Union Pacific 2005 Annual Report Download - page 60

2005 and 2004, the value of the interest retained by UPRI was $626 million and $499 million, respectively. This
retained interest is included in accounts receivable in our Consolidated Financial Statements. The interest sold to
investors is sold at carrying value, which approximates fair value, and there is no gain or loss recognized from the
transaction.
The value of the outstanding undivided interest held by investors could fluctuate based upon the availability
of eligible receivables and is directly affected by changing business volumes and credit risks, including default and
dilution. Should our credit rating fall below investment grade, the value of the outstanding undivided interest
held by investors would be reduced, and, in certain cases, the investors would have the right to discontinue the
facility.
The Railroad has been designated to service the sold receivables; however, no servicing asset or liability has
been recognized as the servicing fees adequately compensate the Railroad for its responsibilities. The Railroad
collected approximately $13.4 billion and $12.2 billion during the years ended December 31, 2005 and 2004,
respectively. UPRI used such proceeds to purchase new receivables under the facility.
The costs of the sale of receivables program are included in other income and were $23 million, $11 million,
and $10 million for 2005, 2004, and 2003, respectively. The costs include interest, program fees paid to banks,
commercial paper issuance costs, and fees for unused commitment availability.
The investors have no recourse to the Railroad’s other assets except for customary warranty and indemnity
claims. Creditors of the Railroad have no recourse to the assets of UPRI. In August 2005, the sale of receivables
program was renewed for an additional 364-day period without any significant changes in terms.
3. Income Taxes
Components of income tax expense for continuing operations were as follows for the years ended December 31:
Millions of Dollars 2005 2004 2003
Current income tax expense (benefit):
Federal ........................................................... $ 57 $ (99) $ 55
State ............................................................. 33 (8) 32
Total current income tax expense (benefit) ................................. 90 (107) 87
Deferred income tax expense (benefit):
Federal ........................................................... 293 407 508
State ............................................................. 27 (48) (14)
Total deferred income tax expense (benefit) ................................ 320 359 494
Total ............................................................... $410 $ 252 $581
For the years ended December 31, reconciliation between statutory and effective tax rates for continuing
operations is as follows:
Percentages 2005 2004 2003
Federal statutory tax rate ............................................... 35.0% 35.0% 35.0%
State statutory rates, net of federal benefits ................................. 2.9 2.9 2.9
Deferred tax adjustments ............................................... (8.2) (2.9) (0.8)
Tax credits ........................................................... (1.2) (5.6) (1.7)
Other ............................................................... 0.1 - -
Effective tax rate ...................................................... 28.6% 29.4% 35.5%
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