Union Pacific 2012 Annual Report Download - page 44

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Environmental Costs – We are subject to federal, state, and local environmental laws and regulations.
We have identified 284 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 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 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, 2012, none of our environmental liability was discounted, while less than
1% of our environmental liability was discounted at 2.0% at December 31, 2011.
Our environmental liability activity was as follows:
Millions 2012 2011 [a
]
2010
Beginning balance $ 172 $ 213 $ 217
Accruals 48 29 57
Payments (50) (70) (61)
Ending balance at December 31 $ 170 $ 172 $ 213
Current portion, ending balance at December 31 $ 50 $ 50 $ 74
[a] Payments include $25 million to resolve the Omaha Lead Site liability.
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Our environmental site activity was as follows:
2012 2011 2010
Open sites, beginning balance 285 294 307
New sites 56 51 44
Closed sites (57) (60) (57)
Open sites, ending balance at December 31 284 285 294
The environmental 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.
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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,
and are depreciated using composite depreciation rates. The group method of depreciation treats each
asset class as a pool of resources, not as singular items. We currently have more than 60 depreciable