Union Pacific 2010 Annual Report Download - page 42

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42
Accounting Standards Codification (ASC); therefore, we do not record any ineffectiveness within our
Consolidated Financial Statements.
Interest Rate Cash Flow Hedges – We report changes in the fair value of cash flow hedges in
accumulated other comprehensive loss until the hedged item affects earnings. At December 31, 2010 and
2009, we had reductions of $3 million recorded as an accumulated other comprehensive loss that is being
amortized on a straight-line basis through September 30, 2014. As of December 31, 2010 and 2009, we
had no interest rate cash flow hedges outstanding.
Recently Issued Accounting Pronouncements – In June 2009, the FASB issued Accounting Standards
Update No. 2009-16, Accounting for Transfers of Financial Assets (ASU 2009-16). ASU 2009-16 limits
the circumstances in which transferred financial assets can be derecognized and requires enhanced
disclosures regarding transfers of financial assets and a transferor’s continuing involvement with
transferred financial assets. We adopted the authoritative accounting standard on January 1, 2010. As a
result, we no longer account for the value of the outstanding undivided interest held by investors under
our receivables securitization facility as a sale. In addition, transfers of receivables occurring on or after
January 1, 2010, are reflected as debt issued in our Consolidated Statements of Cash Flows and
recognized as debt due after one year in our Consolidated Statements of Financial Position.
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
an actuarial analysis to measure the expense and liability, including unasserted claims. The Federal
Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages