Union Pacific 2002 Annual Report Download - page 54

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The Corporation filed a $1.0 billion shelf registration statement, which became effective in July 2002. Under the shelf
registration statement, the Corporation may issue, from time to time, any combination of debt securities, preferred stock,
common stock or warrants for debt securities or preferred stock in one or more offerings. At December 31, 2002, the
Corporation had $1.0 billion remaining for issuance under the shelf registration. The Corporation has no immediate plans
to issue equity securities.
Other Significant Financings – During June 2002, UPRR entered into a capital lease covering new locomotives. The related
capital lease obligation totaled approximately $126 million and is included in the Consolidated Statements of Financial
Position as debt (see note 5 to the Consolidated Financial Statements, Item 8).
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 mid-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 all of the
Railroad’s obligation under this lease.
UPRR is the construction agent for the lessor during the construction period. The Railroad has guaranteed, in the event
of a loss caused by or resulting from its actions or failures to act as construction agent, 89.9% of the building related
construction costs incurred up to that point during the construction period. Total building related costs incurred and drawn
from the lease funding commitments as of December 31, 2002, were approximately $50 million. Accordingly, the Railroad’s
guarantee at December 31, 2002, was approximately $45 million. As construction continues and additional costs are
incurred, this guarantee will increase accordingly.
After construction is complete, UPRR will lease the building under an initial term of five years with 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 purchase the building or renew the lease, the building is returned to the lessor for remarketing, and
the Railroad has guaranteed a residual value equal to 85% of the total construction related costs. The guarantee will be
approximately $220 million.
OTHER MATTERS
Personal Injury and Occupational Illness – The cost of injuries to employees and others related to Railroad activities 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. During 2002, the Railroad’s reported number of work-related injuries that resulted in lost job time
decreased 5% compared to the number of injuries reported during 2001, and accidents at grade crossings decreased 16%
compared to 2001. Annual expenses for the Corporation’s personal injury-related events were $259 million in 2002, $227
million in 2001 and $226 million in 2000. As of December 31, 2002 and 2001, the Corporation had a liability of $724 million
and $743 million, respectively, accrued for future personal injury costs, of which $304 million and $295 million were recorded
in current liabilities as accrued casualty costs. The Railroad has additional amounts accrued for claims related to certain
occupational illnesses. 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 non-hazardous waste in its current and
former operations, and is subject to federal, state and local environmental laws and regulations. The Corporation has
identified approximately 433 sites at which it is or may be liable for remediation costs associated with alleged contamination
or for violations of environmental requirements. This includes 52 sites that are the subject of actions taken by the U.S.
government, 27 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 activities of other parties, in addition to costs relating to its own activities at each site.
When an environmental issue has 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.