Union Pacific 2001 Annual Report Download - page 63

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Union Pacific Corporation and Subsidiary Companies
Significant Accounting Policies
Principles of Consolidation – The Consolidated Financial Statements include the accounts of Union Pacific Corporation
(UPC or the Corporation) and all of its subsidiaries. Investments in affiliated companies (20% to 50% owned) are
accounted for using the equity method of accounting. All material intercompany transactions are eliminated.
Cash and Temporary Investments – Temporary investments are stated at cost which approximates fair value and consist
of investments with original maturities of three months or less.
Inventories – Inventories consist of materials and supplies carried at the lower of average cost or market.
Property and Depreciation – Properties are carried at cost. Provisions for depreciation are computed principally on the
straight-line method based on estimated service lives of depreciable property. The cost (net of salvage) of depreciable
rail property retired or replaced in the ordinary course of business is charged to accumulated depreciation. A gain or loss
is recognized in other income for all other property upon disposition. The cost of internally developed software is
capitalized and amortized over a five-year period. An obsolescence review of capitalized software is performed on a
periodic basis.
Impairment of Long-lived Assets – The Corporation reviews 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 – Transportation revenues are recognized on a percentage-of-completion basis as freight moves
from origin to destination. Other revenue is recognized as service is performed or contractual obligations are met.
Translation of Foreign Currency – The Corporation translates its portion of the assets and liabilities related to foreign
investments into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are
translated at the average rates of exchange prevailing during the year. The resulting translation adjustments are reflected
within shareholders' equity as accumulated other comprehensive income or loss. Transaction gains and losses related
to intercompany accounts are not material.
Financial Instruments – The carrying value of the Corporation’s non-derivative financial instruments approximates fair
value, except for differences with respect to long-term, fixed-rate debt and certain differences relating to cost method
investments and other financial instruments that are not significant. The fair value of 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 discounted at the applicable U.S. Treasury rate, London Interbank Offered Rates (LIBOR) or
swap spread.
The Corporation periodically uses derivative financial instruments to manage risk related to changes in fuel prices and
interest rates.
Earnings Per Share – Basic earnings per share (EPS) is calculated on the weighted-average number of common shares
outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock
options and the potential conversion of the preferred securities where the conversion of such instruments would be
dilutive.
Use of Estimates – The Consolidated Financial Statements of the Corporation include estimates and assumptions
regarding certain assets, liabilities, revenues and expenses and the disclosure of certain contingent assets and liabilities.
Actual future results may differ from such estimates.