Union Pacific 2007 Annual Report Download - page 17

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Sunset Corridor Expansion – One of our critical routes is the Sunset Corridor, a 760-mile route running
between Los Angeles and El Paso, Texas. This heavily traveled corridor carries about 20 percent of our traffic,
including a significant amount of intermodal traffic. In 2007, we added 33 miles of double track to the
corridor, which now includes nearly 410 miles of double track (approximately 54% of the route).
SPRB Joint-Line Expansion – An important part of our franchise is our access to the coal-producing SPRB
through a joint line, which we own with BNSF (the Joint Line). In addition to the significant annual
maintenance required on the Joint Line (due to the volume of trains, the weight of loaded coal cars, and the
impact of coal dust on rail beds), a capacity expansion project is underway. During 2007, we completed the
installation of additional main line track so the entire Joint Line now has triple track.
2008 Capital Expenditures – In 2008, we expect to make capital investments of approximately $3.1 billion
(which may be revised if revenue, tax, and business conditions require changing, or new laws or regulations
affect our ability to generate sufficient returns on, these investments). See discussion of our 2008 capital plan
in Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2008 Outlook,
Item 7.
Equipment Encumbrance – Equipment with a carrying value of approximately $2.8 billion at both December
31, 2007 and 2006 serves as collateral for capital leases and other types of equipment obligations in accordance
with the secured financing arrangements utilized to acquire such railroad equipment.
As a result of the merger of Missouri Pacific Railroad Company (MPRR) with and into UPRR on January 1,
1997, and pursuant to the underlying indentures for the MPRR mortgage bonds, UPRR must maintain the
same value of assets after the merger in order to comply with the security requirements of the mortgage bonds.
As of the merger date, the value of the MPRR assets that secured the mortgage bonds was approximately $6.0
billion. In accordance with the terms of the indentures, this collateral value must be maintained during the
entire term of the mortgage bonds irrespective of the outstanding balance of such bonds.
Certain of our properties are subject to federal, state, and local laws and regulations governing the protection
of the environment (see discussion of environmental issues in Business – Governmental and Environmental
Regulation, Item 1, and Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Policies – Environmental, Item 7).
Item 3. Legal Proceedings
From time to time, we are involved in legal proceedings, claims, and litigation that occur in connection with
our business. Management routinely assesses our liabilities and contingencies in connection with these matters
based upon the latest available information. Consistent with SEC rules and requirements, we describe below
material pending legal proceedings (other than ordinary routine litigation incidental to our business), material
proceedings known to be contemplated by governmental authorities, other proceedings arising under federal,
state, or local environmental laws and regulations (including governmental proceedings involving potential
fines, penalties, or other monetary sanctions in excess of $100,000) and such other pending matters that we
may determine to be appropriate.
Environmental Matters
As we reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, the Railroad
received notice from the Army Corps of Engineers (the Corps) that, during its construction efforts to restore
service to the Caliente Subdivision after severe flooding in January 2005, the Railroad may have exceeded its
authority under emergency authorizations and permits issued by the Corps. Subsequently, the Corps referred
the matter to the EPA, which has demanded that the Railroad repair claimed impacts to the adjacent
waterway, perform compensatory mitigation, and pay a civil penalty in connection with this project and
related storm water issues. The Railroad and the EPA have discussed the scope of additional work to be
performed by the Railroad to address alleged impacts of its construction activities, as well as compensatory