Union Pacific 2007 Annual Report Download - page 72

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value. Venture capital funds, where no quoted market prices are available, are valued at their estimated fair
values as determined by the investment manager. Investments in limited partnerships are valued at estimated
fair value based on their proportionate share of the partnerships’ fair value. The partnerships invest primarily
in readily marketable securities.
The majority of the plan’s assets are invested in equity securities, because equity portfolios have historically
provided higher returns than debt and other asset classes over extended time horizons, and are expected to do
so in the future. Correspondingly, equity investments also entail greater risks than other investments. The risk
of loss in the plan’s equity portfolio is mitigated by investing in a broad range of equity types. Equity
diversification includes large-capitalization and small-capitalization companies, growth-oriented and value-
oriented investments, and U.S. and non-U.S. securities.
Equity risks are further balanced by investing a significant portion of the plan’s assets in high quality debt
securities. The average quality rating of the debt portfolio exceeded AA as of December 31, 2007 and 2006. The
debt portfolio is also broadly diversified and invested primarily in U.S. Treasury, mortgage, and corporate
securities with an intermediate average maturity. The weighted-average maturity of the debt portfolio was 6.4
years at both December 31, 2007 and 2006, respectively.
The investment of pension plan assets in our securities is specifically prohibited for both the equity and debt
portfolios, other than through index fund holdings.
Other Retirement Programs
Thrift Plan – We provide a defined contribution plan (thrift plan) to eligible non-union employees and make
matching contributions to the thrift plan. We match 50 cents for each dollar contributed by employees up to
the first six percent of compensation contributed. Our thrift plan contributions were $14 million in 2007, $13
million in 2006, and $12 million in 2005.
Railroad Retirement System – All Railroad employees are covered by the Railroad Retirement System (the
System). Contributions made to the System are expensed as incurred and amounted to approximately $616
million in 2007, $615 million in 2006, and $595 million in 2005.
Collective Bargaining Agreements – Under collective bargaining agreements, we provide certain postretirement
healthcare and life insurance benefits for eligible union employees. Premiums under the plans are expensed as
incurred and amounted to $40 million in both 2007 and 2006, and $41 million in 2005.
8. Stock Options and Other Stock Plans
We have 600,793 options outstanding under the 1993 Stock Option and Retention Stock Plan of Union Pacific
Corporation (1993 Plan). There are 3,570 restricted shares outstanding under the 1992 Restricted Stock Plan
for Non-Employee Directors of Union Pacific Corporation. We no longer grant options or awards of retention
shares and units under these plans.
The UP Shares Stock Option Plan of Union Pacific Corporation (UP Shares Plan) was approved by our Board
of Directors on April 30, 1998. The UP Shares Plan reserved 12,000,000 shares of our common stock for
issuance. The UP Shares Plan was a broad-based option program that granted options to purchase 200 shares
of our common stock at $55.00 per share to eligible active employees on April 30, 1998. All options granted
were 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, 2007, there were 432,689 options outstanding
under the UP Shares Plan.