Union Pacific 2009 Annual Report Download - page 83

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unusual, (ii) is material in amount, and (iii) varies significantly from the retirement profile identified
through our depreciation studies. A gain or loss is recognized in other income when we sell land or
dispose of assets that are not part of our railroad operations.
When we purchase an asset, we capitalize all costs necessary to make the asset ready for its intended use.
However, many of our assets are self-constructed. A large portion of our capital expenditures is for
replacement of existing road infrastructure assets (program projects), which is typically performed by our
employees, and for track line expansion (capacity projects). Costs that are directly attributable or
overhead costs that relate directly to capital projects are capitalized. Direct costs that are capitalized as
part of self-constructed assets include material, labor, and work equipment. Indirect costs are capitalized
if they clearly relate to the construction of the asset. These costs are allocated using appropriate statistical
bases.
General and administrative expenditures are expensed as incurred. Normal repairs and maintenance are
also expensed as incurred, while costs incurred that extend the useful life of an asset, improve the safety
of our operations or improve operating efficiency are capitalized.
Assets held under capital leases are recorded at the lower of the net present value of the minimum lease
payments or the fair value of the leased asset at the inception of the lease. Amortization expense is
computed using the straight-line method over the shorter of the estimated useful lives of the assets or the
period of the related lease.
11. Accounts Payable and Other Current Liabilities
Dec. 31,
D
ec. 31,
Millions of Dollars 2009 2008
Accounts payable
$
612 $ 629
Accrued wages and vacation 339 367
Accrued casualty costs 379 390
Income and other taxes 224 207
Dividends and interest 347 328
Equipment rents payable 89 93
Other 480 546
Total accounts payable and other current liabilities
$
2,470 $ 2,560
12. Financial Instruments
Strategy and Risk – We may use derivative financial instruments in limited instances for other than
trading purposes to assist in managing our overall exposure to fluctuations in interest rates and fuel prices.
We are not a party to leveraged derivatives and, by policy, do not use derivative financial instruments for
speculative purposes. Derivative financial instruments qualifying for hedge accounting must maintain a
specified level of effectiveness between the hedging instrument and the item being hedged, both at
inception and throughout the hedged period. We formally document the nature and relationships between
the hedging instruments and hedged items at inception, as well as our risk-management objectives,
strategies for undertaking the various hedge transactions, and method of assessing hedge effectiveness.
Changes in the fair market value of derivative financial instruments that do not qualify for hedge
accounting are charged to earnings. We may use swaps, collars, futures, and/or forward contracts to
mitigate the risk of adverse movements in interest rates and fuel prices; however, the use of these
derivative financial instruments may limit future benefits from favorable interest rate and fuel price
movements.