Union Pacific 2010 Annual Report Download - page 16

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Infrastructure Expansion – With expected long-term growth in the intermodal market, we commenced
construction of a new intermodal terminal in Joliet, Illinois, in the spring of 2009 and completed the initial
phase in August 2010. This new facility supports customer growth by increasing the Railroad’s
international and domestic container capacity and improving rail traffic efficiencies in Chicago, the
nation’s largest rail center. Customers across our network benefit from the Joliet facility’s annual capacity
of 500,000 intermodal containers.
2011 Capital Expenditures – In 2011, we expect to make capital investments of approximately $3.2
billion, including expenditures for PTC of approximately $250 million. We may revise our 2011 capital
plan if business conditions warrant or if new laws or regulations affect our ability to generate sufficient
returns on these investments. (See discussion of our 2011 capital plan in Management’s Discussion and
Analysis of Financial Condition and Results of Operations – 2011 Outlook, Item 7.)
OTHER
Equipment Encumbrance – Equipment with a carrying value of approximately $3.2 billion and $3.4
billion at December 31, 2010 and 2009, respectively, served 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.
Environmental Matters – 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. We routinely assess our liabilities and contingencies in connection with these matters
based upon the latest available information and, when necessary, we seek input from our third-party
advisors when making these assessments. 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 Annual Report on Form 10-K for 2005, the Environmental Protection Agency (EPA)
considers the Railroad a potentially responsible party for the Omaha Lead Site. The Omaha Lead Site
consists of approximately 25 square miles of residential property in the eastern part of Omaha, Nebraska,
allegedly impacted by air emissions from two former lead smelters/refineries. One refinery was operated
by ASARCO. The EPA identified the Railroad as a potentially responsible party because more than 60
years ago the Railroad owned land that was leased to ASARCO. The Railroad disputes both the legal
and technical basis of the EPA’s allegations. It has nonetheless engaged in extensive negotiations with
the EPA. The EPA issued a Unilateral Administrative Order with an effective date of December 16, 2005,
directing the Railroad to implement an interim remedy at the site at an estimated cost of $50 million.
Failure to comply with the order without just cause could subject the Railroad to penalties of up to
$37,500 per day and triple the EPA’s costs in performing the work. The Railroad believes it has just cause
not to comply with the order, but it offered to perform some of the work specified in the order as a
compromise. On August 5, 2009, the Railroad received a Special Notice Letter from EPA directing UPRR