Union Pacific 2006 Annual Report Download - page 69

non-qualified options that became exercisable on May 1, 2001, and remain exercisable until April 30, 2008. If an
optionee’s employment terminates for any reason, the option remains exercisable for a period of one year after
the date of termination, but no option is exercisable after April 30, 2008. No further options may be granted
under the UP Shares Plan. As of December 31, 2006, there were 1,119,910 options outstanding under the UP
Shares Plan.
In April 2000, the shareholders approved the Union Pacific Corporation 2000 Directors Plan (Directors
Plan) whereby 550,000 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 1,000 shares of retention shares or retention stock units. Additionally, each non-employee
director receives annually an option to purchase at fair value a number of shares of our common stock, not to
exceed 5,000 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. As of December 31, 2006, 7,000 restricted shares were outstanding under the
Directors Plan and 159,450 options were outstanding under the Directors Plan.
The Union Pacific Corporation 2001 Stock Incentive Plan (2001 Plan) was approved by the shareholders in
April 2001. The 2001 Plan reserved 12,000,000 shares of our common stock for issuance to eligible employees of
the Corporation and its subsidiaries in the form of non-qualified options, incentive stock options, retention
shares, stock units, and incentive bonus awards. Non-employee directors were not eligible for awards under the
2001 Plan. As of December 31, 2006, 4,224,402 options and 339,537 retention shares and stock units were
outstanding under the 2001 Plan. We no longer grant any stock options or other stock or unit awards under this
plan.
The Union Pacific Corporation 2004 Stock Incentive Plan (2004 Plan) was approved by shareholders in April
2004. The 2004 Plan reserved 21,000,000 shares of our common stock for issuance, plus any shares subject to
awards made under the 2001 Plan and the 1993 Plan 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, 2006, 3,286,461 options and 561,875 retention shares and stock units were
outstanding under the 2004 Plan.
Pursuant to the above plans, 19,544,245; 20,695,817; and 21,571,309 shares of our common stock were
authorized and available for grant at December 31, 2006, 2005, and 2004, respectively.
Stock Options – We estimate the fair value of our stock option awards using the Black-Scholes option pricing
model. Groups of employees and non-employee directors that have similar historical and expected exercise
behavior are considered separately for valuation purposes. The table below shows the year-to-date weighted-
average of the assumptions used when valuing these separate groups:
Weighted-Average Assumptions 2006 2005 2004
Risk-free interest rate .................................................. 4.5% 3.8% 3.3%
Dividend yield ....................................................... 1.4% 1.9% 1.7%
Expected life (years) ................................................... 6.0 4.8 5.6
Volatility ............................................................ 25.3% 20.6% 25.9%
Weighted-average grant-date fair value of options granted .................... $24.97 $12.92 $16.38
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the dividend yield is
calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the
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