Union Pacific 2005 Annual Report Download - page 61

Deferred income tax liabilities (assets) were comprised of the following at December 31:
Millions of Dollars 2005 2004
Net current deferred income tax asset ........................................... $ (304) $ (288)
Property .................................................................. 9,216 9,060
State taxes, net ............................................................. 592 581
Other .................................................................... (326) (461)
Net long-term deferred income tax liability ...................................... 9,482 9,180
Net deferred income tax liability ............................................... $9,178 $8,892
All federal income tax years prior to 1995 are closed. Federal income tax liabilities for tax years 1986 through
1994 have been resolved. Interest calculations for these years are in process and may take several years to resolve
with the Internal Revenue Service (IRS). The IRS has begun its examination of the Corporation’s federal income
tax returns for tax years 2003 and 2004, and has completed its examinations and issued notices of deficiency for
tax years 1995 through 2002. As previously reported, among their proposed adjustments is the disallowance of tax
deductions claimed in connection with certain donations of property. In the fourth quarter of 2005, the IRS
National Office issued a Technical Advice Memorandum that left unresolved whether the deductions were
proper, pending further factual development by the IRS Examination Team. We continue to dispute the donation
issue, as well as many of the other proposed adjustments, and will contest the associated tax deficiencies through
the IRS Appeals process, and, if necessary, litigation.
As reported in the Corporation’s Forms 10-Q for quarters ended June 30, 2005, and September 30, 2005, the
final settlements for pre-1995 tax years, along with the IRS Examination Reports for tax years 1995 through 2002,
among other things, were considered in a review and re-evaluation of the Corporation’s estimated deferred tax
assets and liabilities. This review resulted in a reduction of deferred income tax liabilities and income tax expense
of $118 million in the third quarter of 2005.
The Corporation believes it has adequately reserved for federal and state income taxes, and does not expect
that resolution of these examinations will have a material adverse effect on its operating results, financial
condition, or liquidity.
4. Debt
Total debt as of December 31, 2005 and 2004, including interest rate swaps designated as hedges, is summarized
below:
Millions of Dollars 2005 2004
Short-term borrowings, reclassified as long-term debt ................................ $ - $ 440
Notes and debentures, 2.0% to 7.4% due through 2054 [a] ............................ 5,303 5,435
Capitalized leases, 4.7% to 9.3% due through 2026 .................................. 1,318 1,416
Medium-term notes, 6.8% to 10.0% due through 2020 ............................... 372 372
Equipment obligations, 6.5% to 10.2% due through 2019 ............................. 270 313
Mortgage bonds, 4.8% due through 2030 .......................................... 60 60
Tax-exempt financings, 4.7% to 5.7% due through 2026 .............................. 197 200
Unamortized discount ......................................................... (104) (105)
Total debt ................................................................... 7,416 8,131
Less current portion ........................................................... (656) (150)
Total long-term debt .......................................................... $6,760 $7,981
[a] 2005 and 2004 include a collective write-down of $16 million and write-up of $2 million, respectively, due to market value adjustments for debt
with qualifying hedges that are recorded as liabilities and assets, respectively, on the Consolidated Statements of Financial Position.
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