<PAGE> COVER
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
(Address of principal executive offices)
68179
(Zip Code)
(402) 271-5000
(Registrant's telephone number, including area code)
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
------ ------
On April 30, 1996, the Registrant had outstanding 920 shares of its Common
Stock, $1 par value, and 80 shares of its Class A Stock, $1 par value.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
H(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
MISSOURI PACIFIC RAILROAD COMPANY
INDEX
PART I. FINANCIAL INFORMATION
------------------------------
Page Number
-----------
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Statement of Consolidated Financial Position -
At March 31, 1996 and December 31, 1995. . . . . . . . 1 - 2
Condensed Statement of Consolidated Income and
Retained Earnings - For the Three Months Ended
March 31, 1996 and 1995. . . . . . . . . . . . . . . . 3
Condensed Statement of Consolidated Cash Flows - For
the Three Months Ended March 31, 1996 and 1995. . . . 4
Notes to Condensed Consolidated Financial Statements . . 5 - 6
Management's Narrative Analysis of the Results of
Operations . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
----------------------------
ITEM 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE> 1
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Condensed Consolidated Financial Statements
<TABLE>
<CAPTION>
Missouri Pacific Railroad Company and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
-------------------------------------------------------
(Thousands of Dollars)
(Unaudited)
March 31, December 31,
ASSETS 1996 1995
- ------ --------- ------------
<S> <C> <C>
Current Assets:
Cash and temporary investments . . . . . $ 8,241 $ 7,648
Accounts receivable - net. . . . . . . . 78,478 64,311
Materials and supplies . . . . . . . . . 97,551 98,920
Other current assets.. . . . . . . . . . 65,049 69,306
---------- ----------
Total Current Assets. . . . . . . . . 249,319 240,185
---------- ----------
Investments:
Investments in and advances to
affiliated companies. . . . . . . . . 50,576 49,806
Other investments. . . . . . . . . . . . 43,280 44,017
---------- ----------
Total Investments . . . . . . . . . . 93,856 93,823
---------- ----------
Properties:
Road . . . . . . . . . . . . . . . . . . 4,486,790 4,428,724
Equipment. . . . . . . . . . . . . . . . 1,709,231 1,724,598
Other. . . . . . . . . . . . . . . . . . 68,009 68,936
---------- ----------
Total Properties. . . . . . . . . . . 6,264,030 6,222,258
Accumulated depreciation and
amortization. . . . . . . . . . . . . (1,914,535) (1,898,640)
---------- ----------
Properties - Net. . . . . . . . . . . 4,349,495 4,323,618
---------- ----------
Intangible and Other Assets. . . . . . . . 57,017 39,370
---------- ----------
Total Assets. . . . . . . . . . . . . . $4,749,687 $4,696,996
========== ==========
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Missouri Pacific Railroad Company and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
------------------------------------------------------
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
March 31, December 31,
Liabilities and Stockholder's Equity 1996 1995
- ------------------------------------ ---------- -------------
<S> <C> <C>
Current Liabilities:
Accounts payable . . . . . . . . . . . . $ 18,577 $ 30,654
Accrued wages and vacation . . . . . . . 117,534 109,215
Income and other taxes payable . . . . . 100,465 75,060
Interest payable . . . . . . . . . . . . 17,218 15,982
Debt due within one year . . . . . . . . 22,840 23,957
Due to affiliated companies - net. . . . 798,298 786,309
Casualty and other reserves. . . . . . . 110,581 112,698
Other current liabilities. . . . . . . . 115,007 108,200
---------- ----------
Total Current Liabilities . . . . . . 1,300,520 1,262,075
---------- ----------
Debt Due After One Year. . . . . . . . . . 355,293 363,917
---------- ----------
Deferred Income Taxes . . . . . . . . . . 1,224,996 1,243,719
---------- ----------
Retiree Benefits Obligation . . . . . . . 163,593 163,280
---------- ----------
Other Liabilities (Note 5) . . . . . . . . 213,770 202,534
---------- ----------
Stockholder's Equity:
Common stock - $1.00 par value; 920
shares authorized and outstanding
in 1996 and 1995. . . . . . . . . . . 1 1
Class A stock - $1.00 par value; 80
shares authorized and outstanding -- --
Capital surplus. . . . . . . . . . . . . 205,342 205,342
Retained earnings. . . . . . . . . . . . 1,286,172 1,256,128
---------- ----------
Total Stockholder's Equity. . . . . . 1,491,515 1,461,471
---------- ----------
Total Liabilities and
Stockholder's Equity. . . . . . . . $4,749,687 $4,696,996
========== ==========
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
MISSOURI PACIFIC RAILROAD COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS
For The Three Months Ended March 31, 1996 and 1995
----------------------------------------------------------------
(Thousands of Dollars)
(Unaudited)
1996 1995
---------- ----------
<S> <C> <C>
Operating Revenues . . . . . . . . . . . $ 597,413 $ 584,925
---------- ----------
Operating Expenses:
Salaries, wages and employee benefits. 205,082 199,232
Equipment and other rents. . . . . . . 81,802 65,487
Depreciation and amortization. . . . . 54,643 54,702
Fuel and utilities (Note 3) . . . . . 46,493 41,183
Materials and supplies . . . . . . . . 35,238 32,182
Other costs. . . . . . . . . . . . . . 82,582 87,499
---------- ----------
Total . . . . . . . . . . . . . . . 505,840 480,285
---------- ----------
Operating Income . . . . . . . . . . . . 91,573 104,640
Other Income - Net . . . . . . . . . . . 2,303 5,356
Interest Expense . . . . . . . . . . . . (22,792) (22,574)
---------- ----------
Income Before Income Taxes . . . . . . . 71,084 87,422
Income Taxes (Note 4). . . . . . . . . . (7,040) (32,520)
---------- ----------
Net Income . . . . . . . . . . . . $ 64,044 $ 54,902
========== ==========
Retained Earnings:
Beginning of period. . . . . . . . . . $1,256,128 $1,095,087
Net income . . . . . . . . . . . . . . 64,044 54,902
Dividends to parent. . . . . . . . . . (34,000) (36,159)
---------- ----------
End of Period . . . . . . . . . . . $1,286,172 $1,113,830
========== ==========
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
MISSOURI PACIFIC RAILROAD COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
--------------------------------------------------
(Thousands of Dollars)
(Unaudited)
1996 1995
-------- --------
<S> <C> <C>
Cash from Operations:
Net Income . . . . . . . . . . . . . . . . $ 64,044 $ 54,902
Non-Cash Charges to Income:
Depreciation and amortization . . . . . 54,643 54,702
Deferred income taxes . . . . . . . . . (18,640) 402
Other - net . . . . . . . . . . . . . . (7,810) 15,250
Changes in Current Assets and Liabilities 17,915 32,551
-------- --------
Cash from Operations. . . . . . . . . . 110,152 157,807
-------- --------
Investing Activities:
Capital Investments. . . . . . . . . . . . (61,758) (59,254)
Other - Net. . . . . . . . . . . . . . . . (15,898) (8,770)
-------- --------
Cash Used in Investing Activities . . . (77,656) (68,024)
-------- --------
Financing Activities:
Debt Repaid . . . . . . . . . . . . . . . (9,892) (11,351)
Dividends Paid to Parent . . . . . . . . . (34,000) (36,159)
Advances from (to) Affiliated
Companies - Net . . . . . . . . . . . . . 11,989 (42,578)
-------- --------
Cash Used in Financing Activities . . . (31,903) (90,088)
-------- --------
Net Change in Cash and Temporary
Investments . . . . . . . . . . . . . $ 593 $ (305)
======== ========
</TABLE>
<PAGE> 5
MISSOURI PACIFIC RAILROAD COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS - The condensed consolidated
financial statements of Missouri Pacific Railroad Company (the
Registrant) are unaudited and reflect all adjustments (consisting only of
normal and recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. The Condensed Statement of Consolidated
Financial Position at December 31, 1995 is derived from audited financial
statements. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto contained in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the
results for the year ending December 31, 1996.
2. ACQUISITIONS AND REORGANIZATION - The operations of the Registrant,
a wholly-owned, indirect subsidiary of Union Pacific Corporation
(the Corporation), have been coordinated with those of its affiliate,
Union Pacific Railroad Company (UPRR), and with Chicago and North Western
Transportation Company (CNW), whose financial results were consolidated
with UPRR effective May 1, 1995. These railroads operate as a unified
system which is hereafter referred to as the "Railroad". The
Corporation currently is considering a restructuring of the Railroad,
either by merging the Registrant into UPRR or by making the Registrant
a subsidiary of UPRR. These events are expected to occur in mid to
late summer 1996.
Southern Pacific Rail Corporation (Southern Pacific): In August 1995, the
Corporation and Southern Pacific entered into a definitive merger agree-
ment (the Agreement) providing for the acquisition of Southern Pacific
by the Corporation. Under the terms of the Agreement, the Corporation
completed a first-step cash tender offer in September 1995, pursuant to
which approximately 39 million or 25% of the outstanding common shares
of Southern Pacific were acquired at a price of $25 per share. The cash
tender offer was funded by $976 million in borrowings.
Following the effective date of final approval of the Southern Pacific
acquisition by the Surface Transportation Board of the Department of
Transportation--the successor to the Interstate Commerce Commission--
which is expected in September 1996, the Corporation will complete
the acquisition by exchanging the remaining Southern Pacific common
shares, at the holder's election and subject to proration, for $25
in cash or 0.4065 shares of the Corporation's common stock.
CNW: In April 1995, the Corporation acquired the remaining 71.6% of CNW's
outstanding common stock not previously owned by the Corporation for
approximately $1.2 billion. Prior to the acquisition, CNW was the
nation's eighth largest railroad. The CNW tender offer was funded
through the issuance of additional debt and the acquisition of CNW has
been accounted for as a purchase. CNW's financial results were
consolidated with the Corporation effective May 1, 1995.
3. FINANCIAL INSTRUMENTS - Over the past three years, fuel costs
approximated 9% of the Railroad's total operating expenses. As a result
of the significance of the fuel costs and the historical volatility of
fuel prices, the Registrant periodically uses swaps, futures and forward
contracts to mitigate the impact of fuel price volatility. The intent of
this program is to protect the Registrant's operating margins and overall
profitability from adverse fuel price changes. Where the Registrant has
fixed fuel prices through the use of swaps, futures or forward contracts,
the Registrant has mitigated the downside risk of adverse price
movements; however, it has also limited future gains from favorable
movements. The Registrant addresses market risk related to these
instruments by selecting instruments whose value fluctuations highly
correlate with the underlying item being hedged. Credit risk
related to derivative financial instruments, which is minimal, is managed
by requiring minimum credit standards for counterparties and monthly
settlements. The fair market value of the Registrant's derivative
financial instrument positions was determined based upon current
fair market values as quoted by recognized dealers.
<PAGE> 6
At March 31, 1996, the Registrant--as a participant in the Railroad's
hedging program--had hedged 33% of its remaining 1996 fuel consumption at
$0.46 per gallon on a Gulf Coast basis and had outstanding swap
agreements covering its fuel purchases of $95 million with a gross and
net asset position of $12 million. Fuel hedging reduced the
Railroad's first quarter 1996 fuel costs by $4 million.
4. INCOME TAXES - In the first quarter of 1996, the Registrant reached a
settlement with the Appeals Office of the Internal Revenue Service for
tax years 1978 through 1982. The settlement resulted in a tax refund
due of $20 million.
5. CONTINGENCIES -There are various lawsuits pending against the Registrant.
The Registrant is also subject to Federal, state and local
environmental laws and regulations, and 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 Registrant
does not expect that the lawsuits or environmental costs will have
a material adverse effect on its consolidated financial positon or its
results of operations.
6. ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
("FASB") issued Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
establishes methods for determining when an impairment of long-lived
assets has occurred and for measuring the impairment of long-lived assets.
Initial adoption of Statement 121 did not have a material effect on the
Registrant's operating results or financial condition.
The FASB also issued Statement No. 123, "Accounting for Stock-Based
Compensation," which encourages, but does not require, employers to adopt
a fair value method of accounting for employee stock-based compensation,
and which requires increased stock-based compensation disclosure if
expense recognition is not adopted. The Registrant has not elected
expense recognition for stock options and therefore implementation of
this Statement had no effect on the Registrant's operating results or
financial condition.
<PAGE> 7
MISSOURI PACIFIC RAILROAD COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to March 31, 1995
-------------------------------------------------------------
Operating Revenues
Operating revenues grew $12 million (2%) to $597 million, driven by a 3%
increase in average revenue per car offset by a 1% decrease in total
carloadings. The agricultural products and automotive commodity groups
realized average commodity revenue per car growth (13% and 4%, respectively),
while chemicals, energy, industrial products and intermodal prices
remained relatively unchanged. Carloadings dropped 1% reflecting decreased
volumes of chemicals (4%), energy (9%) and intermodal (3%), partially offset
by carloadings improvements of agricultural products (14%) and industrial
products (2%). Automotive volumes remained essentially unchanged as strong
northbound Mexican business for finished vehicles and increased auto parts
shipments were countered by the impact of the General Motors brake
plant strike.
Operating Expenses
Operating expenses increased $25 million (5%) to $506 million. System
congestion caused by severe winter weather and the late arrival of new
locomotives, and inflation were primarily responsible for the escalation in
salaries, wages and employee benefits ($6 million), equipment and other rents
($16 million), and materials and supplies ($3 million). Fuel and utility costs
increased $5 million reflecting increased fuel prices and weather-related
inefficiencies. Other expenses decreased $5 million, reflecting an increase
in foreign freight car and locomotive repairs.
Operating Income
Operating income decreased $13 million (13%) primarily the result of
weather-related inefficiencies.
Other Changes
Other income decreased $3 million reflecting reduced real estate sales
activity. Income taxes decreased $25 million to $7 million, the result of an
Internal Revenue Service settlement for tax years 1978 through 1982 (see Note 4
to the Condensed Consolidated Financial Statements) and lower income before
income taxes.
Other Matters
Labor: As is true with employees of all principal railroads in the country,
the majority of Missouri Pacific Railroad Company's (the Registrant)
employees are organized along craft lines and represented by national labor
unions. In November 1994, negotiations began on new labor agreements for
all crafts. In January 1996, a tentative agreement was reached between the
major freight railroads and the leadership of the United Transportation Union
(UTU)--representing approximately 25% of the the Registrant's and its affiliate
Union Pacific Railroad Company's (collectively the Railroad) unionized
workforce--which was rejected in April 1996 by the union's membership. The
railroads and the UTU agreed to accept binding arbitration which resulted in
a decision in May 1996 to adopt the original five-year agreement, which
includes a combination of general wage increases and lump-sum payments from
3% to 3.5% annually, as well as increased work rule flexibility.
In February 1996, a tentative agreement was reached between the major freight
railroads and the leadership of the Brotherhood of Locomotive Engineers
(BLE)--representing approximately 15% of the Railroad's unionized workforce.
Ratification votes by the BLE's membership are currently in process.
The Transportation Communications Union (TCU)--representing approximately 20%
of the Railroad's unionized workforce--was released from mediation by the
National Mediation Board (NMB) when the TCU rejected the NMB's binding
arbitration alternative. The President appointed a Presidential Emergency
Board (PEB) on May 8, 1996, which postponed a work shutdown for at least 60
days. The PEB will ultimately make recommendations for settlement, but neither
the railroads nor the TCU is required to accept such recommendations. Should
negotiations with other crafts, including the BLE, reach an impasse, it is
anticipated that separate PEBs will be appointed by the President to examine
the disputes and make recommendations for settlement. In the event that a
work shutdown occurs, Congress may enact legislation resolving the disputes,
although there is no assurance that it will do so. At this time, the
ultimate outcome of binding arbitration, labor negotiations, PEB
recommendations or Congressional action is not clear. The Corporation
continues to be optimistic, however, that a combination of negotiated
settlements, arbitration awards, and PEB recommendations will finalize this
round of negotiations in 1996. In the past, any ultimate service
interruption has been quickly addressed by Congress with limited disruption
to the Railroad's operations.
<PAGE> 8
PART II. OTHER INFORMATION
- ---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
27 - Financial data schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March 31,
1996.
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized, on this 13th day of May, 1996.
MISSOURI PACIFIC RAILROAD COMPANY
By /s/ M. B. Smith
---------------------------------
M. B. Smith,
Chief Accounting Officer
By /s/ E. L. Butler
---------------------------------
E. L. Butler,
Assistant Vice President - Finance
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 8,241
<SECURITIES> 0
<RECEIVABLES> 78,478
<ALLOWANCES> 0
<INVENTORY> 97,551
<CURRENT-ASSETS> 249,319
<PP&E> 6,264,030
<DEPRECIATION> 1,914,535
<TOTAL-ASSETS> 4,749,687
<CURRENT-LIABILITIES> 1,300,520
<BONDS> 355,293
<COMMON> 1
0
0
<OTHER-SE> 1,491,514
<TOTAL-LIABILITY-AND-EQUITY> 4,749,687
<SALES> 0
<TOTAL-REVENUES> 597,413
<CGS> 0
<TOTAL-COSTS> 505,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,792
<INCOME-PRETAX> 71,084
<INCOME-TAX> 7,040
<INCOME-CONTINUING> 64,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,044
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
