<PAGE> COVER
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1999
- 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.)
1416 DODGE STREET, OMAHA, NEBRASKA
(Address of principal executive offices)
68179
(Zip Code)
(402) 271-5777
(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 30, 1999, there were 247,829,273 shares of the Registrant's
Common Stock outstanding.
<PAGE> INDEX
UNION PACIFIC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1: Consolidated Financial Statements:
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended June 30, 1999 and 1998... 1
STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended June 30, 1999 and 1998..... 2
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
At June 30, 1999 and December 31, 1998.............. 3
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998..... 4
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999.............. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............. 6-14
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 15-26
Item 3: Quantitative and Qualitative Disclosures About
Market Risk......................................... 26
PART II. OTHER INFORMATION
Item 1: Legal Proceedings...................................... 26-27
Item 6: Exhibits and Reports on Form 8-K....................... 27
Signature............................................................ 28
<PAGE> 1
- 1 -
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Consolidated Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Three Months Ended June 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions, Except Per Share and Ratios 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues Rail and other (Note 2)................$2,773 $2,623
-----------------------------------------------------------
Operating Expenses Salaries, wages and employee benefits.. 1,057 1,090
Equipment and other rents.............. 325 369
Depreciation........................... 268 268
Fuel and utilities (Note 5)............ 202 214
Materials and supplies................. 146 146
Casualty costs......................... 95 118
Other costs (Note 10).................. 239 557
-----------------------------------------------------------
Total.................................. 2,332 2,762
-----------------------------------------------------------
Income Operating Income (Loss)................ 441 (139)
Other income (Note 8).................. 24 54
Interest expense (Notes 5 and 6)....... (184) (177)
-----------------------------------------------------------
Income (Loss) before Income Taxes...... 281 (262)
Income taxes........................... (87) 108
-----------------------------------------------------------
Income (Loss) from Continuing
Operations........................... 194 (154)
Estimated Loss on Disposal of
Discontinued Operations(net of income
taxes of $198 million) (Note 4)...... - (262)
-----------------------------------------------------------
Net Income (Loss)......................$ 194 $ (416)
- -------------------------------------------------------------------------------
Earnings Per Share Basic:
(Note 7) Income (Loss) from Continuing
Operations.........................$ 0.79 $(0.63)
Estimated Loss on Disposal of
Discontinued Operations............ - (1.06)
Net Income (Loss)....................$ 0.79 $(1.69)
Diluted:
Income (Loss) from Continuing
Operations.........................$ 0.77 $(0.63)
Estimated Loss on Disposal of
Discontinued Operations............ - (1.06)
Net Income (Loss)....................$ 0.77 $(1.69)
-----------------------------------------------------------
Weighted Average Number of
Shares (Basic)....................... 246.5 246.0
Weighted Average Number of
Shares (Diluted)..................... 270.6 246.0
-----------------------------------------------------------
Cash Dividends Per Share...............$ 0.20 $ 0.20
-----------------------------------------------------------
Ratio of Earnings to Fixed
Charges (Note 9)..................... 2.2 -
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE> 2
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Consolidated Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Six Months Ended June 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions, Except Per Share and Ratios 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues Rail and other (Note 2)...............$5,513 $5,209
---------------------------------------------------------
Operating Expenses Salaries, wages and employee benefits. 2,133 2,168
Equipment and other rents............. 656 751
Depreciation.......................... 538 531
Fuel and utilities (Note 5)........... 391 435
Materials and supplies................ 290 290
Casualty costs........................ 206 235
Other costs (Note 10)................. 496 905
---------------------------------------------------------
Total................................. 4,710 5,315
---------------------------------------------------------
Income Operating Income (Loss)............... 803 (106)
Other income (Note 8)................. 49 77
Interest expense (Notes 5 and 6)...... (370) (338)
---------------------------------------------------------
Income (Loss) before Income Taxes..... 482 (367)
Income taxes.......................... (159) 151
---------------------------------------------------------
Income (Loss) from Continuing
Operations.......................... 323 (216)
Estimated Loss on Disposal of
Discontinued Operations(net of income
taxes of $198 million) (Note 4)..... - (262)
---------------------------------------------------------
Net Income (Loss).....................$ 323 $ (478)
---------------------------------------------------------
Earnings Per Share Basic:
(Note 7) Income (Loss) from Continuing
Operations........................$ 1.31 $(0.88)
Estimated Loss on Disposal of
Discontinued Operations........... - (1.06)
Net Income (Loss)...................$ 1.31 $(1.94)
Diluted:
Income (Loss) from Continuing
Operations........................$ 1.31 $(0.88)
Estimated Loss on Disposal of
Discontinued Operations........... - (1.06)
Net Income (Loss)...................$ 1.31 $(1.94)
---------------------------------------------------------
Weighted Average Number of
Shares (Basic)...................... 246.4 246.0
Weighted Average Number of
Shares (Diluted).................... 247.7 246.0
---------------------------------------------------------
Cash Dividends Per Share..............$ 0.40 $ 0.40
---------------------------------------------------------
Ratio of Earnings to Fixed
Charges (Note 9).................... 2.0 0.1
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE> 3
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Consolidated Financial Position (Unaudited)
Union Pacific Corporation and Subsidiary Companies
- -------------------------------------------------------------------------------
June 30, Dec. 31,
Millions of Dollars 1999 1998
- -------------------------------------------------------------------------------
Assets
---------------------------------------------------------
<S> <C> <C> <C>
Current Assets Cash and temporary investments........$ 331 $ 176
Accounts receivable (Note 5).......... 561 643
Inventories........................... 341 343
Current deferred tax asset............ 248 244
Other current assets.................. 102 96
---------------------------------------------------------
Total................................. 1,583 1,502
---------------------------------------------------------
Investments (Note 3) Investments in and advances to
affiliated companies................ 632 520
Other investments..................... 125 171
---------------------------------------------------------
Total................................. 757 691
---------------------------------------------------------
Properties Cost.................................. 33,748 33,145
Accumulated depreciation.............. (6,567) (6,206)
---------------------------------------------------------
Net................................... 27,181 26,939
---------------------------------------------------------
Other Other assets.......................... 266 242
---------------------------------------------------------
Total Assets..........................$29,787 $29,374
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities Accounts payable......................$ 630 $ 586
Accrued wages and vacation payable.... 472 410
Accrued casualty costs................ 392 400
Income and other taxes payable........ 282 301
Dividends and interest payable........ 288 289
Debt due within one year (Note 6)..... 215 181
Other current liabilities (Note 3).... 709 765
---------------------------------------------------------
Total................................. 2,988 2,932
---------------------------------------------------------
Other Liabilities and Debt due after one year (Note 6)...... 8,590 8,511
Stockholders' Equity Deferred income taxes................. 6,473 6,308
Accrued casualty costs................ 1,045 995
Retiree benefit obligations........... 826 803
Other long-term
liabilities (Notes 3 and 10)........ 740 932
Company-Obligated Mandatorily
Redeemable Convertible Preferred
Securities (Note 6)................. 1,500 1,500
Common stockholders' equity (Page 5).. 7,625 7,393
---------------------------------------------------------
Total Liabilities and
Stockholders' Equity................$29,787 $29,374
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE> 4
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Consolidated Cash Flows (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Six Months Ended June 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions of Dollars 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash from Operations Income (Loss) from
Continuing Operations..................$ 323 $ (216)
Non-cash charges to income:
Depreciation........................... 538 531
Deferred income taxes.................. 161 (141)
Other - net............................ (174) (40)
Changes in current assets and
liabilities............................ 130 (51)
---------------------------------------------------------
Cash Provided by Operations......... 978 83
---------------------------------------------------------
Investing Activities Capital investments...................... (824) (1,266)
Other - net (Note 3)..................... (17) 43
---------------------------------------------------------
Cash Used in Investing Activities........ (841) (1,223)
---------------------------------------------------------
Equity and Financing Dividends paid........................... (98) (155)
Activities (Note 6) Debt repaid ............................. (528) (1,798)
Net financings........................... 642 3,356
Other - net.............................. 2 (53)
---------------------------------------------------------
Cash Provided by Equity and
Financing Activities................... 18 1,350
--------------------------------------------------------
Net Change in Cash and Temporary
Investments............................$ 155 $ 210
Cash at Beginning of Period.............. 176 90
---------------------------------------------------------
Cash at End of Period....................$ 331 $ 300
---------------------------------------------------------
Change in Current Accounts receivable......................$ 82 $ 90
Assets and Inventories.............................. 2 (27)
Liabilities Other current assets..................... (10) 103
Accounts, wages and vacation payable..... 106 (76)
Debt due within one year (Note 6)........ 34 (68)
Other current liabilities................ (84) (73)
---------------------------------------------------------
Total....................................$ 130 $ (51)
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE> 5
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Changes in Common Stockholders' Equity (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Six Months Ended June 30, 1999
- -------------------------------------------------------------------------------
Millions of Dollars 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock Common stock, $2.50 par value
(authorized 500,000,000 shares)
Balance at beginning of period
(276,335,423 shares issued)................$ 691
---------------------------------------------------------
Conversions, exercises of stock options
and retention stock forfeitures for
the period (17,204 net shares issued)...... -
---------------------------------------------------------
Balance at end of period
(276,352,627 shares issued)................ 691
----------------------------------------------------------
Paid-in Surplus Balance at beginning of period................ 4,053
Conversions, exercises of stock
options and forfeitures..................... (16)
----------------------------------------------------------
Balance at end of period...................... 4,037
----------------------------------------------------------
Retained Earnings Balance at beginning of period................ 4,441
Net income.................................... 323
----------------------------------------------------------
Total......................................... 4,764
Cash dividends declared ($0.40 per share)..... (98)
----------------------------------------------------------
Balance at end of period...................... 4,666
----------------------------------------------------------
Treasury Stock Balance at June 30, at cost
(28,509,531 shares)......................... (1,769)
----------------------------------------------------------
Total Common Stockholders' Equity.............$ 7,625
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE> 6
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Responsibilities for Financial Statements - The 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 presented. The Statement of Consolidated
Financial Position at December 31, 1998 is derived from audited financial
statements. The 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 Shareholders incorporated by reference in the Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998. The
results of operations for the three and six months ended June 30, 1999 are
not necessarily indicative of the results for the entire year ending
December 31, 1999. Certain 1998 amounts have been reclassified to conform
to the 1999 financial statement presentation.
2. Segmentation - UPC consists of one reportable segment, rail transportation
(Rail), and UPC's other product lines (Other Operations). The Rail segment
includes the operations of Union Pacific Railroad Company (UPRR), its
subsidiaries and rail affiliates (collectively, the Railroad). Other
Operations include the trucking product line (Overnite Transportation
Company or Overnite), as well as technology and insurance product lines,
corporate holding company operations, which largely support the Rail
segment, and all appropriate consolidating entries.
The following tables detail reportable financial information for UPC's
Rail segment and Other Operations for the three months and six months
ended June 30, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three Months Ended June 30, 1999 Rail Other Operations [a]Consolidated
--------------------
Millions of Dollars Trucking Other[b]
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues from
external customers [c]....... $ 2,491 $ 273 $ 9 $ 2,773
Net income (loss).............. 206 11 (23) 194
Assets......................... 28,640 869 278 29,787
------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended June 30, 1998 Rail Other Operations [a]Consolidated
--------------------
Millions of Dollars Trucking Other[b]
------------------------------------------------------------------------
Net sales and revenues from
external customers [c]....... $ 2,317 $ 262 $ 44 $ 2,623
Net income (loss).............. (122) 5 (299) (416)
Assets [d]..................... 28,023 1,358 (85) 29,296
------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Six Months Ended June 30, 1999 Rail Other Operations [a]Consolidated
--------------------
Millions of Dollars Trucking Other[b]
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues from
external customers [c]....... $ 4,970 $526 $ 17 $ 5,513
Net income (loss).............. 355 20 (52) 323
Assets......................... 28,640 869 278 29,787
------------------------------------------------------------------------
------------------------------------------------------------------------
Six Months Ended June 30, 1998 Rail Other Operations [a]Consolidated
--------------------
Millions of Dollars Trucking Other[b]
------------------------------------------------------------------------
Net sales and revenues from
external customers [c]....... $ 4,601 $ 519 $ 89 $ 5,209
Net income (loss).............. (154) 10 (334) (478)
Assets [d]..................... 28,023 1,358 (85) 29,296
------------------------------------------------------------------------
</TABLE>
[a]"Other Operations" includes all product lines that are not significant
enough to warrant reportable segment classification.
[b]Included in the "Other" product line are the results of the corporate
holding company, Union Pacific Technologies, a provider of
transportation-related technologies, Wasatch Insurance Limited, a
captive insurance company, and all necessary consolidating entries.
1998 also includes Skyway Freight Systems, Inc., a provider of contract
logistics and supply chain management services, which was sold in
November 1998.
[c]The Corporation does not have significant intercompany sales activities
[d]1998 "Other" includes the write-down of the investment in Overnite in
connection with the attempted sale of Overnite (See Note 4).
3. Acquisitions
Southern Pacific Rail Corporation (Southern Pacific or SP) - UPC
consummated the acquisition of Southern Pacific in September 1996. The
acquisition of SP was accounted for as a purchase and was fully
consolidated into UPC's results beginning in October 1996.
Merger Consolidation Activities - In connection with the acquisition and
continuing integration of UPRR and Southern Pacific's rail operations, UPC
is in the process of eliminating 5,200 duplicate positions, which are
primarily employees involved in activities other than train, engine and
yard activities. In addition, UPC is relocating 4,700 positions, merging or
disposing of redundant facilities and disposing of certain rail lines. The
Corporation is also canceling uneconomical and duplicative SP contracts.
To date, UPC has severed 2,500 employees and relocated 4,100 employees
due to merger implementation activities. UPC recognized a $958 million
pre-tax merger liability as part of the SP purchase price allocation for
costs associated with SP's portion of these activities. In addition, the
Railroad expects to incur $130 million in pre-tax acquisition-related costs
for severing or relocating UPRR employees, disposing of certain UPRR
facilities, training and equipment upgrading over the remainder of the
merger implementation period. Earnings for the three months ended June 30,
1999 and 1998 included $8 million and $11 million after-tax, respectively,
and for the six months ended June 30, 1999 and 1998, included $17 million
and $29 million after-tax, respectively, for acquisition-related costs for
UPRR consolidation activities.
<PAGE> 7
The components of the merger liability as of June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Original Cumulative Current
Millions of Dollars Reserve Activity Reserve
<S> <C> <C> <C>
Contractual obligations................ $361 $361 $ -
Severance costs........................ 343 261 82
Contract cancellation fees and
facility and line closure costs...... 145 125 20
Relocation costs....................... 109 84 25
--------------------------------------------------------------------------
Total.................................. $958 $831 $127
--------------------------------------------------------------------------
</TABLE>
Merger Liabilities - Merger liability activity reflected cash payments for
merger consolidation activities and reclassification of contractual
obligations from merger liabilities to contractual liabilities. The
Corporation expects that the remaining merger payments will be made over
the course of the next three years as labor negotiations are completed and
implemented, and related merger consolidation activities are finalized.
Mexican Railway Concession - During 1997, UPRR and a consortium of partners
were granted a 50-year concession to operate the Pacific-North and
Chihuahua Pacific lines in Mexico and a 25% stake in the Mexico City
Terminal Company at a price of $525 million. The consortium assumed
operational control of both lines in 1998. In March 1999, the UPRR
purchased an additional 13% ownership interest for $87 million from one of
its partners. The UPRR now holds a 26% ownership share in the consortium.
The investment is accounted for under the equity method.
4. Attempted Sale of Overnite - In May 1998, the Corporation's Board of
Directors approved a formal plan to divest UPC's investment in Overnite
through an initial public offering (IPO). UPC recorded a $262 million
after-tax loss from discontinued operations in the second quarter of 1998
to provide for the expected loss from the sale of Overnite. During the
fourth quarter of 1998, it became apparent that because of continued
weakness in the IPO market, a successful divestiture of Overnite within the
one year time limit prescribed by generally accepted accounting principles
was no longer reasonably assured. As a result, in the fourth quarter of
1998 the Corporation reclassified Overnite's results to continuing
operations and reversed the $262 million loss from discontinued operations.
Overnite's operating results have been reclassified to continuing
operations for all periods. Additionally, as discussed in the 1998 Annual
Report, the Corporation changed its method of valuing goodwill during the
fourth quarter of 1998. In connection with this change in accounting
policy, $547 million of goodwill related to the acquisition of Overnite was
written off during the fourth quarter of 1998.
5. Financial Instruments - The Corporation and its subsidiaries use derivative
financial instruments in limited instances and 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.
Credit Risk - The total credit risk associated with the Corporation's
counterparties was $96 million at June 30, 1999. UPC has received
collateral relating to its hedging activity where the concentration of
credit risk was substantial.
<PAGE> 9
Valuation - The fair market values of the Corporation's derivative
financial instrument positions at June 30, 1999 and December 31, 1998 were
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 U.S. Treasury rate and swap spread.
The following is a summary of the Corporation's financial instruments at
June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Millions of Dollars June 30, December 31,
Except Percentages and Average Commodity Prices 1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Interest Rate Hedging:
Amount of debt hedged....................... $ 56 $ 150
Percentage of total debt portfolio.......... 1% 2%
Rail Fuel Hedging:
Fuel purchases hedged for 1999.............. $ 172 $ 343
Percentage of forecasted 1999 fuel
consumption hedged........................ 64% 64%
Average price of 1999 hedges
outstanding (per gallon) [a].............. $0.41 $0.41
Fuel purchases hedged for 2000.............. $ 65 -
Percentage of forecasted 2000 fuel
consumption hedged........................ 13% -
Average price of 2000 hedges
outstanding (per gallon) [a].............. $0.39 -
Trucking Fuel Hedging:
Fuel purchases hedged for 1999.............. $ 5 $ 10
Percentage of forecasted 1999
fuel consumption hedged................... 40% 41%
Average price of 1999 hedges
outstanding (per gallon) [a].............. $0.45 $0.45
Fuel purchases hedged for 2000.............. $ 2 -
Percentage of forecasted 2000
fuel consumption hedged................... 28% -
Average price of 2000 hedges
outstanding (per gallon) [a].............. $0.39 -
--------------------------------------------------------------------------
</TABLE>
[a]Excludes taxes and transportation costs.
The asset and liability positions of the Corporation's outstanding
financial instruments at June 30, 1999 and December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
June 30, December 31,
Millions of Dollars 1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Interest Rate Hedging:
Gross fair market asset position............ $50 $ 41
Gross fair market (liability) position...... (1) (5)
Rail Fuel Hedging:
Gross fair market asset position............ 45 -
Gross fair market (liability) position...... - (49)
Trucking Fuel Hedging:
Gross fair market asset position............ 1 -
Gross fair market (liability) position...... - (2)
--------------------------------------------------------------------------
Total asset (liability) position................. $95 $(15)
--------------------------------------------------------------------------
</TABLE>
<PAGE> 10
The Corporation's use of financial instruments had the following impact
on pre-tax income for the three months and six months ended June 30, 1999
and 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Three Months Ended Six Months Ended
-----------------------------------------
June 30, June 30, June 30, June 30,
Millions of Dollars 1999 1998 1999 1998
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase in interest expense from
interest rate hedging........... $1 - $ 1 $ 1
Increase in fuel expense from
Rail fuel hedging............... - 20 19 34
Increase in fuel expense from
Trucking fuel hedging........... - 1 1 2
--------------------------------------------------------------------------
Reduction in Pre-Tax Income....... $1 $21 $21 $37
--------------------------------------------------------------------------
</TABLE>
Sale of Receivables - The Railroad has sold, on a revolving basis, an
undivided percentage ownership interest in a designated pool of accounts
receivable to third parties through a bankruptcy-remote subsidiary (the
Subsidiary). The Subsidiary is collateralized by a $66 million note from
UPRR. The amount of receivables sold fluctuates based upon the availability
of the designated pool of receivables and is directly affected by changing
business volumes and credit risks. At June 30, 1999 and December 31, 1998,
accounts receivable are presented net of $576 million and $580 million,
respectively, of receivables sold.
6. Debt
Credit Facilities - The Corporation had $1.2 billion of credit facilities
with various banks designated for general corporate purposes that expired
in the first quarter of 1999. Because of improvements in earnings and
operating cash flows during 1999, the Corporation no longer required this
credit capacity for operational purposes. A $2.8 billion credit facility,
which expires in 2001, remains outstanding.
Convertible Preferred Securities - Union Pacific Capital Trust (the Trust),
a statutory business trust sponsored and wholly owned by the Corporation,
has issued $1.5 billion aggregate liquidation amount of 6-1/4% Convertible
Preferred Securities (the CPS). Each of the CPS has a stated liquidation
amount of $50 and is convertible, at the option of the holder, into shares
of UPC's common stock, par value $2.50 per share (the Common Stock), at the
rate of 0.7257 shares of Common Stock for each of the CPS, equivalent to a
conversion price of $68.90 per share of Common Stock, subject to adjustment
under certain circumstances. The CPS accrue and pay cash distributions
quarterly in arrears at the annual rate of 6-1/4% of the stated liquidation
amount. The Corporation owns all of the common securities of the Trust. The
proceeds from the sale of the CPS and the common securities of the Trust
were invested by the Trust in $1.5 billion aggregate principal amount of
the Corporation's 6-1/4% Convertible Junior Subordinated Debentures due
April 1, 2028, which debentures represent the sole assets of the Trust.
For financial reporting purposes, the Corporation has recorded
distributions payable on the CPS as an interest charge to earnings in the
statement of consolidated income.
Significant New Borrowings - During January 1999, the Corporation issued
$600 million of 6-5/8% debentures with a maturity date of February 1, 2029.
The proceeds from the issuance of these debentures were used for repayment
of debt and other general corporate purposes.
Shelf Registration Statement - Under currently effective shelf registration
statements, the Corporation may sell, from time to time, up to $1 billion
in the aggregate of any combination of debt securities, preferred stock, or
warrants for debt securities or preferred stock in one or more offerings.
The Corporation has no immediate plans to issue equity securities.
<PAGE> 11
7. Earnings Per Share - The following tables provide a reconciliation between
basic and diluted earnings per share for the three months and six months
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Three Months Ended
Millions, Except Per Share Amounts --------------------------------
June 30, 1999 June 30, 1998
--------------------------------------------------------------------------
<S> <C> <C>
Income Statement Data:
Income (loss) from continuing
operations................................ $ 194 $ (154)
Income (loss) available to common
stockholders from continuing operations... 194 (154)
Estimated loss on disposal of
discontinued operations................... - (262)
--------------------------------------------------------------------------
Net income (loss) available to common
stockholders - Basic...................... 194 (416)
Dilutive effect of interest associated
with the CPS [a].......................... 15 -
--------------------------------------------------------------------------
Net income (loss) available to common
stockholders - Diluted.................... 209 (416)
--------------------------------------------------------------------------
Weighted-Average Number of Shares Outstanding:
Basic....................................... 246.5 246.0
Dilutive effect of common stock
equivalents [b]........................... 24.1 -
--------------------------------------------------------------------------
Diluted..................................... 270.6 246.0
--------------------------------------------------------------------------
Earnings Per Share:
Basic:
Income (loss) from continuing operations. $0.79 $(0.63)
Estimated loss on disposal of
discontinued operations................ - (1.06)
--------------------------------------------------------------------------
Net income (loss)............................ $0.79 $(1.69)
--------------------------------------------------------------------------
Diluted:
Income (loss) from continuing operations. $0.77 $(0.63)
Estimated loss on disposal of
discontinued operations................ - (1.06)
--------------------------------------------------------------------------
Net income (loss)............................ $0.77 $(1.69)
--------------------------------------------------------------------------
</TABLE>
[a] In 1998, the effect of $15 million of interest associated with the CPS
was anti-dilutive (see Note 6).
[b] 1998 excludes the effect of anti-dilutive common stock equivalents
related to options and the CPS, which were 1.4 million and 21.8
million, respectively.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Six Months Ended
----------------------------
Millions, Except Per Share Amounts June 30, 1999 June 30, 1998
--------------------------------------------------------------------------
<S> <C> <C>
Income Statement Data:
Income (loss) from continuing operations..... $ 323 $ (216)
Income (loss) available to common
stockholders from continuing operations.... 323 (216)
Estimated loss on disposal of
discontinued operations.................... - (262)
--------------------------------------------------------------------------
Net income (loss) available to
common stockholders [c].................... 323 (478)
--------------------------------------------------------------------------
Weighted-Average Number of Shares Outstanding:
Basic........................................ 246.4 246.0
Dilutive effect of common stock
equivalents [d]............................ 1.3 -
--------------------------------------------------------------------------
Diluted...................................... 247.7 246.0
--------------------------------------------------------------------------
Earnings Per Share:
Basic:
Income (loss) from continuing operations. $1.31 $(0.88)
Estimated loss on disposal of
discontinued operations................ - (1.06)
--------------------------------------------------------------------------
Net income (loss)............................ $1.31 $(1.94)
--------------------------------------------------------------------------
<PAGE> 12
Diluted:
Income (loss) from continuing operations. $1.31 $(0.88)
Estimated loss on disposal
discontinued operations................ - (1.06)
--------------------------------------------------------------------------
Net income (loss)............................ $1.31 $(1.94)
--------------------------------------------------------------------------
</TABLE>
[c] Represents both basic and diluted net income (loss) available to common
stockholders as no adjustments are required for the CPS, which were
anti-dilutive.
[d] 1999 excludes the effect of 21.8 million anti-dilutive common stock
equivalents related to the CPS. 1998 excludes the effect of
anti-dilutive common stock equivalents related to options and the CPS,
which were 1.6 million and 10.9 million, respectively.
8. Other Income - Other income included the following for the three months and
six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Three Months Ended
Millions of Dollars --------------------------------
June 30, 1999 June 30, 1998
--------------------------------------------------------------------------
<S> <C> <C>
Net gain on asset dispositions.............. $ 7 $29
Rental income............................... 13 12
Interest income............................. 4 6
Other - net................................. - 7
--------------------------------------------------------------------------
Total....................................... $24 $54
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Six Months Ended
Millions of Dollars ----------------- -----------------
June 30, 1999 June 30, 1998
--------------------------------------------------------------------------
Net gain on asset dispositions.............. $18 $44
Rental income............................... 25 23
Interest income............................. 8 11
Other - net................................. (2) (1)
--------------------------------------------------------------------------
Total....................................... $49 $77
--------------------------------------------------------------------------
</TABLE>
9. Ratio of Earnings to Fixed Charges - The ratio of earnings to fixed charges
has been computed on a consolidated basis. Earnings represent net income
(loss) less equity in undistributed earnings of unconsolidated affiliates,
plus income taxes and fixed charges. Fixed charges represent interest,
amortization of debt discount and the estimated interest portion of rental
charges. For the three months and six months ended June 30, 1998, fixed
charges exceeded earnings by approximately $272 million and $386 million,
respectively.
10. Commitments and Contingencies - There are various claims and lawsuits
pending against the Corporation and certain of its subsidiaries. The
Corporation is also subject to Federal, state and local environmental laws
and regulations, pursuant to which it is currently participating in the
investigation and remediation of numerous sites. In addition, the
Corporation and its subsidiaries also periodically enter into financial and
other commitments and guarantees in connection with their businesses, and
have retained certain contingent liabilities upon the disposition of
formerly owned operations.
It is not possible at this time for the Corporation to determine fully the
effect of any or all unasserted claims on its consolidated financial
condition; however, to the extent possible, where unasserted claims can be
estimated and where such claims are considered probable, the Corporation
has recorded a liability. The
<PAGE> 13
Corporation does not expect that any known lawsuits, claims, environmental
costs, commitments or guarantees will have a material adverse effect on its
consolidated financial condition. Certain potentially significant
contingencies relating to the Corporation's and its subsidiaries'
businesses are detailed below:
Customer Claims - Certain customers have submitted claims for damages
related to shipments delayed by the Railroad as a result of congestion
problems during 1997 and 1998, and certain customers have filed lawsuits
seeking relief related to such delays. The nature of the damages sought by
claimants includes, but is not limited to, contractual liquidated damages,
freight loss or damage, alternative transportation charges, additional
production costs, lost business and lost profits. In addition, some
customers have asserted that they have the right to cancel contracts as a
result of alleged material breaches of such contracts by the Railroad. The
Corporation has made no additional provisions for such claims in 1999.
Shareholder Lawsuits - UPC and certain of its directors and officers are
defendants in two purported class actions that have been consolidated into
one proceeding. The consolidated complaint alleges, among other things,
that the Corporation violated the Federal securities laws by failing to
disclose material facts and making materially false and misleading
statements concerning the service, congestion and safety problems
encountered following the Corporation's acquisition of Southern Pacific in
1996. These lawsuits were filed in late 1997 in the United States District
Court for the Northern District of Texas and seek to recover unspecified
amounts of damages. Management believes that the plaintiffs' claims are
without merit and intends to defend them vigorously. The defendants have
moved to dismiss this action, and the motion has been fully briefed and is
awaiting a decision by the Court.
In addition to the class action litigation, a purported derivative
action was filed on behalf of the Corporation and UPRR in September 1998 in
the District Court for Tarrant County, Texas, naming as defendants the
then-current and certain former directors of the Corporation and UPRR and,
as nominal defendants, the Corporation and UPRR. The derivative action
alleges, among other things, that the named directors breached their
fiduciary duties to the Corporation and UPRR by approving and implementing
the Southern Pacific merger without informing themselves of its impact or
ensuring that adequate controls were put in place and by causing UPC and
UPRR to make misrepresentations about UPRR's service problems to the
financial markets and regulatory authorities. The Corporation's Board of
Directors established a special litigation committee consisting of three
independent directors to review the plaintiff's allegations and determine
whether it is in UPC's best interest to pursue them. The committee has
unanimously concluded that further prosecution of the derivative action on
behalf of the Corporation and UPRR is not in the best interest of either
such company. Accordingly, the Corporation and UPRR have filed a motion
with the Court to dismiss the derivative action. The plaintiff has not yet
responded to the motion. The individual defendants also believe that these
claims are without merit and intend to defend them vigorously.
11. Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), that would have been
effective January 1, 2000. In June 1999, the Financial Accounting Standards
Board issued Statement No. 137, "Accounting for Derivatives Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133" postponing the effective date for implementing FAS 133 to fiscal years
beginning after June 15, 2000. While management is still in the process of
determining the full effect FAS 133 will have on the Corporation's
financial statements, management has determined that FAS 133 will increase
the volatility of the Corporation's asset, liability and equity
(comprehensive income) positions as the change in the fair market value of
all financial instruments the Corporation uses for fuel or interest rate
hedging purposes will, upon adoption of FAS 133, be recorded in the
Corporation's Statement of Financial
<PAGE> 14
Position (See Note 5). In addition, to the extent fuel hedges are
ineffective due to pricing differentials resulting from the geographic
dispersion of the Corporation's operations, income statement
recognition of the ineffective portion of the hedge position will be
required. Management does not anticipate that the final adoption of
FAS 133 will have a material impact on UPC's consolidated financial
statements.
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
SERVICE ISSUES
The results of operations of Union Pacific Corporation (the Corporation or UPC)
and its rail segment (Rail), which includes the operations of Union Pacific
Railroad Company (UPRR) and its subsidiaries and rail affiliates (collectively,
the Railroad), for the three and six months ended June 30, 1998 were adversely
affected by the congestion that began in the third quarter of 1997. However,
service recovery efforts resulted in significant improvements in operating and
financial results beginning in the latter half of 1998 and continuing into the
first half of 1999.
Three Months Ended June 30, 1999 Compared to June 30, 1998
CONSOLIDATED
Net Income - The Corporation reported net income of $194 million or $0.79 per
basic share and $0.77 per diluted share for the second quarter of 1999, compared
to a net loss of $416 million or $1.69 per basic and diluted share in 1998. This
earnings increase resulted primarily from improved operations and service levels
at UPC's Rail unit, as well as the impact in the second quarter 1998 results of
a $262 million after-tax loss from discontinued operations associated with the
planned sale of Overnite Transportation Company (Overnite). Excluding the
Overnite write-down, the 1998 net loss from continuing operations was $154
million or $0.63 per basic and diluted share.
Operating Revenues - Operating revenues increased $150 million (6%) to $2,773
million in 1999, reflecting increased volumes and revenues in all commodity
lines of the Rail unit, partially offset by the impact of selling Skyway Freight
Systems, Inc. (Skyway) in November of 1998. Skyway generated $44 million in
revenue during the second quarter of 1998.
Operating Expenses - Operating expenses decreased $430 million (16%) to $2,332
million in 1999. Salaries, wages and employee benefit costs were $33 million
lower than 1998, as inflation and volume growth were more than offset by
improved productivity at UPC's Rail unit and the impact of the sale of Skyway.
Equipment and other rents were $44 million (12%) lower than 1998, resulting
primarily from improved rail cycle times, partially offset by higher rail
volumes. Depreciation expense was unchanged at $268 million, reflecting
increased capital spending at the Rail unit offset by lower overall depreciation
rates for rail equipment and track assets. Fuel and utilities were $12 million
(6%) lower than 1998, as lower fuel prices and improved fuel efficiency more
than offset volume driven increases. Materials and supplies was unchanged at
$146 million. Casualty costs decreased $23 million (19%), as the cost of
rail-related accident claims continued to decline. Other costs decreased $318
million (57%) to $239 million in 1999, reflecting the impact in the second
quarter 1998 of a $250 million expense for the resolution of customer claims,
the impact of the sale of Skyway, lower state and local taxes (primarily sales
and property taxes) and increased benefits resulting from the continuing
integration of Southern Pacific operations. (See Note 3 to the Consolidated
Financial Statements.)
<PAGE> 16
Operating Income - Operating income increased $580 million to $441 million in
1999 reflecting both decreased Rail operating expenses and increased revenues.
Non-Operating Items - Other income decreased $30 million (56%), reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance recovery for 1997 flood damage. Interest expense increased $7
million, the result of increased debt levels year-over-year. Income taxes
increased $195 million to an $87 million expense, reflecting higher income
before income taxes, partially offset by settlements related to prior tax years.
RAIL SEGMENT
Net Income - Rail operations reported net income of $206 million for the second
quarter of 1999 compared to a 1998 net loss of $122 million. Increased earnings
resulted primarily from improved operations and service levels and achieving
benefits from the SP merger.
Operating Revenues - Rail operating revenues increased $174 million (8%) to
$2,491 million in 1999, reflecting the Rail unit's continued recovery from 1998
results. Second quarter 1999 results were adversely impacted by an estimated $40
million reduction in commodity revenue due to the impact on rail traffic of the
implementation of the joint acquisition of Conrail, which primarily affected the
Rail unit's automotive and industrial traffic, and the Rail unit's planned
10-day maintenance outage on its central corridor, which primarily affected
energy traffic from the Powder River Basin (PRB). Commodity revenue increased 8%
and carloads increased 6% as all commodity lines showed improvements over 1998.
Average revenue per car (ARC) improved 2% over 1998 to $1,151.
The following table summarizes the quarter-over-quarter change in rail
commodity revenue (CR):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Carloads in Thousands, Commodity Revenues in Millions of Dollars
Three Months Ended June 30,1999 Change vs.1998 % Change vs.1998
------------------------------- --------------- ----------------
Cars ARC CR Cars ARC CR Cars ARC CR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural..... 214 $1,536 $ 328 21 $ 23 $ 38 11% 2% 13%
Automotive....... 184 1,492 275 19 19 32 12 1 13
Chemicals........ 233 1,701 395 7 9 12 3 1 3
Energy........... 448 1,188 533 21 45 45 5 4 9
Industrial....... 353 1,345 475 11 (17) 8 3 (1) 2
Intermodal....... 681 624 426 38 34 46 6 6 12
- -------------------------------------------------------------------------------
Total............2,113 $1,151 $2,432 117 $ 23 $181 6% 2% 8%
- -------------------------------------------------------------------------------
</TABLE>
Agricultural - Carloads increased 11%, leading to a commodity revenue gain of
$38 million (13%) over 1998. Stronger exports and improved service levels
resulted in volume increases in wheat (19%), corn (21%) and beverages (22%). ARC
increased 2%, primarily the result of increased long-haul export moves and a
price increase on wheat movements.
Automotive - Commodity revenues were up $32 million (13%), driven mainly by a
12% increase in carloadings. Strong domestic production and improvements in
cycle times, partially offset by the impact on rail traffic of the
implementation of the joint acquisition of Conrail, as well as the negative
impact in the second quarter of 1998 of a strike against a major auto
manufacturer, helped to drive a 13% improvement in finished vehicle volumes and
a 10% improvement in parts volumes. ARC increased 1% per car due to a
combination of product mix and price increases.
<PAGE> 17
Chemicals - Carloadings and commodity revenue increased 3% over 1998. Improved
service levels and recovery in demand drove increases in plastics, liquid and
dry chemicals and phosphorous moves. These gains were partially offset by
declines in soda ash caused by the adverse impact on demand resulting from the
Asian currency crisis, lower sulfur moves resulting from a slow down in
production in response to weak demand, and a decline in demand for fertilizers
resulting from depressed demand for U.S. farm commodities. ARC improved 1% due
to favorable product mix, reflecting traffic improvements in longer-haul
plastics and fewer shorter-haul petroleum moves.
Energy - Carloads increased 5%, resulting in a $45 million increase in commodity
revenue. ARC improved as a result of an increase in longer-haul PRB traffic,
combined with a 4% increase in tons per car. Volumes increased as a result of
longer trains and more trains per day out of the PRB and improved service from
Colorado and Utah mines, offset by a planned 10-day maintenance outage in the
central corridor in June 1999.
Industrial - Carloadings increased 3% and commodity revenue increased $8 million
(2%) to $475 million. Volume increases resulted from stronger demand and
improved cycle times. Traffic gains occurred in lumber, stone and cement due to
strong construction demand. Recyclables grew due to new business. Gains were
partially offset by decreased steel loadings due to higher imports of low-priced
foreign steel, which reduced U.S. production, and lost volumes from a major
steel producer who filed for bankruptcy. ARC declined 1% due to an unfavorable
mix of long- and short-haul business.
Intermodal - Commodity revenue increased $46 million (12%) to $426 million and
carloadings increased 6%. Results were positively affected by strong demand
resulting from growth in imports from Asia, service improvements and a new
premium service offering. These gains were partially offset by a decline in
exports to Asia due to the Asian economic crisis. ARC increased 6% due to
positive mix shifts (longer-haul shipments) and demand driven price increases.
Operating Expenses - Operating expenses decreased $380 million (16%) to $2,054
million in 1999. A large portion of the decrease relates to a $250 million
expense in the second quarter of 1998 for the resolution of customer claims.
Improvements in service and increased benefits from the SP merger helped reduce
quarter-over-quarter operating expenses.
Salaries, wages and employee benefits - Labor expenses were $15 million (2%)
lower than 1998, as higher rail volumes and wage inflation were more than offset
by merger consolidation benefits and productivity improvements.
Equipment and other rents - Rent expense decreased $40 million (12%) versus
1998, due primarily to an improvement in cycle time, which decreased to 12.6
days in 1999 compared to 16.4 days in 1998, and lower prices for private tank
cars, intermodal equipment and other leased equipment. Most of the price
decrease was related to a more favorable mix of equipment, as well as lower
rates resulting from deregulation of equipment rates. These improvements were
partially offset by higher volume as carloads increased 6% quarter-over-quarter.
Depreciation - Depreciation expense grew by $8 million or 3% to $256 million due
to the Railroad's capital spending in the last half of 1998 and first half of
1999, partially offset by lower overall depreciation rates for equipment and
track assets resulting from the most recent periodic depreciation study required
by the Surface Transportation Board of the U.S. Department of Transportation
(STB).
<PAGE> 18
Fuel and utilities - Fuel and utilities expenses were down $11 million or 5%
from 1998, reflecting lower fuel prices and improved consumption rates, which
were partially offset by higher volume. An 8% increase in gross-ton miles
quarter-over-quarter added volume-related fuel costs of $14 million versus 1998.
Prices were down 7 cents per gallon to 56 cents, saving $23 million. The fuel
consumption rate of 1.39 gallons per thousand gross-ton miles improved 2% from
last year, lowering fuel costs by another $4 million. The Railroad hedged 69% of
its second quarter fuel consumption in 1999, which increased fuel costs by less
than a million dollars, or .1 cent per gallon. Expected fuel consumption for the
remaining six months of 1999 is 64% hedged at an average of 55 cents per gallon
(including taxes, transportation charges and regional pricing spreads).
Materials and supplies - Materials and supplies expense decreased $1 million
(1%) from 1998. Lower material costs for roadway machines and work equipment and
lower material freight charges more than offset an increase in locomotive repair
material needed for units being removed from storage.
Casualty costs - Casualty costs declined $23 million (21%) from 1998, primarily
due to the effect of lower than expected settlement costs. In addition,
insurance costs and costs for repairs on cars from other railroads were lower
quarter-over-quarter.
Other costs - Other costs decreased $298 million (58%) from 1998, reflecting a
$250 million expense recorded in 1998 for the resolution of customer claims,
lower state and local taxes (primarily sales and property taxes) and benefits
resulting from the continuing integration of Southern Pacific operations.
Operating Income - Operating income increased $554 million to $437 million in
1999. Both periods included the impact of one-time merger-related costs for
severance, relocation and training of employees ($13 million reduction in
operating income in 1999 and $17 million reduction in operating income in 1998).
The operating ratio for the second quarter of 1999 was 82.5%, 22.5 percentage
points better than 1998's 105.0% operating ratio.
Non-Operating Items - Other income decreased $33 million (66%), reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance recovery for 1997 flood damage. Interest expense increased $8
million, the result of higher average debt levels. Income taxes increased $185
million to a $93 million expense, reflecting higher income before income taxes,
partially offset by settlements related to prior tax years.
OTHER OPERATIONS
Trucking Product Line
Net Income - Trucking earnings increased $1 million to $11 million in the second
quarter of 1999 from $10 million in the second quarter of 1998 (excluding
goodwill amortization of $5 million in 1998).
Operating Revenues - Trucking revenues increased $11 million (4%) to $273
million, primarily driven by a 3% increase in volume and a $2 million (33%)
increase in Special Services Division revenue, primarily truck load business.
Volume increases reflect a new product offering in the northeast United States
and Texas. Rate improvements from non-contract customers were partially offset
by a shift in the mix of lower and higher margin customers.
Operating Expenses - Operating expenses increased $9 million (4%) to $258
million in 1999 compared to $249 million in 1998 (excluding goodwill
amortization of $5 million in 1998). Salaries, wages and employee benefit costs
<PAGE> 19
increased $8 million (5%) to $167 million, reflecting wage and benefit inflation
and the addition of a new product offering in the northeast United States and
Texas. Rent expense increased primarily due to costs related to a new premium
service and opening a new facility in Dallas, Texas. Fuel costs were unchanged
at $11 million as lower fuel prices (51 cents in 1999 compared to 52 cents in
1998) offset increased volumes. Fuel hedging increased fuel expense by less than
$1 million in 1999. 40% of estimated remaining 1999 fuel purchases are hedged at
an average of 45 cents per gallon. Materials and supplies increased $1 million
(9%) due to increased fleet maintenance expense resulting from increased volume
and longer average length of haul. Other costs decreased $1 million (4%) due to
cost control initiatives.
Operating Income - Trucking operations generated operating income of $15 million
for the second quarter of 1999 compared to $13 million for the comparable period
a year ago (excluding goodwill amortization of $5 million in 1998). The
operating ratio for trucking operations (excluding goodwill amortization in
1998) improved to 94.5% in 1999 from 95.1% in 1998.
Other Product Lines
Other operations include the technology and insurance product lines, as well as
the corporate holding company operations and all necessary consolidating entries
(see Note 2 to the Consolidated Financial Statements). Operating revenues
declined $35 million in 1999 due primarily to the sale of Skyway in November
1998, offset by a reclassification to operating revenue of commercial technology
revenue previously reported in other income. Operating expenses decreased $54
million reflecting the absence of 1999 costs associated with Skyway and the
consolidation of portions of the Corporate staff with the Rail unit's staff in
Omaha, Nebraska. Operating losses declined $19 million and net losses declined
$14 million compared to 1998, due to the corporate reorganization and improved
operations at the Corporation's technology division.
Six Months Ended June 30, 1999 Compared to June 30, 1998
CONSOLIDATED
Net Income - The Corporation reported net income of $323 million or $1.31 per
basic and diluted share for the first six months of 1999, compared to a net loss
of $478 million or $1.94 per basic and diluted share in 1998. This earnings
increase resulted primarily from improved operations and service levels at UPC's
Rail unit, as well as the impact in 1998 results of a $262 million after-tax
loss from discontinued operations associated with the planned sale of Overnite.
Excluding the Overnite write-down, the 1998 net loss from continuing operations
was $216 million or $0.88 per basic and diluted share.
Operating Revenues - Operating revenues increased $304 million (6%) to $5,513
million in 1999, reflecting increased volumes and revenues in all commodity
lines of the Rail unit, partially offset by the impact of selling Skyway in
November of 1998. Skyway generated $89 million in revenue during the first six
months of 1998.
Operating Expenses - Operating expenses decreased $605 million (11%) to $4,710
million in 1999. Salaries, wages and employee benefit costs were $35 million
(2%) lower than 1998, as inflation and volume growth were more than offset by
improved productivity at UPC's Rail unit and the impact of the sale of Skyway.
Equipment and other rents were $95 million (13%) lower than 1998, resulting
primarily from improved rail cycle times partially offset by higher rail
volumes. Depreciation expense increased by $7 million to $538 million reflecting
increased capital spending at the Rail unit, partially offset by lower overall
depreciation rates for rail equipment and track assets. Fuel and utilities were
$44 million (10%) lower than 1998, as lower fuel prices and improved fuel
<PAGE> 20
efficiency more than offset volume driven increases. Materials and supplies was
unchanged at $290 million. Casualty costs decreased $29 million (12%) as the
cost of rail-related accident claims continued to decline. Other costs decreased
$409 million (45%) to $496 million in 1999, reflecting the impact in 1998 of
expense for the resolution of customer claims, the impact of the sale of Skyway
and increased benefits resulting from the continuing integration of Southern
Pacific operations.
Operating Income - Operating income increased $909 million to $803 million in
1999 reflecting both decreased Rail operating expenses and increased revenues.
Non-Operating Items - Other income decreased $28 million (36%), reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance recovery for 1997 flood damage, offset by a one-time favorable
contract settlement in the first quarter of 1999. Interest expense increased $32
million, the result of higher average debt levels. Income taxes increased $310
million to a $159 million expense, reflecting higher income before income taxes,
partially offset by settlements related to prior tax years.
RAIL SEGMENT
Net Income - Rail operations reported net income of $355 million for the six
months ended June 30, 1999 compared to a 1998 net loss of $154 million.
Increased earnings resulted primarily from improved operations and service
levels and achieving benefits from the SP merger.
Operating Revenues - Rail operating revenues increased $369 million (8%) to
$4,970 million in 1999, reflecting the Rail unit's continued recovery from 1998
results. 1999 revenues were adversely impacted by an estimated $40 million
reduction in commodity revenue due to the impact on rail traffic of the
implementation of the joint acquisition of Conrail, which primarily impacted
automotive and industrial traffic, and the Rail unit's planned 10-day
maintenance outage on its central corridor, which primarily affected energy
traffic from the PRB. Carloadings for the first six months of 1999 were 6%
higher than 1998. Average revenue per car (ARC) improved 2% over 1998 to $1,162.
The following table summarizes the year-over-year change in rail commodity
revenue (CR):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Carloads in Thousands, Commodity Revenues in Millions of Dollars
Six Months Ended June 30,1999 Change vs. 1998 % Change vs. 1998
----------------------------- --------------- -----------------
Cars ARC CR Cars ARC CR Cars ARC CR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural... 437 $1,544 $ 675 43 $ 6 $ 70 11% -% 12%
Automotive..... 354 1,492 528 30 31 55 9 2 12
Chemicals...... 458 1,741 796 9 20 23 2 1 3
Energy......... 925 1,185 1,097 56 52 112 6 5 11
Industrial..... 680 1,359 924 24 (12) 24 4 (1) 3
Intermodal..... 1,307 622 814 65 26 73 5 4 10
- -------------------------------------------------------------------------------
Total.......... 4,161 $1,162 $4,834 227 $24 $357 6% 2% 8%
- -------------------------------------------------------------------------------
</TABLE>
Agricultural - Carloads increased 11%, leading to a commodity revenue gain of
$70 million (12%) over 1998. Stronger exports and improved service levels
resulted in volume increases in wheat, corn and beverages. ARC remained flat as
longer hauls in meals and oils and a price increase on wheat movements were
offset by a shift in corn movements to shorter-haul Gulf Coast moves versus
longer-haul Pacific Northwest moves.
Automotive - Commodity revenue was up $55 million (12%), driven mainly by a 9%
increase in carloadings. Strong domestic production, and improvements in cycle
times, partially offset by the impact on rail traffic of
<PAGE> 21
the implementation of the joint acquisition of Conrail, model changeovers and a
plant shut down, as well as the negative impact in 1998 of a strike against a
major auto manufacturer, resulted in year-over-year increases in both finished
vehicle and parts volumes. ARC increased 2% per car due to a combination of
product mix and price increases.
Chemicals - Carloadings and commodity revenue increased 2% and 3%, respectively,
over 1998. Improved service levels and recovery in demand drove increases in
plastics, liquid and dry chemicals and phosphorous moves. These gains were
partially offset by declines in soda ash caused by the adverse impact on demand
resulting from the Asian currency crisis, lower sulfur moves resulting from a
slow down in production in response to weak demand, and a decline in demand for
fertilizers resulting from depressed demand for U.S. farm commodities. ARC
improved 1% due to favorable product mix, reflecting traffic improvements in
longer-haul plastics and fewer shorter-haul petroleum and export sulfur moves.
Energy - Carloads increased 6%, resulting in a $112 million increase in
commodity revenue. ARC also improved $52 per car (5%) year-over-year resulting
from changes in traffic mix as longer-haul PRB traffic increased. Increases in
the number of PRB trains per day, tons per car and average train length helped
to improve 1999 PRB business versus 1998. PRB traffic was reduced during the
Rail unit's planned 10-day maintenance outage in June 1999. Colorado and Utah
volumes also increased due to improved service.
Industrial - Carloadings increased 4% and commodity revenue increased $24
million (3%) to $924 million. Volume increases resulted from stronger demand and
improved cycle times. Traffic gains occurred in lumber, stone and cement due to
strong construction demand, and recyclables grew due to new business. Gains were
partially offset by decreased steel loadings due to higher imports of low-priced
foreign steel, which reduced U.S. production, and lost volumes from a major
steel producer who filed for bankruptcy. ARC declined 1% due to an unfavorable
mix of long- and short-haul business.
Intermodal - Commodity revenue increased $73 million (10%) to $814 million and
carloadings increased 5%. Results were affected positively by strong demand
resulting from growth in imports from Asia, service improvements and a new
premium service offering. These gains were partially offset by a decline in
exports to Asia due to the Asian economic crisis. ARC increased 4% due to
positive mix shifts (longer-haul shipments) and demand driven price increases.
Operating Expenses - Operating expenses decreased $496 million (11%) to $4,169
million in 1999. A large portion of the decrease relates to the impact of
expense in 1998 for the resolution of customer claims. Improvements in service
and increased benefits from the SP merger helped to drive the year-over-year
decrease in operating expenses.
Salaries, wages and employee benefits - Labor expenses were $6 million higher
than 1998, a result of higher volumes and wage inflation that were partially
offset by merger consolidation benefits and productivity improvements.
Equipment and other rents - Rent expense decreased $85 million (12%) versus
1998, due primarily to improvements in cycle time and lower prices, partially
offset by higher volume as carloads increased 6% year-over-year.
Depreciation - Depreciation expense grew by $20 million or 4% to $514 million,
due to the Railroad's capital spending in the last half of 1998 and first half
of 1999, partially offset by lower overall depreciation rates for
<PAGE> 22
equipment and track assets resulting from the most recent periodic depreciation
study required by the STB. The Railroad spent over $2 billion on capital
projects in 1998 and over $800 million on capital projects during the first six
months of 1999.
Fuel and utilities - Fuel and utilities expenses were down $41 million or 10%
from 1998, reflecting lower fuel prices and improved consumption rates, which
were partially offset by higher volume. The Railroad hedged 70% of its fuel
consumption for the first six months of 1999, which increased fuel costs by $19
million.
Materials and supplies - Materials and supplies expense remained unchanged from
the first six months of 1998 at $266 million. Lower material costs for roadway
machines and work equipment, lower material freight charges and higher credits
received for parts rebuilt, offset an increase in locomotive repair material
needed for units being removed from storage.
Casualty costs - Casualty costs declined $28 million (13%) from 1998, primarily
due to the effect of lower than expected settlement costs. In addition,
insurance costs and costs for repairs on cars from other railroads were lower
year-over-year.
Other costs - Other costs decreased $368 million (45%) from 1998, reflecting the
impact on 1998 results from expense for the resolution of customer claims, lower
state and local taxes (primarily sales and property taxes) and benefits
resulting from the continuing integration of Southern Pacific operations.
Operating Income - Operating income increased $865 million to $801 million in
1999. Both periods included the impact of one-time merger-related costs for
severance, relocation and training of employees ($28 million reduction in
operating income in 1999 and $46 million reduction in operating income in 1998).
The operating ratio for the first six months of 1999 was 83.9%, 17.5 percentage
points better than 1998's 101.4% operating ratio.
Non-Operating Items - Other income decreased $29 million (42%), reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance recovery for 1997 flood damage. Interest expense increased $29
million, the result of higher average debt levels. Income taxes increased $298
million to a $175 million expense reflecting higher income before income taxes,
partially offset by settlements related to prior years.
OTHER OPERATIONS
Trucking Product Line
Net Income - Trucking net income matched 1998's results of $20 million
(excluding goodwill amortization of $10 million in 1998).
Operating Revenues - Trucking revenues increased $7 million (1%) to $526
million. Stable volumes combined with a 1% increase in average price to produce
the year-over-year improvement.
Operating Expenses - Operating expenses increased $8 million (2%) to $501
million in 1999 compared to $493 million in 1998 (excluding goodwill
amortization of $10 million in 1998). Salaries, wages and employee benefit costs
increased $12 million (4%) to $325 million, reflecting wage and benefit
inflation and the addition of a new product offering in the northeast United
States and Texas. Rent expense decreased $2 million (5%) to $40
<PAGE> 23
million, due to a shift from third party to internal transportation sources.
Fuel costs decreased $2 million (8%), primarily due to lower fuel prices (47
cents in 1999 compared to 55 cents in 1998). Fuel hedging increased fuel expense
by $1 million in 1999. 40% of estimated remaining 1999 fuel purchases are hedged
at an average of 45 cents per gallon. Materials and supplies increased $1
million (5%) due to increased fleet maintenance expense. Other costs decreased
$1 million (2%) due to cost control initiatives.
Operating Income - Trucking operations generated operating income of $25 million
for the first six months of 1999 compared to $26 million for the comparable
period a year ago (excluding goodwill amortization of $10 million in 1998). The
operating ratio for trucking operations (excluding goodwill amortization in
1998) increased to 95.2% in 1999 from 95.0% in 1998.
Other Product Lines
Other operations include the technology and insurance product lines, as well as
the corporate holding company operations and all necessary consolidating entries
(see Note 2 to the Consolidated Financial Statements). Operating revenues
declined $72 million in 1999 due primarily to the sale of Skyway in November
1998, offset by a reclassification to operating revenue of commercial technology
revenue previously reported in other income. Operating expenses decreased $107
million reflecting the absence of 1999 costs associated with Skyway and the
consolidation of portions of the Corporate staff with the Rail unit's staff in
Omaha, Nebraska. Operating losses declined $35 million and net losses declined
$20 million compared to 1998 due to the corporate reorganization and improved
operations at the Corporation's technology division.
CHANGES IN FINANCIAL CONDITION AND OTHER DEVELOPMENTS
Financial Condition - During the first six months of 1999, cash provided by
operations was $978 million, compared to cash provided by operations of $83
million in 1998. This $895 million increase primarily reflects higher earnings
at the Corporation's Rail segment resulting from the success of service recovery
efforts in the first half of 1999 and the last half of 1998. Working capital
improved due to continued emphasis on receivable collection efforts at the
Railroad and the timing of current liability payments.
Cash used in investing activities was $841 million in the first six months
of 1999, compared to a use of $1,223 million in 1998. This decrease primarily
reflects lower Rail capital spending, including merger-related spending, offset
by the purchase of an additional 13% ownership interest in the consortium
operating the Pacific-North and Chihuahua Pacific lines in Mexico for $87
million (see Note 3 to Consolidated Financial Statements).
Cash provided by equity and financing activities was $18 million in the
first six months of 1999, compared to $1.4 billion provided in 1998. Cash
provided in 1999 principally reflects lower net borrowings ($642 million in 1999
compared to $3.4 billion in 1998) offset by debt repaid ($528 million in 1999
compared to $1.8 billion in 1998) reflecting the private placement of the
Convertible Preferred Securities (the CPS) on April 1, 1998 (see Note 6 to the
Consolidated Financial Statements).
The ratio of debt to total capital employed (treating the CPS as a debt
instrument) was 57.5% at June 30, 1999 compared to 58.0% at December 31, 1998
and 56.9% at June 30, 1998. Including the CPS as an equity instrument, the ratio
of debt to total capital employed at June 30, 1999 was 49.1% compared to 49.4%
at December 31, 1998 and 48.4% at June 30, 1998.
<PAGE> 24
At June 30, 1999, the Corporation had a $2.8 billion credit facility
outstanding. The facility is designated for general corporate purposes and
expires in 2001. Under currently effective shelf registration statements, the
Corporation may sell, from time to time, up to $1 billion in the aggregate of
any combination of debt securities, preferred stock, or warrants for debt
securities or preferred stock in one or more offerings. The Corporation has no
immediate plans to issue equity securities.
OTHER MATTERS
Commitments and Contingencies - There are various claims and lawsuits pending
against the Corporation and certain of its subsidiaries. In addition, the
Corporation and its subsidiaries are subject to various Federal, state and local
environmental laws and are currently participating in the investigation and
remediation of various sites. A discussion of certain claims, lawsuits,
guarantees and contingencies is set forth in Note 10 to the Consolidated
Financial Statements, which is incorporated herein by reference.
Accounting Pronouncements - In June 1998, the Financial Accounting Standards
Board issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (FAS 133), that would have been effective January 1, 2000.
In June 1999, the Financial Accounting Standards Board issued Statement No. 137,
"Accounting for Derivatives Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133" postponing the effective date for
implementing FAS 133 to fiscal years beginning after June 15, 2000. While
management is still in the process of determining the full effect FAS 133 will
have on the Corporation's financial statements, management has determined that
FAS 133 will increase the volatility of the Corporation's asset, liability and
equity (comprehensive income) positions as the change in the fair market value
of all financial instruments the Corporation uses for fuel or interest rate
hedging purposes will, upon adoption of FAS 133, be recorded in the
Corporation's Statement of Financial Position (See Note 5). In addition, to the
extent fuel hedges are ineffective due to pricing differentials resulting from
the geographic dispersion of the Corporation's operations, income statement
recognition of the ineffective portion of the hedge position will be required.
Management does not anticipate that the final adoption of FAS 133 will have a
material impact on UPC's consolidated financial statements.
Year 2000 - The Year 2000 (Y2K) compliance project at UPC includes software
(internally developed and purchased), hardware and embedded chips inside
equipment and machinery, primarily at its Rail unit. The Corporation's
enterprise-wide project encompasses computer systems and equipment in multiple
data centers and a telecommunications network spread over 23 states. Equipment
containing embedded computer chips includes locomotives, automated train
switching systems, computer aided train dispatching systems, signaling systems,
computerized fueling stations, weigh-in-motion scales, cranes, lifts, PBX
systems, elevators, and computerized monitoring systems throughout UPC. The Y2K
project started with research in 1994 and an impact analysis of the
Corporation's mainframe COBOL systems in 1995. The Y2K project has been a high
priority since then.
UPC's Y2K Project is divided into five major initiatives as follows:
Mainframe Systems - These systems have been converted, tested and deemed to be
Y2K compliant as of December 31, 1998. Periodic audits are planned during 1999
to ensure these systems remain Y2K compliant.
Client Server Systems - All critical client server systems have been converted,
tested, and deemed to be Y2K compliant as of December 31, 1998. The non-critical
client server systems were deemed to be Y2K compliant as of June 30, 1999.
<PAGE> 25
User Department Developed Systems - These systems consist of both mainframe and
PC-based systems developed by internal user departments. All of the systems were
deemed to be Y2K compliant as of June 30, 1999.
Vendor Supplied and Embedded Systems - These systems consist of vendor-supplied
software, desktop, mainframe and server hardware, databases and operating
systems, as well as equipment and machinery with embedded systems. One hundred
percent of the identified critical suppliers of these systems have indicated
that they have a comprehensive Year 2000 plan. To help assure safety and Y2K
compliance, UPC is testing selected critical software, hardware and embedded
systems, even if the vendor has already certified the product. The Corporation
is sharing information on the compliance and testing of safety critical
components common to the industry with the cooperation of the Association of
American Railroads (AAR).
Electronic Commerce Systems - These systems consist of all electronic exchanges
of information with customers, vendors, other railroads and financial
institutions. The railroad industry has agreed on a standard 4-digit year for
all electronic data interchange (EDI). The Rail unit can now transmit and
receive the new EDI standard that involves a 4-digit year. The Corporation is
conducting additional Y2K testing with customers and trading partners using
current and older versions of EDI transactions in 1999.
In an effort to ensure that interfacing systems will operate successfully
in the year 2000 the Corporation is conducting integrated testing of individual
systems already deemed to be Y2K compliant. Although the formal testing period
is scheduled to be completed in September 1999, additional verification testing
will continue through December 1999.
For each of these initiatives, seven major categories of events have been
identified for contingency plans. These categories are (1) key data -
integrity/loss, (2) critical software, (3) critical hardware, (4)
communications, (5) critical supplies and suppliers, (6) facilities, and (7) key
personnel. The contingency plans also include a Y2K command center that will be
staffed 24 hours a day in the fourth quarter of 1999 and continuing into early
2000 for any problems that might occur due to Y2K. The staff will be composed of
technical experts to fix or advise what to fix if systems fail and knowledgeable
representatives from each business unit. Contingency plans continue to be
developed and will be refined and adjusted throughout 1999.
As of June 30, 1999, 100% of the Corporation's systems (excluding trucking)
have been converted, tested, and deemed to be Y2K compliant. Modification to
trucking systems comprises approximately 10% of UPC's total Y2K workload and is
estimated to be 98% complete. The remaining modification to trucking's systems
is expected to be completed in the third quarter of 1999. Costs to convert UPC's
systems are expensed as incurred. As of June 30, 1999, more than 80% of the
costs of the Y2K project, estimated to be $61 million (pre-tax) in total, have
been expensed. Although the Corporation believes its systems will be
successfully modified, failure by it, or by those from whom UPC purchases
equipment, or by other entities with whom UPC exchanges data, or on whom it
relies for data, to successfully modify their systems, could materially impact
operations and financial results in the year 2000.
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 claims, lawsuits, environmental costs, commitments, contingent liabilities,
<PAGE> 26
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 or predictions as to the Corporation's financial or operational
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, whether the Corporation is fully successful in implementing its
financial and operational initiatives; regaining its customers who switched to
alternative transportation arrangements during the service crisis; industry
competition and performance, and legislative and/or regulatory developments;
natural events such as severe weather, floods and earthquakes; the effects of
adverse general economic conditions; changes in fuel prices; labor stoppages;
the impact of year 2000 systems problems; the outcome of shipper claims related
to congestion; and claims arising from environmental investigations or
proceedings and other types of claims and litigation. The Corporation assumes no
obligation to update forward-looking information to reflect actual results,
changes in assumptions or changes in other factors affecting forward-looking
information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Disclosure concerning market risk-sensitive instruments is set forth in Note 5
to the Consolidated Financial Statements included in Item 1 of Part I of this
Report and is incorporated herein by reference.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The discussion of certain legal proceedings affecting the Corporation and/or
certain of its subsidiaries set forth in Note 10 to the Consolidated Financial
Statements included in Item 1 of Part I of this Report is incorporated herein by
reference. In addition to those matters, the following proceedings, or
developments in proceedings presently pending, arose or occurred during the
second quarter of 1999.
Bottleneck Proceedings - As reported in the Corporation's Annual Report on Form
10-K for the year ended December 31, 1998 and Quarterly Report on Form 10-Q for
the quarter period ended March 31, 1999, the U.S. Court of Appeals for the
Eighth Circuit entered an order on February 10, 1999 affirming a prior decision
by the STB. The STB decision generally reaffirmed its existing position
regarding the obligation of rail carriers to provide rates for bottleneck
segments (lines of railroad that are served by a single railroad between a
junction and an exclusively-served shipper facility), and dismissed two
complaint proceedings filed by shippers challenging a class rate for the
movement of coal to which UPRR and a predecessor were parties. On April 23, 1999
the Eighth Circuit denied a petition for rehearing filed by two of the shippers
involved in the complaint proceeding. On July 19, 1999 the Western Coal Traffic
League filed a petition for a writ of certiorari in the United States Supreme
Court.
Labor Matters - The UPC 1998 10-K disclosed that the General Counsel of the
National Labor Relations Board (NLRB) is seeking a bargaining order remedy in 12
cases involving Overnite Transportation Company (Overnite), where a Teamsters
local union lost a representation election, and that in four of the 12 cases an
administrative law judge has ruled that the bargaining order remedy is
warranted, a ruling that Overnite has appealed to the NLRB. During the second
quarter, an administrative law judge ruled in the remaining cases, determining
that the bargaining order remedy is warranted in seven of the eight cases.
Overnite intends to appeal that ruling to the NLRB.
<PAGE> 27
Environmental Matters - As reported in the UPC 1998 10-K, the Railroad was named
as a defendant in a criminal misdemeanor action brought by the State of
California, and both the California Department of Fish and Game and the United
States Environmental Protection Agency (USEPA) were seeking penalties, as the
result of a diesel fuel spill at Norden, California in February 1997. In the
second quarter, the Railroad settled the cases with the State of California by
payment of $180,000. The Railroad and the USEPA have reached an agreement in
principle to settle that case for payment of $125,000, subject to the USEPA's
customary public comment procedures.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Union Pacific Corporation Stock Unit Grant and Deferred
Compensation Plan for the Board of Directors, as amended
through May 27, 1999.
10(b) 1993 Stock Option and Retention Stock Plan of Union
Pacific Corporation, as amended through May 27, 1999.
10(c) Consulting greement dated April 24, 1999 between Union
Pacific Railroad Company and Jerry R. Davis.
12(a) Computation of Ratio of Earnings to Fixed Charges for the
Three Months Ended June 30, 1999.
12(b) Computation of Ratio of Earnings to Fixed Charges for the
Six Months Ended June 30, 1999.
27 Financial data schedule.
(b) Reports on Form 8-K
On April 22, 1999, UPC filed a Current Report on Form 8-K
announcing UPC's financial results for the first quarter of 1999.
<PAGE> SIGNATURE
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 13, 1999
UNION PACIFIC CORPORATION
(Registrant)
/S/ James R. Young
------------------
James R. Young
Senior Vice President - Finance
and Controller
(Chief Accounting Officer and Duly
Authorized Officer)
<PAGE> INDEX
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
Exhibit No. Description of Exhibits Filed with this Statement
10(a) Union Pacific Corporation Stock Unit Grant and Deferred
Compensation Plan for the Board of Directors, as amended through
May 27, 1999.
10(b) 1993 Stock Option and Retention Stock Plan of Union Pacific
Corporation, as amended through May 27, 1999.
10(c) Consulting agreement dated April 24, 1999 between Union Pacific
Railroad Company and Jerry R. Davis.
12(a) Computation of Ratio of Earnings to Fixed Charges for the
Three Months Ended June 30, 1999.
12(b) Computation of Ratio of Earnings to Fixed Charges for the
Six Months Ended June 30, 1999.
27 Financial Data Schedule.
Exhibit 10(a)
UNION PACIFIC CORPORATION
STOCK UNIT GRANT AND DEFERRED COMPENSATION PLAN
FOR THE
BOARD OF DIRECTORS
(Effective December 1, 1978, as Amended April 30, 1987,
January 1, 1995, January 25, 1996, February 26, 1998 and May 27,
1999)
<PAGE>
Union Pacific Corporation
Stock Unit Grant and Deferred Compensation Plan
for the Board of Directors
As Amended as of May 27, 1999
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
(1) Commencing with the second quarter of 1998, each full
quarterly installment of a Director's Compensation shall be
accompanied by the grant of an amount of whole Stock Units
equal to $7,500 (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 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.
(2) 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).
<PAGE>
(3) 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 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 may have one or more
Other Accounts (together, the "Accounts"). Amounts deferred pursuant to
paragraph 4 may be credited to any Account, at the election of the
Director made at the time of the deferral election, in multiples of 10%
of such Director's Compensation. A Director may change the Account to
which any quarterly installment of such Director's Compensation so
deferred is to be credited at any time on or before the fifth business
day prior to the date such quarterly installment is to be credited.
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 Common Stock on the first business day of the month
following the quarter in which the Compensation was earned, and cash
<PAGE>
shall be credited to the Stock Unit Account in lieu of any fractional
Stock Unit. In addition, (i) 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 Other Account to the Stock Unit Account based
on the Fair Market Value of the Company's Common Stock on April 3,
1995, (ii) at any time, a Director may transfer all or any part of the
balance of any of his or her Other Accounts to another of his or her
Other Accounts subject to any regulations regarding such transfer
adopted by the Board and (iii) at any time on or after the 30th day
after the date of a Director's termination from the Board, such
Director may transfer all or any part of the balance of any of his or
her Accounts to another of his or her Accounts, pursuant to any
regulations regarding such transfers adopted by the Board.
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 spin-off of shares or distribution of property other
than cash with respect to the Company Common Stock, the Committee shall
cause appropriate adjustments, if any, to be made in the Stock Units to
reflect such stock dividend, reclassification, merger or consolidation,
spin-off or distribution of property.
Other Accounts shall have such name, and be charged or credited
pursuant to such method, as the Board shall determine upon
establishment of such Other Account, and the Board may change such name
or method for any such Other Account, but no such change shall reduce
any amount previously accrued in a Director's Other Account.
7. Distribution
All distributions 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,
<PAGE>
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 any Other 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. A Director may change the foregoing election, provided
that any such change must be made: (i) in the case of payments
commencing on termination from the Board, one year prior to
termination, (ii) in the case of payments commencing in a specified
year, one year prior to the earlier to occur of termination from the
Board and the commencement of such specified year, and (iii) in the
case of payments commencing upon retirement from a principal
occupation, one year prior to the earlier to occur of termination from
the Board and such retirement.
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 the 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 Union Pacific Corporation shall be deemed to be secured
by any assets, pledges, or other encumbrances on any property of Union
Pacific Corporation.
<PAGE>
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.
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 State of Utah.
11. Amendment
The Board of Directors of the 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.
Exhibit 10(b)
1993
STOCK OPTION AND RETENTION STOCK PLAN
of
UNION PACIFIC CORPORATION
(Effective April 16, 1993 -
As Amended September 30, 1993,
July 28, 1994, April 24, 1997,
November 20, 1997, September 24, 1998 and May 27, 1999)
<PAGE>
1993 STOCK OPTION AND RETENTION STOCK PLAN
OF UNION PACIFIC CORPORATION
1. PURPOSE
The purpose of the 1993 Stock Option and Retention Stock Plan of Union
Pacific Corporation is to promote and closely align the interests of employees
of Union Pacific Corporation and its shareholders by providing stock based
compensation. The Plan is intended to strengthen Union Pacific Corporation's
ability to reward performance which enhances long term shareholder value; to
increase employee stock ownership through performance based compensation plans;
and to strengthen the company's ability to attract and retain an outstanding
employee and executive team.
2. DEFINITIONS
The following terms shall have the following meanings:
"Act" means the Securities Exchange Act of 1934, as amended.
"Approved Leave of Absence" means a leave of absence of definite length
approved by the Senior Vice President - Human Resources of the Company, or by
any other officer of the Company to whom the Committee delegates such
authority.
"Award" means an award of Retention Shares or Stock Units pursuant to
the Plan.
"Beneficiary" means any person or persons designated in writing by a
Participant to the Committee on a form prescribed by it for that purpose, which
designation shall be revocable at any time by the Participant prior to his or
her death, provided that, in the absence of such a designation or the failure of
the person or persons so designated to survive the Participant, "Beneficiary"
shall mean such Participant's estate; and further provided that no designation
of Beneficiary shall be effective unless it is received by the Company before
the Participant's death.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any successor statute.
"Committee" means the Committee designated by the Board to administer
the Plan pursuant to Section 3.
"Common Stock" means the Common Stock, par value $2.50 per share, of
the Company.
"Company" means Union Pacific Corporation, a Utah corporation, or any
successor corporation.
"Option" means each non-qualified stock option, incentive stock option
and stock appreciation right granted under the Plan.
"Optionee" means any employee of the Company or a Subsidiary (including
directors who are also such employees) who is granted an Option under the Plan.
<PAGE>
"Participant" means any employee of the Company or a Subsidiary
(including directors who are also such employees) who is granted an Award under
the Plan.
"Plan" means this 1993 Stock Option and Retention Stock Plan, as
amended from time to time.
"Retention Shares" means shares of Common Stock subject to an Award
granted under the Plan.
"Restriction Period" means the period defined in Section 9(a).
"Stock Unit" means the right to receive in the future a share of Common
Stock.
"Subsidiary" means any corporation of which the Company owns directly
or indirectly at least a majority of the outstanding shares of voting stock.
"Unit Restriction Period" means the period defined in Section 10.
"Unit Vesting Condition" means any condition to the vesting of Stock
Units established by the Committee pursuant to Section 10.
"Vesting Condition" means any condition to the vesting of Retention
Shares established by the Committee pursuant to Section 9.
3. ADMINISTRATION
The Plan shall be administered by the Committee which shall be
comprised of not less than three members of the Board, none of whom shall be
employees of the Company or any Subsidiary. The Committee shall (i) grant
Options to Optionees and make Awards of Retention Shares and Stock Units to
Participants, and (ii) determine the terms and conditions of such Options and
Awards of Retention Shares and Stock Units, all in accordance with the
provisions of the Plan. The Committee shall have full authority to construe and
interpret the Plan, to establish, amend and rescind rules and regulations
relating to the Plan, to administer the Plan, and to take all such steps and
make all such determinations in connection with the Plan and Options and Awards
granted thereunder as it may deem necessary or advisable. Each Option and grant
of Retention Shares or Stock Units shall, if required by the Committee, be
evidenced by an agreement to be executed by the Company and the Optionee or
Participant, respectively, and contain provisions not inconsistent with the
Plan. All determinations of the Committee shall be by a majority of its members
and shall be evidenced by resolution, written consent or other appropriate
action, and the Committee's determinations shall be final. Each member of the
Committee, while serving as such, shall be considered to be acting in his or her
capacity as a director of the Company.
4. ELIGIBILITY
To be eligible for selection by the Committee to participate in the
Plan an individual must be an employee of the Company or a Subsidiary. Directors
who are not full-time salaried employees shall not be eligible. In granting
Options or Awards of Retention Shares or Stock Units to eligible employees, the
Committee shall take into account the duties of the respective employees, their
<PAGE>
present and potential contributions to the success of the Company or a
Subsidiary, and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
5. STOCK SUBJECT TO THE PLAN
Subject to the provisions of Section 13 hereof, the maximum number and kind of
shares as to which Options, or Retention Shares or Stock Units may at any time
be granted under the Plan are 16 million shares of Common Stock. Shares of
Common Stock subject to Options or Awards under the Plan may be either
authorized but unissued shares or shares previously issued and reacquired by the
Company. Upon the expiration, termination or cancellation (in whole or in part)
of unexercised Options, shares of Common Stock subject thereto shall again be
available for option or grant as Retention Shares or Stock Units under the Plan.
Shares of Common Stock covered by an Option, or portion thereof, which is
surrendered upon the exercise of a stock appreciation right, shall thereafter be
unavailable for option or grant as Retention Shares or Stock Units under the
Plan. Upon the forfeiture (in whole or in part) of a grant of Retention Shares
or Stock Units, the shares of Common Stock subject to such forfeiture shall
again be available for option or grant as Retention Shares or Stock Units under
the Plan if no dividends have been paid on the forfeited shares, and otherwise
shall be unavailable for such an option or grant.
6. TERMS AND CONDITIONS OF NON-QUALIFIED OPTIONS
All non-qualified options under the Plan shall be granted subject to
the following terms and conditions:
a. Option Price. The option price per share with respect to each option
shall be determined by the Committee but shall not be less than 100% of the fair
market value of the Common Stock on the date the option is granted, such fair
market value to be determined in accordance with the procedures to be
established by the Committee.
b. Duration of Options. Options shall be exercisable at such time or
times and under such conditions as set forth in the written agreement evidencing
such option, but in no event shall any option be exercisable subsequent to the
tenth anniversary of the date on which the option is granted.
c. Exercise of Option. Except as provided in Section 6(h), 6(i) or
8(c), the shares of Common Stock covered by an option may not be purchased prior
to the first anniversary of the date on which the option is granted (unless the
Committee shall determine otherwise), or such longer period or periods, and
subject to such conditions, as the Committee may determine, but thereafter may
be purchased at one time or in such installments over the balance of the option
period as may be provided in the option. Any shares not purchased on the
applicable installment date may, unless the Committee shall have determined
otherwise, be purchased thereafter at any time prior to the final expiration of
the option. To the extent that the right to purchase shares has accrued
thereunder, options may be exercised from time to time by notice to the Company
stating the number of shares with respect to which the option is being
exercised.
d. Payment. Shares of Common Stock purchased under options shall, at
the time of purchase, be paid for in full. All, or any portion, of the option
exercise price may, at the discretion of the Committee, be paid by the surrender
to the Company, at the time of exercise, of shares of previously acquired Common
Stock owned by the Optionee, to the extent that such payment does not require
the surrender of a fractional share of such previously acquired Common Stock. In
addition, to the extent permitted by the Committee, the option exercise price
may be paid by authorizing the Company to withhold Common Stock otherwise
<PAGE>
issuable on exercise of the option. Such shares previously acquired or shares
withheld to pay the option exercise price shall be valued at fair market value
on the date the option is exercised in accordance with the procedures to be
established by the Committee. A holder of an option shall have none of the
rights of a stockholder until the shares of Common Stock are issued to him or
her. If an amount is payable by an Optionee to the Company or a Subsidiary under
applicable withholding tax laws in connection with the exercise of non-qualified
options, the Committee may, in its discretion and subject to such rules as it
may adopt, permit the Optionee to make such payment, in whole or in part, by
electing to authorize the Company to withhold or accept shares of Common Stock
having a fair market value equal to the amount to be paid under such withholding
tax laws.
e. Restrictions. The Committee shall determine, with respect to each
option, the nature and extent of the restrictions, if any, to be imposed on the
shares of Common Stock which may be purchased thereunder including restrictions
on the transferability of such shares acquired through the exercise of such
option. Without limiting the generality of the foregoing, the Committee may
impose conditions restricting absolutely or conditionally the transferability of
shares acquired through the exercise of options for such periods, and subject to
such conditions, including continued employment of the Optionee by the Company
or a Subsidiary, as the Committee may determine.
f. Purchase for Investment. The Committee shall have the right to
require that each Optionee or other person who shall exercise an option under
the Plan represent and agree that any shares of Common Stock purchased pursuant
to such option will be purchased for investment and not with a view to the
distribution or resale thereof or that such shares will not be sold except in
accordance with such restrictions or limitations as may be set forth in the
written agreement granting such option.
g. Non-Transferability of Options. During an Optionee's lifetime, the
option may be exercised only by the Optionee. Options shall not be transferable,
except for exercise by the Optionee's legal representatives or heirs.
h. Termination of Employment. Upon the termination of an Optionee's
employment, for any reason other than death, the option shall be exercisable
only as to those shares of Common Stock which were then subject to the exercise
of such option, provided that (i) in the case of disability as described below,
any holding period required by Section 6(c) shall automatically be deemed to be
satisfied and (ii) the Committee may determine that particular limitations and
restrictions under the Plan shall not apply, and such option shall expire
according to the following schedule (unless the Committee shall provide for
shorter periods at the time the option is granted):
(i) Retirement. Option shall expire, unless exercised, five
(5) years after the Optionee's retirement from the Company or any
Subsidiary under the provisions of the Company's or a Subsidiary's
pension plan.
(ii) Disability. Option shall expire, unless exercised, five
(5) years after the date the Optionee is eligible to receive disability
benefits under the provisions of the Company's or a Subsidiary's
long-term disability plan.
(iii) Gross Misconduct. Option shall expire upon receipt by
the Optionee of the notice of termination if he or she is terminated
for deliberate, willful or gross misconduct as determined by the
Company.
<PAGE>
(iv) All Other Terminations. Option shall expire, unless
exercised, three (3) months after the date of such termination;
provided, the Committee may provide for a longer exercise period, not
to exceed three (3) years from the date of such termination or, if
later, three years from the date the option becomes exercisable but not
more than five years after the date of such termination. In the event
that such termination results from the disposition by the Company of
all or a part of its interest in, or the discontinuance of the business
of, a subsidiary, division or other business unit of the Company, the
Committee may provide for an exercise period of up to five (5) years
from the date of such termination.
i. Death of Optionee. Upon the death of an Optionee during his or her
period of employment, the option shall be exercisable only as to those shares of
Common Stock which were subject to the exercise of such option at the time of
his or her death, provided that (i) any holding period required by Section 6(c)
shall automatically be deemed to be satisfied and (ii) the Committee may
determine that particular limitations and restrictions under the Plan shall not
apply, and such option shall expire, unless exercised by the Optionee's legal
representatives or heirs, five (5) years after the date of death (unless the
Committee shall provide for a shorter period at the time the option is granted).
j. Deferral. The Committee may permit an Optionee to elect to defer
receipt of all or part of the Common Stock issuable upon the exercise of an
option, pursuant to rules and regulations adopted by the Committee. The
Committee may not permit the payment of cash in lieu of Common Stock upon
payment of the deferred amount.
In no event, however, shall any option be exercisable pursuant to Sections 6(h)
or (i) subsequent to the tenth anniversary of the date on which it is granted.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
a. General. The Committee may also grant a stock appreciation right in
connection with a non-qualified option, either at the time of grant or by
amendment. Such stock appreciation right shall cover the same shares covered by
such option (or such lesser number of shares of Common Stock as the Committee
may determine) and shall, except for the provisions of Section 6(d) hereof, be
subject to the same terms and conditions as the related non-qualified option.
b. Exercise and Payment. Each stock appreciation right shall entitle
the Optionee to surrender to the Company unexercised the related option, or any
portion thereof, and to receive from the Company in exchange therefor an amount
equal to the excess of the fair market value of one share of Common Stock over
the option price per share times the number of shares covered by the option, or
portion thereof, which is surrendered. Payment shall be made in shares of Common
Stock valued at fair market value, or in cash, or partly in shares and partly in
cash, all as shall be determined by the Committee. The fair market value shall
be the value determined in accordance with procedures established by the
Committee. Stock appreciation rights may be exercised from time to time upon
actual receipt by the Company of written notice stating the number of shares of
Common Stock with respect to which the stock appreciation right is being
exercised, provided that if a stock appreciation right expires unexercised, it
shall be deemed exercised on the expiration date if any amount would be payable
with respect thereto. No fractional shares shall be issued but instead cash
shall be paid for a fraction or, if the Committee should so determine, the
number of shares shall be rounded downward to the next whole share. If an amount
is payable by an Optionee to the Company or a Subsidiary under applicable
withholding tax laws in connection with the exercise of stock appreciation
<PAGE>
rights, the Committee may, in its discretion and subject to such rules as it may
adopt, permit the Optionee to make such payment, in whole or in part, by
electing to authorize the Company to withhold or accept shares of Common Stock
having a fair market value equal to the amount to be paid under such withholding
tax laws.
c. Restrictions. The obligation of the Company to satisfy any stock
appreciation right exercised by an Optionee subject to Section 16 of the Act
shall be conditioned upon the prior receipt by the Company of an opinion of
counsel to the Company that any such satisfaction will not create an obligation
on the part of such Optionee pursuant to Section 16(b) of the Act to reimburse
the Company for any statutory profit which might be held to result from such
satisfaction.
8. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS.
a. General. The Committee may also grant incentive stock options as
defined under section 422 of the Code. All incentive stock options issued under
the Plan shall, except for the provisions of Sections 6(h) and (i) and Section 7
hereof, be subject to the same terms and conditions as the non-qualified options
granted under the Plan. In addition, incentive stock options shall be subject to
the conditions of Sections 8(b), (c), (d) and (e).
b. Limitation of Exercise. The aggregate fair market value (determined
as of the date the incentive stock option is granted) of the shares of stock
with respect to which incentive stock options are exercisable for the first time
by such Optionee during any calendar year, under this Plan or any other stock
option plans adopted by the Company, its Subsidiaries or any predecessor
companies thereof, shall not exceed $100,000. If any incentive stock options
become exercisable in any year in excess of the $100,000 limitation, options
representing such excess shall become non-qualified options exercisable pursuant
to the terms of Section 6 hereof and shall not be exercisable as incentive stock
options.
c. Termination of Employment. Upon the termination of an Optionee's
employment, for any reason other than death, his or her incentive stock option
shall be exercisable only as to those shares of Common Stock which were then
subject to the exercise of such option provided that (i) in the case of
disability as described below, any holding period required by Section 6(c) shall
automatically be deemed to be satisfied and (ii) the Committee may determine
that particular limitations and restrictions under the Plan shall not apply, and
such option shall expire as an incentive stock option (but shall become a
non-qualified option exercisable pursuant to the terms of Section 6 hereof less
the period already elapsed under such Section), according to the following
schedule (unless the Committee shall provide for shorter periods at the time the
incentive stock option is granted):
(i) Retirement. An incentive stock option shall expire, unless
exercised, three (3) months after the Optionee's retirement from the
Company or any Subsidiary under the provisions of the Company's or a
Subsidiary's pension plan.
(ii) Disability. In the case of an Optionee who is disabled
within the meaning of section 22(e)(3) of the Code, an incentive stock
option shall expire, unless exercised, one (1) year after the earlier
of the date the Optionee terminates employment or the date the Optionee
is eligible to receive disability benefits under the provisions of the
Company's or a Subsidiary's long-term disability plan.
(iii) Gross Misconduct. An incentive stock option shall expire
upon receipt by the Optionee of the notice of termination if he or she
is terminated for deliberate, willful or gross misconduct as determined
by the Company.
<PAGE>
(iv) All Other Terminations. An incentive stock option shall
expire, unless exercised, three (3) months after the date of such
termination.
In the case of incentive stock options granted after April 24, 1997,
the Committee may extend the period during which an incentive stock option may
be exercised as a non-qualified stock option to up to three (3) years from the
date of a termination not due to retirement, disability or gross misconduct or,
if later, three (3) years from the date the option becomes exercisable but not
more than five years after the date of such a termination. In the case of
incentive stock options granted after September 24, 1998, in the event that a
termination results from the disposition by the Company of all or a part of its
interest in, or the discontinuance of the business of, a subsidiary, division or
other business unit of the Company, the Committee may extend the period during
which an incentive stock option may be exercised as a non-qualified stock option
to up to five (5) years from the date of such termination.
d. Death of Optionee. Upon the death of an Optionee during his or her
period of employment, the incentive stock option shall be exercisable as an
incentive stock option only as to those shares of Common Stock which were
subject to the exercise of such option at the time of death, provided that (i)
any holding period required by Section 6(c) shall automatically be deemed to be
satisfied, and (ii) the Committee may determine that particular limitations and
restrictions under the Plan shall not apply, and such option shall expire,
unless exercised by the Optionee's legal representatives or heirs, five (5)
years after the date of death (unless the Committee shall provide for a shorter
period at the time the option is granted).
e. Leave of Absence. A leave of absence, whether or not an Approved
Leave of Absence, shall be deemed a termination of employment for purposes of
Section 8.
In no event, however, shall any incentive stock option be exercisable pursuant
to Sections 8(c) or (d) subsequent to the tenth anniversary of the date on which
it was granted.
9. TERMS AND CONDITIONS OF AWARDS OF RETENTION STOCK
a. General. Retention Shares may be granted only to reward the
attainment of individual, Company or Subsidiary goals, or to attract or retain
officers or other employees of the Company or any Subsidiary, and shall be
granted subject to the attainment of performance goals unless the Committee
shall determine otherwise. With respect to each grant of Retention Shares under
the Plan, the Committee shall determine the period or periods, including any
conditions for determining such period or periods, during which the restrictions
set forth in Section 9(b) shall apply, provided that in no event, other than as
provided in Section 9(c) or in the next sentence, shall such restrictions
terminate prior to 3 years after the date of grant (the "Restriction Period"),
and may also specify any other terms or conditions to the right of the
Participant to receive such Retention Shares ("Vesting Conditions"). The
Committee may determine in its sole discretion to waive any or all of such
restrictions prior to end of the Restriction Period or the satisfaction of any
Vesting Condition. Subject to Section 9(c) and any such Vesting Condition, a
grant of Retention Shares shall be effective for the Restriction Period and may
not be revoked.
b. Restrictions. At the time of grant of Retention Shares to a
Participant, a certificate representing the number of shares of Common Stock
granted shall be registered in the Participant's name but shall be held by the
Company for his or her account. The Participant shall have the entire beneficial
ownership interest in, and all rights and privileges of a stockholder as to,
such Retention Shares, including the right to vote such Retention Shares and,
<PAGE>
unless the Committee shall determine otherwise, the right to receive dividends
thereon, subject to the following: (i) subject to Section 9(c), the Participant
shall not be entitled to delivery of the stock certificate until the expiration
of the Restriction Period and the satisfaction of any Vesting Conditions; (ii)
none of the Retention Shares may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of during the Restriction Period or prior to
the satisfaction of any Vesting Conditions; and (iii) all of the Retention
Shares shall be forfeited and all rights of the Participant to such Retention
Shares shall terminate without further obligation on the part of the Company
unless the Participant remains in the continuous employment of the Company or a
Subsidiary for the entire Restriction Period, except as provided by Sections
9(a) and 9(c), and any applicable Vesting Conditions have been satisfied. Any
shares of Common Stock or other securities or property received as a result of a
transaction listed in Section 13 shall be subject to the same restrictions as
such Retention Shares unless the Committee shall determine otherwise.
c. Termination of Employment.
(i) Disability and Retirement. Unless the Committee shall
determine otherwise at the time of grant of Retention Shares, if (A) a
Participant ceases to be an employee of the Company or a Subsidiary
prior to the end of a Restriction Period, by reason of disability under
the provisions of the Company's or a Subsidiary's long-term disability
plan or retirement under the provisions of the Company's or a
Subsidiary's pension plan either (i) at age 65 or (ii) prior to age 65
at the request of the Company or a Subsidiary, and (B) all Vesting
Conditions have been satisfied, the Retention Shares granted to such
Participant shall immediately vest and all restrictions applicable to
such shares shall lapse. A certificate for such shares shall be
delivered to the Participant in accordance with the provisions of
Section 9(d).
(ii) Death. Unless the Committee shall determine otherwise at
the time of grant of Retention Shares, if (A) a Participant ceases to
be an employee of the Company or a Subsidiary prior to the end of a
Restriction Period by reason of death, and (B) all Vesting Conditions
have been satisfied, the Retention Shares granted to such Participant
shall immediately vest in his or her Beneficiary, and all restrictions
applicable to such shares shall lapse. A certificate for such shares
shall be delivered to the Participant's Beneficiary in accordance with
the provisions of Section 9(d).
(iii) All Other Terminations. If a Participant ceases to be an
employee of the Company or a Subsidiary prior to the end of a
Restriction Period for any reason other than death, disability or
retirement as provided in Section 9(c)(i) and (ii), the Participant
shall immediately forfeit all Retention Shares then subject to the
restrictions of Section 9(b) in accordance with the provisions thereof,
except that the Committee may, if it finds that the circumstances in
the particular case so warrant, allow a Participant whose employment
has so terminated to retain any or all of the Retention Shares then
subject to the restrictions of Section 9(b) and all restrictions
applicable to such retained shares shall lapse. A certificate for such
retained shares shall be delivered to the Participant in accordance
with the provisions of Section 9(d).
(iv) Vesting Conditions. Unless the Committee shall determine
otherwise at the time of grant of Retention Shares, if a Participant
ceases to be an employee of the Company for any reason prior to the
satisfaction of any Vesting Conditions, the Participant shall
immediately forfeit all Retention Shares then subject to the
restrictions of Section 9(b) in accordance with the provisions thereof,
except that the Committee may, if it finds that the circumstances in
the particular case so warrant, allow a Participant whose employment
has so terminated to retain any or all of the Retention Shares then
<PAGE>
subject to the restrictions of Section 9(b) and all restrictions
applicable to such retained shares shall lapse. A certificate for such
retained shares shall be delivered to the Participant in accordance
with the provisions of Section 9(d).
d. Payment of Retention Shares. At the end of the Restriction Period
and after all Vesting Conditions have been satisfied, or at such earlier time as
provided for in Section 9(c) or as the Committee, in its sole discretion, may
otherwise determine, all restrictions applicable to the Retention Shares shall
lapse, and a stock certificate for a number of shares of Common Stock equal to
the number of Retention Shares, free of all restrictions, shall be delivered to
the Participant or his or her Beneficiary, as the case may be. If an amount is
payable by a Participant to the Company or a Subsidiary under applicable
withholding tax laws in connection with the lapse of such restrictions, the
Committee, in its sole discretion, may permit the Participant to make such
payment, in whole or in part, by authorizing the Company to transfer to the
Company Retention Shares otherwise deliverable to the Participant having a fair
market value equal to the amount to be paid under such withholding tax laws.
e. Deferral. The Committee may permit a Participant to elect to defer
receipt of all or part of any Retention Shares that would otherwise be
delivered, pursuant to rules and regulations adopted by the Committee. The
Committee may permit the payment of cash in lieu of Common Stock upon payment of
the deferred amount.
10. STOCK UNITS
The Committee may also grant Awards of Stock Units under the Plan. The
vesting of Awards of Stock Units shall be subject to the requirement that a
Participant continue employment with the Company or a Subsidiary for a certain
period of no less than three years (the "Unit Restriction Period"), and may be
subject to the satisfaction of other conditions or contingencies ("Unit Vesting
Condition"), in order for a Participant to receive payment of such Award, as
established by the Committee at the time of the Award. The Committee may
determine in its sole discretion to waive any such requirement, condition or
contingency. Awards of Stock Units shall be payable in shares of Common Stock.
The Committee may permit a Participant to elect to defer receipt of payment of
all or part of any Award of Stock Units pursuant to rules and regulations
adopted by the Committee. Unless the Committee provides otherwise at the time an
Award of Stock Units to a Participant is made, the provisions of Section 9(c) of
the Plan relating to the vesting and forfeiture of Retention Stock upon
termination of employment shall apply to any termination of employment by such
Participant during the Unit Restricted Period or prior to the satisfaction of
any Unit Vesting Condition for such Award.
11. DIVIDENDS AND DIVIDEND EQUIVALENTS
Any Option or Award of Stock Units may provide the Participant with the
right to receive dividend payments or dividend equivalent payments on the Common
Stock subject to the Option or Award, whether or not such Option or Award has
been exercised or is vested. Such payments may be made in cash or may be
credited to a Participant's account and later settled in cash or Common Stock or
a combination thereof, as determined by the Committee. Such payments and credits
may be subject to such conditions and contingencies as the Committee may
establish.
<PAGE>
12. REGULATORY APPROVALS AND LISTING
The Company shall not be required to issue to an Optionee, Participant
or a Beneficiary, as the case may be, any certificate for any shares of Common
Stock upon exercise of an option or for any Retention Shares granted under the
Plan or to make any payment with respect to any Stock Unit granted under the
Plan prior to (i) the obtaining of any approval from any governmental agency
which the Company, in its sole discretion, shall determine to be necessary or
advisable, (ii) the admission of such shares to listing on any stock exchange on
which the Common Stock may then be listed, and (iii) the completion of any
registration or other qualification of such shares or units under any state or
federal law or rulings or regulations of any governmental body which the
Company, in its sole discretion, shall determine to be necessary or advisable.
13. ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION
In the event of a recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation, rights offering,
separation, spin-off, reorganization or liquidation, or any other change in the
corporate structure or shares of the Company, the Board, upon recommendation of
the Committee, may make such equitable adjustments as it may deem appropriate in
the number and kind of shares and Stock Units authorized by the Plan, in the
option price of outstanding Options, and in the number and kind of shares, Stock
Units or other securities or property subject to Options or covered by
outstanding Awards.
14. TERM OF THE PLAN
No Options, or Retention Shares or Stock Units shall be granted
pursuant to the Plan after April 16, 2003, but grants of Options, or Retention
Shares or Stock Units theretofore granted may extend beyond that date and the
terms and conditions of the Plan shall continue to apply thereto.
15. TERMINATION OR AMENDMENT OF THE PLAN
The Board may at any time terminate the Plan with respect to any shares
of Common Stock or Stock Units not at that time subject to outstanding Options
or Awards, and may from time to time alter or amend the Plan or any part thereof
(including, but without limiting the generality of the foregoing, any amendment
deemed necessary to ensure that the Company may obtain any approval referred to
in Section 12 or to ensure that the grant of Options or Awards, the exercise of
Options, the payment of Retention Shares or the payment with respect to Stock
Units or any other provision of the Plan complies with Section 16(b) of the
Act), provided that no change with respect to any Options, Retention Shares or
Stock Units theretofore granted may be made which would impair the rights of an
Optionee or Participant without the consent of such Optionee or Participant and,
further, that without the approval of stockholders, no alteration or amendment
may be made which would (i) increase the maximum number of shares of Common
Stock and Stock Units subject to the Plan as set forth in Section 5 (except by
operation of Section 13), (ii) extend the term of the Plan or (iii) change the
class of eligible persons who may receive Options or Awards of Retention Shares
or Stock Units under the Plan. The Committee may amend the Plan to extend the
exercise period following an Optionee's termination of an option granted prior
to September 24, 1998, but not beyond: (i)in the case of a termination resulting
from the disposition by the Company of all or a part of its interest in, or the
discontinuance of the business of, a subsidiary, division or other business unit
of the Company, five years from the date of termination and (ii) in the case of
all other terminations, not more than three years from the date of termination,
or, if later, three years from the date the option becomes exercisable but not
more than five years after the date of such termination.
<PAGE>
16. LEAVE OF ABSENCE
Unless the Committee shall determine otherwise, a leave of absence
other than an Approved Leave of Absence shall be deemed a termination of
employment for purposes of the Plan. An Approved Leave of Absence shall not be
deemed a termination of employment for purposes of the Plan (except for purposes
of Section 8), but the period of such Leave of Absence shall not be counted
toward satisfaction of any Restriction Period or Unit Restriction Period or any
holding period described in Section 6(c).
17. GENERAL PROVISIONS
a. Neither the Plan nor the grant of any Option or Award nor any action
by the Company, any Subsidiary or the Committee shall be held or construed to
confer upon any person any right to be continued in the employ of the Company or
a Subsidiary. The Company and each Subsidiary expressly reserve the right to
discharge, without liability but subject to his or her rights under the Plan,
any Optionee or Participant whenever in the sole discretion of the Company or a
Subsidiary, as the case may be, its interest may so require.
b. All questions pertaining to the construction, regulation, validity
and effect of the Plan shall be determined in accordance with the laws of the
State of Utah, without regard to conflict of laws doctrine.
18. EFFECTIVE DATE
The Plan shall become effective upon approval of the stockholders of
the Company.
Exhibit 10(c)
CONSULTING AGREEMENT
AGREEMENT (the "Agreement"), made as of the 24th day of April,
1999, by and between Union Pacific Railroad Company, a Delaware corporation
("UPRR"), and Jerry R. Davis ("Consultant").
WHEREAS, the Consultant was previously employed by UPRR and possesses an
intimate knowledge of the business and operations of UPRR; and
WHEREAS, UPRR desires to retain the Consultant in the capacity
of an independent consultant and the Consultant desires to commit himself to
providing the consulting services provided for herein;
Now, therefore, in consideration of the respective covenants and agreements
of the parties herein contained, the parties hereto agree as follows:
1. Engagement. UPRR hereby engages the Consultant to provide
the Consulting Services (as defined in Paragraph 2) to UPRR and its affiliates,
and the Consultant hereby accepts such engagement, on the terms and conditions
set forth herein, for the period commencing on the date hereof and expiring on
March 31, 2000 (the "Term"), unless sooner terminated as provided in paragraph
5.
2. Services. The Consultant agrees, during the Term, to
provide advisory and consulting services to UPRR relating to railroad safety
issues, government regulation of railroad operations and other matters relating
to the operation of UPRR as may be requested, including meeting with relevant
regulatory authorities, and other services relating to safety (A Consulting
Services"). The Consulting Services shall be performed at the request of the
Chief Executive Officer of UPRR and in such places as UPRR requests. The
Consultant shall devote such time to the Consulting Services as the parties
hereto mutually agree. This is not intended to be an exclusive relationship, and
the Consultant may contract with others so long as he does not violate the
confidentiality provisions of this Agreement.
3. Independent Contractor. UPRR and the Consultant agree that
he is an independent contractor, and that the Consultant will have complete
control over how he performs services under this Agreement. The Consultant shall
not be considered an employee or agent of UPRR or its affiliates for any purpose
and shall not be entitled or eligible to participate in any benefits or
privileges given or extended by UPRR or its affiliates to their employees. The
Consultant shall have no power or right to enter into contracts or commitments
on behalf of UPRR or its affiliates.
4. Fees and Expenses.
(a) Fees. In consideration of the Consulting Services as
contemplated by this Agreement, UPRR shall pay to the Consultant in cash the sum
of $100,000, payable on or before April 30, 1999.
(b) Reimbursement of Expenses.During the Term, UPRR shall
reimburse the Consultant for all reasonable and necessary business expenses
incurred by him in connection with performing the Consulting Services in
accordance with and on the terms of UPRR's customary expense reimbursement
policies.
5. Confidential Information. The Consultant shall not, without
the written consent of the Board of Directors of UPRR or a person authorized
thereby or pursuant to lawful process, while engaged by UPRR or at any time
thereafter, directly or indirectly, publish or disclose to any person, firm,
corporation or other entity, whether or not a competitor of UPRR or any
affiliate thereof, except as necessary in connection with the performance by the
Consultant of the Consulting Services, any Confidential Information. For
purposes of this Agreement, "Confidential Information" means all information
about UPRR and its affiliates obtained or developed by the Consultant while an
employee of or consultant to UPRR, whether before or during the Term, including,
but not limited to, information regarding directors, officers and other key
personnel of UPRR and its affiliates, financial information or plans and other
matters, and which UPRR has requested be held in confidence or which it could
reasonably be expected to desire to be held in confidence, or the disclosure of
which would likely be disparaging or disadvantageous to UPRR or any of such
employees and directors, but shall not include information already in the public
domain.
The Consultant acknowledges that the provisions of this Section 5
are reasonable and necessary for the protection of UPRR and that UPRR will be
irrevocably damaged if such covenants are not specifically enforced.
Accordingly, the Consultant agrees that, in addition to any other relief to
which UPRR may be entitled in the form of actual of punitive damages, UPRR shall
be entitled to seek and obtain injunctive relief from a court of competent
jurisdiction (without the posting of bond therefor) for the purposes of
restraining the Consultant from any actual or threatened breach of such
covenants.
6. Notices. Notices and all other communications provided for
in this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to Consultant, to:
Jerry R. Davis
2131 East Alameda
Denver, Colorado 80209
If to UPRR, to:
Union Pacific Railroad Company
1416 Dodge Street
Omaha, Nebraska 68179
Attn: Barbara W. Schaefer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. Amendment and Waiver. No provisions of this Agreement may be
amended, waived or discharged unless such amendment, waiver or discharge is
agreed to in writing and signed by the Consultant and UPRR. No waiver by any
party hereto at any time of any breach by another party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar of dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. Integration. This Agreement contains the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter.
9. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
Nebraska.
10. Assignment; Binding Agreement. This Agreement may not be
transferred or assigned by either party, but shall be binding on the successors
and permitted assigns of each party. This Agreement and all rights of the
Consultant hereunder shall inure to the benefit of and be enforceable by the
Consultant's personal or legal representatives, executors, administrators,
successors, heirs, distributees, divisees and legatees.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
UNION PACIFIC RAILROAD COMPANY
By
Name:
Title:
By
Name: Jerry R. Davis
Exhibit 12(a)
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Three Months Ended June 30,
Millions of Dollars Except Ratios 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Earnings
Income (Loss) from Continuing Operations ........ $194 $(154)
Undistributed equity earnings.................... (10) (10)
- -------------------------------------------------------------------------------
Total............................................ 184 (164)
- -------------------------------------------------------------------------------
Income Taxes.......................................... 87 (108)
- ------------------------------------------------------------------------------
Fixed Charges:
Interest expense including amortization
of debt discount............................... 184 177
Portion of rentals representing
an interest factor............................. 46 46
- -------------------------------------------------------------------------------
Total............................................ 230 223
- -------------------------------------------------------------------------------
Earnings Available for Fixed Charges.................. 501 (49)
- -------------------------------------------------------------------------------
Total Fixed Charges -- as above....................... $230 $ 223
- -------------------------------------------------------------------------------
Ratio of earnings to fixed charges (Note 9)........... 2.2 -
- -------------------------------------------------------------------------------
</TABLE>
Exhibit 12(b)
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Six Months Ended June 30,
Millions of Dollars Except Ratios 1999 1998
<S> <C> <C>
Earnings
Income (Loss) from Continuing Operations ........ $323 $(216)
Undistributed equity earnings.................... (19) (19)
- -------------------------------------------------------------------------------
Total............................................ 304 (235)
- -------------------------------------------------------------------------------
Income Taxes.......................................... 159 (151)
- -------------------------------------------------------------------------------
Fixed Charges:
Interest expense including amortization
of debt discount............................... 370 338
Portion of rentals representing
an interest factor............................. 92 91
- -------------------------------------------------------------------------------
Total............................................ 462 429
- -------------------------------------------------------------------------------
Earnings Available for Fixed Charges.................. 925 43
- -------------------------------------------------------------------------------
Total Fixed Charges -- as above....................... $462 $ 429
- -------------------------------------------------------------------------------
Ratio of earnings to fixed charges (Note 9)........... 2.0 0.1
- -------------------------------------------------------------------------------
</TABLE>
<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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 331
<SECURITIES> 0
<RECEIVABLES> 561
<ALLOWANCES> 0
<INVENTORY> 341
<CURRENT-ASSETS> 1583
<PP&E> 33748
<DEPRECIATION> 6567
<TOTAL-ASSETS> 29787
<CURRENT-LIABILITIES> 2988
<BONDS> 8590
0
0
<COMMON> 691
<OTHER-SE> 6934
<TOTAL-LIABILITY-AND-EQUITY> 29787
<SALES> 0
<TOTAL-REVENUES> 5513
<CGS> 0
<TOTAL-COSTS> 4710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370
<INCOME-PRETAX> 482
<INCOME-TAX> 159
<INCOME-CONTINUING> 323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323
<EPS-BASIC> 1.31
<EPS-DILUTED> 1.31
</TABLE>
