Union Pacific 2001 Annual Report Download - page 50

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In December 2001, the Railroad entered into a synthetic operating lease arrangement to finance a new headquarters
building which will be constructed in Omaha, Nebraska. The expected completion date of the building is 2004. It will
total approximately 1.1 million square feet with approximately 3,800 office workspaces. The cost to construct the new
headquarters, including capitalized interest, is approximately $260 million. The Corporation has guaranteed the
Railroad's obligation under this lease.
UPRR will be the construction agent for the lessor. Total building related costs incurred and drawn from the lease
funding commitments as of December 31, 2001, were approximately $10 million. After construction is complete, the
lease has an initial term of five years and provisions for renewal for an extended period subject to agreement between the
Railroad and lessor. At any time during the lease, the Railroad may, at its option, purchase the building at approximately
the amount expended by the lessor to construct the building. If the Railroad elects not to renew the lease or purchase
the building, the Railroad has guaranteed a residual value of approximately $220 million. At December 31, 2001, the
Railroad has guaranteed, under certain circumstances, a residual value of less than $10 million.
OTHER MATTERS
Personal Injury – The cost of injuries to employees and others on Railroad property or in accidents involving the
trucking segment is charged to expense based on actuarial estimates of the ultimate cost and number of incidents each
year. In 2001, the Railroad’s work-related injuries that resulted in lost job time declined 7% compared to 2000. In
addition, accidents at grade crossings decreased 6% compared to 2000. Annual expenses for the Railroad’s personal
injury-related events were $204 million in 2001, reflecting lower than anticipated settlement costs, $207 million in 2000
and $228 million in 1999. Compensation for Railroad work-related accidents is governed by the Federal Employers’
Liability Act (FELA). Under FELA, damages are assessed based on a finding of fault through litigation or out-of-court
settlements. The Railroad offers a comprehensive variety of services and rehabilitation programs for employees who are
injured at work.
Environmental Costs – The Corporation generates and transports hazardous and nonhazardous waste in its current and
former operations, and is subject to federal, state and local environmental laws and regulations. The Corporation has
identified approximately 370 active sites at which it is or may be liable for remediation costs associated with alleged
contamination or for violations of environmental requirements. This includes 48 sites that are the subject of actions taken
by the U.S. government, 28 of which are currently on the Superfund National Priorities List. Certain federal legislation
imposes joint and several liability for the remediation of identified sites; consequently, the Corporation’s ultimate
environmental liability may include costs relating to other parties, in addition to costs relating to its own activities at each
site.
When environmental issues have been identified with respect to the property owned, leased or otherwise used in the
conduct of the Corporation's business, the Corporation and its consultants perform environmental assessments on such
property. The Corporation expenses the cost of the assessments as incurred. The Corporation accrues the cost of
remediation where its obligation is probable and such costs can be reasonably estimated.
As of December 31, 2001, the Corporation has a liability of $172 million accrued for future environmental costs. The
liability includes future costs for remediation and restoration of sites, as well as for 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 Corporation believes
that it has adequately accrued for its ultimate share of costs at sites subject to joint and several liability. However, the
ultimate liability for remediation is difficult to determine because of the number of potentially responsible parties
involved, 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/or the speculative nature
of remediation costs. The Corporation expects to pay out the majority of the December 31, 2001, environmental liability
over the next five years, funded by cash generated from operations.
Remediation of identified sites previously used in operations, used by tenants or contaminated by former owners
required cash spending of $63 million in 2001, $62 million in 2000 and $56 million in 1999. The Corporation is also