Union Pacific 2005 Annual Report Download - page 44

We believe that our liability for asbestos-related claims and the estimated insurance recoveries reflect
reasonable and probable estimates. The amounts recorded for asbestos-related liabilities and related insurance
recoveries were based on currently known facts. However, future events, such as the number of new claims to be
filed each year, average settlement costs, and insurance coverage issues could cause the actual costs and insurance
recoveries to be higher or lower than the projected amounts. Estimates may also vary due to changes in the
litigation environment, federal and state law governing compensation of asbestos claimants, and the level of
payments made to claimants by other defendants.
Additionally, we have a legal obligation to properly dispose of asbestos-containing materials. The estimated
fair value of this obligation is $5 million at December 31, 2005, which is recorded as a liability on the
Consolidated Statements of Financial Position pursuant to FIN 47.
Environmental – We are subject to federal, state, and local environmental laws and regulations. We identified 370
sites at which we are or may be liable for remediation costs associated with alleged contamination or for violations
of environmental requirements. This includes 43 sites that are the subject of actions taken by the U.S.
government, 23 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 the
conduct of our business, we and our consultants perform 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.
Environmental expenses for the years ended December 31, 2005, 2004, and 2003 were $45 million, $46
million, and $26 million, respectively. As of December 31, 2005 and 2004, we had a liability of $213 million and
$201 million, respectively, accrued for future environmental costs, of which $46 million and $50 million,
respectively, were recorded in current liabilities as accrued casualty costs. 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 involved, 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. Current obligations are not expected to have a material adverse effect on our consolidated
financial condition, results of operations, or liquidity.
Personal Injury – The cost of personal injuries to employees and others related to our activities is charged to
expense based on estimates of the ultimate cost and number of incidents each year. We use third-party actuaries
to assist us with measuring the expense and liability, including unasserted claims. The Federal Employers’ Liability
Act (FELA) governs compensation for work-related accidents. Under FELA, damages are assessed based on a
finding of fault through litigation or out-of-court settlements. We offer a comprehensive variety of services and
rehabilitation programs for employees who are injured at work. Annual expenses for personal injury-related
events were $247 million in 2005, $288 million in 2004, and $250 million in 2003. As of December 31, 2005 and
2004, we had accrued liabilities of $619 million and $639 million for future personal injury costs, respectively, of
which $274 million was recorded in current liabilities as accrued casualty costs in both years. Estimates can vary
over time due to evolving trends in litigation.
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