Union Pacific struggled with congestion and financial problems in 1997, but President Richard K. Davidson said Friday he is "cautiously optimistic" that the railroad is getting back on track.
Davidson, Union Pacific Corp.'s chairman, president and chief executive, told about 100 people at the railroad's annual meeting in Salt Lake City that calling 1997 a difficult year would be an understatement.The year started well, he said, but congestion problems relating to the Dallas-based company's 1996 merger with Southern Pacific started in Texas and Louisiana last summer. Attempts to solve the prob-lems by pulling resources from other areas let the congestion spread, and by mid-September, Union Pacific had to start a service recovery plan.
The railroad, which now operates in 23 states, posted a loss of $152 million in the fourth quarter of 1997, Davidson said, and its net income of $432 million for the year was down 35 percent from 1996.
"The expectation of another quarterly loss (for the first quarter of 1998) drove some difficult financial decisions," he said. "We had already increased our debt levels significantly to buy the Chicago and North Western in 1995 and Southern Pacific in 1996, and our credit ratings were lowered."
Davidson said the losses stretched Union Pacific's balance sheet, so the company reduced its dividend and sold $1.5 billion in convertible equity securities.
"Believe me, these steps were not taken lightly," he said. "It was, I know, the toughest decision I've ever had to make in my career. In the end, though, we felt we had to be conservative, and we had to be decisive."
He said the railroad is working hard to bring together the computer systems of the merged companies and to conclude negotiations with 13 different labor groups.
While it has taken longer than anticipated to work through merger-related problems, he said, "the traumas are all behind us now, and we are finally starting to see the congestion beginning to break up. . . .
"We're cautiously optimistic that the railroad is on its way to returning to normal operations."
Davidson would not predict earnings for 1999 and 2000, as requested by one shareholder, because he wants to wait until the company's customers regain confidence in it, he said.
He said the company does face six lawsuits - three by utilities and three by chemical companies - relating to the congestion problems, and more may be in the works.
"Hopefully we will resolve that on a negotiated basis as quickly . . . as we can," Davidson said.
Earlier this month, the federal Surface Transportation Board decided to review its 1996 decision to allow the railroad merger. Now, it will accept recommendations from the industry and its clients on how best to unclog rail traffic.
The Texas Railroad Commission has estimated rail woes have cost the state more than $1 billion already.
But Jerry Davis, Union Pacific Railroad's president and chief operating officer, said key terminals in Houston and Arkansas are running better.
A March 24 embargo on some of the railroad's traffic moving through the Mexican border at Laredo, Texas, has been eased, Davis said. A backup of 5,500 cars waiting to move south then was reduced to a normal level of 2,000 cars by Friday morning.
Davis said Union Pacific also is focusing on safety, as 11 of its employees died in railroad accidents last year. Still, he said, overall safety performance actually improved during 1997 and the first quarter of 1998.
"Since our last meeting last April, our railroad . . . suffered a period of tragedy that was unparalleled in our long history . . ." he said. "As a company, we are absolutely committed to making sure that nothing like this ever happens again."