<COVER>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 10, 1997
Union Pacific Railroad Company
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(Exact Name of Registrant as Specified in Charter)
Utah 1-01324 13-6400825
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1416 Dodge Street, Omaha, Nebraska 68179
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (402) 271-5000
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Item 5. Other Events.
Recently, Union Pacific Railroad Company (the "Company") has been experiencing
serious congestion problems, especially on Southern Pacific ("SP") lines in
the Gulf Coast area but also affecting other lines of the system. In late
September 1997, following an intense analysis and planning effort, the
Company adopted a comprehensive Service Recovery Plan. The objective of
this Plan is to return service to normal within 60 to 90 days. The Service
Recovery Plan involves additional expenditures on locomotives and personnel
and the diversion of traffic to other carriers, among other measures.
The Company has reported to the Surface Transportation Board of the Department
of Transportation ("STB") in the ongoing oversight proceeding regarding the
UP/SP merger, concerning the recent service problems and the Service
Recovery Plan. In addition, on October 2, 1997, the STB initiated a
proceeding entitled Ex Parte No. 573, Rail Service in the Western United
States, to provide interested persons the opportunity to report on the status
of rail service in the western United States and to review proposals for
solving the service problems that exist. The STB indicated that it would
receive oral statements on the matter at a hearing on October 27, 1997, and
would receive written statements by October 23, 1997. The Company expects
to make oral and written submissions to the STB in this proceeding reporting
further on its Service Recovery Plan and the progress that is being made in
implementing it.
Two railroad competitors of the Company, Burlington Northern & Santa Fe
Railway ("BNSF") and Kansas City Southern Railway ("KCS"), have publicly
proposed that they be sold or given access to, or granted the right to
control, various Company assets as a purported remedy for the Company's
service problems. While the Company has sought and received constructive
assistance from other carriers to deal with the congestion problems,
the Company has declined to agree to the BNSF and KCS proposals on the
grounds that they would worsen the problem, are legally unjustified, and
are aimed at obtaining competitive advantages that were rejected by the STB
in the UP/SP merger proceeding. Neither BNSF nor KCS has applied to the
STB for imposition of their proposed measures. If any such applications
are filed, the Company expects to oppose them.
Certain customers have submitted claims for damages related to shipments
lost or delayed in transit while others have indicated an intention to
submit claims for damages arising out of delays to their shipments as a
result of the congestion problems. In addition, certain customers have
asserted that they have the right to cancel contracts as a result of
alleged material breaches of such contracts by the Company. It is not
possible at this time to assess the likelihood or magnitude of
any such liability or the likelihood that any of such contracts could
be canceled by a customer.
The Company experienced a number of serious accidents in July and August 1997,
although most overall safety measures continue to improve. In August and
September 1997, the Federal Railroad Administration ("FRA") conducted an
in-depth inquiry into the Company's safety practices and made a number of
recommendations for improvements. The Company is working with the FRA and
rail labor to implement these recommendations. The FRA has indicated that
it may take enforcement actions against the Company.
The congestion problems are expected to adversely affect the financial
performance of the Company in the remainder of 1997 and could lower earnings
in the first quarter of 1998. The Company's parent, Union Pacific
Corporation ("UPC"), currently estimates that 1997 earnings (excluding
one-time merger implementation costs) of UPC and its subsidiaries, including
the Company, could be approximately 5-10% above 1996 pro forma earnings of
$664 million, or $2.71 per share.
The foregoing discussion contains forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of
1934. This information is based on facts available on the date of this
Report, and is subject to risks and uncertainties that could cause actual
results to differ materially from those expressed above. Important facts
that could cause such differences include, but are not limited to, whether
the Service Recovery Plan referred to above achieves its goals, industry
competition and regulatory developments, natural events such as severe
weather, floods and earthquakes, the effects of adverse economic conditions
affecting the Company's shippers, changes in fuel prices and the ultimate
outcome of environmental investigations or proceedings and other types of
claims and litigation.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
99 Press Release dated October 1, 1997 describing the Union
Pacific Railroad Company Service Recovery Plan and estimated
financial impact of that Plan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Union
Pacific Railroad Company has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
October 10, 1997
UNION PACIFIC RAILROAD COMPANY
By:/S/ Carl W. von Bernuth
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Name: Carl W. von Bernuth
Title: Vice President & General Counsel
Exhibit Index
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Exhibit Description
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99 Press Release dated October 1, 1997 describing the Union
Pacific Railroad Company Service Recovery Plan and
estimated financial impact of that Plan.
EXHIBIT 99
FOR IMMEDIATE RELEASE:
OMAHA, October 1 -- Union Pacific Corporation said today that its subsidiary,
Union Pacific Railroad, has unveiled a Service Recovery Plan aimed at
eliminating congestion and restoring normal service across the
nation's largest rail system.
In a quarterly report filed with the Surface Transportation Board
(STB), Union Pacific (NYSE: UNP) spelled out a series of actions that
will move as many as 40,000 cars off the railroad and generate the
equivalent of 400-600 locomotives for service recovery. The actions encompass
train operations and yard activities throughout the UP system.
"We have left nothing to chance in this plan," said Dick Davidson, Union
Pacific Corporation Chairman and Chief Executive Officer. "Throughout the
organization there is every confidence that it will produce steady
improvements over the next several weeks."
Among the actions:
Temporarily divert certain traffic over other railroads throughout
the western two-thirds of the United States, including the Burlington
Northern Santa Fe, Illinois Central, Kansas City Southern and a number
of regional and short line railroads.
Release selected traffic to other railroads. As an example, to free up
congested lines the BNSF will operate several unit coal trains between
the Powder River Basin in Wyoming and Texas.
Divert trains from heavily-traveled routes along the Southern Corridor
to other lightly used lines.
Reroute trains around congested terminals by using satellite yards to
handle switching. This will create additional track capacity at major
yards in Texas, California and Nebraska to make room for the backlog
of trains clogging mainlines.
Suspend some unit coal trains. In addition, eliminate four unit coal
trains between the Powder River Basin and Mexico and reduce export
coal shipments from Utah to the Southern California ports.
Reposition up to 600 locomotives -- the equivalent of total UP
locomotive purchases between 1995-97. To accomplish this, fewer trains
will be operated, shorter trains consolidated, locomotives leased,
repairs expedited and the number of engines reduced on most intermodal
trains.
The Service Recovery Plan was the end product of the most intensive service
review in railroad history attended by company managers from across the
36,000-mile system. Problems at every major yard and rail corridor were
identified and remedies were devised. "No solution, no matter how
unconventional just a few weeks ago, was beyond consideration," said Davidson.
The railroad told the STB in its filing that service within the railroad's
Central Corridor, roughly stretching from Chicago to Oakland, should return
to acceptable levels within 30 days.
Service in the Southern Corridor running from Memphis and New Orleans through
Texas and into Southern California should be back to normal within 60 to 90
days. Once this occurs, UP will begin to restore services that were
temporarily withdrawn.
The service recovery effort is expected to adversely affect Union Pacific
Corporation's financial performance for the remainder of 1997, and could
lower earnings in first quarter 1998 as well.
While third quarter 1997 earnings are expected to be approximately 10-15
percent above last year's pro forma $.79 per share, this is lower than the
increase previously expected by the company, and excludes one-time merger
implementation costs as well as the gain from a real estate-related
transaction.
Based upon preliminary estimates of the costs associated with the recovery
plan, and the recovery timetable as filed with the Surface Transportation
Board, the company estimates full-year earnings (excluding one-time merger
implementation costs) could be up approximately 5-10 percent versus 1996
pro forma earnings per share of $2.71.
"Everyone at our company is working hard on restoring service to levels that
will satisfy our customers," said Davidson. "We feel strongly that the major
actions outlined in our recovery plan will allow this to happen and that
customers will once again be offered the best possible service on Union
Pacific."
Other highlights of the STB filing:
The railroad reinforced its commitment to working with the Federal
Railroad Administration and rail unions to address safety concerns.
"UP/SP has fully accepted FRA's challenge to empower its operating
employees and instill a stronger focus on safety throughout the
organization," the STB filing said.
Union Pacific said the schedule for implementing its computerized
Transportation Control System on the former Southern Pacific has been
advanced by several months and will be entirely completed by
March 1, 1998.
(This press release contains forward-looking statements within the meaning
of the Securities Act of 1933 and the Securities Exchange Act of 1934.
This information is based on facts available at this time, and is subject
to risks and uncertainties that could cause actual results to differ
materially from those expressed above. Important facts that could cause
such differences include, but are not limited to, whether the Service
Recovery Plan described above achieves its goals, industry competition
and regulatory developments, natural events such as severe weather, floods
and earthquakes, the effects of adverse economic conditions affecting the
Company's shippers, changes in fuel prices and the ultimate outcome of
environmental investigations or proceedings and other
types of claims and litigation.)
For a detailed summary of the Service Recovery Plan: www.uprr.com. Visit
"News Releases."
