Union Pacific 2002 Annual Report Download - page 77

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51
Convertible Preferred Securities – Union Pacific Capital Trust (the Trust), a statutory business trust sponsored and wholly
owned by the Corporation, issued $1.5 billion aggregate liquidation amount of 6.25% Convertible Preferred Securities (the
CPS) in April 1998. Each of the CPS has a stated liquidation amount of $50 and is convertible, at the option of the holder,
into shares of UPC’s common stock, par value $2.50 per share (the Common Stock), at the rate of 0.7257 shares of Common
Stock for each of the CPS, equivalent to a conversion price of $68.90 per share of Common Stock, subject to adjustment
under certain circumstances. The CPS accrues and pays cash distributions quarterly in arrears at the annual rate of 6.25%
of the stated liquidation amount. The Corporation owns all of the common securities of the Trust. The proceeds from the
sale of the CPS and the common securities of the Trust were invested by the Trust in $1.5 billion aggregate principal amount
of the Corporation’s 6.25% Convertible Junior Subordinated Debentures due April 1, 2028 (the Debentures). The
Debentures represent the sole assets of the Trust. The principal amount of the Debentures held by the Trust at December
31, 2002, was $1.5 billion.
The Debentures accrue and pay interest quarterly in arrears at the annual rate of 6.25%. The Debentures mature on April
1, 2028, unless previously redeemed or repurchased in accordance with the terms of the indenture (the Indenture). The
proceeds from the issuance of the Debentures were used by the Corporation for repayment of corporate borrowings.
The Corporation has guaranteed, on a subordinated basis, distributions and other payments due on the CPS (the
Guarantee). Considered together, the Corporation’s obligations under the Debentures, the Indenture, the Guarantee and the
Amended and Restated Declaration of Trust governing the Trust provide a full and unconditional guarantee by the
Corporation of the Trust’s obligations under the CPS.
For financial reporting purposes, the Corporation has recorded distributions payable on the CPS as an interest charge to
earnings in the Consolidated Statements of Income.
Shelf Registration Statement and Other Significant Financings – During January 2002, under an existing shelf registration
statement, the Corporation issued $300 million of 6-1/8% fixed rate debt with a maturity of January 15, 2012. The proceeds
from the issuance were used for repayment of debt and other general corporate purposes. In April 2002, the Corporation
called its $150 million, 8-5/8% debentures due May 15, 2022 for redemption in May 2002. The Corporation issued $350
million of 6-1/2% fixed rate debt with a maturity of April 15, 2012, in order to fund the redemption. The Corporation used
the remaining proceeds to repay other debt and for other general corporate purposes. On May 17, 2002, the Corporation
issued the remaining $50 million of debt under the existing shelf registration statement. The debt carries a fixed rate of 5-
3/4% with a maturity of October 15, 2007. The proceeds from the issuance were used for repayment of debt and other
general corporate purposes.
The Corporation filed a $1.0 billion shelf registration statement, which became effective in July 2002. Under the shelf
registration statement, the Corporation may issue, from time to time, any combination of debt securities, preferred stock,
common stock or warrants for debt securities or preferred stock in one or more offerings. At December 31, 2002, the
Corporation had $1.0 billion remaining for issuance under the shelf registration. The Corporation has no immediate plans
to issue equity securities.
During June 2002, UPRR entered into a capital lease covering new locomotives. The related capital lease obligation
totaled approximately $126 million and is included in the Consolidated Statements of Financial Position as debt.
Dividend Restrictions – The Corporation is subject to certain restrictions related to the payment of cash dividends. The
amount of retained earnings available for dividends under the most restrictive test was $5.2 billion and $4.1 billion at
December 31, 2002 and 2001, respectively. In the fourth quarter of 2002, the Board of Directors voted to increase the
quarterly dividend by 15% to 23 cents per share. The Corporation declared dividends of $210 million in 2002 and $199
million in 2001.