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, 2014
(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.
(cid:31)
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 30, 2014, the aggregate market value of the registrant’s Common Stock held by non-affiliates (using the
New York Stock Exchange closing price) was $89.4 billion.
The number of shares outstanding of the registrant’s Common Stock as of January 30, 2015 was 881,284,029.
Documents Incorporated by Reference – Portions of the registrant’s definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 14, 2015, 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
Chairman’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 ................................................................................... 14
Properties ................................................................................................................ 14
Legal Proceedings .................................................................................................. 16
Mine Safety Disclosures ......................................................................................... 18
Executive Officers of the Registrant and Principal Executive
Officers of Subsidiaries ..................................................................................... 19
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 .................... 20
Selected Financial Data .......................................................................................... 22
Management’s Discussion and Analysis of Financial
Condition and Results of Operations ................................................................ 23
Critical Accounting Policies ..................................................................................... 43
Cautionary Information ............................................................................................ 48
Quantitative and Qualitative Disclosures About Market Risk .................................. 49
Financial Statements and Supplementary Data ...................................................... 50
Report of Independent Registered Public Accounting Firm .................................... 51
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................................................................ 85
Controls and Procedures ........................................................................................ 85
Management’s Annual Report on Internal Control Over
Financial Reporting ........................................................................................... 86
Report of Independent Registered Public Accounting Firm .................................... 87
Other Information .................................................................................................... 88
PART III
Directors, Executive Officers, and Corporate Governance ..................................... 88
Executive Compensation ........................................................................................ 88
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ............................................... 89
Certain Relationships and Related Transactions and
Director Independence ..................................................................................... 89
Principal Accountant Fees and Services ................................................................. 89
PART IV
Exhibits, Financial Statement Schedules ................................................................ 90
Signatures ............................................................................................................... 91
Certifications ........................................................................................................... 101
2
Fellow Shareholders:
February 6, 2015
I am happy to report another successful year for Union Pacific in 2014. We set numerous financial
records, achieving record earnings per share of $5.75 while improving our operating ratio to a record low
63.5 percent, 2.6 points better than 2013. Our return on invested capital* was an all-time high of 16.2
percent, up 1.5 percentage points year-over-year. As a result, Union Pacific was able to reward its
shareholders with increased returns in 2014. We increased our quarterly declared dividend per share
twice last year, with total dividends declared for 2014 growing 29 percent compared to the full year 2013.
We also repurchased $3.2 billion in Union Pacific shares, a 45 percent increase from 2013. UP’s stock
price reached an all-time high in 2014, increasing 42 percent, and outpacing the S&P 500 by 30
percentage points.
Union Pacific handled robust volume growth of 7 percent last year. A record grain harvest and increased
frac sand shipments drove particularly strong growth in Agricultural Products and Industrial Products,
respectively. Increased international volumes and continued highway-to-rail conversions also drove
strong growth in Intermodal. Our Automotive and Coal businesses recorded modest volume gains over
2013, while our Chemicals business was up slightly, as growth in base chemicals more than offset a
decline in crude-by-rail shipments during the year.
Throughout the year we maintained our unrelenting focus on safety. We achieved an all-time record low
reportable personal injury rate while the reportable rate for rail equipment incidents improved 7 percent
over last year. The team has made great progress on our way toward achieving our ultimate goal of an
incident free environment. Our commitment to risk reduction, Courage to Care, and Total Safety Culture
will continue to lead the way so that every employee returns home safely.
Strong carload growth combined with significant weather disruptions to affect the performance of our
network during 2014. Average system velocity, as reported to the AAR, decreased 8 percent and
average terminal dwell increased 12 percent when compared to 2013. Throughout 2014 we worked hard
to improve the fluidity of our network and the service we provided to our customers. In total, we
increased our TE&Y workforce by more than 1,700 employees and added around 800 locomotives,
including 261 new units, to our active fleet. We are encouraged by the progress we have made, and
remain committed to further improvement.
Our capital program helps ensure we have the resources and network capacity required to handle our
current volumes as well as future growth. In total we spent $4.1 billion in 2014, strengthening the
franchise. This included $2.3 billion in replacement capital to harden our infrastructure, and to improve
the safety and resiliency of our network. In addition, we spent $1.4 billion on service, growth, and
productivity initiatives driven by investments in capacity, commercial facilities, and equipment. We also
continued to make progress toward completing the federally mandated Positive Train Control project.
Going forward, we will continue to focus on generating the strong returns needed to support our ongoing
capital investment.
With our extensive geographic coverage, our unparalleled access to Gulf and West Coast ports, and the
industry’s best access to Mexico, Union Pacific is well-positioned to compete successfully across a wide
variety of business segments. In a dynamic environment, this diversity is a great strength of our
franchise, which will enable us to serve the growing markets of tomorrow.
As always, there will be challenges to overcome in the year ahead, but we also see growth opportunities
to be realized across many of our business sectors. Efficiency is also a cornerstone of our success, and
we will continue to build on the progress we’ve made in improving our network capabilities so we can
provide the safe, reliable service our customers expect and deserve.
I could not be more proud of the dedicated men and women of Union Pacific who have worked so hard to
achieve our success this past year. I am confident that our team will continue to develop the potential of
our strong franchise, enhancing the value proposition for our customers, and providing increasing returns
for our shareholders.
Chairman
3
*See Item 7 of this report for reconciliations to U.S. GAAP.
BOARD OF DIRECTORS
Andrew H. Card, Jr.
President
Franklin Pierce University
Board Committees: Audit,
Compensation and Benefits
Erroll B. Davis, Jr.
Former Chairman,
President & CEO
Alliant Energy Corporation
Board Committees: Compensation
and Benefits (Chair), Corporate
Governance and Nominating
David B. Dillon
Former Chairman
The Kroger Company
Board Committees: Audit,
Compensation and Benefits
Lance M. Fritz
President and
Chief Executive Officer
Union Pacific Corporation and
Union Pacific Railroad Company
SENIOR MANAGEMENT
John J. Koraleski
Chairman of the Board
Union Pacific Corporation and
Union Pacific Railroad Company
Lance M. Fritz
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 and
Corporate Secretary
Union Pacific Corporation
Mary Sanders Jones
Vice President and Treasurer
Union Pacific Corporation
DIRECTORS AND SENIOR MANAGEMENT
Judith Richards Hope
Emerita Professor of Law and
Distinguished Visitor from Practice
Georgetown University Law Center
Board Committees: Corporate
Governance and Nominating,
Finance
John J. Koraleski
Chairman of the Board
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: Corporate
Governance and Nominating,
Finance (Chair)
Michael W. McConnell
General Partner and
Former Managing Partner
Brown Brothers Harriman & Co.
Board Committees: Audit (Chair),
Finance
Thomas F. McLarty III
President
McLarty Associates
Board Committees: Finance,
Corporate Governance and
Nominating
Steven R. Rogel
Former 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: Audit,
Compensation and Benefits
D. Lynn Kelley
Vice President–Supply and
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–Labor Relations
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
Cameron A. Scott
Executive Vice President –
Operations
Union Pacific Railroad Company
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
4
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”, “Company”, “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 our directors and certain executive officers;
and amendments to such reports filed or furnished pursuant to the Securities Exchange Act of 1934, as
amended (the Exchange Act). We provide these reports and statements 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
two-thirds of
2014 Freight Revenue
Operations – UPRR is a Class I railroad
operating in the U.S. We have 31,974 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
the country and
maintain coordinated schedules with other rail
carriers to move freight to and from the
Atlantic Coast,
the
the Pacific Coast,
the Southwest, Canada, and
Southeast,
traffic moves
Mexico. Export and
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 primarily consists of coal, grain, soda ash, ethanol, rock and
crude oil shipped in unit trains – trains transporting a single commodity from one source to one
destination. Manifest traffic includes individual carload or less than train-load business involving
commodities such as lumber, steel, paper, food and chemicals. The transportation of finished vehicles,
auto parts, intermodal containers and truck trailers are included as part of our premium business. In 2014,
we generated freight revenues totaling $22.6 billion from the following six commodity groups:
import
Agricultural Products – Transportation of grains, commodities produced from these grains, and food and
beverage products generated 17% of the Railroad’s 2014 freight revenue. The Company accesses most
major grain markets, linking the Midwest and Western U.S. 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 42% of our 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 five vehicle assembly
plants and connects to West Coast ports, Mexico gateways and the Gulf of Mexico to accommodate both
import and export shipments. In addition to transporting finished vehicles, UPRR 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 2014.
Chemicals – Transporting chemicals generated 16% of our freight revenue in 2014. The Railroad’s
unique franchise serves the chemical producing areas along the Gulf Coast, where roughly 60% 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 four broad categories: petrochemicals, fertilizer, soda ash, and other. Petrochemicals include
industrial chemicals, plastics, and petroleum products, including crude oil and liquid petroleum gases.
Currently, these products move primarily to and from the Gulf Coast region. Fertilizer movements
originate in the Gulf Coast region, the western U.S. and Canada (through interline access) for delivery to
major agricultural users in the Midwest, western U.S., as well as abroad. Soda ash originates in
southwestern Wyoming and California, destined for chemical and glass producing markets in North
America and abroad. Other shipments include sodium products, phosphorus rock and sulfur.
Coal – Shipments of coal and petroleum coke accounted for 18% of our freight revenue in 2014. The
Railroad’s network supports the transportation of coal and petroleum coke to independent and regulated
power companies and industrial facilities throughout the U.S. Through interchange gateways and ports,
UPRR’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 the Mississippi River and Houston to
Europe. Coal traffic originating in the Southern Powder River Basin (SPRB) area of Wyoming is the
largest segment of the Railroad’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 group
consists of several categories, including construction products, minerals, consumer goods, metals,
6
lumber, paper, and other miscellaneous products. In 2014, this group generated 20% of Union Pacific’s
total freight revenue. Commercial, residential and governmental infrastructure investments drive
shipments of steel, aggregates (cement components), cement and wood products. Oil and gas drilling
generates demand for raw steel, finished pipe, frac sand, stone and drilling fluid commodities. Industrial
and light manufacturing plants receive steel, nonferrous materials, minerals and other raw materials.
Paper and packaging commodities, as well as appliances, move to major metropolitan areas for
consumers. Lumber shipments originate primarily in the Pacific Northwest and western Canada and move
throughout the U.S. for use in new home construction and repair and remodeling.
Intermodal – Our Intermodal business includes two segments: international and domestic. International
business consists of import and export container traffic that mainly passes through West Coast ports
served by UPRR’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 domestic shipments. Together,
international and domestic business generated 20% of UPC’s 2014 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 that
generally peaks 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 each 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 from 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 submit 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, 2014 and 2013, we had a modest working capital surplus, which
provides enhanced liquidity. 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 railroad competitor is Burlington Northern Santa Fe LLC. Its primary
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 most coal shipments). 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 certain areas where we operate. In addition to price
competition, we face competition with respect to transit times, quality and reliability of service from motor
carriers and other railroads. Motor carriers in particular can have an advantage over railroads with respect
to transit times and timeliness of service. However, railroads are much more fuel-efficient than trucks,
which reduces the impact of transporting goods on the environment and public infrastructure, and we
have been making efforts to convert certain truck traffic to rail. Additionally, 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 of the following could also affect the competitiveness of our transportation services for some
or all of our commodities: (i) improvements or expenditures materially increasing the quality or reducing
the costs of these alternative modes of transportation, (ii) legislation that eliminates or significantly
reduces the size or weight limitations applied to motor carriers, or (iii) legislation or regulatory changes
that impose operating restrictions on railroads or that adversely affect the profitability of some or all
railroad traffic. For more information regarding risks we face from competition, see the Risk Factors in
Item 1A of this report.
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 steel
7
producers (one domestic and one international) that meet our specifications. Rail is critical for
maintenance, replacement, improvement, and 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 85% of our 47,201 full-time-equivalent employees are represented by 14
major rail unions. On January 1, 2015, current labor agreements became subject to modification and we
began the current round of negotiations with the unions. Existing agreements remain in effect until new
agreements are reached or the Railway Labor Act’s procedures (which include mediation, cooling-off
periods, and the possibility of Presidential Emergency Boards and Congressional intervention) are
exhausted. Contract negotiations historically continue for an extended period of time and we rarely
experience work stoppages while negotiations are pending.
Railroad Security – Our security efforts consist of a wide variety of measures including employee
training, engagement 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
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 operate an emergency response management center 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 Materials 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. To date, we have not experienced any material disruption of our operations due to a cyber
threat or attack directed at us.
Cooperation with Federal, State, and Local Government Agencies – We work closely on physical and
cyber security initiatives with government agencies, including the DOT and the Department of Homeland
Security (DHS) as well as local police departments, fire departments, and other first responders. In
conjunction with the Association of American Railroads (AAR), we sponsor Ask Rail, a mobile application
which provides first responders with secure links to electronic information, including commodity and
emergency response 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-
8
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 – Through TransCAER (Transportation Community
Awareness and Emergency Response) we work with the AAR, the American Chemistry Council, the
American Petroleum Institute, and other chemical trade groups to provide communities with preparedness
tools, including the training of emergency responders. 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.
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 2014, the STB continued its efforts to explore whether to expand rail regulation.
The STB has requested parties to discuss the STB’s methodology for determining railroad revenue
adequacy and the possible use of a revenue adequacy constraint in regulating railroad rates. The STB
also held hearings to evaluate the potential impact of expanded reciprocal switching arrangements on
railroads. For the past several legislative sessions, proposed bills have been introduced in Congress that
aim to alter the regulatory structure of the railroad industry. We will continue to monitor any legislative
activity involving rail and transportation regulation and respond accordingly.
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 was issued on August 8, 2014. Although still under
development, PTC is a collision avoidance technology intended to override engineer controlled
locomotives and stop train-to-train and overspeed accidents, misaligned switch derailments, and
unauthorized entry to work zones. 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 developments,
training and deployment, and the delay in issuing the final rule. Through 2014, we have invested
approximately $1.6 billion in the development of PTC. The Company is planning to submit its PTC safety
plan to the FRA in the second quarter of 2015.
On August 1, 2014, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued
proposed rules concerning the transportation of certain flammable liquids. The proposed rules include a
variety of possible measures including tank car standards, speed restrictions, braking system
requirements, community notification, and operating restrictions. We, along with others in the rail
industry, submitted comments concerning the proposed rules. Railroad operations for the entire industry
could be impacted depending on the outcome of the final rules. We will continue to monitor this
rulemaking process.
DOT, the Occupational Safety and Health Administration, PHMSA 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
9
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 18 to the Consolidated Financial
Statements in Item 8, Financial Statements and Supplementary Data.
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 fluctuations in demand for rail service with respect to one or more commodities
or operating regions, or other events that could negatively impact 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 in demand for rail services with respect to one or more
commodities, 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 Transport Hazardous Materials – We transport certain hazardous materials and other materials,
including crude oil, ethanol, and toxic inhalation hazard (TIH) materials, such as chlorine, that pose
certain risks in the event of a release or combustion. Additionally, U.S. laws impose common carrier
obligations on railroads that require us to transport certain hazardous materials regardless of risk or
potential exposure to loss. A rail accident or other incident or accident on our network, at our facilities, or
at the facilities of our customers involving the release or combustion of hazardous materials could involve
significant costs and claims for personal injury, property damage, and environmental penalties and
remediation in excess of our insurance coverage for these risks, which could have a material adverse
effect on our results of operations, financial condition, and liquidity.
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
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
10
carriers likely will not meet the current mandatory deadline for PTC implementation due to various factors.
Additionally, one or more consolidations of Class I railroads could also lead to increased regulation of the
rail industry.
We May Be Affected by General Economic Conditions – Prolonged severe adverse domestic and global
economic conditions or disruptions of financial and credit markets 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 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, barges and maritime operators 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 that eliminates or
significantly reduces the burden of the size or weight limitations currently applicable to motor carriers,
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.
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. Line outages and other interruptions caused by these conditions can adversely affect our
entire rail network and can adversely affect revenue, costs, and liabilities, which could have a material
adverse effect on our results of operations, financial condition, and liquidity.
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.
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 that exceed our insurance coverage for such risks 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 currently have certain
obligations at existing sites for investigation, remediation and monitoring, and we likely will have
obligations at other sites in the future. Liabilities for these obligations affect our estimate based on our
experience and, as necessary, the advice and assistance of our consultants. However, actual costs may
vary from our estimates due to any or all of several factors, including changes to environmental laws or
interpretations of such laws, technological changes affecting investigations and remediation, the
11
participation and financial viability of other parties responsible for any such liability and the corrective
action or change to corrective actions required to remediate any existing or future sites. 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.
including chemical producers,
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
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
fuels,
food producers, and automakers and other
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.
farmers and
Strikes or Work Stoppages Could Adversely Affect Our Operations – The U.S. Class I railroads are party
to collective bargaining agreements with various labor unions. The majority of our employees belong to
labor unions and are subject to these agreements. 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.
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.
We May Be Affected By Fluctuating Fuel Prices – Fuel costs constitute a significant portion of our
transportation expenses. Diesel fuel prices can be 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 fuel expenses from our customers through revenue from fuel
surcharges, we cannot be certain that we will always be able to mitigate rising or elevated fuel costs
through our fuel surcharges. Additionally, 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. As fuel prices fluctuate, our fuel surcharge programs trail such fluctuations in
fuel price by approximately two months, and may be a significant source of quarter-over-quarter and year-
over-year volatility, particularly in periods of rapidly changing prices. International, political, and economic
factors, events and conditions affect the volatility of fuel prices and supplies. Weather can also affect fuel
supplies and limit domestic refining capacity. A severe shortage of, or disruption to, domestic fuel
supplies could have a material adverse effect on our results of operations, financial condition, and
liquidity. Alternatively, lower fuel prices could have a positive impact on the economy by increasing
consumer discretionary spending that potentially could increase demand for various consumer products
we transport. However, lower fuel prices could have a negative impact on other commodities we
12
transport, such as coal, frac sand and crude oil shipments, which could have a material adverse affect 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
significant deterioration of our financial condition could result in a reduction of our credit rating to below
investment grade, which could restrict, or at certain credit levels below investment grade may prohibit us,
from utilizing our current receivables securitization facility. This may also limit our access to external
sources of capital and significantly increase the costs of short and long-term debt financing.
A Significant Portion of Our Revenue Involves Transportation of Commodities to and from International
Markets – Although revenues from our operations are attributable to transportation services provided in
the U.S., a significant portion of our revenues involves the transportation of commodities to and from
international markets, including Mexico and Southeast Asia, by various carriers and, at times, various
modes of transportation. Significant and sustained interruptions of trade with Mexico or countries in
Southeast Asia, including China, could adversely affect customers and other entities that, directly or
indirectly, purchase or rely on rail transportation services in the U.S. as part of their operations, and any
such interruptions could have a material adverse effect on our results of operations, financial condition
and liquidity. Any one or more of the following could cause a significant and sustained interruption of
trade with Mexico or countries in Southeast Asia: (a) a deterioration of security for international trade and
businesses; (b) the adverse impact of new laws, rules and regulations or the interpretation of laws, rules
and regulations by government entities, courts or regulatory bodies, including taxing authorities, that
affect our customers doing business in foreign countries; (c) any significant adverse economic
developments, such as extended periods of high inflation, material disruptions in the banking sector or in
the capital markets of these foreign countries, and significant changes in the valuation of the currencies of
these foreign countries that could materially affect the cost or value of imports or exports; (d) shifts in
patterns of international trade that adversely affect import and export markets; and (e) a material
reduction in foreign direct investment in these countries.
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
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 steel producers (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.
13
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.
TRACK
Our rail network includes 31,974 route miles. We own 26,012 miles and operate on the remainder
pursuant to trackage rights or leases. The following table describes track miles at December 31, 2014
and 2013.
Route
Other main line
Passing lines and turnouts
Switching and classification yard lines
Total miles
HEADQUARTERS BUILDING
2014
31,974
6,943
3,197
9,058
2013
31,838
6,766
3,167
9,090
51,172
50,861
We own our headquarters building in Omaha, Nebraska. The facility has 1.2 million square feet of space
for approximately 4,000 employees.
14
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. Approximately 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 building trains (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 table includes
the major yards and terminals on our system:
Major Classification Yards
North Platte, Nebraska
North Little Rock, Arkansas
Englewood (Houston), Texas
Fort Worth, Texas
Proviso (Chicago), Illinois
Livonia, Louisiana
Roseville, California
Pine Bluff, Arkansas
West Colton, California
Neff (Kansas City), Missouri
RAIL EQUIPMENT
Major Intermodal Terminals
ICTF (Los Angeles), California
Global IV (Joliet), Illinois
East Los Angeles, California
DIT (Dallas), Texas
Global I (Chicago), Illinois
Marion (Memphis), Tennessee
Global II (Chicago), Illinois
Mesquite, Texas
City of Industry, California
Lathrop, California
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, 2014, 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
Owned Leased Total
7,993
345
125
2,327
12
57
5,666
333
68
Average
Age (yrs.)
18.4
35.6
35.4
6,067
2,396
8,463
N/A
Owned Leased Total
28,556
11,628
10,117
5,033
6,612
3,898
374
15,522
4,107
3,874
1,567
4,104
1,261
354
13,034
7,521
6,243
3,466
2,508
2,637
20
Average
Age (yrs.)
19.4
28.5
24.7
29.3
24.5
29.4
N/A
35,429
30,789
66,218
N/A
15
Highway revenue equipment
Containers
Chassis
Owned Leased Total
54,935
41,133
28,306
25,951
26,629
15,182
Average
Age (yrs.)
7.1
8.9
Total highway revenue equipment
41,811
54,257
96,068
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.
2014 Capital Program – During 2014, our capital program totaled $4.1 billion. (See the cash capital
expenditures table in Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources – Financial Condition, Item 7.)
2015 Capital Plan – In 2015, we expect our capital plan to be approximately $4.3 billion, which will
include expenditures for PTC of approximately $450 million and may include non-cash investments. We
may revise our 2015 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 2015 capital plan in
Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2015 Outlook,
Item 7.)
OTHER
Equipment Encumbrances – Equipment with a carrying value of approximately $2.8 billion and $2.9
billion at December 31, 2014, and 2013, respectively served as collateral for capital leases and other
types of equipment obligations in accordance with the secured financing arrangements utilized to acquire
or refinance 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.
16
ENVIRONMENTAL MATTERS
As previously reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012,
the Illinois Attorney General's Office notified UPRR on January 14, 2013, 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 site, consisting of no further action and monitoring for a period of ten years.
Subsequently, the State notified UPRR that it would seek to recover a civil penalty, and during early
negotiations, it offered to settle its claim for $240,000. UPRR rejected this offer. The State sued UPRR
on October 26, 2013, in the Circuit Court for the Tenth Judicial Circuit, Tazewell County, Illinois. Through
continued settlement negotiations, the parties have reached a tentative agreement to settle this matter in
exchange for a payment by UPRR of $100,000. Final terms for a written agreement are being developed.
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.
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 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.
Currently, UPRR and three other Class I railroads are the named defendants in the lawsuit. The original
plaintiff filed the first of these claims in the U.S. District Court in New Jersey on May 14, 2007. The
number of complaints reached a total of 30. These suits allege that the named railroads engaged in price-
fixing by establishing common fuel surcharges for certain rail traffic.
In addition to suits filed by direct purchasers of rail transportation services, a few of the suits involved
plaintiffs alleging that they are or were indirect purchasers of rail transportation and sought to represent a
purported class of indirect purchasers of rail transportation services 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. Following numerous hearings and rulings, Judge Friedman dismissed
the complaints of the indirect purchasers, which the indirect purchasers appealed. 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, which certified a class of plaintiffs with eight
named plaintiff representatives. The decision included in the class 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 31, 2008. This was a procedural ruling, which did 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
17
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. The Circuit Court heard oral arguments on May 3, 2013. On August 9, 2013, the Circuit
Court vacated the class certification decision and remanded the case to the district court to reconsider the
class certification decision in light of a recent Supreme Court case and incomplete consideration of errors
in the expert report of the plaintiffs. On October 31, 2013, Judge Friedman approved a schedule agreed
to by all parties for consideration of the class certification issue on remand.
On October 2, 2014, the plaintiffs informed Judge Friedman that their economic expert had a previously
undisclosed conflict of interest. Judge Friedman ruled on November 26, 2014, that the plaintiffs may file a
supplemental expert report to support their motion for class certification. The plaintiffs must file their
supplemental expert report on or before April 1, 2015. The defendant railroads will then have the
opportunity to respond to the plaintiffs’ supplement report. Judge Friedman has not yet set a new date to
hear oral arguments on plaintiffs’ motion for class certification.
As we reported in our Current Report on Form 8-K, filed on June 10, 2011, the Railroad received a
complaint filed in the U.S. District Court for the District of Columbia on June 7, 2011, by Oxbow Carbon &
Minerals LLC and related entities (Oxbow). The complaint named the Railroad and one other U.S. Class I
Railroad as defendants and alleged that the named railroads engaged in price-fixing and monopolistic
practices in connection with fuel surcharge programs and pricing of shipments of certain commodities,
including coal and petroleum coke. The complaint sought injunctive relief and payment of damages of
over $30 million, and other unspecified damages, including treble damages. Some of the allegations in
the complaint were addressed in the existing fuel surcharge litigation referenced above. The complaint
also included additional unrelated allegations regarding alleged limitations on competition for shipments
of Oxbow’s commodities. Judge Friedman, who presides over the fuel surcharge matter described above,
also presides over this matter. On February 26, 2013, Judge Friedman granted the defendants’ motion to
dismiss Oxbow’s complaint for failure to state properly a claim under the antitrust laws. However, the
dismissal was without prejudice to refile the complaint. Judge Friedman approved a schedule that allowed
Oxbow to file a revised complaint, which Oxbow filed on May 1, 2013. The amended complaint alleges
that UPRR and one other Class I railroad violated Sections 1 and 2 of the Sherman Antitrust Act and that
UPRR also breached a tolling agreement between Oxbow and UPRR. Oxbow claims that it paid more
than $50 million in wrongfully imposed fuel surcharges. UPRR and the other railroad filed separate
motions to dismiss the Oxbow revised complaint on July 1, 2013. Judge Friedman heard oral arguments
on the motions to dismiss filed by UPRR and the other railroad on January 8, 2015.
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.
Item 4. Mine Safety Disclosures
Not applicable.
18
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
is there 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 6, 2015,
relating to the executive officers.
Name
John J. Koraleski
Lance M. Fritz
Robert M. Knight, Jr.
Diane K. Duren
Gayla L. Thal
Jeffrey P. Totusek
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 and Corporate
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 – Marketing and Sales
of the Railroad
Business
Experience During
Age Past Five Years
64
52
[1]
[2]
57 Current Position
55
58
[3]
[4]
56 Current Position
54
[5]
[1] On February 5, 2015, Mr. Koraleski was named executive Chairman of the Board of UPC and the Railroad. Mr. Koraleski first
was elected Chairman of the Board of UPC and the Railroad on March 20, 2014. Previously, Mr. Koraleski was Chief
Executive Officer and President of UPC and the Railroad effective March 2, 2012. In addition, he was Executive Vice
President - Marketing and Sales of the Railroad effective March 1, 1999.
[2] Mr. Fritz was elected President and Chief Executive Officer of UPC and the Railroad effective February 5, 2015. Previously,
Mr. Fritz was President and Chief Operating Officer of the Railroad effective February 6, 2014, Executive Vice President –
Operations of the Railroad, effective September 1, 2010, and Vice President – Operations of the Railroad, effective January
1, 2010.
[3] Ms. Duren was elected Executive Vice President of UPC and the Railroad effective October 1, 2012. In addition, Ms. Duren
was elected Corporate Secretary, effective March 1, 2013. She previously was Vice President and General Manager -
Chemicals effective August 1, 2006.
[4] 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.
[5] 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.
19
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. All amounts are retroactively adjusted to reflect the June 6, 2014 stock split.
2014 - Dollars Per Share
Dividends
Common stock price:
High
Low
2013 - Dollars Per Share
Dividends
Common stock price:
High
Low
Q1
0.455
$
Q2
0.455
$
Q3
0.50
$
Q4
0.50
$
95.24
82.49
102.96
90.36
110.26
96.76
123.61
96.17
Q1
0.345
$
Q2
0.345
$
Q3
0.395
$
Q4
0.395
$
71.50
63.66
80.50
67.88
82.59
76.02
84.12
74.62
At January 30, 2015, there were 881,284,029 shares of common stock outstanding and 32,112 common
shareholders of record. On that date, the closing price of the common stock on the NYSE was $117.21.
We have paid dividends to our common shareholders during each of the past 115 years. We declared
dividends totaling $1,714 million in 2014 and $1,371 million in 2013. On July 31, 2014, we increased the
quarterly dividend to $0.50 per share, payable on October 1, 2014, to shareholders of record on August
29, 2014. On February 5, 2015, we increased the quarterly dividend to $0.55 per share, payable on
March 30, 2015, to shareholders of record on February 27, 2015. 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 decreased to $15.4 billion at December 31, 2014,
from $16.3 billion at December 31, 2013. (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 2015.
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).
DJ Trans
S&P 500
13.7 %
74.5
25.1 %
90.1
Period
1 Year (2014)
3 Year (2012-2014)
UNP Peer Group
24.7 %
44.5 %
72.9
138.6
20
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, 2009 and that all dividends were reinvested. The
information below
future
performance.
is not necessarily
in nature and
indicative of
is historical
Purchases of Equity Securities – During 2014, we repurchased 33,035,204 shares of our common
stock at an average price of $100.24. The following table presents common stock repurchases during
each month for the fourth quarter of 2014:
Period
Oct. 1 through Oct. 31
Nov. 1 through Nov. 30
Dec. 1 through Dec. 31
Total Number of
Shares
Purchased [a]
Average
Price Paid
Per Share
3,087,549 $ 107.59
119.84
1,877,330
116.54
2,787,108
Total Number of Shares
Purchased as Part of a
Publicly Announced
Plan or Program [b]
3,075,000
1,875,000
2,786,400
Maximum Number of
Shares That May Yet Be
Purchased Under the Plan
or Program [b]
92,618,000
90,743,000
87,956,600
Total
7,751,987 $ 113.77
7,736,400
N/A
[a]
[b]
Total number of shares purchased during the quarter includes approximately 15,587 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.
Effective January 1, 2014, our Board of Directors authorized the repurchase of up to 120 million shares of our common stock
by December 31, 2017. 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.
21
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 historical in nature and 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 [b]
Earnings per share - diluted [b]
Dividends declared per share [b]
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 [c]
Debt due after one year
Common shareholders' equity
Additional Data
Freight revenues [a]
Revenue carloads (units) (000)
Operating ratio (%) [d]
Average employees (000)
Financial Ratios (%)
Debt to capital [e]
Return on average common
shareholders' equity [f]
2014
2013
2012
2011
2010
$ 23,988
$ 21,963
$ 20,926
$ 19,557
8,753
5,180
5.77
5.75
1.91
7,385
(4,249)
(2,982)
(3,225)
7,446
4,388
4.74
4.71
1.48
6,823
(3,405)
(3,049)
(2,218)
6,745
3,943
4.17
4.14
1.245
6,161
(3,633)
(2,682)
(1,474)
5,724
3,292
3.39
3.36
0.965
5,873
(3,119)
(2,623)
(1,418)
$ 52,716
$ 49,731
$ 47,153
$ 45,096
27,762
11,018
21,189
24,715
8,872
21,225
24,157
8,801
19,877
23,201
8,697
18,578
$ 22,560
$ 20,684
$ 19,686
$ 18,508
9,625
63.5
47.2
9,022
66.1
46.4
35.1
31.1
24.4
21.4
9,048
67.8
45.9
31.2
20.5
9,072
70.7
44.9
32.4
18.1
$ 16,965
4,981
2,780
2.79
2.76
0.655
4,105
(2,488)
(2,381)
(1,249)
$ 43,088
22,373
9,003
17,763
$ 16,069
8,815
70.6
42.9
34.2
16.1
[a]
Includes fuel surcharge revenue of $2.8 billion, $2.6 billion, $2.6 billion, $2.2 billion, and $1.2 billion for 2014, 2013, 2012,
2011, and 2010, respectively, which partially offsets increased operating expenses for fuel. (See further discussion in
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Operating
Revenues, Item 7.)
[b] Earnings per share and dividends declared per share are retroactively adjusted to reflect the June 6, 2014 stock split.
[c]
Long-term obligations is determined as follows: total liabilities less current liabilities.
[d] Operating ratio is defined as operating expenses divided by operating revenues.
[e] Debt to capital is determined as follows: total debt divided by total debt plus common shareholders' equity.
[f] Return on average common shareholders' equity is determined as follows: Net income divided by average common
shareholders' equity.
22
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
2014 Results
Safety – During 2014, we continued focusing on safety to reduce risk and eliminate incidents for our
employees, our customers and the public. We achieved our best ever reportable personal injury
incidents per 200,000 employee-hours of 0.98 and, for the first time, we ended the year below 1.0. In
addition, our full year reportable derailment incident per million train miles improved 7%. These
results demonstrate our employees’ dedication to our safety initiatives and our employee engagement
efforts through Courage to Care, Total Safety Culture, and UP Way (our continuous improvement
culture). We finished 2014 with a 5% higher crossing incident rate per million train miles than the
year prior. Previous prevention and mitigation efforts for at-grade crossing improvements continue
with new approaches planned for 2015 to reduce our exposure to crossing accidents.
Financial Performance – In 2014, we continued our record-setting financial performance, generating
operating income of $8.8 billion, an 18% increase over 2013. Core pricing gains of 2.5%, business
demand and productivity, partially offset by costs of running a slower network and inflation, drove this
increase. Our operating ratio for 2014 of 63.5% was an all-time best, improving from last year’s
operating ratio of 66.1%. Net income of $5.2 billion surpassed our previous milestone set in 2013,
translating into earnings of $5.75 per diluted share for 2014.
Freight Revenues – Our freight revenues grew 9% year-over-year to a record $22.6 billion driven by
volume growth along with core pricing gains of 2.5%. Compared to 2013, freight revenues and
volume grew in all six commodity groups with double digit growth in Agricultural and Industrial
Products. Our fuel surcharge increased 6% versus 2013 driven by volume growth, improved fuel
recovery provisions and the lag effect of our programs (surcharges trail fluctuations in fuel price by
approximately two months).
Network Operations – Significant carload growth levels coupled with severe weather affected the
performance of our network and the North American rail network as a whole. Average train speed, as
reported to the AAR, declined 8% in 2014 compared to 2013, reflecting the 7% volume increase, a
major infrastructure project in Fort Worth, Texas and severe weather conditions. Average terminal
dwell time increased 12% primarily due to higher volumes and inclement weather.
Fuel Prices – Our average price per gallon of diesel fuel in 2014 decreased 6% from the average
price in 2013, as both crude oil and the conversion spreads between crude oil and diesel declined in
2014. The lower price decreased operating expenses by over $200 million (excluding any impact from
year-over-year volume). Our fuel consumption rate, computed as gallons of fuel consumed divided by
gross ton-miles, decreased 1% compared to 2013 also lowering fuel expense. These declines were
offset by a 7% increase in gross-ton miles, which increased fuel expense.
Free Cash Flow – Cash generated by operating activities totaled $7.4 billion, yielding free cash flow
of $1.5 billion after reductions of $4.2 billion for cash used in investing activities and a 22% increase
in dividends paid. Free cash flow is defined as cash provided by operating activities 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
23
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
Cash used in investing activities
Dividends paid
Free cash flow
2015 Outlook
2013
2014
2012
$ 7,385 $ 6,823 $ 6,161
(3,633)
(1,146)
$ 1,504 $ 2,085 $ 1,382
(3,405)
(1,333)
(4,249)
(1,632)
Safety – Operating a safe railroad benefits all our constituents: our employees, customers,
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 and Courage to Care throughout our operations, which allows us to identify and implement
best practices for employee and operational safety. We will continue our efforts to increase detection
of rail defects; 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), industry programs and local community activities across our network.
Network Operations – In 2015, we will continue to add resources to support growth, improve
service, and replenish our surge capability.
Fuel Prices – With the dramatic drop in fuel prices at the end of 2014, there is even more uncertainty
around the projections of fuel prices. 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. As prices fluctuate there will be a timing impact on earnings, as our fuel
surcharge programs trail fluctuations in fuel price by approximately two months.
Lower fuel prices could have a positive impact on the economy by increasing consumer discretionary
spending that potentially could increase demand for various consumer products that we transport.
Alternatively, lower fuel prices will likely have a negative impact on other commodities such as coal,
frac sand and crude oil shipments.
Capital Plan – In 2015, we expect our capital plan to be approximately $4.3 billion, including
expenditures for PTC and 218 locomotives. The capital plan 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.)
Financial Expectations – We expect the overall U.S. economy to continue to improve at a moderate
pace. One of the biggest uncertainties is the outlook for energy markets, which will bring both
challenges and opportunities. On balance, we expect to see positive volume growth for 2015 versus
the prior year. In the current environment, we expect continued margin improvement driven by
continued pricing opportunities, ongoing productivity initiatives and the ability to leverage our
resources as we improve the fluidity of our network.
24
RESULTS OF OPERATIONS
Operating Revenues
Millions
Freight revenues
Other revenues
Total
2014
$ 22,560
2013
$ 20,684
1,428
1,279
2012
$ 19,686
1,240
% Change
2014 v 2013
9%
12%
% Change
2013 v 2012
5%
3%
$ 23,988
$ 21,963
$ 20,926
9%
5%
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 all six commodity groups increased during 2014 compared to 2013 driven by 7%
volume growth and core pricing gains of 2.5%. Volume growth from grain, frac sand, rock, and
intermodal (domestic and international) shipments offset declines in crude oil.
Freight revenues from five of our six commodity groups increased during 2013 compared to 2012.
Revenue from Agricultural Products was down slightly compared to 2012. ARC increased 5%, driven by
core pricing gains, shifts in business mix and an automotive logistics management arrangement. Volume
essentially was flat year over year as growth in automotive, frac sand, crude oil and domestic intermodal
offset declines in coal, international intermodal and grain shipments.
Our fuel surcharge programs generated freight revenues of $2.8 billion, $2.6 billion, and $2.6 billion in
2014, 2013, and 2012, respectively. Fuel surcharge in 2014 increased 6% driven by our 7% carloadings
increase. Fuel surcharge in 2013 essentially was flat versus 2012 as lower fuel price offset improved fuel
recovery provisions and the lag effect of our programs (surcharges trail fluctuations in fuel price by
approximately two months).
In 2014, other revenue increased from 2013 due to higher revenues at our subsidiaries, primarily those
that broker intermodal and automotive services, accessorial revenue driven by increased volume and per
diem revenue for container usage (previously included in automotive freight revenue).
In 2013, other revenue increased from 2012 due primarily to miscellaneous contract revenue and higher
revenues at our subsidiaries that broker intermodal and automotive services.
25
The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and
ARC by commodity type:
Freight Revenues
Millions
Agricultural Products
Automotive
Chemicals
Coal
Industrial Products
Intermodal
Total
Revenue Carloads
Thousands
Agricultural Products
Automotive
Chemicals
Coal
Industrial Products
Intermodal [a]
Total
$
2014
3,777
2,103
3,664
4,127
4,400
4,489
$
2013
3,276
2,077
3,501
3,978
3,822
4,030
$
2012
3,280
1,807
3,238
3,912
3,494
3,955
$ 22,560
$ 20,684
$ 19,686
2014
973
809
1,116
1,768
1,368
3,591
2013
874
781
1,103
1,703
1,236
3,325
9,625
9,022
% Change
2014 v 2013
% Change
2013 v 2012
15 %
1
5
4
15
11
9 %
- %
15
8
2
9
2
5 %
% Change
2014 v 2013
% Change
2013 v 2012
11 %
4
1
4
11
8
7 %
(3) %
6
6
(9)
4
-
- %
% Change
2014 v 2013
% Change
2013 v 2012
4 %
(2)
3
-
4
3
2 %
3 %
9
2
12
5
2
5 %
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
Average Revenue per Car
Agricultural Products
Automotive
Chemicals
Coal
Industrial Products
Intermodal [a]
$
$
2014
3,881
2,602
3,282
2,334
3,217
1,250
$
2013
3,746
2,659
3,176
2,336
3,093
1,212
Average
$
2,344
$
2,293
$
2,176
[a] Each intermodal container or trailer equals one carload.
26
2014 Agricultural Products Carloads
Agricultural Products – Higher volume and
pricing gains drove the increase in freight
revenue from agricultural shipments in 2014
versus 2013. Grain shipments increased 27%,
reflecting the strong overall harvest in 2013 and
2014. The 2012 drought negatively impacted
the first three quarters of 2013, which created
three
favorable comparisons
quarters of 2014.
Lower export wheat
shipments due to a larger world crop partially
offset gains in grain.
first
the
for
lower
offset
2013,
volume
price
In
improvements as
revenue declined
freight
slightly versus 2012. In the fourth quarter, grain
shipments increased 41% due to a robust fall harvest. Despite the fourth quarter growth, grain shipments
still decreased 4% for the full year when compared to 2012, reflecting the impact of the severe drought in
2012 that affected territory served by us during the first three quarters of 2013. Export wheat shipped to
the Gulf and Pacific Northwest increased in the second half of 2013, partially offsetting the declines in
grain.
2014 Automotive Carloads
Automotive – Freight revenue from automotive
shipments
to 2013.
increased compared
Growth in automotive parts and finished vehicle
shipments and core price improvements drove
the higher revenue. The increase in automotive
parts volume was driven by continued strength
in production and market penetration. Finished
vehicles shipments increased the last three
quarters of 2014 with improved sales and
production, which offset declines in the first
quarter due to winter weather. Shifts in business
mix and a change in how we are compensated
for container usage, which is now included as a
per diem charge in other revenue, negatively
impacted ARC compared to 2013.
Higher ARC due to price increases and the logistics management arrangement that covers fees and
container costs, coupled with increased shipments of automotive parts and finished vehicles, improved
automotive revenue in 2013 compared to 2012. Higher production and sales levels during 2013 drove
the volume growth.
2014 Chemicals Carloads
in
Chemicals – Core price improvements, higher
volumes and ARC driven by positive business
mix increased freight revenue from chemicals
compared to 2013. Shipments of industrial
chemicals grew as a result of continued strong
demand
Fertilizer
the drilling market.
shipments increased due to strong exports of
potash. Reduced shipments of crude oil from
the Bakken and Permian shale formations to the
Gulf area partially offset these gains as market
factors, primarily regional pricing differences for
various types of crude oil, displaced some of the
former Gulf Coast shipments to the East and
West Coasts.
Volume gains and price improvement increased
freight revenue from chemicals in 2013 versus 2012. Shipments of crude oil from the Bakken, Permian,
Niobrara and Eagle Ford shale formations primarily to the Gulf area drove the growth in shipments of
27
chemicals. In addition, shipments of industrial chemicals increased as manufacturing, housing and
automotive markets improved.
2014 Coal Carloads
replenishment
Coal – Freight revenue from coal shipments
increased in 2014 compared to 2013, driven by
higher volumes. Shifts
in business mix
negatively impacted ARC compared to 2013.
(SPRB)
Southern Powder River Basin
shipments increased 3% from 2013. Strong
demand continued throughout the year due to
inventory
network
performance and contract losses limited year-
over-year volume growth. Shipments from
Colorado and Utah mines
increased 6%
compared to 2013, driven by higher natural gas
prices for most of the year and strong exports
through the West Coast. However, in the fourth
quarter volumes from Colorado and Utah mines
declined as exports
the Gulf Coast
decreased.
but
to
ARC gains driven by price increases and positive business mix, partially offset by volume declines,
increased freight revenue from coal shipments in 2013 versus 2012. SPRB shipments declined 10% from
2012 due to the loss of a customer contract at the beginning of the year, relatively mild summer weather,
and tighter coal inventory management by utilities. Shipments from Colorado and Utah mines decreased
13% compared to 2012, driven by soft domestic demand and mine production issues, partially offset by
second half growth in international shipments. Severe flooding and washouts in Colorado also reduced
volumes from certain producers in the third quarter.
2014 Industrial Products Carloads
from
freight
revenue
Industrial Products – Volume growth, core
pricing gains and positive business mix
increased
industrial
products versus 2013. Shipments of non-
metallic minerals (primarily frac sand, up 31%)
grew as a result of drilling activity for energy
products, as well as evolving drilling practices,
which can increase the amount of frac sand
used at certain wells. Additionally, rock and
lumber shipments increased from 2013, driven
by new housing and commercial construction.
from
revenue
Freight
industrial products
in 2013 versus 2012 driven by
increased
volume growth and higher ARC due to pricing
gains and favorable business mix. Shipments of non-metallic minerals (primarily frac sand) grew as a
result of drilling activity for energy products. Additionally, growth in new housing construction and home
improvements drove an increase in lumber shipments. Declines in ferrous scrap and government
shipments partially offset these higher volumes.
28
2014 Intermodal Carloads
traffic
increased 11% due
Intermodal – Freight revenue from intermodal
shipments increased in 2014 compared to 2013
driven by volume growth, core pricing
improvements and positive business mix.
Domestic
to
continued conversions from truck transportation
to rail and new premium services. International
traffic grew 5% versus 2013, driven primarily by
new business and
improving economic
conditions. International gains in the last three
quarters of the year offset the declines in the
that
first quarter due
negatively impacted consumer demand.
to severe weather
Pricing improvements and slight volume growth
drove increased freight revenue from intermodal shipments in 2013 compared to 2012. Domestic traffic
increased 3% due to overall economic growth along with conversions from truck transportation to rail.
International traffic declined 2% versus 2012, reflecting market share shifts within the ocean carrier
industry and an increase in transloading in the second half of the year. Transloading involves the transfer
of goods from international to domestic containers at distribution centers near West coast ports, which
reduces demand for rail transportation from these centers in international containers.
Mexico Business – Each of our commodity groups includes revenue from shipments to and from Mexico.
Revenue from Mexico business increased 8% to $2.3 billion in 2014 versus 2013. Volume levels
increased 8% from 2013, as increases in Agricultural Products, Chemicals, Intermodal, Automotive and
Industrial Products offset lower export Coal shipments.
Revenue from Mexico business increased 9% to $2.1 billion in 2013 versus 2012. Shipments were up
3% versus 2012; all commodity groups grew with the exception of Agricultural Products. The largest
growth came from Automotive and Industrial Products shipments.
29
Operating Expenses
Millions
Compensation and benefits
Fuel
Purchased services and materials
Depreciation
Equipment and other rents
Other
$
2014
5,076
3,539
2,558
1,904
1,234
924
$
2013
4,807
3,534
2,315
1,777
1,235
849
$
2012
4,685
3,608
2,143
1,760
1,197
788
Total
$ 15,235
$ 14,517
$ 14,181
% Change
2014 v 2013
6 %
-
10
7
-
9
5 %
% Change
2013 v 2012
3 %
(2)
8
1
3
8
2 %
2014 Operating Expenses
Operating expenses increased $718 million in
2014 versus 2013. Volume-related expenses,
incremental costs associated with operating a
slower network, depreciation, wage and benefit
inflation, and
freight car
materials contributed to the higher costs. Lower
fuel price partially offset these increases. In
addition, there were approximately $35 million
of weather related costs in the first quarter of
2014.
locomotive and
Operating expenses increased $336 million in
2013 versus 2012. Wage and benefit inflation,
new logistics management fees and container
costs for our automotive business, locomotive
overhauls, property taxes and repairs on jointly owned property contributed to higher expenses during the
year. Lower fuel prices partially offset the cost increases.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and
welfare costs, pension costs, other postretirement benefits, and incentive costs. Volume-related
expenses, including training, and a slower network increased our train and engine work force, which,
along with general wage and benefit inflation, drove increased wages. Weather-related costs in the first
quarter of 2014 also increased costs.
General wages and benefits inflation, including increased pension and other postretirement benefits, and
higher work force levels drove the increases in 2013 versus 2012. The impact of ongoing productivity
initiatives partially offset these increases.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Volume growth of 7%, as measured by gross ton-miles, drove the increase in fuel expense.
This was essentially offset by lower locomotive diesel fuel prices, which averaged $2.97 per gallon
(including taxes and transportation costs) in 2014, compared to $3.15 in 2013, along with a slight
improvement in fuel consumption rate, computed as gallons of fuel consumed divided by gross ton-miles.
Lower locomotive diesel fuel prices, which averaged $3.15 per gallon (including taxes and transportation
costs) in 2013, compared to $3.22 in 2012, decreased expenses by $75 million. Volume, as measured by
gross ton-miles, decreased 1% while the fuel consumption rate, computed as gallons of fuel consumed
divided by gross ton-miles, increased 2% compared to 2012. Declines in heavier, more fuel-efficient coal
shipments drove the variances in gross-ton-miles and the fuel consumption rate.
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
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 purchased services increased 8% compared to 2013 primarily due to volume-
30
related expenses incurred by our logistics subsidiaries for external transportation and increased crew
transportation and lodging due to volumes and a slower network. In addition, higher consulting fees and
higher contract expenses (including equipment maintenance) increased costs compared to 2013.
Locomotive and freight car material expenses increased in 2014 compared to 2013 due to additional
volumes, including the impact of activating stored equipment to address operational issues caused by
demand and a slower network.
Expenses for purchased services increased 10% in 2013 compared to 2012 due to logistics management
fees, an increase in locomotive overhauls and repairs on jointly owned property.
Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other
track material. Depreciation was up 7% compared to 2013. A higher depreciable asset base, reflecting
higher ongoing capital spending drove the increase.
Depreciation was up 1% in 2013 compared to 2012. Recent depreciation studies allowed us to use
longer estimated service lives for certain equipment, which partially offset the impact of a higher
depreciable asset base resulting from larger capital spending in recent years.
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. Higher intermodal volumes and longer cycle
times increased short-term freight car rental expense in 2014 compared to 2013. Lower equipment leases
essentially offset the higher freight car rental expense, as we exercised purchase options on some of our
leased equipment.
Additional container costs resulting from the logistics management arrangement, and increased
automotive shipments, partially offset by lower cycle times drove a $51 million increase in our short-term
freight car rental expense in 2013 versus 2012. Conversely, lower locomotive and freight car lease
expenses partially offset the higher freight car rental expense.
Other – Other expenses include state and local taxes, freight, equipment and property damage, utilities,
insurance, personal injury, environmental, employee travel, telephone and cellular, computer software,
bad debt, and other general expenses. Higher property taxes, personal injury expense and utilities costs
partially offset by lower environmental expense and costs associated with damaged freight drove the
increase in other costs in 2014 compared to 2013.
Higher property taxes and costs associated with damaged freight and property increased other costs in
2013 compared to 2012. 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
$
2014
151
(561)
(3,163)
$
2013
128
(526)
(2,660)
$
2012
108
(535)
(2,375)
% Change
2014 v 2013
% Change
2013 v 2012
18 %
7
19 %
19 %
(2)
12 %
Other Income – Other income increased in 2014 versus 2013 due to higher gains from real estate sales
and a sale of a permanent easement. These gains were partially offset by higher environmental costs on
non-operating property in 2014 and lower lease income due to the $17 million settlement of a land lease
contract in 2013.
Other income increased in 2013 versus 2012 due to higher gains from real estate sales and increased
lease income, including the favorable impact from the $17 million settlement of a land lease contract.
These increases were partially offset by interest received from a tax refund in 2012.
31
Interest Expense – Interest expense increased in 2014 versus 2013 due to an increased weighted-
average debt level of $10.8 billion in 2014 from $9.6 billion in 2013, which more than offset the impact of
the lower effective interest rate of 5.3% in 2014 versus 5.7% in 2013.
Interest expense decreased in 2013 versus 2012 due to a lower effective interest rate of 5.7% in 2013
versus 6.0% in 2012. The increase in the weighted-average debt level to $9.6 billion in 2013 from $9.1
billion in 2012 partially offset the impact of the lower effective interest rate.
Income Taxes – Higher pre-tax income increased income taxes in 2014 compared to 2013. Our effective
tax rate for 2014 was 37.9% compared to 37.7% in 2013.
Higher pre-tax income increased income taxes in 2013 compared to 2012. Our effective tax rate for 2013
was 37.7% compared to 37.6% in 2012.
OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS
We report a number of key performance measures weekly to the Association of American Railroads
(AAR). We provide this data on our website at www.up.com/investor/aar-stb_reports/index.htm.
Operating/Performance Statistics
Railroad performance measures are included in the table below:
Average train speed (miles per hour)
Average terminal dwell time (hours)
Gross ton-miles (billions)
Revenue ton-miles (billions)
Operating ratio
Employees (average)
2014
24.0
30.3
1,014.9
549.6
63.5
47,201
2013
26.0
27.1
949.1
514.3
66.1
46,445
2012
26.5
26.2
959.3
521.1
67.8
45,928
% Change
2014 v 2013
% Change
2013 v 2012
(8)%
12 %
7 %
7 %
(2.6)pts
2 %
(2)%
3 %
(1)%
(1)%
(1.7)pts
1 %
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, decreased 8% in 2014 versus 2013. The decline was driven by a 7% volume increase, a
major infrastructure project in Fort Worth, Texas and inclement weather, including flooding in the Midwest
in the second quarter and severe weather conditions in the first quarter that impacted all major U.S. and
Canadian railroads.
Average train speed decreased 2% in 2013 versus 2012. The decline was driven by severe weather
conditions and shifts of traffic to sections of our network with higher utilization.
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 increased 12% in 2014 compared to 2013, caused by higher volumes and inclement weather.
Average terminal dwell time increased 3% in 2013 compared to 2012, primarily due to growth of manifest
traffic which requires more time in terminals for switching cars and building trains.
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, revenue ton-miles and carloadings all
increased 7% in 2014 compared to 2013.
Gross ton-miles and revenue ton-miles declined 1% in 2013 compared to 2012 and carloads remained
relatively flat driven by declines in coal and agricultural products offset by growth in chemical, autos and
industrial products. Changes in commodity mix drove the year-over-year variances between gross ton-
miles, revenue ton-miles and carloads.
32
Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating
revenue. Our operating ratio improved 2.6 points to a new record low of 63.5% in 2014 versus 2013.
Core pricing, business demand and productivity more than offset the incremental operating costs
associated with volume, a slower network, weather and inflation.
Our operating ratio improved 1.7 points to a then record low of 66.1% in 2013 versus 2012. Core pricing
and productivity gains more than offset the impact of inflation.
Employees – Employee levels increased 2% in 2014 versus 2013. A decrease in our capital workforce
due to improved productivity and project mix partially offset the larger train and engine workforce required
for higher volume levels and a slower network. We successfully managed the growth of our full-time
equivalent train and engine force levels at a rate less than our volume growth in 2014 compared to 2013.
Employee levels increased 1% in 2013 versus 2012. Shifts in our traffic mix, which required more
resources, largely concentrated in the Southern region, work related to higher capital investment in
positive train control and more individuals in the training pipeline contributed to the higher employee
levels.
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
Interest expense
Interest on present value of operating leases
Taxes on interest
Net operating profit after taxes as adjusted (a)
Average equity
Average debt
Average present value of operating leases
$
$
$
$
$
2014
5,180
21,207
24.4%
2014
5,180
561
158
(273)
5,626
21,207
10,529
2,980
$
$
$
$
$
2013
4,388
20,551
21.4%
2013
4,388
526
175
(264)
4,825
20,551
9,287
3,077
$
$
$
$
$
2012
3,943
19,228
20.5%
2012
3,943
535
190
(273)
4,395
19,228
8,952
3,160
Average invested capital as adjusted (b)
$
34,716
$
32,915
$
31,340
Return on invested capital as adjusted (a/b)
16.2%
14.7%
14.0%
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
for, other information provided in accordance with GAAP. The most comparable GAAP measure is Return
on Average Common Shareholders’ Equity. The tables above provide reconciliations from return on
average common shareholders’ equity to ROIC. Our 2014 ROIC improved 1.5 points compared to 2013,
primarily as a result of higher earnings.
33
Debt to Capital
Millions, Except Percentages
Debt (a)
Equity
Capital (b)
Debt to capital (a/b)
Adjusted Debt to Capital
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)
$
$
$
$
$
2014
11,480
21,189
32,669
35.1%
2014
11,480
2,902
523
14,905
21,189
36,094
41.3%
$
$
$
$
$
2013
9,577
21,225
30,802
31.1%
2013
9,577
3,057
170
12,804
21,225
34,029
37.6%
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 5.3% and 5.7% at December 31, 2014 and 2013, 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, 2014 debt to capital ratios increased as a result of a $1.9 billion
increase in debt from December 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2014, 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 $1.7 billion of committed credit
available under our credit facility, with no borrowings outstanding as of December 31, 2014. We did not
make any borrowings under this facility during 2014. The value of the outstanding undivided interest held
by investors under the $650 million capacity receivables securitization facility was $400 million as of
December 31, 2014, and is included in our Consolidated Statements of Financial Position as debt due
after one year. Our access to this receivables securitization facility may be reduced or restricted if our
bond ratings fall to certain levels below investment grade. 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 size or 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 $1.7 billion revolving credit facility is intended to support
the issuance of commercial paper by UPC and also serves as an emergency source of liquidity. The
Company currently does not intend to make any borrowings under this facility.
At December 31, 2014 and 2013, we had a modest working capital surplus. This reflects a strong cash
position that provides enhanced liquidity in an uncertain economic environment. In addition, we believe
34
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
2014
7,385
(4,249)
(2,982)
154
$
$
2013
6,823
(3,405)
(3,049)
369
$
$
2012
6,161
(3,633)
(2,682)
(154)
$
$
Higher net income in 2014 increased cash provided by operating activities compared to 2013, despite
higher income tax payments. 2014 income tax payments were higher than 2013 primarily due to higher
income, but also because we paid taxes previously deferred by bonus depreciation (discussed below).
Higher net income in 2013 increased cash provided by operating activities compared to 2012. In addition,
we made payments in 2012 for past wages as a result of national labor negotiations, which reduced cash
provided by operating activities in 2012. Lower tax benefits from bonus depreciation (as discussed
below) partially offset the increases.
Federal tax law provided for 100% bonus depreciation for qualified investments made during 2011 and
50% bonus depreciation for qualified investments made during 2012-2013. As a result, the Company
deferred a substantial portion of its 2011-2013 income tax expense, contributing to the positive operating
cash flow in those years. Congress extended 50% bonus depreciation for 2014, but this extension
occurred in December and did not have a significant benefit on our income tax payments during 2014.
Investing Activities
Higher capital investments, including the early buyout of the long-term operating lease of our
headquarters building for approximately $261 million, drove the increase in cash used in investing
activities compared to 2013. Significant investments also were made for new locomotives, freight cars
and containers, and capacity and commercial facility projects. Capital investments in 2014 also included
$99 million for the early buyout of locomotives and freight cars under long-term operating leases, which
we exercised due to favorable economic terms and market conditions.
Lower capital investments in locomotives and freight cars in 2013 drove the decrease in cash used in
investing activities compared to 2012. 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.
35
The following tables detail cash capital investments and track statistics for the years ended December 31,
2014, 2013, and 2012:
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 [b]
Total cash capital investments
$
2014
749
415
204
378
1,746
515
217
732
1,067
384
417
$
2013
743
438
226
326
1,733
455
146
601
580
419
163
$
2012
759
434
203
312
1,708
489
169
658
875
349
148
$
4,346
$
3,496
$
3,738
[a] Other includes bridges and tunnels, signals, other road assets, and road work equipment.
[b] Technology and other includes the early buyout of our headquarters building operating lease.
Track miles of rail replaced
Track miles of rail capacity expansion
New ties installed (thousands)
Miles of track surfaced
2014
912
119
4,076
10,791
2013
834
97
3,870
11,017
2012
964
139
4,436
11,049
Capital Plan – In 2015, we expect our capital plan to be approximately $4.3 billion, which may be revised
if business conditions or the regulatory environment affect our ability to generate sufficient returns on
these investments. While asset replacements will fluctuate as part of our renewal strategy, we expect to
use 55% to 60% of our capital investments to renew and improve existing capital assets. Our major
investment categories include renewing track infrastructure and upgrading our fleet of locomotives, freight
cars, and domestic intermodal containers. In 2015, we plan to acquire 218 locomotives and increase
freight car and container acquisitions. Additionally, we will continue increasing our network and terminal
capacity, especially in the Southern region, while balancing terminal capacity with mainline capacity. In
2015, we also plan to begin constructing a major classification yard at Hearne, Texas, and continue
developing several intermodal, automotive and chemicals facilities. Significant investments in technology
improvements are planned, including approximately $450 million for PTC.
We expect to fund our 2015 cash capital plan 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. We expect our plan will enhance the long-term value of the Company 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 remained flat in 2014 versus 2013. Increases for the repurchase of
shares under our common stock repurchase program and higher dividend payments in 2014 of $1.6
billion compared to $1.3 billion in 2013 were offset by higher debt issuances in 2014.
Cash used in financing activities increased in 2013 versus 2012, driven by a $744 million increase for the
repurchase of shares under our common stock repurchase program and higher dividend payments in
2013 of $1.3 billion compared to $1.1 billion in 2012. We increased our debt levels in 2013, which
partially offset the increase in cash used in financing activities.
36
Dividends – On February 5, 2015, we increased the quarterly dividend to $0.55 per share, payable on
March 30, 2015, to shareholders of record on February 27, 2015. We expect to fund the increase in the
quarterly dividend through cash generated from operations and cash on hand at December 31, 2014.
Credit Facilities – During the second quarter of 2014, we replaced our $1.8 billion revolving credit
facility, which was scheduled to expire in May 2015, with a new $1.7 billion facility that expires in May
2019 (the facility). The facility is based on substantially similar terms as those in the previous credit
facility. On December 31, 2014, we had $1.7 billion of credit available under the facility, which is
designated for general corporate purposes and supports the issuance of commercial paper. We did not
draw on either facility at any time during 2014. 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 credit ratings for our senior unsecured debt.
The facility requires that the Corporation maintain a debt-to-net-worth coverage ratio as a condition to
making a borrowing. At December 31, 2014, and December 31, 2013 (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,
2014, the debt-to-net-worth coverage ratio allowed us to carry up to $42.4 billion of debt (as defined in the
facility), and we had $11.6 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 $125 million cross-default provision and a change-of-control provision.
During 2014, we did not issue or repay any commercial paper, and at December 31, 2014, and 2013, 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.
(See further discussion in this Item 7 under Receivables Securitization Facility for information regarding
the Company’s receivables securitization facility.)
Ratio of Earnings to Fixed Charges
For each of the years ended December 31, 2014, 2013, and 2012, our ratio of earnings to fixed charges
was 13.5, 11.8, and 10.4, 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 $15.4 billion
and $16.3 billion at December 31, 2014, and 2013, respectively.
37
Share Repurchase Program
Effective January 1, 2014, our Board of Directors authorized the repurchase of up to 120 million shares of
our common stock by December 31, 2017, replacing our previous repurchase program. As of December
31, 2014, we repurchased a total of $12.6 billion of our common stock since the commencement of our
repurchase programs in 2007. The table below represents shares repurchased in 2013 under our
previous repurchase program, and shares repurchased in 2014 under the new program.
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Number of Shares Purchased
2013
5,762,800
6,122,940
7,333,788
9,858,110
2014
7,640,000
8,320,000
8,347,000
7,736,400
$
$
Average Price Paid
2013
68.29
75.71
78.39
79.68
2014
89.43
96.84
102.54
113.77
32,043,400
29,077,638
$ 100.65
$
76.26
Remaining number of shares that may be repurchased under current authority
87,956,600
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.
From January 1, 2015, through February 6, 2015, we repurchased 2.8 million shares at an aggregate cost
of approximately $327 million.
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 2014, we issued the following unsecured, fixed-rate debt securities under our current shelf
registration:
Date
January 10, 2014
August 12, 2014
Description of Securities
$300 million of 2.25% Notes due February 15, 2019
$400 million of 3.75% Notes due March 15, 2024
$300 million of 4.85% Notes due June 15, 2044
$350 million of 3.25% Notes due January 15, 2025
$350 million of 4.15% Notes due January 15, 2045
We used the net proceeds from the offerings 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, 2014, we had remaining authority to issue up to $1.15 billion of debt
securities under our shelf registration.
Subsequent Event - In 2015, we issued the following unsecured, fixed-rate debt securities under our
current shelf registration:
Date
January 29, 2015
Description of Securities
$250 million of 1.80% Notes due February 1, 2020
$450 million of 3.375% Notes due February 1, 2035
$450 million of 3.875% Notes due February 1, 2055
38
Proceeds from this offering are for general corporate purposes, including the repurchase of common
stock pursuant to our share repurchase program. These debt securities include change-of-control
provisions. This offering exhausted our current authority to issue debt securities under our existing shelf
registration.
On February 5, 2015, the Board of Directors approved proceeding with a new shelf registration statement
and authorized the issuance of up to $4.0 billion of debt securities.
Equipment Trust – On May 20, 2014, UPRR consummated a pass-through (P/T) financing, whereby a
P/T trust was created, which issued $500 million of P/T trust certificates with a stated interest rate of
3.227%. The P/T trust certificates will mature on May 14, 2026. The proceeds from the issuance of the
P/T trust certificates (net of $3 million in transaction fees) were used to purchase equipment trust
certificates to be issued by UPRR to finance the acquisition of 245 locomotives. The equipment trust
certificates are secured by a lien on the locomotives.
Debt Exchange – On August 21, 2013, we exchanged $1,170 million of various outstanding notes and
debentures due between 2016 and 2040 (the Existing Notes) for $439 million of 3.646% notes (the New
2024 Notes) due February 15, 2024 and $700 million of 4.821% notes (the New 2044 Notes) due
February 1, 2044, plus cash consideration of approximately $280 million in addition to $8 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 terms of the New 2024 Notes and the New 2044 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 $9 million and were included in interest expense during
the three months ended September 30, 2013.
The following table lists the outstanding notes and debentures that were exchanged:
Millions
The 2024 Offers
7.000% Debentures due 2016
5.650% Notes due 2017
5.750% Notes due 2017
5.700% Notes due 2018
7.875% Notes due 2019
6.125% Notes due 2020
The 2044 Offers
7.125% Debentures due 2028
6.625% Debentures due 2029
6.250% Debentures due 2034
6.150% Debentures due 2037
5.780% Notes due 2040
Total
Principal amount
exchanged
$
8
38
70
103
20
238
73
177
19
138
286
$
1,170
Debt Redemption – On May 14, 2013, we redeemed all $40 million of our outstanding 5.65% Port of
Corpus Christi Authority Revenue Refunding Bonds due December 1, 2022. The redemption resulted in
an early extinguishment charge of $1 million in the second quarter of 2013.
Receivables Securitization Facility – On July 29, 2014, we completed the renewal of our receivables
securitization facility. The new $650 million, 3-year facility replaces the prior $600 million, 364-day facility.
Under the facility, the Railroad sells most of its eligible third-party receivables to Union Pacific
Receivables, Inc. (UPRI), a wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer,
without recourse, an undivided interest in accounts receivable to investors. The investors have no
39
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.
The amount outstanding under the facility was $400 million and $0 at December 31, 2014, and December
31, 2013, respectively. The facility was supported by $1.2 billion and $1.1 billion of accounts receivable
as collateral at December 31, 2014, and December 31, 2013, respectively, which, as a retained interest,
is included in accounts receivable, net in our Consolidated Statements of Financial Position.
The outstanding amount the Railroad is allowed to maintain under the facility, with a maximum of $650
million, may fluctuate based on the availability of eligible receivables and is directly affected by business
volumes and credit risks, including receivables payment quality measures such as default and dilution
ratios. If default or dilution ratios increase one percent, the allowable outstanding amount under the
facility would not materially change.
The costs of the receivables securitization facility include interest, which will vary based on prevailing
benchmark and commercial paper rates, program fees paid to participating banks, commercial paper
issuing costs, and fees of participating banks for unused commitment availability. The costs of the
receivables securitization facility are included in interest expense and were $4 million, $5 million and $3
million for 2014, 2013, and 2012, respectively.
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, 2014:
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
$ 17,897 $
3,725
1,927
6,271
450
151
2015
829 $
508
253
3,446
42
6
2017
2016
953 $ 1,372 $
484
249
1,415
44
-
429
246
384
44
-
2018
868 $
356
224
325
45
-
2019
898 $ 12,977 $
323
210
251
46
-
After
2019 Other
-
-
-
32
-
145
1,625
745
418
229
-
Total contractual obligations
$ 30,421 $ 5,084 $ 3,145 $ 2,475 $ 1,818 $ 1,728 $ 15,994 $ 177
[a] Excludes capital lease obligations of $1,520 million and unamortized discount of $(591) million. Includes an interest
component of $7,346 million.
Includes leases for locomotives, freight cars, other equipment, and real estate.
[b]
[c] Represents total obligations, including interest component of $407 million.
[e]
[d] Purchase obligations include locomotive maintenance contracts; purchase commitments for fuel purchases, locomotives,
ties, ballast, rail, and aircraft; 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, 2014. For amounts where the year of settlement is uncertain, they are
reflected in the Other column.
[f]
40
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
$ 1,700 $
650
82
40
2015
2016
2017
2018
2019
- $
-
12
34
- $
-
26
6
- $
650
10
-
- $ 1,700 $
-
11
-
-
8
-
After
2019
-
-
15
-
Total commercial commitments
$ 2,472 $
46 $
32 $
660 $
11 $ 1,708 $
15
[a] None of the credit facility was used as of December 31, 2014.
[b]
[c]
$400 million of the receivables securitization facility was utilized as of December 31, 2014, which is accounted for as debt.
The full program matures in July 2017.
Includes guaranteed obligations related to our equipment financings and affiliated operations.
[d] None of the letters of credit were drawn upon as of December 31, 2014.
Off-Balance Sheet Arrangements
Guarantees – At December 31, 2014, and 2013, we were contingently liable for $82 million and $299
million in guarantees. We have recorded liabilities of $0.3 million and $1 million for the fair value of these
obligations as of December 31, 2014, and 2013, respectively. We entered into these contingent
guarantees in the normal course of business, and they include guaranteed obligations related to our
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 85% of our 47,201 full-time-equivalent employees are represented
by 14 major rail unions. On January 1, 2015, current labor agreements became subject to modification
and we began the current round of negotiations with the unions. Existing agreements remain in effect until
new agreements are reached or the Railway Labor Act’s procedures (which include mediation, cooling-off
periods, and the possibility of Presidential Emergency Boards and Congressional intervention) are
exhausted. Contract negotiations historically continue for an extended period of time and we rarely
experience work stoppages while negotiations are pending.
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, 2014 and 2013, we were not required to
provide collateral, nor had we received collateral, relating to our hedging activities.
41
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, 2014, we had variable-rate debt representing approximately 5.3% of our total debt. If
variable interest rates average one percentage point higher in 2015 than our December 31, 2014 variable
rate, which was approximately 0.9%, our interest expense would increase by approximately $4 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, 2014.
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, 2014, and amounts to
an increase of approximately $1.3 billion to the fair value of our debt at December 31, 2014. 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 815; therefore, we do not record any ineffectiveness within our
Consolidated Financial Statements. As of December 31, 2014 and 2013, 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, 2014,
and 2013, we had reductions of $0 and $1 million, respectively, recorded as an accumulated other
comprehensive loss. As of December 31, 2014, and 2013, we had no interest rate cash flow hedges
outstanding.
Accounting Pronouncements – In May 2014, the FASB issued Accounting Standards Update No. 2014-
09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the
revenue recognition guidance in Topic 605, Revenue Recognition. The core principle of the guidance is
that an entity should recognize revenue to depict the transfer of promised goods and services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in the
exchange for those goods or services. This standard is effective for annual reporting periods beginning
after December 15, 2016. ASU 2014-09 is not expected to have a material impact on our consolidated
financial position, results of operations, or cash flows.
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.
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
42
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 due to the uncertainty surrounding the
timing of future payments. Approximately 93% of the recorded liability is related to asserted claims and
approximately 7% is related to unasserted claims at December 31, 2014. 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 $335 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
2014
294
96
9
(64)
335
111
$
$
$
2013
334
87
(38)
(89)
294
82
$
$
$
2012
368
121
(58)
(97)
334
95
$
$
$
43
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
2014
2,605
2,773
(2,760)
2013
2,792
2,705
(2,892)
2012
2,869
2,719
(2,796)
2,618
2,605
2,792
In conjunction with the liability update performed in 2014, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2014, and
2013.
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 21% of the recorded liability related to asserted
claims and approximately 79% related to unasserted claims at December 31, 2014. 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 $126 million to $135 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
Accruals/(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
2014
131
1
(6)
126
8
$
$
$
2013
139
2
(10)
131
9
$
$
$
2012
147
(2)
(6)
139
8
$
$
$
2014
1,140
183
(258)
1,065
2013
1,258
192
(310)
1,140
2012
1,291
233
(266)
1,258
In conjunction with the liability update performed in 2014, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2014, and
2013. 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
44
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.
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations.
We have identified 270 sites at which we are or may be liable for remediation costs associated with
alleged contamination or for violations of environmental requirements. This includes 29 sites that are the
subject of actions taken by the U.S. government, 16 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. Our environmental liability is not
discounted to present value due to the uncertainty surrounding the timing of future payments.
Our environmental liability activity was as follows:
Millions
Beginning balance
Accruals
Payments
Ending balance at December 31
Current portion, ending balance at December 31
Our environmental site activity was as follows:
Open sites, beginning balance
New sites
Closed sites
Open sites, ending balance at December 31
2014
171
56
(45)
182
60
$
$
$
2013
170
58
(57)
171
53
$
$
$
2012
172
48
(50)
170
50
$
$
$
2014
268
55
(53)
270
2013
284
41
(57)
268
2012
285
56
(57)
284
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,
45
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 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 2014,
the estimated service lives of the majority of this rail ranged from approximately 18 years to approximately
35 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 $63 million. If the estimated useful lives
of all depreciable assets were decreased by one year, annual depreciation expense would increase by
approximately $68 million. Our recent depreciation studies have resulted in lower depreciation rates for
some asset classes. The lower rates combined with a projected higher depreciable asset base will
increase total depreciation expense by approximately 4% to 6% in 2015 versus 2014.
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.
46
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) it is
unusual, (ii) it is material in amount, and (iii) it 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 $380 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 2014 and 2013, 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 2014 and the estimated impact on 2014 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
Pension
4.72%
7.50%
4.00%
N/A
N/A
OPEB
4.47%
N/A
N/A
6.49%
4.50%
47
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
Increase in Expense
OPEB
Pension
$
$
$
9
6
8
N/A
$
$
1
N/A
N/A
2
The following table presents the net periodic pension and OPEB cost for the years ended December 31:
Millions
Net periodic pension cost
Net periodic OPEB cost
Est.
2015
2014
2013
2012
$ 105
$
18
69
15
$ 110
$
14
89
13
Our net periodic pension cost is expected to increase to approximately $105 million in 2015 from $69
million in 2014. Our net periodic OPEB expense is expected to increase to approximately $18 million in
2015 from $15 million in 2014. The increases are driven by the implementation of new mortality tables
issued by the Society of Actuaries in October 2014, along with a decrease in the pension discount rate to
3.94% and a decrease in the OPEB discount rate to 3.74%.
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 Chairman’s letter preceding Part I; statements regarding planned capital
expenditures under the caption “2015 Capital Expenditures” in Item 2 of Part I; statements regarding
dividends in Item 5 of Part II; and statements and information set forth under the captions “2015 Outlook”
and “Liquidity and Capital Resources” in this Item 7 of Part II, 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; 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
48
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
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.
****************************************
49
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm .............................................................. 51
Consolidated Statements of Income
For the Years Ended December 31, 2014, 2013, and 2012 ........................................................ 52
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 2014, 2013, and 2012 ........................................................ 52
Consolidated Statements of Financial Position
At December 31, 2014 and 2013 ................................................................................................. 53
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2014, 2013, and 2012 ........................................................ 54
Consolidated Statements of Changes in Common Shareholders’ Equity
For the Years Ended December 31, 2014, 2013, and 2012 ........................................................ 55
Notes to the Consolidated Financial Statements .............................................................................. 56
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Union Pacific Corporation
Omaha, Nebraska
We have audited the accompanying consolidated statements of financial position of Union Pacific
Corporation and Subsidiary Companies (the "Corporation") as of December 31, 2014 and 2013, 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, 2014. 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 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, 2014 and 2013, and
the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2014, 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, 2014,
based on the criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 6,
2015 expressed an unqualified opinion on the Corporation's internal control over financial reporting.
Omaha, Nebraska
February 6, 2015
51
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 7)
Interest expense
Income before income taxes
Income taxes (Note 8)
Net income
Share and Per Share (Note 9):
Earnings per share - basic
Earnings per share - diluted
Weighted average number of shares - basic
Weighted average number of shares - diluted
Dividends declared per share
2014
2013
2012
$
22,560 $ 20,684 $ 19,686
1,240
1,279
1,428
23,988
21,963
20,926
5,076
3,539
2,558
1,904
1,234
924
4,807
3,534
2,315
1,777
1,235
849
4,685
3,608
2,143
1,760
1,197
788
15,235
14,517
14,181
8,753
151
(561)
8,343
(3,163)
7,446
128
(526)
7,048
(2,660)
6,745
108
(535)
6,318
(2,375)
5,180 $
4,388 $
3,943
5.77 $
5.75 $
4.74 $
4.71 $
897.1
901.1
926.5
931.5
4.17
4.14
946.2
952.9
1.91 $
1.48 $
1.245
$
$
$
$
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 income/(loss) [a]
2014
2013
2012
$
5,180 $
4,388 $
3,943
(448)
(12)
-
(460)
436
(1)
1
436
(145)
12
1
(132)
Comprehensive income
$
4,720 $
4,824 $
3,811
[a] Net of deferred taxes of $291 million, ($264) million, and $82 million during 2014, 2013, and 2012, respectively.
The accompanying notes are an integral part of these Consolidated Financial Statements.
52
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 11)
Materials and supplies
Current deferred income taxes (Note 8)
Other current assets
Total current assets
Investments
Net properties (Note 12)
Other assets
Total assets
Liabilities and Common Shareholders' Equity
Current liabilities:
Accounts payable and other current liabilities (Note 13)
Debt due within one year (Note 15)
Total current liabilities
Debt due after one year (Note 15)
Deferred income taxes (Note 8)
Other long-term liabilities
Commitments and contingencies (Notes 17 and 18)
Total liabilities
Common shareholders' equity:
Common shares, $2.50 par value, 1,400,000,000 authorized;
1,110,100,423 and 1,109,657,652 issued; 883,366,476 and 912,001,996
outstanding, respectively
Paid-in-surplus
Retained earnings
Treasury stock
Accumulated other comprehensive loss (Note 10)
Total common shareholders' equity
2014
2013
$
1,586 $
1,611
712
277
493
4,679
1,390
46,272
375
1,432
1,414
653
268
223
3,990
1,321
43,749
671
$
52,716 $
49,731
$
3,303 $
462
3,765
11,018
14,680
2,064
3,086
705
3,791
8,872
14,163
1,680
31,527
28,506
2,775
4,321
27,367
(12,064)
(1,210)
21,189
2,774
4,210
23,901
(8,910)
(750)
21,225
Total liabilities and common shareholders' equity
$
52,716 $
49,731
The accompanying notes are an integral part of these Consolidated Financial Statements.
53
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
Proceeds from asset sales
Acquisition of equipment pending financing
Proceeds from sale of assets financed
Other investing activities, net
Cash used in investing activities
Financing Activities
Common share repurchases (Note 19)
Debt issued
Dividends paid
Debt repaid
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 investments accrued but not yet paid
Capital lease financings
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.
2014
2013
2012
$ 5,180
$ 4,388
$ 3,943
1,904
895
(285)
(197)
(59)
(270)
217
7,385
(4,346)
138
-
-
(41)
(4,249)
1,777
723
(226)
(83)
7
74
163
6,823
(3,496)
98
-
-
(7)
(3,405)
1,760
887
(160)
70
(46)
(108)
(185)
6,161
(3,738)
80
(274)
274
25
(3,633)
(3,225)
2,588
(1,632)
(710)
-
(3)
(2,982)
154
1,432
$ 1,586
(2,218)
1,443
(1,333)
(640)
(289)
(12)
(3,049)
369
1,063
$ 1,432
(1,474)
695
(1,146)
(758)
-
1
(2,682)
(154)
1,217
$ 1,063
$
$
438
174
-
$
356
133
39
318
136
290
$
(554)
(2,492)
$
(528)
(1,656)
$
(561)
(1,552)
54
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Union Pacific Corporation and Subsidiary Companies
Millions
Balance at January 1, 2012
Net income
Other comp. loss
Conversion, stock option
exercises, forfeitures, and other
Share repurchases (Note 19)
Cash dividends declared
($1.245 per share)
Balance at December 31, 2012
Net income
Other comp. income
Conversion, stock option
exercises, forfeitures, and other
Share repurchases (Note 19)
Cash dividends declared
($1.48 per share)
Balance at December 31, 2013
Net income
Other comp. loss
Conversion, stock option
exercises, forfeitures, and other
Share repurchases (Note 19)
Cash dividends declared
($1.91 per share)
Common
Shares
1,108.7
Treasury
Shares
(148.9)
Paid-in-
Common
Shares
Surplus
$ 2,773 $ 4,031
-
-
-
-
AOCI
[a]
Treasury
Stock
Retained
Earnings
Total
$ 18,121 $ (5,293) $ (1,054) $ 18,578
3,943
(132)
3,943
-
-
(132)
-
-
0.6
4.2
-
-
(25.6)
-
-
-
-
82
-
-
-
60
-
(1,474)
(1,180)
-
-
-
-
142
(1,474)
(1,180)
1,109.3
(170.3)
$ 2,773 $ 4,113
-
-
-
-
$ 20,884 $ (6,707) $ (1,186) $ 19,877
4,388
436
4,388
-
-
436
-
-
0.4
1.6
-
-
(29.0)
-
1
-
-
97
-
-
-
15
-
(2,218)
(1,371)
-
-
-
-
113
(2,218)
(1,371)
1,109.7
(197.7)
$ 2,774 $ 4,210
-
-
-
-
$ 23,901 $ (8,910)
-
-
5,180
-
$ (750) $ 21,225
5,180
(460)
-
(460)
0.4
3.0
1
111
-
71
-
-
(32.0)
-
-
-
-
-
-
(3,225)
(1,714)
-
-
-
-
183
(3,225)
(1,714)
Balance at December 31, 2014
1,110.1
(226.7) $ 2,775 $ 4,321
$ 27,367 $ (12,064) $ (1,210) $ 21,189
[a] AOCI = Accumulated Other Comprehensive Income/(Loss) (Note 10)
The accompanying notes are an integral part of these Consolidated Financial Statements.
55
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”, “Company”, “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
31,974 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 26,012 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 Products
Automotive
Chemicals
Coal
Industrial Products
Intermodal
Total freight revenues
Other revenues
Total operating revenues
2014
3,777 $
2,103
3,664
4,127
4,400
4,489
2013
3,276 $
2,077
3,501
3,978
3,822
4,030
22,560 $
20,684 $
1,428
1,279
2012
3,280
1,807
3,238
3,912
3,494
3,955
19,686
1,240
23,988 $
21,963 $
20,926
$
$
$
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 $2.3 billion in 2014, $2.1 billion in 2013, and $1.9
billion in 2012.
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.
56
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.
57
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
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from
Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition guidance in
Topic 605, Revenue Recognition. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods and services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in the exchange for those goods or services. This
58
standard is effective for annual reporting periods beginning after December 15, 2016. ASU 2014-09 is
not expected to have a material impact on our consolidated financial position, results of operations, or
cash flows.
4. Stock Split
On June 6, 2014, we completed a two-for-one stock split, effected in the form of a 100% stock dividend.
The stock split entitled all shareholders of record at the close of business on May 27, 2014, to receive one
additional share of our common stock, par value $2.50 per share, for each share of common stock held
on that date. All references to common shares and per share amounts have been retroactively adjusted
to reflect the stock split for all periods presented.
5. 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 2,200,000 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 4,000 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 20,000 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, 2014, 36,000 restricted shares and 78,000 options were outstanding under
the Directors Plan.
The Union Pacific Corporation 2004 Stock Incentive Plan (2004 Plan) was approved by shareholders in
April 2004. The 2004 Plan reserved 84,000,000 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, 2014, 4,338,691 options and 3,677,642
retention shares and stock units were outstanding under the 2004 Plan. We no longer grant any stock
options or other stock or unit awards under this plan.
The Union Pacific Corporation 2013 Stock Incentive Plan (2013 Plan) was approved by shareholders in
May 2013. The 2013 Plan reserved 78,000,000 shares of our common stock for issuance, plus any
shares subject to awards made under previous plans as of February 28, 2013, that are subsequently
cancelled, expired, forfeited or otherwise not issued under previous plans. Under the 2013 Plan, non-
qualified options, incentive stock options, 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 2013 Plan. As of December 31, 2014, 969,822 options and 1,307,905
retention shares and stock units were outstanding under the 2013 Plan.
Pursuant to the above plans 77,786,772; 79,574,896; and 64,337,040 shares of our common stock were
authorized and available for grant at December 31, 2014, 2013, and 2012, 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.
59
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
Excess tax benefits from equity compensation plans
2014
2013
2012
$ 21
91
$ 112
$ 118
$
$
$
19
79
98
76
$ 18
75
$ 93
$ 100
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
2014
1.6%
2.1%
5.2
30.0%
2013
0.8%
2.1%
5.0
36.2%
2012
0.8%
2.1%
5.3
36.8%
Weighted-average grant-date fair value of options granted
$
20.18
$
17.49
$
15.65
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 2014 is presented below:
Outstanding at January 1, 2014
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2014
Vested or expected to vest
at December 31, 2014
Options
(thous.)
7,443
989
(2,961)
(84)
5,387
5,325
Options exercisable at December 31, 2014
3,350
$
Weighted-Average
Exercise Price
40.07
87.56
30.59
68.48
Weighted-Average
Remaining
Contractual Term
5.8 yrs.
N/A
N/A
N/A
Aggregate
Intrinsic Value
(millions)
327
$
N/A
N/A
N/A
$
$
$
53.56
53.30
40.69
5.8 yrs.
5.8 yrs.
4.4 yrs.
$
$
$
353
351
263
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, 2014, are subject to performance or market-based vesting conditions.
At December 31, 2014, there was $15 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
$
2014
194
54
(24)
74
17
$
2013
112
51
(21)
43
16
$
2012
244
84
(30)
93
16
60
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 2014 were as follows:
Nonvested at January 1, 2014
Granted
Vested
Forfeited
Nonvested at December 31, 2014
Shares
(thous.)
3,712
871
(1,080)
(100)
3,403
Weighted-Average
Grant-Date Fair Value
49.02
$
88.14
31.33
57.82
$
64.39
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, 2014, there was $87 million of total unrecognized compensation
expense related to nonvested retention awards, which is expected to be recognized over a weighted-
average period of 1.6 years.
Performance Retention Awards – In February 2014, 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 2012 and February 2013, 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 2014 grant were as follows:
Dividend per share per quarter
Risk-free interest rate at date of grant
Changes in our performance retention awards during 2014 were as follows:
2014
$ 0.455
0.7%
Nonvested at January 1, 2014
Granted
Vested
Forfeited
Nonvested at December 31, 2014
Shares
(thous.)
1,888
456
(661)
(100)
1,583
Weighted-Average
Grant-Date Fair Value
53.70
$
83.06
44.94
61.36
$
65.33
At December 31, 2014, 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. This expense is subject to achievement of the ROIC levels established for the
performance stock unit grants.
61
6. 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
Actuarial loss/(gain)
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
2014
2013
2014
2013
$
$
$
$
$
3,372
70
158
735
(193)
4,142
3,429
185
200
33
(193)
3,654
(488)
$
$
$
$
$
3,591
72
134
(257)
(168)
3,372
2,875
506
200
16
(168)
3,429
57
$
$
$
$
$
$
$
$
330
2
14
33
(25)
354
-
-
-
25
(25)
372
3
12
(34)
(23)
330
-
-
-
23
(23)
-
$ -
(354)
$
(330)
Amounts recognized in the statement of financial position as of December 31, 2014 and 2013 consist of:
Millions
Noncurrent assets
Current liabilities
Noncurrent liabilities
Pension
OPEB
$
2014
1
(19)
(470)
$
2013
364
(16)
(291)
$
2014
-
(23)
(331)
$
2013
-
(25)
(305)
Net amounts recognized at end of year
$
(488)
$
57
$
(354)
$
(330)
62
The change in the funded status and accumulated other comprehensive income/(loss) is primarily a result
of implementing a new set of mortality tables issued by the Society of Actuaries in October 2014 and
lower discount rates.
Pre-tax amounts recognized in accumulated other comprehensive income/(loss) as of December 31,
2014 and 2013 consist of:
Millions
Prior service (cost)/credit
Net actuarial loss
Total
Pension
-
$
(1,727)
2014
$
OPEB
17
(148)
Total
$
17
(1,875)
$ (1,727)
$ (131)
$ (1,858)
$
Pension
-
(1,018)
$ (1,018)
$
$
2013
OPEB
28
(125)
$
Total
28
(1,143)
(97)
$ (1,115)
Pre-tax changes recognized in other comprehensive income/(loss) during 2014, 2013 and 2012 were as
follows:
Pension
OPEB
2014
$ (780)
2013
561
$
2012
$ (265)
$
2014
(33)
2013
34
$
2012
(42)
$
Millions
Net actuarial (loss)/gain
Amortization of:
Prior service cost/(credit)
Actuarial loss
Total
$ (709)
$
667
$ (181)
$
(34)
$
33
$
-
71
-
106
1
83
(11)
10
(16)
15
(18)
13
(47)
Amounts included in accumulated other comprehensive income/(loss) expected to be amortized into net
periodic cost during 2015:
Millions
Prior service credit
Net actuarial loss
Total
Pension
-
$
(103)
$ (103)
OPEB
10
(13)
$
Total
10
(116)
(3)
$ (106)
$
$
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, 2014 and 2013, the non-qualified (supplemental) plan ABO was $379 million
and $302 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
2014
388
379
-
(379)
$
$
$
2013
308
302
-
(302)
$
$
$
The ABO for all defined benefit pension plans was $3.9 billion and $3.2 billion at December 31, 2014 and
2013, respectively.
63
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
2014
3.94%
4.00%
N/A
N/A
N/A
2013
4.72%
4.00%
N/A
N/A
N/A
2014
3.74%
N/A
6.34%
4.50%
2028
2013
4.47%
N/A
6.49%
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 in accumulated other comprehensive income 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
2014
2013
2012
2014
OPEB
2013
$
$
70
158
(230)
$
72
134
(202)
54
141
(190)
$
$
2
14
-
$
3
12
-
-
71
-
106
1
83
(11)
10
(16)
15
Net periodic benefit cost/(benefit)
$
69
$
110
$
89
$
15
$
14
$
2012
3
15
-
(18)
13
13
Assumptions – The weighted-average actuarial assumptions used to determine expense were as follows:
Percentages
Discount rate
Expected return on plan assets
Compensation increase
Health care cost trend rate (employees under 65)
Ultimate health care cost trend rate
Year ultimate trend reached
OPEB
Pension
2013
2013
2012
2014
2014
2012
4.72% 3.78% 4.54% 4.47% 3.48% 4.36%
N/A
7.50% 7.50% 7.50%
N/A
4.00% 3.43% 3.69%
N/A 6.49% 6.64% 6.91%
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
2028
2028
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 6% in 2014, 17% in 2013, and 13%
in 2012.
Assumed health care cost trend rates have an 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 2015 assumed health care cost trend rate for employees under 65 is 6.49%. It is
assumed the rate will decrease gradually to an ultimate rate of 4.5% in 2028 and will remain at that level.
64
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
$
19
One % pt.
Decrease
(1)
(16)
$
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
2013
2014
Pension
$
Qualified
200
200
Non-qualified
16
33
$
$
OPEB
23
25
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 2014 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 2015 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 2015 through 2024:
Millions
2015
2016
2017
2018
2019
Years 2020 - 2024
Asset Allocation Strategy
Pension
$ 180
186
191
196
201
1,069
$
OPEB
23
23
23
23
23
107
Our pension plan asset allocation at December 31, 2014 and 2013, and target allocation for 2015, are
as follows:
Equity securities
Debt securities
Real estate
Commodities
Total
Target
Allocation 2015
60% to 70%
20% to 30%
2% to 8%
4% to 6%
Percentage of Plan Assets
December 31,
2013
70%
21
4
5
2014
68%
23
4
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
diversification level that reduces fluctuations in investment returns. Asset allocation target ranges for
65
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, 2014 and 2013. 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, 2014 and 2013.
The investment of pension plan assets in securities issued by UPC is explicitly 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 (the Trustee). 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
and bond investments registered with the Securities and Exchange Commission. The real estate
investments are traded actively on public exchanges. The share prices for these investments are
published at the close of each business day. The Plan’s holdings of real estate investments are classified
as Level 1 investments. The bond investments are not traded publicly, but the underlying assets held in
these funds are traded on active markets and the prices for these assets are readily observable. The
Plan’s holdings in bond investments are classified as Level 2 investments.
Federal Government Securities – Federal Government Securities consist of bills, notes, bonds, and
other fixed income securities issued directly by the U.S. Treasury or by U.S. 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.
Bonds and 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. The fair value recorded by the Plan is calculated using the
net asset value (NAV) per share, which is derived from the valuation method described here. The Plan’s
holdings of limited partnership interests are classified as Level 3 investments.
Real Estate Partnerships – Most of the Plan’s real estate investments are interests in partnerships or
66
other commingled funds. Valuations for the holdings in this category are not based on readily observable
inputs and are primarily derived from property appraisals. The fair value recorded by the Plan is
calculated using the NAV per share, which is derived from the valuation method described here. The
Plan’s interests in real estate partnerships and other commingled funds 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 investments in limited liability companies that invest in publicly-traded
convertible securities, commodities, and other assets. The limited liability company investments are funds
that invest in both long and short positions in convertible securities, stocks, commodities, and fixed
income securities. The underlying securities held by the funds are traded actively on exchanges and
price quotes for these investments are readily available. Interests in the limited liability companies are
classified as Level 2 investments.
As of December 31, 2014, the pension plan assets measured at fair value on a recurring basis were as
follows:
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
-
-
-
-
-
234
139
-
373
$
Total
22
294
163
381
1,091
234
139
1,340
3,664
(10)
$ 3,654
Millions
Plan assets:
Temporary cash investments
Registered investment companies
Federal government securities
Bonds & debentures
Corporate stock
Venture capital and buyout partnerships
Real estate partnerships
Common trust and other funds
$
$
22
12
-
-
1,076
-
-
-
$
-
282
163
381
15
-
-
1,340
Total plan assets at fair value
$ 1,110
$ 2,181
$
Other assets [a]
Total plan assets
[a] Other assets include accrued receivables and pending broker settlements.
67
As of December 31, 2013, the pension plan assets measured at fair value on a recurring basis were as
follows:
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Millions
Plan assets:
Temporary cash investments
Registered investment companies
Federal government securities
Bonds & debentures
Corporate stock
Venture capital and buyout partnerships
Real estate partnerships
Common trust and other funds
$
$
16
11
-
-
983
-
-
-
$
-
253
126
310
16
-
-
1,357
Total plan assets at fair value
$ 1,010
$ 2,062
$
Other assets [a]
Total plan assets
[a] Other assets include accrued receivables and pending broker settlements.
-
-
-
-
-
213
139
-
352
$
Total
16
264
126
310
999
213
139
1,357
3,424
5
$ 3,429
For the years ended December 31, 2014 and 2013, 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 2014:
Millions
Beginning balance - January 1, 2014
Realized gain
Unrealized gain
Purchases
Sales
$
Venture Capital
and Buyout
Partnerships
213
17
5
54
(55)
$
Real Estate
Partnerships
139
8
6
19
(33)
Ending balance - December 31, 2014
$
234
$
139
Total
352
25
11
73
(88)
373
$
$
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 2013:
Millions
Beginning balance - January 1, 2013
Realized gain
Unrealized gain
Purchases
Sales
$
Venture Capital
and Buyout
Partnerships
179
7
24
43
(40)
$
Real Estate
Partnerships
143
8
3
23
(38)
Ending balance - December 31, 2013
$
213
$
139
Total
322
15
27
66
(78)
352
$
$
68
Other Retirement Programs
401(k)/Thrift Plan – We provide a defined contribution plan (401(k)/thrift plan) to eligible non-union and
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 $19 million in 2014, $18 million in 2013, and $15 million in 2012.
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 $711 million in 2014, $670 million in 2013, and $644 million in 2012.
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
$52 million in 2014, $57 million in 2013, and $62 million in 2012.
7. 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
Non-operating environmental costs and other
Total
2014 [a]
96
$
69
4
(18)
$ 151
2013 [b]
$ 106
32
4
(14)
$ 128
$
2012
83
29
3
(7)
$ 108
[a] Non-operating environmental costs and other includes $14 million related to the sale of a permanent easement.
[b] Rental income includes $17 million related to a land lease contract settlement.
8. Income Taxes
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)
2014
2013
2012
$ 2,029
239
$ 1,738
199
$ 1,335
153
2,268
1,937
1,488
667
136
803
86
6
92
659
119
778
(54)
(1)
(55)
760
120
880
5
2
7
Total income tax expense
$ 3,163
$ 2,660
$ 2,375
69
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
2014
35.0 %
3.1
-
(0.4)
0.2
37.9 %
2013
35.0 %
3.1
(0.1)
(0.2)
(0.1)
37.7 %
2012
35.0 %
3.1
(0.1)
(0.5)
0.1
37.6 %
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
Accrued stock compensation
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
2014
2013
$ (15,173)
(411)
$ (14,448)
(260)
(15,584)
(14,708)
74
228
69
86
392
164
168
$
1,181
$
71
223
66
41
100
182
130
813
$ (14,403)
$ (13,895)
$
277
(14,680)
$
268
(14,163)
$ (14,403)
$ (13,895)
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 2014 and 2013, 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.
70
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
$
2014
59
92
21
(14)
(7)
1
(1)
$ 151
2013
$ 115
24
15
(30)
(63)
-
(2)
$
59
2012
$ 107
29
4
(19)
-
(4)
(2)
$ 115
We recognize interest and penalties as part of income tax expense. Total accrued liabilities for interest
and penalties were $6 million at both December 31, 2014 and 2013. Total interest and penalties
recognized as part of income tax expense (benefit) were $9 million for 2014, $7 million for 2013, and $(4)
million for 2012.
Internal Revenue Service (IRS) examinations have been completed and settled for all years prior to 2009,
and the statute of limitations bars any additional tax assessments. The IRS has completed their
examinations and issued notices of deficiency for tax years 2009 through 2010. We disagree with many
of their proposed adjustments, and we are at IRS Appeals for those years. Additionally, several state tax
authorities are examining our state income tax returns for years 2006 through 2010.
In the fourth quarter of 2014, UPC and the IRS signed a closing agreement resolving all tax matters for
tax years 2005-2008. The settlement had an immaterial effect on our income tax expense. In connection
with the settlement, UPC paid $11 million in 2014.
In 2012, UPC and the IRS signed a closing agreement resolving all tax matters for tax years 1999-2004.
The settlement had an immaterial effect on our income tax expense. In connection with the settlement,
we received refunds of $8 million in 2013.
We do not expect our unrecognized tax benefits to change significantly in the next 12 months. At
December 31, 2014, we had a net unrecognized tax benefit liability of $151 million. Of that amount, $6
million is classified as a current liability 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
$
2014
33
118
$ 151
2013
34
25
59
$
$
$
2012
41
74
$ 115
71
9. 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
2014
2013
2012
$
5,180
$
4,388
$
3,943
897.1
2.1
1.9
901.1
5.77
5.75
$
$
926.5
2.4
2.6
931.5
$
$
4.74
4.71
$
$
946.2
3.6
3.1
952.9
4.17
4.14
Common stock options totaling 0.4 million, 0.5 million, and 1.1 million for 2014, 2013, and 2012,
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.
10. Accumulated Other Comprehensive Income/(Loss)
Reclassifications out of accumulated other comprehensive income/(loss) were as follows (net of tax):
Millions
Balance at January 1, 2014
Other comprehensive income/(loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive income/(loss) [a]
Net year-to-date other comprehensive
income/(loss), net of taxes of $291 million
Balance at December 31, 2014
Balance at January 1, 2013
Other comprehensive income/(loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive income/(loss) [a]
Net year-to-date other comprehensive
income/(loss), net of taxes of ($264) million
$
$
$
Defined
benefit
plans
(713)
Foreign
currency
translation
(37)
$
Derivatives
-
$
$
10
(458)
(448)
(1,161)
(1,149)
$
$
(1)
437
436
(12)
-
(12)
(49)
(36)
(1)
-
(1)
Total
(750)
(2)
(458)
(460)
-
-
-
$
$
-
$
(1,210)
(1)
$
(1,186)
1
-
1
(1)
437
436
Balance at December 31, 2013
$
(713)
$
(37)
$
-
$
(750)
[a] The accumulated other comprehensive income/(loss) reclassification components are 1) prior service
cost/(benefit) and 2) net actuarial loss which are both included in the computation of net periodic pension cost.
See Note 6 Retirement Plans for additional details.
11. Accounts Receivable
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, 2014, and 2013, our accounts receivable were reduced by $5
million and $1 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
72
Position. At December 31, 2014, and 2013, receivables classified as other assets were reduced by
allowances of $16 million and $22 million, respectively.
Receivables Securitization Facility – On July 29, 2014, we completed the renewal of our receivables
securitization facility. The new $650 million, 3-year facility replaces the prior $600 million, 364-day facility.
Under the facility, the Railroad sells most of its eligible third-party receivables to Union Pacific
Receivables, Inc. (UPRI), a wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer,
without recourse, an undivided interest in accounts receivable to investors. 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.
The amount outstanding under the facility was $400 million and $0 at December 31, 2014, and December
31, 2013, respectively. The facility was supported by $1.2 billion and $1.1 billion of accounts receivable
as collateral at December 31, 2014, and December 31, 2013, respectively, which, as a retained interest,
is included in accounts receivable, net in our Consolidated Statements of Financial Position.
The outstanding amount the Railroad is allowed to maintain under the facility, with a maximum of $650
million, may fluctuate based on the availability of eligible receivables and is directly affected by business
volumes and credit risks, including receivables payment quality measures such as default and dilution
ratios. If default or dilution ratios increase one percent, the allowable outstanding amount under the
facility would not materially change.
The costs of the receivables securitization facility include interest, which will vary based on prevailing
benchmark and commercial paper rates, program fees paid to participating banks, commercial paper
issuing costs, and fees of participating banks for unused commitment availability. The costs of the
receivables securitization facility are included in interest expense and were $4 million, $5 million and $3
million for 2014, 2013, and 2012, respectively.
12. Properties
The following tables list the major categories of property and equipment, as well as the weighted-average
estimated useful life for each category (in years):
Millions, Except Estimated Useful Life
As of December 31, 2014
Accumulated
Cost Depreciation
Net Book
Value
Estimated
Useful Life
Land
Road:
Rail and other track material
Ties
Ballast
Other roadway [a]
Total road
Equipment:
Locomotives
Freight cars
Work equipment and other
Total equipment
Technology and other
Construction in progress
Total
$ 5,194
$ N/A
$ 5,194
14,588
9,102
4,826
16,476
44,992
8,276
2,116
684
11,076
872
1,080
5,241
2,450
1,264
2,852
11,807
3,694
968
153
4,815
320
-
9,347
6,652
3,562
13,624
33,185
4,582
1,148
531
6,261
552
1,080
$ 63,214
$ 16,942
$ 46,272
N/A
33
33
34
47
N/A
20
25
18
N/A
10
N/A
N/A
[a] Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.
73
Millions, Except Estimated Useful Life
As of December 31, 2013
Accumulated
Cost Depreciation
Net Book
Value
Estimated
Useful Life
Land
$
5,120
$ N/A
$
5,120
Road:
Rail and other track material
Ties
Ballast
Other roadway [a]
Total road
Equipment:
Locomotives
Freight cars
Work equipment and other
Total equipment
Technology and other
Construction in progress
Total
13,861
8,785
4,621
15,596
42,863
7,518
2,085
561
10,164
711
954
4,970
2,310
1,171
2,726
11,177
3,481
1,000
119
4,600
286
-
8,891
6,475
3,450
12,870
31,686
4,037
1,085
442
5,564
425
954
$ 59,812
$ 16,063
$ 43,749
N/A
35
33
34
48
N/A
20
25
18
N/A
10
N/A
N/A
[a] Other roadway 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
74
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 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 $2.4 billion for
2014, $2.3 billion for 2013, and $2.1 billion for 2012.
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.
13. Accounts Payable and Other Current Liabilities
Millions
Accounts payable
Dividends payable
Income and other taxes payable
Accrued wages and vacation
Accrued casualty costs
Interest payable
Equipment rents payable
Other
$
Dec. 31,
2014
877
438
412
409
249
178
100
640
$
Dec. 31,
2013
803
356
491
385
207
169
96
579
Total accounts payable and other current liabilities
$
3,303
$ 3,086
75
14. 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, 2014, and 2013, we were not required to
provide collateral, nor had we received collateral, relating to our hedging activities.
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, 2014, and 2013, 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, 2014,
and 2013, we had reductions of $0 and $1 million, respectively, recorded as an accumulated other
comprehensive loss. As of December 31, 2014, and 2013, we had no interest rate cash flow hedges
outstanding.
Earnings Impact – Our use of derivative financial instruments had no impact on pre-tax income for the
years ended December 31, 2014, 2013, and 2012.
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, 2014, the fair value of total debt was $13.0 billion, approximately $1.5 billion more than the carrying
value. At December 31, 2013, the fair value of total debt was $10.2 billion, approximately $0.6 billion
more than the carrying value. The fair value of the Corporation’s debt is a measure of its current value
under present market conditions. It does not impact the financial statements under current accounting
rules. At both December 31, 2014, and 2013, approximately $163 million of 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.
76
15. Debt
Total debt as of December 31, 2014, and 2013, is summarized below:
Millions
Notes and debentures, 2.3% to 7.9% due through 2054
Capitalized leases, 3.1% to 8.4% due through 2028
Equipment obligations, 3.2% to 6.7% due through 2031
Receivables Securitization (Note 11)
Term loans - floating rate, due in 2016
Mortgage bonds, 4.8% due through 2030
Medium-term notes, 9.3% to 10.0% due through 2020
Tax-exempt financings - floating rate, due in 2015
Unamortized discount
Total debt
Less: current portion
Total long-term debt
$
$
2014
9,266
1,520
597
400
200
57
23
8
(591)
11,480
(462)
2013
8,068
1,702
110
-
200
57
32
12
(604)
9,577
(705)
$
11,018
$
8,872
Debt Maturities – The following table presents aggregate debt maturities as of December 31, 2014,
excluding market value adjustments:
Millions
2015
2016
2017
2018
2019
Thereafter
Total debt
$
462
606
1,065
578
652
8,117
$ 11,480
Equipment Encumbrances – Equipment with a carrying value of approximately $2.8 billion and $2.9
billion at December 31, 2014, and 2013, respectively, 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.
Credit Facilities – During the second quarter of 2014, we replaced our $1.8 billion revolving credit
facility, which was scheduled to expire in May 2015, with a new $1.7 billion facility that expires in May
2019 (the facility). The facility is based on substantially similar terms as those in the previous credit
facility. On December 31, 2014, we had $1.7 billion of credit available under the facility, which is
designated for general corporate purposes and supports the issuance of commercial paper. We did not
draw on either facility at any time during 2014. 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 credit ratings for our senior unsecured debt.
The facility requires that the Corporation maintain a debt-to-net-worth coverage ratio as a condition to
making a borrowing. At December 31, 2014, and December 31, 2013 (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
77
leases, guarantees and unfunded and vested pension benefits under Title IV of ERISA. At December 31,
2014, the debt-to-net-worth coverage ratio allowed us to carry up to $42.4 billion of debt (as defined in the
facility), and we had $11.6 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 $125 million cross-default provision and a change-of-control provision.
During 2014, we did not issue or repay any commercial paper, and at December 31, 2014, and 2013, 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 $15.4 billion
and $16.3 billion at December 31, 2014, and 2013, 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 2014, we issued the following unsecured, fixed-rate debt securities under our current shelf
registration:
Date
January 10, 2014
August 12, 2014
Description of Securities
$300 million of 2.25% Notes due February 15, 2019
$400 million of 3.75% Notes due March 15, 2024
$300 million of 4.85% Notes due June 15, 2044
$350 million of 3.25% Notes due January 15, 2025
$350 million of 4.15% Notes due January 15, 2045
We used the net proceeds from the offerings 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, 2014, we had remaining authority to issue up to $1.15 billion of debt
securities under our shelf registration.
Subsequent Event - In 2015, we issued the following unsecured, fixed-rate debt securities under our
current shelf registration:
Date
January 29, 2015
Description of Securities
$250 million of 1.80% Notes due February 1, 2020
$450 million of 3.375% Notes due February 1, 2035
$450 million of 3.875% Notes due February 1, 2055
Proceeds from this offering are for general corporate purposes, including the repurchase of common
stock pursuant to our share repurchase program. These debt securities include change-of-control
provisions. This offering exhausted our current authority to issue debt securities under our existing shelf
registration.
On February 5, 2015, the Board of Directors approved proceeding with a new shelf registration statement
and authorized the issuance of up to $4.0 billion of debt securities.
Equipment Trust – On May 20, 2014, UPRR consummated a pass-through (P/T) financing, whereby a
P/T trust was created, which issued $500 million of P/T trust certificates with a stated interest rate of
3.227%. The P/T trust certificates will mature on May 14, 2026. The proceeds from the issuance of the
78
P/T trust certificates (net of $3 million in transaction fees) were used to purchase equipment trust
certificates to be issued by UPRR to finance the acquisition of 245 locomotives. The equipment trust
certificates are secured by a lien on the locomotives.
Debt Exchange – On August 21, 2013, we exchanged $1,170 million of various outstanding notes and
debentures due between 2016 and 2040 (the Existing Notes) for $439 million of 3.646% notes (the New
2024 Notes) due February 15, 2024 and $700 million of 4.821% notes (the New 2044 Notes) due
February 1, 2044, plus cash consideration of approximately $280 million in addition to $8 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 terms of the New 2024 Notes and the New 2044 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 $9 million and were included in interest expense during
the three months ended September 30, 2013.
The following table lists the outstanding notes and debentures that were exchanged:
Millions
The 2024 Offers
7.000% Debentures due 2016
5.650% Notes due 2017
5.750% Notes due 2017
5.700% Notes due 2018
7.875% Notes due 2019
6.125% Notes due 2020
The 2044 Offers
7.125% Debentures due 2028
6.625% Debentures due 2029
6.250% Debentures due 2034
6.150% Debentures due 2037
5.780% Notes due 2040
Total
Principal amount
exchanged
$
8
38
70
103
20
238
73
177
19
138
286
$
1,170
Debt Redemption – On May 14, 2013, we redeemed all $40 million of our outstanding 5.65% Port of
Corpus Christi Authority Revenue Refunding Bonds due December 1, 2022. The redemption resulted in
an early extinguishment charge of $1 million in the second quarter of 2013.
Receivables Securitization Facility – As of December 31, 2014 and 2013, we recorded $400 million
and $0 of borrowings under our receivables securitization facility, respectively, as secured debt. (See
further discussion of our receivables securitization facility in Note 11).
16. 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) 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, 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
79
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 options are not considered to be potentially significant to the VIEs. The future minimum lease
payments associated with the VIE leases totaled $3.0 billion as of December 31, 2014.
17. Leases
We lease certain locomotives, freight cars, and other property. The Consolidated Statements of Financial
Position as of December 31, 2014 and 2013 included $2,454 million, net of $1,210 million of accumulated
depreciation, and $2,486 million, net of $1,092 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, 2014, were as follows:
Millions
2015
2016
2017
2018
2019
Later years
Total minimum lease payments
Amount representing interest
Present value of minimum lease payments
$
Operating
Leases
508
484
429
356
323
1,625
$
Capital
Leases
253
249
246
224
210
745
$ 3,725
$ 1,927
N/A
N/A
(407)
$ 1,520
Approximately 95% of capital lease payments relate to locomotives. Rent expense for operating leases
with terms exceeding one month was $593 million in 2014, $618 million in 2013, and $631 million in 2012.
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.
18. 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
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 due to the uncertainty surrounding the
timing of future payments. Approximately 93% of the recorded liability is related to asserted claims and
approximately 7% is related to unasserted claims at December 31, 2014. Because of the uncertainty
80
surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to
settle these claims may range from approximately $335 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
2014
294
96
9
(64)
335
111
$
$
$
2013
334
87
(38)
(89)
294
82
$
$
$
2012
368
121
(58)
(97)
334
95
$
$
$
In conjunction with the liability update performed in 2014, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2014, and
2013.
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 21% of the recorded liability related to asserted
claims and approximately 79% related to unasserted claims at December 31, 2014. 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 $126 million to $135 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
Accruals/(Credits)
Payments
Ending balance at December 31
Current portion, ending balance at December 31
2014
131
1
(6)
126
8
$
$
$
2013
139
2
(10)
131
9
$
$
$
2012
147
(2)
(6)
139
8
$
$
$
In conjunction with the liability update performed in 2014, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2014, and
2013. 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
81
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 270 sites at which we are or may be liable for remediation costs associated with
alleged contamination or for violations of environmental requirements. This includes 29 sites that are the
subject of actions taken by the U.S. government, 16 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. Our environmental liability is not
discounted to present value due to the uncertainty surrounding the timing of future payments.
Our environmental liability activity was as follows:
Millions
Beginning balance
Accruals
Payments
Ending balance at December 31
Current portion, ending balance at December 31
2014
171
56
(45)
182
60
$
$
$
2013
170
58
(57)
171
53
$
$
$
2012
172
48
(50)
170
50
$
$
$
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.
Insurance – The Company has a consolidated, wholly-owned captive insurance subsidiary (the captive),
that provides insurance coverage for certain risks including FELA claims and property coverage which are
subject to reinsurance. The captive entered into annual reinsurance treaty agreements that insure
workers compensation, general liability, auto liability and FELA risk. The captive cedes a portion of its
FELA exposure through the treaty and assumes a proportionate share of the entire risk. The captive
receives direct premiums, which are netted against the Company’s premium costs in other expenses in
the Consolidated Statements of Income. The treaty agreements provide for certain protections against the
risk of treaty participants’ non-performance, and we do not believe our exposure to treaty participants’
non-performance is material at this time. In the event the Company leaves the reinsurance program, the
Company is not relieved of its primary obligation to the policyholders for activity prior to the termination of
the treaty agreements. We record both liabilities and reinsurance receivables using an actuarial analysis
based on historical experience in our Consolidated Statements of Financial Position.
Guarantees – At December 31, 2014, and 2013, we were contingently liable for $82 million and $299
million in guarantees. We have recorded liabilities of $0.3 million and $1 million for the fair value of these
obligations as of December 31, 2014, and 2013, respectively. We entered into these contingent
guarantees in the normal course of business, and they include guaranteed obligations related to our
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.
82
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.
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 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 in May 2012, the trial judge
rendered an opinion establishing the fair market rent and entering judgment for back rent, including
prejudgment interest. SFPP appealed the judgment. On November 5, 2014, the Second District Circuit
Court of Appeal in California issued an opinion holding that UPRR was not entitled to collect rent from
SFPP for easements on the portions of the property acquired solely through Federal government land
grants issued during the 1800s. The Appellate Court also reversed the award of prejudgment interest
and remanded the case to the trial court. A favorable final judgment may materially affect UPRR's results
of operations in the period of any monetary recoveries. Due to the uncertainty regarding the amount and
timing of any recovery or any subsequent proceedings, we consider this a gain contingency and do not
reflect any amounts in the Consolidated Financial Statements as of December 31, 2014.
19. Share Repurchase Program
Effective January 1, 2014, our Board of Directors authorized the repurchase of up to 120 million shares of
our common stock by December 31, 2017, replacing our previous repurchase program. As of December
31, 2014, we repurchased a total of $12.6 billion of our common stock since the commencement of our
repurchase programs in 2007. The table below represents shares repurchased in 2013 under our
previous repurchase program, and shares repurchased in 2014 under the new program.
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Number of Shares Purchased
2013
5,762,800
6,122,940
7,333,788
9,858,110
2014
7,640,000
8,320,000
8,347,000
7,736,400
$
$
Average Price Paid
2013
68.29
75.71
78.39
79.68
2014
89.43
96.84
102.54
113.77
32,043,400
29,077,638
$ 100.65
$
76.26
Remaining number of shares that may be repurchased under current authority
87,956,600
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.
From January 1, 2015, through February 6, 2015, we repurchased 2.8 million shares at an aggregate cost
of approximately $327 million.
83
20. Selected Quarterly Data (Unaudited)
Millions, Except Per Share Amounts
2014
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
Millions, Except Per Share Amounts
2013
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
Mar. 31
Jun. 30
Sep. 30
Dec. 31
$ 5,638
1,854
1,088
$ 6,015
2,196
1,291
$
6,182
2,330
1,370
$ 6,153
2,373
1,431
1.20
1.19
1.43
1.43
1.53
1.53
1.62
1.61
Mar. 31
Jun. 30
Sep. 30
Dec. 31
$ 5,290
1,633
957
$ 5,470
1,878
1,106
$
5,573
1,962
1,151
$ 5,630
1,973
1,174
1.02
1.02
1.19
1.18
1.25
1.24
1.28
1.27
Per share net income for the four quarters combined may not equal the per share net income for the year
due to rounding.
84
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.
85
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, 2014. 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 (2013). Based on our assessment, management believes that, as of December 31,
2014, 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 5, 2015
86
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Union Pacific Corporation
Omaha, Nebraska
We have audited the internal control over financial reporting of Union Pacific Corporation and Subsidiary
Companies (the Corporation) as of December 31, 2014, based on criteria established in Internal Control
— Integrated Framework (2013) 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, 2014, based on the criteria established in Internal Control — Integrated
Framework (2013) 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, 2014, of the Corporation and our report dated February 6, 2015
expressed an unqualified opinion on those financial statements and financial statement schedule.
Omaha, Nebraska
February 6, 2015
87
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 2014, Outstanding Equity Awards at 2014 Fiscal Year-End, Option
Exercises and Stock Vested in Fiscal Year 2014, Pension Benefits at 2014 Fiscal Year-End, Nonqualified
Deferred Compensation at 2014 Fiscal Year-End, Potential Payments Upon Termination or Change in
Control and Director Compensation in Fiscal Year 2014 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.
88
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, 2014:
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))
7,948,925
[1]
7,948,925
$
$
53.54
[2]
77,786,772
53.54
77,786,772
Plan Category
Equity compensation plans approved
by security holders
Total
[1]
Includes 2,562,412 retention units that do not have an exercise price. Does not include 2,466,275 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.
89
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 50.
(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 93. 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.
90
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 6th day of February, 2015.
UNION PACIFIC CORPORATION
By /s/ Lance M. Fritz
Lance M. Fritz,
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 6th day of February, 2015, by the following persons on behalf of the registrant and in the capacities
indicated.
PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR:
/s/ Lance M. Fritz
Lance M. Fritz,
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*
PRINCIPAL FINANCIAL OFFICER:
PRINCIPAL ACCOUNTING OFFICER:
DIRECTORS:
Andrew H. Card, Jr.*
Erroll B. Davis, Jr.*
David B. Dillon*
Judith Richards Hope*
John J. Koraleski*
Charles C. Krulak*
* By /s/ James J. Theisen, Jr.
James J. Theisen, Jr., Attorney-in-fact
91
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
2014
2013
2012
$
$
$
$
$
23
5
(7)
21
5
16
21
702
256
(201)
$
37
(4)
(10)
23
$
$
$
$
1
22
23
734
188
(220)
50
(1)
(12)
37
4
33
37
778
190
(234)
757
$
702
$
734
249
508
757
$
$
207
495
702
$
$
213
521
734
$
$
$
$
$
$
$
$
92
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 Performance Stock Unit Agreement dated February 5, 2015.
Form of Stock Unit Agreement for Executives dated February 5, 2015.
Form of Non-Qualified Stock Option Agreement for Executives dated February 5,
2015.
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 – Lance M. Fritz.
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 – Lance M. Fritz 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, 2014 (filed with the SEC on February 6, 2015), is
formatted in XBRL and submitted electronically herewith: (i) Consolidated
Statements of Income for the years ended December 31, 2014, 2013 and 2012,
(ii) Consolidated Statements of Comprehensive Income for the years ended
December 31, 2014, 2013, and 2012, (iii) Consolidated Statements of Financial
Position at December 31, 2014 and December 31, 2013, (iv) Consolidated
Statements of Cash Flows for the years ended December 31, 2014, 2013 and
2012, (v) Consolidated Statements of Changes in Common Shareholders’ Equity
for the years ended December 31, 2014, 2013 and 2012, 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, and as further amended May 15, 2014, 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, 2014.
93
3(b)
4(a)
4(b)
4(c)
4(d)
4(e)
4(f)
4(g)
4(h)
4(i)
4(j)
10(d)
10(e)
10(f)
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 2.250% Note due 2019 is incorporated by reference to Exhibit 4.1 to the
Corporation’s Current Report on Form 8-K dated January 10, 2014.
Form of 3.750% Note due 2024 is incorporated by reference to Exhibit 4.2 to the
Corporation’s Current Report on Form 8-K dated January 10, 2014.
Form of 4.850% Note due 2044 is incorporated by reference to Exhibit 4.3 to the
Corporation’s Current Report on Form 8-K dated January 10, 2014.
Form of 3.250% Note due 2025 is incorporated herein by reference to Exhibit 4.1
to the Corporation’s Current Report on Form 8-K dated August 12, 2014.
Form of 4.150% Note due 2045 is incorporated herein by reference to Exhibit 4.2
to the Corporation’s Current Report on Form 8-K dated August 12, 2014.
Form of 1.800% Note due 2020 is incorporated herein by reference to Exhibit 4.1
to the Corporation’s Current Report on Form 8-K dated January 28, 2015.
Form of 3.375% Note due 2035 is incorporated herein by reference to Exhibit 4.2
to the Corporation’s Current Report on Form 8-K dated January 28, 2015.
Form of 3.875% Note due 2055 is incorporated herein by reference to Exhibit 4.3
to the Corporation’s Current Report on Form 8-K dated January 28, 2015.
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 March 1, 2013, is incorporated herein by reference to
Exhibit 10(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2013.
Supplemental Thrift Plan (409A Grandfathered Component) of Union Pacific
Corporation, as amended March 1, 2013, is incorporated herein by reference to
Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2013.
Supplemental Pension Plan for Officers and Managers (409A Non-Grandfathered
Component) of Union Pacific Corporation and Affiliates, as amended February 1,
2013, and March 1, 2013, is incorporated herein by reference to Exhibit 10(e) to
the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2013.
10(g)
Supplemental Pension Plan for Officers and Managers (409A Grandfathered
94
10(h)
10(i)
10(j)
10(k)
10(l)
10(m)
10(n)
10(o)
10(p)
10(q)
10(r)
10(s)
Component) of Union Pacific Corporation and Affiliates, as amended February 1,
2013, and March 1, 2013 is incorporated herein by reference to Exhibit 10(f) to
the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2013.
Union Pacific Corporation Key Employee Continuity Plan, as amended February
5, 2015, 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, 2013.
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 Grandfathered Component) of Union Pacific
Corporation, as amended March 1, 2013, is incorporated herein by reference to
Exhibit 10(b) to the Corporation’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2013.
Deferred Compensation Plan (409A Non-Grandfathered Component) of Union
Pacific Corporation, as amended December 17, 2013, is incorporated herein by
reference to the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2013.
1992 Restricted Stock Plan for Non-Employee Directors of Union Pacific
Corporation, as amended as of January 28, 1993, is incorporated herein by
reference to Exhibit 10(a) to the Corporation’s Current Report on Form 8-K dated
March 16, 1993.
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 2013 Stock Incentive Plan, effective May 16, 2013, is
incorporated herein by reference to Exhibit 4.3 to the Corporation’s Form S-8
dated May 17, 2013.
UPC 2004 Stock Incentive Plan amended March 1, 2013,, is incorporated herein
by reference to Exhibit 10(g) to the Corporation’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2013.
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
95
10(t)
10(u)
10(v)
10(w)
10(x)
10(y)
10(z)
10(aa)
10(bb)
10(cc)
10(dd)
10(ee)
99
(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.
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(c) to the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2012.
Form of Stock Unit Agreement for Executives is incorporated herein by reference
to Exhibit 10(b) to the Corporation’s Annual Report on Form 10-K for the year
ended December 31, 2012.
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, 2013.
Form of Stock Unit Agreement for Executives is incorporated herein by reference
to Exhibit 10(b) to the Corporation’s Annual Report on Form 10-K for the year
ended December 31, 2013.
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 2013 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, 2012.
Form of 2014 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, 2013.
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.
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.
Form of U.S. $1,700,000,000 5-Year Revolving Credit Agreement dated as of
May 21, 2014, is incorporated herein by reference to Exhibit 99(a) to the
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2014.
96
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
2014
2013
2012
2011
2010
$
$
561
101
662
$
$
526
121
647
$
$
535
132
667
$
$
572
135
707
$
$
602
136
738
$ 5,180
$ 4,388
$ 3,943
$ 3,292
(59)
3,163
662
(57)
2,660
647
(55)
2,375
667
(38)
1,972
707
$ 2,780
(44)
1,653
738
Earnings available for fixed charges
$ 8,946
$ 7,638
$ 6,930
$ 5,933
$ 5,127
Ratio of earnings to fixed charges
13.5
11.8
10.4
8.4
6.9
97
SIGNIFICANT SUBSIDIARIES OF UNION PACIFIC CORPORATION
Name of Corporation
State of
Incorporation
Union Pacific Railroad Company ......................................................................
Southern Pacific Rail Corporation .....................................................................
Delaware
Utah
Exhibit 21
98
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.
333-88709, 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, Registration Statement No. 333-
170208, and Registration No. 333-188671 on Form S-8 and Registration Statement No. 333-164842 and
Registration No. 333-186548 on Form S-3 of our reports dated February 6, 2015, 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, 2014.
Omaha, Nebraska
February 6, 2015
99
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, Diane K. Duren, 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, 2014, 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 5, 2015.
/s/ Andrew H. Card, Jr.
Andrew H. Card, Jr.
/s/ Erroll B. Davis, Jr.
Erroll B. Davis, Jr.
/s/ David B. Dillon
David B. Dillon
/s/ Judith Richards Hope
Judith Richards Hope
/s/ John J. Koraleski
John J. Koraleski
/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
100
Exhibit 31(a)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Lance M. Fritz, 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 6, 2015
/s/ Lance M. Fritz
Lance M. Fritz
President and
Chief Executive Officer
101
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 6, 2015
/s/ Robert M. Knight, Jr.
Robert M. Knight, Jr.
Executive Vice President – Finance and
Chief Financial Officer
102
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, 2014, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Lance M Fritz, 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/ Lance M. Fritz
Lance M. Fritz
President and
Chief Executive Officer
Union Pacific Corporation
February 6, 2015
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, 2014, 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 6, 2015
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.
103