COVER
FORM 10-Q
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 June 30, 1996
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 12 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 90 days.
YES X NO
----- -----
As of July 31, 1996, there were 205,901,613 shares of the Registrant's
Common Stock outstanding.
INDEX
UNION PACIFIC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page Number
-----------
Item 1: Condensed Consolidated Financial Statements:
CONDENSED STATEMENT OF CONSOLIDATED INCOME - For the
Three Months and Six Months Ended June 30, 1996 and
1995.................................................. 1
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION -
At June 30, 1996 and December 31, 1995................ 2 - 3
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS - For
the Six Months Ended June 30, 1996 and 1995........... 4
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS -
For the Six Months Ended June 30, 1996 and 1995....... 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.... 5 - 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10 - 16
PART II. OTHER INFORMATION
Item 1: Legal Proceedings..................................... 17 - 18
Item 6: Exhibits and Reports on Form 8-K...................... 19 - 20
Signature...................................................... 21
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 and Six Months Ended June 30, 1996 and 1995
-----------------------------------------------------------------
(Amounts in Millions, Except Ratio and Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
Operating Revenues (Note 3)................ $ 2,012 $ 1,874 $ 3,980 $ 3,538
------- ------- ------- -------
Operating Expenses:
Salaries, wages and employee benefits.... 744 730 1,517 1,386
Equipment and other rents................ 213 178 441 341
Depreciation and amortization............ 174 159 346 297
Fuel and utilities (Note 5).............. 181 144 344 270
Materials and supplies................... 111 96 227 185
Other costs.............................. 201 230 451 443
------- ------- ------- -------
Total................................. 1,624 1,537 3,326 2,922
------- ------- ------- -------
Operating Income........................... 388 337 654 616
Other Income - Net......................... 32 22 50 70
Interest Expense (Notes 2, 3, 4 and 5)..... (114) (111) (231) (201)
Corporate Expenses......................... (22) (24) (51) (54)
------- ------- ------- -------
Income Before Income Taxes................. 284 224 422 431
Income Taxes............................... (98) (74) (129) (151)
------- ------- ------- -------
Income from Continuing Operations.......... 186 150 293 280
Income from Discontinued Operations
(Note 4).................................. 58 74 107 135
------- ------- ------- -------
Net Income................................. $ 244 $ 224 $ 400 $ 415
======= ======= ======= =======
Earnings Per Share:
Income from Continuing Operations........ $ 0.90 $ 0.73 $ 1.42 $ 1.36
Income from Discontinued Operations...... 0.28 0.36 0.52 0.66
------- ------- ------- -------
Net Income............................... $ 1.18 $ 1.09 $ 1.94 $ 2.02
======= ======= ======= =======
Weighted Average Number of Shares.......... 206.4 205.6 206.4 205.6
Cash Dividends Per Share................... $ 0.43 $ 0.43 $ 0.86 $ 0.86
Ratio of Earnings to Fixed Charges (Note 6) 2.4 2.9
2
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
------------------------------------------------------
(Millions of Dollars)
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
---------- ------------
Current Assets:
Cash and temporary investments............... $ 73 $ 230
Accounts receivable ......................... 417 349
Inventories.................................. 220 238
Notes receivable (Note 4).................... 653 653
Other current assets......................... 230 209
--------- ---------
Total Current Assets.................... 1,593 1,679
--------- ---------
Investments:
Investments in and advances to affiliated
companies (Note 2)........................ 1,267 1,260
Other investments............................ 154 187
--------- ---------
Total Investments....................... 1,421 1,447
--------- ---------
Properties:
Railroad:
Road and other............................. 13,245 12,888
Equipment.................................. 5,100 5,004
--------- ---------
Total Railroad.......................... 18,345 17,892
Trucking..................................... 746 744
Other........................................ 114 112
--------- ---------
Total Properties........................ 19,205 18,748
Accumulated depreciation..................... (4,866) (4,643)
--------- ---------
Properties - Net........................ 14,339 14,105
--------- ---------
Net Assets of Discontinued Operations (Note 4). 1,419 1,312
Excess Acquisition Costs - Net................. 712 730
Other Assets................................... 265 173
--------- ---------
Total Assets............................ $ 19,749 $ 19,446
========= =========
3
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
-------------------------------------------------------
(Amounts in Millions, Except Share and Per Share Amounts)
(Unaudited)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---------- -----------
Current Liabilities:
Accounts payable................................ $ 126 $ 145
Accrued wages and vacation...................... 324 284
Income and other taxes.......................... 181 178
Accrued casualty costs.......................... 188 192
Dividends and interest.......................... 202 203
Debt due within one year........................ 232 132
Other current liabilities....................... 761 765
--------- ---------
Total Current Liabilities.................... 2,014 1,899
--------- ---------
Debt Due After One Year........................... 5,923 6,232
Deferred Income Taxes............................. 3,712 3,498
Retiree Benefits Obligation ...................... 622 588
Other Long-Term Liabilities (Note 7).............. 646 649
Minority Interest in Consolidated
Subsidiary (Note 4)............................ 236 216
Stockholders' Equity:
Common stock, $2.50 par value, authorized
500,000,000 shares, 232,910,306 shares issued
in 1996, 232,317,010 shares issued in 1995.... 582 581
Paid-in surplus................................. 2,139 2,111
Retained earnings............................... 5,550 5,327
Treasury stock, at cost, 27,017,072 shares in
1996, 26,737,806 shares in 1995............... (1,675) (1,655)
--------- ---------
Total Stockholders' Equity................... 6,596 6,364
--------- ---------
Total Liabilities and Stockholders' Equity... $ 19,749 $ 19,446
========= =========
4
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
----------------------------------------------
For the Six Months Ended June 30, 1996 and 1995
(Millions of Dollars)
(Unaudited)
1996 1995
------- -------
Cash flows from operating activities:
Net income......................................... $ 400 $ 415
Non-cash charges to income:
Depreciation and amortization................... 346 297
Deferred income taxes........................... (23) 8
Other - net..................................... 69 (75)
Income from discontinued operations (Note 4)....... (107) (135)
Changes in current assets and liabilities.......... 44 161
------- -------
Cash from continuing operations....................... 729 671
------- -------
Cash flows from investing activities:
Capital investments................................ (498) (377)
Investments and acquisitions (Note 3).............. -- (1,170)
Cash provided by discontinued operations (Note 4).. 20 287
Other - net........................................ 15 110
------- -------
Cash used in investing activities............... (463) (1,150)
------- -------
Cash flows from equity and financing activities:
Dividends paid..................................... (177) (176)
Debt repaid ....................................... (1,217) (1,363)
Financings......................................... 1,008 1,986
Other - net........................................ (37) (32)
------- -------
Cash (used in) provided by equity and
financing activities........................... (423) 415
------- -------
Net decrease in cash and temporary investments.. $ (157) $ (64)
======= =======
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS
For the Six Months Ended June 30, 1996 and 1995
-----------------------------------------------
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
1996 1995
------- -------
Balance at Beginning of Year......................... $ 5,327 $ 4,734
Net Income........................................... 400 415
------- -------
Total......................................... 5,727 5,149
Dividends Declared ($0.86 per share in 1996
and 1995)....................... (177) (177)
------- -------
Balance at End of Period........................ $ 5,550 $ 4,972
======= =======
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, 1995 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,
1995. The results of operations for the six months and three months ended
June 30, 1996 are not necessarily indicative of the results for the entire
year ending December 31, 1996.
2. Acquisition of Southern Pacific Rail Corporation (Southern Pacific) - In
August 1995, the Corporation and Southern Pacific entered into a definitive
merger agreement (the Agreement) providing for the acquisition of Southern
Pacific by UPC. Under the terms of the Agreement, UPC completed a first-step
cash tender offer in September 1995, pursuant to which approximately 39
million, or 25%, of the outstanding common shares of Southern Pacific were
acquired at a price of $25 per share. The cash tender offer was funded with
$976 million in borrowings under the Corporation's then existing credit
facilities. Following the effective date of final approval by the Surface
Transportation Board (STB) of the U.S. Department of Transportation--the
successor to the Interstate Commerce Commission--UPC will complete the
acquisition by exchanging the remaining Southern Pacific common shares, at
the holder's election and subject to proration, for $25 in cash or 0.4065
shares of the Corporation's common stock. The total cost of the acquisition
will be approximately $4.1 billion (comprised of $1.6 billion in cash funded
through existing credit facilities and $2.5 billion in UPC common stock)
plus the assumption of all Southern Pacific debt.
On July 3, 1996, the STB held a voting conference at which it announced its
unanimous approval of the acquisition of Southern Pacific by UPC with
certain conditions. UPC expects to receive a final written decision by the
STB regarding the acquisition of Southern Pacific by August 12, 1996 and
expects to consummate the Southern Pacific acquisition in September 1996.
The conditions announced at the STB's July 3, 1996 voting conference are not
expected to materially reduce the economic benefits projected from the
Southern Pacific acquisition. Should the final written decision of the STB
contain conditions or other terms materially different from those voted upon
by the STB at the July 3, 1996 voting conference and as a result the
Corporation elects under the terms of the Southern Pacific merger agreement
not to complete the acquisition, a subsequent disposition of the shares of
Southern Pacific common stock owned by the Corporation could result in a
significant loss. However, the Corporation believes that the STB's final
written decision approving the Southern Pacific acquisition will not contain
conditions or terms that are materially different from those voted upon by
the STB on July 3, 1996.
6
The business combination with Southern Pacific will be accounted for as a
purchase. Until the consummation of the acquisition, the Corporation will
account for its 25% investment in Southern Pacific using the equity method.
Although the purchase price allocation will not be finalized until after the
STB renders its final written decision, initial estimates indicate that the
fair value of tangible assets acquired will exceed the purchase price.
3. Acquisition of Chicago and North Western Transportation Company (CNW) - In
April 1995, UPC completed the acquisition of the remaining 71.6% of CNW's
outstanding common stock not previously owned by the Corporation for
approximately $1.2 billion, funded by the issuance of additional debt.
Prior to the acquisition, CNW was the nation's eighth largest railroad. The
acquisition of CNW has been accounted for as a purchase, and CNW's financial
results were consolidated with the Corporation effective May 1, 1995.
4. Union Pacific Resources Group Inc. (Resources) - In July 1995, the
Corporation's Board of Directors approved a formal plan to divest UPC's
natural resources business through an initial public offering (IPO) by
Resources followed by a pro-rata distribution of the Resources' shares owned
by the Corporation to its stockholders. The distribution is subject to
UPC's receipt of a favorable Internal Revenue Service ruling as to the
tax-free nature of the distribution and is expected to occur in the fourth
quarter of 1996 after the completion of the acquisition of Southern Pacific.
The IPO of 42.5 million Resources' shares at $21 per share was completed in
October 1995 and generated net proceeds of $844 million. At that time,
Resources distributed to UPC a dividend of $1,621 million ($912 million in
cash, $650 million in 8.5% notes due within 90 days of the stock
distribution and a $59 million intercompany balance owed by the
Corporation). UPC used the cash proceeds to repay outstanding commercial
paper.
Resources' results have been reported as a discontinued operation in the
Corporation's condensed consolidated financial statements for all periods
presented. The Corporation's share of Resources' net income was $58 million
and $74 million for the three months ended June 30, 1996 and 1995,
respectively, and $107 million and $135 million for the six months ended
June 30, 1996 and 1995, respectively. As a result of the IPO, the
Corporation's 1996 results for all periods presented reflect 83% of
Resources' net income while 1995 results reflect 100% of Resources' net
income for all periods presented. These amounts are net of income taxes of
$30 million and $17 million for the three months ended June 30, 1996 and
1995, respectively, and $52 million and $37 million for the six months ended
June 30, 1996 and 1995, respectively.
The following summarized financial information is derived from Resources'
condensed consolidated financial statements to be contained in Resources'
second quarter 1996 Quarterly Report on Form 10-Q, which will be filed with
the Securities and Exchange Commission no later than August 14, 1996, and is
presented to provide additional information on Resources' financial results
to the Corporation's stockholders:
7
June 30, December 31,
1996 1995
----------- ------------
(Millions of Dollars)
Current assets $ 354 $ 420
Non-current assets 2,949 2,889
Current liabilities 926 1,067
Non-current liabilities 958 930
Stockholders' equity 1,419 1,312
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ------------ ----------- -----------
(Millions of Dollars) (Millions of Dollars)
Operating revenues $428 $341 $818 $666
Operating income 120 88 218 175
Net income 70 74 130 135
Financial Instruments: Resources uses swaps, futures, options and forward
contracts to protect against unfavorable hydrocarbon price movements. Credit
risk related to these activities is managed by requiring that counterparties
meet minimum credit standards. At June 30, 1996, the largest credit risk
associated with any of Resources' counterparties was approximately $5
million.
At June 30, 1996, Resources had entered into near-term futures contracts and
price swaps for August through December 1996 with respect to average natural
gas sales volumes of 389 MMcfd at $2.22/Mcf and for January through March
1997 with respect to average natural gas sales volumes of 40 MMcfd at
$1.36/Mcf (Rockies price). At June 30, 1996, these contracts had a total
deferred unrealized loss of $11 million. In addition, Resources had entered
into near-term futures contracts to hedge 9 MBbld of crude oil production
for August through December 1996 at an average price of $18.61/Bbl, which
had a total deferred unrealized loss of $1 million. Furthermore, Resources
has purchased commodity options that effectively set a minimum average crude
oil price (floor) of $18.04/Bbl for July through December 1996 volumes of 26
MBbld and a natural gas price floor of $2.04/Mcf for August through December
volumes of 178 MMcfd. At June 30, 1996, the deferred unrealized loss on
such commodity options was $3 million. Resources has also entered into swaps
and futures related to long-term fixed price commitments for 21.7 Bcf of
natural gas which had a total deferred unrealized loss of $7 million at June
30, 1996. Resources' total deferred unrealized loss as of June 30, 1996 for
all financial instruments was $22 million.
5. Financial Instruments - The Corporation uses derivative financial
instruments in limited instances for other than trading purposes to manage
risk as it relates to fuel prices and interest rates. Where the Corporation
has fixed interest rates or fuel prices through the use of swaps, futures or
forward contracts, the Corporation has mitigated the downside risk of
adverse price and rate movements; however, it has also limited future gains
from favorable movements.
The Corporation addresses market risk related to these instruments by
selecting instruments whose value fluctuations highly correlate with the
underlying item being hedged. Credit risk related to derivative financial
8
instruments, which is minimal, is managed by requiring minimum credit
standards for counterparties and periodic settlements. The largest credit
risk associated with any of the Corporation's counterparties was $20 million
at June 30, 1996. The Corporation has not been required to provide, nor has
it received, any significant amount of collateral relating to its hedging
activity.
The fair market value of the Corporation's derivative financial instrument
positions at June 30, 1996 was determined based on current fair market
values as quoted by recognized dealers or developed based on the present
value of expected future cash flows discounted at the applicable zero coupon
U.S. treasury rate and swap spread.
Interest Rates - The Corporation controls its overall risk to fluctuations
in interest rates by managing the proportion of fixed and floating rate debt
instruments within its debt portfolio over a given period. Derivatives are
used in limited circumstances as one of the tools to obtain the targeted
mix. The mix of fixed and floating rate debt is largely managed through the
issuance of targeted amounts of such debt as debt maturities occur or as
incremental borrowings are required. The Corporation also obtains
additional flexibility in managing interest costs and the interest rate mix
within its debt portfolio by issuing callable fixed rate debt securities.
At June 30, 1996, the Corporation had outstanding interest rate swaps on
$305 million of notional principal amount of debt (5% of the total debt
portfolio) with a gross fair market value asset position of $21 million and
a gross fair market value liability position of $8 million. These contracts
mature over the next one to nine years. Interest rate hedging activity
increased second quarter 1996 interest expense by $2 million and year-to-
date 1996 interest expense by $4 million.
Fuel - During 1996, fuel costs approximated 10% of the Corporation's total
operating expenses. As a result of the significance of the fuel costs and
the historical volatility of fuel prices, the Corporation's transportation
subsidiaries periodically use swaps, futures and forward contracts to
mitigate the impact of fuel price volatility. The intent of this program
is to protect the Corporation's operating margins and overall profitability
from adverse fuel price changes. However, the use of these contracts also
limits the benefit of favorable fuel price changes.
At June 30, 1996, Union Pacific Railroad Company and its affiliate Missouri
Pacific Railroad Company (collectively the Railroad) had hedged 33% of its
remaining 1996 fuel consumption at $0.46 per gallon based on a Gulf Coast
market, while Overnite Transportation Company had not hedged any of its 1996
fuel requirements. At June 30, 1996, the Railroad had outstanding swap
agreements covering its fuel purchases of $63 million with a gross and net
fair market value asset position of $12 million. Fuel hedging lowered
second quarter 1996 fuel costs by $5 million and lowered fuel costs for the
six months ended June 30, 1996 by $10 million.
6. Ratio of Earnings to Fixed Charges - The ratio of earnings to fixed charges
has been computed on a total enterprise basis. Earnings represent 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.
9
7. 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 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 1995
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.
8. Accounting Pronouncements - In June 1996, the Financial Accounting Standards
Board issued Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," which provides
consistent standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings and which revises the
accounting rules for liabilities extinguished by an in-substance defeasance.
This statement is effective for transfers of financial assets and extinguish-
ments of liabilities occurring after December 31, 1996 and is not expected
to have a material impact on UPC's operating results or financial condition.
10
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 June 30, 1996 Compared to June 30, 1995
CORPORATE REORGANIZATION
Chicago and North Western Transportation Company (CNW) - In April 1995, Union
Pacific Corporation (the Corporation or UPC) acquired the remaining 71.6% of
CNW's outstanding common stock not previously owned by UPC for $1.2 billion.
The acquisition of CNW was accounted for as a purchase and CNW's financial
results were consolidated with UPC beginning in May 1995 (see Note 3 to the
Condensed Consolidated Financial Statements).
Natural Resources Divestiture - In July 1995, UPC's Board of Directors approved
a formal plan to exit its natural resources business. The plan includes an
initial public offering (IPO) of Union Pacific Resources Group Inc.'s
(Resources) common stock (which occurred in October 1995) followed by the
distribution of UPC's remaining interest in Resources to the Corporation's
stockholders on a tax-free, pro-rata basis. The distribution of Resources'
common stock is subject to UPC's receipt of a favorable ruling from the Internal
Revenue Service (IRS) as to the tax-free nature of the distribution. The
distribution of Resources also cannot occur until after the completion of the
acquisition of Southern Pacific Rail Corporation (Southern Pacific)(see Note 4
to the Condensed Consolidated Financial Statements).
Southern Pacific Acquisition - On July 3, 1996, the Surface Transportation
Board (STB) of the U.S. Department of Transportation--the successor to the
Interstate Commerce Commission--held a voting conference on the proposed
acquisition of Southern Pacific by UPC. At the voting conference, the STB
unanimously approved the acquisition of Southern Pacific by UPC with certain
conditions. UPC expects to receive a final written decision by the STB
regarding the acquisition of Southern Pacific by August 12, 1996. The Southern
Pacific acquisition is expected to be consummated in September 1996 (see Note 2
to the Condensed Consolidated Financial Statements).
The conditions announced at the STB's July 3, 1996 voting conference are not
expected to materially reduce the economic benefits projected from the Southern
Pacific acquisition. Should the final written decision of the STB contain
conditions or other terms materially different from those voted upon by the STB
at the July 3, 1996 voting conference and as a result the Corporation elects
under the terms of the Southern Pacific merger agreement not to complete the
acquisition of Southern Pacific, a subsequent disposition of the shares of
Southern Pacific common stock owned by the Corporation could result in a
significant loss. However, the Corporation believes that the STB's final
written decision approving the Southern Pacific acquisition will not contain
conditions or terms that are materially different from those voted upon by the
STB on July 3, 1996. Although the final written decision of the STB is
expected by August 12, 1996, there is no assurance that STB approval will be
obtained by such date. In addition, any appeals from the STB's final decision
might not be resolved for a substantial period of time after the issuance of
the final written decision by the STB.
11
FINANCIAL RESULTS
CONSOLIDATED - The Corporation reported record net income of $244 million or
$1.18 per share for the second quarter of 1996, compared to 1995 net income of
$224 million or $1.09 per share. Results for 1996 included CNW and, as a result
of the Resources' IPO, reflected approximately 83% of Resources' net income in
discontinued operations. Results for 1995 included CNW from May 1, 1995 and
reflected the Corporation's 100% ownership of Resources in discontinued
operations.
RESULTS OF CONTINUING OPERATIONS - The Corporation reported income from
continuing operations of $186 million ($0.90 per share) in the second quarter of
1996, a 24% improvement from 1995's results of $150 million ($0.73 per share).
Earnings for 1996 benefitted from improved operations at Union Pacific Railroad
Company (including CNW) and its affiliate, Missouri Pacific Railroad Company
(collectively, the Railroad), partially offset by slightly lower earnings at
Overnite Transportation Company (Overnite).
Operating revenues grew 7% to $2.01 billion from $1.87 billion in 1995,
reflecting increased volumes at the Railroad and Overnite and higher average
commodity revenue per car at the Railroad, offset by the absence of real estate
sales at the Corporation.
Operating expenses rose $87 million (6%) to $1.62 billion. Higher volumes at
the Railroad and Overnite, the addition of CNW and inflation contributed to
higher equipment and other rents ($35 million), materials and supplies
($15 million), salaries, wages and employee benefits ($14 million), and other
taxes ($7 million). Fuel and utility costs increased $37 million, reflecting
increased fuel prices and transportation volumes. Depreciation charges rose
$15 million--the result of the addition of CNW properties and UPC's continued
reinvestment in its equipment and rail infrastructure. Offsetting these expense
increases were an $18 million decline in real estate expenses--reflecting the
absence of real estate sales activity by the Corporation--and reduced car
repair accruals ($21 million), the result of increased demand from other
railroads for foreign line car repairs.
Operating income increased $51 million (15%) to $388 million for the quarter.
Interest expense increased $3 million, principally from higher debt levels
associated with strategic acquisitions offset by the favorable impact of the
Resources' IPO dividend and debt refinancing activities. Other income rose $10
million, primarily reflecting interest income on the IPO dividend notes
receivable from Resources.
Railroad - The Railroad earned $235 million for the quarter, a 7% increase from
$219 million in 1995, reflecting increased volumes and prices. Results in 1996
also included a $15 million increase in after-tax interest costs, primarily
related to the Southern Pacific first-step cash tender offer.
Operating revenues improved $147 million (9%) to $1.72 billion, as an 8% (over
105,000 carloads) increase in traffic--the result of both CNW volumes and base
business growth--combined with a 2% increase in average commodity revenue per
car, reflecting longer average length of haul, favorable traffic mix shifts and
pricing improvements.
Energy: Energy commodity revenue rose 23% to $386 million for the second quarter
of 1996 reflecting an 11% increase in carloadings and a 10% increase in average
revenue per car. Volume increases resulted from weather-related demand from
utilities to replenish stockpiles of Powder River Basin coal. Pricing
12
improvements reflected a longer average length of haul, the result of the CNW
integration. The Railroad averaged 24 trains with increased tonnage per day out
of the Southern Powder River in 1996 compared to 22 trains per day in 1995,
despite an aggressive maintenance strategy which compressed a full season of
North Platte corridor repairs into five days. Energy volumes for the balance of
the year are expected to benefit from this compressed maintenance cycle.
Intermodal: Intermodal commodity revenue rose 4% to $224 million as an 8%
increase in average revenue per car--the result of aggressive pricing and a
favorable customer mix--was slightly offset by a 3% reduction in volumes--
reflecting reduced volumes from certain key customers due to a weakness in
imports.
Industrial Products: Industrial products commodity revenue increased 9% to $285
million. Revenue improvements reflected a 15% increase in carloadings--driven
primarily by growth in construction materials (stone, metallic minerals, lumber,
cement and steel)--offset by a 5% product-mix-related reduction in average
revenue per car.
Agricultural Products: Agricultural products commodity revenue grew 4% to $273
million, the result of a 9% increase in CNW-related carloadings offset by a 5%
reduction in average revenue per car--reflecting increased competition for
diminished grain supplies.
Chemicals: Chemicals commodity revenue increased 3% to $302 million, reflecting
a 3% increase in carloadings. Carloadings growth resulted from a 13% increase in
plastics volumes offset in part by reduced export fertilizer shipments and a
soft demand for liquid and dry chemicals. Average revenue per car was unchanged
for the quarter.
Automotive: Automotive commodity revenue rose 18% to $197 million primarily the
result of a 22% increase in carloadings, consisting of a 36% increase in auto
parts and a 16% increase in finished vehicles. Carloading growth reflected CNW
volumes, a 4% increase in auto industry unit sales, and strong northbound
Mexican business for both finished autos and auto parts. Average revenue per
car decreased 3% reflecting the increased mix of parts versus finished vehicles
carloadings.
Operating expenses advanced $89 million (7%) to $1.32 billion. Increased
volumes, the integration of CNW and inflation contributed to higher equipment
and other rents ($26 million), salaries, wages and employee benefits ($14
million), materials and supplies ($14 million) and other taxes ($6 million).
Fuel and utility costs rose $35 million, reflecting a 16% increase in fuel
prices and an 11% volume-related increase in fuel consumption slightly offset
by improved locomotive efficiency. Depreciation expense rose $15 million,
reflecting continued capital investment and the addition of CNW. Offsetting
these increases was reduced car repair accruals ($21 million), the result of
increased demand from other railroads for foreign line car repairs.
Operating income advanced $58 million (17%) to $407 million in 1996, while the
operating ratio improved 1.5 points to 76.4 in 1996 from 77.9 in 1995. Interest
expense increased $24 million, principally from higher debt levels associated
with the CNW and Southern Pacific acquisitions offset by the favorable impact of
debt refinancing activities.
13
Trucking - During the second quarter, Overnite continued to implement its
strategic initiatives, aimed at better matching Overnite's operations to the
current trucking industry business environment. Actions taken included
workforce reductions, service center consolidations and repricing initiatives
targeting Overnite's lowest margin customers. Nonetheless, trucking industry
overcapacity and aggressive pricing from regional less-than-truckload (LTL) and
truckload carriers continued to impact Overnite's operating results. As a
result, Overnite reported a net loss of $12 million in 1996 compared to a net
loss of $10 million in 1995. Results for both periods included goodwill
amortization of $5 million.
Overnite's operating revenues advanced $15 million (6%) to $257 million as a 4%
increase in volumes combined with a 1% increase in average prices. Increased
volumes consisted of a 6% increase in LTL tonnage slightly offset by a 12%
decrease in truckload volumes, reflecting Overnite's re-emphasis of its core LTL
business.
Operating expenses increased $17 million to $274 million. Salaries, wages and
employee benefit costs increased $4 million due to wage and benefit inflation
slightly offset by workforce reductions. Overnite's efforts to balance traffic
lanes on longer-haul business through the use of intermodal rail service and
contract line-haul carriers resulted in a $9 million increase in rent and
purchased transportation expenses. Fuel costs rose $2 million, primarily
reflecting a 21% increase in fuel prices, while materials and supplies costs
also rose $2 million--largely due to volume growth. Overnite's operating loss
grew $2 million to $17 million in 1996, while Overnite's operating ratio
(including goodwill amortization) increased to 106.6 for the quarter from
106.2 in 1995.
Corporate Services and Other Operations - Expenses related to Corporate Services
and Other Operations (comprising corporate expenses, third-party interest
charges, intercompany interest allocations, other income and income taxes
related to the Corporation's holding company operations and the results of other
operating units) decreased $22 million to $37 million. This decrease largely
reflects lower Corporate interest costs, the result of the utilization of the
Resources' IPO dividend to reduce debt levels. Other operating units recorded
an operating loss of $2 million in 1996 compared to operating income of $3
million in 1995.
RESULTS OF DISCONTINUED OPERATIONS
Natural Resources - Resources' second quarter 1996 earnings declined $4 million
to $70 million, as higher average realized hydrocarbon prices and sales volumes
were more than offset by increased operating expenses and interest and
administrative costs associated with Resources' IPO. As a result of Resources'
October 1995 IPO, UPC recognized approximately 83% of Resources' 1996 net income
in discontinued operations. The Corporation's 1995 results reflected UPC's 100%
ownership of Resources in discontinued operations.
Operating revenues increased $87 million (25%) to $428 million, primarily as a
result of higher revenues from producing properties and plants, pipelines and
marketing operations. Producing property revenues increased $53 million (24%),
reflecting production volume growth in natural gas and natural gas liquids (NGL)
and increased hydrocarbon prices for all products. Natural gas production
increased 8%--primarily the result of Austin Chalk drilling success and property
acquisitions--while NGL volumes increased 40%, reflecting the processing of by-
passed Austin Chalk and Rockies gas and ethane recovery in the Rockies and
Canada. Depleted hydrocarbon storage supplies due to inclement winter weather
and
14
increased demand for natural gas by utilities, resulting from severe summer
temperatures, caused natural gas, NGL and crude oil prices to rise 16%, 13% and
22%, respectively. Plants, pipelines and marketing revenues advanced $39
million, largely due to increases in plant volumes, the start-up and expansion
of pipelines in West Texas and the Austin Chalk, and higher average product
price realizations.
Operating expenses increased $55 million in 1996 to $308 million. Exploration
costs increased $10 million, largely the result of increased dry hole costs--
reflecting increased exploratory drilling activity in the current high price
environment. Plants, pipeline and marketing expenses increased $20 million to
$66 million, reflecting the expansion and start-up of West Texas and Austin
Chalk pipelines and higher gas plant hydrocarbon purchase costs. Depreciation
and depletion costs rose $14 million, primarily as a result of increased
production in the Austin Chalk. Production expenses increased $6 million
reflecting higher production volumes, while general and administrative costs
increased $4 million, principally resulting from costs associated with
operating Resources as a stand-alone company. Operating income improved to
$120 million in 1996 from $88 million a year ago. Interest expense increased
$11 million to $13 million, the result of debt incurred by Resources in
connection with its IPO dividend to UPC.
Six Months Ended June 30, 1996 Compared to June 30, 1995
CONSOLIDATED RESULTS - The Corporation reported net income for the first half
of 1996 of $400 million ($1.94 per share) compared to $415 million ($2.02 per
share) for the same period of 1995. Results for 1996 included CNW and, as a
result of the Resources' IPO, reflected approximately 83% of Resources' net
income in discontinued operations. Results for 1995 included CNW from May 1,
1995 and reflected the Corporation's 100% ownership of Resources.
RESULTS OF CONTINUING OPERATIONS - Income from continuing operations advanced
$13 million for the period to $293 million ($1.42 per share), as the positive
impact of the Railroad's CNW integration more than offset higher debt service
costs associated with the CNW and Southern Pacific acquisitions. Operating
revenues increased $442 million (12%) to $3.98 billion for the period
principally the result of the Railroad's operating revenue improvement of $444
million (15%)(reflecting the addition of CNW, increased base carloadings and a
higher average revenue per car).
Consolidated operating expenses rose $404 million (14%) to $3.33 billion. CNW
results, rail volume growth and inflation caused increases in salaries, wages
and employee benefits ($131 million), equipment and other rents ($100 million),
materials and supplies ($42 million), other taxes ($18 million), casualty
accruals ($14 million) and contracted transportation ($11 million). Increased
fuel prices and transportation volumes resulted in a $74 million increase in
fuel and utilities costs. Depreciation charges rose $49 million--reflecting
the addition of CNW properties and UPC's continued reinvestment in its equip-
ment and rail infrastructure. Offsetting these increases were a decline in real
estate expenses of $19 million reflecting the absence of real estate sales by
the Corporation and reduced car repair accruals ($26 million), the result of
increased demand by other railroads for foreign line car repairs.
Consolidated operating income advanced $38 million (6%) to $654 million for the
first half of 1996, principally reflecting a $69 million improvement at the
Railroad offset by a $22 million decline in operating results at Overnite.
Other
15
income declined $20 million, primarily the result of reduced real estate sales
activity. Interest expense increased $30 million, principally from higher debt
levels associated with the CNW and Southern Pacific acquisitions offset by the
favorable impact of the Resources' IPO dividend and debt refinancing
activities. The Corporation's effective tax rate for the period decreased to
30.6% from 35.0% a year ago, reflecting a favorable first quarter 1996 IRS tax
settlement ($20 million) at the Railroad.
RESULTS OF DISCONTINUED OPERATIONS - Resources reported net income for the first
half of 1996 of $130 million compared to $135 million for the same period of
1995. As a result of Resources' October 1995 IPO, UPC recognized approximately
83% of Resources' 1996 net income in discontinued operations. The Corporation's
1995 results reflected UPC's 100% ownership of Resources in discontinued
operations. Operating revenues increased $152 million (23%) reflecting a 6%
increase in sales volumes and a 14% increase in average sales prices. Operating
expenses increased $109 million (22%), the result of higher volumes and
increased general and administrative expenses related to operating Resources as
a stand-alone company. Interest expense increased $23 million to $26 million,
the result of debt incurred by Resources in connection with its IPO dividend
to UPC.
CHANGES IN CONSOLIDATED FINANCIAL CONDITION
During the first six months of 1996, cash from continuing operations was $729
million compared to $671 million for the same period in 1995. This $58 million
increase primarily reflects lower CNW merger-related payments, improved
inventory management at the Railroad, increased income from continuing
operations and a higher proportion of non-cash expenses included in net income
offset by a volume related increase in accounts receivable.
Cash used in investing activities was $463 million in 1996 compared to $1.15
billion in 1995. This change in cash reflects the absence of the second quarter
1995 CNW acquisition, reduced proceeds from real estate sales, the absence of
$225 million in USPCI, Inc. sale proceeds collected in January 1995 and
increased capital expenditures--largely from fleet expansion and renewal at the
Railroad.
Outstanding debt levels decreased $209 million from December 31, 1995 to June
30, 1996 as cash provided by UPC's continuing and discontinued operations and
the depletion of year-end 1995 cash balances were utilized to fund capital
investments and dividends. The quarterly common stock dividend remained at
$0.43 per share in the second quarter of 1996. The ratio of debt to capital
employed improved to 48.3% at June 30, 1996 from 50.0% at December 31, 1995,
reflecting debt reduction and increased stockholders' equity, the result of
1996 earnings.
The STB's voting conference unanimous approval of the Corporation's acquisition
of Southern Pacific prompted Moody's Investors Service (Moody's) and Standard
and Poor's (S&P) to downgrade UPC's long-term debt ratings and to reduce long-
term debt ratings on the Corporation's primary subsidiaries. Moody's lowered
UPC's senior unsecured debt rating from A3 to Baa2 while S&P lowered UPC's
senior unsecured debt rating from A- to BBB. The Corporation's commercial paper
debt rating remained unchanged. Moody's and S&P's debt rating reductions are
not expected to impact UPC's annual interest expense significantly.
16
OTHER DEVELOPMENTS
OTHER MATTERS
Labor Matters
Railroad: Approximately 90% of the Railroad's 35,000 employees are represented
by one of twelve national rail unions. The major freight railroads and the
United Transportation Union (representing 25% of the Railroad's unionized
workforce) and the Brotherhood of Locomotive Engineers (representing 15% of the
Railroad's unionized workforce) have reached a five-year settlement, which
includes a combination of general wage increases and lump-sum payments from 3%
to 3.5% annually, as well as increased work rule flexibility. In July 1996, the
leadership of the remaining major rail unions (including the Transportation
Communications Union, the Brotherhood of Maintenance of Way Employees and three
shop-craft unions) reached tentative labor agreements with the major freight
railroads. Ratification votes on these agreements are expected in the third
quarter of 1996. These events greatly reduce the possibility of rail strikes
during this round of negotiations. The terms of the ratified and tentative
agreements are not expected to have a material adverse affect on the
Corporation's results of operations.
Overnite: Overnite continues to resist the efforts of the International
Brotherhood of Teamsters (Teamsters) efforts to unionize Overnite service
centers. Since year-end 1995, six Overnite service centers have held union
elections--two of which voted for union representation--while the employees of
three service centers that previously voted for union representation filed
petitions with the National Labor Relations Board to decertify the Teamsters as
their union bargaining representative. Despite the Teamsters' efforts, less
than 9% of Overnite's workforce has voted for union representation. Overnite
has begun negotiations with the Teamsters at several of the unionized service
centers and is unable at this time to estimate the impact these negotiations
will have on its future operating results.
Accounting Pronouncements - In June 1996, the Financial Accounting Standards
Board issued Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," which provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings and which revises the accounting rules for
liabilities extinguished by an in-substance defeasance. This statement is
effective for transfers of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is not expected to have a material impact
on UPC'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 Corpo-
ration 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, results of operations or liquidity.
17
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Southern Pacific Acquisition: On November 30, 1995, Union Pacific Corporation
("UP"), Southern Pacific Rail Corporation ("SP") and various of their affiliates
filed an application (the "STB Application") seeking approval of the Interstate
Commerce Commission (which was succeeded by the Surface Transportation Board
(the "STB")) for the acquisition of control over SP and its affiliates by UP
and its affiliates, the proposed merger of SP with an affiliate of UP (the
"Merger"), and related transactions. After the filing of the STB Application,
the STB received evidentiary submissions and briefs in connection with the
proposed Merger. The STB heard oral arguments on the proposed Merger on
July 1, 1996 and held a voting conference on the proposed Merger on July 3,
1996. At the voting conference, the STB decided to approve the Merger subject
to a number of conditions, principally (a) the settlement agreement (as
described below) between UP/SP and Burlington Northern Railroad Company and the
Atchison, Topeka and Santa Fe Railroad Company (collectively, "BNSF") under
which BNSF will receive trackage rights over more than 4,100 miles of UP/SP
track and will purchase over 335 miles of UP/SP lines, augmented in a number of
ways to expand BNSF's ability to gain access to traffic (e.g., through
transloading facilities (facilities where goods are transferred between truck
and railcars) and build-ins of rail lines to exclusively-served customers,
through serving new shipper facilities on the lines over which it will have
trackage rights, and opening to BNSF of 50% of all traffic now committed under
contracts to UP or SP by shippers served by UP and SP and no other railroad),
(b) the settlement agreement between UP/SP and the Chemical Manufacturers
Association which provides certain additional protections to shippers, (c) the
settlement agreement between UP/SP and Utah Railway Company ("Utah Railway")
under which Utah Railway will receive access to certain coal mines and loading
facilities in Utah and trackage rights over SP from Utah Railway's line in Utah
to Grand Junction, Colorado, (d) the grant of trackage rights to the Texas
Mexican Railway ("Tex Mex") over UP/SP lines between Corpus Christi/Robstown,
Texas, and Beaumont, Texas, via Houston, Texas, restricted to traffic moving on
Tex Mex's Laredo-Corpus Christi/Robstown line, including terminal-area trackage
rights in Houston, (e) environmental mitigation conditions, including a
condition restricting increases in train volumes through Reno, Nevada, and
Wichita, Kansas, for 18 months following the Merger while a consultant conducts
a study of possible measures to reduce the potential adverse impact of
increased rail traffic through those communities and the STB decides upon
such measures, (f) standard labor protective conditions, and (g) a 5-year
oversight process, pursuant to which the STB will review whether the conditions
imposed on the Merger have effectively addressed competitive issues. A final
written STB decision regarding the proposed Merger is expected by August 12,
1996.
The obligations of UP and certain of its affiliates to consummate the Merger are
conditioned upon, among other things, the issuance by the STB of a decision
(which decision shall not have been stayed or enjoined) that (A) constitutes a
final order approving, exempting or otherwise authorizing consummation of the
Merger and all other transactions contemplated by the related merger agreement
(as such agreement has been amended, the "Merger Agreement") and other ancillary
agreements (or subsequently presented to the STB by agreement of UP and SP) as
may require such authorization and (B) does not (1) change or disapprove of the
merger consideration or other material provisions of the Merger Agreement or (2)
impose on UP, SP or any of their respective subsidiaries any other terms or
conditions (including, without limitation, labor protective provisions but
18
excluding conditions heretofore imposed in New York Dock Railway-Control-
Brooklyn Eastern District, 360 I.C.C. 60 (1979)) that materially and adversely
affect the long-term benefits expected to be received by UP from the
transactions contemplated by the Merger Agreement. If, as expected, the final
written decision of the STB does not contain terms materially different from
those voted upon by the STB on July 3, 1996, UP has indicated that it expects
to proceed with the transaction in accordance with and subject to the terms and
conditions of the Merger Agreement.
Although the final written decision of the STB is expected by August 12, 1996,
there is no assurance that STB approval will be obtained by such date. In
addition, any appeals from the STB final order might not be resolved for a
substantial period of time after the entry of such order by the STB.
On September 25, 1995, UP and certain of its subsidiaries, SP and certain of its
subsidiaries, and BNSF entered into an agreement (the "BNSF Agreement") pursuant
to which, among other things, UP and SP, on the one hand, and BNSF, on the other
hand, agreed to grant each other various trackage rights and UP and SP agreed to
sell certain lines to BNSF following the Merger, and BNSF agreed not to oppose
UP's application to control SP in UP's case before the STB, not to seek any
conditions in such case, not to support any requests for conditions filed by
other parties and not to assist other parties in pursuing their requests. Among
other things, these rights will allow BNSF to serve shippers who would otherwise
lose a choice of two railroads as a result of the Merger. The trackage rights
and line sales pursuant to the BNSF Agreement will be effective only upon UP's
acquisition of control of SP. UP and SP agreed to ask the STB to impose the
BNSF Agreement as a condition to approval of UP's application for control of
SP. During the pendency of UP's case before the STB, UP and SP agreed not to
enter into agreements with other parties, without BNSF's written consent, which
would grant rights to other parties granted to BNSF or inconsistent with those
granted to BNSF which would substantially impair the overall economic value of
the rights granted to BNSF under the BNSF Agreement. The BNSF Agreement was
amended on June 27, 1996 to confer certain additional rights on BNSF.
Pursuant to the BNSF Agreement, UP and SP will share more than 4,100 miles of
track with BNSF under trackage rights and will sell more than 335 miles of track
to BNSF. The sale of track will total approximately $150 million. As part of
the BNSF Agreement, UP will also obtain certain trackage and access rights from
BNSF. Trackage rights are a contractual arrangement between railroads which
generally allow one railroad to operate its trains with its own crew over the
tracks of another railroad for a fee.
On July 12, 1996, the City of Reno, Nevada filed a complaint against the STB in
the U.S. District Court for the District of Nevada, seeking a writ of mandamus
directing the STB to prepare, with regard to alleged impacts of the Merger on
Reno and the surrounding area, an environmental impact statement pursuant to the
National Environmental Policy Act and a conformity determination pursuant to the
Clean Air Act. The STB would also be required to order UP/SP to maintain the
status quo with respect to rail operations in the Reno area pending
environmental review. UP believes the suit is without merit because, among
other things, the District Court lacks jurisdiction, mandamus is inappropriate
under the circumstances, and neither an environmental impact statement nor a
conformity determination is required. UP and SP intervened as parties and will
seek the suit's dismissal. UP anticipates that the STB will also seek
dismissal of the suit.
19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2 - Amended and Restated Agreement and Plan of Merger, dated as of
July 12, 1996, among the Union Pacific Corporation ("UPC"),
Union Pacific Railroad Company ("UPRR",) Southern Pacific Rail
Corporation ("SP"), UP Holding Company, Inc. ("UP Holding") and
Union Pacific Merger Co. ("UP Merger"), is incorporated herein
by reference to Annex B to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
3 - Union Pacific's By-Laws, as Amended Effective as of
July 25, 1996.
10(a) Amended and Restated Anschutz Shareholders Agreement, dated as
of July 12, 1996, among UPC, UPRR, The Anschutz Corporation
("TAC"), Anschutz Foundation (the "Foundation"), and Mr.
Philip F. Anschutz ("Mr. Anschutz"), is incorporated herein by
referenced to Annex D to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(b) Amended and Restated MSLEF Shareholder Agreement, dated as of
July 12, 1996, between UPC and The Morgan Stanley Leveraged
Equity Fund II, L.P., is incorporated herein by reference to
Annex E to the Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(c) Amended and Restated Parent Shareholders Agreement, dated as
of July 12, 1996, among UPC, UP Merger and SP, is incorporated
herein by reference to Annex F to the Joint Proxy
Statement/Prospectus included in Post-Effective Amendment No.
2 to Union Pacific's Registration Statement on Form S-4 (No.
33-64707).
10(d) Amended and Restated Anschutz/Spinco Shareholders Agreement,
dated as of July 12, 1996, among Union Pacific Resources Group
Inc. ("Resources"), TAC, the Foundation and Mr. Anschutz, is
incorporated herein by reference to Annex G to the Joint Proxy
Statement/Prospectus included in Post-Effective Amendment No.
2 to Union Pacific's Registration Statement on Form S-4 (No.
33-64707).
10(e) Amended and Restated Registration Rights Agreement, dated as
of July 12, 1996, among UPC, TAC and the Foundation, is
incorporated herein by reference to Annex H to the Joint Proxy
Statement/Prospectus included in Post-Effective Amendment No.
2 to Union Pacific's Registration Statement on Form S-4 (No.
33-64707).
20
10(f) Amended and Restated Registration Rights Agreement, dated as
of July 12, 1996, among Resources, TAC and the Foundation, is
incorporated herein by reference to Annex I to the Joint Proxy
Statement/Prospectus included in Post-Effective Amendment No.
2 to Union Pacific's Registration Statement on Form S-4 (No.
33-64707).
10(g) Amended and Restated Registration Rights Agreement, dated as
of July 12, 1996, among UPC, UP Holding, UP Merger and SP, is
incorporated herein by reference to Annex J to the Joint Proxy
Statement/Prospectus included in Post-Effective Amendment No.
2 to Union Pacific's Registration Statement on Form S-4 (No.
33-64707).
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
None.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 9, 1996
UNION PACIFIC CORPORATION
(Registrant)
/s/ L. White Matthews, III
-----------------------------------
L. White Matthews, III,
Executive Vice President-Finance
(principal financial officer,
director and duly authorized officer)
UNION PACIFIC CORPORATION
EXHIBIT INDEX
Exhibit No. Description
2 Amended and Restated Agreement and Plan of Merger, dated
as of July 12, 1996, among the Union Pacific Corporation
("UPC"), Union Pacific Railroad Company ("UPRR",)
Southern Pacific Rail Corporation ("SP"), UP Holding
Company, Inc. ("UP Holding") and Union Pacific Merger
Co. ("UP Merger"), is incorporated herein by reference
to Annex B to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to Union
Pacific's Registration Statement on Form S-4 (No. 33-64707).
3 Union Pacific's By-Laws, as Amended Effective as
of July 25, 1996.
10(a) Amended and Restated Anschutz Shareholders Agreement,
dated as of July 12, 1996, among UPC, UPRR, The Anschutz
Corporation ("TAC"), Anschutz Foundation (the
"Foundation"), and Mr. Philip F. Anschutz ("Mr.
Anschutz"), is incorporated herein by referenced to
Annex D to the Joint Proxy Statement/Prospectus included
in Post-Effective Amendment No. 2 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(b) Amended and Restated MSLEF Shareholder Agreement, dated
as of July 12, 1996, between UPC and The Morgan Stanley
Leveraged Equity Fund II, L.P., is incorporated herein
by reference to Annex E to the Joint Proxy
Statement/Prospectus included in Post-Effective
Amendment No. 2 to Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(c) Amended and Restated Parent Shareholders Agreement,
dated as of July 12, 1996, among UPC, UP Merger and SP,
is incorporated herein by reference to Annex F to the
Joint Proxy Statement/Prospectus included in Post-Effective
Amendment No. 2 to Union Pacific's Registration Statement
on Form S-4 (No. 33-64707).
10(d) Amended and Restated Anschutz/Spinco Shareholders
Agreement, dated as of July 12, 1996, among Union
Pacific Resources Group Inc. ("Resources"), TAC, the
Foundation and Mr. Anschutz, is incorporated herein by
reference to Annex G to the Joint Proxy
Statement/Prospectus included in Post-Effective
Amendment No. 2 to Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(e) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among UPC, TAC and the
Foundation, is incorporated herein by reference to Annex
H to the Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(f) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among Resources, TAC and the
Foundation, is incorporated herein by reference to Annex
I to the Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(g) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among UPC, UP Holding, UP
Merger and SP, is incorporated herein by reference to
Annex J to the Joint Proxy Statement/Prospectus included
in Post-Effective Amendment No. 2 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
11 Computation of earnings per share
12 Computation of ratio of earnings to
fixed charges
27 Financial data schedule