Union Pacific 2005 Annual Report Download - page 77

and contingently issuable shares. The FASB expects to issue a final statement in the first quarter of 2006. We are
currently reviewing this proposed exposure draft to determine the impact it may have on our calculation of
earnings per share.
In December 2005, the FASB deliberated issues relating to the limited-scope, first phase of its project to
reconsider the accounting for postretirement benefits, including pensions. The FASB decided that the objectives
and scope of this phase include, among other items, recognizing the overfunded or underfunded status of defined
benefit postretirement plans as an asset or a liability in the statement of financial position. The FASB expects to
issue an Exposure Draft for the initial phase in the first quarter of 2006. In the second multi-year phase of the
project, the FASB expects to comprehensively consider a variety of issues related to the accounting for
postretirement benefits, including expense recognition, obligation measurement, and whether postretirement
benefit trusts should be consolidated by the plan sponsor. We will review the proposed standards when they are
available to determine the impact they may have on our Consolidated Financial Statements.
12. Cumulative Effect of Accounting Change
STB accounting rules require that railroads accrue the cost of removing track structure over the expected useful
life of these assets. Railroads historically used this prescribed accounting for reports filed with both the STB and
SEC. In August 2001, the FASB issued FAS 143. This statement was effective for us beginning January 1, 2003, and
prohibits the accrual of removal costs unless there is a legal obligation to remove the track structure at the end of
its life. We concluded that we did not have a legal obligation to remove the track structure, and, therefore, under
generally accepted accounting principles, we could not accrue the cost of removal in advance. As a result, reports
filed with the SEC will reflect the expense of removing these assets in the period in which they are removed. For
STB reporting requirements only, we will continue to follow the historical method of accruing in advance, as
prescribed by the STB. FAS 143 also requires us to record a liability for legally obligated asset retirement costs
associated with tangible long-lived assets. In the first quarter of 2003, we recorded income from a cumulative
effect of accounting change, related to the adoption of FAS 143, of $274 million, net of income tax expense of
$167 million. The accounting change had no effect on our liquidity. Had the change been retroactively applied,
the change would not have had a material impact on net income and earnings per share.
13. Discontinued Operations
On November 5, 2003, we completed the sale of our entire trucking interest through an initial public offering. As
part of the offering, we received cash proceeds of $620 million, including a dividend from OTC of $128 million.
As part of the transaction, OTC forgave our intercompany payable to them of $227 million, and we received a $1
million promissory note. We recorded a gain on the sale of $211 million, including an income tax benefit of $126
million in the fourth quarter of 2003. The tax benefit recognized in 2003 is associated with OTC goodwill written
off in the fourth quarter of 1998. Revenue from discontinued operations was $1,241 million for the year ended
December 31, 2003. Income before income taxes from discontinued operations was $74 million for the year ended
December 31, 2003.
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