Union Pacific 2007 Annual Report Download - page 62

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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 us for these responsibilities. The Railroad collected
approximately $16.1 billion and $15.5 billion during the years ended December 31, 2007 and 2006,
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 $35 million, $33 million,
and $23 million for 2007, 2006, and 2005, 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 do not have recourse to the assets of UPRI. In August 2007, 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/(benefit) were as follows for the years ended December 31:
Millions of Dollars 2007 2006 2005
Current.................................................................................................... $ 822 $ 684 $ 90
Deferred .................................................................................................. 354 235 320
Unrecognized tax benefits...................................................................... (22) N/A N/A
Total income tax expense....................................................................... $1,154 $ 919 $ 410
For the years ended December 31, reconciliation between statutory and effective tax rates is as follows:
Tax Rate Percentages 2007 2006 2005
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 ....................................................................... 1.0 (0.5) (8.2)
Tax credits............................................................................................... (0.6) (1.0) (1.2)
Other ....................................................................................................... 0.1 - 0.1
Effective tax rate...................................................................................... 38.4% 36.4% 28.6%
As reported in our Forms 10-Q for the quarters ended June 30, 2005 and September 30, 2005, the final
settlements of income tax examinations for pre-1995 tax years, along with the Internal Revenue Service (IRS)
Examination Reports for tax years 1995 through 2002, among other things, were considered in a re-evaluation
of our estimated deferred tax assets and liabilities. This resulted in a reduction of deferred tax liabilities and
income tax expense of $118 million in the third quarter of 2005.