Union Pacific 2012 Annual Report Download - page 33

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33
for, other information provided in accordance with GAAP. The most comparable GAAP measure is Return
on Average Common Shareholders’ Equity. The tables on the previous page provide reconciliations from
return on average common shareholders’ equity to ROIC. Our 2012 ROIC improved 1.6 points compared
to 2011, primarily as a result of higher earnings.
Debt to Capital / Adjusted Debt to Capital
Millions, Except Percentages 2012 2011
Debt (a) $ 8,997 $ 8,906
Equity 19,877 18,578
Capital (b) $ 28,874 $ 27,484
Debt to capital (a/b) 31.2% 32.4%
Millions, Except Percentages 2012 2011
Debt $ 8,997 $ 8,906
Net present value of operating leases 3,096 3,224
Unfunded pension and OPEB 679 623
Adjusted debt (a) $ 12,772 $ 12,753
Equity 19,877 18,578
Adjusted capital (b) $ 32,649 $ 31,331
Adjusted debt to capital (a/b) 39.1% 40.7%
Adjusted debt to capital is a non-GAAP financial measure under 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 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 6.0% and 6.2% at December 31, 2012 and 2011, respectively. The
discount rate reflects our effective interest rate. 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, 2012 debt to capital ratios decreased as a result of a $1.3 billion
increase in equity from December 31, 2011, driven by higher earnings.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2012, 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. We had $1.8 billion of committed credit
available under our credit facility, with no borrowings outstanding as of December 31, 2012. We did not
make any borrowings under this facility during 2012. The value of the outstanding undivided interest held
by investors under the $600 million capacity receivables securitization facility was $100 million as of
December 31, 2012, and is included in our Consolidated Statements of Financial Position as debt due
after one year. The receivables securitization facility obligates us to maintain 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 through any or all of the following sources or activities: (i) increasing the utilization of
our receivables securitization, (ii) issuing commercial paper, (iii) entering into bank loans, outside of our
revolving credit facility, or (iv) issuing bonds or other debt securities to public or private investors based
on our assessment of the current condition of the credit markets. The Company’s $1.8 billion revolving
credit facility is intended to back Union Pacific’s ability to issue commercial paper and is an emergency
back-up source of liquidity. The Company has no current intentions of borrowing under this facility.