Tax Basis Information

October 18, 1996

To Union Pacific Corporation Shareholders:

On October 15, 1996, certificates representing whole shares of common stock of Union Pacific Resources Group Inc. ("Resources") were distributed as a special dividend on the shares of Union Pacific Corporation ("Union Pacific") common stock that you held as of September 26, 1996. If your distribution included a fractional share of Resources common stock, we also included a check representing the net proceeds from the sale of such fractional share on your behalf.

We are now pleased to provide you with additional Federal income tax information with respect to the distribution.

Tax Basis

Information for determining the tax basis in your shares of Union Pacific common stock and Resources common stock is set forth below. The information should be generally helpful in preparing your Federal income tax returns. We therefore urge you to keep this document for future reference. You should review the subject matter with your own tax advisor at the appropriate time.

In order to compute the tax basis in your shares of Union Pacific common stock and Resources common stock, you must first determine your tax basis in the shares of Union Pacific common stock you held immediately prior to the distribution. The pre-distribution tax basis must then be allocated between your shares of Union Pacific common stock and Resources common stock in proportion to their relative fair market values at the time of distribution. Based upon the average of the high and low trading prices for shares of Union Pacific common stock and Resources common stock on October 15, 1996 (the date of the distribution), as reported by The Wall Street Journal for New York Stock Exchange Composite Transactions, the following is an acceptable method for allocating the tax basis in your shares of Union Pacific common stock held immediately prior to the distribution between your Union Pacific common stock and your Resources common stock received in the distribution:

  • To determine the tax basis in your Union Pacific common stock held after the distribution, multiply your pre-distribution tax basis in those shares by 67.24%.
  • To determine the tax basis in your shares of Resources common stock received in the distribution (including any fractional share), multiply the pre-distribution tax basis in your shares of Union Pacific common stock by 32.76%.

If you owned more than one lot or block of Union Pacific common stock having different tax bases, the tax basis allocation described in this document should be computed separately for each such lot or block.

Example

The preceding computation may be illustrated as follows:

Dr. DeSoto owns 100 shares of Union Pacific common stock, which she acquired for investment purposes in a single lot in 1994, with a tax basis of $5,000.00, or $50.00 per share. Based on the distribution ratio of 0.846946 share of Resources common stock for each share of Union Pacific common stock, she was entitled to receive 84.6946 shares of Resources common stock.

Dr. DeSoto's tax basis in her Union Pacific common stock after the distribution is $3,362 (her pre-distribution basis of $5,000.00 times 0.6724), or approximately $33.62 per share.

Dr. DeSoto's tax basis in the 84.6946 shares of Resources common stock which she received in the distribution is $1,638 (her pre-distribution basis in her Union Pacific common stock of $5,000.00 times 0.3276), or approximately $19.34 per share.

The tax basis in the fractional share of Resources common stock Dr. DeSoto was entitled to receive was $13.43 (per-share basis of $19.34 times 0.6946 share). Since the net proceeds from the sale of that fraction on her behalf was $19.07, she recognized a taxable gain of $5.64 ($19.07 minus $13.43) that she should report as a long-term capital gain on her 1996 Federal income tax return.