Union Pacific 2011 Annual Report Download - page 73

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Receivables Securitization Facility – On January 1, 2010, we adopted Accounting Standards Update
No. 2009-16, Accounting for Transfers of Financial Assets (ASU 2009-16). ASU 2009-16 limits the
circumstances in which transferred financial assets can be derecognized and requires enhanced
disclosures regarding transfers of financial assets and a transferor’s continuing involvement with
transferred financial assets. As a result, we no longer account for the value of the outstanding undivided
interest held by investors under our receivables securitization facility as a sale. In addition, transfers of
receivables occurring on or after January 1, 2010, are reflected as debt issued in our Consolidated
Statements of Cash Flows and recognized as debt due after one year in our Consolidated Statements of
Financial Position.
Under the receivables securitization facility, the Railroad sells most of its accounts receivable to Union
Pacific Receivables, Inc. (UPRI), a bankruptcy-remote subsidiary. UPRI may subsequently transfer,
without recourse on a 364-day revolving basis, an undivided interest in eligible accounts receivable to
investors. The total capacity to transfer undivided interests to investors under the facility was $600 million
at December 31, 2011 and 2010, respectively. The value of the outstanding undivided interest held by
investors under the facility was $100 million at both December 31, 2011 and 2010. The value of the
undivided interest held by investors was supported by $1.1 billion and $960 million of accounts receivable
at December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, the value of the interest
retained by UPRI was $1.1 billion and $960 million, respectively. This retained interest is included in
accounts receivable, net in our Consolidated Statements of Financial Position.
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 ratios increase one percent, the value of the
outstanding undivided interest held by investors would not change as of December 31, 2011. 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 collected approximately $18.8 billion and $16.3 billion of receivables during the years ended
December 31, 2011 and 2010, respectively. UPRI used certain of these proceeds to purchase new
receivables under the facility.
The costs of the receivables securitization facility include interest, which will vary based on prevailing
commercial paper rates, program fees paid to banks, commercial paper issuing costs, and fees for
unused commitment availability. The costs of the receivables securitization facility are included in interest
expense and were $4 million and $6 million for 2011 and 2010, respectively. Prior to adoption of the new
accounting standard, the costs of the receivables securitization facility were included in other income and
were $9 million for 2009.
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 2011, the receivables securitization facility was renewed for an additional 364-day period at
comparable terms and conditions.