Union Pacific 2005 Annual Report Download - page 73

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to assist us in measuring the expense and liability, including unasserted claims. Compensation for work-related
accidents is governed by the Federal Employers’ Liability Act (FELA). Under FELA, damages are assessed based on
a finding of fault through litigation or out-of-court settlements.
Our personal injury liability activity was as follows:
Millions of Dollars 2005 2004 2003
Beginning balance ................................................... $ 639 $ 619 $ 674
Accruals ........................................................... 247 288 250
Payments .......................................................... (267) (268) (305)
Ending balance at December 31 ........................................ $ 619 $ 639 $ 619
Current portion, ending balance at December 31 .......................... $ 274 $ 274 $ 276
Our personal injury liability is discounted to present value using applicable U.S. Treasury rates. Personal
injury accruals were higher in 2004 due to a 1998 crossing accident verdict upheld in 2004 and a 2004 derailment
near San Antonio.
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. The claims and
lawsuits (collectively referred to as “claims”) allege occupational illness resulting from exposure to asbestos-
containing products. In most cases, the claimants do not have credible medical evidence of physical impairment
resulting from the alleged exposures. Additionally, most claims filed against us do not specify an amount of
alleged damages.
The greatest potential for asbestos exposure in the railroad industry existed while steam locomotives were
used. The railroad industry, including UPRR and its predecessors, phased out steam locomotives between 1955
and 1960. The use of asbestos-containing products in the railroad industry was substantially reduced after steam
locomotives were discontinued, although it was not completely eliminated. Some asbestos-containing products
were still manufactured in the building trade industry and were used in isolated component parts on locomotives
and railroad cars during the 1960s and 1970s. By the early 1980s, manufacturers of building materials and
locomotive component parts developed non-asbestos alternatives for their products and ceased manufacturing
asbestos-containing materials.
Prior to 2004, we concluded it was not possible to reasonably estimate the cost of disposing of asbestos-
related claims that might be filed against us in the future, due to a lack of sufficient comparable history from
which to reasonably estimate unasserted asbestos-related claims. As a result, we recorded a liability for asbestos-
related claims only when the claims were asserted.
During 2004, we determined we could reasonably estimate our liability for unasserted asbestos-related claims
because we had sufficient comparable loss data and there was no immediate legislative solution to asbestos
litigation. During 2004, we engaged a third-party with extensive experience in estimating resolution costs for
asbestos-related claims to assist us in assessing the number and value of these unasserted claims through 2034,
based on our average claims experience over a multi-year period. As a result, we increased our liability for
asbestos-related claims in the fourth quarter of 2004. 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.
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