<PAGE>
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 March 31, 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 April 28, 2000, there were 247,848,033 shares of the Registrant's
Common Stock outstanding.
<PAGE>
UNION PACIFIC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
------------------------------
Page Number
-----------
Item 1: Consolidated Financial Statements:
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended March 31, 2000 and 1999.. 1
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
At March 31, 2000 and December 31, 1999............. 2
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999.. 3
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2000........... 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......... 5-11
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 12-18
Item 3: Quantitative and Qualitative Disclosures About
Market Risk...................................... 18
PART II. OTHER INFORMATION
---------------------------
Item 1: Legal Proceedings................................... 18-19
Item 4: Submission of Matters to a Vote of Security Holders. 19
Item 6: Exhibits and Reports on Form 8-K.................... 19
Signature.................................................... 20
(i)
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements
- --------------------------------------------------
Statement of Consolidated Income (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Three Months Ended March 31, 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).................. $2,913 $2,740
--------------------------------------------------------------------
Operating Expenses Salaries, wages and employee benefits.............. 1,065 1,076
Equipment and other rents.......................... 327 331
Depreciation....................................... 282 270
Fuel and utilities (Note 4)....................... 311 189
Materials and supplies............................. 156 144
Casualty costs..................................... 94 111
Other costs........................................ 226 257
--------------------------------------------------------------------
Total.............................................. 2,461 2,378
--------------------------------------------------------------------
Income Operating Income................................... 452 362
Other income - net (Note 7)........................ 20 25
Interest expense (Notes 4 and 5)................... (182) (186)
--------------------------------------------------------------------
Income before Income Taxes......................... 290 201
Income taxes....................................... (105) (72)
--------------------------------------------------------------------
Net Income......................................... $ 185 $ 129
- --------------------------------------------------------------------------------------------
Earnings Per Share Basic - Net Income................................. $ 0.75 $ 0.52
(Note 6) Diluted - Net Income............................... $ 0.74 $ 0.52
--------------------------------------------------------------------
Weighted Average Number of Shares (Basic).......... 246.4 246.3
Weighted Average Number of Shares (Diluted)........ 269.3 247.4
--------------------------------------------------------------------
Cash Dividends Per Share........................... $ 0.20 $ 0.20
--------------------------------------------------------------------
Ratio of Earnings to Fixed Charges (Note 8)........ 2.2 1.8
- --------------------------------------------------------------------------------------------
The accompanying notes to the financial statements are an integral part of these statements.
</TABLE>
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<PAGE>
Statement of Consolidated Financial Position (Unaudited)
Union Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
March 31, Dec. 31,
Millions of Dollars 2000 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
-----------------------------------------------------------------------------------
Current Assets Cash and temporary investments........................ $ 60 $ 175
Accounts receivable (Note 4).......................... 618 581
Inventories........................................... 324 337
Current deferred tax asset............................ 113 111
Other current assets.................................. 136 110
-----------------------------------------------------------------------------------
Total................................................. 1,251 1,314
-----------------------------------------------------------------------------------
Investments Investments in and advances to affiliated companies... 584 657
Other investments..................................... 94 96
-----------------------------------------------------------------------------------
Total................................................. 678 753
-----------------------------------------------------------------------------------
Properties Cost.................................................. 34,678 34,370
Accumulated depreciation.............................. (7,050) (6,851)
-----------------------------------------------------------------------------------
Net................................................... 27,628 27,519
-----------------------------------------------------------------------------------
Other Other assets.......................................... 352 302
-----------------------------------------------------------------------------------
Total Assets.......................................... $29,909 $ 29,888
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
-----------------------------------------------------------------------------------
Current Liabilities Accounts payable...................................... $ 573 $ 598
Accrued wages and vacation............................ 409 409
Accrued casualty costs................................ 390 385
Income and other taxes................................ 242 256
Dividends and interest................................ 260 290
Debt due within one year (Note 5)..................... 225 214
Other current liabilities (Note 3).................... 696 733
-----------------------------------------------------------------------------------
Total................................................. 2,795 2,885
-----------------------------------------------------------------------------------
Other Liabilities and Debt due after one year (Note 5)...................... 8,352 8,426
Stockholders' Equity Deferred income taxes................................. 6,809 6,715
Accrued casualty costs................................ 914 934
Retiree benefit obligations........................... 794 791
Other long-term liabilities (Notes 3 and 9)........... 606 636
Company-obligated Mandatorily Redeemable
Convertible Preferred Securities (Note 5)............. 1,500 1,500
Common stockholders' equity (Page 4).................. 8,139 8,001
-----------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity............ $29,909 $ 29,888
- ------------------------------------------------------------------------------------------------------------
The accompanying notes to the financial statements are an integral part of these statements.
</TABLE>
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<PAGE>
- ----------------------------------------------------
Statement of Consolidated Cash Flows (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Three Months Ended March 31, 2000 and 1999
- ----------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Millions of Dollars 2000 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Provided by Net Income...................................... $ 185 $ 129
Operations Non-cash charges to income:
Depreciation............................... 282 270
Deferred income taxes...................... 91 60
Other - net (61) (50)
Changes in current assets and liabilities....... (142) 4
-------------------------------------------------------------------
Cash Provided by Operations..................... 355 413
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Investing Activities Capital investments............................. (360) (372)
Other - net (Note 3)............................ 6 (90)
-------------------------------------------------------------------
Cash Used in Investing Activities............... (354) (462)
-------------------------------------------------------------------
Equity and Financing Dividends paid.................................. (52) (49)
Activities Debt repaid..................................... (168) (369)
Net financings.................................. 104 398
-------------------------------------------------------------------
Cash Used in Equity and Financing Activities.... (116) (20)
-------------------------------------------------------------------
Net Change in Cash and Temporary Investments.... (115) (69)
Cash at Beginning of Period..................... 175 176
-------------------------------------------------------------------
Cash at End of Period........................... $ 60 $ 107
- -------------------------------------------------------------------------------------------
Changes in Current Accounts receivable............................. $ (37) $ 11
Assets and Liabilities Inventories..................................... 13 (7)
Other current assets............................ (28) (7)
Accounts, wages and vacation payable............ (25) 58
Debt due within one year........................ 11 (1)
Other current liabilities....................... (76) (50)
-------------------------------------------------------------------
Total........................................... $(142) $ 4
- -------------------------------------------------------------------------------------------
The accompanying notes to the financial statements are an integral part of these statements.
</TABLE>
-3-
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Common Stockholders' Equity (Unaudited)
Union Pacific Corporation and Subsidiary Companies
For the Three Months Ended March 31, 2000
- --------------------------------------------------------------------------------
Millions of Dollars
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
[a] [b] Other
Common Retained Treasury Comprehensive
Shares Paid-in-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........................... 185 185
Other Comprehensive Income:
Foreign Currency Translation........ 1 1
-----------
Comprehensive Income................. 186
-----------
Conversions, exercises of stock
options, forfeitures and other [c].. 1 1
Dividends declared ($0.20 per share). (49) (49)
- -------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000............ $691 $4,019 $5,189 $(1,755) $(5) $8,139
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
[a] Common stock $2.50 par value; 500,000,000 shares authorized; 276,294,217
shares issued at beginning of period; 276,330,336 shares issued at end of
period.
[b] 28,496,574 treasury shares at end of period, at cost.
[c] 36,119 net shares issued.
- --------------------------------------------------------------------------------
The accompanying notes to the financial statements are an integral part of these
statements.
-4-
<PAGE>
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 months ended March 31, 2000
are not necessarily indicative of the results for the entire year ending
December 31, 2000. Certain prior year amounts have been reclassified to
conform to the 2000 financial statement presentation.
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 tables detail reportable financial information for UPC's
Rail segment and Other Operations for the three months ended March 31, 2000
and 1999, respectively:
<TABLE>
<CAPTION>
March 31, 2000 Other Operations
-----------------------
Millions of Dollars Rail Trucking Other[a] Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues from external customers [b].................... $ 2,637 $269 $ 7 $ 2,913
Net income (loss)..................................................... 214 2 (31) 185
Assets................................................................ 28,914 870 125 29,909
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999 Other Operations
-----------------------
Millions of Dollars Rail Trucking Other[a] Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues from external customers [b].................... $ 2,479 $253 $ 8 $ 2,740
Net income (loss)..................................................... 149 9 (29) 129
Assets................................................................ 28,533 845 77 29,455
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[a] 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.
[b] The Corporation does not have significant intercompany sales activities.
-5-
<PAGE>
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 3,500 positions and relocated 4,400
employees due to merger implementation 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 $20 million and $40 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 March 31, 2000 and 1999 included $6 million and $9 million after-tax,
respectively, for acquisition-related costs for UPRR consolidation
activities.
The components of the merger liability as of March 31, 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..................................................... 343 268 75
Contract cancellation fees and facility and line closure costs...... 145 141 4
Relocation costs.................................................... 109 93 16
-----------------------------------------------------------------------------------------------------
Total............................................................... $958 $863 $ 95
-----------------------------------------------------------------------------------------------------
</TABLE>
Merger Liabilities - Merger liability activity reflected 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. The Corporation
charged $4 million against the merger liability during the three months
ended March 31, 2000. The Corporation expects that the remaining merger
payments will be made over the course of the next 21 months as labor
negotiations are completed and implemented, and related merger
consolidation activities are finalized.
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
-6-
<PAGE>
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. 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 $25
million at March 31, 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 March 31, 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.
-7-
<PAGE>
The following is a summary of the Corporation's derivative financial
instruments at March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Millions March 31, 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 2000............................... 95 126
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 2000............................... 4 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] Excluded taxes, transportation costs and regional pricing spreads.
The asset and liability positions of the Corporation's outstanding
derivative financial instruments at March 31, 2000 and December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
March 31, 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................................ 24 22
Gross fair market (liability) position.......................... - -
Trucking Fuel Hedging:
Gross fair market asset position................................ 1 1
Gross fair market (liability) position.......................... - -
- ---------------------------------------------------------------------------------------------------
Total net asset position.......................................... $ 25 $ 78
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's use of derivative financial instruments had the following
impact on pre-tax income for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------
Millions of Dollars 2000 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in fuel expense from Rail fuel hedging........ $ (10) $ 19
Increase (Decrease) in fuel expense from Trucking fuel hedging.... (1) 1
- ---------------------------------------------------------------------------------------------------
Reduction (Increase) in pre-tax income............................ $ (11) $ 20
- ---------------------------------------------------------------------------------------------------
</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
-8-
<PAGE>
affected by changing business volumes and credit risks. At March 31, 2000
and December 31, 1999, accounts receivable are presented net of $576
million receivables sold.
5. Debt
Credit Facilities - On March 31, 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 2004. 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 6-1/4% 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 March 31, 2000, the
Corporation had $850 million remaining for issuance under the shelf
registration. The Corporation has no immediate plans to issue equity
securities.
6. Earnings Per Share - The following table provides a reconciliation between
basic and diluted earnings per share for the three months ended March 31,
2000 and 1999:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
-----------------------------
<S> <C> <C>
Millions, Except Per Share Amounts 2000 1999
------------------------------------------------------------------------------------------------------------
Income Statement Data:
Net income available to common stockholders - Basic................. $ 185 $ 129
Dilutive effect of interest associated with the CPS [a]............. 15 -
------------------------------------------------------------------------------------------------------------
Net income available to common stockholders - Diluted............... $ 200 $ 129
------------------------------------------------------------------------------------------------------------
Weighted-Average Number of Shares Outstanding:
Basic............................................................... 246.4 246.3
Dilutive effect of common stock equivalents [b]..................... 22.9 1.1
------------------------------------------------------------------------------------------------------------
Diluted............................................................. 269.3 247.4
------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Basic - net income.................................................. $ 0.75 $ 0.52
Diluted - net income................................................ $ 0.74 $ 0.52
------------------------------------------------------------------------------------------------------------
</TABLE>
[a] In 1999, the effect of $15 million of interest associated with the CPS was
anti-dilutive (Note 5).
[b] 1999 excluded the effect of anti-dilutive common stock equivalents related
to the CPS, which were 21.8 million.
-9-
<PAGE>
7. Other Income - Other income included the following for the three months
ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Three Months Ended March 31,
----------------------------
Millions of Dollars 2000 1999
----------------------------------------------------------------------
<S> <C> <C>
Net gain on asset dispositions............. $ 10 $ 11
Rental income.............................. 14 12
Interest income............................ 2 4
Other - net................................ (6) (2)
----------------------------------------------------------------------
Total................................. $ 20 $ 25
----------------------------------------------------------------------
</TABLE>
8. 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.
9. 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 three
months ended March 31, 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 current and former directors
and officers are defendants in two purported class actions, which 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 has been defending them vigorously. The defendants moved
to dismiss this action, and
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<PAGE>
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. Although settlement discussions are proceeding in good
faith, there can be no assurance that they will be successful.
In addition to the class action litigation, a purported derivative action
was filed on behalf of the Corporation 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 the Corporation and the Railroad
and, as nominal defendants, the Corporation and the Railroad. The derivative
action alleges, among other things, that the named directors breached their
fiduciary duties to the Corporation 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
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. In February 1999, the committee rendered its report, in which it
unanimously concluded that further prosecution of the derivative action on
behalf of the Corporation and the Railroad 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 this motion. The individual defendants also believe
that these claims are without merit and intend to defend them vigorously.
10. 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. 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 (Note 4). 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.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS
Three Months ended March 31, 2000 Compared to Three Months ended March 31, 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 - The Corporation reported net income of $185 million ($0.75 per
basic share and $0.74 per diluted share) in the first quarter of 2000 compared
to $129 million ($0.52 per basic and diluted share) in 1999. This increase
resulted primarily from revenue growth and productivity gains at the Railroad,
partially offset by higher fuel prices.
Operating Revenues - Operating revenues increased $173 million (6%) to $2.9
billion in the first quarter of 2000, reflecting higher volumes in five of the
six business groups at the Railroad as well as increased revenue at Overnite.
Operating Expenses - Operating expenses increased $83 million (3%) to $2.5
billion in the first quarter 2000 compared to the first quarter 1999 resulting
from higher fuel prices and increased volume at the Railroad. Continued
improvement in productivity and service levels partly offset the higher fuel
prices and volume increase at the Railroad. Salaries, wages, and employee
benefits declined due to improved productivity at the Railroad, partially offset
by higher rail volume and inflation. Equipment and other rents expense also
decreased as a result of improved rail cycle times, partially offset by higher
rail volumes. Depreciation expense increased reflecting 1999 and first quarter
2000 capital spending. Fuel and utilities were higher as significantly higher
fuel prices and increased volume costs were slightly offset by favorable fuel
hedging (see Note 4 to the Consolidated Financial Statements). The increase in
materials and supplies reflects more locomotive overhauls and running repair
costs. Casualty costs were down due to lower than expected settlement costs at
the Railroad. The decrease in other costs is associated with lower joint
facility expenses and productivity gains at the Railroad.
Operating Income - Operating income increased $90 million to $452 million in
2000 as revenue growth and productivity gains at the Railroad more than offset
higher fuel and rail volume costs.
Non-Operating Items - Other income decreased $5 million (20%) from 1999 due to
lower real estate gains and lower interest income resulting from reduced short-
term cash investments. Interest expense declined $4 million due to lower debt
levels. Income taxes for 2000 increased $33 million driven by higher income
levels partially offset by favorable state incentive tax credits.
-12-
<PAGE>
RAIL SEGMENT
Net Income - First quarter 2000 net income of $214 million exceeded 1999 by $65
million (44%). Higher commodity and other revenue, combined with productivity
gains, offset higher fuel prices and volume-related costs.
Operating Revenues - Rail operating revenues increased $158 million (6%) to a
record $2.6 billion on the strength of a 5% commodity revenue gain. Other
revenue gains were the result of higher subsidiary revenues and reduced billing
claims from customers and other railroads.
The following tables summarize the year-over-year change in rail commodity
revenue, carloads and average revenue per car by commodity type:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Commodity Revenue Three Months Ended March 31,
------------------------------
<S> <C> <C> <C>
In Millions of Dollars 2000 1999 Change
- ----------------------------------------------------------------------------------------------
Agricultural.............................................. $ 350 $ 347 1 %
Automotive................................................ 290 253 15 %
Chemicals................................................. 412 401 3 %
Energy.................................................... 529 564 (6)%
Industrial Products....................................... 492 449 10 %
Intermodal................................................ 441 388 14 %
- ----------------------------------------------------------------------------------------------
Total..................................................... $2,514 $2,402 5 %
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Revenue Carloads Three Months Ended March 31,
------------------------------
<S> <C> <C> <C>
In Thousands 2000 1999 Change
- ----------------------------------------------------------------------------------------------
Agricultural.............................................. 221 223 (1)%
Automotive................................................ 199 170 17 %
Chemicals................................................. 232 225 3 %
Energy.................................................... 480 477 1 %
Industrial Products....................................... 355 327 8 %
Intermodal................................................ 687 626 10 %
- ----------------------------------------------------------------------------------------------
Total 2,174 2,048 6 %
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------
<S> <C> <C> <C>
Average Revenue Per Car 2000 1999 Change
- ----------------------------------------------------------------------------------------------
Agricultural.............................................. $1,582 $1,552 2 %
Automotive................................................ 1,456 1,491 (2)%
Chemicals................................................. 1,777 1,781 -
Energy.................................................... 1,103 1,183 (7)%
Industrial Products....................................... 1,387 1,373 1 %
Intermodal................................................ 642 620 4 %
- ----------------------------------------------------------------------------------------------
Total $1,156 $1,173 (1)%
- ----------------------------------------------------------------------------------------------
</TABLE>
Agricultural - Revenue increased despite a slight carload decline. Carloads
decreased primarily due to reduced demand across most markets - principally
wheat and sweeteners. Strong export demand for corn, especially to the Pacific
Northwest, partially offset these declines. Average revenue per car was up $30
due primarily to longer hauls.
-13-
<PAGE>
Automotive - The Railroad recorded its best quarter ever for revenue and
carloads. The year-over-year gain resulted from increased share in a market
characterized by record vehicle sales. Average revenue per car decreased 2%
principally due to greater use of containers, rather than boxcars, to support
materials shipments.
Chemicals - Carloads increased due to improved service and increased demand for
plastics, liquid and dry chemicals, sulfur, and petroleum gas. The gains were
partially offset by a decline in fertilizer moves resulting from depressed
demand for U.S. farm commodities and the temporary shutdown of a Canadian potash
export facility. Average revenue per car was flat, reflecting lower volumes of
high average revenue per car soda ash and low average revenue per car
fertilizer.
Energy - The Railroad recorded its best quarter ever for carloads and average
trains per day out of the Powder River Basin despite warm winter weather
constraining demand. Revenue was down due to lower average revenue per car as a
result of contract pricing provisions with a few major customers, which are
expected to impact year-over-year commodity revenue comparisons through the
third quarter of 2000.
Industrial Products - Revenue increases resulted in the best first quarter ever
due to stronger overall demand and improved service. Carloads of steel and
ferrous scrap increased as import trade quotas on steel took hold. Increases in
lumber, stone, and cement moves resulted from strong construction activity and
mild weather.
Intermodal - Revenue increased as a result of increased carloads and higher
average revenue per car, a best first quarter ever for revenue and carloads.
Carloads improved due to strong growth in imports from Asia and service
improvements. Average revenue per car increased as a result of positive mix
shifts and demand-driven price increases.
Operating Expenses - Operating expenses were up $57 million (3%), reflecting
higher fuel prices and volume costs, partly offset by improved productivity.
Salaries, Wages, and Employee Benefits - Labor costs decreased $21 million (2%)
despite a 6% increase in gross ton-miles and a nearly 6% increase in wage and
benefit costs. Offsetting these cost increases were merger-related workforce
reductions, higher train crew productivity, and lower training expenses.
Equipment and Other Rents - Expenses decreased $10 million (3%), due primarily
to improvements in cycle time, lower prices, and increased rent receipts from
other railroads. Higher volume costs partially offset the decreases.
Depreciation - Expenses increased $11 million (4%), reflecting the 1999 and
first quarter 2000 capital programs. Capital spending totaled $359 million in
the first quarter 2000 compared to $363 million in 1999.
Fuel and Utilities - Expenses were up $115 million (65%), driven by higher fuel
prices and, to a lesser degree, volume growth. In the first quarter 2000, the
Railroad hedged 10% of its fuel consumption at an average of 40 cents per gallon
(excluding taxes, transportation charges and regional pricing spreads), lowering
fuel costs by $10 million. For the first quarter 1999, fuel consumption was 70%
hedged at 41 cents per gallon, which resulted in a $19 million increase in fuel
expense. As of March 31, 2000, fuel consumption for the remainder of 2000 is 9%
hedged at 40 cents per gallon (see Note 4 to the Consolidated Financial
Statements).
Materials and Supplies - Costs increased $11 million (8%), reflecting volume-
related increases in locomotive overhauls and running repairs.
-14-
<PAGE>
Casualty Costs - Costs declined $16 million (16%), primarily due to the effect
of lower than expected settlement costs.
Other Costs - Costs decreased $33 million (14%), reflecting cost control
initiatives, lower joint facility expenses and productivity gains.
Operating Income - Operating income increased $101 million to $465 million for
the first quarter of 2000. The operating ratio in 2000 was 82.4%, 2.9 percentage
points better than 1999's 85.3%.
Non-Operating Items - Non-operating income improved $2 million (1%) in 2000 as
lower interest expense offset reductions in real estate sales. Income taxes
increased $38 million in 2000 reflecting higher income levels partially offset
by favorable state tax incentive credits.
OTHER OPERATIONS
Trucking Product Line
Net Income - Net income was $2 million in the first quarter of 2000 compared to
$9 million in 1999. Net income, although significantly improved from the fourth
quarter 1999, continued to be impacted by expenses resulting from higher fuel
prices and the International Brotherhood of Teamsters (Teamsters) job action and
related activity.
Operating Revenues - Revenue increased $16 million (6%) to $269 million in the
first quarter 2000 despite lower volume. The growth resulted from best-ever
service performance levels, yield initiatives, hauling higher-margin traffic,
and a fuel surcharge.
Operating Expenses - Operating expenses increased $25 million (10%) to $268
million in the first quarter 2000. Salaries and benefits costs increased $7
million (4%) to $165 million reflecting wage and benefit increases. Fuel and
utilities costs increased $7 million (64%) to $18 million due to increased fuel
price per gallon and increased volume-related consumption (longer average haul),
partially offset by favorable hedge activity. In the first quarter 2000,
Overnite was 9% hedged at an average price of 39 cents per gallon (excluding
taxes, transportation charges and regional pricing spreads) which decreased fuel
costs by $1 million. The first quarter of 1999 fuel consumption was 42% hedged
at an average of 45 cents per gallon (excluding taxes, transportation charges
and regional pricing spreads), resulting in a $1 million increase in fuel costs.
As of March 31, 2000, fuel consumption for the remainder of 2000 is 9% hedged at
an average price of 39 cents per gallon (see Note 4 to the Consolidated
Financial Statements). Equipment and other rents increased $5 million (28%) over
1999 due to increased purchased transportation costs. Other expenses increased
$5 million (15%), primarily due to higher security, legal and travel expenses
related to the Teamsters activity.
Operating Income - Trucking operations generated operating income of $1 million
in the first quarter 2000, a $9 million reduction from 1999. The operating ratio
for trucking operations increased to 99.8% in 2000 from 95.9% in 1999.
-15-
<PAGE>
Other Product Lines
The other product lines include UP Technologies, self-insurance activities,
corporate holding company operations, and all necessary consolidating entries
(see Note 2 to the Consolidated Financial Statements). First quarter operating
income was down $2 million reflecting a $1 million decrease in UP Technologies
external commercial revenue and a slight increase in operating expense.
CHANGES IN FINANCIAL CONDITION AND OTHER DEVELOPMENTS
Financial Condition
During the first three months of 2000, cash provided by operations was $355
million, compared to $413 million in 1999. Timing of cash payments, higher
working capital and casualty-related payments more than offset the increase in
net income.
Cash used in investing activities was $354 million during the first quarter
2000, compared to $462 million in 1999. While capital spending was slightly
lower than first quarter 1999, the change in other investing activities reflects
the receipt of a cash dividend from an affiliate, partially offset by acquired
equipment awaiting financing. 1999 reflects 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 the Consolidated
Financial Statements).
Cash used by equity and financing activities was $116 million in the first
three months of 2000, compared to $20 million used in 1999. This increase is the
result of lower net borrowings ($104 million in 2000 compared to $398 million in
1999) coupled with lower debt repayments ($168 million in 2000 compared to $369
million in 1999).
Including the Convertible Preferred Stock as an equity instrument, the
ratio of debt to total capital employed was 47.1% at March 31, 2000 and 47.6% at
December 31, 1999.
Financing Activities
Credit Facilities - As of March 31, 2000, the Corporation had $2 billion in
revolving credit facilities, of which $1 billion expires in 2001, with the
remaining $1 billion expiring in 2004. 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 $850 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.
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
-16-
<PAGE>
sites. A discussion of certain claims, lawsuits, guarantees and contingencies is
set forth in Note 9 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. 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 (Note 4). 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.
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 its 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; the impact of latent year 2000 systems problems; 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
-17-
<PAGE>
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.
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 4
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
Surface Transportation Board Matters
Western Coal Traffic League v. Union Pacific Railroad Company. In March 1999,
the Western Coal Traffic League ("WCTL"), an association of coal receivers,
filed a complaint at the Surface Transportation Board ("STB") alleging that the
Railroad's 1997 annual report filed with the STB improperly accounted for
certain costs associated with the acquisition of SP and the Railroad's service
difficulties. Claiming that this resulted in an overstatement of the Railroad's
regulatory variable costs, WCTL asked the STB to direct the Railroad to restate
certain schedules in the report. The STB dismissed WCTL's complaint on May 12,
2000. The STB found that the Railroad's accounting had conformed to both
applicable generally accepted accounting principles and the Uniform System of
Accounts that rail carriers are required to follow.
FMC v. Union Pacific Railroad Company. In October 1997, FMC filed a complaint
with the STB challenging 16 different tariff rates, claiming the rates exceeded
a reasonable maximum. On May 12, 2000, the STB served a decision finding 15 of
the rates excessive. For rates applicable to certain movements of sodium
compounds, phosphorus and phosphate rock, the STB found there was no effective
modal competition and, with one exception, that the rates exceeded the
jurisdictional threshold. The jurisdictional threshold is a statutory
restriction against the STB prescribing a rate that results in a
revenue-to-variable cost percentage that is less than 180%. Applying its
stand-alone cost standard, the STB determined the rates were excessive and
prescribed rates from the third quarter of 1997 through 2017 that are the higher
of the stand-alone cost or the jurisdictional threshold. The STB ordered the
Railroad to pay as reparations for past shipments the difference between the
prescribed rates and the tariff rates. For the remaining movement of coke, the
STB found that truck competition limits the rate UP can charge and dismissed the
complaint as to that rate.
The decision will not have a significant impact on the Railroad's current
earnings because the Railroad had accrued for potential reparations. The impact
on future revenue is uncertain, as most of the traffic at issue in the decision
is now moving under contracts and traffic moving under contract is not affected
by the decision. The Railroad is continuing to analyze the decision, including
whether to appeal.
Environmental Matters
The U.S. Environmental Protection Agency (EPA) has 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
-18-
<PAGE>
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 are related to derailments dating back to
1992. Six of the incidents involve alleged releases from ruptured locomotive
fuel tanks, and one incident in 1996 involves an alleged release of sulfuric
acid near the Tennessee Pass.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the Corporation was held on April
21, 2000.
(b) At the Annual Meeting, the Corporation's shareholders voted for the
election of Philip F. Anschutz (216,770,381 shares in favor; 2,999,132
shares withheld), Robert P. Bauman (217,129,498 shares in favor;
2,640,015 shares withheld), Richard B. Cheney (217,151,527 shares in
favor; 2,617,986 shares withheld), E. Virgil Conway (216,773,304 shares
in favor; 2,996,209 shares withheld), Richard K. Davidson (216,686,365
shares in favor; 3,083,148 shares withheld), Thomas J. Donohue
(217,217,793 shares in favor; 2,551,720 shares withheld), Spencer F.
Eccles (217,176,325 shares in favor; 2,593,188 shares withheld), Ivor
J. Evans (217,112,747 shares in favor; 2,656,766 shares withheld),
Elbridge T. Gerry, Jr. (217,233,596 shares in favor; 2,535,917 shares
withheld), Judith Richards Hope (214,901,957 shares in favor; 4,867,556
shares withheld), Richard J. Mahoney (217,183,064 shares in favor;
2,586,449 shares withheld), and Richard D. Simmons (217,136,818 shares
in favor; 2,632,695 shares withheld), as directors of the Corporation.
In addition, the Corporation's shareholders voted to ratify the
appointment of Deloitte & Touche LLP as independent auditors of the
Corporation (218,002,517 shares in favor; 572,899 shares against;
1,194,040 shares withheld) and voted to approve the Union Pacific
Corporation 2000 Directors' Stock Plan (205,239,797 shares in favor;
10,614,876 shares against; 3,914,831 shares withheld).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
12 - Computation of ratio of earnings to fixed charges.
27 - Financial data schedule.
(b) Reports on Form 8-K
-------------------
On January 20, 2000, UPC filed a Current Report on Form 8-K
announcing UPC's financial results for the fourth quarter of 1999.
On March 9, 2000, UPC filed a Current Report on Form 8-K filing the
Union Pacific Corporation 2000 Directors' Stock Plan considered for
approval at the UPC 2000 Annual Meeting of Stockholders.
On April 20, 2000, UPC filed a Current Report on Form 8-K
announcing UPC's financial results for the first quarter of 2000.
-19-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000
UNION PACIFIC CORPORATION
(Registrant)
By /s/ Richard J. Putz
------------------------------------------------------
Richard J. Putz
Vice President and Controller
(Chief Accounting Officer and Duly Authorized Officer)
-20-
<PAGE>
UNION PACIFIC CORPORATION
EXHIBIT INDEX
Exhibit No. Description of Exhibits Filed with this Statement
- ----------- -------------------------------------------------
12 Computation of ratio of earnings to fixed charges.
27 Financial data schedule.
<PAGE>
EXHIBIT 12
UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------
Millions, Except Ratios 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Earnings:
Net Income............................................... $185 $129
Undistributed equity earnings............................ (12) (10)
- --------------------------------------------------------------------------------
Total.................................................... 173 119
- --------------------------------------------------------------------------------
Income taxes............................................... 105 72
- --------------------------------------------------------------------------------
Fixed charges:
Interest expense including amortization of debt discount. 182 186
Portion of rentals representing an interest factor....... 45 45
- --------------------------------------------------------------------------------
Total.................................................... 227 231
- --------------------------------------------------------------------------------
Earnings available for fixed charges....................... 505 422
- --------------------------------------------------------------------------------
Total fixed charges -- as above............................ 227 231
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges (Note 8)................ 2.2 1.8
- --------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statements of Union Pacific Corporation and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 60
<SECURITIES> 0
<RECEIVABLES> 618
<ALLOWANCES> 0
<INVENTORY> 324
<CURRENT-ASSETS> 1251
<PP&E> 34678
<DEPRECIATION> 7050
<TOTAL-ASSETS> 29909
<CURRENT-LIABILITIES> 2795
<BONDS> 8352
0
691
<COMMON> 0
<OTHER-SE> 7448
<TOTAL-LIABILITY-AND-EQUITY> 29909
<SALES> 0
<TOTAL-REVENUES> 2913
<CGS> 0
<TOTAL-COSTS> 2461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182
<INCOME-PRETAX> 290
<INCOME-TAX> 105
<INCOME-CONTINUING> 185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.74
</TABLE>
