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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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 OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
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.
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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
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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 ].
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AS OF FEBRUARY 29, 1996, THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S
COMMON STOCK HELD BY NON-AFFILIATES (USING THE NEW YORK STOCK EXCHANGE CLOSING
PRICE) WAS APPROXIMATELY $13,572,981,774.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF
FEBRUARY 29, 1996 WAS 205,651,239.
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, 1995 (PARTS I, II AND IV); AND (2) REGISTRANT'S DEFINITIVE PROXY
STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 19, 1996
(PART III).
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PART I
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ITEM 1. BUSINESS AND ITEM 2. PROPERTIES
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DISCUSSION OF SIGNIFICANT EVENTS AND OPERATIONS
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Union Pacific Corporation (Union Pacific or the Corporation), incorporated
in Utah in 1969, operates through subsidiaries in the areas of rail
transportation (Union Pacific Railroad Company (UPRR) and Missouri Pacific
Railroad Company (MPRR)), hereafter defined as the "Railroad" and trucking
(Overnite Transportation Company), hereafter defined as "Overnite". Each of
these subsidiaries is indirectly wholly-owned by Union Pacific Corporation. The
Corporation has adopted a plan to exit its natural resources business and has
sold its waste management unit (see "Corporate Reorganization" below).
During 1995, Union Pacific had an average of 49,500 employees, of whom
approximately 63 percent belonged to various labor organizations.
CORPORATE REORGANIZATION
WASTE MANAGEMENT DIVESTITURE - At year-end 1994, Union Pacific completed
the sale of its waste management segment (USPCI, Inc. (USPCI)) for $225 million
in notes that were subsequently collected in January 1995. The sale resulted in
a loss of $600 million ($404 million after tax).
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY (CNW) - In March 1995, the
Corporation executed a definitive merger agreement to acquire, for $1.2 billion,
the remaining 71.6% of outstanding common stock of CNW not previously owned by
Union Pacific. Under this agreement, Union Pacific initiated a cash tender offer
in March 1995 for all outstanding CNW shares at $35 per share, which was
completed in late April 1995. The acquisition of CNW was accounted for as a
purchase and CNW's financial results were consolidated into Union Pacific
beginning in May 1995.
NATURAL RESOURCES DIVESTITURE - In July 1995, Union Pacific's Board of
Directors approved a formal plan to exit its natural resources business (Union
Pacific Resources Group Inc. (Resources)). The plan includes an initial public
offering (IPO) of Resources' common stock followed by the distribution of Union
Pacific's remaining interest in Resources to the Corporation's shareholders on a
tax-free, pro-rata basis.
The IPO was completed in October 1995 with the sale of 42.5 million shares
of common stock (17.1%) of Resources' outstanding common stock. The IPO was
priced at $21 per share and generated net proceeds of $844 million. In
connection with the IPO, Resources distributed to Union Pacific by dividend
$1,562 million ($912 million in cash and $650 million in notes bearing interest
at 8.5% per annum), and an intercompany receivable of $59 million.
The Corporation expects that the final distribution of Resources' common
stock will occur once Union Pacific has received a favorable ruling from the
Internal Revenue Service on the tax-free nature of the distribution and after
the completion or termination of the acquisition of Southern Pacific Rail
Corporation (Southern Pacific), discussed below. Union Pacific anticipates that
these events will occur in mid-to-late 1996.
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SOUTHERN PACIFIC ACQUISITION - In August 1995, Union Pacific and Southern
Pacific entered into a definitive merger agreement (the Agreement) providing for
the acquisition of Southern Pacific by Union Pacific. Under the terms of the
Agreement, Union Pacific acquired 25% of Southern Pacific's common stock in a
first-step cash tender offer. Following approval of the Southern Pacific
acquisition by the Surface Transportation Board (STB) of the Department of
Transportation--the successor to the Interstate Commerce Commission (ICC)--Union
Pacific will complete the acquisition of Southern Pacific by exchanging each of
the remaining Southern Pacific common shares, at the holder's election and
subject to proration, for $25 or 0.4065 shares of Union Pacific common stock. As
a result, Union Pacific will convert 60% of Southern Pacific's outstanding
shares immediately before the acquisition into shares of Union Pacific common
stock, with the remaining 40% of the outstanding shares, including the shares
acquired in the first-step cash tender offer, being acquired for cash.
Union Pacific completed the first-step cash tender offer in September 1995
pursuant to which approximately 39 million common shares or 25% of the
outstanding common shares of Southern Pacific were acquired by Union Pacific at
$25 per share. Union Pacific deposited these shares into an independent voting
trust pending STB approval of the acquisition of Southern Pacific.
The Corporation filed an application for control of Southern Pacific with
the STB in late November 1995. The STB has adopted an expedited schedule under
which it intends to render a final decision within 255 days of filing the
original application. Should the acquisition of Southern Pacific not be approved
by the STB, or should the STB impose onerous approval conditions, the
Corporation may be required to or may choose to dispose of its initial
investment in Southern Pacific. Such a disposition could cause Union Pacific to
incur a significant loss on its investment in Southern Pacific. However, the
Corporation believes that the STB will approve its application for control of
Southern Pacific without onerous conditions.
Southern Pacific operates the nations sixth largest railroad through 15
states and transports freight over approximately 14,500 miles of main-line
track, linking the West Coast and Gulf Coast ports to large population centers
in the Midwest. Southern Pacific generated operating revenues of $3.2 billion in
1995 and 3.1 billion in 1994. The combination of the Railroad and Southern
Pacific would create the nation's largest railroad.
CONTINUING OPERATIONS
RAIL TRANSPORTATION - The Railroad is the second largest railroad in terms
of revenue generation in the United States, and operates nearly 23,000 route
miles linking Pacific Coast and Gulf Coast ports with the Midwest. The Railroad
serves the western two-thirds of the country and maintains coordinated schedules
with other carriers for the handling of freight to and from the Atlantic
seaboard, the Pacific Coast, the Southeast, the Southwest, Canada and Mexico.
Export and import traffic is moved through Gulf Coast and Pacific Coast ports,
and across the Texas-Mexico and (primarily through interline connections)
Canadian borders. Major categories of freight hauled by the Railroad are
automotive, chemicals, energy (coal), food/consumer/government, grains and grain
products, intermodal, and metals/minerals/forest. In 1995, energy was the
largest commodity in terms of percentage of revenue ton-miles (39.8%) and
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produced the highest percentage of commodity revenue (21.2%). Percentages of
revenue ton-miles and commodity revenue for other commodities are presented on
page 49 of the 1995 Annual Report to Stockholders (Annual Report).
In its rail transportation business, Union Pacific is subject to
competition from other railroads, motor carriers and barge operators based on
both price and service. Most of its railroad operations are conducted in
corridors served by competing railroads and by motor carriers. Motor carrier
competition has been strengthened by longer combination vehicles which are
allowed in a number of states in which the Railroad operates and magnified by
overcapacity within the trucking industry. Because of the proximity of the
Railroad's operations to major inland and Gulf Coast waterways, barge
competition can be particularly pronounced for grain and bulk commodities in
certain markets.
As is true with employees of all the principal railroads in the country,
most of the approximately 35,000 employees of the Railroad are organized along
craft lines and represented by national labor unions. The Railroad continues to
enter into agreements implementing the previous round of national negotiations
to meet local requirements throughout its system. The Railroad has implemented
two-person crews for all through-freight trains and for a portion of yard and
local operations. Expansion of two-person crews is planned for other areas of
the system.
Both the unions and the railroads took the necessary steps in 1995 to
commence labor negotiations on a new agreement for all craft lines. In January
1996, a tentative agreement was reached with the United Transportation Union
(UTU), which represents approximately 25% of the Railroad's unionized employees.
The five-year package, which is currently undergoing UTU ratification, includes
a combination of general wage increases and lump-sum payments ranging from 3% to
3.5% annually, as well as increased work rule flexibility. In February 1996, a
tentative agreement was also reached with the Brotherhood of Locomotive
Engineers (BLE). The final terms of the agreement are anticipated to be similar
to those provided for in the UTU agreement. Ratification votes by the UTU and
BLE are expected in the spring of 1996. Negotiations with other crafts will also
continue in 1996.
A separate Annual Report on Form 10-K for the year ended December 31, 1995,
is filed by MPRR. Reference is made to such report for additional information
concerning that company.
TRUCKING - Overnite, a major interstate trucking company, serves all 50
states and portions of Canada and Mexico through 175 service centers located
through the United States. As one of the largest trucking companies in the
United States, Overnite serves 95 percent of the U.S. population, specializing
in less-than-truckload shipments and offering a comprehensive array of services.
Overnite transports a variety of products, including machinery, tobacco,
textiles, plastics, electronics and paper products.
Overnite experiences intense competition, based on service and price, from
both regional and national motor carriers, which has been amplified by negative
market conditions within the trucking industry and the resulting overcapacity
that has been created by such conditions. Industry overcapacity and intense
competition will likely continue well into 1996. Overnite is tailoring its
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organization to better meet this challenging business environment by
implementing programs to improve operational and administrative efficiencies.
As the nation's largest non-union trucking company, Overnite is
periodically targeted by major labor organization efforts and is currently the
subject of an organizational campaign instituted by the International
Brotherhood of Teamsters (Teamsters) at many of its service centers. During 1995
and early 1996, over 50 of Overnite's 175 service centers were petitioned to
hold union elections, 15 of which voted for union representation. Despite the
Teamsters' efforts, less than 9% of Overnite's workforce has voted for union
representation. Union elections are anticipated to continue throughout 1996.
Overnite is negotiating in good faith with several of the unionized service
centers and these negotiations will also continue throughout 1996. Overnite is
unable at this time to estimate the impact these negotiations will have on its
future operating costs or profitability.
DISCONTINUED OPERATIONS
NATURAL RESOURCES - Resources is an independent oil and gas company engaged
in the exploration for and production of natural gas, crude oil and associated
products. Resources' oil and gas activities are concentrated in six core
geographic areas: (1) the Austin Chalk trend in Texas and Louisiana, (2) the
Rockies, consisting of the western portion of the Land Grant area in Wyoming and
Utah, (3) Plains/Canada, consisting of the eastern portion of the Land Grant
area in Colorado and Wyoming, with additional operations in Kansas and western
Canada, (4) the onshore and offshore Gulf Coast area, (5) eastern and southern
Texas and (6) western Texas. Through a wholly-owned subsidiary, Resources also
markets its own production, and purchases and resells third-party production,
focusing on direct marketing to the natural gas end user, with particular
emphasis on the power generation market.
Resources also has interests in trona and coal development. Trona
activities consist of royalties from mining on Land Grant acreage and equity and
partnership interests that equate to a 49 percent interest in Rhone Poulenc of
Wyoming, which mines trona and processes it into soda ash. Coal activities
consist principally of royalties from third-party mines and a 50 percent
ownership interest in Black Butte Coal Company, a joint-venture mine. In
February 1996, Rhone-Poulenc Inc., which owned a 51% interest in and operated
the Company's soda ash joint venture, sold its interest to a U.S. subsidiary of
Oriental Chemical Industries, a Korean manufacturer of soda ash and other
chemicals.
Resources competes for oil and gas reserves and skilled personnel with
smaller companies, as well as with the larger integrated oil companies. Mining
operations also are subject to competition from a number of companies, many of
which have larger operations.
A separate Annual Report on Form 10-K for the year ended December 31, 1995,
is filed by Resources. Reference is made to such report for additional
information concerning that company.
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Additional information for Union Pacific's principal businesses is
presented on pages 5 through 21,38,39,49 and 50 of the Annual Report and such
information (excluding photographs on pages 5 through 21, none of which
supplements the text and which are not otherwise required to be disclosed
herein) is incorporated herein by reference. Information on business segments on
page 33 and a map of Union Pacific's operations on pages 52 and 53 of the Annual
Report are also incorporated herein by reference.
GOVERNMENTAL REGULATION
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Union Pacific's operations are currently subject to a variety of Federal,
state and local regulations. A description of the more significant regulations
follows.
The operations of the Railroad and Overnite are subject to the regulatory
jurisdiction of the STB, the successor to the ICC, other Federal agencies and
various state agencies. The STB has jurisdiction over rates charged on certain
regulated rail traffic; freight car compensation; transfer, extension or
abandonment of rail lines; and acquisition of control of rail common carriers
and motor carriers by rail common carriers. Other Federal agencies have
jurisdiction over safety, movement of hazardous materials, movement and disposal
of hazardous waste, and equipment standards.
As a result of the ICC Termination Act of 1995, effective January 1, 1996
state agencies no longer have authority to regulate intrastate rail rates,
practices and services. In addition, in January 1995, the Federal government
deregulated intrastate trucking, lifting state oversight of rates, routes and
service. However, various state and local agencies have jurisdiction over
disposal of hazardous wastes and seek to regulate movement of hazardous
materials.
Most of Resources' crude oil, field condensate and natural gas operations
are in jurisdictions in which production is regulated under applicable
conservation laws. Exploration and production activities are also subject to
safety regulations. The transportation of Resources' natural gas is affected by
the provisions of the Natural Gas Act and the Natural Gas Policy Act. These
acts, administered by the Federal Energy Regulatory Commission (FERC), regulate
the interstate transportation of gas, including rates and the terms and
conditions for service. FERC also governs the tariffs for common carrier liquid
pipelines. Resources operates intrastate natural gas pipelines in Texas and
Wyoming. State agencies regulate the operations of these lines, including the
rates, terms and conditions for providing transportation service. The Department
of the Interior regulates the leasing of Federal lands and the exploration for
and production of oil and gas on and from such lands. The transmission by
pipeline of liquid petroleum, petroleum products and natural gas is subject to
Federal and state pipeline safety laws.
Resources' mining operations are subject to a variety of Federal and state
regulations respecting safety, land use and reclamation. In addition, the
Department of the Interior regulates the leasing of Federal lands for coal
development as provided in the Mineral Lands Leasing Act of 1920. Section 2(c)
of this Act prohibits a company operating a railroad from holding a Federal coal
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lease. In late 1982, the Department of the Interior decided that the Section
prohibits new leasing to affiliates of railroads, such as Resources. The
Department of Justice and the Department of the Interior have concluded that
under current conditions Section 2(c) is an impediment to competition and that
it should be repealed. In January 1993, a Regional Solicitor of the Department
of the Interior opined that Section 2(c) does not prohibit Resources' Black
Butte joint venture coal company mine from holding Federal coal leases.
ENVIRONMENTAL REGULATION
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Subsidiaries of Union Pacific are subject to various environmental statutes
and regulations, including the Resource Conservation and Recovery Act (RCRA),
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) and the Clean Air Act (CAA).
RCRA applies to hazardous waste generators and transporters, as well as
persons engaged in treatment and disposal of hazardous waste, and specifies
standards for storage areas, treatment units and land disposal units. All
generators of hazardous waste are required to label shipments in accordance with
detailed regulations and to prepare a detailed manifest identifying the material
and stating its destination before waste can be released for offsite transport.
The transporter must deliver the hazardous waste in accordance with the manifest
and only to a treatment, storage or disposal facility qualified for RCRA interim
status or having a final RCRA permit.
Environmental Protection Agency (EPA) regulations under RCRA have
established a comprehensive system for the management of hazardous waste. These
regulations identify a wide range of industrial by-products and residues as
hazardous waste, and specify requirements for "cradle-to-grave" management of
such waste from the time of generation through the time of disposal and beyond.
States that have adopted hazardous waste management programs with standards at
least as stringent as those promulgated by the EPA may be authorized by the EPA
to administer all or part of RCRA on behalf of the EPA.
CERCLA was designed to establish a strategy for cleaning up facilities at
which hazardous waste or other hazardous substances have created actual or
potential environmental hazards. The EPA has designated certain facilities as
requiring cleanup or further assessment. Among other things, CERCLA authorizes
the Federal government either to clean up such facilities itself or to order
persons responsible for the situation to do so. The act created a multi-billion
dollar fund to be used by the Federal government to pay for such cleanup
efforts.
CERCLA imposes strict liability on the owners and operators of facilities
in which hazardous waste and other hazardous substances are deposited or from
which they are released or are likely to be released into the environment, the
generators of such waste, and the transporters of the waste who select the
disposal or treatment sites. Liability may include cleanup costs incurred by
third persons and damage to publicly-owned natural resources. Union Pacific
subsidiaries are subject to potential liability under CERCLA as generators of
hazardous waste and as transporters. Some states have enacted, and other states
are considering enacting, legislation similar to CERCLA. Certain provisions of
these acts are more stringent than CERCLA. States that have passed such
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legislation are currently active in designating more facilities as requiring
cleanup and further assessment. CERCLA may be subject to reauthorization in 1996
and may be substantially modified as part of that reauthorization.
The operations of Union Pacific's subsidiaries are subject to the
requirements of the CAA. The 1990 amendments to the CAA include a provision
under Title V that requires that certain facilities obtain operating permits.
EPA regulations require all states to develop Federally approvable permit
programs. Affected facilities must submit air operating permit applications to
the respective states within one year of the EPA's approval of the state
programs. Certain Union Pacific facilities, such as gas processing plants and
other facilities at Resources, as well as certain Railroad facilities, may be
required to obtain such permits. In addition, the EPA is expected to propose
mobile source regulations during the fall of 1996. These regulations are
expected to require that beginning in 2000 or 2001 locomotives purchased or
remanufactured would have to meet stringent emissions criteria. While the cost
of meeting these requirements may be significant, expenditures are not expected
to materially affect the Corporation's financial condition or results of
operations.
The operations of Union Pacific's subsidiaries are also subject to other
laws protecting the environment, including permit requirements for wastewater
discharges pursuant to the National Pollutant Discharge Elimination System and
storm-water regulations under the Federal Water Pollution Control Act. The
operations of the Corporation's former waste management subsidiary, USPCI, which
was sold at year-end 1994, are also subject to various Federal and state laws
and regulations. The Corporation has retained certain environmental exposure
relating to USPCI and has recorded liabilities sufficient to complete
anticipated remediation requirements. Certain Federal legislation may impose
joint and several liability for the remediation of environmental contamination;
however, Union Pacific has been indemnified by the purchaser of USPCI for any
liability not retained by the Corporation (see Notes 2 and 12 to the Financial
Statements).
ITEM 3. LEGAL PROCEEDINGS
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LABOR MATTERS
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The General Counsel of the National Labor Relations Board (NLRB) is seeking
a bargaining order remedy in 17 cases involving Overnite where a Teamsters local
union lost a representation election. These cases are pending before a NLRB
administrative law judge. A bargaining order remedy would require Overnite to
recognize and bargain with the union as if the union had won instead of lost the
election and would be warranted only if the following findings are made: (1) the
petitioning Teamsters local had obtained valid authorization cards from a
majority of the employees in an appropriate unit; (2) Overnite committed serious
unfair labor practices; and (3) those unfair labor practices would preclude the
holding of a fair election despite the application of less drastic remedies.
Under NLRB case law, a bargaining order remedy would attach retrospectively to
the date when, after a union with a showing of majority support demanded
recognition, Overnite embarked on an unlawful course of conduct. In the event of
such a retroactive effective bargaining order, Overnite would face back pay
liability for losses in employee earnings due to unilateral changes in terms or
conditions of employment, such as layoffs, reduced hours of work or less
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remunerative work assignments. Overnite believes it has substantial defenses to
these cases and intends to aggressively defend them.
MINERAL TITLE LITIGATION
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In August 1994, the surface owners of portions of five sections of Colorado
land that are subject to mineral reservations made by Resources' predecessor in
title brought suit against Resources in the District Court of Weld County,
Colorado to quiet title to minerals, including crude oil (in some of the lands)
and natural gas. In September 1994, the case was removed to the U.S. District
Court for the District of Colorado, but the plaintiffs are asking the District
Court to remand the case back to the state court. Resources has filed a motion
for summary judgment asking the District Court to rule as a matter of law that
it owns the oil and gas and all minerals that are part of a severed mineral
estate. No trial date is currently set. Similar claims were made under identical
mineral reservations by Utah and Wyoming surface owners in cases litigated in
the Federal courts of Utah and Wyoming between 1979 and 1987. In those cases,
the Federal courts held as a matter of law that, under the laws of Utah and
Wyoming, these mineral reservations unambiguously reserved oil and gas to UPRR
and its successors. These holdings were affirmed by the United States Court of
Appeals for the Tenth Circuit. While Resources believes that the rule of law
applied by the Federal courts in Utah and Wyoming should also be applied under
Colorado law, there are Colorado court decisions that could provide a basis for
an alternative interpretation. The value of the disputed reserves in the
properties subject to the lawsuit is estimated to be approximately $5 million.
Approximately 400,000 acres of other lands in Weld County, Colorado are subject
to mineral reservations that are in the same form as the reservations at issue
in the present suit. An adverse interpretation of the reservations at issue is
likely to implicate the mineral title in these other lands as well. In addition,
over 2 million acres of lands elsewhere in Colorado are subject to the same
forms of mineral reservations. Depending on the grounds of an adverse decision
in the case, title to minerals held by Resources in some or all of these lands
could also be affected, which might have the effect of significantly reducing
Resources' interest in the Las Animas area of southeastern Colorado and the
Denver-Julesburg Basin in eastern Colorado.
ENVIRONMENTAL MATTERS
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In July 1995, the Butte County (Oroville, California) District Attorney
advised that a civil penalty action would be filed against the Railroad for
violations resulting from a derailment and spill of diesel fuel into the Feather
River in Peo, California on April 14, 1995. In late July, the California
Regional Water Quality Control Board also filed a separate penalty action
seeking $40,000 for the same incident. This latter action was settled for
$40,000. A further demand for penalties from the California Department of Fish
and Game is expected but the amount of such demand is not determinable at this
time.
In addition to the foregoing, Union Pacific and several of its subsidiaries
have received notices from the EPA and state environmental agencies alleging
that they are or may be liable under CERCLA, RCRA, and other Federal or state
environmental legislation for the remediation costs associated with alleged
contamination or for violations of environmental requirements at various sites
throughout the United States, including sites which are on the Superfund
National
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Priorities List or state superfund lists. Although specific claims have been
made by the EPA and state regulators with respect to some of these sites, the
ultimate impact of these proceedings and suits by third parties cannot be
predicted at this time because of the number of potentially responsible parties
involved, 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. Nevertheless, at many of the superfund sites, the
Corporation believes it will have little or no exposure because no liability
should be imposed under applicable law, one or more other financially able
parties generated all or most of the contamination, or a settlement of Union
Pacific's exposure has been reached although regulatory proceedings at the sites
involved have not been formally terminated. Additional information on the
Corporation's potential environmental costs is set forth under Other Matters on
page 29 of the Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT AND
----------------------------------------
PRINCIPAL EXECUTIVE OFFICERS OF SUBSIDIARIES
--------------------------------------------
<TABLE>
<CAPTION>
BUSINESS
EXPERIENCE
DURING PAST
NAME POSITION AGE FIVE YEARS
---- -------- --- -----------
<S> <C> <C> <C>
Drew Lewis.............. Chairman and Chief Executive 64 (1)
Officer of Union Pacific
and Chairman of Resources
Richard K. Davidson..... President and Chief Operating 54 (2)
Officer of Union Pacific and
Chairman of the Railroad
L. White Matthews, III.. Executive Vice President - 50 (3)
Finance
Charles E. Billingsley.. Senior Vice President - 62 (4)
Special Projects
Ursula F. Fairbairn..... Senior Vice President - 53 Current
Human Resources Position
Carl W. von Bernuth..... Senior Vice President 52 (5)
and General Counsel
John E. Dowling......... Vice President - Corporate 48 Current
Development Position
John B. Gremillion, Jr.. Vice President - Taxes 49 (6)
Mary E. McAuliffe....... Vice President - External 50 (7)
Relations
Gary F. Schuster........ Vice President - Corporate 54 Current
Relations Position
Morris B. Smith......... Vice President and Controller 51 (8)
Gary M. Stuart.......... Vice President and Treasurer 55 Current
Position
Judy L. Swantak......... Vice President and Corporate 40 (9)
Secretary
Ronald J. Burns......... President and Chief Executive 43 (10)
Officer of the Railroad
</TABLE>
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EXECUTIVE OFFICERS OF THE REGISTRANT AND
----------------------------------------
PRINCIPAL EXECUTIVE OFFICERS OF SUBSIDIARIES (CONTINUED)
--------------------------------------------------------
<TABLE>
<CAPTION>
BUSINESS
EXPERIENCE
DURING PAST
NAME POSITION AGE FIVE YEARS
---- -------- --- -----------
<S> <C> <C> <C>
Jack L. Messman........ President and Chief Executive 56 (11)
Officer of Resources
James D. Douglas....... President and Chief Operating 46 (12)
Officer of Overnite
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(1) Mr. Lewis has served as Chairman and Chief Executive Officer of Union
Pacific since May 1994 and prior thereto was Chairman, President and
Chief Executive Officer of Union Pacific. Mr. Lewis also became
Chairman of Resources in August 1995 and served as Chairman of the
Railroad during August and September 1991.
(2) Mr. Davidson was elected President of Union Pacific effective May 1994
and Chief Operating Officer of Union Pacific effective November 1995.
He was President and Chief Executive Officer of the Railroad in August
and September 1991 until August 1995 and Chairman of the Railroad
since then. Prior thereto, he served as Executive Vice President -
Operations of the Railroad.
(3) Mr. Matthews was elected to his present position effective April 1992.
Prior thereto, he served as Senior Vice President - Finance of Union
Pacific.
(4) Mr. Billingsley was elected to his present position effective
September 1995. Prior thereto, he served as Vice President and
Controller of Union Pacific.
(5) Mr. von Bernuth was elected to his present position effective
September 1991. Prior thereto, he served as Vice President and General
Counsel of Union Pacific.
(6) Mr. Gremillion was elected to his present position effective February
1992. Prior thereto, he served as Director of Taxes of Union Pacific.
(7) Ms. McAuliffe was elected to her present position effective December
1991. Prior thereto, she served as Director - Washington Affairs,
Transportation and Tax of Union Pacific.
-11-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT AND
----------------------------------------
PRINCIPAL EXECUTIVE OFFICERS OF SUBSIDIARIES (CONTINUED)
--------------------------------------------------------
(8) Mr. Smith was elected to his present position effective September
1995. From January through August 1995 he served as Vice President-
Finance of the Railroad; from June 1993 through December 1994, he
served as Vice President-Finance of USPCI; and from October 1990
through May 1993 he served as Assistant Controller-Planning and
Analysis of Union Pacific.
(9) Mrs. Swantak was elected to her present position effective September
1991. Prior thereto, she served as Corporate Secretary of Union
Pacific.
(10) Mr. Burns was elected to his present position effective August 1995.
From April 1994 to August 1995 he served as Managing Director, North
American Operations, Enron Capital and Trade Resources, and from
October 1990 through March 1994 he served as Chairman and Chief
Executive Officer, Enron Gas Pipeline Group.
(11) Mr. Messman was elected President and Chief Executive Officer of
Resources in August 1995. He served as President and Chief Executive
Officer of Union Pacific Resources Company (which owned or managed all
of the oil, gas and mining operations of Union Pacific prior to
Resources' initial public offering) since May 1991, and concurrently
served as Chairman of USPCI prior to January 1995. Prior to May 1991,
he served as Chairman and Chief Executive Officer of USPCI.
(12) Mr. Douglas was elected to his present position effective February
1995. From July 1993 through January 1995 he served as Senior Vice
President - Finance and Administration of Overnite, and from March
1991 through June 1993 he served as Vice President - Finance of
Overnite. Prior thereto, he served as Assistant Controller
- Accounting of Union Pacific.
-12-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
-----------------------------------------------------------------
Information as to the markets in which Union Pacific's Common Stock is
traded, the quarterly high and low prices for such stock, the dividends declared
with respect to the Common Stock during the last two years, and the approximate
number of stockholders of record at January 31, 1996, is set forth under
Selected Quarterly Data and Stockholders and Dividends, appearing on page 49 of
the Annual Report. Information as to restrictions on the payment of dividends
with respect to the Corporation's Common Stock is set forth in Note 8 to
Financial Statements, appearing on pages 43 and 44 of the Annual Report. Such
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Selected Financial Data for Union Pacific for each of the last ten
years are set forth under the Ten-Year Financial Summary, appearing on page 51
of the Annual Report. All such information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
Information as to Union Pacific's results of operations, cash flows,
liquidity and capital resources, and other matters is set forth in the Financial
Review, appearing on pages 22 through 31 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 32 through 48 of the Annual
Report. Selected quarterly financial data are set forth under Selected Quarterly
Data, appearing on page 49 of the Annual Report. All such information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
None.
-13-
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a) Directors of Registrant.
Information as to the names, ages, positions and offices with Union
Pacific, terms of office, periods of service, business experience during the
past five years and certain other directorships held by each director or person
nominated to become a director of Union Pacific is set forth in the Directors
segments of the Proxy Statement and is incorporated herein by reference.
(b) Executive Officers of Registrant.
Information concerning the executive officers of Union Pacific and its
subsidiaries is presented in Part I of this Report under Executive Officers of
the Registrant and Principal Executive Officers of Subsidiaries.
(c) Section 16(a) Compliance.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the Certain Relationships and Related
Transactions segment of the Proxy Statement and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information concerning remuneration received by Union Pacific's executive
officers and directors is presented in the Compensation of Directors,
Compensation Committee Interlocks and Insider Participation, Summary
Compensation Table, Option/SAR Grants Table, Option/SAR Exercises and Year-End
Value Table and Defined Benefit Plans segments of the Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information as to the number of shares of Union Pacific's equity securities
beneficially owned as of February 9, 1996 by each of its directors and nominees
for director, its five most highly compensated executive officers and its
directors and executive officers as a group is set forth in the Directors and
Security Ownership of Management segments of the Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information on related transactions is set forth in the Certain
Relationships and Related Transactions and Compensation Committee Interlocks and
Insider Participation segments of the Proxy Statement and is incorporated herein
by reference.
-14-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) (1) and (2) Financial Statements and Schedules
----------------------------------------------
The financial statements, accounting policy disclosures, notes to
financial statements and independent auditors' report appearing on pages
32 through 48, inclusive, of Union Pacific's 1995 Annual Report to
Stockholders are incorporated herein by reference.
No schedules are required to be filed because of the absence of
conditions under which they would be required or because the required
information is set forth in the financial statements referred to above.
(3) Exhibits
------------
Items 10(m) through 10(ff) below constitute management contracts and
executive compensation arrangements required to be filed as exhibits to
this report.
2(a) Agreement 2(a) and Plan of Merger, dated as of August 3, 1995,
among the Corporation, UPRR, UP Acquisition Corporation (the
Purchaser) and Southern Pacific, is incorporated herein by
reference to Annex B to the Joint Proxy Statement/Prospectus
included in Union Pacific's Registration Statement on Form S-4
(No. 33-64707).
3(a) Union Pacific's Revised Articles of Incorporation, as amended
through April 17, 1992, are incorporated herein by reference to
Exhibit 3(a) to Union Pacific's Report on Form 10-Q for the
quarter ended March 31, 1992.
3(b) Union Pacific's By-Laws, amended effective as of January 26,
1995, are incorporated herein by reference to Exhibit 3(b) to
Union Pacific's Report on Form 10-K for the year ended December
31, 1994.
4 Pursuant to various indentures and other agreements, Union
Pacific has issued long-term debt; however, no such agreement has
securities or obligations covered thereby which exceed 10% of
Union Pacific's total consolidated assets. Union Pacific agrees
to furnish the Commission with a copy of any such indenture or
agreement upon request by the Commission.
-15-
<PAGE>
9 Voting Trust Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser and Southwest Bank of St. Louis, is
incorporated herein by reference to Annex K to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(a) Shareholders Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser, The Anschutz Corporation (TAC),
Anschutz Foundation (the Foundation), and Mr. Philip F. Anschutz
(Mr. Anschutz), is incorporated herein by referenced to Annex D
to the Joint Proxy Statement/Prospectus included in Union
Pacific's Registration Statement on Form S-4 (No. 33-64707).
10(b) Shareholders Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser and The Morgan Stanley Leveraged
Equity Fund II, L.P., is incorporated herein by reference to
Annex E to the Joint Proxy Statement/Prospectus included in Union
Pacific's Registration Statement on Form S-4 (No. 33-64707).
10(c) Shareholders Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser and Southern Pacific, is incorporated
herein by reference to Annex F to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(d) Shareholders Agreement, dated as of August 3, 1995, among
Resources, TAC, the Foundation and Mr. Anschutz, is incorporated
herein by reference to Annex G to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(e) Registration Rights Agreement, dated as of August 3, 1995, among
the Corporation, TAC and the Foundation, is incorporated herein
by reference to Annex H to the Joint Proxy Statement/Prospectus
included in Union Pacific's Registration Statement on Form S-4
(No. 33-64707).
10(f) Registration Rights Agreement, dated as of August 3, 1995, among
Resources, TAC and the Foundation, is incorporated herein by
reference to Annex I to the Joint Proxy Statement/Prospectus
included in Union Pacific's Registration Statement on Form S-4
(No. 33-64707).
-16-
<PAGE>
10(g) Registration Rights Agreement, dated as of August 3, 1995,
between the Purchaser and Southern Pacific, is incorporated
herein by reference to Annex J to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(h) Clarification of Anschutz Shareholders Agreement and
Anschutz/Spinco Shareholders Agreement is incorporated herein by
reference to Exhibit 10.8 to Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(i) Clarification of Parent Shareholders Agreement is incorporated
herein by reference to Exhibit 10.9 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(j) Clarification of Agreement and Plan of Merger is incorporated
herein by reference to Exhibit 10.10 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(k) Agreement, dated September 25, 1995, among the Corporation, UPRR,
MPRR and Southern Pacific, Southern Pacific Transportation
Company (SPT), The Denver & Rio Grande Western Railroad Company
(D&RGW), St. Louis Southwestern Railway Company (SLSRC) and SPCSL
Corp. (SPCSL), on the one hand, and Burlington Northern Railroad
Company (BN) and The Atchison, Topeka and Santa Fe Railway
Company (Santa Fe), on the other hand, is incorporated by
reference to Exhibit 10.11 to Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(l) Supplemental Agreement, dated November 18, 1995, between the
Corporation, UPRR, MPRR and Southern Pacific, SPT, D&RGW, SLSRC
and SPCSL, on the one hand, and BN and Santa Fe, on the other
hand, is incorporated herein by reference to Exhibit 10.12 to
Union Pacific's Registration Statement on Form S-4 (No. 33-
64707).
10(m) The Executive Incentive Plan of Union Pacific Corporation,
amended April 27, 1995, is incorporated herein by reference to
Exhibit 10(a) to Union Pacific's Report on Form 10-Q for the
quarter ended March 31, 1995.
10(n) The 1982 Stock Option and Restricted Stock Plan of Union Pacific
Corporation, as amended as of February 1, 1992, is incorporated
herein by reference to Exhibit 10(c) to Union Pacific's Report on
Form 10-K for the year ended December 31, 1991.
-17-
<PAGE>
10(o) The 1988 Stock Option and Restricted Stock Plan of Union Pacific
Corporation, as amended as of February 1, 1992, is incorporated
herein by reference to Exhibit 10(d) to Union Pacific's Report on
Form 10-K for the year ended December 31, 1991.
10(p) The Supplemental Pension Plan for Officers and Managers of Union
Pacific Corporation and Affiliates, as amended and restated, is
incorporated herein by reference to Exhibit 10(d) to Union
Pacific's Report on Form 10-K for the year ended December 31,
1993.
10(q) The Supplemental Pension Plan for Exempt Salaried Employees of
Union Pacific Resources Company and Affiliates, as amended and
restated, is incorporated by reference to Exhibit 10(e) to Union
Pacific's Report on Form 10-K for the year ended December 31,
1993.
10(r) Amendment to Supplemental Pension Plan for Exempt Salaried
Employees of Union Pacific Resources Group Inc. and Affiliates,
effect as of October 17, 1995.
10(s) The Employment Agreement, dated as of January 30, 1986, between
Union Pacific and Andrew L. Lewis, Jr., is incorporated herein by
reference to Exhibit 10(e) to Union Pacific's Report on Form 10-K
for the year ended December 31, 1985.
10(t) The 1990 Retention Stock Plan of Union Pacific Corporation, as
amended as of September 30, 1993, is incorporated herein by
reference to Exhibit 10(e) to Union Pacific's Report on Form 10-Q
for the quarter ended September 30, 1991 and Exhibit 10(b) to
Union Pacific's Report on Form 10-Q for the quarter ended
September 30, 1993.
10(u) The 1992 Restricted Stock Plan for Non-Employee Directors of
Union Pacific Corporation, as amended as of January 28, 1993, is
incorporated herein by reference to Exhibit 10(a) to Union
Pacific's Current Report on Form 8-K filed March 16, 1993.
10(v) The 1993 Stock Option and Retention Stock Plan of Union Pacific
Corporation, as amended April 21, 1995, is incorporated herein by
reference to Exhibit 10(b) to Union Pacific's Report on Form 10-Q
for the quarter ended March 31, 1995.
-18-
<PAGE>
10(w) The Pension Plan for Non-Employee Directors of Union Pacific
Corporation, as amended January 25, 1996.
10(x) The Executive Life Insurance Plan of Union Pacific Corporation,
adopted August 2, 1994, is incorporated herein by reference to
Exhibit 10 to Union Pacific's Report on Form 10-Q for the quarter
ended June 30, 1994.
10(y) The Union Pacific Corporation Stock Unit Grant and Deferred
Compensation Plan for the Board of Directors, as amended January
25, 1996.
10(z) Charitable Contribution Plan for Non-Employee Directors of Union
Pacific Corporation.
10(aa) Written Description of Other Executive Compensation Arrangements
of Union Pacific Corporation is incorporated herein by reference
to Exhibit 10(o) to Union Pacific's Report on Form 10-K for the
year ended December 31, 1992.
10(bb) Executive Incentive Plan of Resources is incorporated by
reference to Exhibit 10.9 to the Registration Statement on Form
S-1 (No. 33-95398) filed by Resources.
10(cc) 1995 Stock Option and Retention Stock Plan of Union Pacific
Resources Group Inc. is incorporated by reference to Exhibit
10.10 to the Registration Statement on Form S-1 (No. 33-95398)
filed by Resources.
10(dd) Form of Conversion Agreement is incorporated by reference to
Exhibit 10.13(a) to the Registration Statement on Form S-1 (No.
33-95398) filed by Resources.
10(ee) Conversion Agreement for Drew Lewis is incorporated herein by
reference to Exhibit 10(d) to Union Pacific's Report on Form 10-Q
for the quarter ended September 30, 1995.
10(ff) Conversion Agreement for Jack L. Messman is incorporated herein
by reference to Exhibit 10(e) to Union Pacific's Report on Form
10-Q for the quarter ended September 30, 1995.
(11) Computation of earnings per share.
(12) Computation of ratio of earnings to fixed charges.
-19-
<PAGE>
(13) Pages 5 through 53, inclusive, of Union Pacific's Annual Report
to Stockholders for the year ended December 31, 1995, but
excluding photographs set forth on pages 5 through 21, none of
which supplements the text and which are not otherwise required
to be disclosed in this Annual Report on Form 10-K.
(21) List of Union Pacific's significant subsidiaries and their
respective states of incorporation.
(23) Independent Auditors' Consent.
(24) Powers of attorney executed by the directors of Union Pacific.
(27) Financial Data Schedule.
(99) (a) Financial Statements for the Fiscal Year ended December 31,
1995 required by Form 11-K for the Union Pacific Corporation
Thrift Plan - To be filed by amendment.
(99) (b) Financial Statements for the Fiscal Year ended December 31,
1995 required by Form 11-K for the Union Pacific Fruit
Express Company Agreement Employee 401(k) Retirement Thrift
Plan - To be filed by amendment.
(99) (c) Financial Statements for the Fiscal Year ended December 31,
1995 required by Form 11-K for the Skyway Retirement Savings
Plan - To be filed by amendment.
(99) (d) Financial Statements for the Fiscal Year ended December 31,
1995 required by Form 11-K for the Union Pacific Agreement
Employee 401(k) Retirement Thrift Plan - To be filed by
amendment.
(99) (e) Financial Statements for the Fiscal Year ended December 31,
1995 required by Form 11-K for the Union Pacific Motor
Freight Agreement Employee 401(k) Retirement Thrift Plan -
To be filed by amendment.
-20-
<PAGE>
(b) Reports on Form 8-K
-------------------
On January 23, 1996, the Corporation filed a Current Report on
Form 8-K containing (i) an Indenture dated as of January 5, 1996
between the Corporation and Chemical Bank, (ii) historical
financial statements for Southern Pacific as of December 31, 1994
and September 30, 1995, (iii) restated financial statements of
the Corporation reflecting the discontinuation of Resources, (iv)
pro forma financial statements as of September 30, 1995 for the
Corporation and Southern Pacific and (v) a statement concerning
the Corporation's consolidated income statement for the nine
months ended September 30, 1995.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 22nd day of
March, 1996.
UNION PACIFIC CORPORATION
By /s/ Drew Lewis
-------------------------------
(Drew Lewis, Chairman and Chief
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, on this 22nd day of March, 1996, by the following
persons on behalf of the registrant and in the capacities indicated.
PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR:
/s/ Drew Lewis
-------------------------------
(Drew Lewis, Chairman, Chief
Executive Officer and Director)
PRINCIPAL FINANCIAL OFFICER
AND DIRECTOR:
/s/ L. White Matthews, III
-------------------------------
(L. White Matthews, III,
Executive Vice President -
Finance and Director)
PRINCIPAL ACCOUNTING OFFICER:
/s/ Morris B. Smith
-------------------------------
(Morris B. Smith,
Vice President and Controller)
-22-
<PAGE>
SIGNATURES - (Continued)
DIRECTORS:
Robert P. Bauman* Richard J. Mahoney*
Richard B. Cheney* Jack L. Messman*
E. Virgil Conway* John R. Meyer*
Richard K. Davidson* Thomas A. Reynolds, Jr.*
Spencer F. Eccles* James D. Robinson, III*
Elbridge T. Gerry, Jr.* Robert W. Roth*
William H. Gray, III* Richard D. Simmons*
Judith Richards Hope*
* By /s/ Judy L. Swantak
-----------------------------------
(Judy L. Swantak, Attorney-in-fact)
-23-
<PAGE>
EXHIBIT INDEX
-------------
Items 10(m) through 10(ff) below constitute management contracts and executive
compensation arrangements required to be filed as exhibits to this report.
Exhibit Number
--------------
2(a) Agreement and Plan of Merger, dated as of August 3, 1995, among
Union Pacific Corporation (the Corporation), Union Pacific
Railroad Company ("UPRR"), UP Acquisition Corporation (the
Purchaser) and Southern Pacific Rail Corporation (Southern
Pacific), is incorporated herein by reference to Annex B to the
Joint Proxy Statement/Prospectus included in Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
3(a) Union Pacific's Revised Articles of Incorporation, as amended
through April 17, 1992, are incorporated herein by reference to
Exhibit 3(a) to Union Pacific's Report on Form 10-Q for the
quarter ended March 31, 1992.
3(b) Union Pacific's By-Laws, amended effective as of January 26,
1995, are incorporated herein by reference to Exhibit 3(b) to
Union Pacific's Report on Form 10-K for the year ended December
31, 1994.
4 Pursuant to various indentures and other agreements, Union
Pacific has issued long-term debt; however, no such agreement
has securities or obligations covered thereby which exceed 10%
of Union Pacific's total consolidated assets. Union Pacific
agrees to furnish the Commission with a copy of any such
indenture or agreement upon request by the Commission.
9 Voting Trust Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser and Southwest Bank of St. Louis, is
incorporated herein by reference to Annex K to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(a) Shareholders Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser, The Anschutz Corporation (TAC),
Anschutz Foundation (the Foundation), and Mr. Philip F.
Anschutz (Mr. Anschutz), is incorporated herein by referenced
to Annex D to the Joint Proxy Statement/Prospectus included in
Union Pacific's Registration Statement on Form S-4 (No. 33-
64707).
10(b) Shareholders Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser and The Morgan Stanley Leveraged
Equity Fund II, L.P., is incorporated herein by reference to
Annex E to the Joint Proxy Statement/Prospectus included in
Union Pacific's Registration Statement on Form S-4 (No. 33-
64707).
<PAGE>
10(c) Shareholders Agreement, dated as of August 3, 1995, among the
Corporation, the Purchaser and Southern Pacific, is
incorporated herein by reference to Annex F to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
on FormS-4 (No. 33-64707).
10(d) Shareholders Agreement, dated as of August 3, 1995, among Union
Pacific Resources Group Inc. (Resources), TAC, the Foundation
and Mr. Anschutz, is incorporated herein by reference to Annex
G to the Joint Proxy Statement/Prospectus included in Union
Pacific's Registration Statement on Form S-4 (No. 33-64707).
10(e) Registration Rights Agreement, dated as of August 3, 1995,
among the TAC Corporation, and the Foundation, is incorporated
herein by reference to Annex H to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(f) Registration Rights Agreement, dated as of August 3, 1995,
among Resources, TAC and the Foundation, is incorporated herein
by reference to Annex I to the Joint Proxy Statement/Prospectus
included in Union Pacific's Registration Statement on Form S-4
(No. 33-64707).
10(g) Registration Rights Agreement, dated as of August 3, 1995,
between the Purchaser and Southern Pacific, is incorporated
herein by reference to Annex J to the Joint Proxy
Statement/Prospectus included in Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(h) Clarification of Anschutz Shareholders Agreement and
Anschutz/Spinco Shareholders Agreement is incorporated herein
by reference to Exhibit 10.8 to Union Pacific's Registration
Statement on Form S-4 (No. 33-64707).
10(i) Clarification of Parent Shareholders Agreement is incorporated
herein by reference to Exhibit 10.9 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(j) Clarification of Agreement and Plan of Merger is incorporated
herein by reference to Exhibit 10.10 to Union Pacific's
Registration Statement on Form S-4 (No. 33-64707).
10(k) Agreement, dated September 25, 1995, among the Corporation,
UPRR, Missouri Pacific Railroad Company (MPRR) and Southern
Pacific, Southern Pacific Transportation Company (SPT), The
Denver & Rio Grande Western Railroad Company (D&RGW), St. Louis
Southwestern Railway Company (SLSRC) and SPCSL Corp. (SPCSL),
on the one hand, and Burlington Northern Railroad Company (BN)
and The Atchison, Topeka and Santa Fe Railway Company (Santa
Fe), on the other hand, is incorporated by reference to Exhibit
10.11 to Union Pacific's Registration Statement on Form S-4
(No. 33-64707).
10(l) Supplemental Agreement, dated November 18, 1995, between the
Corporation, UPRR, MPRR and Southern Pacific, SPT, D&RGW, SLSRC
and SPCSL, on the one hand, and BN and Santa Fe, on the other
hand, is
<PAGE>
incorporated herein by reference to Exhibit 10.12 to Union
Pacific's Registration Statement on Form S-4 (No. 33-64707).
10(m) The Executive Incentive Plan of Union Pacific
Corporation, amended April 27, 1995, is incorporated herein by
reference to Exhibit 10(a) to Union Pacific's Report on Form
10-Q for the quarter ended March 31, 1995.
10(n) The 1982 Stock Option and Restricted Stock Plan of Union
Pacific Corporation, as amended as of February 1, 1992, is
incorporated herein by reference to Exhibit 10(c) to Union
Pacific's Report on Form 10-K for the year ended December 31,
1991.
10(o) The 1988 Stock Option and Restricted Stock Plan of Union
Pacific Corporation, as amended as of February 1, 1992, is
incorporated herein by reference to Exhibit 10(d) to Union
Pacific's Report on Form 10-K for the year ended December 31,
1991.
10(p) The Supplemental Pension Plan for Officers and Managers of
Union Pacific Corporation and Affiliates, as amended and
restated, is incorporated herein by reference to Exhibit 10(d)
to Union Pacific's Report on Form 10-K for the year ended
December 31, 1993.
10(q) The Supplemental Pension Plan for Exempt Salaried Employees of
Union Pacific Resources Company and Affiliates, as amended and
restated, is incorporated by reference to Exhibit 10(e) to
Union Pacific's Report on Form 10-K for the year ended December
31, 1993.
10(r) Amendment to Supplemental Pension Plan for Exempt Salaried
Employees of Union Pacific Resources Group Inc. and Affiliates,
effect as of October 17, 1995.
10(s) The Employment Agreement, dated as of January 30, 1986, between
Union Pacific and Andrew L. Lewis, Jr., is incorporated herein
by reference to Exhibit 10(e) to Union Pacific's Report on Form
10-K for the year ended December 31, 1985.
10(t) The 1990 Retention Stock Plan of Union Pacific Corporation, as
amended as of September 30, 1993, is incorporated herein by
reference to Exhibit 10(e) to Union Pacific's Report on Form
10-Q for the quarter ended September 30, 1991 and Exhibit 10(b)
to Union Pacific's Report on Form 10-Q for the quarter ended
September 30, 1993.
10(u) The 1992 Restricted Stock Plan for Non-Employee Directors of
Union Pacific Corporation, as amended as of January 28, 1993,
is incorporated herein by reference to Exhibit 10(a) to Union
Pacific's Current Report on Form 8-K filed March 16, 1993.
10(v) The 1993 Stock Option and Retention Stock Plan of Union Pacific
Corporation, as amended April 21, 1995, is incorporated herein
by reference to Exhibit 10(b) to Union Pacific's Report on Form
10-Q for the quarter ended March 31, 1995.
<PAGE>
10(w) The Pension Plan for Non-Employee Directors of Union Pacific
Corporation, as amended January 25, 1996.
10(x) The Executive Life Insurance Plan of Union Pacific Corporation,
adopted August 2, 1994, is incorporated herein by reference to
Exhibit 10 to Union Pacific's Report on Form 10-Q for the
quarter ended June 30, 1994.
10(y) The Union Pacific Corporation Stock Unit Grant and Deferred
Compensation Plan for the Board of Directors, as amended
January 25, 1996.
10(z) Charitable Contribution Plan for Non-Employee Directors of
Union Pacific Corporation.
10(aa) Written Description of Other Executive Compensation
Arrangements of Union Pacific Corporation is incorporated
herein by reference to Exhibit 10(o) to Union Pacific's Report
on Form 10-K for the year ended December 31, 1992.
10(bb) Executive Incentive Plan of Resources is incorporated by
reference to Exhibit 10.9 to the Registration Statement on Form
S-1 (No. 33-95398) filed by Resources.
10(cc) 1995 Stock Option and Retention Stock Plan of Union Pacific
Resources Group Inc. is incorporated by reference to Exhibit
10.10 to the Registration Statement on Form S-1 (No. 33-95398)
filed by Resources.
10(dd) Form of Conversion Agreement is incorporated by reference to
Exhibit 10.13(a) to the Registration Statement on Form S-1 (No.
33-95398) filed by Resources.
10(ee) Conversion Agreement for Drew Lewis is incorporated herein by
reference to Exhibit 10(d) to Union Pacific's Report on Form
10-Q for the quarter ended September 30, 1995.
10(ff) Conversion Agreement for Jack L. Messman is incorporated herein
by reference to Exhibit 10(e) to Union Pacific's Report on Form
10-Q for the quarter ended September 30, 1995.
(11) Computation of earnings per share.
(12) Computation of ratio of earnings to fixed charges.
(13) Pages 5 through 53, inclusive, of Union Pacific's Annual Report
to Stockholders for the year ended December 31, 1995, but
excluding photographs set forth on pages 5 through 21, none of
which supplements the text and which are not otherwise required
to be disclosed in this Annual Report on Form 10-K.
(21) List of Union Pacific's significant subsidiaries and their
respective states of incorporation.
(23) Independent Auditors' Consent.
<PAGE>
(24) Powers of attorney executed by the directors of Union Pacific.
(27) Financial Data Schedule.
(99) (a) Financial Statements for the Fiscal Year ended December
31, 1995 required by Form 11-K for the Union Pacific
Corporation Thrift Plan - To be filed by amendment.
(99) (b) Financial Statements for the Fiscal Year ended December
31, 1995 required by Form 11-K for the Union Pacific Fruit
Express Company Agreement Employee 401(k) Retirement
Thrift Plan - To be filed by amendment.
(99) (c) Financial Statements for the Fiscal Year ended December
31, 1995 required by Form 11-K for the Skyway Retirement
Savings Plan - To be filed by amendment.
(99) (d) Financial Statements for the Fiscal Year ended December
31, 1995 required by Form 11-K for the Union Pacific
Agreement Employee 401(k) Retirement Thrift Plan - To be
filed by amendment.
(99) (e) Financial Statements for the Fiscal Year ended December
31, 1995 required by Form 11-K for the Union Pacific Motor
Freight Agreement Employee 401(k) Retirement Thrift Plan -
To be filed by amendment.
<PAGE>
EXHIBIT 10(r)
AMENDMENT TO
SUPPLEMENTAL PENSION PLAN FOR EXEMPT
SALARIED EMPLOYEES OF UNION PACIFIC RESOURCES GROUP INC.
AND AFFILIATES
WHEREAS, the Board of Directors of Union Pacific Resources Group Inc.,
adopted the Supplemental Pension Plan for Exempt Salaried Employees of Union
Pacific Resources Company and Affiliates by resolution dated September 28, 1995;
------------------
WHEREAS, such Board also renamed such Plan the Supplemental Pension
Plan for Salaried Employees of Union Pacific Group Inc. ("Supplemental Pension
Plan") and delegated to the Senior Vice President - Human Resources of Union
Pacific Corporation ("Senior Vice President") its authority to amend the
Supplemental Pension Plan as otherwise necessary or advisable in connection with
an initial public offering ("IPO") and subsequent spin off of Union Pacific
Resources Company; and
WHEREAS, the Senior Vice President desires to amend the Supplemental
Pension Plan pursuant to this delegation;
NOW, THEREFORE, the undersigned hereby amends the Supplemental Pension
Plan, effective as of the IPO, as set forth below:
I. Section 1.2(a) is amended in its entirety to provide as
follows:
"Administrator" means the Senior Vice President - Human
Resources of Union Pacific Corporation ("UPC") until UPC no
longer owns at least 50% of the voting power of shares of
Company stock entitled to vote generally in the election of
directors and thereafter, the Vice President - People of the
Company.
II. Section 1.2(b) is amended in its entirety to provide as
follows:
"Company" means Union Pacific Resources Group, Inc. (herein
called "Resources") and any Affiliate which is included in the
<PAGE>
Supplemental Plan by action of the Board of Directors of
Resources and such Affiliate.
III. Section 1.2(f) is amended in its entirety to provide as
follows:
"Incentive Compensation" means incentive compensation awarded a
Participant under the Executive Incentive Plan of Union Pacific
Corporation and Subsidiaries, as amended and restated as of
January 1, 1981 and as it may thereafter be amended from time
to time and the Executive Incentive Plan of Union Pacific
Resources Group Inc. and Subsidiaries, but only to the extent
that such incentive compensation is not taken into account in
computing the Participant's Final Average Earnings under the
Plan. Awards of Incentive Compensation shall be taken into
account on the accrual basis at the time such awards are made,
provided however, that no more than three awards of Incentive
Compensation shall be taken into account for any 36-month
period.
IV. Section 1.2(i) is amended in its entirety to provide as
follows:
"Plan" means the "Pension Plan for Salaried Employees of Union
Pacific Corporation and Affiliates," effective January 1, 1990
and as it may thereafter be amended from time to time, until
Union Pacific Corporation ("UPC") no longer owns at least 50%
of the voting power of shares of Company stock entitled to vote
generally in the election of directors and thereafter, such
plan as the Company adopts pursuant to the Pension Agreement
between the Company and UPC, dated October 1, 1995.
V. Section 1.2(k) is amended in its entirety to provide as
follows:
<PAGE>
(k) "Supplemental Plan" means the "Supplemental Pension Plan
for Exempt Salaried Employees of Union Pacific Resources
Group Inc. and Affiliates", as described herein, and as it
may hereafter be amended from time to time; such term
shall also include the Prior Supplemental Plan, except
where specific reference is made to the Prior Supplemental
Plan.
VI. Section 2.1(b) is amended in its entirety to provide as
follows:
(b) such additional years of training, prior to a
Participant's Employment Commencement Date or intervening
between periods of Employment, as has afforded to the
Participant such training as has, in the opinion of the
Company, especially qualified him for his position and
induced his employment by the Company, but only after, and
to the extent that, (i) the Board of Directors has
recommended that credit for such additional years be
granted, and (ii) the Participant has been notified of
such approval (including any such additional years
approved under the Prior Supplement Plan).
VII. Section 3.7 is amended in its entirety to provide as follows:
Pre-Termination Age and Service Grant. The pension to which a
-------------------------------------
Participant would otherwise be entitled hereunder shall be
redetermined by including in Total Service such additional
years as may be approved by the Chief Executive Officer of
Union Pacific Corporation prior to termination
<PAGE>
of Employment or by adding to such Participant's age such
additional years as may then be approved by the Chief Executive
Officer of Union Pacific Corporation, or both, but not in
excess of five years in either case until Union Pacific
Corporation no longer owns at least 50% of the voting power of
shares of Company stock entitled to vote generally in the
election of directors and thereafter such approval shall be
obtained from the Chief Executive Officer of the Company. All
rights of a Participant or his beneficiaries hereunder shall be
determined on the basis of such additional years.
VIII. Section 8.1 is amended in its entirety to provide as follows:
Administration. To the extent herein provided, the
--------------
Administrator shall have authority to control and manage the
operation and administration of the Supplemental Plan.
IN WITNESS WHEREOF, I have hereunto set my hand and caused these
presents to be executed this 11th day of October, 1995.
/s/ Ursula F. Fairbairn
-----------------------------
Ursula F. Fairbairn
Senior Vice President - Human
Resources
<PAGE>
EXHIBIT 10(w)
PENSION PLAN FOR
NON-EMPLOYEE DIRECTORS OF
UNION PACIFIC CORPORATION
AS AMENDED AS OF JANUARY 25, 1996
1. PURPOSE
-------
The purpose of this Pension Plan for Non-Employee Directors of Union
Pacific Corporation (the "Plan") is to promote the interests of Union Pacific
Corporation (the "Company") and its shareholders by strengthening its ability to
attract and retain outstanding individuals to serve as members of the Board of
Directors of the Company by providing such individuals with retirement and
survivor's benefits following termination of their service as members of such
Board.
2. EFFECTIVE DATE
--------------
The Plan shall be effective July 1, 1985 (the "Effective Date"). The
provisions of the Plan as in effect on the date when an individual terminates
his service as a member of the Board of Directors of the Company shall govern
the rights and benefits of such individual under the Plan.
3. ELIGIBILITY
-----------
Each individual who is a member of the Board of Directors of the Company on
the Effective Date or becomes a member of such Board at any time thereafter
shall be eligible for the benefits provided under the Plan, provided that at the
time when such individual terminates his service as a member of such Board he
has served as a member of such Board for a period of at least five consecutive
years. For purposes of determining whether or not an individual has served as a
member of the Board of Directors of the Company for a period of at least five
consecutive years, there shall be disregarded any period of such service as a
member of such Board during which such individual is also employed as an officer
or other employee by the Company or by any corporation of which the Company owns
or controls directly or indirectly 50% or more of the voting stock (the
Company's "subsidiaries") and, in the case of an individual who was formerly
employed as an officer or other employee by the Corporation or by any of its
subsidiaries, any period of such service as a member of such Board that occurs
<PAGE>
after such individual terminates such employment if, at the time of such
termination, such individual is entitled to receive benefits under any pension
plan adopted or maintained by the Company or by any of its subsidiaries for the
benefit of employees.
4. AMOUNT OF RETIREMENT PENSION
----------------------------
Each individual who satisfies the eligibility requirements set forth in
Section 3 at the time when he terminates his service as a member of the Board of
Directors of the Company shall be entitled to receive an annual retirement
pension in the amount set forth in this Section 4. Such individual shall be
entitled to receive a retirement pension equal to 60% of the annual basic
retainer, exclusive of any fees or other amounts payable for attendance at the
meetings of such Board or for service on any committee thereof, payable at such
time to a majority of the members of such Board who are not employed as officers
or other employees by the Company or any of its subsidiaries (the "annual basic
retainer"). Once determined, the amount of the retirement pension payable to
such individual shall not be adjusted to reflect any subsequent increase or
decrease to the annual basic retainer unless the Board of Directors shall
determine at the time of such increase or decrease to adjust such pension to
reflect such increase or decrease.
5. FORM AND COMMENCEMENT OF RETIREMENT PENSION
-------------------------------------------
The retirement pension to which an individual is entitled under Section 4
shall be paid to such individual in monthly installments if such individual is
alive at the time for payment. The first installment shall be paid to such
individual on the first day of the month coinciding with or immediately
following the later of the dates on which such individual attains age 65 or
terminates his service as a member of the Board of Directors of the Company.
Subsequent installments shall be paid to such individual on the first day of
each succeeding month.
6. BENEFITS IN THE EVENT OF DEATH
------------------------------
(a) If an individual to whom payment of the retirement pension to which
such individual is entitled under Section 4 has commenced dies before receiving
10 years' installments, the balance of such 10 years' installments that would
have been paid to such individual had such individual not died shall
<PAGE>
be paid to such individual's beneficiary, if such beneficiary is alive at the
time for payment, at the same time as such installments would have been paid to
such individual. If such beneficiary dies before receiving all of such balance,
the present value of any installments remaining to be paid shall be paid in a
lump sum to such beneficiary's estate. If such individual fails validly to
designate a beneficiary or if the beneficiary designated by such individual pre-
deceases such individual, the present value of the balance of such 10 years'
installments shall be paid in a lump sum to such individual's estate.
(b) If an individual dies after he terminates his service as a member
of the Board of Directors of the Company but before the payment of the
retirement pension to which such individual is entitled under Section 4 has
commenced, 10 years' installments of the retirement pension that would have been
paid to such individual had such individual not died shall be paid to such
individual's beneficiary, if such beneficiary is alive at the time for payment,
at the same time that such installments would have been paid to such individual.
If such beneficiary dies before receiving all of such 10 years' installments,
the present value of any installments remaining to be paid shall be paid in a
lump sum to such beneficiary's estate. If such individual fails validly to
designate a beneficiary or if the beneficiary designated by such individual pre-
deceases such individual, the present value of such 10 years' installments shall
be paid in a lump sum to such individual's estate.
(c) If an individual terminates his service as a member of the Board of
Directors of the Company as a result of death and satisfied the other
eligibility requirements set forth in Section 3, 10 years' installments of the
retirement pension that would have been paid to such individual had such
individual not died but terminated for reasons other than death his service as a
member of such Board at the time of his death shall be paid to such individual's
beneficiary, if such beneficiary is alive at the time for payment, at the same
time that such installments would have been paid to such individual. If such
beneficiary dies before receiving all of such 10 years' installments, the
present value of any installments remaining to be paid shall be paid in a lump
sum to such beneficiary's estate. If such individual fails validly to designate
a beneficiary or if the beneficiary designated by such individual pre-deceases
such individual, the present value of such 10 years' installments shall be paid
in a lump sum to such individual's estate.
<PAGE>
7. SOURCE OF BENEFITS
------------------
All benefits payable under the Plan shall be paid solely from the general
assets of the Company. The liabilities of the Company pursuant to the Plan to
any individual who has served as a member of the Board of Directors of the
Company or to the beneficiary or estate of such individual shall be those of a
debtor only pursuant to such contractual obligations as are created by the Plan
and no such obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company.
8. INALIENABILITY OF BENEFITS
--------------------------
Except to the extent of the rights of the beneficiary or estate of an
individual who has served as a member of the Board of Directors of the Company,
no benefit payable under, or interest in, the Plan shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge and any such attempted action shall be void. No such
benefit or interest shall be in any manner liable for or subject to garnishment,
attachment, execution or levy or subject to the debts, contracts, liabilities,
engagements or torts of the person entitled to such benefit or interest under
the Plan. In the event that the Vice President-Employee Relations of the Company
shall find that any person entitled to benefits under, or having an interest in,
the Plan shall become bankrupt or shall attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any such benefit or interest, the
Vice President-Employee Relations of the Company shall hold or apply the same to
or for the benefit of such person, his spouse, children, parents or other blood
relatives or any of them.
9. ADMINISTRATION
--------------
The Plan shall be administered by the Vice President-Employee Relations of
the Company. The Vice President-Employee Relations of the Company shall have
complete authority to construe and interpret the Plan, to establish, amend and
rescind appropriate rules and regulations relating to the Plan, including rules
and regulations for the designation of a beneficiary by an individual who has
served as a member of the Board of Directors of the Company, to determine what
persons are entitled to benefits under, or have an interest in, the Plan and to
take all such other steps and make all such other determinations in connection
with the administration of the Plan as he may deem to be necessary or
appropriate. All determinations by the Vice President-Employee Relations of the
<PAGE>
Company in administering the Plan shall be final and conclusive and binding on
all persons.
10. GOVERNING LAW
-------------
All questions pertaining to the construction, regulation, validity and
effect of the Plan shall be determined in accordance with the law of the State
of New York.
11. AMENDMENT, SUSPENSION OR TERMINATION
------------------------------------
The Board of Directors of the Company may at any time and from time to
time, and retroactively if deemed to be necessary or appropriate, amend, suspend
or terminate in whole or in part any or all of the provisions of the Plan,
except that no such amendment, suspension or termination shall adversely affect
the rights and benefits under the provisions of the Plan as in effect
immediately prior to such action to which an individual who has terminated his
service as a member of such Board or the beneficiary or estate of such
individual is entitled under the Plan immediately prior to such action or to
which an individual who has not terminated his service as a member of such Board
or the beneficiary or estate of such individual would have been entitled under
the Plan immediately prior to such action had such individual so terminated such
service at that time.
12. PLAN TERMINATION
----------------
Notwithstanding the foregoing provisions of the Plan, the Plan shall be
terminated effective January 25, 1996, subject to the terms and conditions set
forth in this Section 12. The termination shall not affect an individual whose
service as a member of the Board of Directors of the Company terminated prior to
January 25, 1996 or any beneficiary of such individual. An individual serving as
a member of the Board of Directors of the Company on January 25, 1996 and any
beneficiary of such individual shall retain the benefits and rights available to
such individual and to such beneficiary under the provisions of the Plan as in
effect prior to its termination, except that the basic annual retainer under
Section 4 shall be limited to $60,000. Such individual may elect to forfeit
$6,000 of the $36,000 annual retirement pension based upon that basic annual
retainer and to have that replaced by a credit under the Company's Stock Unit
Grant and Deferred Compensation Plan for the Board of Directors equal to
<PAGE>
the actuarial present value of the amount so forfeited. No benefits shall be
paid under the Plan to any beneficiary with respect to the amount so forfeited.
<PAGE>
EXHIBIT 10(y)
UNION PACIFIC CORPORATION
STOCK UNIT GRANT AND DEFERRED COMPENSATION PLAN
FOR THE BOARD OF DIRECTORS
AS AMENDED AS OF JANUARY 25, 1996
1. Purpose
-------
The purpose of this Plan is to permit grants of Stock Units to Directors
to align their interests with those of stockholders, and to provide a
means for deferring payment of all or a portion of any cash compensation,
excluding expenses, payable to Directors for their service on the Board of
Directors (the "Board") of Union Pacific Corporation (the "Company") in
accordance with Article II, Section 5 of the By-Laws of Union Pacific
Corporation. Such compensation eligible to be deferred, not including any
grants under paragraph 3, is referred to herein as "Compensation".
2. Eligibility
-----------
Any individual (a "Director") serving as a member of the Board as of the
effective date of this Plan or who subsequently becomes a member is
eligible under this Plan, other than members who are employees of the
Company or any of its subsidiaries.
3. Stock Unit Grants
-----------------
a. Commencing in 1995, each full quarterly installment of a
Director's Compensation shall be accompanied by the grant of an
amount of whole Stock Units equal to $1500 (as such amount may be
changed from time to time by the Board) divided by the Fair
Market Value of one share of the Company's Common Stock on the
first business day of the month following the quarter in which
such Compensation was earned, plus cash in lieu of any fractional
Stock Unit resulting from such calculation. A pro-rata grant of
Stock Units will accompany any partial quarterly Compensation
installment. "Fair Market Value" on a date means the average of
the high and low trading prices per share on that date, as
reported in The Wall Street
<PAGE>
Journal listing of consolidated trading for New York Stock
Exchange issues. Stock Units and cash so granted shall be
credited to such Director's Stock Unit Account referred to in
paragraph 6.
b. Each person serving as a member of the Board on January 25, 1996
who has elected (the "Election") to forfeit $6,000 of the annual
retirement pension under the Directors' Pension Plan pursuant to
Section 12 thereof shall receive a grant of an amount of Stock
Units equal to the dollar amount set forth in the election form
pursuant to which such person made the Election, divided by the
Fair Market Value of one share of the Company's Common Stock on
the date that the grant is credited to such Directors' Stock Unit
Account, plus cash in lieu of any fractional Stock Unit resulting
from such calculation. For all persons making the Election who
are eligible on January 25, 1996 for benefits under the
Directors' Pension Plan, such grant will be credited to such
person's Stock Unit Account on February 15, 1996. For all other
persons making the Election, such grant will be credited on the
date they become eligible for such benefits (or if such date is
not a business day, on the next business day).
c. Each person elected as a member of the Board for the first time
after January 25, 1996 shall receive, on the date such person
completes five consecutive years of service on the Board (or if
such date is not a business day, on the next business day), a
grant for immediate credit to such person's Stock Unit Account of
an amount of Stock Units equal to $85,000 (as such amount may be
changed from time to time by the Board), divided by the Fair
Market Value of one share of Common Stock on the date of such
grant, plus cash in lieu of any fractional Stock Unit resulting
from such calculation. In determining whether a person has
completed five consecutive years of service, there shall be
disregarded any period of such service during which such person
was employed by the Company or any of its subsidiaries and, in
the case of any person formerly so employed, any period after
termination of such employment if at the
<PAGE>
time of termination the person is entitled to receive benefits as
an employee under any pension plan of the Company or any of its
subsidiaries.
4. Deferral Election
-----------------
An election to defer Compensation is to be made on or before December 31
of any year for Compensation for services as a member of the Board for the
following and later calendar years. In addition to deferrals of 1995
Compensation elected in the previous year, at any time prior to March 31,
1995, a director may elect to defer additional Compensation to be paid for
services in the last three quarters of 1995.
An election to defer is a continuing election until changed by the
Director on or before December 31 of any year for the then following and
later calendar years. However, once an election is made (and effective),
subsequent elections will have no effect on the amounts, timing and manner
of payment covered by the previous election.
Any newly elected Director who was not a Director on the preceding
December 31 may elect, before his term begins, to defer Compensation for
services as a member of the Board for the balance of the calendar year
following such election.
Forms shall be made available to Directors each year for the purpose of
making or changing their election.
5. Amount
------
All or any portion, in multiples of 10%, of a Director's Compensation may
be deferred.
6. Deferred Accounts
-----------------
Each Director shall have a Stock Unit Account and a Fixed Income Account
(together, the "Accounts"). Amounts deferred pursuant to paragraph 4 may
be credited to either Account, at the election of the Director made at the
time of the deferral election, in multiples of 10% of such Director's
Compensation. Amounts deferred and credited to the Stock Unit Account
shall be converted into whole Stock Units on the basis of the Fair Market
Value of the Company's
<PAGE>
Common Stock on the first business day of the month following the quarter
in which the Compensation was earned, and cash shall be credited to the
Stock Unit Account in lieu of any fractional Stock Unit. In addition, on
or prior to March 31, 1995, each Director shall have a one-time election
to transfer all or any part of the balance of his or her Fixed Income
Account to the Stock Unit Account based on the Fair Market Value of the
Company's Common Stock on April 3, 1995.
On the payment date for each cash dividend or other cash distribution with
respect to the Company's Common Stock, each Director's Stock Unit Account
shall be credited with an amount equal to the amount of the per share
dividend or distribution, multiplied by the number of Stock Units in such
Account, and, if such Director is then serving as a member of the Board,
shall be converted into whole Stock Units on the basis of the Fair Market
Value of the Company's Common Stock on the payment date for such dividend
or distribution, and cash shall be credited to the Stock Unit Account in
lieu of any fractional Stock Units. If a Director is no longer serving as
a member of the Board on the payment date for such dividend or
distribution, the amount representing such dividend or distribution shall
be paid out of the Stock Unit Account to such Director as soon as
practicable after the payment date for such dividend or distribution.
Except as provided in the preceding sentence, any cash credited to a
Director's Stock Unit Account shall be added to other cash credited to
such Account and converted into a whole Stock Unit on the date sufficient
cash exists to purchase a whole Stock Unit, based on the Fair Market Value
of the Company's Common Stock on such date. In the event of a subdivision
or combination of shares of Company Stock, the number of Stock Units
credited to the Stock Unit Accounts on the effective date of such
subdivision or combination shall be proportionately subdivided or combined
as the case may be. No adjustment shall be made in Stock Units in
connection with the issuance by the Company of any rights or options to
acquire additional shares of Company Common Stock or securities
convertible into Company Common Stock. In the event of any stock dividend
or reclassification of Company Common Stock, any merger or consolidation
to which the Company is a party, or any spinoff of shares or distribution
of property other than cash with respect to the Company Common Stock, the
Committee shall cause appropriate
<PAGE>
adjustments, if any, to be made in the Stock Units to reflect such stock
dividend, reclassification, merger or consolidation, spinoff or
distribution of property.
Amounts credited to the Fixed Income Account shall earn interest
compounded quarterly, from the date the Compensation would otherwise have
been paid until it is actually paid in full. The rate of interest shall be
the same rate as that paid on deferrals into the "Fixed Income Account"
(formerly "Investment Account A") under the Company's Executive Incentive
Plan.
7. Distribution
------------
All distribution from Accounts shall be made in cash. For purposes of
distributions from the Stock Unit Account, each Stock Unit shall be
converted into an amount of cash equal to the Fair Market Value of one
share of the Company's Common Stock on the first business day of the month
in which such distribution is made. The Director must elect the timing and
manner of payment: (a) in the case of deferred Compensation, at the same
time and on the same form he elects a deferral of Compensation, (b) in the
case of a Stock Unit grant under 3.a., on or prior to the time an election
to defer the accompanying Compensation would have been required to be
made, (c) in the case of a Stock Unit grant under 3.b., at the same time
as the Election referred to therein, and (d) in the case of a Stock Unit
grant under 3.c., prior to the time the Director receives such grant.
- Timing of Payment: Directors may elect to begin distributions
-----------------
from the Accounts (a) following termination from the Board, (b)
in a year specified by the Director which, in the case of
distributions from the Stock Unit Account, must be after
termination from the Board, or (c) in the case of distributions
from the Fixed Income Account, following retirement from the
Director's principal occupation.
- Manner of Payment: The Director may elect to receive payment from
-----------------
the Accounts in a lump sum or in a number of equal annual
installments, not to exceed ten.
<PAGE>
The lump sum or first installment is to be paid in January of the year
following the year of termination or retirement or in January of the year
selected by the Director, as applicable, and any remaining installments in
January of each succeeding year until the total balance is paid.
Distributions from the Stock Unit Account in installments shall be based
on equal numbers of Stock Units in each installment.
In the event of the death of a Director then serving as a member of the
Board or a terminated or retired Director entitled to a distribution under
this Plan, the balance of the Accounts shall be payable to the estate or
designated beneficiary in full during the January of the year following
the year of such Director's, terminated Director's or retired Director's
death.
The Director may designate his beneficiary at the same time he elects
deferral of Compensation. However, the latest designated beneficiary will
be the beneficiary or beneficiaries for the total of all distributions
from the Accounts. The designated beneficiary may be changed at any time
on a form provided by the Corporate Secretary, provided that no
designation will be effective unless it is filed with the Corporate
Secretary prior to the Director's death.
8. Unfunded Plan
-------------
The liability of Union Pacific Corporation to any Director, terminated
Director, retired Director or his estate or designated beneficiary under
the Plan shall be that of a debtor only pursuant to such contractual
obligations as are created by the Plan, and no such obligation of the
Union Pacific Corporation shall be deemed to be secured by any assets,
pledges, or other encumbrances on any property of Union Pacific
Corporation.
9. Inalienability of Deferred Compensation
---------------------------------------
Except to the extent of the rights of a designated beneficiary, no
distribution pursuant to, or interest in, the Plan may be transferred,
assigned, pledged or otherwise alienated and no such distribution or
interest shall be subject to legal process or attachment for the payment
of any claims against any individual entitled to receive the same.
<PAGE>
10. Controlling State Law
---------------------
All questions pertaining to the construction, regulation, validity and
effect of the Plan shall be determined in accordance with the laws of the
Commonwealth of Pennsylvania.
11. Amendment
---------
The Board of Directors of Union Pacific Corporation at its sole discretion
may amend, suspend or terminate the Plan at any time. However, any such
amendment, suspension or termination of the Plan may not adversely affect
any Director's or his beneficiary's rights with respect to Compensation
previously deferred.
12. Administration
--------------
Administration of the Plan will be coordinated by the Corporate Finance
Department. Administration will include, but not be limited to, crediting
of deferred compensation, dividends and accrued interest to individual
Director accounts and ultimate disbursement of deferred amounts.
13. Effective Date
--------------
This Plan shall become effective December 1, 1978, applicable only to
compensation for services after December 31, 1978, provided that the
provisions hereof related to Stock Units shall be effective January 1,
1995.
<PAGE>
EXHIBIT 10(z)
UNION PACIFIC CORPORATION
BOARD OF DIRECTORS' CHARITABLE CONTRIBUTION PLAN
PURPOSE
. The purpose of the Plan is to provide the Corporation and the Board of
Directors an opportunity to jointly provide substantial future contributions
to select charitable organizations, including the Union Pacific Foundation.
ELIGIBILITY
. All current Directors of Union Pacific Corporation are eligible to
participate in the Union Pacific Corporation Board of Directors' Charitable
Contribution Plan. Persons who are elected to the Corporation's Board of
Directors after September 29, 1988, the date of adoption of the Plan, will
become eligible upon election.
. Former Directors of the Corporation will continue to participate in the Plan
after ceasing service as a Director. However, former Directors, whose service
ceased prior to September 29, 1988, shall not be eligible to participate in
the Plan.
VESTING
. Directors will be fully vested in the Plan upon the completion of sixty full
months of service as a Director. Directors who are fully vested may recommend
a $500,000 charitable donation, while charitable donations on behalf of
Directors who have served for less than sixty months will be disbursed as
follows:
<PAGE>
<TABLE>
<CAPTION>
AMOUNT TO AMOUNT TO
RECOMMENDED EXTERNAL
MONTHS OF SERVICE UNION PACIFIC FOUNDATION CHARITY(IES)
<S> <C> <C>
Less than 12 $900,000 $100,000
12-35 800,000 200,000
36-47 700,000 300,000
48-59 600,000 400,000
60 or more 500,000 500,000
</TABLE>
. Service as a Director prior to September 29, 1988, the date of the adoption
of the Plan, shall be considered as eligible service for purposes of
computing the sixty month vesting period.
CHARITABLE CONTRIBUTION
. The Corporation will contribute to the Union Pacific Foundation and the
charity(ies) recommended by the Director $1,000,000 in the Director's name.
The division of the contribution between the Union Pacific Foundation and the
charity(ies) recommended by the Director will be determined in accordance
with the above vesting schedule.
. The charitable contribution will be made subsequent to the participant's
death, but in no event any later than ten years following the participant's
death.
RECOMMENDATION OF CHARITABLE BENEFICIARY
. Each Director must complete a Charitable/Non-Profit Organization
----------------------------------
Recommendation Form (Attachment A).
-------------------
. Each Director may recommend one or more charities to receive up to $500,000.
However, no more than two charities may be recommended by any one Director,
and the amount of the recommended contribution must be not less than $100,000
to any one charity. If a Director terminates service prior to being fully
vested in the Plan, the amount paid to the recommended charity or charities
will be reduced in accordance with the above vesting schedule. If more than
one charity is recommended, the reduction will be calculated on a pro-rata
basis unless the beneficiary recommendation form provides otherwise.
. Each charity recommended by a Director must be a tax-exempt organization
under Section 501 of the Internal Revenue Code.
<PAGE>
. Each recommendation of a charitable beneficiary by the Director may be
revised by filing a new form with the Secretary of the Corporation. In
addition, the Corporation reserves the right to select a different
beneficiary if the recommended organization ceases to qualify as a tax-exempt
organization or the Corporation determines that the activities of the
recommended organization are not or cease to be compatible with the goals and
objectives of the Corporation's philanthropic program.
. Each charity recommended by a Director will receive a letter from the
Corporation similar to the sample shown in Attachment B.
MISCELLANEOUS PROVISIONS
. The Corporation will purchase a life insurance policy or policies insuring
the lives of the Directors. The Corporation will be the owner and beneficiary
thereof. Directors shall have no rights or beneficial ownership interests in
any such policy or policies acquired by the Corporation.
. A participant Director's rights and interest under the Plan may not be
assigned or transferred.
. The expenses of the Plan shall be borne by the Corporation. No contribution
from a Director shall be acquired nor shall a Director forego other
compensation or benefits to participate.
. The Plan may be amended or terminated at any time by the Board as the Board
shall deem advisable.
<PAGE>
________________________________________________________________________________
Union Pacific Corporation Board of Directors' Charitable Contribution Plan
ATTACHMENT A
UNION PACIFIC CORPORATION
BOARD OF DIRECTORS' CHARITABLE CONTRIBUTION PLAN
CHARITABLE/NON-PROFIT ORGANIZATION RECOMMENDATION
Pursuant to the provisions of the Union Pacific Corporation Board of Directors'
Charitable Contribution Plan, I understand that I may recommend up to two
charitable/non-profit organizations to receive a total of $500,000 in may name,
if I have completed five years of service as a Director of the Corporation, in
the amounts of $100,000 or more for each. In recognition of the above, I hereby
make the following beneficiary recommendations as of the date set forth herein:
<TABLE>
<CAPTION>
CHARITABLE/NON-PROFIT ADDRESS OF
ORGANIZATION ORGANIZATION AMOUNT
<S> <C> <C>
1.__________________ ____________________ $___________________
____________________ ____________________ ____________________
2.__________________ ____________________ $___________________
____________________ ____________________ ____________________
</TABLE>
<PAGE>
I understand that if I served for less than five years as a Director prior to my
death, the Corporation will prorate its contributions to the charitable
organization(s) recommended above according to the vesting schedule expressed in
the Union Pacific Corporation Board of Directors' Charitable Contribution Plan
and in the same proportion as indicated above unless I instruct the Corporation
in writing to the contrary.
I understand that the organization(s) I select must be qualified as tax-exempt
under Section 501 of the Internal Revenue Code. I also understand that the
Corporation reserves the right to make the donation to another organization if
my recommended organization is not, or ceases to be qualified under Section 501
of the Internal Revenue Code, or to be compatible with the Corporation's
philanthropic program. I understand that the Plan may be amended or terminated
at anytime by the Board of Directors as the Board shall deem advisable.
I further understand that this beneficiary recommendation may be revoked or
revised by me prior to my death. This recommendation will, in fact, be revoked
if I complete a Charitable/Non-Profit Organization Recommendation Form of later
date and file it with the Secretary of the Union Pacific Corporation. I
understand that in order to make this change of beneficiary recommendation
valid, I must receive in writing a confirmation from the Secretary of Union
Pacific Corporation.
_____ ________________________
Dated Director's Name
________________________
Director's Signature
<PAGE>
________________________________________________________________________________
Union Pacific Corporation Board of Directors' Charitable Contribution Plan
ATTACHMENT B
Sample Letter to Recommended Charitable/Non-Profit Organization
Date
Mr./Mrs.___________________
Executive Director
Organization Name
Address
City, State, Zip
Dear ___________________:
On behalf of Union Pacific Corporation, I am pleased to inform you that your
organization has been recommended as a potential beneficiary of $_______ at the
request of (Director's Name), a member of our Board of Directors and a
participant in our Directors' Charitable Contribution Plan.
Under this program, (Director's Name) has requested that $________ be donated to
your organization by Union Pacific Corporation no later than ten (10) years
following his/her death. Please be aware that this is a revocable
recommendation, and at the Corporation's or the Director's discretion, may be
changed or terminated at any time during his/her lifetime. In addition, if
(Director's Name) terminates his service on the Board prior to having five years
in service, the amount of the contribution will be reduced.
There is no action required on the part of your organization to participate in
this program.
We are delighted that your institution has been recommended for a future
donation. In addition to supporting the personal commitment of (Director's Name)
to your activities, Union Pacific Corporation is pleased to have the opportunity
to encourage your continued valuable contributions to society at large.
Very truly yours,
Drew Lewis
Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT 11
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Weighted average number of shares outstanding..... 204,930 205,105 204,854
Average shares issuable on exercise of
stock options less shares repurchasable
from proceeds................................... 825 502 660
--------- -------- ---------
Weighted average number of shares used
in computation of earnings per share............ 205,755 205,607 205,514
========= ======== =========
Income from continuing operations................. $619,289 $568,631 $ 411,775
Income (loss) from discontinued operations (a).... 326,542 (22,429) 234,550
Cumulative effect to January 1, 1993 of changes...
in accounting principles (b).................... -- -- (116,194)
--------- -------- ---------
Net Income........................................ $945,831 $546,202 $ 530,131
========= ======== =========
Earnings per share:
Income from continuing operations............... $ 3.01 $ 2.76 $ 2.00
Income (loss) from discontinued operations (a).. 1.59 (0.10) 1.14
Cumulative effect to January 1, 1993 of
changes in accounting principles (b).......... -- -- (0.56)
-------- -------- ---------
Net Income $ 4.60 $ 2.66 $ 2.58
======== ======== =========
</TABLE>
(a) All computations have been restated to reflect Resources and USPCI as
discontinued operations (See Note 2 to the Financial Statements).
(b) See Note 4 to the Financial Statements regarding the 1993 accounting
changes.
<PAGE>
EXHIBIT 12
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RATIO OF EARNINGS TO FIXED CHARGES (A)
(Thousands of Dollars, Except for Ratio)
<TABLE>
<CAPTION>
1991 Without
Special
1995 1994 1993 1992 1991 Charge
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations (b/c) $ 619,289 $ 568,631 $ 411,775 $ 455,967 $(123,470) $ 397,930
Deduct distributions to extent
less than income of affiliates (23,893) (43,663) (32,426) (22,278) (10,559) (10,559)
---------- ---------- ---------- ---------- --------- ----------
Total 595,396 524,968 379,349 433,689 (134,029) 387,371
---------- ---------- ---------- ---------- --------- ----------
Income taxes (c):
Federal, state and local 313,590 329,586 317,913 265,536 (29,227) 239,373
---------- ---------- ---------- ---------- --------- ----------
Fixed charges:
Interest expense including
amortization of debt discount 450,182 347,188 311,698 342,479 372,891 372,891
Portion of rentals representing
an interest factor 65,258 41,975 33,224 34,897 37,696 37,696
---------- ---------- ---------- ---------- --------- ----------
Total 515,440 389,163 344,922 377,376 410,587 410,587
---------- ---------- ---------- ---------- --------- ----------
Earnings available for
fixed charges $1,424,426 $1,243,717 $1,042,184 $1,076,601 $ 247,331 $1,037,331
========== ========== ========== ========== ========= ==========
Fixed charges - as above $ 515,440 $ 389,163 $ 344,922 $ 377,376 $ 410,587 $ 410,587
Interest capitalized -- -- 224 50 1,038 1,038
---------- ---------- ---------- ---------- --------- ----------
Total $ 515,440 $ 389,163 $ 345,146 $ 377,426 $ 411,625 $ 411,625
========== ========== ========== ========== ========= ==========
Ratio of earnings to
fixed charges 2.8 3.2 3.0 2.9 0.6 2.5
========== ========== ========== ========== ========= ==========
</TABLE>
(a) All information presented has been restated to reflect Resources and USPCI
as discontinued operations (See Note 2 to the Financial Statements).
(b) Before cumulative effect of changes in accounting principles of $116
million after tax in 1993 (See Note 4 to the Financial Statements).
(c) In 1993, income from continuing operations and income taxes included the
impact of the adoption of the Omnibus Budget Reconciliation Act of 1993
(See Notes 4 and 7 to the Financial Statements).
<PAGE>
EXHIBIT 13
UNION PACIFIC CORPORATION
PAGES 5 THROUGH 53, INCLUSIVE, OF UNION PACIFIC'S ANNUAL REPORT TO
STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995, BUT EXCLUDING PHOTOGRAPHS SET
FORTH ON PAGES 5 THROUGH 21, NONE OF WHICH SUPPLEMENTS THE TEXT AND WHICH ARE
NOT OTHERWISE REQUIRED TO BE DISCLOSED IN THIS ANNUAL REPORT ON FORM 10-K.
<TABLE>
<CAPTION>
Union Pacific Railroad
1995 1994 1993
- -------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (millions) $6,326 $5,318 $4,987
Operating income (millions) $1,384 $1,173 $1,042
Carloadings (thousands) 5,568 4,991 4,619
Operating ratio 78.1 77.9 79.1
- -------------------------------------------------------
</TABLE>
Engineer Dale Rhoades, a railroader since 1971, runs one of the nearly 25 Union
Pacific coal trains that cross the recently double-tracked Nacco Bridge every
day in Wyoming's Powder River Basin.
Efforts like Dale's helped the Railroad move a record amount of freight in 1995,
despite a sluggish operating environment in the second half of the year. The
Railroad achieved net income of $867 million, a 15 percent increase over last
year's $754 million. Carloads rose nearly 12 percent overall, including
incremental carloadings from the Chicago and North Western (CNW) consolidation.
Despite the effects of bringing the CNW on line, the Railroad's operating ratio
remained essentially flat - 78.1 in 1995 compared to 77.9 in 1994. The 1995
operating ratio held even with 1994 on a pro forma basis. Revenue per car
improved to $1,097, a 5 percent gain from 1994, primarily a result of increased
haul lengths from the CNW acquisition.
Strengthening the System
Last year two significant developments took place that will change the physical
shape of the Railroad and be linchpins to its future operations. One has been
completed, while the other is under regulatory review.
Chicago and North Western Merger
In the second quarter, Union Pacific completed its merger with the CNW. As part
of the Railroad system, the CNW lines immediately strengthen UPRR's capacity to
compete in many western freight corridors, lengthen coal shipments out of the
Powder River Basin, fortify grain hauls from the upper Midwest, and improve
intermodal traffic from the major West Coast ports to the Midwest.
As the Railroad began a swift merging of the CNW into its system, a record grain
harvest, high export demand and an increased average length of haul - combined
with reduced locomotive availability (partially due to manufacturing delays) -
resulted in operating difficulties. To resolve these issues, the Railroad
immediately initiated a multifaceted plan to return operations to previous
levels.
Agreement to Acquire the Southern Pacific
In August, an agreement was reached calling for the merger of the Southern
Pacific (SP) with Union Pacific. This $5.4 billion transaction would form North
America's largest railroad, a 37,000-mile network connecting 25 states, serving
both Mexico and Canada.
5
<PAGE>
(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
6
<PAGE>
(Two photographs, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
Combining the SP with Union Pacific adds to the Railroad's ability to compete
head-to-head with the Burlington Northern Santa Fe.
This transaction is aimed at providing extensive new single-line service, faster
schedules, more frequent and reliable service, shorter routes, and improved
equipment utilization. Specific areas of anticipated business growth include
intermodal traffic between the Memphis and New Orleans gateways and from Texas
to the West Coast, and transportation of food, paper and forest products from
the West Coast to the East and the South, as well as increased movement of
Midwest grain and grain products to the West. For the Railroad, total economic
benefits from the proposed merger are estimated to be $660 million per year,
once the merger is fully implemented.
To preserve or intensify rail competition in anticipation of the UP/SP merger, a
comprehensive agreement with Burlington Northern Santa Fe was announced in
September. Under the agreement, UP/SP will share more than 3,800 miles of track
with BNSF under trackage rights and sell more than 335 miles of track to BNSF.
This agreement backs up a UP promise to customers to bring strong rail
competition to every point that would lose a two-carrier option.
Management Change
In July, Ron Burns was named president and chief executive officer at the
Railroad, replacing Dick Davidson, who was elected chief operating officer of
Union Pacific Corporation. Burns, who joined the Railroad August 1, has begun a
number of employee involvement initiatives throughout the Railroad and has
created the Customer Service Planning and Delivery Group to focus on improving
day-to-day customer service and train operations.
Highlights for 1995
With the addition of the CNW to the Railroad's base business, carloadings
improved across UPRR's diverse mix of commodities. The Railroad achieved record
shipments of grain in 1995, hauling more than 616,000 carloads, a 53 percent
increase from last year.
Coal was another commodity that performed well, as UPRR hauled nearly 1.4
7
<PAGE>
million carloadings, up 9 percent from 1994. Over 100 million tons came out of
the Powder River Basin as demand for the basin's low-sulfur fuel grew. To meet
customer needs, important links along this high-traffic route have been triple-
tracked, with quadruple tracking planned for the North Platte yard area this
year.
Increased business in Mexico, improved vehicle handling and dedicated train
service helped UPRR raise its auto traffic 15 percent in 1995. Contracts with
both Chrysler and General Motors in Mexico provided solid growth, as did
increased shipments of sport utility vehicles in the United States. The Railroad
anticipates steady auto traffic with these two markets throughout 1996.
A strong first half of the year helped chemicals record a 10 percent gain in
volume and an 8 percent increase in revenue. Soda ash business was strong, as
exports reached record levels. New markets in potash produced record shipments
as well. While the petrochemical industry was flat in 1995, the Railroad looks
for expansion in the plastics business to bolster that commodity in the coming
year.
Heading into 1995, the Railroad expected intermodal traffic to resume its long-
term growth trend. A softer economy reduced volumes 2 percent to 1.4 million
loads. With a greater commitment to customer service, the Railroad expects to
increase its intermodal business to the ports on the Gulf of Mexico and the West
Coast.
Mexico
With continued strength in the auto segment and an anticipated resurgence in
intermodal traffic, the Railroad continues to view Mexico as a solid market for
future business, despite a downturn in the Mexican economy in 1995. A 25 percent
increase in UPRR's automotive volumes almost offset the drop in intermodal
traffic, while all other commodities remained relatively flat.
During the second half of 1996, the Mexican government is expected to grant
concessions to private companies bidding to run its rail system. Union Pacific
will be evaluating whether to make significant capital investments in the
network along with a Mexican partner.
(Two photographs, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
8
<PAGE>
(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
9
<PAGE>
(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
10
<PAGE>
<TABLE>
<CAPTION>
Overnite Transportation
1995 1994 1993
- -------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (millions) $ 976 $1,037 $ 939
Operating (loss)income
(millions) $ (49) $ 67 $ 69
Operating ratio (a) 103.0 91.3 90.2
- -------------------------------------------------------
</TABLE>
(a) Excludes goodwill amortization.
Bob Kowalski has been carrying the ball for Overnite for nine years. So it is
natural for him to deliver Wilson footballs to Giants Stadium from the nearby
Moonachie, New Jersey terminal.
Overnite carries Wilson sporting goods, from tennis balls to footballs, to major
arenas all over the country - as one of its many alliances with America's
leading manufacturers.
Unfortunately, in 1995 Bob and his colleagues operated in one of the worst
pricing environments in many years, with over-capacity throughout the industry
and severe pressure from regional carriers. A sluggish economy also contributed
to a 4 percent decline in Overnite's volumes. These factors - coupled with the
disruption of a year-long attempt by the Teamsters to unionize Overnite -
resulted in a loss of $10 million in 1995 before goodwill, compared to earnings
of $64 million before goodwill in 1994.
Turning Overnite Around
Adapting to this highly competitive environment, Overnite has embarked on a
program to return to profitability, implementing a blueprint to make itself
leaner and more efficient.
To carry out this plan, teams have analyzed and are putting into place operating
practices to improve every aspect of the business, including:
- - Increasing loading-dock efficiency, simplifying layouts, and improving
outbound and inbound scheduling.
- - Improving terminal operations, which includes slimming down the
complicated pickup-and-delivery operations at each service center, largely by
introducing greater efficiency in routing and scheduling patterns.
- - Streamlining line-haul movements, which involves moving more on each trailer
and closing down under-utilized lanes.
- - Rationalizing capacity throughout the system to reduce light or empty
backhauls.
- - Concentrating sales efforts on freight best suited to Overnite's service
capabilities, with particular focus on commodities, lanes, and other
characteristics that match the company's operational strengths.
- - Analyzing general and administrative practices throughout the company to
lower costs and to make Overnite's entire infrastructure more efficient.
11
<PAGE>
(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
Higher Productivity the Key
The driving force behind these initiatives is to increase productivity and
service at every level - to become a trimmer and more customer-oriented
organization, from the headquarters to the most distant loading dock. This
process-driven effort is designed to reduce costs substantially while improving
service capabilities and reliability.
Every initiative has quantitative benchmarks and specific goals, with cost-
cutting and flexibility the key thrusts of Overnite's campaign to improve its
operating ratio significantly.
Another part of Overnite's re-engineering campaign is a reexamination of its
commodity mix and its effect on profits. The company will focus on shipping
higher-margin, less cyclical commodities, a natural fit with its strategy to
upgrade its line-haul structure and its terminal performance.
Centralized Dispatching
At the heart of Overnite's top-to-bottom effort to streamline every operation is
its Richmond-based, Computerized Central Dispatching (CCD) System. Phase I of
CCD, which is already on line, automates all extra loads from every service
center, while Phase II, which will begin operating in mid-year, tracks all line-
haul traffic. CCD will soon be able to monitor freight throughout the 175
service centers in the company's network on a daily basis. Phase III, scheduled
for early 1997, will optimize the match between drivers and loads, long a
problem in the trucking industry.
The main goal of CCD and its companion system - Overnite's Centralized Customer
Service and Billing Center - is to improve on-time deliveries to industry-high
levels and to enhance customer service. These operations are the future of
Overnite.
12
<PAGE>
One photograph, not incorporated by reference - see prefacing comment on Exhibit
13 Cover Page.)
13
<PAGE>
One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
14
<PAGE>
Skyway Freight Systems
Tiffany Zermatten, a program coordinator in Dallas, is top gun when it comes to
processing Hewlett-Packard monitors from Exeter, New Hampshire and Sacramento,
California.
These monitors will be made customer-ready and shipped for on-time delivery to
Hewlett-Packard divisions, a service that helped make 1995 a successful year
for Tiffany and her co-workers at Skyway Freight Systems.
Skyway capitalized on a strong logistics and expedited transportation market to
boost revenues 22 percent to over $150 million in 1995. Its ability to manage
the entire flow of operations - from receiving components to delivering finished
products - brought customers critical time and cost savings as well as
reliability in marketplaces throughout North America.
Skyway has been able to grow its business by developing customized logistics
packages that include the most customer-sensitive services and applications. The
company's cross-functional customer teams manage each account, often with on-
site support. These teams, coupled with a globally integrated transportation and
tracking system, can take days or even weeks out of a customer's cycle time -
the total period required to bring goods to market. And to ensure the best
customer service, Skyway has established partnerships with the best possible
providers of transportation.
Working with Union Pacific Technologies, Skyway is developing the next
generation of its global shipment-tracking system that will give customers
unique product control. This enables them to monitor shipments down to the part
number, which significantly reduces the costly movement of real inventory and
provides just-in-time capabilities to companies large and small. Skyway has also
developed a shipment-tracking program that can be accessed on the Internet.
Using its unique transportation software packages, Skyway increased its total
tonnage by 17 percent in 1995. Customers benefited from Skyway's new carrier
optimization program, providing the best delivery information based on a
customer's preference for either price or routing.
15
<PAGE>
(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
16
<PAGE>
<TABLE>
<CAPTION>
Union Pacific Resources
1995 1994 (c) 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues (millions)(a) $1,456 $1,333 $1,277
Operating income (millions)(a) $ 470 $ 351 $ 383
Proved reserves (Bcfe) (b) 3,277 3,054 2,673
Equity production (Bcfe)(b) 525 471 417
</TABLE>
(a) 1995 includes $123 million from the Columbia Gas settlement.
(b) Oil and natural gas liquids converted on a BTU basis to cubic feet of gas
equivalent on a ratio of one barrel of oil to 6,000 cubic feet of gas.
(c) Includes the first quarter 1994 acquisition of Amax Oil & Gas, Inc.
Jack Bentley has every reason to smile. As UP Resources' mechanical foreman for
the Ozona area in West Texas, he was part of a team that upgraded its two
processing facilities, increasing total capacity more than 100 percent to 180
million cubic feet of natural gas a day in 1995.
UP Resources (UPR) is the nation's premier independent oil and gas company and
has consistently performed well in a flat-price world. Despite a difficult
pricing environment, UPR, as a stand-alone company, had a strong earnings year
in 1995, with net income of $351 million, including $79 million from the
Columbia Gas bankruptcy settlement. Earnings in 1994, including $100 million
from the Wilmington oil field sale, were $390 million. UPR produced 11 percent
more equity gas and oil (on a barrels of oil equivalent basis), which partially
offset a 21 percent decline in gas price realizations.
In October 1995, the corporation completed an initial public offering of 17
percent of UP Resources' common stock at $21 a share. The remaining 83 percent
of the shares will be distributed to UP stockholders upon a ruling from the IRS
that the transaction is tax-free and upon the completion or termination of the
Southern Pacific merger.
Broad Production, Exploration Gains
In 1995, UPR maintained its ranking as the country's leading independent
exploration and production company in a broad range of categories. Compared with
its domestic peers, UP Resources was first in profitability, sales volumes, net
undeveloped acreage and operated rigs. These accomplishments are based on one of
the most focused operating strategies in the industry.
In the Austin Chalk play in South and East Texas, UP Resources increased
production 13 percent, the seventh annual gain. Since 1988, UPR has completed
more than 1,100 horizontal wells in the trend. In 1995, the company stretched
this play into western Louisiana, drilling a very promising well and
participating in four others that could lead to substantial gas gains throughout
this region.
17
<PAGE>
(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
18
<PAGE>
(Two photographs, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
South Louisiana provides another fine prospect for redevelopment of previously
played-out areas. In a 200-mile-wide region of bayous and swamps, UP Resources
is capitalizing on a large bank of 3-D seismology. The company expects to
participate in up to 15 wells in 1996 - tapping both the shallow and deep
formations. Wells in this area can produce up to 15 million cubic feet a day -
with productive lives of seven to 10 years - in fields that have been prolific
for many decades.
Ozona Developments
Farther west in the Ozona field, the company has doubled gas processing capacity
and drilled over 400 wells since acquiring this area in early 1994. In this
region, UPR has reduced drilling costs 30 percent, and 3-D seismic data is being
acquired to explore deep formations. In 1995, the company drilled three
horizontal wells in deeper formations in the Ozona field.
Up north, on the 7.5 million acre Land Grant, UPR - with the Department of
Energy (DOE) providing the majority of the funding - drilled a 16,500-foot well
to test the commercial potential of the huge gas reserves in southwestern
Wyoming. The DOE estimates that trillions of cubic feet of gas lie in this
region, with up to 30 percent under the Land Grant. Farther east, in the Red
Desert area, the company has completed 400 square miles of 3-D seismic surveys,
which could generate several promising drilling programs.
Marketing Innovations
By the end of 1995, about 80 percent of UPR's output was gas and plant liquids.
For several years, UP Resources' marketing subsidiary, Union Pacific Fuels,
Inc., has been marketing gas directly to customers, bypassing pipelines and
intermediaries.
19
<PAGE>
(One photograph, not incorporated by reference - see prefacing comment on
Exhibit 13 Cover Page.)
20
<PAGE>
Union Pacific Technologies
Keita Stuckey joined Union Pacific Technologies (UPT) four years ago after
learning about opportunities at a recruiting fair (similar to the one pictured)
for University of Arkansas-Pine Bluff students.
Keita, who is well-schooled in computer technology and transportation software,
has helped Technologies deliver application programs to the corporation's
operating companies and other commercial businesses.
Within the corporation, UPT's most intensive project in 1995 was implementing
the Transportation Control System (TCS) on the Chicago and North Western (CNW)
lines, bringing CNW into the Railroad's operating system. Technologies
coordinated over 700 different activities, made significant software changes to
handle unique CNW operating requirements, and provided support for training over
2,000 employees at more than 80 sites, all of which was instrumental to the
successful CNW cutover.
With Overnite, Technologies helped to launch an advanced Computerized Central
Dispatching System and made several major enhancements to its Centralized
Customer Service and Billing System. UPT also developed a logistics modeling
capability to support marketing and sales and provided this program to Skyway,
which is using it to create proposals for a variety of potential and existing
customers.
In commercial business, Technologies implemented its TCS System on the Algoma
Central (a Canadian railroad owned by the Wisconsin Central) and on the Alton &
Southern Railroad, a terminal railroad that manages the flow of traffic through
the St. Louis gateway. Shipment management continues to be a growing business
for UPT, with the company monitoring over 50,000 shipments a month for its
commercial clients.
Technologies also made headway in its international business. Working with the
National Railway of Mexico, Technologies has now installed TCS car and train
reporting at 40 locations and yard inventory management at 26 locations.
Expansion will continue throughout 1996. Technologies also has met with a number
of European railroads interested in its engineering applications and has
completed a feasibility study for the Italian railroad.
21
<PAGE>
FINANCIAL REVIEW
CONSOLIDATED RESULTS OF OPERATIONS
This review should be read with the financial statements, notes and
supplementary information.
CORPORATE REORGANIZATION
WASTE MANAGEMENT DIVESTITURE - At year-end 1994, Union Pacific Corporation (UPC
or the Corporation) completed the sale of its waste management subsidiary,
USPCI, Inc. (USPCI) for $225 million in notes that were subsequently collected
in January 1995. The sale resulted in a loss of $600 million ($404 million
after tax). In addition, 1994 results included an $8 million net loss from
USPCI's operations (see Note 2 to the Financial Statements).
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY (CNW) - In March 1995, the
Corporation executed a definitive merger agreement to acquire the remaining
71.6% of CNW's outstanding common stock not previously owned by UPC for $1.2
billion. Under this agreement, UPC initiated a cash tender offer in March 1995
for all outstanding CNW shares at $35 per share, which was completed in late
April 1995. The acquisition of CNW was accounted for as a purchase and CNW's
financial results were consolidated into UPC beginning in May 1995 (see Note 3
to the Financial Statements).
NATURAL RESOURCES DIVESTITURE - In July 1995, UPC's Board of Directors approved
a formal plan to exit its natural resources business. The plan includes an
initial public offering (IPO) of Union Pacific Resources Group Inc.'s
(Resources) common stock followed by the distribution of UPC's interest in
Resources to the Corporation's stockholders on a tax-free, pro-rata basis.
The IPO of Resources was completed in October 1995 and consisted of 42.5
million shares of common stock or 17.1% of Resources' outstanding common stock.
The IPO was priced at $21 per share and generated net proceeds of $844 million.
In connection with the IPO, Resources distributed to UPC by dividend $1,562
million ($912 million in cash and $650 million in notes bearing interest at 8.5%
per annum), and an intercompany balance of $59 million (see Note 2 to the
Financial Statements).
The Corporation expects that the final distribution of Resources will occur once
UPC has received a favorable ruling from the Internal Revenue Service on the
tax-free nature of the distribution and after the completion or termination of
the acquisition of Southern Pacific Rail Corporation (Southern Pacific). UPC
anticipates that these events will occur in mid-to-late 1996.
SOUTHERN PACIFIC ACQUISITION - In August 1995, UPC and Southern Pacific entered
into a definitive merger agreement (the Agreement) providing for the acquisition
of Southern Pacific by UPC. Under the terms of the Agreement, UPC acquired 25%
of Southern Pacific's common stock in a first-step cash tender offer. Following
approval of the Southern Pacific acquisition by the Surface Transportation Board
(STB) of the Department of Transportation--the successor to the Interstate
Commerce Commission--UPC will complete the acquisition of Southern Pacific by
exchanging each of the remaining Southern Pacific common shares, at the holder's
election and subject to proration, for $25 or 0.4065 shares of UPC common stock.
As a result, UPC will convert 60% of Southern Pacific's outstanding shares
immediately before the acquisition into shares of UPC common stock, with the
remaining 40% of the outstanding shares, including the shares acquired in the
first-step cash tender offer, being acquired for cash.
UPC completed the first-step cash tender offer in September 1995 pursuant to
which approximately 39 million common shares or 25% of the outstanding common
shares of Southern Pacific were acquired by UPC at $25 per share. UPC deposited
these shares in an independent voting trust pending STB approval of the
acquisition of Southern Pacific (see Note 3 to the Financial Statements).
The Corporation filed an application for control of Southern Pacific with the
STB in late November 1995. The STB has adopted an expedited schedule under
which it intends to render a final decision within 255 days of filing the
original application. Should the acquisition of Southern Pacific not be approved
by the STB, or should the STB impose onerous approval conditions, the
Corporation may be required to or may choose to dispose of its initial
investment in Southern Pacific. Such a disposition could cause
22
<PAGE>
(Two Graphs of Union Pacific Corporation Operating Revenues)
<TABLE>
<CAPTION>
Millions
1991 1992 1993 1994 1995*
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Operating Revenues $5,687 $5,773 $6,002 $6,492 $7,486
</TABLE>
* Includes CNW Acquisition
<TABLE>
<S> <C> <C>
Operating revenues: Railroad 84.5%
(Pie Chart) Trucking 13.0%
Other 2.5%
</TABLE>
UPC to incur a significant loss on its investment in Southern Pacific. However,
the Corporation believes that the STB will approve its application for control
of Southern Pacific without onerous conditions.
1995 COMPARED TO 1994
CONSOLIDATED RESULTS
The Corporation's 1995 net income was $946 million ($4.60 per share), compared
to $546 million ($2.66 per share) in 1994. Results for 1995 included the
effects of the acquisition of CNW and the receipt by Resources of a $79 million
after-tax bankruptcy settlement from Columbia Gas Transmission Company
(Columbia) (see Note 14 to the Financial Statements). Results for 1994 included
a $404 million net loss from the sale of UPC's waste management business and the
benefit of a $116 million after-tax gain resulting from the sale of Resources'
Wilmington field.
RESULTS OF CONTINUING OPERATIONS
CONSOLIDATED - Income from continuing operations improved $51 million (9%) in
1995 to $619 million ($3.01 per share), as a $113 million improvement at Union
Pacific Railroad Company, its affiliate Missouri Pacific Railroad Company and
CNW (collectively the Railroad) was partially offset by a $71 million earnings
decline at Overnite Transportation Company (Overnite).
Consolidated operating revenues increased $994 million (15%) to $7.49 billion
in 1995, as the Railroad's operating revenue improvement of just more than $1
billion (reflecting the acquisition of CNW, increased base carloadings and a
higher average commodity revenue per car) was slightly tempered by a $61 million
decline in operating revenues at Overnite.
Consolidated operating expenses rose $897 million to $6.15 billion. The
addition of CNW operations, rail volume growth, rail traffic congestion in 1995
and inflation were the primary reasons for increases in salaries, wages and
employee benefits ($366 million), equipment and other rents ($147 million), fuel
and utility costs ($94 million), materials and supplies ($33 million),
maintenance and repairs ($22 million) and third-party transportation ($17
million). Depreciation charges were up $101 million because of the CNW
properties acquired and the Corporation's capital spending. Other cost
increases also occurred in contracted services ($32 million), reflecting the
addition of CNW; personal injury costs ($29 million), resulting from the
acquisition of CNW and higher claims costs; the cost of real estate sold ($16
million), resulting from higher real estate sales activity; other taxes ($14
million), reflecting the addition of CNW; and insurance costs ($7 million) due
to the absence of 1994 premium refunds.
Consolidated operating income advanced $97 million (8%) to $1.34 billion in
1995, reflecting a $211 million improvement at the Railroad partially offset by
weaker operating results at Overnite. Other income increased $41 million from
higher gains on property sales and interest associated with 1995 Railroad
Retirement Tax claim settlements. Interest expense rose $103 million,
principally from the higher debt levels associated with the CNW acquisition and
the Southern Pacific first-step cash tender offer. Income from continuing
operations as a percentage of operating revenues fell to 8.3% in 1995 from 8.7%
in 1994, reflecting Overnite's performance decline. Return on average common
stockholders' equity improved to 16.5% in 1995 from 10.9% a year ago, reflecting
1995 net income growth.
RAILROAD - The Railroad earned $867 million in 1995, a 15% increase from $754
million last year. Earnings improvements reflected the addition of CNW, base
volume growth and improvements in average prices, which more than offset a $65
million after-tax increase in interest cost related to financing the CNW and
Southern Pacific acquisitions. The CNW acquisition added roughly $16 million to
the Railroad's bottom line in 1995.
Revenues improved $1.01 billion (19%) to $6.33 billion, as CNW business of
approximately $800 million combined with a 5% improvement in average commodity
revenue per car, reflecting a longer average length of haul, favorable traffic
mix shifts and pricing improvements. Carloadings grew 12% (nearly 577,000 cars)
year-over-year, resulting from net incremental volumes from the acquisition of
CNW, and business expansion detailed as follows:
23
<PAGE>
(Graph of Union Pacific Railroad Carloadings Diversity)
<TABLE>
<S> <C> <C>
Carloadings Diversity: Intermodal 25.4%
(Pie Chart) Energy 24.6%
Metals/Minerals/Forest 14.7%
Chemicals 12.1%
Grain 11.1%
Autos 7.3%
Food/Consumer/Government 4.8%
</TABLE>
(Graph of Union Pacific Railroad Commodity Revenue Diversity)
<TABLE>
<S> <C> <C>
Commodity Revenue Diversity Intermodal 14.5%
(Pie Chart) Energy 21.2%
Metals/Minerals/Forest 14.4%
Chemicals 19.5%
Grain 14.2%
Autos 10.4%
Food/Consumer/Government 5.8%
</TABLE>
INTERMODAL: Intermodal volumes decreased 2%, as the devaluation of the Mexican
Peso continued to hamper southbound Mexican traffic. In addition, intermodal
volumes were depressed by selective avoidance of lower-margin business and
fierce competition from trucking companies with excess capacity.
ENERGY: Energy carloadings rose 9% due to increased coal traffic out of the
Powder River Basin. In 1995, the Railroad averaged 22 trains per day out of the
Powder River compared to 19 a year ago. Traffic gains out of the Powder River
were partially countered by volume declines in other western mines, reflecting
lower export demand and increased competition in coal versus hydroelectric power
generation.
METALS, MINERALS AND FOREST PRODUCTS: Metals, minerals and forest products
carloadings rose 25%, as CNW volumes combined with strong improvements in steel
and cement shipments. Construction-related commodity shipments also improved
due to favorable construction market conditions in the Midwest, Southeast and
Southwest. These increases were partially offset by weaknesses in stone and
nonmetallic mineral volumes, as well as lower lumber (reflecting a soft housing
market) and paper shipments.
CHEMICALS: Chemical carloadings improved 10%, as additional CNW volumes combined
with higher domestic and export soda ash shipments. These volume gains were
partially countered by lower fertilizer shipments (reflecting limited car
supplies), decreased hazardous waste volumes (due to the completion of several
major remediation projects) and lower liquid and dry chemical movements (caused
by poor economic conditions in the chemical industry).
GRAIN AND GRAIN PRODUCTS: Grain carloadings grew 53% over last year, reflecting
not only the addition of CNW volumes, but also carloading improvements caused by
greater export demand. Higher exports were led by corn movements to the Pacific
Rim and China, and an increase in wheat carloadings. Despite significant year-
over-year growth, grain shipments were hampered by congestion, and crew and
power shortages in 1995.
AUTOMOTIVE: Auto shipments rose 15% despite lower industry sales. Volume growth
came from the addition of CNW volumes, strong northbound Mexican business for
finished vehicles and increased auto part shipments.
FOOD, CONSUMER AND GOVERNMENT: Food, consumer and government carloadings
improved 1%, as increased volumes from the addition of CNW were mitigated by
merger-related service interruptions in 1995 and lower transportation equipment
shipments.
Operating expenses rose $797 million to $4.94 billion in 1995. Incremental CNW
volumes, inflation and system congestion (caused by the late arrival of new
power and amplified by the CNW integration) were the principal drivers causing
an escalation in salaries, wages and employee benefits ($301 million), rent
expense ($150 million), fuel and utility costs ($92 million), materials and
supplies expense ($32 million), contracted services ($31 million) and
maintenance and repairs ($22 million). Depreciation rose $100 million,
reflecting the addition of CNW properties and continued capital spending.
Personal injury expense rose $28 million, reflecting the addition of CNW and
higher average settlement costs, while other taxes increased $19 million--
primarily the result of the CNW consolidation.
Operating income improved $211 million (18%) to $1.38 billion in 1995, while the
operating ratio increased to 78.1 in 1995 from 77.9 last year. On a pro forma
basis, including CNW in 1994 results, the operating ratio would have been flat
year-over-year.
TRUCKING - Overnite's operating environment was extremely difficult throughout
1995. The major factors affecting Overnite's operations were aggressive pricing
from regional less-than-truckload (LTL) and truckload carriers, soft volumes
caused by industry overcapacity, incremental expenses associated with attempts
by the International Brotherhood of Teamsters (Teamsters) to unionize certain
Overnite service centers and ongoing operational inefficiencies associated with
declining volumes. As a result, Overnite reported a $30 million net loss in
1995, compared to $41 million of net income last year. Results include goodwill
amortization of $20 million in 1995, $3 million less than a year ago because of
a favorable tax settlement related to the deductibility of intangible assets
(see Note 7 to the Financial Statements).
24
<PAGE>
(Graph of Union Pacific Resources Equity Production Volumes)
Bcfe (1 Bbl:6,000 cfe)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Equity Production
Volumes 363 402 417 471 525
Natural Gas 195 211 226 282 343
NGLs 46 45 46 51 66
Crude Oil 122 146 145 138 116
</TABLE>
(Graph of Union Pacific Resources Production Costs Per Mcfe)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Production Costs
per Mcfe $0.87 $0.63 $0.60 $0.55 $0.44
</TABLE>
Operating revenues declined $61 million (6%) in 1995 to $976 million. Volumes
were down 4%, while average prices declined 3%. Operating expenses increased $55
million in 1995 to just over $1 billion. Salaries, wages and employee benefit
costs increased $39 million caused by wage and benefit inflation. General and
administrative costs increased $12 million--reflecting costs incurred in
response to unionization efforts, an increased provision for uncollectible
accounts and higher insurance costs. In addition, depreciation expense increased
$5 million, reflecting continued capital spending. Overnite recorded an
operating loss of $49 million in 1995, compared to operating income of $67
million last year, as the operating ratio--including goodwill amortization--
increased to 105.0 from 93.6 last year.
CORPORATE SERVICES AND OTHER OPERATIONS - Expenses related to Corporate Services
and Other Operations (comprising corporate expenses, third-party interest
charges, intercompany interest allocations, other income and income taxes
related to the corporate holding company's operations and the results of other
operating units) decreased $9 million to $218 million in 1995. The decrease was
largely the result of a favorable tax settlement and lower professional fees.
Other operating units generated operating income of $6 million in 1995, compared
to operating income of $4 million in 1994--reflecting improved operating results
at the Corporation's other operations.
RESULTS OF DISCONTINUED OPERATIONS
Income from discontinued operations increased $349 million to $327 million in
1995, reflecting the absence of a loss from the sale of UPC's waste management
unit in 1994.
NATURAL RESOURCES - Resources' 1995 earnings declined $39 million from a year
ago to $351 million, as lower natural gas prices, higher interest costs caused
by debt incurred by Resources in connection with its dividend to UPC and the
absence of the 1994 Wilmington field sale were only partially mitigated by the
1995 Columbia bankruptcy settlement (see Note 14 to the Financial Statements)
and higher sales volumes. UPC recognized $327 million of the $351 million of
Resources' 1995 net income in discontinued operations reflecting the 17% public
ownership of Resources.
Operating revenues increased $123 million (9%) to $1.46 billion. Producing
property revenues declined $25 million, as the effects of a 21% decline in
average natural gas prices and lower crude oil volumes (the result of the sale
of the Point Arguello and Wilmington fields, and crude volume declines in the
Austin Chalk) were only partially offset by a 21% increase in average natural
gas sales volumes (mainly volume improvements in the Austin Chalk and the Ozona
fields) and a 23% improvement in average natural gas liquids' sales volumes.
Resources' extensive drilling program bolstered sales volumes, as Resources
remained the most active driller in the U.S. for the fourth consecutive year.
Plants, pipelines and marketing revenues climbed $63 million, largely the result
of a full year of operations from the new Wahsatch pipeline and the expansion
of the Panola pipeline. Other oil and gas revenues increased $90 million mainly
due to the 1995 Columbia bankruptcy settlement.
Operating expenses in 1995 increased $4 million to $986 million. Production
costs declined $34 million, largely due to lower production taxes--reflecting
favorable production tax settlements and the effect of lower natural gas prices.
Exploration costs fell $19 million from lower dry hole costs--reflecting the
delay of exploration in a low price environment. These cost improvements were
countered by a $33 million increase in depreciation and depletion costs (the
result of higher production levels), and higher mineral, and general and
administrative costs. Operating income improved to $470 million in 1995 from
$351 million a year earlier.
1994 COMPARED TO 1993
CONSOLIDATED RESULTS
The Corporation reported net income of $546 million or $2.66 per share in 1994,
including a net loss from discontinued operations of $22 million or $0.10 per
share. The 1994 loss from discontinued operations included a net loss from the
sale of UPC's waste management business of $404 million largely offset by $390
million of net income from its discontinued natural resources unit. Resources'
1994 results included a $100 million after-tax gain resulting from the 1994 sale
of its Wilmington, California oil and gas operations. In 1993, the Corporation
reported net income of $530
25
<PAGE>
(Graph of Union Pacific Railroad Revenue Ton-Miles Per Employee)
<TABLE>
<CAPTION>
Millions
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue Ton-Miles
Per Employee 6.58 7.21 7.66 8.21 8.82
</TABLE>
(Graph of Union Pacific Railroad Carloadings)
<TABLE>
<CAPTION>
Thousands
1991 1992 1993 1994 1995*
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Carloadings 4,304 4,458 4,619 4,991 5,568
</TABLE>
* Includes CNW acquisition
million or $2.58 per share, which included a $237 million after-tax charge for
the 1993 accounting adjustments--$175 million ($0.85 per share) for changes in
accounting methods (see Note 4 to the Financial Statements) and $62 million
($0.30 per share) from the implementation of the Omnibus Budget Reconciliation
Act of 1993 (the 1993 Tax Act) (see Note 7 to the Financial Statements). A
portion of the 1993 accounting adjustments is included within the results of
discontinued operations (see Note 14 to the Financial Statements). Results for
1993 also included a $34 million after-tax reduction in operating results at the
Railroad caused by flooding in the Midwest.
RESULTS OF CONTINUING OPERATIONS
CONSOLIDATED - The Corporation reported income from continuing operations of
$568 million or $2.76 per share, compared to $412 million or $2.00 per share in
1993. Results for 1993 included $56 million from the implementation of the 1993
Tax Act and a $34 million after-tax reduction in operating results at the
Railroad caused by the 1993 Midwest flood. In 1994, earnings improved at the
Railroad, while earnings declined slightly at Overnite.
Operating revenues grew 8% to $6.49 billion from $6.0 billion in 1993,
reflecting increased transportation volumes at the Railroad and Overnite, and
the May 1993 addition of Skyway Freight Systems, Inc. (Skyway) (see Note 3 to
the Financial Statements). Operating expenses rose $358 million to $5.25
billion for the period. Higher volumes, severe winter weather in the Eastern
U.S. in the first quarter of 1994 and the effects of unfavorable traffic shifts
at Overnite caused increases in salaries, wages and employee benefits ($83
million), equipment and other rents ($69 million), third-party transportation
($38 million), other taxes ($33 million), and materials and supplies ($15
million). Depreciation charges increased $33 million--the result of the
Corporation's continued commitment to upgrade equipment and technology. Personal
injury expense rose $42 million, while professional fees rose $22 million as
the Corporation pursued various strategic transactions in 1994.
Operating income advanced $132 million (12%) to $1.24 billion in 1994. Other
income increased $21 million to $100 million, largely the result of increased
property sales at the Railroad, while interest expense declined $15 million.
Income from continuing operations as a percentage of operating revenues improved
to 8.7% in 1994 from 6.9% in 1993, while return on average common stockholders'
equity declined slightly to 10.9% in 1994 from 11.1% in 1993.
RAILROAD - Net income at the Railroad was $754 million in 1994, compared to $540
million in 1993. Earnings in 1993 included a $129 million after-tax charge
related to the 1993 accounting adjustments and the adverse effects of the 1993
flooding in the Midwest, which reduced operating results by approximately $34
million after tax.
Operating revenues improved $331 million (7%) to $5.32 billion in 1994. Higher
revenues were generated by an 8% (more than 371,000 loads) rise in 1994
carloadings. Intermodal volumes improved 14% because of business expansion with
the Railroad's trucking partners and growing container traffic. New coal
contracts, inventory replenishment by major utilities and the absence of 1993
flood-related traffic interruptions accounted for a 13% increase in energy
carloadings. Automotive traffic climbed 11%, the result of higher carloadings
for both finished autos (14%) and auto parts (4%), reflecting improving economic
conditions in the automotive industry. Food, consumer and government
carloadings advanced 8% from improvements in the food group--mainly canned and
frozen goods--and growth in the consumer segment, reflecting higher shipments of
waste/recyclables and transportation equipment. Chemical carloadings also
advanced 5% from 1993, reflecting increases in phosphorous, soda ash and
fertilizer volumes. Grain traffic declined 6%, primarily the result of weak
export markets for corn and lower fourth quarter wheat shipments, while metals,
minerals and forest products traffic also declined 2%. The positive effect of
higher volumes was partially offset by a 1% decline in average commodity revenue
per car, largely the result of volume growth in lower-rated commodities--mainly
energy and intermodal.
26
<PAGE>
(Graph of Overnite Transportation Company Tonnage by Category)
<TABLE>
<S> <C> <C>
Tonnage by Category Less-than-Truckload 87.9%
(Pie Chart) Truckload 12.1%
</TABLE>
(Graph of Skyway Freight Systems Total Weight Shipped)
<TABLE>
<CAPTION>
Millions of pounds
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total Weight Shipped 242 356 444 527 615
</TABLE>
Operating expenses increased to $4.15 billion in 1994, compared to $3.95 billion
in 1993. Personal injury expense rose $40 million, as a 34% decline in
reportable injuries was more than offset by higher average settlement costs per
injury. Wages and benefits rose $36 million, as higher volumes and inflation
were partially offset by continued improvements in labor productivity, as the
average workforce declined slightly year-over-year despite an 8% growth in
business levels. Volume growth and inflation also accounted for a $36 million
rise in equipment and other rents, a $16 million escalation in third-party
transportation costs (reflecting higher intermodal shipments), and a $9 million
increase in materials and supplies costs. Other taxes increased $20 million
because of higher use and property taxes, while depreciation expense grew $25
million, reflecting the Railroad's continuing investment in equipment and
capacity. These cost increases were partially mitigated by an $8 million
reduction in fuel an utility costs, the result of lower fuel prices, hedging
gains and an improved fuel consumption rate. Operating income at the Railroad
advanced $131 million (13%) in 1994 to $1.17 billion. The Railroad's operating
ratio improved 1.2 points to 77.9 from 79.1 in 1993.
TRUCKING - Overnite's 1994 net income was $41 million, compared to a net loss in
1993 of $38 million. Results for 1993 included $80 million of after-tax costs
resulting from the 1993 accounting adjustments. Overnite's 1994 results were
affected by the worst winter in decades for the Eastern U.S. and reduced
efficiency associated with shifts in freight flows from shorter-haul, more
profitable, intra-regional business to longer-haul traffic. Results for both
periods included goodwill amortization of $23 million.
Overnite's operating revenues exceeded the $1 billion level for the first time
in its history, as revenues advanced $98 million (10%) to $1.04 billion. Average
prices rose 6%, reflecting the shift to longer-haul traffic, contractual rate
increases and the effect of a January 1994 price increase on non-contract
business. Volumes improved 4%, as a 7% rise in LTL business was partially offset
by truckload traffic declines. Volume improvements were generated by the April
1994 Teamsters' strike against other unionized carriers, the third quarter 1993
bankruptcy of a major Eastern carrier and continued business expansion.
Growing volumes, the effects of the severe winter and higher miles associated
with shifts in freight flows caused operating expenses to increase $100 million
in 1994 to $970 million. Increases occurred in wages and benefits ($41 million),
equipment rents ($27 million), mileage-based insurance and claims accruals ($9
million), taxes and licenses ($7 million), and materials and supplies ($5
million). Depreciation expense also increased $5 million from continuing capital
programs. Operating income declined to $67 million in 1994 from $69 million in
1993. Overnite's operating ratio, including goodwill amortization, increased to
93.6 in 1994 from 92.7 in 1993.
CORPORATE SERVICES AND OTHER OPERATIONS - Expenses related to Corporate Services
and Other Operations totaled $227 million in 1994, a decline of $14 million from
1993. Lower stock incentive compensation and increased interest charges to
subsidiaries (mainly the result of subsidiaries' capital spending and pension
funding at Overnite) were only partially offset by higher interest expense to
third parties and increased professional fees. Other operations reported
operating income of $4 million for 1994, up $3 million from 1993, as a result of
the 1993 addition of Skyway and improved operating results at the Corporation's
other operations.
RESULTS OF DISCONTINUED OPERATIONS
Discontinued operations generated a net loss of $22 million in 1994, compared to
net income of $234 million in 1993. This decline reflects the $404 million loss
on the sale of UPC's waste management business, partially offset by the absence
of the effect of the 1993 accounting adjustments.
NATURAL RESOURCES - Resources reported 1994 net income of $390 million,
including a $100 million after-tax gain on the sale of the Wilmington
properties. This compares to 1993 net income of $244 million, which included a
$65 million after-tax charge related to implementing the 1993 accounting
adjustments.
Operating revenues increased $56 million from 1993 to $1.33 billion. Producing
property revenues grew $56 million (7%), as natural gas sales volumes increased
24% and natural gas liquids' sales volumes rose 21%-- reflecting
27
<PAGE>
(Graph of Union Pacific Corporation Cash from Continuing Operations)
<TABLE>
<CAPTION>
Millions
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cash from Continuing
Operations $ 794 $ 842 $ 975 $1,079 $1,454
</TABLE>
the AMAX Oil & Gas, Inc. (AMAX) acquisition (see Note 14 to the Financial
Statements) and higher Austin Chalk volumes. These volume increases were
partially countered by a 5% decline in crude oil production (the result of the
Wilmington and other field sales) and lower average realized prices for
hydrocarbons. Plant, pipelines and marketing revenues advanced $32 million
(15%), as increased plant volumes (created by the AMAX acquisition and new plant
additions) and higher margin marketing activities overcame lower plant prices
and reduced pipeline volumes. In addition, Resources' mineral revenues grew $16
million, reflecting higher spot market coal revenue. These revenue increases
were partially offset by a $48 million decline in other oil and gas revenues,
reflecting reduced Section 29 partnership revenues, the sale of the Harbor
Cogeneration Plant and the absence of 1993 insurance settlements.
Operating expenses rose $88 million to $982 million in 1994. Depreciation and
depletion charges increased $69 million from the addition of new gas processing
facilities and pipelines, as well as higher production levels. Production costs
increased $12 million, reflecting volume-based increases in lease operating
costs and production taxes. Plant, pipelines and marketing expenses rose $6
million, primarily as a result of an increase in pipeline operating costs,
reflecting the start-up of the Wahsatch Gathering System in late 1994.
Operating income declined 8% to $351 million in 1994 from $383 million in 1993.
Other income increased $114 million to $174 million in 1994 due to the sale of
the Wilmington field.
WASTE MANAGEMENT - Income from discontinued operations included an operating
loss of $8 million in 1994 and $10 million in 1993 from UPC's waste management
business sold at year-end 1994.
CASH FLOWS, LIQUIDITY AND FINANCIAL RESOURCES
In 1995, cash from continuing operations was $1.45 billion, compared to $1.08
billion in 1994. This $375 million improvement reflects higher operating results
($51 million), the sale of additional accounts receivable (see Note 5 to the
Financial Statements) and improved inventory management ($114 million), and a
higher proportion of non-cash expenses included in net income ($181 million).
Non-cash expenses included in earnings rose as a result of higher depreciation
($101 million), increased casualty and other accruals ($64 million) and lower
undistributed earnings from affiliates ($16 million).
Cash used in investing activities of $2.57 billion reflected a $1.43 billion
increase over 1994, as the Corporation acquired CNW for $1.2 billion and 25% of
Southern Pacific for $976 million. In addition, capital expenditures grew $182
million over 1994 largely from fleet expansion and renewal at the Railroad.
These increased investments were partially countered by the receipt of $225
million in sale proceeds from the USPCI disposition, the Columbia settlement and
the absence of the $725 million AMAX purchase in 1994.
Outstanding debt levels increased $1.89 billion in 1995 and included $850
million in new offerings of the Corporation's notes and debentures, $150 million
of floating rate term debt, $86 million of Railroad equipment financings and
$834 million in credit facility borrowings. UPC also received a cash dividend
from Resources of $912 million (see Note 2 to the Financial Statements) funded
by the sale of Resources' common stock to the public ($844 million) and third-
party borrowings by Resources ($68 million). These funds, along with cash
generated from operations, were used to finance the CNW acquisition, the
investment in Southern Pacific and capital expenditures, as well as to repay
maturing debt.
The quarterly common stock dividend remained at $0.43 per share in 1995. The
ratio of debt to capital employed increased to 50.0% at December 31, 1995 from
46.6% at December 31, 1994. This increase reflected the higher debt levels
incurred to fund the CNW acquisition and the Southern Pacific investment,
partially offset by the Resources' dividend and proceeds from the sale of the
Corporation's waste management business, as well as 1995 earnings.
At December 31, 1995, the Corporation had authorization from the Board of
Directors to repurchase up to $327 million of the Corporation's common stock. At
year-end, the Corporation had $3.7 billion of outstanding credit facilities
($1.2 billion in short-term credit facilities and $2.5 billion in long-term
credit facilities expiring in 2000) of which $2.9 billion were available for
use.
28
<PAGE>
(Graph of Union Pacific Corporation Capital Investments)
<TABLE>
<CAPTION>
Millions
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Capital Investments $ 667 $ 864 $ 899 $ 876 $1,058
</TABLE>
(Graph of Union Pacific Corporation Assets)
<TABLE>
<CAPTION>
Millions
1991 1992 1993 1994 1995*
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Assets $12,272 $12,901 $13,797 $14,543 $19,446
</TABLE>
* Includes CNW acquisition
OTHER MATTERS
PERSONAL INJURY - Over the past 10 years work-related injuries have declined by
more than 10% annually (reflecting aggressive safety and training programs),
while the average settlement cost per claim has continued to rise significantly.
Annual expenses for injury-related events were $222 million in 1995, $194
million in 1994 and $154 million in 1993. Compensation for work-related
accidents is governed by the Federal Employers' Liability Act (FELA). FELA's
finding of fault and damage is assessed based on litigation or out-of-court
settlements. In addition, the Railroad offers a comprehensive variety of
services and rehabilitation programs for employees who are injured at work.
The Railroad is participating with other rail carriers in an industry-wide
effort to replace FELA with a no-fault system that could significantly reduce
personal injury costs while fairly compensating injured employees.
ENVIRONMENTAL COSTS - The Corporation generates and transports hazardous and
nonhazardous waste in its current and former operations, and is subject to
Federal, state and local environmental laws and regulations. The Corporation has
identified approximately 175 sites, including approximately 50 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 $142 million has been accrued for future costs at 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 25% higher.
The liability includes future costs for remediation and restoration of sites, as
well as for ongoing monitoring costs, but excludes any anticipated recoveries
from third parties. Cost estimates were based on information available for each
site, financial viability of other potentially responsible parties (PRP), 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. However, the ultimate liability for remediation is difficult
to determine with certainty because of the number of PRPs involved, site-
specific cost sharing arrangements with other PRPs, 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 previously used in operations, used by tenants
or contaminated by former owners required spending of $28 million in 1995 and
$43 million in 1994. The Corporation is also engaged in reducing emissions,
spills and migration of hazardous materials, and spent $11 million and $14
million in 1995 and 1994, respectively, for control and prevention, a portion of
which has been capitalized. In 1996, the Corporation anticipates spending $31
million for remediation and $10 million for control and prevention. The majority
of the December 31, 1995 environmental liability is expected to be paid out over
the next five years, funded by cash generated from operations. Future
environmental obligations are not expected to have a material impact on the
results of operations or financial condition of the Corporation.
LABOR NEGOTIATIONS - About 90% of the Railroad's 35,000 employees are
represented by one of twelve national rail unions. In 1995, negotiations began
on a new labor agreement for all craft lines. In January 1996, a tentative
agreement was reached with the United Transportation Union (UTU), which
represents approximately 25% of the Railroad's unionized employees. The five-
year package, which is currently undergoing ratification, includes a combination
of general wage increases and lump-sum payments ranging from 3% to 3.5%
annually, as well as work rule flexibility. Negotiations with other craft lines
will continue in 1996. Should negotiations reach an impasse, it is anticipated
that the President will appoint a Presidential Emergency Board to examine the
dispute and make recommendations for settlement.
29
<PAGE>
(Graph of Union Pacific Resources Total Reserves)
<TABLE>
<CAPTION>
Bcfe
1991 1992 1993 1994* 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total Reserves 2,624 2,649 2,673 3,054 3,277
</TABLE>
* Includes first quarter AMAX acquisition
Overnite had several challenges from organized labor in 1995. During 1995, over
50 of Overnite's 175 service centers have been petitioned to hold union
elections, 13 of which voted for union representation. Despite the Teamsters'
Union efforts, less than 9% of Overnite's workforce has voted for union
representation. Overnite has begun negotiations with the Teamsters at several of
the unionized service centers. Overnite is unable at this time to estimate the
impact these negotiations will have on its future operating costs or
profitability. Overnite expects unionization efforts to continue in 1996.
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.
FINANCIAL INSTRUMENTS - The Corporation uses derivative financial instruments in
limited instances for other than trading purposes to manage risk as it relates
to fuel prices and interest rates. Where the Corporation has fixed interest
rates or fuel prices by using swaps, futures or forward contracts, the
Corporation has mitigated the downside risk of adverse price and rate movements;
however, it has also limited future gains from favorable movements.
INTEREST RATES: The Corporation manages its overall risk to fluctuations in
interest rates by managing the proportion of fixed and floating rate debt
instruments within its debt portfolio over a given period. Derivatives are used
in limited circumstances as one of the tools to obtain the targeted mix. The mix
of fixed and floating rate debt is largely managed through the issuance of
targeted amounts of each as debt matures or incremental borrowings are required.
The Corporation also obtains additional flexibility in managing interest cost
and the interest rate mix within its debt portfolio by issuing callable fixed
rate debt securities.
FUEL: Over the past three years, fuel costs approximated 9% of the Corporation's
total operating costs. As a result of the significance of the fuel costs and the
historical volatility of fuel prices, the Corporation periodically uses swaps,
futures and forward contracts to mitigate the risk of fuel price volatility. The
intent of this program is to protect the Corporation's operating margins and
overall profitability from adverse fuel price changes.
SENSITIVITY ANALYSIS: UPC had a limited number of interest rate and fuel swaps
in place at year-end 1995 (see Note 5 to the Financial Statements). The related
change in value of the swaps outstanding from a 5% change in market interest
rates or a $0.25 change in fuel prices will not have a significant impact on the
Corporation's fuel expense, interest expense or net income.
PENDING ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
(FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which establishes methods
for determining when an impairment of long-lived assets has occurred and for
measuring the impairment of long-lived assets. Implementation of Statement No.
121 is not expected to have a material adverse effect on UPC's operating results
or financial condition.
The FASB also issued Statement No. 123, "Accounting for Stock-Based
Compensation," which encourages, but does not require, employers to adopt a fair
value method of accounting for employee stock-based compensation, and which
requires increased stock-based compensation disclosures if expense recognition
is not adopted. The Corporation does not intend to elect expense recognition for
stock options and therefore implementation of this Statement will have no effect
on UPC's operating results or financial condition.
30
<PAGE>
(Graph of Union Pacific Corporation Book Value)
<TABLE>
<CAPTION>
Per share
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Book Value $20.52 $22.75 $23.81 $24.92 $30.93
</TABLE>
(Graph of Union Pacific Corporation Dividend History)
<TABLE>
<CAPTION>
Per share
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Dividend History $ 1.31 $ 1.42 $ 1.54 $ 1.66 $ 1.72
</TABLE>
A LOOK FORWARD
GENERAL ECONOMIC FACTORS - The Corporation's future results can be affected by
changes in the economic environment and by fluctuations in fuel prices. Several
of the commodities transported by both Overnite and the Railroad come from
industries with cyclical business operations. As a result, prolonged negative
changes in U.S. and global economic conditions can have an adverse effect on the
Corporation's operating results. In addition, operating results at the Railroad
and Overnite can be affected adversely 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. For risk factors related to
UPC's discontinued natural resources business see Note 14 to the Financial
Statements.
1996 CAPITAL SPENDING - The Corporation's 1996 capital expenditures, debt
service requirements and the remaining cash purchase of the anticipated Southern
Pacific acquisition will be funded primarily through cash generated from
operations, note repayments from Resources required at spin-off and additional
debt financings. The Corporation expects that such sources will continue to
provide sufficient funds to meet cash requirements in the foreseeable future.
The Corporation expects to maintain its current level of capital spending in
1996 and beyond. Railroad-related capital expenditures will be used to continue
capacity expansion on its main lines, upgrade and augment equipment to meet
customer needs and develop and implement new technologies. In addition, the
Corporation anticipates spending approximately $1.2 billion over a five-year
period to upgrade lines, equipment and facilities once the Southern Pacific
acquisition has been approved and completed. A portion of these expenditures is
anticipated to be funded from the sale or lease of various operating and
nonoperating properties of Southern Pacific. Overnite will continue to maintain
its truck fleet and upgrade technology, while UPC may also continue to expand
its core businesses through strategic acquisitions.
1996 BUSINESS OUTLOOK - Rail volumes are anticipated to improve across all
commodity categories in 1996, as a result of base business growth, a full year
of CNW operations and CNW consolidation efficiencies. Base volume growth will be
led by continued expansion of coal business (reflecting strong demand for low-
sulfur coal), development of the Railroad's intermodal business, and higher auto
and auto part shipments in and out of Mexico. Significant growth is also
anticipated in corn and wheat volumes (reflecting strong export demand) and
chemicals--the result of new plastics business. Average commodity revenue per
car is also expected to improve in 1996, reflecting the effects of longer
average hauls, favorable product mix changes and price improvements.
The Railroad anticipates the completion of the Southern Pacific acquisition in
the latter part of 1996. The overall impact of the Southern Pacific acquisition
on the Railroad's 1996 results is anticipated to be minimal; however, the
acquisition is anticipated to yield annual benefits of approximately $660
million ($612 million in operating income benefits and $48 million in capital
avoidance) once the Southern Pacific's operations have been fully integrated
with the Railroad's existing operations over a five-year period (90% over a
three-year period) following the acquisition.
At Overnite, the unfavorable operating environment will likely continue well
into 1996. Overnite is tailoring its organization to meet its changing business
environment by striving to regain lost shorter-haul business, balancing traffic
lanes better and implementing programs to improve operational and administrative
efficiencies. These efforts are expected to partially mitigate the effects of
the adverse operating environment.
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
(Logo-Deloitte & Touche LLP)
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, 1995
and 1994, 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, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 4 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 LLP
New York, New York
January 18, 1996
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
auditors 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 55, meets regularly with financial management,
the corporate auditors and the independent auditors to review the work of each.
The independent auditors 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/ MORRIS B. SMITH
Vice President and Controller
32
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
- ---------------------------------------------------------------------------------------------------------
Union Pacific Corporation and Subsidiary Companies
- ---------------------------------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues Railroad $ 6,326 $ 5,318 $ 4,987
Trucking 976 1,037 939
Corporate services
and other operations 184 137 76
- ---------------------------------------------------------------------------------------------------------
Total $ 7,486 $ 6,492 $ 6,002
- ---------------------------------------------------------------------------------------------------------
Operating Income (Loss) Railroad $ 1,384 $ 1,173 $ 1,042
Trucking (49) 67 69
Corporate services
and other operations 6 4 1
- ---------------------------------------------------------------------------------------------------------
Total $ 1,341 $ 1,244 $ 1,112
- ---------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Railroad $ 867 $ 754 $ 612
Operations Trucking (30) 41 41
Corporate services
and other operations (218) (227) (241)
- ---------------------------------------------------------------------------------------------------------
Total $ 619 $ 568 $ 412
- ---------------------------------------------------------------------------------------------------------
Cash from Continuing Railroad $ 1,486 $ 1,061 $ 1,074
Operations Trucking 37 116 44
Corporate services
and other operations (69) (98) (143)
- ---------------------------------------------------------------------------------------------------------
Total $ 1,454 $ 1,079 $ 975
- ---------------------------------------------------------------------------------------------------------
Assets Railroad $15,694 $10,455 $10,014
(at Year-End) Trucking 1,270 1,420 1,393
Corporate services
and other operations 2,482 2,668 2,390
- ---------------------------------------------------------------------------------------------------------
Total $19,446 $14,543 $13,797
- ---------------------------------------------------------------------------------------------------------
Depreciation and Railroad $ 568 $ 468 $ 443
Amortization Trucking 64 63 58
Corporate services
and other operations 10 10 7
- ---------------------------------------------------------------------------------------------------------
Total $ 642 $ 541 $ 508
- ---------------------------------------------------------------------------------------------------------
Capital Railroad $ 970 $ 769 $ 805
Investments Trucking 49 93 80
Corporate services
and other operations 39 14 14
- ---------------------------------------------------------------------------------------------------------
Total $ 1,058 $ 876 $ 899
- ---------------------------------------------------------------------------------------------------------
</TABLE>
This information should be read in conjunction with the accompanying accounting
policies and notes to the financial statements.
33
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME
------------------------------------------------------------------------------------------
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars, Except Per Share
Amounts 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Railroad, trucking
Revenues and other (Note 4) $7,486 $6,492 $6,002
-------------------------------
Operating Salaries, wages and employee benefits 2,826 2,460 2,377
Expenses Equipment and other rents 769 622 553
Depreciation and amortization (Note 3) 642 541 508
Fuel and utilities (Note 5) 574 480 485
Materials and supplies 377 344 329
Other costs 957 801 638
------------------------------
Total 6,145 5,248 4,890
------------------------------
Income Operating Income 1,341 1,244 1,112
Other Income - Net (Note 13) 141 100 79
Interest Expense (Notes 5 and 8) (450) (347) (362)
Corporate Expenses (99) (99) (99)
------------------------------
Income before Income Taxes 933 898 730
Income Taxes (Notes 4 and 7) (314) (330) (318)
------------------------------
Income from Continuing Operations 619 568 412
Discontinued Operations(Note 2):
Provision for disposal of USPCI,
Inc.- net of tax benefits of $196
million -- (404) --
Income from operations of discontinued
businesses - net of income taxes of
$100 million, $127 million and $132
million in 1995, 1994 and 1993,
respectively 327 382 234
------------------------------
Income (Loss) from Discontinued Operations 327 (22) 234
------------------------------
Income before Cumulative Effect
of Changes in Accounting Principles 946 546 646
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Cumulative Effect to January 1, 1993
of Changes in Accounting Principles
(Note 4) -- -- (116)
------------------------------
Net Income $ 946 $ 546 $ 530
- ------------------------------------------------------------------------------------------
Per Share Income from Continuing Operations $ 3.01 $ 2.76 $ 2.00
Income (Loss) from Discontinued Operations 1.59 (0.10) 1.14
Cumulative Effect to January 1, 1993
of Changes in Accounting Principles -- -- (0.56)
Net Income 4.60 2.66 2.58
Dividends 1.72 1.66 1.54
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes to the financial
statements are an integral part of these statements.
34
<PAGE>
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets Cash and temporary investments $ 230 $ 115
Accounts receivable (Note 5) 349 396
Inventories 238 257
Notes receivable (Note 2) 653 228
Income taxes receivable (Note 2) -- 241
Deferred income taxes (Note 7) 119 --
Other current assets 90 112
--------------------------
Total 1,679 1,349
--------------------------
Investments Investments in and advances to
affiliated companies (Note 3) 1,260 487
Other investments 187 170
--------------------------
Total 1,447 657
--------------------------
Properties Cost (Notes 3 and 6) 18,748 13,920
Accumulated depreciation (4,643) (4,249)
--------------------------
Net 14,105 9,671
--------------------------
Other Excess Acquisition Costs - Net
(Notes 3 and 7) 730 870
Net Assets of Discontinued Operations
(Note 2) 1,312 1,789
Other Assets 173 207
--------------------------
Total Assets $19,446 $14,543
- ----------------------------------------------------------------------------------------------
</TABLE>
Liabilities and
Stockholders' Equity
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Accounts payable $ 145 $ 132
Liabilities Accrued wages and vacation 284 217
Income and other taxes 178 134
Dividends and interest 203 191
Accrued casualty costs 192 163
Debt due within one year 132 427
Other current liabilities 765 736
--------------------------
Total 1,899 2,000
--------------------------
Other Liabilities Debt Due after One Year (Notes
and Stockholders' 8 and 9) 6,232 4,052
Equity Deferred Income Taxes (Note 7) 3,498 2,398
Retiree Benefits Obligation(Note 10) 588 535
Other Long-Term Liabilities (Note 12) 649 427
Minority Interest in Consolidated
Subsidiary (Note 2) 216 --
Common Stockholders' Equity (page 37) 6,364 5,131
--------------------------
Total Liabilities and Stockholders' Equity $19,446 $14,543
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes to the financial
statements are an integral part of these statements.
35
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash from Net income $ 946 $ 546 $ 530
Continuing Non-cash charges to income:
Operations Depreciation and amortization 642 541 508
Deferred income taxes (Note 7) 151 175 278
Cumulative effect of changes
in accounting principles (Note 4) -- -- 116
Other - net 358 (260) (231)
(Income) loss from discontinued
operations (Note 2) (327) 22 (234)
Changes in current assets and
liabilities (316) 55 8
--------------------------------
Cash from Continuing Operations 1,454 1,079 975
--------------------------------
Investing Capital investments (1,058) (876) (899)
Activities Cash provided (used) by discontinued
operations (Notes 2 and 14) 467 (295) (50)
Investments and acquisitions (Note 3) (2,146) -- (65)
Proceeds from sale of assets and
other investing activities 168 28 47
--------------------------------
Cash Used in Investing Activities (2,569) (1,143) (967)
--------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Equity and Dividends paid (353) (334) (309)
Financing Debt repaid (Note 8) (1,531) (319) (753)
Activities Financings (Note 3) 2,275 731 926
Proceeds from Resources' stock
offering (Note 2) 844 -- --
Other-net (5) (1) (10)
--------------------------------
Cash Provided by (Used in)
Equity and Financing Activities 1,230 77 (146)
--------------------------------
Net Change in Cash and Temporary
Investments $ 115 $ 13 $ (138)
- ------------------------------------------------------------------------------------------
Changes in Accounts receivable $ 47 $ (19) $ (80)
Current Inventories 19 (29) (3)
Assets Other current assets (281) (307) 8
and Accounts, wages and vacation payable 80 (21) 42
Liabilities Debt due within one year (295) 345 (12)
Other current liabilities 114 86 53
--------------------------------
Total $ (316) $ 55 $ 8
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes to the financial
statements are an integral part of these statements.
36
<PAGE>
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Common Stock, $2.50 par value
Stock (authorized 500,000,000 shares)
Balance at beginning of year
(231,837,976 issued shares in 1995;
230,788,175 in 1994; 229,774,547
in 1993) $ 580 $ 577 $ 574
Conversions,exercises of stock
options and other (479,034
shares in 1995; 1,049,801 in 1994;
1,013,628 in 1993) 1 3 3
---------------------------------------
Balance at end of year (232,317,010
issued shares in 1995; 231,837,976
in 1994; 230,788,175 in 1993) 581 580 577
---------------------------------------
Paid-in Balance at beginning of year 1,428 1,383 1,339
Surplus Issuance of Resources' No Par 638 -- --
Common Stock (Note 2)
Conversions, exercises of stock
options and other 45 45 44
---------------------------------------
Balance at end of year 2,111 1,428 1,383
---------------------------------------
Retained Balance at beginning of year 4,734 4,529 4,338
Earnings Net income 946 546 530
---------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Total 5,680 5,075 4,868
Cash dividends declared (353) (341) (315)
Exchangeable note conversion (Note 8) -- -- (24)
---------------------------------------
Balance at end of year (Note 8) 5,327 4,734 4,529
---------------------------------------
Treasury Balance at end of year, at cost
Stock (26,737,806 shares in 1995;
25,900,775 in 1994; 25,626,946
in 1993) (1,655) (1,611) (1,604)
---------------------------------------
Total Common Stockholders' Equity
(Note 11) $ 6,364 $ 5,131 $ 4,885
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying accounting policies and notes to the financial statements
are an integral part of these statements.
37
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Union Pacific
Corporation (the Corporation or Union Pacific) and all subsidiaries. Investments
in affiliated companies (20 percent to 50 percent owned) are accounted for on
the equity method. 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.
INVENTORIES
Inventories consist of materials and supplies carried at the lower of cost or
market.
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 in other income for all other property upon disposition.
INTANGIBLE ASSETS
Amortization of costs in excess of net assets of acquired businesses is
generally recorded over forty years on a straight-line basis. The Corporation
regularly assesses the recoverability of investments in its subsidiaries through
a review of cash flows and fair values of those businesses (see Note 4).
REVENUE RECOGNITION
Transportation revenues are recognized on a percentage-of-completion basis,
while delivery costs are recognized as incurred (see Note 4).
HEDGING TRANSACTIONS
The Corporation periodically hedges fuel purchases and interest rates.
Unrealized gains and losses from forwards and futures fuel contracts are
deferred and recognized as the fuel is consumed. The differential to be paid or
received on interest rate swaps is accrued as interest rates change and
recognized in interest expense over the life of the agreements (see Note 5).
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).
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate share of
the equity of Union Pacific Resources Group Inc. (Resources). At December 31,
1995, the Corporation owned approximately 83 percent of Resources' common stock
(see Note 2).
USE OF ESTIMATES
The consolidated financial statements of the Corporation include estimates and
assumptions of certain assets, liabilities, revenues and expenses and the
disclosure of certain contingent assets and liabilities. Actual future results
may differ from such estimates.
CHANGE IN PRESENTATION
1994 and 1993 amounts have been restated to conform to the 1995 financial
statement presentation. All periods presented reflect Resources and USPCI, Inc.
(USPCI) as discontinued operations (see Note 2).
1. NATURE OF OPERATIONS
Union Pacific consists of two major business segments operating principally in
the United States and engaged in rail transportation and trucking.
RAILROAD - The Corporation's largest segment is Union Pacific Railroad Company,
including the Missouri Pacific Railroad Company, and as of May 1, 1995, the
Chicago and North Western Transportation Company (CNW) (collectively the
Railroad)(See Note 3). The Railroad is the second largest rail system in the
United States in terms of track miles, with 22,800 route miles linking Pacific
Coast and Gulf Coast ports to the Midwest. The Railroad serves the western two-
thirds of the country and maintains coordinated schedules with other carriers
for the handling of freight to and from the Atlantic Coast, the Pacific Coast,
the Southeast, the Southwest, Canada and Mexico. Export and import traffic is
moved through Gulf Coast and Pacific Coast ports, and across the Mexican and
(primarily through interline connections) Canadian borders. The Railroad is
subject to price and service competition from other railroads, motor carriers
and barge operators.
Approximately 90 percent of the Railroad's 35,000 employees are represented by
one of twelve national labor unions. In 1995, negotiations began on new labor
agreements for all crafts. In January 1996, a tentative agreement
38
<PAGE>
was reached with the United Transportation Union which represents approximately
25 percent of the Railroad's unionized employees. The five-year package, which
is currently undergoing ratification, includes a combination of general wage
increases and lump-sum payments ranging from 3.0 to 3.5 percent per year, as
well as increased work rule flexibility. Negotiations with other crafts will
continue in 1996. Should negotiations reach an impasse, it is anticipated that
the President will appoint a Presidential Emergency Board to examine the dispute
and make recommendations for settlement.
In August 1995, the Corporation announced its intention to acquire Southern
Pacific Rail Corporation (Southern Pacific) and, in September 1995, completed a
cash tender offer for 25 percent of Southern Pacific's outstanding common shares
(see Note 3). Should the Corporation be required or choose to dispose of its
initial investment in Southern Pacific, a significant loss could be incurred.
TRUCKING - The Corporation's other major line of business is truck
transportation. Overnite Transportation Company (Overnite), a major interstate
trucking company specializing in less-than-truckload (LTL) shipments, serves all
50 states and portions of Canada and Mexico through 175 service centers located
throughout the United States. Overnite transports a variety of products,
including machinery, tobacco, textiles, plastics, electronics and paper
products. Overnite experiences intense service and price competition from both
regional and national motor carriers.
A significant factor influencing Overnite's long-term value is its ability to
maintain a non-unionized workforce. As the nation's largest non-union trucking
company, Overnite is periodically targeted by major labor organization efforts
and is currently the subject of an organizational campaign instituted by the
International Brotherhood of Teamsters (Teamsters) at many of its service
centers. During 1995, Overnite employees voted for union representation at 13
service centers, requiring Overnite to bargain in good faith with union
officials regarding future pay rates, benefits and work rules for employees at
several of those locations. Despite the Teamsters' efforts, less than 9 percent
of Overnite's 14,000 employees have voted for union representation.
Overnite's operating environment was extremely difficult during 1995. The major
factors impacting Overnite's operations were soft volumes caused by aggressive
marketing and price competition by both LTL and truckload carriers, incremental
expenses associated with the Teamsters' labor organization efforts and ongoing
operational inefficiencies associated with declining volumes. These unfavorable
operating trends will likely continue well into 1996, as Overnite works toward
tailoring its organization to meet its changing business environment and intense
competition from regional and national carriers.
CONSOLIDATED - The Corporation's future results can be affected by changes in
the economic environment and by fluctuations in fuel prices. Several of the
commodities transported by both Overnite and the Railroad come from industries
with cyclical business operations. As a result, prolonged negative changes in
U.S. and global economic conditions can have an adverse effect on the
Corporation's ongoing results. In addition, operating results at the Railroad
and Overnite can be affected adversely 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. See Note 14 for risk
factors related to the Corporation's discontinued natural resources business.
Business Segments on page 33 provides additional financial information related
to the Corporation's operations.
2. DIVESTITURES
RESOURCES - In July 1995, the Corporation's Board of Directors approved a formal
plan to exit its natural resources business. The plan includes an initial
public offering (IPO) by Resources of up to 17.25 percent of its outstanding
common stock. Following the IPO and subject to the receipt of a favorable
ruling from the Internal Revenue Service (IRS) expected in 1996 and the
completion or termination of the acquisition of Southern Pacific (see Note 3),
the Corporation intends to distribute the remaining outstanding common stock of
Resources on a tax-free basis pro rata to Union Pacific's stockholders.
The IPO of 42.5 million shares was completed in October 1995, with Resources'
common stock priced at $21 per share. Resources generated net proceeds of $844
million through the sale of 17.1 percent of its outstanding common stock to the
public. As a result of the IPO, Resources owns and operates all of Union
Pacific's natural resources business historically owned and operated by Union
Pacific Resources Company or other affiliates. In connection with the IPO,
Resources declared a $1,562 million dividend to the Corporation. This dividend
consisted of $912 million in cash and $650 million in notes bearing interest at
8.5 percent per annum and payable within 90 days of the distribution of the
Corporation's remaining investment in Resources to Union Pacific's stockholders.
Resources also declared a dividend to the Corporation of its $59 million
intercompany balance with the Corporation. Union Pacific used the cash proceeds
from the Resources' dividend for the repayment of outstanding commercial paper
balances. See Note 14 for a description of Resources' operations and additional
financial information.
39
<PAGE>
SALE OF USPCI - In September 1994, Union Pacific's Board of Directors approved a
formal plan to dispose of its waste management business, USPCI. As a result,
the Corporation recorded a $404 million after-tax loss from the disposal of
USPCI and to provide for estimated closing costs and certain retained
liabilities. In addition, USPCI's 1994 and 1993 operating losses of $8 million
and $10 million, respectively, were recorded in discontinued operations.
At year-end 1994, the Corporation completed the sale of USPCI for $225 million
in notes that were subsequently collected in January 1995. Sales proceeds and
cash tax benefits from the sale of USPCI were used for general corporate
purposes, including the reduction of outstanding debt.
Operating revenues of USPCI were $342 million in 1994 and $236 million in 1993,
while capital expenditures for such years were $66 million and $114 million,
respectively.
3. ACQUISITIONS
SOUTHERN PACIFIC - In August 1995, Union Pacific and Southern Pacific entered
into a definitive merger agreement (the Agreement) providing for the acquisition
of Southern Pacific by Union Pacific. Under the terms of the Agreement, Union
Pacific completed a first-step cash tender offer in September 1995, pursuant to
which approximately 39 million or 25 percent of the outstanding common shares of
Southern Pacific were acquired at a price of $25 per share. The cash tender
offer was funded by $976 million in borrowings under Union Pacific's existing
credit facilities. The common shares purchased in the first-step cash tender
offer were deposited in an independent voting trust in accordance with a voting
trust agreement with Southwest Bank of St. Louis pending a decision of the
Surface Transportation Board (STB) of the Department of Transportation--the
successor to the Interstate Commerce Commission--on the Southern Pacific
acquisition. The Corporation filed an application for control of Southern
Pacific with the STB in November 1995. The STB has adopted an expedited
schedule pursuant to which it anticipates rendering a final decision within 255
days of the filing of the original application. Should the acquisition not be
approved by the STB, or should the STB impose onerous approval conditions, the
acquisition could be terminated and Union Pacific could incur a significant loss
on the disposition of its investment in Southern Pacific. However, the
Corporation believes that its application for control of Southern Pacific will
be approved without onerous conditions.
Following approval of the Southern Pacific acquisition by the STB, Union Pacific
will complete the acquisition by exchanging the remaining Southern Pacific
common shares, at the holder's election and subject to proration, for $25 in
cash or 0.4065 shares of the Corporation's common stock. As a result, 60
percent of the Southern Pacific shares outstanding immediately prior to the
merger will be converted into shares of Union Pacific common stock, with the
remaining 40 percent of the outstanding shares, including the shares acquired in
the first-step cash tender offer, being acquired for cash.
The business combination with Southern Pacific will be accounted for as a
purchase. During 1995 and until the merger's consummation, the Corporation will
account for its investment in Southern Pacific using the equity method.
Although the purchase price allocation will not be finalized until the STB
renders its decision, initial estimates indicate that the fair value of tangible
assets acquired will exceed the purchase price.
CNW - In March 1995, Union Pacific executed a definitive merger agreement to
acquire the remaining 71.6 percent of CNW's outstanding common stock not
previously owned by the Corporation for approximately $1.2 billion. Prior to
the acquisition, CNW was the nation's eighth largest railroad. For the year
ended December 31, 1994, CNW had operating revenues of $1.13 billion, net income
of $84 million and assets of $2.22 billion. The Corporation funded the CNW
tender offer through the issuance of additional debt. The acquisition of CNW
has been accounted for as a purchase and CNW's financial results were
consolidated into the Corporation effective May 1, 1995.
As part of the purchase price allocation, the Corporation recorded $190 million
of pre-tax reserves, principally relating to the elimination or relocation of
redundant functions and facilities created by the combination of the Union
Pacific and CNW rail systems. The reserves included $110 million for costs to
reduce CNW's workforce by approximately 900 employees; $34 million for the
relocation of approximately 1,000 CNW employees; and $22 million for labor
protection relating to legislated, as well as contractual, obligations to CNW
union employees. Management employee severance and relocations were
substantially completed prior to December 31, 1995. Union workforce reductions
must be negotiated under existing labor agreements and are anticipated to be
completed in 1996. Acquisition reserves also included $24 million for the
settlement or buyout of CNW lease obligations relating to redundant facilities
or equipment. Through year-end 1995, $92 million was charged to the reserves,
principally comprising costs to reduce CNW's workforce by approximately 700
employees (including $14 million related to certain former executives of CNW)
and relocate other CNW employees throughout the Union Pacific rail system.
40
<PAGE>
SKYWAY FREIGHT SYSTEMS, INC. (SKYWAY) - In May 1993, the Corporation acquired
all of the outstanding common stock of 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 time-definite and
specialized freight markets.
4. ACCOUNTING CHANGES
The Corporation adopted the following accounting changes in January 1993:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
In Millions, Except Income Revenue
Per Share Amounts OPEB Taxes Recognition Total
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Railroad $ (171) $ 121 $ (22) $ (72)
Trucking (47) (25) (7) (79)
Corporate services
and other operations (9) 44 -- 35
------------------------------------------
Continuing operations $ (227) $ 140 $ (29) $ (116)
------------------------------------------
Per share $(1.10) $0.68 $(0.14) $(0.56)
- ----------------------------------------------------------------------
</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 does 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
future results may be affected by changes in the corporate income tax rate (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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which establishes methods
for determining when an impairment of long-lived assets has occurred and for
measuring the impairment of long-lived assets. Initial adoption of Statement 121
is not expected to have an effect on Union Pacific's operating results or
financial condition.
The FASB also issued Statement No. 123, "Accounting for Stock-Based
Compensation," which encourages, but does not require, employers to adopt a fair
value method of accounting for employee stock-based compensation, and which
requires increased stock-based compensation disclosures if expense recognition
is not adopted. The Corporation does not intend to elect expense recognition
for stock options and therefore implementation of this Statement will have no
effect on Union Pacific's operating results or financial condition.
5. FINANCIAL INSTRUMENTS
RISK MANAGEMENT
The Corporation uses derivative financial instruments in limited instances for
other than trading purposes to manage risk as it relates to fuel prices and
interest rates. Where the Corporation has fixed interest rates or fuel prices
through the use of swaps, futures or forward contracts, the Corporation has
mitigated the downside risk of adverse price and rate movements; however, it has
also limited future gains from favorable movements.
The Corporation addresses market risk related to these instruments by selecting
instruments whose value fluctuations highly correlate with the underlying item
being hedged. Credit risk related to derivative financial instruments, which is
minimal, is managed by requiring minimum credit standards for counterparties and
periodic settlements. The largest credit risk associated with any of the
Corporation's counterparties was $14 million at December 31, 1995. The
Corporation has not been required to provide, nor has it received any
significant amount of collateral relating to its hedging activity.
The fair market value of the Corporation's derivative financial instrument
positions at December 31, 1995 and 1994 was determined based upon current fair
market values as quoted by recognized dealers or developed based upon the
present value of future cash flows discounted at the applicable zero coupon U.S.
treasury rate and swap spread.
41
<PAGE>
INTEREST RATES - The Corporation controls its overall risk to fluctuations in
interest rates by managing the proportion of fixed and floating rate debt
instruments within its debt portfolio over a given period. Derivatives are used
in limited circumstances as one of the tools to obtain the targeted mix. The
mix of fixed and floating rate debt is largely managed through the issuance of
targeted amounts of such debt as debt maturities occur or as incremental
borrowings are required. The Corporation also obtains additional flexibility in
managing interest cost and the interest rate mix within its debt portfolio by
issuing callable fixed rate debt securities.
At December 31, 1995, the Corporation had outstanding interest rate swaps on
$219 million of notional principal amount of debt (3 percent of the total debt
portfolio) with gross fair market value asset and liability positions of $13
million, respectively, and a net position of zero. At December 31, 1994, the
Corporation had outstanding interest rate swaps on $230 million of notional
principal amount of debt (5 percent of the total debt portfolio) with a gross
fair market value asset position of $0.5 million and a gross fair market value
liability position of $13 million. These contracts mature over the next ten
years. Interest rate hedging activity increased interest expense by $7 million
in 1995 and 1994, and $8 million in 1993, raising the weighted average borrowing
rate by no more than 20 basis points in any year presented.
FUEL - Over the past three years, fuel costs approximated 9 percent of the
Corporation's total operating expenses. As a result of the significance of the
fuel costs and the historical volatility of fuel prices, the Corporation
periodically uses swaps, futures and forward contracts to mitigate the risk of
fuel price volatility. The intent of this program is to protect the
Corporation's operating margins and overall profitability from adverse fuel
price changes.
At December 31, 1995, the Corporation had hedged 7 percent of the Railroad's
forecasted 1996 fuel consumption at $0.46 per gallon, while Overnite had not
hedged any of its 1996 fuel requirements. At year-end 1995, the Corporation had
outstanding swap agreements covering fuel purchases of $30 million with a gross
and net asset position of $2 million. At December 31, 1994, the Corporation had
outstanding swaps covering fuel purchases of $8 million with a gross and net
fair market value asset position of $0.3 million. Fuel hedging had no
significant effect on 1995 fuel costs and lowered 1994 fuel costs by $10
million. The Corporation did not hedge fuel purchases in 1993.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of the Corporation's long and short-term debt has been
estimated using quoted market prices or current borrowing rates. At December
31, 1995, the fair value of total debt exceeded the carrying value by
approximately 3 percent. Of the Corporation's total debt portfolio,
approximately $1.6 billion of fixed rate debt securities contain call provisions
that allow the Corporation to retire the debt instruments prior to final
maturity.
The carrying value of all other financial instruments approximates fair market
value.
OFF-BALANCE-SHEET CREDIT RISK
The Corporation 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, 1995 and 1994,
respectively, accounts receivable are presented net of the $400 million and $300
million of receivables sold.
6. PROPERTIES
Major property accounts are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Millions of Dollars 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Railroad:
Road and other $12,888 $ 8,428
Equipment 5,004 4,658
---------------------------
Total Railroad 17,892 13,086
Trucking 744 704
Other 112 130
---------------------------
Total $18,748 $13,920
- --------------------------------------------------------------------------------
Accumulated depreciation accounts are as follows:
- --------------------------------------------------------------------------------
Millions of Dollars 1995 1994
- --------------------------------------------------------------------------------
Railroad:
Road and other $2,331 $2,131
Equipment 2,035 1,881
--------------------------
Total Railroad 4,366 4,012
Trucking 237 200
Other 40 37
--------------------------
Total $4,643 $4,249
- --------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
7. INCOME TAXES
Components of income tax expense, excluding discontinued operations, are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 166 $123 $ 32
State (3) 32 8
------------------------------
Total current 163 155 40
Deferred:
Federal 130 178 265
State 21 (3) 13
------------------------------
Total deferred 151 175 278
------------------------------
Total $ 314 $330 $318
- --------------------------------------------------------------------------------
</TABLE>
In August 1993, President Clinton signed the Omnibus Budget Reconciliation Act
(the 1993 Tax Act) into law raising the Federal corporate income tax rate to 35
percent from 34 percent, retroactive to January 1, 1993. As a result, 1993
income tax expense increased by $63 million: $56 million for the one-time, non-
cash recognition of deferred income taxes related to prior periods and $7
million of incremental current year Federal income tax expense.
Deferred tax liabilities (assets), excluding discontinued operations, are
comprised of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Millions of Dollars 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net current deferred tax
(asset) liability $ (119) $ --
------------------------------
Excess tax over book depreciation 3,697 2,684
State taxes - net 338 212
Long-term liabilities (204) (111)
Retirement benefits (226) (206)
Alternative minimum tax (111) (100)
Other 4 (81)
------------------------------
Net long-term deferred tax liability 3,498 2,398
------------------------------
Net deferred tax liability $3,379 $2,398
</TABLE>
In January 1995, the Corporation recorded the effects of a tax settlement with
the IRS that permitted a portion of the excess acquisition costs (goodwill)
associated with the Overnite acquisition to become tax deductible. This one-
time tax benefit reduced goodwill and the deferred income tax liability by $123
million and decreased annual goodwill amortization by $3 million.
A reconciliation between statutory and effective tax rates of continuing
operations is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Cumulative effect of Federal
rate increase -- -- 7.5
State taxes - net 1.2 2.1 1.9
Goodwill amortization 0.9 1.2 1.8
Dividend exclusion (2.3) (1.7) (1.5)
Other (1.1) 0.1 (1.1)
---------------------------------------
Effective tax rate 33.7% 36.7% 43.6%
- --------------------------------------------------------------------------------
</TABLE>
All material IRS deficiencies prior to 1984 have been settled. The Corporation
and the IRS have settled all issues and are in the process of concluding Tax
Court cases for years through 1979. In addition, the Corporation has reached a
partial settlement with IRS Appeals for 1980 through 1983; the remaining issues
will be resolved as part of the refund claims filed for those years.
Furthermore, the Corporation is negotiating with the Appeals Office concerning
1984 through 1986. The IRS is examining the Corporation's returns for 1987
through 1994. The Corporation believes it has adequately provided for Federal
and state income taxes.
Net payments of income taxes, including payments made by the Corporation on
behalf of Resources, were $91 million in 1995, $119 million in 1994 and $142
million in 1993.
8. DEBT
Total debt is summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Millions of Dollars 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes and debentures, 4.75% to 10.66%
due through 2054 $2,924 $2,491
Equipment obligations, 5.97% to 15.50%
due through 2012 722 748
Commercial paper, average of 6.00%
in 1995 and 6.12% in 1994 1,129 767
Mortgage bonds, 4.25% to 5.00%
due through 2030 177 178
Tax-exempt financings, 4.01% to 4.25%
</TABLE>
<TABLE>
<S> <C> <C>
due through 2026 168 168
Term floating rate debt, 5.80% to
6.27%, due through 2002 250 100
Credit facility borrowings,
6.05% due 1996 834 --
Resources cash management
agreement, 8.50% due 1996 82 --
Capitalized leases 255 207
Unamortized discount (177) (180)
-----------------------
Total debt 6,364 4,479
Less current portion (132) (427)
-----------------------
Total long-term debt $6,232 $4,052
- --------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
Debt maturities for each year, 1996 through 2000, are $132 million, $171
million, $154 million, $435 million and $2.5 billion, respectively. Interest
payments approximate gross interest expense.
Approximately 37 percent of all rail equipment and other railroad properties
secures outstanding equipment obligations and mortgage bonds.
The Corporation has $3.7 billion of credit facilities with various banks
designated for general corporate purposes. These facilities consist of
revolving credit agreements of $1.2 billion that expire in 1996 and $2.5 billion
that expire in 2000. At December 31, 1995, the Corporation had $834 million
outstanding under these facilities related to the first-step cash tender offer
for 25 percent of Southern Pacific's common shares (see Note 3). Commitment
fees and interest rates payable under these facilities are similar to fees and
rates available to comparably rated corporate borrowers.
To the extent the Corporation has long-term credit facilities available,
commercial paper and credit facility borrowings of $1.96 billion, which are due
within one year, have been classified as long-term debt maturing in the year
2000. This classification reflects the Corporation's intent to refinance these
short-term borrowings on a long-term basis through the issuance of additional
commercial paper and/or new long-term financings, or by using currently
available long-term credit facilities if alternative financing is not available.
In October 1995, the Corporation entered into a cash management agreement with
Resources. Under the terms of the agreement, Resources is required to remit to
the Corporation all cash generated by its operations and may borrow up to a
maximum of $200 million from the Corporation. At December 31, 1995, the
Corporation owed Resources $82 million under this agreement.
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 $3.1 billion at December 31, 1995. On a pro forma
basis, assuming the distribution of Resources occurred on December 31, 1995, the
amount of retained earnings available for dividends under the most restrictive
test would have been $2.3 billion.
In February 1993, the remaining $24 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. This common stock was held in treasury prior
to the exchange.
9. LEASES
The Corporation leases certain locomotives, freight cars, trailers 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, 1995 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Operating Capital
Millions of Dollars Leases Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 274 $ 47
1997 199 44
1998 186 45
</TABLE>
1999 172 41
2000 152 40
Later years 1,070 198
----------------------------------
Total minimum payments $2,053 415
------
Amount representing interest (160)
-----
Present value of minimum lease
payments $255
- --------------------------------------------------------------------------------
Rent expense for operating leases with terms exceeding one month was $236
million in 1995, $101 million in 1994 and $95 million in 1993. 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 all eligible retirees.
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 approximately $200 million annually over the past three
years. Since 1989, the Corporation has settled a portion of the non-qualified
unfunded supplemental plans' accumulated benefit obligation by purchasing
annuities.
44
<PAGE>
Pension cost includes the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 28 $ 30 $ 25
Interest on projected benefit obligation 80 73 73
Return on assets:
Actual (gain) loss (181) 8 (109)
Deferred gain (loss) 111 (76) 47
Net amortization costs 8 12 10
----------------------------------
Charge to operations $ 46 $ 47 $ 46
- --------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation was determined using a discount rate of 7.25
percent in 1995 and 8.0 percent in 1994. The estimated rate of salary increase
approximated 5.25 percent in 1995 and 6.0 percent in 1994. The expected long-
term rate of return on plan assets was 8.0 percent in both years. The change in
assumptions will not significantly affect 1996 pension cost. As of year-end
1995 and 1994, approximately 32 percent of the funded plans' assets were held in
fixed-income and short-term securities, with the remainder in equity securities.
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Millions of Dollars Benefits Assets (a)
- ---------------------------------------------------------------------------------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Plan assets at fair value $1,024 $871 $-- $--
- ---------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 841 726 34 30
Non-vested benefits 54 39 2 2
------------------------------------------
Accumulated benefit obligation 895 765 36 32
Additional benefits based on estimated future salaries 193 200 22 28
------------------------------------------
Projected benefit obligation 1,088 965 58 60
------------------------------------------
Plan assets (over) under projected benefit obligation 64 94 58 60
Unamortized net transition asset (obligation) 8 9 (18) (24)
Unrecognized prior service cost (54) (37) (27) (29)
Unrecognized net gain (loss) 163 109 (25) (29)
Minimum liability -- -- 48 54
------------------------------------------
Pension liability $ 181 $175 $36 $32
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents the Corporation's non-qualified unfunded supplemental plans.
OTHER POSTRETIREMENT BENEFITS
In January 1993, the Corporation adopted the provisions of FASB Statement No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(see Note 4). The Corporation does not currently pre-fund health care and life
insurance benefit costs.
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.
Components of the postretirement health care and life insurance benefit expense
are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 8 $ 8 $ 6
Interest costs on accumulated
benefit obligation 20 18 17
Net amortization costs (12) (12) --
------------------------------------
Charge to operations $16 $14 $23
- ---------------------------------------------------------------------------------------------------
</TABLE>
The liability for postretirement benefit plans is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Millions of Dollars 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $192 $170
Fully eligible active employees 30 19
Other active employees 91 77
------------------------
Total accumulated postretirement
benefit obligation 313 266
Unrecognized prior service gain 50 62
Unrecognized net gain 27 39
------------------------
Postretirement benefits liability $390 $367
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.25 percent in 1995 and 8.0 percent in 1994. The health care
cost trend rate is assumed to decrease gradually from 11.9 percent for 1996 to
5.0 percent for 2010 and all future years. If the assumed health care cost trend
rate increases by one percentage point in each subsequent year, the aggregate of
the service and interest cost components of annual postretirement benefit
expense would increase by $3 million and the accumulated postretirement benefit
obligation would rise by $33 million.
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, 10,359,406, 9,747,370 and 14,469,250
common shares or options for common shares were available for grant at December
31, 1995, 1994 and 1993, respectively.
Options under the plans are granted at 100 percent of market value at the date
of grant and are exercisable for a period of 10 years from the grant date.
While options become exercisable no earlier than one year after grant, in 1994,
a multi-year grant was made covering normal annual
45
<PAGE>
grants for three years, becoming exercisable over a three-year period, provided
designated target Union Pacific common stock prices are met, or becoming fully
exercisable in any event after nine years. Granted shares in 1995 also include
the effect of the conversion of CNW employee options into Union Pacific options.
In addition, 1995 options expired and surrendered include the forfeiture of
Union Pacific options by certain Resources' employees and certain Union Pacific
executives in exchange for options of Resources' common stock.
Changes in common stock options outstanding are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Price Range
Under Option Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
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
Granted 3,990,200 47.00
Exercised (205,000) 20.04 to 54.13
Expired/Surrendered (31,550) 46.66 to 63.75
-------------------------------
Balance Dec. 31, 1994 8,450,110 23.07 to 63.75
Granted 681,793 8.95 to 67.94
Exercised (495,235) 8.95 to 63.75
Expired/Surrendered (1,545,216) 24.88 to 63.75
--------------------------------
Balance Dec. 31, 1995 7,091,452 8.95 to 67.94
- --------------------------------------------------------------------------------
Exercisable Dec. 31
- --------------------------------------------------------------------------------
1993 3,343,610 $20.04 to $54.13
1994 4,459,910 23.07 to 63.75
1995 6,708,892 8.95 to 63.75
- --------------------------------------------------------------------------------
</TABLE>
The plans also provide for awarding restricted shares of common stock to
eligible employees, generally subject to forfeiture if employment terminates
during the prescribed restricted period. In addition, a multiyear award was
made in 1994, covering a performance period through 1998, with vesting dependent
upon the achievement of certain Union Pacific stock price targets. During 1995,
1994 and 1993, 249,860, 755,230 and 208,700 retention and restricted shares of
common stock, respectively, were issued.
The Corporation has announced programs to repurchase up to $1.2 billion of its
common stock. Since 1984, 166 million shares of common stock have been
repurchased at a cost of $873 million.
12. 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. At December 31, 1995, the Corporation had
accrued $142 million for estimated future environmental costs and believes it is
reasonably possible that actual environmental costs could be lower than the
recorded reserve or as much as 25 percent higher. 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
Other Income - Net includes the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $ 22 $ 32 $ 33
Net gain on property dispositions 76 67 18
Interest and other - net 43 1 28
------------------------
Total $ 141 $ 100 $ 79
- --------------------------------------------------------------------------------
</TABLE>
14. RESOURCES' FINANCIAL INFORMATION
At year-end 1995, the Corporation owned approximately 83 percent of Resources'
common stock, which it intends to distribute to its stockholders in 1996 (see
Note 2). The following information is derived from Resources' audited
financial statements to be contained in Resources' 1995 Annual Report on Form
10-K, which will be filed with the Securities and Exchange Commission no later
than March 29, 1996, and is presented to provide additional information on
Resources' financial results to the Corporation's stockholders. A copy of such
Form 10-K may be obtained by contacting the Union Pacific Corporation Secretary
(see inside back cover).
Resources is an independent oil and gas company engaged in the exploration for
and production of natural gas, crude oil and associated products. Substantially
all of Resources' exploration and production programs are in the Austin Chalk
trend and the Carthage area in central and Eastern Texas and Louisiana; the
Ozona area in western Texas; the Land Grant in Colorado, Wyoming and Utah; the
Gulf of
46
<PAGE>
Mexico; and Canada. Through a wholly-owned subsidiary, Resources markets its own
production, and purchases and resells third-party production, focusing on direct
marketing to the natural gas end user, with particular emphasis on the power
generation market. Resources also has interests in hard minerals mining of trona
and coal, and in minerals-related royalties from third-party mining on
Resources' properties. Resources uses the successful efforts method to account
for exploration costs.
Resources competes for oil and gas reserves and technology advances with smaller
companies, as well as with the larger integrated oil companies and is subject to
hydrocarbon and mineral price volatility to the extent that such prices are not
fixed either through long-term, fixed-price sales contracts or hedged with
various financial instruments (see Hedging below). In its marketing activities,
Resources competes with other hydrocarbon producers and marketers. Mining
operations are also subject to competition from a number of companies, many of
which have larger operations.
Summarized financial information for Resources as of and for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
STATEMENT OF INCOME
- ---------------------------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $1,456 $1,333 $1,277
Operating expenses 986 982 894
-----------------------------
Operating income 470 351 383
Other income - net 7 174 60
Interest expense (19) (4) (3)
-----------------------------
Income before income taxes 458 521 440
Income taxes (107) (131) (137)
-----------------------------
Income before cumulative effect of changes accounting principles 351 390 303
Cumulative effect of changes in accounting principles -- -- (59)
-----------------------------
Net income $ 351 $ 390 $ 244
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------
MILLIONS OF DOLLARS 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 420 $ 533
Properties-net 2,764 2,600
Other assets 125 114
------------------------------------
Total assets $3,309 $3,247
Current liabilities $1,067 $ 505
Long-term debt 102 38
Deferred income taxes 438 458
Other liabilities 390 411
Stockholders' equity 1,312 1,835
------------------------------------
Total liabilities and stockholders' equity $3,309 $3,247
- -----------------------------------------------------------------------------------------------------
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, cash provided by
operations was $829 million, $821 million and $568 million, respectively, while
capital and exploratory expenditures for the same periods were $686 million,
$1,389 million and $560 million.
HEDGING: Resources uses swaps, futures and forward contracts to protect against
unfavorable hydrocarbon price movements. Credit risk related to these activities
is managed by requiring that counterparties meet minimum credit standards. At
December 31, 1995, the largest credit risk associated with any of Resources'
counterparties was approximately $21 million, which was partially secured by a
$10 million letter of credit.
At December 31, 1995, Resources had entered into near-term futures contracts and
price swaps with respect to crude oil sales volumes of 25 MBbld at $17.96/Bbl
for the first quarter of 1996, and with respect to natural gas sales volumes of
183 MMcfd at $1.88/Mcf and 242 MMcfd at $1.86/Mcf for the first and second
quarters of 1996, respectively.
At December 31, 1995, Resources had a total unrecognized mark-to-market gain of
$56 million related to all open risk management contracts.
As a result of its hedging program, Resources' oil and gas revenues can be
higher or lower than revenues that would be reported if hedging did not occur.
During 1995 and 1994, revenues were $27 million and $36 million higher,
respectively, as a result of hedging activities, while revenues were $29 million
lower in 1993. Resources' 1995 hedging gains were net of an $8 million loss
recognized in December 1995 related to 1996 contracts that suffered weakened
correlation as a result of unprecedented increases in natural gas futures
prices.
COLUMBIA GAS TRANSMISSION COMPANY (COLUMBIA): Columbia and Resources were
parties to a long-term contract for the sale by Resources to Columbia of
substantial volumes of natural gas at above 1991 market prices. In July 1991,
Columbia filed for protection from its creditors under Chapter 11 of the
bankruptcy laws. In April 1995, Columbia filed a Plan of Reorganization which
contained a proposed claim settlement among its largest creditors, including
Resources. Columbia's significant creditors accepted its proposed claim
settlement and, in November 1995, Resources received a cash settlement. Net of
potential tax and royalty claims associated with the settlement, Resources
recorded a gain of $123 million ($79 million after tax) as a component of
operating revenues.
47
<PAGE>
COMMITMENTS AND CONTINGENCIES: There are various lawsuits pending against
Resources and certain of its subsidiaries. Resources also entered into
commitments and provided guarantees for specific financial and contractual
obligations of its subsidiaries and affiliates. Resources does not expect that
the lawsuits, commitments or guarantees will have a material adverse effect on
its consolidated financial condition or its results of operations. If certain
lawsuits are ultimately resolved against Resources on a widespread basis, which
is not expected, damage awards and a loss of future revenues could result,
which, in the aggregate, could be material to Resources.
INCOME TAXES: Resources generates Section 29 credits from the sale of certain
fuels produced from non-conventional sources. Fuels qualifying for the credit
must be produced from a well drilled or a facility placed in service after
December 31, 1979, and before January 1, 1993, and sold before January 1, 2003.
Resources generated $38 million, $52 million and $14 million of Section 29
credits in 1995, 1994 and 1993, respectively. Generation of Section 29 credits
reduced Resources' statutory tax rate by 8.3 percent, 10.0 percent and 3.3
percent in such years.
SIGNIFICANT ACQUISITIONS AND PROPERTY DISPOSITIONS:
AMAX OIL AND GAS, INC. (AMAX): In March 1994, Resources acquired AMAX from
Cyprus AMAX Minerals Company for a net purchase price of $725 million. AMAX's
operations primarily consist of natural gas production, transportation and
processing properties in West Texas and Louisiana. These properties include
interests in 14 major fields, encompassing over 500,000 acres and 2,000
producing wells. Resources recorded 550 billion cubic feet of gas equivalent of
proved reserves related to the AMAX acquisition.
WILMINGTON SALE: In March 1994, Resources sold its interest in the Wilmington,
California 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 $159 million ($100
million after-tax) gain for Resources. Wilmington's hydrocarbon reserves
represented approximately 3 percent of Resources' year-end 1993 proved reserves
and the sale of the Wilmington properties has not significantly affected
Resources' ongoing operating results.
As part of the Wilmington sale agreement, Resources agreed to participate with
the City of Long Beach in funding site preparation and environmental
remediation. As a result, the determination of Resources' gain on the sale of
the Wilmington properties included provisions of $106 million for such future
costs.
ACCOUNTING ADJUSTMENTS: In 1993, Resources recorded a $59 million after-tax
charge to earnings related to the adoption of accounting changes. The after-tax
charge consisted of $44 million from the adoption of FASB Statement No. 106 and
$15 million from the adoption of FASB Statement No. 109 (see Note 4). In
addition, Resources recorded a $6 million charge for the one-time, non-cash
recognition of deferred income taxes related to the 1993 Tax Act (see Note 7).
SUPPLEMENTARY INFORMATION (UNAUDITED): The following supplementary measures of
oil and gas summarize Resources' significant operating statistics:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1995 1994 1993
-----------------------
<S> <C> <C> <C>
Proved reserves (Bcfe):
Natural gas 2,173 2,126 1,731
Natural gas liquids 601 503 446
Crude oil, including condensate 503 425 496
-----------------------
Total 3,277 3,054 2,673
- -----------------------------------------------------------------------------------------------
Equity production (Bcfe):
Natural gas 343 282 226
Natural gas liquids 66 51 46
Crude oil, including condensate 116 138 145
-----------------------
Total 525 471 417
- -----------------------------------------------------------------------------------------------
Average sales price and cost
Natural gas (per Mcf) $ 1.44 $ 1.82 $ 1.80
Natural gas liquids (per Bbl) 8.14 7.86 8.77
Crude oil (per Bbl) 16.08 14.34 15.66
Production costs (per Mcfe) 0.44 0.55 0.60
- -----------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows (millions $) 1,871 1,659 1,289
- -----------------------------------------------------------------------------------------------
Results of operations for producing activities (millions $) 139 151 119
- -----------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
SUPPLEMENTARY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SELECTED QUARTERLY DATA (a)
Selected unaudited quarterly data are as follows:
- ----------------------------------------------------------------------------------------------
Millions of Dollars Except Per Share Amounts Mar. 31 Jun. 30 Sep. 30 Dec. 31
- ----------------------------------------------------------------------------------------------
1995 (b)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $1,664 $1,874 $1,974 $1,974
Operating income 279 337 379 346
Income from continuing operations 130 150 160 179
Net income 191 224 237 294(c)
Per share:
Continuing operations 0.63 0.73 0.78 0.87
Net income 0.93 1.09 1.15 1.43(c)
Dividends 0.43 0.43 0.43 0.43
Common stock price:
High 56.13 56.75 69.50 70.13
Low 45.63 51.75 55.13 61.50
- ---------------------------------------------------------------------------------------------
1994
- ---------------------------------------------------------------------------------------------
Operating revenues $1,559 $1,656 $1,622 $1,655
Operating income 269 335 327 313
Income from continuing operations 131 155 134 148
Net income (loss) 283(d) 220 (213)(e) 256(f)
Per share:
Continuing operations 0.64 0.75 0.65 0.72
Net income (loss) 1.38(d) 1.07 (1.04)(e) 1.25(f)
Dividends 0.40 0.40 0.43 0.43
Common stock price:
High 67.13 59.75 60.13 53.75
Low 55.50 55.38 52.75 44.50
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) All information presented has been restated to reflect Resources and USPCI
as discontinued operations.
(b) 1995 information includes the effects of the CNW acquisition as of May 1,
1995.
(c) Included the Corporation's share of Resources' one-time $79 million after-
tax gain ($65 million or $0.32 per share) resulting from the Columbia
settlement.
(d) Included a one-time $116 million ($0.56 per share) after-tax gain resulting
from the sale of the Corporation's oil and gas properties in Wilmington,
California.
(e) Included an after-tax provision for disposal of discontinued operations of
$425 million ($2.07 per share), reflecting a write-down of USPCI's assets to
estimated net realizable value and a provision for costs associated with the
disposition of USPCI.
(f) Included a $21 million after-tax ($0.11 per share) reduction in the
Corporation's original USPCI loss provision to reflect the sale of USPCI.
STOCKHOLDERS AND DIVIDENDS
The common stock of the Corporation is traded on various stock exchanges,
principally the New York Stock Exchange. At January 31, 1996, there were
205,596,640 shares of outstanding common stock and approximately 60,100 common
stockholders. At that date, the closing price of the common stock on the New
York Stock Exchange was $66.63.
Cash dividends declared on common stock by the Corporation were $1.72 per share
in 1995 and $1.66 per share in 1994. Union Pacific has paid dividends to its
common stockholders during each of the past 96 years. See Note 8 to the
Financial Statements for a discussion regarding restrictions relating to the
payment of cash dividends.
RAIL TRANSPORTATION
COMMODITIES
Revenue ton-miles (RTM) and commodity revenue (CR) for major commodities by
percent and in total are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Percent of 1995 1994 1993
Total RTM CR RTM CR RTM CR
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Automotive 3.2% 10.4% 3.8% 11.3% 4.0% 11.3%
Chemicals 13.0 19.5 14.6 21.1 14.0 20.9
Energy 39.8 21.2 35.9 18.9 34.3 18.3
Food, consumer and government 4.7 5.8 5.7 6.6 5.8 6.6
Grains and grain products 16.6 14.2 14.3 11.7 16.1 12.9
Intermodal 11.2 14.5 12.5 15.6 12.0 14.3
Metals, minerals and forest 11.5 14.4 13.2 14.8 13.8 15.7
-----------------------------------------------------
Total 100% 100% 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------
Total (billions) 291.6 $6.1 235.8 $5.2 220.7 $4.9
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Equipment
- ------------------------------------------------------------------------------------------------
Owned or leased at year-end 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Locomotives 4,136 3,132 3,142
Freight cars:
Covered hoppers 37,341 24,009 23,399
Box cars 20,559 15,670 15,826
Open-top hoppers 15,941 11,256 10,885
Gondolas 12,218 9,678 9,969
Other 8,428 7,698 8,013
Work equipment 10,013 4,529 4,704
- ------------------------------------------------------------------------------------------------
Purchased or leased during the year:
Locomotives 85 49 74
Freight cars 2,111 1,784 1,394
- ------------------------------------------------------------------------------------------------
Average age of equipment (years)
Locomotives 13.1 13.0 12.2
Freight cars 20.9 20.2 19.8
- ------------------------------------------------------------------------------------------------
Bad order ratio - Freight cars 4.4% 6.4% 7.9%
- ------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXPENDITURES
- ------------------------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Expenditures:
Roadway and other $691 $586 $591
Equipment 279 183 214
--------------------------------------------------------
Total $970 $769 $805
- ------------------------------------------------------------------------------------------------
Maintenance Expenditures:
Roadway $303 $258 $247
Equipment 582 500 490
--------------------------------------------------------
Total $885 $758 $737
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TRACK MILES
- ------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Main line 16,599 13,836 13,972
Branch line 6,186 3,663 3,863
Yards, siding and other main line 14,977 12,279 12,480
------------------------------
Total 37,762 29,778 30,315
- ------------------------------------------------------------------------------------
Track miles of continuous welded rail (at year-end) 14,246 13,988 13,735
Track miles under centralized traffic-control
(at year-end) 8,920 8,900 8,861
Track miles of rail replaced:
New 492 278 280
Used 475 252 254
Track miles re-ballasted 3,532 2,442 2,510
Ties replaced (thousands) 2,194 1,623 2,017
FREIGHT OPERATIONS
- ------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------
Operating ratio 78.1 77.9 79.1
Carloadings (thousands) 5,568 4,991 4,619
Average commodity revenue per carloading $1,097 $1,045 $1,055
Average price of diesel fuel (per gallon) 61.0c 58.7c 62.8c
- ------------------------------------------------------------------------------------
TRUCKING
FREIGHT OPERATIONS
- ------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------
Shipments (thousands):
Less-than-truckload 8,279 8,535 8,146
Truckload 53 58 60
------------------------------
Total 8,332 8,593 8,206
- ------------------------------------------------------------------------------------
Tonnage (thousands):
Less-than-truckload 4,430 4,557 4,277
Truckload 612 667 733
------------------------------
Total 5,042 5,224 5,010
- ------------------------------------------------------------------------------------
Revenue per hundredweight $9.55 $9.82 $9.28
Operating ratio(a) 103.0 91.3 90.2
- ------------------------------------------------------------------------------------
(a) Excludes goodwill amortization
EQUIPMENT AND TERMINALS
- ------------------------------------------------------------------------------------
Owned or leased at year-end 1995 1994 1993
- ------------------------------------------------------------------------------------
Tractors 5,414 5,364 5,254
Trailers 19,809 18,858 17,105
Straight trucks 73 87 93
Automobiles and service units 186 214 237
Service centers 175 173 166
Average age of equipment (years):
Tractors 6.8 6.5 6.8
Trailers 7.2 7.0 8.0
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
- ------------------------------------------------------------------------------------
Millions of Dollars 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue equipment $31 $58 $40
Other 18 35 40
---------------------------------------
Total $49 $93 $80
- ------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
TEN-YEAR FINANCIAL SUMMARY(a)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Union Pacific Corporation and Subsidiary Companies
Millions of Dollars, Except Per Share Amounts, Ratios and Employee Statistics
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994(b) 1993(c) 1992 1991(d) 1990 1989 1988 1987 1986(d)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues $ 7,486 $ 6,492 $ 6,002 $ 5,773 $ 5,687 $ 5,739 $ 5,453 $ 5,128 $ 4,522 $ 3,883
Operating Income 1,341 1,244 1,112 1,082 221 993 993 966 810 144
Income (Loss) From
Continuing Operations 619 568 412 456 (123) 374 398 419 377 148
Net Income (Loss) 946 546 530 728 64 618 595 644 583 (460)
Per Share:
Continuing Operations 3.01 2.76 2.00 2.24 (0.60) 1.86 1.88 1.84 1.65 0.77
Net Income (Loss) 4.60 2.66 2.58 3.57 0.31 3.08 2.81 2.83 2.55 (2.28)
Dividends $ 1.72 $ 1.66 $ 1.54 $ 1.42 $ 1.31 $ 1.18 $ 1.12 $ 1.05 $ 1.00 $ 0.93
- --------------------------------------------------------------------------------------------------------------------------------
AT YEAR-END
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $19,446 $14,543 $13,797 $12,901 $12,272 $12,063 $11,567 $11,272 $10,112 $9,798
Total Debt (a) 6,364 4,479 4,105 4,035 3,966 3,982 3,975 3,254 2,785 2,960
Common Stockholders'
Equity 6,364 5,131 4,885 4,639 4,163 4,277 3,911 4,482 3,761 3,408
Equity Per Common Share $ 30.93 $ 24.92 $ 23.81 $ 22.75 $ 20.52 $ 21.63 $ 19.50 $ 19.85 $ 17.90 $16.23
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
- -------------------------------------------------------------------------------------------------------------------------------
Capital Investments $ 1,058 $ 876 $ 899 $ 864 $ 667 $ 674 $ 870 $ 917 $ 540 $ 528
Cash from Continuing
Operations 1,454 1,079 975 842 794 904 956 978 599 760
Total Salaries, Wages and
Employee Benefits (e) $ 3,120 $ 2,755 $ 2,689 $ 2,659 $ 2,523 $ 2,538 $ 2,462 $ 2,319 $ 2,123 $ 1,775
Average Number of
Employees 49,500 45,400 44,000 42,800 43,800 45,400 45,400 44,100 43,300 35,600
Revenues Per Employee $151,400 $143,000 $136,300 $135,000 $129,900 $126,400 $120,000 $116,400 $104,500 $109,000
- -------------------------------------------------------------------------------------------------------------------------------
Financial Ratios (%)
- -------------------------------------------------------------------------------------------------------------------------------
Debt to Capital Employed 50.0 46.6 45.7 46.5 48.8 48.2 50.4 42.1 42.5 46.5
Return on Average Common
Stockholders' Equity 16.5 10.9 11.1 16.5 1.5 15.1 14.2 13.4 12.9 ---
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Data include the effects of the 25% investment in Southern Pacific Rail
Corporation ($976 million), the Chicago and North Western Transportation
Company acquisition as of May 1, 1995 and the Skyway Freight Systems, Inc.
acquisition as of May 31, 1993 (see Note 3 to the Financial Statements). In
addition, all information presented reflects the Corporation's natural
resources and waste management segments as discontinued operations.
(b) 1994 results include a net after-tax loss of $404 million from the sale of
the Corporation's waste management operations (see Note 2 to the Financial
Statements). Excluding this loss, 1994 return on average common
stockholders' equity would have been 18.2%.
(c) 1993 net income includes a net after-tax charge for the adoption of changes
in accounting methods and a one-time charge for the deferred tax effect of
the Omnibus Budget Reconciliation Act of 1993 (see Notes 4, 7 and 14 to the
Financial Statements). Excluding the impact of these items, income from
continuing operations would have been $468 million ($2.27 per share) with a
return on average common stockholders' equity of 15.9%.
(d) Earnings excluding the special charges would have been $639 million in 1991
with a return on average common stockholders' equity of 14.2% and would
have been $485 million in 1996 with a return on average common
stockholders' equity of 11.1%.
(e) Includes capitalized salaries, wages and employee benefit costs.
51
<PAGE>
Union Pacific Corporation 1995 Annual Report
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, Minnesota, Wisconsin, Texas,
Colorado, Wyoming, Utah, Idaho, Montana, Nevada, California, Oregon
South Dakota 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,
Kansas, Louisiana, Colorado, Wyoming, Utah, Alberta,
British Columbia and the Gulf of Mexico.
3. Exploration and Development Activities in British
Columbia, Louisiana, Texas, Colorado, Wyoming, Utah,
Indiana, Kansas and the Gulf of Mexico.
4. Major Gas Processing Plants in Texas, Utah, Wyoming, Colorado,
and Alberta.
5. Coal Operations in Wyoming.
6. Trona Activities in Wyoming.
7. Construction Materials Activities in Missouri and Utah.
8. Pipelines - Overland Trail Pipeline in Wyoming and the
Wahsatch Gathering System in Utah, Idaho and Wyoming.
D. Overnite Transportation
1. Headquarters in Richmond, Virginia.
52
<PAGE>
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, New
Mexico, Texas and Colorado; and in the Canadian cities of
Toronto and Montreal.
E. Skyway Freight Systems
1. Headquarters in Watsonville, California.
2. Key Terminals in the states of Washington, California,
Arizona, Colorado, Texas, Iowa, Illinois, Indiana, Ohio,
Florida, Georgia, North Carolina, New Jersey, Minnesota,
Delaware, Connecticut and Massachusetts.
3. Support Operations in Nebraska, Texas and Virginia.
F. Union Pacific Technologies
1. Headquarters in St. Louis, Missouri.
53
<PAGE>
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF UNION PACIFIC CORPORATION
-----------------------------------------------------
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
- ------------------- -------------
<S> <C>
Overnite Transportation Company............. Virginia
Union Pacific Railroad Company.............. Utah
Missouri Pacific Corporation................ Delaware
Missouri Pacific Railroad Company........... Delaware
Resources Holdings, Inc..................... Delaware
Union Pacific Finance Company............... Delaware
Union Pacific Resources Company............. Delaware
Union Pacific Resources Group Inc........... Utah
Union Pacific Technologies, Inc............. Delaware
Skyway Freight Systems, Inc................. California
</TABLE>
<PAGE>
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. 33-44236,
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, Registration No. 33-54811 and Registration
Statement No. 33-58563 on Forms S-8, Registration Statement No. 33-59323 on Form
S-3 and Registration Statement No. 33-64707 on Form S-4 of our report dated
January 18, 1996, incorporated by reference in the Annual Report on Form 10-K of
Union Pacific Corporation for the year ended December 31, 1995.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
New York, New York
March 26, 1996
<PAGE>
EXHIBIT 24
UNION PACIFIC CORPORATION
POWERS OF ATTORNEY
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ ROBERT P. BAUMAN
--------------------
Robert P. Bauman
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ RICHARD B. CHENEY
---------------------
Richard B. Cheney
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ E. VIRGIL CONWAY
--------------------
E. Virgil Conway
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ RICHARD K. DAVIDSON
-----------------------
Richard K. Davidson
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ SPENCER F. ECCLES
---------------------
Spencer F. Eccles
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ ELBRIDGE T. GERRY, JR.
--------------------------
Elbridge T. Gerry, Jr.
<PAGE>
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ WILLIAM H. GRAY, III
------------------------
William H. Gray, III
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker her true and lawful attorney-in-fact and agent, to sign
on her behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ JUDITH RICHARDS HOPE
------------------------
Judith Richards Hope
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ RICHARD J. MAHONEY
----------------------
Richard J. Mahoney
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ L. WHITE MATTHEWS, III
--------------------------
L. White Matthews, III
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ JACK L. MESSMAN
-------------------
Jack L. Messman
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ JOHN R. MEYER
-----------------
John R. Meyer
<PAGE>
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ THOMAS A. REYNOLDS, JR.
---------------------------
Thomas A. Reynolds, Jr.
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ JAMES D. ROBINSON, III
--------------------------
James D. Robinson, III
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ ROBERT W. ROTH
-----------------------
Robert W. Roth
The undersigned, a director of Union Pacific Corporation, a Utah
corporation (the "Company"), hereby appoints each of Drew Lewis, Judy L. Swantak
and Thomas E. Whitaker his true and lawful attorney-in-fact and agent, to sign
on his behalf the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and any and all amendments thereto, and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
/s/ RICHARD D. SIMMONS
----------------------
Richard D. Simmons
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF CONSOLIDATED INCOME AND CONSOLIDATED FINANCIAL POSITION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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