FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________________ to _____________________
Commission file number 1-6146
UNION PACIFIC RAILROAD COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 94-6001323
(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 October 29, 1999, the Registrant had outstanding 7,130 shares of Common
Stock, $10 par value, and 620 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.
<PAGE>
UNION PACIFIC RAILROAD COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1: Consolidated Financial Statements:
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended September 30, 1999 and 1998...... 1
STATEMENT OF CONSOLIDATED INCOME
For the Nine Months Ended September 30, 1999 and 1998....... 2
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
At September 30, 1999 and December 31, 1998................. 3
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998....... 4
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1999................ 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................... 6-10
Item 2: Management's Narrative Analysis of the Results of Operations... 11-16
PART II. OTHER INFORMATION
Item 1: Legal Proceedings............................................... 16-17
Item 6: Exhibits and Reports on Form 8-K................................ 17
Signatures.............................................................. 18
<PAGE> 1
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Statement of Consolidated Income (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
For the Three Months Ended September 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions of Dollars, Except Ratios 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues Rail..................................... $2,606 $2,360
----------------------------------------------------------
Operating Expenses Salaries, wages and employee benefits.... 915 898
Equipment and other rents................ 315 324
Depreciation............................. 259 251
Fuel and utilities (Note 3).............. 199 191
Materials and supplies................... 135 130
Casualty costs........................... 70 104
Other costs (Note 7)..................... 198 237
----------------------------------------------------------
Total.................................... 2,091 2,135
----------------------------------------------------------
Income Operating Income......................... 515 225
Other income (Note 5).................... 23 45
Interest expense......................... (158) (162)
----------------------------------------------------------
Income before Income Taxes............... 380 108
Income taxes............................. (146) (41)
----------------------------------------------------------
Net Income............................... $ 234 $ 67
----------------------------------------------------------
Ratio of Earnings to Fixed
Charges (Note 6)..................... 2.8 1.5
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
<PAGE> 2
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Statement of Consolidated Income (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
For the Nine Months Ended September 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions of Dollars, Except Ratios 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues Rail..................................... $7,576 $6,961
----------------------------------------------------------
Operating Expenses Salaries, wages and employee benefits..... 2,694 2,671
Equipment and other rents................ 930 1,024
Depreciation............................. 773 745
Fuel and utilities (Note 3).............. 567 600
Materials and supplies................... 401 396
Casualty costs........................... 254 316
Other costs (Note 7)..................... 641 1,048
----------------------------------------------------------
Total.................................... 6,260 6,800
----------------------------------------------------------
Income Operating Income......................... 1,316 161
Other income (Note 5).................... 63 113
Interest expense......................... (469) (443)
----------------------------------------------------------
Income (Loss) before Income Taxes........ 910 (169)
Income taxes............................. (321) 82
----------------------------------------------------------
Net Income (Loss)........................ $ 589 $ (87)
----------------------------------------------------------
Ratio of Earnings to Fixed
Charges (Note 6)..................... 2.4 0.7
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
<PAGE> 3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Statement of Consolidated Financial Position (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
- -------------------------------------------------------------------------------
Sep. 30, Dec.31,
Millions of Dollars 1999 1998
- -------------------------------------------------------------------------------
Assets
<S> <C> <C> <C>
Current Assets Cash and temporary investments.......... $ 53 $ 35
Accounts receivable (Note 3)............ 454 494
Inventories............................. 328 337
Current deferred tax asset.............. 41 130
Other current assets.................... 98 85
---------------------------------------------------------
Total................................... 974 1,081
---------------------------------------------------------
Investments (Note 2) Investments in and advances to
affiliated companies.................. 650 520
Other investments....................... 125 171
---------------------------------------------------------
Total................................... 775 691
---------------------------------------------------------
Properties Cost.................................... 33,305 32,334
Accumulated depreciation................ (6,366) (5,871)
---------------------------------------------------------
Net..................................... 26,939 26,463
---------------------------------------------------------
Other Other assets............................ 176 122
---------------------------------------------------------
Total Assets............................ $28,864 $28,357
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities Accounts payable........................ $ 503 $ 493
Accrued wages and vacation payable...... 431 380
Accrued casualty costs.................. 351 364
Income and other taxes payable.......... 276 297
Debt due within one year................ 203 178
Interest payable........................ 93 110
Other current liabilities (Note 2)...... 589 730
---------------------------------------------------------
Total................................... 2,446 2,552
---------------------------------------------------------
Other Liabilities and Intercompany borrowing from UPC......... 5,401 5,368
Stockholders' Equity Third-party debt due after one year..... 2,479 2,606
Deferred income taxes................... 7,126 6,759
Accrued casualty costs.................. 974 928
Retiree benefit obligations............. 765 737
Other long-term liabilities
(Notes 2 and 7)....................... 609 781
Redeemable preference shares............ 26 27
Common stockholders' equity (Page 5)... 9,038 8,599
---------------------------------------------------------
Total Liabilities and
Stockholders' Equity.................. $28,864 $28,357
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
<PAGE> 4
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Statement of Consolidated Cash Flows (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
For the Nine Months Ended September 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions of Dollars 1999 1998
<S> <C> <C> <C>
Cash from Operations Net Income (Loss)....................... $ 589 $ (87)
Non-cash charges to income:
Depreciation........................ 773 745
Deferred income taxes............... 456 (83)
Other - net......................... (315) (234)
Changes in current assets and
liabilities.......................... 19 (135)
----------------------------------------------------------
Cash Provided by Operations............. 1,522 206
----------------------------------------------------------
Investing Activities Capital investments..................... (1,317) (1,753)
Other - net (Note 2).................... 39 88
----------------------------------------------------------
Cash Used in Investing Activities....... (1,278) (1,665)
----------------------------------------------------------
Equity and Financing Debt repaid ............................ (143) (245)
Activities Net financings.......................... 34 380
Dividends paid to parent................ (150) (270)
Advances from affiliated companies-net.. 33 1,585
----------------------------------------------------------
Cash Provided by (Used in) Equity
and Financing Activities.............. (226) 1,450
----------------------------------------------------------
Net Change in Cash and
Temporary Investments................. 18 (9)
Cash at Beginning of Period............. 35 50
----------------------------------------------------------
Cash at End of Period................... $ 53 $ 41
- -------------------------------------------------------------------------------
Change in Current Accounts receivable..................... $ 40 $ 64
Assets and Liabilities Inventories......................... 9 (19)
Other current assets.................... 76 52
Accounts, wages and vacation payable.... 61 (152)
Debt due within one year................ 25 (54)
Other current liabilities............... (192) (26)
----------------------------------------------------------
Total................................... $ 19 $ (135)
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
<PAGE> 5
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Statement of Changes in Common Stockholders' Equity (Unaudited)
Union Pacific Railroad and Consolidated Subsidiary and Affiliate Companies
For the Nine Months Ended September 30, 1999
- -------------------------------------------------------------------------------
Millions of Dollars
<S> <C> <C>
Common Stock Common stock, $10.00 par value
(Note 4) (authorized 9,200 shares) balance at beginning and
end of period (4,465 shares issued)..............$ -
-----------------------------------------------------------
Class A Stock Class A Stock, $10.00 par value (authorized 800 shares)
(Note 4) balance at beginning and end of period
(388 shares issued).............................. -
-----------------------------------------------------------
Paid-in Surplus Balance at beginning and end of period............... 4,782
-----------------------------------------------------------
Retained Earnings Balance at beginning of period....................... 3,817
Net Income........................................... 589
Dividends declared................................... (150)
-----------------------------------------------------------
Balance at end of period............................. 4,256
-----------------------------------------------------------
Total Common Stockholders' Equity....................$9,038
</TABLE>
The accompanying notes to the financial statements are an integral part
of these statements.
<PAGE> 6
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
AND AFFILIATE COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Responsibilities for Financial Statements - Union Pacific Railroad Company
(the Registrant), a Class I railroad incorporated in Delaware and a wholly
owned subsidiary of Union Pacific Corporation (the Corporation or UPC),
together with a number of wholly owned and majority-owned subsidiaries,
certain affiliates and various minority-owned terminal and bridge companies
(collectively, the Company or Railroad), operates various railroad and
railroad-related businesses. The Company's rail operations include for all
periods the operations of Union Pacific Railroad Company, a Utah
corporation and predecessor to the Registrant (UPRR), and the rail
operating subsidiaries of Southern Pacific Rail Corporation (Southern
Pacific or SP) (Note 4). The consolidated financial statements of 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 presented. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998. The results of operations
for the three and nine months ended September 30, 1999 are not necessarily
indicative of the results for the year ending December 31, 1999. Certain
1998 amounts have been reclassified to conform to the 1999 financial
statement presentation.
2. Acquisitions
Southern Pacific - 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 in October 1996. The various SP
rail-operating subsidiaries were then subsequently legally merged with the
Registrant.
Merger Consolidation Activities - In connection with the acquisition and
continuing integration of UPRR and Southern Pacific's rail operations, the
Company 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, the Company is relocating 4,700 positions,
merging or disposing of redundant facilities and disposing of certain rail
lines. The Company is also canceling uneconomical and duplicative SP
contracts.
To date the Company has severed 2,900 employees and relocated 4,500
employees due to merger implementation activities. The Company recognized a
$958 million pre-tax merger liability as part of the SP purchase price
allocation for costs associated with SP's portion of these activities. In
addition, the Railroad expects to incur $110 million in pre-tax
acquisition-related costs for severing or relocating UPRR employees,
disposing of certain UPRR facilities, training and equipment upgrading over
the remainder of the merger implementation period. Earnings for the three
months ended September 30, 1999 and 1998 included $13 million and $7 million
after-tax, respectively, and for the nine months ended September 30, 1999
and 1998 included $30 million and $36 million after-tax, respectively, for
acquisition-related costs for UPRR consolidation activities.
<PAGE> 7
The components of the merger liability as of September 30, 1999 were as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Original Cumulative Current
Millions of Dollars Reserve Activity Reserve
---------------------------------------------------------------------------
<S> <C> <C> <C>
Contractual obligations........................ $361 $361 $ -
Severance costs................................ 343 264 79
Contract cancellation fees and facility
and line closure costs....................... 145 126 19
Relocation costs............................... 109 89 20
---------------------------------------------------------------------------
Total.......................................... $958 $840 $118
---------------------------------------------------------------------------
</TABLE>
Merger Liabilities - Merger liability activity reflects cash payments for
merger consolidation activities and reclassification of contractual
obligations from merger liabilities to contractual liabilities. The Company
expects that the remaining merger payments will be made over the course of
the next two years as labor negotiations are completed and implemented and
related merger consolidation activities are finalized.
Mexican Railway Concession - During 1997, the Company and a consortium of
partners were granted a 50-year concession to operate the Pacific-North and
Chihuahua Pacific lines in Mexico and a 25% stake in the Mexico City
Terminal Company at a price of $525 million. The consortium assumed
operational control of both lines in 1998. In March 1999, the Company
purchased an additional 13% ownership interest for $87 million from one of
its partners. The Company now holds a 26% ownership share in the consortium.
The investment is accounted for under the equity method.
3. Financial Instruments - The Company uses derivative financial instruments in
limited instances and for other than trading purposes to manage risk as it
relates to fuel prices. Where the Company has fixed 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.
Credit Risk - The total credit risk associated with the Company's
counterparties was $62 million at September 30, 1999.
Valuation - The fair market values of the Company's derivative financial
instrument positions at September 30, 1999 and December 31, 1998 were
determined based upon current fair market values as quoted by recognized
dealers or developed based upon the present value of future cash flows
discounted at the applicable U.S. treasury rate and swap spread.
<PAGE> 8
The following is a summary of the Company's financial instruments at
September 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Millions of Dollars September 30, December 31,
Except Percentages and Average Commodity Prices 1999 1998
---------------------------------------------------------------------------
Rail Fuel Hedging:
<S> <C> <C>
Fuel purchases hedged for 1999................. $ 86 $ 343
Percentage of forecasted 1999 fuel
consumption hedged.......................... 67% 64%
Average price of 1999 hedges outstanding
(per gallon) [a]........................... $0.41 $0.41
Fuel purchases hedged for 2000 [b]............. $ 50 -
Percentage of forecasted 2000 fuel
consumption hedged [b]...................... 10% -
Average price of 2000 hedges outstanding
(per gallon) [a] [b]....................... $0.40 -
-----------------------------------------------------------------------
</TABLE>
[a] Excludes taxes and transportation costs.
[b] Excludes written options held by counterparties which are not expected
to be exercised as of September 30, 1999.
The asset and liability positions of the Company's outstanding financial
instruments at September 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
September 30, December 31,
Millions of Dollars 1999 1998
---------------------------------------------------------------------------
<S> <C> <C>
Rail Fuel Hedging:
Gross fair market asset position.............. $62 $ -
Gross fair market (liability) position........ - (49)
---------------------------------------------------------------------------
Total asset (liability) position.................. $62 $(49)
---------------------------------------------------------------------------
</TABLE>
The Company's use of financial instruments had the following impact on
pre-tax income for the three and nine months ended September 30, 1999 and
1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
--------------------------------------
September 30, September 30,
--------------------------------------
Millions of Dollars 1999 1998 1999 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in fuel expense.... $(26) $25 $(7) $59
---------------------------------------------------------------------------
</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 the
Registrant. The amount of receivables sold fluctuates based upon the
availability of the designated pool of receivables and is directly affected
by changing business volumes and credit risks. At September 30, 1999 and
December 31, 1998, accounts receivable are presented net of $576 million and
$580 million, respectively, of receivables sold.
4. Capital Stock - The number of shares shown in the Common Stock section of
the Statement of Changes in Common Stockholders' Equity on page 5 excludes
2,665 shares of Common Stock and 232 shares of Class A Stock owned by
Southern Pacific Rail Corporation, an affiliate of the Registrant, whose
results are included in the consolidated financial statements.
<PAGE> 9
5. Other Income - Other income included the following for the three months and
nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
------------------------------------------ --------------------------------
Millions of Dollars Three Months Ended September 30,
--------------------------------
1999 1998
----------------------------------------------------------- ---------------
<S> <C> <C>
Net gain on asset dispositions.................. $ 17 $18
Rental income................................... 15 13
Interest income................................. 1 6
Other - net..................................... (10) 8
----------------------------------------------------------- ---------------
Total........................................... $ 23 $45
----------------------------------------------------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Millions of Dollars Nine Months Ended September 30,
--------------------------------
1999 1998
----------------------------------------------------------- ---------------
<S> <C> <C>
Net gain on asset dispositions.................. $ 35 $61
Rental income................................... 40 36
Interest income................................. 5 13
Other - net..................................... (17) 3
--------------------------------------------------- ------- ---------------
Total........................................... $ 63 $113
--------------------------------------------------- ------- ---------------
</TABLE>
6. Ratio of Earnings to Fixed Charges - The ratio of earnings to fixed charges
has been computed on a consolidated basis. Earnings represent net income
(loss) less equity in undistributed earnings of unconsolidated affiliates,
plus income taxes and fixed charges. Fixed charges represent interest,
amortization of debt discount and the estimated interest portion of rental
charges. For the nine months ended September 30, 1998, fixed charges
exceeded earnings by approximately $199 million.
7. Commitments and Contingencies - There are various claims and lawsuits
pending against the Company. The Company 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 Company also periodically enters into financial and
other commitments and guarantees in connection with its businesses, and has
retained certain contingent liabilities upon the disposition of formerly
owned operations.
It is not possible at this time for the Company to determine fully the
effect of any or all unasserted claims on its consolidated financial
condition; however, to the extent possible, where unasserted claims can be
estimated and where such claims are considered probable, the Company has
recorded a liability. The Company does not expect that any known lawsuits,
claims, environmental costs, commitments or guarantees will have a material
adverse effect on its consolidated financial condition or results of
operations. Certain potentially significant contingencies relating to the
Company's business are detailed below:
Customer Claims - Certain customers have submitted claims for damages
related to shipments delayed by the Railroad as a result of congestion
problems during 1997 and 1998, and certain customers have filed lawsuits
seeking relief related to such delays. The nature of the damages sought by
claimants includes, but is not limited to, contractual liquidated damages,
freight loss or damage, alternative transportation charges, additional
production costs, lost business and lost profits. In addition, some
customers have asserted that they have the right to cancel contracts as a
result of alleged material breaches of such contracts by the Railroad. The
Company has made no additional provisions for such claims in 1999.
<PAGE> 10
Shareholder Lawsuits - UPC and certain of its officers and directors (who
are also directors of the Registrant) are defendants in two purported class
actions that have been consolidated into one proceeding. The consolidated
complaint alleges, among other things, that the Corporation violated the
Federal securities laws by failing to disclose material facts and making
materially false and misleading statements concerning the service,
congestion and safety problems encountered following the Corporation's
acquisition of Southern Pacific in 1996. These lawsuits were filed in late
1997 in the United States District Court for the Northern District of Texas
and seek to recover unspecified amounts of damages. Management believes that
the plaintiffs' claims are without merit and intends to defend them
vigorously. The defendants have moved to dismiss this action, and the motion
has been fully briefed and is awaiting a decision by the Court.
In addition to the class action litigation, a purported derivative
action was filed on behalf of the Corporation and the Registrant 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 Registrant and, as nominal defendants, the Corporation and the
Registrant. The derivative action alleges, among other things, that the
named directors breached their fiduciary duties to the Corporation and the
Registrant 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 Registrant to make
misrepresentations about the Registrant's service problems to the financial
markets and regulatory authorities. The Corporation's Board of Directors
established a special litigation committee consisting of three independent
directors to review the plaintiff's allegations and determine whether it is
in UPC's best interest to pursue them. The committee has unanimously
concluded that further prosecution of the derivative action on behalf of the
Corporation and the Registrant is not in the best interest of either such
company. Accordingly, the Corporation and the Registrant have filed a motion
with the Court to dismiss the derivative action. The individual defendants
also believe that these claims are without merit and intend to defend them
vigorously.
8. 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" delaying the effective date for implementing FAS 133 to fiscal years
beginning after June 15, 2000. While management is still in the process of
determining the full effect FAS 133 will have on the Company's financial
statements, management has determined that FAS 133 will increase the
volatility of the Company's asset, liability and equity (comprehensive
income) positions as the change in the fair market value of all financial
instruments the Company uses for fuel hedging purposes will, upon adoption
of FAS 133, be recorded in the Company's Statement of Financial Position
(Note 3). In addition, to the extent fuel hedges are ineffective due to
pricing differentials resulting from the geographic dispersion of the
Company'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 the Company's consolidated financial statements.
<PAGE> 11
Item 2. Management's Narrative Analysis of the Results of Operations
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
AND AFFILIATE COMPANIES
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1999 Compared to
Three and Nine Months ended September 30, 1998
Union Pacific Railroad Company (the Registrant), a Class I railroad incorporated
in Delaware and a wholly owned subsidiary of Union Pacific Corporation (the
Corporation or UPC), together with a number of wholly owned and majority-owned
subsidiaries, certain affiliates and various minority-owned terminal and bridge
companies (collectively, the Company or Railroad), operates various railroad and
railroad-related businesses.
Net Income - The Railroad reported net income of $234 million and $589 million
for the three months and nine months ended September 30, 1999, respectively,
compared to net income of $67 million for the third quarter of 1998 and a net
loss of $87 million for the 1998 nine month period. The increase of both the
three and nine month periods resulted primarily from improved operations and
service levels, increased revenues in all commodity lines and lower operating
costs.
Operating Revenues - Operating revenues increased $246 million (10%) to $2,606
million and $615 million (9%) to $7,576 million for the quarter and nine months
ended September 30, 1999, respectively, over the comparable periods in 1998.
Revenue carloads increased 9% and 7% for the three and nine month periods ended
September 30, 1999, respectively, over the comparable periods in 1998. 1999
commodity revenues, primarily automotive and industrial, were adversely
influenced due to the impact on rail traffic of the implementation of the joint
acquisition of Conrail.
<PAGE> 12
The following table summarizes rail commodity revenue, revenue carloads and
average revenue per car for the periods indicated:
<TABLE>
<CAPTION>
- ---------- ---------- --- ---------------------- ------------------- ----------
Three Months Ended Nine Months Ended
September 30, Commodity Revenue September 30,
- ---------------------- -------------------
1999 1998 % Change In Millions of Dollars 1999 1998 % Change
Dollars
--------- ---------- --- ---------------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 367 $ 333 + 10% Agricultural $1,042 $ 938 + 11%
239 204 + 17 Automotive 767 676 + 13
398 384 + 4 Chemicals 1,195 1,158 + 3
560 516 + 9 Energy 1,656 1,501 + 10
492 455 + 8 Industrial Products 1,416 1,354 + 5
459 385 + 19 Intermodal 1,273 1,126 + 13
- ---------- ---- ----- --- ---------------------- --------- --------- -- -------
$2,515 $2,277 + 10% Total $7,349 $6,753 + 9%
- ------------ --------- ---- ----- --- ---------------------- --------- --------
</TABLE>
<TABLE>
<CAPTION>
--------- ---------- --- ---------------------- --------- --------- ----------
Revenue Carloads
In Thousands
--------- ---------- --- ---------------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
233 212 + 10% Agriculture 670 605 + 11%
167 140 + 19 Automotive 521 464 + 12
238 232 + 3 Chemicals 696 681 + 2
478 449 + 6 Energy 1,403 1,319 + 6
365 349 + 5 Industrial Products 1,045 1,005 + 4
719 640 + 12 Intermodal 2,026 1,882 + 8
- ------------ --------- ---- ----- --- ---------------------- --------- ---------
2,200 2,022 + 9% Total 6,361 5,956 + 7%
--------- ---- ----- --- ---------------------- --------- --------- -- -------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Average Revenue per
Car
- ------------ --------- ---------- --- -------------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
$1,576 $1,574 -% Agriculture $1,555 $1,550 -%
1,430 1,450 - 1 Automotive 1,472 1,458 + 1
1,673 1,658 + 1 Chemicals 1,717 1,699 + 1
1,172 1,148 + 2 Energy 1,181 1,138 + 4
1,350 1,303 + 4 Industrial Products 1,356 1,348 + 1
638 602 + 6 Intermodal 628 598 + 5
- ----------- --------- ---- ----- --- ---------------------- --------- ---------
$1,144 $1,126 + 2% Total $1,155 $1,134 + 2%
- ------------ --------- ---- ----- --- ---------------------- --------- --------
</TABLE>
Agricultural - Agricultural revenue increased for both the three and nine month
periods over the comparable periods in 1998, primarily due to stronger exports
and improved service levels, which resulted in increases in wheat, corn and
beverages.
Automotive - Automotive revenue increased for both the three and nine month
periods over the comparable periods in 1998, due to increased carloads caused by
strong domestic production, improvements in cycle times, price increases, and
the negative impact in 1998 of a strike against a major auto manufacturer. These
gains were partially offset by the negative impact on rail traffic of the
implementation of the joint acquisition of Conrail.
Chemical - Chemical revenue increased for both the three and nine month periods
over the comparable periods in 1998, due to improved service levels and recovery
in demand for plastics, liquid and dry chemical and phosphorous, which increased
carloads. These gains were partially offset by declines in soda ash and a
decline in demand for fertilizers. Average revenue per car improved due to
increased longer-haul plastics shipments and fewer shorter-haul petroleum and
export sulfur moves.
<PAGE> 13
Energy - Energy revenue increased for both the three and nine month periods over
the comparable periods in 1998 due to increases in the number of Powder River
Basin trains per day, tons per car and average train length. Powder River Basin
traffic was reduced during the Rail unit's planned 10-day maintenance outage in
June 1999. Colorado and Utah volumes also increased due to improved service.
Average revenue per car increased resulting from changes in traffic mix as
longer-haul Powder River Basin traffic increased.
Industrial Products - Industrial Products revenue increased for both the three
and nine month periods over the comparable periods in 1998 due to stronger
demand and improved cycle times. Carloads increased in lumber, stone and cement
due to strong construction demand, and recyclables grew due to new business.
Gains were partially offset by decreased steel loadings due to higher imports of
lower-priced foreign steel and lost volumes from a major steel producer who
filed for bankruptcy. Average revenue per car increased due to a combination of
price increases and product mix changes.
Intermodal - Intermodal revenue increased for both the three and nine month
periods over the comparable periods in 1998 due to increased carloads, and
increased average revenue per car. Carloads improved due to strong demand from
growth in imports from Asia, service improvements and a new premium service
offering. These gains were partially offset by a decline in exports to Asia due
to the Asian economic crisis. Average revenue per car increased due to positive
mix shifts and demand-driven price increases.
Operating Expenses - Operating expenses decreased $44 million (2%) and $540
million (8%) for the quarter and nine months ended September 30, 1999,
respectively.
Salaries, wages and employee benefit costs increased for the three and nine
month periods ended September 30, 1999 over the comparable periods in 1998, due
to one-time costs related to the Southern Pacific merger recorded in the third
quarter of 1999 (see Note 2 to the Consolidated Financial Statements), higher
rail volume and inflation, partially offset by improved productivity.
Equipment and other rents expenses decreased $9 million (3%) and $94
million (9%) for the quarter and nine months ended September 30, 1999,
respectively, due primarily to improvements in cycle time and lower prices,
partially offset by higher volume.
Fuel and utilities expenses were up $8 million (4%) and down $33 million
(6%) for the quarter and nine months ended September 30, 1999, respectively. The
quarterly increase was driven by higher volumes, while the year-to-date decrease
reflects lower fuel prices and improved consumption rates, partially offset by
higher volume. The Railroad hedged 68% and 69% of its fuel consumption for the
three and nine months periods ended September 30, 1999, respectively, which
decreased fuel costs by $26 million and $7 million, respectively. Expected fuel
consumption for the remaining three months of 1999 is 67% hedged at an average
of 41 cents per gallon (excluding taxes, transportation charges and regional
pricing spreads).
Casualty costs declined $34 million (33%) and $62 million (20%) for the
quarter and nine months ended September 30, 1999, respectively, primarily due to
the effect of lower than expected settlement costs. In addition, insurance costs
and costs for repairs on cars from other railroads were lower year over year.
Depreciation and materials and supplies both increased slightly for both
the three and nine month periods ended September 30, 1999 over the comparable
periods in 1998. The increase in depreciation expense reflects increased capital
spending, while the increase in materials and supplies reflects higher rail
volumes.
<PAGE> 14
Other costs decreased $39 million (16%) and $407 million (39%) for the
three and nine month periods ended September 30, 1999, respectively, reflecting
the impact on 1998 results from the resolution of customer claims, lower state
and local taxes (primarily sales and property taxes) and benefits resulting from
the continuing integration of Southern Pacific operations.
Operating Income - Operating income increased $290 million to $515 million and
$1.2 billion to $1.3 billion for the quarter and nine months ended September 30,
1999, respectively. Both 1999 and 1998 included the impact of one-time costs
related to the Southern Pacific merger for severance, relocation and training of
employees. The operating ratio for the third quarter of 1999 was 80.2%, 10.3
percentage points better than 1998's 90.5% operating ratio. The operating ratio
for the first nine months of 1999 was 82.6%, 15.1 percentage points better than
1998's 97.7% operating ratio.
Non-Operating Items - Other income decreased $22 million (49%) in the third
quarter of 1999 over 1998 due to the impact in the third quarter of 1998 of a
telecommunications contract buyout and the sale of a corporate aircraft. Other
income decreased $50 million (44%) for the nine months ended September 30, 1999
over the comparable period in 1998, reflecting the additional impact of the sale
of the SP headquarters building and an insurance recovery for 1997 flood damage
recorded in the second quarter of 1998. Interest expense decreased $4 million
(2%) in the third quarter of 1999 over the third quarter of 1998 due to lower
average debt in the third quarter of 1999. Interest expense increased $26
million (6%) for the nine months ended September 30, 1999 over the comparable
period in 1998 as a result of higher average debt levels year over year. Income
taxes increased $105 million for the three month period and $403 million for the
nine month period, respectively, reflecting higher income before income taxes.
OTHER MATTERS
Commitments and Contingencies - There are various claims and lawsuits pending
against the Company and certain of its subsidiaries. In addition, the Company
and its subsidiaries are subject to various Federal, state and local
environmental laws and are currently participating in the investigation and
remediation of various sites. A discussion of certain claims, lawsuits,
guarantees and contingencies is set forth in Note 7 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 be 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" delaying the effective date for
implementing FAS 133 to fiscal years beginning after June 15, 2000. While
management is still in the process of determining the full effect FAS 133 will
have on the Company's financial statements, management has determined that FAS
133 will increase the volatility of the Company's asset, liability and equity
(comprehensive income) positions as the change in the fair market value of all
financial instruments the Company uses for fuel hedging purposes will, upon
adoption of FAS 133, be recorded in the Company's Statement of Financial
Position (see Note 3 to the Consolidated Financial Statements). In addition, to
the extent fuel hedges are ineffective due to pricing differentials resulting
from the geographic dispersion of the Company'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 the Company's consolidated financial statements.
<PAGE> 15
Year 2000 - The Year 2000 (Y2K) compliance project at the Company includes
software (internally developed and purchased), hardware and embedded chips
inside equipment and machinery. The Company's enterprise-wide project
encompasses computer systems and equipment in multiple data centers and a
telecommunications network spread over 23 states. Equipment containing embedded
computer chips includes locomotives, automated train switching systems, computer
aided train dispatching systems, signaling systems, computerized fueling
stations, weigh-in-motion scales, cranes, lifts, PBX systems, elevators, and
computerized monitoring systems throughout the Company. The Y2K project started
with research in 1994 and an impact analysis of the Company's mainframe COBOL
systems in 1995. The Y2K project has been a high priority since then.
The Company's Y2K Project is divided into five major initiatives as
follows:
Mainframe Systems - These systems have been converted, tested and deemed to be
Y2K compliant as of December 31, 1998. Periodic audits are planned during the
remainder of 1999 to ensure these systems remain Y2K compliant.
Client Server Systems - All critical client server systems have been converted,
tested, and deemed to be Y2K compliant as of December 31, 1998. The non-critical
client server systems were deemed to be Y2K compliant as of June 30, 1999.
User Department Developed Systems - These systems consist of both mainframe and
PC-based systems developed by internal user departments. All of the systems were
deemed to be Y2K compliant as of June 30, 1999.
Vendor Supplied and Embedded Systems - These systems consist of vendor-supplied
software, desktop, mainframe and server hardware, databases and operating
systems, as well as equipment and machinery with embedded systems. One hundred
percent of the identified critical suppliers of these systems have indicated
that they have a comprehensive Year 2000 plan. To help assure safety and Y2K
compliance, the Company is testing selected critical software, hardware and
embedded systems, even if the vendor has already certified the product. The
Company is sharing information on the compliance and testing of safety critical
components common to the industry with the cooperation of the Association of
American Railroads.
Electronic Commerce Systems - These systems consist of all electronic exchanges
of information with customers, vendors, other railroads and financial
institutions. The railroad industry has agreed on a standard 4-digit year for
all electronic data interchange (EDI). The Railroad can now transmit and receive
the new EDI standard that involves a 4-digit year. The Company is conducting
additional Y2K testing with customers and trading partners using current and
older versions of EDI transactions in 1999.
In an effort to ensure that interfacing systems will operate successfully
in the year 2000 the Company is conducting integrated testing of individual
systems already deemed to be Y2K compliant. Although the formal testing is
complete, additional verification testing will continue through December 1999.
For each of these initiatives, seven major categories of events have been
identified for contingency plans. These categories are (1) key data -
integrity/loss, (2) critical software, (3) critical hardware, (4)
communications, (5) critical supplies and suppliers, (6) facilities, and (7) key
personnel. The contingency plans also include a Y2K command center that will be
staffed 24 hours a day in the fourth quarter of 1999 and continuing into early
2000 for any problems that might occur due to Y2K. The staff will be composed of
<PAGE> 16
technical experts to fix or advise what to fix if systems fail and knowledgeable
representatives from each business unit. Contingency plans continue to be
developed and will be refined and adjusted throughout 1999.
As of June 30, 1999, 100% of the Company's systems have been converted,
tested, and deemed to be Y2K compliant. Costs to convert the Company's systems
are expensed as incurred. As of September 30, 1999, more than 96% of the costs
of the Y2K project, estimated to be $46 million (pre-tax) in total, have been
expensed.
Although the Company believes its systems will be successfully modified,
failure by it, or by those from whom the Company purchases equipment, or by
other entities with whom the Company exchanges data, or on whom it relies for
data, to successfully modify their systems, could materially impact operations
and financial results in the year 2000.
CAUTIONARY INFORMATION
Certain information included within this report is, and other information
included within materials 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 Company), are or will be forward-looking
statements within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934. The forward-looking statements include, without
limitation, statements concerning projections, predictions or expectations as to
Union Pacific Railroad Company's and its subsidiaries' business, financial or
operational results; future economic performance; management objectives; the
outcome of claims; statements that the Company does not expect that claims,
lawsuits, environmental costs, commitments, contingent liabilities, labor
negotiations or other matters will have a material adverse affect on the
Company's consolidated financial position, results of operations or liquidity;
and other similar expressions concerning matters that are not historical facts.
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 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 Company and its
subsidiaries are fully successful in implementing their financial and
operational initiatives; industry competition, conditions and performance;
legislative and/or regulatory developments; natural events such as severe
weather, floods and earthquakes; the effects of adverse general economic
conditions; changes in fuel prices; labor stoppages; the impact of year 2000
systems problems; and the outcome of claims and litigation, including claims
arising from environmental investigations or proceedings. The Company assumes no
obligation to update forward-looking information to reflect actual results,
changes in assumptions or changes in other factors affecting forward-looking
information.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The discussion of certain legal proceedings affecting the Registrant and/or
certain of its subsidiaries set forth in Note 7 to the Consolidated Financial
Statements included in Item 1 of Part I of this Report is incorporated herein by
reference. In addition to those matters, the following proceedings, or
developments in proceedings presently pending, arose or occurred during the
third quarter of 1999.
Bottleneck Proceedings - As reported in the Railroad's Annual Report on Form
10-K for the year ended December 31, 1998 and Quarterly Report on Form 10-Q for
the quarter period ended March 31, 1999, the U.S. Court of Appeals for the
Eighth Circuit entered an order on February 10, 1999 affirming a prior decision
<PAGE> 17
by the STB. The STB decision generally reaffirmed its existing position
regarding the obligation of rail carriers to provide rates for bottleneck
segments (lines of railroad that are served by a single railroad between a
junction and an exclusively-served shipper facility), and dismissed two
complaint proceedings filed by shippers challenging a class rate for the
movement of coal to which UPRR and a predecessor were parties. On April 23, 1999
the Eighth Circuit denied a petition for rehearing filed by two of the shippers
involved in the complaint proceeding. On July 19, 1999 the Western Coal Traffic
League filed a petition for a writ of certiorari in the United States Supreme
Court. The Supreme Court denied the petition on October 18, 1999.
Environmental Matters - As reported in the Railroad's 1998 10-K, the District
Attorney for San Bernardino County, California was investigating the Railroad's
handling of several hazardous material spills in Barstow and West Colton,
California. In the third quarter of 1999, the District Attorney and the Railroad
agreed to a settlement, and on July 28, 1999 a stipulated judgement against the
Railroad in the amount of $350,000 was entered by the San Bernadine Superior
Court. The Railroad also agreed to pay certain costs of San Bernardino County
associated with the incidents that were the subject of the investigation. These
costs are estimated at $20,000, but may ultimately be more or less than such
amount.
Other Matters - On August 29, 1997, an Amtrak train, operating on UPRR tracks
struck a car at a crossbuck-protected crossing near Warrensburg, Missouri,
injuring Kimberley R. Alcorn, a passenger in the car. Ms. Alcorn brought suit
against UPRR and Amtrak in the Circuit Court of Jackson County, Missouri
Division No. 10. On September 24, 1999, a jury found that Amtrak and UPRR were
negligent in causing the accident. The jury awarded Ms. Alcorn approximately
$40.3 million in compensatory damages, and, on September 29, 1999, found the
Railroad and Amtrak liable for an additional $120 million in punitive damages.
The defendants are pursuing multiple avenues of relief from the jury awards. The
Railroad believes that the damage awards are not supported by the facts or the
law, and that the trial court and/or the appellate courts will either grant a
new trial or will substantially reduce the amount of damages. Under the terms of
an existing agreement, Amtrak will continue to defend UPRR's interests in this
litigation and UPRR believes that Amtrak and its insurers, under the terms of
the agreement, will hold UPRR harmless from any final judgment.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
12(a) - Computation of Ratio of Earnings to Fixed Charges for
the Three Months Ended September 30, 1999.
12(b) - Computation of Ratio of Earnings to Fixed Charges for
the Nine Months Ended September 30, 1999.
27 - Financial data schedule.
(b)Reports on Form 8-K
On July 23, 1999, the Registrant filed a Current Report on Form 8-K
announcing UPC's financial results for the second quarter of 1999.
On October 21, 1999, the Registrant filed a Current Report on Form
8-K announcing UPC's financial results for the third quarter of 1999.
<PAGE> 18
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.
Dated: November 12, 1999
UNION PACIFIC RAILROAD COMPANY
(Registrant)
By /s/ James R. Young
----------------------
James R. Young
Senior Vice President-Finance
(Chief Accounting Officer
and Duly Authorized Officer)
By /s/ Richard J. Putz
-----------------------
Richard J. Putz
Assistant Vice President and
Controller
(Duly Authorized Officer)
<PAGE> Exhibit Index
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
AND AFFILIATE COMPANIES
EXHIBIT INDEX
Exhibit No. Description of Exhibits Filed with this Statement
12(a) Computation of Ratio of Earnings to Fixed Charges
for the Three Months Ended September 30, 1999.
12(b) Computation of Ratio of Earnings to Fixed Charges
for the Nine Months Ended September 30, 1999.
27 Financial Data Schedule.
Exhibit 12(a)
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
AND AFFILIATE COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three Months Ended September 30,
Millions of Dollars Except Ratios 1999 1998
- -------------------------------------------------------------------------------
Earnings:
<S> <C> <C>
Net Income............................................. $234 $ 67
Undistributed equity earnings.......................... (14) (11)
- -------------------------------------------------------------------------------
Total.................................................. 220 56
- -------------------------------------------------------------------------------
Income Taxes............................................. 146 41
- -------------------------------------------------------------------------------
Fixed Charges:
Interest expense including amortization
of debt discount..................................... 158 162
Portion of rentals representing an interest factor..... 48 44
- -------------------------------------------------------------------------------
Total.................................................. 206 206
- -------------------------------------------------------------------------------
Earnings Available for Fixed Charges..................... 572 303
- -------------------------------------------------------------------------------
Fixed Charges -- as above................................ $206 $206
- -------------------------------------------------------------------------------
Ratio of earnings to fixed charges (Note 6).............. 2.8 1.5
- -------------------------------------------------------------------------------
</TABLE>
Exhibit 12(b)
UNION PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY
AND AFFILIATE COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Nine Months Ended September 30,
Millions of Dollars Except Ratios 1999 1998
- -------------------------------------------------------------------------------
Earnings:
<S> <C> <C>
Net Income (Loss)...................................... $ 589 $ (87)
Undistributed equity earnings.......................... (33) (30)
- -------------------------------------------------------------------------------
Total.................................................. 556 (117)
- -------------------------------------------------------------------------------
Income Taxes............................................. 321 (82)
- -------------------------------------------------------------------------------
Fixed Charges:
Interest expense including amortization
of debt discount..................................... 469 443
Portion of rentals representing an interest factor..... 138 132
- -------------------------------------------------------------------------------
Total.................................................. 607 575
- -------------------------------------------------------------------------------
Earnings Available for Fixed Charges..................... 1,484 376
- -------------------------------------------------------------------------------
Fixed Charges -- as above................................ $ 607 $ 575
- -------------------------------------------------------------------------------
Ratio of earnings to fixed charges (Note 6).............. 2.4 0.7
- -------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Nine month Financial Data Schedule
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 454
<ALLOWANCES> 0
<INVENTORY> 328
<CURRENT-ASSETS> 974
<PP&E> 33305
<DEPRECIATION> 6366
<TOTAL-ASSETS> 28864
<CURRENT-LIABILITIES> 2446
<BONDS> 2479
0
26
<COMMON> 0
<OTHER-SE> 9038
<TOTAL-LIABILITY-AND-EQUITY> 28864
<SALES> 0
<TOTAL-REVENUES> 7576
<CGS> 0
<TOTAL-COSTS> 6260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 469
<INCOME-PRETAX> 910
<INCOME-TAX> 321
<INCOME-CONTINUING> 589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
