<PAGE> COVER
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
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 1-7817
MISSOURI PACIFIC RAILROAD COMPANY
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1118635
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1416 Dodge Street, Omaha, Nebraska 68179
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 271-5000
----------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each Class which registered
------------------- ------------------------
Missouri Pacific Railroad Company New York Stock Exchange, Inc.
4-1/4% First Mortgage Bonds due 2005
Missouri Pacific Railroad Company New York Stock Exchange, Inc.
4-3/4% General (Income) Mortgage Bonds
due 2020 and 2030
Missouri Pacific Railroad Company New York Stock Exchange, Inc.
5% Debentures due 2045
Texas and Pacific Railway Company New York Stock Exchange, Inc.
5% First Mortgage Bonds due 2000
Missouri-Kansas-Texas Railroad Company New York Stock Exchange, Inc.
5-1/2% Subordinated Income Debentures
due 2033
Securities registered pursuant to
Section 12(g) of the Act: None
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1) (a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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
----- -----
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. [ X ].
----------------------------------
None of the Registrant's voting stock is held by non-affiliates. The Registrant
is a wholly-owned, indirect subsidiary of Union Pacific Corporation.
As of February 10, 1995, the Registrant had outstanding 920 shares of Common
Stock, $1 par value, and 80 shares of Class A Stock, $1 par value.
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE - None
<PAGE> 1
PART I
------
Item 1. Business
--------
Missouri Pacific Railroad Company (the "Registrant") includes the
Registrant, a Class I Railroad incorporated in Delaware and a wholly-owned,
indirect subsidiary of Union Pacific Corporation (the "Corporation"), as well as
a number of wholly-owned and majority-owned subsidiaries of the Registrant
engaged in various railroad and related operations, and various terminal
companies in which the Registrant has minority interests.
The Registrant operates in the midwestern and southwestern states of
Arkansas, Colorado, Illinois, Kansas, Louisiana, Missouri, Nebraska, Oklahoma,
Tennessee and Texas. The Registrant maintains coordinated schedules with other
carriers for the handling of freight to and from the Atlantic Coast, the Pacific
Coast, the Southeast, the Southwest, Canada and Mexico. Export and import
traffic is moved through Gulf Coast ports and across the Texas-Mexico border.
The Registrant's operations have been coordinated with those of Union Pacific
Railroad Company ("UPRR"), another wholly-owned, indirect subsidiary of the
Corporation. The two railroads operate as a unified system. See Note 2 to the
Registrant's Financial Statements for information on related party transactions.
In 1994, the Registrant had transportation revenues of $2.3 billion,
approximately 98.4 percent of which were derived from rail freight operations.
Percentages of revenue ton-miles ("RTM") and rail commodity revenue for major
commodities during 1994, 1993 and 1992 were as follows:
1994 1993 1992
----------------- ----------------- -----------------
Commodity Commodity Commodity
RTM Revenue RTM Revenue RTM Revenue
----- --------- ----- --------- ----- ---------
(Percent of Total)
Energy 29.9% 15.4% 29.0% 14.8% 26.7% 14.6%
Chemicals 22.6 29.2 22.3 29.1 22.6 30.1
Metals/Minerals/
Forest 16.9 18.7 17.7 20.2 19.0 20.6
Grain and Grain
Products 15.9 10.1 16.7 10.9 17.5 11.0
Intermodal 6.1 8.7 5.2 7.4 5.0 6.5
Automotive 4.2 12.6 4.6 12.1 4.4 11.7
Food/Consumer/
Government 4.4 5.3 4.5 5.5 4.8 5.5
------ ------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
Amount in
Billions 89.6 $2.3 82.3 $2.1 78.2 $2.1
====== ====== ====== ====== ====== ======
<PAGE> 2
By order issued March 7, 1995, the Interstate Commerce Commission
("ICC") approved the application of the Corporation and Chicago and North
Western Transportation Company ("CNW") for an order authorizing the common
control of the rail subsidiaries of the Corporation and CNW. The ICC's order
is scheduled to become effective on April 6, 1995 and will permit the
Corporation to (i) convert its 29.13 percent equity ownership interest in CNW,
currently in the form of non-voting common stock, into shares of voting
common stock of CNW (the "CNW Shares"), (ii) acquire additional CNW Shares
and (iii) increase its representation on the CNW Board of Directors from
one director out of seven to three directors out of nine. The ICC's order
is subject to a standard labor protection condition and a requirement that the
Soo Line Railroad Company ("Soo") be permitted to admit third parties to
certain joint facilities operated by Soo and CNW.
On March 16, 1995, the Corporation and CNW entered into a definitive
merger agreement (the "Merger Agreement"), pursuant to which UP Rail, Inc., a
subsidiary of the Corporation, will acquire 100 percent of the outstanding CNW
Shares not otherwise owned by the Corporation or its affiliates for $35 per
share in cash pursuant to a tender offer and a second-step merger. Following
consummation of the tender offer, UP Rail, Inc. will be merged into CNW with
CNW being the surviving corporation and CNW will become a wholly-owned
subsidiary of the Corporation. In addition, following consummation of the
tender offer, and in accordance with the Merger Agreement, the Corporation
intends to elect a majority of the directors on the CNW Board of Directors.
The tender offer for the CNW Shares was commenced on March 23, 1995
and will expire on April 19, 1995 unless extended. The tender offer is
conditioned upon, among other things, (i) there having been validly tendered
and not withdrawn prior to the expiration of the offer a number of CNW Shares
which, when added to the shares of non-voting common stock of CNW beneficially
owned by the Corporation and its subsidiaries (assuming conversion thereof into
CNW Shares and the exercise of outstanding options for CNW Shares) constitutes
at least a majority of the CNW Shares outstanding on a fully-diluted basis
(assuming conversion of the non-voting common stock into CNW Shares) and (ii)
the ICC's March 7, 1995 order approving the common control of the Corporation's
and CNW's rail subsidiaries having become final and effective prior to the
expiration of the tender offer. The second-step merger is also conditioned
upon a number of things, including without limitation (i) the consummation
of the tender offer, (ii) approval of the merger by CNW stockholders (which
will not be required if 90 percent or more of the CNW Shares, including CNW
Shares now owned by the Corporation, are acquired pursuant to the offer or
otherwise) and (iii) the ICC either having determined that the terms of the
merger are just and reasonable or having issued a declaratory order that such a
determination is not required.
UP Rail, Inc. and CNW have also entered into a Company Stock Option
Agreement, dated as of March 16, 1995 (the "Option Agreement"). Subject to
UP Rail, Inc. and its affiliates owning at lease 85 percent of the outstanding
CNW Shares (assuming the conversion of the non-voting common stock to CNW
Shares), the Option Agreement will permit UP Rail, Inc. to purchase from CNW, at
the tender offer price, a sufficient number of additional CNW Shares such that
the CNW Shares purchased pursuant to the Option Agreement plus the CNW Shares
owned by the Corporation or UP Rail, Inc. would represent 90.01 percent of the
outstanding CNW Shares (assuming conversion of the non-voting common stock into
CNW Shares).
<PAGE> 3
The Corporation, UP Rail, Inc., CNW and CNW's directors have been
named as defendants in five lawsuits commenced on March 9 and 13, 1995 in the
Court of Chancery in and for New Castle County, Delaware. Each suit purports
to be a class action brought on behalf of all public stockholders of CNW
except for the defendants and their affiliates. The complaints allege, among
other things, that (i) directors of CNW breached their fiduciary duties to the
CNW stockholders in considering approving the acquisition and (ii) as the
controlling stockholder of CNW, the Corporation and UP Rail, Inc. breached
their fiduciary duties to the other stockholders of CNW in agreeing to enter
into the acquisition. In particular, the complaints allege that the directors
agreed to sell CNW at an inadequate price and without proper information
concerning the true value of CNW and its shares because they failed to use an
auction or an active market check or to explore other strategic alternatives,
and failed to create a special committee of fully disinterested directors.
One complaint adds the claim that the whole CNW Board is disqualified from
acting because of various contractual agreements with the Corporation.
Another complaint alleges that the Corporation's 29 percent control of CNW
permitted the Corporation to control the terms of any buyout transaction and no
bona fide negotiations could take place. In addition, all claim the Corporation
and UP Rail, Inc. had access to confidential and proprietary non-public
information about CNW and used that information to acquire CNW at an inadequate
price in violation of the Corporation's obligations as a controlling stockholder
of CNW to assure that the transaction be entirely fair and at the best price.
On March 28, 1995, an amended complaint was filed in two of the suits
reiterating the claims made in the earlier complaints which it amended, and
alleging, among other things, (i) that the investment bank retained by the CNW
directors to render a fairness opinion in connection with the tender offer was
not disinterested or independent and had a conflict of interest with regard to
the tender offer, (ii) that the CNW directors breached or aided and abetted
breaches of their duties of good faith and loyalty by approving for themselves
and members of CNW's senior management lucrative compensation packages and
other financial benefits, (iii) that the defendants structured the transaction
in such a way as to prevent CNW's public stockholders from voting on the merger
or exercising dissenters' rights, and (iv) that the defendants breached their
duties of candor and full disclosure by failing adequately to disclose, among
other things, the information described above, the reasons why the CNW's Board
failed to implement a stockholders' rights plan and the reasons for alleged
discrepancies and variations between valuation ranges for CNW Shares as prepared
by the financial advisors of the Corporation and CNW, respectively.
As relief, the complaints seek, among other things, an injunction
against consummation of the transacton and damages in an unspecified amount.
The Corporation and CNW believe that all of the lawsuits are without merit,
and both companies intend to vigorously defend such actions.
Competition
-----------
The Registrant is subject to competition from other railroads, motor
carriers and barge operators, based on both price and service. Most of its
railroad operations are conducted in corridors served by competing railroads and
by motor carriers. Motor carrier competition is particularly strong for
intermodal traffic. Because of the proximity of the Registrant's routes to
major inland and Gulf Coast waterways, barge competition can be particularly
pronounced for bulk commodities.
<PAGE> 4
Employees
---------
As is true with employees of all the principal railroads in the
country, the majority of the Registrant's employees are organized along craft
lines and represented by national labor unions. The Registrant continues to
adapt agreements from the previous round of national negotiations to meet local
requirements throughout its system. The Registrant has implemented two-person
crews for all through-freight trains and for a portion of yard and local
operations. Expansion of two-person crews is planned for other areas of the
system.
With respect to 1995 national negotiations, both the unions and the
carriers have taken the necessary steps to commence labor negotiations, with the
filing of their initial bargaining positions. Whether unions are required to
bargain nationally with all railroads at once, or can bargain with individual
railroads, is currently being litigated with two unions. Negotiations on
substantive issues are proceeding with other unions. The negotiations will
likely continue through 1995 and beyond.
Governmental Regulation
-----------------------
The Registrant's operations are subject to the regulatory
jurisdiction of the ICC, other Federal agencies and various state agencies.
The ICC has jurisdiction over rates charged on certain regulated rail traffic;
freight car compensation; issuance or guarantee of railroad and certain
railroad holding company securities; transfer, extension or abandonment of
rail lines; and acquisition of control of rail common carriers and motor
carriers by rail common carriers. The United States Congress and Clinton
Administration appear to be in agreement that the ICC should be eliminated
and that some of its rail and truck regulatory functions should be transferred
to other Federal agencies. It is unclear whether the transfer of such
functions, in particular the jurisdiction over the acquisition of control of
rail common carriers and motor carriers, will involve the imposition of
different or more burdensome regulatory requirements and what effect such
transfer will have on the Registrant's operations.
Other Federal agencies have jurisdiction over safety, movement of
hazardous materials, movement and disposal of hazardous waste, and equipment
standards. State agencies regulate intrastate rail freight rates to the extent
that such agencies have adopted Federal standards and procedures and continue to
follow such procedures. However, several states in which railroad operations
are conducted have ceded intrastate rail rate regulation to the ICC. Various
state and local agencies also have jurisdiction over disposal of hazardous
wastes and seek to regulate movement of hazardous materials.
Item 2. Properties
----------
Operating Equipment
-------------------
At December 31, 1994 the Registrant owned or leased from others
1,168 locomotives, 29,442 freight cars and 1,967 units of work equipment.
Substantially all of the Registrant's railroad rolling stock is subject to the
liens of the Registrant's First Mortgage and General (Income) Mortgage as well
as the lien of the First Mortgage of the Texas and Pacific Railway Company, its
predecessor in interest (collectively the "Mortgages"). In addition, a portion
<PAGE> 5
of this property is subject to various equipment obligations which are superior
to the liens of one or more of the Mortgages.
Rail Property
-------------
The Registrant operates approximately 9,600 miles of track,
including 7,900 miles of main line and 1,700 miles of branch line.
Approximately 10 percent of the main line track consists of trackage rights
over track owned by others. The Registrant's right-of-way and tracks are
subject to one or more of the Mortgages.
Item 3. Legal Proceedings
-----------------
In December 1992, the Texas Natural Resources Conservation
Commission ("TNRCC") served the Registrant with a Notice of Violation for
alleged discharges and fuel spills at the Registrant's San Antonio, Texas
railyard. The TNRCC proposed penalties totalling $500,000. The Registrant and
the TNRCC settled this matter for a penalty payment of $300,000 plus the
implementation of certain supplemental environmental projects in Texas
costing $275,000.
In addition to the foregoing, the Registrant has received notices
from the Environmental Protection Agency ("EPA") and state environmental
agencies alleging that it is or may be liable under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and/or other
Federal or state environmental legislation for the remediation costs associated
with alleged contamination or for violations of environmental requirements at
various sites throughout the United States. There are approximately 13 sites
for which such notices have been received which are currently 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 some of
the superfund sites, the Registrant 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 Registrant's exposure has been reached although
regulatory proceedings at the sites involved have not been formally
terminated. Additional information relating to the Registrant's potential
environmental costs is set forth in Note 9 to the Financial Statements,
contained on page F-13 of this report.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Omitted in accordance with General Instruction J of Form 10-K.
<PAGE> 6
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
All of the Common Stock and Class A Stock of the Registrant is owned
by a wholly-owned indirect subsidiary of the Corporation. Accordingly, there is
no market for the Registrant's capital stock. Dividends on the Registrant's
Common Stock, which are paid on a quarterly basis, totalled $90.6 million in
1994 and $90 million in 1993. Through 1993, no dividends had been declared or
paid on the Registrant's Class A Stock; however, a $3.4 million special cash
dividend was paid in 1994 and a $6.3 million special cash dividend will be paid
on the Class A Stock in 1995. See Notes 5 and 7 to the Registrant's financial
statements for a discussion of dividend restrictions on the Common Stock and
Class A Stock.
Item 6. Selected Financial Data
-----------------------
Omitted in accordance with General Instruction J of Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Omitted in accordance with General Instruction J of Form 10-K.
In lieu thereof, a narrative analysis is presented on Page F-14.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements and supplementary information related
thereto, listed on the Index to Financial Statements, are incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Omitted in accordance with General Instruction J of Form 10-K.
Item 11. Executive Compensation
----------------------
Omitted in accordance with General Instruction J of Form 10-K.
<PAGE> 7
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Omitted in accordance with General Instruction J of Form 10-K.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Omitted in accordance with General Instruction J of Form 10-K.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) (1) and (2) Financial Statements and Schedules
----------------------------------------------
See Index to Financial Statements.
(a) (3) Exhibits
------------
(3)(a) - Registrant's Certificate of Incorporation, amended
effective as of August 12, 1988, is incorporated
herein by reference to Exhibit 3(i) to the
Registrant's Report on Form 10-Q for the quarter ended
June 30, 1988.
(3)(b) - Registrant's By-laws, amended effective as of
September 1, 1992, are incorporated herein by
reference to Exhibit 3 to the Registrant's Report on
Form 10-Q for the quarter ended September 30, 1992.
(4) - Pursuant to various indentures and other agreements,
the Registrant has issued long-term debt; however,
no such agreement has securities or obligations
covered thereby which exceed 10% of the Registrant's
total consolidated assets. The Registrant agrees to
furnish the Commission with a copy of any such
indenture or agreement upon request by the
Commission.
(24) - Powers of attorney executed by the directors of the
Registrant.
(27) - Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 1994.
<PAGE> 8
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 30th day of
March, 1995.
MISSOURI PACIFIC RAILROAD COMPANY
By /s/ Richard K. Davidson
------------------------------------
Richard K. Davidson,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below, on this 30th day of March, 1995, by the
following persons on behalf of the Registrant and in the capacities indicated.
By /s/ Richard K. Davidson
------------------------------------
Richard K. Davidson,
Chairman and Chief Executive Officer
and a Director
/s/ L. White Matthews, III
------------------------------------
L. White Matthews, III,
Chief Financial Officer and a Director
/s/ Morris B. Smith
------------------------------------
Morris B. Smith,
Vice President-Finance
/s/ Charles E. Billingsley
------------------------------------
Charles E. Billingsley,
Chief Accounting Officer
<PAGE> 9
SIGNATURES - (Continued)
Robert P. Bauman* Drew Lewis*
Richard B. Cheney* Richard J. Mahoney*
E. Virgil Conway* Claudine B. Malone*
Spencer F. Eccles* Jack L. Messman*
Elbridge T. Gerry, Jr.* John R. Meyer*
William H. Gray III* Thomas A. Reynolds, Jr.*
Judith R. Hope* James D. Robinson III*
Lawrence M. Jones* Robert W. Roth*
Richard D. Simmons*
* By /s/ Judy L. Swantak
-----------------------------------------
Judy L. Swantak, Attorney-in-fact
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number
--------------
(3)(a) - Registrant's Certificate of Incorporation, amended effective as of
August 12, 1988, is incorporated herein by reference to Exhibit 3(i)
to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1988.
(3)(b) - Registrant's By-laws, amended effective as of September 1, 1992, are
incorporated herein by reference to Exhibit 3 to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1992.
(4) - Pursuant to various indentures and other agreements, the Registrant
has issued long-term debt; however, no such agreement has securities
or obligations covered thereby which exceed 10% of the Registrant's
total consolidated assets. The Registrant agrees to furnish the
Commission with a copy of any such indenture or agreement upon
request by the Commission.
(24) - Powers of attorney executed by the directors of the Registrant.
(27) - Financial Data Schedule.
<PAGE> F-1
MISSOURI PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Financial Statements:
Statement of Consolidated Financial Position -
December 31, 1994 and 1993 F-3 - F-4
Statement of Consolidated Income and Retained
Earnings - For the Years Ended December 31, 1994,
1993 and 1992 F-5
Statement of Consolidated Cash Flows - For the Years
Ended December 31, 1994, 1993 and 1992 F-6
Accounting Policies F-7
Notes to Consolidated Financial Statements F-7 - F-13
Management's Narrative Analysis of the
Results of Operations F-14
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.
<PAGE> F-2
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
Missouri Pacific Railroad Company
Omaha, Nebraska
We have audited the accompanying statements of consolidated financial position
of Missouri Pacific Railroad Company (a wholly-owned indirect subsidiary of
Union Pacific Corporation) and subsidiary companies (the "Registrant") as of
December 31, 1994 and 1993, and the related statements of consolidated income
and retained earnings and of consolidated cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are
the responsibility of the Registrant's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Registrant at December 31,
1994 and 1993, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Registrant changed its method of accounting for postretirement benefits other
than pensions, income taxes and transportation revenue and expense recognition
in January 1993.
/s/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 19, 1995
<PAGE> F-3
<TABLE>
<CAPTION>
MISSOURI PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
December 31, 1994 and 1993
(Thousands of Dollars)
ASSETS
------
1994 1993
---------- ----------
<S> <C> <C>
Current Assets:
Cash and temporary investments........... $ 7,640 $ 7,131
Accounts receivable - net (Note 3)....... 75,678 84,425
Inventories.............................. 102,936 83,563
Deferred income taxes (Notes 1 and 4).... 68,529 63,823
Other current assets..................... 75,555 72,293
---------- ----------
Total Current Assets.................. 330,338 311,235
---------- ----------
Investments:
Investments in and advances to
affiliated companies................... 49,158 42,588
Other investments........................ 13,020 12,743
---------- ----------
Total Investments..................... 62,178 55,331
---------- ----------
Properties, at cost (Notes 5 and 6):
Road..................................... 4,220,652 4,021,672
Equipment................................ 1,717,873 1,760,363
Other.................................... 73,416 76,050
---------- ----------
Total Properties...................... 6,011,941 5,858,085
Less accumulated depreciation and
amortization........................... 1,808,772 1,752,358
---------- ----------
Properties - Net...................... 4,203,169 4,105,727
---------- ----------
Intangible and Other Assets................... 76,069 82,787
---------- ----------
Total Assets.......................... $4,671,754 $4,555,080
========== ==========
The accompanying accounting policies and notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE> F-4
<TABLE>
<CAPTION>
MISSOURI PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
December 31, 1994 and 1993
--------------------------
(Thousands of Dollars)
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
1994 1993
---------- ----------
<S> <C> <C>
Current Liabilities:
Accounts payable........................... $ 26,220 $ 26,266
Accrued wages and vacation................. 107,580 125,974
Income and other taxes payable (Note 4).... 91,206 86,541
Interest payable........................... 14,012 17,525
Debt due within one year (Notes 5 and 6)... 38,664 53,253
Due to affiliated companies - net (Note 2). 816,795 796,523
Casualty and other reserves................ 118,029 109,769
Other current liabilities.................. 173,086 160,669
---------- ----------
Total Current Liabilities............... 1,385,592 1,376,520
---------- ----------
Debt Due After One Year (Notes 5 and 6)......... 389,429 433,438
Deferred Income Taxes (Notes 1 and 4)........... 1,250,141 1,209,390
Retiree Benefits Obligation (Notes 1 and 8)..... 161,198 160,564
Other Long-Term Liabilities (Note 9)............ 184,964 228,262
Stockholder's Equity (Notes 5 and 7):
Common stock - $1.00 par value; 920 shares
authorized and outstanding............... 1 1
Class A stock - $1.00 par value; 80
shares authorized and outstanding........ - -
Capital surplus............................ 205,342 205,342
Retained earnings.......................... 1,095,087 941,563
---------- ----------
Total Stockholder's Equity.............. 1,300,430 1,146,906
---------- ----------
Total Liabilities and
Stockholder's Equity.................. $4,671,754 $4,555,080
========== ==========
The accompanying accounting policies and notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE> F-5
<TABLE>
<CAPTION>
MISSOURI PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1994, 1993 and 1992
----------------------------------------------------
(Thousands of Dollars)
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues (Note 1).............. $2,320,791 $2,149,104 $2,129,999
---------- ---------- ----------
Operating Expenses (Note 2):
Salaries, wages and employee
benefits.......................... 793,654 783,907 789,051
Equipment and other rents........... 271,163 220,738 219,527
Depreciation and amortization....... 215,731 206,987 204,264
Fuel and utilities.................. 153,352 152,091 154,792
Materials and supplies.............. 123,491 125,303 127,974
Other costs......................... 297,709 249,945 276,404
---------- ---------- ----------
Total............................ 1,855,100 1,738,971 1,772,012
---------- ---------- ----------
Operating Income......................... 465,691 410,133 357,987
Other Income - Net....................... 23,290 37,843 52,118
Interest Expense (Notes 2 and 5)......... (96,147) (103,848) (120,005)
---------- ---------- ----------
Income Before Income Taxes and
the Cumulative Effect of Accounting
Changes............................. 392,834 344,128 290,100
Income Taxes (Note 4).................... 145,310 145,193 98,868
---------- ---------- ----------
Income Before Cumulative Effect
of Changes in Accounting Principles. 247,524 198,935 191,232
Cumulative Effect to January 1, 1993 of
Changes in Accounting Principles
(Note 1)............................ - (125,168) -
---------- ---------- ----------
Net Income....................... $ 247,524 $ 73,767 $ 191,232
---------- ---------- ----------
Retained Earnings:
Beginning of year................... $ 941,563 $ 957,796 $ 836,564
Net income.......................... 247,524 73,767 191,232
Dividends to parent (Notes 5 and 7). (94,000) (90,000) (70,000)
---------- ---------- ----------
End of Year...................... $1,095,087 $ 941,563 $ 957,796
========== ========== ==========
The accompanying accounting policies and notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE> F-6
<TABLE>
<CAPTION>
MISSOURI PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
----------------------------------------------------
(Thousands of Dollars)
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net Income.................................... $ 247,524 $ 73,767 $ 191,232
Non-Cash Charges to Income:
Depreciation and amortization............... 215,731 206,987 204,264
Deferred income taxes....................... 35,347 66,772 38,916
Cumulative effect of changes in accounting
principles (Note 1)...................... - 125,168 -
Other non-cash charges (credits) - net...... 16,061 18,344 (94,807)
Changes in current assets and liabilities..... (29,794) (71,865) 100,328
Cash used for special charge.................. (42,271) (88,750) (47,345)
--------- --------- ---------
Cash from Operations........................ 442,598 330,423 392,588
--------- --------- ---------
Investing Activities:
Capital investments......................... (289,511) (315,192) (266,902)
Other - net................................. (19,503) (2,870) 84,462
--------- --------- ---------
Cash Used in Investing Activities........... (309,014) (318,062) (182,440)
--------- --------- ---------
Financing Activities:
Debt repaid (Note 5)........................ (59,347) (105,319) (74,080)
Dividends to parent......................... (94,000) (90,000) (70,000)
Advances (to) from affiliated
companies - net........................... 20,272 187,416 (77,024)
Other - net................................. - - 4,428
--------- --------- ---------
Cash Used in
Financing Activities...................... (133,075) (7,903) (216,676)
--------- --------- ---------
Net Change in Cash and Temporary
Investments............................... $ 509 $ 4,458 $ (6,528)
========= ========= =========
Changes in Current Assets and Liabilities:
Accounts receivable....................... $ 8,747 $ (18,351) $ (3,768)
Inventories............................... (19,373) (686) (11,755)
Federal income tax benefit................ - - 23,637
Deferred Federal income taxes............. (4,706) 2,974 9,253
Other current assets...................... (3,262) (9,173) (13,170)
Accounts payable.......................... (46) (7,638) 7,788
Other current liabilities................. (11,154) (38,991) 88,343
--------- --------- ---------
Total..................................... $ (29,794) $ (71,865) $ 100,328
========= ========= =========
The accompanying accounting policies and notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE> F-7
MISSOURI PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
ACCOUNTING POLICIES
-------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Missouri Pacific
Railroad Company and all subsidiaries (the "Registrant"). The Registrant is a
wholly-owned, indirect subsidiary of Union Pacific Corporation (the
"Corporation"). Investments in affiliated companies (20% to 50% owned) are
accounted for on the equity method. All material intercompany transactions are
eliminated.
INVENTORIES
Inventories consist primarily of materials and supplies carried at the lower of
average cost or market.
REVENUE RECOGNITION
Transportation revenues are recognized on a percentage-of-completion basis,
while delivery costs are recognized as incurred (See Note 1).
PROPERTIES
Properties are stated at cost. Upon sale or retirement of units of depreciable
operating property, gains and losses are charged to accumulated depreciation.
With respect to all other property sold or retired (principally land sold for
industrial development or as surplus property), cost and any related accumulated
depreciation are removed from the accounts and a gain or loss is recognized upon
disposition.
DEPRECIATION
Provisions for depreciation are computed principally on the straight-line method
based on estimated service lives of depreciable properties.
INTANGIBLE ASSETS
Intangible and other assets include the cost in excess of fair value of net
assets of acquired businesses associated with the Registrant's 1988 purchase of
The Missouri-Kansas-Texas Railroad Company (the "Katy"). Amortization is
recorded over 40 years on a straight-line basis. The Registrant regularly
assesses the recoverability of costs in excess of net assets of acquired
businesses through a review of cash flows and fair values of those businesses.
HEDGING TRANSACTIONS
The Registrant periodically hedges hydrocarbon purchases (See Note 3). Gains
and losses from these transactions are recognized upon receipt of the commodity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Accounting Changes
In January 1993, the Registrant adopted the following accounting changes with a
cumulative after-tax charge to earnings of $125.2 million.
<PAGE> F-8
Other Postretirement Benefits ("OPEB") (See Note 8)
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", requires that the
cost of non-pension benefits for retirees be accrued during their period of
employment. The adoption of this Statement does not affect future cash funding
requirements for these benefits. The OPEB component of the cumulative effect
adjustment was a $73.5 million charge.
Income Taxes (See Note 4)
SFAS No. 109, "Accounting For Income Taxes", requires the balance-sheet approach
of accounting for income taxes, whereby assets and liabilities are recorded at
the tax rates currently enacted. The Registrant's future results may be
affected by changes in the corporate income tax rate. The income tax
component of the cumulative effect adjustment was a $42.2 million charge.
Revenue Recognition
The Registrant changed its method of transportation revenue and expense
recognition from accruing both revenues and expenses at the inception of service
to the industry practice of allocating revenues between reporting periods based
on relative transit time, while recognizing expenses as incurred. The revenue
recognition component of the cumulative effect adjustment was a $9.5 million
charge.
2. Related Party Transactions
The Registrant is an affiliate of Union Pacific Railroad Company ("UPRR") and
has significant interline rail shipments, equipment rents, and fuel and diesel
power exchanges with that railroad. These transactions are settled in a
manner similar to that used for comparable transactions with nonaffiliated
railroads. Balances representing interline receivables and payables with UPRR
are classified as due to affiliated companies.
Certain management and staff functions of the Registrant have been combined with
those of UPRR. In addition, the affiliated railroads have centralized
purchasing and disbursing functions which are handled by UPRR. Also, repairs
to locomotives and freight cars are made on a system-wide basis without
regard to ownership or usage. Marketing, administrative and other expenses
(including, but not limited to, those discussed above) are allocated to the
Registrant based on revenue contribution, gross ton-miles or time in service.
A summary of directly-incurred and allocated costs included in operating
expenses is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Directly incurred..................... $1,408.5 $1,339.0 $1,392.2
Allocated............................. 446.6 400.0 379.8
-------- -------- --------
Total................................. $1,855.1 $1,739.0 $1,772.0
======== ======== ========
</TABLE>
Amounts due to and from affiliates, including the Corporation, bear interest at
an annually determined rate which considers the Corporation's cost of debt. Net
intercompany interest expense on such amounts was $65.2 million, $65.5 million
and $71.1 million in 1994, 1993 and 1992, respectively.
3. Financial Instruments
Hedging
The Registrant uses derivative financial instruments to protect against diesel
fuel price increases. While the use of these hedging arrangements limits the
downside risk of adverse price movements, it may also limit benefits from
<PAGE> F-9
favorable movements. All hedging is accomplished pursuant to exchange-traded
contracts or master swap agreements based on standard forms. The Registrant
does not hold or issue financial instruments for trading purposes and
addresses market risk by selecting instruments whose value fluctuations
correlate strongly with the underlying item or risk being hedged. Credit risk
related to hedging activities, which is minimal, is managed by requiring
minimum credit standards for counterparties, periodic settlements and/or
mark-to-market evaluations. The Registrant has not been required to provide,
nor has it received any significant amount of collateral relating to its
hedging activity.
Hedging arrangements fix diesel fuel prices using price swaps in which the
Registrant pays fixed prices in exchange for market prices for equivalent
notional amounts of fuel; however, at December 31, 1994, the Registrant had no
hedging agreements in place.
Fair Value of Financial Instruments
The fair market value of the Registrant's long and short-term debt has been
estimated using quoted market prices or current borrowing rates. At December
31, 1994, the carrying value of total debt exceeded the fair market value by
approximately 48%. The carrying value of all other financial instruments
approximates fair market value.
Off-Balance-Sheet Risk
The Registrant has sold, on a revolving basis, an undivided ownership interest
in a designated pool of its accounts receivable to UPRR. The undivided
ownership interest has been sold by UPRR to third parties. Collection risk
on the pool of receivables is minimal. Under the terms of the agreement,
UPRR acts as a collection agent for the Registrant. At both December 31,
1994 and 1993, accounts receivable are presented net of $137 million
in proceeds generated from the receivables sold.
4. Income Taxes
The Registrant is included in the consolidated income tax return of the
Corporation. The consolidated income tax liability of the Corporation is
allocated among the parent and its subsidiaries on the basis of their separate
contributions to the consolidated income tax liability, with full benefit of tax
losses and credits made available through consolidation being allocated to the
individual companies generating such losses and credits.
In August 1993, President Clinton signed the Omnibus Budget Reconciliation
Act of 1993 into law raising the Federal corporate income tax rate to
35 percent from 34 percent retroactive to January 1, 1993. As a result,
1993 income tax expense increased by $26.5 million: $23.1 million
for the one-time non-cash recognition of deferred income taxes related to
prior periods and $3.4 million of incremental 1993 Federal income tax expense.
Components of income tax expense for the Registrant are as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars) 1994 1993
-------- --------
<S> <C> <C>
Current: Federal............................. $103,192 $ 70,619
State............................... 6,771 7,802
-------- --------
Total Current....................... 109,963 78,421
-------- --------
Deferred: Federal............................. 30,361 64,799
State............................... 4,986 1,973
-------- --------
Total Deferred...................... 35,347 66,772
-------- --------
Total......................................... $145,310 $145,193
======== ========
</TABLE>
The 1992 components of tax expense (in thousands), which have not been restated
to reflect the adoption of SFAS No. 109 (see Note 1), were $59,952 for current
Federal income tax expense and $38,916 for deferred Federal income tax
expense.
The tax effect of differences in the timing of revenues and expenses for tax and
financial reporting purposes is as follows:
<PAGE> F-10
<TABLE>
<CAPTION>
(Thousands of Dollars) 1994 1993
---------- ----------
<S> <C> <C>
Net current deferred tax asset -
Restructuring and other reserves............ $ (68,529) $ (63,823)
---------- ----------
Excess tax over book depreciation.............. 1,097,152 1,087,992
State taxes - net.............................. 118,186 114,566
Postretirement benefits........................ (40,428) (40,418)
Special charge................................. (56,038) (61,173)
Other.......................................... 131,269 108,423
---------- ----------
Net long-term deferred tax liability........... 1,250,141 1,209,390
---------- ----------
Net deferred tax liability..................... $1,181,612 $1,145,567
========== ==========
</TABLE>
A reconciliation between statutory and effective tax rates is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate................... 35.0% 35.0% 34.0%
Cumulative effect of Federal rate
increase.......................... - 6.7 -
State taxes - net.................... 2.0 1.8 -
Dividend exclusion................... (0.6) (0.6) (0.9)
Other................................ 0.6 (0.7) 0.9
---- ---- ----
Effective tax rate................... 37.0% 42.2% 34.0%
==== ==== ====
</TABLE>
Payments of income taxes were $108.2 million in 1994 and $101.8 million in
1993. No taxes were paid for the year 1992. The Corporation believes
it has adequately provided for income taxes.
5. Debt
Total debt at December 31, 1994 and 1993 is summarized below:
<TABLE>
<CAPTION>
(Thousands of Dollars) 1994 1993
-------- --------
<S> <C> <C>
Mortgage bonds, 4.25% to 5.00%, due through 2030...... $179,690 $181,380
Equipment obligations, 8.45% to 15.50%,
due through 2001.................................... 71,706 118,903
Mortgage, 11.50%, due through 2011.................... 4,078 4,121
Notes Payable, Federal Financing Bank, 7.17% to
10.66%, guaranteed by United States of America,
due through 1997.................................... 11,904 14,045
Income debentures, 5.00%, due 2045 and 2054........... 101,720 101,720
Subordinated income debentures, 5-1/2%, due 2033...... 27,099 27,965
Certificates constituting a charge on income -
non-interest bearing, payable only from available
income.............................................. 29,348 29,348
Capitalized leases, 7.25% to 14.00%, due through 2003. 24,133 31,381
Other................................................. 2,422 2,330
Unamortized discount.................................. (24,007) (24,502)
-------- --------
428,093 486,691
Less: Debt due within one year........................ 38,664 53,253
-------- --------
Total debt due after one year......................... $389,429 $433,438
======== ========
</TABLE>
<PAGE> F-11
Maturities of long-term debt (in thousands of dollars) for each year 1996
through 1999 are $24,462, $23,934, $7,178 and $6,446, respectively.
Substantially all properties secure the outstanding equipment obligations
and mortgage bonds.
Certain debt agreements impose dividend restrictions on the Registrant. The
amount of retained earnings available for dividends at December 31, 1994 was
$961.3 million. See Note 7 for other dividend restrictions.
Terms of certain of the Registrant's mortgage bonds, the 5% income debentures
and the 5-1/2% subordinated income debentures require that interest be paid
only from "available income", as defined in the indenture agreements. The
mortgage bonds and 5% income debentures impose sinking fund and other
restrictions in the event all interest is not paid. All interest was
paid on the mortgage bonds and 5% income debentures for each of 1994, 1993
and 1992.
The Registrant assumed the 5-1/2% subordinated income debentures (the
"Debentures") in connection with the Katy acquisition. Current interest must be
paid only to the extent that there is available income remaining after
allocation to a capital fund for the purpose of reimbursing the Registrant
for certain capital expenditures. Unpaid interest accumulates to an amount
not in excess of 16-1/2% of the principal amount of the Debentures and is paid
only to the extent that there is available income remaining after payment
of the current interest.
The certificates constituting a charge on income (the "Certificates"), which
were also assumed as part of the Katy acquisition, do not bear interest
and payments to a sinking fund for the Certificates are made only from
available income, as defined in such Certificates. Available income must be
applied to the capital fund, current and accumulated interest on the
Debentures and a sinking fund for the Debentures before any payment is
made to the sinking fund for the Certificates.
Available income of $19.1 million was generated in 1994 with respect to the
Debentures and the Certificates. As a result, an interest payment on the
Debentures of $1.5 million will be made in 1995, representing 1994 interest. In
addition, $7.4 million of available income will be applied to the capital fund,
$3.9 million will be applied to the sinking funds for the Debentures and the
Certificates, and $6.3 million will be applied as dividends on the Registrant's
Class A stock (See Note 7). Amounts applied to sinking funds may be covered by
the cost of securities previously repurchased by the Registrant or the Katy.
Amounts in the capital fund which are unused or unappropriated for the
reimbursement of capital expenditures may not exceed $4.0 million at any time,
and after the application of 1994 available income, there will be no unused or
unappropriated capital fund balance. During 1994, $866,000 of the outstanding
Debentures were reacquired.
The Registrant's total interest payments approximate interest expense net of
intercompany interest described in Note 2.
6. Lease Commitments
The Registrant leases a general office building, computer equipment and
transportation equipment under long-term and contingent lease agreements. The
following amounts relating to capital leases are included in properties:
<TABLE>
<CAPTION>
(Thousands of Dollars) 1994 1993
-------- --------
<S> <C> <C>
Leased properties.......................... $ 77,093 $ 88,960
Accumulated amortization................... (55,526) (61,581)
-------- --------
Net........................................ $ 21,567 $ 27,379
======== ========
</TABLE>
<PAGE> F-12
Future minimum lease payments for capital and operating leases with initial or
remaining noncancellable lease terms in excess of one year as of December 31,
1994 are as follows:
<TABLE>
<CAPTION>
Operating Capital
(Thousands of Dollars) Leases Leases
--------- -------
<S> <C> <C>
1995 .................................. $ 24,786 $ 8,115
1996 .................................. 17,483 8,261
1997 .................................. 13,899 6,041
1998 .................................. 12,203 3,109
1999 .................................. 11,768 2,249
Later years ........................... 98,521 1,954
-------- -------
Total minimum lease payments........... $178,660 29,729
========
Amount representing interest........... 5,596
-------
Present value of net minimum
capital lease payments............... $24,133
=======
</TABLE>
A summary of rental expense charged to operations is as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Minimum rentals under long-term
operating leases...................... $ 22,557 $ 22,716 $ 22,907
Contingent rentals under operating
leases (net):
Transportation equipment............ 258,667 213,070 211,405
Joint facility...................... 11,566 (3,200) 12,814
Computer equipment.................. 9,205 8,065 6,381
-------- -------- --------
Total................................... $301,995 $240,651 $253,507
======== ======== ========
</TABLE>
7. Capital Stock
Concurrent with the acquisition of the Katy, 80 shares of the Registrant's
$1.00 par value common stock were exchanged for 80 shares of $1.00 par value
Class A stock. The remaining 920 shares of common stock outstanding and the 80
shares of Class A stock have identical voting rights and other privileges except
with respect to dividends.
The Class A stock is entitled to a cash dividend whenever a dividend is declared
on the common stock, in an amount which equals 8% of the sum of the dividends on
both the Class A stock and the common stock. However, dividends may be declared
and paid on the Class A stock only when there is unappropriated available income
in respect of prior calendar years which is sufficient to make a sinking fund
payment equal to 25% of such dividend for the benefit of the Debentures or the
Certificates (see Note 5). To the extent that dividends are paid on the common
stock but not the Class A stock because the amount of unappropriated available
income is insufficient to make such a sinking fund payment, a special cash
dividend on the Class A stock shall be paid when sufficient unappropriated
available income exists to make the sinking fund payment. Such insufficiency
does not affect the Registrant's right to declare dividends on the common stock.
Available income for 1994 will be sufficient to provide for a $6.3 million
special cash dividend on the Class A stock to be paid in 1995. After such
payment, dividends in arrears on the Class A stock will total $26.6 million.
There are no other dividend restrictions on the Registrant's capital stock other
than those described in Note 5.
8. Retirement Plans
The Registrant participates in the Corporation's defined benefit pension plans
covering substantially all salaried employees. Pension plan benefits are based
on years of service and compensation during the last years of employment.
<PAGE> F-13
Company contributions to the plans are calculated based on the Projected Unit
Credit actuarial funding method and are not less than the minimum funding
standards set forth in the Employee Retirement Income Security Act of 1974, as
amended. Pension expense allocated to the Registrant under the Corporation's
plans amounted to $19.7 million in 1994, $17.7 million in 1993, and $14.8
million in 1992. In addition, the Registrant's employees are covered by
the Railroad Retirement System. Contributions made to the system are
expensed as incurred.
The Registrant provides postretirement health care and life insurance
benefits to substantially all salaried and certain hourly employees through
participation in the Corporation's postretirement benefit plans. The
Corporation adopted the provisions of SFAS No. 106 (See Note 1) in
January 1993. Agreement employees' health care benefits are covered by a
separate multiemployer plan and therefore are not subject to the provisions of
this Statement. The Corporation does not currently prefund health care
and life insurance benefit costs. The Registrant's cash payments for these
benefits were $5 million in each of 1994 and 1993 and its 1994 and 1993
postretirement benefit expenses were $5 million and $9 million, respectively.
At December 31, 1994 and 1993, the Registrant's Accumulated Postretirement
Benefit Obligations were $92 million and $93 million, respectively, while
its total OPEB liability on each of the same dates was $119 million.
9. Contingent Liabilities
There are various lawsuits pending against the Registrant. In addition, the
Registrant generates, transports, remediates and disposes of hazardous and non-
hazardous waste in its current and former operations, and is subject to Federal,
state and local environmental laws and regulations. The Registrant is currently
participating in the investigation and remediation of numerous sites. Where the
remediation costs can be reasonably determined, and where such remediation is
probable, the Registrant has recorded a liability. The liability includes
future costs for remediation and restoration of sites as well as for ongoing
monitoring costs, but excludes any anticipated recoveries from third parties.
Cost estimates were based on information available for each site, financial
viability of other potentially responsible parties, and existing technology,
laws and regulations. Certain Federal legislation imposes joint and several
liability for the remediation of identified sites; consequently, the
Registrant's ultimate environmental liability may include costs relating to
other parties in addition to costs relating to its own activities at each
site. The Registrant believes that it has adequately accrued for its
ultimate share of costs at sites subject to joint and several liability.
The Registrant does not expect that the lawsuits or environmental costs will
have a material material adverse effect on its consolidated financial
condition or results of operations.
10. Supplemental Quarterly Financial Information (Unaudited)
Selected unaudited quarterly financial information for 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
First Second Third Fourth Total
--------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
(Thousands of Dollars)
Operating 1994 $568,216 $588,670 $583,197 $580,708 $2,320,791
Revenues: 1993 527,474 541,647 529,843 550,140 2,149,104
Operating 1994 94,510 131,691 133,702 105,788 465,691
Income: 1993 84,891 114,528 98,948 111,766 410,133
Net Income 1994 50,794 72,559 71,666 52,505 247,524
(Loss): 1993 (84,521)(a) 61,644 26,966(b) 69,678 73,767(a)
(a) Income before the cumulative effect of accounting changes (see Note 1) was
$40.6 million for the first quarter of 1993 and $198.9 million for the
total year 1993.
(b) Includes a $23.1 million increase in income tax expense resulting from the
retroactive portion of the 1993 Tax Act (see Note 4), and the impacts of
severe flooding in the midwestern United States.
</TABLE>
<PAGE> F-14
MISSOURI PACIFIC RAILROAD COMPANY AND CONSOLIDATED SUBSIDIARY COMPANIES
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
1994 COMPARED TO 1993
---------------------
Net income for the Registrant was $247.5 million in 1994. Before the
effects of the 1993 accounting adjustments (comprising the changes in accounting
principles described in Note 1 to the Financial Statements and the $23.1 million
one-time recognition of deferred income taxes related to prior periods described
in Note 4 to the Financial Statements), earnings would have improved $25.4
million (11%) from $222.1 million a year ago. 1993 results also included the
adverse effects of the flooding in the Midwest and the severe winter.
OPERATING REVENUES
------------------
Operating revenues increased $172 million (8%) to $2.3 billion, reflecting
a 10% increase in carloadings offset by a 1% decline in average revenue per car,
principally resulting from volume growth for lower-rated commodities (intermodal
and energy). Carloadings increased in intermodal (24%), energy (17%),
automotive (15%), chemicals (6%) and food/consumer/government (5%), while
decreases occurred in grain and grain products (3%), and metals/minerals/forest
(1%).
OPERATING EXPENSES
------------------
Operating expenses totaled $1.9 billion, $116 million (7%) higher than a
year ago. Volume growth and inflation accounted for a $50 million rise in
equipment and other rents. Employee injury expense rose $19 million as
continuing declines in the number of injuries were more than offset by higher
average settlement costs per injury. In addition, other costs grew $29 million
due to a reduction in cost offsets associated with car repairs for other
carriers and other services performed for outside parties. Wage and benefit
costs also rose $10 million, as higher volumes and inflation were partially
offset by continued improvements in labor productivity. Depreciation expense
grew $9 million because of continued investment in equipment and capacity. Fuel
and utilities costs rose only $1 million as lower fuel prices and an improved
consumption rate combined to offset the impact of volume growth.
OPERATING INCOME
----------------
Operating income rose $56 million (14%) to $466 million as a result of
volume growth and improved operating efficiencies and labor productivity.
OTHER CHANGES
-------------
Interest expense decreased $8 million, primarily as a result of lower
interest on equipment trust obligations. Other income decreased $15 million,
due to reduced gains on extinguishment of debt and other miscellaneous items.
Income taxes were essentially unchanged as higher pretax earnings offset last
year's recognition of deferred income taxes relating to prior periods.
<PAGE> 1
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Robert P. Bauman
----------------------
ROBERT P. BAUMAN
<PAGE> 2
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Richard B. Cheney
-----------------------
RICHARD B. CHENEY
<PAGE> 3
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/E. Virgil Conway
----------------------
E. VIRGIL CONWAY
<PAGE> 4
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Spencer F. Eccles
-----------------------
SPENCER F. ECCLES
<PAGE> 5
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Elbridge T. Gerry, Jr.
----------------------------
ELBRIDGE T. GERRY, JR.
<PAGE> 6
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/William H. Gray, III
--------------------------
WILLIAM H. GRAY, III
<PAGE> 7
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak her true and
lawful attorney-in-fact and agent, to sign on her behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Judith Richards Hope
--------------------------
JUDITH RICHARDS HOPE
<PAGE> 8
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Lawrence M. Jones
-----------------------
LAWRENCE M. JONES
<PAGE> 9
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
L. White Matthews, III and Judy L. Swantak his true and lawful attorney-
in-fact and agent, to sign on his behalf the Company's Annual Report on
Form 10-K for the year ended December 31, 1994, and any and all amendments
thereto, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
/s/Drew Lewis
----------------
DREW LEWIS
<PAGE> 10
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Richard J. Mahoney
------------------------
RICHARD J. MAHONEY
<PAGE> 11
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak her true and
lawful attorney-in-fact and agent, to sign on her behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Claudine B. Malone
------------------------
CLAUDINE B. MALONE
<PAGE> 12
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Jack L. Messman
---------------------
JACK L. MESSMAN
<PAGE> 13
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/John R. Meyer
-------------------
JOHN R. MEYER
<PAGE> 14
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Thomas A. Reynolds, Jr.
-----------------------------
THOMAS A. REYNOLDS, JR.
<PAGE> 15
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/James D. Robinson, III
----------------------------
JAMES D. ROBINSON, III
<PAGE> 16
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Robert W. Roth
--------------------
ROBERT W. ROTH
<PAGE> 17
MISSOURI PACIFIC RAILROAD COMPANY
POWER OF ATTORNEY
The undersigned, a director of Missouri Pacific Railroad
Company, a Delaware corporation (the "Company"), hereby appoints each of
Drew Lewis, L. White Matthews, III and Judy L. Swantak his true and
lawful attorney-in-fact and agent, to sign on his behalf the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and any
and all amendments thereto, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission.
/s/Richard D. Simmons
------------------------
RICHARD D. SIMMONS
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
MISSOURI PACIFIC RAILROAD COMPANY AND SUBSIDIARY COMPANIES
FINANCIAL DATA SCHEDULE - EXHIBIT 27
($ in thousands)
Schedule contains summary financial information extracted from
the Statements of Consolidated Income and Consolidated Financial
Position and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,640
<SECURITIES> 0
<RECEIVABLES> 75,678
<ALLOWANCES> 0
<INVENTORY> 102,936
<CURRENT-ASSETS> 330,338
<PP&E> 6,011,941
<DEPRECIATION> 1,808,772
<TOTAL-ASSETS> 4,671,754
<CURRENT-LIABILITIES> 1,385,592
<BONDS> 389,429
<COMMON> 1
0
0
<OTHER-SE> 1,300,429
<TOTAL-LIABILITY-AND-EQUITY> 4,671,754
<SALES> 0
<TOTAL-REVENUES> 2,320,791
<CGS> 0
<TOTAL-COSTS> 1,855,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,147
<INCOME-PRETAX> 392,834
<INCOME-TAX> 145,310
<INCOME-CONTINUING> 247,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247,524
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
