Union Pacific 2007 Annual Report Download - page 78

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and outcomes of asbestos litigation materially change; federal and state laws governing asbestos litigation
increase or decrease the probability or amount of compensation of claimants; and there are material changes
with respect to payments made to claimants by other defendants.
Environmental Costs – We are subject to federal, state, and local environmental laws and regulations. We have
339 projects with which we are or may be liable for remediation costs associated with alleged contamination or
for violations of environmental requirements. This includes 41 projects that are the subject of actions taken by
the U.S. government, 22 of which are currently on the Superfund National Priorities List. Certain federal
legislation imposes joint and several liability for the remediation of identified projects; consequently, our
ultimate environmental liability may include costs relating to activities of other parties, in addition to costs
relating to our own activities with each project.
When an environmental issue has been identified with respect to property owned, leased, or otherwise used in
our business, we and our consultants perform environmental assessments on the property. We expense the
cost of the assessments as incurred. We accrue the cost of remediation where our obligation is probable and
such costs can be reasonably estimated. We do not discount our environmental liabilities when the timing of
the anticipated cash payments is not fixed or readily determinable. At December 31, 2007, approximately 13%
of our environmental liability was discounted at 4.15%, while approximately 14% of our environmental
liability was discounted at 5.34% at December 31, 2006.
Our environmental liability activity was as follows:
Millions of Dollars 2007 2006 2005
Beginning balance................................................................................... $210 $213 $201
Accruals................................................................................................... 41 39 45
Payments................................................................................................. (42) (42) (33)
Ending balance at December 31............................................................. $209 $210 $213
Current portion, ending balance at December 31 ................................ $ 63 $ 54 $ 46
The environmental liability includes 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 project, financial viability of other potentially responsible parties, and existing
technology, laws, and regulations. We believe that we have adequately accrued for our 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 the speculative nature of remediation
costs. Estimates of liability may vary over time due to changes in federal, state, and local laws governing
environmental remediation. We do not expect current obligations to have a material adverse effect on our
results of operations or financial condition.
Guarantees – At December 31, 2007, we were contingently liable for $465 million in guarantees. We have
recorded a liability of $5 million and $6 million for the fair value of these obligations as of December 31, 2007
and 2006, respectively. We entered into these contingent guarantees in the normal course of business, and they
include guaranteed obligations related to our headquarters building, equipment financings, and affiliated
operations. The final guarantee expires in 2022. We are not aware of any existing event of default that would
require us to satisfy these guarantees. We do not expect that these guarantees will have a material adverse
effect on our consolidated financial condition, results of operations, or liquidity.
Indemnities – Our maximum potential exposure under indemnification arrangements, including certain tax
indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the nature
of the transactions and the agreements. Due to uncertainty as to whether claims will be made or how they will