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 September 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 October 31, 1996, there were 244,796,077 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 Nine Months Ended September 30, 1996
and 1995.............................................. 1
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION -
At September 30, 1996 and December 31, 1995........... 2 - 3
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS - For
the Nine Months Ended September 30, 1996 and 1995..... 4
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS -
For the Nine Months Ended September 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........................ 18 - 19
Signature........................................................ 20
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 Nine Months Ended September 30, 1996 and 1995
- ----------------------------------------------------------------------
(Amounts in Millions, Except Ratio and Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
Operating Revenues.......................$ 1,996 $ 1,974 $ 5,976 $ 5,512
------- ------- ------- -------
Operating Expenses:
Salaries, wages and employee benefits.. 716 726 2,233 2,112
Equipment and other rents.............. 208 200 649 541
Depreciation and amortization.......... 170 172 516 469
Fuel and utilities (Note 5)............ 164 144 508 414
Materials and supplies................. 106 92 333 277
Other costs............................ 213 261 664 704
------- ------- ------- -------
Total.................................... 1,577 1,595 4,903 4,517
------- ------- ------- -------
Operating Income......................... 419 379 1,073 995
Other Income - Net....................... 52 35 102 105
Interest Expense (Notes 2, 3, 4 and 5)... (115) (127) (346) (328)
Corporate Expenses....................... (24) (26) (75) (80)
------- ------- ------- -------
Income before Income Taxes............... 332 261 754 692
Income Taxes............................. (121) (101) (250) (252)
------- ------- ------- -------
Income from Continuing Operations........ 211 160 504 440
Income from Discontinued Operations
(Note 4)................................ 64 77 171 212
------- ------- ------- -------
Net Income ..............................$ 275 $ 237 $ 675 $ 652
======= ======= ======= =======
Earnings Per Share:
Income from Continuing Operations......$ 1.00 $ 0.78 $ 2.42 $ 2.14
Income from Discontinued Operations.... 0.30 0.37 0.82 1.03
------- ------- ------- -------
Net Income ............................$ 1.30 $ 1.15 $ 3.24 $ 3.17
======= ======= ======= =======
Weighted Average Number of Shares........ 211.9 206.1 208.5 205.8
Cash Dividends Per Share.................$ 0.43 $ 0.43 $ 1.29 $ 1.29
Ratio of Earnings to Fixed
Charges (Note 6)...................... -- -- 2.7 2.8
2
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
------------------------------------------------------
(Millions of Dollars)
(Unaudited)
September 30, December 31,
ASSETS 1996 1995
------------- ------------
Current Assets:
Cash and temporary investments............... $ 148 $ 230
Accounts receivable ......................... 672 349
Inventories.................................. 292 238
Notes receivable from Resources (Note 4)..... 650 650
Other current assets......................... 308 212
--------- ---------
Total Current Assets.................... 2,070 1,679
--------- ---------
Net Assets of Discontinued Operation (Note 4).. 1,236 1,312
--------- ---------
Investments:
Investments in and advances to affiliated
companies (Note 2)........................ 377 1,260
Other investments............................ 239 187
--------- ---------
Total Investments....................... 616 1,447
--------- ---------
Properties:
Railroad (Note 2):
Road and other............................. 22,041 12,888
Equipment.................................. 6,546 5,004
--------- --------
Total Railroad.......................... 28,587 17,892
Trucking..................................... 740 744
Other........................................ 117 112
--------- --------
Total Properties........................ 29,444 18,748
Accumulated depreciation..................... (4,970) (4,643)
--------- --------
Properties - Net........................ 24,474 14,105
--------- --------
Excess Acquisition Costs - Net.................. 706 730
Other Assets.................................... 205 173
--------- ---------
Total Assets............................ $ 29,307 $ 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)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------- ------------
Current Liabilities:
Accounts payable................................ $ 501 $ 435
Accrued wages and vacation...................... 428 284
Debt due within one year........................ 333 132
Accrued casualty costs.......................... 317 192
Income and other taxes.......................... 268 178
Dividends and interest.......................... 248 203
Other current liabilities (Note 2).............. 1,298 475
--------- --------
Total Current Liabilities.................... 3,393 1,899
--------- --------
Dividend Payable--Resources Spin-Off (Note 4)..... 1,236 --
Debt Due After One Year (Note 2).................. 8,374 6,232
Deferred Income Taxes (Note 2).................... 5,842 3,498
Retiree Benefits Obligation ...................... 801 588
Other Long-Term Liabilities (Notes 2 and 7)....... 1,636 649
Minority Interest in Consolidated
Subsidiary (Note 4).......................... -- 216
Stockholders' Equity:
Common stock, $2.50 par value, authorized
500,000,000 shares, 271,452,418 shares issued
in 1996, 232,317,010 shares issued in 1995
(Note 2)...................................... 679 581
Paid-in surplus (Note 2)........................ 3,900 1,473
Paid-in surplus--Resources' IPO (Note 4)........ -- 638
Retained earnings............................... 5,138 5,327
Treasury stock, at cost, 27,270,026 shares in
1996, 26,737,806 shares in 1995............... (1,692) (1,655)
--------- ---------
Total Stockholders' Equity................... 8,025 6,364
--------- ---------
Total Liabilities and Stockholders' Equity... $ 29,307 $ 19,446
========= =========
4
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
-----------------------------------------------------
(Millions of Dollars)
(Unaudited)
1996 1995
------- -------
Cash flows from operating activities:
Net income.................................... $ 675 $ 652
Non-cash charges to income:
Depreciation and amortization.............. 516 469
Deferred income taxes...................... 29 101
Other - net................................ 105 (675)
Income from discontinued operations (Note 4).. (171) (212)
Changes in current assets and liabilities..... 125 786
------- -------
Cash from continuing operations........... 1,279 1,121
------- -------
Cash flows from investing activities:
Capital investments........................... (888) (653)
Southern Pacific acquisition (Note 2)......... (539) (976)
CNW acquisition (Note 3)...................... -- (1,170)
Cash provided by discontinued
operations (Note 4)....................... 31 242
Other - net................................... 49 167
------- -------
Cash used in investing activities......... (1,347) (2,390)
------- -------
Cash flows from equity and financing activities:
Dividends paid................................ (265) (264)
Debt repaid .................................. (861) (1,394)
Financings.................................... 1,144 2,935
Other - net................................... (32) (32)
------- -------
Cash (used in) provided by equity and
financing activities....................... (14) 1,245
------- -------
Net decrease in cash and
temporary investments................... $ (82) $ (24)
======= =======
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS
For the Nine Months Ended September 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....................................... 675 652
------- -------
Total..................................... 6,002 5,386
Dividend of Resources Common Stock (Note 4)...... (598) --
Cash Dividends Declared ($1.29 per share in
1996 and 1995)................... (266) (265)
------- -------
Balance at End of Period.................... $ 5,138 $ 5,121
======= =======
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 three months and nine months ended
September 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 or SP) -
On August 12, 1996, the Surface Transportation Board of the U.S. Department
of Transportation (STB) issued a written decision approving the acquisition
of Southern Pacific by UPC with certain conditions. UPC consummated the
acquisition of Southern Pacific on September 11, 1996 by acquiring the
remaining 75% of Southern Pacific common shares not previously owned by the
Corporation for $25 per SP share in cash, 0.4065 shares of the Corporation's
common stock per SP share or a combination thereof, at the holder's election
and subject to proration. As a result of the initial cash tender offer in
1995 for 25% of Southern Pacific's outstanding shares and the acquisition of
the remaining 75% of Southern Pacific shares, 60% of the outstanding
Southern Pacific shares were converted into 38.1 million shares of UPC
common stock, and the remaining 40% of the outstanding shares were acquired
for $1.562 billion in cash. UPC initially funded the cash portion of the
acquisition with credit facility borrowings.
The acquisition of Southern Pacific has been accounted for in the September
30, 1996 condensed consolidated financial statements using the purchase
method of accounting. The condensed statement of consolidated income
includes equity income equal to 25% of Southern Pacific's net income through
September 10, 1996, reflecting UPC's ownership of SP during such period, and
100% of Southern Pacific's net income thereafter. SP's results will be fully
consolidated with the Corporation effective October 1, 1996. The purchase
price was determined as follows and was based on a market value of the
Corporation's common stock of $65.00 per share, the value at the August 3,
1995 announcement of the SP acquisition.
(in millions)
Initial 25% Investment in SP on September 15, 1995
plus Equity Income $ 990
Second-Step Cash Purchase (23.4 million Shares at $25.00
per SP Share) on September 11, 1996 586
Merger Exchange of SP Shares (93.7 million SP Shares converted
into 38.1 million shares of UPC common stock at $65.00 per
Share) on September 11, 1996 2,476
Transaction Costs 37
------
Purchase Price to be Allocated $4,089
------
6
The Southern Pacific purchase price has been allocated as follows:
(in millions)
Purchase Price to be Allocated $4,089
Pre-Tax Merger Costs:
Current 373
Long-term 273
Equity Acquired (1,083)
------
Unallocated Purchase Price $3,652
------
Purchase Price Allocation:
Property and Equipment $5,719
Debt Revaluation (201)
Preference Share Revaluation (19)
Deferred Income Taxes (Including the Effect of
Merger Costs) (1,847)
------
Total $3,652
------
In connection with the acquisition and subsequent consolidation of the
Corporation's and Southern Pacific's railroad operations, UPC plans to
eliminate duplicate positions, relocate certain functions, merge or dispose
of redundant facilities and dispose of certain rail lines. Relocation and
severance plans for unionized employees and for employees not covered by
collective bargaining agreements are expected to be completed by mid-1997.
Other merger-related costs include debt and lease prepayment penalties,
duplicate facility abandonment expenses and contract cancellation fees. UPC
has recognized an estimated $646 million liability in the Southern Pacific
purchase price allocation for costs attributable to a preliminary assessment
of Southern Pacific employees, facilities and contracts. Because UPC was
precluded by the Interstate Commerce Act from obtaining certain non-public
information regarding Southern Pacific, and was thus unable to perform a
substantive analysis of SP's business activities, prior to September 1996,
the determination of merger costs attributable to Southern Pacific employees,
facilities and contracts is preliminary and subject to further refinement.
As a result, final amounts included in the Southern Pacific purchase price
allocation could differ from the original estimate, although any such
revisions are not expected to be material to the Corporation's ongoing
results of operations. Expenses for severing or relocating UPC employees and
disposing of UPC facilities, which could be substantial, will be charged to
operating expense as definitive plans are determined and communicated.
The pro forma results presented below have been prepared to reflect the
consummation of the Southern Pacific acquisition and the subsequent pro-rata
distribution of the shares of Union Pacific Resources Group Inc. (Resources)
owned by the Corporation to UPC's stockholders (see Note 4) as if such events
occurred at the beginning of each period presented. The pro forma results
presented below do not reflect synergies expected to result from the
integration of UPC's and SP's rail operations, and accordingly, do not
account for any potential increase in revenue or operating income, estimated
cost savings, adjustments to conform accounting practices or one-time costs
associated with the elimination of UPC's duplicate facilities and relocation
or severance payments to UPC employees. The effects of the foregoing could
be substantial. This unaudited pro forma information is not necessarily
7
indicative of the results of operations that might have occurred had the
Southern Pacific acquisition and the distribution of the shares of Resources
owned by the Corporation actually occurred on the dates indicated, or of
future results of operations of the resulting entity. Pro forma results for
the nine months ended September 30, 1995 also reflect the pro forma effect
of UPC's acquisition of Chicago and North Western Transportation Company
(CNW)(see Note 3).
(in millions, except per share amounts)
Nine Months Ended
1996 1995
------ -------
Operating Revenues $8,410 $8,275
Operating Income 1,155 1,164
Income from Continuing Operations 439 430
Net Income 439 430
Earnings Per Share:
Income from Continuing Operations 1.79 1.76
Net Income 1.79 1.76
3. 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 long-term
debt. 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 remaining Resources'
shares owned by the Corporation to its stockholders (the Spin-Off).
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 Spin-Off and a
$59 million intercompany balance owed by the Corporation). UPC used the
cash proceeds from the IPO dividend to repay outstanding commercial paper.
On September 12, 1996, after UPC's receipt of a favorable Internal Revenue
Service ruling as to the tax-free nature of the Spin-Off, the Corporation's
Board of Directors declared a special dividend consisting of the remaining
shares of Resources' common stock owned by UPC. As a result of the Spin-
Off, on October 15, 1996, each of the Corporation's stockholders received
0.846946 of a share of Resources common stock for each UPC share of common
stock held by such stockholder at the September 26, 1996 record date for the
distribution. On October 16, 1996, Resources repaid its $650 million note
to UPC, the proceeds of which were used by the Corporation to repay
outstanding commercial paper. The Corporation's September 30, 1996
Condensed Statement of Consolidated Financial Position reflects the Spin-Off
as a reduction in paid-in surplus (representing the equity generated by the
IPO) and retained earnings.
8
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 $64
million and $77 million for the three months ended September 30, 1996 and
1995, respectively, and $171 million and $212 million for the nine months
ended September 30, 1996 and 1995, respectively. As a result of the IPO,
the Corporation's 1996 results reflect 83% of Resources' net income while
1995 results reflect 100% of Resources' net income. These amounts are net
of income taxes of $29 million and $25 million for the three months ended
September 30, 1996 and 1995, respectively, and $82 million and $62 million
for the nine months ended September 30, 1996 and 1995, respectively.
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
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 $23 million
at September 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 values of the Corporation's derivative financial instrument
positions at September 30, 1996 shown below were 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 of 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 September 30, 1996, the Corporation had outstanding interest rate swaps
on $276 million of notional principal amount of debt (3% of the total debt
portfolio) with a gross fair market value asset position of $23 million and
a gross fair market value liability position of $10 million. These
contracts mature over the next one to nine years. Interest rate hedging
activity increased third quarter 1996 interest expense by $4 million and
year-to-date 1996 interest expense by $8 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
9
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 September 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 neither Overnite Transportation Company nor
Southern Pacific had hedged any of its 1996 fuel requirements. At September
30, 1996, the Railroad had outstanding swap agreements covering its fuel
purchases of $32 million with a gross and net fair market value asset
position of $19 million. Fuel hedging lowered third quarter 1996 fuel costs
by $9 million and lowered fuel costs for the nine months ended September 30,
1996 by $19 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.
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 periodically enters into commitments and provides
guarantees for specific financial and contractual obligations. 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 - The Financial Accounting Standards Board has
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.
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 September 30, 1996 Compared to September 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 included 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 Spin-Off)(see Note 4 to the
Condensed Consolidated Financial Statements). On September 12, 1996, after UPC's
receipt of a favorable Internal Revenue Service ruling as to the tax-free nature
of the Spin-Off, the Corporation's Board of Directors declared a special
dividend consisting of the remaining shares of Resources' common stock owned by
UPC. As a result of the Spin-Off, on October 15, 1996, each UPC stockholder
received 0.846946 of a share of Resources' common stock for each UPC share of
common stock held by such stockholder at the September 26, 1996 record date for
the distribution.
Southern Pacific Rail Corporation (Southern Pacific) Acquisition - On August 12,
1996, the Surface Transportation Board of the U.S. Department of Transportation
(STB) issued a written decision approving the acquisition of Southern Pacific by
UPC with certain conditions. UPC consummated the acquisition of Southern Pacific
on September 11, 1996 by acquiring the remaining 75% of Southern Pacific common
shares not previously owned by the Corporation for $25 per Southern Pacific
share in cash, 0.4065 shares of the Corporation's common stock per Southern
Pacific share or a combination thereof, at the holder's election and subject to
proration. As a result of the initial cash tender offer in 1995 for 25% of
Southern Pacific's outstanding shares and the acquisition of the remaining 75%
of Southern Pacific shares, 60% of the outstanding Southern Pacific shares were
converted into 38.1 million shares of Union Pacific common stock, and the
remaining 40% of the outstanding shares were acquired for $1.562 billion in
cash. UPC initially funded the cash portion of the acquisition with credit
facility borrowings.
The acquisition of Southern Pacific has been accounted for in the September 30,
1996 condensed consolidated financial statements using the purchase method of
accounting (see Note 2 to the Condensed Consolidated Financial Statements). The
condensed statement of consolidated income includes equity income in 25% of
Southern Pacific's net income through September 10, 1996, reflecting UPC's
ownership of Southern Pacific during such period, and 100% of Southern Pacific's
net income thereafter. Southern Pacific's results will be fully consolidated
with the Corporation effective October 1, 1996.
11
FINANCIAL RESULTS
CONSOLIDATED - The Corporation reported net income of $275 million or $1.30 per
share for the third quarter of 1996, compared to 1995 net income of $237 million
or $1.15 per share. As a result of Resources' IPO, net income for 1996
reflected approximately 83% of Resources' net income in discontinued operations.
Results for 1995 reflected the Corporation's 100% ownership of Resources in
discontinued operations.
RESULTS OF CONTINUING OPERATIONS - The Corporation reported income from
continuing operations of $211 million ($1.00 per share) in the third quarter of
1996, a 32% improvement from 1995's results of $160 million ($0.78 per share).
Earnings for 1996 primarily resulted from record operations at Union Pacific
Railroad Company and its affiliate, Missouri Pacific Railroad Company
(collectively, the Railroad), and reduced interest costs, the result of the IPO
dividend.
Operating revenues grew $22 million (1%) to $2.00 billion in 1996 from $1.97
billion in 1995, reflecting increased volumes at the Railroad, slightly offset
by lower volumes at Overnite Transportation Company (Overnite) and lower average
commodity revenue per car at the Railroad.
Operating expenses decreased $18 million (1%) to $1.58 billion in 1996. Repair
and maintenance expense decreased $35 million reflecting the Railroad's more
efficient maintenance practices, improved equipment utilization and increased
credits related to repairs of other railroads' freight cars. Other taxes
decreased $12 million, principally as a result of the discontinuance of a
government safety tax assessment and a property tax settlement at the Railroad.
Other operating costs decreased $12 million as a result of cost containment
activities and the absence of third quarter 1995 CNW integration efforts.
Improved train and crew management and employee productivity at the Railroad and
headcount reductions at Overnite resulted in a $10 million decrease in salaries,
wages and employee benefits. These operating expense decreases were slightly
offset by higher volumes at the Railroad and inflation which contributed to
increased materials and supplies ($14 million), equipment and other rents ($8
million) and contract transportation costs ($4 million). Fuel and utility costs
increased $20 million, reflecting increased fuel prices and transportation
volumes slightly offset by a lower fuel consumption rate.
Operating income increased $40 million (11%) to $419 million for the quarter.
Other income increased $17 million, largely the result of increased real estate
sales activity at the Railroad. Interest expense decreased $12 million (9%) to
$115 million, principally from the favorable impact of the Resources IPO
dividend and debt refinancing activities.
Railroad - The Railroad earned $259 million for the quarter in 1996, a 17%
increase from $222 million in 1995. Operating revenues improved $43 million
(3%) to $1.73 billion, as a 3% (43,000 carloads) increase in traffic was
slightly offset by a 1% decrease in average commodity revenue per car, the
result of unfavorable changes in commodity mix.
Energy: Energy commodity revenue rose 16% to $418 million for the third quarter
of 1996 reflecting a 13% increase in carloadings and a 3% increase in average
revenue per car. Volume increases reflected demand from both domestic and
foreign utilities for low-sulfur Powder River Basin coal. Average revenue per
car improvements reflected a longer average length of haul. The Railroad
12
averaged 25 trains per day out of the Southern Powder River Basin in 1996
compared to 22.7 trains per day in 1995.
Intermodal: Intermodal commodity revenue rose 5% to $247 million as a 6%
increase in carloadings--the result of new business and strengthening domestic
intermodal demand--was slightly offset by a 1% customer-mix-related decrease in
average revenue per car.
Industrial Products: Industrial products commodity revenue rose $4 million (1%)
as a 2% increase in average revenue per car was slightly offset by a 1% decrease
in carloadings.
Agricultural Products: Agricultural products commodity revenue decreased $59
million (20%) to $241 million. This decline principally reflected a 17%
decrease in carloadings (over 36,000 loads), the result of low U.S. corn
inventories and exports. Average revenue per car decreased 3%, reflecting
increased competition for shipments of diminished corn supplies. In addition,
the Railroad's 1995 results benefitted from a record grain harvest.
Chemicals: Chemicals commodity revenue increased 2% to $307 million, principally
from a 2% increase in carloadings sparked by growth in domestic fertilizer
shipments and a rise in automotive industry plastics demand. Average revenue
per car was unchanged for the quarter.
Automotive: Automotive commodity revenue rose 10% to $164 million as carloadings
volumes increased 11% on continued auto industry sales growth. Finished autos
carloadings rose 12% reflecting strong finished vehicle shipments from Mexico,
while auto parts exports to Mexico increased 10%. Average revenue per car
decreased 1%.
Operating expenses decreased $1 million to $1.29 billion. Repair and
maintenance expense decreased $34 million reflecting more efficient maintenance
practices, improved equipment utilization and increased credits related to
repairs of other railroads' freight cars. Other operating costs decreased $12
million as a result of cost containment activities and the absence of third
quarter 1995 CNW integration efforts. Other taxes decreased $9 million, the
result of a state property tax settlement and the discontinuance of a government
safety tax assessment. These operating expense decreases were offset by higher
volumes and inflation which contributed to increased equipment rentals ($9
million), materials and supplies ($15 million) and contract transportation
costs ($9 million). Fuel and utility costs increased $19 million, reflecting a
10% increase in fuel prices and a 5% increase in rail volumes (measured in
gross ton-miles) slightly offset by an improved fuel consumption rate. Improved
train and crew management and employee productivity mostly offset the effects
of higher rail volumes and inflation costs, resulting in a $1 million increase
in salaries, wages and employee benefits.
Operating income advanced $44 million (11%) to $433 million in 1996, while the
operating ratio improved 2.0 points to an all-time record 74.9 in 1996.
Interest expense increased $5 million, principally from higher debt levels
associated with the Southern Pacific acquisition. Other income increased $11
million reflecting increased real estate sales activity, primarily from the
required sale of rail lines in connection with the Southern Pacific
acquisition.
Trucking - During the third quarter, Overnite continued to implement its
strategic initiatives, aimed at better matching its operations to the current
13
trucking industry business environment. Actions taken included workforce
reductions, service center consolidations, centralization of the linehaul
management process and repricing initiatives targeting Overnite's lowest margin
customers. Nonetheless, 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 $9 million in 1996 compared to a
net loss of $7 million in 1995. Results for both periods included goodwill
amortization of $5 million.
Overnite's operating revenues decreased $11 million (4%) to $234 million as a
12% decrease in volumes more than offset an 8% increase in average prices--
resulting from Overnite's repricing initiatives. Lower volumes consisted of a
7% decrease in LTL tonnage and a 47% decrease in truckload volumes.
Operating expenses decreased $7 million to $248 million. Salaries, wages and
employee benefit costs decreased $6 million reflecting workforce reductions and
lower volumes partially offset by wage and benefit inflation. A volume-related
reduction in contract linehaul costs resulted in a $2 million (10%) decrease in
rent and purchased transportation expenses. Fuel costs rose $1 million,
reflecting a 20% increase in fuel prices partially offset by a 12% volume-
related reduction in fuel consumption. Overnite's operating loss grew $4
million to $14 million in 1996, while Overnite's operating ratio (including
goodwill amortization) increased to 106.0 for the quarter from 104.1 in 1995.
Corporate Services and Other Operations - Expenses related to Corporate Services
and Other Operations (consisting of corporate expenses, third-party interest
charges, inter-company interest allocations, other income and income taxes
related to the Corporation's holding company operations and the results of other
operating units) decreased $16 million to $39 million. This decrease largely
reflects lower Corporate interest costs, resulting from the utilization of the
Resources IPO dividend to reduce debt levels. Operating income at other
operating units broke even in both 1996 and 1995.
RESULTS OF DISCONTINUED OPERATIONS - Resources reported net income of $77
million for the third quarter of 1996, essentially unchanged from the third
quarter 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 $112 million (33%)
reflecting a 9% increase in sales volumes and a 26% increase in average sales
prices. Operating expenses increased $83 million (35%), the result of higher
volumes and increased general and administrative expenses related to operating
Resources as a stand- alone company. Interest expense increased $12 million to
$13 million, the result of debt incurred by Resources in connection with its
IPO dividend to UPC.
Nine Months Ended September 30, 1996 Compared to September 30, 1995
CONSOLIDATED RESULTS - The Corporation reported net income for the first nine
months of 1996 of $675 million ($3.24 per share) compared to $652 million ($3.17
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.
14
RESULTS OF CONTINUING OPERATIONS - Income from continuing operations advanced
$64 million for the period to $504 million ($2.42 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 $464 million (8%) to $5.98 billion for the period
principally the result of the Railroad's $487 million (10%) operating revenue
improvement (reflecting the addition of CNW, increased base carloadings and a
higher average commodity revenue per car).
Consolidated operating expenses rose $386 million (9%) to $4.90 billion. CNW
results, rail volume growth and inflation caused increases in salaries, wages
and employee benefits ($121 million), equipment and other rents ($108 million),
materials and supplies ($56 million), casualty accruals ($17 million),
contracted transportation costs ($15 million) and other taxes ($6 million).
Increased fuel prices and transportation volumes resulted in a $94 million
increase in fuel and utilities costs. Depreciation charges rose $47 million,
principally reflecting the addition of CNW properties. Offsetting these
increases were a decline in real estate expenses of $21 million, reflecting the
absence of real estate sales by the Corporation, other operating costs ($12
million), the result of cost containment activities and the absence of 1995 CNW
integration efforts at the Railroad, and reduced car repair accruals ($45
million), primarily the result of increased credits related to repairs of other
railroads' freight cars.
Consolidated operating income advanced $78 million (8%) to $1.07 billion for the
first nine months of 1996, principally reflecting a $113 million improvement at
the Railroad offset by a $26 million decline in operating results at Overnite.
Interest expense increased $18 million, principally from higher debt levels
associated with the CNW and Southern Pacific acquisitions partially 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
33.2% from 36.4% 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
nine months of 1996 of $207 million compared to $212 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 $263 million (26%)
reflecting a 7% increase in sales volumes and a 19% increase in average sales
prices. Operating expenses increased $192 million (26%), the result of higher
volumes and exploration activity, and increased general and administrative
expenses related to operating Resources as a stand-alone company. Interest
expense increased $35 million to $38 million, the result of debt incurred by
Resources in connection with its IPO dividend to UPC.
CHANGES IN CONSOLIDATED FINANCIAL CONDITION
During the first nine months of 1996, cash from continuing operations was $1.28
billion compared to $1.12 billion for the same period in 1995. This $158
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 and higher income
tax payments.
15
Cash used in investing activities was $1.35 billion in 1996 compared to $2.39
billion in 1995. This change in cash reflects reduced cash payments for
strategic acquisitions, 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.
Cash provided by financing activities decreased $1.26 billion, the result of a
decline in strategic transaction borrowings. The ratio of debt to debt plus
equity increased to 52.0% at September 30, 1996 compared to 50.0% at December
31, 1995. This increase resulted from increased debt levels associated with
the purchase of Southern Pacific shares and the consolidation of Southern
Pacific's debt, partially mitigated by 1996 earnings and the UPC common stock
issued in exchange for Southern Pacific shares.
In October 1996, the Corporation completed its tender offer for Southern
Pacific's $375 million principal amount of 9-3/8% Senior Notes due 2005 (the
"Notes"). In connection with the tender offer, UPC retired approximately 90% of
the Notes. Investors tendering their Notes were also requested to consent to
certain amendments to the Indenture pursuant to which the Notes were issued,
which eliminated or modified certain restrictive covenants and eliminated
certain occurrences defined as "events of default" under the Indenture. The
Corporation also repaid $250 million principal amount outstanding under
Southern Pacific Transportation Company's (SPT) credit facility and redeemed
$30 million principal amount of SPT's First and Refunding Mortgage 8.20% Bonds,
Series B, due 2001. The Corporation issued commercial paper to fund these
refinancing activities.
In October 1996, Resources repaid its $650 million in notes to UPC, the proceeds
of which were used by the Corporation to repay outstanding commercial paper (See
Note 4 to the Condensed Consolidated Financial Statements).
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. To date, nine of those twelve national
rail unions (representing approximately 93% of the Railroad's unionized
workforce) have either ratified or are in the process of voting on national
agreements. The terms of these five-year agreements include a combination of
general wage increases and lump-sum payments from 3% to 3.5% annually, as well
as increased work rule flexibility. These events greatly reduce the possibility
of rail strikes during the current 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) to unionize Overnite service centers.
Since year-end 1994, over 50 of Overnite's 165 service centers have received
petitions for union elections. Where elections have been held, 27 Overnite
service centers voted against representation and three elections remain
unresolved. The employees of three service centers that previously voted for
union representation filed petitions with the National Labor Relations Board
(NLRB) to decertify the Teamsters as their union bargaining representative.
Eleven service centers, representing approximately 7% of Overnite's nationwide
workforce, have voted for union representation and the Teamsters have been
certified as the bargaining representative for such employees without challenge
by Overnite. Eight other service centers, representing another 10% of
Overnite's nationwide workforce,
16
have either voted for union representation or it is unclear how such employees
have voted and such elections are currently being challenged by Overnite before
the NLRB or the Federal courts. Overnite has begun negotiations with the
Teamsters at the eleven certified service centers and is unable at this time to
estimate the impact these negotiations will have on its future operating
results.
Management - In November 1996, Ronald J. Burns resigned as Chief Executive
Officer and President of the Railroad. Jerry Davis, former President, Southern
Pacific Rail Operations, was named President and Chief Operating Officer of the
Railroad, replacing Mr. Burns. Richard Davidson, President and Chief Operating
Officer of the Corporation and Chairman of the Railroad, was named Chief
Executive Officer of the Railroad.
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 periodically enters into commitments and provides guarantees for
specific financial and contractual obligations. 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.
Accounting Pronouncements - The Financial Accounting Standards Board has 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.
Cautionary Information - Certain information included in this report contains,
and other materials filed or to be filed by the Corporation with the Securities
and Exchange Commission (as well as information included in oral statements or
other written statements made or to be made by the Corporation) contain or will
contain, forward looking statements within the meaning of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended. Such
forward looking information may include, without limitation, statements that the
Corporation does not expect that lawsuits, environmental costs, commitments,
guarantees, labor negotiations or other matters will have a material adverse
effect on its consolidated financial condition, results of operations or
liquidity and other similar expressions concerning matters that are not
historical facts, and projections as to the Corporation's financial results.
Such forward looking information is or will be based on information available at
that time and is or will be subject to risks and uncertainties that could cause
actual results to differ materially from those expressed in the statements.
Important factors that could cause such differences include but are not limited
to industry competition and regulatory developments, natural events such as
floods and earthquakes, the effects of adverse general economic conditions and
the ultimate outcome of environmental investigations or proceedings and other
types of claims and litigation.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Southern Pacific Acquisition: As previously reported in the Corporation's 10-Q
Report for the quarterly period ended June 30, 1996, the Surface Transportation
Board (the "STB") announced at a July 3, 1996 voting conference its approval of
the proposed acquisition of control of Southern Pacific Rail Corporation ("SPR")
and its rail affiliates by Union Pacific Corporation (the "Corporation") and its
affiliates, the merger of SPR with an affiliate of the Corporation and certain
related transactions, subject to various conditions. On August 12, 1996, the
STB issued its written decision (the "Final Decision"), which contained terms
substantially consistent with those voted on at the STB's voting conference.
The Final Decision became effective on September 11, 1996.
On August 29, 1996, the Corporation and its affiliates filed a petition
requesting that the STB clarify certain conditions set forth in the Final
Decision which would allow the Burlington Northern Railway Company and the
Atchison, Topeka and Santa Fe Railroad Company (collectively, "BNSF") to serve
new transloading facilities and other new facilities on Union Pacific Railroad
Company ("UPRR"), Missouri Pacific Railroad Company or SPR rail lines over which
BNSF has received trackage rights. In addition, various other parties have
requested that the STB (i) clarify certain aspects of the condition requiring
that the Corporation and its affiliates modify contracts with shippers at
"2-to-1" points to allow BNSF access to at least 50% of the volume and determine
whether the facilities of certain shippers constitute "2-to-1" points for
purposes of this condition, (ii) remove the restriction imposed by the STB on
traffic that the Texas Mexican Railway Company ("Tex Mex") can transport over
trackage rights granted to Tex Mex under the Final Decision, (iii) expand the
trackage rights that the STB made available to Dow Chemical Company for use in
connection with a possible build-out from its Freeport, Texas facility, (iv)
allow the Utah Railway Company access to the facility of Railco, Inc. in Carbon
City, Utah, (v) reconsider the STB's decision not to impose labor protective
conditions on the settlement agreement between certain rail affiliates of the
Corporation and the Gateway Western Railway Company, (vi) reconsider its
approval of the merger on the grounds it is not in the public interest and
(vii) reconsider its decision to grant BNSF access to shippers in Lake Charles,
Louisiana, as a condition to the merger. The Corporation and its affiliates
have opposed the requests described in (i) through (vi) above and did not
respond to the request described in (vii).
As previously reported in the Corporation's 10-Q Report for the quarterly
period ended June 30, 1996, the City of Reno, Nevada (the "City"), filed a
complaint on July 12, 1996 in the U.S. District Court for the District of Nevada
seeking a writ of mandamus directing the STB to prepare, with regard to the
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 District Court
dismissed the complaint for lack of jurisdiction and denied the City's petition
to transfer the suit to the U.S. Court of Appeals for the Ninth Circuit. The
City is seeking reconsideration of its motion to transfer.
The City subsequently filed a petition for review of the Final Decision in
the U.S. Court of Appeals for the Ninth Circuit on August 21, 1996. The City's
petition was ordered consolidated in the U.S. Court of Appeals for the District
of Columbia Circuit with the petition for review of the City of Wichita and
18
Sedgwick County, Kansas, described below. The City did not state the grounds on
which it seeks review of the Final Decision.
A number of judicial appeals with respect to the Final Decision were also
filed in the U.S. Court of Appeals for the District of Columbia Circuit by
various other parties. The Corporation and its affiliates filed a petition for
review principally to preserve their right to judicial review in the event that
the STB adversely resolves any of the pending requests for clarification or
reconsideration of the Final Decision described above. BNSF filed a petition
for review challenging the STB's decision to grant certain trackage rights and
overhead trackage rights to Tex Mex. The City of Wichita and Sedgwick County,
Kansas filed a petition seeking review of the Final Decision insofar as it may
require parties other than the Corporation and its affiliates to contribute to
the costs of mitigating the effects of increased rail traffic in those
locations.
Finally, Enterprise Products Company filed a petition for review of the Final
Decision without stating the basis for review or the relief sought, and the
Western Coal Traffic League filed a petition for review on the grounds that the
Final Decision was arbitrary and capricious and based on a misapplication of the
facts and law.
Bottleneck Proceedings: On August 27, 1996, the STB initiated a proceeding
asking for arguments and evidence on the issue of whether it should modify its
existing regulations regarding the prescription of, and challenge to, rates for
rail service involving a segment that is served by only one railroad between an
interchange point and an exclusively-served shipper facility (i.e., a bottleneck
segment). The Association of American Railroads, certain railroads, including
UPRR and Southern Pacific Transportation Company, and several major shipper
groups have opposed this suggestion, arguing that such a change in regulation is
contrary to existing STB precedent as well as the public policy adopted by
Congress with the passage of the Staggers Act in 1980 and the ICC Termination
Act in December 1995. The STB is expected to rule on whether it is going to
modify its current regulatory scheme in the near future. After that decision
the STB will rule on pending Motions to Dismiss in three complaint proceedings
filed by shippers challenging a class rate charged for the movement of coal,
two of which named a rail affiliate of the Corporation as a party thereto.
Neither case individually involves significant exposure for reparations.
However, if existing regulation of bottleneck movements is changed, future
revenue from such movements, including those covered by the complaint
proceedings, could be substantially reduced.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 - By-laws of Union Pacific Corporation, as amended effective as
of September 26, 1996.
10(a) - Employment Agreement between Southern Pacific Rail Corporation
("SPRC") and Jerry R. Davis dated February 20, 1995 is
incorporated by reference to Exhibit 10.12 to SPRC's Annual
Report on Form 10-K for the year ended December 31, 1994.*
10(b) - Letter Agreement between Union Pacific Corporation and Jerry
R. Davis dated August 30, 1996.*
_________________
* Management contract or compensatory plan, contract or arrangement
required to be filed as an exhibit.
19
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 September 16, 1996, the Corporation filed a Current Report on Form
8-K, announcing the consummation of its acquisition of Southern
Pacific. Such report also contained certain historical financial
statements of Southern Pacific required by Regulation S-X and a press
release announcing receipt of a favorable Internal Revenue Service
ruling regarding the tax-free nature of the Resources Spin-Off. Such
report was amended on October 17, 1996 to include certain pro forma
financial information required by Regulation S-X.
On October 21, 1996, the Corporation filed a Current Report on Form
8-K, disclosing the completion of the Resources Spin-Off. Such report
also included a press release dated October 17, 1996 containing
earnings information for UPC for the third quarter of 1996 and the nine
months ended September 30, 1996.
20
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: November 13, 1996
UNION PACIFIC CORPORATION
(Registrant)
/s/ Joseph E. O'Connor, Jr.
------------------------------------
Joseph E. O'Connor, Jr.
Vice President and Controller
(principal accounting officer and
duly authorized officer)
UNION PACIFIC CORPORATION
EXHIBIT INDEX
Exhibit No. Description
3 By-laws of Union Pacific Corporation, as amended
effective as of September 26, 1996.
10(a) Employment Agreement between Southern Pacific Rail
Corporation ("SPRC") and Jerry R. Davis dated February
20, 1995 is incorporated by reference to Exhibit 10.12
to SPRC's Annual Report on Form 10-K for the year ended
December 31, 1994. *
10(b) Letter Agreement between Union Pacific Corporation and
Jerry R. Davis dated August 30, 1996. *
11 Computation of earnings per share
12 Computation of ratio of earnings to
fixed charges
27 Financial data schedule
__________________________
* Management contract or compensatory plan, contract or arrangement required
to be filed as an exhibit.