Union Pacific 2011 Annual Report Download - page 77

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77
hedges using the short-cut method; therefore, we do not record any ineffectiveness within our
Consolidated Financial Statements.
On February 25, 2010, we elected to terminate an interest rate swap agreement with a notional amount of
$250 million prior to the scheduled maturity and received cash of $20 million (which is comprised of $16
million for the fair value of the swap that was terminated and $4 million of accrued but unpaid interest
receivable). We designated the swap agreement as a fair value hedge, and as such the unamortized
adjustment to debt for the change in fair value of the swap remains classified as debt due after one year
in our Consolidated Statements of Financial Position and will be amortized as a reduction to interest
expense through April 15, 2012. As of December 31, 2011 and 2010, we do not have any interest rate
fair value hedges outstanding.
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, 2011 and
2010, we recorded reductions of $2 million and $3 million, respectively, as an accumulated other
comprehensive loss that is being amortized on a straight-line basis through September 30, 2014. As of
December 31, 2011 and 2010, we had no interest rate cash flow hedges outstanding.
Earnings Impact – Our use of derivative financial instruments had the following impact on pre-tax income
for the years ended December 31:
Millions 2011 2010 2009
Decrease in interest expense from interest rate hedging $ - $ 2 $ 8
Increase in pre-tax income $ - $ 2 $ 8
Fair Value of Financial Instruments – The fair value of our short- and long-term debt was estimated
using quoted market prices, where available, or current borrowing rates. At December 31, 2011, the fair
value of total debt was $10.5 billion, approximately $1.6 billion more than the carrying value. At
December 31, 2010, the fair value of total debt was $10.4 billion, approximately $1.2 billion more than the
carrying value. At December 31, 2011 and 2010, approximately $303 million of fixed-rate debt securities
contained call provisions that allow us to retire the debt instruments prior to final maturity, with the
payment of fixed call premiums, or in certain cases, at par. The fair value of our cash equivalents
approximates their carrying value due to the short-term maturities of these instruments.
14. Debt
Total debt as of December 31, 2011 and 2010, net of interest rate swaps designated as fair value
hedges, is summarized below:
Millions 2011 2010
Notes and debentures, 3.0% to 7.9% due through 2054 $ 6,801 $ 6,886
Capitalized leases, 4.0% to 9.3% due through 2028 1,874 1,909
Equipment obligations, 6.2% to 8.1% due through 2031 147 183
Tax-exempt financings, 5.0% to 5.7% due through 2026 159 162
Floating rate term loan, due through 2016 100 100
Receivables securitization facility (Note 10) 100 100
Mortgage bonds, 4.8% due through 2030 57 58
Medium-term notes, 9.2% to 10.0% due through 2020 32 42
Unamortized discount (364) (198)
Total debt 8,906 9,242
Less: current portion (209) (239)
Total long-term debt $ 8,697 $ 9,003