NEW YORK — Union Pacific said Wednesday that it has undertaken a "major restructuring" of the railroad and energy company that will include an extraordinary second-quarter charge of $1.7 billion and result in a loss for the year.
In the announcement, William S. Cook, the company's chairman, president and chief executive, said Union Pacific also plans to repurchase $750 million worth of its common shares, or as many as 15 million shares. The company, which has already repurchased 8.5 million shares for $450 million, has 107.3 million shares outstanding.
Cook said the actions should increase rates of return, cash flow and earnings. When fully implemented over a three-year period, he said, the restructuring should reduce annual expenses by $150 million to $200 million after taxes. The firm's debt-to-equity ratio is expected to remain at or below 30% throughout the program, he said, enabling it to "pursue other significant opportunities that may arise."
Railroad analysts agreed that the writeoff, though very large, will significantly boost Union Pacific's earnings in years to come because it will result in "eliminating some deadwood" and the acquisition of "more productive" railroad equipment. The acquisition of the shares will help boost per-share earnings by between 8% and 10% in the next two years, they added.
Most of the restructuring costs would be deducted from second-quarter earnings, Cook said, causing an unspecified loss for 1986.
Joseph B. Muldoon, railroad analyst with the Philadelphia brokerage house of Janney Montgomery Scott, said the writeoff "is a big loss, but the (stock) markets will view it as a non-recurring loss. They will look at the earnings before the writeoff."
He added that when one excludes a reserve of $600 million for work force reductions, the company will actually be writing off about one-tenth of its $10.5 billion in assets as unproductive. "I think that is very significant," he added.
The company operates the nation's third-largest rail system and has major oil and gas production and refining operations. The Union Pacific system--the result of a merger in 1982 of the Missouri Pacific and Western Pacific railroads--operates more than 21,000 miles of track in 21 states.
Last year it earned $501 million on revenue of $7.9 billion, compared to 1984's net profit of $494 million on revenue of $7.9 billion. In the first quarter of 1986, the company earned $113 million on revenue of $1.967 billion, compared to a profit of $103 million on revenue of $1.83 billion in the first quarter last year.
Making up the $1.7-billion writeoff ($945 million after taxes) are:
- The $600-million reserve to cover job reductions, including costs associated with such things as early retirement and severance pay. A company official would not say how many people will be laid off. Union Pacific employs 40,752 people, of whom 36,666 work at the railroad subsidiary.
- A $577-million writeoff of some developed and non-producing oil and gas properties, reflecting their diminished value due to the "rapid and unprecedented" drop in energy prices.
- A $305-million writedown of subsidiary Champlin Petroleum's Corpus Christi, Tex., refinery.
- A $261-million writedown to cover excess railroad equipment, probable future losses in a petrochemical venture and other items. In answer to a question, a company spokesman said this would include the abandonment of some railroad track.
Observers say that the railroad's old engines are inefficient and that the ability to purchase new, more efficient ones would greatly increase productivity.
UNION PACIFIC AT A GLANCE Union Pacific Corp., New York, is a holding company for the Union Pacific Railroad, which operates on 21,574 miles of track in 21 states. The company's Champlin Petroleum subsidiary is a fully integrated energy company engaged in exploration, production, refining and marketing of oil and gas products. Union Pacific's Rocky Mountain Energy unit is engaged in the production of coal, trona, and uranium oxide from company-owned properties.
1st Quarter ended (in millions March 31 Year ended Dec. 31 of dollars) 1985 1984 1983 1982 Revenue 1,967 7,908 7,917 8,517 5,877 Net income 113 501 494 441 327
Assets: $10.5 billion
Shares outstanding: 107,320,601
(of whom 36,666 work for the railroad)
12-mos. price range NYSE: 55 7/8-45
Wednesday's close: 56 1/2, up 2 3/4