Union Pacific 2007 Annual Report Download - page 77

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73
Our personal injury liability is discounted to present value using applicable U.S. Treasury rates. Because of the
uncertainty surrounding the ultimate outcome of personal injury claims, it is reasonably possible that future
costs to settle these claims may range from approximately $593 million to $641 million. We believe that the
$593 million liability recorded at December 31, 2007, is the best estimate of the present value of the future
settlement costs of personal injury claims.
Asbestos – We are a defendant in a number of lawsuits in which current and former employees and other
parties 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.
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. During 2007, we updated our potential liability to
include actual claim experience since 2004. As a result, we decreased our liability by $20 million in 2007 for
asbestos-related claims. The liability for resolving both asserted and unasserted claims was based on the
following assumptions:
• The number of future claims received would be consistent with historical averages.
• The number of claims filed against us will decline each year.
• The average settlement values for asserted and unasserted claims will be equivalent to historical averages.
• The percentage of claims dismissed in the future will be equivalent to historical averages.
Our asbestos-related liability activity was as follows:
Millions of Dollars 2007 2006 2005
Beginning balance................................................................................... $302 $311 $324
Accruals/(credits) ................................................................................... (20) - -
Payments................................................................................................. (17) (9) (13)
Ending balance at December 31............................................................. $265 $302 $311
Current portion, ending balance at December 31 ................................ $ 11 $ 13 $ 16
Our liability for asbestos-related claims is not discounted to present value due to the uncertainty surrounding
the timing of future payments. Approximately 13% of the recorded liability related to asserted claims, and
approximately 87% related to unasserted claims. These claims are expected to be paid out over the next 27
years. We will continue to review actual experience and adjust our estimate as warranted.
We have insurance coverage for a portion of the costs incurred to resolve asbestos-related claims, and, as a
result of the 2004 assessment, we increased our receivable for insurance recoveries related to asbestos during
2004. In conjunction with the liability update performed in 2007, we also reassessed estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2007 and 2006.
We believe that our estimates of liability for asbestos-related claims and insurance recoveries are reasonable
and probable. 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 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 also may vary in the future if: strategies, activities,