Union Pacific 2009 Annual Report Download - page 47

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47
the period of benefit associated with rail grinding over which to depreciate the associated capitalized
costs. We will reflect this change as a change in accounting principle from an acceptable accounting
principle to a preferable accounting principle. The application of this preferable accounting principle will
be presented retrospectively to all periods presented in future earnings releases and SEC filings. When
the accounting principle is retrospectively applied, net income for the years ended December 31, 2009,
2008, and 2007 will decrease by approximately $8 million, $3 million, and $7 million, or $0.01, $0.01
and $0.02 per share, respectively. This change in accounting principle is not expected to have a material
impact on our consolidated financial position, results of operations, or cash flows.
Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of
our subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our
consolidated results of operations, financial condition, or liquidity; however, to the extent possible, where
asserted and unasserted claims are considered probable and where such claims can be reasonably
estimated, we have recorded a liability. We do not expect that any known lawsuits, claims, environmental
costs, commitments, contingent liabilities, or guarantees will have a material adverse effect on our
consolidated results of operations, financial condition, or liquidity after taking into account liabilities and
insurance recoveries previously recorded for these matters.
Indemnities – Our maximum potential exposure under indemnification arrangements, including certain
tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the
nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or
how they will be resolved, we cannot reasonably determine the probability of an adverse claim or
reasonably estimate any adverse liability or the total maximum exposure under these indemnification
arrangements. We do not have any reason to believe that we will be required to make any material
payments under these indemnity provisions.
Climate Change – Although climate change could have an adverse impact on our operations and
financial performance in the future (see Risk Factors under Item 1A of this report), we are currently
unable to predict the manner or severity of such impact. However, we continue to take steps and explore
opportunities to reduce the impact of our operations on the environment, including investments in new
technologies, using training programs to reduce fuel consumption, and changing our operations to
increase fuel efficiency.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements have been prepared in accordance with GAAP. The preparation of
these financial statements requires estimation and judgment that affect the reported amounts of revenues,
expenses, assets, and liabilities. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. The following critical accounting policies are a subset of our significant accounting
policies described in Note 2 to the Financial Statements and Supplementary Data, Item 8. These critical
accounting policies affect significant areas of our financial statements and involve judgment and
estimates. If these estimates differ significantly from actual results, the impact on our Consolidated
Financial Statements may be material.
Personal Injury – The cost of personal injuries to employees and others related to our activities is
charged to expense based on estimates of the ultimate cost and number of incidents each year. We use
third-party actuaries to assist us in measuring the expense and liability, including unasserted claims. The
Federal Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under
FELA, damages are assessed based on a finding of fault through litigation or out-of-court settlements. We
offer a comprehensive variety of services and rehabilitation programs for employees who are injured at
work.