Union Pacific 2006 Annual Report Download - page 59

December 31, 2006 and 2005, respectively. The value of the outstanding undivided interest held by investors is not
included in our Consolidated Financial Statements. The value of the undivided interest held by investors was
supported by $1,158 million and $1,226 million of accounts receivable held by UPRI at December 31, 2006 and
2005, respectively. At December 31, 2006 and 2005, the value of the interest retained by UPRI was $558 million
and $626 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. If default or dilution percentages were to increase one percentage point, the amount of eligible
receivables would decrease by $6 million. 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 services the sold receivables; however, the Railroad does not recognize any servicing asset or
liability as the servicing fees adequately compensate the Railroad for its responsibilities. The Railroad collected
approximately $15.5 billion and $13.4 billion during the years ended December 31, 2006 and 2005, respectively.
UPRI used certain of these proceeds to purchase new receivables under the facility.
The costs of the sale of receivables program are included in other income and were $33 million, $23 million,
and $11 million for 2006, 2005, and 2004, respectively. The costs include interest, program fees paid to banks,
commercial paper issuing 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 2006, the sale of receivables
program was renewed for an additional 364-day period without any significant changes in terms.
4. Income Taxes
Components of income tax expense were as follows for the years ended December 31:
Millions of Dollars 2006 2005 2004
Current income tax expense (benefit):
Federal ........................................................... $630 $ 57 $ (99)
State ............................................................. 54 33 (8)
Total current income tax expense (benefit) ................................ 684 90 (107)
Deferred income tax expense (benefit):
Federal ........................................................... 205 293 407
State ............................................................. 30 27 (48)
Total deferred income tax expense ....................................... 235 320 359
Total ............................................................... $919 $410 $ 252
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