<PAGE> COVER
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission file number 1-6075
UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 13-2626465
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Martin Tower, Eighth and Eaton Avenues, Bethlehem, Pennsylvania
(Address of principal executive offices)
18018
(Zip Code)
(610) 861-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
As of October 31, 1994, there were 205,087,497 shares of the Registrant's
Common Stock outstanding.
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UNION PACIFIC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
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Page Number
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Item 1: Condensed Consolidated Financial Statements:
CONDENSED STATEMENT OF CONSOLIDATED INCOME - For the
Three Months and Nine Months Ended September 30, 1994
and 1993.............................................. 1
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION -
At September 30, 1994 and December 31, 1993........... 2 - 3
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS - For
the Nine Months Ended September 30, 1994 and 1993..... 4
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS -
For the Nine Months Ended September 30, 1994 and 1993. 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.... 5 - 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8 - 13
PART II. OTHER INFORMATION
---------------------------
Item 1: Legal Proceedings....................................... 14 - 15
Item 6: Exhibits and Reports on Form 8-K........................ 15
Signature.......................................................... 16
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PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Condensed Consolidated Financial Statements
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UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED INCOME
For the Three Months and Nine Months Ended September 30, 1994 and 1993
----------------------------------------------------------------------
(Amounts in Millions, Except Ratio and Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Revenues (Note 6).................. $ 1,958 $ 1,839 $ 5,806 $ 5,413
------- ------- ------- -------
Operating Expenses:
Salaries, wages and employee benefits... 643 636 1,928 1,853
Depreciation, depletion, amortization
and retirements....................... 243 237 733 687
Equipment and other rents............... 158 146 482 424
Fuel and utilities (Note 6)............. 118 117 361 357
Materials and supplies.................. 87 94 286 276
Other costs............................. 281 265 822 737
------ ------ ------ ------
Total................................ 1,530 1,495 4,612 4,334
------ ------ ------ ------
Operating Income............................. 428 344 1,194 1,079
Other Income - Net (Note 4).................. 10 25 203 65
Interest Expense............................. (85) (76) (245) (240)
Corporate Expenses........................... (35) (27) (68) (73)
------ ------ ------ ------
Income before Income Taxes................... 318 266 1,084 831
Income Taxes (Note 7)........................ (108) (158) (361) (352)
------ ------ ------ ------
Income from Continuing Operations............ 210 108 723 479
Income (Loss) from Discontinued
Operations (Note 2)....................... 2 -- (8) (9)
Loss from Disposal - Net of Tax
Benefits of $229 Million.................. (425) -- (425) --
------ ------ ------ ------
Income (Loss) before Cumulative Effect of
Changes in Accounting Principles.......... (213) 108 290 470
Cumulative Effect to January 1, 1993 of
Changes in Accounting Principles (Note 7) -- -- -- (175)
------- ------- ------- -------
Net Income (Loss)............................ $ (213) $ 108 $ 290 $ 295
======= ======= ======= =======
Earnings Per Share:
Income from Continuing Operations......... $ 1.02 $ 0.53 $ 3.52 $ 2.33
Loss from Discontinued Operations......... (2.06) -- (2.11) (0.04)
Income (Loss) before Cumulative Effect
of Changes in Accounting Principles..... (1.04) 0.53 1.41 2.29
Cumulative Effect to January 1, 1993 of
Changes in Accounting Principles........ -- -- -- (0.85)
Net Income (Loss)....................... $ (1.04) $ 0.53 $ 1.41 $ 1.44
======= ======= ======= =======
Weighted Average Number of Shares............ 205.6 205.6 205.6 205.4
Cash Dividends Per Share..................... $ 0.43 $ 0.40 $ 1.23 $ 1.14
Ratio of Earnings to Fixed Charges (Note 5) 4.7 3.9
</TABLE>
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<TABLE>
<CAPTION>
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
------------------------------------------------------
(Millions of Dollars)
(Unaudited)
September 30, December 31,
ASSETS 1994 1993
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<S> <C> <C>
Current Assets:
Cash and temporary investments................ $ 222 $ 113
Accounts receivable........................... 622 593
Inventories................................... 304 252
Deferred income taxes......................... 119 117
Other current assets.......................... 364 242
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Total Current Assets..................... 1,631 1,317
--------- ---------
Investments:
Investments in and advances to affiliated
companies.................................. 484 453
Other investments............................. 153 170
--------- ---------
Total Investments........................ 637 623
--------- ---------
Properties:
Railroad:
Road and other.............................. 8,304 7,935
Equipment................................... 4,716 4,575
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Total Railroad........................... 13,020 12,510
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Natural resources (Notes 3 and 4)............. 4,864 4,144
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Trucking...................................... 691 621
--------- ---------
Other......................................... 128 121
--------- ---------
Total Properties......................... 18,703 17,396
Accumulated depreciation, depletion and
amortization................................ (6,539) (6,318)
--------- ---------
Properties - Net......................... 12,164 11,078
--------- ---------
Cost in Excess of Net Assets of Acquired
Businesses - Net................................. 947 963
Net Assets of Discontinued Operations (Note 2)..... 244 697
Other Assets....................................... 275 217
--------- ---------
Total Assets............................. $ 15,898 $ 14,895
========= =========
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<TABLE>
<CAPTION>
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
------------------------------------------------------
(Amounts in Millions, Except Share and Per Share Amounts)
(Unaudited)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
------------- ------------
<S> <C> <C>
Current Liabilities:
Accounts payable.............................. $ 425 $ 439
Accrued wages and vacation.................... 237 249
Income and other taxes........................ 222 158
Dividends and interest........................ 152 176
Accrued casualty costs........................ 134 135
Debt due within one year...................... 102 115
Other current liabilities..................... 739 758
--------- ---------
Total Current Liabilities..................... 2,011 2,030
--------- ---------
Debt Due After One Year............................ 4,645 4,068
Deferred Income Taxes.............................. 2,864 2,678
Retiree Benefits Obligation........................ 653 599
Other Liabilities (Notes 2, 4 and 9)............... 801 635
Stockholders' Equity:
Common stock, $2.50 par value, authorized
500,000,000 shares, 230,985,326 shares issued
in 1994, 230,788,175 shares issued in 1993.. 578 577
Paid in surplus............................... 1,390 1,383
Retained earnings............................. 4,567 4,529
Treasury stock, at cost, 25,898,931 shares in
1994, 25,626,946 shares in 1993............. (1,611) (1,604)
--------- ---------
Total Stockholders' Equity................. 4,924 4,885
--------- ---------
Total Liabilities and Stockholders' Equity. $ 15,898 $ 14,895
========= =========
</TABLE>
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<TABLE>
<CAPTION>
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended September 30, 1994 and 1993
-----------------------------------------------------
(Millions of Dollars)
(Unaudited)
1994 1993
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net Income............................................$ 290 $ 295
Non-cash charges to income:
Depreciation, depletion and amortization........... 733 687
Loss from discontinued operations (Note 2)......... 433 9
Cumulative effect of accounting changes (Note 7)... -- 175
Deferred income taxes (Note 7)..................... 124 135
Other - Net........................................ 105 (3)
Changes in current assets and liabilities............. (224) (97)
Cash used for special charges......................... (48) (91)
------- -------
Cash from operations............................... 1,413 1,110
------- -------
Cash flows from investing activities:
Capital investments................................... (1,186) (1,062)
AMAX acquisition - Net (Note 3)....................... (725) --
Skyway acquisition - Net.............................. -- (65)
Wilmington sale (Note 4).............................. 280 --
Other - Net........................................... 20 32
------- -------
Cash used in investing activities.................. (1,611) (1,095)
------- -------
Cash flows from equity and financing activities:
Dividends paid........................................ (246) (227)
Debt repaid (Note 8).................................. (141) (417)
Financings (Note 3)................................... 694 499
------- -------
Cash generated (used) in equity and financing
activities....................................... 307 (145)
------- -------
Net change in cash and temporary investments.......$ 109 $ (130)
======= =======
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS
For the Nine Months Ended September 30, 1994 and 1993
-----------------------------------------------------
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
1994 1993
------- -------
<S> <C> <C>
Balance at Beginning of Year............................ $ 4,529 $ 4,338
Net Income.............................................. 290 295
------- -------
Total............................................. 4,819 4,633
Dividends Declared ($1.23 per share in 1994;
$1.14 per share in 1993)............ (252) (233)
Exchangeable Note Conversion (Note 8)................... -- (24)
------- -------
Balance at End of Period........................... $ 4,567 $ 4,376
======= =======
</TABLE>
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UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS - The condensed consolidated
financial statements are unaudited and reflect all adjustments (consisting
only of normal and recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the financial position
and operating results for the interim periods. The Condensed Statement of
Consolidated Financial Position at December 31, 1993 is derived from
audited financial statements. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Union Pacific Corporation
(the Corporation) Annual Report to Stockholders incorporated by
reference in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1993. The results of operations for the nine months
ended September 30, 1994 are not necessarily indicative of the results
for the entire year ending December 31, 1994.
2. DISPOSITION OF USPCI, INC. (USPCI) - In September 1994, the Corporation's
Board of Directors approved a formal plan of disposition for its waste
management subsidiary, USPCI. As a result, the Corporation reported a
$433 million after-tax loss from discontinued operations for the nine
months ended September 30, 1994. This loss was comprised of an
$8 million after-tax loss from USPCI's operations and a $654 million
($425 million after-tax) provision for the loss on disposal, including
a write down of USPCI's assets to net realizable value (including
goodwill) and a provision for costs associated with the disposition of
USPCI. In conjunction with the formal plan of disposition, the
Corporation contributed $366 million of USPCI's intercompany indebtedness
to the capital of USPCI.
On October 31, 1994, the Corporation announced its intention to sell USPCI
to Laidlaw Inc. (Laidlaw), contingent upon Laidlaw's completion of due
diligence, approval by Laidlaw's Board of Directors, receipt of regulatory
authorization and the execution of a definitive sales agreement. The sale
is expected to be consummated by the first quarter of 1995 and will have
no significant impact on the Corporation's future operating results or
financial position. Sales proceeds and cash tax benefits derived from the
sale of USPCI will be used for general corporate purposes, including the
reduction of outstanding debt levels. USPCI's results have been reported
separately as discontinued operations in the condensed consolidated
financial statements of the Corporation for all periods presented.
Operating revenues of USPCI were $243 million for the first nine months of
1994, $236 million for all of 1993 and $262 million in 1992. Capital
expenditures at USPCI were $60 million for the first nine months of 1994,
$114 million for all of 1993 and $109 million in 1992.
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3. AMAX ACQUISITION - In March 1994, Union Pacific Resources Company
acquired AMAX Oil & Gas Inc. (AMAX) from Cyprus AMAX Minerals Company
for a net purchase price of $725 million. AMAX's operations primarily
consist of natural gas producing, transportation and processing
properties in West, East and South Texas, Louisiana and Arkansas. These
properties include interests in 14 major fields, encompassing
approximately 600,000 acres and 2,000 producing wells. Resources
recorded 92 million barrels of oil equivalent of proved reserves related
to the AMAX acquisition.
4. CALIFORNIA PROPERTY DISPOSITIONS - Pursuant to its plan to
dispose of its oil and gas operations in California, Resources sold its
Wilmington oil field and announced its plan to dispose of its interest in
the Point Arguello oil field. In March 1994, Resources sold its
interest in the Wilmington oil field's surface rights and hydrocarbon
reserves, and its interest in the Harbor Cogeneration Plant, to the
City of Long Beach, California, for $405 million in cash and notes.
The Wilmington sale resulted in a $184 million ($116 million after-tax)
gain. In addition, Resources recorded a $24 million ($15 million
after-tax) charge in March 1994 for the disposition of the Point Arguello
offshore oil field. Wilmington and Point Arguello reserves
represent approximately 6% of Resources' year-end 1993 proved reserves
and their sale will not significantly impact ongoing operating results.
As part of the Wilmington sales agreement, Resources has agreed to
participate with the City of Long Beach in funding site preparation and
environmental remediation. As a result, the calculation of the gain
on the sale of the Wilmington properties reflects $112 million of
reserves for such future costs.
5. RATIO OF EARNINGS TO FIXED CHARGES - The ratio of earnings to fixed
charges has been computed on a total enterprise basis. Earnings
represent income from continuing operations less equity in undistributed
earnings of unconsolidated affiliates, plus income taxes and fixed
charges. Fixed charges represent interest, amortization of debt discount
and expense, and the estimated interest portion of rental charges.
6. PRICE RISK MANAGEMENT - Resources utilizes futures contracts, option
contracts and swap agreements as hedges to manage volatility related to
oil and gas price fluctuations, whereas Overnite Transportation Company
(Overnite) and Union Pacific Railroad Company (the Railroad) utilize such
contracts as hedges to manage variability of diesel fuel costs. Gains and
losses on these contracts are recognized at the time of delivery of the
underlying commodity.
Resources has purchased fixed price contracts to hedge natural gas sales
volumes of 211 mmcf/day at $2.34/mcf, approximately 25% of its fourth
quarter 1994 natural gas sales and 100 mmcf/day at $1.94/mcf for all of
1995 (approximately 12% of sales). In addition, Resources has hedged
crude oil sales volumes of 48 mbl/day at $17.69/bbl, nearly 85% of its
fourth quarter 1994 sales. The Railroad has purchased fixed price
contracts to hedge approximately 80% of its fourth quarter 1994 diesel
fuel consumption at $0.44 per gallon, while Overnite has purchased fixed
price contracts to hedge virtually all of its fourth quarter 1994 diesel
fuel consumption at $0.48 per gallon. Credit risk related to these
activities is minimal.
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7. ACCOUNTING ADJUSTMENTS - In January 1993, the Corporation adopted the
Financial Accounting Standards Board's pronouncements covering the
recognition of postretirement benefits other than pensions and accounting
for income taxes, as well as a pro-rata method of recognizing
transportation revenues and expenses. The cumulative effect of adopting
these accounting changes was a one-time, after-tax charge to earnings of
$175 million or $0.85 per share. In August 1993, President Clinton
signed the Omnibus Budget Reconciliation Act of 1993 (the 1993 Tax Act)
into law increasing the corporate Federal income tax rate to 35% from 34%
retroactive to January 1, 1993. As a result, the Corporation adjusted
deferred income taxes from prior years in the third quarter of 1994,
resulting in a one-time, $62 million increase in Federal income tax
expense.
8. EXCHANGEABLE DEBT CONVERSION - In February 1993, the remaining $25 million
of the 7.50% Exchangeable Guaranteed Notes, due 2003, which were issued to
Katy Industries, Inc. in conjunction with the acquisition of the Missouri-
Kansas-Texas Railroad, were exchanged for approximately 774,000 shares of
the Corporation's common stock. The Corporation issued common shares from
its treasury in exchange for these Notes.
9. COMMITMENTS AND CONTINGENCIES - There are various lawsuits pending against
the Corporation and certain of its subsidiaries. The Corporation is also
subject to Federal, state and local environmental laws and regulations and
is currently participating in the investigation and remediation of
numerous sites. Where the remediation costs can be reasonably
determined, and where such remediation is probable, the Corporation has
recorded a liability. In addition, the Corporation has entered into
commitments and provided guarantees for specific financial and
contractual obligations of its subsidiaries and affiliates. The
Corporation does not expect that the lawsuits, environmental costs,
commitments or guarantees, or the ultimate resolution of the matters
described in Part I, Item 3. Legal Proceedings of the Corporation's
1993 Annual Report on Form 10-K and in Part II, Item 1. Legal
Proceedings described in this Report will have a material adverse
effect on its consolidated financial position or its results of
operations.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
Quarter Ended September 30, 1994 Compared to September 30, 1993
PROPOSED ACQUISITION OF SANTA FE PACIFIC CORPORATION (SFP)
On October 5, 1994, Union Pacific Corporation (the Corporation or Union Pacific)
made a proposal to acquire SFP in a negotiated merger transaction pursuant to
which the stockholders of SFP would have received 0.344 of a share of the
Corporation's common stock for each share of SFP common stock, which represented
a premium to the consideration then being offered in a proposed merger between
Burlington Northern, Inc. (BN) and SFP. By letter dated October 6, 1994, SFP
rejected the Corporation's proposal. On October 11, 1994, the Corporation
advised SFP that it was prepared to receive information from SFP that might
justify a higher price. On October 12, 1994, BN filed a Form S-4 with the
Securities and Exchange Commission (the Commission), which included a Joint
Proxy Statement with SFP, and set November 18, 1994 as the date for a
special meeting of shareholders of each of SFP and BN to vote on the proposed
SFP/BN merger. On October 13, 1994, the Corporation filed a Preliminary Proxy
Statement with the Commission and announced its intention to solicit proxies
from SFP's shareholders entitled to vote at the special meeting to
vote against the proposed SFP/BN merger.
On October 27, 1994, BN announced that it had raised the price it proposed to
pay in the SFP/BN merger which, based on then current market prices,
eliminated the premium to the consideration then being offered by the
the Corporation. On October 28, 1994, the Corporation filed a definitive Proxy
Statement with the Commission and announced its intention to mail proxy
materials to SFP stockholders in order to solicit proxies from such
stockholders entitled to vote at the special meeting to vote against the
proposed SFP/BN merger. On October 30, 1994, the Corporation announced
that it was increasing the amount of consideration it would pay to 0.407
of a share of Union Pacific common stock for each SFP share, thereby
reestablishing a premium over the consideration offered by BN, and indicated,
among other things, that it would consider paying a portion of the consideration
in cash.
On November 8, 1994, as an alternative to the October 30, 1994 proposal, the
Corporation made a proposal to acquire SFP in a negotiated merger pursuant to
which Union Pacific would acquire SFP in a two-step transaction in which Union
Pacific would purchase 57.1% of SFP's outstanding common shares on a fully
diluted basis in a cash tender offer for $17.50 per share. The Corporation
would acquire the remaining shares of SFP common stock in a second-step
merger in exchange for Union Pacific common stock (the Proposed Merger)
based on the market price of Union Pacific stock at the time of the
proposal. Under such a proposal, the Corporation has proposed to place
all shares of SFP common stock acquired by Union Pacific (whether pursuant
to the first-step cash tender offer or the second-step merger) into a voting
trust (the Voting Trust) that would be independent of Union Pacific. The
revised Union Pacific proposal constitutes an invitation to the Board of
Directors of SFP to enter into merger negotiations with Union Pacific and is
<PAGE> 9
subject, among other things, to termination of the merger agreement between
SFP and BN in accordance with its terms, negotiation of a mutually satisfactory
merger agreement between the Corporation and SFP, and approval by the
respective Boards of Directors of SFP and Union Pacific. The revised Union
Pacific proposal is not conditioned upon receipt of ICC approval (other than
approval of the Voting Trust).
Consummation of the proposed merger could occur by the first quarter of 1995.
The Corporation plans to obtain the necessary funds from its available cash and
working capital, from advances from the sale of commercial paper and or pursuant
to one or more loan facilities currently existing or to be obtained from one or
more commercial banks or other financial institutions. Once a merger agreement
has been consummated, the ICC has 31 months from the date the Corporation files
an application to decide whether or not to approve the proposed SFP/Union
Pacific merger, or to require significant concessions before allowing the
merger. If the ICC does not approve the proposed merger or if Union Pacific
deems the conditions imposed by the ICC too onerous, Union Pacific would have
the right to and could be required to sell all SFP shares held in the Voting
Trust. Such a disposition could result in a significant loss in the period
of disposition; however, the Corporation believes that its financial condition
would not be materially impacted.
For a description of certain litigation related to the Corporation's proposed
acquisition of SFP, see Part II, Item 1. Legal Proceedings in this Report.
CONSOLIDATED RESULTS
The Corporation reported a net loss of $213 million or $1.04 loss per share for
the third quarter of 1994. This compares to net income of $108 million or $0.53
income per share in 1993.
In September 1994, the Corporation committed to dispose of its waste management
subsidiary, USPCI, Inc. (USPCI), and in October 1994 executed a letter of intent
to sell USPCI (see Note 2 to the Condensed Consolidated Financial Statements).
As a result, the Corporation recorded a $654 million ($425 million after-tax)
provision for discontinued operations to write down USPCI's assets to net
realizable value and provide for costs associated with the disposition of
USPCI. The net loss from discontinued operations for the third quarter was
$423 million, including the $2 million of net income USPCI generated in
the quarter. The sale of USPCI will not have a significant impact on the
Corporation's ongoing operating results or future financial position.
RESULTS OF CONTINUING OPERATIONS
CONSOLIDATED - The Corporation reported income from continuing operations of
$210 million or $1.02 per share for the third quarter of 1994. This
compares to net income of $108 million or $0.53 per share in 1993. Earnings in
1993 included the $62 million one-time effect of the 1993 Tax Act (see Note 7
to the Condensed Consolidated Financial Statements) and a $34 million
after-tax reduction in operating results at Union Pacific Railroad Company (the
Railroad) caused by the 1993 Midwest flood. Quarterly earnings improved at
the Railroad and Union Pacific Resources Company (Resources), while earnings
declined at Overnite Transportation Company (Overnite).
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Operating revenues grew 6% to $1.96 billion from $1.84 billion in 1993, largely
the result of increased volumes at the Railroad. Operating expenses rose $35
million to $1.53 billion during the quarter. Higher volumes accounted for
increases in other taxes ($12 million), equipment and other rents ($12 million)
and salaries, wages and employee benefits ($7 million). Depreciation charges
increased $6 million--the result of the Corporation's continued commitment to
upgrade equipment and technology, while personal injury expense rose
$12 million. Higher operating costs were partially offset by a $7 million
decline in materials and supplies cost and a $6 million reduction of costs
associated with pipeline and gas plant product purchases for resale.
Operating income advanced $84 million (24%) to $428 million for the quarter.
Other income declined $15 million, reflecting the absence of several one-time
items from a year ago. Interest expense increased $9 million as a result of
incremental borrowing due to the AMAX acquisition (see Note 3 to the Condensed
Consolidated Financial Statements), while corporate expenses rose $8 million,
reflecting professional fees incurred in association with the proposed SFP
acquisition and the USPCI disposition.
RAILROAD - Third quarter 1994 net income at the Railroad was $184 million
compared to $89 million a year ago. In the third quarter of 1993, the
Railroad's operating results were adversely affected by the flooding in the
Midwest, which reduced operating results by approximately $52 million ($34
million after tax), and a $57 million one-time rise in income tax expense,
reflecting the effects of the 1993 Tax Act.
Operating revenues improved $101 million (8%) to $1.33 billion. Higher revenues
were generated by a 9% (over 110,000 loads) rise in third quarter 1994
carloadings. Automotive traffic climbed 16%, the result of higher carloadings
for both assembled autos (19%) and auto parts (7%), reflecting improving
economic conditions in the automotive industry. Food, consumer and
government carloadings advanced 16% due to improvements in the food
group--mainly canned and frozen goods--and growth in the consumer segment,
reflecting growing shipments of waste/recyclables and transportation
equipment. New coal contracts, inventory replenishment by major utilities and
the absence of flood-related traffic interruptions from 1993 accounted
for a 15% increase in energy carloadings. Intermodal volumes improved 13%
because of business expansion with the Railroad's trucking partners and growing
container traffic, while chemical carloadings rose 8% from a year ago,
reflecting increases in phosphorous, fertilizer and soda ash business. Grain
traffic declined 4%, primarily the result of weak export markets for corn,
while metals, minerals and forest traffic also declined 2%. The positive
effect of higher volumes was partially offset by a 2% decline in average
revenue per car, largely the result of volume growth of lower-rated
commodities--mainly energy and intermodal.
Operating expenses increased to $1.03 billion for the quarter compared to $987
million last year. Personal injury expense rose $12 million, as continuing
declines in the number of injuries were more than offset by higher settlement
costs per injury. Volume growth accounted for a $7 million rise in equipment
and other rents, and a $5 million escalation in drayage costs--reflecting
higher intermodal shipments. Other taxes increased $7 million because
of the absence of third quarter 1993 local tax adjustments and higher use and
property taxes, while depreciation expense grew $7 million, reflecting the
Railroad's continuing investment in equipment and capacity. Wages and
benefit costs rose $4 million, as higher volumes and inflation were
partially offset by continued improvements
<PAGE> 11
in labor productivity as the average work force declined 1%. These cost
increases were partially mitigated by a $5 million reduction in materials and
upplies costs because of the absence of 1993 flood-related usage. Operating
income at the Railroad improved $63 million for the quarter to $304 million.
The Railroad's operating ratio declined to 77.1 from 80.4 a year ago.
NATURAL RESOURCES - Resources' third quarter 1994 net income was $76 million
compared to $62 million a year ago. Results for 1993 included a $6 million
one-time increase in income tax expense, reflecting the effects of the
1993 Tax Act. Operating revenues were down $1 million from a year ago to
$336 million, as a 14% increase in overall sales volumes was offset by a
1% decline in sales prices and lower pipeline and other revenues. Natural
gas liquids sales volumes improved 24% to 53,721 bbl/day because of the
addition of the AMAX properties (see Note 3 to the Condensed Consolidated
Financial Statements), the new Carthage gas plant and improved production in
the Austin Chalk. Natural gas sales volumes rose 23% to 790 mmcf/day,
primarily the result of the first quarter AMAX acquisition and higher Austin
Chalk production. Crude oil sales volumes declined 8% to 61,652 bbl/day,
reflecting the first quarter sale of the California properties (see Note 4
to the Condensed Consolidated Financial Statements) and production declines in
other fields. Natural gas average prices increased 8% to $1.80/mcf. Average
prices for crude oil fell $0.37/bbl (2%) to $14.93/bbl (however they reflect a
recovery over first quarter average prices of $12.19/bbl), while natural gas
liquids prices declined $0.66/bbl (7%) to $9.07/bbl. Pipeline and other
revenues declined $29 million, largely the result of the absence of a lawsuit
settlement from 1993, the sale of the Harbor Cogeneration facility as part of
the California property sale and the reclassification of certain pipeline
revenues.
Operating expenses declined $23 million to $235 million for the quarter. Mining
costs decreased $7 million as a result of a favorable contract settlement, while
costs related to pipeline and gas plant product purchases for resale fell $6
million. Geological and geophysical costs declined $4 million, reflecting the
completion of an exploration program in West Texas. In addition, depreciation
and depletion charges decreased $3 million, as a gain from the sale of producing
properties in Oklahoma was partially countered by the addition of new gas
processing facilities and pipelines, as well as higher production levels.
Operating income for all of Resources' operations improved to $101 million in
the third quarter of 1994 from $79 million in 1993. Operating income from
Resources' minerals operations improved $5 million during the period to
$30 million, reflecting higher coal sales and increased soda ash royalties.
TRUCKING - Overnite posted third quarter earnings of $12 million compared to $13
million from a year ago, including goodwill amortization of $6 million. Results
for 1993 included a one-time, $1 million increase in income tax expense
resulting from the 1993 Tax Act. Overnite's operating revenues advanced $10
million (4%) to $257 million. Prices rose 4%, reflecting contractual rate
increases, a shift to longer haul traffic and the effects of a January 1994
price increase on non-contract business. Volumes were unchanged, as a 2%
rise in less-than-truckload business was offset by truckload traffic declines.
Operating expenses increased $12 million to $236 million for the period.
Reduced efficiency and higher miles associated with shifts in freight flows
from shorter haul intra-regional business to longer haul traffic caused
increases in equipment rents ($5 million) and mileage-based insurance and
claims accruals ($3 million). Expense increases also occurred in materials
<PAGE> 12
and supplies ($1 million), depreciation ($1 million) and taxes and licenses
($1 million). Operating income declined to $21 million in the
third quarter of 1994 from $23 million in 1993. Overnite's operating ratio,
excluding goodwill amortization, increased to 89.4 for the quarter from
88.2 in 1993.
CORPORATE SERVICES AND OTHER OPERATIONS - Expenses related to Corporate Services
and Other Operations--which include corporate expenses, third party interest
charges, intercompany interest allocations, other income and income taxes that
are not related to other segments, and the results of other operating units--
increased $6 million to $62 million. Higher interest expense to third parties
and increased professional fees related to the USPCI sale and the proposed SFP
acquisition more than offset increased interest charges to subsidiaries (mainly
the result of the AMAX acquisition, subsidiaries' capital spending and pension
funding at Overnite). Other operations reported operating income of $2 million
for the third quarter of 1994, up $1 million from a year ago.
Nine Months Ended September 30, 1994 Compared to September 30, 1993
CONSOLIDATED RESULTS
The Corporation reported net income of $290 million or $1.41 per share for the
period ended September 30, 1994, including a net loss from discontinued
operations for the first nine months of 1994 of $433 million. The loss from
discontinued operations includes a loss from USPCI's operations of $8 million.
In 1993, the Corporation reported net income of $295 million or $1.44 per share,
which included a $175 million ($0.85 per share) after-tax cumulative charge for
changes in accounting methods (see Note 7 to the Condensed Consolidated
Financial Statements).
RESULTS OF CONTINUING OPERATIONS
The Corporation reported income from continuing operations of $723 million or
$3.52 per share, including the one-time benefit of a $101 million ($0.49 per
share) after-tax gain resulting from the first quarter disposition of the
Corporation's oil and gas operations in California. This compares to income
from continuing operations of $479 million or $2.33 per share in 1993,
which included the $62 million one-time effects the 1993 Tax Act and a
$34 million after-tax reduction in operating results at the Railroad caused by
the 1993 Midwest flood. Income from continuing operations improved at all
operating units.
Operating revenues grew 7% to $5.81 billion from $5.41 billion in 1993, as
increased transportation volumes at the Railroad and Overnite, higher
hydrocarbon sales volumes at Resources and the May 1993 addition of Skyway
were partially offset by hydrocarbon price declines. Operating expenses
rose $278 million to $4.61 billion for the period. Higher volumes, severe
winter weather in the first quarter of 1994 and the effects of traffic shifts
caused by the April Teamsters' strike caused increases in salaries, wages and
employee benefits ($75 million), third party transportation ($60 million),
equipment and other rents ($58 million), other taxes ($37 million), and
materials and supplies ($10 million). Depreciation charges increased
$46 million--the result of both the Corporation's continued commitment to
upgrade equipment and technology, and higher production volumes at
Resources--while personal injury expense rose $40 million. Higher operating
costs were partially offset by lower costs associated with pipeline and
gas plant product purchases for resale and reduced mining costs.
<PAGE> 13
Operating income advanced $115 million (11%) to $1.19 billion for the first nine
months of 1994. Other income increased $138 million, largely the result of the
California property disposition in the first quarter, while corporate expenses
declined $5 million, primarily the result of lower expenses related to stock and
incentive compensation accruals.
CHANGES IN CONSOLIDATED FINANCIAL CONDITION AND OTHER DEVELOPMENTS
Since December 31, 1993
During the first nine months of 1994, cash from operations was $1.41 billion,
compared to $1.11 billion in 1993. This increase was largely the result of
improved operating results and higher non-cash charges included in earnings.
Non-cash charges to earnings increased as a result of higher depreciation,
increased personal injury accruals, the Point Arguello write down and reserves
established for the disposition of the California properties. Cash from
operations also benefitted from lower cash outlays related to the 1991 special
charge. Offsetting these operating cash improvements were the negative effects
of changes in working capital, reflecting increases in current taxes receivable
(generated by the recognition of tax benefits from the USPCI disposal), in notes
receivable (from the Wilmington sale) and in accounts receivable (the result of
higher sales levels and the AMAX acquisition).
Cash used in investing activities of $1.61 billion reflects a $516 million
increase over 1993. The Corporation acquired AMAX in March 1994 for a net
purchase price of $725 million in cash (see Note 3 to the Condensed Consolidated
Financial Statements). Capital expenditures grew $124 million over 1993,
largely due to higher capacity and equipment expenditures at the Railroad,
increased development activities at Resources (mainly the Austin Chalk and
AMAX properties) and fleet expansion and renewal at Overnite. The AMAX
purchase and higher capital spending were partially offset by the $280 million
of cash proceeds generated by the Wilmington sale. In addition, 1994
financings increased $195 million to $694 million, the result of the AMAX
purchase.
The ratio of debt to total capital employed increased to 37.9% at September 30,
1994 from 35.6% at December 31, 1993. This increase reflects the higher debt
levels incurred to finance the AMAX acquisition partially offset by 1994
earnings--including the sale of the Wilmington properties.
<PAGE>
<PAGE> 14
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
SANTA FE PACIFIC CORPORATION (SPF)/BURLINGTON NORTHERN, INC. (BN)
MERGER LITIGATION
On October 6, 1994, Union Pacific Corporation (the Corporation) filed
suit in the Court of Chancery in Delaware against SFP, BN and the
members of the Board of Directors of SFP seeking, among other things,
a declaratory judgment that the merger agreement between SFP and
BN is terminable by SFP in order to allow SFP to accept a merger
proposed by the Corporation, and an injunction requiring SFP to
negotiate with the Corporation regarding the Corporation's proposal.
The Corporation is also seeking a declaratory judgment that it has
not tortiously interfered with the contractual relations of SFP and
BN. On October 7, 1994, the Corporation moved for expedited
discovery on the ground that expedition is essential to permit it to
obtain timely relief against the continuing breaches of fiduciary
duty by the Board of Directors of SFP.
On October 18, 1994, the Delaware Court of Chancery denied the
motions for expedited discovery of the Corporation and certain
SFP stockholders who have also filed suit against SFP, BN and the
members of SFP's Board of Directors. The Court of Chancery, among
other things, held that because the merger between the Company
and BN, if approved by the Company's stockholders, could not be
consummated for at least eighteen months, the Court would have
sufficient time to evaluate the Corporation's and the SFP
stockholder-plaintiffs' claims and, if necessary, set aside the
merger between SFP and BN before any steps are taken to consummate
it.
On October 19, 1994, the Corporation filed its First Amended and
Supplemental Complaint, and was joined in that action as plaintiff by
James A. Shattuck, an officer of Union Pacific Railroad Company, a
subsidiary of the Corporation, who also is a stockholder of SFP. In
addition to the claims stated and relief sought in the Corporation's
original complaint, the First Amended and Supplemental Complaint
alleged, among other things, that SFP and the director defendants
have breached their fiduciary duties of candor by joining BN
in a wrongful campaign to mislead SFP's stockholders (via press
releases and the SFP Joint Proxy Statement) into believing, among
other things, that (i) SFP cannot lawfully consider the
Corporation's merger proposal, (ii) the Corporation's merger
proposal is illusory and made solely for the purpose of preventing
a merger of SFP and BN, and (iii) a merger of the Corporation
and SFP cannot lawfully occur.
ENVIRONMENTAL MATTERS
The Environmental Protection Agency has filed suit against Union
Pacific Resources Company (Resources) under the Toxic Substances
Control Act for the alleged failure to submit certain gas plant
chemical inventory reports. A penalty of $378,000 has been proposed.
<PAGE> 15
On July 25, 1994, Solvent Services, Inc. (SSI), a subsidiary of
USPCI, Inc., received a letter from the state of California
Attorney General's Office, alleging that SSI had violated
California's Hazardous Waste Control Law and the terms of a prior
Consent Judgment at its San Jose facility by falsifying certain
lab data. The letter threatened the filing of a civil suit,
and since that time the Attorney General has offered to settle
the matter for a penalty payment of $1.3 million in lieu of a civil
suit being filed. Negotiations are continuing.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
11 - Computation of earnings per share.
12 - Computation of ratio of earnings to fixed charges.
27 - Financial data schedule.
(b) Reports on Form 8-K
-------------------
On October 12, 1994, the Corporation filed a Current Report on Form
8-K, which contained a press release describing the proposed
acquisition by the Corporation of Santa Fe Pacific Corporation and
certain related litigation filed by the Corporation.
<PAGE>
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 9, 1994
UNION PACIFIC CORPORATION
(Registrant)
/s/ Charles E. Billingsley
--------------------------------
Charles E. Billingsley,
Vice President and Controller
(chief accounting officer and
duly authorized officer)
<PAGE>
<PAGE>
UNION PACIFIC CORPORATION
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Computation of earnings per share
12 Computation of ratio of earnings to
fixed charges
27 Financial data schedule
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
Nine Months
Ended September 30,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
Average number of shares outstanding........... 205,101 204,767
Average shares issuable on exercise of stock
options less shares repurchasable from
proceeds..................................... 530 676
-------- --------
Total average number of common and common
equivalent shares............................ 205,631 205,443
======== ========
Income from continuing operations.............. $723,537 $479,465
Loss from discontinued operations (Note 2)..... (432,952) (9,040)
-------- --------
Income before cumulative effect of changes in
accounting principles........................ 290,585 470,425
Cumulative effect to January 1, 1993 of
changes in accounting principles............. -- (175,226)
-------- --------
Net Income..................................... $290,585 $295,199
======== ========
Earnings Per Share:
Income from continuing operations............ $ 3.52 $ 2.33
Loss from discontinued operations............ (2.11) (0.04)
-------- --------
Income before cumulative effect of changes
in accounting principles................... 1.41 2.29
Cumulative effect to January 1, 1993 of
changes in accounting principles........... -- (0.85)
-------- --------
Net Income................................... $ 1.41 $ 1.44
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(In Thousands, Except Ratios)
(Unaudited)
Nine Months
Ended September 30,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Earnings:
Income from continuing operations.............. $ 723,537 $ 479,465
Add (deduct) distributions greater (to
extent less) than income of unconsolidated
affiliates................................. (38,292) (35,881)
---------- ----------
Total................................ 685,245 443,584
---------- ----------
Income Taxes:
Federal, state and local....................... 360,873 351,454
---------- ----------
Fixed Charges:
Interest expense including amortization of
debt discount.............................. 244,869 239,566
Portion of rentals representing an interest
factor..................................... 36,450 28,505
---------- ----------
Total................................ 281,319 268,071
---------- ----------
Earnings available for fixed charges............. $1,327,437 $1,063,109
========== ==========
Fixed Charges -- as above........................ $ 281,319 $ 268,071
Interest capitalized............................. 828 1,108
---------- ----------
Total fixed charges.................. $ 282,147 $ 269,179
========== ==========
Ratio of earnings to fixed charges............... 4.7 3.9
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 222
<SECURITIES> 0
<RECEIVABLES> 622
<ALLOWANCES> 0
<INVENTORY> 304
<CURRENT-ASSETS> 1,631
<PP&E> 18,703
<DEPRECIATION> 6,539
<TOTAL-ASSETS> 15,898
<CURRENT-LIABILITIES> 2,011
<BONDS> 4,645
<COMMON> 578
0
0
<OTHER-SE> 4,346
<TOTAL-LIABILITY-AND-EQUITY> 15,898
<SALES> 0
<TOTAL-REVENUES> 5,806
<CGS> 0
<TOTAL-COSTS> 4,612
<OTHER-EXPENSES> 68
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 245
<INCOME-PRETAX> 1,084
<INCOME-TAX> 361
<INCOME-CONTINUING> 723
<DISCONTINUED> 433
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
