Union Pacific Corporation

founded: 1862 variant name: up

Contact Information:

headquarters: 1416 dodge st., rm. 1230
omaha, ne 68179 phone: (402)271-5000 fax: (402)271-6408 url: http://www.up.com

OVERVIEW

Union Pacific Corporation (UP) is the country's leading railroad carrier through its Union Pacific Railroad, a rail system that covers much of the western and midwestern United States, as well as Canada and Mexico. In addition to transporting coal, chemicals, and other cargo through 23 states along its 33,000 route miles of rail lines, UP also moves freight on the roads with its trucking operations. UP's trucking segment is made up of Overnite Transportation, offering less-than-truckload (LTL) shipments throughout the eastern U.S. and Motor Cargo Industries, the LTL carrier covering the western United States.

Famed for its role in building a significant part of the country's first transcontinental railroad in 1869, Union Pacific survived early years of scandal and financial uncertainty to emerge as perhaps the most respected U.S. railroad. Blessed with valuable land and mineral rights along its many miles of track, UP has built a substantial business in natural resources. At one time in the 1970s, it appeared that its energy holdings might eventually overshadow UP's rail business, and some day they may well do so, but the heart and soul of Union Pacific Corporation remains its railroad.

COMPANY FINANCES

Union Pacific's revenue for the year 2001 stood at $11.9 billion, a .8 percent increase from the previous year. Net income, at a record $966 million, grew 14.7 percent, however, during the same year, due to revenue growth, productivity gains, cost control, lower non-operating expenses, and lower fuel prices. Rail revenue totaled $10.4 billion, while trucking accounted for $1.1 billion of UP's total revenues for the year.

Over the last three years, UP profits have essentially remained flat. Over a 52-week period, UP stock ranged from a low of $43.75 to a high of $60.70. The company has paid dividends to its common shareholders during each of the past 102 years, and the annual dividend for 2001 was $.80 per share. UP's price-earnings ratio was 15.46 as of June 2002.

ANALYSTS' OPINIONS

A Fortune 500 company, Union Pacific will tell any potential investor that they have the most powerful franchise in the rail industry and offer stability and have proven solid financial results in difficult economic times. Analysts generally would agree with UP's statements. Salomon Smith Barney noted that UP's earnings were above estimates in early 2002 but that lower than expected fuel prices were most of the reason, which is outside management's control. They also noted that the rail industry in general offers slow growth characteristics. Similarly, Morgan Stanley, Dean Witter reported in early 2002 that UP was the only railroad in the United States to beat consensus earning expectations but that the lack of non-fuel productivity gains was a concern as the company's expenses actually increased $20 million during a quarter in which revenue remained flat. Analysts at Merrill Lynch generally agreed, but they noted that the higher than expected earnings were due to a variety of factors, including better than expected operating income from trucking subsidiary Overnite. Through focus on market, price, and penetration combined with solid service, UP believes that it will continue to grow revenue faster than the economy.

HISTORY

Union Pacific came into existence when U.S. President Abraham Lincoln signed the long-anticipated Pacific Railroad Act of 1862, which created a rail link between the established eastern states and the rapidly growing states of the far West. The act called for the creation of a public corporation, called Union Pacific Railroad Company, to build a railroad from Nebraska to the California-Nevada border and there to meet the Central Pacific, building east from Sacramento, California, and later linked with San Francisco. Later, the meeting place of the two railroads was set at Promontory Summit, Utah Territory. The government retained the right to inspect each section of track laid before releasing the allotted number of bonds, and it would keep two directors on UP's board, but the company was to be otherwise a venture of the private sector.

Leadership of the UP fell chiefly to Thomas C. Durant and the Ames brothers, Oliver and Oakes, who sought to make handsome profits off the railroad's hurried construction. Durant was the vice president and dominant figure in the company's early years, and it was he and a handful of others who formed a construction company called Credit Mobilier of America (CMA) to receive contracts from Union Pacific for the building of its vast railroad. Estimates vary as to precisely how inflated these contracts were, but later congressional investigations left no doubt that the backers of CMA intentionally siphoned off far more of the UP's capital than was fair to its investors or good for its future financial health. The investigations of the early 1870s also revealed that the CMA principals bribed members of Congress with company stock.

Still, the railroad they built was a splendid success, and so vast a project might never have been undertaken without the promise of equally vast profits to be made. In five years the UP crews laid more than 1,000 miles of rail between Omaha, Nebraska, and Promontory Summit, Utah Territory, where on May 10, 1869, a golden spike completed the first transcontinental rail line. The railroad's completion supplied a critical impetus to the development of the U.S. West, which to that time had been settled only on the Pacific Coast and in areas of unusual mineral wealth, such as Colorado. With the coming of the railroad, farmers, ranchers, and manufacturers were able to transport their goods to the great eastern metropolitan markets cheaply and quickly, and the West began to fill with pioneers. As the area's most significant railroad for almost 15 years, Union Pacific enjoyed rapid growth and excellent earnings for its scandal-ridden promoters, who were dominated from 1873 to the mid-1880s by financier Jay Gould. The Credit Mobiler scandal began in 1872, when several UP officials received $23 million in dividends from the bogus construction company, Credit Mobiler, and gave a portion of its stock to members of Congress. Gould bought into the UP in 1873 and rescued the railroad from near bankruptcy.

In 1884 Union Pacific completed the Oregon Short Line (OSL) to the Pacific Northwest from the connection with the Union Pacific at Granger, Wyoming. OSL gave UP access to Portland, Oregon. The company logo, the railroad's shield, debuted in February 1889. Since its inception, UP has had four non-shield logos and eleven variations of the shield logo. In 1890 UP's first subsidiary, Union Pacific Coal Co., was established to supply coal from the Wyoming coal mines for UP's steam locomotives. After years of struggling with debt, efficiency problems, and increasing competition from three rival lines, Union Pacific filed for bankruptcy in 1893. The company was put in receivership in 1897 and sold for $110 million to a group of investors at an Omaha, Nebraska, auction where it was reorganized as the Union Pacific Railroad. The sale is significant in the company's history as one of the investors is Edward H. Harriman, then president of the Illinois Railroad.

Beginning in 1898, Harriman and Judge Robert S. Lovett run Union Pacific, and Harriman's leadership over the next ten years was the key to rebuilding the Union Pacific into the most modern railroad of its day. After a failed attempt to purchase the Central Pacific Railroad from parent Southern Pacific Railroad (SP), UP bought 38 percent of Southern Pacific's stock and assumed control over SP in 1901. In 1905 Union Pacific gained access to Los Angeles when the San Pedro, Los Angeles, and Salt Lake Railroad was completed. The same year, in an attempt to cut passenger train operation costs, the company ordered the first gasoline-powered McKeen Motor Car, a railroad motor car (bus), which would replace light density steam-powered passenger trains and were widely used by UP and SP over the next decade. In 1906 the subsidiary Pacific Fruit Express was created to haul fruits and vegetables with a fleet of 6,000 iced refrigerator cars.

Harriman died in 1909 and Lovett, then elected Chairman of the Executive Committee, later became president of Union Pacific and Southern Pacific. Harriman's two sons, Averell Harriman and Roland Harriman along with Lovett's son, Robert Abercrombie Lovett, continued their fathers' legacy, eventually running the company until 1969. In 1912 the U.S. Supreme Court ordered UP to sell its now 46 percent stake in SP and relinquish control of Southern Pacific. Under Judge Lovett, UP reorganized in 1920 with Union Pacific Company in New York now limited to major financial matters, policy decisions, and government regulations with all other management decisions made by Omaha's Union Pacific Railroad headquarters. Carl R. Gray, one of UP's most notable presidents, is named president of Union Pacific Railroad System.

In the late 1920s, subsidiary Union Pacific Stages was formed and introduced the country's first transcontinental bus service in a joint agreement with Chicago & Northwestern Railroad (C&NW). Innovation marked the next two decades when the first streamlined passenger train in the country, Union Pacific's M-10000, made its first run in 1932 and, in 1941, when UP took delivery of the No. 400, the first locomotive of the Big Boy class of steam locomotives and the largest steam locomotives ever built. The last of its kind, No. 844, was built for UP in 1944, and it continues to serve the UP from Cheyenne, Wyoming to this very day.

FAST FACTS: About Union Pacific Corporation

Ownership: Union Pacific is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: UNP

Officers: Richard K. Davidson, Chmn. and CEO, 60, 2001 base salary $1,100,004; Ivor J. Evans, Pres. and COO of the Railroad, 59, 2001 base salary $683,340; Carl W. von Bernuth, SVP, Gen. Counsel and Sec., 58, 2001 base salary $421,900; James R. Young, EVP Finance of UPC and CFO of the Railroad, 49, 2001 base salary $400,008; Dennis J. Duffy, EVP Operation of the Railroad, 51, 2001 base salary $400,008; Leo H. Suggs, Chmn. and CEO of Overnite, 62

Employees: 48,000

Principal Subsidiary Companies: Union Pacific has subsidiaries, including Union Pacific Railroad Company, Union Pacific Resources Company, and Over-nite Transportation, serving the eastern United States, and Motor Cargo Industries, serving the western United States. Subsidiary Fenix manages four technology companies in telecommunications, wireless software products, and transportation management.

Chief Competitors: Union Pacific competes with other companies in the railroad and trucking industries, primarily the railroad companies Burlington Northern Santa Fe, Norfolk Southern, and CSX.

UP faltered in the late 1950s, its income, dividend, and stock price all falling between 1956 and 1961. Part of the problem lay in the rapid depletion of the company's best oil well, outside Los Angeles, and part lay in the continuing loss of railroad freight sales to the trucking industry. In response, UP restructured its holdings into three divisions—transportation, land development, and natural resources—and in the mid-1960s began a concentrated program of mineral, oil, and gas exploration. In 1969 UP acquired Champlin Petroleum Company and Pontiac Refineries from Celanese Corporation for $240 million, thus completing the formation of a fully integrated oil and gas business. UP also signed a joint-venture agreement allowing a subsidiary of Standard Oil Company of Indiana to drill for oil on its acreage, with UP getting royalties and retaining a quarter interest in whatever oil was found. The beginning of 1960s also marked the beginning of the longest and most intensely challenged railroad merger proposal's in the history of the United States when Union Pacific filed to merge with Chicago, Rock Island & Pacific Railroad (CRI&P) into Union Pacific. In 1969 Union Pacific Corporation was established as a holding company with headquarters in New York City. Union Pacific Railroad is one of its operating companies, with headquarters remaining in Omaha. The end of the 1960s also brought with it the end of the Harriman-Lovett dynasty at the company when Roland Harriman and Robert A. Lovett retired from active roles in the company, but remained on the board of directors until 1978, when Harriman died and Lovett resigned.

In 1974, fifteen years after UP's application to merge with CRI&P, it was approved. UP, however, terminated it offer three months later resulting from CRI&P's financial decline, which eventually forced them into bankruptcy. Pacific Fruit Express, jointly owned by UP and SP since 1906, has its assets split between the two companies as subsidiaries Union Pacific Fruit Express (UPFE) and Southern Pacific Fruit Express (SPFE).

The 1980s were a time for more growth when UP acquired the Missouri Pacific Railroad and Western Pacific Railroad, giving it access to the San Francisco Bay area for the first time since 1912. The year 1986 brought about the consolidation of all 40 of its regional customer centers into one National Customer Service Center in St. Louis. The company also forged into the trucking industry, buying Overnite Transportation Service, a nationwide trucking operation, to further inter-modal service. In the early 1990s, UP seemed to be balanced between a streamlined, comprehensive rail and truck carrier and a natural resources division capable of considerable expansion or contraction depending on the market price of commodities.

CHRONOLOGY: Key Dates for Union Pacific Corporation

1862:

The Pacific Railroad Act is signed by Pres. Abraham Lincoln and Union Pacific is formed to build a transcontinental railroad

1869:

The first transcontinental railroad is completed and marked in a ceremony with a golden spike driven at Promontory Summit, Utah

1873:

Jay Gould rescues UP from near bankruptcy

1889:

Union Pacific's first logo is unveiled

1893:

UP files for bankruptcy

1897:

UP is sold to a group of investors, including the legendary Edward H. Harriman; Harriman and Judge Robert S. Lovett become longtime leaders of UP

1901:

UP assumes control over competitor Southern Pacific Railroad

1912:

Supreme Court orders UP to sell its controlling stake in Southern Pacific Railroad

1927:

Subsidiary Union Pacific Stages launches the first transcontinental bus service in the United States

1941:

UP acquires locomotive No. 400, the first of the Big Boy class and largest of the steam locomotives

1960:

UP requests to merge with the Chicago, Rock Island, & Pacific Railroad (CRI&P), which becomes the longest and most severely challenged railroad merger proposal in U.S. history

1969:

Union Pacific Corp. is established as a holding company with Union Pacific Railroad as one of its operating companies

1981:

UP acquires the Missouri Pacific Railroad and the Western Pacific Railroad

1986:

UP acquires Overnite Transportation Service, a trucking service with nationwide operations

1996:

Union Pacific Railroad merges with Southern Pacific Railroad forming the largest rail company in the United States

1997:

A "transportation emergency" is declared when UP services grind to a halt resulting from merger-related problems

Growth abounded, as the company acquired Chicago & North Western Railroad in 1995, but it failed in an attempt to purchase the Santa Fe from competitor Burlington Northern Santa Fe Corp. In 1996 the company merged with Southern Pacific Railroad, forming Union Pacific Railroad Corp., the largest railroad operation in the United States. Union Pacific Railroad is kept as a wholly-owned subsidiary of Union Pacific Corp. Due to the merger, the following year brought a number of problems, including computer glitches, labor disputes, equipment shortages, and safety issues that effectively shut down operations within a matter of months. A transportation emergency was declared in 1997 by the Surface Transportation Board (STB) to move 40,000 cars off the rail, acquire more locomotives, and hire additional personnel to aid the cause, which cost the United States an estimated $2 billion in lost production. The same year, UP absorbed the Missouri Pacific Railroad and invested in the Mexico City Terminal Co. to operate lines in Mexico. Union Pacific then moved its headquarters to Dallas, Texas.

Union Pacific showed improvement in 1998, with the STB declaring that a renewal of the emergency service order was unnecessary. The company cut 2,400 employees and organized into northern, southern, and western divisions, including 22 local offices. In 1999 the company moved headquarters once again, this time to Omaha, Nebraska. As the millennium drew to a close, UP leased 1,000 new diesel-electric locomotives to replace 1,500 older trains. The year 2000 saw the company place its bets on technology, bringing an alliance with Canadian Pacific Railway Co., CSX Corp., and Norfolk Southern Corp. to invest in Arzoon, an Internet-based tranportation management system.

STRATEGY

Union Pacific has identified the components that it believes will ensure continued revenue growth: market, price, penetration, and customer service. With a franchise that has access to some of the fastest growing markets, including the southwestern U.S. and Mexico, UP believes that it will have an advantage over the rest of the slower growing markets. They plan on an aggressive pricing strategy, based on products and value-added services. To increase market share, UP intends to convert highway business to railroad business. To penetrate new markets, UP believes that the key is reliable, consistent customer service.

Union Pacific also plans to proceed with more emphasis on efficiency in its operations. With employee productivity at an all-time high in 2001, the company plans on building on this strength as the economy rebounds. Union Pacific also has plans to increase its implementation of technology to increase customer service and grow revenue. UP's trucking subsidiary Over-nite, with some of 2001's best financial results in the industry, will continue to focus on on-time performance and profitable revenue growth for future success. Over-nite's improved transit times in more than 3,000 lanes and improved one- and two-day service lanes will provide opportunities for future growth and efficiency. The acquisition of Motor Cargo Industries in 2001 also enhances the company's strategy of growth within its trucking unit.

To highlight the company's prestigious 140 years of helping build a prosperous nation, UP launched an advertising campaign in April 2002 called "Building America." The ads consisted of two television spots narrated by actor Sam Elliott who spoke of the connection between Union Pacific and the country's way of life while showing images of majestic landscapes filmed on UP tracks near Moab, Utah, and Santa Maria, California, to highlight the campaign's theme of UP and its employees helping build America.

INFLUENCES

One of the successes enjoyed by UP in 2001 was the locomotive modernization program. In order to make their assets more productive, UP acquired 500 new units and retired more than 700 units. As a result, maintenance costs decreased dramatically and the fuel consumption rate attained its best level in the company's history.

A fundamental component for revenue growth, UP continues efforts to keep things running quickly and smoothly. Although the company seeks to use new technology to play a major role in its future, some of their methods have come under fire. In 2002 UP announced plans to bring its unmanned locomotives, using remote controlled operations, to Houston despite many safety and efficiency issues. With several accidents involving UP locomotives that operate without a Locomotive Engineer on board in Des Moines, Iowa, Hinkle, Oregon, and Kansas City, Missouri, the Brotherhood of Locomotive Engineers (BLE)in the Houston area voiced concerns that the company is sacrificing safety by using less than the most qualified personnel to operate the locomotives. The BLE's main concern was that UP's major involvement in shipping potentially deadly chemicals and hazardous materials makes the use of individuals who are not Locomotive Engineers as remote control operators as allowing potential safety problems. There are no Federal Railroad Administration (FRA) regulations in place regarding remote control, merely voluntary guidelines that are not enforceable, so UP continues to implement the technology at many of its major switching yards.

CURRENT TRENDS

The company continues to establish alliances with other railroads to introduce new, competitive services and meet customer needs more effectively. UP partnered with CSX, for example, to establish the "Express Lane" ser-vice that transports perishables from California and the Pacific Northwest to the East coast. The service enjoyed revenue growth of 12 percent and was 90 percent on time. In partnership with leading competitor Norfolk Southern, UP started the "Blue Streak" intermodal service with routes from Los Angeles to Atlanta and beyond and has been nearly sold out since its launch, owing to a 99 percent on-time status.

The increasing use of technology is also another trend seen by the company in 2001. UP implemented a voice recognition system at the National Customer Service Center, enabling customers to release cars 24 hours a day with a mere phone call. Receiving extremely good customer response, UP plans to add more functionality in the coming years. Similarly, after receiving negative feedback from the company's Internet site, UP streamlined its Web pages, resulting in a 95 percent increase in online transactions and earning the company B2B magazine's top ranking for transportation/shipping Web site.

Finally, in an effort to cut costs and preserve natural resources, Union Pacific installed multiple EnergySaver systems as the first part of a multi-tiered program to conserve energy on lighting in their facilities nationwide. The first EnergySaver installation at their Chicago locomotive repair warehouse resulted in 20 percent energy saving levels with no noticeable reduction in lighting levels. To achieve maximum energy efficiency in its lighting system, UP will also contract to receive high efficiency ballasts and lamps that will take place later in 2002.

PRODUCTS

Union Pacific offers services in the two main categories of Railroad and Trucking. Rail operations, serving the western two-thirds of the country, have more than 33,000 route miles linking the Pacific Coast and Gulf Coast ports to the Midwest and eastern United States. They also provide several north/south corridors to important Mexican gateways. By maintaining coordinated schedules with other carriers, the company also handles freight to and from the Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico. Rail freight consists of six commodities: automotive, agricultural, chemicals, energy, industrial products, and inter-modal. Some of the newer and more successful services introduced in this segment include the "Express Lane," in partnership with CSX, which moves fresh and frozen fruits and vegetables in refrigerated equipment across the Untied States. The success of this service led the company to expand service to additional U.S. locations in 2002.

The company's trucking segment includes the operations of Overnite and Motor Cargo. Overnite services specializes in less-than-truckload (LTL) shipments serving all 50 states and parts of Mexico and Canada. With 170 service centers throughout the United States, Over-nite provides regional, inter-regional, and long haul service. Overnite cargo consists of a variety of goods, including machinery, tobacco, plastics, textiles, paper products, and electronics. To expand its trucking services, Union Pacific acquired Motor Cargo in 2001. Motor Cargo is now a regional LTL carrier serving 10 of America's western states. General commodities' Motor Cargo carries consumer goods, packaged foodstuffs, industrial and electronic equipment, and auto parts.

CORPORATE CITIZENSHIP

Union Pacific Foundation has been the philanthropic arm of Union Pacific Corporation and Union Pacific Railroad since 1959. The company's activities are centered in the communities where there is a significant corporate presence in a effort to improve the quality of life in the areas in which their employees live and work. In 1999 the Foundation distributed $7.5 million to more than 700 institutions across the United States in education, health and human services, community and civic causes, and the arts. Several U.S. organizations supported by the Foundation benefiting women, minorities, and the physically disabled include: the American Institute for Managing Diversity, the Cardinal Glennon Children's Hospital, Cay-Uma-Wa Youth Services, El Museo Latino, Hispanic Scholarship Fund, Neighborhood Centers Inc., PUENTE Learning Center, and Self-Enhancement Inc.

GLOBAL PRESENCE

United Pacific is the primary rail connection between the United States and Mexico, providing several north/south corridors to principal Mexican gateways. Its Mexico Markets group aims to facilitate market share growth in the land transportation of commodities to and from Mexico and to establish efficient border and operations processes. The company will continue to increase the focus on the growing international intermodal market. Additionally, UP interchanges traffic with the Canadian rail system. Export and import traffic is conveyed through Gulf Coast and Pacific Coast ports and across the Mexican and, mostly through interline connections, Canadian borders. The company also maintains an International Customer Service Center (ICSC), with a branch office in Mexico city, in addition to their successful National Customer Service Center. UP also entered into a 2001 joint agreement with the Canadian National Railway to introduce a new truck-competitive service for intermodal shipments between Central Canad, Michigan, Texas, and Mexico City.

EMPLOYMENT

Union Pacific outlines several values and leadership behaviors among its company culture, including safety, quality principles, respect for employees, commitment, accountability, simplicity, and communication. The company maintains that it acts with respect for all employees; addresses employees' developmental needs and builds on their strengths through coaching and training; and promotes and rewards managers for their leadership skills, technical knowledge, and abilities. UP's corporate policy provides equal opportunity to all employees and supports diversity. Support groups within Union Pacific include the Black Employee Network, begun in Omaha in 1979, boasting more than 700 employee members; the Women's Network, founded in March 1989; and the Latino Employee Network. About 87 percent of UP's 48,000 employees are represented by 14 major rail unions.

CONNECTING A NATION

Union Pacific's 2002 advertising campaign, "Building a Nation," highlights some of the company's greatest assets: leadership and history. In one of the two featured television ads, a gravelly-voiced Sam Elliott says, "In 1869 we connected a nation—east to west, west to east. Today we connect a nation—past to present, present to future. So you might say that the road to the future, isn't a road at all." In another ad, depicting gorgeous shots of the vast American vistas along Union Pacific's routes, Elliott says, "33,000 miles of timber and steel—from Portland to New Orleans, from Los Angeles to Chicago—and the beauty of the land that spans half the continent. Its been said that in those 33,000 miles of rail you can feel America's pulse." These ads can be viewed at the company's Web site.

The company strives to retain and motivate their workforce and looks for innovative approaches to work/life issues company-wide. Alternative work arrangement and flexible benefits the company employs include Rest Easy, an in-home alternative for dependent care when an emergency arises; Life Care Services, to help management employees with prenatal planning, adoption, adult care, and related services; and Employee Assistance, designed to assist employees and their families with a range of personal problems. Working Mother recognized the company's efforts in 2001 by naming the company as on of the top 100 employers for working mothers.

SOURCES OF INFORMATION

Bibliography

"union pacific builds in energy conservation with electric city." pr newswire, 3 june 2002.

"union pacific corp." the gale group, june 2002. available at http://galenet.galegroup.com.

"union pacific corporation." hoover's online, june 2002. available at http://www.hoovers.com.

union pacific corporation home page, 2002. available at http://www.up.com.

"union pacific's unmanned locomotives: a danger to public safety." pr newswire, 11 june 2002.

For an annual report:

on the internet at: http://www.up.comor write: union pacific corporation, 1416 dodge st., rm. 1230, omaha, ne 68179

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. union pacific corporation's primary sics are:

4011 railroads, line-haul operating

4213 trucking, except local

6719 holding companies, not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. union pacific corporation's primary naics codes are:

213112 support activities for oil and gas field operations

482111 line-haul railroads

484121 general freight trucking, long-distance, truckload