Freight cars
Covered hoppers
Open hoppers
Gondolas
Boxcars
Refrigerated cars
Flat cars
Other
Total freight cars
Highway revenue equipment
Containers
Chassis
Owned Leased Total
7,833
424
134
2,365
24
57
5,468
400
77
Average
Age (yrs.)
17.3
32.9
32.8
5,945
2,446
8,391
N/A
Owned Leased Total
30,954
13,482
11,509
6,224
6,701
3,426
479
17,946
3,998
5,168
1,603
4,263
684
375
13,008
9,484
6,341
4,621
2,438
2,742
104
Average
Age (yrs.)
19.6
27.8
23.0
27.5
25.1
30.6
N/A
38,738
34,037
72,775
N/A
Owned
Leased
17,207
9,245
36,714
27,748
Total
53,921
36,993
Average
Age (yrs.)
6.6
7.6
Total highway revenue equipment
26,452
64,462
90,914
N/A
CAPITAL EXPENDITURES
Our rail network requires significant annual capital investments for replacement, improvement, and
expansion. These investments enhance safety, support the transportation needs of our customers, and
improve our operational efficiency. Additionally, we add new locomotives and freight cars to our fleet to
replace older, less efficient equipment, to support growth and customer demand, and to reduce our
impact on the environment through the acquisition of more fuel efficient and low-emission locomotives.
2012 Capital Expenditures – During 2012, we made capital investments totaling $3.7 billion. (See the
capital expenditures table in Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Liquidity and Capital Resources – Financial Condition, Item 7.)
15
2013 Capital Expenditures – In 2013, we expect to make capital investments of approximately $3.6
billion, including expenditures for PTC of approximately $450 million. We may revise our 2013 capital
plan if business conditions warrant or if new laws or regulations affect our ability to generate sufficient
returns on these investments. (See discussion of our 2013 capital plan in Management’s Discussion and
Analysis of Financial Condition and Results of Operations – 2013 Outlook, Item 7.)
OTHER
Equipment Encumbrances – Equipment with a carrying value of approximately $2.9 billion at both
December 31, 2012 and 2011 served as collateral for capital leases and other types of equipment
obligations in accordance with the secured financing arrangements utilized to acquire such railroad
equipment.
As a result of the merger of Missouri Pacific Railroad Company (MPRR) with and into UPRR on January
1, 1997, and pursuant to the underlying indentures for the MPRR mortgage bonds, UPRR must maintain
the same value of assets after the merger in order to comply with the security requirements of the
mortgage bonds. As of the merger date, the value of the MPRR assets that secured the mortgage bonds
was approximately $6.0 billion. In accordance with the terms of the indentures, this collateral value must
be maintained during the entire term of the mortgage bonds irrespective of the outstanding balance of
such bonds.
Environmental Matters – Certain of our properties are subject to federal, state, and local laws and
regulations governing the protection of the environment. (See discussion of environmental issues in
Business – Governmental and Environmental Regulation, Item 1, and Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Environmental,
Item 7.)
Item 3. Legal Proceedings
From time to time, we are involved in legal proceedings, claims, and litigation that occur in connection
with our business. We routinely assess our liabilities and contingencies in connection with these matters
based upon the latest available information and, when necessary, we seek input from our third-party
advisors when making these assessments. Consistent with SEC rules and requirements, we describe
below material pending legal proceedings (other than ordinary routine litigation incidental to our
business), material proceedings known to be contemplated by governmental authorities, other
proceedings arising under federal, state, or local environmental laws and regulations (including
governmental proceedings involving potential fines, penalties, or other monetary sanctions in excess of
$100,000), and such other pending matters that we may determine to be appropriate.
ENVIRONMENTAL MATTERS
On January 14, 2013, the Illinois Attorney General's Office notified UPRR that it will seek a penalty
against the Railroad for environmental conditions caused by its predecessor at a former locomotive
fueling facility in South Pekin, Illinois. This former CNW facility discontinued fueling operations in the
early 1980s. Subsequent environmental investigation revealed evidence of fuel releases to soil and
groundwater. In January 2007, the State rejected UPRR's proposed compliance commitment agreement
and responded with a notice of intent to pursue legal action. UPRR continued to perform remedial
investigations under the supervision of the Illinois EPA. In June 2012, the Illinois EPA approved UPRR's
proposed remedial action plan for the contaminated groundwater. Although no further action is required
for the contamination, the State is now seeking to recover a penalty. The State has offered to settle the
matter prior to litigation for payment of a $240,000 penalty. If we are unable to reach an agreement, the
state will pursue legal action for a penalty, which we expect will exceed $100,000.
We received notices from the EPA and state environmental agencies alleging that we are or may be liable
under federal or state environmental laws for remediation costs at various sites throughout the U.S.,
including sites on the Superfund National Priorities List or state superfund lists. We cannot predict the
ultimate impact of these proceedings and suits because of the number of potentially responsible parties
involved, the degree of contamination by various wastes, the scarcity and quality of volumetric data
related to many of the sites, and the speculative nature of remediation costs.
16
Information concerning environmental claims and contingencies and estimated remediation costs is set
forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies – Environmental, Item 7.
OTHER MATTERS
Antitrust Litigation - As we reported in our Quarterly Report on Form 10-Q for the quarter ended June
30, 2007, 20 small rail shippers (many of whom are represented by the same law firms) filed virtually
identical antitrust lawsuits in various federal district courts against us and four other Class I railroads in
the U.S. (one railroad was eventually dropped from the lawsuit). The original plaintiff filed the first of these
claims in the U.S. District Court in New Jersey on May 14, 2007, and the additional plaintiffs filed claims in
district courts in various states, including Florida, Illinois, Alabama, Pennsylvania, and the District of
Columbia. These suits allege that the named railroads engaged in price-fixing by establishing common
fuel surcharges for certain rail traffic.
We received additional complaints following the initial claim, increasing the total number of complaints to
30. In addition to suits filed by direct purchasers of rail transportation, a few of the suits involved plaintiffs
alleging that they are or were indirect purchasers of rail transportation and seeking to represent a
purported class of indirect purchasers of rail transportation that paid fuel surcharges. These complaints
added allegations under state antitrust and consumer protection laws. On November 6, 2007, the Judicial
Panel on Multidistrict Litigation ordered that all of the rail fuel surcharge cases be transferred to Judge
Paul Friedman of the U.S. District Court in the District of Columbia for coordinated or consolidated pretrial
proceedings. Subsequently, the direct purchaser plaintiffs and the indirect purchaser plaintiffs filed
Consolidated Amended Class Action Complaints against UPRR and three other Class I railroads.
One additional shipper filed a separate antitrust suit during 2008. Subsequently, the shipper voluntarily
dismissed the action without prejudice.
On October 10, 2008, Judge Friedman heard oral arguments with respect to the defendant railroads’
motions to dismiss. In a ruling on November 7, 2008, Judge Friedman denied the motion with respect to
the direct purchasers’ complaint, and pretrial proceedings are underway in that case, the status of which
is described below. On December 31, 2008, Judge Friedman dismissed the complaints of the indirect
purchasers based upon state antitrust, consumer protection, and unjust enrichment laws. He also ruled,
however, that these plaintiffs could proceed with their claim for injunctive relief under the federal antitrust
laws, which is identical to a claim by the direct purchaser plaintiffs. The indirect purchasers appealed
Judge Friedman's ruling to the U.S. Court of Appeals for the District of Columbia. On April 16, 2010, the
U.S. Court of Appeals for the District of Columbia affirmed Judge Friedman’s ruling dismissing the indirect
purchasers’ claims based on various state laws.
With respect to the direct purchasers’ complaint, Judge Friedman conducted a two-day hearing on
October 6 and 7, 2010, on the class certification issue and the railroad defendants’ motion to exclude
evidence of interline communications. On April 7, 2011, Judge Friedman issued an order deferring any
decision on class certification until the Supreme Court issued its decision in the Wal-Mart employment
discrimination case.
On June 21, 2012, Judge Friedman issued his decision certifying a class of plaintiffs to be represented by
the eight named plaintiffs. The class includes all shippers that paid a rate-based fuel surcharge to any
one of the defendant railroads for rate-unregulated rail transportation from July 1, 2003 through
December 1, 2008. This is a procedural ruling, which does not affirm any of the claims asserted by the
plaintiffs and does not affect the ability of the railroad defendants to disprove the allegations made by the
plaintiffs. On July 5, 2012, the defendant railroads filed a petition with the U.S. Court of Appeals for the
District of Columbia requesting that the court review the class certification ruling. On August 28, 2012, a
panel of the Circuit Court of the District of Columbia referred the petition to a merits panel of the court to
address the issues in the petition and to address whether the district court properly granted class
certification.
We deny the allegations that our fuel surcharge programs violate the antitrust laws or any other laws. We
believe that these lawsuits are without merit, and we will vigorously defend our actions. Therefore, we
currently believe that these matters will not have a material adverse effect on any of our results of
operations, financial condition and liquidity.
17
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Registrant and Principal Executive Officers of Subsidiaries
The Board of Directors typically elects and designates our executive officers on an annual basis at the
board meeting held in conjunction with the Annual Meeting of Shareholders, and they hold office until
their successors are elected. Executive officers also may be elected and designated throughout the year,
as the Board of Directors considers appropriate. There are no family relationships among the officers, nor
any arrangement or understanding between any officer and any other person pursuant to which the
officer was selected. The following table sets forth certain information current as of February 8, 2013,
relating to the executive officers.
Name
James R. Young
John J. Koraleski
Robert M. Knight, Jr.
Diane K. Duren
Barbara W. Schaefer
Gayla L. Thal
Jeffrey P. Totusek
Lance M. Fritz
Eric L. Butler
Position
Chairman of UPC and the Railroad
President and Chief Executive Officer of UPC
and the Railroad
Executive Vice President – Finance and Chief
Financial Officer of UPC and the Railroad
Executive Vice President of UPC and the Railroad 53
59
Senior Vice President – Human Resources and
Secretary of UPC and the Railroad
Senior Vice President – Law and General
Counsel of UPC and the Railroad
Vice President and Controller of UPC and Chief
Accounting Officer and Controller of the Railroad
Executive Vice President – Operations of the
Railroad
Executive Vice President – Marketing and Sales
of the Railroad
56
50
52
Business
Experience During
Age Past Five Years
60
62
[1]
[2]
55 Current Position
54 Current Position
[3]
[4]
[5]
[6]
[7]
[1] On March 2, 2012, Mr. Young stepped down from his duties as President and Chief Executive Officer of UPC and the
Railroad due to a health condition. He remains Chairman of the Board.
[2] Mr. Koraleski was elected Chief Executive Officer and President of UPC and the Railroad effective March 2, 2012. He
previously was Executive Vice President - Marketing and Sales of the Railroad effective March 1, 1999.
[3] Ms. Duren was elected to her current position effective October 1, 2012. She previously was Vice President and General
Manager - Chemicals effective August 1, 2006. In addition, Ms. Duren was elected Corporate Secretary, which will become
effective March 1, 2013, upon Ms. Schaefer's retirement.
[4] Ms. Schaefer is retiring from UPC and the Railroad effective March 1, 2013.
[5] Ms. Thal was elected to her current position effective March 15, 2012. She previously was Vice President - Law and Chief
Compliance Officer effective December 1, 2005.
[6] Mr. Fritz was elected to his current position effective September 1, 2010. He previously was Vice President – Operations of
the Railroad, effective January 1, 2010. Mr. Fritz previously served as Vice President – Labor Relations effective March 1,
2008.
[7] Mr. Butler was elected to his current position effective March 15, 2012. He previously was Vice President and General
Manager - Industrial Products effective April 14, 2005.
18
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “UNP”. The
following table presents the dividends declared and the high and low prices of our common stock for each
of the indicated quarters.
2012 - Dollars Per Share
Dividends
Common stock price:
High
Low
2011 - Dollars Per Share
Dividends
Common stock price:
High
Low
Q1
0.60
$
Q2
0.60
$
Q3
0.60
$
Q4
0.69
$
117.40
104.77
119.82
104.08
129.27
115.38
128.38
116.06
Q1
0.38
$
Q2
0.475
$
Q3
0.475
$
Q4
0.60
$
99.50
90.66
105.60
92.80
107.89
79.58
106.60
77.73
At February 1, 2013, there were 469,298,732 shares of common stock outstanding and 32,519 common
shareholders of record. On that date, the closing price of the common stock on the NYSE was $133.96.
We have paid dividends to our common shareholders during each of the past 113 years. We declared
dividends totaling $1,180 million in 2012 and $938 million in 2011. On November 15, 2012, we increased
the quarterly dividend to $0.69 per share, payable beginning on January 2, 2013, to shareholders of
record on November 30, 2012. We are subject to certain restrictions regarding retained earnings with
respect to the payment of cash dividends to our shareholders. The amount of retained earnings available
for dividends increased to $15.1 billion at December 31, 2012, from $13.8 billion at December 31, 2011.
(See discussion of this restriction in Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Liquidity and Capital Resources, Item 7.) We do not believe the restriction on
retained earnings will affect our ability to pay dividends, and we currently expect to pay dividends in 2013.
Comparison Over One- and Three-Year Periods – The following table presents the cumulative total
shareholder returns, assuming reinvestment of dividends, over one- and three-year periods for the
Corporation (UNP), a peer group index (comprised of CSX Corporation and Norfolk Southern
Corporation), the Dow Jones Transportation Index (DJ Trans), and the Standard & Poor’s 500 Stock
Index (S&P 500).
Period
1 Year (2012)
3 Year (2010-2012)
DJ Trans
S&P 500
7.5 %
36.3
16.0 %
36.3
UNP Peer Group
21.2 %
(8.6) %
28.7
108.6
19
Five-Year Performance Comparison – The following graph provides an indicator of cumulative total
shareholder returns for the Corporation as compared to the peer group index (described above), the DJ
Trans, and the S&P 500. The graph assumes that $100 was invested in the common stock of Union
Pacific Corporation and each index on December 31, 2007 and that all dividends were reinvested.
Purchases of Equity Securities – During 2012, we repurchased 13,804,709 shares of our common
stock at an average price of $115.33. The following table presents common stock repurchases during
each month for the fourth quarter of 2012:
Period
Oct. 1 through Oct. 31
Nov. 1 through Nov. 30
Dec. 1 through Dec. 31
Total Number of
Shares
Purchased [a]
1,068,414
659,631
411,683
Average
Price Paid
Per Share
121.70
120.84
124.58
Total Number of Shares
Purchased as Part of a
Publicly Announced
Plan or Program [b]
1,028,300
655,000
350,450
Maximum Number of
Shares That May Yet Be
Purchased Under the Plan
or Program [b]
16,041,399
15,386,399
15,035,949
Total
2,139,728 $ 121.99
2,033,750
N/A
[a]
Total number of shares purchased during the quarter includes approximately 105,978 shares delivered or attested to UPC by
employees to pay stock option exercise prices, satisfy excess tax withholding obligations for stock option exercises or vesting
of retention units, and pay withholding obligations for vesting of retention shares.
[b] On April 1, 2011, our Board of Directors authorized the repurchase of up to 40 million shares of our common stock by March
31, 2014. These repurchases may be made on the open market or through other transactions. Our management has sole
discretion with respect to determining the timing and amount of these transactions.
20
Item 6. Selected Financial Data
The following table presents as of, and for the years ended, December 31, our selected financial data for
each of the last five years. The selected financial data should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations, Item 7, and with the Financial
Statements and Supplementary Data, Item 8. The information below is not necessarily indicative of future
financial condition or results of operations.
Millions, Except per Share Amounts,
Carloads, Employee Statistics, and Ratios
For the Year Ended December 31
Operating revenues [a]
Operating income
Net income
Earnings per share - basic
Earnings per share - diluted
Dividends declared per share
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Cash used for common share repurchases
At December 31
Total assets
Long-term obligations
Debt due after one year
Common shareholders' equity
Additional Data
Freight revenues [a]
Revenue carloads (units) (000)
Operating ratio (%) [b]
Average employees (000)
Financial Ratios (%)
Debt to capital [c]
Return on average common
shareholders' equity [d]
2012
2011
2010
2009
2008
$ 20,926
6,745
3,943
8.33
8.27
2.49
6,161
(3,633)
(2,682)
(1,474)
$ 19,557
5,724
3,292
6.78
6.72
1.93
5,873
(3,119)
(2,623)
(1,418)
$ 16,965
4,981
2,780
5.58
5.53
1.31
4,105
(2,488)
(2,381)
(1,249)
$ 14,143
3,379
1,890
3.76
3.74
1.08
3,204
(2,145)
(458)
-
$ 17,970
4,070
2,335
4.57
4.53
0.98
4,044
(2,738)
(935)
(1,609)
$ 47,153
24,157
8,801
19,877
$ 45,096
23,201
8,697
18,578
$ 43,088
22,373
9,003
17,763
$ 42,184
22,701
9,636
16,801
$ 39,509
21,314
8,607
15,315
$ 19,686
9,048
67.8
45.9
$ 18,508
9,072
70.7
44.9
$ 16,069
8,815
70.6
42.9
$ 13,373
7,786
76.1
43.5
$ 17,118
9,261
77.4
48.2
31.2
20.5
32.4
18.1
34.2
16.1
37.0
11.8
36.8
15.2
[a]
Includes fuel surcharge revenue of $2.6 billion, $2.2 billion, $1.2 billion, $0.6 billion, and $2.3 billion for 2012, 2011, 2010,
2009, and 2008, respectively, which partially offsets increased operating expenses for fuel. Fuel surcharge revenue is not
comparable from year to year due to implementation of new mileage-based fuel surcharge programs in each respective year.
(See further discussion in Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results
of Operations – Operating Revenues, Item 7.)
[b] Operating ratio is defined as operating expenses divided by operating revenues.
[c] Debt to capital is determined as follows: total debt divided by total debt plus common shareholders' equity.
[d] Return on average common shareholders' equity is determined as follows: Net income divided by average common
shareholders' equity.
21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and
applicable notes to the Financial Statements and Supplementary Data, Item 8, and other information in
this report, including Risk Factors set forth in Item 1A and Critical Accounting Policies and Cautionary
Information at the end of this Item 7.
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment.
Although revenue is analyzed by commodity, we analyze the net financial results of the Railroad as one
segment due to the integrated nature of the rail network.
EXECUTIVE SUMMARY
2012 Results
Safety – Our employee safety results continued to improve in 2012. The employee injury incident rate
per 200,000 employee hours declined 9% from 2011, to a new record low. These results reflect
employee training, the move to standard work, and extensive efforts to identify and eliminate risk. Our
use of technologies such as laser, ultrasound, and acoustic vibration monitoring, which help identify
potential rail, wheel and axle failures before they occur contributed to the reduction of our equipment
incident rate to 9.38 per million train miles, another best ever result. With respect to public safety, we
closed 237 grade crossings in 2012 to reduce our exposure to incidents and continued use of video
cameras on our locomotives to analyze public safety incidents. We now have camera-equipped
locomotives in the lead position on over 97% of our through-freight trains. Despite our efforts during
2012, the rate of grade crossing incidents per million train miles increased 13% from 2011. Overall,
our 2012 safety results reflect our structured approach to reduce risk and eliminate incidents for our
employees, our customers and the public.
Financial Performance – We produced another record-setting year in 2012, generating operating
income of $6.7 billion, an 18% increase over 2011. Despite flat volume, core pricing gains of 4.5%
and higher fuel surcharge recoveries more than offset inflation and higher depreciation expense to
drive the increase. Our operating ratio for 2012 of 67.8% was an all-time best, improving from last
year’s operating ratio of 70.7%. Net income of $3.9 billion surpassed our previous milestone set in
2011, translating into earnings of $8.27 per diluted share for 2012.
Freight Revenues – Our freight revenues grew 6% year-over-year to $19.7 billion. Freight revenues
for four of the six commodity groups increased despite flat volume. Volume declines in Coal and
Agricultural Products offset double digit volume increases in Automotive and Chemicals. Core pricing
gains and higher fuel surcharges drove the growth in freight revenue in 2012 compared to 2011. Fuel
surcharges increased due to higher fuel prices, the lag effect of our programs (surcharges trail
fluctuations in fuel price by approximately two months) and new fuel surcharge provisions in
renegotiated contracts.
Network Operations – In 2012, our business mix changed significantly both geographically and by
commodity. Nevertheless, by adjusting resources to match market and network requirements, we
continued operating an efficient and fluid network. As reported to the Association of American
Railroads (AAR), average train speed increased 4% in 2012 compared to 2011, reflecting more
efficient operations and relatively mild weather conditions compared to 2011, which included severe
winter weather, flooding, and extreme heat and drought that affected various parts of our network
during the year. Average terminal dwell time remained flat despite a shift in business mix to more
manifest traffic, which requires more switching, resulting in more terminal dwell time. Average rail car
inventory decreased slightly, reflecting productivity improvements and ongoing initiatives designed to
reduce the number of cars in our fleet. These operational improvements resulted in a record customer
satisfaction index in 2012.
Fuel Prices – Despite consistent average crude oil barrel prices in 2011 and 2012, our price per
gallon of diesel fuel consumed increased 3% due to higher crude oil to diesel conversion spreads.
The higher spreads increased operating expenses by $105 million (excluding any impact from year-
over-year volume). A 2% decline in gross-ton miles partially offset the higher expenses. Our fuel
consumption rate did not change in 2012 from the rate in 2011.
22
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
Cash provided by operating activities
Receivables securitization facility [a]
Cash provided by operating activities
adjusted for the receivables securitization facility
Cash used in investing activities
Dividends paid
Free cash flow
2011
2012
2010
$ 6,161 $ 5,873 $ 4,105
400
-
-
6,161
5,873
4,505
(3,633)
(1,146)
(3,119)
(837)
(2,488)
(602)
$ 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 under
the new accounting standard for all periods presented.
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.)
23
Positive Train Control – In response to a legislative mandate to implement PTC, we expect to spend
approximately $450 million during 2013 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 the project. 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 to integrate the components of the system.
Financial Expectations – We are cautious about the economic environment but if industrial
production grows approximately 2% as projected, volume should exceed 2012 levels. Even with no
volume growth, we expect earnings to exceed 2012 earnings, generated by real core pricing gains,
on-going network improvements and operational productivity initiatives. We also expect that a new
bonus depreciation program under federal tax laws will positively impact cash flows in 2013.
RESULTS OF OPERATIONS
Operating Revenues
Millions
Freight revenues
Other revenues
Total
2012
$ 19,686
2011
$ 18,508
1,240
1,049
2010
$ 16,069
896
% Change
2012 v 2011
6%
18
% Change
2011 v 2010
15%
17
$ 20,926
$ 19,557
$ 16,965
7%
15%
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 from four of our six commodity groups increased during 2012 compared to 2011.
Revenues from coal and agricultural products declined during the year. Our franchise diversity allowed
us to take advantage of growth from shale-related markets (crude oil, frac sand and pipe) and strong
automotive manufacturing, which offset volume declines from coal and agricultural products. ARC
increased 7%, driven by core pricing gains and higher fuel cost recoveries. Improved fuel recovery
provisions and higher fuel prices, including the lag effect of our programs (surcharges trail fluctuations in
fuel price by approximately two months), combined to increase revenues from fuel surcharges.
Freight revenues for all six commodity groups increased during 2011 compared to 2010, while volume
increased in all commodity groups except intermodal. Increased demand in many market sectors, with
particularly strong growth in chemicals, 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. Higher fuel prices, volume growth, and new fuel surcharge provisions in renegotiated
contracts all combined to increase revenues from fuel surcharges.
Our fuel surcharge programs (excluding index-based contract escalators that contain some provision for
fuel) generated freight revenues of $2.6 billion, $2.2 billion, and $1.2 billion in 2012, 2011, and 2010,
respectively. Ongoing rising fuel prices and increased fuel surcharge coverage drove the increases.
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.
24
In 2012, other revenues increased from 2011 due primarily to higher revenues at our subsidiaries that
broker intermodal and automotive services. Assessorial revenues also increased in 2012 due to
container revenue related to an increase in intermodal shipments.
In 2011, other revenues increased from 2010 due primarily to higher revenues at our subsidiaries that
broker intermodal and automotive services.
The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and
ARC by commodity type:
Freight Revenues
Millions
Agricultural
Automotive
Chemicals
Coal
Industrial Products
Intermodal
Total
Revenue Carloads
Thousands
Agricultural
Automotive
Chemicals
Coal
Industrial Products
Intermodal [a]
Total
Average Revenue per Car
Agricultural
Automotive
Chemicals
Coal
Industrial Products
Intermodal [a]
$
2012
3,280
1,807
3,238
3,912
3,494
3,955
$
2011
3,324
1,510
2,815
4,084
3,166
3,609
$
2010
3,018
1,271
2,425
3,489
2,639
3,227
$ 19,686
$ 18,508
$ 16,069
2012
900
738
1,042
1,871
1,185
3,312
9,048
2012
3,644
2,448
3,107
2,092
2,947
1,194
$
2011
934
653
921
2,164
1,146
3,254
9,072
2011
3,561
2,311
3,055
1,888
2,762
1,109
$
% Change
2012 v 2011
% Change
2011 v 2010
(1) %
20
15
(4)
10
10
6 %
10 %
19
16
17
20
12
15 %
% Change
2012 v 2011
% Change
2011 v 2010
2010
918
611
844
2,056
1,073
3,313
(4) %
13
13
(14)
3
2
8,815 - %
2 %
7
9
5
7
(2)
3 %
$
2010
3,286
2,082
2,874
1,697
2,461
974
% Change
2012 v 2011
% Change
2011 v 2010
2 %
6
2
11
7
8
7 %
8 %
11
6
11
12
14
12 %
Average
$
2,176
$
2,040
$
1,823
[a] Each intermodal container or trailer equals one carload.
25
freight
2012 Agricultural Carloads
Agricultural Products – Lower volume more
than offset core pricing gains and increased fuel
revenue
surcharges as agricultural
decreased in 2012 versus 2011. Weak export
demand for U.S. wheat drove a 19% decrease
in wheat shipments year over year, as the
foreign wheat market improved significantly
from the weather affected crop in 2011. In
addition, corn shipments declined 11% for the
year, with more significant declines in the fourth
quarter, reflecting the impact of the severe
Lower gasoline
the U.S.
drought across
demand, reduced exports and higher corn
prices decreased ethanol shipments during the
second half of the year. Growth in imported
beer from Mexico and a strong domestic harvest of fresh potatoes partially offset these declines.
Fuel surcharges, price improvements and modest volume growth increased agricultural freight revenue in
2011 versus 2010. The federal mandate for higher levels of ethanol in the nation’s fuel supply and new
business increased shipments of ethanol by 10% in 2011 versus 2010. Strong export demand for U.S.
wheat via Gulf ports in the first half of 2011 was the primary driver of a 6% increase in wheat and food
grains shipments for 2011 compared to 2010, despite a 19% decrease in shipments in the second half of
2011 when U.S. grain exports declined. Poor wheat production in some foreign markets drove the export
demand during the first six months of the year.
Automotive – Increased shipments of finished
vehicles and automotive parts along with core
pricing gains and higher
fuel surcharges
improved automotive freight revenue from 2011
levels. Higher production and sales levels drove
the volume growth. In addition, 2012 shipments
compared
lower
shipments of international vehicles in 2011
following the disaster in Japan.
to 2011 due
favorably
to
2012 Automotive Carloads
Higher volume, core pricing gains and fuel
surcharges improved automotive freight revenue
in 2011, from 2010 levels. Although higher
production and sales
levels during 2011
contributed to volume growth, the disaster in
Japan partially offset the increase in shipments.
The disruption caused by this event reduced parts shipments in the second quarter and shipments of
international vehicles in the second and third quarters. Finished autos shipments were up 7% in 2011
from 2010, aided by a 14% increase in the fourth quarter as the U.S. light-vehicle sales rate was the
highest since the second quarter of 2008.
revenue
Chemicals – Higher volume, core price
improvements and fuel surcharges increased
in 2012.
freight
from chemicals
Shipments of crude oil primarily
the
from
Bakken, Permian and Eagle Ford Shale
formations to the Gulf area increased over three
fold, driving the improvement in chemicals
shipments. In addition, plastics and industrial
chemicals shipments increased as low natural
gas prices have made U.S. chemicals more
cost competitive globally. Declines in potash
due
temporary shutdowns and reduced
production at several mines partially offset the
increases in chemical shipments during the
year.
to
2012 Chemicals Carloads
26
Volume gains, fuel surcharges and price improvements increased freight revenue from chemicals in 2011
versus 2010. In mid-2010, we began moving crude oil shipments from the Bakken formation in North
Dakota to facilities in Louisiana. This new business, along with shipments from the Eagle Ford shale
formation in south Texas, contributed to a 37% increase in shipments of petroleum products during 2011.
Strong domestic demand and robust spring planting increased fertilizer shipments by 9% versus 2010.
Additionally, improving market conditions increased demand for industrial chemicals during 2011, driving
volume levels up versus 2010.
2012 Coal Carloads
Coal – Lower volume, partially offset by core
pricing gains and fuel surcharge recoveries
reduced freight revenue from coal shipments in
2012 compared to 2011. Shipments of coal from
the Southern Powder River Basin (SPRB) mines
decreased 15% from 2011. Above average coal
stockpiles due to an unseasonably warm winter
and low natural gas prices, which caused some
displacement of coal in electricity production,
led to the volume declines. In addition, the loss
of two contracts to a competitor contributed to
lower volumes from the SPRB. Coal shipments
from the Colorado and Utah mines increased
2% versus 2011. Increased export shipments of
Colorado and Utah coal in 2012 offset the
domestic declines due to higher stockpiles and
low natural gas prices.
Core pricing gains, higher fuel surcharges, and increased volume grew coal freight revenue in 2011
versus 2010 levels. Shipments of coal from the SPRB were up 5% in 2011 compared to 2010, reflecting
new business to Wisconsin facilities and the start-up of a new power plant near Waco, Texas.
Completion of a year-long equipment relocation process at one of the mines in the third quarter of 2011
and minimal production problems elsewhere improved shipments from Colorado and Utah by 3% in 2011
versus 2010. These gains, along with increased exports to Europe and Asia, offset first half production
problems and weak demand from eastern coal utilities.
2012 Industrial Products Carloads
from
freight
revenue
Industrial Products – Core pricing improvement,
higher volume and additional fuel surcharges
increased
industrial
products in 2012 versus 2011. Shipments of
non-metallic minerals (primarily frac sand), grew
in response to increased horizontal drilling
activity for energy products. More construction
activity during a relatively mild winter led to
higher demand for shipments of lumber, cement
and stone compared to 2011. The growth in
housing starts throughout 2012 also increased
lumber shipments, up 12% from 2011. Steel
shipments finished slightly down from 2011
levels as lower demand for export scrap and
mine production issues in the second half of the
year offset increases in the first half due to
higher demand for steel coils and plate for pipe
and auto production.
Increased volume, fuel surcharges, and core pricing improvement increased freight revenue from
industrial products in 2011 versus 2010. Shipments of non-metallic minerals (primarily frac sand) grew in
response to a dramatic rise in horizontal drilling activity for natural gas and oil, while steel shipments
increased due to higher demand for steel coils and plate for automotive and pipe production. In addition,
an increase in iron ore export business to China also drove volume growth. Conversely, lower
commercial construction activity reduced stone, sand and gravel shipments in 2011 compared to 2010.
27
2012 Intermodal Carloads
Intermodal – Higher fuel surcharges, including
improved fuel recovery provisions, core pricing
gains and volume growth increased freight
revenue from intermodal shipments in 2012.
Volume levels from international traffic remained
flat year-over-year as the loss of a customer
contract in the first half of the year offset modest
West Coast import growth. Domestic traffic
increased 3% versus 2011 due to better market
conditions and continued conversion of traffic
from truck to rail.
Fuel surcharge gains, including better contract
provisions for fuel cost recovery, and pricing
improvements, partially offset by lower volume,
increased freight revenue from intermodal shipments in 2011 compared to 2010. Volume from
international traffic decreased 5% in 2011 versus 2010, driven by softer economic conditions, reflected in
a muted international peak shipping season, which usually starts in the third quarter, and the loss of a
customer contract. Conversely, conversions from truck to rail and recovering consumer demand offset
competition for domestic shipments, resulting in a 2% volume increase in domestic shipments during
2011.
Mexico Business – Each of our commodity groups includes revenue from shipments to and from Mexico.
Revenue from Mexico business increased 8% to $1.9 billion in 2012 versus 2011. Volume levels for four
of the six commodity groups (industrial products and agricultural products declined), were up 5% in
aggregate versus 2011, with particularly strong growth in automotive and intermodal shipments.
Revenue from Mexico business increased 16% to $1.8 billion in 2011 versus 2010. Volume levels
increased 9% in aggregate versus 2010, with particularly strong growth in automotive and industrial
products. Coal was the one commodity group that declined as one of our customers conducted a
supplier contract renewal during the year, shifting transportation modes from rail to truck during the
process.
28
Operating Expenses
Millions
Compensation and benefits
Fuel
Purchased services and materials
Depreciation
Equipment and other rents
Other
$
2012
4,685
3,608
2,143
1,760
1,197
788
$
2011
4,681
3,581
2,005
1,617
1,167
782
$
2010
4,314
2,486
1,836
1,487
1,142
719
% Change
2012 v 2011
% Change
2011 v 2010
- %
1
7
9
3
1
9 %
44
9
9
2
9
Total
$ 14,181
$ 13,833
$ 11,984
3 %
15 %
2012 Operating Expenses
Operating expenses increased $348 million in
2012 versus 2011. Depreciation, wage and
benefit inflation, higher fuel prices and volume-
related trucking services purchased by our
logistics subsidiaries, contributed
to higher
expenses during the year. Efficiency gains,
volume related fuel savings (2% fewer gallons
of fuel consumed) and $38 million of weather
related expenses in 2011, which favorably
affects the comparison, partially offset the cost
increase.
Operating expenses increased $1.8 billion in
2011 versus 2010. Our fuel price per gallon
rose 36% during 2011, accounting for $922
million of the increase. Wage and benefit inflation, volume-related costs, depreciation, and property taxes
also contributed to higher expenses. Expenses increased $20 million for costs related to the flooding in
the Midwest and $18 million due to the impact of severe heat and drought in the South, primarily Texas.
Cost savings from productivity improvements and better resource utilization partially offset these
increases. A $45 million one-time payment relating to a transaction with CSX Intermodal, Inc (CSXI)
increased operating expenses during the first quarter of 2010, which favorably affects the comparison of
operating expenses in 2011 to those in 2010.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and
welfare costs, pension costs, other postretirement benefits, and incentive costs. Expenses in 2012 were
essentially flat versus 2011 as operational improvements and cost reductions offset general wage and
benefit inflation and higher pension and other postretirement benefits. In addition, weather related costs
increased these expenses in 2011.
A combination of general wage and benefit inflation, volume-related expenses, higher training costs
associated with new hires, additional crew costs due to speed restrictions caused by the Midwest flooding
and heat and drought in the South, and higher pension expense drove the increase during 2011
compared to 2010.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Higher locomotive diesel fuel prices, which averaged $3.22 per gallon (including taxes and
transportation costs) in 2012, compared to $3.12 in 2011, increased expenses by $105 million. Volume,
as measured by gross ton-miles, decreased 2% in 2012 versus 2011, driving expense down. The fuel
consumption rate was flat year-over-year.
Higher locomotive diesel fuel prices, which averaged $3.12 (including taxes and transportation costs) in
2011, compared to $2.29 per gallon in 2010, increased expenses by $922 million. In addition, higher
gasoline prices for highway and non-highway vehicles also increased year-over-year. Volume, as
measured by gross ton-miles, increased 5% in 2011 versus 2010, driving expense up by $122 million.
Purchased Services and Materials – Expense for purchased services and materials includes the costs of
services purchased from outside contractors and other service providers (including equipment
29
maintenance and contract expenses incurred by our subsidiaries for external transportation services);
materials used to maintain the Railroad’s lines, structures, and equipment; costs of operating facilities
jointly used by UPRR and other railroads; transportation and lodging for train crew employees; trucking
and contracting costs for intermodal containers; leased automobile maintenance expenses; and tools and
supplies. Expenses for contract services increased $103 million in 2012 versus 2011, primarily due to
increased demand for transportation services purchased by our logistics subsidiaries for their customers
and additional costs for repair and maintenance of locomotives and freight cars.
Expenses for contract services increased $106 million in 2011 versus 2010, driven by volume-related
external transportation services incurred by our subsidiaries, and various other types of contractual
services, including flood-related repairs, mitigation and improvements. Volume-related crew transportation
and lodging costs, as well as expenses associated with jointly owned operating facilities, also increased
costs compared to 2010. In addition, an increase in locomotive maintenance materials used to prepare a
portion of our locomotive fleet for return to active service due to increased volume and additional capacity
for weather related issues and warranty expirations increased expenses in 2011.
Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other
track material. A higher depreciable asset base, reflecting ongoing capital spending, increased
depreciation expense in 2012 compared to 2011.
A higher depreciable asset base, reflecting ongoing capital spending, increased depreciation expense in
2011 compared to 2010. Higher depreciation rates for rail and other track material also contributed to the
increase. The higher rates, which became effective January 1, 2011, resulted primarily from increased
track usage (based on higher gross ton-miles in 2010).
Equipment and Other Rents – Equipment and other rents expense primarily includes rental expense that
the Railroad pays for freight cars owned by other railroads or private companies; freight car, intermodal,
and locomotive leases; and office and other rent expenses. Increased automotive and intermodal
shipments, partially offset by improved car-cycle times, drove an increase in our short-term freight car
rental expense in 2012. Conversely, lower locomotive lease expense partially offset the higher freight car
rental expense.
Costs increased in 2011 versus 2010 as higher short-term freight car rental expense and container lease
expense offset lower freight car and locomotive lease expense.
Other – Other expenses include personal injury, freight and property damage, destruction of equipment,
insurance, environmental, bad debt, state and local taxes, utilities, telephone and cellular, employee
travel, computer software, and other general expenses. Other costs in 2012 were slightly higher than
2011 primarily due to higher property taxes. Despite continual improvement in our safety experience and
lower estimated annual costs, personal injury expense increased in 2012 compared to 2011, as the
liability reduction resulting from historical claim experience was less than the reduction in 2011.
Higher property taxes, casualty costs associated with destroyed equipment, damaged freight and
property and environmental costs increased other costs in 2011 compared to 2010. A one-time payment
of $45 million in the first quarter of 2010 related to a transaction with CSXI and continued improvement in
our safety performance and lower estimated liability for personal injury, which reduced our personal injury
expense year-over-year, partially offset increases in other costs.
Non-Operating Items
Millions
Other income
Interest expense
Income taxes
$
2012
108
(535)
(2,375)
$
2011
112
(572)
(1,972)
$
2010
54
(602)
(1,653)
% Change
2012 v 2011
% Change
2011 v 2010
(4) %
(6)
20 %
107 %
(5)
19 %
Other Income – Other income decreased in 2012 versus 2011 due to lower gains from real estate sales
and higher environmental costs associated with non-operating properties, partially offset by an interest
payment from a tax refund.
30
Other income increased in 2011 versus 2010 due to higher gains from real estate sales, lower
environmental costs associated with non-operating properties and the comparative impact of premiums
paid for early redemption of long-term debt in the first quarter of 2010.
Interest Expense – Interest expense decreased in 2012 versus 2011 reflecting a lower effective interest
rate in 2012 of 6.0% versus 6.2% in 2011 as the debt level did not materially change in 2012.
Interest expense decreased in 2011 versus 2010 due to a lower weighted-average debt level of $9.2
billion versus $9.7 billion. The effective interest rate was 6.2% in both 2011 and 2010.
Income Taxes – Higher pre-tax income increased income taxes in 2012 compared to 2011. Our effective
tax rate for 2012 was relatively flat at 37.6% compared to 37.5% in 2011.
Income taxes were higher in 2011 compared to 2010, primarily driven by higher pre-tax income. Our
effective tax rate remained relatively flat at 37.5% in 2011 compared to 37.3% in 2010.
OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS
We report key performance measures weekly to the Association of American Railroads (AAR), including
carloads, average daily inventory of freight cars on our system, average train speed, and average
terminal dwell time. We provide this data on our website at www.up.com/investors/reports/index.shtml.
Operating/Performance Statistics
Railroad performance measures reported to the AAR, as well as other performance measures, are
included in the table below:
Average train speed (miles per hour)
Average terminal dwell time (hours)
Average rail car inventory (thousands)
Gross ton-miles (billions)
Revenue ton-miles (billions)
Operating ratio
Employees (average)
Customer satisfaction index
2012
26.5
26.2
269.1
959.3
521.1
67.8
45,928
93
2011
25.6
26.2
272.9
978.2
544.4
70.7
44,861
92
2010
26.2
25.4
274.4
931.4
520.4
70.6
42,884
89
% Change
2012 v 2011
% Change
2011 v 2010
4 %
- %
(1)%
(2)%
(4)%
(2.9)pts
2 %
1 pt
(2)%
3 %
(1)%
5 %
5 %
0.1 pts
5 %
3 pts
Average Train Speed – Average train speed is calculated by dividing train miles by hours operated on our
main lines between terminals. Average train speed, as reported to the Association of American Railroads
(AAR), increased 4% in 2012 versus 2011. Efficient operations and relatively mild weather conditions
during the year compared favorably to 2011, during which severe winter weather, flooding, and extreme
heat and drought affected various parts of our network. We continued operating a fluid and efficient
network while handling essentially the same volume and adjusting operations to accommodate increased
capital project work on our network compared to 2011. The extreme weather challenges in addition to
increased carloadings and traffic mix changes, led to a 2% decrease in average train speed in 2011
compared to 2010.
Average Terminal Dwell Time – Average terminal dwell time is the average time that a rail car spends at
our terminals. Lower average terminal dwell time improves asset utilization and service. Average terminal
dwell time remained flat in 2012 compared to 2011, despite a shift in traffic mix to more manifest
shipments, which require more switching at terminals. Average terminal dwell time increased 3% in 2011
compared to 2010. Additional volume, weather challenges, track replacement programs, and a shift of
traffic mix to more manifest shipments, which require additional terminal processing, all contributed to the
increase.
Average Rail Car Inventory – Average rail car inventory is the daily average number of rail cars on our
lines, including rail cars in storage. Lower average rail car inventory reduces congestion in our yards and
sidings, which increases train speed, reduces average terminal dwell time, and improves rail car
utilization. Despite a shift in traffic mix from coal to shale-related and automotive shipments with longer
31
cycle times, productivity improvements reduced average rail car inventory by 1% in 2012 compared to
2011. Average rail car inventory decreased slightly in 2011 compared to 2010, as we continued to adjust
the size of our freight car fleet.
Gross and Revenue Ton-Miles – Gross ton-miles are calculated by multiplying the weight of loaded and
empty freight cars by the number of miles hauled. Revenue ton-miles are calculated by multiplying the
weight of freight by the number of tariff miles. Gross ton-miles declined 2% in 2012 compared to 2011,
while revenue ton-miles decreased 4% and carloads remained relatively flat. Changes in commodity mix
drove the year-over-year variances between gross ton-miles, revenue ton-miles and carloads. Gross and
revenue-ton-miles increased 5% in 2011 compared to 2010, driven by a 3% increase in carloads and mix
changes to heavier commodity groups, notably a 5% increase in coal shipments.
Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating
revenue. Our operating ratio improved 2.9 points to a record low of 67.8% in 2012 versus 2011. Core
pricing gains, improved fuel recovery provisions, efficient operations and cost reductions more than offset
the impact of inflationary pressures. Our operating ratio increased 0.1 points to 70.7% in 2011 versus
2010. Higher fuel prices, inflation and weather related costs, partially offset by core pricing gains and
productivity initiatives, drove the increase.
Employees – Employee levels increased 2% in 2012 versus 2011. Work related to the increase in capital
investment, including positive train control, accounted for over half of the increase. Additionally, the shift
in our traffic mix required more resources in the Southern region to support the growth in shale-related
shipments. Employee levels were up 5% in 2011 versus 2010, driven by a 3% increase in volume levels,
a higher number of trainmen, engineers, and yard employees receiving training during the year, and
increased work on capital projects.
Customer Satisfaction Index – Our customer satisfaction survey asks customers to rate how satisfied they
are with our performance over the last 12 months on a variety of attributes. A higher score indicates
higher customer satisfaction. We believe that improvement in survey results in 2012 generally reflects
customer recognition of our service quality supported by our capital investment program.
Return on Average Common Shareholders’ Equity
Millions, Except Percentages
Net income
Average equity
Return on average common shareholders' equity
Return on Invested Capital as Adjusted (ROIC)
Millions, Except Percentages
Net income
Add: Interest expense
Add: Interest on present value of operating leases
Less: Taxes on interest
Net operating profit after taxes as adjusted (a)
Average equity
Add: Average debt
Add: Average value of sold receivables
Add: Average present value of operating leases
$
$
$
$
$
2012
3,943
19,228
20.5%
2012
3,943
535
190
(273)
4,395
19,228
8,952
-
3,160
$
$
$
$
$
2011
3,292
18,171
18.1%
2011
3,292
572
208
(293)
3,779
18,171
9,074
-
3,350
$
$
$
$
$
2010
2,780
17,282
16.1%
2010
2,780
602
222
(307)
3,297
17,282
9,545
200
3,574
Average invested capital as adjusted (b)
$
31,340
$
30,595
$
30,601
Return on invested capital as adjusted (a/b)
14.0%
12.4%
10.8%
ROIC is considered a non-GAAP financial measure 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 this
measure is important in evaluating the efficiency and effectiveness of our long-term capital investments.
In addition, we currently use ROIC as a performance criteria in determining certain elements of equity
compensation for our executives. ROIC should be considered in addition to, rather than as a substitute
32
for, other information provided in accordance with GAAP. The most comparable GAAP measure is Return
on Average Common Shareholders’ Equity. The tables on the previous page provide reconciliations from
return on average common shareholders’ equity to ROIC. Our 2012 ROIC improved 1.6 points compared
to 2011, primarily as a result of higher earnings.
Debt to Capital / Adjusted Debt to Capital
Millions, Except Percentages
Debt (a)
Equity
Capital (b)
Debt to capital (a/b)
Millions, Except Percentages
Debt
Net present value of operating leases
Unfunded pension and OPEB
Adjusted debt (a)
Equity
Adjusted capital (b)
Adjusted debt to capital (a/b)
$
$
$
$
$
2012
8,997
19,877
28,874
31.2%
2012
8,997
3,096
679
12,772
19,877
32,649
39.1%
$
$
$
$
$
2011
8,906
18,578
27,484
32.4%
2011
8,906
3,224
623
12,753
18,578
31,331
40.7%
Adjusted debt to capital is a non-GAAP financial measure under 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 this measure is important to management and investors in evaluating the total amount of leverage
in our capital structure, including off-balance sheet lease obligations, which we generally incur in
connection with financing the acquisition of locomotives and freight cars and certain facilities. Operating
leases were discounted using 6.0% and 6.2% at December 31, 2012 and 2011, respectively. The
discount rate reflects our effective interest rate. We monitor the ratio of adjusted debt to capital as we
manage our capital structure to balance cost-effective and efficient access to the capital markets with our
overall cost of capital. Adjusted debt to capital should be considered in addition to, rather than as a
substitute for, debt to capital. The tables above provide reconciliations from debt to capital to adjusted
debt to capital. Our December 31, 2012 debt to capital ratios decreased as a result of a $1.3 billion
increase in equity from December 31, 2011, driven by higher earnings.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2012, our principal sources of liquidity included cash, cash equivalents, our
receivables securitization facility, and our revolving credit facility, as well as the availability of commercial
paper and other sources of financing through the capital markets. We had $1.8 billion of committed credit
available under our credit facility, with no borrowings outstanding as of December 31, 2012. We did not
make any borrowings under this facility during 2012. The value of the outstanding undivided interest held
by investors under the $600 million capacity receivables securitization facility was $100 million as of
December 31, 2012, and is included in our Consolidated Statements of Financial Position as debt due
after one year. The receivables securitization facility obligates us to maintain an investment grade bond
rating. If our bond rating were to deteriorate, it could have an adverse impact on our liquidity. Access to
commercial paper as well as other capital market financings is dependent on market conditions.
Deterioration of our operating results or financial condition due to internal or external factors could
negatively impact our ability to access capital markets as a source of liquidity. Access to liquidity through
the capital markets is also dependent on our financial stability. We expect that we will continue to have
access to liquidity through any or all of the following sources or activities: (i) increasing the utilization of
our receivables securitization, (ii) issuing commercial paper, (iii) entering into bank loans, outside of our
revolving credit facility, or (iv) issuing bonds or other debt securities to public or private investors based
on our assessment of the current condition of the credit markets. The Company’s $1.8 billion revolving
credit facility is intended to back Union Pacific’s ability to issue commercial paper and is an emergency
back-up source of liquidity. The Company has no current intentions of borrowing under this facility.
33
At December 31, 2012 and 2011, we had a working capital surplus. This reflects a strong cash position,
which provides enhanced liquidity in an uncertain economic environment. In addition, we believe we have
adequate access to capital markets to meet any foreseeable cash requirements, and we have sufficient
financial capacity to satisfy our current liabilities.
Cash Flows
Millions
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Net change in cash and cash equivalents
Operating Activities
2012
6,161
(3,633)
(2,682)
(154)
$
$
2011
5,873
(3,119)
(2,623)
131
$
$
2010
4,105
(2,488)
(2,381)
(764)
$
$
Higher net income in 2012 increased cash provided by operating activities compared to 2011, partially
offset by lower tax benefits from bonus depreciation (as explained below) and payments for past wages
based on national labor negotiations settled earlier this year.
Higher net income and lower cash income tax payments in 2011 increased cash provided by operating
activities compared to 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job
Creation Act of 2010 provided for 100% bonus depreciation for qualified investments made during 2011,
and 50% bonus depreciation for qualified investments made during 2012. As a result of the Act, the
Company deferred a substantial portion of its 2011 income tax expense. This deferral decreased 2011
income tax payments, thereby contributing to the positive operating cash flow. In future years, however,
additional cash will be used to pay income taxes that were previously deferred. In addition, the adoption
of a new accounting standard in January of 2010 changed the accounting treatment for our receivables
securitization facility from a sale of undivided interests (recorded as an operating activity) to a secured
borrowing (recorded as a financing activity), which decreased cash provided by operating activities by
$400 million in 2010.
Investing Activities
Higher capital investments in 2012 drove the increase in cash used in investing activities compared to
2011. Included in capital investments in 2012 was $75 million for the early buyout of 165 locomotives
under long-term operating and capital leases during the first quarter of 2012, which we exercised due to
favorable economic terms and market conditions.
Higher capital investments partially offset by higher proceeds from asset sales in 2011 drove the increase
in cash used in investing activities compared to 2010.
34
The tables below detail cash capital investments and track statistics for the years ended December 31,
2012, 2011, and 2010:
Millions
Rail and other track material
Ties
Ballast
Other [a]
Total road infrastructure replacements
Line expansion and other capacity projects
Commercial facilities
Total capacity and commercial facilities
Locomotives and freight cars
Positive train control
Technology and other
Total cash capital investments
$
2012
759
434
203
312
1,708
489
169
658
875
349
148
$
2011
697
403
220
382
1,702
311
111
422
675
229
148
$
2010
626
444
190
365
1,625
122
227
349
330
84
94
$
3,738
$
3,176
$
2,482
[a] Other includes bridges and tunnels, signals, other road assets, and road work equipment.
Track miles of rail replaced
Track miles of rail capacity expansion
New ties installed (thousands)
Miles of track surfaced
2012
1,051
139
4,436
11,049
2011
895
69
3,785
11,284
2010
795
46
4,334
10,883
Capital Plan – In 2013, we expect our total capital investments to be approximately $3.6 billion, which
may be revised if business conditions warrant or if new laws or regulations affect our ability to generate
sufficient returns on these investments. We expect to use over 60% of our 2013 capital investments to
replace and improve existing capital assets. Among our major investment categories are replacing and
improving track infrastructure; upgrading our locomotive and freight car fleet, including acquisition of 100
locomotives and 900 freight cars, primarily large covered hoppers, gondolas, auto racks and refrigerated
box cars; improving technology, including investing in PTC; and other capital projects. Additionally, we
will continue increasing our network and terminal capacity; for example, to balance terminal capacity with
more mainline capacity from our track expansion in the Southern region, we are constructing a rail facility
at Santa Teresa, New Mexico, that initially will include a run-through and fueling facility and an intermodal
ramp.
We expect to fund our 2013 cash capital investments by using some or all of the following: cash
generated from operations, proceeds from the sale or lease of various operating and non-operating
properties, proceeds from the issuance of long-term debt, and cash on hand. Our annual capital plan is a
critical component of our long-term strategic plan, which we expect will enhance the long-term value of
the Corporation for our shareholders by providing sufficient resources to (i) replace and improve our
existing track infrastructure to provide safe and fluid operations, (ii) increase network efficiency by adding
or improving facilities and track, and (iii) make investments that meet customer demand and take
advantage of opportunities for long-term growth.
Financing Activities
Cash used in financing activities increased in 2012 versus 2011. Dividend payments increased by $309
million, reflecting our higher dividend rate, and common stock repurchases increased by $56 million. Our
debt levels did not materially change from last year after a decline in debt levels from 2010. Therefore,
less cash was used in 2012 for debt activity than in 2011.
Cash used in financing activities increased in 2011 versus 2010. Higher dividend payments in 2011 of
$837 million compared to $602 million in 2010, reflecting our increased dividend rate and the repurchase
of $1.4 billion of our common stock, a $169 million increase from 2010 repurchases, drove the increase.
We used less cash to reduce outstanding debt in 2011, which partially offset this increase.
35
Credit Facilities – On December 31, 2012, we had $1.8 billion of credit available under our revolving
credit facility (the facility), which is designated for general corporate purposes and supports the issuance
of commercial paper. We did not draw on the facility during 2012. Commitment fees and interest rates
payable under the facility are similar to fees and rates available to comparably rated, investment-grade
borrowers. The facility allows for borrowings at floating rates based on London Interbank Offered Rates,
plus a spread, depending upon our senior unsecured debt ratings. The facility matures in 2015 under a
four year term and requires the Corporation to maintain a debt-to-net-worth coverage ratio as a condition
to making a borrowing. At December 31, 2012, and December 31, 2011 (and at all times during the year),
we were in compliance with this covenant.
The definition of debt used for purposes of calculating the debt-to-net-worth coverage ratio includes,
among other things, certain credit arrangements, capital leases, guarantees and unfunded and vested
pension benefits under Title IV of ERISA. At December 31, 2012, the debt-to-net-worth coverage ratio
allowed us to carry up to $39.8 billion of debt (as defined in the facility), and we had $9.6 billion of debt
(as defined in the facility) outstanding at that date. Under our current capital plans, we expect to continue
to satisfy the debt-to-net-worth coverage ratio; however, many factors beyond our reasonable control
could affect our ability to comply with this provision in the future. The facility does not include any other
financial restrictions, credit rating triggers (other than rating-dependent pricing), or any other provision
that could require us to post collateral. The facility also includes a $75 million cross-default provision and
a change-of-control provision.
During 2012, we issued and repaid commercial paper of $50 million. At December 31, 2012 and 2011,
we had no commercial paper outstanding. Our revolving credit facility supports our outstanding
commercial paper balances, and, unless we change the terms of our commercial paper program, our
aggregate issuance of commercial paper will not exceed the amount of borrowings available under the
facility.
At December 31, 2012 and 2011, we reclassified as long-term debt $100 million of debt due within one
year that we intend to refinance. This reclassification reflected our ability and intent to refinance any
short-term borrowings and certain current maturities of long-term debt on a long-term basis.
Ratio of Earnings to Fixed Charges
For each of the years ended December 31, 2012, 2011, and 2010, our ratio of earnings to fixed charges
was 10.4, 8.4, and 6.9, respectively. The ratio of earnings to fixed charges was computed on a
consolidated basis. Earnings represent income from continuing operations, less equity earnings net of
distributions, plus fixed charges and income taxes. Fixed charges represent interest charges,
amortization of debt discount, and the estimated amount representing the interest portion of rental
charges. (See Exhibit 12 to this report for the calculation of the ratio of earnings to fixed charges.)
Common Shareholders’ Equity
Dividend Restrictions – Our revolving credit facility includes a debt-to-net worth covenant (discussed in
the Credit Facilities section above) that, under certain circumstances, restricts the payment of cash
dividends to our shareholders. The amount of retained earnings available for dividends was $15.1 billion
and $13.8 billion at December 31, 2012 and 2011, respectively.
36
Share Repurchase Program
Effective April 1, 2011, our Board of Directors authorized the repurchase of 40 million shares of our
common stock by March 31, 2014, replacing our previous repurchase program. As of December 31,
2012, we repurchased a total of $7.1 billion of our common stock since the commencement of our
repurchase programs. The table below represents shares repurchased under the new repurchase
program, except for the first quarter of 2011 which represent shares repurchased under the previous
program.
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Number of Shares Purchased
2011
2,636,178
3,576,399
4,681,535
3,885,658
2012
3,917,369
3,770,528
3,098,812
2,033,750
2012
$ 110.64
110.02
122.13
121.81
$
Average Price Paid
2011
94.10
100.75
91.45
98.16
12,820,459
14,779,770
$ 115.01
$
95.94
Remaining number of shares that may be repurchased under current authority
15,035,949
Management's assessments of market conditions and other pertinent facts guide the timing and volume
of all repurchases. We expect to fund any share repurchases under this program through cash generated
from operations, the sale or lease of various operating and non-operating properties, debt issuances, and
cash on hand. Repurchased shares are recorded in treasury stock at cost, which includes any applicable
commissions and fees.
Shelf Registration Statement and Significant New Borrowings – Under our current shelf registration,
we may issue, from time to time, any combination of debt securities, preferred stock, common stock, or
warrants for debt securities or preferred stock in one or more offerings. We have no immediate plans to
issue equity securities; however, we will continue to explore opportunities to replace existing debt or
access capital through issuances of debt securities under our shelf registration, and, therefore, we may
issue additional debt securities at any time.
During 2012, we issued the following unsecured, fixed-rate debt securities under our current shelf
registration:
Date
June 11, 2012
Description of Securities
$300 million of 2.95% Notes due January 15, 2023
$300 million of 4.30% Notes due June 15, 2042
We used the net proceeds from the offering for general corporate purposes, including the repurchase of
common stock pursuant to our share repurchase program. These debt securities include change-of-
control provisions. At December 31, 2012, we had remaining authority to issue up to $1.4 billion of debt
securities under our shelf registration.
On May 22, 2012, we borrowed $100 million under a 4-year-term loan (the loan). The loan has a floating
rate based on London Interbank Offered Rates, plus a spread, and is prepayable in whole or in part
without a premium prior to maturity. The agreement documenting the loan has provisions similar to our
revolving credit facility, including identical debt-to-net-worth covenant and change of control provisions
and similar customary default provisions. The agreement does not include any other financial restrictions,
credit rating triggers, or any other provision that would require us to post collateral.
During the third and fourth quarters of 2012, we acquired 343 locomotives by exercising early buy-out
rights in certain operating and capital lease agreements. Following the acquisition of the locomotives, we
sold them to financing parties and entered into capital lease financing agreements with these parties. We
did not recognize any gains or losses as a result of these transactions. Capital lease obligations totaling
$286 million are reported in our Consolidated Statements of Financial Position as debt at December 31,
2012.
37
Debt Exchange – On June 23, 2011, we exchanged $857 million of various outstanding notes and
debentures due between 2013 and 2019 (Existing Notes) for $750 million of 4.163% notes (New Notes)
due July 15, 2022, plus cash consideration of approximately $267 million and $17 million for accrued and
unpaid interest on the Existing Notes. In accordance with the Accounting Standards Codification (ASC)
470-50-40, Debt-Modifications and Extinguishments-Derecognition, this transaction was accounted for as
a debt exchange, as the exchanged debt instruments are not considered to be substantially different.
The cash consideration was recorded as an adjustment to the carrying value of debt, and the balance of
the unamortized discount and issue costs from the Existing Notes is being amortized as an adjustment of
interest expense over the term of the New Notes. No gain or loss was recognized as a result of the
exchange. Costs related to the debt exchange that were payable to parties other than the debt holders
totaled approximately $6 million and were included in interest expense during the three months ended
June 30, 2011.
The following table lists the outstanding notes and debentures that were exchanged:
Millions
7.875% Notes due 2019
5.450% Notes due 2013
5.125% Notes due 2014
5.375% Notes due 2014
5.700% Notes due 2018
5.750% Notes due 2017
7.000% Debentures due 2016
5.650% Notes due 2017
Total
$
Principal amount
exchanged
196
50
45
55
277
178
38
18
$
857
Debt Redemptions – On November 30, 2012, we redeemed all $450 million of our outstanding 5.45%
notes due January 31, 2013. The redemption resulted in an early extinguishment charge of $4 million.
On April 28, 2012, we redeemed all $100 million of our outstanding 5.70% Tooele County, Utah
Hazardous Waste Treatment Revenue Bonds due November 1, 2026. The redemption resulted in an
early extinguishment charge of $2 million in the second quarter of 2012.
On December 19, 2011, we redeemed the remaining $175 million of our 6.5% notes due April 15, 2012,
and all $300 million of our outstanding 6.125% notes due January 15, 2012. The redemptions resulted in
an early extinguishment charge of $5 million.
On March 22, 2010, we redeemed $175 million of our 6.5% notes due April 15, 2012. The redemption
resulted in an early extinguishment charge of $16 million in the first quarter of 2010.
On November 1, 2010, we redeemed all $400 million of our outstanding 6.65% notes due January 15,
2011. The redemption resulted in a $5 million early extinguishment charge.
Receivables Securitization Facility – Under the receivables securitization facility, the Railroad sells
most of its accounts receivable to Union Pacific Receivables, Inc. (UPRI), a wholly-owned, bankruptcy-
remote subsidiary. UPRI may subsequently transfer, without recourse on a 364-day revolving basis, an
undivided interest in eligible accounts receivable to investors. The total capacity to transfer undivided
interests to investors under the facility was $600 million at December 31, 2012 and 2011, respectively.
The value of the outstanding undivided interest held by investors under the facility was $100 million at
both December 31, 2012 and 2011. The value of the undivided interest held by investors was supported
by $1.1 billion of accounts receivable at both December 31, 2012 and 2011. At both December 31, 2012
and 2011, the value of the interest retained by UPRI was $1.1 billion. This retained interest is included in
accounts receivable, net in our Consolidated Statements of Financial Position.
The value of the outstanding undivided interest held by investors could fluctuate based upon the
availability of eligible receivables and is directly affected by changing business volumes and credit risks,
including default and dilution. If default or dilution ratios increase one percent, the value of the
outstanding undivided interest held by investors would not change as of December 31, 2012. Should our
38
credit rating fall below investment grade, the value of the outstanding undivided interest held by investors
would be reduced, and, in certain cases, the investors would have the right to discontinue the facility.
The Railroad collected approximately $20.1 billion and $18.8 billion of receivables during the years ended
December 31, 2012 and 2011, respectively. UPRI used certain of these proceeds to purchase new
receivables under the facility.
The costs of the receivables securitization facility include interest, which will vary based on prevailing
commercial paper rates, program fees paid to banks, commercial paper issuing costs, and fees for
unused commitment availability. The costs of the receivables securitization facility are included in interest
expense and were $3 million, $4 million and $6 million for 2012, 2011 and 2010, respectively.
The investors have no recourse to the Railroad’s other assets, except for customary warranty and
indemnity claims. Creditors of the Railroad do not have recourse to the assets of UPRI.
In July 2012, the receivables securitization facility was renewed for an additional 364-day period at
comparable terms and conditions.
Subsequent Event – On January 2, 2013, we transferred an additional $300 million in undivided interest
to investors under the receivables securitization facility, increasing the value of the outstanding undivided
interest held by investors from $100 million to $400 million.
Contractual Obligations and Commercial Commitments
As described in the notes to the Consolidated Financial Statements and as referenced in the tables
below, we have contractual obligations and commercial commitments that may affect our financial
condition. Based on our assessment of the underlying provisions and circumstances of our contractual
obligations and commercial commitments, including material sources of off-balance sheet and structured
finance arrangements, other than the risks that we and other similarly situated companies face with
respect to the condition of the capital markets (as described in Item 1A of Part II of this report), there is
no known trend, demand, commitment, event, or uncertainty that is reasonably likely to occur that would
have a material adverse effect on our consolidated results of operations, financial condition, or liquidity. In
addition, our commercial obligations, financings, and commitments are customary transactions that are
similar to those of other comparable corporations, particularly within the transportation industry.
The following tables identify material obligations and commitments as of December 31, 2012:
Payments Due by December 31,
Contractual Obligations
Millions
Debt [a]
Operating leases [b]
Capital lease obligations [c]
Purchase obligations [d]
Other post retirement benefits [e]
Income tax contingencies [f]
Total
$ 12,637 $
4,241
2,441
5,877
452
115
2017
2016
2015
2014
2013
507 $ 904 $ 632 $ 769 $ 900 $ 8,925 $
525
282
3,004
43
-
466
265
1,238
44
-
2,126
1,166
684
229
-
410
253
372
45
-
339
243
213
46
-
375
232
334
45
-
After
2017 Other
-
-
-
32
-
115
Total contractual obligations
$ 25,763 $ 4,361 $ 2,917 $ 1,712 $ 1,755 $ 1,741 $ 13,130 $ 147
[a] Excludes capital lease obligations of $1,848 million and unamortized discount of $(365) million. Includes an interest
component of $5,123 million.
Includes leases for locomotives, freight cars, other equipment, and real estate.
[b]
[c] Represents total obligations, including interest component of $593 million.
[e]
[d] Purchase obligations include locomotive maintenance contracts; purchase commitments for fuel purchases, locomotives, ties,
ballast, and rail; and agreements to purchase other goods and services. For amounts where we cannot reasonably estimate
the year of settlement, they are reflected in the Other column.
Includes estimated other post retirement, medical, and life insurance payments, payments made under the unfunded pension
plan for the next ten years.
Future cash flows for income tax contingencies reflect the recorded liabilities and assets for unrecognized tax benefits,
including interest and penalties, as of December 31, 2012. For amounts where the year of settlement is uncertain, they are
reflected in the Other column.
[f]
39
Amount of Commitment Expiration per Period
Other Commercial Commitments
Millions
Credit facilities [a]
Receivables securitization facility [b]
Guarantees [c]
Standby letters of credit [d]
Total
$ 1,800 $
600
307
25
2013
2014
2015
2016
2017
- $
600
8
24
- $ 1,800 $
-
214
1
-
12
-
- $
-
30
-
- $
-
10
-
After
2017
-
-
33
-
Total commercial commitments
$ 2,732 $
632 $
215 $ 1,812 $
30 $
10 $
33
[a] None of the credit facility was used as of December 31, 2012.
[b]
[c]
$100 million of the receivables securitization facility was utilized at December 31, 2012, which is accounted for as debt. The
full program matures in July 2013.
Includes guaranteed obligations related to our headquarters building, equipment financings, and affiliated operations.
[d] None of the letters of credit were drawn upon as of December 31, 2012.
Off-Balance Sheet Arrangements
Guarantees – At December 31, 2012, we were contingently liable for $307 million in guarantees. We
have recorded a liability of $2 million for the fair value of these obligations as of December 31, 2012 and
2011. We entered into these contingent guarantees in the normal course of business, and they include
guaranteed obligations related to our headquarters building, equipment financings, and affiliated
operations. The final guarantee expires in 2022. We are not aware of any existing event of default that
would require us to satisfy these guarantees. We do not expect that these guarantees will have a material
adverse effect on our consolidated financial condition, results of operations, or liquidity.
OTHER MATTERS
Labor Agreements – Approximately 86% of our 45,928 full-time-equivalent employees are represented
by 14 major rail unions. During the year, we concluded the most recent round of negotiations, which
began in 2010, with the ratification of new agreements by several unions that continued negotiating into
2012. All of the unions executed similar multi-year agreements that provide for higher employee cost
sharing of employee health and welfare benefits and higher wages. The current agreements will remain in
effect until renegotiated under provisions of the Railway Labor Act. The next round of negotiations will
begin in early 2015.
Inflation – Long periods of inflation significantly increase asset replacement costs for capital-intensive
companies. As a result, assuming that we replace all operating assets at current price levels, depreciation
charges (on an inflation-adjusted basis) would be substantially greater than historically reported amounts.
Derivative Financial Instruments – We may use derivative financial instruments in limited instances to
assist in managing our overall exposure to fluctuations in interest rates and fuel prices. We are not a party
to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative
purposes. Derivative financial instruments qualifying for hedge accounting must maintain a specified level
of effectiveness between the hedging instrument and the item being hedged, both at inception and
throughout the hedged period. We formally document the nature and relationships between the hedging
instruments and hedged items at inception, as well as our risk-management objectives, strategies for
undertaking the various hedge transactions, and method of assessing hedge effectiveness. Changes in
the fair market value of derivative financial instruments that do not qualify for hedge accounting are
charged to earnings. We may use swaps, collars, futures, and/or forward contracts to mitigate the risk of
adverse movements in interest rates and fuel prices; however, the use of these derivative financial
instruments may limit future benefits from favorable price movements.
Market and Credit Risk – We address market risk related to derivative financial instruments by selecting
instruments with value fluctuations that highly correlate with the underlying hedged item. We manage
credit risk related to derivative financial instruments, which is minimal, by requiring high credit standards
for counterparties and periodic settlements. At December 31, 2012 and 2011, we were not required to
provide collateral, nor had we received collateral, relating to our hedging activities.
40
Determination of Fair Value – We determine the fair values of our derivative financial instrument
positions based upon current fair values as quoted by recognized dealers or the present value of
expected future cash flows.
Sensitivity Analyses – The sensitivity analyses that follow illustrate the economic effect that hypothetical
changes in interest rates could have on our results of operations and financial condition. These
hypothetical changes do not consider other factors that could impact actual results.
At December 31, 2012, we had variable-rate debt representing approximately 3.4% of our total debt. If
variable interest rates average one percentage point higher in 2013 than our December 31, 2012 variable
rate, which was approximately 1.1%, our interest expense would increase by approximately $3 million.
This amount was determined by considering the impact of the hypothetical interest rate on the balances
of our variable-rate debt at December 31, 2012.
Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a
hypothetical one percentage point decrease in interest rates as of December 31, 2012, and amounts to
an increase of approximately $1 billion to the fair value of our debt at December 31, 2012. We estimated
the fair values of our fixed-rate debt by considering the impact of the hypothetical interest rates on quoted
market prices and current borrowing rates.
Interest Rate Fair Value Hedges – We manage our overall exposure to fluctuations in interest rates by
adjusting the proportion of fixed and floating rate debt instruments within our debt portfolio over a given
period. We generally manage the mix of fixed and floating rate debt through the issuance of targeted
amounts of each as debt matures or as we require incremental borrowings. We employ derivatives,
primarily swaps, as one of the tools to obtain the targeted mix. In addition, we also obtain flexibility in
managing interest costs and the interest rate mix within our debt portfolio by evaluating the issuance of
and managing outstanding callable fixed-rate debt securities.
Swaps allow us to convert debt from fixed rates to variable rates and thereby hedge the risk of changes in
the debt’s fair value attributable to the changes in interest rates. We account for swaps as fair value
hedges using the short-cut method as allowed by the Derivatives and Hedging Topic of the Financial
Accounting Standards Board (FASB) ASC; therefore, we do not record any ineffectiveness within our
Consolidated Financial Statements. As of December 31, 2012 and 2011, we had no interest rate fair
value hedges outstanding.
Interest Rate Cash Flow Hedges – We report changes in the fair value of cash flow hedges in
accumulated other comprehensive loss until the hedged item affects earnings. At December 31, 2012 and
2011, we had reductions of $1 million and $2 million, respectively, recorded as an accumulated other
comprehensive loss that is being amortized on a straight-line basis through September 30, 2014. As of
December 31, 2012 and 2011, we had no interest rate cash flow hedges outstanding.
Accounting Pronouncements – On January 1, 2012, we adopted 2011-05, Comprehensive Income
(Topic 220): Presentation of Comprehensive Income (ASU 2011-05) which requires presentation of the
components of net income and other comprehensive income either as one continuous statement or as
two consecutive statements and eliminates the option to present components of other comprehensive
income as part of the statement of changes in shareholders’ equity. The standard does not change the
items that must be reported in other comprehensive income, how such items are measured or when they
must be reclassified to net income. Also, in December of 2011, the FASB issued Accounting Standards
Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of
Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards
Update No. 2011-05 (ASU 2011-12). On February 5, 2013, the FASB issued Accounting Standards
Update 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,
which adds additional disclosure requirements for items reclassified out of accumulated other
comprehensive income. This ASU will be effective for the first interim reporting period in 2013.
Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of
our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our
consolidated results of operations, financial condition, or liquidity; however, to the extent possible, where
asserted and unasserted claims are considered probable and where such claims can be reasonably
estimated, we have recorded a liability. We do not expect that any known lawsuits, claims, environmental
costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our
41
consolidated results of operations, financial condition, or liquidity after taking into account liabilities and
insurance recoveries previously recorded for these matters.
Indemnities – Our maximum potential exposure under indemnification arrangements, including certain
tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the
nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or
how they will be resolved, we cannot reasonably determine the probability of an adverse claim or
reasonably estimate any adverse liability or the total maximum exposure under these indemnification
arrangements. We do not have any reason to believe that we will be required to make any material
payments under these indemnity provisions.
Climate Change – Although climate change could have an adverse impact on our operations and
financial performance in the future (see Risk Factors under Item 1A of this report), we are currently
unable to predict the manner or severity of such impact. However, we continue to take steps and explore
opportunities to reduce the impact of our operations on the environment, including investments in new
technologies, using training programs to reduce fuel consumption, and changing our operations to
increase fuel efficiency.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements have been prepared in accordance with GAAP. The preparation
of these financial statements requires estimation and judgment that affect the reported amounts of
revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. The following critical accounting policies are a subset of our significant
accounting policies described in Note 2 to the Financial Statements and Supplementary Data, Item 8.
These critical accounting policies affect significant areas of our financial statements and involve judgment
and estimates. If these estimates differ significantly from actual results, the impact on our Consolidated
Financial Statements may be material.
Personal Injury – The cost of personal injuries to employees and others related to our activities is
charged to expense based on estimates of the ultimate cost and number of incidents each year. We use
an actuarial analysis to measure the expense and liability, including unasserted claims. The Federal
Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages
are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a
comprehensive variety of services and rehabilitation programs for employees who are injured at work.
Our personal injury liability is not discounted to present value. Approximately 90% of the recorded liability
is related to asserted claims, and approximately 10% is related to unasserted claims at December 31,
2012. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is
reasonably possible that future costs to settle these claims may range from approximately $334 million to
$368 million. We record an accrual at the low end of the range as no amount of loss within the range is
more probable than any other. Estimates can vary over time due to evolving trends in litigation.
Our personal injury liability activity was as follows:
Millions
Beginning balance
Current year accruals
Changes in estimates for prior years
Payments
Ending balance at December 31
Current portion, ending balance at December 31
2012
368
121
(58)
(97)
334
95
$
$
$
2011
426
118
(71)
(105)
368
103
$
$
$
2010
545
155
(101)
(173)
426
140
$
$
$
42
Our personal injury claims activity was as follows:
Open claims, beginning balance
New claims
Settled or dismissed claims
Open claims, ending balance at December 31
2012
2,869
2,719
(2,796)
2011
3,151
2,781
(3,063)
2010
3,500
2,843
(3,192)
2,792
2,869
3,151
Asbestos – We are a defendant in a number of lawsuits in which current and former employees and
other parties allege exposure to asbestos. We assess our potential liability using a statistical analysis of
resolution costs for asbestos-related claims. This liability is updated annually and excludes future
defense and processing costs. The liability for resolving both asserted and unasserted claims was based
on the following assumptions:
The ratio of future claims by alleged disease would be consistent with historical averages
adjusted for inflation.
The number of claims filed against us will decline each year.
The average settlement values for asserted and unasserted claims will be equivalent to historical
averages.
The percentage of claims dismissed in the future will be equivalent to historical averages.
Our liability for asbestos-related claims is not discounted to present value due to the uncertainty
surrounding the timing of future payments. Approximately 22% of the recorded liability related to asserted
claims and approximately 78% related to unasserted claims at December 31, 2012. Because of the
uncertainty surrounding the ultimate outcome of asbestos-related claims, it is reasonably possible that
future costs to settle these claims may range from approximately $139 million to $149 million. We record
an accrual at the low end of the range as no amount of loss within the range is more probable than any
other.
Our asbestos-related liability activity was as follows:
Millions
Beginning balance
Credits
Payments
Ending balance at December 31
Current portion, ending balance at December 31
Our asbestos-related claims activity was as follows:
Open claims, beginning balance
New claims
Settled or dismissed claims
Open claims, ending balance at December 31
2012
147
(2)
(6)
139
8
$
$
$
2011
162
(5)
(10)
147
8
$
$
$
2010
174
(1)
(11)
162
12
$
$
$
2012
1,291
233
(266)
1,258
2011
1,437
235
(381)
1,291
2010
1,670
216
(449)
1,437
In conjunction with the liability update performed in 2012, we also reassessed estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2012 and
2011. The amounts recorded for asbestos-related liabilities and related insurance recoveries were based
on currently known facts. However, future events, such as the number of new claims filed each year,
average settlement costs, and insurance coverage issues, could cause the actual costs and insurance
recoveries to be higher or lower than the projected amounts. Estimates also may vary in the future if
strategies, activities, and outcomes of asbestos litigation materially change; federal and state laws
governing asbestos litigation increase or decrease the probability or amount of compensation of
claimants; and there are material changes with respect to payments made to claimants by other
defendants.
43
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations.
We have identified 284 sites at which we are or may be liable for remediation costs associated with
alleged contamination or for violations of environmental requirements. This includes 32 sites that are the
subject of actions taken by the U.S. government, 17 of which are currently on the Superfund National
Priorities List. Certain federal legislation imposes joint and several liability for the remediation of identified
sites; consequently, our ultimate environmental liability may include costs relating to activities of other
parties, in addition to costs relating to our own activities at each site.
When we identify an environmental issue with respect to property owned, leased, or otherwise used in
our business, we perform, with assistance of our consultants, environmental assessments on the
property. We expense the cost of the assessments as incurred. We accrue the cost of remediation where
our obligation is probable and such costs can be reasonably estimated. We do not discount our
environmental liabilities when the timing of the anticipated cash payments is not fixed or readily
determinable. At December 31, 2012, none of our environmental liability was discounted, while less than
1% of our environmental liability was discounted at 2.0% at December 31, 2011.
Our environmental liability activity was as follows:
Millions
Beginning balance
Accruals
Payments
Ending balance at December 31
Current portion, ending balance at December 31
[a] Payments include $25 million to resolve the Omaha Lead Site liability.
Our environmental site activity was as follows:
Open sites, beginning balance
New sites
Closed sites
Open sites, ending balance at December 31
2012
172
48
(50)
170
50
$
$
$
2011 [a]
213
$
29
(70)
$
$
172
50
2010
217
57
(61)
213
74
$
$
$
2012
285
56
(57)
284
2011
294
51
(60)
285
2010
307
44
(57)
294
The environmental liability includes future costs for remediation and restoration of sites, as well as
ongoing monitoring costs, but excludes any anticipated recoveries from third parties. Cost estimates are
based on information available for each site, financial viability of other potentially responsible parties, and
existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine
because of the number of potentially responsible parties, site-specific cost sharing arrangements with
other potentially responsible parties, the degree of contamination by various wastes, the scarcity and
quality of volumetric data related to many of the sites, and the speculative nature of remediation costs.
Estimates of liability may vary over time due to changes in federal, state, and local laws governing
environmental remediation. Current obligations are not expected to have a material adverse effect on our
consolidated results of operations, financial condition, or liquidity.
Property and Depreciation – Our railroad operations are highly capital intensive, and our large base of
homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital
program for the replacement of assets and for the acquisition or construction of assets that enable us to
enhance our operations or provide new service offerings to customers. Assets purchased or constructed
throughout the year are capitalized if they meet applicable minimum units of property criteria. Properties
and equipment are carried at cost and are depreciated on a straight-line basis over their estimated
service lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines
except for those subject to abandonment, yard and switching tracks, and electronic yards) for which lives
are measured in millions of gross tons per mile of track. We use the group method of depreciation in
which all items with similar characteristics, use, and expected lives are grouped together in asset classes,
and are depreciated using composite depreciation rates. The group method of depreciation treats each
asset class as a pool of resources, not as singular items. We currently have more than 60 depreciable
44
asset classes, and we may increase or decrease the number of asset classes due to changes in
technology, asset strategies, or other factors.
We determine the estimated service lives of depreciable railroad property by means of depreciation
studies. We perform depreciation studies at least every three years for equipment and every six years for
track assets (i.e., rail and other track material, ties, and ballast) and other road property. Our depreciation
studies take into account the following factors:
Statistical analysis of historical patterns of use and retirements of each of our asset classes;
Evaluation of any expected changes in current operations and the outlook for continued use of
the assets;
Evaluation of technological advances and changes to maintenance practices; and
Expected salvage to be received upon retirement.
For rail in high-density traffic corridors, we measure estimated service lives in millions of gross tons per
mile of track. It has been our experience that the lives of rail in high-density traffic corridors are closely
correlated to usage (i.e., the amount of weight carried over the rail). The service lives also vary based on
rail weight, rail condition (e.g., new or secondhand), and rail type (e.g., straight or curve). Our
depreciation studies for rail in high density traffic corridors consider each of these factors in determining
the estimated service lives. For rail in high-density traffic corridors, we calculate depreciation rates
annually by dividing the number of gross ton-miles carried over the rail (i.e., the weight of loaded and
empty freight cars, locomotives and maintenance of way equipment transported over the rail) by the
estimated service lives of the rail measured in millions of gross tons per mile. Rail in high-density traffic
corridors accounts for approximately 70 percent of the historical cost of rail and other track material.
Based on the number of gross ton-miles carried over our rail in high density traffic corridors during 2012,
the estimated service lives of the majority of this rail ranged from approximately 15 years to approximately
30 years. For all other depreciable assets, we compute depreciation based on the estimated service lives
of our assets as determined from the analysis of our depreciation studies. Changes in the estimated
service lives of our assets and their related depreciation rates are implemented prospectively.
Estimated service lives of depreciable railroad property may vary over time due to changes in physical
use, technology, asset strategies, and other factors that will have an impact on the retirement profiles of
our assets. We are not aware of any specific factors that are reasonably likely to significantly change the
estimated service lives of our assets. Actual use and retirement of our assets may vary from our current
estimates, which would impact the amount of depreciation expense recognized in future periods.
Changes in estimated useful lives of our assets due to the results of our depreciation studies could
significantly impact future periods’ depreciation expense and have a material impact on our Consolidated
Financial Statements. If the estimated useful lives of all depreciable assets were increased by one year,
annual depreciation expense would decrease by approximately $58 million. If the estimated useful lives
of all depreciable assets were decreased by one year, annual depreciation expense would increase by
approximately $62 million. Our recent depreciation studies have resulted in changes in depreciation rates
for some asset classes. Based on these changes, depreciation expense will increase approximately 3%
to 4% in 2013 versus 2012.
Under group depreciation, the historical cost (net of salvage) of depreciable property that is retired or
replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is
recognized. The historical cost of certain track assets is estimated using (i) inflation indices published by
the Bureau of Labor Statistics and (ii) the estimated useful lives of the assets as determined by our
depreciation studies. The indices were selected because they closely correlate with the major costs of
the properties comprising the applicable track asset classes. Because of the number of estimates
inherent in the depreciation and retirement processes and because it is impossible to precisely estimate
each of these variables until a group of property is completely retired, we continually monitor the
estimated service lives of our assets and the accumulated depreciation associated with each asset class
to ensure our depreciation rates are appropriate. In addition, we determine if the recorded amount of
accumulated depreciation is deficient (or in excess) of the amount indicated by our depreciation studies.
Any deficiency (or excess) is amortized as a component of depreciation expense over the remaining
service lives of the applicable classes of assets.
For retirements of depreciable railroad properties that do not occur in the normal course of business, a
gain or loss may be recognized if the retirement meets each of the following three conditions: (i) is
45
unusual, (ii) is material in amount, and (iii) varies significantly from the retirement profile identified through
our depreciation studies. During the last three fiscal years, no gains or losses were recognized due to the
retirement of depreciable railroad properties. A gain or loss is recognized in other income when we sell
land or dispose of assets that are not part of our railroad operations.
Income Taxes – We account for income taxes by recording taxes payable or refundable for the current
year and deferred tax assets and liabilities for the expected future tax consequences of events that have
been recognized in our financial statements or tax returns. These expected future tax consequences are
measured based on current tax law; the effects of future tax legislation are not anticipated. Future tax
legislation, such as a change in the corporate tax rate, could have a material impact on our financial
condition, results of operations, or liquidity. For example, a 1% increase in future income tax rates would
increase our deferred tax liability by approximately $340 million.
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized,
based on management’s judgments using available evidence for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset. In 2012 and 2011, there were no valuation
allowances.
We recognize tax benefits that are more likely than not to be sustained upon examination by tax
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50
percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any
tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.
Pension and Other Postretirement Benefits – We use an actuarial analysis to measure the liabilities
and expenses associated with providing pension and medical and life insurance benefits (OPEB) to
eligible employees. In order to use actuarial methods to value the liabilities and expenses, we must make
several assumptions. The critical assumptions used to measure pension obligations and expenses are
the discount rate and expected rate of return on pension assets. For OPEB, the critical assumptions are
the discount rate and health care cost trend rate.
We evaluate our critical assumptions at least annually, and selected assumptions are based on the
following factors:
Discount rate is based on a Mercer yield curve of high quality corporate bonds (rated AA by a
recognized rating agency) for which the timing and amount of cash flows matches our plans’
expected benefit payments.
Expected return on plan assets is based on our asset allocation mix and our historical return,
taking into consideration current and expected market conditions.
Health care cost trend rate is based on our historical rates of inflation and expected market
conditions.
The following tables present the key assumptions used to measure net periodic pension and OPEB
cost/(benefit) for 2012 and the estimated impact on 2012 net periodic pension and OPEB cost/(benefit)
relative to a change in those assumptions:
Assumptions
Discount rate
Expected return on plan assets
Compensation increase
Health care cost trend rate:
Pre-65 current
Pre-65 level in 2028
Sensitivities
Millions
0.25% decrease in discount rate
0.25% increase in compensation scale
0.25% decrease in expected return on plan assets
1% increase in health care cost trend rate
46
Pension
4.54%
7.50%
3.69%
N/A
N/A
OPEB
4.36%
N/A
N/A
6.91%
4.50%
Increase in Expense
OPEB
Pension
$
$
$
7
5
6
N/A
$
$
-
N/A
N/A
2
The following table presents the net periodic pension and OPEB cost/(benefit) for the years ended
December 31:
Millions
Net periodic pension cost
Net periodic OPEB cost/(benefit)
Est.
2013
2012
2011
$ 111
15
$
89
13
$
78
(6)
$
2010
51
(14)
Our net periodic pension cost is expected to increase to approximately $111 million in 2013 from $89
million in 2012. The increase is driven mainly by a decrease in the discount rate to 3.78%, Our net
periodic OPEB expense is expected to increase to approximately $15 million in 2013 from $13 million in
2012. The increase in our net periodic OPEB cost is primarily driven by a decrease in the discount rate to
3.48%.
CAUTIONARY INFORMATION
Certain statements in this report, and statements in other reports or information filed or to be filed with the
SEC (as well as information included in oral statements or other written statements made or to be made
by us), are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the
Securities Exchange Act of 1934. These forward-looking statements and information include, without
limitation, (A) statements in the CEO’s letter preceding Part I; statements regarding planned capital
expenditures under the caption “2013 Capital Expenditures” in Item 2 of Part I; statements regarding
dividends in Item 5; and statements and information set forth under the captions “2013 Outlook” and
“Liquidity and Capital Resources” in this Item 7, and (B) any other statements or information in this report
(including information incorporated herein by reference) regarding: expectations as to financial
performance, revenue growth and cost savings; the time by which goals, targets, or objectives will be
achieved; projections, predictions, expectations, estimates, or forecasts as to our business, financial and
operational results, future economic performance, and general economic conditions; expectations as to
operational or service performance or improvements; expectations as to the effectiveness of steps taken
or to be taken to improve operations and/or service, including capital expenditures for infrastructure
improvements and equipment acquisitions, any strategic business acquisitions, and modifications to our
transportation plans (including statements set forth in Item 2 as to expectations related to our planned
capital expenditures); expectations as to existing or proposed new products and services; expectations
as to the impact of any new regulatory activities or legislation on our operations or financial results;
estimates of costs relating to environmental remediation and restoration; estimates and expectations
regarding tax matters; expectations that claims, litigation, environmental costs, commitments, contingent
liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our
consolidated results of operations, financial condition, or liquidity and any other similar expressions
concerning matters that are not historical facts. Forward-looking statements may be identified by their
use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “would,” “will,”
“intends,” “plans,” “estimates,” “anticipates,” “projects” and similar words, phrases or expressions.
Forward-looking statements should not be read as a guarantee of future performance or results, and will
not necessarily be accurate indications of the times that, or by which, such performance or results will be
achieved. Forward-looking statements and information are subject to risks and uncertainties that could
cause actual performance or results to differ materially from those expressed in the statements and
information. Forward-looking statements and information reflect the good faith consideration by
management of currently available information, and may be based on underlying assumptions believed to
be reasonable under the circumstances. However, such information and assumptions (and, therefore,
such forward-looking statements and information) are or may be subject to variables or unknown or
unforeseeable events or circumstances over which management has little or no influence or control. The
Risk Factors in Item 1A of this report could affect our future results and could cause those results or other
outcomes to differ materially from those expressed or implied in any forward-looking statements or
information. To the extent circumstances require or we deem it otherwise necessary, we will update or
amend these risk factors in a Form 10-Q, Form 8-K or subsequent Form 10-K. All forward-looking
statements are qualified by, and should be read in conjunction with, these Risk Factors.
Forward-looking statements speak only as of the date the statement was made. We assume no obligation
to update forward-looking information to reflect actual results, changes in assumptions or changes in
other factors affecting forward-looking information. If we do update one or more forward-looking
47
statements, no inference should be drawn that we will make additional updates with respect thereto or
with respect to other forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information concerning market risk sensitive instruments is set forth under Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Other Matters, Item 7.
****************************************
48
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm .............................................................. 50
Consolidated Statements of Income
For the Years Ended December 31, 2012, 2011, and 2010 ........................................................ 51
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 2012, 2011, and 2010 ........................................................ 51
Consolidated Statements of Financial Position
At December 31, 2012 and 2011 ................................................................................................. 52
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2012, 2011, and 2010 ........................................................ 53
Consolidated Statements of Changes in Common Shareholders’ Equity
For the Years Ended December 31, 2012, 2011, and 2010 ........................................................ 54
Notes to the Consolidated Financial Statements .............................................................................. 55
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Union Pacific Corporation:
We have audited the accompanying consolidated statements of financial position of Union Pacific
Corporation and Subsidiary Companies (the Corporation) as of December 31, 2012 and 2011, and the
related consolidated statements of income, comprehensive income, changes in common shareholders’
equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits
also included the financial statement schedule listed in the Table of Contents at Part IV, Item 15. These
financial statements and financial statement schedule are the responsibility of the Corporation’s
management. Our responsibility is to express an opinion on the consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Union Pacific Corporation and Subsidiary Companies as of December 31, 2012 and 2011, and
the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2012, in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Corporation's internal control over financial reporting as of December 31, 2012,
based on the criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated February 8, 2013
expressed an unqualified opinion on the Corporation’s internal control over financial reporting.
Omaha, Nebraska
February 8, 2013
50
CONSOLIDATED STATEMENTS OF INCOME
Union Pacific Corporation and Subsidiary Companies
Millions, Except Per Share Amounts,
for the Years Ended December 31,
Operating revenues:
Freight revenues
Other revenues
Total operating revenues
Operating expenses:
Compensation and benefits
Fuel
Purchased services and materials
Depreciation
Equipment and other rents
Other
Total operating expenses
Operating income
Other income (Note 6)
Interest expense
Income before income taxes
Income taxes (Note 7)
Net income
Share and Per Share (Note 8):
Earnings per share - basic
Earnings per share - diluted
Weighted average number of shares - basic
Weighted average number of shares - diluted
Dividends declared per share
2012
2011
2010
$
19,686 $ 18,508 $ 16,069
896
1,049
1,240
20,926
19,557
16,965
4,685
3,608
2,143
1,760
1,197
788
4,681
3,581
2,005
1,617
1,167
782
4,314
2,486
1,836
1,487
1,142
719
14,181
13,833
11,984
6,745
108
(535)
6,318
(2,375)
5,724
112
(572)
5,264
(1,972)
4,981
54
(602)
4,433
(1,653)
3,943 $
3,292 $
2,780
8.33 $
8.27 $
6.78 $
6.72 $
473.1
476.5
485.7
489.8
5.58
5.53
498.2
502.9
2.49 $
1.93 $
1.31
$
$
$
$
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Union Pacific Corporation and Subsidiary Companies
Millions,
for the Years Ended December 31,
Net income
Other comprehensive income/(loss):
Defined benefit plans
Foreign currency translation
Derivatives
Total other comprehensive loss [a]
2012
2011
2010
$
3,943 $
3,292 $
2,780
(145)
12
1
(132)
(301)
(20)
1
(320)
(88)
7
1
(80)
Comprehensive income
$
3,811 $
2,972 $
2,700
[a] Net of deferred taxes of $82 million, $199 million, and $57 million during 2012, 2011, and 2010, respectively.
The accompanying notes are an integral part of these Consolidated Financial Statements.
51
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Union Pacific Corporation and Subsidiary Companies
Millions, Except Share and Per Share Amounts
as of December 31,
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net (Note 10)
Materials and supplies
Current deferred income taxes (Note 7)
Other current assets
Total current assets
Investments
Net properties (Note 11)
Other assets
Total assets
Liabilities and Common Shareholders' Equity
Current liabilities:
Accounts payable and other current liabilities (Note 12)
Debt due within one year (Note 14)
Total current liabilities
Debt due after one year (Note 14)
Deferred income taxes (Note 7)
Other long-term liabilities
Commitments and contingencies (Notes 16 and 17)
Total liabilities
Common shareholders' equity:
Common shares, $2.50 par value, 800,000,000 authorized;
554,558,034 and 554,270,763 issued; 469,465,273 and 479,929,530
outstanding, respectively
Paid-in-surplus
Retained earnings
Treasury stock
Accumulated other comprehensive loss (Note 9)
Total common shareholders' equity
2012
2011
$
1,063 $
1,331
660
263
297
3,614
1,259
41,997
283
1,217
1,401
614
306
189
3,727
1,175
39,934
260
$
47,153 $
45,096
$
2,923 $
196
3,119
8,801
13,108
2,248
3,108
209
3,317
8,697
12,368
2,136
27,276
26,518
1,386
4,113
22,271
(6,707)
(1,186)
19,877
1,386
4,031
19,508
(5,293)
(1,054)
18,578
Total liabilities and common shareholders' equity
$
47,153 $
45,096
The accompanying notes are an integral part of these Consolidated Financial Statements.
52
CONSOLIDATED STATEMENTS OF CASH FLOWS
Union Pacific Corporation and Subsidiary Companies
Millions, for the Years Ended December 31,
Operating Activities
Net income
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation
Deferred income taxes and unrecognized tax benefits
Other operating activities, net
Changes in current assets and liabilities:
Accounts receivable, net
Materials and supplies
Other current assets
Accounts payable and other current liabilities
Cash provided by operating activities
Investing Activities
Capital investments
Acquisition of equipment pending financing
Proceeds from sale of assets financed
Proceeds from asset sales
Other investing activities, net
Cash used in investing activities
Financing Activities
Common share repurchases (Note 18)
Dividends paid
Debt repaid
Debt issued
Debt exchange
Other financing activities, net
Cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Cash Flow Information
Non-cash investing and financing activities:
Cash dividends declared but not yet paid
Capital lease financings
Capital investments accrued but not yet paid
Cash paid during the year for:
Interest, net of amounts capitalized
Income taxes, net of refunds
The accompanying notes are an integral part of these Consolidated Financial Statements.
2012
2011
2010
$ 3,943
$ 3,292
$ 2,780
1,760
887
(160)
70
(46)
(108)
(185)
6,161
(3,738)
(274)
274
80
25
(3,633)
1,617
986
(298)
(217)
(80)
178
395
5,873
(3,176)
(85)
85
108
(51)
(3,119)
1,487
672
(483)
(518)
(59)
(17)
243
4,105
(2,482)
-
-
67
(73)
(2,488)
(1,474)
(1,146)
(758)
695
-
1
(2,682)
(154)
1,217
$ 1,063
(1,418)
(837)
(690)
486
(272)
108
(2,623)
131
1,086
$ 1,217
(1,249)
(602)
(1,412)
894
(98)
86
(2,381)
(764)
1,850
$ 1,086
$
318
290
136
$
(561)
(1,552)
$
$
$
$
284
154
147
(572)
(625)
183
-
125
(614)
(936)
53
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Union Pacific Corporation and Subsidiary Companies
Millions
Balance at January 1, 2010
Net income
Other comp. loss
Conversion, stock option
exercises, forfeitures, and other
Share repurchases (Note 18)
Cash dividends declared
($1.31 per share)
Balance at December 31, 2010
Net income
Other comp. loss
Conversion, stock option
exercises, forfeitures, and other
Share repurchases (Note 18)
Cash dividends declared
($1.93 per share)
Balance at December 31, 2011
Net income
Other comp. loss
Conversion, stock option
exercises, forfeitures, and other
Share repurchases (Note 18)
Cash dividends declared
($2.49 per share)
Common
Shares
553.5
Treasury
Shares
(48.5)
Common
Shares
$ 1,384
-
-
Paid-in-
Surplus
$ 3,968 $ 15,027
Retained
Earnings
-
-
2,780
-
Treasury
Stock
$ (2,924)
-
-
0.4
2.8
1
17
-
146
-
-
(16.6)
-
-
-
-
-
-
(1,249)
(653)
-
553.9
(62.3)
$ 1,385
-
-
$ 3,985 $ 17,154
-
-
3,292
-
$ (4,027)
-
-
0.4
2.7
1
46
-
152
-
-
(14.8)
-
-
-
-
-
-
(1,418)
(938)
-
AOCI
[a]
Total
$ (654) $ 16,801
-
(80)
-
-
-
2,780
(80)
164
(1,249)
(653)
$ (734) $ 17,763
-
(320)
-
-
-
3,292
(320)
199
(1,418)
(938)
554.3
(74.4)
0.3
2.1
-
-
(12.8)
-
$ 1,386
-
-
-
-
-
$ 4,031 $ 19,508
$ (5,293) $ (1,054) $ 18,578
-
-
3,943
-
82
-
-
-
60
-
-
-
(1,474)
(1,180)
-
-
(132)
-
-
-
3,943
(132)
142
(1,474)
(1,180)
Balance at December 31, 2012
554.6
(85.1)
$ 1,386
$ 4,113 $ 22,271
$ (6,707) $ (1,186) $ 19,877
[a] AOCI = Accumulated Other Comprehensive Income/(Loss) (Note 9)
The accompanying notes are an integral part of these Consolidated Financial Statements.
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Union Pacific Corporation and Subsidiary Companies
For purposes of this report, unless the context otherwise requires, all references herein to the
“Corporation”, “UPC”, “we”, “us”, and “our” mean Union Pacific Corporation and its subsidiaries, including
Union Pacific Railroad Company, which will be separately referred to herein as “UPRR” or the “Railroad”.
1. Nature of Operations
Operations and Segmentation – We are a Class I railroad operating in the U.S. Our network includes
31,868 route miles, linking Pacific Coast and Gulf Coast ports with the Midwest and eastern U.S.
gateways and providing several corridors to key Mexican gateways. We own 26,020 miles and operate on
the remainder pursuant to trackage rights or leases. We serve the western two-thirds of the country and
maintain coordinated schedules with other rail carriers for the handling of freight to and from the Atlantic
Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico. Export and import traffic is
moved through Gulf Coast and Pacific Coast ports and across the Mexican and Canadian borders.
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment.
Although we provide and review revenue by commodity group, we analyze the net financial results of the
Railroad as one segment due to the integrated nature of our rail network. The following table provides
freight revenue by commodity group:
Millions
Agricultural
Automotive
Chemicals
Coal
Industrial Products
Intermodal
Total freight revenues
Other revenues
Total operating revenues
2012
3,280 $
1,807
3,238
3,912
3,494
3,955
2011
3,324 $
1,510
2,815
4,084
3,166
3,609
19,686 $
18,508 $
1,240
1,049
2010
3,018
1,271
2,425
3,489
2,639
3,227
16,069
896
20,926 $
19,557 $
16,965
$
$
$
Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of
origination or destination for some products transported by us are outside the U.S. Each of our
commodity groups includes revenue from shipments to and from Mexico. Included in the above table are
revenues from our Mexico business which amounted to $1.9 billion in 2012, $1.8 billion in 2011, and $1.6
billion in 2010.
Basis of Presentation – The Consolidated Financial Statements are presented in accordance with
accounting principles generally accepted in the U.S. (GAAP) as codified in the Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC).
2. Significant Accounting Policies
Principles of Consolidation – The Consolidated Financial Statements include the accounts of Union
Pacific Corporation and all of its subsidiaries. Investments in affiliated companies (20% to 50% owned)
are accounted for using the equity method of accounting. All intercompany transactions are eliminated.
We currently have no less than majority-owned investments that require consolidation under variable
interest entity requirements.
Cash and Cash Equivalents – Cash equivalents consist of investments with original maturities of three
months or less.
Accounts Receivable – Accounts receivable includes receivables reduced by an allowance for doubtful
accounts. The allowance is based upon historical losses, credit worthiness of customers, and current
economic conditions. Receivables not expected to be collected in one year and the associated
allowances are classified as other assets in our Consolidated Statements of Financial Position.
55
Investments – Investments represent our investments in affiliated companies (20% to 50% owned) that
are accounted for under the equity method of accounting and investments in companies (less than 20%
owned) accounted for under the cost method of accounting.
Materials and Supplies – Materials and supplies are carried at the lower of average cost or market.
Property and Depreciation – Properties and equipment are carried at cost and are depreciated on a
straight-line basis over their estimated service lives, which are measured in years, except for rail in high-
density traffic corridors (i.e., all rail lines except for those subject to abandonment, yard and switching
tracks, and electronic yards), for which lives are measured in millions of gross tons per mile of track. We
use the group method of depreciation in which all items with similar characteristics, use, and expected
lives are grouped together in asset classes, and are depreciated using composite depreciation rates. The
group method of depreciation treats each asset class as a pool of resources, not as singular items. We
determine the estimated service lives of depreciable railroad assets by means of depreciation studies.
Under the group method of depreciation, no gain or loss is recognized when depreciable property is
retired or replaced in the ordinary course of business.
Impairment of Long-lived Assets – We review long-lived assets, including identifiable intangibles, for
impairment when events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows
are less than the carrying value of the long-lived assets, the carrying value is reduced to the estimated
fair value as measured by the discounted cash flows.
Revenue Recognition – We recognize freight revenues as freight moves from origin to destination. The
allocation of revenue between reporting periods is based on the relative transit time in each reporting
period with expenses recognized as incurred. Other revenues, which include revenues earned by our
subsidiaries, revenues from our commuter rail operations, and accessorial revenue, are recognized as
service is performed or contractual obligations are met. Customer incentives, which are primarily provided
for shipping a specified cumulative volume or shipping to/from specific locations, are recorded as a
reduction to operating revenues based on actual or projected future customer shipments.
Translation of Foreign Currency – Our portion of the assets and liabilities related to foreign investments
are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue and
expenses are translated at the average rates of exchange prevailing during the year. Unrealized gains or
losses are reflected within common shareholders’ equity as accumulated other comprehensive income or
loss.
Fair Value Measurements – We use a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels. The level in the fair value hierarchy within
which the fair value measurement in its entirety falls is determined based on the lowest level input that is
significant to the fair value measurement in its entirety. These levels include:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
We have applied fair value measurements to our pension plan assets and short- and long-term debt.
Stock-Based Compensation – We have several stock-based compensation plans under which
employees and non-employee directors receive stock options, nonvested retention shares, and
nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention
awards”. We have elected to issue treasury shares to cover option exercises and stock unit vestings,
while new shares are issued when retention shares are granted.
We measure and recognize compensation expense for all stock-based awards made to employees and
directors, including stock options. Compensation expense is based on the calculated fair value of the
awards as measured at the grant date and is expensed ratably over the service period of the awards
(generally the vesting period). The fair value of retention awards is the closing stock price on the date of
grant, while the fair value of stock options is determined by using the Black-Scholes option pricing model.
56
Earnings Per Share – Basic earnings per share are calculated on the weighted-average number of
common shares outstanding during each period. Diluted earnings per share include shares issuable upon
exercise of outstanding stock options and stock-based awards where the conversion of such instruments
would be dilutive.
Income Taxes – We account for income taxes by recording taxes payable or refundable for the current
year and deferred tax assets and liabilities for the expected future tax consequences of events that have
been recognized in our financial statements or tax returns. These expected future tax consequences are
measured based on current tax law; the effects of future tax legislation are not anticipated. Future tax
legislation, such as a change in the corporate tax rate, could have a material impact on our financial
condition, results of operations, or liquidity.
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized,
based on management’s judgments using available evidence for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset.
We recognize tax benefits that are more likely than not to be sustained upon examination by tax
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50
percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any
tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.
Pension and Postretirement Benefits – We incur certain employment-related expenses associated with
pensions and postretirement health benefits. In order to measure the expense associated with these
benefits, we must make various assumptions including discount rates used to value certain liabilities,
expected return on plan assets used to fund these expenses, compensation increases, employee
turnover rates, anticipated mortality rates, and expected future health care costs. The assumptions used
by us are based on our historical experience as well as current facts and circumstances. We use an
actuarial analysis to measure the expense and liability associated with these benefits.
Personal Injury – The cost of injuries to employees and others on our property is charged to expense
based on estimates of the ultimate cost and number of incidents each year. We use an actuarial analysis
to measure the expense and liability. Our personal injury liability is not discounted to present value. Legal
fees and incidental costs are expensed as incurred.
Asbestos – We estimate a liability for asserted and unasserted asbestos-related claims based on an
assessment of the number and value of those claims. We use a statistical analysis to assist us in properly
measuring our potential liability. Our liability for asbestos-related claims is not discounted to present value
due to the uncertainty surrounding the timing of future payments. Legal fees and incidental costs are
expensed as incurred.
Environmental – When environmental issues have been identified with respect to property currently or
formerly owned, leased, or otherwise used in the conduct of our business, we perform, with the
assistance of our consultants, environmental assessments on such property. We expense the cost of the
assessments as incurred. We accrue the cost of remediation where our obligation is probable and such
costs can be reasonably estimated. We do not discount our environmental liabilities when the timing of
the anticipated cash payments is not fixed or readily determinable. Legal fees and incidental costs are
expensed as incurred.
Use of Estimates – Our Consolidated Financial Statements include estimates and assumptions
regarding certain assets, liabilities, revenue, and expenses and the disclosure of certain contingent
assets and liabilities. Actual future results may differ from such estimates.
3. Accounting Pronouncements
On January 1, 2012, we adopted 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income (ASU 2011-05) which requires presentation of the components of net income and
other comprehensive income either as one continuous statement or as two consecutive statements and
eliminates the option to present components of other comprehensive income as part of the statement of
changes in shareholders’ equity. The standard does not change the items that must be reported in other
57
comprehensive income, how such items are measured or when they must be reclassified to net income.
Also, in December of 2011, the FASB issued Accounting Standards Update No. 2011-12, Deferral of the
Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). On
February 5, 2013, the FASB issued Accounting Standards Update 2013-02, Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive Income, which adds additional disclosure
requirements for items reclassified out of accumulated other comprehensive income. This ASU will be
effective for the first interim reporting period in 2013.
4. Stock Options and Other Stock Plans
There are 7,140 restricted shares outstanding under the 1992 Restricted Stock Plan for Non-Employee
Directors of Union Pacific Corporation. We no longer grant awards of restricted shares under this plan.
In April 2000, the shareholders approved the Union Pacific Corporation 2000 Directors Plan (Directors
Plan) whereby 1,100,000 shares of our common stock were reserved for issuance to our non-employee
directors. Under the Directors Plan, each non-employee director, upon his or her initial election to the
Board of Directors, receives a grant of 2,000 retention shares or retention stock units. Prior to December
31, 2007, each non-employee director received annually an option to purchase at fair value a number of
shares of our common stock, not to exceed 10,000 shares during any calendar year, determined by
dividing 60,000 by 1/3 of the fair market value of one share of our common stock on the date of such
Board of Directors meeting, with the resulting quotient rounded up or down to the nearest 50 shares. In
September 2007, the Board of Directors eliminated the annual payment of options for 2008 and all future
years. As of December 31, 2012, 18,000 restricted shares and 120,700 options were outstanding under
the Directors Plan.
The Union Pacific Corporation 2001 Stock Incentive Plan (2001 Plan) was approved by the shareholders
in April 2001. The 2001 Plan reserved 24,000,000 shares of our common stock for issuance to eligible
employees of the Corporation and its subsidiaries in the form of non-qualified options, incentive stock
options, retention shares, stock units, and incentive bonus awards. Non-employee directors were not
eligible for awards under the 2001 Plan. As of December 31, 2012, 130,858 options were outstanding
under the 2001 Plan. We no longer grant any stock options or other stock or unit awards under this plan.
The Union Pacific Corporation 2004 Stock Incentive Plan (2004 Plan) was approved by shareholders in
April 2004. The 2004 Plan reserved 42,000,000 shares of our common stock for issuance, plus any
shares subject to awards made under previous plans that were outstanding on April 16, 2004, and
became available for regrant pursuant to the terms of the 2004 Plan. Under the 2004 Plan, non-qualified
options, stock appreciation rights, retention shares, stock units, and incentive bonus awards may be
granted to eligible employees of the Corporation and its subsidiaries. Non-employee directors are not
eligible for awards under the 2004 Plan. As of December 31, 2012, 4,037,038 options and 3,430,463
retention shares and stock units were outstanding under the 2004 Plan.
Pursuant to the above plans 32,168,520; 32,374,343; and 32,904,291 shares of our common stock were
authorized and available for grant at December 31, 2012, 2011, and 2010, respectively.
Stock-Based Compensation – We have several stock-based compensation plans under which
employees and non-employee directors receive stock options, nonvested retention shares, and
nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention
awards”. We have elected to issue treasury shares to cover option exercises and stock unit vestings,
while new shares are issued when retention shares are granted. Information regarding stock-based
compensation appears in the table below:
Millions
Stock-based compensation, before tax:
Stock options
Retention awards
Total stock-based compensation, before tax
2012
2011
2010
$ 18
75
$ 93
$ 18
64
$ 82
$ 17
57
$ 74
Excess tax benefits from equity compensation plans
$ 100
$ 83
$ 51
58
Stock Options – We estimate the fair value of our stock option awards using the Black-Scholes option
pricing model. The table below shows the annual weighted-average assumptions used for valuation
purposes:
Weighted-Average Assumptions
Risk-free interest rate
Dividend yield
Expected life (years)
Volatility
2012
0.8%
2.1%
5.3
36.8%
2011
2.3%
1.6%
5.3
35.9%
2010
2.4%
1.8%
5.4
35.2%
Weighted-average grant-date fair value of options granted
$
31.29
$
28.45
$
18.26
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the dividend
yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date
of grant; the expected life is based on historical and expected exercise behavior; and volatility is based on
the historical volatility of our stock price over the expected life of the option.
A summary of stock option activity during 2012 is presented below:
Outstanding at January 1, 2012
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2012
Vested or expected to vest
at December 31, 2012
Shares
(thous.)
7,042
598
(3,316)
(35)
4,289
4,233
Options exercisable at December 31, 2012
3,073
$
Weighted-Average
Exercise Price
52.16
114.73
45.74
73.05
$
$
$
65.68
65.19
52.89
Weighted-Average
Remaining
Contractual Term
5.5 yrs.
Aggregate
Intrinsic Value
(millions)
379
$
N/A
N/A
5.8 yrs.
5.7 yrs.
4.8 yrs.
N/A
N/A
258
256
224
$
$
$
Stock options are granted at the closing price on the date of grant, have ten-year contractual terms, and
vest no later than three years from the date of grant. None of the stock options outstanding at December
31, 2012 are subject to performance or market-based vesting conditions.
At December 31, 2012, there was $16 million of unrecognized compensation expense related to
nonvested stock options, which is expected to be recognized over a weighted-average period of 1 year.
Additional information regarding stock option exercises appears in the table below:
Millions
Intrinsic value of stock options exercised
Cash received from option exercises
Treasury shares repurchased for employee payroll taxes
Tax benefit realized from option exercises
Aggregate grant-date fair value of stock options vested
$
2012
244
84
(30)
93
16
$
2011
209
137
(53)
80
19
$
2010
150
114
(31)
57
19
59
Retention Awards – The fair value of retention awards is based on the closing price of the stock on the
grant date. Dividends and dividend equivalents are paid to participants during the vesting periods.
Changes in our retention awards during 2012 were as follows:
Nonvested at January 1, 2012
Granted
Vested
Forfeited
Nonvested at December 31, 2012
Shares
(thous.)
2,556
451
(581)
(71)
2,355
Weighted-Average
Grant-Date Fair Value
63.20
$
114.51
62.10
64.18
$
73.27
Retention awards are granted at no cost to the employee or non-employee director and vest over periods
lasting up to four years. At December 31, 2012, there was $65 million of total unrecognized compensation
expense related to nonvested retention awards, which is expected to be recognized over a weighted-
average period of 1.3 years.
Performance Retention Awards – In February 2012, our Board of Directors approved performance
stock unit grants. Other than different performance targets, the basic terms of these performance stock
units are identical to those granted in February 2010 and February 2011, including using annual return on
invested capital (ROIC) as the performance measure. We define ROIC as net operating profit adjusted
for interest expense (including interest on the present value of operating leases) and taxes on interest
divided by average invested capital adjusted for the present value of operating leases.
Stock units awarded to selected employees under these grants are subject to continued employment for
37 months and the attainment of certain levels of ROIC. We expense the fair value of the units that are
probable of being earned based on our forecasted ROIC over the 3-year performance period. We
measure the fair value of these performance stock units based upon the closing price of the underlying
common stock as of the date of grant, reduced by the present value of estimated future dividends.
Dividend equivalents are paid to participants only after the units are earned.
The assumptions used to calculate the present value of estimated future dividends related to the
February 2012 grant were as follows:
Dividend per share per quarter
Risk-free interest rate at date of grant
Changes in our performance retention awards during 2012 were as follows:
$
2012
0.60
0.3%
Nonvested at January 1, 2012
Granted
Vested
Forfeited
Nonvested at December 31, 2012
Shares
(thous.)
1,204
328
(351)
(106)
1,075
Weighted-Average
Grant-Date Fair Value
63.62
$
108.76
44.70
61.16
$
83.80
At December 31, 2012, there was $36 million of total unrecognized compensation expense related to
nonvested performance retention awards, which is expected to be recognized over a weighted-average
period of 1 year. A portion of this expense is subject to achievement of the ROIC levels established for
the performance stock unit grants.
60
5. Retirement Plans
Pension and Other Postretirement Benefits
Pension Plans – We provide defined benefit retirement income to eligible non-union employees through
qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are
based on years of service and the highest compensation during the latest years of employment, with
specific reductions made for early retirements.
Other Postretirement Benefits (OPEB) – We provide medical and life insurance benefits for eligible
retirees. These benefits are funded as medical claims and life insurance premiums are paid.
Funded Status
We are required by GAAP to separately recognize the overfunded or underfunded status of our pension
and OPEB plans as an asset or liability. The funded status represents the difference between the
projected benefit obligation (PBO) and the fair value of the plan assets. Our non-qualified (supplemental)
pension plan is unfunded by design. The PBO of the pension plans is the present value of benefits
earned to date by plan participants, including the effect of assumed future compensation increases. The
PBO of the OPEB plan is equal to the accumulated benefit obligation, as the present value of the OPEB
liabilities is not affected by compensation increases. Plan assets are measured at fair value. We use a
December 31 measurement date for plan assets and obligations for all our retirement plans.
Changes in our PBO and plan assets were as follows for the years ended December 31:
Funded Status
Millions
Projected Benefit Obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments
Actuarial loss
Gross benefits paid
Projected benefit obligation at end of year
Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Voluntary funded pension plan contributions
Non-qualified plan benefit contributions
Gross benefits paid
Fair value of plan assets at end of year
Funded status at end of year
Pension
OPEB
2012
2011
2012
2011
$
$
$
$
$
3,165
54
141
-
391
(160)
3,591
2,505
315
200
15
(160)
2,875
(716)
$
$
$
$
$
2,759
40
145
-
377
(156)
3,165
2,404
42
200
15
(156)
2,505
(660)
$
$
$
$
$
$
$
$
336
3
15
-
42
(24)
372
-
-
-
24
(24)
318
2
15
10
15
(24)
336
-
-
-
24
(24)
-
$ -
(372)
$
(336)
Amounts recognized in the statement of financial position as of December 31, 2012 and 2011 consist of:
Millions
Noncurrent assets
Current liabilities
Noncurrent liabilities
Pension
OPEB
$
2012
1
(16)
(701)
$
2011
-
(15)
(645)
$
2012
-
(27)
(345)
$
2011
-
(26)
(310)
Net amounts recognized at end of year
$
(716)
$
(660)
$
(372)
$
(336)
61
Pre-tax amounts recognized in accumulated other comprehensive income/(loss) as of December 31,
2012 and 2011 consist of:
Millions
Prior service (cost)/credit
Net actuarial loss
Total
Pension
-
$
(1,685)
2012
$
OPEB
45
(175)
$
Total
45
(1,860)
$ (1,685)
$ (130)
$ (1,815)
$
Pension
(1)
(1,503)
$ (1,504)
$
$
2011
OPEB
63
(146)
$
Total
62
(1,649)
(83)
$ (1,587)
Pre-tax changes recognized in other comprehensive income/(loss) during 2012, 2011 and 2010 were as
follows:
Millions
Prior service cost/(credit)
Net actuarial loss
Amortization of:
Prior service cost/(credit)
Actuarial loss
$
2012
-
265
Pension
$
2011
-
515
$
(1)
(83)
(2)
(71)
2010
-
165
(3)
(49)
$
2012
-
42
OPEB
2011
10
14
$
$
2010
(6)
16
18
(13)
34
(11)
45
(13)
42
Total
$
181
$
442
$
113
$
47
$
47
$
Amounts included in accumulated other comprehensive income/(loss) expected to be amortized into net
periodic cost (benefit) during 2013:
Millions
Prior service benefit
Net actuarial loss
Total
Pension
-
$
106
$ 106
OPEB
$ (16)
15
$
(1)
Total
$ (16)
121
$ 105
Underfunded Accumulated Benefit Obligation – The accumulated benefit obligation (ABO) is the present
value of benefits earned to date, assuming no future compensation growth. The underfunded
accumulated benefit obligation represents the difference between the ABO and the fair value of plan
assets. At December 31, 2012 and 2011, the non-qualified (supplemental) plan ABO was $331 million
and $284 million, respectively. The following table discloses only the PBO, ABO, and fair value of plan
assets for pension plans where the accumulated benefit obligation is in excess of the fair value of the plan
assets as of December 31:
Underfunded Accumulated Benefit Obligation
Millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Underfunded accumulated benefit obligation
2012 [a]
3,574
3,440
2,857
(583)
$
$
$
$
$
$
2011
3,165
3,050
2,505
(545)
[a] The fair value of plan assets for one plan is in excess of the accumulated benefit obligation and therefore is not
included.
The ABO for all defined benefit pension plans was $3.4 billion and $3.0 billion at December 31, 2012 and
2011, respectively.
62
Assumptions – The weighted-average actuarial assumptions used to determine benefit obligations at
December 31:
Percentages
Discount rate
Compensation increase
Health care cost trend rate (employees under 65)
Ultimate health care cost trend rate
Year ultimate trend rate reached
Expense
Pension
OPEB
2012
3.78%
3.76%
N/A
N/A
N/A
2011
4.54%
4.60%
N/A
N/A
N/A
2012
3.48%
N/A
6.64%
4.50%
2028
2011
4.36%
N/A
6.91%
4.50%
2028
Both pension and OPEB expense are determined based upon the annual service cost of benefits (the
actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the
expected return on plan assets. The expected long-term rate of return on plan assets is applied to a
calculated value of plan assets that recognizes changes in fair value over a five-year period. This practice
is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the
recognition of differences between actual returns on assets and expected returns based on long-term rate
of return assumptions. Differences in actual experience in relation to assumptions are not recognized in
net income immediately, but are deferred and, if necessary, amortized as pension or OPEB expense.
The components of our net periodic pension and OPEB cost/(benefit) were as follows for the years ended
December 31:
Millions
Net Periodic Benefit Cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of:
Prior service cost/(credit)
Actuarial loss
Pension
2012
2011
2010
2012
OPEB
2011
$
54
141
(190)
$
40
145
(180)
$
34
143
(178)
$
1
83
2
71
3
49
$
3
15
-
(18)
13
$
2
15
-
(34)
11
Net periodic benefit cost/(benefit)
$
89
$
78
$
51
$
13
$
(6)
$
2010
2
16
-
(45)
13
(14)
Assumptions – The weighted-average actuarial assumptions used to determine expense were as follows
for the years ended December 31:
Percentages
Discount rate
Expected return on plan assets
Compensation increase
Health care cost trend rate (employees under 65)
Health care cost trend rate (employees over 65)
Ultimate health care cost trend rate
Year ultimate trend reached
OPEB
Pension
2011
2011
2010
2012
2012
2010
4.54% 5.35% 5.90% 4.36% 5.01% 5.55%
N/A
7.50% 7.50% 8.00%
N/A
3.69% 4.48% 3.45%
N/A 6.91% 7.07% 7.24%
N/A
N/A
N/A 4.50% 4.50% 4.50%
2028
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2028
2028
N/A
N/A
The discount rate was based on a yield curve of high quality corporate bonds with cash flows matching
our plans’ expected benefit payments. The expected return on plan assets is based on our asset
allocation mix and our historical return, taking into account current and expected market conditions. The
actual return on pension plan assets, net of fees, was approximately 13% in 2012, 2% in 2011, and 14%
in 2010.
Assumed health care cost trend rates have a significant effect on the expense and liabilities reported for
health care plans. The assumed health care cost trend rate is based on historical rates and expected
market conditions. The 2013 assumed health care cost trend rate for employees under 65 is 6.91%. It is
63
assumed the rate will decrease gradually to an ultimate rate of 4.5% in 2028 and will remain at that level.
A one-percentage point change in the assumed health care cost trend rates would have the following
effects on OPEB:
Millions
Effect on total service and interest cost components
Effect on accumulated benefit obligation
Cash Contributions
One % pt.
Increase
1
$
18
One % pt.
Decrease
(1)
(15)
$
The following table details our cash contributions for the qualified pension plans and the benefit payments
for the non-qualified (supplemental) pension and OPEB plans:
Millions
2011
2012
Pension
$
Qualified
200
200
Non-qualified
15
15
OPEB
24
24
Our policy with respect to funding the qualified plans is to fund at least the minimum required by law and
not more than the maximum amount deductible for tax purposes. All contributions made to the qualified
pension plans in 2012 were voluntary and were made with cash generated from operations.
The non-qualified pension and OPEB plans are not funded and are not subject to any minimum regulatory
funding requirements. Benefit payments for each year represent supplemental pension payments and
claims paid for medical and life insurance. We anticipate our 2013 supplemental pension and OPEB
payments will be made from cash generated from operations.
Benefit Payments
The following table details expected benefit payments for the years 2013 through 2022:
Millions
2013
2014
2015
2016
2017
Years 2018 - 2022
Asset Allocation Strategy
Pension
$ 165
169
174
179
184
988
$
OPEB
27
27
27
26
26
119
Our pension plan asset allocation at December 31, 2012 and 2011, and target allocation for 2013, are
as follows:
Equity securities
Debt securities
Real estate
Commodities
Total
Target
Allocation 2013
60% to 70%
20% to 30%
2% to 8%
4% to 6%
Percentage of Plan Assets
December 31,
2011
58%
32
5
5
2012
65%
25
5
5
100%
100%
The investment strategy for pension plan assets is to maintain a broadly diversified portfolio designed to
achieve our target average long-term rate of return of 7.5%. While we believe we can achieve a long-term
average rate of return of 7.5%, we cannot be certain that the portfolio will perform to our expectations.
Assets are strategically allocated among equity, debt, and other investments in order to achieve a
64
diversification level that reduces fluctuations in investment returns. Asset allocation target ranges for
equity, debt, and other portfolios are evaluated at least every three years with the assistance of an
independent consulting firm. Actual asset allocations are monitored monthly, and rebalancing actions are
executed at least quarterly, if needed.
The pension plan investments are held in a Master Trust. The majority of pension plan assets are
invested in equity securities because equity portfolios have historically provided higher returns than debt
and other asset classes over extended time horizons and are expected to do so in the future.
Correspondingly, equity investments also entail greater risks than other investments. Equity risks are
balanced by investing a significant portion of the plans’ assets in high quality debt securities. The average
credit rating of the debt portfolio exceeded A+ as of December 31, 2012 and 2011. The debt portfolio is
also broadly diversified and invested primarily in U.S. Treasury, mortgage, and corporate securities. The
weighted-average maturity of the debt portfolio was 12 years at both December 31, 2012 and 2011.
The investment of pension plan assets in securities issued by Union Pacific is specifically prohibited by
the plan for both the equity and debt portfolios, other than through index fund holdings.
Fair Value Measurements
The pension plan assets are valued at fair value. The following is a description of the valuation
methodologies used for the investments measured at fair value, including the general classification of
such instruments pursuant to the valuation hierarchy.
Temporary Cash Investments – These investments consist of U.S. dollars and foreign currencies held
in master trust accounts at The Northern Trust Company. Foreign currencies held are reported in terms
of U.S. dollars based on currency exchange rates readily available in active markets. These temporary
cash investments are classified as Level 1 investments.
Registered Investment Companies – Registered Investment Companies are real estate investments,
non-U.S. stock investments, and bond investments registered with the Securities and Exchange
Commission. The real estate investments and non-U.S. stock investments are traded actively on public
exchanges. The share prices for these investments are published at the close of each business day.
Holdings of real estate investments and non-U.S. stock investments are classified as Level 1
investments. The bond investments are not traded publicly, but the underlying assets (stocks and bonds)
held in these funds are traded on active markets and the prices for these assets are readily observable.
Holdings in bond investments are classified as Level 2 investments.
U.S. Government Securities – Federal Government Securities consist of bills, notes, bonds, and other
fixed income securities issued directly by the U.S. Treasury or by government-sponsored enterprises.
These assets are valued using a bid evaluation process with bid data provided by independent pricing
sources. Federal Government Securities are classified as Level 2 investments.
Corporate Bonds & Debentures – Bonds and debentures consist of fixed income securities issued by
U.S. and non-U.S. corporations as well as state, local, and non-U.S. governments. These assets are
valued using a bid evaluation process with bid data provided by independent pricing sources. Corporate,
state, and municipal bonds and debentures are classified as Level 2 investments.
Corporate Stock – This investment category consists of common and preferred stock issued by U.S. and
non-U.S. corporations. Most common shares are traded actively on exchanges and price quotes for
these shares are readily available. Common stock is classified as a Level 1 investment. Preferred shares
included in this category are valued using a bid evaluation process with bid data provided by independent
pricing sources. Preferred stock is classified as a Level 2 investment.
Venture Capital and Buyout Partnerships – This investment category is comprised of interests in
limited partnerships that invest primarily in privately-held companies. Due to the private nature of the
partnership investments, pricing inputs are not readily observable. Asset valuations are developed by the
general partners that manage the partnerships. These valuations are based on the application of public
market multiples to private company cash flows, market transactions that provide valuation information for
comparable companies, and other methods. Holdings of limited partnership interests are classified as
Level 3 investments.
65
Real Estate Partnerships and Funds – Most of the real estate investments are partnership interests
similar to those described in the Venture Capital and Buyout Partnerships category. This category also
includes real estate investments held in less commonly used structures such as private real estate
investment trusts and pooled separate accounts. Valuations for the holdings in this category are not
based on readily observable inputs and are primarily derived from property appraisals. Interests in
private real estate partnerships, investment funds and pooled separate accounts are classified as Level 3
investments.
Common Trust and Other Funds – Common trust funds are comprised of shares or units in commingled
funds that are not publicly traded. The underlying assets in these funds (U.S. stock funds, non-U.S. stock
funds, commodity funds, and short term investment funds) are publicly traded on exchanges and price
quotes for the assets held by these funds are readily available. Holdings of common trust funds are
classified as Level 2 investments.
This category also includes an investment in a limited liability company that invests in publicly-traded
convertible securities. The limited liability company investment is a fund that invests in both long and
short positions in convertible securities, stocks, and fixed income securities. The underlying securities
held by the fund are traded actively on exchanges and price quotes for these investments are readily
available. Interest in the limited liability company is classified as a Level 2 investment.
Other Investments – This category includes several miscellaneous assets such as commodity hedge
fund investments and derivative securities. These investments have valuations that are based on
observable inputs and are classified as Level 2 investments.
As of December 31, 2012, the pension plan assets measured at fair value on a recurring basis were as
follows:
Significant
Other
Observable
Inputs
(Level 2)
$
-
258
125
326
12
-
-
1,018
27
$ 1,766
$
Significant
Unobservable
Inputs
(Level 3)
$
-
-
-
-
-
179
143
-
-
322
$
Total
14
268
125
326
770
179
143
1,018
27
2,870
5
$ 2,875
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
$
$
14
10
-
-
758
-
-
-
-
782
Millions
Plan assets:
Temporary cash investments
Registered investment companies
U.S. government securities
Corporate bonds & debentures
Corporate stock
Venture capital and buyout partnerships
Real estate partnerships and funds
Common trust and other funds
Other investments
Total plan assets at fair value
Other assets [a]
Total plan assets
[a] Other assets include accrued receivables and pending broker settlements.
66
As of December 31, 2011, the pension plan assets measured at fair value on a recurring basis were as
follows:
Millions
Plan assets:
Temporary cash investments
Registered investment companies
U.S. government securities
Corporate bonds & debentures
Corporate stock
Venture capital and buyout partnerships
Real estate partnerships and funds
Common trust and other funds
Other investments
Total plan assets at fair value
Other assets [a]
Total plan assets
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
22
8
-
-
547
-
-
-
-
577
$
$
-
280
155
343
8
-
-
815
29
$ 1,630
$
-
-
-
-
-
184
126
-
-
310
$
Total
22
288
155
343
555
184
126
815
29
2,517
(12)
$ 2,505
[a] Other assets include accrued receivables and pending broker settlements.
For the years ended December 31, 2012 and 2011, there were no significant transfers in or out of Levels
1, 2, or 3.
The following table presents a reconciliation of the beginning and ending balances of the fair value
measurements using significant unobservable inputs (Level 3 investments) during 2012:
Millions
Beginning balance - January 1, 2012
Realized gain
Unrealized gain
Purchases
Sales
$
Venture Capital
and Buyout
Partnerships
184
11
1
18
(35)
Real Estate
Partnerships
and Funds
126
$
3
-
23
(9)
Ending balance - December 31, 2012
$
179
$
143
Total
310
14
1
41
(44)
322
$
$
The following table presents a reconciliation of the beginning and ending balances of the fair value
measurements using significant unobservable inputs (Level 3 investments) during 2011:
Millions
Beginning balance - January 1, 2011
Realized gain/(loss)
Unrealized gain
Purchases
Sales
$
Venture Capital
and Buyout
Partnerships
169
8
13
22
(28)
Real Estate
Partnerships
and Funds
99
$
(1)
16
27
(15)
Ending balance - December 31, 2011
$
184
$
126
Total
268
7
29
49
(43)
310
$
$
67
Other Retirement Programs
401(k)/Thrift Plan – We provide a defined contribution plan (401(k)/thrift plan) to eligible non-union
employees for whom we make matching contributions. We match 50 cents for each dollar contributed by
employees up to the first six percent of compensation contributed. Our plan contributions were $15 million
in 2012, $14 million in 2011 and $13 million in 2010.
Railroad Retirement System – All Railroad employees are covered by the Railroad Retirement System
(the System). Contributions made to the System are expensed as incurred and amounted to
approximately $644 million in 2012, $600 million in 2011, and $566 million in 2010.
Collective Bargaining Agreements – Under collective bargaining agreements, we participate in multi-
employer benefit plans that provide certain postretirement health care and life insurance benefits for
eligible union employees. Premiums paid under these plans are expensed as incurred and amounted to
$62 million in 2012, $66 million in 2011, and $60 million in 2010.
6. Other Income
Other income included the following for the years ended December 31:
Millions
Rental income
Net gain on non-operating asset dispositions
Interest income
Early extinguishment of debt
Non-operating environmental costs and other
Total
7. Income Taxes
$
2012
83
29
3
(6)
(1)
$
2011
80
43
3
(5)
(9)
$
2010
84
25
4
(21)
(38)
$ 108
$ 112
$
54
Components of income tax expense were as follows for the years ended December 31:
Millions
Current tax expense:
Federal
State
Total current tax expense
Deferred tax expense:
Federal
State
Total deferred tax expense
Unrecognized tax benefits:
Federal
State
Total unrecognized tax benefits expense/(benefits)
2012
2011
2010
$
$ 1,335
153
1,488
760
120
880
5
2
7
862
124
986
894
70
964
11
11
22
$
862
119
981
550
97
647
26
(1)
25
Total income tax expense
$ 2,375
$ 1,972
$ 1,653
68
For the years ended December 31, reconciliations between statutory and effective tax rates are as
follows:
Tax Rate Percentages
Federal statutory tax rate
State statutory rates, net of federal benefits
Deferred tax adjustments
Tax credits
Other
Effective tax rate
2012
35.0 %
3.1
(0.1)
(0.5)
0.1
37.6 %
2011
35.0 %
3.1
(0.5)
(0.5)
0.4
37.5 %
2010
35.0 %
3.1
(0.3)
(0.7)
0.2
37.3 %
In February of 2011, Arizona enacted legislation that will decrease the state’s corporate tax rate. This
reduced our deferred tax expense by $14 million in the first quarter of 2011.
Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that
are reported in different periods for financial reporting and income tax purposes. The majority of our
deferred tax assets relate to deductions that already have been claimed for financial reporting purposes
but not for tax purposes. The majority of our deferred tax liabilities relate to differences between the tax
bases and financial reporting amounts of our land and depreciable property, due to accelerated tax
depreciation (including bonus depreciation), revaluation of assets in purchase accounting transactions,
and differences in capitalization methods.
Deferred income tax (liabilities)/assets were comprised of the following at December 31:
Millions
Deferred income tax liabilities:
Property
Other
Total deferred income tax liabilities
Deferred income tax assets:
Accrued wages
Accrued casualty costs
Debt and leases
Retiree benefits
Credits
Other
Total deferred income tax assets
Net deferred income tax liability
Current portion of deferred taxes
Non-current portion of deferred taxes
Net deferred income tax liability
2012
2011
$ (13,863)
(237)
$ (13,312)
(207)
(14,100)
(13,519)
69
238
185
365
200
198
63
259
365
342
197
231
$
1,255
$
1,457
$ (12,845)
$ (12,062)
$
263
(13,108)
$
306
(12,368)
$ (12,845)
$ (12,062)
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized
based on management’s judgments using available evidence for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset. In 2012 and 2011, there were no valuation
allowances.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon
examination by tax authorities. The amount recognized is measured as the largest amount of benefit that
is greater than 50 percent likely to be realized upon settlement. Unrecognized tax benefits are tax
benefits claimed in our tax returns that do not meet these recognition and measurement standards.
69
A reconciliation of changes in unrecognized tax benefits liabilities/(assets) from the beginning to the end
of the reporting period is as follows:
Millions
Unrecognized tax benefits at January 1
Increases for positions taken in current year
Increases for positions taken in prior years
Decreases for positions taken in prior years
Payments to and settlements with taxing authorities
Increases/(decreases) for interest and penalties
Lapse of statutes of limitations
Unrecognized tax benefits at December 31
2012
$ 107
29
4
(19)
-
(4)
(2)
$ 115
$
2011
86
9
81
(30)
(27)
(9)
(3)
$
2010
61
38
11
(22)
(4)
5
(3)
$ 107
$
86
We recognize interest and penalties as part of income tax expense. Total accrued liabilities for interest
and penalties were $6 million and $10 million at December 31, 2012 and 2011, respectively. Total interest
and penalties recognized as part of income tax expense (benefit) were $(4) million for 2012, $10 million
for 2011, and $6 million for 2010.
Internal Revenue Service (IRS) examinations have been completed and settled for all years prior to 2005,
although some interest calculations remain open for years prior to 2005. The IRS has completed its
examinations and issued notices of deficiency for tax years 2005 through 2008. We disagree with many
of their proposed adjustments, and we are at IRS Appeals for these years. Additionally, several state tax
authorities are examining our state income tax returns for years 2003 through 2010.
In 2012, Union Pacific and the IRS signed a closing agreement resolving all tax matters for tax years
1999-2004. In connection with the settlement, we will receive a refund of $8 million in 2013. The
settlement had an immaterial effect on our income tax expense.
We do not expect our unrecognized tax benefits to change significantly in the next 12 months. At
December 31, 2012, we had a net unrecognized tax benefit liability of $115 million. Of that amount, $13
million is classified as a current asset in the Consolidated Statement of Financial Position.
The portion of our unrecognized tax benefits that relates to permanent changes in tax and interest would
reduce our effective tax rate, if recognized. The remaining unrecognized tax benefits relate to tax
positions for which only the timing of the benefit is uncertain. Recognition of the tax benefits with
uncertain timing would reduce our effective tax rate only through a reduction of accrued interest and
penalties. The unrecognized tax benefits that would reduce our effective tax rate are as follows:
Millions
Unrecognized tax benefits that would reduce the effective tax rate
Unrecognized tax benefits that would not reduce the effective tax rate
Total unrecognized tax benefits
$
2012
41
74
$ 115
$
2011
80
27
$ 107
2010
90
(4)
86
$
$
70
8. Earnings Per Share
The following table provides a reconciliation between basic and diluted earnings per share for the years
ended December 31:
Millions, Except Per Share Amounts
Net income
Weighted-average number of shares outstanding:
Basic
Dilutive effect of stock options
Dilutive effect of retention shares and units
Diluted
Earnings per share – basic
Earnings per share – diluted
2012
2011
2010
$
3,943
$
3,292
$
2,780
473.1
1.8
1.6
476.5
8.33
8.27
$
$
485.7
2.6
1.5
489.8
$
$
6.78
6.72
$
$
498.2
3.3
1.4
502.9
5.58
5.53
Common stock options totaling 0.5 million, 0.6 million, and 0.3 million for 2012, 2011, and 2010,
respectively, were excluded from the computation of diluted earnings per share because the exercise
prices of these options exceeded the average market price of our common stock for the respective
periods, and the effect of their inclusion would be anti-dilutive.
9. Accumulated Other Comprehensive Income/(Loss)
The after-tax components of accumulated other comprehensive loss were as follows:
Millions
Defined benefit plans
Foreign currency translation
Derivatives
Total
10. Accounts Receivable
Dec. 31,
2012
$ (1,149)
(36)
(1)
Dec. 31,
2011
$ (1,004)
(48)
(2)
$ (1,186)
$ (1,054)
Accounts receivable includes freight and other receivables reduced by an allowance for doubtful
accounts. The allowance is based upon historical losses, credit worthiness of customers, and current
economic conditions. At December 31, 2012 and 2011, our accounts receivable were reduced by $4
million and $9 million, respectively. Receivables not expected to be collected in one year and the
associated allowances are classified as other assets in our Consolidated Statements of Financial
Position. At December 31, 2012 and 2011, receivables classified as other assets were reduced by
allowances of $33 million and $41 million, respectively.
Receivables Securitization Facility – Under the receivables securitization facility, the Railroad sells
most of its accounts receivable to Union Pacific Receivables, Inc. (UPRI), a wholly-owned, bankruptcy-
remote subsidiary. UPRI may subsequently transfer, without recourse on a 364-day revolving basis, an
undivided interest in eligible accounts receivable to investors. The total capacity to transfer undivided
interests to investors under the facility was $600 million at December 31, 2012 and 2011, respectively.
The value of the outstanding undivided interest held by investors under the facility was $100 million at
both December 31, 2012 and 2011. The value of the undivided interest held by investors was supported
by $1.1 billion of accounts receivable at both December 31, 2012 and 2011. At both December 31, 2012
and 2011, the value of the interest retained by UPRI was $1.1 billion. This retained interest is included in
accounts receivable, net in our Consolidated Statements of Financial Position.
The value of the outstanding undivided interest held by investors could fluctuate based upon the
availability of eligible receivables and is directly affected by changing business volumes and credit risks,
including default and dilution. If default or dilution ratios increase one percent, the value of the
outstanding undivided interest held by investors would not change as of December 31, 2012. Should our
71
credit rating fall below investment grade, the value of the outstanding undivided interest held by investors
would be reduced, and, in certain cases, the investors would have the right to discontinue the facility.
The Railroad collected approximately $20.1 billion and $18.8 billion of receivables during the years ended
December 31, 2012 and 2011, respectively. UPRI used certain of these proceeds to purchase new
receivables under the facility.
The costs of the receivables securitization facility include interest, which will vary based on prevailing
commercial paper rates, program fees paid to banks, commercial paper issuing costs, and fees for
unused commitment availability. The costs of the receivables securitization facility are included in interest
expense and were $3 million, $4 million and $6 million for 2012, 2011 and 2010, respectively.
The investors have no recourse to the Railroad’s other assets, except for customary warranty and
indemnity claims. Creditors of the Railroad do not have recourse to the assets of UPRI.
In July 2012, the receivables securitization facility was renewed for an additional 364-day period at
comparable terms and conditions.
Subsequent Event – On January 2, 2013, we transferred an additional $300 million in undivided interest
to investors under the receivables securitization facility, increasing the value of the outstanding undivided
interest held by investors from $100 million to $400 million.
11. Properties
The following tables list the major categories of property and equipment, as well as the weighted-average
composite depreciation rate for each category:
Millions, Except Percentages
As of December 31, 2012
Land
Road:
Rail and other track material [a]
Ties
Ballast
Other [b]
Total road
Equipment:
Locomotives
Freight cars
Work equipment and other
Total equipment
Technology and other
Construction in progress
Total
Accumulated
Cost Depreciation
Net Book
Value
Depreciation
Rate for 2012
$ 5,105
$ N/A
$ 5,105
13,220
8,404
4,399
14,806
40,829
7,297
1,991
535
9,823
633
889
4,756
2,157
1,085
2,583
10,581
3,321
1,018
89
4,428
273
-
8,464
6,247
3,314
12,223
30,248
3,976
973
446
5,395
360
889
$ 57,279
$ 15,282
$ 41,997
N/A
3.4%
2.8%
2.9%
2.6%
3.0%
6.2%
3.5%
6.9%
5.7%
12.6%
N/A
N/A
Includes a weighted-average composite depreciation rate for rail in high-density traffic corridors as discussed below.
[a]
[b] Other includes grading, bridges and tunnels, signals, buildings, and other road assets.
72
Millions, Except Percentages
As of December 31, 2011
Land
Road:
Rail and other track material [a]
Ties
Ballast
Other [b]
Total road
Equipment:
Locomotives
Freight cars
Work equipment and other
Total equipment
Technology and other
Construction in progress
Total
Accumulated
Cost Depreciation
Net Book
Value
Depreciation
Rate for 2011
$ 5,098
$ N/A
$ 5,098
12,461
7,987
4,178
14,118
38,744
6,502
1,957
529
8,988
610
1,004
4,592
2,028
1,008
2,502
10,130
3,003
1,061
57
4,121
259
-
7,869
5,959
3,170
11,616
28,614
3,499
896
472
4,867
351
1,004
$ 54,444
$ 14,510
$ 39,934
N/A
3.3%
2.9%
3.0%
2.6%
2.9%
5.7%
3.5%
6.5%
5.3%
12.3%
N/A
N/A
Includes a weighted-average composite depreciation rate for rail in high-density traffic corridors as discussed below.
[a]
[b] Other includes grading, bridges and tunnels, signals, buildings, and other road assets.
Property and Depreciation – Our railroad operations are highly capital intensive, and our large base of
homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital
program for the replacement of assets and for the acquisition or construction of assets that enable us to
enhance our operations or provide new service offerings to customers. Assets purchased or constructed
throughout the year are capitalized if they meet applicable minimum units of property criteria. Properties
and equipment are carried at cost and are depreciated on a straight-line basis over their estimated
service lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines
except for those subject to abandonment, yard and switching tracks, and electronic yards) for which lives
are measured in millions of gross tons per mile of track. We use the group method of depreciation in
which all items with similar characteristics, use, and expected lives are grouped together in asset classes,
and are depreciated using composite depreciation rates. The group method of depreciation treats each
asset class as a pool of resources, not as singular items. We currently have more than 60 depreciable
asset classes, and we may increase or decrease the number of asset classes due to changes in
technology, asset strategies, or other factors.
We determine the estimated service lives of depreciable railroad assets by means of depreciation studies.
We perform depreciation studies at least every three years for equipment and every six years for track
assets (i.e., rail and other track material, ties, and ballast) and other road property. Our depreciation
studies take into account the following factors:
Statistical analysis of historical patterns of use and retirements of each of our asset classes;
Evaluation of any expected changes in current operations and the outlook for continued use of
the assets;
Evaluation of technological advances and changes to maintenance practices; and
Expected salvage to be received upon retirement.
For rail in high-density traffic corridors, we measure estimated service lives in millions of gross tons per
mile of track. It has been our experience that the lives of rail in high-density traffic corridors are closely
correlated to usage (i.e., the amount of weight carried over the rail). The service lives also vary based on
rail weight, rail condition (e.g., new or secondhand), and rail type (e.g., straight or curve). Our
depreciation studies for rail in high density traffic corridors consider each of these factors in determining
the estimated service lives. For rail in high-density traffic corridors, we calculate depreciation rates
annually by dividing the number of gross ton-miles carried over the rail (i.e., the weight of loaded and
empty freight cars, locomotives and maintenance of way equipment transported over the rail) by the
estimated service lives of the rail measured in millions of gross tons per mile. For all other depreciable
assets, we compute depreciation based on the estimated service lives of our assets as determined from
73
the analysis of our depreciation studies. Changes in the estimated service lives of our assets and their
related depreciation rates are implemented prospectively.
Under group depreciation, the historical cost (net of salvage) of depreciable property that is retired or
replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is
recognized. The historical cost of certain track assets is estimated using (i) inflation indices published by
the Bureau of Labor Statistics and (ii) the estimated useful lives of the assets as determined by our
depreciation studies. The indices were selected because they closely correlate with the major costs of
the properties comprising the applicable track asset classes. Because of the number of estimates
inherent in the depreciation and retirement processes and because it is impossible to precisely estimate
each of these variables until a group of property is completely retired, we continually monitor the
estimated service lives of our assets and the accumulated depreciation associated with each asset class
to ensure our depreciation rates are appropriate. In addition, we determine if the recorded amount of
accumulated depreciation is deficient (or in excess) of the amount indicated by our depreciation studies.
Any deficiency (or excess) is amortized as a component of depreciation expense over the remaining
service lives of the applicable classes of assets.
For retirements of depreciable railroad properties that do not occur in the normal course of business, a
gain or loss may be recognized if the retirement meets each of the following three conditions: (i) is
unusual, (ii) is material in amount, and (iii) varies significantly from the retirement profile identified through
our depreciation studies. A gain or loss is recognized in other income when we sell land or dispose of
assets that are not part of our railroad operations.
When we purchase an asset, we capitalize all costs necessary to make the asset ready for its intended
use. However, many of our assets are self-constructed. A large portion of our capital expenditures is for
replacement of existing track assets and other road properties, which is typically performed by our
employees, and for track line expansion and other capacity projects. Costs that are directly attributable to
capital projects (including overhead costs) are capitalized. Direct costs that are capitalized as part of self-
constructed assets include material, labor, and work equipment. Indirect costs are capitalized if they
clearly relate to the construction of the asset.
General and administrative expenditures are expensed as incurred. Normal repairs and maintenance,
including rail grinding, are also expensed as incurred, while costs incurred that extend the useful life of an
asset, improve the safety of our operations or improve operating efficiency are capitalized. These costs
are allocated using appropriate statistical bases. Total expense for repairs and maintenance incurred was
$2.1 billion for 2012, $2.2 billion for 2011, and $2.0 billion for 2010.
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease
payments or the fair value of the leased asset at the inception of the lease. Amortization expense is
computed using the straight-line method over the shorter of the estimated useful lives of the assets or the
period of the related lease.
12. Accounts Payable and Other Current Liabilities
Millions
Accounts payable
Accrued wages and vacation
Income and other taxes
Dividends payable
Accrued casualty costs
Interest payable
Equipment rents payable
Other
$
Dec. 31,
2012
825
376
368
318
213
172
95
556
$
Dec. 31,
2011
819
363
482
284
249
197
90
624
Total accounts payable and other current liabilities
$
2,923
$ 3,108
74
13. Financial Instruments
Strategy and Risk – We may use derivative financial instruments in limited instances for other than
trading purposes to assist in managing our overall exposure to fluctuations in interest rates and fuel
prices. We are not a party to leveraged derivatives and, by policy, do not use derivative financial
instruments for speculative purposes. Derivative financial instruments qualifying for hedge accounting
must maintain a specified level of effectiveness between the hedging instrument and the item being
hedged, both at inception and throughout the hedged period. We formally document the nature and
relationships between the hedging instruments and hedged items at inception, as well as our risk-
management objectives, strategies for undertaking the various hedge transactions, and method of
assessing hedge effectiveness. Changes in the fair market value of derivative financial instruments that
do not qualify for hedge accounting are charged to earnings. We may use swaps, collars, futures, and/or
forward contracts to mitigate the risk of adverse movements in interest rates and fuel prices; however, the
use of these derivative financial instruments may limit future benefits from favorable interest rate and fuel
price movements.
Market and Credit Risk – We address market risk related to derivative financial instruments by selecting
instruments with value fluctuations that highly correlate with the underlying hedged item. We manage
credit risk related to derivative financial instruments, which is minimal, by requiring high credit standards
for counterparties and periodic settlements. At December 31, 2012 and 2011, we were not required to
provide collateral, nor had we received collateral, relating to our hedging activities.
Determination of Fair Value – We determine the fair values of our derivative financial instrument
positions based upon current fair values as quoted by recognized dealers or the present value of
expected future cash flows.
Interest Rate Fair Value Hedges – We manage our overall exposure to fluctuations in interest rates by
adjusting the proportion of fixed and floating rate debt instruments within our debt portfolio over a given
period. We generally manage the mix of fixed and floating rate debt through the issuance of targeted
amounts of each as debt matures or as we require incremental borrowings. We employ derivatives,
primarily swaps, as one of the tools to obtain the targeted mix. In addition, we also obtain flexibility in
managing interest costs and the interest rate mix within our debt portfolio by evaluating the issuance of
and managing outstanding callable fixed-rate debt securities.
Swaps allow us to convert debt from fixed rates to variable rates and thereby hedge the risk of changes in
the debt’s fair value attributable to the changes in interest rates. We account for swaps as fair value
hedges using the short-cut method; therefore, we do not record any ineffectiveness within our
Consolidated Financial Statements. As of December 31, 2012 and 2011, we had no interest rate fair
value hedges outstanding.
Interest Rate Cash Flow Hedges – We report changes in the fair value of cash flow hedges in
accumulated other comprehensive loss until the hedged item affects earnings. At December 31, 2012 and
2011, we had reductions of $1 million and $2 million, respectively, recorded as an accumulated other
comprehensive loss that is being amortized on a straight-line basis through September 30, 2014. As of
December 31, 2012 and 2011, we had no interest rate cash flow hedges outstanding.
Earnings Impact – Our use of derivative financial instruments had the following impact on pre-tax income
for the years ended December 31:
Millions
Decrease in interest expense from interest rate hedging
Increase in pre-tax income
2012
-
-
$
$
2011
-
$
$
-
2010
2
$
$
2
Fair Value of Financial Instruments – The fair value of our short- and long-term debt was estimated
using a market value price model, which utilizes applicable U.S. Treasury rates along with current market
quotes on comparable debt securities. All of the inputs used to determine the fair market value of the
Corporation’s long-term debt are Level 2 inputs and obtained from an independent source. At December
31, 2012, the fair value of total debt was $11.1 billion, approximately $2.1 billion more than the carrying
value. At December 31, 2011, the fair value of total debt was $10.5 billion, approximately $1.6 billion
more than the carrying value. The fair value of the Corporation’s debt is a measure of its current value
75
under present market conditions. It does not impact the financial statements under current accounting
rules. At December 31, 2012 and 2011, approximately $203 million and $303 million, respectively, of
fixed-rate debt securities contained call provisions that allow us to retire the debt instruments prior to final
maturity, with the payment of fixed call premiums, or in certain cases, at par. The fair value of our cash
equivalents approximates their carrying value due to the short-term maturities of these instruments.
14. Debt
Total debt as of December 31, 2012 and 2011, net of interest rate swaps designated as fair value
hedges, is summarized below:
Millions
Notes and debentures, 3.0% to 7.9% due through 2054
Capitalized leases, 3.1% to 9.2% due through 2028
Floating rate term loans, due through 2016
Equipment obligations, 6.2% to 6.7% due through 2031
Receivables Securitization (Note 10)
Mortgage bonds, 4.8% due through 2030
Tax-exempt financings, 1.8% to 5.7% due through 2022
Medium-term notes, 9.2% to 10.0% due through 2020
Unamortized discount
Total debt
Less: current portion
Total long-term debt
$
$
2012
6,950
1,848
200
119
100
57
56
32
(365)
8,997
(196)
2011
6,801
1,874
100
147
100
57
159
32
(364)
8,906
(209)
$
8,801
$
8,697
Debt Maturities – The following table presents aggregate debt maturities as of December 31, 2012,
excluding market value adjustments:
Millions
2013
2014
2015
2016
2017
Thereafter
Total debt
$
296
698
442
584
753
6,224
$ 8,997
As of both December 31, 2012 and December 31, 2011, we have reclassified as long-term debt $100
million of debt due within one year that we intend to refinance. This reclassification reflects our ability and
intent to refinance any short-term borrowings and certain current maturities of long-term debt on a long-
term basis.
Equipment Encumbrances – Equipment with a carrying value of approximately $2.9 billion at both
December 31, 2012 and 2011 served as collateral for capital leases and other types of equipment
obligations in accordance with the secured financing arrangements utilized to acquire such railroad
equipment.
As a result of the merger of Missouri Pacific Railroad Company (MPRR) with and into UPRR on January
1, 1997, and pursuant to the underlying indentures for the MPRR mortgage bonds, UPRR must maintain
the same value of assets after the merger in order to comply with the security requirements of the
mortgage bonds. As of the merger date, the value of the MPRR assets that secured the mortgage bonds
was approximately $6.0 billion. In accordance with the terms of the indentures, this collateral value must
be maintained during the entire term of the mortgage bonds irrespective of the outstanding balance of
such bonds.
76
Credit Facilities – On December 31, 2012, we had $1.8 billion of credit available under our revolving
credit facility (the facility), which is designated for general corporate purposes and supports the issuance
of commercial paper. We did not draw on the facility during 2012. Commitment fees and interest rates
payable under the facility are similar to fees and rates available to comparably rated, investment-grade
borrowers. The facility allows for borrowings at floating rates based on London Interbank Offered Rates,
plus a spread, depending upon our senior unsecured debt ratings. The facility matures in 2015 under a
four year term and requires the Corporation to maintain a debt-to-net-worth coverage ratio as a condition
to making a borrowing. At December 31, 2012, and December 31, 2011 (and at all times during the year),
we were in compliance with this covenant.
The definition of debt used for purposes of calculating the debt-to-net-worth coverage ratio includes,
among other things, certain credit arrangements, capital leases, guarantees and unfunded and vested
pension benefits under Title IV of ERISA. At December 31, 2012, the debt-to-net-worth coverage ratio
allowed us to carry up to $39.8 billion of debt (as defined in the facility), and we had $9.6 billion of debt
(as defined in the facility) outstanding at that date. Under our current capital plans, we expect to continue
to satisfy the debt-to-net-worth coverage ratio; however, many factors beyond our reasonable control
could affect our ability to comply with this provision in the future. The facility does not include any other
financial restrictions, credit rating triggers (other than rating-dependent pricing), or any other provision
that could require us to post collateral. The facility also includes a $75 million cross-default provision and
a change-of-control provision.
During 2012, we issued and repaid commercial paper of $50 million. At December 31, 2012 and 2011,
we had no commercial paper outstanding. Our revolving credit facility supports our outstanding
commercial paper balances, and, unless we change the terms of our commercial paper program, our
aggregate issuance of commercial paper will not exceed the amount of borrowings available under the
facility.
Dividend Restrictions – Our revolving credit facility includes a debt-to-net worth covenant (discussed in
the Credit Facilities section above) that, under certain circumstances, restricts the payment of cash
dividends to our shareholders. The amount of retained earnings available for dividends was $15.1 billion
and $13.8 billion at December 31, 2012 and 2011, respectively.
Shelf Registration Statement and Significant New Borrowings – Under our current shelf registration,
we may issue, from time to time, any combination of debt securities, preferred stock, common stock, or
warrants for debt securities or preferred stock in one or more offerings. We have no immediate plans to
issue equity securities; however, we will continue to explore opportunities to replace existing debt or
access capital through issuances of debt securities under our shelf registration, and, therefore, we may
issue additional debt securities at any time.
During 2012, we issued the following unsecured, fixed-rate debt securities under our current shelf
registration:
Date
June 11, 2012
Description of Securities
$300 million of 2.95% Notes due January 15, 2023
$300 million of 4.30% Notes due June 15, 2042
We used the net proceeds from the offering for general corporate purposes, including the repurchase of
common stock pursuant to our share repurchase program. These debt securities include change-of-
control provisions. At December 31, 2012, we had remaining authority to issue up to $1.4 billion of debt
securities under our shelf registration.
On May 22, 2012, we borrowed $100 million under a 4-year-term loan (the loan). The loan has a floating
rate based on London Interbank Offered Rates, plus a spread, and is prepayable in whole or in part
without a premium prior to maturity. The agreement documenting the loan has provisions similar to our
revolving credit facility, including identical debt-to-net-worth covenant and change of control provisions
and similar customary default provisions. The agreement does not include any other financial restrictions,
credit rating triggers, or any other provision that would require us to post collateral.
During the third and fourth quarters of 2012, we acquired 343 locomotives by exercising early buy-out
rights in certain operating and capital lease agreements. Following the acquisition of the locomotives, we
77
sold them to financing parties and entered into capital lease financing agreements with these parties. We
did not recognize any gains or losses as a result of these transactions. Capital lease obligations totaling
$286 million are reported in our Consolidated Statements of Financial Position as debt at December 31,
2012.
Debt Exchange – On June 23, 2011, we exchanged $857 million of various outstanding notes and
debentures due between 2013 and 2019 (Existing Notes) for $750 million of 4.163% notes (New Notes)
due July 15, 2022, plus cash consideration of approximately $267 million and $17 million for accrued and
unpaid interest on the Existing Notes. In accordance with ASC 470-50-40, Debt-Modifications and
Extinguishments-Derecognition, this transaction was accounted for as a debt exchange, as the
exchanged debt instruments are not considered to be substantially different. The cash consideration was
recorded as an adjustment to the carrying value of debt, and the balance of the unamortized discount and
issue costs from the Existing Notes is being amortized as an adjustment of interest expense over the term
of the New Notes. No gain or loss was recognized as a result of the exchange. Costs related to the debt
exchange that were payable to parties other than the debt holders totaled approximately $6 million and
were included in interest expense during the three months ended June 30, 2011.
The following table lists the outstanding notes and debentures that were exchanged:
Millions
7.875% Notes due 2019
5.450% Notes due 2013
5.125% Notes due 2014
5.375% Notes due 2014
5.700% Notes due 2018
5.750% Notes due 2017
7.000% Debentures due 2016
5.650% Notes due 2017
Total
$
Principal amount
exchanged
196
50
45
55
277
178
38
18
$
857
Debt Redemptions – On November 30, 2012, we redeemed all $450 million of our outstanding 5.45%
notes due January 31, 2013. The redemption resulted in an early extinguishment charge of $4 million.
On April 28, 2012, we redeemed all $100 million of our outstanding 5.70% Tooele County, Utah
Hazardous Waste Treatment Revenue Bonds due November 1, 2026. The redemption resulted in an
early extinguishment charge of $2 million in the second quarter of 2012.
On December 19, 2011, we redeemed the remaining $175 million of our 6.5% notes due April 15, 2012,
and all $300 million of our outstanding 6.125% notes due January 15, 2012. The redemptions resulted in
an early extinguishment charge of $5 million.
On March 22, 2010, we redeemed $175 million of our 6.5% notes due April 15, 2012. The redemption
resulted in an early extinguishment charge of $16 million in the first quarter of 2010.
On November 1, 2010, we redeemed all $400 million of our outstanding 6.65% notes due January 15,
2011. The redemption resulted in a $5 million early extinguishment charge.
Receivables Securitization Facility – As of December 31, 2012 and 2011, we have recorded $100
million as secured debt under our receivables securitization facility. (See further discussion of our
receivables securitization facility in Note 10).
15. Variable Interest Entities
We have entered into various lease transactions in which the structure of the leases contain variable
interest entities (VIEs). These VIEs were created solely for the purpose of doing lease transactions
(principally involving railroad equipment and facilities, including our headquarters building) and have no
other activities, assets or liabilities outside of the lease transactions. Within these lease arrangements,
we have the right to purchase some or all of the assets at fixed prices. Depending on market conditions,
78
fixed-price purchase options available in the leases could potentially provide benefits to us; however,
these benefits are not expected to be significant.
We maintain and operate the assets based on contractual obligations within the lease arrangements,
which set specific guidelines consistent within the railroad industry. As such, we have no control over
activities that could materially impact the fair value of the leased assets. We do not hold the power to
direct the activities of the VIEs and, therefore, do not control the ongoing activities that have a significant
impact on the economic performance of the VIEs. Additionally, we do not have the obligation to absorb
losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the
VIEs.
We are not considered to be the primary beneficiary and do not consolidate these VIEs because our
actions and decisions do not have the most significant effect on the VIE’s performance and our fixed-price
purchase price options are not considered to be potentially significant to the VIE’s. The future minimum
lease payments associated with the VIE leases totaled $3.6 billion as of December 31, 2012.
16. Leases
We lease certain locomotives, freight cars, and other property. The Consolidated Statements of Financial
Position as of December 31, 2012 and 2011 included $2,467 million, net of $966 million of accumulated
depreciation, and $2,458 million, net of $915 million of accumulated depreciation, respectively, for
properties held under capital leases. A charge to income resulting from the depreciation for assets held
under capital leases is included within depreciation expense in our Consolidated Statements of Income.
Future minimum lease payments for operating and capital leases with initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 2012, were as follows:
Millions
2013
2014
2015
2016
2017
Later years
Total minimum lease payments
Amount representing interest
Present value of minimum lease payments
$
Operating
Leases
525
466
410
375
339
2,126
$
Capital
Leases
282
265
253
232
243
1,166
$ 4,241
$ 2,441
N/A
N/A
(593)
$ 1,848
Approximately 94% of capital lease payments relate to locomotives. Rent expense for operating leases
with terms exceeding one month was $631 million in 2012, $637 million in 2011, and $624 million in 2010.
When cash rental payments are not made on a straight-line basis, we recognize variable rental expense
on a straight-line basis over the lease term. Contingent rentals and sub-rentals are not significant.
17. Commitments and Contingencies
Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of
our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our
consolidated results of operations, financial condition, or liquidity; however, to the extent possible, where
asserted and unasserted claims are considered probable and where such claims can be reasonably
estimated, we have recorded a liability. We do not expect that any known lawsuits, claims, environmental
costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our
consolidated results of operations, financial condition, or liquidity after taking into account liabilities and
insurance recoveries previously recorded for these matters.
Personal Injury – The cost of personal injuries to employees and others related to our activities is
charged to expense based on estimates of the ultimate cost and number of incidents each year. We use
an actuarial analysis to measure the expense and liability, including unasserted claims. The Federal
Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages
79
are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a
comprehensive variety of services and rehabilitation programs for employees who are injured at work.
Our personal injury liability is not discounted to present value. Approximately 90% of the recorded liability
is related to asserted claims, and approximately 10% is related to unasserted claims at December 31,
2012. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is
reasonably possible that future costs to settle these claims may range from approximately $334 million to
$368 million. We record an accrual at the low end of the range as no amount of loss within the range is
more probable than any other. Estimates can vary over time due to evolving trends in litigation.
Our personal injury liability activity was as follows:
Millions
Beginning balance
Current year accruals
Changes in estimates for prior years
Payments
Ending balance at December 31
Current portion, ending balance at December 31
2012
368
121
(58)
(97)
334
95
$
$
$
2011
426
118
(71)
(105)
368
103
$
$
$
2010
545
155
(101)
(173)
426
140
$
$
$
Asbestos – We are a defendant in a number of lawsuits in which current and former employees and
other parties allege exposure to asbestos. We assess our potential liability using a statistical analysis of
resolution costs for asbestos-related claims. This liability is updated annually and excludes future
defense and processing costs. The liability for resolving both asserted and unasserted claims was based
on the following assumptions:
The ratio of future claims by alleged disease would be consistent with historical averages
adjusted for inflation.
The number of claims filed against us will decline each year.
The average settlement values for asserted and unasserted claims will be equivalent to historical
averages.
The percentage of claims dismissed in the future will be equivalent to historical averages.
Our liability for asbestos-related claims is not discounted to present value due to the uncertainty
surrounding the timing of future payments. Approximately 22% of the recorded liability related to asserted
claims and approximately 78% related to unasserted claims at December 31, 2012. Because of the
uncertainty surrounding the ultimate outcome of asbestos-related claims, it is reasonably possible that
future costs to settle these claims may range from approximately $139 million to $149 million. We record
an accrual at the low end of the range as no amount of loss within the range is more probable than any
other.
Our asbestos-related liability activity was as follows:
Millions
Beginning balance
Credits
Payments
Ending balance at December 31
Current portion, ending balance at December 31
2012
147
(2)
(6)
139
8
$
$
$
2011
162
(5)
(10)
147
8
$
$
$
2010
174
(1)
(11)
162
12
$
$
$
In conjunction with the liability update performed in 2012, we also reassessed estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2012 and
2011. The amounts recorded for asbestos-related liabilities and related insurance recoveries were based
on currently known facts. However, future events, such as the number of new claims filed each year,
average settlement costs, and insurance coverage issues, could cause the actual costs and insurance
recoveries to be higher or lower than the projected amounts. Estimates also may vary in the future if
strategies, activities, and outcomes of asbestos litigation materially change; federal and state laws
80
governing asbestos litigation increase or decrease the probability or amount of compensation of
claimants; and there are material changes with respect to payments made to claimants by other
defendants.
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations.
We have identified 284 sites at which we are or may be liable for remediation costs associated with
alleged contamination or for violations of environmental requirements. This includes 32 sites that are the
subject of actions taken by the U.S. government, 17 of which are currently on the Superfund National
Priorities List. Certain federal legislation imposes joint and several liability for the remediation of identified
sites; consequently, our ultimate environmental liability may include costs relating to activities of other
parties, in addition to costs relating to our own activities at each site.
When we identify an environmental issue with respect to property owned, leased, or otherwise used in
our business, we perform, with assistance of our consultants, environmental assessments on the
property. We expense the cost of the assessments as incurred. We accrue the cost of remediation where
our obligation is probable and such costs can be reasonably estimated. We do not discount our
environmental liabilities when the timing of the anticipated cash payments is not fixed or readily
determinable. At December 31, 2012, none of our environmental liability was discounted, while less than
1% of our environmental liability was discounted at 2.0% at December 31, 2011.
Our environmental liability activity was as follows:
Millions
Beginning balance
Accruals
Payments
Ending balance at December 31
Current portion, ending balance at December 31
[a] Payments include $25 million to resolve the Omaha Lead Site liability.
2012
172
48
(50)
170
50
$
$
$
2011 [a]
213
$
29
(70)
$
$
172
50
2010
217
57
(61)
213
74
$
$
$
The environmental liability includes future costs for remediation and restoration of sites, as well as
ongoing monitoring costs, but excludes any anticipated recoveries from third parties. Cost estimates are
based on information available for each site, financial viability of other potentially responsible parties, and
existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine
because of the number of potentially responsible parties, site-specific cost sharing arrangements with
other potentially responsible parties, the degree of contamination by various wastes, the scarcity and
quality of volumetric data related to many of the sites, and the speculative nature of remediation costs.
Estimates of liability may vary over time due to changes in federal, state, and local laws governing
environmental remediation. Current obligations are not expected to have a material adverse effect on our
consolidated results of operations, financial condition, or liquidity.
Guarantees – At December 31, 2012, we were contingently liable for $307 million in guarantees. We
have recorded a liability of $2 million for the fair value of these obligations as of December 31, 2012 and
2011. We entered into these contingent guarantees in the normal course of business, and they include
guaranteed obligations related to our headquarters building, equipment financings, and affiliated
operations. The final guarantee expires in 2022. We are not aware of any existing event of default that
would require us to satisfy these guarantees. We do not expect that these guarantees will have a material
adverse effect on our consolidated financial condition, results of operations, or liquidity.
Indemnities – Our maximum potential exposure under indemnification arrangements, including certain
tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the
nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or
how they will be resolved, we cannot reasonably determine the probability of an adverse claim or
reasonably estimate any adverse liability or the total maximum exposure under these indemnification
arrangements. We do not have any reason to believe that we will be required to make any material
payments under these indemnity provisions.
81
Gain Contingency – UPRR and Santa Fe Pacific Pipelines (SFPP, a subsidiary of Kinder Morgan
Energy Partners, L.P.) currently are engaged in a proceeding to resolve the fair market rent payable to
UPRR under a 10-year agreement commencing on January 1, 2004 for pipeline easements on UPRR
rights-of-way (Union Pacific Railroad Company vs. Santa Fe Pacific Pipelines, Inc., SFPP, L.P., Kinder
Morgan Operating L.P. “D” Kinder Morgan G.P., Inc., et al., Superior Court of the State of California for
the County of Los Angeles, filed July 28, 2004). In February 2007, a trial began to resolve this issue, and,
on September 28, 2011, the judge issued a tentative Statement of Decision, which concluded that SFPP
owes back rent to UPRR for the years 2004 through 2011. On May 29, 2012, the court entered judgment,
awarding UPRR back rent and prejudgment interest. SFPP is appealing the final judgment. A favorable
final judgment may materially affect our results of operations in the period of any monetary recoveries;
however, due to the uncertainty regarding the amount and timing of any recovery, including the outcome
of SFPP’s appeal of this judgment or any subsequent proceeding, we consider this a gain contingency
and do not reflect any amounts in the Condensed Consolidated Financial Statements as of December 31,
2012.
18. Share Repurchase Program
Effective April 1, 2011, our Board of Directors authorized the repurchase of 40 million shares of our
common stock by March 31, 2014, replacing our previous repurchase program. As of December 31,
2012, we repurchased a total of $7.1 billion of our common stock since the commencement of our
repurchase programs. The table below represents shares repurchased under the new repurchase
program, except for the first quarter of 2011 which represent shares repurchased under the previous
program.
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Number of Shares Purchased
2011
2,636,178
3,576,399
4,681,535
3,885,658
2012
3,917,369
3,770,528
3,098,812
2,033,750
2012
$ 110.64
110.02
122.13
121.81
$
Average Price Paid
2011
94.10
100.75
91.45
98.16
12,820,459
14,779,770
$ 115.01
$
95.94
Remaining number of shares that may be repurchased under current authority
15,035,949
Management's assessments of market conditions and other pertinent facts guide the timing and volume
of all repurchases. We expect to fund any share repurchases under this program through cash generated
from operations, the sale or lease of various operating and non-operating properties, debt issuances, and
cash on hand. Repurchased shares are recorded in treasury stock at cost, which includes any applicable
commissions and fees.
82
19. Selected Quarterly Data (Unaudited)
Millions, Except Per Share Amounts
2012
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
Millions, Except Per Share Amounts
2011
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
Mar. 31
Jun. 30
Sep. 30
Dec. 31
$ 5,112
1,510
863
$ 5,221
1,724
1,002
$
5,343
1,786
1,042
$ 5,250
1,725
1,036
1.81
1.79
2.11
2.10
2.21
2.19
2.21
2.19
Mar. 31
Jun. 30
Sep. 30
Dec. 31
$ 4,490
1,137
639
$ 4,858
1,392
785
$
5,101
1,578
904
$ 5,108
1,617
964
1.31
1.29
1.61
1.59
1.87
1.85
2.01
1.99
Per share net income for the four quarters combined may not equal the per share net income for the year
due to rounding.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
As of the end of the period covered by this report, the Corporation carried out an evaluation, under the
supervision and with the participation of the Corporation’s management, including the Corporation’s Chief
Executive Officer (CEO) and Executive Vice President – Finance and Chief Financial Officer (CFO), of the
effectiveness of the design and operation of the Corporation’s disclosure controls and procedures
pursuant to Exchange Act Rules 13a-15 and 15d-15. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives. Based
upon that evaluation, the CEO and the CFO concluded that, as of the end of the period covered by this
report, the Corporation’s disclosure controls and procedures were effective to provide reasonable
assurance that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified by the SEC, and that such information is
accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure.
Additionally, the CEO and CFO determined that there were no changes to the Corporation’s internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last
fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
83
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Union Pacific Corporation and Subsidiary Companies (the Corporation) is
responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)). The Corporation’s internal control system was designed
to provide reasonable assurance to the Corporation’s management and Board of Directors regarding the
preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
The Corporation’s management assessed the effectiveness of the Corporation’s internal control over
financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework. Based on our assessment, management believes that, as of December 31, 2012,
the Corporation’s internal control over financial reporting is effective based on those criteria.
The Corporation’s independent registered public accounting firm has issued an attestation report on the
effectiveness of the Corporation’s internal control over financial reporting. This report appears on the next
page.
February 7, 2013
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Union Pacific Corporation:
We have audited the internal control over financial reporting of Union Pacific Corporation and Subsidiary
Companies (the Corporation) as of December 31, 2012, based on criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Corporation's management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Corporation's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision
of, the company’s principal executive and principal financial officers, or persons performing similar
functions, and effected by the company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of
the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2012, based on the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of and
for the year ended December 31, 2012 of the Corporation and our report dated February 8, 2013
expressed an unqualified opinion on those financial statements and financial statement schedule.
Omaha, Nebraska
February 8, 2013
85
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers, and Corporate Governance
(a) Directors of Registrant.
PART III
Information as to the names, ages, positions and offices with UPC, terms of office, periods of
service, business experience during the past five years and certain other directorships held by each
director or person nominated to become a director of UPC is set forth in the Election of Directors
segment of the Proxy Statement and is incorporated herein by reference.
Information concerning our Audit Committee and the independence of its members, along with
information about the audit committee financial expert(s) serving on the Audit Committee, is set forth
in the Audit Committee segment of the Proxy Statement and is incorporated herein by reference.
(b) Executive Officers of Registrant.
Information concerning the executive officers of UPC and its subsidiaries is presented in Part I of
this report under Executive Officers of the Registrant and Principal Executive Officers of
Subsidiaries.
(c) Section 16(a) Compliance.
Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is set
forth in the Section 16(a) Beneficial Ownership Reporting Compliance segment of the Proxy
Statement and is incorporated herein by reference.
(d) Code of Ethics for Chief Executive Officer and Senior Financial Officers of Registrant.
The Board of Directors of UPC has adopted the UPC Code of Ethics for the Chief Executive Officer
and Senior Financial Officers (the Code). A copy of the Code may be found on the Internet at our
website www.up.com/investors/governance. We intend to disclose any amendments to the Code or
any waiver from a provision of the Code on our website.
Item 11. Executive Compensation
Information concerning compensation received by our directors and our named executive officers is
presented in the Compensation Discussion and Analysis, Summary Compensation Table, Grants of Plan-
Based Awards in Fiscal Year 2012, Outstanding Equity Awards at 2012 Fiscal Year-End, Option
Exercises and Stock Vested in Fiscal Year 2012, Pension Benefits at 2012 Fiscal Year-End, Nonqualified
Deferred Compensation at 2012 Fiscal Year-End, Potential Payments Upon Termination or Change in
Control and Director Compensation in Fiscal Year 2012 segments of the Proxy Statement and is
incorporated herein by reference. Additional information regarding compensation of directors, including
Board committee members, is set forth in the By-Laws of UPC and the Stock Unit Grant and Deferred
Compensation Plan for the Board of Directors, both of which are included as exhibits to this report.
Information regarding the Compensation and Benefits Committee is set forth in the Compensation
Committee Interlocks and Insider Participation and Compensation Committee Report segments of the
Proxy Statement and is incorporated herein by reference.
86
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information as to the number of shares of our equity securities beneficially owned by each of our directors
and nominees for director, our named executive officers, our directors and executive officers as a group,
and certain beneficial owners is set forth in the Security Ownership of Certain Beneficial Owners and
Management segment of the Proxy Statement and is incorporated herein by reference.
The following table summarizes the equity compensation plans under which UPC common stock may be
issued as of December 31, 2012:
Column (a)
Column (b)
Column (c)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
5,892,817
[1]
5,892,817
$
$
52.89
[2]
32,168,520
52.89
32,168,520
Plan Category
Equity compensation plans approved
by security holders
Total
[1]
Includes 1,604,221 retention units that do not have an exercise price. Does not include 1,851,382 retention shares that have
been issued and are outstanding.
[2] Does not include the retention units or retention shares described above in footnote 1.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information on related transactions is set forth in the Certain Relationships and Related Transactions and
Compensation Committee Interlocks and Insider Participation segments of the Proxy Statement and is
incorporated herein by reference. We do not have any relationship with any outside third party that would
enable such a party to negotiate terms of a material transaction that may not be available to, or available
from, other parties on an arm’s-length basis.
Information regarding the independence of our directors is set forth in the Director Independence
segment of the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information concerning the fees billed by our independent registered public accounting firm and the
nature of services comprising the fees for each of the two most recent fiscal years in each of the following
categories: (i) audit fees, (ii) audit-related fees, (iii) tax fees, and (iv) all other fees, is set forth in the
Independent Registered Public Accounting Firm’s Fees and Services segment of the Proxy Statement
and is incorporated herein by reference.
Information concerning our Audit Committee’s policies and procedures pertaining to pre-approval of audit
and non-audit services rendered by our independent registered public accounting firm is set forth in the
Audit Committee segment of the Proxy Statement and is incorporated herein by reference.
87
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1) Financial Statements
The financial statements filed as part of this filing are listed on the index to the Financial
Statements and Supplementary Data, Item 8, on page 49.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not applicable or not required
or the information required to be set forth therein is included in the Financial Statements and
Supplementary Data, Item 8, or notes thereto.
(3) Exhibits
Exhibits are listed in the exhibit index beginning on page 91. The exhibits include management
contracts, compensatory plans and arrangements required to be filed as exhibits to the Form
10-K by Item 601 (10) (iii) of Regulation S-K.
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on
this 8th day of February, 2013.
UNION PACIFIC CORPORATION
By /s/ John J. Koraleski
John J. Koraleski,
President and
Chief Executive Officer
Union Pacific Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below,
on this 8th day of February, 2013, by the following persons on behalf of the registrant and in the capacities
indicated.
PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR:
/s/ John J. Koraleski
John J. Koraleski,
President and
Chief Executive Officer
Union Pacific Corporation
/s/ Robert M. Knight, Jr.
Robert M. Knight, Jr.,
Executive Vice President - Finance
and Chief Financial Officer
/s/ Jeffrey P. Totusek
Jeffrey P. Totusek,
Vice President and Controller
Michael R. McCarthy*
Michael W. McConnell*
Thomas F. McLarty III*
Steven R. Rogel*
Jose H. Villarreal*
James R. Young*
PRINCIPAL FINANCIAL OFFICER:
PRINCIPAL ACCOUNTING OFFICER:
DIRECTORS:
Andrew H. Card, Jr.*
Erroll B. Davis, Jr.*
Thomas J. Donohue*
Archie W. Dunham*
Judith Richards Hope*
Charles C. Krulak*
* By /s/ James J. Theisen, Jr.
James J. Theisen, Jr., Attorney-in-fact
89
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Union Pacific Corporation and Subsidiary Companies
Millions, for the Years Ended December 31,
Allowance for doubtful accounts:
Balance, beginning of period
Charges/(reduction) to expense
Net recoveries/(write-offs)
Balance, end of period
Allowance for doubtful accounts are presented in the
Consolidated Statements of Financial Position as follows:
Current
Long-term
Balance, end of period
Accrued casualty costs:
Balance, beginning of period
Charges to expense
Cash payments and other reductions
Balance, end of period
Accrued casualty costs are presented in the
Consolidated Statements of Financial Position as follows:
Current
Long-term
Balance, end of period
2012
2011
2010
$
50
(1)
(12)
37
$
$
$
$
4
33
37
778
190
(234)
$
$
$
$
$
56
-
(6)
50
9
41
50
905
110
(237)
70
(6)
(8)
56
5
51
56
1,086
186
(367)
734
$
778
$
905
213
521
734
$
$
249
529
778
$
$
325
580
905
$
$
$
$
$
$
$
$
90
UNION PACIFIC CORPORATION
Exhibit Index
Exhibit No.
Description
Filed with this Statement
10(a)
10(b)
10(c)
12
21
23
24
31(a)
31(b)
32
101
Form of 2013 Long Term Plan Stock Unit Agreement dated February 7, 2013.
Form of Stock Unit Agreement for Executives dated February 7, 2013.
Form of Non-Qualified Stock Option Agreement for Executives dated February 7,
2013.
Ratio of Earnings to Fixed Charges.
List of the Corporation’s significant subsidiaries and their respective states of
incorporation.
Independent Registered Public Accounting Firm’s Consent.
Powers of attorney executed by the directors of UPC.
Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – John J. Koraleski.
Certifications Pursuant to Rule 13a-14(a), of the Exchange Act, as Adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Robert M. Knight,
Jr.
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 – John J. Koraleski and Robert
M. Knight, Jr.
eXtensible Business Reporting Language
(XBRL) documents submitted
electronically: 101.INS (XBRL Instance Document), 101.SCH (XBRL Taxonomy
Extension Schema Document), 101.CAL
(XBRL Calculation Linkbase
Document), 101.LAB (XBRL Taxonomy Label Linkbase Document), 101.DEF
(XBRL Taxonomy Definition Linkbase Document) and 101.PRE
(XBRL
Taxonomy Presentation Linkbase Document). The following financial and related
information from Union Pacific Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2012 (filed with the SEC on February 8, 2013), is
formatted in XBRL and submitted electronically herewith: (i) Consolidated
Statements of Income for the years ended December 31, 2012, 2011 and 2010,
(ii) Consolidated Statements of Comprehensive Income for the years ended
December 31, 2012, 2011, and 2010, (iii) Consolidated Statements of Financial
Position at December 31, 2012 and December 31, 2011, (iv) Consolidated
Statements of Cash Flows for the years ended December 31, 2012, 2011 and
2010, (v) Consolidated Statements of Changes in Common Shareholders’ Equity
for the years ended December 31, 2012, 2011 and 2010, and (vi) the Notes to
the Consolidated Financial Statements.
Incorporated by Reference
3(a)
Restated Articles of Incorporation of UPC, as amended and restated through
June 27, 2011, are incorporated herein by reference to Exhibit 3(a) to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2011.
91
3(b)
4(a)
4(b)
4(c)
4(d)
10(d)
10(e)
10(f)
10(g)
10(h)
10(i)
By-Laws of UPC, as amended, effective May 14, 2009, are incorporated herein
by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K
dated May 15, 2009.
Indenture, dated as of December 20, 1996, between UPC and Wells Fargo Bank,
National Association, as successor to Citibank, N.A., as Trustee, is incorporated
herein by reference to Exhibit 4.1 to UPC’s Registration Statement on Form S-3
(No. 333-18345).
Indenture, dated as of April 1, 1999, between UPC and The Bank of New York,
as successor to JP Morgan Chase Bank, formerly The Chase Manhattan Bank,
as Trustee, is incorporated herein by reference to Exhibit 4.2 to UPC’s
Registration Statement on Form S-3 (No. 333-75989).
Form of 2.950% Note due 2023 is incorporated herein by reference to Exhibit 4.1
to the Corporation’s Current Report on Form 8-K, dated June 11, 2012.
Form of 4.300% Note due 2042 is incorporated herein by reference to Exhibit 4.2
to the Corporation’s Current Report on Form 8-K dated June 11, 2012.
Certain instruments evidencing long-term indebtedness of UPC are not filed as
exhibits because the total amount of securities authorized under any single such
instrument does not exceed 10% of the Corporation’s total consolidated assets.
UPC agrees to furnish the Commission with a copy of any such instrument upon
request by the Commission.
Supplemental Thrift Plan (409A Non-Grandfathered Component) of Union Pacific
Corporation, as amended December 28, 2011, is incorporated herein by
reference to Exhibit 10(d) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2011.
Supplemental Thrift Plan (409A Grandfathered Component) of Union Pacific
Corporation, as amended and restated in its entirety, effective as of January 1,
2009, is incorporated herein by reference to Exhibit 10(d) to the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2008.
Supplemental Pension Plan for Officers and Managers (409A Non-Grandfathered
Component) of Union Pacific Corporation and Affiliates, as amended and
restated in its entirety effective as of January 1, 1989, including all amendments
adopted through January 1, 2009, as amended July 22, 2011, is incorporated
herein by reference to Exhibit 10 to the Corporation’s Annual Report on Form 10-
Q for the quarter ended September 30, 2011.
Supplemental Pension Plan for Officers and Managers (409A Grandfathered
Component) of Union Pacific Corporation and Affiliates, as amended and
restated in its entirety effective as of January 1, 1989, including all amendments
adopted through January 1, 2009 is incorporated herein by reference to Exhibit
10(f) to the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008.
Union Pacific Corporation Executive Incentive Plan, effective May 5, 2005,
amended and restated effective January 1, 2009, is incorporated herein by
reference to Exhibit 10(g) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2008.
Deferred Compensation Plan (409A Non-Grandfathered Component) of Union
Pacific Corporation, effective as January 1, 2009 as amended December 30,
2010 and June 22, 2011, is incorporated herein by reference to Exhibit 10 to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2011.
92
10(j)
10(k)
10(l)
10(m)
10(n)
10(o)
10(p)
10(q)
10(r)
10(s)
10(t)
Deferred Compensation Plan (409A Grandfathered Component) of Union Pacific
Corporation, as amended and restated in its entirety, effective as January 1,
2009 is incorporated herein by reference to Exhibit 10(i) to the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2008.
Union Pacific Corporation 2000 Directors Plan, effective as of April 21, 2000, as
amended November 16, 2006, January 30, 2007 and January 1, 2009 is
incorporated herein by reference to Exhibit 10(j) to the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2008.
Union Pacific Corporation Stock Unit Grant and Deferred Compensation Plan for
the Board of Directors (409A Non-Grandfathered Component), effective as of
January 1, 2009 is incorporated herein by reference to Exhibit 10(k) to the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2008.
Union Pacific Corporation Stock Unit Grant and Deferred Compensation Plan for
the Board of Directors (409A Grandfathered Component), as amended and
restated in its entirety, effective as of January 1, 2009 is incorporated herein by
reference to Exhibit 10(l) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2008.
Union Pacific Corporation Key Employee Continuity Plan, dated as of November
16, 2000, as amended and restated effective as of January 1, 2009, as amended
February 3, 2011, is incorporated herein by reference to Exhibit 10(e) to the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2010.
UPC 2004 Stock Incentive Plan, originally effective as of April 16, 2004, and
amended and restated effective January 1, 2009, and amended September 23,
2009, is incorporated herein by reference to Exhibit 10 to the Corporation’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
is
UPC 2001 Stock
incorporated herein by reference to Exhibit 10(e) to the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2006.
Incentive Plan, as amended November 16, 2006,
Amended and Restated Registration Rights Agreement, dated as of July 12,
1996, among UPC, UP Holding Company, Inc., Union Pacific Merger Co. and
Southern Pacific Rail Corporation (SP) is incorporated herein by reference to
Annex J to the Joint Proxy Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC’s Registration Statement on Form S-4 (No. 33-64707).
Agreement, dated September 25, 1995, among UPC, UPRR, Missouri Pacific
Railroad Company (MPRR), SP, Southern Pacific Transportation Company
(SPT), The Denver & Rio Grande Western Railroad Company (D&RGW), St.
Louis Southwestern Railway Company (SLSRC) and SPCSL Corp. (SPCSL), on
the one hand, and Burlington Northern Railroad Company (BN) and The
Atchison, Topeka and Santa Fe Railway Company (Santa Fe), on the other
hand, is incorporated by reference to Exhibit 10.11 to UPC’s Registration
Statement on Form S-4 (No. 33-64707).
Supplemental Agreement, dated November 18, 1995, between UPC, UPRR,
MPRR, SP, SPT, D&RGW, SLSRC and SPCSL, on the one hand, and BN and
Santa Fe, on the other hand, is incorporated herein by reference to Exhibit 10.12
to UPC’s Registration Statement on Form S-4 (No. 33-64707).
The Pension Plan for Non-Employee Directors of UPC, as amended January 25,
1996, is incorporated herein by reference to Exhibit 10(w) to the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 1995.
93
10(u)
10(v)
10(w)
10(x)
10(y)
10(z)
10(aa)
10(bb)
10(cc)
Charitable Contribution Plan for Non-Employee Directors of Union Pacific
Corporation is incorporated herein by reference to Exhibit 10(z) to the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
1995.
Form of Non-Qualified Stock Option Agreement for Executives is incorporated
herein by reference to Exhibit 10(a) to the Corporation’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004.
Form of 2009 Long Term Plan Stock Unit Agreement is incorporated herein by
reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2008.
Form of 2010 Long Term Plan Stock Unit Agreement is incorporated herein by
reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2009.
Form of 2011 Long Term Plan Stock Unit Agreement is incorporated herein by
reference to Exhibit 10(a) to the Corporations Annual Report on Form 10-K for
the year ended December 31, 2010.
Form of 2012 Long Term Plan Stock Unit Agreement is incorporated herein by
reference to Exhibit 10(a) to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2011.
Form of Non-Qualified Stock Option Agreement for Directors is incorporated
herein by reference to Exhibit 10(d) to the Corporation’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004.
Form of Non-Qualified Stock Option Agreement for Executives is incorporated
herein by reference to Exhibit 10(c) to the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2005.
Executive Incentive Plan (2005) – Deferred Compensation Program, dated
December 21, 2005 is incorporated herein by reference to Exhibit 10(g) to the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2005.
94
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
Union Pacific Corporation and Subsidiary Companies
Millions, Except for Ratios
Fixed charges:
Interest expense including
amortization of debt discount
Portion of rentals representing an interest factor
Total fixed charges
Earnings available for fixed charges:
Net income
Equity earnings net of distributions
Income taxes
Fixed charges
2012
2011
2010
2009
2008
$
$
535
132
667
$
$
572
135
707
$
$
602
136
738
$
$
600
155
755
$
$
511
226
737
$ 3,943
(55)
2,375
667
$ 3,292
(38)
1,972
707
$ 2,780
(44)
1,653
738
$ 1,890
(42)
1,084
755
$ 2,335
(53)
1,316
737
Earnings available for fixed charges
$ 6,930
$ 5,933
$ 5,127
$ 3,687
$ 4,335
Ratio of earnings to fixed charges
10.4
8.4
6.9
4.9
5.9
95
SIGNIFICANT SUBSIDIARIES OF UNION PACIFIC CORPORATION
Name of Corporation
State of
Incorporation
Union Pacific Railroad Company ......................................................................
Southern Pacific Rail Corporation .....................................................................
Delaware
Utah
Exhibit 21
96
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration
Statement No. 33-12513, Registration Statement No. 33-53968, Registration Statement No. 33-49785,
Registration Statement No. 33-49849, Registration Statement No. 333-10797, Registration Statement No.
333-13115, Registration Statement No. 333-88709, Registration Statement No. 333-61856, Registration
Statement No. 333-42768, Registration Statement No. 333-106707, Registration Statement No. 333-
106708, Registration Statement No. 333-105714, Registration Statement No. 333-105715, Registration
Statement No. 333-116003, Registration Statement No. 333-132324, Registration Statement No. 333-
155708, Registration Statement No. 333-170209, and Registration Statement No. 333-170208 on Form
S-8 and Registration Statement No. 333-164842 on Form S-3 of our reports dated February 8, 2013,
relating to the consolidated financial statements and financial statement schedule of Union Pacific
Corporation and Subsidiary Companies (the Corporation) and the effectiveness of the Corporation's
internal control over financial reporting, appearing in this Annual Report on Form 10-K of Union Pacific
Corporation and Subsidiary Companies for the year ended December 31, 2012.
Omaha, Nebraska
February 8, 2013
97
Exhibit 24
UNION PACIFIC CORPORATION
Powers of Attorney
Each of the undersigned directors of Union Pacific Corporation, a Utah corporation (the Company), do
hereby appoint each of John J. Koraleski, Barbara W. Schaefer, and James J. Theisen, Jr. his or her true
and lawful attorney-in-fact and agent, to sign on his or her behalf the Company’s Annual Report on Form
10-K, for the year ended December 31, 2012, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney as of February 7, 2013.
/s/ Andrew H. Card, Jr.
Andrew H. Card, Jr.
/s/ Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
/s/ Thomas J. Donohue
Thomas J. Donohue
/s/ Archie W. Dunham
Archie W. Dunham
/s/ Judith Richards Hope
Judith Richards Hope
/s/ Charles C. Krulak
Charles C. Krulak
/s/ Michael R. McCarthy
Michael R. McCarthy
/s/ Michael W. McConnell
Michael W. McConnell
/s/ Thomas F. McLarty III
Thomas F. McLarty III
/s/ Steven R. Rogel
Steven R. Rogel
/s/ Jose H. Villarreal
Jose H. Villarreal
/s/ James R. Young
James R. Young
98
Exhibit 31(a)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, John J. Koraleski, certify that:
1. I have reviewed this annual report on Form 10-K of Union Pacific Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.
Date: February 8, 2013
/s/ John J. Koraleski
John J. Koraleski
President and
Chief Executive Officer
99
Exhibit 31(b)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Robert M. Knight, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Union Pacific Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.
Date: February 8, 2013
/s/ Robert M. Knight, Jr.
Robert M. Knight, Jr.
Executive Vice President – Finance and
Chief Financial Officer
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the accompanying Annual Report of Union Pacific Corporation (the Corporation) on
Form 10-K for the period ending December 31, 2012, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, John J. Koraleski, President and Chief Executive Officer
of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Corporation.
By: /s/ John J. Koraleski
John J. Koraleski
President and
Chief Executive Officer
Union Pacific Corporation
February 8, 2013
A signed original of this written statement required by Section 906 has been provided to the Corporation
and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of Union Pacific Corporation (the Corporation) on
Form 10-K for the period ending December 31, 2012, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Robert M. Knight, Jr., Executive Vice President - Finance
and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Corporation.
By: /s/ Robert M. Knight, Jr.
Robert M. Knight, Jr.
Executive Vice President - Finance and
Chief Financial Officer
Union Pacific Corporation
February 8, 2013
A signed original of this written statement required by Section 906 has been provided to the Corporation
and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.
101