Union Pacific 2012 Annual Report Download - page 16

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2013 Capital Expenditures – In 2013, we expect to make capital investments of approximately $3.6
billion, including expenditures for PTC of approximately $450 million. We may revise our 2013 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 2013 capital plan in Management’s Discussion and
Analysis of Financial Condition and Results of Operations – 2013 Outlook, Item 7.)
OTHER
Equipment Encumbrances – Equipment with a carrying value of approximately $2.9 billion at both
December 31, 2012 and 2011 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
On January 14, 2013, the Illinois Attorney General's Office notified UPRR that it will seek a penalty
against the Railroad for environmental conditions caused by its predecessor at a former locomotive
fueling facility in South Pekin, Illinois. This former CNW facility discontinued fueling operations in the
early 1980s. Subsequent environmental investigation revealed evidence of fuel releases to soil and
groundwater. In January 2007, the State rejected UPRR's proposed compliance commitment agreement
and responded with a notice of intent to pursue legal action. UPRR continued to perform remedial
investigations under the supervision of the Illinois EPA. In June 2012, the Illinois EPA approved UPRR's
proposed remedial action plan for the contaminated groundwater. Although no further action is required
for the contamination, the State is now seeking to recover a penalty. The State has offered to settle the
matter prior to litigation for payment of a $240,000 penalty. If we are unable to reach an agreement, the
state will pursue legal action for a penalty, which we expect will exceed $100,000.
We received notices from the EPA and state environmental agencies alleging that we are or may be liable
under federal or state environmental laws for remediation costs at various sites throughout the U.S.,
including sites on the Superfund National Priorities List or state superfund lists. We cannot predict the
ultimate impact of these proceedings and suits because of the number of potentially responsible parties
involved, 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.