Union Pacific 2010 Annual Report Download - page 81

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Our liability for asbestos-related claims is not discounted to present value due to the uncertainty
surrounding the timing of future payments. Approximately 22% of the recorded liability related to asserted
claims and approximately 78% related to unasserted claims at December 31, 2010. Because of the
uncertainty surrounding the ultimate outcome of asbestos-related claims, it is reasonably possible that
future costs to settle these claims may range from approximately $162 million to $178 million. We record
an accrual at the low end of the range as no amount of loss is more probable than any other. In
conjunction with the liability update performed in 2010, we also reassessed estimated insurance
recoveries. We have recognized an asset for estimated insurance recoveries at December 31, 2010 and
2009. Our asbestos-related liability activity was as follows:
Millions 2010 2009 2008
Beginning balance $ 174 $ 213 $ 265
Accruals/(credits) (1) (25) (42)
Payments (11) (14) (10)
Ending balance at December 31 $ 162 $ 174 $ 213
Current portion, ending balance at December 31 $ 12 $ 13 $ 12
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 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 also
may vary in the future if strategies, activities, and outcomes of asbestos litigation materially change;
federal and state laws governing asbestos litigation increase or decrease the probability or amount of
compensation of claimants; and there are material changes with respect to payments made to claimants
by other defendants.
Environmental – We are subject to federal, state, and local environmental laws and regulations. We
identified 294 sites at which we are or may be liable for remediation costs associated with alleged
contamination or for violations of environmental requirements. This includes 31 sites that are the subject
of actions taken by the U.S. government, 17 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 we identify an environmental issue with respect to property owned, leased, or otherwise used in
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 we can reasonably estimate such costs. We do not discount our environmental liabilities
when the timing of the anticipated cash payments is not fixed or readily determinable. At December 31,
2010, approximately 5% of our environmental liability was discounted at 2.8%, while approximately 12%
of our environmental liability was discounted at 3.4% at December 31, 2009. Our environmental liability
activity was as follows:
Millions 2010 2009 2008
Beginning balance $ 217 $ 209 $ 209
Accruals 57 49 46
Payments (61) (41) (46)
Ending balance at December 31 $ 213 $ 217 $ 209
Current portion, ending balance at December 31 $ 74 $ 82 $ 58
The environmental liability includes future costs for remediation and restoration of sites, as well as
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. The ultimate liability for remediation is difficult to determine
because of the number of potentially responsible parties, site-specific cost sharing arrangements with
other potentially responsible parties, the degree of contamination by various wastes, the scarcity and