Union Pacific 2007 Annual Report Download - page 76

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9. Earnings Per Share
The following table provides a reconciliation between basic and diluted earnings per share for the years ended
December 31:
Millions of Dollars, Except Per Share Amounts 2007 2006 2005
Net income ............................................................................................. $1,855 $1,606 $1,026
Weighted-average number of shares outstanding:
Basic.................................................................................................... 265.9 269.4 263.4
Dilutive effect of stock options ......................................................... 2.1 2.1 1.5
Dilutive effect of retention shares and units .................................... 0.4 0.5 1.6
Diluted .................................................................................................... 268.4 272.0 266.5
Earnings per share – basic...................................................................... $ 6.97 $ 5.96 $ 3.89
Earnings per share – diluted .................................................................. $ 6.91 $ 5.91 $ 3.85
Common stock options totaling 0.4 million, 1.4 million, and 1.4 million for 2007, 2006, and 2005,
respectively, were excluded from the computation of diluted earnings per share because the exercise prices of
these options exceeded the average market price of our common stock for the respective periods, and the
effect of their inclusion would be anti-dilutive.
10. Commitments and Contingencies
Asserted and Unasserted Claims – Various claims and lawsuits are pending against us and certain of our
subsidiaries. We cannot fully determine the effect of all asserted and unasserted claims on our consolidated
results of operations, financial condition, or liquidity; however, to the extent possible, where asserted and
unasserted claims are considered probable and where such claims can be reasonably estimated, we have
recorded a liability. 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 results of
operations, financial condition, or liquidity after taking into account liabilities previously recorded for these
matters.
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 in measuring the expense and liability, including unasserted claims, on a semi-annual
basis. 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.
As a result of improvements in our safety experience, lower estimated ultimate settlement costs, and the
completion of actuarial studies, we reduced personal injury expense by approximately $80 million in 2007.
These adjustments were partially offset by adverse development with respect to one claim. Our personal injury
liability activity was as follows:
Millions of Dollars 2007 2006 2005
Beginning balance................................................................................... $ 631 $ 619 $ 639
Accruals................................................................................................... 165 240 247
Payments................................................................................................. (203) (228) (267)
Ending balance at December 31............................................................. $ 593 $ 631 $ 619
Current portion, ending balance at December 31 ................................ $ 204 $ 233 $ 274