Union Pacific 2005 Annual Report Download - page 75

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Our environmental liability activity was as follows:
Millions of Dollars 2005 2004 2003
Beginning balance ..................................................... $201 $187 $188
Accruals ............................................................. 45 46 26
Payments ............................................................ (33) (32) (27)
Ending balance at December 31 .......................................... $213 $201 $187
Current portion, ending balance at December 31 ............................ $ 46 $ 50 $ 57
The environmental liability includes costs for remediation and restoration of sites, as well as for 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. We believe that we have adequately accrued for our ultimate share of costs at
sites subject to joint and several liability. However, 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. Estimates may also
vary due to changes in federal, state, and local laws governing environmental remediation. We do not expect
current obligations to have a material adverse effect on our results of operations or financial condition.
Guarantees – At December 31, 2005, we were contingently liable for $486 million in guarantees. We have
recorded a liability of $7 million for the fair value of these obligations as of December 31, 2005. 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.
Income Taxes – As previously reported in our Form 10-Q for the quarter ended September 30, 2005, the IRS has
completed its examinations and issued notices of deficiency for tax years 1995 through 2002. Among their
proposed adjustments is the disallowance of tax deductions claimed in connection with certain donations of
property. In the fourth quarter of 2005, the IRS National Office issued a Technical Advice Memorandum which
left unresolved whether the deductions were proper, pending further factual development by the IRS Examination
Team. We continue to dispute the donation issue, as well as many of the other proposed adjustments, and will
contest the associated tax deficiencies through the IRS Appeals process, and, if necessary, litigation. We do not
expect that the ultimate resolution of these examinations will have a material adverse effect on our operating
results, financial condition, or liquidity. In addition, the IRS has begun its examination of tax years 2003 and
2004.
Insurance Subsidiaries – We have two consolidated, wholly-owned subsidiaries that provide insurance coverage
for certain risks including physical loss or property damage and certain other claims that are subject to
reinsurance. At December 31, 2005, current accounts receivable and current accrued casualty costs included $65
million for reinsurance receivables and reinsured liability, respectively, held by one of our insurance subsidiaries
related to losses sustained during the West Coast storm in January 2005. This amount may change in the future as
facts and circumstances surrounding the claim and the reinsurance are finalized and settled. We collected a partial
recovery of our claim from reinsurance of $25 million during the fourth quarter of 2005.
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