Union Pacific 2012 Annual Report Download - page 42

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consolidated results of operations, financial condition, or liquidity after taking into account liabilities and
insurance recoveries previously recorded for these matters.
Indemnities – Our maximum potential exposure under indemnification arrangements, including certain
tax indemnifications, can range from a specified dollar amount to an unlimited amount, depending on the
nature of the transactions and the agreements. Due to uncertainty as to whether claims will be made or
how they will be resolved, we cannot reasonably determine the probability of an adverse claim or
reasonably estimate any adverse liability or the total maximum exposure under these indemnification
arrangements. We do not have any reason to believe that we will be required to make any material
payments under these indemnity provisions.
Climate Change – Although climate change could have an adverse impact on our operations and
financial performance in the future (see Risk Factors under Item 1A of this report), we are currently
unable to predict the manner or severity of such impact. However, we continue to take steps and explore
opportunities to reduce the impact of our operations on the environment, including investments in new
technologies, using training programs to reduce fuel consumption, and changing our operations to
increase fuel efficiency.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements have been prepared in accordance with GAAP. The preparation
of these financial statements requires estimation and judgment that affect the reported amounts of
revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. The following critical accounting policies are a subset of our significant
accounting policies described in Note 2 to the Financial Statements and Supplementary Data, Item 8.
These critical accounting policies affect significant areas of our financial statements and involve judgment
and estimates. If these estimates differ significantly from actual results, the impact on our Consolidated
Financial Statements may be material.
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
an actuarial analysis to measure the expense and liability, including unasserted claims. The Federal
Employers’ Liability Act (FELA) governs compensation for work-related accidents. Under FELA, damages
are assessed based on a finding of fault through litigation or out-of-court settlements. We offer a
comprehensive variety of services and rehabilitation programs for employees who are injured at work.
Our personal injury liability is not discounted to present value. Approximately 90% of the recorded liability
is related to asserted claims, and approximately 10% is related to unasserted claims at December 31,
2012. 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 $334 million to
$368 million. We record an accrual at the low end of the range as no amount of loss within the range is
more probable than any other. Estimates can vary over time due to evolving trends in litigation.
Our personal injury liability activity was as follows:
Millions 2012 2011 2010
Beginning balance $ 368 $426 $545
Current year accruals 121 118 155
Changes in estimates for prior years (58) (71) (101)
Payments (97) (105) (173)
Ending balance at December 31 $ 334 $ 368 $ 426
Current portion, ending balance at December 31 $ 95 $ 103 $ 140