<PAGE> 1
UNION PACIFIC CORPORATION
(CORPORATE LOGO)
November 8, 1994
VIA ELECTRONIC TRANSMISSION
- ---------------------------
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Amendment No. 2 to Union Pacific Corporation
Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1993 (File No. 1-6075)
----------------------------------------------
Gentlemen:
Enclosed herewith for filing under the Securities Exchange Act of 1934 is
Amendment No. 2 to the Union Pacific Corporation Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, together with the exhibits
thereto. This amendment is in response to comments received form the staff
during August through October 1994. Since the enclosed document is being
filed in the form of an Amendment, no filing fee is required. A manually
signed copy of the enclosed Amendment with accompanying exhibits is being
concurrently furnished to the New York Stock Exchange.
Sincerely,
/s/ William L. Ferrara
William L. Ferrara
Manager - Accounting
Practice & Planning
Enclosures
cc: Mary Mast<PAGE>
<PAGE> 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-K/A-2
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
Martin Tower, Eighth and Eaton Avenues 18018
Bethlehem, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (610) 861-3200
___________________________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ---------------------------------------- -----------------------------
Common Stock (Par Value $2.50 per share) New York Stock Exchange, Inc.
4 3/4% Convertible Debentures Due 1999 New York Stock Exchange, Inc.
___________________________________
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ].
___________________________________
As of March 3, 1994, the aggregate market value of the registrant's
Common Stock held by non-affiliates (using the New York Stock Exchange closing
price) was approximately $12,213,500,846.
The number of shares outstanding of the registrant's Common Stock as of
March 3, 1994 was 205,086,336.
Portions of the following documents are incorporated by reference into
this Report: (1) registrant's Annual Report to Stockholders for the year ended
December 31, 1993 (Parts I and II); and (2) registrant's definitive Proxy
Statement for the annual meeting of stockholders to be held on May 11, 1994
(Part III).
<PAGE>
<PAGE> 3
The undersigned registrant hereby amends the following portions of its Annual
Report on Form 10-K for the fiscal year ended December 31, 1993:
PART II
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Information as to Union Pacific's results of operations, financial
condition and capital investments is set forth in the Financial Review,
appearing on pages 23 through 28 of the Annual Report, and is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The Corporation's consolidated financial statements, accounting policy
disclosures, notes to financial statements, business segment information and
independent auditors' report are presented on pages 29 through 40 of the Annual
Report. Selected quarterly financial data are set forth under Selected
Quarterly Data, appearing on page 41 of the Annual Report. Information with
respect to oil and gas producing activities is set forth under Supplementary
Information, appearing on pages 42 through 44 of the Annual Report. All such
information is incorporated herein by reference.
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (3) Exhibits
(13) Pages 14 through 45, inclusive, and the system map contained on
the inside back cover of Union Pacific's Annual Report to
Stockholders for the year ended December 31, 1993, but
excluding photographs set forth on pages 14 through 22,
which do not supplement the text and are not otherwise
required to be disclosed in this Form 10-K.
(23) Independent Auditors' Consent.
<PAGE>
<PAGE> 4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 8th day of
November 1994.
UNION PACIFIC CORPORATION
By Charles E. Billingsley
-----------------------------
(Charles E. Billingsley,
Vice President and Controller)
<PAGE>
<PAGE> 5
EXHIBIT INDEX
-------------
Exhibit Number Exhibit
- -------------- -------
(13) Pages 14 through 45, inclusive, and the system map
contained on the inside back cover of Union Pacific's
Annual Report to Stockholders for the year ended December
31, 1993, but excluding photographs set forth on pages 14
through 22, which do not supplement the text and are not
otherwise required to be disclosed in this Form 10-K.
(23) Independent Auditors' Consent.
<PAGE> COVER
EXHIBIT 13
Pages 14 through 45, inclusive, and the system map contained on the inside
back cover from Union Pacific's Annual Report to Stockholders for the year ended
December 31, 1993, but excluding photographs set forth on pages 14 through 22,
which do not supplement the text and are not otherwise required to be disclosed
in this Form 10-K.
<PAGE> 14
REVIEW OF OPERATIONS
Union Pacific Railroad
<TABLE>
<CAPTION>
1993 1992 1991(a)
------ ------ ------
<S> <C> <C> <C>
Operating Revenues (millions of dollars) $4,987 $4,897 $4,776
Operating Income (millions of dollars) $1,042 $1,031 $ 190
Carloadings (thousands) 4,619 4,458 4,304
Operating Ratio 79.1 79.0 96.0
(a) Excluding the 1991 special charge, Operating Income and the Operating
Ratio would have been $935 million and 80.4, respectively (see Note 3
to the Financial Statements).
</TABLE>
(Two photographs, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
Union Pacific Railroad achieved strong earnings in the face of the worst
natural disasters to strike it in nearly 125 years. Excluding the
accounting adjustments, net income would have been $669 million, compared
to $667 million in 1992.
Severe snowstorms struck western segments of the system in January and
February, requiring the use of the company's rotary snowplow on the
mainline for the first time since 1949. The record flood knocked out the
heart of the Railroad's track, adversely affecting traffic throughout the
system. Then, with many levees still decimated, portions of UPRR's track
along the Mississippi River were flooded again when heavy rains came in
October.
Despite this devastation, the Railroad increased its carloadings 4
percent and maintained its operating ratio below 80 percent for the second
year in a row.
Major Thrusts in 1993-94
Several programs launched in 1993 will strengthen Union Pacific in 1994,
particularly in the most promising growth areas of Mexico, intermodal and
coal.
The North American Free Trade Agreement should bolster most traffic
categories. Union Pacific's shipments to Mexico were down slightly in 1993
but had been growing at double-digit rates and are expected to resume that
pace for the rest of the decade. The Railroad's three major gateways into
Mexico make it the pre-eminent carrier in this increasingly open market.
Another key to UPRR's growth is its expanding network of "partnerships"
with major U.S. trucking companies, particularly those in the long-haul
truckload business. These shipping arrangements have enhanced Union
Pacific's market share in several key commodities and have maximized the
use of the Railroad's equipment, generating substantial gains in intermodal
traffic and promising more for the remainder of the decade.
In October, UPRR began hauling low-sulfur coal from the Powder River
Basin in eastern Wyoming to Georgia Power's Plant Scherer in central
Georgia--the largest contract for delivery east of the Mississippi River.
This 1,800-mile haul on Union Pacific and two other railroads is the
nation's longest unit-train coal run. The new contract is expected to add
approximately 5 million tons to UP's coal shipments in 1994. This and
other new contracts promise to provide continued improvement in energy
revenues.
To support continued growth, as well as to enhance service reliability,
the Railroad has embarked on several key expansion programs. Its triple-
track project on the Nebraska mainline will improve the company's major
traffic corridor. This corridor carries nearly 110 trains a day--the
busiest in the world. In addition, intermodal expansions are under way at
Memphis, Seattle and Stockton, California, while the state-of-the-art
Livonia, Louisiana yard began operating in early 1994, speeding traffic
throughout the lower Mississippi Valley. For Mexico, construction of a new
double-track bridge connecting Union Pacific's Laredo intermodal yard with
the Mexican Railway should be under way within a year.
<PAGE> 15
(Two photographs, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
Realigning for the Future
Late in the year the Railroad realigned its marketing and operating
departments into seamless business units organized along major commodity
lines. Aimed at increasing customer focus, this structure makes marketing,
operating and financial people jointly responsible for customer
satisfaction, quality and profitability.
Another major development was completing negotiations for through-
freight, conductor-only operations on the entire system. By year-end 1993,
nearly all through-freight trains were operated by two-person crews. This
change--combined with national work rule changes authorized by Presidential
Emergency Boards 219 and 220--will continue to generate substantial future
savings. In late 1993, Union Pacific began negotiating on the west end of
the system for the right to operate yard and local trains with two-person
crews.
<PAGE> 16
REVIEW OF OPERATIONS
Union Pacific Resources
<TABLE>
<CAPTION>
1993 1992 1991(a)
------ ------ ------
<S> <C> <C> <C>
Operating Revenues (millions of dollars) $1,323 $1,259 $1,091
Operating Income (millions of dollars) $ 382 $ 315 $ 259
Total Reserves (MMBOE) (b) 445.4 441.5 437.3
Total Production (MMBOE) (b) 69.6 67.0 60.5
(a) Excluding the 1991 special charge, Operating Income would have been
$314 million (see Note 3 to the Financial Statements).
(b) Natural gas converted to millions of barrels of oil equivalent on a
ratio of 6:1.
</TABLE>
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
During 1993 Union Pacific Resources achieved record production and record
revenues, while increasing its reserves for the sixth straight year. These
increases were achieved with 15 percent fewer employees. Excluding the
accounting adjustments, earnings would have risen to $309 million from $272
million in 1992.
Equally important, Resources took several steps in 1993 to ensure
continued growth. A 1992 reorganization that created profit centers has
led to significant cost savings, improved efficiencies and increased
emphasis on profitability.
Exploration successes were encouraging, with discoveries in northeast
British Columbia, the eastern Austin Chalk and offshore Gulf of Mexico.
Reserve additions in 1993 were approximately 60 million barrels of oil
equivalent--a direct result of the company's leading-edge oil field
technology.
Land Grant Production
Nearly 40 percent of Resources' production came from the company's Land
Grant acreage in Wyoming, Utah and Colorado. Resources has been drilling
aggressively in the Greater Green River Basin in western Wyoming, which
contains significant natural gas reserves. During the last two years,
through innovative completion and design technology, Resources has reduced
average well costs in this area from $1.4 million to $800,000. These lower
costs should dramatically increase future drilling opportunities.
In western Wyoming, Resources is completing construction of the
Wahsatch Gathering System, which will allow the company to tap up to 55
million cubic feet of gas per day that previously could not be produced and
processed.
As part of its program in the Land Grant, the company is arranging to
drill at least 300 wells with an industry partner in the Wattenberg area of
Colorado over the next three years. In addition, Resources became a 34
percent partner in a processing plant in the Wamsutter area of Wyoming.
<PAGE> 17
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
Austin Chalk
The Austin Chalk formation in south-central Texas and Louisiana continues
to be highly productive. The company participated in the drilling of 266
horizontal wells in 1993. Of these wells, 45 were dual laterals, which
typically tap two zones, and 60 were opposing laterals, which tap zones in
opposite directions. During the year Resources drilled its first quad
lateral well, which draws from four separate areas in a formation.
Applying this technology dramatically reduces the average cost of reserve
additions.
Austin Chalk production reached an average of 66,600 barrels of oil
equivalent per day in 1993, a 13 percent increase over 1992. Most of the
production was from the Giddings Field in south-central Texas. Resources
also extended its acreage into eastern Texas and Louisiana and now controls
more than one million acres throughout the area.
Because of its expertise in horizontal drilling, its understanding and
application of sophisticated recovery techniques and its success in
reducing drilling costs, Resources believes it can continue to extend the
productive limits of this highly successful trend.
East Texas
During 1993 Resources strengthened its leadership as a processor and
gatherer of natural gas in East Texas. It increased its ownership to 88
percent in three key East Texas assets: the East Texas gas plant, the
Carthage Hub and the Panola Pipeline, adding value through vertical
integration.
In addition, the company initiated a number of related expansion
projects. Construction began on a new 88 percent-owned plant that will
increase gas processing capacity by 120 million cubic feet per day. An
extension to the Panola Pipeline will expand capacity to transport natural
gas liquids to Mt. Belvieu, Texas, the center of the natural gas liquids
market.
The company is continuing to develop reserves in the Gulf of Mexico,
bringing on two fields in 1993. It currently has interests in 19 platforms
in the Gulf, 14 of which are company-operated.
In Canada, the company is successfully developing two exploration plays
in northeast British Columbia. Resources has an interest in more than
115,000 acres in this area. Seismic and other field analyses indicate that
the potential for future discoveries is very promising.
Over 25 percent of Resources' operating income came from its mineral
operations, which mine and process coal and natural soda ash in the Land
Grant area. Minerals also earn royalties on lands leased to others.
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
<PAGE> 18
REVIEW OF OPERATIONS
Overnite Transportation
<TABLE>
<CAPTION>
1993 1992 1991(a)
------ ------ ------
<S> <C> <C> <C>
Operating Revenues (millions of dollars) $ 939 $ 873 $ 800
Operating Income (millions of dollars) $ 69 $ 57 $ 19
Operating Ratio 90.2 90.9 95.1
(a) Excluding the 1991 special charge, Operating Income and Operating Ratio
would have been $44 million and 91.9, respectively (see Note 3 to the
Financial Statements).
</TABLE>
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
Overnite Transportation had an excellent operating performance in 1993
despite a highly competitive pricing environment and a sluggish first half.
Excluding the accounting adjustments and before goodwill amortization, net
income would have increased to a record $65 million from $60 million in
1992.
Overnite achieved all-time highs in total tonnage and
less-than-truckload (LTL) traffic, reflecting the company's aggressive
marketing programs. Overall volume was up 4 percent, with LTL traffic up 7
percent. Average price levels increased and service standards improved in
several key traffic lanes. Overnite's operating ratio of 90.2 percent
remained the lowest among the top five LTL carriers. The company also
invested a record $80 million, primarily to expand its service center
network, to acquire more than 600 tractors and 1,800 trailers, and to
launch its centralized customer service and billing center in Richmond.
Aggressive Marketing
The company really hit its stride in the second half of 1993, with double-
digit growth in four of its five regions--led by a 23 percent gain in the
Northeast. Niteliner service, which provides next-day delivery, and
Fastbreak, which focuses on 48-hour delivery on longer-distance, major-
market lanes, increased tonnage both within and between regions. With
geographic coverage reaching 95 percent of the country's population,
Overnite can deliver across the street, across the state or across the
country.
Logistical partnerships helped generate tonnage increases and greatly
expanded services with many major customers. These partnerships are the
future of trucking, and Overnite has been a leader in the field. The
company has placed representatives on-site in several customers'
facilities, creating a seamless relationship by solving transportation
problems. Customers of all sizes are tying into the company's expanding
electronic network.
<PAGE> 19
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
New Technology
At the core of these partnerships is Overnite's growing sophistication in
technology. In August, 1993, with assistance from UP Technologies, the
company began converting its 166 service centers to its centralized
customer service and billing systems in Richmond. Bills of lading at each
service center are electronically scanned into the system every night,
thereby expediting invoices, improving billing accuracy and creating an
electronic document library for customer service. Overnite will complete
the centralization of these operations during 1994.
Next target: the front line. In 1994, Overnite will test a fully
integrated dispatching, yard management, dock management, and time tracking
system in pilot service centers. Hand-held computers with integrated
scanners and computer dock-planning models will facilitate trailer
positioning and freight-loading sequencing. Such advanced technology
should ensure maximum use of equipment and manpower, enabling Overnite to
improve its own effectiveness while providing its customers with accurate,
real-time, freight movement information.
<PAGE> 20
REVIEW OF OPERATIONS
USPCI
<TABLE>
<CAPTION>
1993 1992 1991(a)
---- ---- ------
<S> <C> <C> <C>
Operating Revenues (millions of dollars) $236 $262 $251
Operating Income (Loss) (millions of dollars) $ (5) $ 8 $(19)
(a) Excluding the 1991 special charge, Operating Income would have been $6
million (see Note 3 to the Financial Statements).
</TABLE>
Hazardous waste volumes were significantly below industry expectations in
1993 because of the slow economic recovery, industry's reluctance to commit
funds to cleanups and the regulatory uncertainty caused by the new
administration in Washington. As a result, revenues were down $26 million
to $236 million. Nonetheless, USPCI managed to break even before goodwill
amortization of $9 million.
Contracts for disposal of non-hazardous waste were somewhat better.
USPCI is the sole provider of non-hazardous waste disposal services for 131
automotive plants in the United States and five in Mexico. To fulfill this
major long-term contract, USPCI has dedicated substantial capacity at its
Echo Mountain landfill in Sawyer, North Dakota. The hazardous waste from
the automotive plants is sent to USPCI's landfills in Waynoka, Oklahoma and
Tooele County, Utah. Five railroads, including the Union Pacific, and a
network of trucking companies haul the waste materials to USPCI's
facilities.
USPCI transported demolition debris from a Burbank, California,
assembly plant to its jointly-owned East Carbon Development Corporation
(ECDC) landfill in central Utah, using the Union Pacific Railroad. After
being unloaded by ECDC's highly efficient rotary dumping equipment, the
gondola cars are cleaned for hauling other products back to Los Angeles.
This high utilization of equipment allows ECDC to market quality service at
attractive rates to other customers.
JTM, USPCI's successful ash management company, is under contract with
Reynolds Metals Company to market the non-hazardous by-product of Reynolds'
patented spent potliner treatment process.
At Clive, Utah, the startup of the hazardous waste incinerator has been
delayed until late 1994 because of necessary permit modifications and
USPCI's comprehensive testing program.
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
<PAGE> 21
REVIEW OF OPERATIONS
Skyway Freight Systems
Skyway--the newest member of the Union Pacific family--is a multi-faceted
logistics and transportation company headquartered in Watsonville,
California. At any given hour, Skyway may be rushing a critical part for a
customer by charter jet, moving an entire warehouse by stack train, running
a distribution center, assembling and testing computers, or developing a
comprehensive transportation and logistics strategy based on state-of-the-
art information management. In a nutshell, the company specializes in
customized logistical support tailored to the needs of its customers across
the country.
In 1993, Skyway earned a record $5 million before goodwill amortization
and also reported record revenues of over $100 million, reflecting an
annual average growth rate of approximately 30 percent for the past three
years. The company has several innovative programs that are expected to
further expand its business. Skyway's in-transit merge and distribution
services streamline product delivery and save costs on cross-country
shipping. The company's next-flight-out service helps customers meet
critical delivery requirements on high-value parts. And its catalog
warehouse inventory and distribution program--with Skyway employees
handling the entire delivery cycle for catalog sales companies--adds a new
dimension to its logistics business.
Major investments in updated technologies and facilities generated
improved projects and services in 1993:
Several new terminals were added, such as Skyway's state-of-the-art
Sacramento, California facility and the Raleigh, North Carolina terminal,
plus nine customer facilities--all operated by Skyway employees.
New information technologies now facilitate electronic communications
with more customers and allow sales representatives to access
up-to-the-minute information on shipments by telephone, enabling
Skyway's people to keep pace with evolving customer needs.
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
<PAGE> 22
REVIEW OF OPERATIONS
Union Pacific Technologies
Union Pacific Technologies develops sophisticated computer software for the
corporation's operating companies and aggressively pursues research in new
technologies. The company also has expanded the scope of its commercial
activities outside of Union Pacific.
Technologies continues to assist the Ferrocarriles Nacionales de Mexico
(FNM), the national railway of Mexico, with the installation of computer
software similar to that used by Union Pacific Railroad. During 1993,
Technologies installed a new yard management system at FNM's 17 largest
yards. The system maintains an inventory of freight cars in each yard and
generates switching instructions for the assembly of outbound trains.
(Photograph, not incorporated by reference - see prefacing comment on Exhibit 13
Cover Page.)
Technologies also helped the FNM upgrade its central computer facility
in Mexico City. Over the past two years, the FNM has more than doubled the
capacity of its computers, which are now electronically linked with the
Association of American Railroads' computer systems. This allows for a
detailed exchange of information on trains and shipments moving across the
U.S.-Mexico border.
Domestically, Technologies continued with the implementation of the
advanced train control work order system on the Union Pacific Railroad.
Nearly 1,700 of Union Pacific's locomotives have been equipped with on-
board computers capable of receiving and sending car pickup and placement
information, and over 5,000 conductors have been trained in their use. By
1995, all of Union Pacific's trains will be equipped with on-board
computers.
At Overnite, Technologies is assisting with the installation of a
centralized billing system that uses imaging and other leading-edge
systems. Technologies also modified USPCI's Facilities Information
Management System (FIMS) for use at its new incinerator in Clive, Utah.
FIMS tracks shipments from arrival through treatment and disposal.
Technologies' commercial sales continue to grow. The Shipment
Management Service, the industry benchmark for shipment tracking, is the
company's fastest growing commercial product. More than 100 companies
subscribe to this service.
<PAGE> 23
FINANCIAL REVIEW
Consolidated Results of Operations
This review should be read in conjunction with the financial statements, notes
and supplementary information.
1993 Compared to 1992
Consolidated: In the first quarter of 1993, Union Pacific Corporation (the
Corporation) recorded a $175 million after-tax or $0.85 per share charge to
reflect the adoption of new Financial Accounting Standards Board (FASB)
pronouncements as described in Note 2 to the Financial Statements. In the
third quarter, the Corporation recorded a $61 million or $0.30 per share
charge reflecting a deferred tax adjustment that resulted from the Omnibus
Budget Reconciliation Act of 1993 (the 1993 Tax Act) (see Note 7 to the
Financial Statements). The components of these accounting adjustments are as
follows:
<TABLE>
<CAPTION>
In Millions, Except
Per Share Amounts
Income (Loss)
before Net
Accounting Accounting 1993 Income
Adjustments Changes Tax Act (Loss)
----------- ---------- ------- -------
<S> <C> <C> <C> <C>
Railroad $ 669 $ (72) $ (57) $ 540
Natural resources 309 (59) (6) 244
Trucking 42 (79) (1) (38)
Waste management (9) -- 1 (8)
Corporate services
and other operations (245) 35 2 (208)
----- ------ ------ ------
Consolidated $ 766 $ (175) $ (61) $ 530
----- ------ ------ ------
Per share $3.73 $(0.85) $(0.30) $ 2.58
----- ------ ------ ------
</TABLE>
As a result of the accounting adjustments, the absence of Union Pacific
Resources Company's (Resources) $63 million ($42 million after-tax) 1992
production-based tax settlement and the 1993 effects of weather-related
traffic interruptions on the operations of Union Pacific Railroad Company and
its affiliate Missouri Pacific Railroad Company (collectively the Railroad),
the Corporation's earnings declined to $530 million ($2.58 per share) in 1993
compared to $728 million ($3.57 per share) a year ago. Excluding accounting
adjustments, the Corporation's earnings would have risen to $766 million
($3.73 per share). Income, excluding accounting adjustments, would have
improved at all operating units except USPCI, Inc. (USPCI).
(Graph of Union Pacific Corporation Operating Revenues - see Appendix)
Operating revenues advanced 4% to $7.56 billion in 1993 from $7.29 billion a
year ago. Revenues advanced on the strength of growing transportation
volumes, rising average natural gas prices, a 5% increase in hydrocarbon sales
volumes and the acquisition of Skyway Freight Systems, Inc. (Skyway) (see Note
5 to the Financial Statements).
Operating expenses rose $183 million to $6.07 billion compared to $5.89
billion in 1992. Equipment and other rents increased $52 million and fuel
and utility costs rose $21 million due to higher transportation volumes and
weather-related traffic interruptions at the Railroad. Depreciation charges
increased $40 million, reflecting asset adjustments required by the first
quarter adoption of SFAS No. 109 (Accounting for Income Taxes) and the
Corporation's continued high level of capital investment, offset by lower
surrendered lease activity and dry hole costs at Resources. Other taxes rose
$39 million, resulting from the absence of 1992 tax settlements at Resources
and the Railroad, while third party transportation costs increased $30 million
mainly due to the acquisition of Skyway. In addition, weather-related
inefficiencies and volume growth caused wage and benefit costs to escalate $19
million, and materials and supplies $13 million. Higher hydrocarbon sales
volumes and prices caused the cost of pipeline and gas plant product purchased
for resale to rise $15 million. Operating cost inflation was tempered by
efficiency and productivity improvements at the Railroad and Resources and the
absence of Resources' $24 million 1992 workforce reduction charge. Operating
income improved 6% to $1.49 billion in 1993 compared to $1.40 billion a year
ago as gains occurred at all operating units except USPCI.
(Graph of Union Pacific Corporation Operating Income - see Appendix)
Other income declined $57 million largely due to the absence of interest
related to Resources' 1992 tax settlement and diminished property sales.
Interest expense also declined $36 million reflecting lower average interest
rates and debt refinancing activities, while corporate expenses rose $9
million due to higher professional fees and depreciation charges. Net income-
- -excluding accounting adjustments--as a percentage of operating revenues would
have been 10.1% in 1993 and 10.0% in 1992. On the same basis, return on
average common stockholders' equity would have declined to 15.7% in 1993 from
16.5% a year ago.
Railroad: The Railroad posted earnings of $540 million in 1993. Excluding
the 1993 accounting adjustments, earnings would have been $669 million (before
considering the effects of the harsh winter and Midwest flooding) compared to
$667 million in 1992. Operating revenues improved 2% to $4.99 billion as a 4%
increase in carloadings was partially offset by
<PAGE>24
a 2% decline in average revenue per car. This decline resulted from volume
growth of lower-rated commodities--mainly intermodal and energy--and growth
of lower-rated goods within chemicals, as well as increased use of
shipper-owned equipment for coal shipments. Revenues also included higher
earnings from equity investments in related operations. Automotive
carloadings advanced 8%, reflecting improvements in the domestic auto
industry. Energy carloadings also grew 8% because of an expanding domestic
customer base and higher demand created by more normal temperature patterns.
Intermodal traffic improved 6% as market share continued to expand reflecting
new partnership arrangements with trucking companies. In addition, chemical
carloadings increased 1%, while weather-related traffic interruptions and crop
damage caused grain carloadings to decline 2%. Carloading declines also
occurred in food, consumer and government products (2%) and in metals,
minerals and forest products (1%).
Operating expenses increased to $3.95 billion this year from $3.87 billion in
1992. Depreciation expense grew $54 million reflecting asset adjustments
required by the 1993 adoption of SFAS No. 109 and continuing capital spending
on equipment and track. Employee injury expense rose $29 million as
continuing declines in the number of injuries were more than offset by higher
settlement costs per injury. Growing volumes and weather-related traffic
congestion accounted for a $25 million rise in equipment and other rents and a
$17 million increase in fuel and utility costs. Wage and benefit costs also
rose $6 million as weather and inflation-related cost increases were largely
offset by train crew reductions. Higher operating costs were tempered by a
$23 million reduction in joint facility costs and an additional $22 million of
cost offsets associated with car repairs for other carriers.
Operating income at the Railroad rose $11 million in 1993 to $1.04 billion.
Despite severe weather conditions, the Railroad maintained an operating ratio
of 79.1 in 1993 compared to 79.0 a year ago.
Natural Resources: Resources' 1993 earnings were $244 million. Without the
1993 accounting adjustments, earnings would have risen $37 million (14%) to
$309 million compared to $272 million a year ago, despite the absence of the
1992 production-based tax settlement. Operating revenues climbed $64 million
(5%) to $1.32 billion in 1993 as a result of a 5% rise in total hydrocarbon
sales volumes, higher average natural gas prices and pipeline volume growth.
Natural gas sales volumes grew 7% to 619 mmcf/day, reflecting production
improvements in the Austin Chalk and the southwestern Wyoming portion of the
Land Grant. Natural gas liquids sales volumes were up 10% to 39,855 bbl/day,
largely because of increased production in the Austin Chalk, the return to
operation of a damaged pipeline, increased ownership in the Carthage gas
processing plant and improved recoveries under processing agreements, while
crude oil sales volumes held steady at 66,456 bbl/day. Including hedging
activities, natural gas average prices advanced 20% to $1.82/mcf (an increase
of $0.30/mcf), while crude oil prices fell $1.56/bbl (9%) to $15.66/bbl.
Average prices for natural gas liquids also declined 8% to $9.84/bbl. Once
again, Resources improved its reserve position, despite rising production
levels, as it remained the most active driller in the United States.
Operating expenses declined to $941 million in 1993 from $944 million a year
ago. Surrendered lease costs decreased $33 million because of accelerated
lease surrender activity in 1992. Wage and benefit costs declined $24
million stemming from the absence of Resources' 1992 workforce reduction
charge and ongoing productivity improvements. Insurance and other settlements
in 1993 lowered other operating costs $12 million. Mining costs declined $9
million due to lower operating costs stemming from the ongoing effects of a
favorable 1992 contract settlement at Resources' joint venture coal mine. In
addition, dry hole costs decreased $8 million reflecting improved exploration
success. These cost reductions were largely offset by volume-related cost
increases. Depreciation and depletion charges rose $21 million reflecting
higher production levels and higher per barrel rates in the Chalk. Increased
exploration activities generated a $17 million expansion in geological and
geophysical costs. In addition, production and other taxes rose $28 million
caused by the absence of the 1992 tax settlement and growing volumes, while
higher volumes and prices caused the cost of pipeline and gas plant product
purchases to increase $15 million.
Operating income for all of Resources' operations improved $67 million (21%)
to $382 million in 1993. Other income declined $17 million, mainly due to the
absence of the interest portion of the 1992 tax settlement.
Operating income from Resources' minerals operations declined $9 million (8%)
in 1993 to $102 million. This decline was the result of the absence of a
favorable uranium contract settlement recognized in 1992 and volume and price
declines at its soda ash joint venture. These declines were partially offset
by the ongoing effects of a favorable 1992 contract settlement at Resources'
coal joint venture.
Trucking: Overnite Transportation Company (Overnite) recorded a net loss of
$38 million in 1993. Without the 1993 accounting adjustments, earnings would
have improved $2 million to $42 million (after goodwill amortization of $23
million). Operating revenues rose $66 million (8%) to $939 million as a 3%
rise in average prices combined with a 4% volume improvement. Higher volumes
were generated by a 7% increase in less-than-truckload (LTL) business (driven by
<PAGE> 25
tonnage gains in the Northeast--reflecting the recent bankruptcy of a major
regional carrier--and continued business expansion). Higher LTL volumes were
partially offset by truckload traffic declines reflecting Overnite's focus on
its core LTL business. Revenue growth was also stimulated by the 1993
addition of the Special Services Division, which supports the Railroad's
automotive traffic.
Operating expenses increased $54 million to $870 million for the year.
Salaries, wages and employee benefit costs grew $28 million in response to
higher volumes and inflation. Equipment and other rents rose $15 million,
largely because of increased contracted rail usage and volume-related growth
in line-haul charges, while continued capital spending caused depreciation
expense to rise $6 million. Operating income improved to $69 million this
year from $57 million in 1992. Overnite's operating ratio, excluding goodwill
amortization, improved to 90.2 from 90.9 in 1992.
Waste Management: In 1993, USPCI recorded a loss of $8 million (after
goodwill amortization of $9 million and a $1 million benefit from the 1993
accounting adjustments) compared to break-even results a year ago. Operating
revenues declined ($26 million or 10%) to $236 million for the year as
disposal, remediation and transportation volumes fell in response to weak
market demand and uncertainty over Federal environmental policies. Operating
expenses declined $13 million to $241 million, largely the result of volume-
related reductions in outside hauling costs as well as the positive effects of
administrative restructuring. USPCI's operating loss was $5 million in 1993
compared to operating income of $8 million in 1992.
Corporate Services and Other Operations: Expenses related to Corporate
Services and Other Operations--which include corporate expenses, interest
expense, other income and income taxes that are not related to other segments,
and the results of Skyway and other operating units--totaled $208 million in
1993. Excluding the accounting adjustments, these costs would have been $245
million compared to $251 million in 1992. This decline was largely the result
of lower interest expense and improved results at other operations, partially
offset by higher corporate expenses. Operating income from other operations
improved $7 million to $1 million in 1993, reflecting the addition of Skyway.
1992 Compared to 1991
The Corporation's consolidated net income was $728 million in 1992, compared
to $64 million in 1991. Excluding the 1991 special charge (see Note 3 to the
Financial Statements), net income would have improved $89 million (14%) over
1991's earnings of $639 million. Earnings per share for 1992 were $3.57, up
from $0.31 in 1991, and would have risen $0.41 (13%) over 1991's $3.16 per
share excluding the special charge.
Revenues advanced $265 million (4%) to $7.29 billion as increases at all
operating companies more than compensated for a $108 million decline from
curtailed operations at Union Pacific Realty Company (Realty).
(Graph of Union Pacific Corporation Revenues Per Employee - see Appendix)
Consolidated operating expenses for 1992 were $5.89 billion, a decrease of
$679 million from 1991. Without the 1991 special charge, operating expenses
would have risen $191 million. Depreciation, depletion and amortization
increased $161 million because of exploration and production activity at
Resources and the Corporation's continuing high level of capital expenditures.
Salaries, wages and employee benefits expense increased $82 million,
reflecting volume growth, inflation and reinstatement of incentive
compensation accruals, offset by savings from continued cost containment and
productivity improvement programs, including the implementation of new train
crew size agreements. Partially offsetting these increases were a $40 million
reduction in other taxes, resulting from a production-based tax settlement at
Resources and property tax settlements at the Railroad, and a $70 million
decline relating to diminished Realty operations.
The Corporation's 1992 operating income rebounded to $1.40 billion from $461
million in 1991. Excluding the 1991 special charge, operating income would
have improved $74 million (6%) over 1991's $1.33 billion, principally
reflecting improvements at the Railroad and Overnite, countered by curtailed
operations at Realty. Other income rose $24 million, as interest income
included in Resources' tax settlement was offset by reduced gains from property
dispositions. Interest expense declined $28 million, reflecting lower interest
rates, while corporate expenses increased $7 million. Net income as a
percentage of operating revenues improved to 10.0% for 1992 from 9.1% in 1991
excluding the special charge. On the same basis, return on average
stockholders' equity improved to 16.5% in 1992 from 14.2% in 1991.
Railroad: The Railroad improved earnings to $667 million in 1992 compared to
$110 million in 1991. Excluding the 1991 special charge, earnings would have
advanced $65 million (11%). Operating income increased to $1.03 billion from
$190 million in 1991. Without the special charge, operating income would
have risen $96 million (10%) from $935 million in 1991. The Railroad's
operating ratio continued to improve,
<PAGE> 26
declining to 79.0 from 80.4 in 1991 (excluding the special charge),
reflecting productivity improvements arising from the 1991 Presidential
Emergency Board (PEB) settlement.
Revenues improved $121 million (3%) to $4.90 billion, as a 4% rise in
carloadings was partly offset by a 1% decline in average revenue per car
caused by traffic mix shifts, principally the growth of intermodal shipments.
Automotive carloadings rose 15%, resulting from strong improvements in both
parts and assembled auto traffic, while intermodal shipments were up 9%
reflecting growth from both new and existing customers. In addition, metals,
minerals and forest traffic rose 6% as a result of higher construction market
demand, and grain increased 6% relating to expanding export markets. Other
carloading increases occurred in chemicals (2%) and food, consumer and
government products (1%). Energy traffic decreased 5% reflecting weak coal
demand from utilities, the result of unusually mild weather and the absence of
1991 test burn activities.
Operating expenses declined $720 million to $3.87 billion in 1992. Excluding
the 1991 special charge, operating expenses would have increased $25 million.
Equipment and other rent expense rose $28 million relating to volume growth,
and depreciation increased $15 million as a result of the Railroad's
continuing capital program. In addition, outside hauling costs resulting from
growth in intermodal traffic rose $6 million. Offsetting these increases were
a $22 million decline in other taxes, reflecting favorable property tax
settlements and a $16 million decrease in materials and supplies costs.
Productivity improvements and cost containment programs continued, with
salaries, wages and employee benefits increasing only $3 million as savings
stemming from the 1991 PEB settlement negated increases relating to inflation
and volume growth. In addition, fuel costs rose only $2 million as
improvements in the consumption rate combined with lower fuel prices to offset
a 4% increase in gross ton-miles.
Natural Resources: Resources' net income improved to $272 million from $207
million in 1991. Excluding the 1991 special charge, net income would have
risen $29 million (12%). Operating income of $315 million improved $56
million, but would have remained essentially flat without the 1991 special
charge. Results for 1992 include a favorable one-time $63 million ($42
million after-tax) production-based tax settlement and a $24 million ($16
million after-tax) charge relating to a workforce reduction program.
Revenues climbed $168 million to $1.26 billion, as a 9% increase in total
sales volumes and higher average prices for natural gas more than compensated
for price declines for crude oil and plant products. Sales volumes were again
strengthened by expanded horizontal drilling activity in the Austin Chalk in
southeastern Texas. Crude oil sales volumes rose 21% to 66,500 bbl/day and
natural gas sales volumes improved 8% to 576 mmcf/day; however, plant products
sales volumes dipped 5% to 36,300 bbl/day, reflecting a temporary decline
caused by a pipeline disruption. Including hedging activity, average sales
prices for natural gas improved 9% over 1991 to $1.52/mcf, while average
prices for crude oil slipped 6% to $17.22/bbl and average prices for plant
products dropped 10% to $10.67/bbl. Resources increased its hydrocarbon
reserve position slightly through its drilling programs, primarily in the
Austin Chalk and the Land Grant, despite the strong increase in total 1992
production.
Operating expenses increased $112 million to $944 million for 1992, but would
have risen $167 million without the 1991 special charge. Depreciation,
depletion and amortization rose $147 million reflecting expanded production
levels, higher rates for new wells, property write-offs and accelerated lease
surrender activity. In addition, the cost of pipeline and gas plant product
purchased for resale increased $22 million, resulting from higher volumes.
Also included in operating expenses is $24 million relating to a 15% workforce
reduction program. These cost increases were partially mitigated by the
production-based tax settlement, which contributed to a $17 million reduction
in other taxes.
Other income increased $27 million in 1992, principally because of $39 million
in interest income included in the production-based tax settlement, offset by
the absence of a $13 million gain from 1991 surface rights sales.
Resources' minerals operations recorded operating income of $111 million in
1992, an 8% gain over 1991's $103 million, reflecting improvements in sales
volumes and average prices at its coal joint venture.
Trucking: Overnite earned $40 million in 1992, up from $13 million in 1991,
including $20 million of goodwill amortization. Excluding the 1991 special
charge, 1992 earnings would have been up $10 million. Operating income
improved to $57 million compared to $19 million in 1991, and would have
risen $13 million over the prior year excluding the 1991 special charge.
Overnite's operating ratio, excluding the 1991 special charge and goodwill
amortization, improved to 90.9 compared to 91.9 in 1991.
Despite the sluggish economy, revenues increased $73 million (9%) to $873
million as a 3% improvement in average prices combined with a 6% rise in total
volumes. The volume increase included a 9% advance in tonnage for Overnite's
core LTL business, reflecting increased market penetration and an expanding
customer base. Operating expenses were up $35 million to $816 million, and
would have risen $60 million without the 1991 special charge. Salaries, wages
and employee benefits expense increased $43 million as a result of
inflation and increased employee levels required to handle
<PAGE> 27
volume gains, while the remaining expense increase was primarily
volume-related, including $6 million for increased use of contracted
rail transportation.
Waste Management: USPCI broke even in 1992 compared to a net loss of $20
million in 1991, including $9 million of goodwill amortization. Excluding the
1991 special charge, USPCI's results would have been $3 million better than
the previous year. Operating income was $8 million, up from an operating loss
of $19 million in 1991. Excluding the special charge, operating income would
have improved $2 million over 1991.
Revenues increased $11 million (4%) to $262 million as remediation, treatment
and ash management operations improved. Operating expenses fell $16 million
from 1991 to $254 million. Without the 1991 special charge, operating expenses
would have risen $9 million, as outside disposal costs and contracted
transportation expense increased $10 million.
Corporate Services and Other Operations: Consolidated net income also
included after-tax expense of $251 million in 1992 and $246 million in 1991
relating to Corporate Services and Other Operations. Corporate Services
expense declined $18 million from 1991, as lower interest expense on corporate
debt, reduced stock appreciation rights expense and the absence of the
administrative portion of the 1991 special charge more than offset increased
incentive compensation costs. However, reduced Realty earnings negated this
improvement, causing a $5 million increase in overall expense. A $6 million
operating loss was recognized in 1992 from other operations, while 1991
results included $12 million of operating income, representing Realty's sales
activity countered by the 1991 special charge.
Cash Flows, Liquidity and Capital Resources
Cash from operations declined $97 million in 1993 to $1.56 billion. This
decline resulted from a $232 million increase from changes in working capital,
partially offset by a $51 million decline in cash used for special charges, a
$40 million rise in depreciation expense and a $38 million improvement in
earnings excluding the non-cash accounting adjustments.
(Graph of Union Pacific Corporation Dividend History - see Appendix)
Cash used in investing activities increased to $1.55 billion (an increase of
$206 million compared to a year ago) reflecting a $195 million reduction in
proceeds from property sales, the acquisition of Skyway and additional
investments in Chicago and North Western Holdings Corporation (see Note 5 to
the Financial Statements). The Corporation will continue its high level of
capital spending in 1994. At Resources, spending will be focused on drilling
in the Austin Chalk and exploitation of the Land Grant, as well as expanding
Resources' production base. The Railroad will continue to expand its high-
density main lines and acquire and upgrade equipment to meet customer needs.
Overnite will continue to expand its distribution network, and upgrade its
truck fleet and technology. Capital spending at USPCI will be reduced in 1994
as the Clive incinerator nears completion.
Major financings in 1993 included $57 million of Railroad equipment
financings, $515 million of additional commercial paper and $330 million of
the Corporation's notes and debentures. Debt financings were used to fund
capital expenditures, repay maturing debt and to call $350 million of notes
with higher than market interest rates. In 1993, the Corporation also entered
into a new credit facility (see Note 8 to the Financial Statements). The
quarterly common stock dividend was raised to $0.40 per share in the third
quarter of 1993, up from $0.37 per share. The Corporation's ratio of debt to
capital employed improved to 35.6% at December 31, 1993 compared to 36.9% at
December 31, 1992. This improvement resulted from an increase in debt
discount due to the adoption of SFAS No. 109, increased deferred taxes caused
by the 1993 Tax Act and the inclusion of 1993 earnings, partially offset by
higher debt levels.
The Corporation's 1994 capital expenditures and debt service requirements will
be funded primarily through cash generated from operations, property sales
and, if required, through debt financings. The Corporation expects that such
sources will continue to provide sufficient funds to meet cash requirements in
the foreseeable future. At December 31, 1993, the Corporation had
authorization from the Board of Directors to repurchase up to $359 million of
the Corporation's common stock. At year-end, the Corporation had available
$475 million in short-term credit facilities and $800 million in revolving
credit facilities expiring through 1998.
(Graph of Union Pacific Corporation Capital Investments - see Appendix)
Railroad-Related Matters
Employees of the Railroad who are injured in work-related accidents are
compensated under the Federal Employers' Liability Act (FELA). FELA's finding
of fault and damage is
<PAGE> 28
usually assessed based on litigation or out-of-court settlements. Although the
number of injury claims has continued to decline, settlement cost per claim has
increased, causing annual expense to rise from $125 million in 1991 and 1992 to
$154 million in 1993. The Railroad is continuing its efforts to contain these
costs through aggressive training programs, improving safety in work areas,
working with injured employees, and by participating in an industry-wide effort
to replace FELA with a no-fault system. These efforts could significantly
reduce personal injury costs while maintaining fair and equitable compensation
to injured employees.
Accounting Pronouncements
The FASB has issued Statement No. 112, "Employers' Accounting for
Postemployment Benefits" and Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Both Statements will be effective
by January 1994. Statement No. 112 requires employers to recognize the
obligation to provide benefits to former or inactive employees after
employment but prior to retirement. Statement No. 115 creates new reporting
classifications for investments in debt and certain equity securities. The
Corporation has evaluated these Statements and has determined that the
Statements will not have a significant effect on the Corporation.
Other Matters
Environmental Costs: The Corporation generates, transports, remediates and
disposes of hazardous and non-hazardous waste related to its current and former
operations, and is subject to Federal, state and local environmental laws and
regulations. The Corporation has identified approximately 100 sites, including
57 sites currently on the Superfund National Priorities List or state superfund
lists, at which it is or may be liable for remediation costs associated with
alleged contamination or for violations of environmental requirements. Certain
Federal legislation imposes joint and several liability for the remediation of
identified sites; consequently, the Corporation's ultimate environmental
liability may include costs relating to other parties in addition to costs
relating to its own activities at each site.
A liability of $181 million has been accrued for future costs for all sites
where the Corporation's obligation is probable and where such costs can be
reasonably estimated; however, the ultimate cost could be lower or as much as
50% higher. The liability includes future costs for remediation and restoration
of sites as well as for ongoing monitoring costs, but excludes any anticipated
insurance recoveries. Cost estimates are based on information available for
each site, financial viability of other potentially responsible parties
("PRP's"), and existing technology, laws and regulations. The Corporation
believes that it has adequately accrued for its ultimate share of costs at sites
subject to joint and several liability. The ultimate liability for remediation
is difficult to determine with certainty because of the number of PRP's
involved, site-specific cost sharing arrangements with other PRP's, the degree
of contamination by various wastes, the scarcity and quality of volumetric data
related to many of the sites and/or the speculative nature of remediation costs.
Remediation of identified sites required spending of $42 million in 1993 and $39
million in 1992. The Corporation is also engaged in reducing emissions, spills
and migration of hazardous materials, and spent $16 million and $12 million in
1993 and 1992, respectively, for control and prevention, a portion of which had
been capitalized. In 1994, the Corporation anticipates spending $42 million for
remediation and $7 million for control and prevention. The majority of the
December 31, 1993 environmental liability is expected to be paid out over the
next 5 years, funded by cash generated from operations. Future environmental
obligations should not have a material impact on the results of operations or
financial condition of the Corporation.
Hedging and Derivatives Activity: The Corporation periodically hedges
hydrocarbon sales and purchases and interest rates. Gains and losses from these
transactions are recognized at delivery of the commodity or, with respect to
interest rates, over the life of the underlying instrument. There have been no
deferred gains or losses related to derivatives transactions.
Hedging transactions are not entered into unless there is an actual physical or
contractual risk to be hedged. While the use of hedging arrangements limits the
downside risk of adverse price movements, it may also limit future gains from
favorable price movements. All hedging is accomplished pursuant to exchange-
traded contracts or master swap agreements based on standard forms. The
Corporation addresses market risk by selecting instruments whose value
fluctuations correlate strongly with the underlying item or risk being hedged.
Credit risk related to hedging activities, which is minimal, is managed by
requiring minimum credit ratings for counterparties, periodic settlements and
mark-to-market evaluations. Credit risk associated with the Corporation's
largest counterparty was $20 million at December 31, 1993. The Corporation has
not been required to provide any significant amount of collateral to support its
hedging activity.
Fuel purchase hedging fixes diesel fuel prices using price swaps in which the
Railroad and Overnite pay fixed prices in exchange for market prices for
equivalent notional amounts of fuel. The Railroad had no hedges in place at
December 31, 1993, while Overnite had entered into agreements to hedge virtually
all of its 1994 diesel fuel consumption (62 million gallons at $0.48 per
gallon). At December 31, 1993, using current market prices, Overnite had an
unrecognized mark-to-market loss of $2.3 million relating to hedging
arrangements.
Resources uses exchange-traded futures contracts, swaps and forward contracts to
lock in selling prices or margins on hydrocarbon sales volumes. At December 31,
1993, Resources had entered hedging arrangements for 1994 natural gas sales
volumes of 161 mmcf/day at $2.27/mcf, approximately 25% of its 1994 natural gas
production. At December 31, 1993, Resources had an unrecognized mark-to-
market gain of $28 million relating to hedging arrangements.
The Corporation uses interest rate swaps to maintain a targeted fixed/floating
rate structure on its debt portfolio, and uses currency hedges to eliminate
foreign exchange rate risk in connection with debt not denominated in US
dollars. At December 31, 1993, the total notional principal amount of debt
affected by these instruments was less than $250 million with an unrecognized
mark-to-market loss of $3 million. Foreign currency hedges increased the
Corporation's other income by $6.7 million in 1993, had no effect on 1992
results and increased other income by $4.7 million in 1991 (which increases
offset actual foreign currency losses). Interest rate hedging activity
increased interest expense by $7.5 million in 1993, $8.3 million in 1992 and
$7.3 million in 1991, increasing the weighted average borrowing rate by no more
than 0.2 of 1% in any year during the period.
Any unrecognized mark-to-market gain or loss approximates the fair value of the
related derivative position at December 31, 1993 and was determined based upon
current market value, as quoted by recognized dealers, assuming a round lot
transaction and using a mid-market convention without regard to market
liquidity.
Inflation: The cumulative effect of long periods of inflation has
significantly increased asset replacement costs for capital-intensive
companies such as the Railroad and Overnite. As a result, depreciation
charges on an inflation-adjusted basis, assuming that all operating assets are
replaced at current price levels, would be substantially greater than
historically reported amounts.
A Look Forward
General Economic Factors: The Corporation's future results can be affected by
fluctuations in oil and natural gas prices and by the economic environment.
Resources directly benefits from increases in hydrocarbon prices, inclusive of
hedging activity, while the Railroad and Overnite can be adversely affected by
increases in diesel fuel costs, to the extent that such costs are not
recovered through higher revenues and improved fuel conservation or mitigated
by hedging activity. In addition, certain categories of rail carloadings and
trucking tonnages can be negatively impacted by a prolonged economic downturn.
(Graph of Union Pacific Corporation Year-End Closing Stock Price - see Appendix)
1994 Outlook: Rail volumes are anticipated to improve in 1994 because of new
coal contracts, growing intermodal market share, expanding traffic with
Mexico, improving demand for finished autos and general economic expansion,
while average revenue per car is expected to remain at 1993 levels. Sales
volumes at Resources are expected to improve, while commodity price volatility
is expected to continue. Resources' volume growth will reflect an expansion
in natural gas and natural gas liquids sales volumes resulting from production
increases in the Austin Chalk and the Land Grant in Wyoming, Utah and
Colorado. Future oil and gas reserve additions will come from exploration,
development of existing properties and acquisitions. The Corporation's
continuing strategy is to evaluate potential reserve acquisitions, which could
result in significant transactions. Overnite anticipates improvements in the
current pricing environment and continued tonnage growth. Higher volumes at
Overnite will be generated by continued growth in the Northeast and Midwest,
and expansion in the West. At USPCI, depressed market conditions caused by
regulatory uncertainty, the ongoing delay of remediation activities, and the
recent restructurings by several major industry participants have caused the
Corporation to begin a re-evaluation of USPCI's business environment and
prospects.
Wilmington Sale: Negotiations are under way to sell the Corporation's
Wilmington, California, oil field and related facilities to the Port of Long
Beach, California, for cash and notes. The sale, including a provision for
retained environmental and other liabilities, is expected to result in an
after-tax gain. The sale of these operations will not significantly affect
the Corporation's future operating results and is expected to be completed
later in 1994.
<PAGE> 29
Independent Auditors' Report
Union Pacific Corporation, its Directors and Stockholders:
We have audited the accompanying statements of consolidated financial position
of Union Pacific Corporation and subsidiary companies as of December 31, 1993
and 1992, and the related statements of consolidated income, changes in common
stockholders' equity, and consolidated cash flows for each of the three years
in the period ended December 31, 1993. These financial statements are the
responsibility of the Corporation'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 consolidated financial statements present fairly, in all
material respects, the financial position of Union Pacific Corporation and
subsidiary companies at December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, in January
1993, the Corporation changed its method of accounting for postretirement
benefits other than pensions, income taxes and transportation revenue and
expense recognition.
/s/Deloitte & Touche
New York, New York
January 20, 1994
Responsibilities for Financial Statements
The accompanying financial statements, which consolidate the accounts of Union
Pacific Corporation and its subsidiaries, have been prepared in conformity
with generally accepted accounting principles.
The integrity and objectivity of data in these financial statements and
accompanying notes, including estimates and judgements related to matters not
concluded by year-end, are the responsibility of management as is all other
information in this Annual Report. Management devotes ongoing attention to
review and appraisal of its system of internal controls. This system is
designed to provide reasonable assurance, at an appropriate cost, that the
Corporation's assets are protected, that transactions and events are recorded
properly and that financial reports are reliable. The system is augmented by
a staff of corporate traveling auditors supplemented by internal auditors in
the subsidiary operating companies; careful attention to selection and
development of qualified financial personnel; programs to further timely
communication and monitoring of policies, standards and delegated authorities;
and evaluation by independent public accountants during their audits of the
annual financial statements.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, as identified on page 47, meets regularly with financial
management, the corporate auditors and the independent public accountants to
review the work of each. The independent public accountants and corporate
auditors have free access to the Audit Committee, without management
representatives present, to discuss the results of their audits and their
comments on the adequacy of internal controls and the quality of financial
reporting.
/s/Drew Lewis
Chairman and Chief Executive Officer
/s/L. White Matthews III
Executive Vice President-Finance
/s/Charles E. Billingsley
Vice President and Controller
<PAGE> 30
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Operating Railroad $ 4,987 $ 4,897 $ 4,776
Revenues Natural resources 1,323 1,259 1,091
Trucking 939 873 800
Waste management 236 262 251
Corporate services and other
operations 76 3 111
------- ------- -------
Total $ 7,561 $ 7,294 $ 7,029
======= ======= =======
Operating Railroad $ 1,042 $ 1,031 $ 190
Income Natural resources 382 315 259
(Loss)(Note 3) Trucking 69 57 19
Waste management (5) 8 (19)
Corporate services and other
operations 1 (6) 12
------- ------- -------
Total $ 1,489 $ 1,405 $ 461
======= ======= =======
Income (Loss) Railroad $ 669 $ 667 $ 110
before Natural resources 309 272 207
Accounting Trucking 42 40 13
Adjustments Waste management (9) -- (20)
(Notes 2 and Corporate services and other
7)(a) operations (245) (251) (246)
------- ------- -------
Total $ 766 $ 728 $ 64
======= ======= =======
Cash from Railroad $ 1,074 $ 999 $ 910
Operations Natural resources 567 776 554
Trucking 44 100 116
Waste management 21 42 44
Corporate services and other
operations (143) (257) (232)
------- ------- -------
Total $ 1,563 $ 1,660 $ 1,392
======= ======= =======
Assets Railroad $10,014 $ 9,397 $ 9,002
(at Year-End) Natural resources 2,246 2,061 1,962
Trucking 1,393 1,350 1,319
Waste management 802 693 632
Corporate services and other
operations 546 597 411
------- ------- -------
Total $15,001 $14,098 $13,326
======= ======= =======
Depreciation, Railroad $ 443 $ 389 $ 374
Depletion and Natural resources 410 435 287
Amortization Trucking 58 51 51
Waste management 31 32 31
Corporate services and other
operations 7 2 5
------- ------- -------
Total $ 949 $ 909 $ 748
======= ======= =======
Capital Railroad $ 805 $ 767 $ 621
Expenditures Natural resources 507 552 427
Trucking 80 72 40
Waste management 114 109 97
Corporate services and other
operations 14 25 6
------- ------- -------
Total $ 1,520 $ 1,525 $ 1,191
======= ======= =======
(a) Accounting adjustments consist of the cumulative effect
of changes in accounting principles and the deferred
tax effect of the Omnibus Budget Reconciliation Act of
1993.
This information should be read in conjunction with the
accompanying accounting policies and notes to the
financial statements.
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars, Except Per
Share Amounts 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Operating Sales and Revenues (Notes 2
Revenues and 4) $ 7,561 $ 7,294 $ 7,029
------- ------- -------
Operating Salaries, wages and employee
Expenses benefits 2,535 2,516 2,434
Depreciation, depletion and
amortization 949 909 748
Equipment and other rents 590 538 495
Fuel and utilities 506 485 488
Materials and supplies 403 390 409
Other costs 1,089 1,051 1,124
Special charge (Note 3) -- -- 870
------- ------- -------
Total 6,072 5,889 6,568
------- ------- -------
Income Operating Income 1,489 1,405 461
Other Income - Net (Note 13) 89 146 122
Interest Expense (Note 8) (324) (360) (388)
Corporate Expenses (99) (90) (83)
------- ------- -------
Income before Income Taxes
and the Cumulative Effect
of Accounting Changes 1,155 1,101 112
Income Taxes (Notes 2 and 7) (450) (373) (48)
------- ------- -------
Income before Cumulative
Effect of Changes in
Accounting Principles 705 728 64
Cumulative Effect to
January 1, 1993 of Changes
in Accounting Principles
(Note 2) (175) -- --
------- ------- -------
Net Income $ 530 $ 728 $ 64
======= ======= =======
Per Share Income before Cumulative
Effect of Changes in
Accounting Principles $ 3.43 $ 3.57 $ 0.31
Cumulative Effect to
January 1, 1993 of
Changes in Accounting
Principles (0.85) -- --
Net Income 2.58 3.57 0.31
Dividends 1.54 1.42 1.305
The accompanying accounting policies and notes to the
financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars 1993 1992
------- -------
<S> <C> <C>
Assets
Current Assets Cash and temporary investments $ 113 $ 245
Accounts receivable 651 575
Inventories 252 244
Deferred income taxes (Notes 2
and 7) 117 151
Other current assets 249 166
------- -------
Total 1,382 1,381
------- -------
Investments Investments in and advances to
affiliated companies (Note 5) 455 417
Other investments 170 187
------- -------
Total 625 604
------- -------
Properties Cost (Notes 6 and 8) 17,860 16,385
Accumulated depreciation,
depletion and amortization (6,419) (5,785)
------- -------
Net 11,441 10,600
------- -------
Other Intangible and Other Assets - Net 1,553 1,513
------- -------
Total Assets $15,001 $14,098
======= =======
Liabilities and
Stockholders' Equity
Current Accounts payable $ 477 $ 523
Liabilities Accrued wages and vacation 253 242
Dividends and interest 176 177
Income and other taxes 162 176
Accrued casualty costs 135 135
Debt due within one year 115 110
Restructuring reserve (Note 3) 107 177
Other current liabilities 664 544
------- -------
Total 2,089 2,084
------- -------
Other Debt Due After One Year
Liabilities (Notes 8 and 9) 4,069 3,989
and Equity Deferred Income Taxes
(Notes 2 and 7) 2,676 2,376
Retiree Benefits Obligation
(Notes 2 and 10) 599 175
Restructuring Reserve (Note 3) 50 204
Other Long-Term Liabilities (Note 12) 633 631
Common Stockholders' Equity (page 34) 4,885 4,639
------- -------
Total Liabilities and Stockholders'
Equity $15,001 $14,098
======= =======
The accompanying accounting policies and notes to the
financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED CASH FLOWS
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Cash from Net Income $ 530 $ 728 $ 64
Operations Non-cash charges to income:
Depreciation, depletion
and amortization 949 909 748
Deferred income taxes 320 217 (58)
Cumulative effect of changes
in accounting principles
(Note 2) 175 -- --
Special charge (Note 3) -- -- 870
Other non-cash charges (141) (105) (290)
Changes in current assets and
liabilities (128) 104 116
Cash used for special charges (142) (193) (58)
------- ------- -------
Cash from operations 1,563 1,660 1,392
------- ------- -------
Investing Capital investments and
Activities exploratory expenditures (1,574) (1,567) (1,231)
Investments and acquisitions
(Note 5) (75) (71) --
Proceeds from sale of
assets and other
investing activities 96 291 94
------- ------- -------
Cash used for investing
activities (1,553) (1,347) (1,137)
------- ------- -------
Equity and Dividends paid (309) (282) (257)
Financing Debt repaid (Note 8) (753) (677) (373)
Activities Purchase of treasury stock
(Note 11) (10) (5) --
Financings 930 752 350
------- ------- -------
Cash used in equity and
financing activities (142) (212) (280)
------- ------- -------
Net Change in Cash and
Temporary Investments $ (132) $ 101 $ (25)
======= ======= =======
Changes in Accounts receivable $ (76) $ (59) $ 29
Current Assets Inventories (8) (22) 21
and Liabilities Other current assets (49) (31) 12
Accounts, wages and vacation
payable (35) 143 64
Other current liabilities 40 73 (10)
------- ------- -------
Total $ (128) $ 104 $ 116
======= ======= =======
The accompanying accounting policies and notes to the
financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS'
EQUITY
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Common Stock Common Stock, $2.50
par value (authorized
500,000,000 shares)
Balance at beginning of year
(229,774,547 issued shares
in 1993; 228,410,296 in
1992; 126,182,132 in 1991) $ 574 $ 571 $ 315
Conversions, exercises of
stock options and other
(1,013,628 shares in
1993; 1,364,251 in 1992;
1,032,780 in 1991) 3 3 3
Stock split (101,195,384 shares
in 1991) (Note 11) -- -- 253
------- ------- -------
Balance at end of year
(230,788,175 issued shares
in 1993; 229,774,547 in 1992;
228,410,296 in 1991) 577 574 571
------- ------- -------
Paid-in Balance at beginning of year 1,339 1,288 1,235
Surplus Conversions, exercises of
stock options and other 44 51 53
------- ------- -------
Balance at end of year 1,383 1,339 1,288
------- ------- -------
Retained Balance at beginning of year 4,338 3,899 4,353
Earnings Net Income 530 728 64
------- ------- -------
Total 4,868 4,627 4,417
Dividends declared:
Cash dividends (315) (289) (265)
Stock split (Note 11) -- -- (253)
Exchangeable note conversion
(Note 8) (24) -- --
------- ------- -------
Balance at end of year
(Note 8) 4,529 4,338 3,899
------- ------- -------
Treasury Balance at end of year,
Stock at cost (25,626,946 shares
in 1993; 25,879,742 in 1992;
25,566,455 in 1991) (1,604) (1,612) (1,595)
------- ------- -------
Total Common Stockholders'
Equity (Note 11) $ 4,885 $ 4,639 $ 4,163
======= ======= =======
The accompanying accounting policies and notes to the
financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Union Pacific
Corporation (the Corporation) and all subsidiaries. Investments in affiliated
companies (20% to 50% owned) are accounted for on the equity method. In
addition, the Corporation consolidates its proportionate share of oil, gas
and mineral ventures. All material intercompany transactions are eliminated.
Cash and Temporary Investments
Temporary investments are stated at cost that approximates fair market value,
and consist of investments with original maturities of three months or less.
Accounts Receivable
Union Pacific Railroad Company has sold, on a revolving basis, an undivided
percentage ownership interest in a designated pool of accounts receivable.
Collection risk on the pool of receivables is minimal. At December 31, 1993
and 1992, accounts receivable are presented net of the $300 million of
receivables sold.
Inventories
Inventories consist primarily of materials and supplies carried at the lower
of cost or market.
Exploration and Production
Oil and gas exploration costs are accounted for using the successful efforts
method.
Drilling costs of unsuccessful exploratory wells, geological and geophysical
costs and carrying costs are charged to expense when incurred. Costs to
develop producing properties, including drilling costs and applicable
leasehold acquisition costs, are capitalized.
Depletion and amortization of producing properties, including depreciation of
well and support equipment and amortization of related lease costs, are
determined by using a unit-of-production method based upon proved reserves.
Acquisition costs of unproved properties are amortized from the date of
acquisition on a composite basis, which considers past success experience and
average lease life.
Property and Depreciation
Properties are carried at cost. Provisions for depreciation are computed
principally on the straight-line method based on estimated service lives of
depreciable property.
The cost (net of salvage) of depreciable rail property retired or replaced in
the ordinary course of business is charged to accumulated depreciation. A
gain or loss is recognized on all other property upon disposition.
The Corporation capitalizes interest and certain labor costs on significant
construction projects during construction.
Intangible Assets
Intangible and Other Assets in 1993 and 1992 include $1.32 billion and $1.29
billion, respectively, of costs in excess of net assets of acquired
businesses. Amortization is generally recorded over forty years on a
straight-line basis. The Corporation regularly assesses the recoverability of
costs in excess of net assets of acquired businesses through a review of cash
flows and fair values of those businesses.
Revenue Recognition
Transportation revenues are recognized on a percentage-of-completion basis,
while delivery costs are recognized as incurred (see Note 2).
Earnings Per Share
Earnings per share are based on the weighted average number of common shares
outstanding during the periods, plus shares issuable upon exercise of
outstanding stock options (see Note 11).
Change in Presentation
Certain 1991 and 1992 amounts have been reclassified to conform to the 1993
financial presentation.
1. Business
The Corporation consists of companies operating principally in the United
States engaged in rail transportation; oil, gas and minerals production;
trucking; and waste management.
The following financial information is an integral part of these financial
statements:
Business Segments
Supplementary Information (unaudited)
Selected Quarterly Data;
Oil and Gas -- Proved Reserves;
Capitalized Exploration and Production Costs;
Costs Incurred in Exploration and Development;
Results of Operations for Producing Activities; and
Standardized Measure of Cash Flows
<PAGE> 36
2. Accounting Changes
The Corporation adopted the following accounting changes with a cumulative
adjustment--which resulted in a $175 million or $0.85 per share after-tax
charge to earnings--in January 1993:
<TABLE>
<CAPTION>
In Millions, Except
Per Share Amounts
Income Revenue
OPEB Taxes Recogn. Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Railroad $ (171) $ 121 $ (22) $ (72)
Natural resources (44) (15) -- (59)
Trucking (47) (25) (7) (79)
Waste management -- -- -- --
Corporate services
and other operations (9) 44 -- 35
------ ------ ------ ------
Consolidated $ (271) $ 125 $ (29) $ (175)
====== ====== ====== ======
Per share $(1.32) $ 0.61 $(0.14) $(0.85)
</TABLE>
Other Postretirement Benefits (OPEB): The Financial Accounting Standards
Board (FASB) issued Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires that the cost of
non-pension benefits for retirees be accrued during their period of
employment. The adoption of this Statement will not affect future cash
funding requirements for these benefits (see Note 10).
Income Taxes: The FASB issued Statement No. 109, "Accounting for Income
Taxes," which requires the balance sheet approach of accounting for income
taxes, whereby assets and liabilities are recorded at the tax rates currently
enacted. The Corporation's results were not significantly affected by the
adoption of this Statement; however, future results may be affected by changes
in the corporate income tax rate. 1993's income tax expense (before accounting
changes) rose $73 million as a result of the Omnibus Budget Reconciliation Act
of 1993 (the 1993 Tax Act) (see Note 7).
Revenue Recognition: The Corporation changed its method of transportation
revenue and expense recognition from accruing both revenues and expenses at the
inception of service to the industry practice of allocating revenues between
reporting periods based on relative transit time, while recognizing expenses as
incurred. The Corporation's results were not significantly affected by this
accounting change.
3. 1991 Special Charge
In 1991, the Corporation announced a major restructuring program, including an
$870 million ($575 million after-tax) charge. The program included a
provision of $480 million for severance and other costs associated with
personnel reductions at Union Pacific Railroad Company and its affiliate,
Missouri Pacific Railroad Company (collectively the Railroad), as well as $265
million for costs related to the disposition of light density rail lines. In
addition, the Corporation provided $125 million for operational realignments
at its other operating companies. The Corporation spent $142 million and $193
million in 1993 and 1992, respectively, for the restructuring program.
4. Hedging and Derivatives Activity
The Corporation utilizes futures contracts, option contracts and swap
agreements to manage price volatility related to sales and purchases of
hydrocarbons. See additional discussion on page 28 in Other Matters-Hedging
and Derivatives Activity.
5. Investments and Acquisitions
In May 1993, the Corporation acquired all of the outstanding common stock of
Skyway Freight Systems, Inc. (Skyway) for $65 million and the conversion of
its initial $7 million preferred stock investment. Skyway specializes in
providing customized logistics and transportation support for the time-
definite and specialized freight markets.
In 1992, the Corporation exchanged its preferred stock investment in Chicago
and North Western Holdings Corporation (CNW) for non-voting common stock (the
Stock). Through additional Stock purchases, the Corporation holds a 30%
equity interest in CNW. The Stock is exchangeable into voting common stock
pending Interstate Commerce Commission approval. The CNW investment is
accounted for on the equity method.
<PAGE> 37
6. Properties
<TABLE>
<CAPTION>
Major property accounts are as follows:
Millions of Dollars 1993 1992
------- -------
<S> <C> <C>
Railroad:
Road and other $ 7,935 $ 7,282
Equipment 4,575 4,328
------- -------
Total Railroad 12,510 11,610
Natural resources 4,144 3,785
Trucking 621 555
Waste management 464 350
Other 121 85
------- -------
Total $17,860 $16,385
======= =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated depreciation, depletion and amortization are as follows:
Millions of Dollars 1993 1992
------ ------
<S> <C> <C>
Railroad:
Road and other $1,990 $1,693
Equipment 1,769 1,730
------ ------
Total Railroad 3,759 3,423
Natural resources 2,364 2,124
Trucking 165 138
Waste management 101 82
Other 30 18
------ ------
Total $6,419 $5,785
====== ======
</TABLE>
7. Income Taxes
In August 1993, President Clinton signed the 1993 Tax Act into law raising the
Federal corporate income tax rate to 35% from 34% retroactive to January 1.
As a result, 1993 income tax expense increased by $73 million: $61 million for
the one-time non-cash recognition of deferred income taxes related to prior
periods and $12 million of incremental current year Federal income tax
expense.
<TABLE>
<CAPTION>
Components of income tax expense are as follows:
Millions of Dollars 1993
----
<S> <C>
Current:
Federal $118
State 12
----
Total current 130
----
Deferred:
Federal 304
State 16
----
Total deferred 320
----
Total $450
====
</TABLE>
Prior years' components of tax expense, which have not been restated to
reflect the accounting change (see Note 2), were $156 million in 1992 and $106
million in 1991 for current Federal income tax expense and $217 million in
1992 and $(58) million in 1991 for deferred Federal income tax expense.
<TABLE>
<CAPTION>
Deferred tax liabilities (assets) are comprised of the following:
Millions of Dollars 1993
-------
<S> <C>
Net current deferred tax asset - Restructuring
and other reserves $ (117)
------
Excess tax over book depreciation 2,459
Exploration costs 286
State taxes - Net 221
Alternative minimum tax (178)
Postretirement benefits (152)
Special charge (101)
Other 141
------
Net long-term deferred tax liability 2,676
------
Net deferred tax liability $2,559
======
</TABLE>
<TABLE>
<CAPTION>
A reconciliation between statutory and effective tax rates is as follows:
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate 35.0% 34.0% 34.0%
Cumulative effect of Federal
rate increase 5.3 -- --
State taxes - Net 1.6 -- --
Goodwill amortization 1.1 3.1 29.5
Section 29 credits (1.2) (1.8) --
Dividend exclusion (1.6) (0.9) (16.1)
Other (1.2) (0.5) (4.5)
----- ----- -----
Effective tax rate 39.0% 33.9% 42.9%
===== ===== =====
</TABLE>
All material IRS deficiencies prior to 1978 have been settled. In addition,
the Corporation has filed refund claims for 1946 through 1967. The
Corporation is contesting deficiencies in the Tax Court for 1978 and 1979.
The Corporation has reached a partial settlement with the Appeals Office of
the IRS for 1980 through 1983; the remaining issues will be resolved as part
of the Tax Court case for 1978 and 1979, as well as the refund claim filed for
1983. The Corporation is negotiating with the Appeals Office concerning 1984
through 1986. The IRS is examining the Corporation's returns for 1987 through
1989. The Corporation believes it has adequately provided for Federal and
state income taxes.
Payments of income taxes were $142 million in 1993, $168 million in 1992 and
$158 million in 1991.
<PAGE 38>
8. Debt
<TABLE>
<CAPTION>
Long-term debt is summarized below:
Millions of Dollars 1993 1992
------ ------
<S> <C> <C>
Notes and Debentures, 4.75% to 10.80%
due through 2054 $2,189 $2,554
Equipment obligations, 6.15% to 15.50%
due through 2012 664 678
Commercial paper, average of 3.35%
in 1993 and 3.62% in 1992 868 353
Mortgage bonds, 4.25% to 5.00%, due
through 2030 178 179
Tax-exempt financings, 2.41% to 9.60%
due through 2026 206 173
Capitalized leases 144 158
Unamortized discount (180) (106)
------ ------
Total long-term debt $4,069 $3,989
====== ======
</TABLE>
Maturities of long-term debt for each year, 1994 through 1998, are $115
million, $271 million, $65 million, $156 million and $1.147 billion,
respectively.
Approximately 55% of all rail equipment and other railroad properties secure
outstanding equipment obligations and mortgage bonds.
Certain tax-exempt financings had variable interest rates from 2.41% to 3.10%
at December 31, 1993, and from 2.65% to 3.50% at December 31, 1992.
Commercial paper borrowings are due within one year, but have been classified
as long-term debt because the Corporation intends to refinance these
obligations by the issuance of additional commercial paper or other long-term
debt. Long-term credit facilities are available to replace outstanding
commercial paper. It is the Corporation's intent to refinance commercial paper
at maturity on a long-term basis with currently available credit facilities if
alternative financing is not available at that time.
The Corporation has $1.275 billion of credit facilities for general corporate
purposes with various banks. These facilities consist of revolving credit
facilities of $800 million that expire in 1998 and $400 million that expire in
March 1994, and $75 million of other short-term facilities. Borrowings on the
$400 million credit facility are payable up to one year from the date the
funds are borrowed. Commitment fees and interest rates payable under these
facilities are comparable to fees and rates available to the most creditworthy
corporate borrowers.
In February 1993, the remaining $25 million of the 7.50% Exchangeable
Guaranteed Notes due 2003, which were issued in conjunction with the
acquisition of the Missouri-Kansas-Texas Railroad, were exchanged for
approximately 774,000 shares of the Corporation's common stock. These common
shares were held in treasury prior to the exchange.
The Corporation is subject to certain restrictions related to the payment of
cash dividends. The amount of retained earnings available for dividends under
the most restrictive test was $2.6 billion at December 31, 1993.
Interest expense is net of capitalized interest of $11 million in 1993, $9
million in 1992 and $6 million in 1991. Interest payments approximate gross
interest expense.
The fair value of the Corporation's long and short-term debt has been
estimated using quoted market prices or current borrowing rates. At December
31, 1993, the fair value of total debt exceeded the carrying value by 5%.
9. Leases
The Corporation leases certain locomotives, freight cars, trailers, production
platforms and other property. Future minimum lease payments for capital and
operating leases with initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1993, are as follows:
<TABLE>
<CAPTION>
Operating Capital
Millions of Dollars Leases Leases
--------- -------
<C> <C> <C>
1994 $114 $ 27
1995 54 26
1996 47 25
1997 38 24
1998 35 21
Later years 95 200
---- ----
Total minimum payments $383 323
====
Amount representing interest (167)
----
Present value of minimum lease
payments $156
====
</TABLE>
The present value of future capital lease payments includes $12 million
classified as a current liability and $144 million classified as long-term
debt.
Rent expense for operating leases with terms exceeding one month was $123
million in 1993, $112 million in 1992 and $111 million in 1991. Contingent
rentals and sub-rentals are not significant.
10. Retirement Plans
The Corporation and certain of its subsidiaries provide pension and
postretirement health care and life insurance benefits to substantially all
salaried and certain hourly employees.
Pension Benefits: Pension plan benefits are based on years of service and
compensation during the last years of employment. Contributions to the plans
are calculated based on the Projected Unit Credit actuarial funding method and
are not less than the minimum funding standards set forth in the Employee
Retirement Income Security Act of 1974, as amended. In addition, Railroad
employees are covered by the Railroad Retirement System. Contributions made to
the System are expensed as incurred and amounted to $195 million, $201 million
and $197 million in 1993, 1992 and 1991, respectively. Since 1989, the
Corporation has settled a portion of the non-qualified unfunded supplemental
plans' accumulated benefit obligation by purchasing annuities.
<PAGE 39>
<TABLE>
<CAPTION>
Pension cost includes the following components:
Millions of Dollars 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 32 $ 32 $ 28
Interest on projected
benefit obligation 88 84 77
Return on assets
- actual gain (140) (57) (203)
- deferred gain (loss) 60 (19) 132
Net amortization costs 8 10 8
---- ---- ----
Charge to operations $ 48 $ 50 $ 42
==== ==== ====
</TABLE>
The projected benefit obligation was determined using a discount rate of 7.0%
in 1993 and 8.0% in 1992. The estimated rate of salary increase approximated
5.0% in 1993 and 6.25% in 1992. The expected long-term rate of return on plan
assets was 8.0% in both years. The change in assumptions will not
significantly affect 1994 pension cost. As of year-end 1993 and 1992,
approximately 34% and 31%, respectively, of the funded plans' assets were held
in fixed-income and short-term securities, with the remainder primarily in
equity securities.
<TABLE>
<CAPTION>
The funded status of the plans is as follows:
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Millions of Dollars Benefits Assets (a)
-------------- ------------
1993 1992 1993 1992
------ ------ ---- ----
<S> <C> <C> <C> <C>
Plan assets at fair value $1,182 $1,086 $ -- $ --
------ ------ ---- ----
Actuarial present value
of benefit obligations:
Vested benefits 923 783 39 27
Non-vested benefits 54 39 1 --
------ ------ ---- ----
Accumulated benefit
obligation 977 822 40 27
Additional benefits
based on estimated
future salaries 205 239 26 12
------ ------ ---- ----
Projected benefit obligation 1,182 1,061 66 39
------ ------ ---- ----
Plan assets (over) under
projected benefit
obligation -- (25) 66 39
Unamortized net transition
asset (obligation) 39 43 (33) (40)
Unrecognized prior service
cost (46) (64) (39) (25)
Unrecognized net gain (loss) 167 194 (30) (13)
Minimum liability -- -- 76 66
------ ------ ---- ----
Pension liability $ 160 $ 148 $ 40 $ 27
====== ====== ==== ====
(a) Represents the Corporation's non-qualified unfunded supplemental plans.
</TABLE>
Other Postretirement Benefits: The Corporation adopted the provisions of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (see Note 2) in January 1993. The Corporation does not currently
pre-fund health care and life insurance benefit costs. Cash payments for
these benefits (which were not affected by the adoption of SFAS No. 106) were
$16 million in 1993. Railroad agreement employees' health care and life
insurance benefits are covered by a separate multiemployer plan and therefore
are not subject to the provisions of this Statement.
In late 1993, the Corporation amended its postretirement health care plans to
provide greater employee cost sharing and, for the plan covering Overnite's
employees, implemented stricter eligibility requirements. As a result of these
amendments, future plan expense will be reduced.
<TABLE>
<CAPTION>
Components of the postretirement health care and life insurance benefit
expense are as follows:
Millions of Dollars 1993
----
<S> <C>
Service cost-benefits
earned during the period $ 7
Interest costs on accumulated
benefit obligation 21
---
Charge to operations $28
===
</TABLE>
<TABLE>
<CAPTION>
The liability for postretirement benefit plans is as follows:
Millions of Dollars 1993
----
<S> <C>
Accumulated postretirement benefit
obligation (APBO):
Retirees $201
Fully eligible active employees 21
Other active employees 99
----
Total APBO 321
Unrecognized prior service gain 76
Unrecognized net gain 40
----
Postretirement benefits liability $437
====
</TABLE>
The APBO was determined using a discount rate of 7.0%. The initial assumed
health care cost trend rate was 13.0%, gradually decreasing to 4.8% for 2009
and all future years. If the assumed health care cost trend rate increases by
one percentage point in each subsequent year, annual postretirement benefit
expense would increase by $4 million and the aggregate postretirement benefits
liability would rise by $35 million.
<PAGE 40>
11. Stock Option Plans, Retention Stock Plans and Other Capital Stock
Pursuant to the Corporation's stock option, retention and restricted stock
plans for directors, officers and key employees, 14,469,250, 4,095,900 and
5,530,500 common shares or options for common shares were available for grant
at December 31, 1993, 1992 and 1991, respectively.
Options under the plans are granted at 100% of market value at the date of
grant, become exercisable one year after that date and are exercisable for a
period of ten years from the grant date. The plans also provide for granting
of stock appreciation rights (SAR's) that permit certain holders to surrender
related exercisable options in exchange for cash or stock in an amount equal
to the excess of the market price of the Corporation's common stock on the
date the right is exercised over the option price. As a result of changes in
the market value of the stock, $4 million, $6 million and $18 million were
charged to expense in 1993, 1992 and 1991, respectively. During 1993, 1992
and 1991, options with SAR's were granted for 437,400, 441,500 and 282,500
shares, respectively. At December 31, 1993, 1992 and 1991, there were
1,298,200, 937,400 and 969,500 shares subject to outstanding SAR's,
respectively.
<TABLE>
<CAPTION>
Changes in common stock options and SAR's outstanding are as follows:
Shares Price Range
Under Option Per Share
------------ ----------------
<S> <C> <C>
Balance Dec. 31, 1990 5,784,000 $19.04 to $40.41
Granted 1,049,400 46.66 to 49.13
Exercised (2,361,480) 20.04 to 40.41
Expired/Surrendered (65,200) 34.07 to 40.41
---------- ----------------
Balance Dec. 31, 1991 4,406,720 19.04 to 49.13
Granted 1,322,250 54.13
Exercised (1,511,920) 19.04 to 46.66
Expired/Surrendered (61,100) 46.66 to 54.13
---------- ----------------
Balance Dec. 31, 1992 4,155,950 20.04 to 54.13
Granted 1,352,850 63.75
Exercised (792,890) 20.04 to 54.13
Expired/Surrendered (19,450) 28.32 to 54.13
---------- ----------------
Balance Dec. 31, 1993 4,696,460 20.04 to 63.75
========== ================
Exercisable Dec. 31
1991 3,357,320 $19.04 to $40.41
1992 2,833,700 20.04 to 49.13
1993 3,343,610 20.04 to 54.13
</TABLE>
The plans also provide for granting restricted shares of common stock to
eligible employees, subject to forfeiture if employment terminates during the
prescribed restricted period. During 1993, 1992 and 1991, 208,700, 131,450
and 385,900 retention and restricted shares, respectively, were issued.
The Corporation has announced programs to repurchase up to $1.2 billion of its
common shares. Since 1984, 15 million shares have been repurchased at a cost
of $841 million. In 1991, the Corporation split its outstanding common stock
on a two-for-one basis. Accordingly, all appropriate share and per share
information has been restated.
12. Commitments and Contingencies
There are various lawsuits pending against the Corporation and certain of its
subsidiaries. In addition, the Corporation generates, transports, remediates
and disposes of hazardous and non-hazardous waste related to its current and
former operations, and is subject to Federal, state and local environmental laws
and regulations. The Corporation has identified approximately 100 sites,
including 57 sites currently on the Superfund National Priorities List or state
superfund lists, at which it is or may be liable for remediation costs
associated with alleged contamination or for violations of environmental
requirements. Certain Federal legislation imposes joint and several liability
for the remediation of identified sites; consequently, the Corporation's
ultimate environmental liability may include costs relating to other parties in
addition to costs relating to its own activities at each site.
A liability of $181 million has been accrued for future costs for all sites
where the Corporation's obligation is probable and where such costs can be
reasonably estimated; however, the ultimate cost could be lower or as much as
50% higher. The liability includes future costs for remediation and restoration
of sites as well as for ongoing monitoring costs, but excludes any anticipated
insurance recoveries. Cost estimates are based on information available for
each site, financial viability of other potentially responsible parties
("PRP's"), and existing technology, laws and regulations. The Corporation
believes that it has adequately accrued for its ultimate share of costs at sites
subject to joint and several liability. The ultimate liability for remediation
is difficult to determine with certainty because of the number of PRP's
involved, site-specific cost sharing arrangements with other PRP's, the degree
of contamination by various wastes, the scarcity and quality of volumetric data
related to many of the sites and/or the speculative nature of remediation costs.
Remediation of identified sites required spending of $42 million in 1993 and $39
million in 1992. The Corporation is also engaged in reducing emissions, spills
and migration of hazardous materials, and spent $16 million and $12 million in
1993 and 1992, respectively, for control and prevention, a portion of which had
been capitalized. In 1994, the Corporation anticipates spending $42 million for
remediation and $7 million for control and prevention. The majority of the
December 31, 1993 environmental liability is expected to be paid out over the
next 5 years, funded by cash generated from operations. Future environmental
obligations should not have a material impact on the results of operations or
financial condition of the Corporation.
The Corporation has also entered into commitments and provided guarantees for
specific financial and contractual obligations of its subsidiaries and
affiliates. The Corporation does not expect that the lawsuits, environmental
costs, commitments or guarantees will have a material adverse effect on its
consolidated financial position or its results of operations.
13. Other Income - Net
<TABLE>
<CAPTION>
Other Income - Net includes the following:
Millions of Dollars 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Rental income $ 33 $ 38 $ 45
Net gain on
property dispositions 18 36 51
Interest on tax settlements -- 55 15
Interest and other - Net 38 17 11
---- ---- ----
Total $ 89 $146 $122
==== ==== ====
</TABLE>
<PAGE 41>
SUPPLEMENTARY INFORMATION (unaudited)
<TABLE>
<CAPTION>
Selected Quarterly Data
Selected unaudited quarterly data are as follows:
Millions of Dollars
Except Per Share
Amounts Mar.31 Jun.30 Sep.30 Dec.31
------ ------ ------ ------
1993
<S> <C> <C> <C> <C>
Operating revenues $1,830 $1,848 $1,901 $1,982
Operating income 343 385 345 416
Net income (loss) (11)(a) 198 108(b) 235
Per share:
Net income (loss) (0.06)(a) 0.96 0.53(b) 1.14
Dividends 0.37 0.37 0.40 0.40
Common stock price:
High 62.38 65.38 67.00 64.88
Low 56.88 58.75 58.38 57.88
1992
Operating revenues $1,745 $1,782 $1,851 $1,916
Operating income 307 376 372 350
Net income 145 206(c) 185 192
Per share:
Net income 0.71 1.01(c) 0.91 0.94
Dividends 0.34 0.34 0.37 0.37
Common stock price:
High 51.00 55.25 55.50 60.50
Low 44.38 45.75 48.00 50.63
(a) Income before the cumulative effect of accounting changes was $164
million or $0.80 per share.
(b) Included a $61 million ($0.30 per share) increase in income tax expense
resulting from the deferred tax effect of the 1993 Tax Act (see Note 7 to the
Financial Statements).
(c) Included a $63 million ($42 million after-tax) production-based tax
settlement, which increased earnings per share by $0.21.
</TABLE>
Stockholders and Dividends
The common stock of the Corporation is traded on various stock exchanges,
principally the New York Stock Exchange. At January 31, 1994, there were
205,077,299 shares of outstanding common stock and approximately 63,600
common stockholders. At that date, the closing price of the common stock
on the New York Stock Exchange was $65.38.
Cash dividends declared on common stock by the Corporation were $1.54 per
share in 1993 and $1.42 per share in 1992. Union Pacific has paid dividends
to its common stockholders during each of the past 94 years. See Note 8 to
the Financial Statements for a discussion regarding restrictions relating to
the payment of cash dividends.
Rail Transportation
<TABLE>
<CAPTION>
Commodities
Revenue ton-miles (RTM) and freight revenue for major commodities by percent
and in total are as follows:
1993 1992 1991
Percent of Frght. Frght. Frght.
Total RTM Rev. RTM Rev. RTM Rev.
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Automotive 4.0% 11.3% 3.7% 10.7% 3.2% 10.0%
Chemicals 14.0 20.9 14.8 21.6 14.4 21.6
Energy 34.3 18.3 31.2 17.6 33.8 18.9
Food, consumer
and government 5.8 6.6 6.3 7.1 6.2 7.4
Grains and grain
products 16.1 12.9 17.3 13.5 16.1 12.9
Intermodal 12.0 14.3 12.1 13.2 11.6 13.1
Metals, minerals
and forest 13.8 15.7 14.6 16.3 14.7 16.1
----- ---- ----- ---- ----- ----
Total 100% 100% 100% 100% 100% 100%
===== ==== ===== ==== ===== ====
Amounts in
Billions 220.7 $4.8 209.1 $4.7 200.9 $4.6
===== ==== ===== ==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
Equipment
Owned or leased at year-end 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Locomotives 3,142 3,074 3,065
Freight cars
Covered hoppers 23,399 22,656 23,049
Box cars 15,826 16,573 18,279
Open-top hoppers 10,885 11,064 11,221
Gondolas 9,969 10,438 10,686
Other 8,013 8,408 8,868
Work equipment 4,704 4,922 5,048
Acquired during the year
Locomotives 74 74 68
Freight cars 1,394 646 783
Average age of equipment (years)
Locomotives 12.2 11.8 11.3
Freight cars 19.8 19.3 18.3
Bad order ratio-freight cars 7.9% 8.2% 11.2%
</TABLE>
(Graph of Union Pacific Railroad Revenue Ton-Miles Per Employee - see
Appendix)
<PAGE 42>
<TABLE>
<CAPTION>
Expenditures
Millions of Dollars 1993 1992 1991
---- ---- ----
Capital Expenditures
<S> <C> <C> <C>
Roadway and other $591 $504 $440
Equipment 214 263 181
---- ---- ----
Total $805 $767 $621
==== ==== ====
Maintenance Expenditures
Roadway $247 $273 $295
Equipment 490 485 463
---- ---- ----
Total $737 $758 $758
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Transportation Statistics
Railroad (track miles) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Main line 13,972 14,032 14,563
Branch line 3,863 4,988 5,698
Yards, siding and other
main line 12,480 12,717 12,401
------ ------ ------
Total 30,315 31,737 32,662
====== ====== ======
Track miles of continuous
welded rail (at year-end) 13,735 13,528 13,291
Track miles under centralized
traffic-control (at year-end) 8,861 8,847 8,790
Track miles of rail replaced
New 280 373 223
Used 254 267 292
Track miles re-ballasted 2,510 3,296 3,687
Ties replaced (thousands) 2,017 1,946 1,785
Freight Operations
Operating ratio 79.1 79.0 80.4
Carloadings (thousands) 4,619 4,458 4,304
Average revenue per
carloading $1,032 $1,055 $1,064
Average price of diesel
fuel (cents per gallon) 62.8 63.9 66.5
</TABLE>
Trucking
<TABLE>
<CAPTION>
Freight Operations
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Shipments (thousands)
Less-than-truckload 8,146 7,603 7,034
Truckload 60 67 72
----- ----- -----
Total 8,206 7,670 7,106
===== ===== =====
Tonnage (thousands)
Less-than-truckload 4,277 3,994 3,652
Truckload 733 837 914
----- ----- -----
Total 5,010 4,831 4,566
===== ===== =====
Revenue per hundredweight $9.28 $9.03 $8.76
Operating ratio 90.2 90.9 91.9
</TABLE>
<TABLE>
<CAPTION>
Equipment and Terminals
Owned or leased at year-end 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Tractors 5,254 5,311 5,205
Trailers 17,105 16,123 14,318
Straight trucks 93 101 121
Automobiles and service units 237 385 525
Service centers 166 160 149
Average age of equipment (years)
Tractors 6.8 7.2 7.8
Trailers 8.0 8.7 8.5
</TABLE>
<TABLE>
<CAPTION>
Capital Expenditures
Millions of Dollars 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenue equipment $ 40 $ 48 $ 26
Other 40 24 14
---- ---- ----
Total $ 80 $ 72 $ 40
==== ==== ====
</TABLE>
Natural Resources
<TABLE>
<CAPTION>
Oil and Gas -- Proved Reserves
Proved reserves of crude oil, which include condensate and natural gas
liquids, are as follows:
Millions of Barrels 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Beginning of year 156.6 161.4 153.0
Revisions of previous estimates 5.5 7.1 3.7
Improved recovery 1.3 -- 6.3
Extensions, discoveries and
other additions 20.8 27.2 22.4
Purchases (sales) of
reserves-in-place 4.6 (7.3) 3.9
Production (31.9) (31.8) (27.9)
----- ----- -----
End of year 156.9 156.6 161.4
===== ===== =====
Proved developed reserves 153.8 148.5 135.4
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
The table above includes the following amounts with respect to natural gas
liquids:
Millions of Barrels 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Production (7.7) (7.5) (7.6)
Reserves, end of year 74.3 67.8 64.5
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
Proved natural gas reserves are as follows:
Billions of Cubic Feet 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Beginning of year 1,709.2 1,655.5 1,694.4
Revisions of previous
estimates (35.6) 37.2 15.5
Extensions, discoveries
and other additions 237.0 427.1 147.8
Purchases (sales) of
reserves-in-place 46.6 (199.6) (6.9)
Production (226.0) (211.0) (195.3)
------- ------- -------
End of year 1,731.2 1,709.2 1,655.5
======= ======= =======
Proved developed reserves 1,643.5 1,610.8 1,512.9
------- ------- -------
Over 90% of proved reserves are in the United States. At December 31, 1990,
proved developed reserves of oil and gas were 130.0 million barrels and
1,595.0 billion cubic feet, respectively.
</TABLE>
<TABLE>
<CAPTION>
Drilling and Production Activities
Drilling 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Gross wells 529 483 382
Gross productive wells 491 435 308
Net wells:
Exploration 20 33 44
Development 303 291 201
Net productive wells:
Exploration 10 13 18
Development 295 285 185
At December 31, 1993, 146 gross wells and 72 net wells were in process of
being drilled.
</TABLE>
<TABLE>
<CAPTION>
Sales Price and Cost (a) 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Crude oil sales price $15.66 $17.22 $18.33
Natural gas liquids sales
price 9.84 10.67 11.86
Gas sales price 1.82 1.52 1.39
Lifting cost (b) 4.12 4.12 4.33
(a) Average per bbl or mcf, except lifting cost which is per barrel oil
equivalent converted at 6:1.
(b) Lifting cost per unit includes 6.9 million, 5.8 million and 6.2 million
barrels of natural gas liquids earned through plant ownership in 1993,
1992 and 1991, respectively.
</TABLE>
<TABLE>
<CAPTION>
Production (per day) 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net crude oil (thousand bbl) 66.5 66.5 54.9
Net natural gas liquids
(thousand bbl) 21.0 20.6 21.4
Net natural gas (mmcf) 619.0 576.0 535.0
Natural gas processed (mmcf) 949.4 935.1 915.0
</TABLE>
<TABLE>
<CAPTION>
Acreage and Wells
Oil and gas acreage is as follows:
Thousands of Acres 1993 1992
------ ------
<S> <C> <C>
Gross developed 1,569 1,581
Net developed 833 821
Gross undeveloped 17,588 27,529
Net undeveloped 15,733 24,574
Gross and net undeveloped acreage at December 31, 1993, includes 13.6 million
acres and 12.8 million acres, respectively, which were acquired under foreign
work programs, substantially all in South America. The table excludes 7.1
million gross acres and 6.4 million net acres, which were acquired through
19th century Congressional Land Grant Acts. Substantial portions of this
acreage are considered prospective for oil and gas.
</TABLE>
<TABLE>
<CAPTION>
Productive oil and gas wells at December 31, 1993, are as follows:
Wells Oil Gas
----- -----
<S> <C> <C>
Gross (a) 4,306 2,582
Net 1,402 1,509
(a) Approximately 833 are multiple completions, 442 of which are gas wells.
</TABLE>
<TABLE>
<CAPTION>
Capitalized Exploration and Production Costs
Millions of Dollars 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Proved properties $ 386 $ 402 $ 355
Unproved properties 151 134 204
Wells, related equipment and
facilities 3,110 2,791 2,606
Uncompleted wells, equipment
and facilities 197 200 148
------ ------ ------
Gross capitalized costs 3,844 3,527 3,313
------ ------ ------
Accumulated depreciation,
depletion, amortization
and valuation provisions (2,208) (1,983) (1,861)
------ ------ ------
Net capitalized costs $1,636 $1,544 $1,452
====== ====== ======
</TABLE>
(Graph of Union Pacific Resources Production - see Appendix)
<PAGE> 44
<TABLE>
<CAPTION>
Costs Incurred in Exploration and Development
Costs incurred in oil and gas property acquisition, and exploration and
development activities are as follows:
Millions of Dollars 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Costs incurred (a)
Proved acreage $ 27 $ 3 $ 29
Unproved acreage 57 31 42
Exploration costs 88 89 111
Development costs 400 485 309
(a) Costs incurred include capitalized costs.
</TABLE>
<TABLE>
<CAPTION>
Results of Operations for Producing Activities
Millions of Dollars 1993 1992 1991
------ ---- ----
<S> <C> <C> <C>
Revenues - Third parties $1,044 $957 $849
------ ---- ----
Production costs 315 300 288
Exploration expenses 76 89 76
Depreciation, depletion and
amortization 400 409 270
------ ---- ----
Total costs 791 798 634
------ ---- ----
Pre-tax results 253 159 215
Income taxes 83 58 73
------ ---- ----
Results of operations $ 170 $101 $142
====== ==== ====
Pipeline results, overhead expenses and interest costs have been excluded in
computing these results of operations.
</TABLE>
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves
Millions of Dollars 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Future cash inflows from
sale of oil and gas $4,540 $5,256 $4,792
Future production and
development costs (1,631) (1,451) (1,406)
Future income taxes (859) (1,156) (963)
------ ------ ------
Future net cash flows 2,050 2,649 2,423
10% annual discount (761) (1,097) (919)
------ ------ ------
Standardized measure of
discounted future net
cash flows $1,289 $1,552 $1,504
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
An analysis of changes in standardized measure of discounted future net cash
flows follows:
Millions of Dollars 1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Beginning of year $1,552 $1,504 $1,689
Changes due to current
year operations:
Additions and discoveries
less related production
and other costs 441 721 371
Sales of oil and gas, net
of production costs (733) (657) (561)
Development costs 400 485 309
Purchases (sales) of
reserves-in-place 28 (228) 15
Changes due to revisions in:
Price (516) (4) (325)
Development costs (358) (414) (355)
Quantity estimates (5) 103 43
Income taxes 143 (101) 133
Other 123 (56) (46)
Discount accretion 214 199 231
------ ------ ------
End of year $1,289 $1,552 $1,504
====== ====== ======
</TABLE>
Future oil and gas sales, and production and development costs have been
estimated using prices and costs in effect as of each year-end. Future net
revenues were discounted to present value at 10%, a uniform rate set by the
FASB. Income taxes represent the tax effect (at statutory rates) of the
difference between the standardized measure values and tax bases of the
underlying properties at the end of the year.
Changes in the supplies and demand for oil and natural gas, inflation, timing
of production, reserve revisions and other factors make these estimates
inherently imprecise and subject to substantial revision. As a result, these
measures are not the Corporation's estimate of future cash flows nor do these
measures serve as an estimate of current market value.
<PAGE> 45
<TABLE>
<CAPTION>
TEN-YEAR FINANCIAL SUMMARY
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars, Except Per Share Amounts, Ratios and Employee Statistics
1993[a] 1992 1991[b] 1990 1989
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 7,561 7,294 7,029 6,964 6,388
Operating Income (Loss) 1,489 1,405 461 1,324 1,243
Net Income (Loss) 530 728 64 618 595
Per Share:
Net Income (Loss) 2.58 3.57 0.31 3.08 2.81
Dividends $ 1.54 1.42 1.305 1.18 1.12
At Year-End
Total Assets $ 15,001 14,098 13,326 13,078 12,459
Total Debt 4,184 4,099 4,050 4,084 4,036
Common Stockholders'
Equity 4,885 4,639 4,163 4,277 3,911
Per Common Share $ 23.81 22.75 20.52 21.36 19.50
For the Year
Capital Investments [c] $ 1,574 1,567 1,231 1,206 1,174
Cash from Operations 1,563 1,660 1,392 1,467 1,483
Total Salaries, Wages and
Employee Benefits [d] $ 2,863 2,850 2,706 2,694 2,593
Average Number of
Employees 47,126 46,039 47,090 48,323 48,126
Revenues Per Employee $160,400 158,400 149,300 144,100 132,700
Financial Ratios (%)
Debt to Total Capital
Employed 35.6 36.9 39.2 38.5 40.3
Return on Average Common
Stockholders' Equity 11.1 16.5 1.5 15.1 14.2
1988 1987 1986 1985 1984
-------- ------- -------- ------- -------
Operating Revenues $ 6,068 5,351 4,773 5,078 5,289
Operating Income (Loss) 1,200 991 (364) 825 946
Net Income (Loss) 644 583 (460) 501 494
Per Share:
Net Income (Loss) 2.83 2.55 (2.28) 2.09 2.01
Dividends $ 1.05 1.00 0.93 0.90 0.90
At Year-End
Total Assets $ 12,228 10,919 10,863 10,710 10,392
Total Debt 3,356 2,885 3,061 2,192 2,186
Common Stockholders'
Equity 4,482 3,761 3,408 4,356 4,231
Per Common Share $ 19.85 17.90 16.23 19.84 18.76
For the Year
Capital Investments [c] $ 1,240 748 738 1,067 1,017
Cash from Operations 1,391 950 1,333 1,317 1,220
Total Salaries, Wages and
Employee Benefits [d] $ 2,498 2,284 1,978 2,188 2,216
Average Number of
Employees 47,259 46,559 39,476 44,419 46,388
Revenues Per Employee $128,400 114,900 120,900 114,300 114,000
Financial Ratios (%)
Debt to Total Capital
Employed 34.5 32.7 36.1 24.7 25.8
Return on Average Common
Stockholders' Equity 13.4 12.9 -- 10.1 11.6
[a] 1993 results include a net after-tax charge of $175 million for the
adoption of changes in accounting methods and a $61 million charge
for the deferred tax effect of the 1993 Tax Act (See Notes 2 and 7
to the Financial Statements, respectively). Excluding these accounting
adjustments, net income would have been $766 million with a return
on average common stockholders' equity of 15.7%.
[b] Earnings excluding the special charge would have been $639 million with
a return on average common stockholders' equity of 14.2%.
[c] Includes exploratory expenditures and capital expenditures of
unconsolidated affiliated companies.
[d] Includes capitalized salaries, wages and employee benefit costs.
</TABLE>
<PAGE> INSIDE BACK COVER
(Union Pacific Corporation System Map - see Appendix)
<PAGE> APPENDIX
Union Pacific Corporation 1993 Annual Report
Appendix: Description of Graphic Material omitted from electronically
filed excerpts of the 1993 Annual Report
<TABLE>
<CAPTION>
Financial Review - Page 23
Union Pacific Corporation
Millions
1989 1990 1991 1992 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Operating Revenues $6,388 $6,964 $7,029 $7,294 $7,561
Operating Income 1,243 1,324 1,331 1,405 1,489
(a)
(a) Excludes an $870 million special charge.
</TABLE>
<TABLE>
<CAPTION>
Financial Review - Page 25
Union Pacific Corporation
Thousands
1989 1990 1991 1992 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues Per
Employee $132.7 $144.1 $149.3 $158.4 $160.4
</TABLE>
<TABLE>
<CAPTION>
Financial Reveiw - Page 27
Union Pacific Corporation
1989 1990 1991 1992 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Dividends
Per Share $1.12 $1.18 $1.305 $1.42 $1.54
Capital
Investments
Millions 1,174 1,206 1,231 1,567 1,574
</TABLE>
<TABLE>
<CAPTION>
Financial Summary - Page 28
Year-End Closing Stock Price
Union Pacific Corporation
Per share
1989 1990 1991 1992 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Stock Price $38.31 $35.31 $51.75 $58.50 $62.63
</TABLE>
<TABLE>
<CAPTION>
Supplementary Information - Page 41
Union Pacific Railroad
Millions
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue
Ton-Miles
Per Employee 5.72 6.10 6.58 7.21 7.66
</TABLE>
<TABLE>
<CAPTION>
Supplementary Information - Page 43
Production
Union Pacific Resources
Millions of Equivalent Barrels
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MMBOE of Gas (6:1) 26 34 33 35 38
Barrels of Oil 23 23 28 32 32
</TABLE>
Union Pacific Corporation System Map - Inside Back Cover
Map Description
- ----------------
Two-page white map of the Continental United States, Western
Provinces of Canada, and Alaska, on a gray background.
The location of significant assets and operations are indicated
on the map by operating company as follows:
A. Union Pacific Corporation
1. Corporate Headquarters in Bethlehem, Pennsylvania.
B. Union Pacific Railroad
1. Headquarters in Omaha, Nebraska
2. Single, Double and Triple Track located in the states of
Nebraska, Iowa, Illinois, Missouri, Kansas, Oklahoma,
Arkansas, Tennessee, Louisiana, Texas, Colorado,
Wyoming, Utah, Idaho, Nevada, California, Oregon and
Washington.
3. Classification Yards located in the states of Nebraska,
Illinois, Missouri, Arkansas, Louisiana, Texas, Idaho,
California and Oregon.
4. Major Intermodal Trailer/Container Terminals located in
the states of Nebraska, Illinois, Missouri, Arkansas,
Tennessee, Louisiana, Texas, Colorado, Utah, California
and Washington.
C. Union Pacific Resources
1. Headquarters in Fort Worth, Texas.
2. Major Petroleum Producing Areas in Texas, Arkansas,
Oklahoma, Kansas, North Dakota, Colorado, Wyoming,
Utah, California, Alberta, offshore California and the
Gulf of Mexico.
3. Exploration and Development Activities in Ontario,
Alberta, British Columbia, Louisiana, Texas, Colorado,
Wyoming, Utah and the Gulf of Mexico.
4. Gas Processing Plants in California, Texas, Utah,
Wyoming, Colorado, Oklahoma, and Alberta.
5. Cogeneration Plant in California.
6. Coal Operations in Wyoming.
7. Trona Activities in Wyoming.
8. Construction Materials Activities in Missouri and Utah.
9. Pipelines - Overland Trail Pipeline in Wyoming and the
Wahsatch Gathering System in Utah, Idaho and Wyoming.
D. Overnite Transportation
1. Headquarters in Richmond, Virginia.
2. Key Terminals spread throughout the eastern half of the
Continental United States, and in the western states of
Washington, Oregon, California, Nevada, Utah, Arizona
and Colorado.
E. Skyway Freight Systems
1. Headquarters in Watsonville, California.
2. Key Terminals in the states of Washington, California,
Texas, Illinois, Georgia, New Jersey and Massachusetts.
F. USPCI
1. Headquarters in Houston, Texas.
2. Non-hazardous Waste Disposal Activities in Utah, North
Dakota and Minnesota.
3. Hazardous Waste Disposal Activities in Utah and
Oklahoma.
4. Transportation Terminals in California, Utah, Oklahoma,
and Texas.
5. Analysis and Research Labs in Saskatchewan, Georgia, and
Oklahoma.
6. PCB Treatment, Storage and Decontamination Facilities in
Saskatchewan, Utah, Missouri, Georgia, Ohio and
Pennsylvania.
7. Recycling/Transfer Facilities in California, Kansas,
Oklahoma, Texas and Georgia.
8. Pending Hazardous Waste Incinerator in Utah.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 2-79663, Post-Effective Amendment No. 1 to
Registration Statement No. 33-12513, Registration Statement No. 33-18877,
Registration Statement No. 33-22106, Registration Statement No. 33-22607,
Registration Statement No. 33-25500, Registration Statement No. 33-44236,
Registration Statement No. 33-53968, Registration Statement No. 33-49785,
Registration Statement No. 33-49849, Registration Statement No. 33-51071,
Registration Statement No. 33-51735, and Registration Statement 33-52277 on
Forms S-8 and Registration Statement No. 33-52645 on Form S-3 of the reports
of Deloitte & Touche dated January 20, 1994, appearing in and incorporated by
reference in the Annual Report on Form 10-K/A-2 of Union Pacific Corporation for
the year ended December 31, 1993.
/s/DELOITTE & TOUCHE LLP
New York, New York
November 8, 1994
