NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For purposes of this report, unless the context otherwise requires, all references herein to the “Corporation”, “Company”, “UPC”, “we”, “us”, and “our” mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which will be separately referred to herein as “UPRR” or the “Railroad”.
1. Basis of Presentation
Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP).
Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our
2015
Annual Report on Form 10-K.
Our Consolidated Statement of Financial Position at
December 31, 2015
, is derived from audited financial statements. The res
ults of operations for the
nine
months
ended
September
30
, 2016
, are not necessarily indicative of the results for the entire year ending December 31,
2016
.
The Condensed Consolidated Financial Statements are presented in accordance with GAAP as codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
.
2. Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09),
Revenue from Contracts with Customers (Topic 606)
. ASU 2014-09 supersedes the revenue recognition guidance in Topic 605, Revenue Recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods or services. This standard is effective for annual reporting periods beginning after December 15, 2017. ASU 2014-09 is not expected to have a material impact on our consolidated financial position, results of operations, or cash flows.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01),
Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)
. ASU 2016-01 provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted.
ASU 2016-01 is not expected to have a material impact on our consolidated financial position, results of operations, or cash flows.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02),
Leases (Subtopic 842)
. ASU 2016-02 will require companies to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. For public companies, this standard is effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact of this standard on our consolidated financial position, results of operations, and cash flows.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09) Compensation - Stock Compensation (Topic 718), which simplifies the accounting for income taxes related to stock-based compensation. We elected to early adopt ASU 2016-09 in the first quarter of 2016 with an effective date of January 1, 2016. As a result of the adoption, we recognized excess tax benefits in the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Cash Flows of $
5
million and $
21
million for the three and
nine
months ended
September
30, 2016, respectively. Prior periods have not been adjusted.
3. Operations and Segmentation
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although we provide and analyze revenue by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network. The following table provides freight revenue by commodity group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
Millions
|
2016
|
2015
|
|
2016
|
2015
|
Agricultural Products
|
$
|
937
|
$
|
880
|
|
$
|
2,664
|
$
|
2,686
|
Automotive
|
|
485
|
|
529
|
|
|
1,483
|
|
1,605
|
Chemicals
|
|
875
|
|
882
|
|
|
2,617
|
|
2,684
|
Coal
|
|
728
|
|
898
|
|
|
1,741
|
|
2,492
|
Industrial Products
|
|
855
|
|
979
|
|
|
2,519
|
|
2,966
|
Intermodal
|
|
957
|
|
1,047
|
|
|
2,745
|
|
3,101
|
Total freight revenues
|
$
|
4,837
|
$
|
5,215
|
|
$
|
13,769
|
$
|
15,534
|
Other revenues
|
|
337
|
|
347
|
|
|
1,004
|
|
1,071
|
Total operating revenues
|
$
|
5,174
|
$
|
5,562
|
|
$
|
14,773
|
$
|
16,605
|
Although our revenues are principally derived from customers domiciled in the U.S., the ultimate points of origination or destination for some products
we transport are
outside the U.S. Each of our commodity groups includes revenue from shipments to and from Mexico.
Included in the above table are freight revenues from our Mexico business which amounte
d to
$564
million and
$554
million, respectively, for the three months ended
September 30, 2016, and September 30, 2015, and
$1,649
million and
$1,655 million, respectively,
for the nine months ended September 30, 2016, and September 30, 2015
.
4. Stock-Based Compensation
We have several stock-based compensation plans under which employees and non-employee directors receive stock options, nonvested retention shares, and nonvested stock units. We refer to the nonvested shares and stock units collectively as “retention awards”. We have elected to issue treasury shares to cover option exercises and stock unit vestings, while new shares are issued when retention shares are granted. Information regarding stock-based compensation appears in the table below:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
Millions
|
2016
|
2015
|
|
2016
|
2015
|
Stock-based compensation, before tax:
|
|
|
|
|
|
|
|
|
|
Stock options
|
$
|
5
|
$
|
5
|
|
$
|
13
|
$
|
14
|
Retention awards
|
|
15
|
|
20
|
|
|
48
|
|
65
|
Total stock-based compensation, before tax
|
$
|
20
|
$
|
25
|
|
$
|
61
|
$
|
79
|
Excess tax benefits from equity compensation plans
|
$
|
5
|
$
|
2
|
|
$
|
21
|
$
|
57
|
Stock Options
– We estimate the fair value of our stock option awards using the Black-Scholes option pricing model. The table below shows the annual weighted-average assumptions used for valuation purposes:
|
|
|
|
|
|
|
|
|
|
Weighted-Average Assumptions
|
2016
|
2015
|
Risk-free interest rate
|
|
1.3%
|
|
1.3%
|
Dividend yield
|
|
2.9%
|
|
1.8%
|
Expected life (years)
|
|
5.1
|
|
5.1
|
Volatility
|
|
23.2%
|
|
23.4%
|
Weighted-average grant-date fair value of options granted
|
$
|
11.36
|
$
|
22.30
|
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the expected dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; the expected life is based on historical and expected exercise behavior; and expected volatility is based on the historical volatility of our stock price over the expected life of the option.
A summary of stock option activity during the
nine
months ended
September
30, 2016, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options (thous.)
|
Weighted-Average
Exercise Price
|
Weighted-Average Remaining Contractual Term
|
Aggregate Intrinsic Value (millions)
|
Outstanding at January 1, 2016
|
5,571
|
$
|
66.69
|
5.4
|
yrs.
|
$
|
114
|
Granted
|
1,672
|
|
75.52
|
|
N/A
|
|
N/A
|
Exercised
|
(620)
|
|
33.99
|
|
N/A
|
|
N/A
|
Forfeited or expired
|
(79)
|
|
103.93
|
|
N/A
|
|
N/A
|
Outstanding at September 30, 2016
|
6,544
|
$
|
71.59
|
6.0
|
yrs.
|
$
|
192
|
Vested or expected to vest at September 30, 2016
|
6,467
|
$
|
71.39
|
6.0
|
yrs.
|
$
|
191
|
Options exercisable at September 30, 2016
|
3,996
|
$
|
61.26
|
4.3
|
yrs.
|
$
|
153
|
Stock options are granted at the closing price on the date of grant, have ten-year contractual terms, and vest no later than three years from the date of grant. None of the stock options outstanding at
September
30, 2016, are subject to performance or market-based vesting conditions.
At
September
30, 2016, there was
$23
million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of
1.5
years. Additional information regarding stock option exercises appears in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
Millions
|
2016
|
2015
|
|
2016
|
2015
|
Intrinsic value of stock options exercised
|
$
|
15
|
$
|
3
|
|
$
|
32
|
$
|
42
|
Cash received from option exercises
|
|
11
|
|
2
|
|
|
24
|
|
23
|
Treasury shares repurchased for employee payroll taxes
|
|
(4)
|
|
(1)
|
|
|
(9)
|
|
(10)
|
Tax benefit realized from option exercises
|
|
5
|
|
1
|
|
|
12
|
|
16
|
Aggregate grant-date fair value of stock options vested
|
|
-
|
|
-
|
|
|
19
|
|
19
|
Retention Awards
– The fair value of retention awards is based on the closing price of the stock on the grant date. Dividends and dividend equivalents are paid to participants during the vesting periods.
Changes in our retention awards during the
nine
months ended
September
30, 2016, were as follows:
|
|
|
|
|
|
|
|
|
Shares
(thous.)
|
Weighted-Average
Grant-Date Fair Value
|
Nonvested at January 1, 2016
|
2,900
|
$
|
80.01
|
Granted
|
835
|
|
75.76
|
Vested
|
(792)
|
|
57.53
|
Forfeited
|
(131)
|
|
88.88
|
Nonvested at September 30, 2016
|
2,812
|
$
|
84.67
|
Retention awards are granted at no cost to the employee or non-employee director and vest over periods lasting up to four years. At
September
30, 2016, there was
$98
million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of
1.8
years.
Performance Retention Awards
– In February 2016, our Board of Directors approved performance stock unit grants. The basic terms of these performance stock units are identical to those granted in
February 2014 and February 2015, except for different annual return on invested capital (ROIC) performance targets and the addition of relative operating income growth (OIG) as a modifier compared to the companies included in the S&P 500 Industrials Index. We define ROIC as net operating profit adjusted for interest expense (including interest on the present value of operating leases) and taxes on interest divided by average invested capital adjusted for the present value of operating leases. The modifier can be up to +/- 25% of the award earned based on the ROIC achieved.
Stock units awarded to selected employees under these grants are subject to continued employment for 37 months and the attainment of certain levels of ROIC, and for the 2016 plan, modified for the relative OIG. We expense the fair value of the units that are probable of being earned based on our forecasted ROIC over the 3-year performance period, and with respect to the third year of the 2016 plan, the relative OIG modifier. We measure the fair value of these performance stock units based upon the closing price of the underlying common stock as of the date of grant, reduced by the present value of estimated future dividends. Dividend equivalents are paid to participants only after the units are earned.
The assumptions used to calculate the present value of estimated future dividends related to the February 2016 grant were as follows:
|
|
|
|
|
|
|
2016
|
Dividend per share per quarter
|
$
|
0.55
|
Risk-free interest rate at date of grant
|
|
0.9%
|
Changes in our performance retention awards during the
nine
months ended
September
30, 2016, were as follows:
|
|
|
|
|
|
|
|
|
Shares
(thous.)
|
Weighted-Average
Grant-Date Fair Value
|
Nonvested at January 1, 2016
|
1,255
|
$
|
82.98
|
Granted
|
503
|
|
70.09
|
Vested
|
(530)
|
|
62.57
|
Forfeited
|
(65)
|
|
91.98
|
Nonvested at September 30, 2016
|
1,163
|
$
|
86.20
|
At
September
30, 2016, there was
$17
million of total unrecognized compensation expense related to nonvested performance retention awards, which is expected to be recognized over a weighted-average period of
1.4
years. This expense is subject to achievement of the performance measures established for the performance stock unit grants.
5. Retirement Plans
Pension and Other Postretirement Benefits
Pension Plans
– We provide defined benefit retirement income to eligible non-union employees through qualified and non-qualified (supplemental) pension plans. Qualified and non-qualified pension benefits are based on years of service and the highest compensation during the latest years of employment, with specific reductions made for early retirements.
Other Postretirement Benefits (OPEB)
– We provide medical and life insurance benefits for eligible retirees. These benefits are funded as medical claims and life insurance premiums are paid.
Expense
Both pension and OPEB expense are determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a five-year period. This practice is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on long-term rate
of return assumptions. Differences in actual experience in relation to assumptions are not recognized in net income immediately, but are deferred in accumulated other comprehensive income and, if necessary, amortized as pension or OPEB expense.
The components of our net periodic pension cost were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
Millions
|
2016
|
2015
|
|
2016
|
2015
|
Service cost
|
$
|
21
|
$
|
30
|
|
$
|
64
|
$
|
78
|
Interest cost
|
|
36
|
|
41
|
|
|
107
|
|
121
|
Expected return on plan assets
|
|
(67)
|
|
(63)
|
|
|
(201)
|
|
(191)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
21
|
|
27
|
|
|
62
|
|
79
|
Net periodic pension cost
|
$
|
11
|
$
|
35
|
|
$
|
32
|
$
|
87
|
The components of our net periodic OPEB cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
Millions
|
2016
|
2015
|
|
2016
|
2015
|
Service cost
|
$
|
-
|
$
|
1
|
|
$
|
1
|
$
|
2
|
Interest cost
|
|
2
|
|
3
|
|
|
8
|
|
10
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
(2)
|
|
(3)
|
|
|
(7)
|
|
(8)
|
Actuarial loss
|
|
2
|
|
4
|
|
|
7
|
|
10
|
Net periodic OPEB cost
|
$
|
2
|
$
|
5
|
|
$
|
9
|
$
|
14
|
Cash Contributions
For the
nine
months ended
September
30, 2016, we made $
100
million of voluntary cash contributions to the qualified pension plan. Any additional contributions ma
de in the fourth quarter of
2016 will be based on cash generated from operations and financial market considerations. Our policy with respect to funding the qualified plans is to fund at least the minimum required by law and not more than the maximum amount deductible for tax purposes. At
September
30, 2016, we do not have minimum cash funding requirements for 2016.
6. Other Income
Other income included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
Millions,
|
2016
|
2015
|
2016
|
2015
|
Net gain on non-operating asset dispositions [a] [b]
|
$
|
3
|
$
|
10
|
|
$
|
91
|
$
|
138
|
Rental income
|
|
23
|
|
25
|
|
|
71
|
|
71
|
Interest income
|
|
3
|
|
2
|
|
|
8
|
|
4
|
Non-operating environmental costs and other
|
|
-
|
|
(7)
|
|
|
(18)
|
|
(15)
|
Total
|
$
|
29
|
$
|
30
|
|
$
|
152
|
$
|
198
|
[a]
2016 includes $17 million related to a real estate sale in the first quarter and $50 million related to a real estate sale in the second quarter.
[b]
2015 includes $113 million related to a real estate sale in the second quarter.
7. Income Taxes
UPC is not currently under examination by the Internal Revenue Service (IRS). IRS examinations have been completed and settled for all years prior to 2011, and the statute of limitations bars any additional tax assessments for those years.
Several state tax authorities are examining our state tax returns for years 2006 through 2012.
At
September
30, 2016, we had a net liability for unrecognized tax benefits of $
90
million.
8. Earnings Per Share
The following table provides a reconciliation between basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
Millions, Except Per Share Amounts
|
2016
|
2015
|
|
2016
|
2015
|
Net income
|
$
|
1,131
|
$
|
1,300
|
|
$
|
3,089
|
$
|
3,655
|
Weighted-average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
829.0
|
|
862.9
|
|
|
836.8
|
|
871.5
|
Dilutive effect of stock options
|
|
1.6
|
|
1.3
|
|
|
1.4
|
|
1.6
|
Dilutive effect of retention shares and units
|
|
1.6
|
|
1.6
|
|
|
1.4
|
|
1.5
|
Diluted
|
|
832.2
|
|
865.8
|
|
|
839.6
|
|
874.6
|
Earnings per share – basic
|
$
|
1.36
|
$
|
1.51
|
|
$
|
3.69
|
$
|
4.19
|
Earnings per share – diluted
|
$
|
1.36
|
$
|
1.50
|
|
$
|
3.68
|
$
|
4.18
|
Stock options excluded as their inclusion would be anti-dilutive
|
|
0.9
|
|
0.9
|
|
|
2.4
|
|
0.8
|
9. Accumulated Other Comprehensive Income/(Loss)
Reclassifications out of accumulated other comprehensive income/(loss) for the three and
nine
months ended
September
30, 2016, and 2015, were as follows (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions
|
Defined
benefit
plans
|
Foreign
currency
translation
|
Total
|
Balance at July 1, 2016
|
$
|
(1,082)
|
$
|
(116)
|
$
|
(1,198)
|
Other comprehensive income/(loss) before reclassifications
|
|
1
|
|
(1)
|
|
-
|
Amounts reclassified from accumulated other comprehensive income/(loss) [a]
|
|
13
|
|
-
|
|
13
|
Net quarter-to-date other comprehensive income/(loss),
net of taxes of $(7) million
|
|
14
|
|
(1)
|
|
13
|
Balance at September 30, 2016
|
$
|
(1,068)
|
$
|
(117)
|
$
|
(1,185)
|
|
|
|
|
|
|
|
Balance at July 1, 2015
|
$
|
(1,133)
|
$
|
(75)
|
$
|
(1,208)
|
Other comprehensive income/(loss) before reclassifications
|
|
-
|
|
(21)
|
|
(21)
|
Amounts reclassified from accumulated other comprehensive income/(loss) [a]
|
|
17
|
|
-
|
|
17
|
Net quarter-to-date other comprehensive income/(loss),
net of taxes of $3 million
|
|
17
|
|
(21)
|
|
(4)
|
Balance at September 30, 2015
|
$
|
(1,116)
|
$
|
(96)
|
$
|
(1,212)
|
[a]
The accumulated other comprehensive income/(loss) reclassification components are 1) prior service cost/(credit) and 2) net actuarial loss which are both included in the computation of net periodic pension cost. See Note 5 Retirement Plans for additional details.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions
|
Defined
benefit
plans
|
Foreign
currency
translation
|
Total
|
Balance at January 1, 2016
|
$
|
(1,103)
|
$
|
(92)
|
$
|
(1,195)
|
Other comprehensive income/(loss) before reclassifications
|
|
(4)
|
|
(25)
|
|
(29)
|
Amounts reclassified from accumulated other comprehensive income/(loss) [a]
|
|
39
|
|
-
|
|
39
|
Net year-to-date other comprehensive income/(loss),
net of taxes of $(8) million
|
|
35
|
|
(25)
|
|
10
|
Balance at September 30, 2016
|
$
|
(1,068)
|
$
|
(117)
|
$
|
(1,185)
|
|
|
|
|
|
|
|
Balance at January 1, 2015
|
$
|
(1,161)
|
$
|
(49)
|
$
|
(1,210)
|
Other comprehensive income/(loss) before reclassifications
|
|
(5)
|
|
(47)
|
|
(52)
|
Amounts reclassified from accumulated other comprehensive income/(loss) [a]
|
|
50
|
|
-
|
|
50
|
Net year-to-date other comprehensive income/(loss),
net of taxes of $(1) million
|
|
45
|
|
(47)
|
|
(2)
|
Balance at September 30, 2015
|
$
|
(1,116)
|
$
|
(96)
|
$
|
(1,212)
|
[a]
The accumulated other comprehensive income/(loss) reclassification components are 1) prior service cost/(credit) and 2) net actuarial loss which are both included in the computation of net periodic pension cost. See Note 5 Retirement Plans for additional details.
10. Accounts Receivable
Accounts receivable includes freight and other receivables reduced by an allowance for doubtful accounts. The allowance is based upon historical losses, credit worthiness of customers, and current economic conditions. At
September
30, 2016, and December 31, 2015, our accounts receivable were reduced by
$7
million and
$5
million, respectively. Receivables not expected to be collected in one year and the associated allowances are classified as other assets in our Condensed Consolidated Statements of Financial Position. At
September
30, 2016, and December 31, 2015, receivables classified as other assets were reduced by allowances of
$29
million and
$11
million, respectively.
Receivables Securitization Facility
–The Railroad maintains a
$650
million,
3
-year receivables securitization facility
(the Receivables Facility)
, which now
matures
in
July 2019
, after we completed a renewal in August 2016 with comparable terms. U
nder
the Receivables Facility, the Railroad
sells most of its eligible third-party receivables to Union Pacific Receivables, Inc. (UPRI), a consolidated, wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer, without recourse, an undivided interest in accounts receivable to investors. 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
.
Th
e amount outstanding under the Receivables F
acility was
$400
million at both
September
30, 2016, and December 31, 2015. The
Receivables F
acility was supported by
$1.0
billion and
$0.9
billion of accounts receivable as collateral at
September
30, 2016, and December 31, 2015, respectively, which, as a retained interest, is included in accounts receivable, net in our Condensed Consolidated Statements of Financial Position.
The outstanding amount the Railroad is allowed to maintain un
der the Receivables F
acility, with a maximum of $650 million, may fluctuate based on the availability of eligible receivables and is directly affected by business volumes and credit risks, including receivables payment quality measures such as default and dilution ratios. If default or dilution ratios increase one percent, the allowable outstanding amount under the
Receivables F
acility would not materially change.
The costs of the R
eceivables
F
acility include interest, which will vary based on prevailing benchmark and commercial paper rates, program fees paid to participating banks, commercial paper issuance costs, and
fees of participating banks for unused commitment
availability. The costs of the R
eceivables
F
acility are included in interest expense and were
$2
million and
$1
million for the three months ended
September
30, 2016, and 2015, respectively, and
$5
million
and $4 million for
the
nine
months ended
September
30, 2016, and 2015
, respectively
.
11. Properties
The following tables list the major categories of property and equipment, as well as the weighted-average estimated useful life for each category (in years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions, Except Estimated Useful Life
|
|
Accumulated
|
Net Book
|
Estimated
|
As of September 30, 2016
|
Cost
|
Depreciation
|
Value
|
Useful Life
|
Land
|
$
|
5,207
|
$
|
N/A
|
$
|
5,207
|
N/A
|
Road:
|
|
|
|
|
|
|
|
Rail and other track material
|
|
15,699
|
|
5,656
|
|
10,043
|
40
|
Ties
|
|
9,761
|
|
2,712
|
|
7,049
|
33
|
Ballast
|
|
5,197
|
|
1,406
|
|
3,791
|
34
|
Other roadway [a]
|
|
17,888
|
|
3,172
|
|
14,716
|
47
|
Total road
|
|
48,545
|
|
12,946
|
|
35,599
|
N/A
|
Equipment:
|
|
|
|
|
|
|
|
Locomotives
|
|
9,433
|
|
3,859
|
|
5,574
|
20
|
Freight cars
|
|
2,241
|
|
969
|
|
1,272
|
24
|
Work equipment and other
|
|
900
|
|
226
|
|
674
|
19
|
Total equipment
|
|
12,574
|
|
5,054
|
|
7,520
|
N/A
|
Technology and other
|
|
960
|
|
397
|
|
563
|
11
|
Construction in progress
|
|
1,050
|
|
-
|
|
1,050
|
N/A
|
Total
|
$
|
68,336
|
$
|
18,397
|
$
|
49,939
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions, Except Estimated Useful Life
|
|
Accumulated
|
Net Book
|
Estimated
|
As of December 31, 2015
|
Cost
|
Depreciation
|
Value
|
Useful Life
|
Land
|
$
|
5,195
|
$
|
N/A
|
$
|
5,195
|
N/A
|
Road:
|
|
|
|
|
|
|
|
Rail and other track material
|
|
15,236
|
|
5,495
|
|
9,741
|
37
|
Ties
|
|
9,439
|
|
2,595
|
|
6,844
|
33
|
Ballast
|
|
5,024
|
|
1,350
|
|
3,674
|
34
|
Other roadway [a]
|
|
17,374
|
|
3,021
|
|
14,353
|
47
|
Total road
|
|
47,073
|
|
12,461
|
|
34,612
|
N/A
|
Equipment:
|
|
|
|
|
|
|
|
Locomotives
|
|
9,027
|
|
3,726
|
|
5,301
|
19
|
Freight cars
|
|
2,203
|
|
962
|
|
1,241
|
24
|
Work equipment and other
|
|
897
|
|
191
|
|
706
|
19
|
Total equipment
|
|
12,127
|
|
4,879
|
|
7,248
|
N/A
|
Technology and other
|
|
919
|
|
358
|
|
561
|
11
|
Construction in progress
|
|
1,250
|
|
-
|
|
1,250
|
N/A
|
Total
|
$
|
66,564
|
$
|
17,698
|
$
|
48,866
|
N/A
|
[a]
Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.
12. Accounts Payable and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Sep. 30,
|
Dec. 31,
|
Millions
|
2016
|
2015
|
Accounts payable
|
$
|
819
|
$
|
743
|
Income and other taxes payable
|
|
593
|
|
434
|
Accrued wages and vacation
|
|
386
|
|
391
|
Accrued casualty costs
|
|
186
|
|
181
|
Interest payable
|
|
169
|
|
208
|
Equipment rents payable
|
|
105
|
|
105
|
Other
|
|
592
|
|
550
|
Total accounts payable and other current liabilities
|
$
|
2,850
|
$
|
2,612
|
13. Financial Instruments
Derivative Strategy and Risk
– We may use derivative financial instruments in certain instances, for other than trading purposes, to hedge our overall exposure to fluctuations in interest rates and fuel prices. We are not a party to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative purposes. Derivative financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. We formally document the nature and relationships between the hedging instruments and hedged items at inception, as well as our risk-management objectives, strategies for undertaking the various hedge transactions, and method of assessing hedge effectiveness. Changes in the fair market value of derivative financial instruments that do not qualify for hedge accounting are charged to earnings. We may use swaps, collars, futures, and/or forward contracts to mitigate the risk of adverse movements in interest rates and fuel prices; however, the use of these derivative financial instruments may limit future benefits from favorable interest rate and fuel price movements.
Short-Term Investments
– The Company’s short-term investments consist of time deposits and government agency securities. These investments are considered level 2 investments and
are
valued at amortized cost, which approximate
s
fair value (
$
310
million of time deposits and
$
20
million of government agency securities as of
September
30, 2016). All short-term investments have a maturity of less than one year and are classified as held-to-maturity. There were no transfers out of Level 2 during the
nine
months ended
September
30, 2016.
Fair Value of Financial Instruments
– The fair value of our short- and long-term debt was estimated using a market value price model, which utilizes applicable U.S. Treasury rates along with current market quotes on comparable debt securities. All of the inputs used to determine the fair market value of the Corporation’s long-term debt are Level 2 inputs and obtained from an independent source. At
September
30, 2016, the fair value of total debt was
$
17
.
9
billion, approximately
$
2.3
billion more than the carrying value. At December 31, 2015, the fair value of total debt was
$15.2
billion, approximately
$1.0
billion more than the carrying value. The fair value of the Corporation’s debt is a measure of its current value under present market conditions. It does not impact the financial statements under current accounting rules. At both
September 30, 2016,
and December 31, 2015, approximately
$155
million of debt securities contained call provisions that allow us to retire the debt instruments prior to final maturity, with the payment of fixed call premiums, or in certain cases, at par. The fair value of our cash equivalents approximates their carrying value due to the short-term maturities of these instruments.
14. Debt
Credit Facilities
– At
September
30, 2016, we had
$1.7
billion of credit available under our revolving credit facility, which is designated for general corporate purposes and supports the issuance of commercial paper. We
did not
draw on the facility during the
nine
months ended
September
30, 2016. Commitment fees and interest rates payable under the facility are similar to fees and rates available to comparably rated, investment-grade borrowers. The facility allows for borrowings at floating rates based on London Interbank Offered Rates, plus a spread, depending upon credit ratings for our senior unsecured debt. The facility matures in
May 2019
under a
five
-year term and requires UPC to maintain a debt-to-net-worth coverage ratio.
The definition of debt used for purposes of calculating the debt-to-net-worth coverage ratio includes, among other things, certain credit arrangements, capital leases, guarantees and unfunded and vested pension benefits under Title IV of ERISA. At
September
30, 2016, the debt-to-net-worth coverage ratio allowed us to carry up to
$40.6
billion
of debt (as defined in the facility), and we had
$15.7
billion
of debt (as defined in the facility) outstanding at that date. Under our current capital plans, we expect to continue to satisfy the debt-to-net-worth coverage ratio; however, many factors beyond our reasonable control could affect our ability to comply with this provision in the future. The facility does not include any other financial restrictions, credit rating triggers (other than rating-dependent pricing), or any other provision that could require us to post collateral. The facility also includes a
$125
million cross-default provision and a change-of-control provision.
During the
three and nine months
ended
September 30, 2016
, we did not issue or repay any commercial paper, and at
September
30, 2016, we had
no
commercial paper outstanding. Our revolving credit facility supports our outstanding commercial paper balances, and, unless we change the terms of our commercial paper program, our aggregate issuance of commercial paper will not exceed the amount of borrowings available under the facility.
Shelf Registration Statement and Significant New Borrowings
–
On July 28, 2016, the Board of Directors renewed its authorization for the Company to issue
up to
$4.0
billion of debt securities
under the Company’s current three-year shelf registration filed in February 2015
.
This authorization replaces the original Board authorization in February 2015, which had $0.9 billion of authority remaining.
Under our shelf registration, we may issue, from time to time, any combination of debt securities, preferred stock, common stock, or warrants for debt securities or preferred stock in one or more offerings
. At September 30, 2016, we had remaining authority to issue up to
$3.55
billion of debt securities under our shelf registration
.
During the nine months ended September 30, 2016, we issued the following unsecured, fixed-rate debt securities under our current shelf registration:
|
|
|
|
Date
|
Description of Securities
|
March 1, 2016
|
$500 million of 2.750% Notes due March 1, 2026
|
|
$600 million of 4.050% Notes due March 1, 2046
|
|
$200 million of reopened 4.375% Notes due November 15, 2065
|
August 8, 2016
|
$150 million of reopened 2.750% Notes due March 1, 2026
|
|
$300 million of 3.350% Notes due August 15, 2046
|
We
used the net proceeds from the
offering
s
for general corporate purposes, including the repurchase of common stock pursuant to our share repurchase program. These debt securities inclu
de change-of-control provisions
.
As of September 30, 2016, we reclassified as long-term debt
$100
million of debt due within one year that we intend to refinance. This reclassification reflects our ability and intent to refinance any short-term borrowings and certain current maturities of long-term debt on a long-term basis.
Equipment Trust
– On
May 9, 2016
, UPRR consummated a pass-through (P/T) financing, whereby a P/T trust was created, which issued
$151
million of P/T trust certificates with a stated interest rate of
2.495%
. The P/T trust certificates will mature on
November 9, 2029
. The proceeds from the issuance of the P/T trust certificates were used to purchase equipment trust certificates to be issued by UPRR to finance the acquisition of
59
locomotives. The equipment trust certificates are secured by a lien on the locomotives. The
$151
million is classified as debt due after one year in our Condensed Consolidated Statements of Financial Position.
Receivables Securitization Facility
– As of both
September
30, 2016, and December 31, 2015, we recorded
$400
m
illion of borrowings under our R
eceivables
F
acility as secured debt. (See further discussion of our receivables securitization facility in Note 10)
.
Subsequent Event
– On October 4, 2016, we exchanged $1,006 million
of various outstanding notes and
debentures due between 2028 and 2044 (the Existing Notes) for $1,044 million of 3.799% notes (the New Notes) due October 1, 2051
, plus cash
consideration of approximately $183 million in addition
to $11
million for accrued and unpaid interest on the Existing Notes. In accordance with ASC 470-50-40, Debt-Modifications and Extinguishments-Derecognition, this transaction was accounted for
in October
as a debt exchange, as the exchanged debt instruments are not considered to be substantially different. The cash consideration was recorded
in October
as an adjustment to the carrying value of debt, and the balance of the unamortized discount and issue costs
from the Existing Notes will be
amortized as an adjustment of interest expense over the terms of the New Notes. No gain or loss was recognized as a result of the exchange.
Costs related to the debt exchange that were payable to parties other than the debt holders totaled approximately $8 million and were included in interest expense during the period ended September 30, 2016.
The following table lists the outstanding notes and debentures that were exchanged:
|
|
|
|
|
|
|
Principal amount
|
Millions
|
exchanged
|
7.125% Debentures due 2028
|
$
|
2
|
6.625% Debentures due 2029
|
|
25
|
5.375% Debentures due 2033
|
|
15
|
6.250% Debentures due 2034
|
|
52
|
6.150% Debentures due 2037
|
|
2
|
5.780% Notes due 2040
|
|
4
|
4.750% Notes due 2041
|
|
175
|
4.750% Notes due 2043
|
|
204
|
4.821% Notes due 2044
|
|
373
|
4.850% Notes due 2044
|
|
154
|
Total
|
$
|
1,006
|
15. Variable Interest Entities
We have entered into various lease transactions in which the structure of the leases contain variable interest entities (VIEs). These VIEs were created solely for the purpose of doing lease transactions (principally involving railroad equipment and facilities) and have no other activities, assets or liabilities outside of the lease transactions. Within these lease arrangements, we have the right to purchase some or all of the assets at fixed prices. Depending on market conditions, fixed-price purchase options available in the leases could potentially provide benefits to us; however, these benefits are not expected to be significant.
We maintain and operate the assets based on contractual obligations within the lease arrangements, which set specific guidelines consistent within the railroad industry. As such, we have no control over activities that could materially impact the fair value of the leased assets. We do not hold the power to direct the activities of the VIEs and, therefore, do not control the ongoing activities that have a significant impact on the economic performance of the VIEs. Additionally, we do not have the obligation to absorb losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs.
We are not considered to be the primary beneficiary and do not consolidate these VIEs because our actions and decisions do not have the most significant effect on the VIE’s performance and our fixed-price purchase options are not considered to be potentially significant to the VIEs. The future minimum lease payments associated with the VIE leases totaled $
2
.
3
billion as of
September
30, 2016.
16. Commitments and Contingencies
Asserted and Unasserted Claims
– Various claims and lawsuits are pending against us and certain of our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our consolidated results of operations, financial condition, or liquidity. To the extent possible, we have recorded a liability where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated. We do not expect that any known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our consolidated results of operations, financial condition, or liquidity after taking into account liabilities and insurance recoveries previously recorded for these matters.
Personal Injury
– The cost of personal injuries to employees and others related to our activities is charged to expense based on estimates of the ultimate cost and number of incidents each year. We use an actuarial analysis to measure the expense and liability, including unasserted claims. The Federal Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a comprehensive variety of services and rehabilitation programs for employees who are injured at work.
Our personal injury liability is not discounted to present value due to the uncertainty surrounding the timing of future payments. Approximately 94% of the recorded liability is related to asserted claims and approximately 6% is related to unasserted claims at
September
30, 2016. Because of the uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future costs to settle these claims may range from approximately $
288
million to $
315
million. We record an accrual at the low end of the range as no amount of loss within the range is more probable than any other. Estimates can vary over time due to evolving trends in litigation.
Our personal injury liability activity was as follows:
|
|
|
|
|
|
|
|
|
|
Millions,
|
|
|
|
|
for the Nine Months Ended September 30,
|
2016
|
2015
|
Beginning balance
|
$
|
318
|
$
|
335
|
Current year accruals
|
|
54
|
|
65
|
Changes in estimates for prior years
|
|
(30)
|
|
(3)
|
Payments
|
|
(54)
|
|
(80)
|
Ending balance at September 30
|
$
|
288
|
$
|
317
|
Current portion, ending balance at September 30
|
$
|
62
|
$
|
63
|
We have insurance coverage for a portion of the costs incurred to resolve personal injury-related claims, and we have recognized an asset for estimated insurance recoveries at
September
30, 2016, and December 31, 2015. Any changes to recorded insurance recoveries are included in the above table in the Changes in estimates for prior years category.
Asbestos
– We are a defendant in a number of lawsuits in which current and former employees and other parties allege exposure to asbestos. We assess our potential liability using a statistical analysis of resolution costs for asbestos-related claims. This liability is updated annually and excludes future defense and processing costs. The liability for resolving both asserted and unasserted claims was based on the following assumptions:
|
·
|
|
The ratio of future claims by alleged disease would be consistent with historical averages adjusted for inflation.
|
|
·
|
|
The number of claims filed against us will decline each year.
|
|
·
|
|
The average settlement values for asserted and unasserted claims will be equivalent to historical averages.
|
|
·
|
|
The percentage of claims dismissed in the future will be equivalent to historical averages.
|
Our liability for asbestos-related claims is not discounted to present value due to the uncertainty surrounding the timing of future payments. Approximately
23
% of the recorded liability related to asserted claims and approximately
77
% related to unasserted claims at
September
30, 2016.
Our asbestos-related liability activity was as follows:
|
|
|
|
|
|
|
|
|
|
Millions,
|
|
|
|
|
for the Nine Months Ended September 30,
|
2016
|
2015
|
Beginning balance
|
$
|
120
|
$
|
126
|
Accruals
|
|
-
|
|
-
|
Payments
|
|
(18)
|
|
(4)
|
Ending balance at September 30
|
$
|
102
|
$
|
122
|
Current portion, ending balance at September 30
|
$
|
7
|
$
|
7
|
We have insurance coverage for a portion of the costs incurred to resolve asbestos-related claims, and we have recognized an asset for estimated insurance recoveries at
September
30, 2016, and December 31, 2015.
We believe that our estimates of liability for asbestos-related claims and insurance recoveries are reasonable and probable. The amounts recorded for asbestos-related liabilities and related insurance recoveries were based on currently known facts. However, future events, such as the number of new claims filed each year, average settlement costs, and insurance coverage issues, could cause the actual costs and insurance recoveries to be higher or lower than the projected amounts. Estimates also may vary in the future if strategies, activities, and outcomes of asbestos litigation materially change; federal and state laws governing asbestos litigation increase or decrease the probability or amount of compensation of claimants; and there are material changes with respect to payments made to claimants by other defendants.
Environmental Costs
– We are subject to federal, state, and local environmental laws and regulations. We have identified
305
sites at which we are or may be liable for remediation costs associated with alleged contamination or for violations of environmental requirements. This includes
33
sites that are the subject of actions taken by the U.S. government,
21
of which are currently on the Superfund National Priorities List. Certain federal legislation imposes joint and several liability for the remediation of identified sites; consequently, our ultimate environmental liability may include costs relating to activities of other parties, in addition to costs relating to our own activities at each site.
When we identify an environmental issue with respect to property owned, leased, or otherwise used in our business, we perform, with assistance of our consultants, environmental assessments on the property. We expense the cost of the assessments as incurred. We accrue the cost of remediation where our obligation is probable and such costs can be reasonably estimated. Our environmental liability is not discounted to present value due to the uncertainty surrounding the timing of future payments.
Our environmental liability activity was as follows:
|
|
|
|
|
|
|
|
|
|
Millions,
|
|
|
|
|
for the Nine Months Ended September 30,
|
2016
|
2015
|
Beginning balance
|
$
|
190
|
$
|
182
|
Accruals
|
|
66
|
|
51
|
Payments
|
|
(48)
|
|
(32)
|
Ending balance at September 30
|
$
|
208
|
$
|
201
|
Current portion, ending balance at September 30
|
$
|
54
|
$
|
60
|
The environmental liability includes future costs for remediation and restoration of sites, as well as ongoing monitoring costs, but excludes any anticipated recoveries from third parties. Cost estimates are based on information available for each site, financial viability of other potentially responsible parties, and existing technology, laws, and regulations. The ultimate liability for remediation is difficult to determine because of the number of potentially responsible parties, site-specific cost sharing arrangements with other potentially responsible parties, the degree of contamination by various wastes, the scarcity and quality of volumetric data related to many of the sites, and the speculative nature of remediation costs. Estimates of liability may vary over time due to changes in federal, state, and local laws governing
environmental remediation. Current obligations are not expected to have a material adverse effect on our consolidated results of operations, financial condition, or liquidity.
Insurance
– The Company has a consolidated, wholly-owned captive insurance subsidiary (the captive), that provides insurance coverage for certain risks including FELA claims and property coverage which are subject to reinsurance. The captive entered into annual reinsurance treaty agreements that insure workers compensation, general liability, auto liability and FELA risk. The captive cedes a portion of its FELA exposure through the treaty and assumes a proportionate share of the entire risk. The captive receives direct premiums, which are netted against the Company’s premium costs in other expenses in the Condensed Consolidated Statements of Income. The treaty agreements provide for certain protections against the risk of treaty participants’ non-performance, and we do not believe our exposure to treaty participants’ non-performance is material at this time. In the event the Company leaves the reinsurance program, the Company is not relieved of its primary obligation to the policyholders for activity prior to the termination of the treaty agreements. We record both liabilities and reinsurance receivables using an actuarial analysis based on historical experience in our Condensed Consolidated Statements of Financial Position.
Guarantees
– At both
September
30, 2016, and December 31, 2015, we were contingently liable for
$47 million and
$53 million in guarantees
, respectively
. The fair value of these obligations as of both
September
30, 2016, and December 31, 2015 was $0. We entered into these contingent guarantees in the normal course of business, and they include guaranteed obligations related to our affiliated operations. The final guarantee expires in 2022. We are not aware of any existing event of default that would require us to satisfy these guarantees. We do not expect that these guarantees will have a material adverse effect on our consolidated financial condition, results of operations, or liquidity.
Indemnities
–
We are contingently obligated under a variety of indemnification arrangements, although in some cases the extent of our potential liability is limited, depending on the nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will be resolved, we cannot reasonably determine the probability of an adverse claim or reasonably estimate any adverse liability or the total maximum exposure under these indemnification arrangements. We do not have any reason to believe that we will be required to make any material payments under these indemnity provisions
.
Operating Leases
– At
September
30, 2016, we had commitments for future minimum lease payments under operating leases with initial or remaining non-cancelable lease terms in excess of one year of approximately $
3.1
billion.
Gain Contingency
–
UPRR and Santa Fe Pacific Pipelines (SFPP, a subsidiary of Kinder Morgan Energy Partners, L.P.) currently are engaged in a proceeding to resolve the fair market rent payable to UPRR commencing on January 1, 2004, for pipeline easements on UPRR rights-of-way (
Union Pacific Railroad Company vs. Santa Fe Pacific Pipelines, Inc., SFPP, L.P., Kinder Morgan Operating L.P. “D” Kinder Morgan G.P., Inc., et al., Superior Court of the State of California for the County of Los Angeles, filed July 28, 2004
). In February 2007, a trial began to resolve this issue, and in May 2012, the trial judge rendered an opinion establishing the fair market rent and entering judgment for back rent, including prejudgment interest. SFPP appealed the judgment. On November 5, 2014, the Second District Circuit Court of Appeal in California issued an opinion holding that UPRR was not entitled to collect rent from SFPP for easements on the portions of the property acquired solely through federal government land grants issued during the 1800s. The Appellate Court also reversed the award of prejudgment interest and remanded the case to the trial court. A favorable final judgment may materially affect UPRR's results of operations in the period of any monetary recoveries. Due to the uncertainty regarding the amount and timing of any recovery or any subsequent proceedings, we consider this a gain contingency and have not recognized any amounts in the Condensed Consolidated Financial Statements as of
September
30, 2016.
17. Share Repurchase Program
Effective January 1, 2014, our Board of Directors authorized the repurchase of up to 120 million shares of our common stock by December 31, 2017, replacing our previous repurchase program. As of
September
30, 2016, we repurchased a total of
$18.2
billion of our common stock since the commencement of our
repurchase programs in 2007. The table below represents shares repurchased under this repurchase program during this reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Purchased
|
Average Price Paid
|
|
2016
|
2015
|
2016
|
2015
|
First quarter
|
9,315,807
|
6,881,455
|
$
|
76.49
|
$
|
117.28
|
Second quarter
|
7,026,100
|
7,975,100
|
|
85.66
|
|
104.62
|
Third quarter
|
9,088,613
|
13,800,700
|
|
93.63
|
|
89.65
|
Total
|
25,430,520
|
28,657,255
|
$
|
85.15
|
$
|
100.45
|
Remaining number of shares that may be repurchased under current authority
|
|
27,221,926
|
Management's assessments of market conditions and other pertinent factors guide the timing and volume of all repurchases. We expect to fund any share repurchases under this program through cash generated from operations, the sale or lease of various operating and non-operating properties, debt issuances, and cash on hand. Repurchased shares are recorded in treasury stock at cost, which includes any applicable commissions and fees.
18. Related Parties
UPRR and other North American railroad companies jointly own TTX Company (TTX). UPRR has a 36.79% economic and voting interest in TTX while the other North American railroads own the remaining interest. In accordance with ASC 323
Investments - Equity Method and Joint Venture
, UPRR applies the equity method of accounting to our investment in TTX.
TTX is a railcar pooling company that owns railcars and intermodal wells to serve North America’s railroads. TTX assists railroads in meeting the needs of their customers by providing railcars in an efficient, pooled environment. All railroads have the ability to utilize TTX railcars through car hire by renting railcars at stated rates.
UPRR had $
861
million and $830 million recognized as investments related to TTX in our Condensed Consolidated Statements of Financial Position as of
September
30, 2016, and December 31, 2015, respectively. TTX car hire expenses of $
93
million and $
96
million for the three months ended
September
30, 2016, and 2015, respectively, and $
275
million and $
282
million for the
nine
months ended
September
30, 2016, and 2015, respectively, are included in equipment and other rents in our Condensed Consolidated Statements of Income. In addition, UPRR had accounts payable to TTX of $
63
million and $61 million as of
September
30, 2016, and December 31, 2015, respectively.