Union Pacific 2011 Annual Report Download - page 58

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Earnings Per Share – Basic earnings per share are 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 stock-based awards where the conversion of such instruments
would be dilutive.
Income Taxes – We account for income taxes by recording taxes payable or refundable for the current
year and deferred tax assets and liabilities for the expected future tax consequences of events that have
been recognized in our financial statements or tax returns. These expected future tax consequences are
measured based on current tax law; the effects of future tax legislation are not anticipated. Future tax
legislation, such as a change in the corporate tax rate, could have a material impact on our financial
condition, results of operations, or liquidity.
When appropriate, we record a valuation allowance against deferred tax assets to reflect that these tax
assets may not be realized. In determining whether a valuation allowance is appropriate, we consider
whether it is more likely than not that all or some portion of our deferred tax assets will not be realized,
based on management’s judgments using available evidence for purposes of estimating whether future
taxable income will be sufficient to realize a deferred tax asset.
We recognize tax benefits that are more likely than not to be sustained upon examination by tax
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50
percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any
tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.
Pension and Postretirement Benefits – We incur certain employment-related expenses associated with
pensions and postretirement health benefits. In order to measure the expense associated with these
benefits, we must make various assumptions including discount rates used to value certain liabilities,
expected return on plan assets used to fund these expenses, compensation increases, employee
turnover rates, anticipated mortality rates, and expected future health care costs. The assumptions used
by us are based on our historical experience as well as current facts and circumstances. We use an
actuarial analysis to measure the expense and liability associated with these benefits.
Personal Injury – The cost of injuries to employees and others on our property 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. Our personal injury liability is discounted to present value using
applicable U.S. Treasury rates. Legal fees and incidental costs are expensed as incurred.
Asbestos – We estimate a liability for asserted and unasserted asbestos-related claims based on an
assessment of the number and value of those claims. We use a statistical analysis to assist us in properly
measuring our potential liability. Our liability for asbestos-related claims is not discounted to present value
due to the uncertainty surrounding the timing of future payments. Legal fees and incidental costs are
expensed as incurred.
Environmental – When environmental issues have been identified with respect to property currently or
formerly owned, leased, or otherwise used in the conduct of our business, we and our consultants
perform environmental assessments on such property. We expense the cost of the assessments as
incurred. We accrue the cost of remediation where our obligation is probable and such costs can be
reasonably estimated. We do not discount our environmental liabilities when the timing of the anticipated
cash payments is not fixed or readily determinable. Legal fees and incidental costs are expensed as
incurred.
Use of Estimates – Our Consolidated Financial Statements include estimates and assumptions
regarding certain assets, liabilities, revenue, and expenses and the disclosure of certain contingent
assets and liabilities. Actual future results may differ from such estimates.
3. Recently Issued Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income
(Topic 220): Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 will require
companies to present the components of net income and other comprehensive income either as one
continuous statement or as two consecutive statements. It eliminates the option to present components of
other comprehensive income as part of the statement of changes in stockholders' equity. The standard