<PAGE> 1
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 September 30, 2000
- 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 October 31, 2000, there were 247,832,401 shares of the
Registrant's Common Stock outstanding.
<PAGE> 2
UNION PACIFIC CORPORATION
AND SUBSIDIARY COMPANIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Item 1: Consolidated Financial Statements:
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
For the Three Months Ended September 30, 2000 and 1999................................ 1
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999................................. 2
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
At September 30, 2000 (Unaudited) and December 31, 1999............................... 3
STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999................................. 4
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Unaudited)
For the Nine Months Ended September 30, 2000.......................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)................................... 6-15
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 16-23
Item 3: Quantitative and Qualitative Disclosures about Market Risk............................ 24
PART II. OTHER INFORMATION
Item 1: Legal Proceedings....................................................................... 24-26
Item 6: Exhibits and Reports on Form 8-K........................................................ 27
Signature........................................................................................ 28
</TABLE>
(i)
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
--------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Three Months Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions, Except Per Share and Ratios 2000 1999
------------------------------------- ------ ------
<S> <C> <C> <C>
OPERATING REVENUES Rail, trucking and other (Note 2).................... $3,070 $2,893
------ ------
OPERATING EXPENSES Salaries, wages and employee benefits................ 1,058 1,099
Equipment and other rents............................ 352 341
Depreciation ........................................ 285 271
Fuel and utilities (Note 5) ........................ 344 212
Materials and supplies............................... 148 149
Casualty costs....................................... 92 82
Other costs.......................................... 221 224
------ ------
Total................................................ 2,500 2,378
------ ------
INCOME Operating Income..................................... 570 515
Other income (Note 8)................................ 17 24
Interest expense..................................... (181) (184)
------ ------
Income before Income Taxes........................... 406 355
Income taxes......................................... (150) (137)
------ ------
Income from Continuing Operations.................... 256 218
Gain on Disposal of Discontinued Operations,
Net of Income Taxes (Note 4)..................... -- 27
------ ------
Net Income........................................... $ 256 $ 245
====== ======
EARNINGS PER SHARE Basic:
(NOTE 7) Income from Continuing Operations................ $ 1.04 $ 0.88
Gain on Disposal of Discontinued Operations...... -- 0.11
Net Income....................................... $ 1.04 $ 0.99
Diluted:
Income from Continuing Operations................ $ 1.00 $ 0.86
Gain on Disposal of Discontinued Operations...... -- 0.10
Net Income....................................... $ 1.00 $ 0.96
------ ------
Weighted Average Number of Shares (Basic)............ 246.5 246.6
Weighted Average Number of Shares (Diluted).......... 269.4 270.1
------ ------
Cash Dividends Per Share............................. $ 0.20 $ 0.20
------ ------
Ratio of Earnings to Fixed Charges (Note 9).......... 2.7 2.5
------ ------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-1-
<PAGE> 4
--------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Nine Months Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions, Except Per Share and Ratios 2000 1999
------------------------------------- ------ ------
<S> <C> <C> <C>
OPERATING REVENUES Rail, trucking and other (Note 2) $8,962 $8,406
------ ------
OPERATING EXPENSES Salaries, wages and employee benefits.................... 3,163 3,232
Equipment and other rents................................ 1,000 997
Depreciation ............................................ 850 809
Fuel and utilities (Note 5) ............................ 966 603
Materials and supplies................................... 459 439
Casualty costs........................................... 270 288
Other costs.............................................. 690 720
------ ------
Total.................................................... 7,398 7,088
------ ------
INCOME Operating Income......................................... 1,564 1,318
Other income (Note 8).................................... 61 73
Interest expense......................................... (543) (554)
------ ------
Income before Income Taxes............................... 1,082 837
Income taxes............................................. (397) (296)
------ ------
Income from Continuing Operations........................ 685 541
Gain on Disposal of Discontinued Operations,
Net of Income Taxes (Note 4)........................ -- 27
------ ------
Net Income............................................... $ 685 $ 568
====== ======
EARNINGS PER SHARE Basic:
(NOTE 7) Income from Continuing Operations.................... $ 2.78 $ 2.19
Gain on Disposal of Discontinued Operations.......... -- 0.11
Net Income........................................... $ 2.78 $ 2.30
Diluted:
Income from Continuing Operations.................... $ 2.71 $ 2.17
Gain on Disposal of Discontinued Operations.......... -- 0.10
Net Income........................................... $ 2.71 $ 2.27
------ ------
Weighted Average Number of Shares (Basic)................ 246.4 246.5
Weighted Average Number of Shares (Diluted).............. 269.4 269.6
------ ------
Cash Dividends Per Share................................. $ 0.60 $ 0.60
====== ======
Ratio of Earnings to Fixed Charges (Note 9).............. 2.7 2.2
====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
<PAGE> 5
--------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
Union Pacific Corporation and Subsidiary Companies
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Millions of Dollars Sept.30, Dec. 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current Assets Cash and temporary investments....................... $ 55 $ 175
Accounts receivable (Note 5)......................... 645 581
Inventories.......................................... 333 337
Current deferred tax asset........................... 114 111
Other current assets................................. 93 110
-------- ---------
Total................................................ 1,240 1,314
-------- ---------
Investments Investments in and advances to affiliated companies.. 625 657
Other investments.................................... 97 96
-------- ---------
Total................................................ 722 753
-------- ---------
Properties Cost................................................. 35,319 34,370
Accumulated depreciation............................. (7,174) (6,851)
-------- ---------
Net.................................................. 28,145 27,519
-------- ---------
Other Other assets......................................... 284 302
-------- ---------
Total Assets......................................... $ 30,391 $ 29,888
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Accounts payable..................................... $ 585 $ 598
Accrued wages and vacation........................... 436 409
Accrued casualty costs............................... 391 385
Income and other taxes............................... 264 256
Dividends and interest............................... 251 290
Debt due within one year............................. 210 214
Other current liabilities............................ 612 733
-------- ---------
Total................................................ 2,749 2,885
-------- ---------
Other Liabilities and Debt due after one year (Note 6)..................... 8,314 8,426
Stockholders' Equity Deferred income taxes................................ 7,082 6,715
Accrued casualty costs............................... 846 934
Retiree benefit obligations.......................... 796 791
Other long-term liabilities.......................... 552 636
Company-obligated Mandatorily Redeemable
Convertible Preferred Securities (Note 6)....... 1,500 1,500
Common stockholders' equity (Page 5)................. 8,552 8,001
-------- ---------
Total Liabilities and Stockholders' Equity........... $ 30,391 $29,888
======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE> 6
--------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Nine Months Ended September 30, 2000 and 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars 2000 1999
------------------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES Net Income.............................................. $ 685 $ 568
Less Income from Discontinued Operations................ -- 27
------- -------
Income from Continuing Operations....................... 685 541
Non-cash charges to income:
Depreciation........................................ 850 809
Deferred income taxes .............................. 359 399
Other - net......................................... (279) (383)
Changes in current assets and liabilities.............. (182) 101
------- -------
Cash Provided by Operations............................. 1,433 1,467
------- -------
INVESTING ACTIVITIES Capital investments..................................... (1,403) (1,350)
Other - net............................................. 113 43
------- -------
Cash Used in Investing Activities....................... (1,290) (1,307)
------- -------
EQUITY AND FINANCING Dividends paid.......................................... (150) (148)
ACTIVITIES Debt repaid............................................. (651) (591)
Net financings.......................................... 370 600
Other - net............................................. 168 1
------- -------
Cash Used in Equity and Financing Activities............ (263) (138)
------- -------
Net Change in Cash and Temporary Investments............ (120) 22
Cash and Temporary Investments at Beginning
of Period........................................... 175 176
------- -------
Cash and Temporary Investments at End of Period......... $ 55 $ 198
------- -------
CHANGES IN CURRENT Accounts receivable..................................... $ (64) $ 17
ASSETS AND LIABILITIES Inventories............................................. 4 8
Other current assets.................................... 14 119
Accounts payable, accrued wages and vacation............ 14 66
Debt due within one year................................ (4) 25
Other current liabilities............................... (146) (134)
------- -------
Total $ (182) $ 101
------- -------
Supplemental cash flow information Cash paid
(received) during the year for:
Interest.......................................... $ 588 $ 577
Income taxes, net................................. 10 (119)
------- -------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-4-
<PAGE> 7
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Nine Months Ended September 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
[a] [b] Other
Common Paid-in- Retained Treasury Comprehensive
Millions of Dollars Shares Surplus Earnings Stock Income Total
------------------- ------- -------- -------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ............ $ 691 $ 4,019 $ 5,053 $(1,756) $ (6) $ 8,001
------- ------- ------- ------- ------- -------
Net Income .............................. -- -- 685 -- -- 685
Other Comprehensive Income:
Foreign Currency Translation ......... -- -- -- -- 8 8
-------
Comprehensive Income .................... -- -- -- -- -- 693
-------
Conversions, exercises of stock
options, forfeitures and other ....... -- 1 -- 5 -- 6
Dividends declared ($0.60 per share) ... -- -- (148) -- -- (148)
------- ------- ------- ------- ------- -------
Balance at September 30, 2000 ........... $ 691 $ 4,020 $ 5,590 $(1,751) $ 2 $ 8,552
======= ======= ======= ======= ======= =======
</TABLE>
[a] Common stock $2.50 par value; 500,000,000 shares authorized; 276,294,217
shares issued at beginning of period; 276,321,206 shares issued at end of
period.
[b] 28,443,521 treasury shares at end of period, at cost.
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
<PAGE> 8
UNION PACIFIC CORPORATION AND CONSOLIDATED 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, 1999 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's (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,
1999. The results of operations for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results for the
entire year ending December 31, 2000.
2. SEGMENTATION - Union Pacific Corporation consists of one reportable
segment, rail transportation, and UPC's other product lines (Other
Operations). The rail segment includes the operations of the Corporation's
wholly owned subsidiary, Union Pacific Railroad Company (UPRR) and UPRR's
subsidiaries and rail affiliates (the Railroad). Other Operations include
the trucking product line (Overnite Transportation Company or Overnite),
as well as the "other" product lines that include technology,
self-insurance activities, corporate holding company operations, which
largely support the Railroad, and all appropriate consolidating entries.
The following table details reportable financial information for
UPC's rail transportation segment and Other Operations for the three and
nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and revenues from external customers[a]:
Rail.................................. $ 2,773 $ 2,606 $ 8,097 $ 7,576
Trucking.............................. 287 277 839 803
Other[b].............................. 10 10 26 27
------- ------- ------- -------
Consolidated.......................... $ 3,070 $ 2,893 $ 8,962 $ 8,406
------- ------- ------- -------
Net income (loss):
Rail.................................. $ 274 $ 234 $ 752 $ 589
Trucking.............................. 15 8 30 28
Other[b].............................. (33) 3 (97) (49)
------- ------- ------- -------
Consolidated.......................... $ 256 $ 245 $ 685 $ 568
------- ------- ------- -------
Assets:
Rail.................................. $29,488 $28,864 $29,488 $28,864
Trucking.............................. 911 883 911 883
Other[b].............................. (8) 106 (8) 106
------- ------- ------- -------
Consolidated.......................... $30,391 $29,853 $30,391 $29,853
------- ------- ------- -------
</TABLE>
[a] The Corporation does not have significant intercompany sales
activities.
-6-
<PAGE> 9
[b] Included in the "Other" product line are the results of the corporate
holding company; Fenix LLC and associated technology companies;
Wasatch Insurance Limited, a captive insurance company; and all
necessary consolidating entries. "Other" assets include intercompany
liabilities related to trucking.
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 eliminated approximately 3,620 positions and relocated
approximately 4,510 employees due to merger consolidation activities. UPC
recognized a $958 million pre-tax 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 between $10 million
and $30 million over the remaining merger implementation period in pre-tax,
acquisition-related costs for severing or relocating UPRR employees,
disposing of certain UPRR facilities, training and equipment upgrading.
Earnings for the three months ended September 30, 2000 and 1999 included $4
million and $13 million after-tax, respectively, and for the nine months
ended September 30, 2000 and 1999, included $15 million and $30 million,
after-tax, respectively, for acquisition-related costs for UPRR
consolidation activities.
The components of the merger liability as of September 30, 2000 were as
follows:
<TABLE>
<CAPTION>
Original Cumulative Current
Millions of Dollars Reserve Activity Reserve
------------------- -------- ---------- -------
<S> <C> <C> <C>
Labor protection related to legislated and contractual obligations... $361 $361 $--
Severance costs...................................................... 343 271 72
Contract cancellation fees and facility and line closure costs....... 145 141 4
Relocation costs..................................................... 109 95 14
---- ---- ---
Total................................................................ $958 $868 $90
---- ---- ---
</TABLE>
Merger liability activity reflects cash payments for merger
consolidation activities and reclassification of contractual obligations
from merger liabilities to contractual liabilities. In addition, where
merger implementation has varied from the original merger plan, the
Corporation has adjusted the merger liability and the fair value allocation
of SP's purchase price to fixed assets to eliminate the variance. Where the
merger implementation has caused the Corporation to incur more costs than
were envisioned in the original merger plan, such costs are charged to
expense in the period incurred. For the three and nine months ended
September 30, 2000, the Corporation charged $3 million and $9 million,
respectively, against the merger liability. The Corporation expects that
the remaining merger payments will be made over the course of the next 15
months as labor negotiations are completed and implemented, and related
merger consolidation activities are finalized.
-7-
<PAGE> 10
MEXICAN RAILWAY CONCESSION - During 1997, the Corporation's rail
subsidiary, 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, UPRR purchased an additional 13% ownership interest
for $87 million from one of its partners. The Railroad now holds a 26%
ownership share in the consortium. The investment is accounted for under
the equity method. The Corporation's portion of the consortium's assets and
liabilities is translated into U.S. dollars using the exchange rate in
effect at the balance sheet date. The Corporation's portion of the
consortium's net income is translated into U.S. dollars at weighted-average
exchange rates prevailing during the year. The resulting translation
adjustments are reflected within the stockholders' equity component,
accumulated other comprehensive income.
4. DISCONTINUED OPERATIONS
ADJUSTMENT TO 1994 LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS - Net income
for the third quarter 1999 included a one-time after-tax gain of $27
million, net of taxes of $16 million, from the adjustment of a liability
established in connection with the discontinued operations of a former
subsidiary.
5. FINANCIAL INSTRUMENTS
STRATEGY AND RISK - The Corporation and its subsidiaries use derivative
financial instruments in limited instances and for other than trading
purposes to manage risk related to changes in fuel prices and interest
rates. The Corporation uses swaps, futures and/or forward contracts to
mitigate the downside risk of adverse price and rate movements; however,
the use of these instruments also limits future gains from favorable
movements. The purpose of these programs is to protect the Corporation's
operating margins and overall profitability from adverse fuel price changes
or interest rate fluctuations. The Corporation manages its overall exposure
to fluctuations in interest rates by adjusting the proportion of fixed and
floating rate debt instruments within its debt portfolio over a given
period. Derivatives are used in limited circumstances as one of the tools
to obtain the targeted mix. The mix of fixed and floating rate debt is
largely managed through the issuance of targeted amounts of each as debt
matures or as incremental borrowings are required. The Corporation also
obtains additional flexibility in managing interest costs and the interest
rate mix within its debt portfolio by issuing callable fixed-rate debt
securities.
MARKET AND CREDIT RISK - The Corporation addresses market risk related to
these instruments by selecting instruments whose value fluctuations highly
correlate with the underlying item being hedged. Credit risk related to
derivative financial instruments, which is minimal, is managed by requiring
high credit standards for counterparties and periodic settlements. The
total credit risk associated with the Corporation's counterparties was $16
million at September 30, 2000. The Corporation has not been required to
provide collateral; however, UPC has received collateral relating to its
hedging activity where the concentration of credit risk was substantial.
DETERMINATION OF FAIR VALUE - The fair market values of the Corporation's
derivative financial instrument positions at September 30, 2000 and
December 31, 1999, detailed below, were determined based upon current fair
market values as quoted by recognized dealers or developed based upon the
present value of expected future cash flows discounted at the applicable
U.S. Treasury rate and swap spread.
-8-
<PAGE> 11
The following is a summary of the Corporation's derivative financial
instruments at September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
Millions September 30, December 31,
Except Percentages and Average Commodity Prices 2000 1999
----------------------------------------------- ------------- ------------
<S> <C> <C>
Interest Rate Hedging:
Amount of debt hedged........................................ $ -- $ 54
Percentage of total debt portfolio........................... -- 1%
Rail Fuel Hedging:
Number of gallons hedged for the remainder of 2000........... 32 126
Percentage of forecasted 2000 fuel consumption hedged........ 9% 10%
Average price of 2000 hedges outstanding (per gallon)[a]..... $ 0.40 $ 0.40
Trucking Fuel Hedging:
Number of gallons hedged for the remainder of 2000........... 1 5
Percentage of forecasted 2000 fuel consumption hedged........ 9% 10%
Average price of 2000 hedges outstanding (per gallon)[a]..... $ 0.39 $ 0.39
------------- ------------
</TABLE>
[a]Excluding taxes, transportation costs and regional pricing spreads.
The asset and liability positions of the Corporation's outstanding
derivative financial instruments at September 30, 2000 and December 31,
1999 were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
Millions of Dollars 2000 1999
------------------- ------------- -------------
<S> <C> <C>
Interest Rate Hedging:
Gross fair market asset position............................... $ -- $ 56
Gross fair market (liability) position......................... -- (1)
Rail Fuel Hedging:
Gross fair market asset position............................... 16 22
Gross fair market (liability) position......................... -- --
Trucking Fuel Hedging:
Gross fair market asset position............................... -- 1
Gross fair market (liability) position......................... -- --
------------- -------------
Total net asset position............................................ $ 16 $ 78
------------- -------------
</TABLE>
The Corporation's use of derivative financial instruments had the
following impact on pre-tax income for the three and nine months ended
September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30 Ended Sept.30,
---------------- --------------
Millions of Dollars 2000 1999 2000 1999
------------------- ----- ----- ----- ----
<S> <C> <C> <C> <C>
Increase in interest expense from interest rate hedging......... $ -- $ -- $ -- $ 1
Decrease in fuel expense from Rail fuel hedging................. (15) (26) (35) (7)
Decrease in fuel expense from Trucking fuel hedging............. (1) (1) (2) --
----- ----- ----- ----
(Increase) in pre-tax income.................................... $ (16) $ (27) $ (37) $ (6)
----- ----- ----- ----
</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
-9-
<PAGE> 12
(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 September 30, 2000 and
December 31, 1999, accounts receivable are presented net of $603 million
and $576 million, respectively, of receivables sold.
6. DEBT
CREDIT FACILITIES - On September 30, 2000, the Corporation had $2.0 billion
in revolving credit facilities of which $1.0 billion expires in 2001, with
the remaining $1.0 billion expiring in 2005. The facilities, which were
entered into during March 2000, are designated for general corporate
purposes and replaced a $2.8 billion facility due to expire in 2001.
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 Convertible Junior Subordinated Debentures due 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.
SHELF REGISTRATION STATEMENT - Under currently effective shelf registration
statements, the Corporation may issue, from time to time, any combination
of debt securities, preferred stock, or warrants for debt securities or
preferred stock in one or more offerings. At September 30, 2000, the
Corporation had $600 million remaining for issuance under the shelf
registration. The Corporation has no immediate plans to issue equity
securities.
SIGNIFICANT NEW BORROWINGS - During June 2000, the Corporation issued $250
million of floating rate debt under its shelf registration statement with a
maturity date of July 1, 2002. The proceeds from the issuance of this debt
were used for repayment of debt and other general corporate purposes.
During September 2000, UPRR entered into capital leases covering new
locomotives. The related capital lease obligations totaled approximately
$170 million and are included in the Statements of Consolidated Financial
Position as debt.
7. EARNINGS PER SHARE - The following table provides a reconciliation between
basic and diluted earnings per share for the three and nine months ended
September 30, 2000 and 1999:
-10-
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended Sept. 30,
----------------------------
Millions, Except Per Share Amounts 2000 1999
---------------------------------- --------- ---------
<S> <C> <C>
Income Statement Data:
Income from continuing operations ....................... $ 256 $ 218
Income available to common stockholders from continuing
operations ............................................ 256 218
Gain on disposal of discontinued operations ............. -- 27
------- -------
Net income available to common stockholders - Basic ..... 256 245
Dilutive effect of interest associated with the CPS ..... 14 14
------- -------
Net income available to common stockholders - Diluted ... $ 270 $ 259
------- -------
Weighted-Average Number of Shares Outstanding:
Basic ................................................... 246.5 246.6
Dilutive effect of common stock equivalents ............. 22.9 23.5
------- -------
Diluted ................................................. 269.4 270.1
------- -------
Earnings Per Share:
Basic:
Income from continuing operations ..................... $ 1.04 $ 0.88
Gain on disposal of discontinued operations ........... -- 0.11
------- -------
Net income .............................................. $ 1.04 $ 0.99
------- -------
Diluted:
Income from continuing operations ..................... $ 1.00 $ 0.86
Gain on disposal of discontinued operations ........... -- 0.10
------- -------
Net income .............................................. $ 1.00 $ 0.96
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
---------------------------
Millions, Except Per Share Amounts 2000 1999
---------------------------------- -------- ---------
<S> <C> <C>
Income Statement Data:
Income from continuing operations ....................... $ 685 $ 541
Income available to common stockholders from
continuing operations ................................. 685 541
Gain on disposal of discontinued operations ............. -- 27
-------- --------
Net income available to common stockholders - Basic .... 685 568
Dilutive effect of interest associated with the CPS ..... 44 44
-------- --------
Net income available to common stockholders - Diluted ... $ 729 $ 612
-------- --------
Weighted-Average Number of Shares Outstanding:
Basic ................................................... 246.4 246.5
Dilutive effect of common stock equivalents ............. 23.0 23.1
-------- --------
Diluted ................................................. 269.4 269.6
-------- --------
Earnings Per Share:
Basic:
Income from continuing operations ..................... $ 2.78 $ 2.19
Gain on disposal of discontinued operations ........... -- 0.11
-------- --------
Net income .............................................. $ 2.78 $ 2.30
-------- --------
Diluted:
Income from continuing operations ..................... $ 2.71 $ 2.17
Gain on disposal of discontinued operations ........... -- 0.10
-------- --------
Net income .............................................. $ 2.71 $ 2.27
-------- --------
</TABLE>
-11-
<PAGE> 14
8. OTHER INCOME - Other income included the following for the three and nine
months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ----------------------------
Millions of Dollars 2000 1999 2000 1999
------------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
Net gain on asset dispositions... $ 15 $ 18 $ 37 $ 36
Rental income.................... 14 16 43 41
Interest income.................. 2 2 7 10
Other - net...................... (14) (12) (26) (14)
------- ------- ------ ------
Total............................ $ 17 $ 24 $ 61 $ 73
------- ------- ------ ------
</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
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.
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 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 all unasserted claims on its consolidated
financial condition, results of operations or liquidity; 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 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, results of operations or
liquidity. Certain potentially significant contingencies relating to the
Corporation's and its subsidiaries' businesses are detailed below.
Customer Claims - Some customers have submitted claims for damages related
to shipments delayed by the Railroad as a result of congestion problems in
1997 and 1998, and certain customers have filed lawsuits seeking relief
related to such delays. Some customers also asserted that they have the
right to cancel contracts as a result of alleged material breaches of such
contracts by the Railroad. The Corporation accrued amounts for these claims
in 1997 and 1998. No additional amounts were accrued in 1999 or the nine
months ended September 30, 2000.
Environmental Issues - For environmental sites where remediation costs can
be reasonably determined, and where such remediation is probable, the
Corporation has recorded a liability.
Shareholder Lawsuits - UPC and certain of its directors and officers (who
are also directors of the Railroad) are defendants in two purported class
actions that have been consolidated into one proceeding (the Class Action).
The consolidated complaint alleges, among other things, that UPC 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 UPC'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 has been defending them
vigorously. The defendants moved to dismiss this action, and the motion was
briefed and submitted to the Court for decision in 1998. In February 2000,
prior
-12-
<PAGE> 15
to a ruling on the motion, the parties jointly advised the Court that they
were engaged in discussions concerning the possible settlement of the
action and asked the Court to defer ruling on the motion to dismiss pending
the outcome of these discussions. The Court entered an order dated February
29, 2000 agreeing to such deferral, subject to the motion of either party
to reactivate the action and the pending motion to dismiss at any time.
In addition to the Class Action, a purported derivative action was
filed on behalf of UPC and the Railroad in September 1998 in the District
Court for Tarrant County, Texas, naming as defendants the then-current and
certain former directors of UPC and the Railroad and, as nominal
defendants, UPC and the Railroad (the Derivative Action and together with
the Class Action, the Actions). The Derivative Action alleges, among other
things, that the named directors breached their fiduciary duties to UPC and
the Railroad 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 the Railroad to make
misrepresentations about the Railroad's service problems to the financial
markets and regulatory authorities. The individual defendants also believe
that these claims are without merit and have defended them vigorously.
In December 1998, UPC's Board of Directors established a special
litigation committee consisting of three independent directors to review
the plaintiff's allegations under the Derivative Action to determine
whether it was in UPC's best interest to pursue them. In February 1999, the
committee rendered its report, in which it unanimously concluded that
further prosecution of the Derivative Action on behalf of UPC and the
Railroad was not in the best interest of either such company. Accordingly,
UPC and the Railroad filed a motion with the Court to dismiss the
Derivative Action.
Prior to any ruling on the motions to dismiss the Class Action and the
Derivative Action, counsel for UPC, the Railroad and certain officers and
directors of UPC and the Railroad entered into a Memorandum of
Understanding (the MOU), dated June 28, 2000, with counsel for the
plaintiffs in the Class Action and Derivative Action, providing for the
settlement of the Actions. The MOU provides, among other things, that the
Class Action will be settled for $34,025,000 in cash (the Settlement
Payment), the full amount of which will be covered by UPC's insurance
carriers. Counsel for the plaintiffs in the Class Action will apply to the
court for any award of their fees and expenses, to be paid out of the
Settlement Payment. The MOU also provides that, in settlement of the
Derivative Action, UPC will adopt certain additional procedures which will
reinforce its continuing effort to ensure both the effective implementation
of its merger with Southern Pacific and its ongoing commitment to rail
safety. In addition, in the event of any proposed merger or other
transaction involving consolidation of UPC and a rail system of greater
than 1,000 miles in length of road, UPC will commission a study, to be
completed in advance of any formal application to a U.S., Canadian or
Mexican federal regulatory board, to analyze prospective safety and
congestion-related issues. As part of the terms of the Derivative Action
settlement, counsel for the plaintiffs will receive such fees and expenses
as may be awarded by the Court, up to an aggregate amount of $975,000. Such
amount will also be fully covered by UPC's insurance carriers.
On October 12, 2000, counsel for the respective parties in the Class
Action and the Derivative Action entered into definitive Stipulations of
Compromise and Settlement (the Stipulations), providing for the settlement
of the Actions on the terms described above, subject to court approval. By
order dated October 17, 2000, the court in which the Class Action is
pending preliminarily approved the settlement of that Action and scheduled
a hearing for December 13, 2000, on the question of whether the proposed
settlement should be approved as fair, reasonable and adequate to the
members of the class, and the amount of fees, expenses and disbursements to
be awarded to plaintiffs' counsel. By order dated October 23, 2000, the
-13-
<PAGE> 16
court in which the Derivative Action is pending preliminarily approved the
settlement of that Action and scheduled a hearing, also for December 13,
2000, on the question of whether the proposed settlement of that action is
fair, reasonable and in the best interest of UPC, its shareholders and the
Railroad and the amount of fees, expenses and disbursements to be awarded
to plaintiff's counsel. As of October 26, 2000, pursuant to the court
orders in each of the Actions, notice of the proposed settlements and
fairness hearings were mailed to those UPC shareholders affected by the
Actions.
The settlement of each of the Actions is subject to, among other
conditions, the entry of a final judgment approving each settlement by the
respective courts in which each Action is pending. Notwithstanding the
existence of the MOU, the Stipulations, and the court orders preliminarily
approving the proposed settlements, there can be no assurances that a
definitive settlement will be consummated with respect to either Action.
UPC, the Railroad and the individual defendants named in the Actions
entered into the MOU and Stipulations solely for the purpose of avoiding
the further expense, inconvenience, burden and uncertainty of the Actions,
and their decision to do so is not an admission or concession or evidence
of any liability or wrongdoing on the part of any party to either Action,
which liability and wrongdoing have consistently been, and continue to be,
denied.
11. ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board (FASB) 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 FASB 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. In
June 2000, the FASB issued Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (FAS 138). FAS 138
addresses certain issues related to the implementation of FAS 133, but does
not change the basic model of FAS 133 or further delay the implementation
of FAS 133. Management has determined that FAS 133 and FAS 138 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 and FAS 138, be recorded in
the Corporation's Statement of Financial Position (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 and FAS 138 will have a material impact on UPC's
consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition". SAB 101 provides
additional guidance on revenue recognition criteria and related disclosure
requirements. This SAB is effective beginning in the fourth quarter of
2000. When the SAB becomes effective, it will require implementation as of
the beginning of the current fiscal year. If the impact is material, the
SAB requires retroactive application to all periods presented. Management
is currently assessing the impact that SAB 101 will have on the
Corporation's consolidated financial statements.
-14-
<PAGE> 17
In September 2000, the FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (FAS 140), replacing FAS 125. FAS 140 revises criteria for
accounting for securitizations, other financial asset transfers and
collateral, and introduces new disclosures. FAS 140 is effective for fiscal
2000 in respect to the new disclosure requirements and amendments of the
collateral provisions originally presented in FAS 125. All other provisions
are effective for transfers of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The provisions are to be
applied prospectively with certain exceptions. Management is currently
assessing the impact that FAS 140 will have on the Corporation's
consolidated financial statements.
-15-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Union Pacific Corporation (UPC or the Corporation) consists of one reportable
segment, rail transportation, 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 the "other" product lines that include technology and
self-insurance activities, corporate holding company operations, which largely
support the Railroad, and all appropriate consolidating entries (see Note 2 to
the Consolidated Financial Statements).
CONSOLIDATED
NET INCOME - Net income for the three- and nine-month periods ended September
30, 2000 increased 4% to $256 million ($1.00 per diluted share) and increased
21% to $685 million ($2.71 per diluted share), respectively, compared to $245
million ($0.96 per diluted share) and $568 million ($2.27 per diluted share) for
the comparable periods in 1999. These increases resulted primarily from revenue
growth and productivity gains at the Railroad, partially offset by higher fuel
prices. Net income for the third quarter of 1999 included a one-time after-tax
gain of $27 million ($0.10 per diluted share) from the adjustment of a liability
established in connection with the discontinued operations of a former
subsidiary.
OPERATING REVENUES - Operating revenues increased $177 million (6%) and $556
million (7%) for the three- and nine-month periods ended September 30, 2000,
respectively, over the comparable periods in 1999. These gains reflect higher
revenues in five of the six business groups at the Railroad as well as increased
revenue at Overnite.
OPERATING EXPENSES - For the three- and nine-month periods ended September 30,
2000, operating expenses increased $122 million (5%) and $310 million (4%),
respectively, over the comparable periods in 1999. These increases resulted from
higher fuel prices and higher volume-related costs at the Railroad but were
partially offset by continued improvements in productivity and service levels.
Operating expense comparisons by category for the three- and nine-month periods
ending September 30, 2000 and 1999 are discussed below. The factors primarily
responsible for the increase or decrease in each category are substantially the
same for both the three- and nine-month periods, except as noted.
Salaries, wages, and employee benefits declined as lower employment levels
and improved productivity at the Railroad and Overnite more than offset higher
rail volume and inflation. Equipment and other rents expense increased in the
third quarter primarily as a result of higher rail volumes. Year to date,
equipment and other rents expense increased due to higher rail volume and higher
contract transportation costs at Overnite, partially offset by improved car
cycle times and lower rental rates at the Railroad. Depreciation expense
increased as a result of the Railroad's capital program in 1999 and the first
nine months of 2000. Fuel and utilities costs were higher due to significantly
higher fuel prices and increased volume. For the third quarter, materials and
supplies expense remained flat with productivity and cost reductions offsetting
inflation, higher
-16-
<PAGE> 19
volume-related repair costs and more locomotive overhauls. Casualty costs were
higher in the third quarter due to non-recurring items at the Railroad in 1999.
Casualty costs decreased over the nine-month period primarily due to lower
personal injury expenses. Other costs decreased slightly for the three-month
period due to improved productivity and better cost control, partially offset by
higher state and local taxes and volume-related costs. For the nine-month
period, other costs decreased as productivity, joint facility and cost control
offset higher volume costs and state and local taxes.
OPERATING INCOME - Operating income increased $55 million (11%) and $246 million
(19%) for the three- and nine-month periods ended September 30, 2000,
respectively, over the comparable periods in 1999, as revenue growth and
productivity gains at the Railroad and Overnite more than offset higher fuel
prices and rail volume costs.
NON-OPERATING ITEMS - Non-operating expense, net, increased $4 million (3%) and
$1 million for the three and nine months ended September 30, 2000, respectively.
For the third quarter, the increases were primarily the result of lower income
from real estate sales and lower lease income, partially offset by lower
interest expense. Year to date, higher losses from miscellaneous items offset
lower interest expense. Income taxes for the three- and nine-month periods of
2000 increased $13 million (9%) and $101 million (34%) over the comparable
periods of 1999 as a result of higher pre-tax income levels. Year-to-date taxes
for the Railroad in 1999 include a one-time $19 million after-tax gain related
to prior-year tax settlements.
RAIL SEGMENT
NET INCOME - Rail operations reported net income of $274 million and $752
million for the three and nine months ended September 30, 2000, respectively,
compared to net income of $234 million for the third quarter of 1999 and $589
million for the nine month period in 1999. The increases resulted primarily from
higher commodity and other revenue, combined with productivity gains, partially
offset by higher fuel prices and volume-related costs.
OPERATING REVENUES - Rail operating revenues increased $167 million (6%) to a
record $2.8 billion and $521 million (7%) to a record $8.1 billion for the
three- and nine-month periods ended September 30, 2000, respectively, over the
comparable periods in 1999. Revenue carloads increased 4% and 5%, respectively,
for the three- and nine-month periods over the comparable periods in 1999. Other
revenue gains were the result of higher subsidiary revenues and reduced billing
claims from customers and other railroads.
The following tables summarize rail commodity revenue, revenue carloads and
average revenue per car for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
--------------------------- % Commodity Revenue --------------------------- %
2000 1999 Change In Millions 2000 1999 Change
------ ------ ------ ----------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 363 $ 367 (1) Agricultural $ 1,047 $ 1,042 --
280 239 17 Automotive 877 767 14
412 398 3 Chemicals 1,248 1,195 4
586 560 5 Energy 1,605 1,656 (3)
502 492 2 Industrial Products 1,519 1,416 7
506 459 10 Intermodal 1,418 1,273 11
------ ------ --- ------- ------- ---
$2,649 $2,515 5 Total $ 7,714 $ 7,349 5
------ ------ --- ------- ------- ---
</TABLE>
-17-
<PAGE> 20
Revenue Carloads
In Thousands
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
217 233 (7) Agricultural 651 670 (3)
196 167 18 Automotive 609 521 17
237 238 -- Chemicals 713 696 2
513 478 7 Energy 1,432 1,403 2
363 365 (1) Industrial Products 1,094 1,045 5
767 719 7 Intermodal 2,181 2,026 8
----- ----- --- ----- ----- ---
2,293 2,200 4 Total 6,680 6,361 5
----- ----- --- ----- ----- ---
</TABLE>
Average Revenue
Per Car
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
$1,673 $1,576 6 Agricultural $1,607 $1,555 3
1,425 1,430 -- Automotive 1,439 1,472 (2)
1,738 1,673 4 Chemicals 1,752 1,717 2
1,141 1,172 (3) Energy 1,120 1,181 (5)
1,383 1,350 2 Industrial Products 1,389 1,356 2
661 638 4 Intermodal 650 628 4
------ ------ --- ------ ------ ---
$1,155 $1,144 1 Total $1,155 $1,155 --
------ ------ --- ------ ------ ---
</TABLE>
Agricultural - Agricultural revenue decreased in the third quarter of 2000 and
was flat for the nine-month period over the comparable periods in 1999. Carloads
decreased primarily due to reduced market demand for wheat and corn and a lack
of producer selling in anticipation of higher prices. Revenue was up for fresh
fruits and vegetables primarily as a result of new express train service from
northern California to eastern markets. Average revenue per car increased for
the quarter and year to date primarily due to an increase in longer haul traffic
and slower growth in shorter haul, lower average revenue per car traffic.
Automotive - Automotive revenue and carloads increased for both the three- and
nine-month periods of 2000 over the comparable periods in 1999. The
year-over-year gain resulted from strong demand for finished vehicles and
materials. Average revenue per car decreased slightly principally due to an
increase in lower average revenue per car materials moves utilizing containers,
rather than boxcars.
Chemicals - Chemicals revenue increased for both the three- and nine-month
periods of 2000 over the comparable periods in 1999. Third quarter gains were
driven primarily by increases in average revenue per car for soda ash,
fertilizer and liquid and dry shipments and selected price increases. Carload
volume in the third quarter declined slightly due to a softening economy and
higher inventories at end-user locations. Year-to-date gains were driven by
improved service levels, customer plant expansions and economic strength in the
first half of the year. Domestic soda ash, plastics and liquid and dry chemicals
showed the highest gains in revenue.
Energy - Energy revenue increased in the third quarter and decreased for the
nine-month period of 2000 over the comparable periods in 1999. The third quarter
growth was driven by an increase in carloads. For the nine-month period, revenue
decreased due to lower average revenue per car as a result of contract pricing
provisions with certain major customers. Carloads increased in the third quarter
due to market share gains and high demand due to hot summer weather in the south
and southwest. For the nine-month period, the increase in carloads in the third
quarter was partially offset by lower demand at utilities in the first six
months of 2000 due to high inventory levels caused by Y2K concerns and mild
winter weather.
-18-
<PAGE> 21
Industrial Products - Industrial Products revenue increased for both the three-
and nine-month periods of 2000 over the comparable periods in 1999 due to
stronger commodity demand and improved service. Carloads decreased slightly in
the third quarter due to a softening economy and declines in government
shipments, recyclables, and stone, partially offset by higher steel carloads.
Year to date, carloads increased over the comparable period in 1999 primarily
due to strong domestic steel demand and the effects of a growing economy on
lumber, cement, scrap metal, and paperboard. Increases in average revenue per
car were due to gains in high average revenue per car steel and lumber moves and
selected price increases.
Intermodal - Intermodal revenue increased for both the three- and nine-month
periods of 2000 over the comparable periods in 1999. Third quarter revenue
carloads and revenue were both quarterly records. Third quarter and year-to-date
gains were driven by improved service and strong growth in imports from Asia.
Average revenue per car increased primarily as a result of price increases.
OPERATING EXPENSES - Operating expenses increased $119 million (6%) and $270
million (4%) for the three- and nine-month periods ended September 30, 2000,
respectively. Operating expense comparisons by category for the three- and
nine-month periods ending September 30, 2000 and 1999 are discussed below. The
factors primarily responsible for the increase or decrease in each category are
substantially the same for both the three- and nine-month periods, except as
noted.
Salaries, Wages and Employee Benefits - Costs decreased $38 million (4%) and $76
million (3%) for the three- and nine-month periods, respectively, over the
comparable periods in 1999. Wage inflation and volume-related costs were more
than offset by lower expenses from decreased workforce levels, higher train crew
productivity and lower crew training expenses.
Equipment and Other Rents - Expenses increased $10 million (3%) and decreased $7
million (1%) for the three- and nine-month periods, respectively. The third
quarter increase was due primarily to higher volume-related costs, partially
offset by lower prices. For the nine-month period, the decrease was attributable
to improvements in car cycle times, lower prices, and increased car rents from
other railroads. Higher volume costs partially offset the year-to-date
decreases.
Depreciation - Depreciation increased $13 million (5%) and $39 million (5%) for
the three- and nine-month periods, respectively, over comparable periods in
1999, as a result of the Railroad's capital program in 1999 and the first nine
months of 2000. Capital spending was $1.4 billion in the nine months ended
September 30, 2000 compared to $1.3 billion in the nine months ended September
30, 1999.
Fuel and Utilities - Expenses were up $127 million (64%) and $346 million (61%)
for the three- and nine-month periods, respectively. Higher fuel prices added
$115 million of expense in the third quarter and $304 million of expense in the
first nine months of 2000 over comparable periods in 1999. Volume costs added $7
million for the third quarter and $22 million for the first nine months of 2000
compared to 1999. The Railroad hedged approximately 10% of its fuel consumption
for both the three- and nine-month periods, which decreased fuel costs by $15
million and $35 million, respectively. As of September 30, 2000, expected fuel
consumption for the remaining three months of 2000 is 9% hedged at 40 cents per
gallon excluding taxes, transportation costs and regional pricing spreads (see
Note 5 to the Consolidated Financial Statements).
-19-
<PAGE> 22
Materials and Supplies - Expenses remained flat for the three-month period and
increased $20 million (5%) for the nine-month period. In the third quarter, cost
reductions and operating efficiencies offset higher volume-related costs and
inflation. Year-to-date expenses were higher than 1999 due to higher locomotive
overhauls and volume-related increases in car and locomotive repairs.
Casualty Costs - Expenses increased $11 million (16%) and decreased $15 million
(6%) for the three- and nine- month periods, respectively. Third quarter 1999
expenses were favorably affected by an insurance refund and lower personal
injury expenses. Year-to-date 2000 casualty costs were also favorably affected
by lower personal injury expenses.
Other Costs - Expenses decreased $4 million (2%) and $37 million (6%) for the
three- and nine-month periods, respectively, compared to comparable periods in
1999. Cost control and productivity gains offset volume-related cost increases
and higher state and local taxes in both time periods.
OPERATING INCOME - Operating income increased $48 million (9%) to $563 million
and $251 million (19%) to $1,567 million for the three and nine months ended
September 30, 2000, respectively. The operating ratio for the third quarter of
2000 was 79.7%, 0.5 percentage points better than 1999's 80.2% operating ratio.
The operating ratio for the first nine months of 2000 was 80.6%, 2.0 percentage
points better than 1999's 82.6%. NON-OPERATING ITEMS - Non-operating expense,
net, decreased $5 million (4%) and $20 million (5%) for the three and nine
months ended September 30, 2000, respectively. Third quarter and year-to-date
improvements were primarily the result of lower interest expense, partially
offset by lower income from real estate sales and lower miscellaneous other
income. Income taxes increased $13 million (9%) for the third quarter and $108
million (34%) for the first nine months of 2000 reflecting higher income levels
and a one-time, $19 million after-tax gain in the second quarter of 1999 related
to prior year tax settlements.
OTHER OPERATIONS
TRUCKING PRODUCT LINE
NET INCOME - Trucking net income was $15 million and $30 million, for the three-
and nine-month periods ended September 30, 2000, respectively, up from $8
million (88%) and $28 million (7%) for the comparable periods in 1999. The
increase in net income in the third quarter was primarily due to increased
revenue partially offset by higher fuel prices and a 7% decrease in volume.
Compared to the same period in 1999, year-to-date net income was adversely
affected by higher expenses associated with diesel fuel prices and the effects
of a job action by the International Brotherhood of Teamsters (Teamsters).
OPERATING REVENUES - For the three- and nine-month periods ended September 30,
2000, trucking revenues increased $10 million (4%) to $287 million and $36
million (4%) to $839 million, respectively, over the comparable periods in 1999.
The growth resulted primarily from a fuel surcharge and general rate increases
instituted in September of 1999 and August 2000. Revenue growth was achieved
despite a 7% and 6% decline in volume in the third quarter and year-to-date
periods of 2000, respectively, over comparable periods in 1999.
OPERATING EXPENSES - For the three- and nine-month periods ended September 30,
2000, operating expenses decreased $2 million (1%) to $267 million and increased
$32 million (4%) to $802 million, respectively, over the comparable periods in
1999. For the third quarter, salaries, wages and employee benefit costs
decreased $5 million (3%) to $164 million as lower volume, fewer employees and
productivity gains more than offset
-20-
<PAGE> 23
wage and benefit inflation. For the nine-month period, salaries, wages and
employee benefits were essentially flat as wage and benefit inflation was offset
by lower volume, lower employee levels and productivity. Fuel and utilities
costs increased $5 million (38%) for the quarter and $18 million (51%) for the
nine-month period. This increase was a result of higher fuel prices (92 cents
per gallon in the third quarter of 2000 compared to 57 cents in the third
quarter of 1999) partially offset by lower volume-related consumption. Nine
percent of estimated remaining 2000 fuel purchases are hedged at an average of
39 cents per gallon excluding taxes, transportation costs and regional pricing
spreads (see Note 5 to the Consolidated Financial Statements). Equipment and
other rents increased $2 million (8%) for the quarter and $9 million (14%) for
the nine-month period over 1999 due to increased purchased transportation costs.
For the three- and nine-month periods, other expenses decreased $3 million (8%)
and increased $4 million (4%), respectively. The third quarter decrease is
primarily due to lower cargo loss and damage expenses and expenses related to
the Teamsters' job action. The year-to-date increase is primarily due to higher
security, legal and travel expenses related to the Teamsters' activity.
OPERATING INCOME - Trucking operations generated operating income of $20 million
in the three-month period and $37 million for the first nine months of 2000
compared to $8 million and $33 million for the comparable periods in 1999. The
third quarter operating ratio decreased to 93.2% in 2000 from 97.1% in 1999. The
year-to-date operating ratio decreased to 95.6% in 2000 from 95.9% in 1999.
OTHER PRODUCT LINES
Other operations include the technology product lines and self-insurance
activities, as well as the corporate holding company operations and all
necessary consolidating entries (see Note 2 to the Consolidated Financial
Statements). For the three- and nine-month periods ended September 30, 2000,
operating income decreased $5 million and $9 million, respectively, reflecting
start up and product development costs at Fenix LLC and associated technology
companies and slightly increased expenses at the corporate holding company.
CHANGES IN FINANCIAL CONDITION AND OTHER DEVELOPMENTS
FINANCIAL CONDITION - During the first nine months of 2000, cash provided by
operations was $1,433 million, compared to $1,467 million in 1999. Higher net
income was more than offset by volume-related increases in working capital and
higher environmental and casualty related spending.
Cash used in investing activities was $1,290 million during the first nine
months of 2000, compared to $1,307 million in 1999. Capital spending in 2000 was
approximately $53 million higher than 1999 but was more than offset by the
receipt of a cash dividend from an affiliate in 2000 and the 1999 purchase of an
additional 13% ownership interest in the consortium operating the Pacific-North
and Chihuahua Pacific lines in Mexico for $87 million.
Cash used by equity and financing activities was $263 million in the first
nine months of 2000, compared to $138 million in 1999. This increase in usage is
the result of higher debt repayments ($651 million in 2000 compared to $591
million in 1999) and lower net borrowings ($538 million in 2000 versus $601
million in 1999).
Including the Convertible Preferred Stock as an equity instrument, the
ratio of debt to total capital employed was 45.9% at September 30, 2000 and
47.6% at December 31, 1999.
-21-
<PAGE> 24
FINANCING ACTIVITIES
CREDIT FACILITIES - As of September 30, 2000, the Corporation had $2.0 billion
in revolving credit facilities, of which $1.0 billion expires in 2001, with the
remaining $1.0 billion expiring in 2005. The facilities, which were entered into
during March 2000, are designated for general corporate purposes and replaced a
$2.8 billion facility due to expire in 2001.
SHELF REGISTRATION - Under currently effective shelf registration statements,
the Corporation may issue, from time to time, up to $600 million 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.
SIGNIFICANT NEW BORROWINGS - During June 2000, the Corporation issued $250
million of floating rate debt under its shelf registration statement with a
maturity date of July 1, 2002. The proceeds from the issuance of this debt were
used for repayment of debt and other general corporate purposes. During
September 2000, UPRR entered into capital leases covering new locomotives. The
related capital lease obligations totaled approximately $170 million and are
included in the Statements of Consolidated Financial Position as debt.
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 (FASB) 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 FASB 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. In June 2000, the FASB issued
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" (FAS 138). FAS 138 addresses certain issues related to the
implementation of FAS 133, but does not change the basic model of FAS 133 or
further delay the implementation of FAS 133. Management has determined that FAS
133 and FAS 138 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 and FAS 138, be
recorded in the Corporation's Statement of Financial Position (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 and
FAS 138 will have a material impact on UPC's consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition". SAB 101 provides
additional guidance on revenue recognition criteria and related disclosure
requirements. This SAB is effective beginning in the fourth quarter of 2000.
When the SAB
-22-
<PAGE> 25
becomes effective, it will require implementation as of the beginning of the
current fiscal year. If the impact is material, the SAB requires retroactive
application to all periods presented. Management is currently assessing the
impact that SAB 101 will have on the Corporation's consolidated financial
statements.
In September 2000, the FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(FAS 140), replacing FAS 125. FAS 140 revises criteria for accounting for
securitizations, other financial asset transfers and collateral, and introduces
new disclosures. FAS 140 is effective for fiscal 2000 in respect to the new
disclosure requirements and amendments of the collateral provisions originally
presented in FAS 125. All other provisions are effective for transfers of
financial assets and extinguishments of liabilities occurring after March 31,
2001. The provisions are to be applied prospectively with certain exceptions.
Management is currently assessing the impact that FAS 140 will have on the
Corporation's consolidated financial statements.
CAUTIONARY INFORMATION
Certain statements in this report are, and statements in other material filed or
to be filed 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) are or will be, forward-looking within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements include, without limitation, statements regarding:
expectations as to operational improvements; expectations as to cost savings,
revenue growth and earnings; the time by which certain objectives will be
achieved; estimates of costs relating to environmental remediation and
restoration; expectations as to product applications; expectations that claims,
lawsuits, environmental costs, commitments, contingent liabilities, labor
negotiations or agreements, or other matters will not have a material adverse
effect on the Corporation's consolidated financial position, results of
operations or liquidity; and statements concerning projections, predictions,
expectations, estimates or forecasts as to the Corporation's and its
subsidiaries' business, financial and operational results, and future economic
performance, statements of management's goals and objectives and other similar
expressions concerning matters that are not historical facts.
Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be achieved.
Forward-looking information is based on information available at the time and/or
management's good faith belief with respect to future events, and is subject to
risks and uncertainties that could cause actual performance or 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 and its subsidiaries are fully successful in
implementing their financial and operational initiatives; industry competition,
conditions, performance and consolidation; legislative and/or regulatory
developments, including possible enactment of initiatives to re-regulate the
rail business; natural events such as severe weather, floods and earthquakes;
the effects of adverse general economic conditions, both within the United
States and globally; changes in fuel prices; changes in labor costs; labor
stoppages; and the outcome of claims and litigation.
Forward-looking statements speak only as of the date the statement was
made. 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. If the Corporation does
update one or more forward-looking statements, no inference should be drawn that
the Corporation will make additional updates with respect thereto or with
respect to other forward-looking statements.
-23-
<PAGE> 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided
in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
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
third quarter of 2000.
ENVIRONMENTAL MATTERS - As previously reported, the U.S. Environmental
Protection Agency (EPA) had brought a civil action against certain subsidiaries
of Southern Pacific, which have been merged into the Railroad, in the U.S.
District Court for the District of Colorado alleging violation of the Clean
Water Act and the Oil Pollution Act. The complaint identified seven incidents
involving the alleged release of hazardous substances into the waters of the
United States and sought civil penalties of $25,000 per day and unspecified
injunctive relief to prevent future violations. Six of the seven incidents were
related to derailments dating back to 1992. Six of the incidents involved
alleged releases from ruptured locomotive fuel tanks and an incident in 1996
involved an alleged release of sulfuric acid near the Tennessee Pass. During the
third quarter of 2000, a final settlement was negotiated with the EPA disposing
of the action. The Railroad agreed to pay a civil penalty in the amount of
$800,000 and to take various measures to prevent or mitigate the impact of
future incidents, including clean up of right of way, rock slide prevention
measures and a geologic study.
SHAREHOLDER LAWSUITS - UPC and certain of its directors and officers (who are
also directors of the Railroad) are defendants in two purported class actions
that have been consolidated into one proceeding (the Class Action). The
consolidated complaint alleges, among other things, that UPC 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 UPC'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 has been defending them vigorously. The defendants moved to dismiss this
action, and the motion was briefed and submitted to the Court for decision in
1998. In February 2000, prior to a ruling on the motion, the parties jointly
advised the Court that they were engaged in discussions concerning the possible
settlement of the action and asked the Court to defer ruling on the motion to
dismiss pending the outcome of these discussions. The Court entered an order
dated February 29, 2000 agreeing to such deferral, subject to the motion of
either party to reactivate the action and the pending motion to dismiss at any
time.
In addition to the Class Action, a purported derivative action was filed on
behalf of UPC and the Railroad in September 1998 in the District Court for
Tarrant County, Texas, naming as defendants the then-current and certain former
directors of UPC and the Railroad and, as nominal defendants, UPC and the
Railroad (the Derivative Action and together with the Class Action, the
Actions). The Derivative Action alleges, among other things, that the named
directors breached their fiduciary duties to UPC and the Railroad by approving
and
-24-
<PAGE> 27
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 the Railroad to make misrepresentations about the Railroad's service
problems to the financial markets and regulatory authorities. The individual
defendants also believe that these claims are without merit and have defended
them vigorously.
In December 1998, UPC's Board of Directors established a special litigation
committee consisting of three independent directors to review the plaintiff's
allegations under the Derivative Action to determine whether it was in UPC's
best interest to pursue them. In February 1999, the committee rendered its
report, in which it unanimously concluded that further prosecution of the
Derivative Action on behalf of UPC and the Railroad was not in the best interest
of either such company. Accordingly, UPC and the Railroad filed a motion with
the Court to dismiss the Derivative Action.
Prior to any ruling on the motions to dismiss the Class Action and the
Derivative Action, counsel for UPC, the Railroad and certain officers and
directors of UPC and the Railroad entered into a Memorandum of Understanding
(the MOU), dated June 28, 2000, with counsel for the plaintiffs in the Class
Action and Derivative Action, providing for the settlement of the Actions. The
MOU provides, among other things, that the Class Action will be settled for
$34,025,000 in cash (the Settlement Payment), the full amount of which will be
covered by UPC's insurance carriers. Counsel for the plaintiffs in the Class
Action will apply to the court for any award of their fees and expenses, to be
paid out of the Settlement Payment. The MOU also provides that, in settlement of
the Derivative Action, UPC will adopt certain additional procedures which will
reinforce its continuing effort to ensure both the effective implementation of
its merger with Southern Pacific and its ongoing commitment to rail safety. In
addition, in the event of any proposed merger or other transaction involving
consolidation of UPC and a rail system of greater than 1,000 miles in length of
road, UPC will commission a study, to be completed in advance of any formal
application to a U.S., Canadian or Mexican federal regulatory board, to analyze
prospective safety and congestion-related issues. As part of the terms of the
Derivative Action settlement, counsel for the plaintiffs will receive such fees
and expenses as may be awarded by the Court, up to an aggregate amount of
$975,000. Such amount will also be fully covered by UPC's insurance carriers.
On October 12, 2000, counsel for the respective parties in the Class Action
and the Derivative Action entered into definitive Stipulations of Compromise and
Settlement (the Stipulations), providing for the settlement of the Actions on
the terms described above, subject to court approval. By order dated October 17,
2000, the court in which the Class Action is pending preliminarily approved the
settlement of that Action and scheduled a hearing for December 13, 2000, on the
question of whether the proposed settlement should be approved as fair,
reasonable and adequate to the members of the class, and the amount of fees,
expenses and disbursements to be awarded to plaintiffs' counsel. By order dated
October 23, 2000, the court in which the Derivative Action is pending
preliminarily approved the settlement of that Action and scheduled a hearing,
also for December 13, 2000, on the question of whether the proposed settlement
of that action is fair, reasonable and in the best interest of UPC, its
shareholders and the Railroad and the amount of fees, expenses and disbursements
to be awarded to plaintiff's counsel. As of October 26, 2000, pursuant to the
court orders in each of the Actions, notice of the proposed settlements and
fairness hearings were mailed to those UPC shareholders affected by the Actions.
The settlement of each of the Actions is subject to, among other
conditions, the entry of a final judgment approving each settlement by the
respective courts in which each Action is pending. Notwithstanding the existence
of the MOU, the Stipulations, and the court orders preliminarily approving the
proposed settlements, there can be no assurances that a definitive settlement
will be consummated with respect to either Action. UPC, the Railroad and the
individual defendants named in the Actions entered into the MOU and Stipulations
solely
-25-
<PAGE> 28
for the purpose of avoiding the further expense, inconvenience, burden and
uncertainty of the Actions, and their decision to do so is not an admission or
concession or evidence of any liability or wrongdoing on the part of any party
to either Action, which liability and wrongdoing have consistently been, and
continue to be, denied.
-26-
<PAGE> 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
12(a) - Computation of ratio of earnings to fixed charges for
the Three Months Ended September 30, 2000.
12(b) - Computation of ratio of earnings to fixed charges for
the Nine Months Ended September 30, 2000.
27 - Financial data schedule.
(b) REPORTS ON FORM 8-K
On July 7, 2000, UPC filed a Current Report on Form 8-K announcing
developments in certain litigation.
On July 27, 2000, UPC filed a Current Report on Form 8-K
announcing UPC's financial results for the second quarter of 2000.
On October 19, 2000, UPC filed a Current Report on Form 8-K
announcing UPC's financial results for the third quarter of 2000.
-27-
<PAGE> 30
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: November 14, 2000
UNION PACIFIC CORPORATION
(Registrant)
By /s/ Richard J. Putz
------------------------------------
Richard J. Putz
Vice President and Controller
(Chief Accounting Officer and
Duly Authorized Officer)
-28-
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
12(a) Computation of ratio of earnings to fixed charges for the
Three Months Ended September 30, 2000.
12(b) Computation of ratio of earnings to fixed charges for the
Nine Months Ended September 30, 2000.
27 Financial data schedule.
</TABLE>