SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
Date of Report (Date of Earliest event reported): August 3, 1994
SANTA FE PACIFIC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-8627 36-3258709
(Commission File Number) (I.R.S. Employer
Identification No.)
1700 East Golf Road, Schaumburg, Illinois 60173-5860
(Address of Principal Executive Offices) (zip code)
(708) 995-6000
(Registrant's Telephone Number, Including Area Code)
(Not Applicable)
(Former Name or Former Address, If Changed Since Last Report)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
On June 29, 1994, Santa Fe Pacific Corporation's ("SFP")
Board of Directors declared a dividend of its remaining
85.4% interest in Santa Fe Pacific Gold Corporation ("SFP
Gold"), to SFP shareholders. Holders of record of SFP
common stock as of September 12, 1994, will receive a
distribution of one share of SFP Gold for every
approximately 1.7 shares of SFP common stock held.
As a result of the declaration, certain financial
information which was included in SFP's 1993 Annual Report
on Form 10-K, is being restated herein to reflect SFP's gold
operations as discontinued operations.
Item 7: Financial Statements and Exhibits
(c) Exhibits: Included as Exhibit 99 is the restated
financial information referred to in Item 5 above. See
Exhibit Index included herewith at E-1.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
SANTA FE PACIFIC CORPORATION
(Registrant)
By: /s/ Thomas N. Hund
----------------------------
(Signature)
Thomas N. Hund
Vice President and Controller
Date: August 3, 1994
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<PAGE>
SANTA FE PACIFIC CORPORATION
INDEX OF EXHIBITS
-----------------
Exhibit
Number Description
------- -----------
23 Consent of Independent Accountants.
99 Santa Fe Pacific Corporation financial information
restated for discontinued operations. The following
financial information is included:
1. Consolidated Financial Highlights Page 1
2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition Page 2
3. Consolidated Financial Statements:
Report of Independent Accountants Page 13
Consolidated Statement of Operations for
the three years ended December 31, 1993 Page 14
Consolidated Balance Sheet at
December 31, 1993 and 1992 Page 15
Consolidated Statement of Cash Flows for
the three years ended December 31, 1993 Page 16
Consolidated Statement of Shareholders'
Equity for the three years ended
December 31, 1993 Page 17
Notes to Consolidated Financial Statements Page 18
4. Consolidated Financial Statement Schedules:
Report of Independent Accountants on
Financial Statement Schedules Page 38
Schedule V-Property, Plant and Equipment
for the three years ended December 31, 1993 Page 39
Schedule VI-Accumulated Depreciation and
Amortization of Properties for the three
years ended December 31, 1993 Page 41
Schedule VII-Guarantees of Securities of
Other Issuers as of December 31, 1993 Page 42
Schedule VIII-Valuation and Qualifying
Accounts for the three years ended
December 31, 1993, 1992 and 1991 Page 43
Schedule X-Supplementary Income Statement
Information for the three years ended
December 31, 1993 Page 44
E-1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in (i)
the Registration Statements on Form S-8 (Nos. 33-12072;
33-26814; 33-33413; 33-41409; 33-60628; and 33-63208),
(ii) the Prospectus constituting part of the Registration
Statement on Form S-3 (No. 33-51435) and (iii) the
Prospectus constituting part of the Post-Effective
Amendment 1-D on Form S-8 to the Registration Statement on
Form S-14 (No. 2-87755) of Santa Fe Pacific Corporation of
our report dated February 4, 1994, except for the
retroactive restatement described in Note 2 of the notes
to consolidated financial statements, as to which the date
is June 29, 1994, appearing on page 13 of this Form 8-K.
We also consent to the incorporation by reference of our
report on the Consolidated Financial Statement Schedules
which appears on page 38 of this Form 8-K.
Price Waterhouse LLP
Kansas City, Missouri
July 29, 1994
Consolidated Financial Highlights
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Year Ended December 31,
(In millions, except per share data) ----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the Year
Operating Revenues $ 2,409.2 $ 2,251.7 $ 2,153.5 $ 2,111.6 $ 2,202.0
Operating Income (Loss) (1) 317.7 (22.8) 255.4 189.2 (213.7)
Income (Loss) from Continuing Operations (2) 177.4 21.1 62.4 (245.5) (316.1)
Income from Discontinued Operations,
Net of Income Taxes (3) 161.4 42.4 34.0 162.4 170.2
Extraordinary Charges/Accounting Changes - (168.0) - (28.7) 160.5
Net Income (Loss) 338.8 (104.5) 96.4 (111.8) 14.6
Total Capital Expenditures 539.1 265.5 243.2 378.6 263.9
Depreciation and Amortization 188.4 180.8 184.3 185.0 187.3
----------- ----------- ----------- ---------- -----------
At Year End
Total Assets $ 5,374.0 $ 4,946.4 $ 4,812.1 $ 4,709.9 $ 5,086.7
Working Capital Deficit (396.8) (453.9) (439.4) (378.7) (418.5)
Total Debt 1,175.8 1,306.7 1,702.0 1,791.2 2,067.1
Shareholders' Equity 1,268.3 928.5 1,036.9 911.7 851.6
----------- ----------- ----------- ---------- -----------
Per Common Share Data
Income (Loss) from Continuing Operations (2) $ 0.95 $ 0.11 $ 0.35 $ (1.51) $ (1.99)
Income from Discontinued Operations (3) 0.86 0.23 0.19 1.00 1.07
Extraordinary Charges/Accounting Changes - (0.91) - (0.18) 1.01
Net Income (Loss) 1.81 (0.57) 0.54 (0.69) 0.09
Shareholders' Equity 6.83 5.11 5.77 5.27 5.39
Cash Dividends (4) 0.10 0.10 0.10 0.10 0.10
----------- ----------- ----------- ---------- -----------
<F1>
(1) 1992 and 1989 include pre-tax special charges of $320.4 million and $441.8 million, respectively.
<F2>
(2) Includes items in Note 1. In addition, 1993 includes a pre-tax gain on sale of California lines of
$145.4 million, 1992 includes a pre-tax gain on sale of California lines of $204.9 million and 1990
includes a net pre-tax charge of $342.1 million related to the settlement of a lawsuit.
<F3>
(3) Income from discontinued operations includes after tax gains of $108.3 related to an exchange of
mineral assets in 1993 and $102.0 million related to the settlement of a lawsuit in 1990.
<F4>
(4) 1990 excludes the distributions of SFP's 80% interest in the stock of SFP's former real estate and energy
subsidiaries which occurred in December 1990.
</TABLE>
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<PAGE>
Consolidated Financial Review
Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Revenue Information (In millions)
Santa Fe Railway - Operating Revenues
Year Ended December 31,
1993 1992 1991
-------- -------- --------
Freight Revenues
Intermodal Business Unit
Direct Marketing $ 404.1 $ 345.7 $ 290.5
Intermodal Marketing Companies 376.6 398.4 402.2
International 196.1 168.2 150.1
-------- -------- --------
Total Intermodal Business Unit 976.8 912.3 842.8
-------- -------- ---------
Carload Business Unit
Chemicals and Petroleum 281.3 282.7 258.6
Coal 220.1 193.8 190.5
Vehicles and Parts 191.2 136.7 144.1
Whole Grain 160.6 143.4 145.8
Minerals and Ores 143.1 157.0 166.0
Forest Products 121.6 115.9 102.7
Consumer Products 113.9 117.1 116.2
Grain Products 82.3 80.4 71.1
Primary Metals 77.6 70.3 69.8
-------- -------- --------
Total Carload Business Unit 1,391.7 1,297.3 1,264.8
-------- -------- --------
Total Revenue Before Adjustments 2,368.5 2,209.6 2,107.6
Miscellaneous Adjustments - 3.3 5.5
-------- -------- --------
Total Freight Revenue 2,368.5 2,212.9 2,113.1
Other Revenues 40.7 38.8 40.4
-------- -------- --------
Total Operating Revenues $2,409.2 $2,251.7 $2,153.5
======== ======== ========
Results of Operations
1993 Compared with 1992
Santa Fe Pacific Corporation ("SFP" or "Company") reported 1993
net income of $338.8 million or $1.81 per share compared to a net
loss of $104.5 million or $0.57 per share last year. Income from
continuing operations was $177.4 million or $0.95 per share
compared to $21.1 million or $0.11 in the prior year. Excluding
discontinued operations and special items in both years, SFP's
1993 net income was approximately $114.5 million or $0.61 per
share compared to $96.4 million or $0.52 per share in 1992. The
improved results are due to higher operating income at The
Atchison, Topeka and Santa Fe Railway Company ("Santa Fe
Railway"), higher equity income from SFP's investment in Santa Fe
Pacific Pipeline Partners, L.P. ("Pipeline Partnership") and
lower interest expense, partially offset by reduced other income
(expense)-net.
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<PAGE>
On June 29, 1994, SFP's Board of Directors approved the
distribution of SFP's interest in Santa Fe Pacific Gold
Corporation ("SFP Gold") to SFP shareholders (see Other Matters -
Distribution of SFP Gold Subsidiary to Shareholders). As a
result, SFP Gold is reflected as a discontinued operation in the
consolidated financial statements. Income from discontinued
operations, net of income taxes was $161.4 in 1993 compared to
$42.4 in 1992. The higher income from discontinued operations in
1993 principally reflects an after-tax gain of $108.3 million or
$0.58 per share on an exchange of mineral assets.
Special items in 1993 include pre-tax gains of $145.4 million
from the sale of rail lines in southern California (see Other
Matters - Sale of California Lines) and $21.6 million related to
the favorable outcome of arbitration and litigation settlements.
In addition, 1993 includes $12.2 million of pre-tax expense for
SFP's portion of environmental and litigation charges at the
Pipeline Partnership, and an increase in income tax expense of
$27.7 million for the retroactive effect from the date of
enactment of the increase in the federal income tax rate from 34%
to 35%.
Special items in 1992 include a pre-tax gain of $204.9 million
from the sale of rail lines in southern California (see Other
Matters - Sale of California Lines). Additionally, 1992 included
pre-tax special charges of $320.4 million at Santa Fe Railway
principally related to a new labor agreement, operations
centralization and increased environmental accruals (see Note 4:
Rail Special Charge) and $4.5 million for SFP's portion of
environmental charges at the Pipeline Partnership. Also, a
charge of $163.0 million after taxes was recorded for the
adoption of Statement of Financial Accounting Standards ("SFAS")
No.'s 106 and 112, on accounting for postretirement and
postemployment benefits other than pensions. This charge
represented the cumulative effect of the new principal on years
prior to 1992. Finally, an extraordinary charge of $5.0 million
after taxes was recorded on early extinguishment of debt.
Santa Fe Railway
Operating income was $317.7 million and represents an increase of
7% compared to adjusted 1992. The increase reflects continued
growth in revenues despite an estimated $40 million in lost
revenues due to midwest flooding, and increased efficiencies
related to operations, partially offset by increased expenses
from higher traffic volumes and from flooding in the midwest.
The operating ratio of 86.8% was even with adjusted 1992.
Operating revenues increased by $157.5 million or 7% in 1993
reflecting a 7% increase in carloadings while average revenue per
car remained constant. The volume increase occurred despite the
midwest flooding.
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<PAGE>
Intermodal Business Unit ("IBU") revenues increased by 7% to
$976.8 million primarily due to a 6% increase in carloadings.
Continued growth of Santa Fe Railway's alliance with J.B. Hunt
was the principal factor for the 17% increase in direct marketing
revenues. International revenues improved by 17% reflecting both
continued growth in shipments from existing customers and new
contracts. Intermodal Marketing Companies' revenue declined 5%
due to lower volumes. The average IBU revenue per car increased
1% principally reflecting a shift in mix to higher rated direct
marketing traffic.
Carload Business Unit ("CBU") revenues increased by 7% to
$1,391.7 million as carloadings increased 8% while average
revenue per car declined slightly. Vehicles and parts revenues
increased by $54.5 million to $191.2 million due principally to
new business related to a long-term automotive contract with
General Motors in the Arizona and southern California corridors
which began in December, 1992. Coal revenues increased 14% to
$220.1 million and include traffic related to Wisconsin Electric
Power's long-term purchase agreement with the Pittsburg & Midway
Coal Mine located near Raton, New Mexico which began in the third
quarter of 1992. Whole grain revenues increased 12% to $160.6
million reflecting both higher volumes due to a rise in export
shipments and higher average revenue per car due to longer haul
shipments and rate increases. Primary metals revenues of $77.6
million were $7.3 million higher principally due to an increase
in steel shipments along the west coast. Forest products
revenues rose 5% to $121.6 million due to favorable average
revenue per car reflecting a shift in mix to higher rated lumber
products shipments. Minerals and ores revenues declined 9% to
$143.1 million due to sluggish international markets and foreign
competition in the sulphur and potash industries.
Operating expenses increased by $137.4 million to $2,091.5
million, excluding the $320.4 million special charge in the prior
year. Compensation and benefits expense rose slightly as higher
traffic levels and cost escalations were offset by increased
efficiencies, which include the effect of a crew consist
agreement reached in September 1992 with the United
Transportation Union reducing crew sizes on the eastern half of
the railroad. Revenue ton miles per average employee improved by
8% reflecting efficiencies and volume growth. Fuel expense of
$239.1 million rose $33.6 million reflecting a 9% increase in
consumption and a 7% higher price. The increase in consumption
reflects the higher traffic volumes as well as additional
consumption associated with flood-related train detours. The
higher fuel price includes a 4.3 cent increase in federal tax on
fuel which became effective October 1, 1993. Equipment rents
expense increased by $43.4 million to $229.4 million due to the
higher traffic volume, the lease of equipment for new business
and additional expenses associated with flood-related train
detours. Other expenses rose by $51.6 million to $507.1 million
due to the higher volume levels including ramping/deramping and
drayage costs for IBU shipments, and various other contract
service costs.
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<PAGE>
Equity in Earnings of Pipeline Partnership
SFP's investment in the Pipeline Partnership produced equity
income of $30.8 million excluding the $12.2 million special
litigation and environmental charge, an increase of $2.2 million
over the $28.6 million in 1992, excluding the $4.5 million
special environmental charge. The Pipeline Partnership's
revenues increased 7% principally reflecting a 3% volume increase
and 4% increase in average revenue per barrel. Adjusted
operating expenses at the Pipeline Partnership increased by $10.5
million due to higher major maintenance and administrative
expenses.
Interest Expense/Other Income (Expense)-Net
Interest expense declined by $31.1 million or 19% due principally
to lower outstanding debt as well as favorable variable interest
rates. Other income (expense)-net increased by $6.1 million to
$5.8 million reflecting $21.6 million related to favorable
outcome of arbitration and litigation settlements, partially
offset by lower interest income and reduced income from real
estate activities.
Income Taxes
Income tax expense in 1993 includes an increase of approximately
$27.7 million which reflects the retroactive impact of the
increase in the federal tax rate from 34% to 35% from the date of
enactment of the Omnibus Budget Reconciliation Act of 1993,
signed into law on August 10, 1993. A majority of this increase
relates to additional tax expense related to temporary
differences at January 1, 1993. SFAS No. 109 - "Accounting for
Income Taxes" requires deferred taxes to be provided using
enacted tax rates in effect during the years in which the
differences are expected to reverse.
Discontinued Operations
Income from discontinued operations, net of income taxes
increased $119.0 million due to an after-tax gain of $108.3
million related to the exchange of assets with Hanson Natural
Resources Company ("Hanson") and higher operating income from
gold. Ounces sold doubled to 591,000 in 1993, which reflects
increased sales from existing mines as well as production in the
second half of the year from mines received in the exchange of
assets with Hanson. Operating income from coal and aggregate
operations declined by approximately $14 million as 1993 included
only six months of operations due to the exchange of these assets
with Hanson.
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<PAGE>
1992 Compared with 1991
SFP had a 1992 net loss of $104.5 million or $0.57 per share
compared to 1991 net income of $96.4 million or $0.54 per share.
Income from continuing operations was $21.1 million or $0.11 per
share compared to $62.4 million or $0.35 in 1991. Excluding the
special items in 1992 discussed previously, net income from
continuing operations for 1992 was $96.4 million or $0.52 per
share. This improvement in adjusted 1992 income from continuing
operations is due to higher operating income at Santa Fe Railway
and lower interest expense, partially offset by lower other
income (expense)-net.
Santa Fe Railway
Operating income was $297.6 million, excluding the special charge
of $320.4 million, and represents an increase of 17% compared to
1991. The operating ratio as adjusted, improved from 88.1% in
1991 to 86.8% in 1992, the result of higher revenues and
increased efficiencies related to operating expenses.
Operating revenues increased by $98.2 million or 5% in 1992
due to a 6% increase in carloadings partially offset by a 1%
decrease in the average revenue per car.
IBU revenues increased by 8% to $912.3 million as carloadings
were up 11% while average revenue per car declined by 3%. Growth
of J.B. Hunt shipments was the principal factor for the 19%
increase in direct marketing revenues. International revenues
improved by 12% principally reflecting continued growth in
shipments from existing customers. The average revenue per car
declined due to a shift in traffic mix, reflecting growth in
international container shipments which move at lower average
rates, as well as competitive pressures within all IBU segments.
CBU revenues increased by 3% to $1,297.3 million as
carloadings increased 3% while average revenue per car remained
relatively constant. Chemicals and petroleum revenues increased
by 9% to $282.7 million due largely to increased shipments of
plastics and agricultural and industrial chemicals. Forest
products revenues increased by 13% to $115.9 million due to both
favorable volume and average revenue per car including a rebound
in the housing market which resulted in increased shipments of
lumber and other forest products. Grain products revenues of
$80.4 million increased by $9.3 million reflecting increased
shipments of corn syrup, soybean meal and tapioca. The average
revenue per car within grain products was higher reflecting in
part increases in rates on export flour traffic. Minerals and
ores revenues declined 5% to $157.0 million as competitive
pressures depressed sulphur and potash rates. Vehicles and parts
revenues decreased by $7.4 million to $136.7 million principally
reflecting declines in long haul traffic which caused the average
revenue per car to decline by 7%.
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<PAGE>
Operating expenses increased by $56.0 million to $1,954.1
million, excluding the $320.4 million special charge.
Compensation and benefits expense increased 2% reflecting
increased levels of traffic and cost escalations. Average
employees for the year declined 4% to 14,218 partially due to a
new labor agreement with train crew personnel, and revenue ton
miles per average employee increased by 11% reflecting improved
efficiency and volume growth. Fuel expense of $205.5 million
declined by $1.2 million principally reflecting a 3% decline in
price. Fuel consumption increased only 2% despite the 6%
increase in traffic volume, due to the lease of 90 new, fuel
efficient locomotives in 1992 as well as other conservation
efforts. Equipment rents expense increased by $23.8 million to
$186.0 million due to the higher traffic volume as well as the
lease of locomotives. Materials and supplies expense declined by
6% to $127.5 million principally reflecting reduced equipment
maintenance. Other expenses increased by $27.6 million to $455.5
million largely reflecting volume related increases including
ramping/deramping and drayage costs for IBU shipments.
Equity in Earnings of Pipeline Partnership
SFP's investment in the Pipeline Partnership produced equity
income of $28.6 million excluding the $4.5 million special
environmental charge. This was an increase of $1.5 million over
the $27.1 million in 1991. The Pipeline Partnership's revenues
increased 6% principally reflecting an increase in average
revenue per barrel. Adjusted operating expenses at the Pipeline
Partnership increased by $6.1 million due to higher depreciation
and facility costs.
Interest Expense/Other Income (Expense)-Net
Interest expense declined by $44.4 million or 21% due to both
lower outstanding debt and favorable variable interest rates.
Other income (expense)-net declined by $25.8 million reflecting
reduced income from real estate activities at Santa Fe Railway
and lower interest income.
Discontinued Operations
Income from discontinued operations, net of income taxes
increased by 25% to $42.4 million. Higher operating income from
gold was partially offset by lower operating income from coal and
increased exploration and development costs. Operating income
from gold increased by approximately $19 million principally
reflecting an 80% increase in sales to 295,000 ounces. Operating
income from coal declined by $2.9 million due to a 19% decline in
sales partially offset by a 12% increase in price. Both are
principally the result of reduced spot market sales.
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<PAGE>
Financial Condition
Liquidity and Capital Resources
Cash provided by operating activities from continuing operations
is generally SFP's primary source of liquidity and for the year
ended December 31, 1993 was $296.1 million. It primarily
consists of net earnings before depreciation and deferred taxes,
reduced by restructuring payments, which include employee
severance, relocation costs and other labor related payments.
During 1993, additional cash of $247.6 million was provided by
the sale of assets at Santa Fe Railway, including $226.9 million
from the sale of lines in southern California (see Other Matters-
Sale of California Lines). In addition, $72.5 million was
received as principal payments on a note receivable. Capital
expenditures during 1993, including non-cash capital expenditures
of $157.6 million primarily for directly financed equipment
acquisitions and reimbursed projects at Santa Fe Railway, totaled
$539.1 million. Capital expenditures in 1993 were significantly
higher than in 1992 due to increased spending on rail expansion
projects and facilities which include the Alliance, Texas
intermodal and carload transportation center and the Willow
Springs, Illinois intermodal facility, and improvements to track
structure. Additionally, 1993 capital expenditures reflect the
purchase of 85 new locomotives valued at approximately $100
million, while in 1992, 90 new locomotives with a fair market
value in excess of $100 million were acquired through an
operating lease. Cash expenditures were primarily funded through
cash generated from continuing operations. Principal payments on
long term borrowings during 1993 were $242.6 million.
For the year ended December 31, 1992, cash provided by
operating activities from continuing operations was $250.6
million. Additionally, cash of $319.0 million was provided by
the sale of assets at Santa Fe Railway, including $255.0 million
from the sale of lines in southern California. In addition,
$72.5 million was received as principal payments on a note
receivable. Capital expenditures during 1992, including non-cash
capital expenditures of $9.5 million, totaled $265.5 million and
were used for equipment and improvements to track structure and
facilities at Santa Fe Railway. The expenditures were primarily
funded through cash generated from continuing operations.
Principal payments on long term borrowings during 1992 were
$407.5 million, including $201.0 million of proceeds from the
sale of lines in southern California used to retire debt.
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<PAGE>
During the year ended December 31, 1991, cash provided by
operating activities from continuing operations was $196.8
million. Additional cash of $90.5 million was provided through
the sale of assets, principally branch lines and real estate at
Santa Fe Railway. Also, $36.3 million was received as a
principal payment on a note receivable and proceeds of $36.2
million were received from the sale of SFP stock. Capital
expenditures in 1991, including non-cash capital expenditures of
$35.2 million primarily related to directly financed equipment
acquisitions at Santa Fe Railway, totaled $243.2 million and were
primarily used for equipment and improvements to track structure
at Santa Fe Railway. The expenditures were primarily funded
through the cash generated from continuing operations, equipment
financings and other sources. Principal payments on long-term
borrowings during 1991 were $132.2 million.
Management anticipates that it will fund payment of current
obligations from continuing operations, including principal
payments on long term debt, in 1994 through internally generated
funds. Capital expenditures in 1994 are anticipated to
approximate $650 million, including non-cash capital expenditures
of approximately $200 million primarily for directly financed
equipment acquisitions and reimbursed projects. The remaining
expenditures will be funded through the use of internally
generated funds as well as various financings. In addition,
Santa Fe Railway's agreement to sell accounts receivable expires
in December 1994 (see Note 8: Sales of Accounts Receivable). At
December 31, 1993, $225 million was outstanding under the
agreement. It is the Company's intention to replace or extend
this agreement with a similar facility prior to the December 1994
expiration. In addition, in December 1993, the Company filed a
shelf registration statement with the Securities and Exchange
Commission ("SEC"), for the issuance of up to $250 million in
debt securities, none of which had been issued as of December 31,
1993.
At present, the payment of external and intercompany dividends
are limited in amount by certain debt covenants of the Company.
At December 31, 1993 no payment of external dividends was
allowed.
Inflation
Because of the capital intensive nature of SFP's businesses
and because depreciation is based on historical cost, the full
effect of inflation is not reflected in operating expenses. An
assumption that all operating assets were replaced at current
price levels would result in depreciation charges substantially
greater than historically reported amounts.
-9-
<PAGE>
Other Matters
Distribution of SFP Gold Subsidiary to Shareholders
On June 15, 1994, SFP Gold's, SFP's gold subsidiary, registration
statement for the initial public offering of 14.6% of its common
stock became effective. Approximately 19 million shares were
sold at a price of $14 per share. On June 29, 1994, SFP's Board
of Directors approved the distribution to SFP shareholders of its
remaining 85.4% interest in SFP Gold. As a result, SFP Gold will
become a separate, independent entity effective September 30,
1994. Holders of record of SFP common stock as of September 12,
1994, will receive a distribution of one share of common stock of
SFP Gold for every approximately 1.7 shares of SFP common stock
held. Under a ruling obtained from the Internal Revenue Service,
the distributions are tax-free to SFP shareholders. The
consolidated financial statements and notes have been
retroactively restated to present SFP Gold as a discontinued
operation.
Sale of California Lines
In November 1992, Santa Fe Railway announced that it and eight
southern California transportation agencies had reached
definitive agreements for the sale to the agencies of certain
interests in approximately 340 miles of rail lines and additional
property, for cash and relief of obligations to reimburse certain
state and county agencies for capital improvements previously
paid for by the agencies and the State of California. Santa Fe
Railway retained all rights necessary for its freight operations
in southern California. The transportation agencies anticipate
using these facilities for commuter lines.
Cash proceeds of $226.9 million in 1993 and $255.0 million in
1992 were received resulting in pre-tax gains of $145.4 million
and $204.9 million in 1993 and 1992, respectively. (see Note 3:
Gain on Sale of California Lines). A substantial portion of the
net proceeds in both years were used to reduce outstanding debt,
including $126.0 of debt related to discontinued operations. Both
of the gains recognized are net of the cost of the properties,
and other expenses of sale. Additionally, the 1993 gain is net
of an obligation retained by Santa Fe Railway which under certain
conditions, requires Santa Fe Railway to repurchase a portion of
the properties sold for $50 million.
Environmental
The Company is subject to extensive regulation under federal,
state, and local environmental laws concerning, among other
things, discharges to waters, air emissions, toxic substances,
and the generation, handling, storage, transportation, and
disposal of waste and hazardous materials. These laws and
regulations have the effect of increasing the cost and
liabilities associated with the conduct of operations.
Environmental risks are also inherent in railroad operations
which frequently involve the transportation of chemicals and
other hazardous materials.
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<PAGE>
Santa Fe Railway expects it will become subject to new
requirements regulating air emissions from diesel locomotives
that may increase its operating costs in the future. By 1995,
the United States Environmental Protection Agency must issue
regulations applicable to new locomotive engines. Locomotive
engines (other than new locomotive engines) may be regulated by
states based on standards and procedures which the State of
California ultimately adopts. The California standards are
currently in the process of being developed.
In addition, because many of SFP's land holdings are and have
been used for industrial or transportation related purposes or
leased to commercial or industrial companies whose activities may
have resulted in discharges onto the property, the Company is now
subject and will from time to time continue to be subject to
environmental clean-up and enforcement actions. In particular,
the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), also known as the "Superfund" law,
generally imposes joint and several liability for clean-up and
enforcement costs, without regard to fault or the legality of the
original conduct, on current and predecessor owners and operators
of a site. Accordingly, SFP may be responsible under CERCLA and
other federal and state statutes for all or part of the costs to
clean up sites at which certain substances may have been released
by the Company, its current lessees, predecessor owners or
lessees of properties, or other third parties. Estimates of the
Company's ultimate liabilities associated with Superfund and
other environmental sites are difficult to predict with certainty
due to, among other factors, the number of parties involved,
possible remediation alternatives, lengthy time frames, and
potential recoveries from third parties.
During 1992, management completed an internal assessment of
Santa Fe Railway's environmental liabilities, including a site-
by-site analysis of properties with potentially significant
environmental exposure. As a result of this review and analysis
it was determined that an additional accrual of $67 million was
appropriate to provide for future costs of this nature which was
recorded in the third quarter of 1992 as part of a rail special
charge. In addition, the Company monitors, on a regular basis,
accruals for environmental sites which have been identified.
Payment of these accrued costs are expected to be made over five
years. It is the opinion of SFP management that any costs in
excess of recorded liabilities will not have a material adverse
effect on the consolidated financial position of SFP.
-11-
<PAGE>
Common Stock Market Prices and Dividends
Santa Fe Pacific Corporation common stock is traded on the New
York, Chicago and Pacific Stock Exchanges. The quarterly price
range per share for the years 1993 and 1992 is as follows:
1993 1992
---------------------------------------------------------------
High Low High Low
---------------------------------------------------------------
First Quarter $15 5/8 $12 3/4 $14 1/8 $11 1/8
Second Quarter $18 3/8 $14 1/2 $13 3/8 $11
Third Quarter $19 1/8 $16 3/4 $12 7/8 $10 7/8
Fourth Quarter $22 1/2 $18 $13 7/8 $10 5/8
---------------------------------------------------------------
SFP paid a cash dividend of $0.10 per share in both 1993 and
1992. As of January 31, 1994, there were approximately 75,000
holders of record of SFP common stock.
-12-
<PAGE>
Report of Independent Accountants
To the Shareholders, Chairman and Board of Directors
of Santa Fe Pacific Corporation
In our opinion, the accompanying consolidated balance
sheet and the related consolidated statements of
operations, of cash flows and of shareholders' equity
present fairly, in all material respects, the financial
position of Santa Fe Pacific Corporation and subsidiary
companies at December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
These financial statements are the responsibility of the
Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which 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,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion
expressed above.
Note 17 to the consolidated financial statements includes
a description of a change in the method of accounting for
postretirement and postemployment benefits other than
pensions effective January 1, 1992.
As discussed in Note 2 to the consolidated financial
statements, on June 29, 1994 Santa Fe Pacific
Corporation's Board of Directors declared a special
dividend to holders of its common stock consisting of
interests in its subsidiary Santa Fe Pacific Gold
Corporation. The consolidated financial statements have
been retroactively restated to present the subsidiary as a
discontinued operation.
Price Waterhouse LLP
Kansas City, Missouri
February 4, 1994, except for the retroactive
restatement described in Note 2 of the notes to
consolidated financial statements, as to which
the date is June 29, 1994.
-13-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Operations Santa Fe Pacific Corporation and Subsidiary Companies
Year Ended December 31,
(In millions, except per share data) -------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues $ 2,409.2 $ 2,251.7 $ 2,153.5
----------- ----------- -----------
Operating Expenses
Compensation and benefits 799.8 798.8 781.8
Fuel 239.1 205.5 206.7
Equipment rents 229.4 186.0 162.2
Depreciation and amortization 188.4 180.8 184.3
Materials and supplies 127.7 127.5 135.2
Other 507.1 455.5 427.9
Rail special charge - 320.4 -
----------- ----------- -----------
Total Operating Expenses 2,091.5 2,274.5 1,898.1
----------- ----------- -----------
Operating Income (Loss) 317.7 (22.8) 255.4
Equity in Earnings of Pipeline Partnership 18.6 24.1 27.1
Interest Expense 133.4 164.5 208.9
Gain on Sale of California Lines 145.4 204.9 -
Other Income (Expense)-Net 5.8 (0.3) 25.5
----------- ----------- -----------
Income From Continuing Operations Before Income Taxes 354.1 41.4 99.1
Income Taxes 176.7 20.3 36.7
----------- ----------- -----------
Income from Continuing Operations 177.4 21.1 62.4
Income from Discontinued Operations, Net of Income Taxes 161.4 42.4 34.0
Extraordinary Charge on Early Retirement of Debt, Net of Income Taxes - (5.0) -
Cumulative Effect of a Change in Accounting for Postretirement and
Postemployment Benefits, Net of Income Taxes - (163.0) -
----------- ----------- -----------
Net Income (Loss) $ 338.8 $ (104.5) $ 96.4
=========== =========== ===========
Income (Loss) Per Share of Common Stock
Continuing Operations $ 0.95 $ 0.11 $ 0.35
Discontinued Operations 0.86 0.23 0.19
Extraordinary Charge - (0.03) -
Cumulative Effect of a Change in Accounting - (0.88) -
----------- ----------- -----------
Net Income (Loss) $ 1.81 $ (0.57) $ 0.54
=========== =========== ===========
Average Number of Common and Common Equivalent Shares 187.2 184.8 178.0
=========== =========== ===========
</TABLE>
(See notes to consolidated financial statements)
-14-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Santa Fe Pacific Corporation and Subsidiary Companies
December 31,
(In millions) ------------------------
1993 1992
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents, at cost which approximates market $ 70.3 $ 62.1
Accounts receivable, less allowances 96.1 83.9
Materials and supplies 92.3 87.7
Note receivable - current 72.5 72.5
Current portion of deferred income taxes 99.3 103.9
Other 27.2 19.4
----------- -----------
Total current assets 457.7 429.5
----------- -----------
Note Receivable 36.2 108.7
Other Long-Term Assets 323.3 342.8
----------- -----------
Properties, Plant and Equipment 5,886.1 5,524.0
Less-accumulated depreciation and amortization 1,577.7 1,535.3
----------- -----------
Net properties 4,308.4 3,988.7
----------- -----------
Net Assets of Discontinued Operations 248.4 76.7
----------- -----------
Total Assets $ 5,374.0 $ 4,946.4
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 669.8 $ 696.3
Long-term debt due within one year 184.7 187.1
----------- -----------
Total current liabilities 854.5 883.4
----------- -----------
Long-Term Debt Due After One Year 991.1 1,119.6
Postretirement Benefits Liability 284.7 279.1
Rail Restructuring Liability 257.8 254.6
Other Long-Term Liabilities 601.7 553.6
Deferred Income Taxes 1,115.9 927.6
----------- -----------
Total Liabilities 4,105.7 4,017.9
----------- -----------
Commitments and Contingencies (See Note 13 and Note 14)
----------- -----------
Shareholders' Equity
Common stock 190.0 190.0
Paid-in capital 869.7 966.7
Retained income 340.3 19.9
Treasury stock, at cost (131.7) (248.1)
----------- -----------
Total shareholders' equity 1,268.3 928.5
----------- -----------
Total Liabilities and Shareholders' Equity $ 5,374.0 $ 4,946.4
=========== ===========
</TABLE>
(See notes to consolidated financial statements)
-15-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows Santa Fe Pacific Corporation and Subsidiary Companies
Year Ended December 31,
(In millions) -------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 338.8 $ (104.5) $ 96.4
Adjustments to reconcile net income (loss) to operating cash flows:
Income from discontinued operations, net of income taxes (161.4) (42.4) (34.0)
Depreciation and amortization 188.4 180.8 184.3
Deferred income taxes 139.0 53.0 16.1
Cumulative effect of a change in accounting for postretirement and
postemployment benefits, net of income taxes - 163.0 -
Rail special charge - 320.4 -
Rail restructuring costs paid (80.9) (118.9) (104.5)
Imputed interest expense 26.6 23.3 23.8
Gain on sales of property, plant and equipment (156.0) (218.7) (36.9)
Other-net (22.4) (20.0) 17.6
Changes in Working Capital:
Accounts receivable (25.3) (7.5) (0.4)
Materials and supplies (3.6) (11.2) 0.5
Accounts payable and accrued liabilities 51.6 40.0 60.5
Short term investments and other current assets 1.3 (6.7) (26.6)
----------- ----------- -----------
Net Cash Provided By Operating Activities - Continuing Operations 296.1 250.6 196.8
Discontinued Operations - Net 67.7 79.0 19.7
----------- ----------- -----------
Net Cash Provided By Operating Activities 363.8 329.6 216.5
----------- ----------- -----------
Investing Activities
Cash used for capital expenditures (381.5) (256.0) (208.0)
Proceeds from the sale of property, plant and equipment 247.6 319.0 90.5
Other-net 70.3 43.8 58.0
Discontinued Operations - Net (99.8) (68.2) (87.8)
----------- ----------- -----------
Net Cash Provided By (Used For) Investing Activities (163.4) 38.6 (147.3)
----------- ----------- -----------
Financing Activities
Proceeds from long-term borrowings 6.5 - 9.0
Principal payments on long-term borrowings (242.6) (407.5) (132.2)
Proceeds from sale of stock - - 36.2
Cash dividends paid (18.5) (18.2) (17.9)
Other-net 20.7 16.0 11.8
Discontinued Operations - Net 41.7 (4.6) 73.3
----------- ----------- -----------
Net Cash Used For Financing Activities (192.2) (414.3) (19.8)
----------- ----------- -----------
Increase (Decrease) In Cash and Cash Equivalents 8.2 (46.1) 49.4
Cash and Cash Equivalents:
Beginning of year 62.1 108.2 58.8
----------- ----------- -----------
End of year $ 70.3 $ 62.1 $ 108.2
=========== =========== ===========
</TABLE>
(See notes to consolidated financial statements)
-16-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Shareholders' Equity Santa Fe Pacific Corporation and Subsidiary Companies
(Shares in thousands) (Dollars in millions) Shares of Shares of
Common Treasury Common Treasury Paid-In Retained
Stock Stock Stock Stock Capital Income
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1990 190,021 17,051 $ 190.0 $ (516.9) $ 1,166.1 $ 72.5
1991 net income - - - - - 96.4
Dividends declared - - - - - (17.9)
Sale of common stock - (4,043) - 122.4 (86.2) -
Exercise of stock options - (1,511) - 45.8 (35.9) -
Stockholder rights redemption - (1,311) - 39.8 (31.2) (8.4)
Other - 23 - (0.3) 0.7 -
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1991 190,021 10,209 $ 190.0 $ (309.2) $ 1,013.5 $ 142.6
1992 net loss - - - - - (104.5)
Dividends declared - - - - - (18.2)
Exercise of stock options - (1,995) - 60.5 (46.4) -
Other - (20) - 0.6 (0.4) -
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1992 190,021 8,194 $ 190.0 $ (248.1) $ 966.7 $ 19.9
1993 net income - - - - - 338.8
Dividends declared - - - - - (18.5)
Exercise of stock options - (3,231) - 97.1 (73.8) -
Issuance of restricted stock - (777) - 23.2 (23.2) -
Other - 224 - (3.9) - 0.1
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1993 190,021 4,410 $ 190.0 $ (131.7) $ 869.7 $ 340.3
========== ========== ========== ========== ========== ==========
<F1>
Note: SFP has authorized common stock of 600 million shares with a par value of $1.00. Also authorized are
200 million shares of preferred stock with a par value of $1.00, none of which was outstanding at
December 31, 1993.
</TABLE>
(See notes to consolidated financial statements)
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Santa Fe Pacific Corporation and Subsidiary Companies
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Santa Fe Pacific Corporation and subsidiary companies
("SFP or Company") which are majority owned and controlled,
directly or indirectly, by SFP. The equity method is used to
account for investments in 20% to 50% owned entities. All
significant intercompany transactions have been eliminated.
Reclassifications
Certain comparative prior year amounts in the consolidated
financial statements and notes have been reclassified to conform
with the current year presentation.
Statement of Cash Flows
SFP considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. In
addition to amounts reported as "Cash Used for Capital
Expenditures", SFP had noncash capital expenditures totaling
$157.6 million, $9.5 million, and $35.2 million in 1993, 1992,
and 1991, respectively. Noncash capital expenditures consist
principally of directly financed equipment acquisitions and
reimbursed projects at The Atchison, Topeka and Santa Fe Railway
Company ("Santa Fe Railway").
Accounts Receivable
SFP maintains an allowance for doubtful accounts based upon the
estimated collectibility of all trade accounts receivable.
Allowances for doubtful accounts of $16.4 million and $11.2
million have been applied as a reduction of accounts receivable
at December 31, 1993 and 1992, respectively.
Materials and Supplies
Material and supply inventories are valued at the lower of cost
(average or first-in, first-out) or market.
Note Receivable
The note receivable included in the consolidated balance sheet
relates to the sale of a subsidiary in 1986. Principal payments
of $72.5 million were received in both 1993 and 1992. Remaining
proceeds to be received from the note are $72.5 million in 1994
and $36.2 million in 1995.
Properties
Properties are stated at cost and include capitalized interest
incurred during construction of $8.2 million in 1993, $3.7
million in 1992, and $3.9 million in 1991. Additions and
replacements are capitalized. Expenditures for maintenance and
-18-
<PAGE>
repairs are charged to income. Upon normal sale or retirement of
depreciable railroad property, cost less salvage, net of cost of
removal, is charged to accumulated depreciation and no gain or
loss is recognized. With respect to all other property sold or
retired, gain or loss is recognized. Depreciation is computed
under the straight-line method.
Note 2: Discontinued Operations
On June 15, 1994, Santa Pacific Gold Corporation's ("SFP Gold"),
SFP's gold subsidiary, registration statement for the initial
public offering of 14.6% of its common stock became effective.
Approximately 19 million shares were sold at a price of $14 per
share. On June 29, 1994, SFP's Board of Directors approved the
distribution to SFP shareholders of its remaining 85.4% interest
in SFP Gold. As a result, SFP Gold will become a separate,
independent entity effective September 30, 1994. Holders of
record of SFP common stock as of September 12, 1994, will receive
a distribution of one share of common stock of SFP Gold for every
approximately 1.7 shares of SFP common stock held. Under a
ruling obtained from the Internal Revenue Service, the
distributions are tax-free to SFP shareholders. The consolidated
financial statements and notes have been retroactively restated
to present SFP Gold as a discontinued operation.
Income from discontinued operations in 1993, 1992 and 1991 was
as follows:
-----------------------------------------------------------------
Year ended December 31, 1993 1992 1991
------------------------------------- ------ ------ ------
(In millions)
Revenues $298.6 $220.6 $179.4
------------------------------------- ------ ------ ------
Income before income taxes 296.1 63.1 48.3
Income taxes 134.7 20.7 14.3
------------------------------------- ------ ------ ------
Income from discontinued operations $161.4 $ 42.4 $ 34.0
------------------------------------- ------ ------ ------
In June 1993, SFP Gold closed an asset exchange with Hanson
Natural Resources Company ("Hanson"). SFP Gold received certain
gold assets of Hanson, and Hanson acquired essentially all coal
and aggregate assets of SFP Gold. The exchange was recorded as a
purchase of assets and accordingly, the results from the gold
assets have been reflected in income prospectively from the date
of closing. Income from discontinued operations for 1993
includes an after-tax gain on the exchange of $108.3 million.
-19-
<PAGE>
Note 3: Gain on Sale of California Lines
In November 1992, Santa Fe Railway announced that it and eight
southern California transportation agencies had reached
definitive agreements for the sale to the agencies of certain
interests in approximately 340 miles of rail lines and additional
property, for cash and relief of obligations to reimburse certain
state and county agencies for capital improvements previously
paid for by the agencies and the State of California. Santa Fe
Railway retained all rights necessary for its freight operations
in southern California. The transportation agencies anticipate
using these facilities for commuter lines.
Cash proceeds of $226.9 million in 1993 and $255.0 million in
1992 were received resulting in pre-tax gains of $145.4 million
and $204.9 million in 1993 and 1992, respectively. Both of the
gains recognized are net of the cost of the properties and other
expenses of the sale. Additionally, the 1993 gain is net of an
obligation retained by Santa Fe Railway which under certain
conditions, requires the repurchase of a portion of the
properties sold for $50 million. Proceeds of $126.0 million were
used to retire debt related to discontinued operations in 1993;
and proceeds of $201.0 million were used to retire debt in 1992
(see Note 11: Long-Term Debt).
Note 4: Rail Special Charge
During 1992, Santa Fe Railway recorded a $320.4 million pre-tax
special charge which included provisions for restructuring and
environmental.
Restructuring
Approximately $253 million of the charge related to restructuring
and included $149 million for the present value of costs of an
agreement reached in 1992 with the United Transportation Union
("UTU") which provided for reduced crew sizes and elimination of
productivity payments on the eastern half of the railroad while
establishing additional security and other benefits for UTU
employees. $73 million of the charge was for costs related to
the centralization of certain operations. These costs include
relocation, amounts associated with vacated facilities and the
present value of employees' separation. The remainder of the
restructuring portion of the charge related to other employee and
facilities costs. Restructuring costs paid in 1993 totaled $80.9
million and were primarily related to the operations
centralization and employee related costs for the above crew
consist and other previously established labor agreements. A
significant portion of the remaining restructuring expenditures
will be incurred over the next several years; however, certain
labor agreement modifications will not be paid until the
employees' retirement. Santa Fe Railway has obtained letters of
credit of approximately $18 million supporting certain of its
obligations under these labor agreements.
-20-
<PAGE>
Environmental
Approximately $67 million of the special charge was to increase
accruals for environmental clean-up and remediation, primarily on
abandoned properties (see Note 14: Contingencies). During 1993,
payments charged to the environmental reserve were approximately
$13 million, with the majority of remaining expenditures expected
to be incurred over the next five years.
Note 5: Pipeline Partnership
A wholly owned subsidiary of SFP, SFP Pipeline Holdings, Inc.
("Pipeline Holdings"), through its wholly owned subsidiary, holds
an aggregate 44% common unit ownership in Santa Fe Pacific
Pipeline Partners, L.P. ("Pipeline Partnership"), a Delaware
limited partnership. This interest is held through a 2% general
partner interest and a 42% limited partner interest. The Company
accounts for its interest in the partnership under the equity
method. Other long-term assets include $61.5 million and $67.6
million at December 31, 1993 and 1992, respectively, for SFP's
investment in the Pipeline Partnership.
Pipeline Holdings also issued the Pipeline Exchangeable
Debentures ("Pipeline Debentures") (see Note 11: Long-Term Debt)
which are traded on the New York Stock Exchange and under certain
circumstances are exchangeable for common units that represent
SFP's 42% limited partnership interest in the Pipeline
Partnership. Interest on the Pipeline Debentures is payable
quarterly and is equal to the greater of (a) distributions of
cash from operations declared by the Pipeline Partnership for
such quarter on the number of common units for which the Pipeline
Debentures are then exchangeable or (b) 2% of the unpaid Pipeline
Debentures principal balance.
During 1993, 1992 and 1991, SFP, through its wholly owned
subsidiaries, received cash distributions of $25.1 million, $25.1
million, and $23.8 million, respectively, from the Pipeline
Partnership. Of these distributions $22.8 million, $22.8
million, and $22.0 million, respectively, were used to pay
interest costs on the Pipeline Debentures.
-21-
<PAGE>
The following table sets forth selected financial data for the
Pipeline Partnership:
-----------------------------------------------------------------
Year ended December 31, 1993 1992 1991
------------------------------ ------ ------ ------
(In millions, except per unit data)
Income Statement Data
Total revenues $219.5 $205.0 $193.4
Operating income 78.3 91.4 95.8
Interest expense 37.1 36.9 36.9
Net income 41.6 54.1 (1) 60.6
Per Unit Data
Net income per unit $ 2.13 $ 2.77 (1) $ 3.10
Cash distributions per unit 2.80 2.80 2.75
------ ------ ------
December 31, 1993 1992
------------------------------ ------ ------
Balance Sheet Data
Total current assets $ 67.7 $ 58.4
Net properties, plant and equipment 616.6 618.1
Total assets 697.0 684.9
Total current liabilities 35.6 21.6
Long-term debt 355.0 355.0
Total partners' capital 265.9 279.0
------------------------------ ------ ------
(1) 1992 net income and net income per unit exclude a charge for
the cumulative effect of a change in accounting for
postretirement and postemployment benefits of $16.4 million
or $0.84 per unit.
Note 6: Other Income (Expense)-Net
Other income (expense)-net consisted of the following:
----------------------------------------------------------------
(In millions) 1993 1992 1991
--------------------------------- ------ ------ ------
Real estate activities $ 19.4 $ 23.9 $ 45.6
Interest income 11.7 17.8 27.4
Corporate administrative expenses (24.2) (22.3) (20.0)
Accounts receivable fees ( 8.3) ( 9.4) (14.5)
Arbitration/litigation settlements 21.6 - -
Other-net (14.4) (10.3) (13.0)
--------------------------------- ------ ------ ------
Total $ 5.8 $( 0.3) $ 25.5
--------------------------------- ------ ------ ------
-22-
<PAGE>
Note 7: Income Taxes
The provision for income taxes applicable to continuing
operations consisted of the following:
----------------------------------------------------------------
(In millions) 1993 1992 1991
------------------------------- ------- ------ ------
Current:
Federal $ 33.5 $(32.0) $ 17.5
State 4.2 (0.7) 3.1
------------------------------- ------- ------ ------
Total Current 37.7 (32.7) 20.6
------------------------------- ------- ------ ------
Deferred:
Federal 124.6 40.7 13.9
State 14.4 12.3 2.2
------------------------------- ------- ------ ------
Total Deferred 139.0 53.0 16.1
------------------------------- ------- ------ ------
Total $ 176.7 $ 20.3 $ 36.7
------------------------------- ------- ------ ------
Income taxes from continuing operations as reflected in the
consolidated statement of operations differ from the amounts
computed by applying the statutory federal corporate tax rate to
income from continuing operations as follows:
----------------------------------------------------------------
(In millions) 1993 1992 1991
------------------------------------ ------ ------ ------
Federal income tax at statutory rate
(35% in 1993, 34% in 1992-1991) $123.9 $ 14.1 $ 33.7
Increase(decrease) in taxes
resulting from:
State income taxes,
net of federal benefit 12.1 7.7 3.5
1% increase in federal tax rate 23.5 - -
Other 17.2 (1.5) (0.5)
------------------------------------ ------ ------ ------
Total $176.7 $ 20.3 $ 36.7
------------------------------------ ------ ------ ------
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," as of January 1, 1992 having previously accounted for
income taxes under SFAS No. 96. The adoption of SFAS No. 109 had
no impact on 1992 net income. Both SFAS No. 96 and No. 109
required that deferred income taxes be determined based on
temporary differences between the financial reporting and tax
basis of the Company's assets and liabilities using enacted tax
rates in effect during the years in which the differences are
expected to reverse.
The Omnibus Budget Reconciliation Act of 1993 resulted in an
increase in the maximum corporate federal income tax rate from
34% to 35% retroactive to January 1, 1993. In accordance with
SFAS No. 109, SFP recorded additional income tax expense of $23.5
million, representing the impact of the 1% rate increase on SFP's
net beginning of year deferred income tax liability. The impact
-23-
<PAGE>
of the tax increase as of August 10, 1993, the date of enactment,
was approximately $27.7 million. The difference between the
$23.5 million impact as of the beginning of the year and the
$27.7 million impact as of August 10, 1993 is due to taxable
income and temporary differences generated during the period
January 1, 1993 through August 10, 1993.
Principal temporary differences that gave rise to the net
deferred tax liability at December 31, 1993 and 1992 were as
follows:
----------------------------------------------------------------
(In millions) 1993 1992
---------------------------------------- -------- ---------
Deferred tax debits:
Accrued liabilities not deductible
until paid:
Restructuring $ 119.5 $ 144.6
Postretirement benefits 110.8 106.7
Other 239.0 246.7
Non-expiring AMT credit carryforwards 93.7 73.9
Other 13.5 36.5
---------------------------------------- ---------- --------
Subtotal $ 576.5 $ 608.4
---------------------------------------- ---------- --------
Deferred tax credits:
Depreciation $(1,267.4) $(1,195.2)
Condemnation sales (211.8) (123.1)
Other (113.9) (113.8)
---------------------------------------- --------- ---------
Subtotal $(1,593.1) $(1,432.1)
---------------------------------------- --------- ---------
Net deferred tax liability $(1,016.6) $ (823.7)
---------------------------------------- --------- ---------
During 1993 and 1992, SFP made income tax payments, net of
refunds, of $23.9 million and $8.2 million, respectively. During
1991, SFP received net refunds of $8.5 million.
The federal income tax returns of SFP have been examined
through 1988. All years prior to 1981 are closed. Issues
relating to the years 1981-1988 are being contested through
various stages of administrative appeal. In addition, SFP and
its subsidiaries have various state income tax returns in the
process of examination, administrative appeal or litigation.
Management believes that adequate provision has been made for any
adjustment which might be assessed for open years through 1993.
Note 8: Sales of Accounts Receivable
Santa Fe Railway has an agreement to sell, on a revolving basis,
an undivided percentage interest in certain accounts receivable,
with limited recourse, to a financial institution. The
agreement, which expires in December 1994, allows for sales of
accounts receivable up to a maximum of $225.0 million. Santa Fe
Railway acts as collection agent under the agreement. The amount
of accounts receivable sold under the agreement was $225.0
million at both December 31, 1993 and 1992. The financial
institution purchases an interest in a pool of receivables that
-24-
<PAGE>
has generally ranged from $250 - $325 million during 1993 and
1992. Santa Fe Railway is exposed to credit loss related to
collection of accounts receivable to the extent that the
purchased interest exceeds the amount of accounts receivable
sold. Costs related to the agreement vary on a monthly basis and
are generally related to certain interest rates. These costs,
which are included in Other Income (Expense)-Net, were $8.3
million, $9.4 million and $14.5 million in 1993, 1992 and 1991,
respectively.
Note 9: Properties, Plant and Equipment
The major classes of properties, plant and equipment are as
follows:
----------------------------------------------------------------
(In millions) 1993 1992
---------------------------------------- -------- --------
Track structure $2,326.8 $2,199.8
Equipment 1,952.6 1,864.0
Other road properties 1,478.9 1,337.5
Real estate and other 127.8 122.7
---------------------------------------- -------- --------
Total 5,886.1 5,524.0
Accumulated depreciation
and amortization 1,577.7 1,535.3
---------------------------------------- -------- --------
Net properties $4,308.4 $3,988.7
---------------------------------------- -------- --------
Note 10: Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 31, 1993 and
1992 consisted of the following:
----------------------------------------------------------------
(In millions) 1993 1992
---------------------------------------- ------ ------
Accounts and wages payable $141.8 $154.5
Accrued claims 90.3 88.3
Rail restructuring 57.8 122.6
Vacations 49.8 48.8
Taxes other than income taxes 34.3 34.3
Interest 28.1 28.3
Other 267.7 219.5
---------------------------------------- ------ ------
Total $669.8 $696.3
---------------------------------------- ------ ------
-25-
<PAGE>
Note 11: Long-Term Debt
Long-term debt at December 31, 1993 and 1992 consisted of the
following:
----------------------------------------------------------------
(In millions) 1993 1992
------------------------------------------ -------- --------
Equipment Obligations, weighted average
rate of 8.9%, maturing from 1994
to 2008 $ 478.9 $ 453.1
Pipeline Exchangeable Debentures, 10.4%
(variable), maturing 2010 219.0 219.0
Senior Notes, 12.65%, maturing from
1998 to 2000 200.0 200.0
Term Loan, 4.0% (variable),
maturing from 1994 to 1995 108.7 181.2
Mortgage Bonds, 4%, maturing 1995 95.8 95.8
Bank Term Loan, 4.1% (variable),
maturing from 1994 to 1997 50.0 130.8
Other Obligations, 9.4% to 10.3%, maturing
from 1994-2014 40.2 43.8
Debt discount (16.8) (17.0)
------------------------------------------ --------- --------
Total long-term debt 1,175.8 1,306.7
Due within one year (184.7) (187.1)
----------------------------------------- --------- --------
Due after one year $ 991.1 $1,119.6
----------------------------------------- --------- --------
Under the Bank Term Loan, SFP has a $173.6 million revolving
credit facility for general corporate purposes. SFP pays
commitment fees of 3/8% per annum on the unused portion of the
Bank Term Loan and revolving credit facility, payable quarterly.
As of December 31, 1993, no borrowings were outstanding under the
revolving credit facility.
In December 1992, SFP accelerated the repayment of borrowings
related to a 1990 litigation settlement. The early
extinguishment of debt resulted in an extraordinary charge of
$5.0 million, net of applicable tax benefits of $3.0 million,
reflecting the write off of unamortized debt discount. The
repayment was made using a portion of the 1992 proceeds from
Santa Fe Railway's sale of California Lines (see Note 3: Gain on
Sale of California Lines).
In December 1993, SFP filed a shelf registration statement
with the SEC, for the issuance of up to $250 million in debt
securities, none of which had been issued at December 31, 1993.
As of December 31, 1993, projected principal repayments of
long term debt during the five years 1994 through 1998, excluding
capital leases, are $182.9 million, $206.5 million, $50.1
million, $46.5 million and $100.7 million, respectively. Total
interest paid was $111.3 million in 1993, $142.2 million in 1992
and $160.5 million in 1991.
-26-
<PAGE>
Substantially all railroad property is subject to liens
securing Mortgage Bonds or Equipment Obligations. The payment of
cash dividends by SFP is restricted by various debt covenants.
Such restrictions vary with levels of income and other factors.
At December 31, 1993, no payment of dividends was allowed.
Certain other debt agreements of the Company and its subsidiaries
include covenants which place limitations on indebtedness and
intercompany dividends, require the maintenance of various
financial ratios, and restrict the disposition of assets.
Pipeline Holdings is contingently liable for $355.0 million of
Pipeline Partnership debt.
Note 12: Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments
at December 31, 1993 and 1992, and the methods and assumptions
used to estimate such fair values, are as follows:
Cash and short-term investments
The fair value of cash and short-term investments approximates
the carrying amount because of the short maturity of those
instruments.
Note Receivable
The fair value of the Note Receivable approximates the carrying
amount as the variable interest rate on the note approximates
current interest rates.
Other Investments
SFP maintained an investment in common stock which became
publicly traded during 1993. The carrying value of the
investment at December 31, 1993 was $10.6 million. In January
1994, the investment was sold resulting in a pre-tax gain of
approximately $25 million. Additionally, SFP maintains various
other investments in common stock with a carrying value at
December 31, 1993 and 1992 of approximately $17 million and $27
million, respectively, which are accounted for under a cost
basis. These investments are in non-publicly traded companies
which have no quoted market prices; therefore, a reasonable
estimate of fair value could not be made.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based
on the quoted market prices for the same or similar issues or on
the current rates which would be offered to the Company for debt
of the same remaining maturities. The carrying value of debt at
December 31, 1993 and 1992 was $1,175.8 million and $1,306.7
million compared with estimated fair values of approximately
$1,395 million and $1,475 million, respectively.
-27-
<PAGE>
Note 13: Leases and Other Commitments
SFP leases certain locomotives, freight cars, trailers, data
processing equipment and other property. Future minimum lease
payments for operating leases applicable to continuing operations
(which reflect operating leases having non-cancelable lease terms
in excess of one year) as of December 31, 1993 are summarized as
follows:
----------------------------------------------------------------
(In millions)
------------------------------------------------------- ------
1994 $ 60.2
1995 55.1
1996 46.1
1997 36.0
1998 30.1
Later years 174.5
------------------------------------------------------- ------
Total minimum payments $402.0
------------------------------------------------------- ------
Rental expense for all operating leases applicable to
continuing operations was $94.9 in 1993, $72.8 million in 1992
and $65.9 million in 1991. Contingent rentals and sublease
rentals were not significant.
Santa Fe Railway has entered into agreements with certain
locomotive suppliers which provide for maintenance on a portion
of its locomotive fleet. As of December 31, 1993, these
agreements obligate Santa Fe Railway to make minimum annual
payments over periods ranging from two to eighteen years. Santa
Fe Railway has also entered into haulage agreements with other
rail carriers under which it is required to make minimum payments
if specified traffic levels are not met. In the aggregate, these
agreements require minimum annual payments of approximately $63
million in 1994, $52 million in 1995, $50 million in 1996, $51
million in 1997, $52 in 1998, and $327 million in total
thereafter through 2012. Payments under the agreements totaled
approximately $68 million, $62 million and $49 million in 1993,
1992 and 1991 respectively.
In connection with the closing of the sale of California
lines, Santa Fe Railway has entered into various shared use
agreements with the agencies which require Santa Fe Railway to
pay the agencies approximately $6.0 million annually for the
maintenance of track structure and facilities. In addition,
Santa Fe Railway is committed to acquire locomotives valued at
approximately $62 million in 1994.
Santa Fe Railway has entered into hedging positions which are
anticipated to cover approximately two-thirds of 1994 fuel
purchases. These positions are settled quarterly based on
average commodity prices with gains or losses recognized within
fuel expense upon settlement.
-28-
<PAGE>
Note 14: Contingencies
Environmental
The Company is subject to extensive regulation under federal,
state and local environmental laws concerning, among other
things, discharges to waters, air emissions, toxic substances,
and the generation, handling, storage, transportation, and
disposal of waste and hazardous materials. These laws and
regulations have the effect of increasing the cost and
liabilities associated with the conduct of operations.
Environmental risks are also inherent in railroad operations
which frequently involve the transportation of chemicals and
other hazardous materials.
Santa Fe Railway expects it will become subject to new
requirements regulating air emissions from diesel locomotives
that may increase its operating costs in the future. By 1995,
the United States Environmental Protection Agency must issue
regulations applicable to new locomotive engines. Locomotive
engines (other than new locomotive engines) may be regulated by
states based on standards and procedures which the State of
California ultimately adopts. The California standards are
currently in the process of being developed.
In addition, because many of SFP's land holdings are and have
been used for industrial or transportation related purposes or
leased to commercial or industrial companies whose activities may
have resulted in discharges onto the property, the Company is now
subject and will from time to time continue to be subject to
environmental clean-up and enforcement actions. In particular,
the federal Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), also known as the "Superfund" law,
generally imposes joint and several liability for clean-up and
enforcement costs, without regard to fault or the legality of the
original conduct, on current and predecessor owners and operators
of a site. Accordingly, SFP may be responsible under CERCLA and
other federal and state statutes for all or part of the costs to
clean up sites at which certain substances may have been released
by the Company, its current lessees, predecessor owners or
lessees of properties, or other third parties. Estimates of the
Company's ultimate liabilities associated with Superfund and
other environmental sites are difficult to predict with certainty
due to, among other factors, the number of parties involved,
possible remediation alternatives, lengthy time frames, and
potential recoveries from third parties.
During 1992, management completed an internal assessment of
Santa Fe Railway's environmental liabilities, including a site-
by-site analysis of properties with potentially significant
environmental exposure. As a result of this review and analysis
it was determined that an additional accrual of $67 million was
appropriate to provide for future costs of this nature which was
recorded in the third quarter of 1992 as part of the rail special
charge (see Note 4: Rail Special Charge). In addition, the
-29-
<PAGE>
Company monitors, on a regular basis, accruals for environmental
sites which have been identified. Payment of these accrued costs
are expected to be made over the next five years. It is the
opinion of SFP management that any future costs in excess of
recorded liabilities will not have a material adverse effect on
the consolidated financial position of SFP.
Other Claims and Litigation
SFP is also a party to a number of other legal actions arising in
the ordinary course of business, including various governmental
proceedings and private civil suits. While the final outcome of
these other legal actions cannot be predicted with certainty,
considering the meritorious legal defenses available, it is the
opinion of SFP management that none of these other legal actions,
when finally resolved, will have a material adverse effect on the
consolidated financial position of SFP.
Note 15: Pension Plans
SFP and its subsidiaries have two significant defined benefit
pension plans, the trusteed noncontributory Santa Fe Pacific
Corporation Retirement Plan ("Retirement Plan") and the Santa Fe
Pacific Corporation Supplemental Retirement Plan ("Supplemental
Plan").
The Retirement Plan complies with Employee Retirement Income
Security Act of 1974 ("ERISA") requirements and covers
substantially all officers and employees of SFP and its
subsidiaries not covered by collective bargaining agreements.
Benefits payable under the Retirement Plan are based on
compensation during the 60 highest paid consecutive months of
service during the ten years immediately preceding retirement and
years of service. SFP's funding policy is to contribute annually
not less than the ERISA minimum, and not more than the maximum
amount deductible for income tax purposes.
The Supplemental Plan is an unfunded plan that provides
supplementary retirement benefits primarily to certain
executives.
-30-
<PAGE>
Components of pension income and expense applicable to
continuing operations relating to the Retirement and Supplemental
Plans for 1993, 1992 and 1991 were as follows:
---------------------------------------------------------------
Retirement Plan
--------------------------
(In millions) 1993 1992 1991
--------------------------------- ------ ------ ------
Components of pension
(income) expense
Service cost $ 6.0 $ 7.1 $ 8.2
Interest cost 41.9 39.1 40.0
Actual return on plan assets (110.4) (58.5) (99.0)
Net amortization and deferral 46.6 (5.3) 37.4
--------------------------------- ------ ------ ------
Total $(15.9) $(17.6) $(13.4)
--------------------------------- ------ ------ ------
---------------------------------------------------------------
Supplemental Plan
--------------------------
(In millions) 1993 1992 1991
--------------------------------- ------ ------ ------
Components of pension expense
Service cost $ 0.1 $ 0.1 $ 0.1
Interest cost 0.6 0.7 0.7
Net amortization and deferral 0.5 0.6 0.6
--------------------------------- ------ ------ ------
Total $ 1.2 $ 1.4 $ 1.4
--------------------------------- ------ ------ ------
Plan assets and liabilities are measured at September 30. A
reconciliation of the funded status of the plans with amounts
recorded is shown as follows:
---------------------------------------------------------------
Retirement Plan
---------------
(In millions) 1993 1992
--------------------------------------------- ------ ------
Plan assets at fair value, primarily invested
in common stock, and U.S. and corporate
bonds $657.3 $590.9
Actuarial present value of projected
benefit obligation
Accumulated benefit obligation
Vested (535.1) (422.4)
Nonvested (30.5) (29.1)
Provision for future salary increases (40.4) (45.4)
--------------------------------------------- ------ ------
Excess of plan assets over projected
benefit obligation 51.3 94.0
Unrecognized net (gain) loss 33.5 (27.5)
Unrecognized prior service cost 13.4 17.8
Unrecognized net assets being recognized
ratably through 2002 (16.1) (18.1)
--------------------------------------------- ------ ------
Prepaid pension asset $ 82.1 $ 66.2
--------------------------------------------- ------ ------
-31-
<PAGE>
---------------------------------------------------------------
Supplemental Plan
-----------------
(In millions) 1993 1992
--------------------------------------------- ------ ------
Actuarial present value of projected
benefit obligation
Accumulated vested benefit obligation $ (8.3) $ (7.2)
Provision for future salary increases (0.6) (1.2)
--------------------------------------------- ------ ------
Projected benefit obligation (8.9) (8.4)
Unrecognized net gain (0.8) (1.4)
Unrecognized net transition obligation
being recognized ratably through 2003 5.6 6.2
Adjustment required to recognize minimum
liability (4.2) (3.6)
--------------------------------------------- ------ ------
Accrued pension liability $ (8.3) $ (7.2)
--------------------------------------------- ------ ------
Major assumptions
(Retirement and Supplemental Plans):
Discount rate 7.0% 8.5%
Rate of increase in compensation levels 4.0% 5.5%
Expected return on market value of plan
assets 9.75% 11.0%
--------------------------------------------- ------ ------
Note 16: Other Postretirement Benefits
In addition to the Company's defined benefit pension plans,
salaried employees who have attained age 55 and who have rendered
ten years of service are eligible for both medical benefits and
life insurance coverage during retirement. The retiree medical
plan is contributory and provides benefits to retirees, their
covered dependents and beneficiaries. Retiree contributions are
adjusted annually. The plan also contains fixed deductibles,
coinsurance and out-of-pocket limitations. The life insurance
plan is noncontributory and covers retirees only.
The Company adopted SFAS No. 106 effective January 1, 1992
(see Note 17: Change in Method of Accounting for Postretirement
and Postemployment Benefits). Components of net periodic
postretirement benefit cost applicable to continuing operations
relating to the medical plan and the life insurance plan were as
follows:
----------------------------------------------------------------
Medical Plan
------------
(In millions) 1993 1992
-------------------------------------------- ------- -------
Components of net periodic
postretirement benefit cost
Service cost $ 3.3 $ 4.8
Interest cost 15.1 18.2
Net amortization and deferral (3.4) -
-------------------------------------------- ------- -------
Total $ 15.0 $ 23.0
-------------------------------------------- ------- -------
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<PAGE>
----------------------------------------------------------------
Life Insurance Plan
-------------------
(In millions) 1993 1992
-------------------------------------------- ------- -------
Components of net periodic
postretirement benefit cost
Service cost $ 0.2 $ 0.2
Interest cost 3.9 3.8
-------------------------------------------- ------- -------
Total $ 4.1 $ 4.0
-------------------------------------------- ------- -------
Prior to 1992, the costs of these benefits were generally
recognized when paid and for 1991 were $13.6 million.
SFP's policy is to fund benefits payable under the medical and
life insurance plans as due. The following table shows the
reconciliation of the plans' obligations to amounts accrued at
December 31, 1993 and 1992. The Company uses a September 30
measurement date.
----------------------------------------------------------------
Medical Plan
-----------------
(In millions) 1993 1992
-------------------------------------------- ------- -------
Accumulated postretirement
benefit obligation
Retirees $ 138.6 $ 114.1
Fully eligible active plan
participants 16.1 9.5
Other active plan participants 76.1 54.7
-------------------------------------------- ------- -------
Accumulated postretirement
benefit obligation 230.8 178.3
-------------------------------------------- ------- -------
Unrecognized prior service credit 41.3 44.7
Unrecognized net gain (loss) (40.3) 3.0
-------------------------------------------- ------- -------
Accrued postretirement liability $ 231.8 $ 226.0
-------------------------------------------- ------- -------
----------------------------------------------------------------
Life Insurance Plan
-------------------
(In millions) 1993 1992
-------------------------------------------- ------- -------
Accumulated postretirement
benefit obligation
Retirees $ 45.8 $ 43.5
Fully eligible active plan
participants 0.2 -
Other active plan participants 4.9 4.1
-------------------------------------------- ------- -------
Accumulated postretirement
benefit obligation 50.9 47.6
-------------------------------------------- ------- -------
Unrecognized net gain (loss) (5.5) (1.3)
-------------------------------------------- ------- -------
Accrued postretirement liability $ 45.4 $ 46.3
-------------------------------------------- ------- -------
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<PAGE>
The unrecognized prior service credit will be amortized
straight line over the average future service to full eligibility
of the active population.
For 1994, the assumed health care cost trend rate for managed
care medical costs is 11.5% and is assumed to decrease gradually
to 5% by 2006 and remain constant thereafter. For medical costs
not in managed care, the assumed health care cost trend rate is
14% and is assumed to decrease gradually to 5% by 2006 and remain
constant thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated
postretirement benefit obligation for the medical plan by $36.5
million and the aggregate of the service and interest components
of net periodic postretirement benefit cost recognized in 1993 by
$3.2 million. In 1993, the assumed health care cost trend rate
for managed care medical costs was 12% and was assumed to
decrease gradually to 5.5% by 2006 and remain constant
thereafter. For medical costs not in managed care, the assumed
health care cost trend rate was 15% in 1993 and was assumed to
decrease gradually to 6.5% by 2006 and remain constant
thereafter.
The weighted-average discount rate assumed in determining the
accumulated postretirement benefit obligation was 7% and 8.5% in
1993 and 1992, respectively. The assumed weighted-average salary
increase was 4.0% and 5.5% in 1993 and 1992, respectively.
Other Plans
Under collective bargaining agreements, Santa Fe Railway
participates in multiemployer benefit plans which provide certain
postretirement health care and life insurance benefits for
eligible union employees. Insurance premiums paid attributable
to retirees, which are generally expensed as incurred, were $3.3
million, $3.5 million and $3.7 million in 1993, 1992 and 1991,
respectively.
Note 17: Change in Method of Accounting for Postretirement and
Postemployment Benefits
Effective January 1, 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". SFAS No. 106 requires that an actuarial
method be used to accrue the expected cost of postretirement
health care and other benefits over employees' years of service.
SFAS No. 112 relates to benefits provided to former or inactive
employees after employment but before retirement and requires
recognition of these benefits if they are vested and payment is
probable and reasonably estimable. Prior to 1992, the cost of
most postretirement and certain postemployment benefits were
expensed when paid. The cumulative effect of this change in
accounting attributable to years prior to 1992 was to decrease
1992 net income by $163.0 million, net of the related income tax
benefit of $97.0 million. The impact of SFAS No. 106 comprises
approximately $158 million of the change. Additionally, pre-tax
expenses in 1992 were $14 million higher than in 1991 as a result
of the change in accounting for these costs.
-34-
<PAGE>
Note 18: Stock Option and Growth Plans
Under various plans, the most significant of which are the Santa
Fe Pacific Long Term Incentive Stock Plan ("Long Term Plan") and
the Santa Fe Pacific Incentive Stock Compensation Plan
("Incentive Compensation Plan"), options have been granted to
employees to purchase common stock of SFP at a price not less
than the fair market value at the date of grant. Options are
generally exercisable no earlier than one year after the date of
grant and expire ten years after the date of grant. Under these
plans, approximately 0.8 million shares of restricted stock have
been granted with the restrictions on such shares lapsing no
earlier than one year from the date of grant and upon the
attainment of certain corporate performance objectives or the
completion of a required vesting period.
A total of 10 million shares, excluding 2 million additional
shares that may be granted in exchange for shares tendered to the
Company to pay for an option exercise, and a total of 18.4
million shares may be used under the Long Term Plan and Incentive
Compensation Plan, respectively. The Long Term Plan replaced the
Incentive Compensation Plan and no new grants will be made under
the Incentive Compensation Plan. Under these plans, awards may
be granted in the form of (1) options to purchase SFP common
stock; (2) shares of restricted stock, which may be issued in
combination with performance units; (3) Performance Units; and
(4) stock appreciation rights. Awards of 6.6 million shares
under the Long Term Plan and 14.6 million shares under the
Incentive Compensation Plan, of SFP common stock, net of options
surrendered or terminated, have been made in the form of options,
stock appreciation rights, and restricted stock.
As a result of the approval by SFP's Board of Directors to
distribute the common stock of SFP Gold to SFP shareholders, it
will be necessary to adjust the outstanding options to maintain
their economic value. The option price and number of shares will
be adjusted in accordance with Internal Revenue Code Section 424.
-35-
<PAGE>
Approximately 4.9 million of outstanding options are
exercisable within the next year. Option activity in all plans
during 1993, 1992 and 1991 is summarized below:
----------------------------------------------------------------
SFP Average
Shares Price
------------------------------------------ ---------- ------
Options outstanding at December 31, 1990 15,610,892 $ 7.46
Granted 343,700 7.22
Exercised 2,022,221 6.21
Surrendered or terminated 2,887,071 9.20
----------
Options outstanding at December 31, 1991 11,045,300 $ 7.23
Granted 70,000 12.31
Exercised 2,114,257 6.93
Surrendered or terminated 750,475 8.43
----------
Options outstanding at December 31, 1992 8,250,568 $ 7.24
Granted 5,814,770 17.17
Exercised 3,284,947 7.21
Surrendered or terminated 176,544 9.91
----------
Options outstanding at December 31, 1993 10,603,847 $12.65
------------------------------------------ ---------- ------
Note 19: Stockholder Rights Plan and Sale of Stock
In January 1991, the SFP Board of Directors voted to redeem by
means of a share distribution the rights to purchase Series A
Junior Participating Preferred Stock of SFP issued under a rights
agreement. Holders of record of the rights as of the close of
business on February 15, 1991, received an amount of SFP common
stock, with a current market price equal to $0.05 per right in
March 1991. The redemption resulted in an issuance of
approximately 1.3 million shares of common stock.
In October 1991, SFP sold 4,043,039 shares of stock, and
received net proceeds of approximately $36.2 million. These
shares were purchased as a result of options which had been
granted to underwriters to cover over-allotments in conjunction
with the sale of SFP stock by a significant shareholder through a
secondary offering. The shares were issued through use of
treasury stock held by the Company.
-36-
<PAGE>
Note 20: Summarized Quarterly Operating Results (Unaudited)
<TABLE>
<CAPTION>
1993 1992
--------------------------------------- ---------------------------------------
(In millions, except per share data) First Second Third Fourth First Second Third Fourth
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues $ 583.2 $ 609.1 $ 585.8 $ 631.1 $ 545.2 $ 550.0 $ 577.8 $ 578.7
--------- --------- --------- --------- --------- --------- --------- ---------
Operating Income (Loss) $ 71.2 $ 82.2 $ 49.6 $ 114.7 $ 57.8 $ 65.5 $ (238.0) $ 91.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income (Loss)
Continuing Operations $ 106.4 $ 28.2 $ (10.3) $ 53.1 $ 9.4 $ 19.2 $ (176.8) $ 169.3
Discontinued Operations, Net of Income Taxes 20.7 119.3 7.5 13.9 18.8 7.3 11.7 4.6
Extraordinary Charge on Early Retirement
of Debt, Net of Income Taxes - - - - - - - (5.0)
Cumulative Effect of a Change in Accounting
for Postretirement and Postemployment
Benefits, Net of Income Taxes - - - - (163.0) - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 127.1 $ 147.5 $ (2.8) $ 67.0 $ (134.8) $ 26.5 $ (165.1) $ 168.9
========= ========= ========= ========= ========= ========= ========= =========
Income (Loss) Per Common Share
Continuing Operations $ 0.57 $ 0.15 $ (0.05) $ 0.28 $ 0.05 $ 0.10 $ (0.95) $ 0.91
Discontinued Operations 0.11 0.64 0.04 0.08 0.10 0.04 0.06 0.03
Extraordinary Charge - - - - - - - (0.03)
Cumulative Effect of a Change in Accounting - - - - (0.88) - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Per Common Share $ 0.68 $ 0.79 $ (0.01) $ 0.36 $ (0.73) $ 0.14 $ (0.89) $ 0.91
========= ========= ========= ========= ========= ========= ========= =========
<F1>
(1) Quarterly results of operations have been reclassified to present SFP's gold subsidiary as discontinued operations.
<F2>
(2) The sum of income per share from discontinued operations and net income (loss) per share for the four quarters of 1993
does not equal the related net income (loss) per share for the full year due to incremental shares resulting from
stock options.
<F3>
(3) 1993 income (loss) includes a first quarter $145.4 million pre-tax gain on sale of California lines, and a third
quarter increase in income tax expense of approximately $27.7 million reflecting the retroactive impact of the
increase in the federal income tax rate to 35%.
<F4>
(4) 1992 income (loss) includes a third quarter $320.4 million pre-tax rail special charge and a fourth quarter
$204.9 million pre-tax gain on sale of California lines.
</TABLE>
-37-
<PAGE>
Report of Independent Accountants
on Financial Statement Schedules
To the Board of Directors
Our audits of the consolidated financial statements
referred to in our report dated February 4, 1994, except
for the retroactive restatement described in Note 2 of the
notes to consolidated financial statements, as to which
the date is June 29, 1994, appearing on page 13 of this
Form 8-K, also included an audit of the Financial
Statement Schedules on pages 39 through 44 of this Form 8-
K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information
set forth therein when read in conjunction with the
related consolidated financial statements.
Price Waterhouse LLP
Kansas City, Missouri
February 4, 1994, except for the retroactive
restatement described in Note 2 of the notes
to consolidated financial statements, as to
which the date is June 29, 1994.
-38-
<PAGE>
<TABLE>
<CAPTION>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR YEARS 1993, 1992 AND 1991
(In Millions)
Balance at Balance
Beginning Additions Other at End
Description of Year at Cost Retirements Changes of Year
---------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1993
----
Track structure $ 2,199.8 $ 185.4 $ 58.4 $ - $ 2,326.8
Equipment 1,864.0 149.5 60.9 - 1,952.6
Other road properties 1,337.5 192.8 51.4 - 1,478.9
Real estate and other 122.7 11.4 6.3 - 127.8
------------ ------------ ------------ ------------ ------------
Total $ 5,524.0 $ 539.1 $ 177.0 $ - $ 5,886.1
============ ============ ============ ============ ============
1992
----
Track structure $ 2,202.9 $ 142.3 $ 145.4 $ - $ 2,199.8
Equipment 1,910.2 36.6 82.8 - 1,864.0
Other road properties 1,264.6 83.3 10.4 - 1,337.5
Real estate and other 117.8 3.3 (1.6) - 122.7
------------ ------------ ------------ ------------ ------------
Total $ 5,495.5 $ 265.5 $ 237.0 $ - $ 5,524.0
============ ============ ============ ============ ============
1991
----
Track structure $ 2,185.1 $ 130.4 $ 112.6 $ - $ 2,202.9
Equipment 1,981.4 47.0 117.5 (0.7) 1,910.2
Other road properties 1,280.0 62.9 78.3 - 1,264.6
Real estate and other 136.7 2.9 21.8 - 117.8
------------ ------------ ------------ ------------ ------------
Total $ 5,583.2 $ 243.2 $ 330.2 $ (0.7) $ 5,495.5
============ ============ ============ ============ ============
</TABLE>
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<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Continued)
Rates used for computing annual depreciation and amortization
provisions for properties are as follows (in percent):
Locomotives . . . . . . . . . . . . .5.59 to 6.04
Freight cars . . . . . . . . . . . .2.52 to 6.13
Track structure . . . . . . . . . . 1.25 to 3.18
Other road properties . . . . . . . .67 to 8.82
Other equipment . . . . . . . . . . 3.13 to 14.07
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<TABLE>
<CAPTION>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
AND AMORTIZATION OF PROPERTIES
FOR YEARS 1993, 1992 AND 1991
(In Millions)
Balance at Balance
Beginning Other at End
Description of Year Additions Retirements Changes of Year
------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1993
----
Track structure $ 420.0 $ 62.1 $ 42.3 $ 118.2 (1) $ 558.0
Equipment 828.9 92.1 48.4 - 872.6
Other road properties 279.6 28.3 49.6 (118.2)(1) 140.1
Real estate and other 6.8 - - 0.2 7.0
------------ ------------ ------------ ------------ ------------
Total $ 1,535.3 $ 182.5 $ 140.3 0.2 $ 1,577.7
============ ============ ============ ============ ============
1992
----
Track structure $ 465.5 $ 60.8 $ 106.3 $ - $ 420.0
Equipment 790.6 89.4 51.1 - 828.9
Other road properties 278.3 29.2 27.9 - 279.6
Real estate and other 7.0 - 0.2 - 6.8
------------ ------------ ------------ ------------ ------------
Total $ 1,541.4 $ 179.4 $ 185.5 $ - $ 1,535.3
============ ============ ============ ============ ============
1991
----
Track structure $ 514.9 $ 54.9 $ 104.3 $ - $ 465.5
Equipment 818.7 93.1 121.2 - 790.6
Other road properties 340.9 36.1 98.7 - 278.3
Real estate and other 17.2 - 10.2 - 7.0
------------ ------------ ------------ ------------ ------------
Total $ 1,691.7 $ 184.1 $ 334.4 $ - $ 1,541.4
============ ============ ============ ============ ============
<F1>
-------------------
(1) Transfer of excess reserves from Other Road Properties to Track Structure as a result of depreciation
studies filed with the Interstate Commerce Commission.
</TABLE>
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<TABLE>
<CAPTION>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE VII - GUARANTEES OF SECURITIES OF OTHER ISSUERS
December 31, 1993
Total
Amount
Name of Issuer of Title of Issue Guaranteed
Securities Guaranteed of Each Class of and Nature of
by Registrant Securities Guaranteed Outstanding (a) Guarantee
-------------------- ------------------------- --------------- ------------
(Millions)
<S> <S> <C> <S>
SFPP, L.P. (b) First Mortgage Notes due $ 356.7 Principal and
1994 to 2004 interest
<F1>
(a) None of the securities were owned by the Registrant, none were held in the treasury of the issuer,
and none were in default.
<F2>
(b) SFPP, L.P. is the operating partnership of Santa Fe Pacific Pipeline Partners, L.P. ("Pipeline
Partnership"). A subsidiary of Santa Fe Pacific Corporation, the general partner of the Pipeline
Partnership, is contingently liable for this amount.
</TABLE>
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<TABLE>
<CAPTION>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS 1993, 1992 AND 1991
Balance at Additions Balance
Beginning Charged to at End
Description of Period Expense Deductions of Period
----------- ----------- ----------- ---------- -----------
(In Millions)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
-------------------------------
Year Ended December 31, 1993 . . $11.2 $7.8 $2.6 $16.4
Year Ended December 31, 1992 . . $11.6 $5.7 $6.1 $11.2
Year Ended December 31, 1991 . . $11.1 $6.3 $5.8 $11.6
</TABLE>
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<TABLE>
<CAPTION>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR YEARS 1993, 1992 AND 1991
The following amounts have been charged to operating expenses:
1993 1992 1991
----------- ----------- -----------
(In Millions)
<S> <C> <C> <C>
Maintenance and repairs. . . . . . . . . . . $ 521.0 $ 488.6 $ 472.5
=========== =========== ===========
Taxes, other than payroll and income
Real estate and personal property . . . . $ 20.1 $ 20.4 $ 21.7
Other . . . . . . . . . . . . . . . . . . $ 7.4 $ 5.9 $ 7.2
----------- ----------- -----------
Total. . . . . . . . . . . . . . . . $ 27.5 $ 26.3 $ 28.9
=========== =========== ===========
<F1>
Other supplementary income statement items have been omitted from this schedule either
because the required information is disclosed elsewhere in the consolidated financial
statements or the notes to consolidated financial statements or the amounts charged
to operating expenses do not exceed one percent of total consolidated revenues.
</TABLE>
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