<PAGE> COVER
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 June 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 July 30, 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> INDEX
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 June 30, 1999 and 1998....... 1
STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended June 30, 1999 and 1998......... 2
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
At June 30, 1999 and December 31, 1998.................. 3
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998......... 4
STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999.................. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................... 6-10
Item 2: Management's Narrative Analysis of the Results of Operations. 11-18
PART II. OTHER INFORMATION
Item 1: Legal Proceedings............................................ 18
Item 6: Exhibits and Reports on Form 8-K............................. 19
Signatures............................................................ 20
<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 June 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions of Dollars, Except Ratios 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues Rail...................................$2,491 $2,317
----------------------------------------------------------
Operating Expenses Salaries, wages and employee benefits.. 874 889
Equipment and other rents.............. 304 344
Depreciation........................... 256 248
Fuel and utilities (Note 3)............ 190 201
Materials and supplies................. 133 134
Casualty costs......................... 84 107
Other costs (Note 7)................... 213 511
----------------------------------------------------------
Total.................................. 2,054 2,434
----------------------------------------------------------
Income Operating Income (Loss)................ 437 (117)
Other income (Note 5).................. 17 50
Interest expense....................... (155) (147)
----------------------------------------------------------
Income (Loss) before Income Taxes...... 299 (214)
Income taxes........................... (93) 92
----------------------------------------------------------
Net Income (Loss)......................$ 206 $ (122)
----------------------------------------------------------
Ratio of Earnings to Fixed
Charges (Note 6)................. 2.5 -
----------------------------------------------------------
</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 Six Months Ended June 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions of Dollars, Except Ratios 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues Rail...................................$4,970 $4,601
---------------------------------------------------------
Operating Expenses Salaries, wages and employee benefits.. 1,779 1,773
Equipment and other rents.............. 615 700
Depreciation........................... 514 494
Fuel and utilities (Note 3)............ 368 409
Materials and supplies................. 266 266
Casualty costs......................... 184 212
Other costs (Note 7)................... 443 811
----------------------------------------------------------
Total.................................. 4,169 4,665
----------------------------------------------------------
Income Operating Income (Loss)................ 801 (64)
Other income (Note 5).................. 40 69
Interest expense....................... (311) (282)
----------------------------------------------------------
Income (Loss) before Income Taxes...... 530 (277)
Income taxes........................... (175) 123
----------------------------------------------------------
Net Income (Loss)......................$ 355 $ (154)
----------------------------------------------------------
Ratio of Earnings to Fixed
Charges (Note 6)................. 2.3 0.2
----------------------------------------------------------
</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
- -------------------------------------------------------------------------------
June 30, Dec.31,
Millions of Dollars 1999 1998
- -------------------------------------------------------------------------------
Assets
<S> <C> <C> <C>
Current Assets Cash and temporary investments.........$ 69 $ 35
Accounts receivable (Note 3)........... 403 494
Inventories............................ 334 337
Current deferred tax asset............. 130 130
Other current assets................... 89 85
----------------------------------------------------------
Total.................................. 1,025 1,081
----------------------------------------------------------
Investments (Note 2) Investments in and advances to
affiliated companies.............. 632 520
Other investments...................... 124 171
----------------------------------------------------------
Total.................................. 756 691
----------------------------------------------------------
Properties Cost................................... 32,934 32,334
Accumulated depreciation............... (6,217) (5,871)
----------------------------------------------------------
Net.................................... 26,717 26,463
----------------------------------------------------------
Other Other assets........................... 142 122
----------------------------------------------------------
Total Assets...........................$28,640 $28,357
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
----------------------------------------------------------
Current Liabilities Accounts payable.......................$ 530 $ 493
Accrued wages and vacation payable..... 432 380
Accrued casualty costs................. 351 364
Income and other taxes payable......... 268 297
Debt due within one year............... 210 178
Interest payable....................... 102 110
Other current liabilities (Note 2)..... 643 730
----------------------------------------------------------
Total.................................. 2,536 2,552
----------------------------------------------------------
Other Liabilities Intercompany borrowing from UPC........ 5,485 5,368
and Stockholders' Third-party debt due after one year.... 2,470 2,606
Equity Deferred income taxes.................. 6,920 6,759
Accrued casualty costs................. 978 928
Retiree benefit obligations............ 750 737
Other long-term liabilities
(Notes 2 and 7)................... 621 781
Redeemable preference shares........... 26 27
Common stockholders' equity (Page 5).. 8,854 8,599
----------------------------------------------------------
Total Liabilities and
Stockholders' Equity..............$28,640 $28,357
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
<PAGE> 4
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Statement of Consolidated Cash Flows (Unaudited)
Union Pacific Railroad Company and Consolidated Subsidiary
and Affiliate Companies
For the Six Months Ended June 30, 1999 and 1998
- -------------------------------------------------------------------------------
Millions of Dollars 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash from Operations Net Income (Loss)......................$ 355 $ (154)
Non-cash charges to income:
Depreciation......................... 514 494
Deferred income taxes................ 161 (124)
Other - net.......................... (161) (149)
Changes in current assets and
liabilities.......................... 74 (51)
----------------------------------------------------------
Cash Provided by Operations............ 943 16
----------------------------------------------------------
Investing Activities Capital investments.................... (802) (1,231)
Other - net (Note 2)................... (21) 41
----------------------------------------------------------
Cash Used in Investing Activities...... (823) (1,190)
----------------------------------------------------------
Equity and Financing Debt repaid ........................... (104) (180)
Activities Net financings......................... - 380
Dividends paid to parent............... (100) (220)
Advances from affiliated
companies - net...................... 118 1,173
----------------------------------------------------------
Cash Provided by (Used in) Equity
and Financing Activities............. (86) 1,153
----------------------------------------------------------
Net Change in Cash and
Temporary Investments................ 34 (21)
Cash at Beginning of Period............ 35 50
----------------------------------------------------------
Cash at End of Period..................$ 69 $ 29
----------------------------------------------------------
Change in Current Accounts receivable....................$ 91 $ 88
Assets and Inventories............................ 3 (28)
Liabilities Other current assets................... (4) 57
Accounts, wages and vacation payable... 89 (84)
Debt due within one year............... 32 (68)
Other current liabilities.............. (137) (16)
----------------------------------------------------------
Total..................................$ 74 $ (51)
</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 Six Months Ended June 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
(Note 4) (authorized 800 shares)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....................................... 355
----------------------------------------------------------
Total............................................ 4,172
Dividends declared............................... (100)
----------------------------------------------------------
Balance at end of period......................... 4,072
----------------------------------------------------------
Total Common Stockholders' Equity................. $8,854
</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) (see 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 six months ended June 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 2,500 employees and relocated 4,100
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 $130 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 June 30, 1999 and 1998 included $8 million and $11 million
after-tax, respectively, and for the six months ended June 30, 1999 and
1998 included $17 million and $29 million after-tax, respectively, for
acquisition-related costs for UPRR consolidation activities.
<PAGE> 7
The components of the merger liability as of June 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.......................... 343 261 82
Contract cancellation fees and facility
and line closure costs............... 145 125 20
Relocation costs......................... 109 84 25
--------------------------------------------------------------------------
Total.................................... $958 $831 $127
--------------------------------------------------------------------------
</TABLE>
Merger Liabilities - Merger liability activity reflected 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 three 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 Railroad 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 $45 million at June 30, 1999. The Company has received
collateral relating to its hedging activity where the concentration of
credit risk was substantial.
Valuation - The fair market values of the Company's derivative financial
instrument positions at June 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
June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Millions of Dollars June 30, December 31,
Except Percentages and Average Commodity Prices 1999 1998
--------------------------------------------------------------------------
Rail Fuel Hedging:
<S> <C> <C>
Fuel purchases hedged for 1999.............. $ 172 $ 343
Percentage of forecasted 1999 fuel
consumption hedged....................... 64% 64%
Average price of 1999 hedges
outstanding (per gallon) [a]............. $0.41 $0.41
Fuel purchases hedged for 2000.............. $ 65 -
Percentage of forecasted 2000
fuel consumption hedged.................. 13% -
Average price of 2000 hedges
outstanding (per gallon) [a]............. $0.39 -
--------------------------------------------------------------------------
</TABLE>
[a]Excludes taxes and transportation costs.
The asset and liability positions of the Company's outstanding financial
instruments at June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
June 30, December 31,
Millions of Dollars 1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Rail Fuel Hedging:
Gross fair market asset position............ $45 $ -
Gross fair market (liability) position...... - (49)
--------------------------------------------------------------------------
Total asset (liability) position................. $45 $(49)
--------------------------------------------------------------------------
</TABLE>
The Company's use of financial instruments had the following impact on
pre-tax income for the three and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------------------------
June 30, June 30, June 30, June 30,
Millions of Dollars 1999 1998 1999 1998
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reduction in Pre-Tax Income..... - $20 $19 $34
- -------------------------------------------------------------------------------
</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 June 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
six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Millions of Dollars Three Months Ended
---------------------------------
June 30, 1999 June 30, 1998
--------------------------------------------------------------------------
<S> <C> <C>
Net gain on asset dispositions........... $ 7 $29
Rental income............................ 13 12
Interest income.......................... 2 4
Other - net.............................. (5) 5
--------------------------------------------------------------------------
Total.................................... $17 $50
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Millions of Dollars Six Months Ended
---------------------------------
June 30, 1999 June 30, 1998
--------------------------------------------------------------------------
Net gain on asset dispositions........... $18 $43
Rental income............................ 25 23
Interest income.......................... 4 7
Other - net.............................. (7) (4)
--------------------------------------------------------------------------
Total.................................... $40 $69
--------------------------------------------------------------------------
</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 three and six months ended June 30, 1998, fixed charges
exceeded earnings by approximately $224 million and $296 million,
respectively.
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. 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
(See 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
Service Issues - The results of operations of Union Pacific Railroad Company
(Registrant) together with its wholly-owned and majority-owned subsidiaries and
certain affiliates (collectively, the Company or the Railroad), for the three
and six months ended June 30, 1998 were adversely affected by congestion that
began in the third quarter of 1997. However, service recovery efforts resulted
in significant improvements in operating and financial results beginning in the
latter half of 1998 and continuing into the first half of 1999.
Three Months Ended June 30, 1999 Compared to June 30, 1998
Net Income - The Railroad reported net income of $206 million for the second
quarter of 1999 compared to a 1998 net loss of $122 million. Increased earnings
resulted primarily from improved operations and service levels and achieving
benefits from the SP merger.
Operating Revenues - Operating revenues increased $174 million (8%) to $2,491
million in 1999, reflecting the Railroad's continued recovery from 1998 results.
Second quarter 1999 results were adversely impacted by an estimated $40 million
reduction in commodity revenue due to the impact on rail traffic of the
implementation of the joint acquisition of Conrail, which primarily affected the
Railroad's automotive and industrial traffic, and the Railroad's planned 10-day
maintenance outage on its central corridor, which primarily affected energy
traffic from the Powder River Basin (PRB). Commodity revenue increased 8% and
carloads increased 6% as all commodity lines showed improvements over 1998.
Average revenue per car (ARC) improved 2% over 1998 to $1,151.
The following table summarizes the quarter-over-quarter change in rail
commodity revenue (CR):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Carloads in Thousands, Commodity Revenues in Millions of Dollars
Three Months Ended June 30, 1999 Change vs.1998 % Change vs.1998
-------------------------------- -------------- ----------------
Cars ARC CR Cars ARC CR Cars ARC CR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural... 214 $1,536 $ 328 21 $23 $ 38 11% 2% 13%
Automotive..... 184 1,492 275 19 19 32 12 1 13
Chemicals...... 233 1,701 395 7 9 12 3 1 3
Energy......... 448 1,188 533 21 45 45 5 4 9
Industrial..... 353 1,345 475 11 (17) 8 3 (1) 2
Intermodal..... 681 624 426 38 34 46 6 6 12
- -------------------------------------------------------------------------------
Total..........2,113 $1,151 $2,432 117 $23 $181 6% 2% 8%
- -------------------------------------------------------------------------------
</TABLE>
Agricultural - Carloads increased 11%, leading to a commodity revenue gain of
$38 million (13%) over 1998. Stronger exports and improved service levels
resulted in volume increases in wheat (19%), corn (21%) and beverages (22%). ARC
increased 2%, primarily the result of increased long-haul export moves and a
price increase on wheat movements.
Automotive - Commodity revenues were up $32 million (13%), driven mainly by a
12% increase in carloadings. Strong domestic production and improvements in
cycle times, partially offset by the impact on rail traffic of the
implementation of the joint acquisition of Conrail, as well as the negative
<PAGE> 12
impact in the second quarter of 1998 of a strike against a major auto
manufacturer, helped to drive a 13% improvement in finished vehicle volumes and
a 10% improvement in parts volumes. ARC increased 1% per car due to a
combination of product mix and price increases.
Chemicals - Carloadings and commodity revenue increased 3% over 1998. Improved
service levels and recovery in demand drove increases in plastics, liquid and
dry chemicals and phosphorous moves. These gains were partially offset by
declines in soda ash caused by the adverse impact on demand resulting from the
Asian currency crisis, lower sulfur moves resulting from a slow down in
production in response to weak demand, and a decline in demand for fertilizers
resulting from depressed demand for U.S. farm commodities. ARC improved 1% due
to favorable product mix, reflecting traffic improvements in longer-haul
plastics and fewer shorter-haul petroleum moves.
Energy - Carloads increased 5%, resulting in a $45 million increase in commodity
revenue. ARC improved as a result of an increase in longer-haul PRB traffic,
combined with a 4% increase in tons per car. Volumes increased as a result of
longer trains and more trains per day out of the PRB and improved service from
Colorado and Utah mines, offset by a planned 10-day maintenance outage in the
central corridor in June 1999.
Industrial - Carloadings increased 3% and commodity revenue increased $8 million
(2%) to $475 million. Volume increases resulted from stronger demand and
improved cycle times. Traffic gains occurred in lumber, stone and cement due to
strong construction demand. Recyclables grew due to new business. Gains were
partially offset by decreased steel loadings due to higher imports of low-priced
foreign steel, which reduced U.S. production, and lost volumes from a major
steel producer who filed for bankruptcy. ARC declined 1% due to an unfavorable
mix of long- and short-haul business.
Intermodal - Commodity revenue increased $46 million (12%) to $426 million and
carloadings increased 6%. Results were positively affected by strong demand
resulting 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. ARC increased 6% due to
positive mix shifts (longer-haul shipments) and demand driven price increases.
Operating Expenses - Operating expenses decreased $380 million (16%) to $2,054
million in 1999. A large portion of the decrease relates to a $250 million
expense in the second quarter of 1998 for the resolution of customer claims.
Improvements in service and increased benefits from the SP merger helped reduce
quarter-over-quarter operating expenses.
Salaries, wages and employee benefits - Labor expenses were $15 million (2%)
lower than 1998, as higher rail volumes and wage inflation were more than offset
by merger consolidation benefits and productivity improvements.
Equipment and other rents - Rent expense decreased $40 million (12%) versus
1998, due primarily to an improvement in cycle time, which decreased to 12.6
days in 1999 compared to 16.4 days in 1998, and lower prices for private tank
cars, intermodal equipment and other leased equipment. Most of the price
decrease was related to a more favorable mix of equipment, as well as lower
rates resulting from deregulation of equipment rates. These improvements were
partially offset by higher volume as carloads increased 6% quarter-over-quarter.
<PAGE> 13
Depreciation - Depreciation expense grew by $8 million or 3% to $256 million due
to the Railroad's capital spending in the last half of 1998 and first half of
1999, partially offset by lower overall depreciation rates for equipment and
track assets resulting from the most recent periodic depreciation study required
by the Surface Transportation Board of the U.S. Department of Transportation
(STB).
Fuel and utilities - Fuel and utilities expenses were down $11 million or 5%
from 1998, reflecting lower fuel prices and improved consumption rates, which
were partially offset by higher volume. An 8% increase in gross-ton miles
quarter-over-quarter added volume-related fuel costs of $14 million versus 1998.
Prices were down 7 cents per gallon to 56 cents, saving $23 million. The fuel
consumption rate of 1.39 gallons per thousand gross-ton miles improved 2% from
last year, lowering fuel costs by another $4 million. The Railroad hedged 69% of
its second quarter fuel consumption in 1999, which increased fuel costs by less
than a million dollars, or .1 cent per gallon. Expected fuel consumption for the
remaining six months of 1999 is 64% hedged at an average of 55 cents per gallon
(including taxes, transportation charges and regional pricing spreads).
Materials and supplies - Materials and supplies expense decreased $1 million
(1%) from 1998. Lower material costs for roadway machines and work equipment and
lower material freight charges more than offset an increase in locomotive repair
material needed for units being removed from storage.
Casualty costs - Casualty costs declined $23 million (21%) from 1998, 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
quarter-over-quarter.
Other costs - Other costs decreased $298 million (58%) from 1998, reflecting a
$250 million expense recorded in 1998 for 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 $554 million to $437 million in
1999. Both periods included the impact of one-time merger-related costs for
severance, relocation and training of employees ($13 million reduction in
operating income in 1999 and $17 million reduction in operating income in 1998).
The operating ratio for the second quarter of 1999 was 82.5%, 22.5 percentage
points better than 1998's 105.0% operating ratio.
Non-Operating Items - Other income decreased $33 million (66%), reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance recovery for 1997 flood damage. Interest expense increased $8
million, the result of higher average debt levels. Income taxes increased $185
million to a $93 million expense, reflecting higher income before income taxes,
partially offset by settlements related to prior tax years.
Six Months Ended June 30, 1999 Compared to June 30, 1998
Net Income - The Railroad operations reported net income of $355 million for the
six months ended June 30, 1999 compared to a 1998 net loss of $154 million.
Increased earnings resulted primarily from improved operations and service
levels and achieving benefits from the SP merger.
Operating Revenues - Operating revenues increased $369 million (8%) to $4,970
million in 1999, reflecting the Railroad's continued recovery from 1998 results.
1999 revenues were adversely impacted by an estimated $40 million reduction in
commodity revenue due to the impact on rail traffic of the implementation of the
<PAGE> 14
joint acquisition of Conrail, which primarily impacted automotive and industrial
traffic, and the Railroad's planned 10-day maintenance outage on its central
corridor, which primarily affected energy traffic from the PRB. Carloadings for
the first six months of 1999 were 6% higher than 1998. Average revenue per car
(ARC) improved 2% over 1998 to $1,162.
The following table summarizes the year-over-year change in rail commodity
revenue (CR):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Carloads in Thousands, Commodity Revenues in Millions of Dollars
Six Months Ended June 30,1999 Change vs.1998 % Change vs.1998
----------------------------- -------------- ----------------
Cars ARC CR Cars ARC CR Cars ARC CR
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural..... 437 $1,544 $ 675 43 $ 6 $ 70 11% -% 12%
Automotive....... 354 1,492 528 30 31 55 9 2 12
Chemicals........ 458 1,741 796 9 20 23 2 1 3
Energy........... 925 1,185 1,097 56 52 112 6 5 11
Industrial....... 680 1,359 924 24 (12) 24 4 (1) 3
Intermodal.......1,307 622 814 65 26 73 5 4 10
- -------------------------------------------------------------------------------
Total............4,161 $1,162 $4,834 227 $24 $357 6% 2% 8%
- -------------------------------------------------------------------------------
</TABLE>
Agricultural - Carloads increased 11%, leading to a commodity revenue gain of
$70 million (12%) over 1998. Stronger exports and improved service levels
resulted in volume increases in wheat, corn and beverages. ARC remained flat as
longer hauls in meals and oils and a price increase on wheat movements were
offset by a shift in corn movements to shorter-haul Gulf Coast moves versus
longer-haul Pacific Northwest moves.
Automotive - Commodity revenue was up $55 million (12%), driven mainly by a 9%
increase in carloadings. Strong domestic production, and improvements in cycle
times, partially offset by the impact on rail traffic of the implementation of
the joint acquisition of Conrail, model changeovers and a plant shut down, as
well as the negative impact in 1998 of a strike against a major auto
manufacturer, resulted in year-over-year increases in both finished vehicle and
parts volumes. ARC increased 2% per car due to a combination of product mix and
price increases.
Chemicals - Carloadings and commodity revenue increased 2% and 3%, respectively,
over 1998. Improved service levels and recovery in demand drove increases in
plastics, liquid and dry chemicals and phosphorous moves. These gains were
partially offset by declines in soda ash caused by the adverse impact on demand
resulting from the Asian currency crisis, lower sulfur moves resulting from a
slow down in production in response to weak demand, and a decline in demand for
fertilizers resulting from depressed demand for U.S. farm commodities. ARC
improved 1% due to favorable product mix, reflecting traffic improvements in
longer-haul plastics and fewer shorter-haul petroleum and export sulfur moves.
Energy - Carloads increased 6%, resulting in a $112 million increase in
commodity revenue. ARC also improved $52 per car (5%) year-over-year resulting
from changes in traffic mix as longer-haul PRB traffic increased. Increases in
the number of PRB trains per day, tons per car and average train length helped
to improve 1999 PRB business versus 1998. PRB 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.
Industrial - Carloadings increased 4% and commodity revenue increased $24
million (3%) to $924 million. Volume increases resulted from stronger demand and
improved cycle times. Traffic gains occurred 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 low-priced
foreign steel, which reduced U.S. production, and lost volumes from a major
steel producer who filed for bankruptcy. ARC declined 1% due to an unfavorable
mix of long- and short-haul business.
<PAGE> 15
Intermodal - Commodity revenue increased $73 million (10%) to $814 million and
carloadings increased 5%. Results were affected positively by strong demand
resulting 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. ARC increased 4% due to
positive mix shifts (longer-haul shipments) and demand driven price increases.
Operating Expenses - Operating expenses decreased $496 million (11%) to $4,169
million in 1999. A large portion of the decrease relates to the impact of
expense in 1998 for the resolution of customer claims. Improvements in service
and increased benefits from the SP merger helped to drive the year-over-year
decrease in operating expenses.
Salaries, wages and employee benefits - Labor expenses were $6 million higher
than 1998, a result of higher volumes and wage inflation that were partially
offset by merger consolidation benefits and productivity improvements.
Equipment and other rents - Rent expense decreased $85 million (12%) versus
1998, due primarily to improvements in cycle time and lower prices, partially
offset by higher volume as carloads increased 6% year-over-year.
Depreciation - Depreciation expense grew by $20 million or 4% to $514 million,
due to the Railroad's capital spending in the last half of 1998 and first half
of 1999, partially offset by lower overall depreciation rates for equipment and
track assets resulting from the most recent periodic depreciation study required
by the STB. The Railroad spent over $2 billion on capital projects in 1998 and
over $800 million on capital projects during the first six months of 1999.
Fuel and utilities - Fuel and utilities expenses were down $41 million or 10%
from 1998, reflecting lower fuel prices and improved consumption rates, which
were partially offset by higher volume. The Railroad hedged 70% of its fuel
consumption for the first six months of 1999, which increased fuel costs by $19
million.
Materials and supplies - Materials and supplies expense remained unchanged from
the first six months of 1998 at $266 million. Lower material costs for roadway
machines and work equipment, lower material freight charges and higher credits
received for parts rebuilt, offset an increase in locomotive repair material
needed for units being removed from storage.
Casualty costs - Casualty costs declined $28 million (13%) from 1998, 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.
Other costs - Other costs decreased $368 million (45%) from 1998, reflecting the
impact on 1998 results from expense for 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 $865 million to $801 million in
1999. Both periods included the impact of one-time merger-related costs for
severance, relocation and training of employees ($28 million reduction in
operating income in 1999 and $46 million reduction in operating income in 1998).
The operating ratio for the first six months of 1999 was 83.9%, 17.5 percentage
points better than 1998's 101.4% operating ratio.
<PAGE> 16
Non-Operating Items - Other income decreased $29 million (42%), reflecting the
impact in the second quarter of 1998 of the sale of the SP headquarters building
and an insurance recovery for 1997 flood damage. Interest expense increased $29
million, the result of higher average debt levels. Income taxes increased $298
million to a $175 million expense reflecting higher income before income taxes,
partially offset by settlements related to prior years.
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). 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.
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 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.
<PAGE> 17
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 period
is scheduled to be completed in September 1999, 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
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 June 30, 1999, more than 90% 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 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 claims, lawsuits, environmental costs, commitments, contingent liabilities,
labor negotiations or other matters will have a material adverse effect on its
consolidated financial condition, results of operations or liquidity and other
<PAGE> 18
similar expressions concerning matters that are not historical facts, and
projections or predictions as to the Company's financial or operational results.
Such forward-looking information is or will be based on information available at
that time, 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, whether the Company is fully successful in implementing its financial and
operational initiatives; regaining its customers who switched to alternative
transportation arrangements during the service crisis; industry competition and
performance, and 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; the outcome of shipper claims related to congestion; and
claims arising from environmental investigations or proceedings and other types
of claims and litigation. 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
second 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
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.
Environmental Matters - As reported in the Railroad's 1998 10-K, the Railroad
was named as a defendant in a criminal misdemeanor action brought by the State
of California, and both the California Department of Fish and Game and the
United States Environmental Protection Agency (USEPA) were seeking penalties, as
the result of a diesel fuel spill at Norden, California in February 1997. In the
second quarter, the Railroad settled the cases with the State of California by
payment of $180,000. The Railroad and the USEPA have reached an agreement in
principle to settle that case for payment of $125,000, subject to the USEPA's
customary public comment procedures.
<PAGE> 19
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 June 30, 1999
12(b) - Computation of Ratio of Earnings to Fixed Charges
for the Six Months Ended June 30, 1999
27 - Financial data schedule.
(b) Reports on Form 8-K
On April 22, 1999, the Registrant filed a Current Report on Form
8-K announcing UPC's financial results for the first quarter of
1999.
<PAGE> SIGNATURE
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: August 13, 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 June 30, 1999
12(b) Computation of Ratio of Earnings to Fixed Charges
for the Six Months Ended June 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 June 30,
Millions of Dollars Except Ratios 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Earnings:
Net Income (Loss)................................. $206 $(122)
Undistributed equity earnings..................... (10) (10)
- -------------------------------------------------------------------------------
Total............................................. 196 (132)
- -------------------------------------------------------------------------------
Income Taxes......................................... 93 (92)
- -------------------------------------------------------------------------------
Fixed Charges:
Interest expense including amortization
of debt discount............................... 155 147
Portion of rentals representing an
interest factor................................ 45 44
- -------------------------------------------------------------------------------
Total............................................. 200 191
- -------------------------------------------------------------------------------
Earnings Available for Fixed Charges................. 489 (33)
- -------------------------------------------------------------------------------
Fixed Charges -- as above............................ $200 $ 191
- -------------------------------------------------------------------------------
Ratio of earnings to fixed charges (Note 6).......... 2.5 -
- -------------------------------------------------------------------------------
</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>
- -------------------------------------------------------------------------------
Six Months Ended June 30,
Millions of Dollars Except Ratios 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Earnings:
Net Income (Loss)................................. $355 $(154)
Undistributed equity earnings..................... (19) (19)
- -------------------------------------------------------------------------------
Total............................................. 336 (173)
- -------------------------------------------------------------------------------
Income Taxes......................................... 175 (123)
- -------------------------------------------------------------------------------
Fixed Charges:
Interest expense including amortization
of debt discount............................... 311 282
Portion of rentals representing an
interest factor................................ 90 88
- -------------------------------------------------------------------------------
Total............................................. 401 370
- -------------------------------------------------------------------------------
Earnings Available for Fixed Charges................. 912 74
- -------------------------------------------------------------------------------
Fixed Charges -- as above............................ $401 $ 370
- -------------------------------------------------------------------------------
Ratio of earnings to fixed charges (Note 6).......... 2.3 0.2
- -------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This is a Legend
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 403
<ALLOWANCES> 0
<INVENTORY> 334
<CURRENT-ASSETS> 1025
<PP&E> 32934
<DEPRECIATION> 6217
<TOTAL-ASSETS> 28640
<CURRENT-LIABILITIES> 2536
<BONDS> 2470
0
26
<COMMON> 0
<OTHER-SE> 8854
<TOTAL-LIABILITY-AND-EQUITY> 28640
<SALES> 0
<TOTAL-REVENUES> 4970
<CGS> 0
<TOTAL-COSTS> 4169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311
<INCOME-PRETAX> 530
<INCOME-TAX> 175
<INCOME-CONTINUING> 355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
