Union Pacific 2005 Annual Report Download - page 74

‰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.
Our asbestos-related liability activity was as follows:
Millions of Dollars 2005 2004 2003
Beginning balance ..................................................... $324 $ 51 $ 58
Accruals ............................................................. - 287 7
Payments ............................................................ (13) (14) (14)
Ending balance at December 31 .......................................... $311 $324 $ 51
Current portion, ending balance at December 31 ............................. $ 16 $ 17 $ 9
Our liability for asbestos-related claims is not discounted to present value due to the uncertainty
surrounding the timing of future payments. 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. During the third quarter of 2005, our third-party consultants assisted us in reviewing our actual
asbestos claim experience through the first half of 2005 compared to the assumptions used in the 2004 estimate,
and we determined that no adjustment to our estimate was necessary at this time. We will continue to review
actual experience and adjust our estimate as warranted.
Insurance coverage reimburses us for a portion of the costs incurred to resolve asbestos-related claims, and
we have recognized an asset for estimated insurance recoveries.
We believe that our liability estimates 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 Costs – We are subject to federal, state, and local environmental laws and regulations. We have
identified approximately 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 an environmental issue has been identified with respect to the 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 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.
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