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Note 11 - Properties

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

11. Properties

The following tables list the major categories of property and equipment as well as the weighted-average estimated useful life for each category (in years):

Millions, Except Estimated Useful Life						Accumulated				Net Book				Estimated
As of December 31, 2022		Cost				Depreciation				Value				Useful Life
Land		$	5,344			$	N/A			$	5,344				N/A
Road:
Rail and other track material			18,419				7,096				11,323				43
Ties			11,676				3,699				7,977				34
Ballast			6,222				1,950				4,272				34
Other roadway [a]			22,411				4,970				17,441				47
Total road			58,728				17,715				41,013				N/A
Equipment:
Locomotives			9,166				3,606				5,560				18
Freight cars			2,562				898				1,664				23
Work equipment and other			1,253				473				780				17
Total equipment			12,981				4,977				8,004				N/A
Technology and other			1,254				525				729				12
Construction in progress			948				-				948				N/A
Total		$	79,255			$	23,217			$	56,038				N/A

Millions, Except Estimated Useful Life						Accumulated				Net Book				Estimated
As of December 31, 2021		Cost				Depreciation				Value				Useful Life
Land		$	5,339			$	N/A			$	5,339				N/A
Road:
Rail and other track material			17,980				6,844				11,136				44
Ties			11,364				3,516				7,848				34
Ballast			6,070				1,852				4,218				34
Other roadway [a]			21,593				4,657				16,936				47
Total road			57,007				16,869				40,138				N/A
Equipment:
Locomotives			9,371				3,779				5,592				17
Freight cars			2,227				822				1,405				24
Work equipment and other			1,161				411				750				18
Total equipment			12,759				5,012				7,747				N/A
Technology and other			1,209				523				686				12
Construction in progress			961				-				961				N/A
Total		$	77,275			$	22,404			$	54,871				N/A

[a]

Other roadway includes grading, bridges and tunnels, signals, buildings, and other road assets.

Property and Depreciation – Our railroad operations are highly capital-intensive, and our large base of homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital program for the replacement of assets and for the acquisition or construction of assets that enable us to enhance our operations or provide new service offerings to customers. We currently have more than 60 depreciable asset classes, and we may increase or decrease the number of asset classes due to changes in technology, asset strategies, or other factors.

We determine the estimated service lives of depreciable railroad assets by means of depreciation studies. We perform depreciation studies at least every 3 years for equipment and every 6 years for track assets (i.e., rail and other track material, ties, and ballast) and other road property. Our depreciation studies take into account the following factors:

●	Statistical analysis of historical patterns of use and retirements of each of our asset classes,
●	Evaluation of any expected changes in current operations and the outlook for continued use of the assets,
●	Evaluation of technological advances and changes to maintenance practices, and
●	Expected salvage to be received upon retirement.

For rail in high-density traffic corridors, we measure estimated service lives in millions of gross tons per mile of track. It has been our experience that the lives of rail in high-density traffic corridors are closely correlated to usage (i.e., the amount of weight carried over the rail). The service lives also vary based on rail weight, rail condition (e.g., new or secondhand), and rail type (e.g., straight or curve). Our depreciation studies for rail in high-density traffic corridors consider each of these factors in determining the estimated service lives. For rail in high-density traffic corridors, we calculate depreciation rates annually by dividing the number of gross ton-miles carried over the rail (i.e., the weight of loaded and empty freight cars, locomotives, and maintenance of way equipment transported over the rail) by the estimated service lives of the rail measured in millions of gross tons per mile. For all other depreciable assets, we compute depreciation based on the estimated service lives of our assets as determined from the analysis of our depreciation studies. Changes in the estimated service lives of our assets and their related depreciation rates are implemented prospectively.

Under the group method of depreciation, the historical cost (net of salvage) of depreciable property that is retired or replaced in the ordinary course of business is charged to accumulated depreciation and no gain or loss is recognized. The historical cost of certain track assets is estimated by multiplying the current replacement cost of track assets by a historical index factor derived from (a) inflation indices published by the Bureau of Labor Statistics and (b) the estimated useful lives of the assets as determined by our depreciation studies. The indices were selected because they closely correlate with the major costs of the properties comprising the applicable track asset classes. Because of the number of estimates inherent in the depreciation and retirement processes and because it is impossible to precisely estimate each of these variables until a group of property is completely retired, we continually monitor the estimated service lives of our assets and the accumulated depreciation associated with each asset class to ensure our depreciation rates are appropriate. In addition, we determine if the recorded amount of accumulated depreciation is deficient (or in excess) of the amount indicated by our depreciation studies. Any deficiency (or excess) is amortized as a component of depreciation expense over the remaining service lives of the applicable classes of assets.

For retirements of depreciable railroad properties that do not occur in the normal course of business, a gain or loss may be recognized if the retirement meets each of the following three conditions: (a) is unusual, (b) is material in amount, and (c) 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.

We review construction in progress assets that have not yet been placed into service, for impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset or assets may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of construction in progress assets when grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent, the carrying value is reduced to the estimated fair value.

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 track assets and other road properties, which is typically performed by our employees, and for track line expansion and other capacity projects. Costs that are directly attributable to capital projects (including overhead costs) 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.

Costs incurred that extend the useful life of an asset, improve the safety of our operations, or improve operating efficiency are capitalized, while normal repairs and maintenance are expensed as incurred. These costs are allocated using appropriate statistical bases. Total expense for repairs and maintenance incurred was $2.4 billion for 2022, $2.1 billion for 2021, and $2.0 billion for 2020.

Assets held under finance 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.