Union Pacific 2010 Annual Report Download - page 35

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35
Debt to Capital / Adjusted Debt to Capital
Millions, Except Percentages 2010 2009
Debt (a) $ 9,242 $ 9,848
Equity 17,763 16,801
Capital (b) $ 27,005 $ 26,649
Debt to capital (a/b) 34.2% 37.0%
Millions, Except Percentages 2010 2009
Debt $ 9,242 $ 9,848
Value of sold receivables - 400
Debt including value of sold receivables 9,242 10,248
Net present value of operating leases 3,476 3,672
Unfunded pension and OPEB 421 456
Adjusted debt (a) $ 13,139 $ 14,376
Equity 17,763 16,801
Adjusted capital (b) $ 30,902 $ 31,177
Adjusted debt to capital (a/b) 42.5% 46.1%
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. Effective January 1, 2010, the value of the outstanding undivided interest held by investors
under our receivables securitization facility is included in our Consolidated Statement of Financial Position
as debt due after one year. At December 31, 2010, that amount was $100 million. Operating leases
were discounted using 6.2% at December 31, 2010 and 6.3% at December 31, 2009. The lower discount
rate reflects changes to interest rates and our current financing costs. 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
reconciliations from debt to capital to adjusted debt to capital. Our December 31, 2010 debt to capital
ratios decreased as a result of a $606 million net decrease in debt from December 31, 2009. Debt,
including the value of our receivables securitization facility, decreased $1.0 billion from December 31,
2009.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2010, our principal sources of liquidity included cash, cash equivalents, our
receivables securitization facility, and our revolving credit facility, as well as the availability of commercial
paper and other sources of financing through the capital markets (such as the remaining authority under
our shelf registration). We had $1.9 billion of committed credit available under our credit facility, with no
borrowings outstanding as of December 31, 2010. We did not make any borrowings under this facility
during 2010. The value of the outstanding undivided interest held by investors under the receivables
securitization facility was $100 million as of December 31, 2010, and is included in our Consolidated
Statements of Financial Position as debt due after one year. The receivables securitization facility 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 access capital markets as a source of liquidity. Access to liquidity through the capital markets is
also dependent on our financial stability. We expect that we will continue to have access to liquidity by
issuing bonds to public or private investors based on our assessment of the current condition of the credit
markets.
At December 31, 2010 and 2009, we had a working capital surplus, which in 2010 continues to be the
result of our decision in 2009 to maintain additional cash reserves to enhance liquidity in response to