Union Pacific 2009 Annual Report Download - page 67

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67
Changes in our retention awards during 2009 were as follows:
Shares
(thous.) Weighted-Average
Grant-Date Fair Value
Nonvested at January 1, 2009 2,015 $ 49.39
Granted 988 47.43
Vested (243) 32.84
Forfeited (41) 51.58
Nonvested at December 31, 2009 2,719 $ 50.13
Retention awards are granted at no cost to the employee or non-employee director and vest over periods
lasting up to four years. At December 31, 2009, there was $64 million of total unrecognized
compensation expense related to nonvested retention awards, which is expected to be recognized over a
weighted-average period of 1.8 years.
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. A lower discount rate (an assumed
interest rate) will be used in both the numerator and denominator when calculating the present value of
our future operating lease payments to reflect changes to interest rates and our financing costs. This rate
will be consistent with the methodology used to calculate our adjusted debt-to-capital ratio. We will use
this new discount rate to calculate ROIC in connection with determining awards of performance stock
units granted in 2009. For performance stock units granted in 2007 and 2008, we will continue calculating
ROIC with the methodology and assumptions in effect when the performance stock units were granted.
See calculation of ROIC in Management’ s Discussion and Analysis of Financial Condition and Results of
Operations – Other Operating/Performance and Financial Statistics – Return on Invested Capital as
Adjusted (ROIC), Item 7.
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.
The assumptions used to calculate the present value of estimated future dividends related to the February
2009 grant were as follows:
2009
Dividend per share per quarter $ 0.27
Risk-free interest rate at date of grant 1.9
%