COVER
Exhibit 99(a)
UNION PACIFIC CORPORATION THRIFT PLAN
Financial Statements for the Years Ended
December 31, 1996 and 1995
and Independent Auditors' Report
INDEX
UNION PACIFIC CORPORATION THRIFT PLAN
TABLE OF CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-9
Supplemental schedules required by the Employee Retirement Income Security Act
of 1974 are disclosed separately in Master Trust reports filed with the U.S.
Department of Labor.
1
INDEPENDENT AUDITORS' REPORT
Union Pacific Corporation Thrift Plan:
We have audited the accompanying statements of net assets available for
benefits of the Union Pacific Corporation Thrift Plan (the "Plan") as of
December 31, 1996 and 1995 and the related statements of changes in net assets
available for benefits for the years then ended. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
1996 and 1995, and the changes in net assets available for benefits for the
years then ended in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
June 17, 1997
2
UNION PACIFIC CORPORATION THRIFT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1996 AND 1995
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1996 1995
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ASSETS:
Investments at fair value
(Notes 2, 3 and 7) $476,177,320 $382,627,929
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Net assets available for benefits $476,177,320 $382,627,929
============ ============
The accompanying notes are an integral part of these financial statements.
3
UNION PACIFIC CORPORATION THRIFT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
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1996 1995
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ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income (Note 7):
Net appreciation in fair value
of investments $ 64,672,659 $ 73,425,389
Interest 7,138,329 7,177,207
Dividends 11,286,224 7,847,775
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83,097,212 88,450,371
Contributions by (Note 7):
Employees 23,593,530 19,113,441
Company 7,699,682 6,615,099
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31,293,212 25,728,540
Total Additions 114,390,424 114,178,911
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DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Distributions to participants (Note 7) 20,841,033 15,807,420
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NET INCREASE 93,549,391 98,371,491
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 382,627,929 284,256,438
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End of Year $476,177,320 $382,627,929
============ ============
The accompanying notes are an integral part of these financial statements.
4
UNION PACIFIC CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN
The following description of the Union Pacific Corporation Thrift Plan (the
"Plan") provides only general information. Participants should refer to the
Plan document for a more complete description of the Plan's provisions.
General - The Plan was adopted in October 1973 by the Board of Directors of
Union Pacific Corporation (the "Company") and approved by its stockholders in
May 1974. Under the terms of the Plan, non-agreement employees generally
become eligible to participate in the Plan after completing twelve months
continuous service and working at least 1,000 hours.
Contributions - The Company contributes to the Plan on behalf of each
participant an amount equal to 50% of the participant's contribution with such
Company contribution limited to 3% of the participant's base salary. The Plan
meets the requirements of section 401(k) of the Internal Revenue Code, which
(i) permits certain employee contributions to be withheld on a "salary
deferral" basis, so that amounts deducted will not be included in the
employee's income for Federal income tax purposes, (ii) allows employees to
contribute up to 16% of their salary to the Plan, (iii) provides for payroll
based employee stock ownership plan contributions ("PAYSOP"), and (iv) makes
various other changes intended to give participants greater control and
flexibility with respect to Plan investments.
Spin-Off - In September 1996, the Company's Board of Directors declared a
special dividend consisting of the shares of Union Pacific Resources Group
("Resources") common stock owned by the Company (the "Spin-Off"). As a result
of the Spin-Off, each of the Company's stockholders received 0.846946 of a
share of Resources common stock for each share of Company common stock held by
such stockholders at the September 26, 1996 record date for the distribution.
Therefore, each Plan participant's account received 0.846946 of a share of
Resources common stock for each share of Company common stock held in the
account. The shares received have been placed in the Resources Stock Fund
("Resources Stock"). Future contributions to Resources Stock are not
permitted.
Loans to Participants - In June 1985, the loan provisions of the Plan were
approved by the Internal Revenue Service and became effective. The amount of
a loan is limited to one-half of the vested value of a participant's account,
excluding PAYSOP, and subject to a minimum and maximum loan amount. As the
loan is repaid, all principal and interest payments will be credited to the
participant's account, excluding PAYSOP, in the same proportions as the
contributions then being made on behalf of the participant. If no
contributions are then being made, the loan repayments will be invested in
accordance with the participant's most recent investment election, unless he
or she directs otherwise to the extent permitted by the Plan. Participant
loans, which are secured by the participant's individual account balances,
bear a fixed rate of interest set by the Plan Administrator based on interest
rates then being charged on similar loans, and are repayable over periods not
exceeding five years, except loans relating to a principal residence, in which
case the term of the loan shall not exceed fifteen years. The loans bear
interest ranging from 5.5% to 10.5%. The number of loans outstanding at
December 31, 1996 and 1995 was 1,725 and 1,797, respectively.
5
UNION PACIFIC CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS--(continued)
Participant Accounts - Aggregate monthly employee and Company contributions
may be invested entirely in the Union Pacific Company Stock Fund (Company
Stock), Union Pacific Equity Index Fund (Equity Index), Union Pacific Fixed
Income Fund (Fixed Income), Vanguard/Wellington Fund (Wellington), Vanguard
U.S. Growth Portfolio (U.S. Growth), Vanguard Money Market Reserves-Prime
Portfolio (VMMR Prime Portfolio), Vanguard International Growth Portfolio
(International Growth), Vanguard Bond Index Fund (Bond Index) or any
combination thereof, in multiples of 5% in accordance with separate elections
by each employee. At December 31, 1996 and 1995, 5,731 and 5,265 members of
the Plan held interest in 4,920 and 4,725 Company stock accounts, 2,782 and
2,614 Equity Index accounts, 3,935 and 2,676 Fixed Income accounts, 3,899 and
0 Resources Stock accounts, 1,714 and 1,302 Wellington accounts, 100 and 9
VMMR Prime Portfolio accounts, 1,587 and 925 U.S. Growth accounts, 1,419 and
1,106 International Growth accounts, and 477 and 440 Bond Index accounts,
respectively. In addition, 3,213 and 3,337 members held interest in PAYSOP
accounts at December 31, 1996 and 1995, respectively.
Participants' Plan accounts are maintained on a unit basis. Under this
method, an employee's account value is expressed in units of participation,
representing an undivided interest in the underlying assets and income of the
Fund. The purchase or redemption price of the units is determined daily by
the Trustee, based on the current market values, or contract value in the case
of Guaranteed Investment Contracts (GICs), of the underlying assets of the
Fund.
Vesting - Vesting is based exclusively upon years of service. Participants at
all times have a 100% vested interest in their voluntary contributions plus
actual earnings thereon and their PAYSOP account. A participant's vested
interest in the portion of his/her account derived from Company contributions
increases 25% every year, after two years of credited service, to 100% vested
after five years of credited service. A participant's interest in the
Company's contributions will also become 100% vested if, while employed by the
Company, the participant reaches age 65, dies, or sustains a total and
permanent disability.
Payment of Benefits - A participant may elect to receive a final distribution
under the Plan as either a cash lump sum distribution, or in monthly or annual
installments over a specified period of time not to exceed the lesser of ten
calendar years or the life expectancy of the participant or the joint life
expectancy of the participant and his/her beneficiary as prescribed in the
Treasury Regulations. Final distributions of PAYSOP accounts must be lump sum
distributions. For benefit payments equal to or less than $3,500, the Plan
Administrator may direct the Trustee to make a lump sum payment to the
participant or beneficiary. A participant has the option to receive the value
of his/her PAYSOP account and the portion of his/her account invested in the
Company Stock Fund in cash or in shares of such Company stock; in-kind
distributions will be lump sum and any fractional shares will be distributed
in cash.
A withdrawal may be made by a participant from his/her account in accordance
with the Plan's provisions.
Forfeitures - When certain terminations of participation in the Plan occur,
the nonvested portion of a participant's account, as defined by the Plan,
represents a potential forfeiture. Such potential forfeitures reduce
subsequent Company contributions to the Plan. However, if upon reemployment
the former participant fulfills certain requirements as defined in the Plan,
6
UNION PACIFIC CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS--(continued)
the previously forfeited nonvested portion of the participant's account may
be restored through Company contributions.
Amounts summarized below represent Company contributions forfeited for the
years ended December 31, 1996 and 1995:
1996 1995
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Company contributions forfeited................... $24,278 $30,851
Applied against current year contributions........ 18,170 18,643
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Applied to reduce subsequent year contributions... $ 6,108 $12,208
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Administrative Expenses - All costs of Plan administration are borne by the
Company.
2. Significant Accounting Policies - The accounts of the Plan have been
prepared in accordance with generally accepted accounting principles. The
financial statements were prepared in accordance with the financial reporting
requirements of the Employee Retirement Income Security Act of 1974 as
permitted by the Securities and Exchange Commission's amendments to Form 11-K
adopted during 1990.
Investments are valued utilizing closing prices except for the investment in
the GICs, which is valued at cost plus reinvested interest. Dividend income
is recorded as of the ex-dividend date. Security transactions are recorded as
of the trade date. Certain 1995 amounts have been reclassified to conform to
the 1996 financial statement presentation.
3. Investments - At December 31, 1996 and 1995, Plan investments were
maintained in commingled funds of the Plan Trustees along with investments of
another Company-administered Thrift Plan, within a Master Trust. The Union
Pacific Resources Company Employee Thrift Plan ("Resources Plan") was the
other participant in the Master Trust at December 31, 1995. Investments for
the Chicago and North Western Railway Company Profit Sharing and Retirement
Savings Program ("C&NW PS/RS") were added to the Master Trust effective
July 31, 1996. The Resources Plan investments were removed from the Master
Trust as a result of the Spin-Off. Assets, liabilities, investment income,
and security gains and losses are allocated monthly to the Plan based on its
equity in the investments of the Master Trust. At December 31, 1996 and 1995,
the Plan held percentage interests in the Master Trust of 99.5 and 82.9 in
Company Stock (including PAYSOP), 77.1 and 66.2 in Equity Index, 98.4 and 65.8
in Fixed Income, 91.9 and 77.7 in the Loan Fund, 97.5 and 74.0 in Wellington,
94.9 and 71.9 in U.S. Growth, 86.7 and 33.3 in the VMMR Prime Portfolio, 98.5
and 75.6 in International Growth, and 100.0 and 70.2 in Bond Index, and 99.6
and 0.0 in Resources Stock.
At December 31, 1996 and 1995, the total investments at fair value of the
Master Trust were $577,591,251 and $526,488,315, respectively. In addition,
total net appreciation in fair value of investments and total interest and
dividends were $86,837,354 and $95,247,372 and $28,728,709 and $21,156,851,
respectively, for the years ended December 31, 1996 and 1995.
The Plan provides for separate funds for the investment of contributions.
7
UNION PACIFIC CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS--(continued)
Participants may designate into which fund or funds their contributions and
the Company matching contributions are to be directed within specific limits.
At December 31, 1996 and 1995, Company Stock and PAYSOP are invested primarily
in Union Pacific common stock. Equity Index is invested in the Vanguard Index
Trust 500 Portfolio Fund at December 31, 1996 and 1995, which is designed to
closely track the investment performance of the Standard and Poor's 500
Composite Stock Index. At December 31, 1996 and 1995, Fixed Income is
comprised of investments in GICs bearing interest at 6.05% to 7.85% and 5.94%
to 7.85%, respectively. Interest rates are fixed for the life of each
contract. GICs are held with insurance companies rated at least A-1 by
Standard & Poors. The maturities of these GICs are generally not longer than
five years and their principal and interest are unconditionally guaranteed by
the respective insurance companies. The fair value of GIC's approximates
their contract value. At December 31, 1996 and 1995, Fixed Income is also
comprised of the Vanguard Investment Contract Trust, which is comprised of
contracts issued by financial institutions and backed by high quality bonds
and bond mutual funds. As the GICs expire, the proceeds will be reinvested in
the Vanguard Investment Contract Trust. Wellington is invested in the
Vanguard/Wellington Fund at December 31, 1996, which is comprised of common
stocks and fixed-income securities. At December 31, 1996, U.S. Growth is
invested in Vanguard U.S. Growth Portfolio which is comprised of established
U.S. growth stocks. International Growth is invested in the Vanguard
International Growth Portfolio at December 31, 1996, which is comprised of
foreign common stocks with high growth potential. At December 31, 1996, Bond
Index is invested in the Vanguard Bond Index Fund which is designed to closely
track the investment performance of the Lehman Brothers Aggregate Bond Index.
VMMR Prime Portfolio is a diversified money market investment fund invested
and reinvested in high quality certificates of deposit, bankers' acceptances,
commercial paper, U.S. government securities, and other short-term obligations
with the objective of preserving principal while providing income. At
December 31, 1996, Resources Stock is invested primarily in Resources common
stock.
4. Plan Amendments - Effective July 1, 1996, the Plan was amended to provide
that final distributions may be made in annual installments over a period of
time not to exceed ten years. The loan provisions of the Plan were amended
effective July 1, 1996, to allow a loan term of 12 months, to remove the
limitations based on salary level, to allow loans on rollover contributions
during the first year of employment, and to provide that one partial payment
of at least $500 will be allowed each year. Effective October 15, 1996, the
Plan was amended to reflect the Spin-Off and the related creation of Resources
Stock. Effective September 1, 1996, the Plan was amended to provide that a
participant would be suspended effective when a loan from the C&NW PS/RS
enters a grace period or becomes due and payable. Effective September 11,
1996, Southern Pacific Rail Corporation and any wholly-owned subsidiary
thereof (SP Companies) became Employers under the Plan. Effective
September 11, 1996, the Plan was amended to provide that a Covered Employee
transferred to an SP Company would remain a Covered Employee until December
31, 1997, and any individual eligible to participate in the Southern Pacific
Rail Corporation Thrift Plan between September 11, 1996 and December 31, 1997,
and becoming a Covered Employee during that period would not become an
Eligible Employee prior to January 1, 1998.
5. Federal Income Taxes - The Company has received a letter of determination
from the Internal Revenue Service dated April 18, 1995, and the Plan
Administrator and the Plan's tax counsel believe that the Plan, as
subsequently amended, is currently designed and being operated in compliance
8
UNION PACIFIC CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS--(continued)
with section 401(a) of the Internal Revenue Code of 1986, as amended. With
respect to the operation of the Plan, Plan management is aware of certain
operational defects which could adversely affect the tax-exempt status of the
Plan. These operational defects will be corrected through the use of the
Voluntary Compliance Resolution (VCR) program. Submission to the VCR program
was made on August 5, 1996.
Inasmuch as it is the opinion of Management that the Plan is qualified,
employees participating in the Plan are not taxed on Company contributions
made on their behalf, on employee contributions made on a pre-tax basis, on
earnings on such Company contributions or pre-tax employee contributions, or
on earnings on after-tax employee contributions, until any such amounts are
distributed. In addition, no provision for Federal income taxes has been made
in the financial statements.
6. Plan Termination - Although the Plan is intended to be continued by the
Company, the Company reserves the right to amend or terminate the Plan. In
the event of a Plan termination or partial termination, or the Company
permanently ceases to make contributions, all invested amounts shall
immediately vest and be nonforfeitable. All funds shall continue to be held
for distribution as provided in the Plan.
7. Fund Information - Investments at par value, investment income,
contributions, and distributions to participants by fund are as follows for
the years ended December 31, 1996 and 1995:
Year Ended Year Ended
December 31, December 31,
1996 1995
------------ ------------
Investments at Fair Value:
Union Pacific Company Stock Fund $127,266,375 $132,265,668
Union Pacific Equity Index 91,508,657 75,624,191
Union Pacific Fixed Income 92,215,165 87,346,365
Common Stock/PAYSOP 10,378,499 8,279,048
Resources Stock Fund 51,360,520 --
Vanguard Wellington Fund 30,566,181 25,833,050
VMMR Prime Portfolio 1,984,161 131,259
Vanguard US Growth Fund 26,813,999 15,468,564
Vanguard International Growth
Portfolio Fund 24,514,297 17,915,064
Vanguard Total Bond Market Fund 3,417,789 3,985,401
Loan Fund 16,151,677 15,779,319
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$476,177,320 $382,627,929
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9
UNION PACIFIC CORPORATION THRIFT PLAN
NOTES TO FINANCIAL STATEMENTS--(continued)
Year Ended Year Ended
December 31, December 31,
1996 1995
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Investment Income:
Union Pacific Company Stock Fund $ 25,406,609 $ 47,902,716
Union Pacific Equity Index 17,420,616 19,666,695
Union Pacific Fixed Income 5,494,978 6,353,369
Company Stock/PAYSOP 2,507,552 2,788,556
Resources Stock Fund 18,858,691 --
Vanguard Wellington Fund 4,233,058 5,141,861
VMMR Prime Portfolio 54,700 693
Vanguard U.S. Growth Fund 4,800,095 2,920,833
Vanguard International Growth
Portfolio Fund 2,971,594 2,136,376
Vanguard Total Bond Market Fund 93,817 479,957
Loan Fund 1,255,502 1,059,315
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$ 83,097,212 $ 88,450,371
============ ============
Contributions:
Union Pacific Company Stock Fund $ 8,736,619 $ 8,582,467
Union Pacific Equity Index 6,599,982 5,305,357
Union Pacific Fixed Income 5,699,884 5,843,040
Company Stock/PAYSOP 5,741 2,924
Resources Stock Fund 3,160 --
Vanguard Wellington Fund 4,023,577 2,461,104
VMMR Prime Portfolio 163,231 1,053
Vanguard U.S. Growth Fund 2,834,554 1,122,216
Vanguard International Growth
Portfolio Fund 2,663,227 1,984,564
Vanguard Total Bond Market Fund 563,237 425,815
Loan Fund -- --
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$ 31,293,212 $ 25,728,540
============ ============
Distributions to participants:
Union Pacific Company Stock Fund $ 5,148,631 $ 5,284,198
Union Pacific Equity Index 4,485,174 3,123,367
Union Pacific Fixed Income 5,926,598 5,860,719
Company Stock/PAYSOP 413,842 324,497
Resources Stock Fund 324,621 --
Vanguard Wellington Fund 1,575,834 392,133
VMMR Prime Portfolio 713,289 --
Vanguard U.S. Growth Fund 810,357 207,725
Vanguard International Growth
Portfolio Fund 934,304 341,643
Vanguard Total Bond Market Fund 100,045 62,020
Loan Fund 408,338 211,117
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$ 20,841,033 $ 15,807,420
============ ============