Union Pacific 2011 Annual Report Download - page 12

12
carry, or (c) manufacture or produce goods that consume significant amounts of energy or burn fossil
fuels, including chemical producers, farmers and food producers, and automakers and other
manufacturers. Significant cost increases, government regulation, or changes of consumer preferences
for goods or services relating to alternative sources of energy or emissions reductions could materially
affect the markets for the commodities we carry, which in turn could have a material adverse effect on our
results of operations, financial condition, and liquidity. Government incentives encouraging the use of
alternative sources of energy could also affect certain of our customers and the markets for certain of the
commodities we carry in an unpredictable manner that could alter our traffic patterns, including, for
example, the impacts of ethanol incentives on farming and ethanol producers. Finally, we could face
increased costs related to defending and resolving legal claims and other litigation related to climate
change and the alleged impact of our operations on climate change. Any of these factors, individually or
in operation with one or more of the other factors, or other unforeseen impacts of climate change could
reduce the amount of traffic we handle and have a material adverse effect on our results of operations,
financial condition, and liquidity.
The Availability of Qualified Personnel Could Adversely Affect Our Operations – Changes in
demographics, training requirements, and the availability of qualified personnel could negatively affect our
ability to meet demand for rail service. Unpredictable increases in demand for rail services and a lack of
network fluidity may exacerbate such risks, which could have a negative impact on our operational
efficiency and otherwise have a material adverse effect on our results of operations, financial condition,
and liquidity.
Rising or Elevated Fuel Costs and Whether We Are Able to Mitigate These Costs with Fuel Surcharges
Could Materially and Adversely Affect Our Business – Fuel costs constitute a significant portion of our
transportation expenses. Diesel fuel prices are subject to dramatic fluctuations, and significant price
increases could have a material adverse effect on our operating results. Although we currently are able to
recover a significant amount of our increased fuel expenses through revenue from fuel surcharges, we
cannot be certain that we will always be able to mitigate rising or elevated fuel costs through surcharges.
Future market conditions or legislative or regulatory activities could adversely affect our ability to apply
fuel surcharges or adequately recover increased fuel costs through fuel surcharges. International,
political, and economic circumstances affect fuel prices and supplies. Weather can also affect fuel
supplies and limit domestic refining capacity. If a fuel supply shortage were to arise, higher fuel prices
could, despite our fuel surcharge programs, have a material adverse effect on our results of operations,
financial condition, and liquidity.
We Utilize Capital Markets – Due to the significant capital expenditures required to operate and maintain
a safe and efficient railroad, we rely on the capital markets to provide some of our capital requirements.
We utilize long-term debt instruments, bank financing and commercial paper from time-to-time, and we
pledge certain of our receivables. Significant instability or disruptions of the capital markets, including the
credit markets, or deterioration of our financial condition due to internal or external factors could restrict or
prohibit our access to, and significantly increase the cost of, commercial paper and other financing
sources, including bank credit facilities and the issuance of long-term debt, including corporate bonds. A
deterioration of our financial condition could result in a reduction of our credit rating to below investment
grade, which could prohibit or restrict us from utilizing our current receivables securitization facility or
accessing external sources of short- and long-term debt financing and significantly increase the costs
associated with utilizing the receivables securitization facility and issuing both commercial paper and
long-term debt.
We Are Subject to Legislative, Regulatory, and Legal Developments Involving Taxes – Taxes are a
significant part of our expenses. We are subject to U.S. federal, state, and foreign income, payroll,
property, sales and use, fuel, and other types of taxes. Changes in tax rates, enactment of new tax laws,
revisions of tax regulations, and claims or litigation with taxing authorities could result in substantially
higher taxes and, therefore, could have a material adverse effect on our results of operations, financial
condition, and liquidity.
We Are Dependent on Certain Key Suppliers of Locomotives and Rail – Due to the capital intensive
nature and sophistication of locomotive equipment, potential new suppliers face high barriers to entry.
Therefore, if one of the domestic suppliers of high horsepower locomotives discontinues manufacturing
locomotives for any reason, including bankruptcy or insolvency, we could experience significant cost
increases and reduced availability of the locomotives that are necessary for our operations. Additionally,
for a high percentage of our rail purchases, we utilize two suppliers (one domestic and one international)