0000100885
2009-04-01
2009-06-30
0000100885
2008-04-01
2008-06-30
0000100885
2009-01-01
2009-06-30
0000100885
2008-01-01
2008-06-30
0000100885
2009-06-30
0000100885
2008-12-31
0000100885
2008-06-30
0000100885
2007-12-31
0000100885
2009-07-17
0000100885
us-gaap:CommonStockMember
2007-12-31
0000100885
us-gaap:AdditionalPaidInCapitalMember
2007-12-31
0000100885
us-gaap:RetainedEarningsMember
2007-12-31
0000100885
us-gaap:TreasuryStockMember
2007-12-31
0000100885
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2007-12-31
0000100885
us-gaap:CommonClassAMember
2007-12-31
0000100885
unp:CommonClassATreasuryMember
2007-12-31
0000100885
us-gaap:CommonStockMember
2008-01-01
2008-06-30
0000100885
us-gaap:AdditionalPaidInCapitalMember
2008-01-01
2008-06-30
0000100885
us-gaap:RetainedEarningsMember
2008-01-01
2008-06-30
0000100885
us-gaap:TreasuryStockMember
2008-01-01
2008-06-30
0000100885
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2008-01-01
2008-06-30
0000100885
us-gaap:CommonStockMember
2008-06-30
0000100885
us-gaap:AdditionalPaidInCapitalMember
2008-06-30
0000100885
us-gaap:RetainedEarningsMember
2008-06-30
0000100885
us-gaap:TreasuryStockMember
2008-06-30
0000100885
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2008-06-30
0000100885
us-gaap:CommonClassAMember
2008-01-01
2008-06-30
0000100885
unp:CommonClassATreasuryMember
2008-01-01
2008-06-30
0000100885
us-gaap:CommonClassAMember
2008-06-30
0000100885
unp:CommonClassATreasuryMember
2008-06-30
0000100885
us-gaap:CommonClassAMember
2008-12-31
0000100885
unp:CommonClassATreasuryMember
2008-12-31
0000100885
us-gaap:CommonClassAMember
2009-01-01
2009-06-30
0000100885
unp:CommonClassATreasuryMember
2009-01-01
2009-06-30
0000100885
us-gaap:CommonClassAMember
2009-06-30
0000100885
unp:CommonClassATreasuryMember
2009-06-30
0000100885
us-gaap:CommonStockMember
2009-01-01
2009-06-30
0000100885
us-gaap:AdditionalPaidInCapitalMember
2009-01-01
2009-06-30
0000100885
us-gaap:RetainedEarningsMember
2009-01-01
2009-06-30
0000100885
us-gaap:TreasuryStockMember
2009-01-01
2009-06-30
0000100885
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2009-01-01
2009-06-30
0000100885
us-gaap:CommonStockMember
2009-06-30
0000100885
us-gaap:AdditionalPaidInCapitalMember
2009-06-30
0000100885
us-gaap:RetainedEarningsMember
2009-06-30
0000100885
us-gaap:TreasuryStockMember
2009-06-30
0000100885
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2009-06-30
0000100885
us-gaap:CommonStockMember
2008-12-31
0000100885
us-gaap:AdditionalPaidInCapitalMember
2008-12-31
0000100885
us-gaap:RetainedEarningsMember
2008-12-31
0000100885
us-gaap:TreasuryStockMember
2008-12-31
0000100885
us-gaap:AccumulatedOtherComprehensiveIncomeMember
2008-12-31
xbrli:shares
iso4217:USD
10-Q
2009-06-30
false
NONE
UNION PACIFIC CORPORATION
0000100885
Yes
No
Large Accelerated Filer
Yes
504304711
--12-31
41586000000
3121000000
4349000000
182000000
219000000
3303000000
4568000000
976000000
1101000000
391000000
494000000
370000000
1159000000
307000000
338000000
153000000
199000000
2552000000
3637000000
751000000
931000000
135000000
19000000
736000000
822000000
468000000
531000000
0.93
1.03
0.92
1.02
502904000.0
514264000.0
505338000.0
519005000.0
0.27
0.22
150000000
128000000
268000000
291000000
355000000
346000000
6361000000
8408000000
357000000
430000000
6718000000
8838000000
2046000000
2233000000
790000000
963000000
756000000
2116000000
624000000
680000000
379000000
441000000
5295000000
7119000000
1423000000
1719000000
158000000
44000000
291000000
254000000
1290000000
1509000000
460000000
535000000
830000000
974000000
1.65
1.89
1.64
1.87
502792000.0
516336000.0
504962000.0
521022000.0
0.54
0.44
700000000
686000000
629000000
594000000
507000000
450000000
283000000
276000000
271000000
244000000
3346000000
2813000000
990000000
974000000
36763000000
35701000000
451000000
234000000
41550000000
39722000000
2660000000
2560000000
174000000
320000000
2834000000
2880000000
9816000000
8607000000
10487000000
10282000000
2394000000
2506000000
25531000000
24275000000
1384000000
1382000000
3949000000
3949000000
14371000000
13813000000
2971000000
2993000000
-714000000
-704000000
16019000000
15447000000
41550000000
39722000000
1656000000
1249000000
2.50
553520549
552775812
504274996
503225705
2.50
800000000
800000000
210000000
160000000
132000000
19000000
68000000
-67000000
-35000000
-245000000
-57000000
-127000000
-27000000
33000000
-100000000
-307000000
1521000000
1836000000
1079000000
1324000000
142000000
45000000
216000000
307000000
0
175000000
-1000000
71000000
-1152000000
-1482000000
843000000
942000000
0
910000000
628000000
497000000
272000000
230000000
95000000
74000000
38000000
-621000000
407000000
-267000000
742000000
175000000
132000000
110000000
62000000
93000000
0
56000000
14000000
0
-277000000
-252000000
-88000000
-210000000
878000000
611000000
690000000
3926000000
12667000000
-1624000000
-74000000
15585000000
276200000.0
-15300000.0
0
0
974000000
0
0
0
0
0
0
5000000
5000000
0
0
974000000
0
5000000
979000000
1000000
0
0
113000000
0
114000000
0
0
0
-883000000
0
-883000000
691000000
0
-691000000
0
0
0
0
0
-229000000
0
0
-229000000
1382000000
3926000000
12721000000
-2394000000
-69000000
15566000000
400000.0
2400000.0
0
-12800000.0
276200000.0
-15300000.0
552800000.0
41000000.0
552800000.0
-49600000.0
700000.0
400000.0
553500000.0
-49200000.0
0
0
830000000
0
0
0
0
0
0
-10000000
-10000000
0
0
830000000
0
-10000000
820000000
2000000
0
0
22000000
0
24000000
0
0
-272000000
0
0
-272000000
1384000000
3949000000
14371000000
-2971000000
-714000000
16019000000
1382000000
3949000000
13813000000
-2993000000
-704000000
15447000000
0.44
0.54
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>For purposes of this report, unless the context otherwise requires, all references herein to the “Corporation”, “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”. <BR /><BR />1. Basis of Presentation – Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only 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). Our Consolidated Statement of Financial Position at December 31, 2008, is derived from audited financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with our Consolidated Financial Statements and notes thereto contained in our 2008 Annual Report on Form 10-K. The results of operations for the six months ended June 30, 2009, are not necessarily indicative of the results for the entire year ending December 31, 2009. <BR /><BR />We evaluated the effects of all subsequent events through July 24, 2009, the date of this report, which is concurrent with the date we file this report with the U.S. Securities and Exchange Commission (SEC). <BR /></P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>2. Operations and Segmentation – The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although revenue is analyzed by commodity group, we analyze the net 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:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="right" width="317"><FONT size="2"><I> </I></FONT></TD><TD width="158" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>   Three Months Ended June 30,</I></FONT></TD><TD width="151" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>    Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="317"><FONT size="2"><I> Millions of Dollars </I></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="29"><FONT size="2"><I> </I></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="29"><FONT size="2"><B><I> </I></B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="48"><FONT size="2"><I>2008 </I></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="24"><FONT size="2"><I> </I></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="53"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="26"><FONT size="2"><B><I> </I></B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="48"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="317"><FONT size="2"> Agricultural </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="29"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 618 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="29"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="48"><FONT size="2"> 778 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="24"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="53"><FONT size="2"><B> 1,279 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="26"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="48"><FONT size="2"> 1,534 </FONT></TD></TR><TR><TD height="20" width="317" align="left"><FONT size="2"> Automotive </FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 163 </B></FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 352 </FONT></TD><TD height="20" width="24" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="53" align="right"><FONT size="2"><B> 325 </B></FONT></TD><TD height="20" width="26" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 715 </FONT></TD></TR><TR><TD height="20" width="317" align="left"><FONT size="2"> Chemicals </FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 499 </B></FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 654 </FONT></TD><TD height="20" width="24" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="53" align="right"><FONT size="2"><B> 1,012 </B></FONT></TD><TD height="20" width="26" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 1,257 </FONT></TD></TR><TR><TD height="20" width="317" align="left"><FONT size="2"> Energy </FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 715 </B></FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 919 </FONT></TD><TD height="20" width="24" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="53" align="right"><FONT size="2"><B> 1,522 </B></FONT></TD><TD height="20" width="26" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 1,776 </FONT></TD></TR><TR><TD height="20" width="317" align="left"><FONT size="2"> Industrial Products </FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 531 </B></FONT></TD><TD height="20" width="29" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 877 </FONT></TD><TD height="20" width="24" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="53" align="right"><FONT size="2"><B> 1,077 </B></FONT></TD><TD height="20" width="26" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="48" align="right"><FONT size="2"> 1,650 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="317"><FONT size="2"> Intermodal </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="29"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 595 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="29"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="48"><FONT size="2"> 769 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="24"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="53"><FONT size="2"><B> 1,146 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="26"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="48"><FONT size="2"> 1,476 </FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="317"><FONT size="2"> Total freight revenues </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="29"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 3,121 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="29"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="48"><FONT size="2"> 4,349 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="24"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="53"><FONT size="2"><B> 6,361 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="26"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="48"><FONT size="2"> 8,408 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="317"><FONT size="2"> Other revenues </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="29"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 182 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="29"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="48"><FONT size="2"> 219 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="24"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="53"><FONT size="2"><B> 357 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="26"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="48"><FONT size="2"> 430 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="317"><FONT size="2"> Total operating revenues </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="29"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="52"><FONT size="2"><B> 3,303 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="29"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="48"><FONT size="2"> 4,568 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="24"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="53"><FONT size="2"><B> 6,718 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="26"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="48"><FONT size="2"> 8,838 </FONT></TD></TR></TABLE></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>3. Stock Split – On May 28, 2008, we completed a two-for-one stock split, effected in the form of a 100% stock dividend. The stock split entitled all shareholders of record at the close of business on May 12, 2008, to receive one additional share of our common stock, par value $2.50 per share, for each share of common stock held on that date. All references to common shares and per share amounts (excluding the Condensed Consolidated Statement of Changes in Common Shareholders’ Equity for the six month period ended June 30, 2008) have been restated to reflect the stock split for all periods presented.<BR /></P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>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 vest. Information regarding stock-based compensation appears in the table below:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="right" width="334"><FONT size="2"><I> </I></FONT></TD><TD width="146" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Three Months Ended June 30,</I></FONT></TD><TD width="145" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>   Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="334"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="73" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="73" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD><TD width="72" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="73" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="334"><FONT size="2"> Stock-based compensation, before tax:</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="40"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="33"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="40"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="33"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="39"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="33"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="40"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="33"><FONT size="2"> </FONT></TD></TR><TR><TD height="20" width="334" align="left"><FONT size="2">   Stock options </FONT></TD><TD height="20" width="40" align="right"><FONT size="2"><B>$</B></FONT></TD><TD height="20" width="33" align="right"><FONT size="2"><B> 6 </B></FONT></TD><TD height="20" width="40" align="right"><FONT size="2">$</FONT></TD><TD height="20" width="33" align="right"><FONT size="2"> 6 </FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B>$</B></FONT></TD><TD height="20" width="33" align="right"><FONT size="2"><B> 10 </B></FONT></TD><TD height="20" width="40" align="right"><FONT size="2">$</FONT></TD><TD height="20" width="33" align="right"><FONT size="2"> 12 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="334"><FONT size="2">   Retention awards </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"><B> 6 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"> 11 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"><B> 14 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"> 19 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="334"><FONT size="2"> Total stock-based compensation, before tax </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"><B> 12 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"> 17 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"><B> 24 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"> 31 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="334"><FONT size="2"> Total stock-based compensation, after tax </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"><B> 7 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"> 10 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"><B> 15 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"> 19 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="334"><FONT size="2"> Excess tax benefits from equity compensation plans </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="40"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="33"><FONT size="2"><B> 1 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="33"><FONT size="2"> 28 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="39"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="33"><FONT size="2"><B> 3 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="33"><FONT size="2"> 40 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>Stock Options – We estimate the fair value of our stock option awards using the Black-Scholes option pricing model. Groups of employees and non-employee directors that have similar historical and expected exercise behavior are considered separately for valuation purposes. The table below shows the year-to-date weighted-average assumptions used for valuation purposes:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="right" width="460"><FONT size="2"><I> </I></FONT></TD><TD width="164" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>     Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="460"><FONT size="2"><I> Weighted-Average Assumptions</I></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="26"><FONT size="2"><B><I> </I></B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="54"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="center" width="26"><FONT size="2"><B><I> </I></B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="58"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="460"><FONT size="2"> Risk-free interest rate </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="26"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="54"><FONT size="2"><B>1.9% </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="26"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="58"><FONT size="2">2.8% </FONT></TD></TR><TR><TD height="20" width="460" align="left"><FONT size="2"> Dividend yield </FONT></TD><TD height="20" width="26" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="54" align="right"><FONT size="2"><B>2.3% </B></FONT></TD><TD height="20" width="26" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="58" align="right"><FONT size="2">1.4% </FONT></TD></TR><TR><TD height="20" width="460" align="left"><FONT size="2"> Expected life (years) </FONT></TD><TD height="20" width="26" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="54" align="right"><FONT size="2"><B>5.1  </B></FONT></TD><TD height="20" width="26" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="58" align="right"><FONT size="2">5.3  </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="460"><FONT size="2"> Volatility</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="26"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="54"><FONT size="2"><B>31.3% </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="26"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="58"><FONT size="2">22.2% </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="460"><FONT size="2"> Weighted-average grant-date fair value of options granted </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="26"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="54"><FONT size="2"><B>11.33  </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="26"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="58"><FONT size="2">13.35  </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant; the 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 volatility is based on the historical volatility of our stock price over the expected life of the option.<BR /><BR /></P></FONT></DIV><DIV><FONT size="2"><P>A summary of stock option activity during the six months ended June 30, 2009 is presented below: <BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="60" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="left" width="259"><FONT size="2"><B><I> </I></B></FONT></TD><TD height="60" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="right" width="60"><FONT size="2"><I>Shares (thous.)</I></FONT></TD><TD width="97" align="right" colspan="2" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" height="60"><FONT size="2"><I>Weighted-Average Exercise Price</I></FONT></TD><TD height="60" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="right" width="115"><FONT size="2"><I>Weighted-Average Remaining Contractual Term</I></FONT></TD><TD width="93" align="right" colspan="2" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" height="60"><FONT size="2"><I>Aggregate Intrinsic Value (millions)</I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="259"><FONT size="2"> Outstanding at January 1, 2009</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="60"><FONT size="2"> 11,983 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="45"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2"> 40.81 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="115"><FONT size="2">5.6 yrs.</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="41"><FONT size="2"> 108 </FONT></TD></TR><TR><TD height="20" width="259" align="left"><FONT size="2"> Granted </FONT></TD><TD height="20" width="60" align="right"><FONT size="2"> 1,865 </FONT></TD><TD height="20" width="45" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 47.28 </FONT></TD><TD height="20" width="115" align="right"><FONT size="2">N/A</FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="right"><FONT size="2">N/A</FONT></TD></TR><TR><TD height="20" width="259" align="left"><FONT size="2"> Exercised </FONT></TD><TD height="20" width="60" align="right"><FONT size="2"> (224)</FONT></TD><TD height="20" width="45" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 30.53 </FONT></TD><TD height="20" width="115" align="right"><FONT size="2">N/A</FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="right"><FONT size="2">N/A</FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="259"><FONT size="2"> Forfeited or expired </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="60"><FONT size="2"> (14)</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="45"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"> 56.49 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="115"><FONT size="2">N/A</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="41"><FONT size="2">N/A</FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="259"><FONT size="2"> Outstanding at June 30, 2009</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="60"><FONT size="2"> 13,610 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="45"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"> 41.85 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="115"><FONT size="2">5.8 yrs.</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="41"><FONT size="2"> 155 </FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="259"><FONT size="2"> Vested or expected to vest </FONT></TD><TD width="60" align="right" rowspan="2" style="border-top: 1px solid #000000;" height="40"><FONT size="2"> 13,510 </FONT></TD><TD width="45" align="right" rowspan="2" style="border-top: 1px solid #000000;" height="40"><FONT size="2">$</FONT></TD><TD width="52" align="right" rowspan="2" style="border-top: 1px solid #000000;" height="40"><FONT size="2"> 41.77 </FONT></TD><TD width="115" align="right" rowspan="2" style="border-top: 1px solid #000000;" height="40"><FONT size="2">5.8 yrs.</FONT></TD><TD width="52" align="right" rowspan="2" style="border-top: 1px solid #000000;" height="40"><FONT size="2">$</FONT></TD><TD width="41" align="right" rowspan="2" style="border-top: 1px solid #000000;" height="40"><FONT size="2"> 155 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="259"><FONT size="2">   at June 30, 2009</FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="259"><FONT size="2"> Options exercisable at June 30, 2009</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="60"><FONT size="2"> 10,273 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="45"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="52"><FONT size="2"> 38.56 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="115"><FONT size="2">4.7 yrs.</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="52"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="41"><FONT size="2"> 144 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>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 June 30, 2009 are subject to performance or market-based vesting conditions.<BR /></P></FONT></DIV><DIV><FONT size="2"><P>At June 30, 2009, there was $32 million of unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.7 years. Additional information regarding stock option exercises appears in the table below:</P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="left" width="343"><FONT size="2"><I> </I></FONT></TD><TD width="133" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Three Months Ended June 30,</I></FONT></TD><TD width="145" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>   Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="343"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="60" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="73" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD><TD width="72" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="73" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="343"><FONT size="2"> Intrinsic value of stock options exercised</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="45"><FONT size="2"><B> 3 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="26"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="47"><FONT size="2"> 90 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="27"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="45"><FONT size="2"><B> 4 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="27"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="46"><FONT size="2"> 125 </FONT></TD></TR><TR><TD height="20" width="343" align="left"><FONT size="2"> Cash received from option exercises</FONT></TD><TD height="20" width="15" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="45" align="right"><FONT size="2"><B> 6 </B></FONT></TD><TD height="20" width="26" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="47" align="right"><FONT size="2"> 35 </FONT></TD><TD height="20" width="27" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="45" align="right"><FONT size="2"><B> 6 </B></FONT></TD><TD height="20" width="27" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="46" align="right"><FONT size="2"> 62 </FONT></TD></TR><TR><TD height="20" width="343" align="left"><FONT size="2"> Treasury shares repurchased for employee payroll taxes</FONT></TD><TD height="20" width="15" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="45" align="right"><FONT size="2"><B> 0 </B></FONT></TD><TD height="20" width="26" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="47" align="right"><FONT size="2"> (17)</FONT></TD><TD height="20" width="27" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="45" align="right"><FONT size="2"><B> 0 </B></FONT></TD><TD height="20" width="27" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="46" align="right"><FONT size="2"> (25)</FONT></TD></TR><TR><TD height="20" width="343" align="left"><FONT size="2"> Tax benefit realized from option exercises</FONT></TD><TD height="20" width="15" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="45" align="right"><FONT size="2"><B> 2 </B></FONT></TD><TD height="20" width="26" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="47" align="right"><FONT size="2"> 34 </FONT></TD><TD height="20" width="27" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="45" align="right"><FONT size="2"><B> 2 </B></FONT></TD><TD height="20" width="27" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="46" align="right"><FONT size="2"> 47 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 2px solid #000000;" align="left" width="343"><FONT size="2"> Aggregate grant-date fair value of stock options vested</FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="left" width="15"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="45"><FONT size="2"><B> 0 </B></FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="26"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="47"><FONT size="2"> 0 </FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="left" width="27"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="45"><FONT size="2"><B> 29 </B></FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="27"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="46"><FONT size="2"> 21 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>Retention Awards – The fair value of retention awards is based on the closing price of the stock on the grant date. Dividend and dividend equivalents are paid to participants during the vesting periods.<BR /><BR />Changes in our retention awards during the six months ended June 30, 2009 were as follows:</P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="40" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="left" width="408"><FONT size="2"><B><I> </I></B></FONT></TD><TD height="40" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="right" width="72"><FONT size="2"><I>Shares (thous.)</I></FONT></TD><TD width="144" align="right" colspan="2" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" height="40"><FONT size="2"><I>Weighted-Average Grant-Date Fair Value</I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="408"><FONT size="2"> Nonvested at January 1, 2009</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="72"><FONT size="2"> 2,015 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="93"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"> 49.39 </FONT></TD></TR><TR><TD height="20" width="408" align="left"><FONT size="2"> Granted </FONT></TD><TD height="20" width="72" align="right"><FONT size="2"> 980 </FONT></TD><TD height="20" width="93" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 47.28 </FONT></TD></TR><TR><TD height="20" width="408" align="left"><FONT size="2"> Vested </FONT></TD><TD height="20" width="72" align="right"><FONT size="2"> (212)</FONT></TD><TD height="20" width="93" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 30.90 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="408"><FONT size="2"> Forfeited </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="72"><FONT size="2"> (17)</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="93"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 45.17 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="408"><FONT size="2"> Nonvested at June 30, 2009</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="72"><FONT size="2"> 2,766 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="93"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="51"><FONT size="2"> 50.05 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>Retention awards are granted at no cost to the employee or non-employee director and vest over periods lasting up to four years. At June 30, 2009, there was $82 million of total unrecognized compensation expense related to nonvested retention awards, which is expected to be recognized over a weighted-average period of 2.3 years.<BR /></P></FONT></DIV><DIV><FONT size="2"><P>Performance Retention Awards – In February 2009, our Board of Directors approved performance stock unit grants. Other than different performance targets, the basic terms of these performance stock units are identical to those granted in January 2007 and 2008, including using annual return on invested capital (ROIC) as the performance measure. Additionally, a change was made to an underlying assumption used in connection with calculating a component of ROIC. The discount rate used in both the numerator and denominator when calculating the present value of our future operating lease payments may fluctuate to reflect changes to interest rates and our financing costs. 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. 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. 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.</P></FONT></DIV><DIV><FONT size="2"><P>The assumptions used to calculate the present value of estimated future dividends related to the February 2009 grant were as follows:</P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="20" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="left" width="552"><FONT size="2"><I> </I></FONT></TD><TD width="72" align="right" colspan="2" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2009 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="552"><FONT size="2"> Dividend per share per quarter </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="27"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="45"><FONT size="2"> 0.27 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 2px solid #000000;" align="left" width="552"><FONT size="2"> Risk-free interest rate at date of grant </FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="27"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="45"><FONT size="2">1.9% </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>Changes in our performance retention awards during the six months ended June 30, 2009 were as follows: <BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="40" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="left" width="408"><FONT size="2"><B><I> </I></B></FONT></TD><TD height="40" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" align="right" width="72"><FONT size="2"><I>Shares (thous.)</I></FONT></TD><TD width="144" align="right" colspan="2" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" height="40"><FONT size="2"><I>Weighted-Average Grant-Date Fair Value</I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="408"><FONT size="2"> Nonvested at January 1, 2009</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="72"><FONT size="2"> 873 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="93"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"> 50.70 </FONT></TD></TR><TR><TD height="20" width="408" align="left"><FONT size="2"> Granted </FONT></TD><TD height="20" width="72" align="right"><FONT size="2"> 449 </FONT></TD><TD height="20" width="93" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 47.28 </FONT></TD></TR><TR><TD height="20" width="408" align="left"><FONT size="2"> Vested </FONT></TD><TD height="20" width="72" align="right"><FONT size="2"> (237)</FONT></TD><TD height="20" width="93" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 43.15 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="408"><FONT size="2"> Forfeited </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="72"><FONT size="2"> (15)</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="93"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 53.84 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="408"><FONT size="2"> Nonvested at June 30, 2009</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="72"><FONT size="2"> 1,070 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="93"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="51"><FONT size="2"> 50.89 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>At June 30, 2009, there was $31 million of total unrecognized compensation expense related to nonvested performance retention awards, which is expected to be recognized over a weighted-average period of 1.7 years. A portion of this expense is subject to achievement of the ROIC levels established for the performance stock unit grants.<BR /></P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>5. Retirement Plans<BR /><BR />Pension and Other Postretirement Benefits <BR /><BR />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.<BR /><BR />Other Postretirement Benefits (OPEB) – We provide defined contribution medical and life insurance benefits for eligible retirees. These benefits are funded as medical claims and life insurance premiums are paid.<BR /> <BR />Expense <BR /><BR />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 and, if necessary, amortized as pension or OPEB expense. <BR /></P></FONT></DIV><DIV><FONT size="2"><P>The components of our net periodic pension cost were as follows:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="20" style="border-top: 2px solid #000000;" align="left" width="341"><FONT size="2"> </FONT></TD><TD width="280" align="center" colspan="8" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>Pension</I></FONT></TD></TR><TR><TD height="39" width="341" align="left"><FONT size="2"> </FONT></TD><TD width="139" align="right" colspan="4" style="border-top: 1px solid #000000;" height="39"><FONT size="2"><I>Three Months Ended June 30,</I></FONT></TD><TD width="141" align="right" colspan="4" style="border-top: 1px solid #000000;" height="39"><FONT size="2"><I>     Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="341"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="58" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD><TD width="58" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="83" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="341"><FONT size="2"> Service cost</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 9 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="43"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2"> 9 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 19 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="43"><FONT size="2"> 18 </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Interest cost</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 35 </B></FONT></TD><TD height="20" width="43" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> 33 </FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 69 </B></FONT></TD><TD height="20" width="40" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="43" align="right"><FONT size="2"> 66 </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Expected return on plan assets</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> (41)</B></FONT></TD><TD height="20" width="43" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> (38)</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> (81)</B></FONT></TD><TD height="20" width="40" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="43" align="right"><FONT size="2"> (76)</FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Amortization of:</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="43" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="40" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="43" align="left"><FONT size="2"> </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2">   Prior service cost</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 1 </B></FONT></TD><TD height="20" width="43" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> 1 </FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 3 </B></FONT></TD><TD height="20" width="40" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="43" align="right"><FONT size="2"> 3 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="341"><FONT size="2">   Actuarial loss</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="19"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 7 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="43"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2"> 2 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="19"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 13 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="40"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="43"><FONT size="2"> 3 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="341"><FONT size="2"> Net periodic benefit cost</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="39"><FONT size="2"><B> 11 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="43"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2"> 7 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="39"><FONT size="2"><B> 23 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="43"><FONT size="2"> 14 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>The components of our net periodic OPEB cost/(benefit) were as follows:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="20" style="border-top: 2px solid #000000;" align="left" width="341"><FONT size="2"> </FONT></TD><TD width="278" align="center" colspan="8" style="border-top: 2px solid #000000;border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>OPEB</I></FONT></TD></TR><TR><TD height="39" width="341" align="left"><FONT size="2"> </FONT></TD><TD width="139" align="right" colspan="4" style="border-top: 1px solid #000000;" height="39"><FONT size="2"><I>Three Months Ended June 30,</I></FONT></TD><TD width="139" align="right" colspan="4" style="border-top: 1px solid #000000;" height="39"><FONT size="2"><I>Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="341"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="58" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD><TD width="58" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="341"><FONT size="2"> Service cost</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 1 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="43"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2"> 1 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 2 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="41"><FONT size="2"> 2 </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Interest cost</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 7 </B></FONT></TD><TD height="20" width="43" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> 5 </FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 13 </B></FONT></TD><TD height="20" width="40" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="right"><FONT size="2"> 10 </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Amortization of:</FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="43" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="40" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="left"><FONT size="2"> </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2">   Prior service (credit)</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> (8)</B></FONT></TD><TD height="20" width="43" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> (9)</FONT></TD><TD height="20" width="19" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> (17)</B></FONT></TD><TD height="20" width="40" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="right"><FONT size="2"> (17)</FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="341"><FONT size="2">   Actuarial loss</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="19"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 4 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="43"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2"> 2 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="19"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 8 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="41"><FONT size="2"> 3 </FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="341"><FONT size="2"> Net periodic benefit cost/(benefit)</FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="39"><FONT size="2"><B> 4 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="43"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2"> (1)</FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="39"><FONT size="2"><B> 6 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="41"><FONT size="2"> (2)</FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>Cash Contributions <BR /><BR />As of June 30, 2009, we have made $45 million of cash contributions to the qualified pension plan. Additional contributions made in the second half of the year will be based on cash generated from operations and financial market considerations. All contributions made to the qualified pension plan during the six months ended June 30, 2009 were voluntary and were made with cash generated from operations.</P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>6. Other Income – Other income included the following:</P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="left" width="341"><FONT size="2"><I> </I></FONT></TD><TD width="139" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Three Months Ended June 30,</I></FONT></TD><TD width="139" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="19" style="border-bottom: 1px solid #000000;" align="left" width="341"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="58" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="19"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="19"><FONT size="2"><I>2008 </I></FONT></TD><TD width="58" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="19"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="19"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="341"><FONT size="2"> Rental income</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 19 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="43"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2"> 20 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> 39 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="41"><FONT size="2"> 44 </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Net gain on non-operating asset dispositions</FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 126 </B></FONT></TD><TD height="20" width="43" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> 8 </FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 132 </B></FONT></TD><TD height="20" width="40" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="right"><FONT size="2"> 19 </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Interest income</FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 2 </B></FONT></TD><TD height="20" width="43" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> 4 </FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> 4 </B></FONT></TD><TD height="20" width="40" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="right"><FONT size="2"> 12 </FONT></TD></TR><TR><TD height="20" width="341" align="left"><FONT size="2"> Sale of receivables fees</FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> (2)</B></FONT></TD><TD height="20" width="43" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> (5)</FONT></TD><TD height="20" width="19" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="39" align="right"><FONT size="2"><B> (5)</B></FONT></TD><TD height="20" width="40" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="41" align="right"><FONT size="2"> (12)</FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="341"><FONT size="2"> Non-operating environmental costs and other</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="19"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> (10)</B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="43"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2"> (8)</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="19"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="39"><FONT size="2"><B> (12)</B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="40"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="41"><FONT size="2"> (19)</FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="341"><FONT size="2"> Total</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="39"><FONT size="2"><B> 135 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="43"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2"> 19 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="19"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="39"><FONT size="2"><B> 158 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="40"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="41"><FONT size="2"> 44 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>In June of 2009, we closed a $118 million sale of land to the Regional Transportation District (RTD) in Colorado, resulting in a $116 million pre-tax gain. The agreement with the RTD involves a 33-mile industrial lead track in Boulder, Colorado.<BR /></P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>7. Income Taxes – Internal Revenue Service (IRS) examinations have been completed and settled for all years prior to 1999, and the statute of limitations bars any additional tax assessments. Some interest calculations remain open back to 1986. The IRS has completed its examinations and issued notices of deficiency for tax years 1999 through 2004. We disagree with many of their proposed adjustments, and we are at IRS Appeals for these years. During the second quarter of 2009, the IRS completed its examination and issued a notice of deficiency for tax years 2005 and 2006. We disagree with many of their proposed adjustments, and will contest the adjustments through the IRS Appeals process and potentially through litigation. Additionally, several state tax authorities are examining our state income tax returns for tax years 2000 through 2006.<BR /><BR />At June 30, 2009, our liability for unrecognized tax benefits was $36 million, of which $3 million was classified as current.<BR /><BR />In February of 2009, California enacted legislation that changed how corporate taxpayers determine the amount of their income subject to California tax. This change reduced our deferred tax expense by $14 million in the first quarter.</P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>8. Earnings Per Share<BR /><BR />The following table provides a reconciliation between basic and diluted earnings per share for the three and six months ended June 30:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="left" width="338"><FONT size="2"><B><I> </I></B></FONT></TD><TD width="146" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Three Months Ended June 30,</I></FONT></TD><TD width="138" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="338"><FONT size="2"><I> Millions, Except Per Share Amounts</I></FONT></TD><TD width="73" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="73" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD><TD width="66" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="72" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="338"><FONT size="2"> Net income </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"><B> 468 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 531 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"><B> 830 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="21"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 974 </FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="338"><FONT size="2"> Weighted-average number of shares outstanding: </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="22"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="22"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="21"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"> </FONT></TD></TR><TR><TD height="20" width="338" align="left"><FONT size="2">     Basic </FONT></TD><TD height="20" width="22" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="51" align="right"><FONT size="2"><B>502.9 </B></FONT></TD><TD height="20" width="22" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 514.3 </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="51" align="right"><FONT size="2"><B>502.8 </B></FONT></TD><TD height="20" width="21" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 516.3 </FONT></TD></TR><TR><TD height="20" width="338" align="left"><FONT size="2">     Dilutive effect of stock options </FONT></TD><TD height="20" width="22" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="51" align="right"><FONT size="2"><B>1.3 </B></FONT></TD><TD height="20" width="22" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 3.7 </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="51" align="right"><FONT size="2"><B>1.1 </B></FONT></TD><TD height="20" width="21" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 3.8 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="338"><FONT size="2">     Dilutive effect of retention shares and units </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="22"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"><B>1.1 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="22"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 1.0 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"><B>1.1 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="21"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 0.9 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="338"><FONT size="2"> Diluted </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22"><FONT size="2"><B> </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"><B>505.3 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="22"><FONT size="2"> </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 519.0 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"><B>505.0 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="21"><FONT size="2"> </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="51"><FONT size="2"> 521.0 </FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="338"><FONT size="2"> Earnings per share – basic </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="22"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"><B> 0.93 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="22"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"> 1.03 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"><B> 1.65 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="21"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="51"><FONT size="2"> 1.89 </FONT></TD></TR><TR><TD height="20" width="338" align="left"><FONT size="2"> Earnings per share – diluted </FONT></TD><TD height="20" width="22" align="right"><FONT size="2"><B>$</B></FONT></TD><TD height="20" width="51" align="right"><FONT size="2"><B> 0.92 </B></FONT></TD><TD height="20" width="22" align="right"><FONT size="2">$</FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 1.02 </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B>$</B></FONT></TD><TD height="20" width="51" align="right"><FONT size="2"><B> 1.64 </B></FONT></TD><TD height="20" width="21" align="right"><FONT size="2">$</FONT></TD><TD height="20" width="51" align="right"><FONT size="2"> 1.87 </FONT></TD></TR><TR><TD height="41" style="border-bottom: 2px solid #000000;" align="left" width="338"><FONT size="2"> Stock options excluded as their inclusion would be antidilutive</FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="left" width="22"><FONT size="2"> </FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="right" width="51"><FONT size="2"><B>7.7 </B></FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="left" width="22"><FONT size="2"> </FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="right" width="51"><FONT size="2">0 </FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="left" width="15"><FONT size="2"> </FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="right" width="51"><FONT size="2"><B>7.4 </B></FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="left" width="21"><FONT size="2"> </FONT></TD><TD height="41" style="border-bottom: 2px solid #000000;" align="right" width="51"><FONT size="2">0.8 </FONT></TD></TR></TABLE></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>9. Comprehensive Income/(Loss) – Comprehensive income/(loss) was as follows:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD width="350" align="left" colspan="2" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I> </I></FONT></TD><TD width="140" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Three Months Ended June 30,</I></FONT></TD><TD width="134" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Six Months Ended June 30,</I></FONT></TD></TR><TR><TD width="350" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="71" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="69" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD><TD width="67" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="67" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD width="350" align="left" colspan="2" style="border-top: 1px solid #000000;" height="20"><FONT size="2"> Net income </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="56"><FONT size="2"><B> 468 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="54"><FONT size="2"> 531 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 830 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2"> 974 </FONT></TD></TR><TR><TD width="350" align="left" height="20" colspan="2"><FONT size="2"> Other comprehensive income/(loss):</FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="56" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="15" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="54" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="15" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="left"><FONT size="2"> </FONT></TD></TR><TR><TD width="350" align="left" height="20" colspan="2"><FONT size="2">   Defined benefit plans </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="56" align="right"><FONT size="2"><B> 2 </B></FONT></TD><TD height="20" width="15" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="54" align="right"><FONT size="2"> 0 </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> (11)</B></FONT></TD><TD height="20" width="15" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> (4)</FONT></TD></TR><TR><TD width="350" align="left" height="20" colspan="2"><FONT size="2">   Foreign currency translation </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="56" align="right"><FONT size="2"><B> 14 </B></FONT></TD><TD height="20" width="15" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="54" align="right"><FONT size="2"> 6 </FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 1 </B></FONT></TD><TD height="20" width="15" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 9 </FONT></TD></TR><TR><TD width="350" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2">   Derivatives</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="56"><FONT size="2"><B> 0 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="54"><FONT size="2"> 1 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 0 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"> 0 </FONT></TD></TR><TR><TD width="350" align="left" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="28"><FONT size="2"> Total other comprehensive income/(loss) [a] </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="56"><FONT size="2"><B> 16 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"> </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="54"><FONT size="2"> 7 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> (10)</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"> </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"> 5 </FONT></TD></TR><TR><TD width="350" align="left" colspan="2" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" height="28"><FONT size="2"> Total comprehensive income </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="56"><FONT size="2"><B> 484 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="15"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="54"><FONT size="2"> 538 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="52"><FONT size="2"><B> 820 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="15"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="52"><FONT size="2"> 979 </FONT></TD></TR><TR><TD height="13" style="border-top: 2px solid #000000;" align="left" width="30"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="320"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="15"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="56"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="15"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="54"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="15"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="52"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="15"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="52"><FONT size="2"> </FONT></TD></TR><TR><TD height="20" width="30" align="left"><FONT size="2"><I>[a]</I></FONT></TD><TD width="594" align="left" height="20" colspan="9"><FONT size="2"><I>Net of deferred taxes of $10 million and $1 million during the three and six months ended June 30, 2009, respectively, and $4 million and $6 million during the three and six months ended June 30, 2008, respectively. </I></FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>The after-tax components of accumulated other comprehensive loss were as follows:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="20" style="border-top: 2px solid #000000;" align="left" width="463"><FONT size="2"><I> </I></FONT></TD><TD width="83" align="right" colspan="2" style="border-top: 2px solid #000000;" height="20"><FONT size="2"><B><I>Jun. 30,</I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-top: 2px solid #000000;" height="20"><FONT size="2"><I>Dec. 31,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="463"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="83" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="463"><FONT size="2"> Defined benefit plans </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="37"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="46"><FONT size="2"><B> (670)</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="37"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="44"><FONT size="2"> (659)</FONT></TD></TR><TR><TD height="20" width="463" align="left"><FONT size="2"> Foreign currency translation </FONT></TD><TD height="20" width="37" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="46" align="right"><FONT size="2"><B> (40)</B></FONT></TD><TD height="20" width="37" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="44" align="right"><FONT size="2"> (41)</FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="463"><FONT size="2"> Derivatives </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="37"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="46"><FONT size="2"><B> (4)</B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="37"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="44"><FONT size="2"> (4)</FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="463"><FONT size="2"> Total </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="37"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="46"><FONT size="2"><B> (714)</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="37"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="44"><FONT size="2"> (704)</FONT></TD></TR></TABLE></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>10. Properties<BR /><BR />The following table lists the major categories of property and equipment, as well as the average composite depreciation rate for each category:<BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="20" style="border-top: 2px solid #000000;" align="left" width="30"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 2px solid #000000;" align="left" width="334"><FONT size="2"> </FONT></TD><TD width="81" align="right" colspan="2" style="border-top: 2px solid #000000;" height="20"><FONT size="2"><B><I>Jun. 30,</I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-top: 2px solid #000000;" height="20"><FONT size="2"><I>Dec. 31,</I></FONT></TD><TD height="20" style="border-top: 2px solid #000000;" align="right" width="98"><FONT size="2"><I>Depreciation</I></FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I> Millions of Dollars, Except Percentages</I></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="81" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="98"><FONT size="2"><I>Rate for 2009</I></FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-top: 1px solid #000000;" height="20"><FONT size="2"> Land </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 4,851 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="65"><FONT size="2"> 4,861 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="98"><FONT size="2">N/A</FONT></TD></TR><TR><TD width="364" align="left" height="20" colspan="2"><FONT size="2"> Road </FONT></TD><TD height="20" width="16" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="65" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="16" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="65" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="98" align="left"><FONT size="2"> </FONT></TD></TR><TR><TD width="364" align="left" height="20" colspan="2"><FONT size="2">   Rail and other track material </FONT></TD><TD height="20" width="16" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="65" align="right"><FONT size="2"><B> 11,694 </B></FONT></TD><TD height="20" width="16" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="65" align="right"><FONT size="2"> 11,366 </FONT></TD><TD height="20" width="98" align="right"><FONT size="2">3.6% </FONT></TD></TR><TR><TD width="364" align="left" height="20" colspan="2"><FONT size="2">   Ties </FONT></TD><TD height="20" width="16" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="65" align="right"><FONT size="2"><B> 7,061 </B></FONT></TD><TD height="20" width="16" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="65" align="right"><FONT size="2"> 6,827 </FONT></TD><TD height="20" width="98" align="right"><FONT size="2">2.7% </FONT></TD></TR><TR><TD width="364" align="left" height="20" colspan="2"><FONT size="2">   Ballast </FONT></TD><TD height="20" width="16" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="65" align="right"><FONT size="2"><B> 3,756 </B></FONT></TD><TD height="20" width="16" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="65" align="right"><FONT size="2"> 3,635 </FONT></TD><TD height="20" width="98" align="right"><FONT size="2">2.9% </FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2">   Other [a] </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 12,758 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"> 12,520 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="98"><FONT size="2">2.4% </FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="20"><FONT size="2">   Total Road </FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 35,269 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"> 34,348 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="98"><FONT size="2">2.9% </FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-top: 1px solid #000000;" height="20"><FONT size="2"> Equipment</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="65"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="65"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="left" width="98"><FONT size="2"> </FONT></TD></TR><TR><TD width="364" align="left" height="20" colspan="2"><FONT size="2">   Locomotives </FONT></TD><TD height="20" width="16" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="65" align="right"><FONT size="2"><B> 5,900 </B></FONT></TD><TD height="20" width="16" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="65" align="right"><FONT size="2"> 5,157 </FONT></TD><TD height="20" width="98" align="right"><FONT size="2">5.0% </FONT></TD></TR><TR><TD width="364" align="left" height="20" colspan="2"><FONT size="2">   Freight cars </FONT></TD><TD height="20" width="16" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="65" align="right"><FONT size="2"><B> 1,956 </B></FONT></TD><TD height="20" width="16" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="65" align="right"><FONT size="2"> 1,985 </FONT></TD><TD height="20" width="98" align="right"><FONT size="2">4.2% </FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2">   Work equipment and other </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 163 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"> 158 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="98"><FONT size="2">3.6% </FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" height="20"><FONT size="2">   Total Equipment </FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 8,019 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"> 7,300 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="98"><FONT size="2">4.8% </FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-top: 1px solid #000000;" height="20"><FONT size="2"> Technology and other </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 507 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="65"><FONT size="2"> 468 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="98"><FONT size="2">12.2% </FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"> Construction in progress </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 875 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"> 938 </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="98"><FONT size="2">N/A</FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-top: 1px solid #000000;" height="20"><FONT size="2"> Total properties </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> 49,521 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="16"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="65"><FONT size="2"> 47,915 </FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="98"><FONT size="2">N/A</FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"> Accumulated depreciation </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"><B> (12,758)</B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="16"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="65"><FONT size="2"> (12,214)</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="98"><FONT size="2">N/A</FONT></TD></TR><TR><TD width="364" align="left" colspan="2" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" height="28"><FONT size="2"> Net properties </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="16"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="65"><FONT size="2"><B> 36,763 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="16"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="65"><FONT size="2"> 35,701 </FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="98"><FONT size="2">N/A</FONT></TD></TR><TR><TD height="13" style="border-top: 2px solid #000000;" align="left" width="30"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="334"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="left" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="right" width="65"><FONT size="2"><B> </B></FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="right" width="16"><FONT size="2"><B> </B></FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="right" width="65"><FONT size="2"> </FONT></TD><TD height="13" style="border-top: 2px solid #000000;" align="right" width="98"><FONT size="2"> </FONT></TD></TR><TR><TD height="20" width="30" align="left"><FONT size="2"><I>[a]</I></FONT></TD><TD width="594" align="left" height="20" colspan="6"><FONT size="2"><I>Other includes grading, bridges and tunnels, signals, buildings, and other road assets.</I></FONT></TD></TR></TABLE></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>11. Accounts Payable and Other Current Liabilities</P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="20" style="border-top: 2px solid #000000;" align="left" width="442"><FONT size="2"><I> </I></FONT></TD><TD width="90" align="right" colspan="2" style="border-top: 2px solid #000000;" height="20"><FONT size="2"><B><I>Jun. 30,</I></B></FONT></TD><TD width="90" align="right" colspan="2" style="border-top: 2px solid #000000;" height="20"><FONT size="2"><I>Dec. 31,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="442"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="90" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="90" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="442"><FONT size="2"> Accounts payable</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 667 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="52"><FONT size="2"> 629 </FONT></TD></TR><TR><TD height="20" width="442" align="left"><FONT size="2"> Accrued casualty costs</FONT></TD><TD height="20" width="38" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 392 </B></FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 390 </FONT></TD></TR><TR><TD height="20" width="442" align="left"><FONT size="2"> Accrued wages and vacation</FONT></TD><TD height="20" width="38" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 357 </B></FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 367 </FONT></TD></TR><TR><TD height="20" width="442" align="left"><FONT size="2"> Dividends and interest</FONT></TD><TD height="20" width="38" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 339 </B></FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 328 </FONT></TD></TR><TR><TD height="20" width="442" align="left"><FONT size="2"> Income and other taxes</FONT></TD><TD height="20" width="38" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 328 </B></FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 207 </FONT></TD></TR><TR><TD height="20" width="442" align="left"><FONT size="2"> Equipment rents payable </FONT></TD><TD height="20" width="38" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="52" align="right"><FONT size="2"><B> 85 </B></FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="52" align="right"><FONT size="2"> 93 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="442"><FONT size="2"> Other</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="38"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"><B> 492 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="52"><FONT size="2"> 546 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="442"><FONT size="2"> Total accounts payable and other current liabilities</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="52"><FONT size="2"><B> 2,660 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="52"><FONT size="2"> 2,560 </FONT></TD></TR></TABLE></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>12. Financial Instruments<BR /><BR />Strategy and Risk – We may use derivative financial instruments in limited instances for other than trading purposes to assist in managing 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.<BR /><BR />Market and Credit Risk – We address market risk related to derivative financial instruments by selecting instruments with value fluctuations that highly correlate with the underlying hedged item. We manage credit risk related to derivative financial instruments, which is minimal, by requiring high credit standards for counterparties and periodic settlements. At June 30, 2009 and December 31, 2008, we were not required to provide collateral, nor had we received collateral, relating to our hedging activities. <BR /><BR />Determination of Fair Value – We determine the fair values of our derivative financial instrument positions based upon current fair values as quoted by recognized dealers or the present value of expected future cash flows. <BR /><BR />Interest Rate Fair Value Hedges – We manage our overall exposure to fluctuations in interest rates by adjusting the proportion of fixed and floating rate debt instruments within our debt portfolio over a given period. We generally manage the mix of fixed and floating rate debt through the issuance of targeted amounts of each as debt matures or as we require incremental borrowings. We employ derivatives, primarily swaps, as one of the tools to obtain the targeted mix. In addition, we also obtain flexibility in managing interest costs and the interest rate mix within our debt portfolio by evaluating the issuance of and managing outstanding callable fixed-rate debt securities. <BR /><BR />Swaps allow us to convert debt from fixed rates to variable rates and thereby hedge the risk of changes in the debt’s fair value attributable to the changes in interest rates. We account for swaps as fair value hedges using the short-cut method pursuant to Financial Accounting Standards Board (FASB) Statement No. 133, Accounting for Derivative Instruments and Hedging Activities; therefore, we do not record any ineffectiveness within our Condensed Consolidated Financial Statements. </P></FONT></DIV><DIV><FONT size="2"><P>The following is a summary of our interest rate derivatives qualifying as fair value hedges: </P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="28" style="border-top: 2px solid #000000;" align="left" width="464"><FONT size="2"><I> </I></FONT></TD><TD width="80" align="right" colspan="2" style="border-top: 2px solid #000000;" height="28"><FONT size="2"><B><I>Jun. 30,</I></B></FONT></TD><TD width="80" align="right" colspan="2" style="border-top: 2px solid #000000;" height="28"><FONT size="2"><I>Dec. 31,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="464"><FONT size="2"><I> Millions of Dollars, Except Percentages</I></FONT></TD><TD width="80" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="80" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="464"><FONT size="2"> Amount of debt hedged</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="37"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="43"><FONT size="2"><B> 250 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="37"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="43"><FONT size="2"> 250 </FONT></TD></TR><TR><TD height="20" width="464" align="left"><FONT size="2"> Percentage of total debt portfolio</FONT></TD><TD height="20" width="37" align="left"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="43" align="right"><FONT size="2"><B>3% </B></FONT></TD><TD height="20" width="37" align="left"><FONT size="2"> </FONT></TD><TD height="20" width="43" align="right"><FONT size="2">3% </FONT></TD></TR><TR><TD height="20" style="border-bottom: 2px solid #000000;" align="left" width="464"><FONT size="2"> Gross fair value asset position</FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="37"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="43"><FONT size="2"><B> 15 </B></FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="37"><FONT size="2">$</FONT></TD><TD height="20" style="border-bottom: 2px solid #000000;" align="right" width="43"><FONT size="2"> 19 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>We determined the fair value of our interest rate derivative based upon current fair values as quoted by recognized dealers. As prescribed by FASB Statement No. 157, Fair Value Measurements (FAS 157), we recognized the fair value as a Level 2 valuation. FAS 157 defines Level 2 valuation as observable market based inputs or unobservable inputs that are corroborated by market data.<BR /><BR />Interest Rate Cash Flow Hedges – We report changes in the fair value of cash flow hedges in accumulated other comprehensive loss until the hedged item affects earnings. At June 30, 2009 and December 31, 2008, we had reductions of $4 million recorded as an accumulated other comprehensive loss that is being amortized on a straight-line basis through September 30, 2014. As of June 30, 2009 and December 31, 2008, we had no interest rate cash flow hedges outstanding. <BR /></P></FONT></DIV><DIV><FONT size="2"><P>Earnings Impact – Our use of derivative financial instruments had the following impact on pre-tax income for the six months ended: <BR /></P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="20" style="border-top: 2px solid #000000;" align="left" width="471"><FONT size="2"> </FONT></TD><TD rowspan="2" height="40" style="border-top: 2px solid #000000;" width="73" colspan="2" align="right"><FONT size="2"><B><I>Jun. 30, 2009</I></B></FONT></TD><TD rowspan="2" height="40" style="border-top: 2px solid #000000;" width="79" colspan="2" align="right"><FONT size="2"><I>Jun. 30, 2008</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="471"><FONT size="2"><I> Millions of Dollars</I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="471"><FONT size="2"> (Increase)/decrease in interest expense from interest rate hedging</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="18"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="55"><FONT size="2"><B> 4 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="41"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2"> 1 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="471"><FONT size="2"> (Increase)/decrease in fuel expense from fuel derivatives</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="18"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="55"><FONT size="2"><B> 0 </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="41"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2"> 1 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="471"><FONT size="2"> Increase/(decrease) in pre-tax income</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="18"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="55"><FONT size="2"><B> 4 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="41"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2"> 2 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>Fair Value of Debt Instruments – The fair value of our short- and long-term debt was estimated using quoted market prices, where available, or current borrowing rates. At June 30, 2009, the fair value of total debt is $10.4 billion, approximately $406 million more than the carrying value. At December 31, 2008, the fair value of total debt was $8.7 billion, approximately $247 million less than the carrying value. At June 30, 2009 and December 31, 2008, approximately $320 million of fixed-rate debt securities contained call provisions that allowed us to retire the debt instruments prior to final maturity, with the payment of fixed call premiums, or in certain cases, at par.<BR /><BR />Sale of Receivables – The Railroad transfers most of its accounts receivable to Union Pacific Receivables, Inc. (UPRI), a bankruptcy-remote subsidiary, as part of a sale of receivables facility. UPRI sells, without recourse on a 364-day revolving basis, an undivided interest in such accounts receivable to investors. The total capacity to sell undivided interests to investors under the facility was $700 million at both June 30, 2009 and December 31, 2008. The value of the outstanding undivided interest held by investors under the facility was $400 million and $584 million at June 30, 2009 and December 31, 2008, respectively. During the six months ended June 30, 2009, UPRI reduced the outstanding undivided interest held by investors due to a decrease in available receivables. The value of the outstanding undivided interest held by investors is not included in our Condensed Consolidated Financial Statements. The value of the undivided interest held by investors was supported by $847 million and $1,015 million of accounts receivable held by UPRI at June 30, 2009 and December 31, 2008, respectively. At June 30, 2009 and December 31, 2008, the value of the interest retained by UPRI was $447 million and $431 million, respectively. This retained interest is included in accounts receivable in our Condensed Consolidated Financial Statements. The interest sold to investors is sold at carrying value, which approximates fair value, and there is no gain or loss recognized from the transaction. <BR /><BR />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 June 30, 2009. 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. <BR /><BR />The Railroad services the sold receivables; however, the Railroad does not recognize any servicing asset or liability as the servicing fees adequately compensate the Railroad for these responsibilities. The Railroad collected approximately $3.2 billion and $4.5 billion during the three months ended June 30, 2009 and 2008, respectively, and $6.7 billion and $8.6 billion during the six months ended June 30, 2009 and 2008, respectively. UPRI used certain of these proceeds to purchase new receivables under the facility. <BR /><BR />The costs of the sale of receivables program are included in other income and were $2 million and $5 million for the three months ended June 30, 2009 and 2008, respectively, and $5 million and $12 million for the six months ended June 30, 2009 and 2008, respectively. The costs include interest, program fees paid to banks, commercial paper issuing costs, and fees for unused commitment availability. <BR /><BR />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. <BR /><BR />The sale of receivables facility expires in August 2009, and we currently expect to renew the facility for a 364-day period with terms comparable to facilities of similarly situated sellers.<BR /></P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>13. Debt<BR /><BR />Credit Facilities – At June 30, 2009, we had $1.9 billion of credit available under our revolving credit facility (the facility). The facility is designated for general corporate purposes and supports the issuance of commercial paper. We did not draw on the facility during the six months ended June 30, 2009. 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 our senior unsecured debt ratings. The facility requires us to maintain a debt-to-net-worth coverage ratio as a condition to making a borrowing. At June 30, 2009 and December 31, 2008 (and at all times during the first and second quarters), we were in compliance with this covenant. <BR /><BR />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 June 30, 2009, the debt-to-net-worth coverage ratio allowed us to carry up to $32 billion of debt (as defined in the facility), and we had $10.9 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 $75 million cross-default provision and a change-of-control provision. The term of the facility will expire in April 2012, and we currently intend to replace the facility with a substantially similar credit agreement on or before the expiration date, which is consistent with our past practices with respect to our credit facilities.<BR /><BR />At June 30, 2009, we had no commercial paper outstanding. Outstanding commercial paper balances are supported by our revolving credit facility but do not reduce the amount of borrowings available under the facility. During the six months ended June 30, 2009, we issued $100 million of commercial paper and repaid $200 million. <BR /><BR />Shelf Registration Statement and Significant New Borrowings – Under our current shelf registration statement, 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.<BR /><BR />On February 20, 2009, we issued a total of $750 million of unsecured fixed-rate notes under our shelf registration statement. We issued $350 million of 5.125% notes due February 15, 2014 and $400 million of 6.125% notes due February 15, 2020. The net proceeds from this offering are for general corporate purposes.<BR /><BR />We have no immediate plans to issue equity securities; however, we will continue to explore opportunities to replace existing debt or access capital through issuances of debt securities under our shelf registration, and, therefore, we may issue additional debt securities at any time. At June 30, 2009, we had remaining authority from our Board of Directors to issue up to $2.25 billion of debt securities under our shelf registration.<BR /><BR />As of June 30, 2009 and December 31, 2008, we have reclassified as long-term debt approximately $470 million and $400 million, respectively, 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.<BR /><BR />During the second quarter of 2009, we restructured lease agreements for 813 locomotives resulting in a change in lease classification from operating to capital. As part of the restructuring arrangements, we received $87 million in cash consideration. We recorded capital lease assets of approximately $742 million and related capital lease obligations totaling approximately $843 million. Included in our capital lease obligations is the $87 million in cash consideration and $14 million of accrued operating lease payables that were reclassified as part of our capital lease obligations. Capital lease obligations are reported in our Condensed Consolidated Statements of Financial Position as debt.</P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>14. Commitments and Contingencies<BR /><BR />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; however, to the extent possible, where asserted and unasserted claims are considered probable and where such claims can be reasonably estimated, we have recorded a liability. 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.<BR /><BR />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 third-party actuaries to assist us in measuring 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. <BR /><BR />Our personal injury liability is discounted to present value using applicable U.S. Treasury rates. Approximately 86% of the recorded liability related to asserted claims, and approximately 14% related to unasserted claims at June 30, 2009. Cost estimates can vary over time due to evolving trends in litigation. <BR /><BR />Our personal injury liability activity was as follows:</P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="left" width="485"><FONT size="2"><I> </I></FONT></TD><TD width="136" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="485"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="56" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="80" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="485"><FONT size="2"> Beginning balance</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="9"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="47"><FONT size="2"><B> 621 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="33"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="47"><FONT size="2">593 </FONT></TD></TR><TR><TD height="20" width="485" align="left"><FONT size="2"> Accruals</FONT></TD><TD height="20" width="9" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="47" align="right"><FONT size="2"><B> 49 </B></FONT></TD><TD height="20" width="33" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="47" align="right"><FONT size="2"> 108 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="485"><FONT size="2"> Payments</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="9"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="47"><FONT size="2"><B> (86)</B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="47"><FONT size="2"> (85)</FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="485"><FONT size="2"> Ending balance at June 30</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="9"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="47"><FONT size="2"><B> 584 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="33"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="47"><FONT size="2"> 616 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="485"><FONT size="2"> Current portion, ending balance at June 30</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="9"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="47"><FONT size="2"><B> 186 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="33"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="47"><FONT size="2"> 204 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>Asbestos – We are a defendant in a number of lawsuits in which current and former employees and other parties allege exposure to asbestos. Additionally, we have received claims for asbestos exposure that have not been litigated. The claims and lawsuits (collectively referred to as “claims”) allege occupational illness resulting from exposure to asbestos-containing products. In most cases, the claimants do not have credible medical evidence of physical impairment resulting from the alleged exposures. Additionally, most claims filed against us do not specify an amount of alleged damages. </P></FONT></DIV><DIV><FONT size="2"><P>Our asbestos-related liability activity was as follows: </P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="left" width="480"><FONT size="2"><I> </I></FONT></TD><TD width="137" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="480"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="57" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="80" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="480"><FONT size="2"> Beginning balance</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="42"><FONT size="2"><B> 213 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="42"><FONT size="2"> 265 </FONT></TD></TR><TR><TD height="20" width="480" align="left"><FONT size="2"> Accruals</FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="42" align="left"><FONT size="2"><B>        -</B></FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="42" align="left"><FONT size="2">        -</FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="480"><FONT size="2"> Payments</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"><B> (5)</B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"> (7)</FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="480"><FONT size="2"> Ending balance at June 30</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"><B> 208 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"> 258 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="480"><FONT size="2"> Current portion, ending balance at June 30</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="42"><FONT size="2"><B> 12 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="42"><FONT size="2"> 11 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>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 June 30, 2009 and December 31, 2008. <BR /><BR />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 to be 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; or there are material changes with respect to payments made to claimants by other defendants. <BR /><BR />Environmental Costs – We are subject to federal, state, and local environmental laws and regulations. We identified 323 sites at which we are or may be liable for remediation costs associated with alleged contamination or for violations of environmental requirements. This includes 32 sites that are the subject of actions taken by the U.S. government, 17 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. <BR /><BR />When an environmental issue has been identified with respect to property owned, leased, or otherwise used in our business, we and our consultants perform 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. We do not discount our environmental liabilities when the timing of the anticipated cash payments is not fixed or readily determinable. At June 30, 2009, approximately 14% of our environmental liability was discounted at 3.29%, while approximately 13% of our environmental liability was discounted at 3.53% at December 31, 2008.</P></FONT></DIV><DIV><FONT size="2"><P>Our environmental liability activity was as follows: </P></FONT></DIV><DIV><TABLE style="border-collapse: collapse; margin-top: 20px;"><TR><TD height="43" style="border-top: 2px solid #000000;" align="left" width="485"><FONT size="2"><I> </I></FONT></TD><TD width="137" align="right" colspan="4" style="border-top: 2px solid #000000;" height="43"><FONT size="2"><I>Six Months Ended June 30,</I></FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="485"><FONT size="2"><I> Millions of Dollars</I></FONT></TD><TD width="57" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><B><I>2009 </I></B></FONT></TD><TD width="80" align="right" colspan="2" style="border-bottom: 1px solid #000000;" height="20"><FONT size="2"><I>2008 </I></FONT></TD></TR><TR><TD height="20" style="border-top: 1px solid #000000;" align="left" width="485"><FONT size="2"> Beginning balance</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="42"><FONT size="2"><B> 209 </B></FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="20" style="border-top: 1px solid #000000;" align="right" width="42"><FONT size="2"> 209 </FONT></TD></TR><TR><TD height="20" width="485" align="left"><FONT size="2"> Accruals</FONT></TD><TD height="20" width="15" align="right"><FONT size="2"><B> </B></FONT></TD><TD height="20" width="42" align="right"><FONT size="2"><B> 13 </B></FONT></TD><TD height="20" width="38" align="right"><FONT size="2"> </FONT></TD><TD height="20" width="42" align="right"><FONT size="2"> 20 </FONT></TD></TR><TR><TD height="20" style="border-bottom: 1px solid #000000;" align="left" width="485"><FONT size="2"> Payments</FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B> </B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"><B> (23)</B></FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2"> </FONT></TD><TD height="20" style="border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"> (23)</FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="left" width="485"><FONT size="2"> Ending balance at June 30</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"><B> 199 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 1px solid #000000;" align="right" width="42"><FONT size="2"> 206 </FONT></TD></TR><TR><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="left" width="485"><FONT size="2"> Current portion, ending balance at June 30</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="15"><FONT size="2"><B>$</B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="42"><FONT size="2"><B> 59 </B></FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="38"><FONT size="2">$</FONT></TD><TD height="28" style="border-top: 1px solid #000000;border-bottom: 2px solid #000000;" align="right" width="42"><FONT size="2"> 59 </FONT></TD></TR></TABLE></DIV><DIV><FONT size="2"><P>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. <BR /><BR />Guarantees – At June 30, 2009, we were contingently liable for $429 million in guarantees. We have recorded a liability of $4 million for the fair value of these obligations as of both June 30, 2009, and December 31, 2008. We entered into these contingent guarantees in the normal course of business, and they include guaranteed obligations related to our headquarters building, equipment financings, and 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. <BR /><BR />Indemnities – Our maximum potential exposure under indemnification arrangements, including certain tax indemnifications, can range from a specified dollar amount to an unlimited amount, 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. <BR /></P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>15.        Share Repurchase Program – On January 30, 2007, our Board of Directors authorized the repurchase of up to 40 million shares of Union Pacific Corporation common stock through the end of 2009. On May 1, 2008, our Board of Directors authorized the repurchase of an additional 40 million common shares by March 31, 2011. Management’s assessments of market conditions and other pertinent facts guide the timing and volume of all repurchases. During the six months ended June 30, 2009, we did not repurchase shares under this program. During the three and six months ended June 30, 2008, we repurchased approximately 6.3 million and 12.8 million shares, respectively, under this program at an aggregate purchase price of approximately $481 million and $883 million, respectively. Repurchased shares are recorded in treasury stock at cost, which includes any applicable commissions and fees. <BR /><BR /></P></FONT></DIV></BODY></HTML>
<HTML><HEAD><META content="text/html; charset=utf-8" /></HEAD><BODY><DIV><FONT size="2"><P>16. Accounting Pronouncements – In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (FAS 168). The Codification will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. FAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. FAS 168 is not expected to have a material impact on our financial statements.<BR /><BR />In June 2009, the FASB issued Statement No. 167, Amendments to FASB Interpretation No. 46(R) (FAS 167). FAS 167 retains the scope of Interpretation 46(R), Consolidation of Variable Interest Entities, with the addition of entities previously considered qualifying special-purpose entities, as the concept of these entities was eliminated in FASB Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140. FAS 167 shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. FAS 167 is not expected to have a material impact on our financial statements.<BR /><BR />In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 (FAS 166). On and after the effective date of FAS 166 , the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes.   Therefore, formerly qualifying special-purpose entities (as defined under previous accounting standards) should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance.  FAS 166 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. FAS 166 is not expected to have a material impact on our financial statements.<BR /><BR />In May 2009, the FASB issued Statement No. 165, Subsequent Events (FAS 165). FAS 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. FAS 165 was effective for interim or annual financial periods ending after June 15, 2009. The adoption of FAS 165 did not affect our consolidated financial position, results of operations, or cash flows.<BR /> <BR />In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments.  This FSP amends FASB Statement No. 107, to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements.  The FSP also amends APB Opinion No. 28 to require those disclosures in summarized financial information at interim reporting periods.  This FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this FSP did not affect our consolidated financial position, results of operations, or cash flows.<BR /></P></FONT></DIV></BODY></HTML>