<COVER PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-6075
UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 13-2626465
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Martin Tower, Eighth and Eaton Avenues, Bethlehem, Pennsylvania
(Address of principal executive offices)
18018
(Zip Code)
(610) 861-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
------- --------
As of July 31, 1997, there were 247,078,016 shares of the
Registrant's Common Stock outstanding.
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UNION PACIFIC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page Number
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Item 1: Condensed Consolidated Financial Statements:
CONDENSED STATEMENT OF CONSOLIDATED INCOME - For the
Three Months and Six Months Ended June 30, 1997 and
1996.................................................. 1
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION -
At June 30, 1997 and December 31, 1996................ 2-3
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS - For
the Six Months Ended June 30, 1997 and 1996........... 4
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS -
For the Six Months Ended June 30, 1997 and 1996....... 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.... 5-9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10-17
PART II. OTHER INFORMATION
Item 1: Legal Proceedings....................................... 18
Item 6: Exhibits and Reports on Form 8-K........................ 19
Signature........................................................ 20
<PAGE 1>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED INCOME
For the Three Months and Six Months Ended June 30, 1997 and 1996
(Amounts in Millions, Except Ratio and Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
Operating Revenues (Note 2)....... $ 2,883 $ 2,012 $ 5,693 $ 3,980
------- ------- ------- -------
Operating Expenses (Note 2):
Salaries, wages and
employee benefits............ 1,037 744 2,063 1,517
Equipment and other rents....... 317 188 639 391
Depreciation and amortization... 261 174 519 346
Fuel and utilities (Note 4)..... 267 181 563 344
Materials and supplies.......... 134 111 291 227
Purchased services ............. 174 123 374 248
Other costs..................... 192 103 398 253
------- ------- ------- -------
Total........................ 2,382 1,624 4,847 3,326
------- ------- ------- -------
Operating Income.................. 501 388 846 654
Other Income - Net................ 19 32 57 50
Interest Expense (Notes 2, 3 and 4) (146) (114) (296) (231)
Corporate Expenses................ (26) (22) (54) (51)
------- ------- ------- -------
Income Before Income Taxes........ 348 284 553 422
Income Taxes...................... (132) (98) (209) (129)
------- ------- ------- -------
Income from Continuing Operations. 216 186 344 293
Income from Discontinued
Operations (Note 3)............... - 58 - 107
------- ------- ------- -------
Net Income........................ $ 216 $ 244 $ 344 $ 400
======= ======= ======= =======
Earnings Per Share (Notes 2 and 7):
Income from Continuing Operations $ 0.87 $ 0.90 $ 1.39 $ 1.42
Income from Discontinued
Operations..................... - 0.28 - 0.52
------- ------- ------- -------
Net Income...................... $ 0.87 $ 1.18 $ 1.39 $ 1.94
======= ======= ======= =======
Weighted Average Number of Shares. 247.9 206.4 247.9 206.4
Cash Dividends Per Share.......... $ 0.43 $ 0.43 $ 0.86 $ 0.86
Ratio of Earnings to Fixed
Charges (Note 5)................ 2.4 2.4
<PAGE 2>
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Millions of Dollars)
(Unaudited)
June 30, December 31,
ASSETS 1997 1996
--------- ------------
Current Assets:
Cash and temporary investments............... $ 129 $ 191
Accounts receivable - Net.................... 802 494
Inventories.................................. 290 304
Other current assets......................... 338 345
-------- ------------
Total Current Assets.................... 1,559 1,334
Investments:
Investments in and advances to affiliated
companies................................. 399 387
Other investments............................ 208 226
-------- ------------
Total Investments....................... 607 613
-------- ------------
Properties:
Railroad:
Road and other............................. 23,298 22,665
Equipment.................................. 6,951 6,573
-------- ------------
Total Railroad.......................... 30,249 29,238
Trucking..................................... 726 736
Other........................................ 130 123
-------- ------------
Total Properties........................ 31,105 30,097
Accumulated depreciation..................... (5,474) (5,053)
-------- ------------
Properties - Net........................ 25,631 25,044
-------- ------------
Excess Acquisition Costs - Net.................. 690 700
Other Assets.................................... 264 223
-------- ------------
Total Assets............................ $ 28,751 $ 27,914
========= ============
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UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Amounts in Millions, Except Share and Per Share Amounts)
(Unaudited)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
-------- ------------
Current Liabilities:
Accounts payable................................ $ 674 $ 705
Accrued wages and vacation...................... 456 427
Income and other taxes.......................... 230 250
Accrued casualty costs.......................... 329 332
Dividends and interest.......................... 288 293
Debt due within one year (Note 2)............... 216 127
Other current liabilities (Note 2).............. 1,030 922
-------- ------------
Total Current Liabilities..................... 3,223 3,056
-------- ------------
Debt Due After One Year (Note 2)................... 8,292 7,900
Deferred Income Taxes.............................. 6,066 5,939
Accrued Casualty Costs............................. 810 730
Retiree Benefits Obligation ....................... 747 720
Other Long-Term Liabilities (Notes 2 and 6)........ 1,255 1,344
Stockholders' Equity:
Common stock, $2.50 par value, authorized
500,000,000 shares, 275,597,172 shares issued
in 1997, 274,595,151 shares issued in 1996.... 689 686
Paid-in surplus................................. 4,044 4,009
Retained earnings............................... 5,394 5,262
Treasury stock, at cost, 28,540,417 shares in
1997, 27,935,628 shares in 1996............... (1,769) (1,732)
-------- ------------
Total Stockholders' Equity................... 8,358 8,225
-------- ------------
Total Liabilities and Stockholders' Equity... $ 28,751 $ 27,914
========= ============
<PAGE 4>
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(Millions of Dollars)
(Unaudited)
1997 1996
------- -------
Cash flows from operating activities:
Net income.........................................$ 344 $ 400
Non-cash charges to income:
Depreciation and amortization................... 519 346
Deferred income taxes........................... 107 (23)
Other - net..................................... (226) 69
Income from discontinued operations (Note 3)....... -- (107)
Changes in current assets and liabilities.......... (37) 44
------- -------
Cash from continuing operations................ 707 729
------- -------
Cash flows from investing activities:
Capital investments................................ (939) (498)
Other - net........................................ (86) 35
------- -------
Cash used in investing activities.............. (1,025) (463)
------- -------
Cash flows from equity and financing activities:
Dividends paid..................................... (212) (177)
Debt repaid ....................................... (468) (1,217)
Financings......................................... 949 1,008
Other - net........................................ (13) (37)
------- -------
Cash provided by (used in) equity and
financing activities............................ 256 (423)
------- -------
Net decrease in cash and temporary investments..$ (62) $ (157)
======= =======
CONDENSED STATEMENT OF CONSOLIDATED RETAINED EARNINGS
For the Six Months Ended June 30, 1997 and 1996
(Amounts in Millions, Except Per Share Amounts)
(Unaudited)
1997 1996
------- -------
Balance at Beginning of Year......................... $ 5,262 $ 5,327
Net Income........................................... 344 400
------- -------
Total......................................... 5,606 5,727
Dividends Declared ($0.86 per share in both 1997
and 1996)....................... (212) (177)
------- -------
Balance at End of Period........................ $ 5,394 $ 5,550
======= =======
<PAGE 5>
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Responsibilities for Financial Statements - The condensed
consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal and recurring adjustments)
that are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the
interim periods. The Condensed Statement of Consolidated Financial
Position at December 31, 1996 is derived from audited financial
statements. The condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements
and notes thereto contained in the Union Pacific Corporation (the
Corporation or UPC) Annual Report to Stockholders incorporated by
reference in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996. The results of operations for the six
months and three months ended June 30, 1997 are not necessarily
indicative of the results for the entire year ending December 31,
1997. Certain 1996 amounts have been reclassified to conform to the
1997 financial statement presentation.
2. Acquisition of Southern Pacific Rail Corporation (Southern Pacific
or SP) - UPC consummated the acquisition of Southern Pacific in
September 1996 by acquiring the remaining 75% of Southern Pacific
common shares not previously owned by the Corporation. As a result
of the initial cash tender offer in 1995 for 25% of Southern
Pacific's outstanding shares and the acquisition of the remaining
75% of Southern Pacific shares, 60% of the outstanding Southern
Pacific shares were converted into 38.1 million shares of UPC common
stock, and the remaining 40% of the outstanding shares were acquired
for $1,562 million in cash. UPC initially funded the cash portion of
the acquisition with credit facility borrowings, all of which have
been refinanced with commercial paper borrowings.
The acquisition of Southern Pacific has been accounted for using the
purchase method. Results for the second quarter and first half of
1996 include equity income equal to 25% of Southern Pacific's net
income during that period, reflecting UPC's ownership of SP. SP's
results were fully consolidated with the Corporation effective
October 1, 1996. The purchase price was determined as follows and
was based on a market value of the Corporation's common stock of
$65.00 per share, the value at the time of the announcement of the
merger agreement between the Corporation and Southern Pacific:
(in millions)
Initial 25% investment in SP on September 15, 1995,
including equity income $ 990
Second step cash purchase (23.4 million shares at $25.00
per SP share) on September 11, 1996 586
Merger exchange of SP shares (93.7 million SP shares
converted into 38.1 million shares of UPC common
stock at $65.00 per UP share) on September 11, 1996 2,476
Transaction costs 45
------
Purchase Price $4,097
------
<PAGE 6>
The Southern Pacific purchase price has been allocated as follows:
(in millions)
Purchase price to be allocated $ 4,097
Pre-tax merger costs:
Current 317
Long-term 731
Equity acquired (1,083)
-------
Unallocated purchase price $ 4,062
-------
Purchase price allocation:
Property and equipment $ 6,145
Debt and preference share revaluation (220)
Deferred income taxes (including the effect
of merger costs) (1,863)
-------
Total $ 4,062
-------
In connection with the acquisition and subsequent consolidation of
rail operations, UPC plans to eliminate duplicate positions,
relocate certain functions, merge or eliminate redundant facilities,
dispose of certain rail lines and cancel uneconomical and
duplicative SP contracts. UPC has recognized $1,048 million of
merger costs in purchase accounting associated with these
activities.
Through June 1997, $156 million was charged against these reserves,
principally comprising severance and relocation payments made to SP
employees. The Corporation expects the remaining payments to be made
through 1999 as the rail operations are merged and labor negotiations
are completed and implemented.
In addition, Union Pacific Railroad Company (UPRR) expects to incur
$420 million in acquisition-related costs through 1999 for severing
or relocating UPRR employees, disposing of certain UPRR facilities,
training and equipment upgrading. These costs will be charged to
expense as incurred. Results for the three months and six months
ended June 30, 1997 include $27 million and $36 million,
respectively, in one-time acquisition-related costs, net of tax.
The amounts recorded for Southern Pacific-related costs and
estimated costs for UPRR severance, relocation and facility closings
are subject to refinement as more information becomes available and
management finalizes merger implementation plans. The status of
union negotiations, the actual portion of terminated or relocated
UPRR and SP employees, and the resolution of certain litigation and
other claims will be finalized by September 1997. As a result, the
amounts included in purchase accounting and the actual Railroad
merger expense could change. Any revision required is not expected
to be material to the Corporation's financial position or ongoing
results of operations.
The pro forma results presented below have been prepared to reflect
the consummation of the Southern Pacific acquisition and the
subsequent pro-rata distribution of the shares of Union Pacific
Resources Group Inc. (Resources) owned by the Corporation to UPC's
stockholders (see Note 3 to the Condensed Consolidated Financial
Statements), as if such events occurred on January 1, 1996. The pro
forma results presented below do not reflect synergies expected
to result from the integration of UPRR's and Southern Pacific's rail
<PAGE 7>
operations, and, accordingly, do not account for any potential
increase in revenue or operating income, estimated cost savings, or
one-time costs associated with the elimination of UPRR's duplicate
facilities and relocation or severance payments to UPRR's employees.
The effects of the foregoing could be substantial. This unaudited
pro forma information is not necessarily indicative of the results
of operations that might have occurred had the Southern Pacific
acquisition and the distribution of the shares of Resources owned by
the Corporation actually occurred on the date indicated, or of
future results of operations of the resulting entity.
Pro forma
-----------------------------------------------------------------------
Millions of Dollars Three-Months Ended Six-MonthsEnded
Except Per Share Amount June 30, 1996 June 30, 1996
-----------------------------------------------------------------------
Operating Revenues $ 2,836 $ 5,584
Operating Income 414 700
Net Income 163 241
Net Income per Share 0.67 0.99
-----------------------------------------------------------------------
3. Resources - In July 1995, the Corporation's Board of Directors
approved a formal plan to divest UPC's natural resources business
through an initial public offering (IPO) by Resources, followed by a
pro-rata distribution of the Resources' shares owned by the
Corporation to its stockholders (the Spin-Off).
The IPO of 42.5 million Resources' shares at $21 per share was
completed in October 1995 and generated net proceeds of $844
million. At that time, Resources distributed to UPC a dividend of
$1,621 million ($912 million in cash, $650 million in 8.5% notes,
which were repaid on the Spin-Off date, and a $59 million
intercompany balance owed by the Corporation). UPC used the cash
proceeds from the IPO dividend to reduce outstanding commercial
paper.
In September 1996, the Corporation's Board of Directors declared a
special dividend consisting of the shares of Resources' common stock
owned by UPC. As a result of the Spin-Off, each of the
Corporation's stockholders received 0.846946 of a share of
Resources' common stock for each UPC share of common stock held by
such stockholder at the September 26, 1996 record date for the
distribution.
Resources' results prior to the Spin-Off were reported as a
discontinued operation in the Corporation's consolidated financial
statements. UPC's results for the second quarter and first half of
1996 include income from discontinued operations of $58 million and
$107 million (approximately 83% of Resources' net income for each
period), net of income taxes of $30 million and $52 million,
respectively.
4. Financial Instruments - The Corporation uses derivative financial
instruments in limited instances to manage fuel price and interest
rate risks. 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
<PAGE 8>
selecting instruments whose value fluctuations correlate highly
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 total credit risk associated with the
Corporation's counterparties was $49 million at June 30, 1997. 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 June 30, 1997 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.
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 June 30, 1997, the Corporation had outstanding interest rate
swaps on $261 million of notional principal amount of debt (3% of
the total debt portfolio) with a gross fair market value asset
position of $49 million and a gross fair market value liability
position of $11 million. These contracts mature over the next one
to eight years. Interest rate hedging activity increased interest
expense by $3 million and $2 million in the second quarter of 1997
and 1996, respectively, and by $6 million and $4 million in the
first six months of 1997 and 1996, respectively.
Fuel - Over the past three years, fuel costs approximated 10% 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's transportation subsidiaries periodically
use swaps, futures and forward contracts to mitigate the impact of
fuel price volatility. The intent of this program is to protect the
Corporation's operating margins and overall profitability from
adverse fuel price changes.
At June 30, 1997, the Railroad had hedged 34% of its estimated
remaining 1997 diesel fuel consumption at $0.52 per gallon on a Gulf
Coast basis, while Overnite Transportation Company had not hedged
any of its 1997 fuel requirements. At June 30, 1997, the Railroad
had outstanding swap agreements covering its fuel purchases of $113
million, with gross and net liability positions of $1 million. Fuel
hedging increased second quarter 1997 fuel costs by $1 million and
lowered second quarter 1996 fuel costs by $5 million. Fuel hedging
increased year-to-date 1997 fuel expense by $1 million and lowered
1996 year-to-date fuel expense by $10 million.
5. Ratio of Earnings to Fixed Charges - The ratio of earnings to fixed
charges has been computed on a total enterprise basis. Earnings
represent income from continuing operations less equity in
undistributed earnings of unconsolidated affiliates, plus income
taxes and fixed charges. Fixed
<PAGE 9>
charges represent interest, amortization of debt discount and
expense, and the estimated interest portion of rental charges.
6. 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. The
Corporation and its subsidiaries also periodically enter into
financial and other commitments in connection with their businesses,
and have retained certain contingent liabilities of former
operations.
The Corporation does not anticipate that the ultimate resolution of
the matters described in Part I, Item 3. Legal Proceedings of the
Corporation's 1996 Annual Report on Form 10-K and in Part II, Item
1. Legal Proceedings in this Report will have a material adverse
effect on the Corporation's consolidated financial condition or
operating results.
7. Accounting Pronouncements - The Financial Accounting Standards Board
(FASB) issued Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,"
which provides consistent standards for determining if transfers of
financial assets are sales or secured borrowings, and which revises
the accounting rules for liabilities extinguished by an in-substance
defeasance. UPC adopted Statement No. 125 on January 1, 1997 with no
impact on the Corporation's operating results or financial
condition.
The American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities,"
effective for 1997, which clarifies the accounting for environmental
remediation liabilities. Adoption had no significant impact on UPC's
operating results or financial condition.
In February 1997, the FASB issued Statement No. 128, "Earnings per
Share," which simplifies the standards for computing earnings per
share (EPS) and makes them comparable to international EPS
standards. Statement No. 128 requires dual presentation of Basic
and Diluted EPS on the face of the income statement for all entities
with complex capital structures. Statement No. 128 will be
effective for UPC's 1997 Annual Report, including interim periods to
be presented therein; earlier application is not permitted. Had
Statement No. 128 been effective for the second quarter of 1997 and
the first six months of 1997, UPC's Basic and Diluted EPS (based on
income from continuing operations and net income) would have been
$0.88 and $0.87 per share, respectively, for the second quarter of
1997 and $1.40 and $1.39 per share, respectively, for the six months
ended June 30, 1997.
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" which will be effective in 1998. The
Corporation anticipates Statement No. 130 will have no impact on the
current reporting and disclosure format of UPC as the Corporation
has no material items of other comprehensive income as defined in
the Statement. The FASB also issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which
establishes standards for reporting information about operating
segments. UPC currently complies with most provisions of this
Statement, and any incremental disclosure is expected to be minimal.
<PAGE 10>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
Quarter ended June 30, 1997 Compared to June 30, 1996
CORPORATE REORGANIZATION
During 1996, Union Pacific Corporation (UPC or the Corporation)
completed several strategic transactions that refocused the
Corporation's business objectives on its core transportation operations.
Natural Resources Divestiture - In July 1995, UPC's Board of Directors
approved a formal plan to dispose of its natural resources business by
an initial public offering (IPO) by Union Pacific Resources Group Inc.
(Resources) of 17% of its common stock, followed by a distribution of
UPC's interest in Resources to the Corporation's stockholders on a tax-free,
pro-rata basis (the Spin-Off)(see Note 3 to the Condensed
Consolidated Financial Statements). In October 1995, Resources completed
the IPO, and in September 1996, UPC completed its divestiture of
Resources. The Corporation's share of Resources' 1996 financial results
are presented as discontinued operations for that period.
Southern Pacific Rail Corporation (Southern Pacific or SP) Acquisition -
In September 1995, UPC acquired 25% of Southern Pacific, and, in
September 1996, it acquired the remaining 75%. The aggregate Southern
Pacific purchase price was $4.1 billion ($2.5 billion in UPC common
stock and $1.6 billion in cash). The acquisition of Southern Pacific was
accounted for as a purchase. The condensed statement of consolidated
income for the first half of 1996 includes equity income equal to 25% of
Southern Pacific's net income, reflecting UPC's ownership of Southern
Pacific during such period. For the first half of 1997, Southern
Pacific's results were fully consolidated with the Corporation's results
(see Note 2 to the Condensed Consolidated Financial Statements).
As a result of the SP acquisition, UPC now operates the largest rail
system in the United States, with 36,000 route miles linking Pacific
Coast and Gulf Coast ports to the Midwest and eastern U.S. gateways.
CONSOLIDATED - The Corporation reported net income of $216 million or
$0.87 per share for the second quarter of 1997, compared to 1996 net
income of $244 million or $1.18 per share. Results for 1997 included
the effects of the completion of the Southern Pacific acquisition and
the one-time SP merger-related costs of $27 million, net of tax. Net
income for 1996 included $58 million, representing 83% of Resources' net
income, in discontinued operations.
RESULTS OF CONTINUING OPERATIONS
Consolidated - In the second quarter of 1997, the Corporation reported
income from continuing operations of $216 million ($0.87 per share),
compared to results for the second quarter of 1996 of $186 million
($0.90 per share). This earnings increase resulted from continued
strong financial performance at Union Pacific Railroad Company (UPRR),
additional operating income from Southern Pacific (UPRR and SP are
collectively referred to as the Railroad), and improved operating
results at Overnite Transportation Company (Overnite). Earnings per
share decreased as a result of the issuance of 38.1 million shares in
September 1996
<PAGE 11>
in connection with the Southern Pacific acquisition.
Operating revenues increased $871 million (43%) to $2.88 billion in
1997, reflecting increased volumes at the Railroad (largely from the
addition of Southern Pacific volumes), slightly offset by lower volumes
at Overnite.
Operating expenses increased $758 million (47%) to $2.38 billion in
1997. The addition of Southern Pacific operations slightly offset by
merger-related workforce reductions and base business productivity
improvements caused salaries, wages and employee benefits to increase
$293 million. The addition of Southern Pacific operations was the
primary factor causing increases in equipment and other rents ($129
million); purchased services ($51 million); casualty accruals ($34
million); materials and supplies ($23 million); and other taxes ($14
million). Fuel and utility costs rose $86 million (48%), principally
the result of increased volumes at the Railroad as fuel prices were flat
as compared to the second quarter of 1996. Depreciation charges rose
$87 million, primarily due to the addition and purchase accounting
revaluation of Southern Pacific properties and UPC's continued
reinvestment in its equipment and rail infrastructure.
Consolidated operating income advanced $113 million (29%) to $501
million in 1997, principally because of improved results at the Railroad
and Overnite ($92 million and $22 million, respectively). Other income
decreased $13 million reflecting the absence of a non-refundable deposit
received in the second quarter of 1996 related to the Las Vegas land
sale at the Railroad ($7 million) and the absence of interest on IPO
dividend notes from Resources ($10 million) partially offset by an
increase in fibre optic income at the Railroad ($6 million). Interest
expense increased $32 million, the result of higher debt levels
associated with the Southern Pacific acquisition, partially offset by
the favorable impact of applying to debt reduction the proceeds of
Resources' notes payable repayment (see Note 3 to the Condensed
Consolidated Financial Statements). Income taxes increased $34 million
to $132 million, primarily reflecting higher income before income taxes
and the absence of a second quarter 1996 one-time state tax credit at
the Railroad ($10 million).
Railroad - The Railroad earned $250 million in the second quarter of
1997, compared to $235 million a year ago. Earnings improvements
reflected base business growth and the addition of Southern Pacific
volumes, offset by incremental interest costs incurred in 1997 ($28
million reduction in net income) associated with the completion of the
SP acquisition and the consolidation of SP's debt and by one-time SP
merger-related costs ($27 million reduction in net income).
Operating revenues grew $888 million (52%) to $2.61 billion in 1997.
This increase primarily relates to an $885 million (53%) increase in
commodity revenue, reflecting the addition of Southern Pacific volumes
and a 3% increase in average commodity revenue per car to $1,156 per
car, resulting from a longer average length of haul and a shift in
commodity mix. Total carloadings grew 48% (approximately 721,000 cars).
On a pro forma basis, assuming the Southern Pacific acquisition had been
completed at the beginning of 1996, operating revenues for 1997 would
have grown $64 million (3%), primarily reflecting a $74 million (3%)
increase in commodity revenue. Compared to pro forma second quarter 1996
carloadings, second quarter 1997 carloadings would have been flat and
average commodity revenue per car would have grown 3% to $1,156 per car,
detailed as follows:
<PAGE 12>
Agricultural Products: Compared to pro forma 1996 amounts, agricultural
products commodity revenue decreased 2% to $358 million. Carloadings
declined 9% to 222,000 cars, primarily the result of an 18% decrease in
wheat volumes--reflecting strong worldwide export competition and a 19%
decrease in corn volumes--as farmers continued to hold corn in
anticipation of higher prices and because of strong truck and barge
competition. Wheat and corn declines were offset by improvements in
shipments of livestock and feed products (10%) and beverages (9%).
Average commodity revenue per car increased 8%, primarily the result of
a shift to longer-haul traffic.
Automotive: Compared to pro forma 1996 amounts, automotive commodity
revenue fell 1% to $251 million, and carloadings decreased 1%. Labor
strikes throughout the second quarter of 1997 at Chrysler and GM caused
finished auto carloadings to decline 4%. Auto parts carloadings
improved 2% as growth in Ford parts moves from Mexico countered the
negative effects of the strikes. Average commodity revenue per car was
essentially unchanged as a commodity mix shift from finished vehicles to
parts was partially offset by increased longer-haul Mexican parts moves.
Chemicals: Compared to pro forma 1996 amounts, chemicals carloadings
advanced 4% to 257,000 cars and commodity revenue increased $6 million
(1%) to $454 million. The growth in chemicals volume resulted
principally from strong demand in plastics, fertilizer and petroleum
products. Average commodity revenue per car decreased 2% to $1,766, the
result of strong merger-related competition with the BNSF and a shift in
commodity mix.
Energy (Primarily Coal): Compared to pro forma 1996 amounts, energy
commodity revenue rose 5% to $495 million in 1997, driven by a 6%
increase in average commodity revenue per car as carloadings were
essentially unchanged. Late spring blizzards and early summer storms in
the second quarter of 1997 caused some Powder River Basin (PRB) mines to
be shut down. This severe weather combined with the system congestion
problems in the PRB, caused the PRB train cycles to decrease to 23.8
trains per day in 1997 from 24.1 trains per day in 1996. The effect of
fewer trains per day was largely offset by efficiency improvements in
cars per PRB train (3%) and tons per PRB car (5%). This combination of
factors contributed to the flat carloadings. Average commodity revenue
per car improvements resulted from a longer average length of haul
related to the SP integration and a favorable contract settlement.
Industrial Products: Compared to pro forma 1996 amounts, industrial
products carloadings decreased 13% and commodity revenue increased 3% to
$535 million. Volume declines resulted primarily from the Railroad's
sale of its Escanaba line. Average commodity revenue per car improved
19%, the result of shedding the Railroad's short haul (low average
commodity revenue per car) metallic ore business in connection with this
line sale.
Intermodal: Compared to pro forma 1996 amounts, intermodal commodity
revenue rose 9% to $458 million as a 10% increase in carloadings--the
result of new premium service and strong economic conditions--was offset
by a 1% decrease in average commodity revenue per car.
Operating expenses rose $796 million (60%) to $2.11 billion in 1997.
The addition of Southern Pacific's operations and base rail volume
growth were the primary factors causing increases in equipment and other
rents ($129 million);
<PAGE 13>
purchased services ($61 million); casualty accruals ($35 million);
materials and supplies ($27 million); and other taxes ($16 million).
Salaries, wages and employee benefits rose $307 million, as the effect
of the SP acquisition was partially countered by merger-related
workforce reductions and base business productivity improvements
(largely increased train weight and improved crew management). Fuel and
utility costs rose $89 million, the result of increased volumes as fuel
prices remained flat, slightly offset by an improved fuel consumption
rate. Depreciation charges rose $88 million, primarily due to the
addition and purchase accounting revaluation of Southern Pacific
properties and the Railroad's continued reinvestment in its equipment
and rail infrastructure.
Operating income improved $92 million (23%) to $499 million in 1997,
while the operating ratio increased to 80.9 in 1997 from 76.4 last year,
reflecting the addition of SP's operations. SP's stand alone operating
ratio for the second quarter of 1996 was 96.5. On a pro forma basis,
assuming the Southern Pacific acquisition had been completed at the
beginning of 1996, the Railroad's operating ratio for the second quarter
of 1996 would have been 83.0. Interest expense increased $35 million to
$132 million, principally from higher debt levels associated with the
completion of the Southern Pacific acquisition, while other income
decreased $18 million, primarily the result of the absence of a
non-refundable deposit received in the second quarter of 1996 related to the
Las Vegas land sale. Income taxes increased $24 million to $147
million, primarily reflecting higher income before income taxes and the
absence of a one-time state tax credit in the second quarter of 1996
($10 million).
Trucking - During 1996, Overnite implemented several strategic
initiatives aimed at better matching its operations to the current
trucking industry business environment. Actions taken included workforce
reductions, service center consolidations, centralization of the
linehaul management process and pricing initiatives targeting Overnite's
lowest margin customers. Primarily as a result of these initiatives,
Overnite improved from a net loss of $12 million in the second quarter
of 1996 to net income of $2 million in the second quarter of 1997, an
improvement of $14 million. Results for both periods included goodwill
amortization of $5 million.
Overnite's operating revenues decreased $20 million (8%) to $237
million, as a 19% decrease in volumes more than offset a 14% increase in
average prices--resulting from Overnite's pricing initiatives. Lower
volumes reflected a 16% decrease in Less-Than-Truckload tonnage and a 50%
decrease in truckload volumes.
Operating expenses decreased $42 million (15%) to $232 million.
Salaries, wages and employee benefit costs decreased $19 million (12%)
to $145 million, reflecting workforce reductions and lower volumes,
partially offset by wage and benefit inflation. A reduced use of
intermodal rail service and contract linehaul carriers caused a $10
million (40%) decrease in purchased services. Fuel costs declined $3
million, as a result of a 7% decrease in fuel prices and an 18%
volume-related reduction in fuel consumption. Lower volumes and spending
controls caused decreases in materials and supplies ($4 million),
administrative expenses ($3 million), and operating taxes and licenses
($2 million). Overnite's operating loss declined $22 million to reflect
$5 million of operating income in the second quarter of 1997, while
Overnite's operating ratio (including goodwill amortization) improved to
97.9 in 1997 from 106.6 in 1996.
<PAGE 14>
Corporate Services and Other Operations - Expenses related to Corporate
Services and Other Operations (consisting of corporate expenses, third-party
interest charges, intercompany interest allocations, other income
and income taxes related to the Corporation's holding company
operations, and the results of other operating units) decreased $1
million to $36 million in 1997. This decrease largely reflects lower
Corporate interest costs, the result of applying to debt reduction the
proceeds of Resources' notes payable repayment. Other operating units
generated an operating loss of $3 million in the second quarter of 1997,
compared to an operating loss of $2 million in 1996.
RESULTS OF DISCONTINUED OPERATIONS
Resources reported net income of $70 million in the second quarter of
1996. UPC recognized its share of Resources' net income (approximately
83%) as discontinued operations in 1996. As a result of the Spin-Off,
UPC did not record any portion of Resources' net income in 1997.
Six Months Ended June 30, 1997 Compared to June 30, 1996
CONSOLIDATED RESULTS - The Corporation reported net income for the first
half of 1997 of $344 million ($1.39 per share) compared to $400 million
($1.94 per share) for the same period of 1996. Results for 1997
included the effects of the completion of the Southern Pacific
acquisition. Results for 1996 included $107 million representing 83% of
Resources' net income reported as discontinued operations.
RESULTS OF CONTINUING OPERATIONS - Income from continuing operations
advanced $51 million for the period to $344 million ($1.39 per share),
as the positive impact of the Railroad's SP integration more than offset
higher debt service costs associated with the Southern Pacific
acquisition. Operating revenues increased $1.71 billion (43%) to $5.69
billion for the period primarily the result of the Railroad's operating
revenue improvement of $1.77 billion (52%)(reflecting the addition of
Southern Pacific volumes, base business growth and a higher average
revenue per car resulting from a longer average length of haul and a
shift in commodity mix).
Consolidated operating expenses rose $1.52 billion (46%) to $4.85
billion in 1997. The addition of Southern Pacific operations and rail
volume growth caused increases in salaries, wages and employee benefits
($546 million), equipment and other rents ($248 million), purchased
services ($126 million), casualty accruals ($72 million), materials and
supplies ($64 million), car repair accruals ($51 million), and other
taxes ($25 million). Increased fuel prices and transportation volumes
resulted in a $219 million increase in fuel and utilities costs.
Depreciation charges rose $173 million--reflecting the addition and
purchase accounting revaluation of Southern Pacific properties and UPC's
continued reinvestment in its equipment and rail infrastructure.
Offsetting these increases was a decline in maintenance and repair
expenses of $32 million reflecting merger consolidation benefits.
Consolidated operating income advanced $192 million (29%) to $846
million for the first half of 1997, principally reflecting a $153
million improvement at the Railroad and a $42 million improvement at
Overnite. Other income increased $7 million, primarily the result of
increased rental income of $23 million offset by a decrease in interest
income of $20 million. Interest expense increased $65 million,
principally from higher debt levels associated with the Southern Pacific
acquisition partially offset by the favorable impact of applying to debt
<PAGE 15>
reduction the proceeds of Resources' notes payable repayment. The
Corporation's effective tax rate for the period increased to 37.8% from
30.6% a year ago, reflecting the absence of one-time favorable tax
settlements and tax credits received at the Railroad ($30 million) in
1996.
CHANGES IN CONSOLIDATED FINANCIAL CONDITION
During the first six months of 1997, cash from continuing operations was
$707 million compared to $729 million for the same period in 1996. This
$22 million decrease primarily reflects higher cash payments for income
taxes and merger costs and a volume-related increase in accounts
receivable offset by higher income from continuing operations and
increased non-cash charges included in income.
Cash used in investing activities was $1,025 million in 1997 compared to
$463 million in 1996. This increase primarily reflects higher merger-related
capital spending and the absence of dividends to UPC on the
Resources stock held by the Corporation ($21 million).
Cash provided by equity and financing activities was $256 million in the
first half of 1997 compared to cash used in equity and financing
activities of $423 million in 1996. This change in cash principally
reflects higher net borrowings ($690 million) offset slightly by higher
dividends to UPC shareholders ($35 million) resulting from the 38.1
million shares issued in the Southern Pacific acquisition. The ratio of
debt to debt plus equity increased to 50.4% at June 30, 1997, compared
to 49.4% at December 31, 1996. This change resulted from the increase
in debt levels from year-end 1996.
OTHER DEVELOPMENTS
OTHER MATTERS
Southern Pacific Integration
Labor: Under the conditions imposed by the Surface Transportation Board
of the U.S. Department of Transportation in connection with the Southern
Pacific acquisition, labor agreements between the Railroad and the
unions must be negotiated before the UPRR and Southern Pacific rail
systems can be fully integrated. The Railroad is currently negotiating
with the union leadership representing Southern Pacific's workforce and
expects union agreements to be ratified in 1997 and 1998. To date, the
leadership of certain operating, shopcraft, carmen and clerical
unions (collectively representing approximately 50% of Southern
Pacific's unionized workforce) have negotiated agreements relating to
the consolidation and coordination of UPRR's and Southern Pacific's
operations. The terms of ratified and pending labor agreements are not
expected to have a material adverse effect on the Corporation's results
of operations.
Benefits: The Railroad has begun to realize certain operational benefits
from the SP acquisition. Examples of these benefits include the
following: (a) an increase in the average speed of SP trains; (b) a
dramatic decrease in transit times for lumber shipments from the Pacific
Northwest to the Midwest; (c) the introduction of a new premium
intermodal service linking Oakland to Chicago, with plans to institute
new Memphis to Los Angeles to Oakland and Seattle to Oakland
to Los Angeles premium intermodal service in the near future;(d) a marked
<PAGE 16>
improvement in on-time train departures and arrivals; and (e)
significant gains in employee safety. As the process of integrating
SP's and UPRR's rail operations continues, the Corporation expects to
realize further acquisition benefits.
Computer Systems: The Railroad's plan for integrating the Southern
Pacific rail system with UPRR has been divided into four implementation
regions. Integration of these regions will include a complete
conversion of SP's operations to UPRR's computer operating systems.
The first region (SP's central corridor) was implemented on May 1, 1997,
with the remaining three regions to be completely integrated in phases
by May 1998.
Accounting Pronouncements - The Financial Accounting Standards Board
(FASB) issued Statement No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which provides
consistent standards for determining if transfers of financial assets
are sales or secured borrowings, and which revises the accounting rules
for liabilities extinguished by an in-substance defeasance. UPC adopted
Statement No. 125 on January 1, 1997 with no impact on the Corporation's
operating results or financial condition.
The American Institute of Certified Public Accountants issued Statement
of Position 96-1, "Environmental Remediation Liabilities," effective for
1997, which clarifies the accounting for environmental remediation
liabilities. Adoption had no significant impact on UPC's operating
results or financial condition.
In February 1997, the FASB issued Statement No. 128, "Earnings per
Share," which simplifies the standards for computing earnings per share
(EPS) and makes them comparable to international EPS standards.
Statement No. 128 replaces the standards for computing and presenting
EPS found in Accounting Principles Board Opinion No. 15, "Earnings per
Share." Statement No. 128 requires dual presentation of Basic and
Diluted EPS on the face of the income statement for all entities with
complex capital structures. Statement No. 128 will be effective for
UPC's 1997 Annual Report, including interim periods to be presented
therein; earlier application is not permitted. Had Statement No. 128
been effective for the second quarter of 1997 and the first six months
of 1997, UPC's Basic and Diluted EPS (based on income from continuing
operations and net income) would have been $0.88 and $0.87 per share,
respectively, for the second quarter of 1997 and $1.40 and $1.39 per
share, respectively, for the six months ended June 30, 1997.
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income" which will be effective in 1998. The Corporation
anticipates Statement No. 130 will have no impact on the current
reporting and disclosure format of UPC as the Corporation has no
material items of other comprehensive income as defined in the
Statement. The FASB also issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes
standards for reporting information about operating segments. UPC
currently complies with most provisions of this Statement, and any
incremental disclosure is expected to be minimal.
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
<PAGE 17>
remediation costs can be reasonably determined, and where such
remediation is probable, the Corporation has recorded a liability. In
addition, the Corporation and its subsidiaries also periodically enter
into financial and other commitments in connection with their
businesses, and have retained certain contingent liabilities upon the
disposition of formerly-owned operations. The Corporation does not
expect that the lawsuits, environmental costs, commitments or contingent
liabilities will have a material adverse effect on its consolidated
financial condition, results of operations or liquidity.
CAUTIONARY INFORMATION
Certain information included in this report contains, and other
materials filed or to be filed by the Corporation with the Securities
and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the
Corporation) contain or will contain, forward-looking statements within
the meaning of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended. Such forward-looking
information may include, without limitation, statements that the
Corporation does not expect that lawsuits, environmental costs,
commitments, contingent liabilities, labor negotiations or other matters
will have a material adverse effect on its consolidated financial
condition, results of operations or liquidity and other similar
expressions concerning matters that are not historical facts, and
projections as to the Corporation's financial results. Such forward-looking
information is or will be based on information available at that
time, and is or will be subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in the
statements. Important factors that could cause such differences
include, but are not limited to, industry competition and regulatory
developments, natural events such as floods and earthquakes, the effects
of adverse general economic conditions, changes in fuel prices and the
ultimate outcome of environmental investigations or proceedings and
other types of claims and litigation.
<PAGE 18>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Southern Pacific Acquisition: As previously reported in the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1996 (the "1996 10-K Report"), various appeals have been filed with
respect to the Surface Transportation Board's ("STB") August 12, 1996
decision (the "Decision") approving the acquisition of control of
Southern Pacific Rail Corporation and its rail affiliates by the
Corporation and its affiliates. All of the appeals have been
consolidated. On April 23, 1997, the City of Wichita and Sedgwick
County, Kansas, moved to withdraw their petition for review, and the
court granted their motion on April 30, 1997. On May 16, 1997, the
court ordered parties to show cause by June 16, 1997 why a briefing
format proposed in that order should not apply. The Corporation and its
affiliates, along with other parties, responded to the court's order,
and no briefing schedule has yet been established. The Corporation
believes that it is unlikely that the disposition of these appeals will
have a material impact on its results of operation.
On May 7, 1997, the STB served a decision commencing the first annual
proceeding to implement the oversight condition it had imposed in the
Decision. The Corporation and its affiliates, and the Burlington
Northern and Santa Fe Railway Company, filed reports required by the STB
on July 1, 1997. Comments from other parties are due on August 1, 1997,
and replies are due on August 20, 1997. The Corporation believes that
no changes in the merger conditions are warranted, but there can be no
assurance as to what action the STB will take.
Bottleneck Proceedings: As previously reported in the 1996 10-K Report,
on August 27, 1996, the STB initiated a proceeding asking for arguments
and evidence on the issue of whether it should modify its existing
regulations regarding the prescription of, and challenge to, rates for
rail service involving a segment that is served by only one railroad
between an interchange point and an exclusively-served shipper facility
(i.e., a bottleneck segment). The STB proceeding also referred to
pending motions to dismiss three individual complaint proceedings filed
by shippers challenging a class rate charged for the movement of coal,
two of which named Union Pacific Railroad Company ("UPRR") and Southern
Pacific Transportation Company ("SPT") as a party thereto. Neither
complaint proceeding individually involved a significant exposure for
reparations. However, if existing regulation of bottleneck movements
were changed, future revenue from such movements, including those
covered by the complaint proceedings, could be substantially reduced.
On December 31, 1996, the STB served a decision which generally
reaffirmed earlier rulings regarding a rail carrier's obligation to
provide rates for bottleneck segments and assured the right of rail
carriers to differentially price traffic. It also dismissed the two
complaint proceedings in which UPRR and SPT were defendants. On April
30, 1997, the STB served a decision generally declining to reconsider
its December 31, 1996 decision, but clarifying that in certain
circumstances a "bottleneck" destination carrier that does not serve the
origin for a traffic movement may be required to provide a
separately-challengeable common carrier rate for the "bottleneck"
portion of the movement. The STB decisions are pending on appeal before
the Eighth Circuit Court of Appeals.
<PAGE 19>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of earnings per share.
12 - Computation of ratio of earnings to fixed charges.
27 - Financial data schedule.
(b) Reports on Form 8-K
None.
<PAGE 20>
<SIGNITURE PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: August 5, 1997
UNION PACIFIC CORPORATION
(Registrant)
/s/ Joseph E. O'Connor, Jr.
___________________________
Joseph E. O'Connor, Jr.
Vice President and Controller
(Chief accounting officer
and duly authorized officer)
<EXHIBIT INDEX>
UNION PACIFIC CORPORATION
EXHIBIT INDEX
Exhibit No. Description
11 Computation of earnings per share
12 Computation of ratio of earnings to
fixed charges
27 Financial data schedule
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE
(Amounts in Thousands, Except Share and Per Share Amounts)
(Unaudited)
Six Months
Ended June 30,
1997 1996
-------- --------
Average number of shares outstanding (a)...... 245,581 205,281
Average shares issuable on exercise of stock
options less shares repurchasable from
proceeds.................................... 2,273 1,147
-------- --------
Total average number of common and common
equivalent shares........................... 247,854 206,428
======== ========
Income from Continuing Operations............. $343,786 $292,824
Income from Discontinued Operations........... -- 107,094
-------- --------
Net Income.................................... $343,786 $399,918
======== ========
Earnings per share:
Income from Continuing Operations........... $ 1.39 $ 1.42
Income from Discontinued Operations......... -- 0.52
-------- --------
Net Income.................................. $ 1.39 $ 1.94
======== ========
(a) The increase in the average number of shares outstanding resulted
from the Corporation's issuance of approximately 38.1 million shares of
UPC common stock in connection with the Southern Pacific acquisition.
See Note 2 to the Condensed Consolidated Financial Statements.
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in Thousands, Except Ratios)
(Unaudited)
Six Months
Ended June 30,
1997 1996
-------- --------
Earnings:
Income from continuing operations.......... $343,786 $292,824
Undistributed equity earnings.............. (15,496) (21,158)
-------- --------
Total............................ 328,290 271,666
-------- --------
Income Taxes................................. 208,538 129,429
-------- --------
Fixed Charges:
Interest expense including amortization of
debt discount........... .............. 296,097 230,845
Portion of rentals representing an interest
factor................................. 91,329 54,089
-------- --------
Total............................ 387,426 284,934
-------- --------
Earnings available for fixed charges......... $924,254 $686,029
======== ========
Total fixed charges -- as above.............. $387,426 $284,934
======== ========
Ratio of earnings to fixed charges (Note 5).. 2.4 2.4
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This is a legend.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 802
<ALLOWANCES> 0
<INVENTORY> 290
<CURRENT-ASSETS> 1559
<PP&E> 31105
<DEPRECIATION> 5474
<TOTAL-ASSETS> 28751
<CURRENT-LIABILITIES> 3223
<BONDS> 8292
0
0
<COMMON> 689
<OTHER-SE> 7669
<TOTAL-LIABILITY-AND-EQUITY> 28751
<SALES> 0
<TOTAL-REVENUES> 5693
<CGS> 0
<TOTAL-COSTS> 4847
<OTHER-EXPENSES> 54
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 553
<INCOME-TAX> 209
<INCOME-CONTINUING> 344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 344
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 0
</TABLE>
