Union Pacific 2011 Annual Report Download - page 45

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compensation of claimants; and there are material changes with respect to payments made to claimants
by other defendants.
Environmental – We are subject to federal, state, and local environmental laws and regulations. We
identified 285 sites at which we are or may be liable for remediation costs associated with alleged
contamination or for violations of environmental requirements. This includes 32 sites that are the subject
of actions taken by the U.S. government, 17 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, our ultimate environmental liability may include costs relating to activities of other parties,
in addition to costs relating to our own activities at each site.
When we identify an environmental issue with respect to property owned, leased, or otherwise used in
our business, we perform, with the assistance of our consultants, 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 we can reasonably estimate such costs. We do not discount our
environmental liabilities when the timing of the anticipated cash payments is not fixed or readily
determinable. At December 31, 2011, less than 1% of our environmental liability was discounted at 2.0%,
while approximately 5% of our environmental liability was discounted at 2.8% at December 31, 2010. Our
environmental liability activity was as follows:
Millions 2011 [a
]
2010 2009
Beginning balance $ 213 $ 217 $ 209
Accruals 29 57 49
Payments (70) (61) (41)
Ending balance at December 31 $ 172 $ 213 $ 217
Current portion, ending balance at December 31 $ 50 $ 74 $ 82
[a] Payments include $25 million to resolve the Omaha Lead Site liability.
Our environmental site activity was as follows:
2011 2010 2009
Open sites, beginning balance 294 307 339
New sites 51 44 49
Closed sites (60) (57) (81)
Open sites, ending balance at December 31 285 294 307
The liability includes future costs for remediation and restoration of sites, as well as 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 ultimate liability for remediation is difficult to determine because of the number
of potentially responsible parties, 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.
Current obligations are not expected to have a material adverse effect on our consolidated results of
operations, financial condition, or liquidity.
Property and Depreciation – Our railroad operations are highly capital intensive, and our large base of
homogeneous, network-type assets turns over on a continuous basis. Each year we develop a capital
program for the replacement of assets and for the acquisition or construction of assets that enable us to
enhance our operations or provide new service offerings to customers. Assets purchased or constructed
throughout the year are capitalized if they meet applicable minimum units of property criteria. Properties
and equipment are carried at cost and are depreciated on a straight-line basis over their estimated
service lives, which are measured in years, except for rail in high-density traffic corridors (i.e., all rail lines
except for those subject to abandonment, yard and switching tracks, and electronic yards) for which lives
are measured in millions of gross tons per mile of track. We use the group method of depreciation in
which all items with similar characteristics, use, and expected lives are grouped together in asset classes,