Union Pacific 2005 Annual Report Download - page 43

Commitments and Contingencies – Various claims and lawsuits are pending against us and certain of our
subsidiaries. We are also subject to various federal, state and local environmental laws and regulations, pursuant
to which we are currently participating in the investigation and remediation of various sites. We do not expect
that any known lawsuits, claims, environmental costs, commitments, contingent liabilities, or guarantees will have
a material adverse effect on our consolidated financial condition, results of operations, or liquidity after taking
into account liabilities previously recorded for these matters.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial statements requires estimation and
judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The following critical accounting policies are a subset
of our significant accounting policies described in the notes to the Financial Statements and Supplementary Data,
Item 8. These critical accounting policies affect significant areas of our financial statements and involve judgment
and estimates. If these estimates differ significantly from actual results, the impact on our Consolidated Financial
Statements may be material.
Asbestos – We are a defendant in a number of lawsuits in which current and former employees allege exposure to
asbestos. Additionally, we have received claims for asbestos exposure that have not been litigated. A liability for
resolving both asserted and unasserted asbestos-related claims through 2034 has been estimated and recorded.
During 2004, we engaged a third-party with extensive experience in estimating resolution costs for asbestos-
related claims to assist us in assessing our potential liability. The liability for resolving both asserted and
unasserted claims was based on the following assumptions:
‰The number of claims received in 2005 will be consistent with average claims received between 2000 and
2003.
‰The number of claims to be filed against us will decline each year after 2005.
‰The average settlement values for asserted and unasserted claims will be equivalent to those experienced
between 2002 and 2004.
‰The percentage of claims dismissed between 2002 and 2004 will continue through 2034.
At December 31, 2005 and 2004, $311 million and $324 million, respectively, was classified as liabilities on
the Consolidated Statement of Financial Position, of which $16 million and $17 million, respectively, was
classified as current accrued casualty costs. Approximately 16% of the recorded liability related to asserted claims
and approximately 84% related to unasserted claims. These claims are expected to be paid out over the next 29
years. We have insurance coverage for a portion of the costs incurred to resolve asbestos-related claims, and we
have recognized an asset for estimated insurance recoveries.
Our asbestos-related claims activity was as follows:
Claims Activity 2005 2004 2003
Open claims, beginning balance ............................................. 2,316 2,560 1,541
New claims ............................................................. 741 474 1,612
Settled or dismissed claims ................................................. (622) (718) (593)
Open claims, ending balance at December 31 .................................. 2,435 2,316 2,560
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