Union Pacific 2001 Annual Report Download - page 79

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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. The impact of current obligations is not expected
to have a material adverse effect on the results of operations or financial condition of the Corporation.
Purchase Obligations and Guarantees – The Corporation and its subsidiaries periodically enter into financial and other
commitments in connection with their businesses. At December 31, 2001, the Corporation had unconditional purchase
obligations of $547 million for the purchase of locomotives as part of the Corporation's multi-year capital asset
acquisition plan. In addition, the Corporation was contingently liable for $270 million in guarantees and $45 million in
letters of credit at December 31, 2001. These contingent guarantees were entered into in the normal course of business
and include guaranteed obligations of affiliated operations. The Corporation is not aware of any existing event of default
which would require it to satisfy these guarantees.
Other – 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.
Risk Factors – The Corporation's future results may be affected by changes in the economic environment, fluctuations
in fuel prices, operational repercussions from any terrorist activities or government response thereto and external factors
such as weather. Several of the commodities transported by both the Railroad and trucking segments come from
industries with cyclical business operations. As a result, prolonged negative changes in the U.S. and global economic
conditions can have an adverse effect on the Corporation's operating results. In addition, to the extent that diesel fuel
costs are not recovered through increased revenue, improved fuel conservation or mitigated by hedging activity, operating
results for the Railroad and trucking segments can also be adversely affected.