Union Pacific 2002 Annual Report Download - page 84

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Environmental – 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.
As of December 31, 2002 and 2001, the Corporation had a liability of $189 million and $172 million, respectively, accrued
for future environmental costs, of which $72 million and $71 million were recorded in current liabilities as accrued casualty
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, 2002, 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. The Corporation does not expect that these commitments or guarantees
will have a material adverse effect on its consolidated financial condition, results of operations or liquidity.
At December 31, 2002, the Corporation had unconditional purchase obligations of $404 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 $368 million in guarantees and $76 million in letters of credit at December 31, 2002. These contingent
guarantees were entered into in the normal course of business and include guaranteed obligations of affiliated operations.
None of the guarantees individually are significant, and no liability related to these guarantees exists as of December 31,
2002. The final guarantee expires in 2022. 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 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.