Union Pacific 2001 Annual Report Download - page 51

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engaged in reducing emissions, spills and migration of hazardous materials, and spent cash of $5 million, $8 million and
$5 million in 2001, 2000 and 1999, respectively, for control and prevention. In 2002, the Corporation anticipates
spending $60 million for remediation and $5 million for control and prevention. The impact of current obligations is
not expected to have a material adverse effect on the results of operations or financial condition of the Corporation.
Labor Matters
Rail – Approximately 87% of the Railroad's nearly 48,000 employees are represented by 14 major rail unions. National
negotiations under the Railway Labor Act to revise the national labor agreements for all crafts began in late 1999. In May
2001, the Brotherhood of Maintenance of Way Employees (BMWE) ratified a five-year agreement, which included
provisions for an annual wage increase (based on the consumer price index) and progressive health and welfare cost
sharing. The health and welfare cost sharing was a milestone as the BMWE is the first union to make significant cost
contributions to their health and welfare plan. Contract discussions with the remaining unions are either in negotiation
or mediation. Also during 2001, much of the operating craft unions' focus was on the proposed merger between the
United Transportation Union and the Brotherhood of Locomotive Engineers (BLE). In a December 2001 re-vote, the
BLE resoundingly rejected the merger. Both operating craft unions have indicated a desire to complete national
negotiations. The Corporation anticipates significant progress in 2002.
Trucking – Overnite continues to oppose the efforts of the Teamsters to unionize Overnite service centers. Since the
Teamsters began their efforts at Overnite in 1994, Overnite has received 90 petitions for union elections at 66 of its 170
service centers, although there have been only nine elections since August 1997, and Teamsters representation was
rejected in seven of those nine elections. Twenty-two service centers, representing approximately 14% of Overnite’s
nearly 13,000 nationwide employee work force, have voted for union representation, and the Teamsters have been
certified and recognized as the bargaining representative for such employees. Employees at 18 of these 22 locations have
filed decertification petitions since 1999. Elections affecting approximately 400 additional employees are unresolved, and
there are no elections currently scheduled. Additionally, proceedings are pending in certain cases where a Teamsters’ local
union lost a representation election. To date, Overnite has not entered into any collective bargaining agreements with
the Teamsters, who began a job action on October 24, 1999, that has continued into 2002. As of January 19, 2002, 19
Overnite service centers had approximately 369 employees, less than 3% of Overnite’s work force, who did not report
to work. Despite the work stoppage, Overnite has managed to improve its revenue and profitability on a year-over-year
basis. Employees at two Motor Cargo service centers located in North Salt Lake, Utah and Reno, Nevada, representing
approximately 11% of Motor Cargo's total work force at 30 service centers, are covered by two separate collective
bargaining agreements with unions affiliated with the Teamsters. Although the agreements cover most of the employees
at these two facilities, less than half of these covered employees are actual members of unions.
Inflation – The cumulative effect of long periods of inflation has significantly increased asset replacement costs for
capital-intensive companies such as the Railroad, Overnite and Motor Cargo. As a result, depreciation charges on an
inflation-adjusted basis, assuming that all operating assets are replaced at current price levels, would be substantially
greater than historically reported amounts.
Derivative Financial Instruments – The Corporation and its subsidiaries use derivative financial instruments, which are
subject to market risk, in limited instances for other than trading purposes to manage risk related to changes in fuel prices
and to achieve the Corporation's interest rate objectives. The Corporation uses swaps, futures and/or forward contracts
to mitigate adverse price movements and exposure to variable cash flows. The use of these instruments also limits future
gains from favorable movements. The Corporation uses interest rate swaps to manage its exposure to interest rate
changes and hedge the exposure to fair value changes. The purpose of these programs is to protect the Corporation's
operating margins and overall profitability from adverse fuel price changes or interest rate fluctuations.
The Corporation may also use fuel swaptions to secure more favorable swap prices. Swaptions are swaps that are
extendable past their base period at the option of the counterparty. Swaptions do not qualify for hedge accounting
treatment and are marked-to-market through the Consolidated Statements of Income.