Union Pacific 2010 Annual Report Download - page 37

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investments will replace and improve existing capital assets. Major investment categories include
replacing and improving track infrastructure; increasing network and terminal capacity; upgrading our
locomotive, freight car and container fleet, including acquiring 100 locomotives, 600 covered hoppers,
4,800 containers and 4,800 chassis; improving technology, including investing in PTC; and other capital
projects. We expect to fund our 2011 cash capital investments through cash generated from operations,
the sale or lease of various operating and non-operating properties, issuance of long-term debt, and cash
on hand at December 31, 2010. Our annual capital plan is a critical component of our long-term strategic
plan, which we expect will enhance the long-term value of the Corporation for our shareholders by
providing sufficient resources to (i) replace 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.
Financing Activities
Cash used in financing activities increased in 2010 versus 2009. During 2010, we repurchased $1.2
billion of shares under our common stock repurchase program, compared to no repurchases in 2009.
Additionally, our net debt reduction in 2010 was $518 million compared to $28 million in 2009, which also
contributed to the increase in cash used in financing activities in 2010. Cash used in financing activities
decreased in 2009 versus 2008 driven by share repurchases totaling $1.6 billion in 2008. Additionally,
debt repayments were $337 million lower in 2009, partially offset by lower new debt issuances of $1.4
billion and higher dividend payments (we increased our dividend from $0.22 per share to $0.27 per share,
effective in the third quarter of 2008). The restructuring of equipment leases in 2009 also generated $87
million in cash consideration, further contributing to the decrease.
Credit Facilities – On December 31, 2010, we had $1.9 billion of credit available under our revolving
credit facility (the facility). The facility is designated for general corporate purposes and supports the
issuance of commercial paper. We did not draw on the facility during 2010. 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 borrowings at floating rates based on London Interbank Offered
Rates, plus a spread, depending upon our senior unsecured debt ratings. The facility requires Union
Pacific Corporation to maintain a debt-to-net-worth coverage ratio as a condition to making a borrowing.
At December 31, 2010, and December 31, 2009 (and at all times during these periods), we were in
compliance with this covenant.
The definition of debt used for purposes of calculating the debt-to-net-worth coverage ratio includes,
among other things, certain credit arrangements, capital leases, guarantees and unfunded and vested
pension benefits under Title IV of ERISA. At December 31, 2010, the debt-to-net-worth coverage ratio
allowed us to carry up to $35.5 billion of debt (as defined in the facility), and we had $9.7 billion of debt
(as defined in the facility) outstanding at that date. Under our current capital plans, we expect to continue
to satisfy the debt-to-net-worth coverage ratio; however, many factors beyond our reasonable control
(including the Risk Factors in Item 1A of this report) could affect our ability to comply with this provision in
the future. 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 also
includes a $75 million cross-default provision and a change-of-control provision. The facility will expire in
April 2012 in accordance with its terms, and we currently intend to replace the facility with a substantially
similar credit agreement on or before the expiration date, which is consistent with our past practices with
respect to our credit facilities.
During 2010, we did not issue or repay any commercial paper and, at December 31, 2010, we had no
commercial paper outstanding. Our commercial paper balance is supported by our revolving credit facility
but does not reduce the amount of borrowings available under the facility.
At December 31, 2010, we reclassified as long-term debt approximately $100 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, 2009, we reclassified as long-term debt approximately $320 million of debt due within one year that
we intended to refinance at that time.