Union Pacific 2009 Annual Report Download - page 50

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When we identify an environmental issue with respect to property owned, leased, or otherwise used in our
business, we and our consultants perform environmental assessments on the property. We expense the
cost of the assessments as incurred. We accrue the cost of remediation where our obligation is probable
and we can reasonably estimate such costs. We do not discount our environmental liabilities when the
timing of the anticipated cash payments is not fixed or readily determinable. At December 31, 2009,
approximately 12% of our environmental liability was discounted at 3.4%, while approximately 13% of
our environmental liability was discounted at 3.5% at December 31, 2008. Our environmental liability
activity was as follows:
Millions of Dollars 2009 2008 2007
Beginning balance $ 209 $ 209 $ 210
Accruals 49 46 41
Payments (41) (46) (42)
Ending balance at December 31 $ 217 $ 209 $ 209
Current portion, ending balance at December 31 $ 82 $ 58 $ 63
Our environmental site activity was as follows:
2009 2008 2007
Open sites, beginning balance 339 339 367
New sites 49 82 72
Closed sites (81) (82) (100)
Open sites, ending balance at December 31 307 339 339
The liability includes future costs for remediation and restoration of sites, as well as ongoing monitoring
costs, but excludes any anticipated recoveries from third parties. Cost estimates are based on information
available for each site, financial viability of other potentially responsible parties, and existing technology,
laws, and regulations. The ultimate liability for remediation is difficult to determine because of the
number of potentially responsible parties, site-specific cost sharing arrangements with other potentially
responsible parties, the degree of contamination by various wastes, the scarcity and quality of volumetric
data related to many of the sites, and the speculative nature of remediation costs. Estimates of liability
may vary over time due to changes in federal, state, and local laws governing environmental remediation.
Current obligations are not expected to have a material adverse effect on our consolidated results of
operations, financial condition, or liquidity.
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. Assets purchased or constructed
throughout the year are capitalized if they meet applicable minimum units of property criteria. Properties
and equipment are carried at cost and are depreciated on a straight-line basis over their estimated service
lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines
except for those subject to abandonment, yard and switching tracks, and electronic yards), which are
measured in millions of gross tons per mile of track. We use the group method of depreciation in which
all items with similar characteristics, use, and expected life are grouped together in asset classes, and are
depreciated using composite depreciation rates. The group method of depreciation treats each asset class
as a pool of resources, not as singular items. We currently have more than 60 depreciable asset classes,