Union Pacific 2009 Annual Report Download - page 62

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62
from a capitalization method, under which we have capitalized the cost of rail grinding and depreciated
such capitalized costs, to a direct expense method, under which we will expense rail grinding costs as
incurred. The expense as incurred method is preferable, as it eliminates the subjectivity in determining
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.
Principles of Consolidation – The Consolidated Financial Statements include the accounts of Union
Pacific Corporation and all of its subsidiaries. Investments in affiliated companies (20% to 50% owned)
are accounted for using the equity method of accounting. All intercompany transactions are eliminated.
We currently have no less than majority-owned investments that require consolidation under variable
interest entity requirements.
Cash and Cash Equivalents – Cash equivalents consist of investments with original maturities of three
months or less.
Investments – Investments represent our investments in affiliated companies (20% to 50% owned) that
are accounted for under the equity method of accounting and investments in companies (less than 20%
owned) accounted for under the cost method of accounting.
Materials and Supplies – Materials and supplies are carried at the lower of average cost or market.
Property and Depreciation – See Note 10.
Impairment of Long-lived Assets – We review long-lived assets, including identifiable intangibles, for
impairment when events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows
are less than the carrying value of the long-lived assets, the carrying value is reduced to the estimated fair
value as measured by the discounted cash flows.
Revenue Recognition – We recognize freight revenues on a percentage-of-completion basis as freight
moves from origin to destination. The allocation of revenue between reporting periods is based on the
relative transit time in each reporting period with expenses recognized as incurred. Other revenues are
recognized as service is performed or contractual obligations are met. Customer incentives, which are
primarily provided for shipping a specified cumulative volume or shipping to/from specific locations, are
recorded as a reduction to operating revenues based on actual or projected future customer shipments.
Translation of Foreign Currency – Our portion of the assets and liabilities related to foreign
investments are translated into U.S. dollars at the exchange rates in effect at the balance sheet date.
Revenue and expenses are translated at the average rates of exchange prevailing during the year.
Unrealized gains or losses are reflected within common shareholders’ equity as accumulated other
comprehensive income or loss.
Financial Instruments – The carrying value of our non-derivative financial instruments approximates
fair value. The fair value of our derivative financial instruments is generally determined by reference to
market values as quoted by recognized dealers or developed based upon the present value of expected
future cash flows.