UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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 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.
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 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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No
As of June 30, 2015, the aggregate market value of the registrant’s Common Stock held by non-affiliates (using the
New York Stock Exchange closing price) was $82.7 billion.
The number of shares outstanding of the registrant’s Common Stock as of January 29, 2016 was 846,414,350.
Documents Incorporated by Reference – Portions of the registrant’s definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 12, 2016, 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
Directors and Senior Management
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant and Principal Executive Officers of
Subsidiaries
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
Item 6.
Item 7.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Operations
Critical Accounting Policies
Cautionary Information
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Management’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Other Information
PART III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Signatures
Certifications
3
4
5
10
14
14
16
18
19
20
22
23
43
48
49
50
51
85
85
86
87
88
88
88
88
89
89
90
91
101
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February 5, 2016
Fellow Shareholders:
This past year was a difficult one in many respects, but our team did outstanding work in the face of
dramatic declines in volumes and shifts in our business mix. Although our earnings per share of $5.49
fell short of last year’s record of $5.75 per share, we were able to improve our operating ratio to a record
low 63.1 percent, 0.4 points better than 2014. Our return on invested capital* of 14.3 percent also fell
short of last year’s all-time high of 16.2 percent. Despite these shortfalls, Union Pacific was able to
increase the cash returned to shareholders in 2015. We increased our quarterly declared dividend per
share by 10 percent, with total dividends declared per share for 2015 growing 15 percent compared to the
full year 2014. We also repurchased $3.5 billion in Union Pacific shares, a 7 percent increase compared
to 2014.
Union Pacific experienced a 6 percent decline in volume last year. Carloadings declined in five of our six
commodity groups. Low natural gas prices and high coal inventory levels led to a significant reduction in
our Coal volumes. Declines in shale drilling activity due to lower energy prices drove reductions in frac
sand shipments. Steel shipments also declined due to lower drilling activity as well as from the strength of
the U.S. dollar. Lower grain commodity prices, abundant worldwide inventories, and a strong U.S. Dollar
negatively impacted grain shipments. International intermodal shipments declined as a result of the West
Coast port work disruptions and higher than normal retail inventory levels. Crude oil shipments declined
as a result of lower crude oil prices and unfavorable spreads, while fertilizer shipments also declined
year-over-year due to the uncertainty of grain commodity prices. Increased auto production and vehicle
sales drove strong growth in Automotive, our only business group which experienced volume growth in
2015.
As volumes began to decrease from 2014 levels, we were effective in aligning our resources to meet
demand, while safely and efficiently serving our customers. Our operating metrics showed a step
function improvement throughout last year. Average system velocity, as reported to the AAR, increased 6
percent and average terminal dwell decreased 3 percent when compared to 2014. By year end, our
velocity was at an all-time best for that level of demand, and we continue to drive toward further network
improvement.
2015 was a strong year for employee safety performance. Our reportable personal injury rate of 0.87
declined 11 percent from last year, and was an all-time record low. As we move forward, we continue to
utilize our safety strategy to yield record results on our way toward achieving our ultimate goal of an
incident free environment. We have an unrelenting focus on risk reduction through internal programs such
as Courage to Care and Total Safety Culture. This is the cornerstone of our safety strategy so that every
employee returns home safely at the end of each day.
Our robust capital program helps ensure we have the resources and network capacity required to
efficiently handle our current volumes and future growth, while improving our network fluidity and
generating returns for our shareholders. We invested $4.3 billion in 2015 strengthening the franchise.
This included $1.9 billion in replacement capital to harden our infrastructure, and to improve the safety
and resiliency of our network. In addition, we spent $1.1 billion on locomotives and other equipment, and
nearly $700 million on new capacity and commercial facilities. We also spent almost $400 million toward
completing the federally mandated Positive Train Control project. The deadline for completing PTC was
extended to December 31, 2018, and we will continue to work diligently to safely complete this mandate.
Overall economic conditions, uncertainty in the energy markets, commodity prices, and the strength of the
U.S. dollar will continue to have a major impact on our business this year. We are well-positioned to
serve customers in existing markets as they rebound. The strength and diversity of the Union Pacific
franchise also will provide tremendous opportunities for new business development as both domestic and
global markets evolve.
When combined with our unrelenting focus on safety, productivity, and service, these opportunities will
translate into an excellent experience for our customers and strong value for our shareholders in the
years ahead.
Chairman, President and Chief Executive Officer
*See Item 7 of this report for reconciliations to U.S. GAAP.
3
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
Chairman, President and
Chief Executive Officer
Union Pacific Corporation and
Union Pacific Railroad Company
SENIOR MANAGEMENT
Lance M. Fritz
Chairman, 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,
Thomas F. McLarty III
President
McLarty Associates
Board Committees: Finance,
Corporate Governance and
Nominating
Finance
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
Charles C. Krulak
General, USMC, Ret.
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
Robert M. Knight, Jr.
Todd M. Rynaski
Executive Vice President–Finance
and Chief Financial Officer
Union Pacific Corporation
Vice President and Controller
Union Pacific Corporation
Scott D. Moore
Senior Vice President–
Corporate Relations
Union Pacific Corporation
Cameron A. Scott
Executive Vice President –
Operations
Union Pacific Railroad Company
Joseph E. O’Connor, Jr.
Vice President–Labor Relations
Union Pacific Railroad Company
Lynden L. Tennison
Senior Vice President and
Chief Information Officer
Union Pacific Corporation
Patrick J. O’Malley
Vice President–Taxes and General
Tax Counsel
Union Pacific Corporation
James J. Theisen, Jr.
Associate General Counsel and
Interim Chief of Legal Staff
Union Pacific Corporation
D. Lynn Kelley
Senior Vice President–Supply and
Continuous Improvement
Union Pacific Railroad Company
.
Michael A. Rock
Vice President–External Relations
Union Pacific Corporation
4
Item 1. Business
GENERAL
PART I
Union Pacific Railroad Company is the principal operating company of Union Pacific Corporation. One of
America's most recognized companies, Union Pacific Railroad Company 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
2015 Freight Revenue
Operations – UPRR is a Class I railroad
operating in the U.S. We have 32,084 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,
Southeast,
the Southwest, Canada, and
Mexico. Export and import traffic moves
through Gulf Coast and Pacific Coast ports
and across
the Mexican and Canadian
borders. Our freight traffic consists of bulk,
manifest, and premium business. Bulk traffic 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 2015,
we generated freight revenues totaling $20.4 billion from the following six commodity groups:
Agricultural Products – Transportation of grains, commodities produced from these grains, and food and
beverage products generated 17% of the Railroad’s 2015 freight revenue. We access 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 40% 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 11% of Union Pacific’s freight revenue in 2015.
Chemicals – Transporting chemicals generated 17% of our freight revenue in 2015. 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 six categories: industrial chemicals, plastics, fertilizer, petroleum and liquid petroleum gases,
crude oil and soda ash. 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.
Coal – Shipments of coal and petroleum coke accounted for 16% of our freight revenue in 2015. 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,
lumber, paper, and other miscellaneous products. In 2015, this group generated 19% of our total freight
revenue. Commercial, residential and governmental infrastructure investments drive shipments of steel,
6
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,
our international and domestic Intermodal business generated 20% of our 2015 freight revenue.
Seasonality – Some of the commodities we carry have peak shipping seasons, reflecting either or both
the nature of the commodity and the demand cycle for the commodity (such as certain agricultural and
food products that have specific growing and harvesting seasons). 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) 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 each year and provide
other information requested by the STB.
Working Capital – At December 31, 2015 and 2014, 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. Finally, many movements face product or geographic competition where our customers
can use different products (e.g. natural gas instead of coal, sorghum instead of corn) or commodities from
different locations (e.g. grain from states or countries that we do not serve, crude oil from different
regions). Sourcing different commodities or different locations allows shippers to substitute different
carriers and such competition may reduce our volume or constrain prices. 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
producers (one domestic and one international) that meet our specifications. Rail is critical for
7
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 47,457 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 250
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, 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-
Trade Partnership Against Terrorism, a partnership designed to develop, enhance, and maintain effective
security processes throughout the global supply chain.
8
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 2015, the STB continued its efforts to explore whether to expand rail regulation.
The STB 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 conducted a
hearing on expanding and easing procedures for grain rate complaints.
The Surface Transportation Board Reauthorization Act of 2015 became law on December 18, 2015. The
legislation increased the number of STB board members from three to five, requires the STB to post
quarterly reports on rate reasonableness cases and maintain a database on service complaints, and
grants the STB authority to initiate investigations, among other things.
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
further 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. Through 2015, we have invested approximately $2.0 billion in the
ongoing development of PTC.
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 final costs will be higher than
those assumed by the FRA. On October 29, 2015, Congress extended the December 31, 2015 PTC
implementation deadline until December 31, 2018. The PTC implementation deadline may be extended
to December 31, 2020, provided certain other criteria are satisfied. We are planning to submit our
required PTC safety plan to the FRA in the first half of 2016.
On May 1, 2015, the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued final rules
governing the transportation of flammable liquids. The final rule included provisions for improved tank car
standards, braking system requirements, community notification, and operating restrictions for certain
trains carrying flammable liquids. Subsequently, Congress enacted the Fixing America’s Surface
Transportation Act, which requires the Government Accountability Office (GAO) to conduct an
independent study on the rule’s proposed braking system requirements. Pending the outcome of the
study, the braking system requirement may be eliminated or revised. We will participate in and monitor
the progress of the GAO study.
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. Additionally, various state and local
agencies have jurisdiction over disposal of hazardous waste and seek to regulate movement of
hazardous materials in ways not preempted by federal law.
Environmental Regulation – We are subject to extensive federal and state environmental statutes and
regulations pertaining to public health and the environment. The statutes and regulations are
administered and monitored by the Environmental Protection Agency (EPA) and by various state
environmental agencies. The primary laws affecting our operations are the Resource Conservation and
Recovery Act, regulating the management and disposal of solid and hazardous wastes; the
Comprehensive Environmental Response, Compensation, and Liability Act, regulating the cleanup of
9
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 our customers’ 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 or changes in consumer preferences that affect the businesses of our
customers, 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 were to implement PTC by the end of 2015 (the
Rail Safety Improvement Act). The Surface Transportation Extension Act of 2015 amended the Rail
Safety Improvement Act to require implementation of PTC by the end of 2018, which deadline may be
extended to December 31, 2020, provided certain other criteria are satisfied. This implementation could
have a material adverse effect on our ability to make other capital investments. Additionally, one or more
consolidations of Class I railroads could also lead to increased regulation of the rail industry.
10
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. We must build or acquire
and maintain our rail system, while 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.
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, 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
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.
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
11
farmers and
including chemical producers,
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.
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.
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. Labor disputes, work stoppages, slowdowns or lockouts at
loading/unloading facilities, ports or other transport access points could compromise our service reliability
and have a material adverse impact on our results of operations, financial condition, and liquidity. Labor
disputes, work stoppages, slowdowns or lockouts by employees of our customers or our suppliers could
compromise our service reliability and 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 32,084 route miles. We own 26,064 miles and operate on the remainder
pursuant to trackage rights or leases. The following table describes track miles at December 31, 2015
and 2014.
Route
Other main line
Passing lines and turnouts
Switching and classification yard lines
Total miles
HEADQUARTERS BUILDING
2015
32,084
7,012
3,235
9,108
51,439
2014
31,974
6,943
3,197
9,058
51,172
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
Proviso (Chicago), Illinois
Fort Worth, Texas
Livonia, Louisiana
Roseville, California
Pine Bluff, Arkansas
West Colton, California
Neff (Kansas City), Missouri
RAIL EQUIPMENT
Major Intermodal Terminals
ICTF (Los Angeles), California
Joliet (Global 4), 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, 2015, 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
5,917
273
70
6,260
Owned
12,693
7,272
5,856
3,147
2,681
2,617
33
34,299
Leased
2,135
12
57
2,204
Leased
15,189
3,464
3,674
4,432
4,006
1,447
352
32,564
Total
8,052
285
127
8,464
Total
27,882
10,736
9,530
7,579
6,687
4,064
385
66,863
Average
Age (yrs.)
18.7
35.0
36.6
N/A
Average
Age (yrs.)
20.2
29.0
25.2
32.9
25.1
29.3
22.2
N/A
15
Highway revenue equipment
Containers
Chassis
Total highway revenue equipment
CAPITAL EXPENDITURES
Owned
33,633
22,086
55,719
Leased
25,998
26,837
Total
59,631
48,923
Average
Age (yrs.)
8.0
9.6
52,835
108,554
N/A
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.
2015 Capital Program – During 2015, our capital program totaled $4.3 billion. (See the cash capital
expenditures table in Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources, Item 7.)
2016 Capital Plan – In 2016, we expect our capital plan to be approximately $3.75 billion, which will
include expenditures for PTC of approximately $375 million and may include non-cash investments. We
may revise our 2016 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 2016 capital plan in
Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2016 Outlook,
Item 7.)
OTHER
Equipment Encumbrances – Equipment with a carrying value of approximately $2.6 billion and $2.8
billion at December 31, 2015, and 2014, 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 reached an agreement to settle this matter in exchange for
a payment by UPRR of $100,000. A final agreement was signed by the parties and approved by the
Circuit Court and UPRR completed payment of $100,000.
As previously reported in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, a
punctured tank car resulted in an accidental release of sulfuric acid in a rail yard in Herington, Kansas in
January, 2012. The acid was released on the ground and entered a creek that runs adjacent to the yard.
Environmental remediation at the site is complete. Despite negotiations with the federal government, the
Assistant U.S. Attorney (District of Kansas) filed a criminal charge against the Railroad on March 30,
2015, in the U.S. District Court for Kansas. The action alleges a misdemeanor charge for negligent
violation of the Clean Water Act. The penalty range was $2,500 to $200,000. In addition, the federal
government may debar the facility if UPRR were convicted. A debarment would prevent Herington Yard
from participating in new government contract work. On January 12, 2016, the federal judge in the U.S.
District Court for Kansas dismissed the charge against the Railroad. The EPA is considering whether to
appeal the case or pursue civil penalties. We cannot predict the ultimate impact of this proceeding at this
time, but the proposed penalty could exceed $100,000.
We receive 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.
17
On June 21, 2012, Judge Friedman issued a decision that 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 address the ability of the railroad defendants to disprove the allegations
made by the plaintiffs. On July 5, 2012, the defendant railroads filed a petition with the U.S. Court of
Appeals for the District of Columbia requesting that the court review the class certification ruling. On
August 28, 2012, a panel of the Circuit Court of the District of Columbia referred the petition to a merits
panel of the court to address the issues in the petition and to address whether the district court properly
granted class certification. 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 had until
April 1, 2015, to file a supplemental expert report to support their motion for class certification. The
plaintiffs filed their supplemental expert report on April 1, 2015. Judge Friedman issued a scheduling
order on June 19, 2015, scheduling a class certification hearing for November 2, 2015. Judge Friedman
then vacated the hearing date in an Order on September 28, 2015 because of the potential impact
resulting from the decision of the U.S. Supreme Court case, Tyson Foods v. Bouaphakeo, related to class
action certification and damages, which was heard on November 10, 2015. The Order requires the parties
to file a joint schedule and briefing statement within fourteen days after the U.S. Supreme Court decision
in the Tyson Foods matter, which is expected to be issued during the first half of 2016.
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. Judge Friedman
denied the motions to dismiss on February 24, 2015. This was a procedural ruling, which did not affirm
any of the claims asserted by Oxbow and does not affect the ability of the railroad defendants to disprove
the allegations made by Oxbow. UPRR filed its answer to Oxbow’s complaint on March 24, 2015, and the
parties have commenced discovery.
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 5, 2016,
relating to the executive officers.
Business
Experience During
Age Past Five Years
53
[1]
58 Current Position
Name
Lance M. Fritz
Robert M. Knight, Jr.
Eric L. Butler
Diane K. Duren
Todd M. Rynaski
Cameron A. Scott
Position
Chairman, 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 – Marketing and Sales of
the Railroad
Executive Vice President and Corporate Secretary of
UPC and the Railroad
Vice President and Controller of UPC and Chief
Accounting Officer and Controller of the Railroad
Executive Vice President – Operations of the Railroad 53
55
45
56
[2]
[3]
[4]
[5]
[1] On July 30, 2015, Mr. Fritz was named Chairman of the Board of UPC and the Railroad effective October 1, 2015. 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.
[2] 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.
[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] Mr. Rynaski was elected Vice President and Controller of UPC and Chief Accounting Officer and Controller of the Railroad
effective September 1, 2015. He previously was Assistant Vice President – Accounting of the Railroad effective January 1,
2014, and Assistant Vice President – Financial Reporting and Analysis effective April 1, 2011, and General Director –
Information Technologies effective September 1, 2008.
[5] Mr. Scott was elected to his current position effective February 6, 2014. He previously was Vice President Network Planning
and Operations effective June 30, 2012, Regional Vice President – Western Region effective April 1, 2012, and Assistant Vice
President Operations – Western Region effective February 16, 2009.
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.
2015 - Dollars Per Share
Dividends
Common stock price:
High
Low
2014 - Dollars Per Share
Dividends
Common stock price:
High
Low
$
$
Q1
0.55 $
Q2
0.55 $
Q3
0.55 $
Q4
0.55
124.52
106.75
112.44
94.91
99.71
79.31
98.28
74.78
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
At January 29, 2016, there were 846,414,350 shares of common stock outstanding and 32,209 common
shareholders of record. On that date, the closing price of the common stock on the NYSE was $72.00.
We paid dividends to our common shareholders during each of the past 116 years. We declared
dividends totaling $1,906 million in 2015 and $1,714 million in 2014. 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 $13.6 billion at December 31, 2015,
from $15.4 billion at December 31, 2014. (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 2016.
Comparison Over One- and Three-Year Periods – The following table presents the cumulative total
shareholder returns, assuming reinvestment of dividends, over one- and three-year periods for the
Corporation (UNP), a peer group index (comprised of CSX Corporation and Norfolk Southern
Corporation), the Dow Jones Transportation Index (DJ Trans), and the Standard & Poor’s 500 Stock
Index (S&P 500).
Period
1 Year (2015)
3 Year (2013 - 2015)
UNP
(32.9)%
32.2
Peer Group
DJ Trans
S&P 500
(23.9)%
43.9
(16.8)%
47.2
1.4 %
52.5
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, 2010 and that all dividends were reinvested. The
information below is historical in nature and is not necessarily indicative of future performance.
Purchases of Equity Securities – During 2015, we repurchased 36,921,641 shares of our common
stock at an average price of $99.16. The following table presents common stock repurchases during each
month for the fourth quarter of 2015:
Period
Oct. 1 through Oct. 31
Nov. 1 through Nov. 30
Dec. 1 through Dec. 31
Total Number
of Shares
Purchased [a]
3,247,731 $
2,325,865
1,105,389
Average
Price Paid
Per Share
92.98
86.61
77.63
Total Number of Shares
Purchased as Part of a
Publicly Announced
Plan or Program [b]
3,221,153
2,322,992
1,102,754
Maximum Number of
Shares Remaining Under
the Plan or Program [b]
56,078,192
53,755,200
52,652,446
Total
6,678,985 $
88.22
6,646,899
N/A
[a] Total number of shares purchased during the quarter includes approximately 32,086 shares delivered or attested to UPC by
employees to pay stock option exercise prices, satisfy excess tax withholding obligations for stock option exercises or vesting
of retention units, and pay withholding obligations for vesting of retention shares.
[b] 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 [c]
Long-term obligations [c] [d]
Debt due after one year [c]
Common shareholders' equity
Additional Data
Freight revenues [a]
Revenue carloads (units) (000)
Operating ratio (%) [e]
Average employees (000)
Financial Ratios (%)
Debt to capital [c] [f]
Return on average common
shareholders' equity [g]
2015
2014
2013
2012
2011
$ 21,813 $ 23,988 $ 21,963
8,052
4,772
5.51
5.49
2.20
7,344
(4,476)
(3,063)
(3,465)
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)
$ 20,926 $ 19,557
5,724
3,292
3.39
3.36
0.965
5,873
(3,119)
(2,623)
(1,418)
6,745
3,943
4.17
4.14
1.245
6,161
(3,633)
(2,682)
(1,474)
$ 54,600 $ 52,372 $ 49,410
30,692
13,607
20,702
27,419
10,952
21,189
24,395
8,820
21,225
$ 46,842 $ 44,742
22,848
8,650
18,578
23,847
8,754
19,877
$ 20,397 $ 22,560 $ 20,684
9,062
63.1
47.5
40.7
22.8
9,625
63.5
47.2
35.0
24.4
9,022
66.1
46.4
31.0
21.4
$ 19,686 $ 18,508
9,072
70.7
44.9
9,048
67.8
45.9
31.0
20.5
32.3
18.1
[a]
Includes fuel surcharge revenue of $1.3 billion, $2.8 billion, $2.6 billion, $2.6 billion, and $2.2 billion for 2015, 2014, 2013,
2012, and 2011, 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] Total assets, long-term obligations, debt due after one year, and debt to capital are retroactively adjusted to reflect the adoption
of accounting standard updates on deferred debt issuance costs and deferred taxes. (See further discussion in Financial
Statements and Supplementary Data– Accounting Pronouncements, Item 8.)
[d] Long-term obligations is determined as follows: total liabilities less current liabilities.
[e] Operating ratio is defined as operating expenses divided by operating revenues.
[f] Debt to capital is determined as follows: total debt divided by total debt plus common shareholders' equity.
[g] 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
2015 Results
Safety – During 2015, we continued our focus 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 0.87. In addition, we finished 2015 with a 3% improvement
in our crossing incident rate per million train miles compared to the prior year. These results
demonstrate our employees’ dedication to our safety initiatives and our efforts to further engage the
workforce through programs such as Courage to Care, Total Safety Culture, and UP Way (our
continuous improvement culture).
Financial Performance – In 2015, we generated operating income of $8.1 billion, an 8% decrease
compared to a record-setting 2014. Despite a 6% decrease in carloads, it was our second-best
financial performance ever. Core pricing gains of 3.7%, productivity, and improved network
operations partially offset the lower volumes. Our operating ratio for 2015 of 63.1% was an all-time
best, improving from last year’s operating ratio of 63.5%. Net income of $4.8 billion translated into
earnings of $5.49 per diluted share for 2015.
Freight Revenues – Our freight revenues declined 10% year-over-year to $20.4 billion as a result of
lower volume levels in five of our six commodity groups and overall lower fuel surcharge revenue,
partially offset by core pricing gains. Volume declines in coal, international intermodal, frac sand,
metals, crude oil, and grain shipments more than offset volume growth in domestic intermodal,
finished vehicles, automotive parts, industrial chemicals and plastics shipments.
Network Operations – Significant improvements were made in our operating and service metrics, as
our average train speed, as reported to the AAR, increased 6% in 2015 compared to 2014, and our
average terminal dwell time decreased 3%, both reflecting the impact of lower volumes and improved
network fluidity.
Fuel Prices – Our average price per gallon of diesel fuel in 2015 decreased 38% from the average
price in 2014, as both crude oil and the conversion spreads between crude oil and diesel declined in
2015. The lower price decreased operating expenses by $1.2 billion (excluding any impact from year-
over-year volume declines). Gross-ton miles decreased 9%, which also decreased fuel expense.
These declines were partially offset by a 1% increase in our fuel consumption rate, computed as
gallons of fuel consumed divided by gross ton-miles in thousands.
Free Cash Flow – Cash generated by operating activities totaled $7.3 billion, yielding free cash flow
of $524 million after reductions of $4.5 billion for cash used in investing activities and a 15% increase
in dividends declared per share. In 2015, the timing of the dividend declaration and payable dates
was aligned to occur within the same quarter, which resulted in two payments in the first quarter of
2015. 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
generate cash without additional external financings. Free cash flow should be considered in addition
23
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
2016 Outlook
2015
7,344
(4,476)
(2,344)
524
$
$
2014
7,385 $
(4,249)
(1,632)
1,504 $
2013
6,823
(3,405)
(1,333)
2,085
$
$
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 2016, we will continue to align resources with customer demand, continue
to improve network performance, and maintain our surge capability.
Fuel Prices – With the dramatic drop in fuel prices during 2015, fuel price projections continue to be
uncertain in the current environment. 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.
Continuing 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 2016, we expect our capital plan to be approximately $3.75 billion, including
expenditures for PTC, 230 locomotives and 450 freight cars. 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 – Economic conditions in many of our market sectors continue to drive
uncertainty with respect to our volume levels. We expect volumes to be down slightly in 2016
compared to 2015, but will depend on the overall economy and market conditions. The strong U.S.
dollar and historic low commodity prices could also drive continued volatility. One of the biggest
uncertainties is the outlook for energy markets, which will bring both challenges and opportunities. In
the current environment, we expect continued margin improvement driven by continued pricing
opportunities, ongoing productivity initiatives, and the ability to leverage our resources and strengthen
our franchise. Over the longer term, we expect the overall U.S. economy to continue to improve at a
modest pace, with some markets outperforming others.
24
RESULTS OF OPERATIONS
Operating Revenues
Millions
Freight revenues
Other revenues
Total
2015
20,397
1,416
21,813
$
$
2014
22,560
1,428
23,988
$
$
$
$
% Change % Change
2013 2015 v 2014 2014 v 2013
9 %
12 %
(10)%
(1)%
20,684
1,279
21,963
(9)%
9 %
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 commuter rail operations
that we manage, 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, and miscellaneous
contract revenue. We recognize other revenues as we perform services or meet contractual obligations.
Freight revenues from five of our six commodity groups decreased in 2015 compared to 2014 due to a
6% decline in carloadings and lower fuel surcharge revenue, partially offset by core pricing gains.
Volume declines in coal, international intermodal, frac sand, metals, crude oil, and grain shipments more
than offset volume growth in domestic intermodal, finished vehicles, automotive parts, industrial
chemicals and plastics shipments.
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.
Our fuel surcharge programs generated freight revenues of $1.3 billion, $2.8 billion, and $2.6 billion in
2015, 2014, and 2013, respectively. Fuel surcharge revenue in 2015 decreased $1.5 billion as a result of
a 38% decrease in fuel price and a 6% reduction in carloadings. Fuel surcharge revenue in 2014
increased 6% based on our 7% carloadings increase.
In 2015, other revenue decreased from 2014 due to lower revenues at our subsidiaries, primarily those
that broker intermodal and automotive services, partially offset by higher accessorial revenue driven by
increased revenue for container usage and demurrage fees.
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).
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
$
2015
3,581 $
2,154
3,543
3,237
3,808
4,074
2014
3,777 $
2,103
3,664
4,127
4,400
4,489
% Change
% Change
2013 2015 v 2014 2014 v 2013
15 %
1
5
4
15
11
(5) %
2
(3)
(22)
(13)
(9)
3,276
2,077
3,501
3,978
3,822
4,030
$
20,397 $
22,560 $
20,684
(10) %
9 %
2015
941
863
1,098
1,459
1,213
3,488
2014
973
809
1,116
1,768
1,368
3,591
% Change
% Change
2013 2015 v 2014 2014 v 2013
11 %
874
4
781
1
1,103
4
1,703
11
1,236
8
3,325
(3) %
7
(2)
(17)
(11)
(3)
9,062
9,625
9,022
(6) %
7 %
Average Revenue per Car
Agricultural Products
Automotive
Chemicals
Coal
Industrial Products
Intermodal [a]
$
2015
3,805 $
2,498
3,227
2,218
3,139
1,168
2014
3,881 $
2,602
3,282
2,334
3,217
1,250
% Change
% Change
2013 2015 v 2014 2014 v 2013
4 %
(2)
3
-
4
3
(2) %
(4)
(2)
(5)
(2)
(7)
3,746
2,659
3,176
2,336
3,093
1,212
Average
$
2,251 $
2,344 $
2,293
(4) %
2 %
[a] Each intermodal container or trailer equals one carload.
26
2015 Agricultural Products Carloads
Agricultural Products – Lower fuel surcharge
revenue and volume declines, partially offset by
core pricing gains, decreased freight revenue
from agricultural shipments in 2015 compared
to 2014. Grain shipments decreased 11% in
2015 compared to 2014. The strength of the
U.S. dollar, lower grain commodity prices, and
higher worldwide inventories contributed to the
reduction in overall demand.
Higher volume and pricing gains drove the
increase in freight revenue from agricultural
in 2014 versus 2013. Grain
shipments
shipments increased 27%, reflecting the strong
overall harvest in 2013 and 2014. The 2012
drought also negatively impacted the first three quarters of 2013, which created favorable comparisons
for the first three quarters of 2014. Lower export wheat shipments due to a larger world crop partially
offset gains in grain.
Automotive – Freight revenue from automotive
shipments increased compared to 2014 driven
by volume growth and core pricing gains, which
were partially offset by lower fuel surcharge
revenue. Higher automotive production and
record sales levels drove the volume growth.
2015 Automotive Carloads
Freight revenue from automotive shipments
increased in 2014 compared to 2013. 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.
2015 Chemicals Carloads
Chemicals – Freight revenue from chemical
shipments declined in 2015 versus 2014 due to
lower
fuel surcharge revenue and volume
declines, which more than offset core price
improvements. Crude oil shipments declined as
a result of the drop in crude oil prices and
production declines
shale
formations, which impacted the regional pricing
fertilizer
differences
shipments also decreased freight revenue in
2015. Strength in export plastics markets and
industrial chemical shipments helped offset the
decline in crude oil and fertilizer shipments.
for crude oil.
Lower
various
from
Core price improvements, higher volumes and
ARC driven by positive business mix increased freight revenue from chemicals in 2014 compared to
2013. Shipments of industrial chemicals grew as a result of continued strong demand in the drilling
market. Fertilizer 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.
27
2015 Coal Carloads
Coal – Lower volume and
fuel surcharge
revenue, partially offset by core pricing gains,
drove the decline in freight revenue from coal
to 2014.
in 2015 compared
shipments
Shipments out of the Southern Powder River
Basin (SPRB) declined 17% in 2015 as a result
of depressed coal markets due to low natural
gas prices and high
levels.
the SPRB also were
Shipments out of
negatively impacted as heavy rains in June
flooded coal mines and washed out tracks in
some areas, impacting both second and third
quarter shipments. Shipments out of Colorado
and Utah declined 33% in 2015 primarily due to
lower domestic demand for Colorado and Utah
coal. This lower demand was a result of several utilities switching to other fuel sources due to lower
natural gas prices. In addition, coal exports declined due to a soft global market.
inventory
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 shipments increased 3% from
2013. Strong demand continued throughout the year due to inventory replenishment but 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 to the Gulf Coast decreased.
2015 Industrial Products Carloads
to 2014 due
Industrial Products – Freight revenue from
industrial products shipments decreased
in
2015 compared
to volume
declines, lower fuel surcharge revenue, and
lower ARC due to the mix of traffic, partially
offset by core price improvements. Declines in
shale drilling activity due to lower oil prices
decreased non-metallic mineral shipments
Steel
frac sand carloadings).
(primarily
result of
shipments also declined as a
low
reductions
commodity prices, and
imports
associated with the strength of the U.S. dollar.
Low commodity prices for lumber and the
strong U.S. dollar
inventory
reductions that reduced lumber shipments.
in shale drilling activity,
increased
resulted
in
Volume growth, core pricing gains and positive business mix in 2014 increased freight revenue for
industrial products shipments 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.
28
2015 Intermodal Carloads
Intermodal – Lower fuel surcharge revenue and
volume declines, partially offset by core pricing
gains, resulted in a decline in freight revenue
from intermodal shipments in 2015 compared to
2014. International shipments declined 8%
resulting from the supply chain disruptions
stemming from the West Coast port work
disruptions
retail
inventories. Domestic volume increased 3%
driven by continued conversions from trucks
and new premium services, more than offsetting
the impact of high retail inventory levels and
modest retail sales activity.
historically
high
and
from
Freight revenue
intermodal shipments
increased in 2014 compared to 2013 driven by
volume growth, core pricing improvements and positive business mix. Domestic traffic increased 11%
due 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 first quarter due to
severe weather that negatively impacted consumer demand.
Mexico Business – Each of our commodity groups includes revenue from shipments to and from Mexico.
Freight revenue from Mexico business decreased 4% to $2.2 billion in 2015 compared to 2014 primarily
due to lower fuel surcharge revenue. Volume levels were flat compared to 2014 as lower shipments of
Intermodal, Agricultural, and Industrial Products were offset by growth in Automotive, Coal, and Chemical
shipments.
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.
29
Operating Expenses
Millions
Compensation and benefits
Purchased services and materials
Fuel
Depreciation
Equipment and other rents
Other
$
2015
5,161 $
2,421
2,013
2,012
1,230
924
2014
5,076 $
2,558
3,539
1,904
1,234
924
% Change
% Change
2013 2015 v 2014 2014 v 2013
2 %
6 %
(5)
(43)
6
-
-
4,807
2,315
3,534
1,777
1,235
849
10
-
7
-
9
Total
$
13,761 $
15,235 $
14,517
(10) %
5 %
Operating expenses decreased nearly $1.5
billion compared to 2014 driven by significantly
lower
fuel prices and volume-related cost
savings. Productivity gains in the second half of
the year also drove expenses lower. These
decreases were partially offset by wage
inflation, higher depreciation, and property
taxes. In addition, we incurred approximately
$35 million of weather-related costs in 2014.
2015 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 locomotive 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.
Compensation and Benefits – Compensation and benefits include wages, payroll taxes, health and
welfare costs, pension costs, other postretirement benefits, and incentive costs. In 2015, lower volume-
related costs and second half productivity gains were more than offset by general wage inflation and
increased hiring and training expenses related to a larger workforce in the first half of the year.
Volume-related expenses, including training, and a slower network increased our train and engine work
force, which, along with general wage and benefit inflation, resulted in increased wages in 2014
compared to 2013. Weather-related costs in the first quarter of 2014 also increased costs.
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. Purchased services and materials decreased $137 million compared to 2014 primarily due to
lower volume-related costs, including a decrease in external transportation expenses incurred by our
logistics subsidiaries. Expenses also decreased due to lower locomotive and freight car repair costs.
Expenses for purchased services in 2014 increased 8% compared to 2013 primarily due to volume-
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.
Fuel – Fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy
equipment. Locomotive diesel fuel prices, which averaged $1.84 per gallon (including taxes and
transportation costs) in 2015, compared to $2.97 per gallon in 2014, decreased expenses $1.2 billion. In
30
addition, fuel costs were lower as gross-ton miles decreased 9%. The fuel consumption rate (c-rate),
computed as gallons of fuel consumed divided by gross ton-miles in thousands, increased 1% compared
to 2014. Decreases in heavier, more fuel-efficient shipments, decreased gross-ton miles and increased
the c-rate.
Volume growth of 7%, as measured by gross ton-miles, drove the increase in fuel expense in 2014
compared to 2013. 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 c-rate, computed as gallons of fuel consumed divided by gross ton-miles.
Depreciation – The majority of depreciation relates to road property, including rail, ties, ballast, and other
track material. A higher depreciable asset base, reflecting higher capital spending in recent years,
increased depreciation expense in 2015 compared to 2014. This increase was partially offset by our
recent depreciation studies that resulted in lower depreciation rates for some asset classes.
Depreciation was up 7% in 2014 compared to 2013. A higher depreciable asset base, reflecting higher
ongoing capital spending drove the increase.
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. Equipment and other rents expense
decreased $4 million compared to 2014 primarily from a decrease in manifest and intermodal shipments,
partially offset by growth in finished vehicle shipments.
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.
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. Other expenses were flat in 2015 compared to 2014 as higher
property taxes were offset by lower costs in other areas.
Higher property taxes, personal injury expense and utilities costs partially offset by lower environmental
expense and costs associated with damaged freight resulted in an increase in other costs in 2014
compared to 2013.
Non-Operating Items
Millions
Other income
Interest expense
Income taxes
$
2015
226 $
(622)
(2,884)
2014
151 $
(561)
(3,163)
% Change
% Change
2013 2015 v 2014 2014 v 2013
18 %
128
7
(526)
19 %
(2,660)
50 %
11
(9) %
Other Income – Other income increased in 2015 compared to 2014 primarily due to a $113 million gain
from a real estate sale in the second quarter of 2015, partially offset by a gain from the sale of a
permanent easement in 2014.
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.
Interest Expense – Interest expense increased in 2015 compared to 2014 due to an increased weighted-
average debt level of $13.0 billion in 2015 from $10.7 billion in 2014, partially offset by the impact of a
lower effective interest rate of 4.8% in 2015 compared to 5.3% in 2014.
Interest expense increased in 2014 versus 2013 due to an increased weighted-average debt level of
$10.7 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.
31
Income Taxes – Lower pre-tax income decreased income taxes in 2015 compared to 2014. Our effective
tax rate for 2015 was 37.7% compared to 37.9% in 2014.
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.
OTHER OPERATING/PERFORMANCE AND FINANCIAL STATISTICS
We report a number of key performance measures weekly to the Association of American Railroads. 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)
2015
25.4
29.3
927.7
485.0
63.1
47,457
2014
24.0
30.3
1,014.9
549.6
63.5
47,201
% Change % Change
2013 2015 v 2014 2014 v 2013
(8)%
6 %
26.0
12 %
(3)%
27.1
7 %
(9)%
949.1
7 %
(12)%
514.3
(2.6)pts
(0.4)pts
66.1
2 %
1 %
46,445
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, improved 6% in 2015 compared to 2014. Velocity gains resulted from lower volumes,
improved network fluidity and a strong resource position. More favorable weather conditions in the first
quarter of 2015 also contributed to the improvement in our average train speed.
Average train speed decreased 8% in 2014 versus 2013. The decline was as result of 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 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 improved 3% in 2015 compared to 2014, reflecting the impact of lower volume and improved
network operations.
Average terminal dwell time increased 12% in 2014 compared to 2013, caused by higher volumes and
inclement weather.
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 and revenue ton-miles decreased 9% and
12%, respectively in 2015 compared to 2014, resulting from a 6% decrease in carloads. Changes in
commodity mix drove the variances in year-over-year declines between gross ton-miles, revenue ton-
miles and carloads.
Gross ton-miles, revenue ton-miles and carloadings all increased 7% in 2014 compared to 2013.
Operating Ratio – Operating ratio is our operating expenses reflected as a percentage of operating
revenue. Our operating ratio improved 0.4 points to a new record low of 63.1% in 2015 compared to
2014. Core pricing gains, the impact of lower fuel prices, resource realignments, network efficiencies and
productivity gains more than offset the impact of lower volume and inflation.
Our operating ratio improved 2.6 points to 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.
32
Employees – Employee levels increased 1% in 2015 compared to 2014, driven by more employees in
training and an increase in capital project work. More employees were in training as a result of the
number of transportation employees hired during the last half of 2014 and early 2015 to handle expected
volume increases, and who continued receiving training in 2015, most of which occurred in the first nine
months of the year.
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.
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
$
$
$
$
$
2015
4,772 $
20,946 $
2014
5,180 $
21,207 $
22.8%
24.4%
2013
4,388
20,551
21.4%
2015
4,772 $
622
135
(285)
2014
5,180 $
561
158
(273)
2013
4,388
526
175
(264)
5,244 $
5,626 $
4,825
20,946 $
12,807
2,814
21,207 $
10,469
2,980
20,551
9,237
3,077
Average invested capital as adjusted (b)
$
36,567 $
34,656 $
32,865
Return on invested capital as adjusted (a/b)
14.3%
16.2%
14.7%
*
Adjusted for the retrospective adoption of Accounting Standard Update 2015-03 related to the presentation of deferred debt
issuance costs.
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 to management and investors 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 2015 ROIC
decreased 1.9 points compared to 2014, primarily as a result of lower earnings and a higher invested
capital base.
Debt to Capital
Millions, Except Percentages
Debt* (a)
Equity
Capital (b)
Debt to capital (a/b)
$
$
2015
14,201 $
20,702
34,903 $
40.7%
2014
11,413
21,189
32,602
35.0%
*
Adjusted for the retrospective adoption of Accounting Standard Update 2015-03 related to the presentation of deferred debt
issuance costs.
33
Adjusted Debt to Capital
Millions, Except Percentages
Debt
Net present value of operating leases
Unfunded pension and OPEB, after tax
Adjusted debt* (a)
Equity
Adjusted capital (b)
Adjusted debt to capital (a/b)
$
$
$
2015
14,201 $
2,726
463
17,390 $
20,702
38,092 $
45.7%
2014
11,413
2,902
523
14,838
21,189
36,027
41.2%
*
Adjusted for the retrospective adoption of Accounting Standard Update 2015-03 related to the presentation of deferred debt
issuance costs.
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 4.8% and 5.3% at December 31, 2015 and 2014, 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, 2015 debt to capital ratios increased as a result of a $2.8 billion
increase in debt from December 31, 2014.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2015, 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, 2015. We did not
make any borrowings under this facility during 2015. 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, 2015, 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.
34
At December 31, 2015 and 2014, 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
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
2015
7,344 $
(4,476)
(3,063)
2014
7,385 $
(4,249)
(2,982)
2013
6,823
(3,405)
(3,049)
(195) $
154 $
369
$
$
Cash provided by operating activities decreased in 2015 compared to 2014 due to lower net income and
changes in working capital, partially offset by the timing of tax payments.
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 the related benefit was realized in 2015, rather than 2014. Similarly, in
December of 2015, Congress extended bonus depreciation through 2019, which delayed the benefit of
2015 bonus depreciation into 2016. Bonus depreciation will be at a rate of 50% for 2015, 2016 and 2017,
40% for 2018 and 30% for 2019.
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.
Investing Activities
Higher capital investments in locomotives and freight cars, including $327 million in early lease buyouts,
which we exercised due to favorable economic terms and market conditions, drove the increase in cash
used in investing activities in 2015 compared to 2014.
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 in 2014 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.
35
The following tables detail cash capital investments and track statistics for the years ended December 31,
2015, 2014, and 2013:
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 [b]
Positive train control
Technology and other [c]
Total cash capital investments
$
2015
734 $
455
233
438
2014
749 $
415
204
378
2013
743
438
226
326
1,860
1,746
1,733
457
227
684
1,436
381
289
515
217
732
1,067
384
417
455
146
601
580
419
163
$
4,650 $
4,346 $
3,496
[a] Other includes bridges and tunnels, signals, other road assets, and road work equipment.
[b] Locomotives and freight cars include early lease buyouts of $327 million in 2015, $75 million in 2014, and $16 million in 2013.
[c] Technology and other includes the $261 million early buyout of our headquarters building operating lease in 2014.
Track miles of rail replaced
Track miles of rail capacity expansion
New ties installed (thousands)
Miles of track surfaced
2015
767
103
4,178
10,076
2014
912
119
4,076
10,791
2013
834
97
3,870
11,017
Capital Plan – In 2016, we expect our capital plan to be approximately $3.75 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. We will
continue to invest in our network and terminals where appropriate, balancing terminal capacity with
mainline capacity. Significant investments in technology improvements are planned, including
approximately $375 million for PTC. We will also continue commercial investments in rail facilities and
equipment, including 230 locomotives and 450 freight cars.
We expect to fund our 2016 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 increased in 2015 compared to 2014. An increase of $712 million in
dividends paid and $240 million for the repurchase of shares under our common stock repurchase
program more than offset an increase of $740 million in debt issued and a decrease of $154 million in
debt repaid. The higher dividend payments primarily were a result of adjusting the dividend payable dates
to align with the timing of the quarterly dividend declaration and payment within the same quarter.
Aligning the quarterly dividend declaration and payment resulted in two payments in the first quarter of
2015: the fourth quarter 2014 dividend of $438 million, which was paid on January 2, 2015, as well as the
first quarter 2015 dividend of $484 million, which was paid on March 30, 2015. The second quarter 2015
dividend of $479 million was paid on June 30, 2015, the third quarter 2015 dividend of $476 million was
paid on September 30, 2015, and the fourth quarter 2015 dividend of $467 million was paid on December
31, 2015. Higher dividends per share also contributed to the increase in dividends paid.
36
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.
Credit Facilities – At December 31, 2015, we had $1.7 billion of credit available under our revolving
credit facility (the facility), which is designated for general corporate purposes and supports the issuance
of commercial paper. We did not draw on the facility during 2015. 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 matures in May
2019 under a five-year term and requires UPC to maintain a debt-to-net-worth coverage ratio. At
December 31, 2015, and December 31, 2014 (and at all times during the periods presented), 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, 2015, the debt-to-net-worth coverage ratio
allowed us to carry up to $41.4 billion of debt (as defined in the facility), and we had $14.3 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 2015, we did not issue or repay any commercial paper, and at December 31, 2015, and 2014, 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, 2015, 2014, and 2013, our ratio of earnings to fixed charges
was 11.6, 13.5, and 11.8, 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 $13.6 billion
and $15.4 billion at December 31, 2015, and 2014, 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, 2015, we repurchased a total of $16.0 billion of our common stock since the commencement of our
repurchase programs in 2007. The table below represents shares repurchased under this repurchase
program.
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Number of Shares Purchased
2014
2015
6,881,455
7,975,100
13,800,700
6,646,899
7,640,000 $
8,320,000
8,347,000
7,736,400
Average Price Paid
2014
2015
89.43
117.28 $
96.84
104.62
102.54
89.65
113.77
88.19
35,304,154
32,043,400 $
98.14 $
100.65
Remaining number of shares that may be repurchased under current authority
52,652,446
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, 2016, through February 4, 2016, we repurchased 3.7 million shares at an aggregate cost
of approximately $268 million.
Shelf Registration Statement and Significant New Borrowings – We filed a new shelf registration
statement with the SEC that became effective on February 9, 2015. The Board of Directors authorized the
issuance of up to $4.0 billion of debt securities, replacing the $4.0 billion authorized under our shelf
registration filed in February 2013, which was fully utilized after our January 2015 debt offering noted
below. 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 2015, we issued the following unsecured, fixed-rate debt securities under our shelf registrations:
Date
January 29, 2015
June 19, 2015
October 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
$400 million of 2.250% Notes due June 19, 2020
$300 million of 3.250% Notes due August 15, 2025
$200 million of reopened 3.250% Notes due August 15, 2025
$500 million of 4.050% Notes due November 15, 2045
$400 million of 4.375% Notes due November 15, 2065
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, 2015, we had remaining authority to issue up to $2.2 billion of debt
securities under our current shelf registration.
Equipment Trust – On May 12, 2015, UPRR consummated a pass-through (P/T) financing, whereby a
P/T trust was created, which issued $399 million of P/T trust certificates with a stated interest rate of
2.695%. The P/T trust certificates will mature on May 12, 2027. The proceeds from the issuance of the
P/T trust certificates were used to purchase equipment trust certificates to be issued by UPRR to finance
the acquisition of 182 locomotives. The equipment trust certificates are secured by a lien on the
38
locomotives. The $399 million is classified as debt due after one year in our Consolidated Statements of
Financial Position.
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 year ended December 31, 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
Receivables Securitization Facility – The Railroad maintains a $650 million, 3-year receivables
securitization facility maturing in July 2017 under which it sells most of its eligible third-party receivables
to Union Pacific Receivables, Inc. (UPRI), a consolidated, 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 at both December 31, 2015, and December
31, 2014, respectively. The facility was supported by $0.9 billion and $1.2 billion of accounts receivable
as collateral at December 31, 2015, and December 31, 2014, 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
issuance costs, and fees of participating banks for unused commitment availability. The costs of the
receivables securitization facility are included in interest expense and were $5 million, $4 million, and $5
million for 2015, 2014, and 2013, respectively.
39
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, 2015:
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]
2017
Total
2016
$ 22,885 $ 1,006 $ 1,434 $
491
217
2,309
45
-
3,430
1,587
3,983
453
94
446
220
673
45
-
2018
938 $
371
198
306
46
-
After
2020
2020
2019
981 $ 1,339 $ 17,187 $
339
184
255
46
-
1,501
575
197
225
-
282
193
211
46
-
Other
-
-
-
32
-
94
Total contractual obligations
$ 32,432 $ 4,068 $ 2,818 $ 1,859 $ 1,805 $ 2,071 $ 19,685 $
126
[a] Excludes capital lease obligations of $1,268 million, as well as unamortized discount and deferred issuance costs of $(674)
million. Includes an interest component of $9,278 million.
Includes leases for locomotives, freight cars, other equipment, and real estate.
[b]
[c] Represents total obligations, including interest component of $319 million.
[d] Purchase obligations include locomotive maintenance contracts; purchase commitments for fuel purchases, locomotives, ties,
ballast, and rail; and agreements to purchase other goods and services. For amounts where we cannot reasonably estimate
the year of settlement, they are reflected in the Other column.
Includes estimated other post retirement, medical, and life insurance payments, payments made under the unfunded pension
plan for the next ten years.
[e]
[f] 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, 2015. For amounts where the year of settlement is uncertain, they are
reflected in the Other column.
Other Commercial Commitments
Millions
Credit facilities [a]
Receivables securitization facility [b]
Guarantees [c]
Standby letters of credit [d]
Amount of Commitment Expiration per Period
$
Total
$ 1,700
650
53
35
2016
2017
2018
2019
2020
- $
-
9
33
- $
650
10
2
- $ 1,700 $
-
11
-
-
8
-
- $
-
5
-
After
2020
-
-
10
-
Total commercial commitments
$ 2,438
$
42 $
662 $
11
$ 1,708 $
5 $
10
[a] None of the credit facility was used as of December 31, 2015.
[b] $400 million of the receivables securitization facility was utilized as of December 31, 2015, which is accounted for as debt. The
full program matures in July 2017.
[c]
Includes guaranteed obligations related to our affiliated operations.
[d] None of the letters of credit were drawn upon as of December 31, 2015.
Off-Balance Sheet Arrangements
Guarantees – At December 31, 2015, and 2014, we were contingently liable for $53 million and $82
million in guarantees. We have recorded liabilities of $0 and $0.3 million for the fair value of these
obligations as of December 31, 2015, and 2014, respectively. We entered into these contingent
guarantees in the normal course of business, and they include guaranteed obligations related to our
affiliated operations. The final guarantee expires in 2022. We are not aware of any existing event of
40
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 47,457 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, 2015 and 2014, we were not required to
provide collateral, nor had we received collateral, relating to our hedging activities.
Determination of Fair Value – We determine the fair values of our derivative financial instrument
positions based upon current fair values as quoted by recognized dealers or the present value of
expected future cash flows.
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, 2015, we had variable-rate debt representing approximately 4.2% of our total debt. If
variable interest rates average one percentage point higher in 2016 than our December 31, 2015 variable
rate, which was approximately 1.1%, our interest expense would increase by approximately $6 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, 2015.
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, 2015, and amounts to
an increase of approximately $1.6 billion to the fair value of our debt at December 31, 2015. 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
41
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, 2015 and 2014, 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. As of December 31, 2015,
and 2014, 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, 2017, and can be adopted either retrospectively or as a cumulative effect adjustment
as of the date of adoption. ASU 2014-09 is not expected to have a material impact on our consolidated
financial position, results of operations, or cash flows.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03 (ASU 2015-03), Interest -
Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs
in the financial statements to present such costs as a direct deduction from the related debt liability rather
than as an asset. Amortization of debt issuance costs will be reported as interest expense. This standard
is effective for annual reporting periods beginning after December 15, 2015. We elected to early adopt
ASU 2015-03 on December 31, 2015. As a result, the Company reclassified debt issuance costs from
other assets to a direct deduction from debt due after one year on the Consolidated Statements of
Financial Position. ASU 2015-03 did not have a material impact on our consolidated financial position,
and had no impact on our results of operations or cash flows. All prior period financial information
presented herein has been adjusted to reflect the retrospective application of this ASU.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17), Balance
Sheet Classification of Deferred Taxes (Subtopic 740-10). ASU 2015-17 simplifies the presentation of
deferred income taxes by eliminating the requirement for companies to present deferred tax liabilities and
assets as current and non-current on the Consolidated Statements of Financial Position. Instead,
companies will be required to classify all deferred tax assets and liabilities as non-current. This guidance
is effective for annual and interim periods beginning after December 15, 2016 and early adoption is
permitted. We elected to early adopt ASU 2015-17 on December 31, 2015. ASU 2015-17 did not have a
material impact on our consolidated financial position, and had no impact on our results of operations or
cash flows. All prior period financial information presented herein has been adjusted to reflect the
retrospective application of this ASU.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01),
Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). ASU 2016-
01 provides guidance for the recognition, measurement, presentation, and disclosure of financial
instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017,
and early adoption is not permitted. ASU 2016-01 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. To the extent possible, we have
recorded a liability where asserted and unasserted claims are considered probable and where such
claims can be reasonably estimated. 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.
42
Indemnities – Our maximum potential exposure under indemnification arrangements, including certain
tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the
nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or
how they will be resolved, we cannot reasonably determine the probability of an adverse claim or
reasonably estimate any adverse liability or the total maximum exposure under these indemnification
arrangements. We do not have any reason to believe that we will be required to make any material
payments under these indemnity provisions.
Climate Change – Although climate change could have an adverse impact on our operations and
financial performance in the future (see Risk Factors under Item 1A of this report), we are currently
unable to predict the manner or severity of such impact. However, we continue to take steps and explore
opportunities to reduce the impact of our operations on the environment, including investments in new
technologies, using training programs to reduce fuel consumption, and changing our operations to
increase fuel efficiency.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements have been prepared in accordance with GAAP. The preparation
of these financial statements requires estimation and judgment that affect the reported amounts of
revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. The following critical accounting policies are a subset of our significant
accounting policies described in Note 2 to the Financial Statements and Supplementary Data, Item 8.
These critical accounting policies affect significant areas of our financial statements and involve judgment
and estimates. If these estimates differ significantly from actual results, the impact on our Consolidated
Financial Statements may be material.
Personal Injury – The cost of personal injuries to employees and others related to our activities is
charged to expense based on estimates of the ultimate cost and number of incidents each year. We use
an actuarial analysis to measure the expense and liability, including unasserted claims. The Federal
Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages
are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a
comprehensive variety of services and rehabilitation programs for employees who are injured at work.
Our personal injury liability is not discounted to present value due to the uncertainty surrounding the
timing of future payments. Approximately 94% of the recorded liability is related to asserted claims and
approximately 6% is related to unasserted claims at December 31, 2015. 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 $318 million to $345 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
2015
335 $
89
(3)
(103)
2014
294 $
96
9
(64)
318 $
335 $
63 $
111 $
$
$
$
2013
334
87
(38)
(89)
294
82
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
2015
2,618
2,573
(2,787)
2,404
2014
2,605
2,773
(2,760)
2,618
2013
2,792
2,705
(2,892)
2,605
In conjunction with the liability update performed in 2015, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2015, and
2014.
Asbestos – We are a defendant in a number of lawsuits in which current and former employees and
other parties allege exposure to asbestos. We assess our potential liability using a statistical analysis of
resolution costs for asbestos-related claims. This liability is updated annually and excludes future
defense and processing costs. The liability for resolving both asserted and unasserted claims was based
on the following assumptions:
The ratio of future claims by alleged disease would be consistent with historical averages adjusted for
inflation.
The number of claims filed against us will decline each year.
The average settlement values for asserted and unasserted claims will be equivalent to historical
averages.
The percentage of claims dismissed in the future will be equivalent to historical averages.
Our liability for asbestos-related claims is not discounted to present value due to the uncertainty
surrounding the timing of future payments. Approximately 22% of the recorded liability related to asserted
claims and approximately 78% related to unasserted claims at December 31, 2015. 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 $120 million to $129 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
2015
126 $
-
(6)
120 $
2014
131 $
1
(6)
126 $
6 $
8 $
2013
139
2
(10)
131
9
$
$
$
2015
1,065
193
(169)
1,089
2014
1,140
183
(258)
1,065
2013
1,258
192
(310)
1,140
In conjunction with the liability update performed in 2015, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2015, and
2014. 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
44
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 290 sites at which we are or may be liable for remediation costs associated with
alleged contamination or for violations of environmental requirements. This includes 31 sites that are the
subject of actions taken by the U.S. government, 19 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
2015
182 $
61
(53)
190 $
2014
171 $
56
(45)
182 $
52 $
60 $
$
$
$
2015
270
66
(46)
290
2014
268
55
(53)
270
2013
170
58
(57)
171
53
2013
284
41
(57)
268
The environmental liability includes future costs for remediation and restoration of sites, as well as
ongoing monitoring costs, but excludes any anticipated recoveries from third parties. Cost estimates are
based on information available for each site, financial viability of other potentially responsible parties, and
existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine
because of the number of potentially responsible parties, site-specific cost sharing arrangements with
other potentially responsible parties, the degree of contamination by various wastes, the scarcity and
quality of volumetric data related to many of the sites, and the speculative nature of remediation costs.
Estimates of liability may vary over time due to changes in federal, state, and local laws governing
environmental remediation. Current obligations are not expected to have a material adverse effect on our
consolidated results of operations, financial condition, or liquidity.
Property and Depreciation – Our railroad operations are highly capital intensive, and our large base of
homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital
program for the replacement of assets and for the acquisition or construction of assets that enable us to
enhance our operations or provide new service offerings to customers. Assets purchased or constructed
throughout the year are capitalized if they meet applicable minimum units of property criteria. Properties
and equipment are carried at cost and are depreciated on a straight-line basis over their estimated
service lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines
except for those subject to abandonment, yard and switching tracks, and electronic yards) for which lives
are measured in millions of gross tons per mile of track. We use the group method of depreciation in
which all items with similar characteristics, use, and expected lives are grouped together in asset classes,
and are depreciated using composite depreciation rates. The group method of depreciation treats each
asset class as a pool of resources, not as singular items. We currently have more than 60 depreciable
45
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 2015,
the estimated service lives of the majority of this rail ranged from approximately 19 years to approximately
39 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 $66 million. If the estimated useful lives
of all depreciable assets were decreased by one year, annual depreciation expense would increase by
approximately $70 million. Our recent depreciation studies have resulted in lower depreciation rates for
some asset classes. These lower rates will partially offset the impact of a projected higher depreciable
asset base, resulting in an increase in total depreciation expense by approximately 1% to 2% in 2016
versus 2015.
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 $390 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 2015 and 2014, 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 2015 and the estimated impact on 2015 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
3.94%
7.50%
4.00%
N/A
N/A
OPEB
3.74%
N/A
N/A
6.34%
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
$
$
$
Pension
Increase in Expense
OPEB
1
N/A
N/A
3
14 $
9
8
N/A $
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.
2016
42 $
13
$
2015
120 $
19
2014
69 $
15
2013
110
14
In 2016, we will measure the service cost and interest cost components of our net periodic benefit cost by
using individual spot rates matched with separate cash flows for each future year instead of a single
weighted-average discount rate approach. Our net periodic pension cost is expected to decrease to
approximately $42 million in 2016 from $120 million in 2015. Our net periodic OPEB expense is expected
to decrease to approximately $13 million in 2016 from $19 million in 2015.
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 “2016 Capital Plan” in Item 2 of Part I; statements regarding dividends in
Item 5 of Part II; and statements and information set forth under the captions “2016 Outlook”; “Liquidity
and Capital Resources”; and “Pension and Other Postretirement Benefits” 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
information. To the extent circumstances require or we deem it otherwise necessary, we will update or
48
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
Consolidated Statements of Income
For the Years Ended December 31, 2015, 2014, and 2013
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 2015, 2014, and 2013
Consolidated Statements of Financial Position
At December 31, 2015 and 2014
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2015, 2014, and 2013
Consolidated Statements of Changes in Common Shareholders’ Equity
For the Years Ended December 31, 2015, 2014, and 2013
Notes to the Consolidated Financial Statements
51
52
52
53
54
55
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and
the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2015, 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, 2015,
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 5,
2016 expressed an unqualified opinion on the Corporation's internal control over financial reporting.
Omaha, Nebraska
February 5, 2016
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
Purchased services and materials
Fuel
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
2015
2014
2013
$
20,397 $
1,416
22,560 $
1,428
21,813
23,988
5,161
2,421
2,013
2,012
1,230
924
5,076
2,558
3,539
1,904
1,234
924
20,684
1,279
21,963
4,807
2,315
3,534
1,777
1,235
849
13,761
15,235
14,517
8,052
226
(622)
7,656
(2,884)
8,753
151
(561)
8,343
(3,163)
7,446
128
(526)
7,048
(2,660)
4,772 $
5,180 $
4,388
5.51 $
5.49 $
866.2
869.4
5.77 $
5.75 $
897.1
901.1
4.74
4.71
926.5
931.5
2.20 $
1.91 $
1.48
$
$
$
$
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]
2015
2014
2013
$
4,772
$
5,180 $
4,388
58
(43)
-
15
(448)
(12)
-
(460)
436
(1)
1
436
Comprehensive income
$
4,787
$
4,720 $
4,824
[a] Net of deferred taxes of ($8) million, $291 million, and ($264) million during 2015, 2014, and 2013, 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
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;
1,110,426,354 and 1,110,100,423 issued; 849,211,436 and 883,366,476
outstanding, respectively
Paid-in-surplus
Retained earnings
Treasury stock
Accumulated other comprehensive loss (Note 10)
Total common shareholders' equity
Total liabilities and common shareholders' equity
The accompanying notes are an integral part of these Consolidated Financial Statements.
2015
2014
$
1,391 $
1,356
736
647
4,130
1,410
48,866
194
1,586
1,611
712
492
4,401
1,390
46,272
309
$
54,600 $
52,372
$
2,612 $
594
3,206
13,607
15,241
1,844
3,303
461
3,764
10,952
14,403
2,064
33,898
31,183
2,776
4,417
30,233
(15,529)
(1,195)
2,775
4,321
27,367
(12,064)
(1,210)
20,702
21,189
$
54,600 $
52,372
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 and other income taxes
Net gain on non-operating asset dispositions
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
Income and other taxes
Cash provided by operating activities
Investing Activities
Capital investments
Proceeds from asset sales
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:
Capital investments accrued but not yet paid
Capital lease financings
Cash dividends declared but not yet paid (Note 13)
Cash paid during the year for:
Income taxes, net of refunds
Interest, net of amounts capitalized
2015
2014
2013
$
4,772 $
5,180 $
4,388
2,012
765
(144)
116
255
(24)
(47)
(276)
(85)
7,344
(4,650)
251
(77)
(4,476)
1,904
895
(69)
(216)
(197)
(59)
(35)
295
(313)
7,385
(4,346)
138
(41)
(4,249)
(3,465)
3,328
(2,344)
(556)
-
(26)
(3,063)
(195)
1,586
1,391 $
(3,225)
2,588
(1,632)
(710)
-
(3)
(2,982)
154
1,432
1,586 $
1,777
723
(32)
(194)
(83)
7
1
40
196
6,823
(3,496)
98
(7)
(3,405)
(2,218)
1,443
(1,333)
(640)
(289)
(12)
(3,049)
369
1,063
1,432
100 $
13
-
174 $
-
438
133
39
356
(2,156) $
(592)
(2,492) $
(554)
(1,656)
(528)
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
54
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Union Pacific Corporation and Subsidiary Companies
Millions
Balance at January 1, 2013
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)
Balance at December 31, 2014
Net income
Other comp. income
Conversion, stock option
exercises, forfeitures, and other
Share repurchases (Note 19)
Cash dividends declared
($2.20 per share)
Common
Shares
Treasury
Shares
Common
Shares
Paid-in-
Surplus
Retained
Earnings
Total
1,109.3 (170.3)$ 2,773 $ 4,113 $ 20,884 $ (6,707) $ (1,186) $ 19,877
4,388
436
4,388
-
-
436
-
-
-
-
-
-
Treasury
Stock
AOCI
[a]
0.4
1.6
1
97
-
-
(29.0)
-
-
-
-
-
-
-
15
(2,218)
(1,371)
-
-
-
-
113
(2,218)
(1,371)
1,109.7 (197.7)$ 2,774 $ 4,210 $ 23,901 $ (8,910) $ (750) $ 21,225
5,180
(460)
5,180
-
-
(460)
-
-
-
-
-
-
0.4
3.0
1
111
-
-
(32.0)
-
-
-
-
-
-
-
71
(3,225)
(1,714)
-
-
-
-
183
(3,225)
(1,714)
1,110.1 (226.7)$ 2,775 $ 4,321 $ 27,367 $ (12,064) $ (1,210) $ 21,189
4,772
15
4,772
-
-
15
-
-
-
-
-
-
0.3
0.8
1
96
-
-
(35.3)
-
-
-
-
-
-
-
-
(3,465)
(1,906)
-
-
-
-
97
(3,465)
(1,906)
Balance at December 31, 2015
1,110.4 (261.2)$ 2,776 $ 4,417 $ 30,233 $ (15,529) $ (1,195) $ 20,702
[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
32,084 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 26,064 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 analyze revenue by commodity group, we treat the 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
2015
3,581 $
2,154
3,543
3,237
3,808
4,074
20,397 $
1,416
2014
3,777 $
2,103
3,664
4,127
4,400
4,489
22,560 $
1,428
2013
3,276
2,077
3,501
3,978
3,822
4,030
20,684
1,279
21,813 $
23,988 $
21,963
$
$
$
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
freight revenues from our Mexico business which amounted to $2.2 billion in 2015, $2.3 billion in 2014,
and $2.1 billion in 2013.
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). Certain prior period amounts in the
statement of cash flows and income tax footnote have been aggregated or disaggregated further to
conform to the current period financial presentation.
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
56
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.
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 – The preparation of our Consolidated Financial Statements in conformity with GAAP
requires management to make estimates and assumptions that affect certain reported assets and
liabilities, and the disclosure of certain contingent assets and liabilities as of the date of the consolidated
financial statements, as well as the reported amounts of revenue and expenses during the reporting
period. 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
58
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, 2017, and can be adopted
either retrospectively or as a cumulative effect adjustment as of the date of adoption. ASU 2014-09 is not
expected to have a material impact on our consolidated financial position, results of operations, or cash
flows.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03 (ASU 2015-03), Interest -
Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs
in the financial statements to present such costs as a direct deduction from the related debt liability rather
than as an asset. Amortization of debt issuance costs will be reported as interest expense. This standard
is effective for annual reporting periods beginning after December 15, 2015. We elected to early adopt
ASU 2015-03 on December 31, 2015. As a result, the Company reclassified debt issuance costs from
other assets to debt on the Consolidated Statements of Financial Position. ASU 2015-03 did not have a
material impact on our consolidated financial position, and had no impact on our results of operations or
cash flows. All prior period financial information presented herein has been adjusted to reflect the
retrospective application of this ASU.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (ASU 2015-17), Balance
Sheet Classification of Deferred Taxes (Subtopic 740-10). ASU 2015-17 simplifies the presentation of
deferred income taxes by eliminating the requirement for companies to present deferred tax liabilities and
assets as current and non-current on the Consolidated Statements of Financial Position. Instead,
companies will be required to classify all deferred tax assets and liabilities as non-current. This guidance
is effective for annual and interim periods beginning after December 15, 2016 and early adoption is
permitted. We elected to early adopt ASU 2015-17 on December 31, 2015. ASU 2015-17 did not have a
material impact on our consolidated financial position, and had no impact on our results of operations or
cash flows. All prior period financial information presented herein has been adjusted to reflect the
retrospective application of this ASU.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01),
Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). ASU 2016-
01 provides guidance for the recognition, measurement, presentation, and disclosure of financial
instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017,
and early adoption is not permitted. ASU 2016-01 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, 2015, 36,000 restricted shares and 45,400 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
59
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, 2015, 3,652,954 options and 2,092,721
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, 2015, 1,873,014 options and 2,061,737
retention shares and stock units were outstanding under the 2013 Plan.
Pursuant to the above plans 76,548,520; 77,786,772; and 79,574,896 shares of our common stock were
authorized and available for grant at December 31, 2015, 2014, and 2013, respectively.
Stock-Based Compensation – We have several stock-based compensation plans under which
employees and non-employee directors receive stock options, nonvested retention shares, and
nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention
awards”. We have elected to issue treasury shares to cover option exercises and stock unit vestings,
while new shares are issued when retention shares are granted.
Information regarding stock-based compensation appears in the table below:
Millions
Stock-based compensation, before tax:
Stock options
Retention awards
Total stock-based compensation, before tax
Excess tax benefits from equity compensation plans
2015
2014
2013
$
$
$
17 $
81
98 $
21 $
91
112 $
62 $
118 $
19
79
98
76
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
2015
1.3%
1.8%
5.1
23.4%
2014
1.6%
2.1%
5.2
30.0%
2013
0.8%
2.1%
5.0
36.2%
Weighted-average grant-date fair value of options granted
$
22.30 $
20.18 $
17.49
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the expected
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 expected
volatility is based on the historical volatility of our stock price over the expected life of the option.
60
A summary of stock option activity during 2015 is presented below:
Outstanding at January 1, 2015
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2015
Vested or expected to vest
at December 31, 2015
Options exercisable at December 31, 2015
Options
(thous.)
5,387
934
(716)
(34)
5,571
5,532
3,672
Weighted-
Average
Exercise Price
53.56
122.85
40.10
89.24
$
Weighted-Average
Remaining
Contractual Term
5.8 yrs.
N/A
N/A
N/A
Aggregate
Intrinsic Value
(millions)
353
N/A
N/A
N/A
$
$
$
$
66.69
66.32
49.00
5.4 yrs.
5.4 yrs.
4.1 yrs.
$
$
$
114
114
110
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, 2015, are subject to performance or market-based vesting conditions.
At December 31, 2015, there was $18 million of unrecognized compensation expense related to
nonvested stock options, which is expected to be recognized over a weighted-average period of 1.0 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
$
2015
50 $
27
(12)
19
19
2014
194 $
54
(24)
74
17
2013
112
51
(21)
43
16
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 2015 were as follows:
Nonvested at January 1, 2015
Granted
Vested
Forfeited
Nonvested at December 31, 2015
Shares
(thous.)
3,403
521
(934)
(90)
2,900
$
Weighted-Average
Grant-Date Fair Value
64.39
122.79
47.66
72.87
$
80.01
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, 2015, there was $88 million of total unrecognized compensation
expense related to nonvested retention awards, which is expected to be recognized over a weighted-
average period of 1.5 years.
Performance Retention Awards – In February 2015, 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 2013 and February 2014, 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
61
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 2015 grant were as follows:
Dividend per share per quarter
Risk-free interest rate at date of grant
Changes in our performance retention awards during 2015 were as follows:
$
2015
0.55
0.8%
Nonvested at January 1, 2015
Granted
Vested
Forfeited
Nonvested at December 31, 2015
Shares
(thous.)
1,583
339
(580)
(87)
1,255
$
Weighted-Average
Grant-Date Fair Value
65.33
117.42
54.38
86.66
$
82.98
At December 31, 2015, there was $19 million of total unrecognized compensation expense related to
nonvested performance retention awards, which is expected to be recognized over a weighted-average
period of 0.7 years. This expense is subject to achievement of the ROIC levels established for the
performance stock unit grants.
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.
62
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
2015
2014
4,142 $
106
163
(267)
(186)
3,372 $
70
158
735
(193)
OPEB
2015
354 $
3
13
(18)
(23)
3,958 $
4,142 $
329 $
3,654 $
(43)
100
19
(186)
3,429 $
185
200
33
(193)
3,544 $
3,654 $
- $
-
-
23
(23)
- $
2014
330
2
14
33
(25)
354
-
-
-
25
(25)
-
(414) $
(488) $
(329) $
(354)
$
$
$
$
$
Amounts recognized in the statement of financial position as of December 31, 2015 and 2014 consist of:
Millions
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amounts recognized at end of year
Pension
2015
1 $
(22)
(393)
2014
1 $
(19)
(470)
OPEB
2015
- $
(23)
(306)
(414) $
(488) $
(329) $
$
$
2014
-
(23)
(331)
(354)
Pre-tax amounts recognized in accumulated other comprehensive income/(loss) as of December 31,
2015 and 2014 consist of:
Millions
Prior service (cost)/credit
Net actuarial loss
2015
2014
Pension
OPEB
Total
Pension
OPEB
$
- $
7 $
7 $
- $
17 $
(1,652)
(117)
(1,769)
(1,727)
(148)
Total
17
(1,875)
Total
$ (1,652) $
(110) $ (1,762) $ (1,727) $
(131) $ (1,858)
Pre-tax changes recognized in other comprehensive income/(loss) during 2015, 2014 and 2013 were as
follows:
Millions
Net actuarial (loss)/gain
Amortization of:
Prior service cost/(credit)
Actuarial loss
Total
Pension
OPEB
2015
(31) $
2014
(780) $
2013
561 $
2015
18 $
2014
(33) $
-
106
-
71
-
106
(10)
13
(11)
10
75 $
(709) $
667 $
21 $
(34) $
$
$
2013
34
(16)
15
33
63
Amounts included in accumulated other comprehensive income/(loss) expected to be amortized into net
periodic cost during 2016:
Millions
Prior service credit
Net actuarial loss
Total
Pension
OPEB
- $
(80)
(80) $
9 $
(10)
(1) $
$
$
Total
9
(90)
(81)
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, 2015 and 2014, the non-qualified (supplemental) plan ABO was $388 million
and $379 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
2015
398 $
388 $
-
2014
388
379
-
(388) $
(379)
$
$
$
The ABO for all defined benefit pension plans was $3.7 billion and $3.9 billion at December 31, 2015 and
2014, respectively.
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
2015
4.37%
4.10%
N/A
N/A
N/A
2014
3.94%
4.00%
N/A
N/A
N/A
OPEB
2015
4.16%
N/A
6.52%
4.50%
2038
2014
3.74%
N/A
6.34%
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.
64
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
OPEB
2015
2014
2013
2015
2014
2013
$
106 $
163
(255)
-
106
70 $
72 $
3 $
2 $
158
(230)
-
71
134
(202)
-
106
13
-
(10)
13
14
-
(11)
10
3
12
-
(16)
15
14
Net periodic benefit cost/(benefit)
$
120 $
69 $
110 $
19 $
15 $
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
Pension
2014
4.72%
7.50%
4.00%
N/A
N/A
N/A
2015
3.94%
7.50%
4.00%
N/A
N/A
N/A
2013
3.78%
7.50%
3.43%
N/A
N/A
N/A
2015
3.74%
N/A
N/A
6.34%
4.50%
2028
OPEB
2014
4.47%
N/A
N/A
6.49%
4.50%
2028
2013
3.48%
N/A
N/A
6.64%
4.50%
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 (1)% in 2015, 6% in 2014, and 17%
in 2013.
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 2016 assumed health care cost trend rate for employees under 65 is 6.34%. It is
assumed the rate will decrease gradually to an ultimate rate of 4.5% in 2028 and will remain at that level.
A one-percentage point change in the assumed health care cost trend rates would have the following
effects on OPEB:
Millions
Effect on total service and interest cost components
Effect on accumulated benefit obligation
Cash Contributions
One % pt.
Increase
$
1 $
17
One % pt.
Decrease
(1)
(14)
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:
Pension
Millions
2014
2015
$
Qualified Non-qualified
$
200
100
33 $
19
OPEB
25
23
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 2015 were voluntary and were made with cash generated from operations.
65
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 2016 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 2016 through 2025:
Millions
2016
2017
2018
2019
2020
Years 2021 - 2025
Asset Allocation Strategy
$
Pension
191 $
194
198
202
205
1,077
OPEB
23
23
23
23
22
102
Our pension plan asset allocation at December 31, 2015 and 2014, and target allocation for 2016, are as
follows:
Equity securities
Debt securities
Real estate
Commodities
Total
Target
Allocation 2016
60% to 70%
20% to 30%
2% to 8%
4% to 6%
Percentage of Plan Assets
December 31,
2014
68%
23
4
5
2015
67%
23
6
4
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
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, 2015 and A+ as of December 31, 2014.
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, 2015 and 2014.
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.
66
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 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 and local 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 each
partnership’s net asset value (NAV), 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 partnership interests. The
Real Estate Partnership category also includes real estate investments held in similar structures such as
private real estate investment trusts and limited liability companies. 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 for each investment, which is derived
from the valuation methods described here. The Plan’s interests in private real estate partnerships,
investment trusts, and limited liability companies are classified as Level 3 investments.
Collective Trust and Other Funds – Collective 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. The Plan’s 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
securities. 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 public exchanges and price quotes for these investments are readily
available. Interests in the limited liability companies are classified as Level 2 investments.
67
As of December 31, 2015, the pension plan assets measured at fair value on a recurring basis were as
follows:
Millions
Plan assets:
Temporary cash investments
Registered investment companies
Federal government securities
Bonds & debentures
Corporate stock
Venture capital and buyout partnerships
Real estate partnerships
Collective trust and other funds
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
$
13
179
-
-
1,034
-
-
-
Significant
Other
Observable
Inputs
(Level 2)
$
-
270
125
383
7
-
-
1,075
Significant
Unobservable
Inputs
(Level 3)
$
-
-
-
-
-
256
199
-
Total plan assets at fair value
$ 1,226
$ 1,860
$
455
Other assets [a]
Total plan assets
$
Total
13
449
125
383
1,041
256
199
1,075
3,541
3
$ 3,544
[a] Other assets include accrued receivables and pending broker settlements.
As of December 31, 2014, the pension plan assets measured at fair value on a recurring basis were as
follows:
Total
22
294
163
381
1,091
234
139
1,340
3,664
(10)
Millions
Plan assets:
Temporary cash investments
Registered investment companies
Federal government securities
Bonds & debentures
Corporate stock
Venture capital and buyout partnerships
Real estate partnerships
Collective trust and other funds
Quoted Prices
in Active
Markets for
Identical Inputs
(Level 1)
$
22
12
-
-
1,076
-
-
-
Significant
Other
Observable
Inputs
(Level 2)
$
-
282
163
381
15
-
-
1,340
Significant
Unobservable
Inputs
(Level 3)
$
$
-
-
-
-
-
234
139
-
Total plan assets at fair value
$ 1,110
$ 2,181
$
373
Other assets [a]
Total plan assets
$ 3,654
[a] Other assets include accrued receivables and pending broker settlements.
For the years ended December 31, 2015 and 2014, there were no significant transfers in or out of Levels
1, 2, or 3.
68
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 2015:
Millions
Beginning balance - January 1, 2015
Realized gain
Unrealized gain
Purchases
Sales
Venture Capital
and Buyout
Partnerships
234
$
18
13
54
(63)
Real Estate
Partnerships
139
$
5
8
74
(27)
$
Ending balance - December 31, 2015
$
256
$
199
$
Total
373
23
21
128
(90)
455
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
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 $20 million in 2015, $19 million in 2014, and $18 million in 2013.
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 $749 million in 2015, $711 million in 2014, and $670 million in 2013.
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
$46 million in 2015, $52 million in 2014, and $57 million in 2013.
7. Other Income
Other income included the following for the years ended December 31:
Millions
Net gain on non-operating asset dispositions [a]
Rental income [b]
Interest income
Non-operating environmental costs and other [c]
Total
$
2015
144
96
5
(19)
2014
69 $
96
4
(18)
226
$
151 $
2013
32
106
4
(14)
128
$
$
[a] 2015 includes $113 million related to a real estate sale.
[b] 2013 includes $17 million related to a land lease contract settlement.
[c] 2014 includes $14 million related to the sale of a permanent easement.
69
8. Income Taxes
Components of income tax expense were as follows for the years ended December 31:
Millions
Current tax expense:
Federal
State
Foreign
Total current tax expense
Deferred and other tax expense:
Federal
State
Total deferred and other tax expense
2015
2014
2013
$
1,901 $
210
8
2,019 $
239
10
2,119
2,268
644
121
765
753
142
895
1,727
199
11
1,937
605
118
723
Total income tax expense
$
2,884 $
3,163 $
2,660
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
Tax credits
Deferred tax adjustments
Other
Effective tax rate
2015
35.0 %
3.1
(0.5)
-
0.1
37.7 %
2014
35.0 %
3.1
(0.4)
-
0.2
37.9 %
2013
35.0 %
3.1
(0.2)
(0.1)
(0.1)
37.7 %
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.
70
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
Stock compensation
Debt and leases
Retiree benefits
Credits
Other
Total deferred income tax assets [a]
Net deferred income tax liability
2015
2014
$
(16,079) $
(352)
(15,173)
(411)
(16,431)
(15,584)
76
237
72
149
204
156
296
74
228
69
86
392
164
168
$
$
1,190 $
1,181
(15,241) $
(14,403)
[a] Prior to the adoption of Accounting Standard Update (ASU) 2015-17, deferred tax assets were required to be presented as
current and non-current on the Consolidated Statement of Financial Position. In 2015, UP adopted ASU 2015-17
retrospectively. Current deferred income tax assets at December 31, 2014 of $277 million were reclassified from current to
non-current for 2015 presentation.
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 2015 and 2014, 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.
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
2015
151 $
$
38
13
(87)
(13)
(5)
(3)
2014
59 $
92
22
(14)
(8)
1
(1)
Unrecognized tax benefits at December 31
$
94 $
151 $
2013
115
24
15
(35)
(58)
-
(2)
59
We recognize interest and penalties as part of income tax expense. Total accrued liabilities for interest
and penalties were $2 million and $6 million at December 31, 2015 and 2014, respectively. Total interest
and penalties recognized as part of income tax expense (benefit) were $(3) million for 2015, $9 million for
2014, and $7 million for 2013.
Internal Revenue Service (IRS) examinations have been completed and settled for all years prior to 2011,
and the statute of limitations bars any additional tax assessments. UPC is not currently under audit by the
Internal Revenue Service.
In the third quarter of 2015, UPC and the IRS signed a closing agreement resolving all tax matters for tax
71
years 2009-2010. The settlement had an immaterial effect on our income tax expense. In connection with
the settlement, UPC paid $10 million in the fourth quarter of 2015.
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.
Several state tax authorities are examining our state income tax returns for years 2006 through 2012.
We do not expect our unrecognized tax benefits to change significantly in the next 12 months. At
December 31, 2015, we had a net unrecognized tax benefit liability of $94 million.
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
9. Earnings Per Share
2015
31 $
63
94 $
2014
33 $
118
151 $
2013
34
25
59
$
$
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
2015
2014
2013
$
4,772 $
5,180 $
4,388
866.2
1.5
1.7
869.4
897.1
2.1
1.9
901.1
$
$
5.51 $
5.49 $
5.77 $
5.75 $
926.5
2.4
2.6
931.5
4.74
4.71
Common stock options totaling 1.1 million, 0.4 million, and 0.5 million for 2015, 2014, and 2013,
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.
72
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, 2015
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 $(8) million
Balance at December 31, 2015
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
$
$
$
$
$
$
Defined
benefit
plans
(1,161)
(4)
62
58
(1,103)
(713)
10
(458)
(448)
Foreign
currency
translation
(49)
(43)
-
(43)
(92)
(37)
(12)
-
(12)
$
$
$
Total
(1,210)
(47)
62
15
(1,195)
(750)
(2)
(458)
(460)
$
(1,161)
$
(49)
$
(1,210)
[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 both December 31, 2015, and 2014, our accounts receivable were reduced by $5
million. Receivables not expected to be collected in one year and the associated allowances are
classified as other assets in our Consolidated Statements of Financial Position. At December 31, 2015,
and 2014, receivables classified as other assets were reduced by allowances of $11 million and $16
million, respectively.
Receivables Securitization Facility – The Railroad maintains a $650 million, 3-year receivables
securitization facility maturing in July 2017 under which it sells most of its eligible third-party receivables
to Union Pacific Receivables, Inc. (UPRI), a consolidated, 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 at both December 31, 2015, and December
31, 2014. The facility was supported by $0.9 billion and $1.2 billion of accounts receivable as collateral at
December 31, 2015, and December 31, 2014, 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
issuance costs, and fees of participating banks for unused commitment availability. The costs of the
73
receivables securitization facility are included in interest expense and were $5 million, $4 million and $5
million for 2015, 2014, and 2013, 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, 2015
Cost
Accumulated
Depreciation
Net Book
Value
Estimated
Useful Life
Land
$
5,195
$
N/A
$
5,195
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
15,236
9,439
5,024
17,374
47,073
9,027
2,203
897
12,127
919
1,250
5,495
2,595
1,350
3,021
12,461
3,726
962
191
4,879
358
-
9,741
6,844
3,674
14,353
34,612
5,301
1,241
706
7,248
561
1,250
$ 66,564
$
17,698
$ 48,866
N/A
37
33
34
47
N/A
19
24
19
N/A
11
N/A
N/A
Millions, Except Estimated Useful Life
As of December 31, 2014
Cost
Accumulated
Depreciation
Net Book
Value
Estimated
Useful Life
Land
$
5,194
$
N/A
$
5,194
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
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.
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
74
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
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
75
appropriate statistical bases. Total expense for repairs and maintenance incurred was $2.5 billion for
2015, $2.4 billion for 2014, and $2.3 billion for 2013.
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
Income and other taxes payable
Accrued wages and vacation
Interest payable
Accrued casualty costs
Equipment rents payable
Dividends payable [a]
Other
$
Dec. 31,
2015
743
434
391
208
181
105
-
550
$
Dec. 31,
2014
877
412
409
178
249
100
438
640
Total accounts payable and other current liabilities
$
2,612
$
3,303
[a] Beginning in 2015, the timing of the dividend declaration and payable dates was aligned to occur within the same quarter. The
2015 dividends paid amount includes the fourth quarter 2014 dividend of $438 million, which was paid on January 2, 2015, the
first quarter 2015 dividend of $484 million, which was paid on March 30, 2015, the second quarter 2015 dividend of $479
million, which was paid on June 30, 2015, the third quarter 2015 dividend of $476 million, which was paid on September 30,
2015, as well as the fourth quarter 2015 dividend of $467 million, which was paid on December 30, 2015.
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, 2015, and 2014, 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
76
Consolidated Financial Statements. As of December 31, 2015, and 2014, 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. As of December 31, 2015,
and 2014, 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, 2015, 2014, and 2013.
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, 2015, the fair value of total debt was $15.2 billion, approximately $1.0 billion more than the carrying
value. At December 31, 2014, the fair value of total debt was $13.0 billion, approximately $1.5 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 December 31, 2015, and 2014, approximately $155 million and $163 million, respectively, 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.
15. Debt
Total debt as of December 31, 2015, and 2014, is summarized below:
Millions
Notes and debentures, 1.8% to 7.9% due through 2065
Capitalized leases, 3.1% to 8.4% due through 2028
Equipment obligations, 2.8% 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 and deferred issuance costs [a]
Total debt
Less: current portion
Total long-term debt
2015
11,964 $
$
1,268
963
400
200
57
23
-
(674)
2014
9,266
1,520
597
400
200
57
23
8
(658)
14,201
11,413
(594)
(461)
$
13,607 $
10,952
[a]
Includes deferred debt issuance costs of $89 million and $67 million as of December 31, 2015, and 2014, respectively, as a
result of the retrospective adoption of Accounting Standard Update (ASU) 2015-03 on December 31, 2015. Prior to the ASU
adoption, deferred debt issuance costs were presented in other assets.
Debt Maturities – The following table presents aggregate debt maturities as of December 31, 2015,
excluding market value adjustments:
Millions
2016
2017
2018
2019
2020
Thereafter
Total debt
$
594
1,052
566
637
1,034
10,318
$
14,201
Equipment Encumbrances – Equipment with a carrying value of approximately $2.6 billion and $2.8
billion at December 31, 2015, and 2014, respectively, served as collateral for capital leases and other
77
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 – At December 31, 2015, 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 the facility during 2015. 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 matures in May 2019 under a five-year term and
requires UPC to maintain a debt-to-net-worth coverage ratio.
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, 2015, the debt-to-net-worth coverage ratio
allowed us to carry up to $41.4 billion of debt (as defined in the facility), and we had $14.3 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 2015, we did not issue or repay any commercial paper, and at December 31, 2015, and 2014, 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 $13.6 billion
and $15.4 billion at December 31, 2015, and 2014, respectively.
Shelf Registration Statement and Significant New Borrowings – We filed a new shelf registration
statement with the SEC that became effective on February 9, 2015. The Board of Directors authorized the
issuance of up to $4.0 billion of debt securities, replacing the $4.0 billion authorized under our shelf
registration filed in February 2013, which was fully utilized after our January 2015 debt offering noted
below. 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.
During 2015, we issued the following unsecured, fixed-rate debt securities under our shelf registrations:
Date
January 29, 2015
June 19, 2015
October 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
$400 million of 2.250% Notes due June 19, 2020
$300 million of 3.250% Notes due August 15, 2025
$200 million of reopened 3.250% Notes due August 15, 2025
$500 million of 4.050% Notes due November 15, 2045
$400 million of 4.375% Notes due November 15, 2065
78
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, 2015, we had remaining authority to issue up to $2.2 billion of debt
securities under our shelf registration.
Equipment Trust – On May 12, 2015, UPRR consummated a pass-through (P/T) financing, whereby a
P/T trust was created, which issued $399 million of P/T trust certificates with a stated interest rate of
2.695%. The P/T trust certificates will mature on May 12, 2027. The proceeds from the issuance of the
P/T trust certificates were used to purchase equipment trust certificates to be issued by UPRR to finance
the acquisition of 182 locomotives. The equipment trust certificates are secured by a lien on the
locomotives. The $399 million is classified as debt due after one year in our Consolidated Statements of
Financial Position.
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 year ended December 31, 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
Receivables Securitization Facility – As of both December 31, 2015 and 2014, we recorded $400
million of borrowings under our receivables securitization facility, 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.
79
We maintain and operate the assets based on contractual obligations within the lease arrangements,
which set specific guidelines consistent within the railroad industry. As such, we have no control over
activities that could materially impact the fair value of the leased assets. We do not hold the power to
direct the activities of the VIEs and, therefore, do not control the ongoing activities that have a significant
impact on the economic performance of the VIEs. Additionally, we do not have the obligation to absorb
losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the
VIEs.
We are not considered to be the primary beneficiary and do not consolidate these VIEs because our
actions and decisions do not have the most significant effect on the VIE’s performance and our fixed-price
purchase options are not considered to be potentially significant to the VIEs. The future minimum lease
payments associated with the VIE leases totaled $2.6 billion as of December 31, 2015.
17. Leases
We lease certain locomotives, freight cars, and other property. The Consolidated Statements of Financial
Position as of December 31, 2015 and 2014 included $2,273 million, net of $1,189 million of accumulated
depreciation, and $2,454 million, net of $1,210 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, 2015, were as follows:
Millions
2016
2017
2018
2019
2020
Later years
Total minimum lease payments
Amount representing interest
Present value of minimum lease payments
$
Operating
Leases
491 $
446
371
339
282
1,501
Capital
Leases
217
220
198
184
193
575
$
3,430 $
1,587
N/A
(319)
N/A $
1,268
Approximately 95% of capital lease payments relate to locomotives. Rent expense for operating leases
with terms exceeding one month was $590 million in 2015, $593 million in 2014, and $618 million in 2013.
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. To the extent possible, we have
recorded a liability where asserted and unasserted claims are considered probable and where such
claims can be reasonably estimated. 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 94% of the recorded liability is related to asserted claims and
80
approximately 6% is related to unasserted claims at December 31, 2015. 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 $318 million to $345 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
2015
335 $
89
(3)
(103)
2014
294 $
96
9
(64)
318 $
335 $
63 $
111 $
$
$
$
2013
334
87
(38)
(89)
294
82
In conjunction with the liability update performed in 2015, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2015, and
2014.
Asbestos – We are a defendant in a number of lawsuits in which current and former employees and
other parties allege exposure to asbestos. We assess our potential liability using a statistical analysis of
resolution costs for asbestos-related claims. This liability is updated annually and excludes future
defense and processing costs. The liability for resolving both asserted and unasserted claims was based
on the following assumptions:
The ratio of future claims by alleged disease would be consistent with historical averages adjusted for
inflation.
The number of claims filed against us will decline each year.
The average settlement values for asserted and unasserted claims will be equivalent to historical
averages.
The percentage of claims dismissed in the future will be equivalent to historical averages.
Our liability for asbestos-related claims is not discounted to present value due to the uncertainty
surrounding the timing of future payments. Approximately 22% of the recorded liability related to asserted
claims and approximately 78% related to unasserted claims at December 31, 2015. 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 $120 million to $129 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
2015
126 $
-
(6)
120 $
2014
131 $
1
(6)
126 $
6 $
8 $
2013
139
2
(10)
131
9
$
$
$
In conjunction with the liability update performed in 2015, we also reassessed our estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2015, and
2014. 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 290 sites at which we are or may be liable for remediation costs associated with
alleged contamination or for violations of environmental requirements. This includes 31 sites that are the
subject of actions taken by the U.S. government, 19 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
2015
182 $
61
(53)
190 $
2014
171 $
56
(45)
182 $
52 $
60 $
2013
170
58
(57)
171
53
$
$
$
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, 2015, and 2014, we were contingently liable for $53 million and $82
million in guarantees, respectively. We have recorded liabilities of $0 and $0.3 million for the fair value of
these obligations as of December 31, 2015, and 2014, respectively. We entered into these contingent
guarantees in the normal course of business, and they include guaranteed obligations related to our
affiliated operations. The final guarantee expires in 2022. We are not aware of any existing event of
default that would require us to satisfy these guarantees. We do not expect that these guarantees will
have a material adverse effect on our consolidated financial condition, results of operations, or liquidity.
Indemnities – We are contingently obligated under a variety of indemnification arrangements, although in
some cases the extent of our potential liability is limited, depending on the nature of the transactions and
82
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 have not
recognized any amounts in the Consolidated Financial Statements as of December 31, 2015.
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, 2015, we repurchased a total of $16.0 billion of our common stock since the commencement of our
repurchase programs in 2007. The table below represents shares repurchased under this repurchase
program.
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Number of Shares Purchased
2014
2015
6,881,455
7,975,100
13,800,700
6,646,899
7,640,000 $
8,320,000
8,347,000
7,736,400
Average Price Paid
2014
2015
89.43
117.28 $
96.84
104.62
102.54
89.65
113.77
88.19
35,304,154
32,043,400 $
98.14 $
100.65
Remaining number of shares that may be repurchased under current authority
52,652,446
Management's assessments of market conditions and other pertinent factors guide the timing and volume
of all repurchases. Repurchased shares are recorded in treasury stock at cost, which includes any
applicable commissions and fees.
From January 1, 2016, through February 4, 2016, we repurchased 3.7 million shares at an aggregate cost
of approximately $268 million.
20. Related Parties
UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a
36.79% economic and voting interest in TTX while the other North American railroads own the remaining
interest. In accordance with ASC 323 Investments - Equity Method and Joint Venture, UPRR applies the
equity method of accounting to our investment in TTX.
TTX is a railcar pooling company that owns railcars and intermodal wells to serve North America’s
railroads. TTX assists railroads in meeting the needs of their customers by providing railcars in an
efficient, pooled environment. All railroads have the ability to utilize TTX railcars through car hire by
renting railcars at stated rates.
UPRR had $830 million and $795 million recognized as investments related to TTX in our consolidated
statements of financial position as of December 31, 2015 and 2014, respectively. TTX car hire expenses
83
of $376 million in 2015, $350 million in 2014, and $326 million in 2013 are included in equipment and
other rents in our consolidated statements of income. In addition, UPRR had accounts payable to TTX of
$61 million and $53 million as of December 31, 2015 and 2014, respectively.
21. Selected Quarterly Data (Unaudited)
Millions, Except Per Share Amounts
2015
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
Millions, Except Per Share Amounts
2014
Operating revenues
Operating income
Net income
Net income per share:
Basic
Diluted
$
$
Mar. 31
5,614 $
1,977
1,151
Jun. 30
5,429 $
1,949
1,204
Sep. 30
5,562 $
2,208
1,300
1.31
1.30
1.38
1.38
1.51
1.50
Mar. 31
5,638 $
1,854
1,088
Jun. 30
6,015 $
2,196
1,291
Sep. 30
6,182 $
2,330
1,370
1.20
1.19
1.43
1.43
1.53
1.53
Dec. 31
5,208
1,918
1,117
1.31
1.31
Dec. 31
6,153
2,373
1,431
1.62
1.61
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, 2015. 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,
2015, 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 4, 2016
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, 2015, 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, 2015, 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, 2015 of the Corporation and our report dated February 5, 2016
expressed an unqualified opinion on those financial statements and financial statement schedule.
Omaha, Nebraska
February 5, 2016
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/investor/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 2015, Outstanding Equity Awards at 2015 Fiscal Year-End, Option
Exercises and Stock Vested in Fiscal Year 2015, Pension Benefits at 2015 Fiscal Year-End, Nonqualified
Deferred Compensation at 2015 Fiscal Year-End, Potential Payments Upon Termination or Change in
Control and Director Compensation in Fiscal Year 2015 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.
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.
88
The following table summarizes the equity compensation plans under which UPC common stock may be
issued as of December 31, 2015:
(a)
(b)
(c)
Plan Category
Equity compensation plans approved
by security holders
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
7,720,201 [1] $
66.67 [2]
Total
7,720,201
$
66.67
Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
76,548,520
76,548,520
[1]
Includes 2,148,833 retention units that do not have an exercise price. Does not include 2,048,765 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 5th day of February, 2016.
UNION PACIFIC CORPORATION
By
/s/ Lance M. Fritz
Lance M. Fritz,
Chairman, 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 5th day of February, 2016, by the following persons on behalf of the registrant and in the
capacities indicated.
PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR:
PRINCIPAL FINANCIAL OFFICER:
PRINCIPAL ACCOUNTING OFFICER:
By
/s/ Lance M. Fritz
Lance M. Fritz,
Chairman, President and
Chief Executive Officer
Union Pacific Corporation
By
/s/ Robert M. Knight, Jr.
Robert M. Knight, Jr.,
Executive Vice President - Finance
and Chief Financial Officer
By
/s/ Todd M. Rynaski
Todd M. Rynaski,
Vice President and Controller
DIRECTORS:
Andrew H. Card, Jr.*
Erroll B. Davis, Jr.*
David B. Dillon*
Judith Richards Hope*
Charles C. Krulak*
Michael R. McCarthy*
Michael W. McConnell*
Thomas F. McLarty III*
Steven R. Rogel*
Jose H. Villarreal*
* By 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
2015
2014
2013
$
21
1
(6)
16
$
$
$
$
5
11
16
757
227
(248)
23 $
5
(7)
21 $
5 $
16
21 $
702 $
256
(201)
736
$
757 $
181
555
736
$
$
249 $
508
757 $
37
(4)
(10)
23
1
22
23
734
188
(220)
702
207
495
702
$
$
$
$
$
$
$
$
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 4, 2016.
Form of Stock Unit Agreement for Executives dated February 4, 2016.
Form of Non-Qualified Stock Option Agreement for Executives dated February 4,
2016.
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),
(XBRL
(XBRL Taxonomy Label Linkbase Document), 101.DEF
101.LAB
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, 2015 (filed with the SEC on February 5, 2016), is formatted in XBRL
and submitted electronically herewith: (i) Consolidated Statements of Income for
the years ended December 31, 2015, 2014 and 2013, (ii) Consolidated Statements
of Comprehensive Income for the years ended December 31, 2015, 2014, and
2013, (iii) Consolidated Statements of Financial Position at December 31, 2015
and December 31, 2014, (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2015, 2014 and 2013, (v) Consolidated Statements of
Changes in Common Shareholders’ Equity for the years ended December 31,
2015, 2014 and 2013, and (vi) the Notes to the Consolidated Financial Statements.
Incorporated by Reference
3(a)
3(b)
4(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.
By-Laws of UPC, as amended, effective November 19, 2015, are incorporated
herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K
dated November 19, 2015.
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).
93
4(b)
4(c)
4(d)
4(e)
4(f)
4(g)
10(d)
10(e)
10(f)
10(g)
10(h)
10(i)
10(j)
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 2020 is incorporated by reference to Exhibit 4.1 to the
Corporation’s Current Report on Form 8-K dated June 19, 2015.
Form of 3.250% Note due 2025 is incorporated by reference to Exhibit 4.2 to the
Corporation’s Current Report on Form 8-K dated June 19, 2015.
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 October 29, 2015.
Form of 4.050% Note due 2045 is incorporated herein by reference to Exhibit 4.2
to the Corporation’s Current Report on Form 8-K dated October 29, 2015.
Form of 4.375% Note due 2065 is incorporated herein by reference to Exhibit 4.3
to the Corporation’s Current Report on Form 8-K dated October 29, 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.
Supplemental Pension Plan for Officers and Managers (409A 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(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.
10(k)
Deferred Compensation Plan (409A Non-Grandfathered Component) of Union
94
10(l)
10(m)
10(n)
10(o)
10(p)
10(q)
10(r)
10(s)
10(t)
10(u)
10(v)
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 (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
the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
1995.
incorporated herein by reference
to Exhibit 10(z)
to
is
95
10(w)
10(x)
10(y)
10(z)
10(aa)
10(bb)
10(cc)
10(dd)
10(ee)
99
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 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 2015 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, 2014.
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
2015
2014
2013
2012
2011
$
$
$
622 $
93
561 $
101
526 $
121
535 $
132
715 $
662 $
647 $
667 $
572
135
707
4,772 $
(63)
2,884
715
5,180 $
(59)
3,163
662
4,388 $
(57)
2,660
647
3,943 $
(55)
2,375
667
3,292
(38)
1,972
707
Earnings available for fixed charges
$
8,308 $
8,946 $
7,638 $
6,930 $
5,933
Ratio of earnings to fixed charges
11.6
13.5
11.8
10.4
8.4
97
SIGNIFICANT SUBSIDIARIES OF UNION PACIFIC CORPORATION
Name of Corporation
Union Pacific Railroad Company
Exhibit 21
State of
Incorporation
Delaware
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. 333-201958 on
Form S-3 of our reports dated February 5, 2016, 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, 2015.
Omaha, Nebraska
February 5, 2016
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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 Lance M. Fritz, 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, 2015, 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 4, 2016.
/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/ 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 5, 2016
/s/ Lance M. Fritz
Lance M. Fritz
Chairman, President and
Chief Executive Officer
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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 5, 2016
/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, 2015, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Lance M Fritz, Chairman, 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
Chairman, President and
Chief Executive Officer
Union Pacific Corporation
February 5, 2016
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, 2015, 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 5, 2016
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