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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 1-6075
UNION PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Utah 13-2626465
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1717 MAIN STREET
SUITE 5900 75201-4605
DALLAS, TX (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 743-5600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock (Par Value $2.50 per share) New York Stock Exchange, Inc.
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_____].
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As of February 28, 1998 the aggregate market value of the registrant's
Common Stock held by non-affiliates (using the New York Stock Exchange closing
price) was approximately $12,644,079,279.
The number of shares outstanding of the registrant's Common Stock as of
February 28, 1998 was 247,292,769.
Portions of the following documents are incorporated by reference into
this Report: (1) registrant's Annual Report to Stockholders for the year ended
December 31, 1997 (Parts I, II and IV); and (2) registrant's definitive Proxy
Statement for the annual meeting of stockholders to be held on April 17, 1998
(Part III).
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PART I
ITEM 1. BUSINESS AND ITEM 2. PROPERTIES
DISCUSSION OF SIGNIFICANT EVENTS AND OPERATIONS
Union Pacific Corporation (UPC or the Corporation), incorporated in Utah
in 1969, operates through subsidiaries primarily in the areas of rail
transportation and trucking. The Corporation's rail transportation operations
principally consist of Union Pacific Railroad Company (UPRR or the Railroad)
(including Missouri Pacific Railroad Company (MPRR), which was merged with UPRR
on January 1, 1997, the Denver and Rio Grande Railroad Company (DRGW) and SPCSL
Corp. (SPCSL), which were merged into UPRR on June 30, 1997, St. Louis
Southwestern Railway Company (SSW), which was merged into UPRR on September 30,
1997, and Southern Pacific Transportation Company (SPT), which was merged with
UPRR on February 1, 1998). SPT, DRGW, SPCSL and SSW were the principal rail
subsidiaries of Southern Pacific Rail Corporation (Southern Pacific or SP), the
acquisition of which was completed in September 1996. The Corporation's trucking
operations principally consist of Overnite Transportation Company (Overnite).
Over the past three years, UPC completed several strategic transactions
that refocused the Corporation's business objectives on its core transportation
operation, including the Southern Pacific acquisition (see "Corporate
Reorganization" below). In addition, during the latter part of the year, the
Railroad experienced unexpected traffic congestion and service problems
throughout the system (see "1997 Congestion and Service Issues" below).
CORPORATE REORGANIZATION
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY (CNW) - In April 1995,
UPC acquired the remaining 71.6% of CNW's outstanding common stock not
previously owned by UPC for $1.2 billion. The acquisition of CNW was accounted
for as a purchase, and CNW's financial results were consolidated with UPC,
beginning in May 1995.
NATURAL RESOURCES DIVESTITURE - In July 1995, UPC's Board of Directors
approved a formal plan to dispose of its oil, gas and mining business through an
initial public offering (IPO) of 17% of the common stock of Union Pacific
Resources Group Inc. (Resources), followed by a distribution of UPC's remaining
interest in Resources to the Corporation's stockholders on a tax-free, pro-rata
basis (the Spin-Off). In October 1995, Resources completed the IPO, and, after
UPC's receipt of a favorable Internal Revenue Service ruling as to the tax-free
nature of the Spin-Off, UPC completed its divestiture of Resources in October
1996.
SOUTHERN PACIFIC ACQUISITION - In September 1995, UPC acquired 25% of
Southern Pacific, and, in September 1996, it acquired the remaining 75% after
receipt of a favorable decision from the Surface Transportation Board of the
U.S. Department of Transportation (STB) regarding the Corporation's acquisition
of SP. The aggregate Southern Pacific purchase price was $4.1 billion (comprised
of $2.5 billion in UPC common stock and $1.6 billion in cash). The acquisition
of Southern Pacific was accounted for as a purchase, and Southern Pacific's
results were fully consolidated with the Corporation's results beginning in
October 1996.
MEXICAN RAILWAY CONCESSION - During 1997, UPRR and a consortium of
partners were granted a 50-year concession for the Pacific-North and Chihuahua
Pacific rail lines in Mexico and a 25% stake in the Mexico City Terminal Company
at an aggregate
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price of $525 million. The Railroad holds a 13% ownership share in the
consortium and has accounted for its interest by the equity method. The
consortium assumed operational control of both lines in February 1998.
INTEGRATION OF SOUTHERN PACIFIC
The Corporation expects to complete the full integration of the
operations of UPRR and the Southern Pacific rail subsidiaries during 1999. The
Corporation believes that the full implementation of the merger will result in
shorter routes, faster transit times, better on-time performance, expanded
single-line service and more efficient traffic flow. Some of the key on-going
elements of integration are (i) the institution of directional running on
parallel tracks in certain corridors to improve average train velocity and allow
more traffic to be handled efficiently, (ii) the negotiation and implementation
of "hub-and-spoke" labor agreements to allow more efficient use of train crews,
(iii) the integration of the computer systems of both companies to improve
overall operations and service and (iv) merger-related capital spending to
expand capacity and improve service, now estimated to approximate $400 million.
1997 CONGESTION AND SERVICE ISSUES
CONGESTION - In the third quarter of 1997, congestion in and around
Houston and the coastal areas of Texas and Louisiana (the Gulf Coast region)
began to have a material adverse effect on UPRR's operations and earnings.
System congestion started in the Gulf Coast region and spread throughout the
system as UPRR shifted resources to help mitigate the need for locomotives due
to slower average train velocity. The congestion was brought on by, among other
things, crew shortages and restricted track access caused by necessary track
maintenance on former Southern Pacific lines, increased demand, washouts due to
severe weather, derailments and congestion at Texas/Mexico gateways. Traffic
slowed further as railyards in the Gulf Coast region filled, slowing access into
and out of the yards and forcing trains to be held on sidings.
SERVICE RECOVERY PLAN - To restore service to acceptable levels, UPRR
announced on October 1, 1997, that it was implementing a Service Recovery Plan
(the Plan). The Plan focuses on reducing the number of cars on the system and
restoring system velocity, which, in turn, results in more reliable service to
customers. Key elements of the Plan include:
o Power: Bringing more locomotives into the Gulf Coast region
through acquisitions, leasing from other railroads and moving
locomotives from selected areas of the UPRR system;
o People: Engaging in an extensive hiring program, allocating
additional managers and operating personnel and revising
operating plans to relieve congested terminals and remove trains
from congested lines; and
o Cooperation: Working with customers and other railroads to
curtail additional congestion and to provide alternative
transportation.
RECENT ACTIONS UNDER THE PLAN - Implementation of the Plan has resulted
in improvement in the overall operation of the Railroad and has generally
eliminated congestion problems outside the Gulf Coast region (although weather
problems have
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caused intermittent periods of congestion, primarily in the Midwest). However,
significant congestion has continued in the Gulf Coast region, which has been
aggravated recently by several severe storms and congestion caused by
operational problems on Mexican railroad lines south of Laredo, Texas. UPRR has
implemented (i) Transportation Control System (TCS) in the southeast portion of
UPRR's system, which includes the Gulf Coast region, where the cutover to TCS
occurred on December 1, 1997, (ii) directional running from Dexter Junction,
Missouri on the north, across Arkansas, western Louisiana and eastern Texas to
the Houston and San Antonio areas on the south, beginning on February 1, 1998
and (iii) the "hub-and-spoke" labor agreements in Texas and Arkansas. Although
the Corporation believes that the full implementation of these changes is
essential to achieving significant long-term benefits, their implementation
also contributed to the persistence of congestion in the affected Gulf Coast
region during late 1997 and early 1998.
In order to address the congestion problem and to realize the benefits
to UPRR and its customers of the merger implementation steps outlined above,
UPRR has recently initiated certain actions under the Plan:
o Power: Arranging for the deployment of approximately 200
locomotives in the Gulf Coast region through selective
redeployment and short-term leases and loans from other
railroads to reduce congestion in yards and remove trains from
sidings.
o People: Continuing its hiring program and redeploying personnel
to (i) improve management of certain major terminals, (ii)
update TCS information in congested areas to improve operational
reliability and (iii) identify empty cars and expedite them to
shipper facilities for loading to reduce the number of cars in
yards and on sidings.
o Cooperation: Working with UPRR's connecting railroads to
expedite the interchange of traffic and entering into
arrangements with competitors to share tracks and coordinate
dispatching. For example, the recent agreement between UPRR and
The Burlington Northern and Sante Fe Railway Company ("BNSF"),
which, among other things, grants certain trackage rights to
UPRR in the Houston area and provides for joint dispatching of
various lines in the Houston area and between Houston and New
Orleans.
UPRR believes that the steps it is taking to continue the integration of
Southern Pacific and to implement the Plan will alleviate the congestion and
service issues affecting UPRR and that substantial operational improvement will
begin to occur in the near term. UPRR is also prepared to take additional
action, including transferring business to other carriers and arranging a
temporary pause in shipments with selected customers to allow UPRR to clear the
system, if such actions become necessary. However, UPRR does not believe that
such actions are necessary at this time.
In conjunction with the Plan, UPRR is engaged in a comprehensive
examination of its long-term capital spending program in the areas affected by
congestion. The study focuses on further upgrading UPRR's operations
infrastructure in order to keep pace with business growth primarily driven by
current and anticipated chemical plant expansion along the Gulf Coast as well as
intermodal, automotive, industrial products, grain and Mexico business. The
scope of the examination includes all terminal operations, yards, industrial
complexes, joint operations, connecting routes and Mexican gateways in the El
Paso-New Orleans corridor. UPRR currently plans to spend more than $570 million
on capital projects in Texas and Louisiana in
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1998 and 1999. Management remains committed to capital spending to continue
capacity expansion on its main lines and in its yards, upgrade and augment
equipment to meet customer needs and develop and implement new technology.
FINANCIAL IMPACT OF CONGESTION - The cost of the congestion-related
problems in 1997 was approximately $450 million, after tax, which reflected the
combined effects of lost business, higher costs associated with system
congestion, and costs associated with implementation of the Plan, alternate
transportation and customer claims. Although progress has been made in improving
service, the Railroad expects these problems to have an adverse impact on 1998
results, and on February 26, 1998, the Corporation announced that the problems
would likely result in a loss during the first quarter of 1998. In addition, as
a result of recent operating losses at UPRR and in order to fund its capital
program, the Corporation has incurred substantial incremental debt since
December 31, 1997, and the Corporation expects to incur significant additional
debt during the remainder of 1998. The timing of the Corporation's return to
profitability will be determined by how rapidly it is able to eliminate
congestion in the Gulf Coast region and return to normal operations.
CONTINUING OPERATIONS
RAIL TRANSPORTATION - The Railroad is the largest railroad in the United
States (measured in both track miles and freight revenue), operating nearly
35,000 route miles linking Pacific Coast and Gulf Coast ports to the Midwest and
eastern U.S. gateways and providing several north/south corridors to key Mexican
gateways. The Railroad serves the western two-thirds of the country and
cooperates with other carriers in the handling of freight to and from the
Atlantic seaboard, the Pacific Coast, the Southeast, the Southwest, Canada and
Mexico. Export and import traffic is moved through Gulf Coast and Pacific Coast
ports and across the Mexican and Canadian borders(primarily through interline
connections). The Corporation completed the integration of CNW in 1996 and
expects to complete the integration of the operations of Southern Pacific during
1999. Major categories of freight hauled by the Railroad are agricultural
products, automotive, chemicals, energy (primarily coal), industrial products
and intermodal. In 1997, energy was the largest commodity hauled, representing
36.1% of the Railroad's revenue ton-miles and 19.7% of the Railroad's commodity
revenue. Percentages of revenue ton-miles and commodity revenue for other
commodities hauled by the Railroad are presented on page 49 of the 1997 Annual
Report to Stockholders (Annual Report) and are incorporated herein by reference.
In its rail transportation business, the Railroad is subject to price
and service competition from other railroads, motor carriers and barge
operators. The vast majority of the Railroad's freight is hauled in corridors
served by competing railroads and motor carriers. Motor carrier competition has
been strengthened by longer combination vehicles that are allowed in a number of
states in which the Railroad operates. Because of the Railroad's proximity to
major inland and Gulf Coast waterways, barge competition can be particularly
pronounced for grain and bulk commodities in certain markets.
Approximately 90% of the Railroad's 52,000 employees are represented by
rail unions. Under the conditions imposed by the STB in connection with the
Southern Pacific acquisition, labor agreements between the Railroad and the
unions must be negotiated before the UPRR and Southern Pacific rail systems can
be fully integrated. The Corporation has reached agreement with a number of
unions and expects the remaining agreements to be finalized in 1998.
A separate Annual Report on Form 10-K for the year ended December 31,
1997, will be filed by UPRR and will contain additional information concerning
that company.
TRUCKING - The Corporation's other major line of business is truck
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transportation. Overnite, a major interstate trucking company specializing in
less-than-truckload (LTL) shipments, serves all 50 states and portions of Canada
and Mexico through 164 service centers located throughout the United States.
Overnite transports a variety of products, including machinery, tobacco,
textiles, plastics, electronics and paper products. Overnite experiences intense
service and price competition from both regional and national motor carriers.
As one of the nation's largest LTL trucking companies, Overnite is
periodically targeted by major labor organization efforts instituted by the
International Brotherhood of Teamsters (Teamsters) at many of its service
centers. Since year-end 1994, 59 of Overnite's 164 service centers have received
petitions for union elections. Where elections have been held, 35 Overnite
service centers voted against representation. The employees of three service
centers that previously voted for union representation filed petitions with the
National Labor Relations Board (NLRB) to decertify the Teamsters as their union
bargaining representative. Nineteen service centers, representing approximately
12% of Overnite's nationwide workforce, voted for union representation, and the
Teamsters have been certified as the bargaining representative for such
employees without challenge by Overnite. Five other service centers,
representing another 5% of Overnite's nationwide workforce, either voted for
union representation or it is unclear how such employees have voted, and such
elections are currently being challenged by Overnite before the NLRB or the
Federal courts. Overnite has begun negotiations with the Teamsters at the
service centers where the Teamsters have been certified as the bargaining
representative.
During 1997 and 1996, Overnite continued to benefit from several
initiatives implemented in 1996 which were aimed at better matching its
operations to the current trucking industry environment. These actions included
workforce reductions, service center consolidations, centralization of the
linehaul management process and pricing initiatives targeting Overnite's lowest
margin customers.
DIVESTITURES
SKYWAY - In January 1998, the Corporation announced its intention to
sell its investment in Skyway Freight Systems, Inc., a wholly-owned subsidiary
engaged in contract logistics and supply chain management by the end of the
year. In connection with the planned sale, the Corporation recognized a $40
million after tax loss in the fourth quarter of 1997.
OTHER INFORMATION
Additional information for UPC's principal businesses is presented on
pages 4 through 17, 37, 38, 49 and 50 of the Annual Report and such information
(excluding photographs on pages 4 through 17, none of which supplements the text
and which are not otherwise required to be disclosed herein) is incorporated
herein by reference. Information on the UP-SP merger on page 4 and 5 of the
Annual Report, as well as information on business segments on page 31 and a map
of the Corporation's operations on pages 52 and 53 of the Annual Report are also
incorporated herein by reference.
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GOVERNMENTAL REGULATION
Union Pacific's operations are currently subject to a variety of
Federal, state and local regulation. The most significant areas of regulation
are described below. See also "Item 3. Legal Proceedings".
The operations of the Railroad and Overnite are subject to the
regulatory jurisdiction of the STB, other Federal agencies and various state
agencies. The STB has jurisdiction over rates charged on certain regulated rail
traffic; freight car compensation; transfer, extension or abandonment of rail
lines; and acquisition of control of rail and motor carriers by rail common
carriers. Other Federal agencies have jurisdiction over safety, movement of
hazardous materials, movement and disposal of hazardous waste and equipment
standards. Various state and local agencies have jurisdiction over disposal of
hazardous wastes and seek to regulate movement of hazardous materials.
ENVIRONMENTAL REGULATION
Subsidiaries of UPC are subject to various environmental statutes and
regulations, including the Resource Conservation and Recovery Act (RCRA), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), and the Clean Air Act (CAA).
RCRA applies to hazardous waste generators and transporters, as well as
to persons engaged in treatment and disposal of hazardous waste, and specifies
standards for storage areas, treatment units and land disposal units. All
generators of hazardous waste are required to label shipments in accordance with
detailed regulations and to prepare a detailed manifest identifying the material
and stating its destination before waste can be released for offsite transport.
The transporter must deliver the hazardous waste in accordance with the manifest
and only to a treatment, storage or disposal facility qualified for RCRA interim
status or having a final RCRA permit.
Environmental Protection Agency (EPA) regulations under RCRA have
established a comprehensive system for the management of hazardous waste. These
regulations identify a wide range of industrial by-products and residues as
hazardous waste, and specify requirements for "cradle-to-grave" management of
such waste from the time of generation through the time of disposal and beyond.
States that have adopted hazardous waste management programs with standards at
least as stringent as those promulgated by the EPA may be authorized by the EPA
to administer all or part of RCRA on behalf of the EPA.
CERCLA was designed to establish a strategy for cleaning up facilities
at which hazardous waste or other hazardous substances have created actual or
potential environmental hazards. The EPA has designated certain facilities as
requiring cleanup or further assessment. Among other things, CERCLA authorizes
the Federal government either to clean up such facilities itself or to order
persons responsible for the situation to do so. The act created a multi-billion
dollar fund to be used by the Federal government to pay for such cleanup
efforts. In the event the Federal government pays for such clean-up, it will
seek reimbursement from private parties upon which CERCLA imposes liability.
CERCLA imposes strict liability on the owners and operators of
facilities in which hazardous waste and other hazardous substances are deposited
or from which they are released or are likely to be released into the
environment. It also imposes strict liability on the generators of such waste,
and the transporters of
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the waste who select the disposal or treatment sites. Liability may include
cleanup costs incurred by third persons and damage to publicly-owned natural
resources. UPC's subsidiaries are subject to potential liability under CERCLA as
generators of hazardous waste and as transporters. Some states have enacted, and
other states are considering enacting, legislation similar to CERCLA. Certain
provisions of these acts are more stringent than CERCLA. States that have passed
such legislation are currently active in designating more facilities as
requiring cleanup and further assessment.
The operations of the Corporation's subsidiaries are subject to the
requirements of the CAA. The 1990 amendments to the CAA include a provision
under Title V requiring that certain facilities obtain operating permits. EPA
regulations require all states to develop Federally-approvable permit programs.
Affected facilities must submit air operating permit applications to the
respective states within one year of the EPA's approval of the state programs.
Certain UPC railroad facilities may be required to obtain such permits. In
addition, in December 1997, the EPA issued final regulations which require that
most locomotives purchased or remanufactured after 1999 or 2000 meet certain
stringent emissions criteria. While the cost of meeting these requirements may
be significant, expenditures are not expected to have a material adverse affect
on the Corporation's financial condition or results of operations.
The operations of UPC's subsidiaries are also subject to other laws
protecting the environment, including permit requirements for wastewater
discharges pursuant to the National Pollutant Discharge Elimination System and
storm-water runoff regulations under the Federal Water Pollution Control Act.
CAUTIONARY INFORMATION
Certain information included in this report contains, and other
materials filed or to be filed by the Corporation with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Corporation) 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 Corporation does not expect that lawsuits, environmental costs, commitments,
contingent liabilities, labor negotiations, claims or other matters will have a
material adverse effect on its consolidated financial condition, results of
operations or liquidity and other similar expressions concerning matters that
are not historical facts, and projections or predictions as to the Corporation'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 Railroad is fully
successful in overcoming its congestion-related problems and implementing the
Plan and other financial and operational initiatives, industry competition and
regulatory developments, natural events such as floods and earthquakes, the
effects of adverse general economic conditions, fuel prices, labor strikes, the
impact of year 2000 systems problems, and the ultimate outcome of shipper claims
related to congestion, environmental investigations or proceedings and other
types of claims and litigation.
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ITEM 3. LEGAL PROCEEDINGS
SOUTHERN PACIFIC ACQUISITION
As previously reported, various appeals have been filed with respect to the
STB's August 12, 1996 decision (the "Decision") approving the acquisition of
control of Southern Pacific by the Corporation. All of the appeals have been
consolidated in the U.S. Court of Appeals for the District of Columbia Circuit.
On April 23, 1997, the City of Wichita and Sedgwick County, Kansas, moved to
withdraw their petition for review, and the Court granted their motion on April
30, 1997. On August 11, 1997, the Court established a briefing schedule under
which briefs for petitioners and supporting intervenors were due on October 10,
1997; the brief for respondents was due December 9, 1997; briefs for intervenors
supporting respondents were due December 30, 1997; and reply briefs were due
January 20, 1998. On August 18, 1997, Geneva Steel Company moved to withdraw its
petitions for review, and the Court granted its motion on September 8, 1997. On
October 3, 1997, the Corporation and its affiliates moved to dismiss their
petitions for review and the Court granted their motion on October 7, 1997. On
October 6, 1997, Kansas City Southern Railway Company ("KCS") moved to dismiss
its petitions for review; on October 7, 1997, Texas Mexican Railway Company
("Tex Mex") moved to dismiss its petition for review; and on October 10, 1997,
the United Transportation Union-General Committee of Adjustment (GO 401) moved
to dismiss its petition for review. The Court granted these motions on October
22, 1997. The Corporation believes that it is unlikely that the disposition of
the remaining appeals will have a material impact on its results of operations.
On May 7, 1997, the STB served a decision commencing the first annual
proceeding to implement the oversight condition it had imposed in the Decision.
The Corporation and its affiliates, and the Burlington Northern and Santa Fe
Railway Company ("BNSF"), filed reports required by the STB on July 1, 1997.
BNSF and other parties filed comments on August 1, 1997. The Corporation and its
affiliates, and others, filed replies on August 20, 1997. On October 27, 1997,
the STB served a decision containing its findings and recommendations based on
the record compiled in the first oversight proceeding. The STB concluded that
the merger, as conditioned, had thus far not caused any substantial competitive
harm, and it rejected various requested adjustments to the merger conditions.
The STB ordered the Corporation and BNSF to continue to report quarterly on
merger implementation, and to provide a comprehensive summary presentation in
the progress reports due on July 1, 1998. The STB order requires interested
parties to file comments concerning the next annual oversight proceeding on
August 14, 1998, and replies are due September 1, 1998 (See also Rail Service
Proceedings below).
SHIPPER CLAIMS
Certain customers have submitted claims or stated their intention to
submit claims to UPRR for damages related to the delay of shipments as a result
of congestion problems (described above under "Item 1. Business and Item 2.
Properties - Discussion of Significant Events and Operations - 1997 Congestion
and Service Issues), 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
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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
UPRR. The Corporation does not believe that such claims will have a material
adverse effect on its consolidated financial condition or operating results.
RAIL SERVICE PROCEEDINGS
On October 2, 1997, the STB initiated a proceeding to investigate rail
service problems in the western United States. On October 31, 1997, the STB
issued an emergency service order that, among other things, (i) allows Texas
Mexican Railway Company ("Tex Mex") and, following a subsequent expansion of the
order, BNSF to divert some traffic from UPRR in order to reduce congestion on
UPRR's lines in Houston, Texas, (ii) directs UPRR to suspend rail transportation
service contract obligations of certain shippers at Houston that wish to route
shipments over the Tex Mex system instead of UPRR during the period of the
service order and (iii) requires UPRR to report to the STB weekly regarding
service statistics. The emergency order was extended and expanded in certain
respects on December 4, 1997 and again on February 25, 1998, when the STB,
citing the gravity of UPRR's congestion problems and characterizing them as "not
yet close to being resolved", extended the duration of the emergency service
order until August 2, 1998, the maximum period allowable under law for the
original order, and ordered UPRR to augment its reporting on service issues and
proposed infrastructure improvements for the Houston, Texas area.
In the rail service proceedings, the STB rejected proposals by various
parties for additional emergency measures. For example, the Railroad Commission
of Texas (the "RTC") submitted proposals to the STB under which UPRR would be
required, among other things, to transfer certain lines in the Gulf Coast region
to Tex Mex or a Houston terminal railroad. On February 17, 1998, the STB served
an order declining to reconsider its denial of the RTC's proposals. Tex Mex and
KCS have filed a petition for similar relief in the UP/SP merger oversight
proceeding, and the Corporation and UPRR have opposed that petition as being
unsupported by any evidence and without merit.
KCS and Tex Mex have also filed petitions with the STB challenging
actions taken by UPRR and BNSF to rationalize the operations of the Houston Belt
& Terminal Railway Company ("HBT"), of which UPRR and BNSF each owns 50%. UPRR,
BNSF and HBT have opposed those petitions.
If continued implementation of financial and operational
initiatives undertaken by the Corporation ultimately proves unsuccessful in
alleviating the congestion and related service problems experienced by UPRR,
certain parties may request the STB to order UPRR to take additional actions
including, among other things, further diversions of traffic or the transfer of
certain UPRR rail lines or other facilities to other railroads. While the
Corporation believes that it is unlikely, there can be no assurance that one or
more of such proposals, or proposals seeking similar relief might not be
approved in some form, particularly if UPRR is not successful in resolving its
congestion problems in the Gulf Coast region within a reasonable period. In
addition, if the congestion problems persist the STB may institute a new
proceeding at the end of the current one in light of developments concerning
UPRR's operations in 1998.
BOTTLENECK PROCEEDINGS
As previously reported, on August 27, 1996, the STB initiated a
proceeding asking for arguments and evidence on the issue of whether it should
modify its existing regulations regarding the prescription of, and challenge to,
rates for rail service involving a segment that it served by only one railroad
between an interchange point and an exclusively-served shipper facility (i.e., a
bottleneck segment). The STB proceeding also referred to pending motions to
dismiss three individual complaint proceedings filed by shippers challenging a
class rate charged for the movement of coal, two of which named UPRR and SPT as
a party thereto. Neither complaint proceeding individually involved a
significant exposure for reparations. However, if existing regulation of
bottleneck movements were changed, future revenue from such movements, including
those covered by the complaint proceedings, could be substantially reduced. On
December 31, 1996, the STB served a decision which generally reaffirmed earlier
rulings regarding a rail carrier's obligation to
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provide rates for bottleneck segments and assured the right of rail carriers to
differentially price traffic. It also dismissed the two complaint proceedings in
which UPRR and SPT were defendants. On April 30, 1997, the STB served a decision
generally declining to reconsider its December 31, 1996 decision, but clarifying
that in certain circumstances a "bottleneck" destination carrier that does not
serve the origin for a traffic movement may be required to provide a
separately-challengeable common carrier rate for the "bottleneck" portion of the
movement. The STB decisions are pending on appeal before the Eighth Circuit
Court of Appeals.
RAIL ACCESS AND COMPETITION
By order served February 20, 1998, the STB indicated that, in response
to a Congressional request, it was commencing a review of rail access and
competition issues and would hold a hearing in April 1998 concerning those
issues. In previous proceedings, the STB and its predecessor, the Interstate
Commerce Commission, have rejected various proposals for "open access" or
changes in the regulation of rates and routes allegedly aimed at increasing rail
competition, concluding that such proposals are outside the statutory authority
of the agency. The railroads have presented evidence in those proceedings that
such measures would in fact diminish competition, and would seriously harm the
industry's ability to sustain necessary investments and earn an adequate return.
UPRR does not believe the STB is likely to change its previous interpretations
of present law. However, should Congress adopt "open access" measures such as
universal trackage rights to allow multiple railroads to serve shipper
facilities that are presently served by one railroad or purportedly
competition-enhancing changes in rate and route regulation, the adverse effect
on UPRR and other railroads could be material.
FEDERAL RAILROAD ADMINISTRATION REVIEW
UPRR suffered a number of severe accidents in 1997, although most safety
measures for the year improved significantly, with reportable injuries, lost
work days and grade crossing accidents all declining in excess of 20%. As a
result of these accidents in 1997, the Federal Railroad Administration ("FRA")
reviewed UPRR's operations and concluded that safety problems at UPRR were the
result of, among other things, a loss of focus on safety, personnel shortages
and crew management problems. The FRA made several recommendations, including
creating a joint committee comprised of UPRR management, labor and the FRA to
review and monitor all aspects of safety, adding an executive position for
safety reporting directly to the UPRR President, creating a safety hotline,
re-evaluating all existing training programs, and increasing the monitoring of
train crew performance, crew fatigue and crew scheduling. All such FRA proposals
have been implemented by UPRR. UPRR has also implemented a guaranteed time-off
program for train and engine employees. On February 25, 1998, the FRA released a
report stating that it was encouraged by UPRR's initial progress but requiring
UPRR to submit written safety action plans and indicating that it would
continue to monitor UPRR's operations through site-specific inspections. The FRA
has announced its intention to impose fines totaling $131,000 as a result of its
review.
SHAREHOLDER LITIGATION
The Corporation and certain of its officers and directors are currently
defendants in two purported class action securities lawsuits, and certain
current and former directors of the Corporation are currently defendants in a
purported derivative action filed on behalf of the Corporation. The class action
suits allege, among other things, that management failed to disclose properly
UPRR's
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12
service and safety problems and thereby issued materially false and misleading
statements concerning the merger with Southern Pacific and the safe, efficient
operation of UPRR's rail network. The derivative action alleges, among other
things, that the named current and former directors breached their fiduciary
duties to the Corporation by approving the mergers of Southern Pacific and CNW
into the Corporation without ensuring that the Corporation or UPRR had adequate
systems in place to integrate effectively those companies into the operations of
the Corporation and UPRR. These lawsuits were filed in late 1997 in the Federal
District Court for the Northern District of Texas and seek to recover
unspecified amounts of damages. The Corporation believes that these claims are
without merit and intends to defend them vigorously.
LABOR MATTERS
The General Counsel of the National Labor Relations Board ("NLRB") is
seeking a bargaining order remedy in 15 cases involving Overnite where a
Teamsters local union lost a representation election. These cases are pending
before an NLRB administrative law judge. A bargaining order remedy would require
Overnite to recognize and bargain with the union as if the union had won instead
of lost the election and would be warranted only if the following findings are
made: (1) the petitioning Teamsters local had obtained valid authorization cards
from a majority of the employees in an appropriate unit; (2) Overnite committed
serious unfair labor practices; and (3) those unfair labor practices would
preclude the holding of a fair election despite the application of less drastic
remedies. Under NLRB case law, a bargaining order remedy would attach
retrospectively to the date when, after a union with a showing of majority
support demanded recognition, Overnite embarked on an unlawful course of
conduct. In the event of such a retroactive effective bargaining order, Overnite
would face back pay liability for losses in employee earnings due to unilateral
changes in terms or conditions of employment, such as layoffs, reduced hours of
work or less remunerative work assignments. Overnite believes it has substantial
defenses to these cases and intends to aggressively defend them.
ENVIRONMENTAL MATTERS
The Environmental Protection Agency ("EPA") has brought a civil action
against certain subsidiaries of Southern Pacific which have been merged into
UPRR, in the U.S. District Court for the District of Colorado alleging violation
of the Clean Water Act and the Oil Pollution Act. The complaint identifies seven
incidents involving the alleged release of hazardous substances into the waters
of the United States and seeks civil penalties of $25,000 per day and
unspecified injunctive relief to prevent future violations. The incidents are
all related to derailments dating back to 1992 and include six incidents in
which the alleged releases were from ruptured locomotive fuel tanks and one
incident in 1996 involving an alleged release of sulfuric acid near the
Tennessee Pass.
In July 1995, the Butte County (Oroville, California) District Attorney
advised that a civil penalty action would be filed against UPRR for violations
resulting from a derailment and spill of diesel fuel into the Feather River in
Peo, California on April 14, 1995. In late July, the California Regional Water
Quality Control Board also filed a separate penalty action seeking $40,000 for
the same incident. This latter action was settled for $40,000. In 1996, the
District Attorney and California Department of Fish and Game asserted claims for
natural resource damages and penalties which could exceed $100,000.
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13
The Corporation and its affiliates have received notices from the EPA
and state environmental agencies alleging that they are or may be liable under
certain Federal or state environmental laws for remediation costs at various
sites throughout the United States, including sites which are on the Superfund
National Priorities List or state superfund lists. Although specific claims have
been made by the EPA and state regulators with respect to some of these sites,
the ultimate impact of these proceedings and suits by third parties cannot be
predicted at this time because of the number of potentially responsible parties
involved, the degree of contamination by various wastes, the scarcity and
quality of volumetric data related to many of the sites and/or the speculative
nature of remediation costs. Nevertheless, at many of the superfund sites, the
Corporation believes it will have little or no exposure because no liability
should be imposed under applicable law, one or more other financially able
parties generated all or most of the contamination, or a settlement of the
Corporation's exposure has been reached although regulatory proceedings at the
sites involved have not been formally terminated. Additional information on the
Corporation's potential environmental costs is set forth under Note 12 to the
Corporation's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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14
EXECUTIVE OFFICERS OF THE REGISTRANT AND
PRINCIPAL EXECUTIVE OFFICERS OF SUBSIDIARIES
BUSINESS
EXPERIENCE
DURING PAST
NAME POSITION AGE FIVE YEARS
---- -------- --- -----------
Richard K. Davidson ....... Chairman, President and 56 (1)
Chief Executive Officer of
UPC and Chairman and Chief
Executive Officer of the
Railroad
L. White Matthews, III .... Executive Vice President - 52 Current
Finance Position
L. Merill Bryan, Jr. ...... Senior Vice President, 54 (2)
Information Technologies
Barbara W. Schaefer ....... Senior Vice President, 44 (3)
Human Resources
Carl W. von Bernuth ....... Senior Vice President, 54 Current
General Counsel and Corporate Position
Secretary
Charles R. Eisele ......... Vice President - Strategic 48 (4)
Planning
John B. Gremillion, Jr. ... Vice President - Taxes 51 Current
Position
Robert M. Knight, Jr. ..... Vice President - Quality and 40 (5)
Administration
Mary E. McAuliffe ......... Vice President - External 52 Current
Relations Position
Joseph E. O'Connor, Jr. ... Vice President and Controller 41 (6)
Gary F. Schuster .......... Vice President - Corporate 56 Current
Relations Position
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15
Gary M. Stuart ............ Vice President and Treasurer 58 Current
Position
Jerry R. Davis............. President and Chief Operating 60 (7)
Officer of the Railroad
R. Bradley King ........... Executive Vice President - 50 (8)
Operations of the Railroad
John J. Koraleski ......... Executive Vice President - 48 (9)
Finance of the Railroad
James A. Shattuck ......... Executive Vice President - 58 (10)
Marketing and Sales of the
Railroad
Dennis J. Duffy ........... Senior Vice President - 47 (11)
Safety Assurance and Compliance
Process of the Railroad
Leo H. Suggs............... Chairman and Chief Executive 59 (12)
Officer of Overnite
- ---------------------------
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EXECUTIVE OFFICERS OF THE REGISTRANT AND
PRINCIPAL EXECUTIVE OFFICERS OF SUBSIDIARIES (CONTINUED)
(1) Mr. Davidson was elected Chairman and Chief Executive Officer
effective January 1, 1997. He became President of UPC effective May
1994 and was also Chief Operating Officer of UPC from November 1995 to
December 1996. He was President and Chief Executive Officer of the
Railroad from September 1991 until August 1995, Chairman of the
Railroad until November 1996 and Chairman and Chief Executive Officer
of the Railroad since November 1996.
(2) Mr. Bryan was elected to his current position effective May 1997 and
continues to serve as President and Chief Executive Officer of Union
Pacific Technologies, Inc.
(3) Ms. Schaefer was elected to her current position effective April 1997.
From April 1994 to April 1997, she was Vice President - Human
Resources of the Railroad. Prior thereto, she was Director of
Compensation and Human Resources Information Systems of UPC.
(4) Mr. Eisele was elected to his current position effective September
1997. He was Vice President - Purchasing for the Railroad from April
1994 to September 1997. Prior thereto, he was Vice President - Human
Resources for the Railroad.
(5) Mr. Knight was elected to his current position effective April 1997.
From August 1995 to April 1997 he was Director of Compensation and
Human Resources Information Systems of UPC. From March 1994 to August
1995 he was Assistant Treasurer - Banking and Cash Management of UPC.
Prior thereto, he was Executive Assistant to Vice President - Finance
of the Railroad.
(6) Mr. O'Connor was elected to his current position effective October
1996. He was Director - Strategic Planning of UPC from November 1995
to October 1996 and Director - Planning of UPC from April 1994 to
November 1995. Prior thereto, he was Manager - Planning of UPC.
(7) Mr. Davis was elected to his current position in November 1996. From
September 1996 to November 1996, he served as President - SP Rail
Operations. From February 1995 to September 1996, he served as
President and Chief Executive Officer of Southern Pacific Rail
Corporation. From January 1992 to February 1995, Mr. Davis served as
Executive Vice President and Chief Operating Officer of CSX
Transportation, Inc.(CSXT).
-4-
17
(8) Mr. King was elected to his current position effective October 1997.
He was Vice President - Transportation of the Railroad from November
1995 to October 1997. From July 1993 to November 1995, he was Vice
President - Risk Management of the Railroad. Prior thereto, he was
Senior Assistant Vice President - Train Management of the Railroad.
(9) Mr. Koraleski was elected to his current position effective September
1997. From May 1996 to September 1997, he was Executive Vice
President - Finance and Administration of the Railroad. Prior
thereto, he was Executive Vice President - Finance and Information
Technologies of the Railroad.
(10) Mr. Shattuck was elected to his current position effective May 1993.
From January 1993 to May 1993 he was Senior Vice President - Marketing
of the Railroad. Prior thereto, he was Senior Vice President -
Marketing and Sales of the Railroad.
(11) Mr. Duffy was elected to his current position effective October 1997.
He was Senior Vice President - Customer Service and Planning of the
Railroad from November 1995 to October 1997. From May 1995 to
November 1995 he was Vice President - Quality and Network Planning of
the Railroad. He was Vice President - Quality of the Railroad from
January 1995 to May 1995. Prior thereto, he was Assistant Vice
President - Quality of the Railroad.
(12) Mr. Suggs was elected to his current position in April 1996. From
January 1993 to April 1996, he was President and Chief Executive
Officer of Preston Trucking Company, Inc. Prior thereto, Mr. Suggs
served as Senior Vice President of Corporate Development of Yellow
Corporation.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information as to the markets in which UPC's Common Stock is
traded, the quarterly high and low prices for such stock, the dividends
declared with respect to the Common Stock during the last two years, and the
approximate number of stockholders of record at January 31, 1998 is set forth
under Selected Quarterly Data and Stockholders and Dividends on page 49 of the
Annual Report. Information as to restrictions on the payment of dividends with
respect to the Corporation's Common Stock is set forth in Note 7 to Financial
Statements on pages 43 of the Annual Report. Such information is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the Corporation for each of the last
10 years is set forth under the Ten-Year Financial Summary on page 51 of the
Annual Report. All such information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information as to UPC's results of operations, cash flows,
liquidity and capital resources, and other matters is set forth in the
Financial Review on pages 18 through 29 of the Annual Report, and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's consolidated financial statements, accounting
policy disclosures, Notes to Financial Statements, business segment information
and Independent Auditors' Report are presented on pages 30 through 48 of the
Annual Report. Selected quarterly financial data are set forth under Selected
Quarterly Data on page 49 of the Annual Report. All such information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of Registrant.
Information as to the names, ages, positions and offices with UPC, terms
of office, periods of service, business experience during the past five years
and certain other directorships held by each director or person nominated to
become a director of UPC is set forth in the Directors segments of the Proxy
Statement and is incorporated herein by reference.
(b) Executive Officers of Registrant.
Information concerning the executive officers of UPC and its
subsidiaries is presented in Part I of this Report under Executive Officers of
the Registrant and Principal Executive Officers of Subsidiaries.
(c) Section 16(a) Compliance.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the Compliance with Section 16(a) of the
Securities Exchange Act segment of the Proxy Statement and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning remuneration received by UPC's executive officers
and directors is presented in the Compensation of Directors, Compensation
Committee Interlocks and Insider Participation, Report on Executive
Compensation, Summary Compensation Table, Option/SAR Grants Table, Option/SAR
Exercises and Year-End Value Table, Defined Benefit Plans and Five-Year
Performance Comparison segments of the Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to the number of shares of UPC's equity securities
beneficially owned as of February 6, 1998 by each of its directors and nominees
for director, its five most highly compensated executive officers and its
directors and executive officers as a group is set forth in the Directors and
Security Ownership of Management segments of the Proxy Statement and is
incorporated herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on related transactions is set forth in the Certain
Relationships and Related Transactions and Compensation Committee Interlocks
and Insider Participation segments of the Proxy Statement and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
The financial statements, accounting policy disclosures, Notes to
Financial Statements and Independent Auditors' Report on pages 30
through 48, inclusive, of the Annual Report are incorporated herein
by reference.
No schedules are required to be filed because of the absence of
conditions under which they would be required or because the required
information is set forth in the financial statements referred to
above.
(3) Exhibits
Items 10(j) through 10(w) below constitute management contracts and
executive compensation arrangements required to be filed as exhibits
to this report.
3(a) Revised Articles of Incorporation of UPC, as amended
through April 25, 1996, are incorporated herein by
reference to Exhibit 3 to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1996.
3(b) By-Laws of UPC, as amended effective as of September
26, 1996, are incorporated herein by reference to
Exhibit 3 to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
-8-
21
4 Pursuant to various indentures and other agreements,
UPC has issued long-term debt; however, no such
agreement has securities or obligations covered
thereby which exceed 10% of the Corporation's total
consolidated assets. UPC agrees to furnish the
Commission with a copy of any such indenture or
agreement upon request by the Commission.
10(a) Amended and Restated Anschutz Shareholders Agreement,
dated as of July 12, 1996, among UPC, UPRR,
The Anschutz Corporation ("TAC"), Anschutz Foundation
(the "Foundation"), and Mr. Philip F. Anschutz ("Mr.
Anschutz"), is incorporated herein by reference to
Annex D to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to UPC's
Registration Statement on Form S-4 (No. 33-64707).
10(b) Amended and Restated MSLEF Shareholder Agreement,
dated as of July 12, 1996, between UPC and The Morgan
Stanley Leveraged Equity Fund II, L.P., is
incorporated herein by reference to Annex E to the
Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(c) Amended and Restated Parent Shareholders Agreement,
dated as of July 12, 1996, among UPC, UP Merger and
SP is incorporated herein by reference to Annex F to
the Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(d) Amended and Restated Anschutz/Spinco Shareholders
Agreement, dated as of July 12, 1996, among Union
Pacific Resources Group Inc. ("Resources"), TAC, the
Foundation and Mr. Anschutz is incorporated herein by
reference to Annex G to the Joint Proxy
Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC's Registration Statement on
Form S-4 (No. 33-64707).
10(e) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among UPC, TAC, and the
Foundation is incorporated herein by reference to
Annex H to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to UPC's
Registration Statement on Form S-4 (No. 33-64707).
10(f) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among Resources, TAC, and
the Foundation
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22
is incorporated herein by reference to Annex I to the
Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(g) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among UPC, UP Holding, UP
Merger and SP is incorporated herein by reference to
Annex J to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to UPC's
Registration Statement on Form S-4 (No. 33-64707).
10(h) Agreement, dated September 25, 1995, among UPC, UPRR,
MPRR and SP, Southern Pacific Transportation Company
(SPT), The Denver & Rio Grande Western Railroad
Company (D&RGW), St. Louis Southwestern Railway
Company (SLSRC) and SPCSL Corp. (SPCSL), on the one
hand, and Burlington Northern Railroad Company (BN)
and The Atchison, Topeka and Santa Fe Railway Company
(Santa Fe), on the other hand, is incorporated by
reference to Exhibit 10.11 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(i) Supplemental Agreement, dated November 18, 1995,
between UPC, UPRR, MPRR and SP, SPT, D&RGW, SLSRC and
SPCSL, on the one hand, and BN and Santa Fe, on the
other hand, is incorporated herein by reference to
Exhibit 10.12 to UPC's Registration Statement on Form
S-4 (No. 33-64707).
10(j) The Executive Incentive Plan of UPC, amended April
27, 1995, is incorporated herein by reference to
Exhibit 10(a) to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995.
10(k) The Supplemental Pension Plan for Officers and
Managers of UPC and Affiliates, as amended and
restated, is incorporated herein by reference to
Exhibit 10(d) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993.
10(l) Employment Agreement, dated as of February 20, 1995,
between SP and Jerry R. Davis, is incorporated by
reference to Exhibit 10.12 to SP's Annual Report on
Form 10-K for the year ended December 31, 1994.
10(m) Letter Agreement, dated August 30, 1996, between UPC
and Jerry R. Davis, is incorporated by reference to
Exhibit 10(b) to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1996.
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23
10(n) The 1988 Stock Option and Restricted Stock Plan of
UPC, as amended as of February 1, 1992, is
incorporated herein by reference to Exhibit 10(d) to
the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1991.
10(o) The 1992 Restricted Stock Plan for Non-Employee
Directors of UPC, as amended as of January 28, 1993,
is incorporated herein by reference to Exhibit 10(a)
to the Corporation's Current Report on Form 8-K filed
March 16, 1993.
10(p) The 1993 Stock Option and Retention Stock Plan of
UPC, as amended November 20, 1997.
10(q) Amendments to the 1988 Stock Option and Retention
Stock Plan, adopted April 24, 1997, are incorporated
herein by reference to Exhibit 10 to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.
10(r) The 1988 Stock Option and Restricted Stock Plan of
UPC, as amended November 20, 1997.
10(s) The Pension Plan for Non-Employee Directors of UPC,
as amended January 25, 1996 is incorporated herein by
reference to Exhibit 10(w) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1995.
10(t) The Executive Life Insurance Plan of UPC, as amended
October, 1997.
10(u) The UPC Stock Unit Grant and Deferred Compensation
Plan for the Board of Directors, as amended January
25, 1996 is incorporated herein by reference to
Exhibit 10(y) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
10(v) Charitable Contribution Plan for Non-Employee
Directors of UPC is incorporated herein by reference
to Exhibit 10(z) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1995.
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24
10(w) Written Description of Other Executive Compensation
Arrangements of UPC is incorporated herein by
reference to Exhibit 10(o) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1992.
(11) Computation of earnings per share.
(12) Computation of ratio of earnings to fixed charges.
(13) Pages 4 through 53, inclusive, of UPC's Annual Report
to Stockholders for the year ended December 31, 1997,
but excluding photographs set forth on pages 4
through 17, none of which supplements the text and
which are not otherwise required to be disclosed in
this Annual Report on Form 10-K.
(21) List of the Corporation's significant subsidiaries
and their respective states of incorporation.
(23) Independent Auditors' Consent.
(24) Powers of attorney executed by the directors of UPC.
(27) Financial Data Schedule.
(99) (a) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the UPC Thrift Plan - to be filed by
amendment.
(99) (b) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Union Pacific Fruit Express Company
Agreement Employee 401(k) Retirement Thrift
Plan - to be filed by amendment.
(99) (c) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Skyway Retirement Savings Plan - to
be filed by amendment.
(99) (d) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Union Pacific Agreement Employee
401(k) Retirement Thrift Plan - to be filed
by amendment.
(99) (e) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Chicago and North Western Railway
Company Profit Sharing and Retirement Savings
Program - to be filed by amendment.
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(99) (f) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Southern Pacific Rail Corporation
Thrift Plan - to be filed by amendment.
(b) Reports on Form 8-K
On October 10, 1997, the Corporation filed a Current Report on Form
8-K describing Union Pacific Railroad Company's congestion, safety
issues and the Service Recovery Plan.
On November 17, 1997, the Corporation filed a Current Report on Form
8-K describing Union Pacific Railroad Company's service situation
and the financial impact of that situation.
-13-
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 17th day of
March, 1998.
UNION PACIFIC CORPORATION
By /s/ Richard K. Davidson
------------------------------
(Richard K. Davidson, Chairman,
President and Chief Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below, on this 17th day of March, 1998, by the
following persons on behalf of the registrant and in the capacities indicated.
PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR:
/s/ Richard K. Davidson
-------------------------------
(Richard K. Davidson, Chairman,
President, Chief Executive
Officer and Director)
PRINCIPAL FINANCIAL OFFICER
AND DIRECTOR:
/s/ L. White Matthews, III
-------------------------------
(L. White Matthews, III,
Executive Vice President -
Finance and Director)
PRINCIPAL ACCOUNTING OFFICER:
/s/ Joseph E. O'Connor, Jr.
-------------------------------
(Joseph E. O'Connor, Jr.,
Vice President and Controller)
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27
SIGNATURES - (Continued)
DIRECTORS:
Philip F. Anschutz* Judith Richards Hope*
Robert P. Bauman* Richard J. Mahoney*
Richard B. Cheney* John R. Meyer*
E. Virgil Conway* Thomas A. Reynolds, Jr.*
Spencer F. Eccles* James D. Robinson, III*
Elbridge T. Gerry, Jr.* Robert W. Roth*
William H. Gray, III* Richard D. Simmons*
* By /s/ Thomas E. Whitaker
--------------------------------------
(Thomas E. Whitaker, Attorney-in-fact)
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28
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3(a) Revised Articles of Incorporation of UPC, as amended
through April 25, 1996, are incorporated herein by
reference to Exhibit 3 to the Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1996.
3(b) By-Laws of UPC, as amended effective as of September
26, 1996, are incorporated herein by reference to
Exhibit 3 to the Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
29
4 Pursuant to various indentures and other agreements,
UPC has issued long-term debt; however, no such
agreement has securities or obligations covered
thereby which exceed 10% of the Corporation's total
consolidated assets. UPC agrees to furnish the
Commission with a copy of any such indenture or
agreement upon request by the Commission.
10(a) Amended and Restated Anschutz Shareholders Agreement,
dated as of July 12, 1996, among UPC, UPRR,
The Anschutz Corporation ("TAC"), Anschutz Foundation
(the "Foundation"), and Mr. Philip F. Anschutz ("Mr.
Anschutz"), is incorporated herein by reference to
Annex D to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to UPC's
Registration Statement on Form S-4 (No. 33-64707).
10(b) Amended and Restated MSLEF Shareholder Agreement,
dated as of July 12, 1996, between UPC and The Morgan
Stanley Leveraged Equity Fund II, L.P., is
incorporated herein by reference to Annex E to the
Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(c) Amended and Restated Parent Shareholders Agreement,
dated as of July 12, 1996, among UPC, UP Merger and
SP is incorporated herein by reference to Annex F to
the Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(d) Amended and Restated Anschutz/Spinco Shareholders
Agreement, dated as of July 12, 1996, among Union
Pacific Resources Group Inc. ("Resources"), TAC, the
Foundation and Mr. Anschutz is incorporated herein by
reference to Annex G to the Joint Proxy
Statement/Prospectus included in Post-Effective
Amendment No. 2 to UPC's Registration Statement on
Form S-4 (No. 33-64707).
10(e) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among UPC, TAC, and the
Foundation is incorporated herein by reference to
Annex H to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to UPC's
Registration Statement on Form S-4 (No. 33-64707).
10(f) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among Resources, TAC, and
the Foundation
30
is incorporated herein by reference to Annex I to the
Joint Proxy Statement/Prospectus included in
Post-Effective Amendment No. 2 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(g) Amended and Restated Registration Rights Agreement,
dated as of July 12, 1996, among UPC, UP Holding, UP
Merger and SP is incorporated herein by reference to
Annex J to the Joint Proxy Statement/Prospectus
included in Post-Effective Amendment No. 2 to UPC's
Registration Statement on Form S-4 (No. 33-64707).
10(h) Agreement, dated September 25, 1995, among UPC, UPRR,
MPRR and SP, Southern Pacific Transportation Company
(SPT), The Denver & Rio Grande Western Railroad
Company (D&RGW), St. Louis Southwestern Railway
Company (SLSRC) and SPCSL Corp. (SPCSL), on the one
hand, and Burlington Northern Railroad Company (BN)
and The Atchison, Topeka and Santa Fe Railway Company
(Santa Fe), on the other hand, is incorporated by
reference to Exhibit 10.11 to UPC's Registration
Statement on Form S-4 (No. 33-64707).
10(i) Supplemental Agreement, dated November 18, 1995,
between UPC, UPRR, MPRR and SP, SPT, D&RGW, SLSRC and
SPCSL, on the one hand, and BN and Santa Fe, on the
other hand, is incorporated herein by reference to
Exhibit 10.12 to UPC's Registration Statement on Form
S-4 (No. 33-64707).
10(j) The Executive Incentive Plan of UPC, amended April
27, 1995, is incorporated herein by reference to
Exhibit 10(a) to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995.
10(k) The Supplemental Pension Plan for Officers and
Managers of UPC and Affiliates, as amended and
restated, is incorporated herein by reference to
Exhibit 10(d) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993.
10(l) Employment Agreement, dated as of February 20, 1995,
between SP and Jerry R. Davis, is incorporated by
reference to Exhibit 10.12 to SP's Annual Report on
Form 10-K for the year ended December 31, 1994.
10(m) Letter Agreement, dated August 30, 1996, between UPC
and Jerry R. Davis, is incorporated by reference to
Exhibit 10(b) to the Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1996.
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10(n) The 1988 Stock Option and Restricted Stock Plan of
UPC, as amended as of February 1, 1992, is
incorporated herein by reference to Exhibit 10(d) to
the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1991.
10(o) The 1992 Restricted Stock Plan for Non-Employee
Directors of UPC, as amended as of January 28, 1993,
is incorporated herein by reference to Exhibit 10(a)
to the Corporation's Current Report on Form 8-K filed
March 16, 1993.
10(p) The 1993 Stock Option and Retention Stock Plan of
UPC, as amended November 20, 1997.
10(q) Amendments to the 1988 Stock Option and Retention
Stock Plan, adopted April 24, 1997, are incorporated
herein by reference to Exhibit 10 to the
Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.
10(r) The 1988 Stock Option and Restricted Stock Plan of
UPC, as amended November 20, 1997.
10(s) The Pension Plan for Non-Employee Directors of UPC,
as amended January 25, 1996 is incorporated herein by
reference to Exhibit 10(w) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1995.
10(t) The Executive Life Insurance Plan of UPC, as amended
October, 1997.
10(u) The UPC Stock Unit Grant and Deferred Compensation
Plan for the Board of Directors, as amended January
25, 1996 is incorporated herein by reference to
Exhibit 10(y) to the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995.
10(v) Charitable Contribution Plan for Non-Employee
Directors of UPC is incorporated herein by reference
to Exhibit 10(z) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1995.
32
10(w) Written Description of Other Executive Compensation
Arrangements of UPC is incorporated herein by
reference to Exhibit 10(o) to the Corporation's
Annual Report on Form 10-K for the year ended
December 31, 1992.
(11) Computation of earnings per share.
(12) Computation of ratio of earnings to fixed charges.
(13) Pages 4 through 53, inclusive, of UPC's Annual Report
to Stockholders for the year ended December 31, 1997,
but excluding photographs set forth on pages 4
through 17, none of which supplements the text and
which are not otherwise required to be disclosed in
this Annual Report on Form 10-K.
(21) List of the Corporation's significant subsidiaries
and their respective states of incorporation.
(23) Independent Auditors' Consent.
(24) Powers of attorney executed by the directors of UPC.
(27) Financial Data Schedule.
(99) (a) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the UPC Thrift Plan - to be filed by
amendment.
(99) (b) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Union Pacific Fruit Express Company
Agreement Employee 401(k) Retirement Thrift
Plan - to be filed by amendment.
(99) (c) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Skyway Retirement Savings Plan - to
be filed by amendment.
(99) (d) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Union Pacific Agreement Employee
401(k) Retirement Thrift Plan - to be filed
by amendment.
(99) (e) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Chicago and North Western Railway
Company Profit Sharing and Retirement Savings
Program - to be filed by amendment.
33
(99) (f) Financial Statements for the Fiscal Year
ended December 31, 1997 required by Form 11-K
for the Southern Pacific Rail Corporation
Thrift Plan - to be filed by amendment.