Union Pacific 2010 Annual Report Download - page 78

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Rates, plus a spread, depending upon our senior unsecured debt ratings. The facility requires us 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
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 term, 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. Outstanding commercial paper balances are supported by our revolving
credit facility but do not reduce the amount of borrowings available under the facility.
Dividend Restrictions – Our revolving credit facility includes a debt-to-net worth covenant (discussed in
the Credit Facilities section above) that, under certain circumstances, restricts the payment of cash
dividends to our shareholders. The amount of retained earnings available for dividends was $12.9 billion
and $11.6 billion at December 31, 2010 and 2009, respectively.
Shelf Registration Statement and Significant New Borrowings – We filed a new shelf registration
statement, which became effective February 10, 2010. Our Board of Directors authorized the issuance of
up to $3 billion of debt securities, replacing the $2.25 billion of authority remaining under our shelf
registration filed in March 2007. Under the shelf registration, we may issue, from time to time, any
combination of debt securities, preferred stock, common stock, or warrants for debt securities or preferred
stock in one or more offerings.
During 2010, we issued the following unsecured, fixed-rate debt securities under our current shelf
registration:
Date Description of Securities
August 2, 2010 $500 million of 4.00% Notes due February 1, 2021
The net proceeds from the offering were used for general corporate purposes, including the repurchase of
common stock pursuant to our share repurchase program. These debt securities include change-of-
control provisions.
We have no immediate plans to issue equity securities; however, we will continue to explore opportunities
to replace existing debt or access capital through issuances of debt securities under our shelf registration,
and, therefore, we may issue additional debt securities at any time. At December 31, 2010, we had
remaining authority to issue up to $2.5 billion of debt securities under our shelf registration.
Debt Exchange – On July 14, 2010, we exchanged $376 million of 7.875% notes due in 2019 (Existing
Notes) for 5.78% notes (New Notes) due July 15, 2040, plus cash consideration of approximately $96
million and $15 million for accrued and unpaid interest on the Existing Notes. The cash consideration,
recorded as an adjustment to the carrying value of debt, and the balance of the unamortized discount and
issue costs from the Existing Notes are being amortized as an adjustment of interest expense over the
term of the New Notes. No gain or loss was recognized as a result of the exchange. Costs related to the
debt exchange that were payable to parties other than the debt holders totaled approximately $2 million
and were included in interest expense during the third quarter.
Debt Redemptions – On March 22, 2010, we redeemed $175 million of our 6.5% notes due April 15,
2012. The redemption resulted in an early extinguishment charge of $16 million in the first quarter of