<COVER PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________________ to ___________________
Commission file number 1-01324
UNION PACIFIC RAILROAD COMPANY
(Exact name of Registrant as specified in its charter)
UTAH 13-6400825
(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) 271-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
_______ _______
As of July 31, 1997, the Registrant had outstanding 58,135,812 shares of
Common Stock, $10 par value, and 5,055,288 shares of Class A Stock, $10 par
value.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE
REDUCED DISCLOSURE FORMAT.
<INDEX PAGE>
UNION PACIFIC RAILROAD COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Page Number
-----------
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION -
At June 30, 1997 and December 31, 1996 . . . . . . . . . 1-2
CONDENSED STATEMENT OF CONSOLIDATED INCOME AND
RETAINED EARNINGS - For the Three Months and Six Months
Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . 3
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS - For
the Six Months Ended June 30, 1997 and 1996 . . . . . . 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . . . 5-8
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 9-10
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . 11
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER'S MATTERS. . . . . . . . . . . . . . 11-12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE 1>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Millions of Dollars)
(Unaudited)
June 30, December 31,
ASSETS (Note 2) 1997 1996
-------- ------------
Current Assets:
Cash and temporary investments . . . . . . $ 87 $ 85
Accounts receivable - net. . . . . . . . . 568 258
Due from affiliated companies - net. . . . 964 1,313
Materials and supplies . . . . . . . . . . 254 228
Other current assets.. . . . . . . . . . . 222 162
------- -------
Total Current Assets . . . . . . . . . . . . 2,095 2,046
------- -------
Investments:
Investments in and advances to
affiliated companies. . . . . . . . . . 397 379
Other investments. . . . . . . . . . . . . 132 139
------- -------
Total Investments . . . . . . . . . . . 529 518
------- -------
Properties:
Road . . . . . . . . . . . . . . . . . . . 14,465 14,142
Equipment. . . . . . . . . . . . . . . . . 5,704 5,418
Other. . . . . . . . . . . . . . . . . . . 74 77
------- -------
Total Properties. . . . . . . . . . . . 20,243 19,637
------- -------
Accumulated depreciation and
amortization. . . . . . . . . . . . . . (4,908) (4,742)
------- -------
Properties - Net. . . . . . . . . . . . 15,335 14,895
------- -------
Intangible and Other Assets. . . . . . . . . 322 140
------- -------
Total Assets. . . . . . . . . . . . . . . . $18,281 $17,599
======= =======
<PAGE 2>
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Millions of Dollars, Except Share and Per Share Amounts)
(Unaudited)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------- -----------
Current Liabilities:
Accounts payable . . . . . . . .. . . . .. $ 455 $ 393
Accrued wages and vacation . . . . . . . . 345 268
Income and other taxes payable . . . . . . 165 176
Casualty and other reserves. . . . . . . . 218 230
Debt due within one year . . . . . . . . . 166 74
Interest payable . . . . . . . . . . . . . 34 40
Other current liabilities. . . . . . . . . 328 273
------- -------
Total Current Liabilities . . . . . . . 1,711 1,454
------- -------
Debt Due After One Year. . . . . . . . . . . 1,225 1,280
------- -------
Deferred Income Taxes . . . . . . . . . . . 4,416 4,332
------- -------
Due to UPC - Long-Term . . . . . . . . . . . 3,218 3,086
------- -------
Retiree Benefits Obligation . . . . . . . . 476 472
------- -------
Other Long-Term Liabilities (Note 5) . . . . 1,050 985
------- -------
Stockholders' Equity:
Common stock - $10.00 par value;
920,000,000 shares authorized
and 58,135,812 outstanding in
both 1997 and 1996. . . . . . . . . . . 581 581
Class A stock - $10.00 par value;
8,000,000 shares authorized and
5,055,288 outstanding in both
1997 and 1996 . . . . . . . . . . . . . 51 51
Capital surplus. . . . . . . . . . . . . . 2,245 2,245
Retained earnings. . . . . . . . . . . . . 3,308 3,113
------- -------
Total Stockholder's Equity . . . . . . . 6,185 5,990
------- -------
Total Liabilities and
Stockholder's Equity. . . . . . . . . $18,281 $17,599
======= =======
<PAGE 3>
UNION PACIFIC RAILROAD COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS
For The Three Months and Six Months Ended June 30, 1997 and 1996
(Millions of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Operating Revenues $1,921 $1,734 $3,843 $3,402
------ ------ ------ ------
Operating Expenses:
Salaries, wages and
employee benefits . . . . . . 612 548 1,212 1,120
Equipment and other rents. . . . 227 181 462 377
Fuel and utilities (Note 3). . . 187 164 388 311
Depreciation and amortization. . 174 155 345 308
Materials and supplies . . . . . 94 96 201 200
Other costs. . . . . . . . . . . 228 183 481 387
------ ------ ------ ------
Total . . . . . . . . . . . . 1,522 1,327 3,089 2,703
------ ------ ------ ------
Operating Income . . . . . . . . . 399 407 754 699
Other Income - Net . . . . . . . . 21 48 69 81
Interest Expense (Note 3). . . . . (97) (97) (191) (195)
------ ------ ------ ------
Income Before Income Taxes . . . . 323 358 632 585
Income Taxes (Note 4). . . . . . . (116) (123) (227) (184)
------ ------ ------ ------
Net Income . . . . . . . . . $ 207 $ 235 $ 405 $ 401
====== ====== ====== ======
Retained Earnings:
Beginning of period. . . . . . . $3,206 $4,208 $3,113 $4,139
Net income . . . . . . . . . . . 207 235 405 401
Dividends to parent. . . . . . . (105) (1,681) (210) (1,778)
------ ------ ------ ------
End of Period. . . . . . . . . . $3,308 $2,762 $3,308 $2,762
====== ====== ====== ======
<PAGE 4>
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(Millions of Dollars)
(Unaudited)
1997 1996
---- ----
Cash from Operations:
Net Income . . . . . . . . . . . . . . $405 $401
Non-Cash Charges to Income:
Depreciation and amortization . . . 345 308
Deferred income taxes . . . . . . . 39 33
Other - net . . . . . . . . . . . . (233) (82)
Changes in Current Assets and
Liabilities. . . . . . . . . . . . . (139) 67
---- ----
Cash from Operations. . . . . . . . 417 727
---- ----
Investing Activities:
Capital Investments. . . . . . . . . . (770) (488)
Other - Net. . . . . . . . . . . . . . 47 60
---- ----
Cash Used in Investing Activities . (723) (428)
---- ----
Equity and Financing Activities:
Debt Repaid . . . . . . . . . . . . . (115) (257)
Financings . . . . . . . . . . . . . 152 254
Cash Dividends Paid to Parent. . . . . (210) (193)
Advances from Affiliated Companies - Net 481 (78)
---- ----
Cash Provided by (Used in) Equity and
Financing Activities .. . . . . . . 308 (274)
---- ----
Net Change in Cash and Temporary
Investments . . . . . . . . . . . . . $ 2 $ 25
==== ====
<PAGE 5>
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS: The condensed consolidated
financial statements of Union Pacific Railroad Company (the Company)
are unaudited and reflect all adjustments (consisting only of normal
and recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of the financial position and
operating results for the interim periods. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, and the unaudited pro forma
combined financial statements and notes thereto, both contained in the
Company's Annual Report on Form 10-K for the year ended December 31,
1996. The results of operations for the six months and three months
ended June 30, 1997 are not necessarily indicative of the results for
the year ending December 31, 1997.
2. ACQUISITIONS AND REORGANIZATION
Missouri Pacific Railroad Company (MPRR): On January 1, 1997, MPRR was
merged with and into the Company (the Merger), with the Company continuing
as the surviving entity. Immediately prior to the Merger, MPRR was a
wholly-owned, direct subsidiary of Union Pacific Corporation
(the Corporation) and the Company was at that time and currently is a
wholly-owned, indirect subsidiary of the Corporation. As a result of
the Merger, all of the outstanding capital shares of MPRR, which
consisted of 920 shares of MPRR Common Stock and 80 shares of MPRR
Class A Stock, were converted into 19,152,560 shares of the Company's
Common Stock and 1,665,440 shares of the Company's Class A Stock,
respectively. In addition, in connection with the Merger, the
38,867,393 shares of the Company's Common Stock outstanding
immediately prior to the Merger were converted into 35,758,008 shares
of the Company's Common Stock and 3,109,392 shares of the Company's
Class A Stock.
The Denver and Rio Grande Western Railroad Company (DRGW) and
SPCSL Corp. (SPCSL): On June 30, 1997, DRGW and SPCSL were merged with
and into the Company (the Completed Mergers), with the Company
continuing as the surviving entity. Immediately prior to the Completed
Mergers, DRGW and SPCSL were wholly-owned, direct subsidiaries of
Southern Pacific Transportation Company (the SPT) and the Company and
SPT were at that time and are currently wholly-owned, indirect
subsidiaries of the Corporation. As a result of the Completed Mergers,
all of the outstanding capital shares of DRGW, which consisted of
6,331 shares of DRGW common stock, and SPCSL, which consisted of
1,000 shares of SPCSL common stock, were converted into 2,908,488 and
316,756 shares of the Company's common stock and 252,912 and 27,544
shares of the Company's Class A Stock, respectively.
The Merger and Completed Mergers have been accounted for in a manner
similar to a pooling-of-interests combination of entities under common
control. As a result of the Merger and Completed Mergers, statements
of financial position for the Company, MPRR, DRGW and SPCSL were
combined, as of January 1, 1997 for MPRR and September 11, 1996 for
DRGW and SPCSL, with an increase in Common Stock, Class A Stock, capital
surplus and retained earnings of $192 million, $51 million, $1,171
million and $718 million, respectively.
The Condensed Statement of Consolidated Income and the Condensed
Statement of Consolidated Cash Flows for the three-months and six
months ended June 30, 1997 and 1996 present the Company's results of
operations and cash flows for such period as if the Merger had occurred
on January 1, 1996. The Condensed Statement of Consolidated Financial
Position as of December 31, 1996 presents the Company's financial
position as of such date as though the Merger had occurred on December
31, 1996, and the Completed Mergers had occurred on September 11, 1996.
<PAGE 6>
Southern Pacific Rail Corporation (Southern Pacific or SP): In September
1996, the Corporation consummated the acquisition of Southern Pacific by
acquiring the remaining 75% of Southern Pacific common shares not
previously owned by the Corporation for a combination of cash and the
Corporation's common stock.
The business combination with Southern Pacific has been accounted for
as a purchase by the Corporation; however, SP's (except for DRGW and
SPCSL) results are not currently included in the Company's results. The
rail operations of Southern Pacific are expected to be combined with
the Company's rail operations by early 1998. The Company and SP operate
as a unified rail system which is hereinafter referred to as the Railroad.
In connection with the integration of the Company's and Southern
Pacific's rail operations, the Company expects to incur approximately
$420 million in acquisition-related costs through 1999 for severing
or relocating the Company's employees, disposing of certain of the
Company's facilities, training and equipment upgrade costs. Results
for the three months and six months ended June 30, 1997 include $27
million and $36 million, respectively, in one-time, acquisition-related
severance and relocation costs, net of tax. The Company anticipates
charging the remaining acquisition-related payments for its employees
and facilities to operating expense in 1997 through 1999 as definitive
plans are refined and communicated, relocation and other costs are
incurred, and labor negotiations are completed.
The estimated costs for severance, relocation and facility closings are
subject to refinement as more information becomes available and the
Company's management finalizes merger implementation plans and labor
union negotiations are completed. As a result, the actual integration
costs could change. Any revision required is not expected to be
material to the Company's financial position or ongoing results of
operations.
3. FINANCIAL INSTRUMENTS:
Risk Management: The Company uses derivative financial instruments in
limited instances to manage fuel price and interest rate risks. Where
the Company has fixed interest rates or fuel prices through the use of
swaps, futures or forward contracts, the Company has mitigated the
downside risk of adverse price and rate movements; however, it has
also limited future gains from favorable movements.
The Company addresses market risk related to these instruments by
selecting instruments whose value fluctuations correlate highly
with the underlying item being hedged. Credit risk related to derivative
financial instruments, which is minimal, is managed by requiring minimum
credit standards for counterparties and periodic settlements. The total
risk associated with the Company's counterparties was $40 million at
June 30, 1997. The Company has not been required to provide, nor has it
received, any significant amount of collateral relating to its hedging
activity.
The fair market values of the Company's derivative financial instrument
positions at June 30, 1997, were determined based upon current fair
market values as quoted by recognized dealers or developed based on the
present value of future cash flows discounted at the applicable zero
coupon U.S. treasury rate and swap spread.
Fuel: Over the past three years, fuel costs approximated 10% of the
Railroad's total operating expenses. As a result of the significance
of the fuel costs and the historical volatility of fuel prices, the
Company, as a participant in the Railroad's fuel hedging program,
periodically uses swaps, futures and forward contracts to mitigate the
impact of fuel price volatility. The intent of this program is to
protect the Railroad's operating margins and overall profitability from
adverse fuel price changes. At June 30, 1997, the Railroad had hedged
34% of its estimated remaining 1997
<PAGE 7>
fuel consumption at $0.52 per gallon on a Gulf Coast basis and had
outstanding swap agreements covering fuel purchases of $113 million, with
gross and net liability positions of $1 million. Fuel hedging increased
second quarter 1997 fuel expense by $1 million and lowered second quarter
1996 fuel costs by $5 million. Fuel hedging increased the Railroad's six
month 1997 fuel expense by $1 million and lowered the Company's six month
1996 fuel costs by $10 million.
Interest Rates: The Company controls its overall risk to fluctuations in
interest rates by managing the proportion of fixed and floating rate debt
instruments within its debt portfolio over a given period. Derivatives
are used in limited circumstances as one of the tools to obtain the
targeted mix. The mix of fixed and floating rate debt is largely managed
through the issuance of targeted amounts of such debt as debt maturities
occur or as incremental borrowings are required. The Company also obtains
additional flexibility in managing interest cost and the interest rate
mix within its debt portfolio by issuing callable fixed rate debt
securities.
At June 30, 1997, the Company had outstanding interest rate swaps on $74
million of notional principal amount of debt (5% of the total debt
portfolio, excluding obligations to the Corporation) with gross and net
liability positions of $8 million. These contracts mature over the next
one to eight years. Interest rate hedging activity increased interest
expense in the first six months of both 1997 and 1996 by $2 million.
4. INCOME TAXES: In the first quarter of 1996, the Company reached a
settlement with the Appeals Office of the Internal Revenue Service
for tax years 1978 through 1982. The settlement resulted in a tax
refund of $21 million.
5. CONTINGENCIES: There are various lawsuits pending against the Company.
The Company is also subject to Federal, state and local environmental
laws and regulations, and is currently participating in the investigation
and remediation of numerous sites. Where the remediation costs can be
reasonably determined, and where such remediation is probable, the
Company has recorded a liability. The Company does not expect that the
lawsuits or environmental costs will have a material adverse effect on
its consolidated financial position or operating results.
6. ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board
(FASB) issued Statement No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which provides
consistent standards for determining if transfers of financial assets are
sales or secured borrowings, and which revises the accounting rules for
liabilities extinguished by an in-substance defeasance. The Company
adopted Statement No. 125 on January 1, 1997 with no impact on its
operating results or financial condition.
The American Institute of Certified Public Accountants issued Statement
of Position 96-1, "Environmental Remediation Liabilities," effective
for 1997, which clarifies the accounting for environmental remediation
liabilities. Adoption had no significant impact on the Company's
operating results or financial condition.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which will be effective in 1998. The Company anticipates
Statement No. 130 will have no impact on its current reporting and
disclosure, as the Company has no material items of other comprehensive
income as defined in the Statement. The FASB also issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for reporting information
about operating segments. The Company currently complies with most
provisions of this Statement, and any incremental disclosure required
by the Statement is expected to be minimal.
<PAGE 8>
7. RATIO OF EARNINGS TO FIXED CHARGES: The ratio of earnings to fixed charges
has been computed on a total enterprise basis. Earnings represent income
from continuing operations less equity in undistributed earnings of
unconsolidated affiliates, plus income taxes and fixed charges. Fixed
charges represent interest, amortization of debt discount and expense, and
the estimated interest portion of rental charges.
<PAGE 9>
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared to June 30, 1996
On January 1, 1997, Missouri Pacific Railroad Company (MPRR) was merged with and
into Union Pacific Railroad Company (the Company), with the Company continuing
as the surviving corporation (the Merger). The Merger has been accounted for in
a manner similar to a pooling-of-interest combination of entities under common
control (see Note 2 of the Condensed Consolidated Financial Statements). As a
result of the Merger, the Company's results of operations for the three and six
months ended June 30, 1996 have been combined with MPRR's results of operations
as though the Merger had occurred on January 1, 1996. The following narrative
analysis of the Company's results of operations compares actual financial
information for the Company for the six-months ended June 30, 1997 with
financial information for the Company and MPRR on a combined basis for the six
months ended June 30, 1996.
Also, on June 30, 1997, The Denver and Rio Grande Western Railway Company
(DRGW) and SPCSL Corp. (SPCSL) were merged with and into the Company, with
the Company continuing as the surviving corporation (the Completed Mergers).
The Completed Mergers have also been accounted for in a manner similar to a
pooling-of-interest combination of entities under common control. As a result
of the Completed Mergers, the Company's results of operations for the periods
ended December 31, 1996 and June 30, 1997 have been combined with the results
of DRGW and SPCSL as though the Completed Mergers had occurred on September
11, 1996. The Company's reported earnings for the year ended December 31,
1996 reflect the operating performance of the Company including DRGW and SPCSL
for the period October 1, 1996 to December 31, 1996. DRGW and SPCSL
operations are not included in the June 30, 1996 operating results discussed
below since common control was not effective until September 11, 1996.
Net income increased to $405 million for 1997. Operating income increased to
$754 million in 1997 from $699 million in 1996. Operating revenues for the
Company increased $441 million (13%) to $3.84 billion, reflecting a 19%
increase in carloadings due to the integration of DRGW and SPCSL operations and
an increase in the Company's base business. The integration of DRGW's and
SPCSL's business drove carloading gains in intermodal (37%), energy (24%),
automotive (22%), chemicals (10%), industrial products (4%) and agricultural
products (2%).
Operating expenses increased $386 million compared to 1996 to $3.09 billion.
Salaries and wages increased $92 million due to the addition of DRGW and SPCSL
expenses, higher traffic volumes and one-time merger implementation costs.
Equipment and other rents increased $85 million due to higher cycle times,
incremental cars being made available for grain customers and additional DRGW
and SPCSL expenses. Fuel and utilities increased $77 million due to the
integration of DRGW and SPCSL and higher volumes. Depreciation expense
increased $37 million because of continued capital spending programs for
track and roadway investment and the addition of DRGW's and SPCSL's asset
bases to depreciation expense and the re-valuation of said assets in accounts
for the Southern Pacific acquisition. Other costs increased $94 million due
to the addition of DRGW and SPCSL and other volume-related contract costs
for maintenance, drayage and other third-party costs.
Other income decreased $12 million, largely due to lower interest income on the
intercompany debt balances. Interest expense decreased $4 million, the result
of debt refinancing activities. Income taxes increased $43 million, reflecting
higher operating and other income and the absence of a 1996 tax settlement (see
Note 4 to the Condensed Consolidated Financial Statements).
<PAGE 10>
Other Matters
The Company intends to merge Southern Pacific Transportation (SPT) and St.
Louis Southwestern Railway Company (SSW) with the Company. These mergers
will be accounted for in a manner similar to a pooling-of-interest combination
of entities under common control. These mergers are expected to be completed
by early 1998.
Cautionary Information
Certain information included in this report contains, and other materials filed
or to be filed by the Company 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 Company) contain or will contain, forward-looking
statements within the meaning of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended. Such forward-looking
information may include, without limitation, statements that the Company
does not expect that lawsuits, environmental costs, commitments, contingent
liabilities, labor negotiations or other matters will have a material adverse
effect on the Company's consolidated financial condition, results of
operations or liquidity and other similar expressions concerning matters that
are not historical facts, and projections as to the Company's financial
results. Such forward-looking information is or will be based on information
then available and is or will be subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in the
statements. Important factors that could cause such differences
include but are not limited to industry competition and regulatory
developments, natural events such as floods and earthquakes, the effects of
adverse general economic conditions, fuel price changes and the ultimate
outcome of environmental investigations or proceedings and other types of
claims and litigation.
<PAGE 11>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Southern Pacific Acquisition: As previously reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (the 1996 10-K Report),
various appeals have been filed with respect to the Surface Transportation
Board's (STB) August 12, 1996 decision (the Decision) approving the acquisition
of control of Southern Pacific Rail Corporation and its rail affiliates by the
Corporation and its affiliates. All of the appeals have been consolidated. On
April 23, 1997, the City of Wichita and Sedgwick County, Kansas, moved to
withdraw their petition for review, and the court granted their motion on April
30, 1997. On May 16, 1997, the court ordered parties to show cause by June 16,
1997 why a briefing format proposed in that order should not apply. The
Corporation and its affiliates, along with other parties, responded to the
court's order, and no briefing schedule has yet been established. The
Corporation believes that it is unlikely that the disposition of these appeals
will have a material impact on its results of operation.
On May 7, 1997, the STB served a decision commencing the first annual proceeding
to implement the oversight condition it had imposed in the Decision. The
Corporation and its affiliates, and the Burlington Northern and Santa Fe Railway
Company, filed reports required by the STB on July 1, 1997. Comments from other
parties were due on August 1, 1997, and replies are due on August 20, 1997. The
Corporation believes that no changes in the merger conditions are warranted, but
there can be no assurance as to what action the STB will take.
Bottleneck Proceedings: As previously reported in the 1996 10-K Report, on
August 27, 1996, the STB initiated a proceeding asking for arguments and
evidence on the issue of whether it should modify its existing regulations
regarding the prescription of, and challenge to, rates for rail service
involving a segment that is served by only one railroad between an interchange
point and an exclusively-served shipper facility (i.e., a bottleneck segment).
The STB proceeding also referred to pending motions to dismiss three
individual complaint proceedings filed by shippers challenging a class rate
charged for the movement of coal, two of which named the Company and SPT as
a party thereto. Neither complaint proceeding individually involved a
significant exposure for reparations. However, if existing regulation of
bottleneck movements were changed, future revenue from such movements,
including those covered by the complaint proceedings, could be substantially
reduced. On December 31, 1996, the STB served a decision which generally
reaffirmed earlier rulings regarding a rail carrier's obligation to provide
rates for bottleneck segments and assured the right of rail carriers to
differentially price traffic. It also dismissed the two complaint proceedings
in which the Company and SPT were defendants. On April 30, 1997, the STB
served a decision generally declining to reconsider its December 31, 1996
decision, but clarifying that in certain circumstances a "bottleneck"
destination carrier that does not serve the origin for a traffic movement may
be required to provide a separately-challengeable common carrier
rate for the "bottleneck" portion of the movement. The STB decisions are
pending on appeal before the Eighth Circuit Court of Appeals.
Item 5. Market for Registrant's Common Equity and Related Stockholder's
Matters
All of the Common Stock and Class A Stock of the Company is owned by the
Corporation or a wholly-owned indirect subsidiary of the Corporation.
Accordingly, there is no market for the Company's capital stock. Dividends on
the Company's Common Stock, which are paid on a quarterly basis, totaled $210
million for the six months ended June 30, 1997 and $1.8 million for 1996.
In connection with the mergers of DRGW and SPCSL into the Company on June 30,
1997, the following issuances of equity securities occurred: (1) the 6,331
shares of DRGW Common Stock outstanding immediately prior to the mergers,
which were held by SPT, were converted into 2,908,488 shares of the Company's
Common Stock
<PAGE 12>
and 252,912 shares of the Company's Class A Stock and; (2) the 1,000 shares of
SPCSL Common Stock outstanding immediately prior to the mergers, which were
held by SPT, were converted into 316,756 shares of the Company's Common Stock
and 27,544 shares of the Company's Class A Stock. The foregoing issuances of
the Company's Common Stock and Class A Stock were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933, as amended.
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
NONE
<PAGE 13>
SIGNATURES
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, on this 15th day of August, 1997.
UNION PACIFIC RAILROAD COMPANY
(REGISTRANT)
By /s/ James R. Young
------------------
James R. Young
Vice President-Finance
By /s/ Joseph E. O'Connor Jr.
--------------------------
Joseph E. O'Connor, Jr.
Chief Accounting Officer
<EXHIBIT INDEX>
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
12 Computation of Ratio of Earnings to
Fixed Charges
27 Financial Data Schedule
Exhibit 12
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts In Thousands, Except Ratios)
(Unaudited)
Six Months
Ended June 30,
1997 1996
Earnings: ---- ----
Income from continuing operations . . . . . . $404,663 $400,997
Undistributed equity earnings . . . . . . . . (18,210) (22,462)
-------- --------
Total . . . . . . . . . . . . . . . . . . . 386,453 378,535
-------- --------
Income Taxes . . . . . . . . . . . . . . . . . 226,969 183,588
-------- --------
Fixed Charges:
Interest expense including amortization
of debt discount. . . . . . . . . . . . . . . 190,990 194,799
Portion of rentals representing an interest
factor. . . . . . . . . . . . . . . . . . . . 72,394 50,578
-------- --------
Total Fixed Charges . . . . . . . . . . . . 263,384 245,377
-------- --------
Earnings available for fixed charges . . . . . $876,806 $807,500
======== ========
Ratio of earnings to fixed charges (Note 7). . 3.3 3.3
======== ========
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<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 568
<ALLOWANCES> 0
<INVENTORY> 254
<CURRENT-ASSETS> 2095
<PP&E> 20243
<DEPRECIATION> 4908
<TOTAL-ASSETS> 18281
<CURRENT-LIABILITIES> 1711
<BONDS> 1225
0
0
<COMMON> 632
<OTHER-SE> 5553
<TOTAL-LIABILITY-AND-EQUITY> 18281
<SALES> 0
<TOTAL-REVENUES> 3843
<CGS> 0
<TOTAL-COSTS> 3089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191
<INCOME-PRETAX> 632
<INCOME-TAX> 227
<INCOME-CONTINUING> 405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
