FORM 10-Q/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission file number 1-6075
UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 13-2626465
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Martin Tower, Eighth and Eaton Avenues, Bethlehem, Pennsylvania
(Address of principal executive offices)
18018
(Zip Code)
(610) 861-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES X NO
------ ------
As of April 28, 1995, there were 205,284,153 shares of the Registrant's
Common Stock outstanding.
UNION PACIFIC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
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Page Number
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Item 1: Condensed Consolidated Financial Statements:
CONDENSED STATEMENT OF CONSOLIDATED INCOME - For the
Three Months Ended March 31, 1995 and 1994............ 1
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION -
At March 31, 1995 and December 31, 1994............... 2 - 3
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS - For
the Three Months Ended March 31, 1995 and 1994........ 4
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS -
For the Three Months Ended March 31, 1995 and 1994.... 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.... 5 - 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8 - 11
PART II. OTHER INFORMATION
Item 1: Legal Proceedings....................................... 12
Item 4: Submission of Matters to a Vote of Security
Holders................................................. 12
Item 6: Exhibits and Reports on Form 8-K........................ 13
Signature........................................................ 14
1
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Financial Statements
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended March 31, 1995 and 1994
--------------------------------------------------
(Amounts in Millions, Except Ratio and Per Share Amounts)
(Unaudited)
1995 1994
-------- --------
Operating Revenues (Note 7)................. $ 1,978 $ 1,860
-------- --------
Operating Expenses:
Salaries, wages and employee benefits..... 684 634
Depreciation, depletion, amortization
and retirements......................... 248 239
Equipment and other rents................. 171 156
Fuel and utilities (Note 7)............... 128 122
Materials and supplies.................... 98 97
Other costs............................... 284 267
-------- --------
Total.................................. 1,613 1,515
-------- --------
Operating Income............................ 365 345
Other Income - Net (Note 5.................. 42 172
Interest Expense (Note 7)................... (89) (77)
Corporate Expenses.......................... (30) (12)
-------- --------
Income Before Income Taxes.................. 288 428
Income Taxes................................ (97) (143)
-------- --------
Income from Continuing Operations........... 191 285
Loss from Discontinued Operations (Note 4).. -- (2)
-------- --------
Net Income.................................. $ 191 $ 283
======== ========
Earnings Per Share:
Income from Continuing Operations......... $ 0.93 $ 1.39
Loss from Discontinued Operations......... -- (0.01)
-------- --------
Net Income................................ $ 0.93 $ 1.38
======== ========
Weighted Average Number of Shares........... 205.5 205.7
Cash Dividends Per Share.................... $ 0.43 $ 0.40
Ratio of Earnings to Fixed Charges (Note 6). 3.6 5.6
2
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
------------------------------------------------------
(Millions of Dollars)
(Unaudited)
March 31, December 31,
ASSETS 1995 1994
--------- ------------
Current Assets:
Cash and temporary investments............... $ 97 $ 121
Accounts receivable.......................... 620 648
Inventories.................................. 280 315
Income taxes receivable (Note 4)............. 225 285
Notes receivable (Notes 4 and 5)............. 67 291
Other current assets......................... 192 162
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Total Current Assets.................... 1,481 1,822
--------- ---------
Investments:
Investments in and advances to affiliated
companies................................. 494 492
Other investments............................ 164 170
--------- ---------
Total Investments....................... 658 662
--------- ---------
Properties:
Railroad:
Road and other............................. 8,565 8,428
Equipment.................................. 4,679 4,658
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Total Railroad.......................... 13,244 13,086
--------- ---------
Natural resources............................ 5,106 4,965
--------- ---------
Trucking..................................... 728 704
--------- ---------
Other........................................ 132 130
--------- ---------
Total Properties........................ 19,210 18,885
Accumulated depreciation, depletion and
amortization............................... (6,839) (6,614)
--------- ---------
Properties - Net......................... 12,371 12,271
--------- ---------
Cost in Excess of Net Assets of Acquired
Businesses - Net (Note 3)................... 810 939
Other Assets................................... 296 248
--------- ---------
Total Assets............................ $ 15,616 $ 15,942
========= =========
3
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
------------------------------------------------------
(Amounts in Millions, Except Share and Per Share Amounts)
(Unaudited)
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
--------- ------------
Current Liabilities:
Accounts payable................................ $ 384 $ 463
Accrued wages and vacation...................... 237 223
Income and other taxes.......................... 212 198
Accrued casualty costs.......................... 160 163
Dividends and interest.......................... 159 192
Debt due within one year........................ 105 470
Other current liabilities....................... 789 796
--------- ---------
Total Current Liabilities.................... 2,046 2,505
--------- ---------
Debt Due After One Year........................... 4,202 4,090
Deferred Income Taxes (Note 3).................... 2,765 2,856
Retiree Benefits Obligation....................... 641 603
Other Liabilities (Note 8)........................ 758 757
Stockholders' Equity:
Common stock, $2.50 par value, authorized
500,000,000 shares, 231,857,343 shares issued
in 1995, 231,837,976 shares issued in 1994.... 580 580
Paid-in surplus................................. 1,432 1,428
Retained earnings............................... 4,836 4,734
Treasury stock, at cost, 26,576,140 shares in
1995, 25,900,775 shares in 1994............... (1,644) (1,611)
--------- ---------
Total Stockholders' Equity.................... 5,204 5,131
--------- ---------
Total Liabilities and Stockholders' Equity.... $ 15,616 $ 15,942
========= =========
4
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 1995 and 1994
--------------------------------------------------
(Millions of Dollars)
(Unaudited)
1995 1994
------- -------
Cash flows from operating activities:
Net Income......................................... $ 191 $ 283
Non-cash charges to income:
Depreciation, depletion and amortization....... 248 239
Deferred income taxes.......................... 33 73
Other - Net.................................... 93 (108)
Changes in current assets and liabilities.......... (142) (201)
Cash used for special charges...................... (7) (23)
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Cash from operations........................... 416 263
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Cash flows from investing activities:
Capital investments................................ (349) (352)
USPCI sale (Note 4)................................ 225 --
AMAX acquisition - Net............................. -- (725)
Wilmington sale (Note 5)........................... -- 280
Other - Net........................................ 64 (10)
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Cash used in investing activities.............. (60) (807)
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Cash flows from equity and financing activities:
Dividends paid..................................... (88) (82)
Debt repaid........................................ (261) (117)
Purchase of treasury stock......................... (32) (1)
Financings......................................... 1 886
------- -------
Cash generated (used) in equity and financing
activities...................................... (380) 686
------- -------
Net change in cash and temporary investments.... $ (24) $ 142
======= =======
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS
For the Three Months Ended March 31, 1995 and 1994
--------------------------------------------------
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
1995 1994
------- -------
Balance at Beginning of Year......................... $ 4,734 $ 4,529
Net Income........................................... 191 283
------- -------
Total......................................... 4,925 4,812
Dividends Declared ($0.43 per share in 1995;
$0.40 per share in 1994)........................ (89) (82)
------- -------
Balance at End of Period........................ $ 4,836 $ 4,730
======= =======
5
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS - The condensed consolidated
financial statements are unaudited and reflect all adjustments (consisting
only of normal and recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The Condensed Statement of
Consolidated Financial Position at December 31, 1994 is derived from audited
financial statements. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Union Pacific Corporation (the Corporation or
UPC) Annual Report to Stockholders incorporated by reference in the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1994. The results of operations for the three months ended March 31, 1995
are not necessarily indicative of the results for the entire year ending
December 31, 1995.
2. ACQUISITION OF CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY (CNW) - On
March 16, 1995, the Corporation executed a definitive merger agreement
pursuant to which the Corporation would acquire the remaining 71.6% of CNW's
outstanding common stock not previously owned by UPC for $1.2 billion.
Under this agreement, UPC initiated a cash tender offer (through its
indirectly wholly-owned subsidiary, UP Rail, Inc.) on March 23, 1995 at $35
per share which was completed on April 25, 1995. A total of 31,529,846
shares was tendered pursuant to the offer and accepted by UPC for payment,
bringing UPC's ownership of CNW to approximately 99.5%. CNW (the nation's
eighth largest railroad) is located in the central transcontinental corridor,
consists of more than 5,300 road miles, employs more than 6,100 people and
is a major transporter of coal, grain and intermodal freight. For the year
ended December 31, 1994, CNW had operating revenues of $1.13 billion, net
income of $84 million and assets of $2.22 billion. UPC funded the CNW
tender offer through the issuance of commercial paper, part of which UPC
subsequently refinanced with $850 million of notes and debentures.
Prior to the acquisition, UPC accounted for its investment in CNW using
the equity method. UPC's investment in CNW at December 31, 1994 is
included as a component of the line item "Investments In and Advances
to Affiliated Companies" on the Condensed Statement of Consolidated
Financial Position. Such Statement has not been restated to consolidate
CNW nor has any pro forma information been provided herein due to
immateriality.
3. TAX SETTLEMENT - In January 1995, UPC recorded the effects of a tax
settlement with the Internal Revenue Service that allowed part of the excess
acquisition costs (goodwill) associated with the acquisition of Overnite
Transportation Company (Overnite) to become tax deductible. The effect of
this one-time tax benefit was to reduce goodwill and deferred income taxes
payable by $123 million and to decrease ongoing goodwill amortization by $4
million annually.
4. SALE OF USPCI, INC. (USPCI) - At year-end 1994, the Corporation completed
the sale of USPCI to Laidlaw Inc. for $225 million in notes that were
subsequently collected in January 1995. The sale resulted in a net loss of
$412 million in 1994. Prior year's results have been restated to present
USPCI as a discontinued operation.
6
5. WILMINGTON SALE - In March 1994, Union Pacific Resources Company (Resources)
sold its interest in the Wilmington, California oil field's surface rights
and hydrocarbon reserves, and its interest in the Harbor Cogeneration Plant,
to the City of Long Beach, California for $405 million in cash and notes.
The Wilmington sale resulted in a $184 million ($116 million after-tax)
gain--$159 million ($100 million after tax) at Resources and $25 million
($16 million after tax) at Union Pacific Railroad Company (the Railroad).
6. RATIO OF EARNINGS TO FIXED CHARGES - The ratio of earnings to fixed charges
has been computed on a total enterprise basis. Earnings represented income
from continuing operations less equity in undistributed earnings of
unconsolidated affiliates, plus income taxes and fixed charges. Fixed
charges represent interest, amortization of debt discount and expense, and
the estimated interest portion of rental charges.
7. PRICE RISK MANAGEMENT - The Corporation uses derivative financial
instruments to protect against unfavorable hydrocarbon price movements,
interest rate movements and foreign currency exchange risk. While the use
of these hedging arrangements limits the downside risk of adverse price and
rate movements, it may also limit future gains from favorable movements.
All hedging is accomplished pursuant to exchange-traded contracts or master
swap agreements based on standard forms. UPC does not hold or issue
financial instruments for trading purposes. The Corporation addresses
market risk by selecting instruments with value fluctuations that correlate
strongly with the underlying item or risk being hedged. Credit risk related
to hedging activities, which is minimal, is managed by requiring minimum
credit standards for counterparties, periodic settlements and/or
mark-to-market evaluations.
Hydrocarbons: At March 31, 1995, Resources had entered futures contracts and
price swaps for 1995 natural gas and crude oil sales volumes of 198 mmcf/day
at $1.93/mcf (approximately 21% of its remaining 1995 natural gas
production) and 48 mbbl/day at $18.01/bbl (approximately 85% of its
remaining 1995 crude production), respectively. Resources had also entered
into long-term fixed price sales agreements for 92 bcf of natural gas at an
average price of $2.96/mcf covering the period 1995 thru 2008, comprising
less than 4% of its expected annual production. In addition, Resources'
marketing subsidiary uses swaps, futures and forward contracts to lock in
margins on purchase and sales commitments of natural gas, which generally
mature over the next five years. At March 31, 1995, positions consisted
of forwards sales of 95.2 bcf (mark-to-market gain of $29.0 million), futures
contracts for 16.5 bcf (mark-to-market gain of $0.2 million) and price swaps
for 111.1 bcf (mark-to-market loss of $11.2 million). The net mark-to-market
gain locked in on these agreements at March 31, 1995 was $18.0 million.
At March 31, 1995, Overnite had no fuel purchase hedging
agreements in place, while the Railroad had hedged approximately 4% of
its remaining 1995 diesel fuel consumption at $0.46 per gallon. At the
end of the first quarter, Resources and the Railroad had unrecognized
mark-to-market gains of $34 million and $400,000, respectively, related to
hedging arrangements.
Interest Rates and Foreign Currency: UPC has outstanding interest rate swaps
on $228 million of notional principal amount of debt. The interest rates
paid on these instruments range from 5.3% to 9.6%, while interest received
ranges from 4.3% to 7.1% with spreads no greater than 2.8%. These contracts
mature over the next one to nine years. There are unrecognized mark-to-
market losses of $10 million associated with these swaps. In addition,
the Corporation has currency swaps in place to cover $58 million of
notional principal amount of debt denominated in yen. This debt, which was
entered into because of favorable interest rates being offered by certain
financial institutions, matures over the next one to five years. At the
end of the first quarter of 1995, the Corporation had a mark-to-market
gain of $34 million associated with these swaps.
7
8. COMMITMENTS AND CONTINGENCIES - There are various lawsuits pending against
the Corporation and certain of its subsidiaries. The Corporation is also
subject to Federal, state and local environmental laws and regulations and
is currently participating in the investigation and remediation of numerous
sites. Where UPC can reasonably determine the remediation costs, and where
such remediation is probable, the Corporation has recorded a liability. In
addition, the Corporation has entered into commitments and provided
guarantees for specific financial and contractual obligations of its
subsidiaries and affiliates. The Corporation does not expect that the
lawsuits, environmental costs, commitments or guarantees will have a
material adverse effect on its consolidated financial position or its
results of operations.
Management does not anticipate that the ultimate resolution of the matters
described in Part I, Item 3. Legal Proceedings of the Corporation's 1994
Annual Report on Form 10-K and in Part II, Item 1. Legal Proceedings in this
Report will have a material adverse effect on the Corporation's consolidated
financial condition or operating results.
9. ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board has
issued Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", which establishes
methods for determining when an impairment of long-lived assets has
occurred and for measuring the impairment of long-lived assets. Although
the Corporation is still evaluating the Statement, UPC does not expect that
the adoption of the Statement will have a material adverse effect on
the Corporation's operating results or financial condition.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
Quarter Ended March 31, 1995 Compared to March 31, 1994
CONSOLIDATED - Union Pacific Corporation (the Corporation or UPC) reported net
income of $191 million or $0.93 per share for the first quarter of 1995,
compared to 1994 net income of $283 million or $1.38 per share. Prior year's
results included the one-time benefit of a $116 million ($0.56 per share)
after-tax gain resulting from the disposition of the Corporation's oil and
gas producing properties in Wilmington, California. Net income improved at
Union Pacific Railroad Company (the Railroad), while earnings declined at
Union Pacific Resources Company (Resources)--reflecting the absence of the
Wilmington sale--and at Overnite Transportation Company (Overnite)--the result
of adverse traffic trends and increased competition.
Operating revenues grew 6% to $1.98 billion from $1.86 billion in 1994, as
increased rail carloadings and higher natural gas and natural gas liquids sales
volumes were partially offset by lower realized gas prices. Operating expenses
rose $98 million to $1.61 billion during the quarter. Volume growth and
inflation caused increases in salaries, wages and employee benefit costs ($50
million), equipment and other rents ($15 million), and fuel and utilities costs
($6 million). In addition, insurance costs rose $12 million--reflecting the
absence of a 1994 credit, while depreciation charges increased $9 million--the
result of the Corporation's continued commitment to capital spending and higher
hydrocarbon sales.
Operating income advanced $20 million (6%) to $365 million for the period.
Interest expense increased $12 million, reflecting higher average debt levels
and short-term interest rates, while corporate expenses increased $18 million,
largely the result of the absence of 1994 stock appreciation rights credits and
higher professional fees related to UPC's pursuit of various strategic
transactions.
RAILROAD - Rail earnings advanced $27 million (16%) to $195 million for the
quarter. Current year's results included a $15 million after-tax gain on the
sale of land in California and a $6 million after-tax gain that resulted from
the expiration of a buy-back contingency related to a 1992 property sale. Prior
year's results also included a $16 million after-tax gain on the sale of land
and trackage rights in California.
Operating revenues improved 7% to $1.38 billion. Higher revenues were generated
by an 8% (more than 89,000 loads) rise in first quarter 1995 carloadings.
Expanded capacity out of the Southern Powder River Basin and gains in the
Southern Illinois and Los Angeles export markets accounted for a 14% increase in
energy carloadings. Grain traffic improved 10% from higher export shipments of
corn and traffic gains in soybeans, cottonseed and corn syrup. Intermodal
volumes improved 9% largely because of business expansion with the Railroad's
trucking partners, while chemical carloadings also advanced 9% due to volume
growth in fertilizer, plastics and soda ash. Food, consumer and government
9
carloadings increased 4% from higher volumes in transportation equipment and
canned and packaged product shipments. Automotive business improved 1%, as a 3%
rise in finished vehicle shipments (the result of increased traffic out of
Mexico) was partially countered by a 5% decline in auto parts traffic
(reflecting declining market demand in both the U.S. and Mexico). Metals,
minerals and forest volumes declined 4% from a year ago, because of lower
stone, metallic mineral and forest product shipments. Average revenue per car
remained at 1994 levels as price increases offset volume growth of lower-rated
commodities--mainly energy and intermodal.
Operating expenses increased to $1.10 billion for the quarter, compared to $1.03
billion last year. Growing volumes and inflation accounted for increased wages
and benefit costs ($27 million), equipment and other rents ($12 million), fuel
and utilities costs ($7 million) and contracted maintenance and drayage ($4
million). Depreciation expense grew $5 million because of the Railroad's
continued investment in equipment and capacity, while employee safety costs
increased $4 million. Other components contributing to higher operating costs
included destroyed equipment ($3 million), insurance ($3 million), state and
local taxes ($2 million) and materials and supplies costs ($1 million).
Operating income at the Railroad rose $21 million (8%) during the quarter to
$281 million. The Railroad's operating ratio improved to 79.6 from 79.8 a
year ago.
NATURAL RESOURCES - Resources' earnings were $61 million in the first quarter of
1995. This compares to earnings of $155 million in 1994, which included the
one-time benefit of a $100 million after-tax gain resulting from the Wilmington
sale.
Operating revenues (inclusive of hedging activities) grew $13 million to $314
million. This improvement was generated by a 20% rise (on a barrel of oil
equivalent basis) in average hydrocarbon sales volumes and higher pipeline
revenues, partially offset by a 12% decline (on a barrel of oil equivalent
basis) in average prices. Natural gas sales volumes rose 33% to
911 mmcf/day, largely due to the AMAX Oil & Gas, Inc. (AMAX) acquisition and
production improvements in the Austin Chalk, the Yellow Creek play in the
Land Grant and in Carthage, Texas, while natural gas liquids sales volumes
improved 48% to 58,446 bbl/day largely because of the AMAX acquisition, the
addition of the Wahsatch Gathering System and the Echo Springs gas plant,
and increased production in the East Texas plant and the Austin Chalk
facilities. Crude oil sales volumes declined 19% to 56,516 bbl/day,
reflecting 1994 field sales and lower output in the Austin Chalk.
Average prices for crude oil rose $3.89/bbl (32%) to $16.08/bbl, while natural
gas liquids prices improved $0.66/bbl (8%) to $9.32/bbl. Natural gas average
prices declined 32% to $1.34/mcf. Pipeline revenues advanced $5 million due to
the addition of the Wahsatch Gathering System.
Operating expenses rose to $228 million for the quarter from $224 million a year
ago. Depreciation and depletion charges rose $9 million, reflecting higher
production levels and the addition of new gas processing facilities, while wage
and benefit costs rose $2 million. These cost increases were partially
mitigated by a $6 million decline in dry hole costs (reflecting reduced
emphasis on exploration in the current low gas price environment) and a
$2 million reduction in pipeline and plant product purchases for resale
(reflecting lower gas prices). Operating income for all of Resources'
operations improved $9 million (12%) to $86 million in the first quarter
of 1995.
10
Operating income from Resources' minerals operations declined $3 million during
the first three months of 1995 to $24 million. This decrease was the result of
the absence of a first quarter 1994 lease bonus on trona lands and reduced coal
royalties (reflecting lower coal production on the Land Grant).
TRUCKING - Overnite's operating environment was extremely difficult in the
first quarter of 1995. Operating expenses increased because of reduced
operating efficiency associated with shifts in freight flows from
shorter-haul, higher margin, intra-regional business to longer-haul traffic,
and wage inflation. Margins were also squeezed by aggressive competition
from both less-than-truckload (LTL) and truckload (TL) carriers. These
unfavorable operating trends may continue throughout 1995, as Overnite works
toward tailoring its organization to meet its changing business environment
and attempts to regain lost shorter-haul business. In addition, Overnite had
several challenges from organized labor in the first quarter of 1995, as
twenty-two of Overnite's 174 terminals had union elections--seven of which
voted to organize. Overnite has won ten out of the last eleven such
elections. Despite the Teamsters' union efforts, less than 7% of Overnite's
work force is currently represented by labor unions.
As a result of these unfavorable business trends, Overnite generated a net loss
of $4 million in the first quarter of 1995, despite the absence of the effects
of the severe winter in the Eastern U.S. in 1994. This compares to net income
of $6 million a year ago. First quarter 1995 results included goodwill
amortization of $5 million, $1 million lower than last year due to a tax
settlement related to the deductibility of intangible assets (see Note 3 to the
Condensed Consolidated Financial Statements).
Overnite's operating revenues advanced $3 million to $245 million as a 3% rise
in average prices was offset by a 2% decline in volume. Lower volumes were
generated by an 18% decrease in TL volumes partially countered by a 1% increase
in Overnite's core LTL business.
Operating expenses increased $16 million to $250 million. A longer average
length of haul, inflation and operating inefficiencies associated with shifts in
freight flows caused a $9 million rise in salaries, wages and employee benefit
costs and a $3 million increase in equipment and other rents. In addition,
depreciation expense grew by $2 million due to Overnite's continuing investment
in equipment and technology. Operating income declined $13 million to a loss of
$5 million in 1995, while Overnite's operating ratio (excluding goodwill
amortization) increased to 100.2 for the quarter from 94.5 in 1994.
CORPORATE SERVICES AND OTHER OPERATIONS - Expenses related to Corporate Services
and Other Operations--which include corporate expenses, third-party interest
charges, intercompany interest allocations, other income and income taxes that
are not related to other segments, and the results of other operating
units--rose $17 million to $61 million. This increase was largely the result
of higher interest costs, the absence of 1994 stock appreciation rights
credits and higher professional fees. Operating income was $3 million for
the first three months of 1995, compared to a loss of $0.4 million a year ago,
reflecting operating improvements at the Corporation's Other Operations.
11
CHANGES IN FINANCIAL CONDITION AND OTHER DEVELOPMENTS
FINANCIAL CONDITION - During the first three months of 1995, cash from
operations was $416 million, an improvement of $153 million from 1994.
This improvement was the result of favorable working capital changes
(reflecting lower hydrocarbon inventories and improved accounts receivable
and inventory management), increased earnings from operations, higher
non-cash casualty accruals and depreciation charges, and less spending
related to the 1991 restructuring charge.
Cash used in investing activities of $60 million reflects a $747 million decline
over 1994 due to the absence of the AMAX acquisition and the 1995 collection of
proceeds from the sale of USPCI, Inc. (USPCI) (see Note 4 to the Condensed
Consolidated Financial Statements). These reductions in cash used for investing
activities were partially offset by proceeds from the Wilmington sale in 1994.
The ratio of debt to debt plus equity declined to 45.3% at March 31, 1995 from
47.0% at December 31, 1994. This improvement reflects the favorable effects of
debt repaid by USPCI sale proceeds and the addition of 1995 earnings.
OTHER DEVELOPMENTS
CNW - On March 16, 1995, the Corporation executed a definitive
merger agreement to acquire the remaining 71.6% of Chicago and North Western
Transportation Company's (CNW) outstanding common stock not already owned by UPC
for $1.2 billion. Under this agreement, UPC initiated a cash tender offer on
March 23, 1995 which was completed on April 25, 1995 (see Note 2 to the
Condensed Consolidated Financial Statements). The CNW acquisition is expected
to strengthen UPC's capacity in many key western corridors allowing for
growth in intermodal traffic from major West Coast ports to the Midwest and
enhanced low-sulfur coal shipments out of the Powder River Basin in Wyoming to
the East.
In April 1995, UPC arranged $2.3 billion in new credit facilities to support the
funding of the CNW acquisition, to refinance certain CNW debt obligations and
for other corporate purposes. The facilities consist of a $1.1 billion,
five-year facility and a $1.2 billion, one-year facility. In May 1995, the
Corporation issued $425 million of 7.60% Notes, due May 1, 2005, $275 million
of 8.35% Sinking Fund Debentures, due May 1, 2025 and $150 million of 7.375%
Notes, due May 15, 2001. The proceeds from these Notes and Debentures were
used to repay commercial paper issued to fund the CNW tender offer. In
February 1995, UPC amended its existing $1.4 billion credit facility to extend
the maturity of the $600 million one-year portion of the facility to five
years. As a result of these two events, UPC now has $2.5 billion of long-term
credit facilities available. Commitment fees and interest rates payable
under these facilities are similar to fees and rates available to other
investment grade borrowers. As a result of the incremental debt the
Corporation incurred for the CNW acquisition, Moody's Investors Service
downgraded UPC's senior unsecured debt rating to A3 from A2, while Standard and
Poor's lowered UPC's senior unsecured rating to A minus from A. This change
in credit rating is not expected to significantly affect the Corporation's
future cost of funds.
ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board has issued
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which establishes methods for determining
when an impairment of long-lived assets has occurred and for measuring the
impairment of long-lived assets. Although the Corporation is still
evaluating the Statement, UPC does not expect that the adoption of the
Statement will have a material adverse effect on the Corporation's operating
results or financial condition.
COMMITMENTS AND CONTINGENCIES - There are various lawsuits pending against
the Corporation and certain of its subsidiaries. The Corporation is also
subject to Federal, state and local environmental laws and regulations and
is currently participating in the investigation and remediation of numerous
sites. Where the remediation costs can be reasonably determined, and where
such remediation is probable, the Corporation has recorded a liability. In
addition, the Corporation has entered into commitments and provided guarantees
for specific financial and contractual obligations of its subsidiaries and
affiliates. The Corporation does not expect that the lawsuits, environmental
costs, commitments or guarantees will have a material adverse effect on its
consolidated financial condition, its results of operations or liquidity.
12
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
The Corporation, UP Rail, Inc. (UP Rail), CNW and CNW's directors were
named as defendants in five lawsuits, purportedly filed on behalf of all
public stockholders of CNW, which were commenced on March 10 and 13,
1995 in the Court of Chancery in New Castle County, Delaware, with
respect to the Corporation's acquisition of CNW. The suits alleged,
among other things, that (i) the directors of CNW breached their
fiduciary duties to the CNW stockholders in considering and approving
the acquisition of CNW by UPC and (ii) as the controlling stockholder
of CNW, the Corporation and UP Rail breached their fiduciary duties to
other stockholders of CNW in agreeing to enter into the acquisition.
As relief, the suits requested, among other things, an injunction
against consummation of the transaction and damages in an unspecified
amount.
On April 13, 1995, counsel for CNW, the Corporation and the plaintiffs
entered into a Memorandum of Understanding (the Memorandum of
Understanding) proposing to settle all of the pending class action
lawsuits relating to the acquisition. Pursuant to the Memorandum of
Understanding, the Corporation and CNW agreed, among other things, (i)
to disseminate certain supplemental disclosures to CNW's stockholders,
(ii) to modify a Stock Option Agreement pursuant to which UP Rail would
be permitted to acquire additional shares of CNW common stock from CNW
if UP Rail acquired more than 87.5% (85% before such amendment) but less
than 90% of the CNW shares in the Corporation's tender offer for CNW
shares, (iii) to extend the expiration date of the CNW tender offer
until April 24, 1995 and (iv) to pay certain fees and expenses of
plaintiffs' counsel, subject to approval of the Delaware Court of
Chancery. The parties to the Memorandum of Understanding have prepared
and submitted to the Delaware Court of Chancery for its approval a
Stipulation of Settlement of the pending class action lawsuits.
A hearing on Stipulation of Settlement has been set for June 20, 1995.
If such Stipulation of Settlement is not approved by the Court, the
proposed settlement will be null and void and will not prejudice the
rights of any party with respect to such litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of stockholders (the Annual Meeting) of the
Corporation was held on April 21, 1995.
(c) At the Annual Meeting, the Corporation's stockholders voted for the
election of Jack L. Messman (171,345,276 shares in favor; 78,914 shares
withheld), L. White Matthews, III (171,400,268 shares in favor; 23,922
shares withheld), Robert P. Bauman (171,353,046 shares in favor; 71,144
shares withheld), Richard K. Davidson (171,370,845 shares in favor;
53,345 shares withheld), Elbridge T. Gerry, Jr. (171,387,858 shares in
favor; 36,332 shares withheld), Lawrence M. Jones (171,278,024 shares
in favor; 146,166 shares withheld), Richard J. Mahoney (171,358,467
shares in favor; 65,723 shares withheld) and James D. Robinson, III
(171,105,063 shares in favor; 319,127 shares withheld) as directors of
the Corporation. In addition, the Corporation's stockholders voted to
amend and extend the Executive Incentive Plan of Union Pacific
Corporation and Subsidiaries, as amended; to amend the 1993 Stock
Option and Retention Stock Plan of Union Pacific Corporation, as
amended; and to engage Deloitte & Touche LLP as the Corporation's
independent auditors. The votes on these items were 163,955,049 shares
in favor, 6,577,921 shares against and 2,110,788 shares abstained;
161,376,981 shares in favor, 9,038,743 shares against and 2,228,034
shares abstained; and 171,150,146 shares in favor, 713,232 shares
against and 780,380 shares abstained, respectively.
13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) - The Executive Incentive Plan of Union Pacific Corporation,
amended April 27, 1995.
10(b) - The 1993 Stock Option and Retention Stock Plan of Union Pacific
Corporation, amended April 21, 1995.
11 - Computation of earnings per share.
12 - Computation of ratio of earnings to fixed charges.
27 - Financial data schedule.
(b) Reports on Form 8-K
On March 21, 1995, the Corporation filed a Current Report on Form 8-K,
containing a press release that announced the execution of a definitive
merger agreement for the acquisition of Chicago and North Western
Transportation Company.
On April 20, 1995, the Corporation filed a Current Report on Form 8-K,
containing a press release with unaudited earnings information for the
Corporation for the quarter ended March 31, 1995 and a computation of
certain pro forma earnings to fixed charges ratios.
On April 26, 1995, the Corporation filed a Current Report on Form 8-K,
announcing the completion of the Corporation's tender offer for all of
the common shares of Chicago and North Western Transportation Company.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 1995
UNION PACIFIC CORPORATION
(Registrant)
/s/ Charles E. Billingsley
-----------------------------
Charles E. Billingsley,
Vice President and Controller
(chief accounting officer and
duly authorized officer)
UNION PACIFIC CORPORATION
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10(a) The Executive Incentive Plan of Union Pacific
Corporation, amended April 27, 1995.
10(b) The 1993 Stock Option and Retention Stock Plan of Union
Pacific Corporation, amended April 21, 1995.
11 Computation of earnings per share
12 Computation of ratio of earnings to
fixed charges
27 Financial data schedule