Union Pacific 2007 Annual Report Download - page 43

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39
Fuel Swaps – Two fuel basis swaps cover a total of 151 million gallons of diesel fuel for the period August 2006
through July 2008. These commodity basis swaps require us to make payments to, or receive payments from,
the counterparty based on the difference between certain price indices. Changes in the fair value of these swaps
are reflected in fuel expense. We reported a derivative asset of approximately $1 million and $2 million at
December 31, 2007 and 2006, respectively, which represents the fair value of the swaps. The swaps increased
fuel expense for 2007 by $1 million and reduced fuel expense for 2006 by $3 million. The recognition of the
swaps in fuel expense included monthly net settlements with the counterparty and the change in fair value.
Accounting Pronouncements – In September 2006, the FASB issued Statement No. 157, Fair Value
Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures about fair value
measurements. This statement does not require any new fair value measurements; rather, it applies under
other accounting pronouncements that require or permit fair value measurements. The provisions of FAS 157
are effective for us beginning in 2008. We expect this new standard will result in increased disclosures but will
not have a significant impact on our financial position or results of operations.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (FAS 159). The fair value option established by FAS 159 permits, but does not require, all entities to
choose to measure eligible items at fair value at specified election dates. An entity would report unrealized
gains and losses on items for which the fair value option has been elected in earnings at each subsequent
reporting date. FAS 159 is effective for us beginning in 2008. We do not currently intend to elect the fair value
option for any eligible items and do not expect this standard to have a significant impact on our financial
position or results of operations.
In December 2007, the FASB issued Statement No. 141 (Revised 2007), Business Combinations (FAS 141R).
FAS 141R will change the accounting for business combinations. Under FAS 141R, an acquiring entity will be
required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. FAS 141R will also change the accounting treatment and disclosures with
respect to certain specific items in a business combination. FAS 141R applies to us prospectively for business
combinations occurring on or after January 1, 2009. Accordingly, any business combinations we engage in will
be recorded and disclosed following existing GAAP until January 1, 2009. We expect FAS 141R will have an
impact on accounting for business combinations, but the effect will be dependent upon any potential future
acquisitions.
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements – An Amendment of ARB No. 51 (FAS 160). FAS 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 is
effective for us beginning in 2009. We are still assessing the potential impact, if any, of the adoption of FAS
160 on our consolidated financial position, results of operations and cash flows.
In December 2007, the FASB ratified the consensus reached on Emerging Issues Task Force (EITF) Issue No.
07-1, Collaborative Arrangements (EITF 07-1), which defines collaborative arrangements and establishes
reporting and disclosure requirements for transactions between participants in a collaborative arrangement.
The requirements of this EITF will be applied to collaborative arrangements in existence on or after January 1,
2009. We are still assessing the potential impact, if any, of the adoption of EITF 07-1 on our consolidated
financial position, results of operations and 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