Union Pacific 2011 Annual Report Download - page 41

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Amount of Commitment Expiration per Period
Other Commercial Commitments
A
fte
r
Millions Tota
l
2012 2013 2014 2015 2016 2016
Credit facilities [a] $ 1,800 $ - $ - $ - $ 1,800 $ - $ -
Receivables securitization facility [b] 600 600 - - - - -
Guarantees [c] 325 18 8 214 12 13 60
Standby letters of credit [d] 24 24 - - - - -
Total commercial commitments $ 2,749 $ 642 $ 8 $ 214 $ 1,812 $ 13 $ 60
[a] None of the credit facility was used as of December 31, 2011.
[b] $100 million of the receivables securitization facility was utilized at December 31, 2011, which is accounted for as debt. The
full program matures in August 2012.
[c] Includes guaranteed obligations related to our headquarters building, equipment financings, and affiliated operations.
[d] None of the letters of credit were drawn upon as of December 31, 2011.
Off-Balance Sheet Arrangements
Guarantees – At December 31, 2011, we were contingently liable for $325 million in guarantees. We
have recorded a liability of $3 million for the fair value of these obligations as of December 31, 2011 and
2010. We entered into these contingent guarantees in the normal course of business, and they include
guaranteed obligations related to our headquarters building, equipment financings, and affiliated
operations. The final guarantee expires in 2022. We are not aware of any existing event of default that
would require us to satisfy these guarantees. We do not expect that these guarantees will have a material
adverse effect on our consolidated financial condition, results of operations, or liquidity.
OTHER MATTERS
Labor Agreements – In January 2010, the nation’s largest freight railroads began the current round of
negotiations with the labor unions. Generally, contract negotiations with the various unions take place
over an extended period of time. This round of negotiations was no exception. In September 2011, the rail
industry reached agreements with the United Transportation Union. On November 5, 2011, a Presidential
Emergency Board (PEB) appointed by President Obama issued recommendations to resolve the disputes
between the U.S. railroads and 11 unions that had not yet reached agreements. Since then, ten unions
reached agreements with the railroads, all of them generally patterned on the recommendations of the
PEB, and the unions subsequently ratified these agreements. The railroad industry reached a tentative
agreement with the Brotherhood of Maintenance of Way Employees (BMWE) on February 2, 2012,
eliminating the immediate threat of a national rail strike. The BMWE now will commence ratification of
this tentative agreement by its members.
Inflation – Long periods of inflation significantly increase asset replacement costs for capital-intensive
companies. As a result, assuming that we replace all operating assets at current price levels, depreciation
charges (on an inflation-adjusted basis) would be substantially greater than historically reported amounts.
Derivative Financial Instruments – We may use derivative financial instruments in limited instances to
assist in managing our overall exposure to fluctuations in interest rates and fuel prices. We are not a party
to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative
purposes. Derivative financial instruments qualifying for hedge accounting must maintain a specified level
of effectiveness between the hedging instrument and the item being hedged, both at inception and
throughout the hedged period. We formally document the nature and relationships between the hedging
instruments and hedged items at inception, as well as our risk-management objectives, strategies for
undertaking the various hedge transactions, and method of assessing hedge effectiveness. Changes in
the fair market value of derivative financial instruments that do not qualify for hedge accounting are
charged to earnings. We may use swaps, collars, futures, and/or forward contracts to mitigate the risk of
adverse movements in interest rates and fuel prices; however, the use of these derivative financial
instruments may limit future benefits from favorable price movements.