Union Pacific 2007 Annual Report Download - page 36

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32
Debt to Capital / Adjusted Debt to Capital
Millions of Dollars, Except Percentages 2007 2006 2005
Debt (a) ................................................................................................... $ 7,682 $ 6,780 $ 7,416
Equity ...................................................................................................... 15,585 15,312 13,707
Capital (b)............................................................................................... $23,267 $22,092 $21,123
Debt to capital (a/b) ............................................................................... 33.0% 30.7% 35.1%
Millions of Dollars, Except Percentages 2007 2006 2005
Debt......................................................................................................... $ 7,682 $ 6,780 $ 7,416
Value of sold receivables ........................................................................ 600 600 600
Net present value of operating leases..................................................... 3,783 3,513 3,185
Adjusted debt (a) .................................................................................... $12,065 $10,893 $11,201
Equity ...................................................................................................... 15,585 15,312 13,707
Adjusted capital (b) ................................................................................ $27,650 $26,205 $24,908
Adjusted debt to capital (a/b) ................................................................ 43.6% 41.6% 45.0%
Adjusted debt to capital is a non-GAAP financial measure under SEC Regulation G and Item 10 of SEC
Regulation S-K. We believe this measure is important to management and investors in evaluating the total
amount of leverage in our capital structure, including off-balance sheet lease obligations, which we generally
incur in connection with financing the acquisition of locomotives and freight cars and certain facilities. We
monitor the ratio of adjusted debt to capital as we manage our capital structure to balance cost-effective and
efficient access to the capital markets with the Corporation’s overall cost of capital. Adjusted debt to capital
should be considered in addition to, rather than as a substitute for, debt to capital. The tables above provide a
reconciliation from debt to capital to adjusted debt to capital. Our December 31, 2007, debt to capital ratios
increased as a result of a $902 million increase in debt from December 31, 2006, and purchases of our
common stock under our share repurchase program, partially offset by an increase in retained earnings due to
higher earnings in 2007.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2007, our principal sources of liquidity included cash, cash equivalents, the sale of certain
receivables, an uncommitted line of credit, and our revolving credit facility, as well as the availability of
commercial paper and other sources of financing through the capital markets. We had $1.9 billion of
committed credit available under our credit facility, with no borrowings outstanding as of December 31, 2007.
We did not make any short-term borrowings under this facility during the year. We also had a $75 million
uncommitted line of credit available, which was not used during the year. The value of the outstanding
undivided interest held by investors under the sale of receivables program was $600 million as of December
31, 2007. The sale of receivables program is subject to certain requirements, including maintenance of an
investment grade bond rating. If our bond rating were to deteriorate, it could have an adverse impact on our
liquidity. Access to commercial paper as well as other capital market financings is dependent on market
conditions. Deterioration of our operating results or financial condition due to internal or external factors
could negatively impact our ability to utilize commercial paper as a source of liquidity. Liquidity through the
capital markets is also dependent on our financial stability.
At December 31, 2007, and December 31, 2006, we had working capital deficits of approximately $0.4 billion
and $1.1 billion, respectively. A working capital deficit is common in our industry and does not indicate a lack
of liquidity. We maintain adequate resources to meet our daily cash requirements, and we have sufficient
financial capacity to satisfy our current liabilities.