Union Pacific 2007 Annual Report Download - page 38

34
through cash generated from operations, the sale or lease of various operating and non-operating properties,
debt issuances, and cash on hand at December 31, 2007. Our annual capital plan is a critical component of our
long-term strategic plan, which we designed to enhance the long-term value of the Corporation for our
shareholders by providing sufficient resources to (i) maintain and improve our existing track infrastructure to
provide safe and fluid operations, (ii) increase network efficiency by adding or improving facilities and track,
and (iii) make investments that meet customer demand and take advantage of opportunities for long-term
growth.
For each of the years ended December 31, 2007, 2006, and 2005, our ratio of earnings to fixed charges was 5.1,
4.4, and 2.9, respectively. The increases in 2007 and 2006 were driven by higher net income. The ratio of
earnings to fixed charges was computed on a consolidated basis. Earnings represent income from continuing
operations, less equity earnings net of distributions, plus fixed charges and income taxes. Fixed charges
represent interest charges, amortization of debt discount, and the estimated amount representing the interest
portion of rental charges. See Exhibit 12 for the calculation of the ratio of earnings to fixed charges.
Financing Activities
Credit Facilities – On December 31, 2007, $1.9 billion of credit was available under our revolving credit
facility (the facility), which we entered into on April 20, 2007. The facility is designated for general corporate
purposes and supports the issuance of commercial paper. We did not draw on the facility during 2007.
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 the maintenance of a debt to net worth coverage ratio. At December 31, 2007, we were in
compliance with this covenant. 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, which expires in April 2012, replaced two $1 billion, 5-year facilities with terms ending in March
2009 and March 2010. The facility includes terms that are comparable with those of the prior facilities,
although the minimum net worth requirement of $7.5 billion in prior facilities was removed, and the facility
includes a change-of-control provision.
In addition to our revolving credit facility, a $75 million uncommitted line of credit was available. The line of
credit expires in April 2008, and was not used in 2007. We must have equivalent credit available under our
five-year facility to draw on this $75 million line.
At December 31, 2007, we reclassified as long-term debt approximately $550 million of debt due within one
year that we intend to refinance. This reclassification reflected our ability and intent to refinance any short-
term borrowings and certain current maturities of long-term debt on a long-term basis. At December 31,
2006, we did not reclassify any short-term debt as long-term debt as we did not intend to refinance at that
time.
Dividends – On November 15, 2007, we increased the quarterly dividend to $0.44 per share, payable
beginning on January 2, 2008, to shareholders of record on November 29, 2007. We expect to fund the
increase in the quarterly dividend through cash generated from operations, the sale or lease of various
operating and non-operating properties, and cash on hand at December 31, 2007.
Dividend Restrictions – Our revolving credit facility includes a debt-to-net worth covenant that, under certain
circumstances, restricts the payment of cash dividends to our shareholders. The amount of retained earnings
available for dividends was $11.5 billion and $7.8 billion at December 31, 2007 and December 31, 2006,
respectively. This facility replaced two credit facilities that had minimum net worth covenants that were more
restrictive with respect to the amount of retained earnings available for dividends at December 31, 2006.
Share Repurchase Program – On January 30, 2007, our Board of Directors authorized the repurchase of up to
20 million shares of Union Pacific Corporation common stock through the end of 2009. Management’s