Union Pacific 2012 Annual Report Download - page 81

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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 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.
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.
Guarantees – At December 31, 2012, we were contingently liable for $307 million in guarantees. We
have recorded a liability of $2 million for the fair value of these obligations as of December 31, 2012 and
2011. 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.
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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 be resolved, we cannot reasonably determine the probability of an adverse claim or
reasonably estimate any adverse liability or the total maximum exposure under these indemnification
arrangements. We do not have any reason to believe that we will be required to make any material
payments under these indemnity provisions.