Union Pacific 2012 Annual Report Download - page 10

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Item 1A. Risk Factors
The information set forth in this Item 1A should be read in conjunction with the rest of the information
included in this report, including Management’s Discussion and Analysis of Financial Condition and
Results of Operations, Item 7, and Financial Statements and Supplementary Data, Item 8.
We Must Manage Fluctuating Demand for Our Services and Network Capacity – If there is significant
demand for our services that exceeds the designed capacity of our network, we may experience network
difficulties, including congestion and reduced velocity, that could compromise the level of service we
provide to our customers. This level of demand may also compound the impact of weather and weather-
related events on our operations and velocity. Although we continue to improve our transportation plan,
add capacity, improve operations at our yards and other facilities, and improve our ability to address
surges in demand for any reason with adequate resources, we cannot be sure that these measures will
fully or adequately address any service shortcomings resulting from demand exceeding our planned
capacity. We may experience other operational or service difficulties related to network capacity,
dramatic and unplanned increases or decreases of demand for rail service with respect to one or more of
our commodity groups or operating regions, or other events that could have a negative impact on our
operational efficiency, any of which could have a material adverse effect on our results of operations,
financial condition, and liquidity. In the event that we experience significant reductions of demand for rail
services with respect to one or more of our commodity groups, we may experience increased costs
associated with resizing our operations, including higher unit operating costs and costs for the storage of
locomotives, rail cars, and other equipment; work-force adjustments; and other related activities, which
could have a material adverse effect on our results of operations, financial condition, and liquidity.
We May Be Affected by General Economic Conditions – Prolonged severe adverse domestic and global
economic conditions or disruptions of financial and credit markets, including the availability of short- and
long-term debt financing, may affect the producers and consumers of the commodities we carry and may
have a material adverse effect on our access to liquidity and our results of operations and financial
condition.
We Are Required to Transport Hazardous Materials – Federal laws require railroads, including us, to
transport certain hazardous materials regardless of risk or potential exposure to loss. Any rail accident or
other incident or accident on our network, at our facilities, or at the facilities of our customers involving the
release of hazardous materials, including toxic inhalation hazard (or TIH) materials such as chlorine,
could involve significant costs and claims for personal injury, property damage, and environmental
penalties and remediation, which could have a material adverse effect on our results of operations,
financial condition, and liquidity.
We Face Competition from Other Railroads and Other Transportation Providers – We face competition
from other railroads, motor carriers, ships, barges, and pipelines. In addition to price competition, we face
competition with respect to transit times and quality and reliability of service. While we must build or
acquire and maintain our rail system, trucks and barges are able to use public rights-of-way maintained
by public entities. Any future improvements or expenditures materially increasing the quality or reducing
the cost of alternative modes of transportation, or legislation releasing motor carriers from their size or
weight limitations, could have a material adverse effect on our results of operations, financial condition,
and liquidity. Additionally, any future consolidation of the rail industry could materially affect the
competitive environment in which we operate.
We Are Subject to Significant Governmental Regulation – We are subject to governmental regulation by a
significant number of federal, state, and local authorities covering a variety of health, safety, labor,
environmental, economic (as discussed below), and other matters. Many laws and regulations require us
to obtain and maintain various licenses, permits, and other authorizations, and we cannot guarantee that
we will continue to be able to do so. Our failure to comply with applicable laws and regulations could have
a material adverse effect on us. Governments or regulators may change the legislative or regulatory
frameworks within which we operate without providing us any recourse to address any adverse effects on
our business, including, without limitation, regulatory determinations or rules regarding dispute resolution,
business relationships with other railroads, calculation of our cost of capital or other inputs relevant to
computing our revenue adequacy, the prices we charge, and costs and expenses. Significant legislative
activity in Congress or regulatory activity by the STB could expand regulation of railroad operations and
prices for rail services, which could reduce capital spending on our rail network, facilities and equipment
and have a material adverse effect on our results of operations, financial condition, and liquidity. As part