Union Pacific 2011 Annual Report Download - page 34

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34
Return on Invested Capital as Adjusted (ROIC)
Millions, Except Percentages 2011 2010 2009
Net income $ 3,292 $ 2,780 $ 1,890
Add: Interest expense 572 602 600
Add: Interest on present value of operating leases 208 222 232
Add: Receivable securitization fees - - 9
Less: Taxes on interest (293) (307) (306)
Net operating profit after taxes as adjusted (a) $ 3,779 $ 3,297 $ 2,425
Average equity $ 18,171 $ 17,282 $ 16,058
Add: Average debt 9,074 9,545 9,388
Add: Average value of sold receivables - 200 492
Add: Average present value of operating leases 3,350 3,574 3,681
Average invested capital as adjusted (b) $ 30,595 $ 30,601 $ 29,619
Return on invested capital as adjusted (a/b) 12.4% 10.8% 8.2%
ROIC is considered a non-GAAP financial measure by SEC Regulation G and Item 10 of SEC Regulation
S-K, and may not be defined and calculated by other companies in the same manner. We believe this
measure is important in evaluating the efficiency and effectiveness of our long-term capital investments.
In addition, we currently use ROIC as a performance criteria in determining certain elements of equity
compensation for our executives. ROIC should be considered in addition to, rather than as a substitute
for, other information provided in accordance with GAAP. The most comparable GAAP measure is Return
on Average Common Shareholders’ Equity. The tables above provide reconciliations from return on
average common shareholders’ equity to ROIC. Our 2011 ROIC improved 1.6 points compared to 2010,
primarily as a result of higher earnings and lower debt levels.
Debt to Capital / Adjusted Debt to Capital
Millions, Except Percentages 2011 2010
Debt (a) $ 8,906 $ 9,242
Equity 18,578 17,763
Capital (b) $ 27,484 $ 27,005
Debt to capital (a/b) 32.4% 34.2%
Millions, Except Percentages 2011 2010
Debt $ 8,906 $ 9,242
Net present value of operating leases 3,224 3,476
Unfunded pension and OPEB 623 421
Adjusted debt (a) $ 12,753 $ 13,139
Equity 18,578 17,763
Adjusted capital (b) $ 31,331 $ 30,902
Adjusted debt to capital (a/b) 40.7% 42.5%
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. Operating leases were discounted using 6.2% at December 31, 2011 and December 31, 2010.
The discount rate reflects current interest rates and 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 our 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, 2011 debt to capital ratios decreased as a result of
a $336 million net decrease in debt from December 31, 2010.