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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-8627
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SANTA FE PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3258709
(State of Incorporation) (I.R.S. Employer Identification No.)
1700 East Golf Road
Schaumburg, Illinois 60173-5860
(Address of principal executive offices, including zip code)
708/995-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
</TABLE>
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Securities registered pursuant to Section 12(g) of the Act: None
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PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and Financial
Condition is hereby incorporated by reference to Exhibit 13 of this Report on
Form 10-K/A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of SFP and subsidiary companies,
together with the report thereon of Price Waterhouse LLP dated February 4,
1994, are hereby incorporated by reference to Exhibit 13 of this Report on Form
10-K/A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as a part of this report:
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PAGE
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1. Consolidated Financial Statements:
Report of Independent Accountants dated February 4, 1994................... 19
Consolidated Statement of Operations for the three years ended
December 31, 1993......................................................... 20
Consolidated Balance Sheet at December 31, 1993 and 1992................... 21
Consolidated Statement of Cash Flows for the three years ended
December 31, 1993......................................................... 22
Consolidated Statement of Shareholders' Equity for the three years
ended December 31, 1993................................................... 23
Notes to Consolidated Financial Statements................................. 24
</TABLE>
3. Exhibits:
See Index to Exhibits for a description of the exhibits filed as a part of
this Report.
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SIGNATURES
SANTA FE PACIFIC CORPORATION, PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SANTA FE PACIFIC CORPORATION
/s/ Thomas N. Hund
By: _________________________________
Thomas N. Hund
Vice President and Controller
Dated: October 5, 1994
S-1
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SANTA FE PACIFIC CORPORATION
INDEX OF EXHIBITS
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<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
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<C> <S> <C>
13 Santa Fe Pacific Corporation financial information. The
following financial information is included:
1. Management's Discussion and Analysis of Results of
Operations and Financial Condition 14
2. Consolidated Financial Statements:
Report of Independent Accountants 19
Consolidated Statement of Operations for the three
years ended December 31, 1993 20
Consolidated Balance Sheet at December 31, 1993 and
1992 21
Consolidated Statement of Cash Flows for the three
years ended December 31, 1993 22
Consolidated Statement of Shareholders' Equity for
the three years ended December 31, 1993 23
Notes to Consolidated Financial Statements 24
23(a) Consent of Independent Accountants.
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EXHIBIT 13
CONSOLIDATED FINANCIAL REVIEW
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
REVENUE INFORMATION (IN MILLIONS)
SANTA FE RAILWAY OPERATING REVENUES
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<CAPTION>
YEAR ENDED DECEMBER 31,
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1993 1992 1991
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<S> <C> <C> <C>
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 Revenues.......................... 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
======== ======== ========
SANTA FE PACIFIC GOLD--OPERATING REVENUES
Gold................................................ $ 228.7 $ 116.4 $ 67.2
Other............................................... 6.1 2.8 2.8
Coal and Aggregates................................. 63.8 101.4 109.4
-------- -------- --------
Total Operating Revenues........................ $ 298.6 $ 220.6 $ 179.4
======== ======== ========
</TABLE>
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. The increase
14
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in net income primarily relates to: (1) higher operating income of $345.2
million, $340.5 million of this increase is at The Atchison, Topeka and Santa
Fe Railway Company (Santa Fe Railway) principally due to a $320.4 million
special charge recorded in 1992 as well as increased business levels in 1993,
partially offset by the negative impact of midwest floods in 1993; (2) a $217.5
million pre-tax gain in 1993 on the exchange of mineral assets; (3) lower
interest expense of $37.8 million; and (4) a $163.0 million charge for an
accounting change in 1992. The above are partially offset by: (1) a $59.5
million decline in pre-tax gains on the sale of rail lines in California; and
(2) the increase in the federal income tax rate from 34% to 35% during 1993.
Special items in 1993 include pre-tax gains of $217.5 million on the exchange
of mineral assets (see Other Matters--Exchange of Mineral Assets), $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 Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership), and
an increase in income tax expense of $32.0 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 charges of $320.4 million at Santa
Fe Railway principally related to a new labor agreement, operations
centralization, and increased environmental accruals (see Other Matters--
Contingencies and Other Matters--Rail Restructuring) 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 principle on years prior to 1992.
Finally, an extraordinary charge of $5.0 million after taxes was recorded on
early extinguishment of debt.
Excluding special items in both years, SFP's 1993 net income was
approximately $167.6 million or $0.90 per share compared to $138.8 million or
$0.75 per share in 1992. The improved results are due to higher operating
income at Santa Fe Railway, Santa Fe Pacific Gold Corporation (SFP Gold) and
SFP's equity investment in the Pipeline Partnership and lower interest expense,
partially offset by reduced other income--net.
Santa Fe Railway
Operating income was $317.7 million and represents an increase of $340.5
million over the $22.8 million operating loss reported in 1992. The increase is
the result of the $320.4 million special charge in 1992 discussed above, as
well as continued growth in revenues despite an estimated $40 million in lost
revenue due to midwest floods, and increased efficiencies related to
operations, partially offset by increased expenses from higher traffic volumes
and from floods in the midwest. Operating income in 1993 increased 7% compared
to 1992 excluding the special charge, while the operating ratio of 86.8% was
even with adjusted 1992.
Santa Fe Railway 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.
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.
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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.
Santa Fe Railway operating expenses of $2,091.5 million decreased by $183.0
million from 1992, which included the $320.4 million special charge discussed
above. 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. Operating expenses increased by $137.4 million
excluding the 1992 special charge.
SFP Gold
SFP Gold operating income of $86.5 million increased by 13% or $10.2 million
reflecting a $78.0 million increase in revenues to $298.6 million, partially
offset by a $67.8 million increase in operating expenses. The increase in
revenues primarily reflects higher gold revenues of $112.3 million partially
offset by a $34.3 million decrease in revenues from coal and aggregate
operations. Higher gold revenues reflect 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 Natural Resources Company (Hanson), an affiliate
of Hanson, PLC. (see Other Matters--Exchange of Mineral Assets). Ounces sold
doubled to 591,000 in 1993, as sales from the Twin Creeks Mine (which
represents a combination of SFP Gold's Rabbit Creek Mine and the Chimney Creek
Mine received in the exchange) increased by 113% to 336,000 ounces. In
addition, Lone Tree Mine sold 143,000 ounces, an increase of 11,000 ounces over
1992 and the Mesquite Mine, obtained as part of the asset exchange, sold
112,000 ounces. The average price of gold sold of $387 an ounce was 2% below
1992 but 8% above the 1993 average spot price due to hedging activities.
Revenues from coal and aggregate operations declined as 1993 included only six
months of operations due to the exchange of these assets with Hanson. Operating
expenses increased by $67.8 million due to increases in gold production,
partially offset by lower operating expenses from coal and aggregate operations
due to the exchange with Hanson.
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Pipeline
SFP's equity investment in the Pipeline Partnership produced operating income
of $18.6 million including the $12.2 million special litigation and
environmental charge, a decrease of $5.5 million compared to 1992 which
included a $4.5 million special environmental charge. The Pipeline
Partnership's revenues increased 7% principally reflecting a 3% volume increase
and a 4% increase in average revenue per barrel. Operating expenses at the
Pipeline Partnership increased by $27.6 million due to a $17.0 million increase
in special charges and higher major maintenance and administrative expenses.
Excluding special items in both years, SFP's equity investment in the Pipeline
Partnership produced operating income of $30.8 million in 1993 compared to
$28.6 million in 1992.
Other Income--Net/Interest Expense
Other income--net increased by $4.7 million to $6.9 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. Interest expense declined by $37.8 million or 21% due principally
to lower outstanding debt as well as favorable variable interest rates.
Income Taxes
Income tax expense in 1993 includes an increase of approximately $32 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.
1992 COMPARED WITH 1991
SFP had a 1992 net loss of $104.5 million or $0.57 per share compared to net
income of $96.4 million or $0.54 per share in 1991. The decrease in net income
primarily relates to: (1) lower operating income of $264.4 million which
includes lower operating income at Santa Fe Railway due to a $320.4 million
special charge recorded in 1992 partially offset by higher business levels, and
higher operating income at SFP Gold; (2) lower other income-net of $29.6
million; and (3) a $163.0 million charge for an accounting change in 1992. The
above are partially offset by: (1) a $204.9 million pre-tax gain on the sale of
rail lines in California in 1992; and (2) lower interest expense of $46.2
million.
Excluding special items discussed previously, SFP's 1992 net income was
approximately $138.8 million or $0.75 per share compared to 1991 net income of
$96.4 million or $0.54 per share. This improvement in adjusted 1992 income is
due to higher operating income at Santa Fe Railway and SFP Gold and lower
interest expense, partially offset by lower other income--net.
Santa Fe Railway
Operating loss was $22.8 million and represents a decrease of $278.2 million
compared to operating income of $255.4 million reported in 1991. This decrease
was principally due to the 1992 special charge, partially offset by higher
business levels and increased operating efficiencies. Excluding the special
charge, operating income in 1992 increased 17% compared to 1991 while 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.
15--1
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Santa Fe Railway 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%.
Santa Fe Railway operating expenses increased by $376.4 million to $2,274.5
million, and includes 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. Operating expenses increased by $56.0 million
excluding the special charge.
SFP Gold
SFP Gold operating income increased by 28% or $16.8 million to $76.3 million
reflecting a $41.2 million increase in revenues, partially offset by a $24.4
million increase in operating expenses. The increase in revenues primarily
reflects higher gold revenues of $49.2 million partially offset by a $8.0
million decrease in revenues from coal and aggregate operations. Higher gold
revenues principally reflect an 80% increase in sales to 295,000 ounces. Lone
Tree Mine, which began production in August, 1991, sold 132,000 ounces, an
increase of 104,000 ounces over 1991. Rabbit Creek sales increased by 36% to
157,000 ounces reflecting increased mine production. The average price of gold
sold of $394 an ounce was 4% below 1991 but 15% above the 1992 average spot
price due to hedging activities. Coal revenues declined 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. Operating expenses increased by $24.4
million due to increases in gold production, partially offset by lower expenses
from coal and aggregate operations.
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Pipeline
SFP's equity investment in the Pipeline Partnership produced operating income
of $24.1 million including the $4.5 million special environmental charge. This
was a decrease of $3.0 million compared to 1991. The Pipeline Partnership's
revenues increased 6% principally reflecting an increase in average revenue per
barrel. Operating expenses at the Pipeline Partnership increased by $16.0
million due to a $10 million special environmental charge and higher
depreciation and facility costs. Excluding the special item in 1992, SFP's
equity investment in the Pipeline Partnership produced operating income of
$28.6 million in 1992 compared to $27.1 million in 1991.
Other Income-Net/Interest Expense
Other income-net declined by $29.6 million to $2.2 million reflecting reduced
income from real estate activities at Santa Fe Railway and lower interest
income. Interest expense declined by $46.2 million or 20% due to both lower
outstanding debt and favorable variable interest rates.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash provided by operations is generally SFP's primary source of liquidity
and for the year ended December 31, 1993 was $351.9 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 $247.9 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, long-term borrowings provided $188.8 million
in cash while $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 $646.2
million. Capital expenditures in 1993 were significantly higher than in 1992
due to increased spending on rail expansion projects and
16--1
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facilities which include the Alliance, Texas intermodal and carload
transportation center and the Willow Springs, Illinois intermodal facility, and
the Lone Tree Mine expansion project at SFP Gold. 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. Approximately
83% of capital expenditures were used for equipment and improvements to track
structure and rail facilities, and 17% for development of gold properties. Cash
expenditures were primarily funded through cash generated from operations and
project financings. Principal payments on long term borrowings and gold loans
during 1993 were $382.4 million, and include the use of $126.0 million of
proceeds from the sale of lines in southern California to retire debt.
For the year ended December 31, 1992, cash provided by operations was $312.2
million. Additionally, cash of $320.7 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 $332.0 million.
Approximately 80% of capital expenditures were used for equipment and
improvements to track structure and facilities at Santa Fe Railway, and 20% for
development of mining properties. The expenditures were primarily funded
through cash generated from operations and project financings. Principal
payments on long term borrowings and gold loans during 1992 were $444.2
million, including $201.0 million of proceeds from the sale of lines in
southern California used to retire debt.
During the year ended December 31, 1991, cash provided by operations was
$241.9 million. Additional cash of $91.0 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 $330.7 million. Approximately 73% of capital expenditures were
used for equipment and improvements to track structure at Santa Fe Railway and
27% for development of mining properties. The expenditures were primarily
funded through the cash generated from operations, project and equipment
financings, and other sources. Principal payments on long-term borrowings and
gold loans during 1991 were $157.4 million.
Management anticipates that it will fund payment of current obligations in
1994 through internally generated funds. Current obligations include principal
payments on long term debt as well as commitments at Santa Fe Railway related
to operating leases, maintenance agreements for locomotives and minimum
payments under haulage agreements with other railroads (see Note 14: Leases and
Other Commitments). SFP capital expenditures in 1994 are anticipated to exceed
$600 million, including non-cash capital expenditures of approximately $150
million primarily for directly financed equipment acquisitions and reimbursed
projects at Santa Fe Railway. 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 9: Sales of Accounts Receivable). Currently, $225
million is 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. The Company also has funds available through a $173.6 million
credit facility which can be used for general corporate purposes. No borrowings
were outstanding under the facility at December 31, 1993. 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.
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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; however, the Company believes that
it could change the designation of SFP Gold under the restrictive debt
agreement or distribute SFP Gold to SFP shareholders to eliminate the dividend
restriction.
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.
OTHER MATTERS
Exchange of Mineral Assets
On June 25, 1993, SFP Gold completed an asset exchange with Hanson, in which
SFP Gold received certain gold assets of a subsidiary of Hanson including
operating gold mines in Nevada and California, two late stage development
projects in Nevada and Montana and other gold prospects. Hanson acquired
essentially all coal assets of SFP Gold including the Lee Ranch Mine and
undeveloped coal reserves and six crushed stone and aggregate quarries. The
exchange was recorded as a purchase business combination. The fair value of the
gold assets for financial reporting purposes was approximately $425 million.
SFP recognized an after tax, non-cash gain of $108.3 million on the exchange
which represents the excess of the fair value of the gold assets received over
the sum of the carrying value of the coal and aggregate assets and expenses of
the exchange (see Note 3: Gain on Exchange of Mineral Assets).
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Potential SFP Gold Transactions
SFP is continuing to review the possibility of establishing the gold
operation as a separate public company. As part of this process SFP is
considering an initial public offering of up to 20% of SFP Gold stock, followed
by a distribution of the remaining interest in SFP Gold to SFP shareholders.
This evaluation and the timing of any distribution involve a number of
economic, business, legal, tax, and other considerations, including prior
approval from the SFP Board of Directors. The company is pursuing a ruling from
the Internal Revenue Service that a distribution of SFP Gold shares to existing
SFP shareholders would be tax free.
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.
The sale encompassed three separate closings which occurred in December 1992
and March and June of 1993. 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 2: Gain on Sale of
California Lines). A substantial portion of the net proceeds in both years were
used to reduce outstanding debt. 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.
Contingencies
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
18
<PAGE>
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.
At December 31, 1993, SFP had been named a potentially responsible party
(PRP) at 6 sites on the Environmental Protection Agency's (EPA) National
Priorities List (NPL). Additionally, SFP is potentially liable for the cost of
clean-up at other sites identified by the EPA and other agencies. Finally, SFP
has identified sites where costs exist for environmental clean-up and
monitoring (including where no claim has been asserted), and no agency is
currently involved. There are approximately 125 known environmental sites at
December 31, 1993 which include, among other things; closed facilities
including diesel locomotive repair shops, tie treating plants, fueling
facilities and underground storage tanks; property leased or sold to others and
current operating sites.
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, evolving environmental laws and regulations,
and potential recoveries from third parties. Environmental costs include
initial site surveys and environmental studies of potentially contaminated
sites, costs for remediation and restoration of sites determined to be
contaminated, as well as post-closure and ongoing monitoring costs. The Company
has not included any reduction in costs for anticipated recovery from
insurance. Estimated costs at sites where SFP is a PRP are generally based on
cost sharing agreements which vary from site to site, after consideration of
the financial condition of other PRP's. These costs are typically allocated
based on volume of material contributed, the portion of the total site owned or
operated by each PRP, and/or the amount of time the site was owned or operated.
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, based on additional information developed in
subsequent periods. The additional information is based on a combination of
factors including independent consulting reports, site visits, legal reviews
and historical trend analysis.
Payments recorded against environmental liabilities totaled $13.5 million,
$6.3 million and $7.1 million for the years ended December 31, 1993, 1992 and
1991, respectively. The majority of these payments related to mandatory clean-
up efforts. Capital expenditures related to environmental sites were
insignificant during this three year period. At December 31, 1993 and December
31, 1992 the Company had accrued liabilities for environmental costs of
approximately $125 million and $121 million, respectively. The Company
anticipates that approximately 75% of the accrued costs at December 31, 1993
will be paid over the next five years, with approximately $25 million of
payments occurring in 1994. It is the opinion of SFP management that none of
the above items, when finally resolved, will have a material adverse effect on
the annual results of operations, financial position or liquidity of SFP,
although an adverse resolution of a number of these items in a single year
could have a material adverse effect on the results of operations for that
year.
SFP is also a party to a number of other legal actions and claims, including
employee injury claims, various governmental proceedings and private civil
suits arising in the ordinary course of business. While the final outcome of
these other legal actions cannot be predicted with certainty, considering among
other things, the meritorious legal defenses available, it is the opinion of
SFP management that none of these claims, when finally resolved, will have a
material adverse effect
18--1
<PAGE>
on the annual results of operations, financial position or liquidity of SFP,
although an adverse resolution of a number of these items in a single year
could have a material adverse effect on the results of operations for that
year.
Rail Restructuring
During the third quarter of 1992, Santa Fe Railway recorded a $253 million
pre-tax charge primarily for costs of a crew consist agreement on the eastern
half of the railroad and for centralization of certain transportation
functions.
The eastern lines crew consist agreement comprised $149 million of the
charge. The 1992 agreement is an update to a 1990 crew consist agreement. The
1992 agreement provides for further reductions in average crew size on through
freight trains and elimination of productivity payments which were required
when reduced crews were used. The 1992 eastern lines agreement, when combined
with a similar agreement reached earlier with trainmen on the other half of the
system, provides for through trains generally to operate with two person crews.
Estimated operating expense savings resulting from the eastern lines
agreement was approximately $25 million annually beginning in 1993. The
agreement covers approximately 2,000 employees. Costs of the agreement which
are provided for in the charge relate to a signing bonus of $10,000 per
employee, the present value of a $65,000 deferred benefit per employee payable
upon separation or retirement and the present value of reserve board costs.
Reserve board costs represent wages paid to employees rendered excess due to
reduced crews. When on reserve board status, employees are removed from active
service and receive a percentage of their normal wages. Eastern line reserve
boards initially contained approximately 500 members and will decline over time
through attrition and other factors.
The charge also included $73 million related to centralization. In 1992,
Santa Fe Railway decided to centralize many operating support functions.
Centralization activities began in late 1992 and by the fall of 1993, Railway
had centralized train dispatching, crew planning and fleet management in
Schaumburg, Illinois; crew management, customer service and mechanical
(equipment) administration in Topeka, Kansas; and other administrative and
operating support functions in Kansas City, Kansas. Annual savings resulting
from centralized functions are expected to be approximately $20 million, most
of which will be reflected annually beginning in 1994. Cost of centralization
included in the $73 million charge relates to approximately 700 relocations,
reductions of 600 administrative and clerical positions, and abandonment of
facilities. Most of the costs of centralization had been paid by December 31,
1993.
Additionally, the charge includes approximately $31 million for other cost
saving initiatives including an adjustment of accruals established for other
operating craft labor agreements reached in prior periods.
At December 31, 1993, the balance of the restructuring liability was $315.6
million. The majority of the balance represents future deferred benefit and
reserve board payments related to the 1992 eastern lines agreement and similar
agreements reached in and accrued for in prior years. Restructuring costs paid
were $80.9 million in 1993, $118.9 million in 1992 and $104.5 million in 1991.
In 1994, the Company expects payments of approximately $60 million. Future
payments will decline over time; however, certain separation benefits will not
be paid until employee retirement. Santa Fe Railway has obtained letters of
credit of approximately $18 million supporting certain of its obligations under
labor agreement.
Hedging Activities
SFP Gold's revenues and earnings are strongly influenced by world gold
prices, which fluctuate widely and over which SFP Gold has no control. In an
effort to minimize its exposure to fluctuations
18--2
<PAGE>
in the price of gold, SFP Gold engages in gold price hedging activities, when
deemed appropriate, which consists primarily of the use of forward sales and
option contracts. In recent years, SFP Gold's average price realized has
exceeded the average spot gold price. While there is no assurance that the
hedging program will continue to result in average sales prices in excess of
average spot gold prices, SFP Gold intends to continue to hedge, as
appropriate, based on gold market conditions and assessments of gold price
risk. To the extent the Company hedges portions of its gold production, it may
not fully participate in increases in spot gold prices on the portion of its
production that has been hedged. At December 31, 1993, forward sales contracts
have an aggregate sales value of approximately $224 million which commit SFP
Gold to the future delivery of 570,500 ounces of gold at an average price of
$393 per ounce. Scheduled delivery dates under the forward sales contracts
range from the beginning to the end of 1994. In addition, SFP Gold has
committed 114,000 ounces in 1994 under call options at prices ranging between
$375 and $385 per ounce and has purchased put options on 114,000 ounces at
strike prices ranging between $318 and $331 per ounce. These put and call
options expire at a rate of 9,500 ounces per month during 1994.
The Company enters into various commodity swap and collar transactions to
manage exposure against fluctuations in diesel fuel prices. The Company's fuel
hedging transactions are based upon commodities that are established in the
futures markets. The prices of these commodities have historically shown a high
degree of correlation with the Company's diesel fuel prices. Cash settlements
on contracts to hedge fuel prices are made at the end of a quarter and the
related gain or loss is included in fuel expense for that quarter. To the
extent the Company hedges portions of its fuel purchases, it may not fully
participate in decreases in fuel prices. At December 31, 1993, the Company had
entered into various agreements with several counterparties covering
approximately 260 million gallons which is anticipated to cover approximately
two-thirds of 1994 fuel purchases. Through swap arrangements the Company has
hedged approximately 205 million gallons at an average price of 48 cents.
Additionally, approximately 55 million gallons have been hedged through collar
arrangements which allow the price to float between average floor and ceiling
prices of 46 cents and 51 cents, respectively. These prices do not include
taxes, fuel handling costs and any differences which may occur from time to time
between the prices of commodities hedged and the purchase price of the Company's
diesel fuel. The effects of the Company's fuel hedges was to increase operating
expense by $12.4 million in 1993 and to reduce operating expense by $0.9 million
and $5.6 million in 1992 and 1991, respectively.
From time to time, the Company enters into various interest rate hedging
transactions for various purposes, including managing exposure to fluctuations
in interest rates or establishing rates in anticipation of future debt
issuance. At December 31, 1993, the Company had entered into four related
interest rate swap transactions for a total notional principal amount of $100
million, for the purpose of establishing rates in anticipation of an expected
future debt offering. These swap transactions call for the payment of a fixed
interest rate of 6.2%, which was based upon ten year treasury notes, and the
receipt of a variable interest rate which was 3.5% at December 31, 1993. At the
time of the borrowing, which is also expected to have a term of ten years, the
swap will be closed out and any gain or loss relating to the terminated
interest rate swap will be amortized as an adjustment to interest expense over
the term of the borrowing.
The Company monitors its positions and the credit ratings of its
counterparties and does not currently anticipate losses due to counterparty
non-performance. The fair market value of the Company's fuel hedging
transactions at December 31, 1993 were unrealized losses of $9.2 million for
swap arrangements and $2.4 million for collar arrangements. The fair market
value of the Company's interest hedging transactions at December 31, 1993 was
not significant.
18--3
<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:
<TABLE>
<CAPTION>
1993 1992
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
------- ------- ------- -------
</TABLE>
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.
18--4
<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 18 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
February 4, 1994
19
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
REVENUES
Rail............................................... $2,409.2 $2,251.7 $2,153.5
Gold............................................... 298.6 220.6 179.4
Pipeline........................................... 18.6 24.1 27.1
-------- -------- --------
Total revenues..................................... 2,726.4 2,496.4 2,360.0
-------- -------- --------
OPERATING EXPENSES
Rail............................................... 2,091.5 1,954.1 1,898.1
Rail Special Charge................................ -- 320.4 --
Gold............................................... 212.1 144.3 119.9
-------- -------- --------
Total operating expenses........................... 2,303.6 2,418.8 2,018.0
-------- -------- --------
Operating Income................................... 422.8 77.6 342.0
Other Income Net................................... 6.9 2.2 31.8
Gain on Sale of California Lines................... 145.4 204.9 --
Gain on Exchange of Mineral Assets................. 217.5 -- --
Interest Expense................................... 142.4 180.2 226.4
-------- -------- --------
Income Before Income Taxes......................... 650.2 104.5 147.4
Income Tax......................................... 311.4 41.0 51.0
-------- -------- --------
Income Before Extraordinary Charge and Cumulative
Effect of a Change in Accounting.................. 338.8 63.5 96.4
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
Before Extraordinary Charge and Cumulative Effect
of a Change in Accounting......................... $ 1.81 $ 0.34 $ 0.54
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)
20
<PAGE>
CONSOLIDATED BALANCE SHEET
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992
-------- --------
(IN MILLIONS)
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, at cost which approximates
market.................................................. $ 96.4 $ 100.1
Accounts receivable, less allowances..................... 103.5 97.0
Inventories.............................................. 120.4 107.4
Note receivable--current................................. 72.5 72.5
Current portion of deferred income taxes................. 78.1 90.4
Other.................................................... 107.6 70.2
-------- --------
Total current assets................................... 578.5 537.6
-------- --------
Note Receivable.......................................... 36.2 108.7
Other Long-Term Assets................................... 326.1 359.8
-------- --------
Properties, Plant and Equipment.......................... 6,664.4 5,969.5
Less: Accumulated depreciation, depletion and amortiza-
tion.................................................... 1,668.2 1,630.2
-------- --------
Net properties........................................... 4,996.2 4,339.3
-------- --------
Total Assets........................................... $5,937.0 $5,345.4
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities................. $ 715.7 $ 723.3
Gold loans--current...................................... 15.4 12.9
Long-term debt due within one year....................... 190.7 205.8
-------- --------
Total current liabilities.............................. 921.8 942.0
-------- --------
Long-Term Debt Due After One Year........................ 1,185.1 1,245.7
Postretirement Benefits Liability........................ 291.2 283.2
Rail Restructuring Liability............................. 257.8 254.6
Gold Loans............................................... 133.8 149.3
Other Long-Term Liabilities.............................. 644.4 557.7
Deferred Income Taxes.................................... 1,234.6 984.4
-------- --------
Total Liabilities...................................... 4,668.7 4,416.9
-------- --------
COMMITMENTS AND CONTINGENCIES (See Note 14 and Note 15)
SHAREHOLDERS' EQUITY
Common stock, $1 par value, shares authorized, 600.0 mil-
lion; 1993 shares issued and outstanding, 190.0 million
and 185.6 million; 1992 shares issued and outstanding,
190.0 million and 181.8 million......................... 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............. $5,937.0 $5,345.4
======== ========
</TABLE>
(See notes to consolidated financial statements)
21
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1992 1991
------- -------- ------
(IN MILLIONS)
<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:
Depreciation, depletion and amortization........ 247.9 216.1 208.4
Deferred income taxes........................... 215.8 66.2 20.9
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 exchange of mineral assets................ (217.5) -- --
Gain on sales of property, plant and equipment.... (156.0) (218.7) (36.9)
Other--net........................................ (8.0) (23.8) 16.1
Changes in Working Capital:
Accounts receivable............................. (16.8) (13.9) 1.0
Inventories..................................... (9.9) (18.1) (4.5)
Accounts payable and accrued liabilities........ 48.8 47.9 51.5
Short term investments and other current assets. (36.9) (26.8) (30.3)
------- -------- ------
Net Cash Provided By Operating Activities..... 351.9 312.2 241.9
------- -------- ------
INVESTING ACTIVITIES
Cash used for capital expenditures................ (488.6) (322.5) (295.5)
Proceeds from the sale of property, plant and
equipment........................................ 247.9 320.7 91.0
Other--net........................................ 77.3 40.4 57.3
------- -------- ------
Net Cash Provided By (Used For) Investing
Activities................................... (163.4) 38.6 (147.2)
------- -------- ------
FINANCING ACTIVITIES
Proceeds from long-term borrowings and gold loans. 188.8 17.7 91.4
Principal payments on long-term borrowings and
gold loans....................................... (382.4) (444.2) (157.4)
Proceeds from sale of stock....................... -- -- 36.2
Decrease in restricted funds...................... -- 14.9 15.9
Cash dividends paid............................... (18.5) (18.2) (17.9)
Other--net........................................ 19.9 15.5 12.0
------- -------- ------
Net Cash Used For Financing Activities........ (192.2) (414.3) (19.8)
------- -------- ------
Increase (Decrease) In Cash and Cash Equivalents.. (3.7) (63.5) 74.9
Cash and Cash Equivalents:
Beginning of year................................. 100.1 163.6 88.7
------- -------- ------
End of year....................................... $ 96.4 $ 100.1 $163.6
======= ======== ======
</TABLE>
(See notes to consolidated financial statements)
22
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON TREASURY COMMON TREASURY PAID-IN RETAINED
STOCK STOCK STOCK STOCK CAPITAL INCOME
--------- --------- ------ -------- -------- --------
(SHARES IN THOUSANDS) (DOLLARS IN MILLIONS)
<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 op-
tions................ -- (1,511) -- 45.8 (35.9) --
Shareholder rights re-
demption............. -- (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 op-
tions................ -- (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 op-
tions................ -- (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
======= ====== ====== ======== ======== ======
</TABLE>
- --------
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.
(See notes to consolidated financial statements)
23
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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). The exchange
of mineral assets was a non-cash transaction and has been excluded from the
Statement of Cash Flows (see Note 3: Gain on Exchange of Mineral Assets).
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.
Other Current Assets
Other current assets include $76.8 million and $48.9 million at December 31,
1993 and 1992, respectively, of deferred mining costs at Santa Fe Pacific Gold
Corporation (SFP Gold).
Inventories
Material and supply inventories, which represent substantially all
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 $8.7 million in 1993, $3.8 million in 1992, and $4.4
million in 1991. Additions and replacements are capitalized. Expenditures for
maintenance and 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 of railroad properties is computed under the straight-line method.
Depreciation and depletion of gold operating properties is based on either the
unit-of-production or straight-line method.
24
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Rail revenue is recognized when freight is received from the shipper with a
corresponding accrual of the direct costs to complete delivery of the freight-
in-transit. Gold revenue is recognized when gold is shipped to customers.
Exploration and Development Costs
Exploration and development costs incurred in gold operations, prior to the
determination of the feasibility of proceeding with mining operations, are
expensed as incurred. Development costs incurred thereafter are capitalized and
amortized on a unit-of-production basis.
NOTE 2: 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.
The sale encompassed three separate closings which occurred in December 1992
and March and June of 1993. 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 and $201.0 million were used to
retire debt in 1993 and 1992, respectively (see Note 11: Long-Term Debt).
NOTE 3: GAIN ON EXCHANGE OF MINERAL ASSETS
On June 25, 1993, SFP Gold closed an asset exchange with Hanson Natural
Resources Company (Hanson), an affiliate of Hanson, PLC. SFP Gold received
certain gold assets of Hanson, including two operating gold mines in Nevada and
California, two late stage development projects in Nevada and Montana and other
gold prospects. Hanson acquired essentially all coal assets of SFP Gold
including the Lee Ranch Mine and undeveloped coal reserves and six crushed
stone and aggregate quarries.
The exchange was recorded as a purchase of assets and accordingly, the
results from the gold assets have been reflected in operations prospectively
from the date of closing. The fair value of the gold assets for financial
reporting purposes was approximately $425 million. SFP recognized an after tax,
non-cash gain of $108.3 million on the exchange which represents the excess of
the fair value of the gold assets received over the sum of the carrying value
of the coal and aggregate assets and expenses of the exchange.
24--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following represents SFP's unaudited pro forma results of operations for
the years ended December 31, 1993 and 1992, respectively, assuming the exchange
had occurred at the beginning of each fiscal year, but excluding the gain on
the transaction, described above. The pro forma results include higher
amortization resulting from the write-up of the gold assets received in the
exchange. The pro forma results do not reflect any operating efficiencies and
cost savings which SFP believes are achievable with respect to the gold assets
received in the exchange.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992
----------- -----------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.............................................. $ 2,744.3 $ 2,582.8
----------- -----------
Income before extraordinary charge and cumulative
effect of a change in accounting..................... 220.6 62.9
Extraordinary charge.................................. -- (5.0)
Cumulative effect of a change in accounting........... -- (163.0)
----------- -----------
Net Income (Loss)..................................... $ 220.6 $ (105.1)
----------- -----------
Income per share of common stock
Before extraordinary charge and a change in
accounting......................................... $ 1.18 $ 0.34
Extraordinary charge................................ -- (0.03)
Cumulative effect of a change in accounting......... -- (0.88)
----------- -----------
Net Income (Loss) per share........................... $ 1.18 $ (0.57)
=========== ===========
</TABLE>
NOTE 4: RAIL OPERATING EXPENSES
The operating expenses of Santa Fe Railway, excluding the 1992 Rail Special
Charge discussed in Note 5, consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
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
-------- -------- --------
Total........................................... $2,091.5 $1,954.1 $1,898.1
======== ======== ========
</TABLE>
NOTE 5: RAIL SPECIAL CHARGE
During 1992, Santa Fe Railway recorded a $320.4 million pre-tax special
charge which included provisions for restructuring and environmental.
Rail Restructuring
During the third quarter of 1992, Santa Fe Railway recorded a $253 million
pre-tax charge primarily for costs of a crew consist agreement on the eastern
half of the railroad and for centralization of certain transportation
functions.
25
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The eastern line crew consist agreement comprised $149 million of the charge.
The 1992 agreement is an update to a 1990 crew consist agreement. The 1992
agreement provides for further reductions in average crew size on through
freight trains and elimination of productivity payments which were required
when reduced crews were used. The 1992 eastern lines agreement, when combined
with a similar agreement reached earlier with trainmen on the other half of the
system, provides for through trains generally to operate with two person crews.
The agreement covers approximately 2,000 employees. Costs of the agreement
which are provided for in the charge relate to a signing bonus of $10,000 per
employee, the present value of a $65,000 deferred benefit per employee payable
upon separation or retirement and the present value of reserve board costs.
Reserve board costs represent wages paid to employees rendered excess due to
reduced crews. When on reserve board status, employees are removed from active
service and receive a percentage of their normal wages. Eastern line reserve
boards initially contained approximately 500 members and will decline over time
through attrition and other factors.
The charge also included $73 million related to centralization. In 1992,
Santa Fe Railway decided to centralize many operating support functions.
Centralization activities began in late 1992 and by the fall of 1993, Railway
had centralized train dispatching, crew planning and fleet management in
Schaumburg, Illinois; crew management, customer service and mechanical
(equipment) administration in Topeka, Kansas; and other administrative and
operating support functions in Kansas City, Kansas. Cost of centralization
included in the $73 million charge relates to approximately 700 relocations,
reductions of 600 administrative and clerical positions, and abandonment of
facilities. Most of the costs of centralization had been paid by December 31,
1993.
Additionally, the charge includes approximately $31 million for other cost
saving initiatives including an adjustment of accruals established for other
operating craft labor agreements reached in prior periods.
At December 31, 1993, the balance of the restructuring liability was $315.6
million. The majority of the balance represents future deferred benefit and
reserve board payments related to the 1992 eastern lines agreement and similar
agreements reached in and accrued for in prior years. Restructuring costs paid
were $80.9 million in 1993, $118.9 million in 1992 and $104.5 million in 1991.
In 1994, the Company expects payments of approximately $60 million. Future
payments will decline over time; however, certain separation benefits will not
be paid until employee retirement. Santa Fe Railway has obtained letters of
credit of approximately $18 million supporting certain of its obligations under
labor agreement.
Environmental
Approximately $67 million of the special charge was to increase accruals for
environmental clean-up and remediation, primarily on abandoned properties (see
Note 15: 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 6: 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.
25--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The following table sets forth selected financial data for the Pipeline
Partnership: Partnership:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------ ------ ------
(IN MILLIONS, EXCEPT PER
UNIT DATA)
<S> <C> <C> <C>
Income Statement Data
Total revenues................................... $219.5 $205.0 $193.4
Operating income................................. 78.3(1) 91.4(1) 95.8
Interest expense................................. 37.1 36.9 36.9
Income before cumulative effect of accounting
change.......................................... 41.6 54.1 60.6
Cumulative effect of accounting change........... -- (16.4)(2) --
Net income....................................... 41.6 37.7 60.6
Per Unit Data
Income before accounting change.................. $ 2.13 $ 2.77 $ 3.10
Cumulative effect of accounting change........... -- (.84)(2) --
Net income....................................... 2.13 1.93 3.10
Cash distributions per unit...................... 2.80 2.80 2.75
------ ------ ------
<CAPTION>
DECEMBER 31,
----------------
1993 1992
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
- --------
(1) 1993 includes a $15 million special environmental charge and a $12 million
special litigation charge. 1992 includes a $10 million special
environmental charge.
(2) Reflects a change in accounting for postretirement and postemployment
benefits.
25--2
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: OTHER INCOME--NET
Other income--net consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Real estate activities.................................. $ 19.4 $ 23.9 $45.6
Interest income......................................... 12.8 19.9 32.0
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) (9.9) (11.3)
------ ------ -----
Total............................................... $ 6.9 $ 2.2 $31.8
====== ====== =====
NOTE 8: INCOME TAXES
The provision for income taxes consisted of the following:
<CAPTION>
1993 1992 1991
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Federal............................................... $ 66.8 $(24.6) $26.7
State................................................. 5.8 (0.6) 3.4
------ ------ -----
Total Current....................................... 72.6 (25.2) 30.1
------ ------ -----
Deferred:
Federal............................................... 213.3 54.3 18.1
State................................................. 25.5 11.9 2.8
------ ------ -----
Total Deferred...................................... 238.8 66.2 20.9
------ ------ -----
Total............................................... $311.4 $ 41.0 $51.0
====== ====== =====
Income taxes as reflected in the consolidated statement of operations differ
from the amounts computed by applying the statutory federal corporate tax rate
to income as follows:
<CAPTION>
1993 1992 1991
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Federal income tax at statutory rate (35% in 1993, 34%
in 1992-1991).......................................... $227.5 $ 35.5 $50.1
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit............ 20.3 7.5 4.1
1% increase in federal tax rate....................... 25.5 -- --
Exchange of mineral assets............................ 23.5 -- --
Depletion............................................. (8.7) (3.5) (3.0)
Other................................................. 23.3 1.5 (0.2)
------ ------ -----
Total............................................... $311.4 $ 41.0 $51.0
====== ====== =====
</TABLE>
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.
26
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $25.5 million, representing the impact of the 1% rate
increase on SFP's net beginning of year deferred income tax liability. The
impact of the tax increase as of August 10, 1993, the date of enactment, was
approximately $32 million. The difference between the $25.5 million impact as
of the beginning of the year and the $32 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:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(IN MILLIONS)
<S> <C> <C>
Deferred tax debits:
Accrued liabilities not deductible until paid:
Restructuring......................................... $ 119.5 $ 144.6
Postretirement benefits............................... 113.3 108.2
Casualty and environmental............................ 114.8 112.8
Other................................................. 128.4 134.7
Non-expiring AMT credit carryforwards................... 106.9 88.0
Other................................................... 26.1 39.4
--------- ---------
Subtotal.............................................. $ 609.0 $ 627.7
--------- ---------
Deferred tax credits:
Depreciation............................................ $(1,303.1) $(1,231.8)
Condemnation sales...................................... (211.8) (123.1)
Other................................................... (250.6) (166.8)
--------- ---------
Subtotal.............................................. $(1,765.5) $(1,521.7)
--------- ---------
Net deferred tax liability.......................... $(1,156.5) $ (894.0)
========= =========
</TABLE>
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 9: 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 has
26--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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--Net, were $8.3 million, $9.4 million and $14.5 million in 1993, 1992
and 1991, respectively.
26--2
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1993 and 1992
consisted of the following:
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Accounts and wages payable....................................... $169.2 $172.0
Accrued claims................................................... 90.3 88.3
Rail restructuring............................................... 57.8 122.6
Vacations........................................................ 52.1 50.5
Taxes other than income taxes.................................... 36.9 39.5
Interest......................................................... 29.6 30.7
Other............................................................ 279.8 219.7
------ ------
Total........................................................ $715.7 $723.3
====== ======
</TABLE>
NOTE 11: LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN MILLIONS)
<S> <C> <C>
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
Gold Master Credit Facility, 4.2% (variable) maturing from
1996 to 1998.............................................. 140.0 --
Term Loan, 4.0% (variable), maturing from 1994 to 1995..... 108.7 181.2
Mortgage Bonds, 4%, maturing 1995.......................... 95.8 95.8
Lone Tree Gold Facility 4.5% (variable) maturing from 1994
to 2000................................................... 60.0 17.7
Bank Term Loan, 4.1% (variable), maturing from 1994 to
1997...................................................... 50.0 130.8
Minerals Credit Agreement (variable)....................... -- 126.0
Other Obligations, 9.4% to 10.3%, maturing from 1994-2014.. 40.2 44.9
Debt discount.............................................. (16.8) (17.0)
-------- --------
Total long-term debt....................................... 1,375.8 1,451.5
-------- --------
Due within one year........................................ (190.7) (205.8)
-------- --------
Due after one year......................................... $1,185.1 $1,245.7
======== ========
</TABLE>
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 October 1993, SFP Gold entered into a $190 million unsecured revolving
credit facility involving several banks (Gold Master Credit Facility). SFP Gold
is required to pay a commitment fee of 0.05% on outstanding commitments and a
facility fee of 0.26% on outstanding borrowings. As of December 31, 1993,
$140.0 million was outstanding under the Gold Master Credit Facility. The use
of proceeds from the Gold Master Credit Facility is restricted to financing
transaction costs associated with the exchange of mineral assets (see Note 3:
Gain on Exchange of Mineral Assets), and financing working capital
requirements.
27
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All the assets of the Lone Tree Gold Mine are pledged as collateral for the
cash and gold borrowings under Lone Tree Mining, Inc.'s Gold Loan Agreement
(Lone Tree Gold Facility) (see Note 13: Deferred Gold Loans). Additionally,
cash and gold borrowings under the Lone Tree Gold Facility are guaranteed by
SFP.
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. Additionally,
in March 1993, SFP accelerated the repayment of $126.0 million associated with
the Minerals Credit Agreement. Both of the above repayments were made using a
portion of the 1992 and 1993 proceeds from Santa Fe Railway's sale of
California lines (see Note 2: 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 $188.9
million, $218.5 million, $56.1 million, $102.5 million and $202.7 million,
respectively. Total interest paid was $120.7 million in 1993, $158.5 million in
1992 and $177.6 million in 1991.
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; however, the Company believes that it could change the designation of
SFP Gold under the restrictive debt agreement or distribute SFP Gold to SFP
shareholders to eliminate the dividend restriction. 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.
27--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
$1,375.8 million and $1,451.5 million compared with estimated fair values of
approximately $1,595 million and $1,620 million, respectively.
NOTE 13: GOLD LOANS
SFP Gold has borrowed gold to finance the development of its Twin Creeks and
Lone Tree Mines. Proceeds from the sale of the borrowed gold are recorded as
gold loans at the average price realized. As SFP Gold delivers gold from
production, in repayment of the gold loan, revenue will be recorded at this
average loan price, reducing the gold loan balance accordingly.
Gold loan borrowings outstanding under loan and security agreements for the
Twin Creeks and Lone Tree Mines total $98.0 million and $51.2 million,
respectively, as of December 31, 1993, and $111.0 million and $51.2 million,
respectively, as of December 31, 1992. Under the agreements, all assets of the
mines are pledged as collateral. Interest on the borrowings are based on the
banks' cost of gold funding plus a credit spread of 1%. As of December 31,
1993, repayments under the agreements, in ounces of gold, during the next five
years 1994 through 1998 are 36,844; 67,552; 55,252; 55,252 and 64,484,
respectively.
NOTE 14: LEASES AND OTHER COMMITMENTS
SFP leases certain locomotives, freight cars, trailers, data processing
equipment and other property. Future minimum lease payments for operating
leases (which reflect operating leases having non-cancelable lease terms in
excess of one year) as of December 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
1994.............................................................. $ 61.7
1995.............................................................. 56.2
1996.............................................................. 47.0
1997.............................................................. 36.7
1998.............................................................. 30.5
Later years....................................................... 174.7
------
Total minimum payments........................................ $406.8
======
</TABLE>
Rental expense for all operating leases was $97.7 million in 1993, $76.2
million in 1992 and $70.7 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 million 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.
28
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. SFP Gold is committed to acquire mining equipment valued
at approximately $7.0 million in 1994.
SFP Gold's revenues and earnings are strongly influenced by world gold
prices, which fluctuate widely and over which SFP Gold has no control. In an
effort to minimize its exposure to fluctuations in the price of gold, SFP Gold
engages in gold price hedging activities, when deemed appropriate, which
consists primarily of the use of forward sales and option contracts. In recent
years, SFP Gold's average price realized has exceeded the average spot gold
price. While there is no assurance that the hedging program will continue to
result in average sales prices in excess of average spot gold prices, SFP Gold
intends to continue to hedge, as appropriate, based on gold market conditions
and assessments of gold price risk. To the extent the Company hedges portions
of its gold production, it may not fully participate in increases in spot gold
prices on the portion of its production that has been hedged. At December 31,
1993, forward sales contracts have an aggregate sales value of approximately
$224 million which commit SFP Gold to the future delivery of 570,500 ounces of
gold at an average price of $393 per ounce. Scheduled delivery dates under the
forward sales contracts range from the beginning to the end of 1994. In
addition, SFP Gold has committed 114,000 ounces in 1994 under call options at
prices ranging between $375 and $385 per ounce and has purchased put options on
114,000 ounces at strike prices ranging between $318 and $331 per ounce. These
put and call options expire at a rate of 9,500 ounces per month during 1994.
The Company enters into various commodity swap and collar transactions to
manage exposure against fluctuations in diesel fuel prices. The Company's fuel
hedging transactions are based upon commodities that are established in the
futures markets. The prices of these commodities have historically shown a high
degree of correlation with the Company's diesel fuel prices. Cash settlements
on contracts to hedge fuel prices are made at the end of a quarter and the
related gain or loss is included in fuel expense for that quarter. To the
extent the Company hedges portions of its fuel purchases, it may not fully
participate in decreases in fuel prices. At December 31, 1993, the Company had
entered into various agreements with several counterparties covering
approximately 260 million gallons which is anticipated to cover approximately
two-thirds of 1994 fuel purchases. Through swap arrangements the Company has
hedged approximately 205 million gallons at an average price of 48 cents.
Additionally, approximately 55 million gallons have been hedged through collar
arrangements which allow the price to float between average floor and ceiling
prices of 46 cents and 51 cents, respectively. These prices do not include
taxes, fuel handling costs and any differences which may occur from time to time
between the prices of commodities hedged and the purchase price of the Company's
diesel fuel. The effects of the Company's fuel hedges was to increase operating
expense by $12.4 million in 1993 and to reduce operating expense by $0.9 million
and $5.6 million in 1992 and 1991, respectively.
From time to time, the Company enters into various interest rate hedging
transactions for various purposes, including managing exposure to fluctuations
in interest rates or establishing rates in anticipation of future debt
issuance. At December 31, 1993, the Company had entered into four related
interest rate swap transactions for a total notional principal amount of $100
million, for the purpose of establishing rates in anticipation of an expected
future debt offering. These swap transactions call for the payment of a fixed
interest rate of 6.2%, which was based upon ten year treasury notes, and the
receipt of a variable interest rate which was 3.5% at December 31, 1993. At
28--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the time of the borrowing, which is also expected to have a term of ten years,
the swap will be closed out and any gain or loss relating to the terminated
interest rate swap will be amortized as an adjustment to interest expense over
the term of the borrowing.
The Company monitors its positions and the credit ratings of its
counterparties and does not currently anticipate losses due to counterparty
non-performance. The fair market value of the Company's fuel hedging
transactions at December 31, 1993 were unrealized losses of $9.2 million for
swap arrangements and $2.4 million for collar arrangements. The fair market
value of the Company's interest hedging transactions at December 31, 1993 was
not significant.
NOTE 15: 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
28--2
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
At December 31, 1993, SFP had been named a potentially responsible party
(PRP) at 6 sites on the Environmental Protection Agency's (EPA) National
Priorities List (NPL). Additionally, SFP is potentially liable for the cost of
clean-up at other sites identified by the EPA and other agencies. Finally, SFP
has identified sites where costs exist for environmental clean-up and
monitoring (including where no claim has been asserted), and no agency is
currently involved. There are approximately 125 known environmental sites at
December 31, 1993 which include, among other things; closed facilities
including diesel locomotive repair shops, tie treating plants, fueling
facilities and underground storage tanks; property leased or sold to others and
current operating sites.
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, evolving environmental laws and regulations,
and potential recoveries from third parties. Environmental costs include
initial site surveys and environmental studies of potentially contaminated
sites, costs for remediation and restoration of sites determined to be
contaminated, as well as post-closure and ongoing monitoring costs. The Company
has not included any reduction in costs for anticipated recovery from
insurance. Estimated costs at sites where SFP is a PRP are generally based on
cost sharing agreements which vary from site to site, after consideration of
the financial condition of other PRP's. These costs are typically allocated
based on volume of material contributed, the portion of the total site owned or
operated by each PRP, and/or the amount of time the site was owned or operated.
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 5: Rail Special Charge). In addition, the Company monitors, on a regular
basis, accruals for environmental sites which have been identified, based on
additional information developed in subsequent periods. The additional
information is based on a combination of factors including independent
consulting reports, site visits, legal reviews and historical trend analysis.
Payments recorded against environmental liabilities totaled $13.5 million,
$6.3 million and $7.1 million for the years ended December 31, 1993, 1992 and
1991, respectively. The majority of these payments related to mandatory clean-
up efforts. Capital expenditures related to environmental sites were
insignificant during this three year period. At December 31, 1993 and December
31, 1992 the Company had accrued liabilities for environmental costs of
approximately $125 million and $121 million, respectively. The Company
anticipates that approximately 75% of the accrued costs at December 31, 1993
will be paid over the next five years, with approximately $25 million of
payments occurring in 1994. It is the opinion of SFP management that none of
the above items, when finally resolved, will have a material adverse effect on
the annual results of operations, financial position or liquidity of SFP,
although an adverse resolution of a number of these items in a single year
could have a material adverse effect on the results of operations for that
year.
29
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Claims and Litigation
SFP is also a party to a number of other legal actions and claims, including
employee injury claims, various governmental proceedings and private civil
suits, arising in the ordinary course of business. While the final outcome of
these other legal actions cannot be predicted with certainty, considering among
other things, the meritorious legal defenses available, it is the opinion of
SFP management that none of these claims, when finally resolved, will have a
material adverse effect on the annual results of operations, financial position
or liquidity of SFP, although an adverse resolution of a number of these items
in a single year could have a material adverse effect on the results of
operations for that year.
NOTE 16: 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.
Components of pension income and expense relating to the Retirement and
Supplemental Plans for 1993, 1992 and 1991 were as follows:
RETIREMENT PLAN
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Components of pension (income) expense
Service cost......................................... $ 6.6 $ 7.7 $ 8.7
Interest cost........................................ 42.4 39.6 40.4
Actual return on plan assets......................... (111.7) (59.1) (99.9)
Net amortization and deferral........................ 47.2 (5.4) 37.0
------- ------ ------
Total.............................................. $ (15.5) $(17.2) $(13.8)
======= ====== ======
</TABLE>
SUPPLEMENTAL PLAN
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Components of pension expense
Service cost........................................... $ 0.1 $ 0.1 $ 0.1
Interest cost.......................................... 0.7 0.7 0.7
Net amortization and deferral.......................... 0.5 0.6 0.6
------- ------ ------
Total................................................ $ 1.3 $ 1.4 $ 1.4
======= ====== ======
</TABLE>
29--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Plan assets at fair value, primarily invested in common stock,
and U.S. and corporate bonds.................................. $667.0 $597.5
Actuarial present value of projected benefit obligation
Accumulated benefit obligation
Vested..................................................... (540.7) (425.7)
Nonvested.................................................. (30.8) (29.3)
Provision for future salary increases........................ (43.5) (47.4)
------ ------
Excess of plan assets over projected benefit obligation........ 52.0 95.1
Unrecognized net (gain) loss................................... 31.3 (30.1)
Unrecognized prior service cost................................ 13.4 17.8
Unrecognized net transition asset being recognized ratably
through 2002.................................................. (16.1) (18.1)
------ ------
Prepaid pension asset.......................................... $ 80.6 $ 64.7
====== ======
</TABLE>
SUPPLEMENTAL PLAN
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Actuarial present value of projected benefit obligation
Accumulated vested benefit obligation........................ $(8.6) $(7.4)
Provision for future salary increases........................ (0.6) (1.2)
------ ------
Projected benefit obligation................................... (9.2) (8.6)
Unrecognized net gain.......................................... (0.8) (1.2)
Unrecognized net transition obligation being recognized ratably
through 2003.................................................. 5.7 6.3
Adjustment required to recognize minimum liability............. (4.3) (3.9)
------ ------
Accrued pension liability...................................... $(8.6) $(7.4)
------ ------
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%
====== ======
</TABLE>
29--2
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17: 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 18:
Change in Method of Accounting for Postretirement and Postemployment Benefits).
Components of net periodic postretirement benefit cost relating to the medical
plan and the life insurance plan were as follows:
MEDICAL PLAN
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Components of net periodic postretirement benefit cost
Service cost.................................................. $ 3.8 $ 5.4
Interest cost................................................. 15.3 18.4
Net amortization and deferral................................. (3.5) --
------ ------
Total....................................................... $ 15.6 $ 23.8
====== ======
</TABLE>
LIFE INSURANCE PLAN
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Components of net periodic postretirement benefit cost
Service cost................................................... $ 0.3 $ 0.2
Interest cost.................................................. 3.9 3.8
------ ------
Total........................................................ $ 4.2 $ 4.0
====== ======
</TABLE>
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
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees....................................................... $139.0 $114.4
Fully eligible active plan participants........................ 16.2 9.5
Other active plan participants................................. 80.2 57.1
------ ------
Accumulated postretirement benefit obligation.................... 235.4 181.0
------ ------
Unrecognized prior service credit................................ 42.1 45.6
Unrecognized net gain (loss)..................................... (39.7) 3.1
------ ------
Accrued postretirement liability................................. $237.8 $229.7
====== ======
</TABLE>
30
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LIFE INSURANCE PLAN
<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees...................................................... $ 45.9 $ 43.6
Fully eligible active plan participants....................... 0.2 --
Other active plan participants................................ 5.1 4.3
------ ------
Accumulated postretirement benefit obligation................... 51.2 47.9
------ ------
Unrecognized net gain (loss).................................... (5.4) (1.3)
------ ------
Accrued postretirement liability................................ $ 45.8 $ 46.6
====== ======
</TABLE>
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 18: 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
30--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, expenses in 1992 were $14 million
higher than in 1991 as a result of the change in accounting for these costs.
NOTE 19: 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.
31
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Approximately 4.9 million and 6.2 million of outstanding options at December
31, 1993 and 1992, respectively, were exercisable within the next year. Option
activity in all plans during 1993, 1992 and 1991 is summarized below:
<TABLE>
<CAPTION>
AVERAGE
SFP SHARES PRICE
---------- -------
<S> <C> <C>
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
========== ======
</TABLE>
NOTE 20: 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.
31--1
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21: INFORMATION ON BUSINESS SEGMENTS
Identifiable assets at December 31, 1993, 1992, and 1991, and capital
expenditures and depreciation and amortization expenses for the three years
then ended, are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Identifiable assets
Rail............................................... $4,906.9 $4,603.8 $4,558.7
Gold............................................... 832.6 485.4 446.7
Pipeline........................................... 65.1 72.2 80.7
Corporate.......................................... 132.4 184.0 134.5
-------- -------- --------
Total.......................................... $5,937.0 $5,345.4 $5,220.6
======== ======== ========
Properties, plant and equipment
Rail
Track structure.................................. $2,326.8 $2,199.8 $2,202.9
Equipment........................................ 1,952.6 1,864.0 1,910.2
Other road properties............................ 1,478.9 1,337.5 1,264.6
Real estate and other............................ 127.8 122.7 116.6
-------- -------- --------
Total Rail..................................... $5,886.1 $5,524.0 $5,494.3
Gold............................................... 778.3 445.5 381.2
Corporate.......................................... -- -- 1.2
-------- -------- --------
Total.......................................... $6,664.4 $5,969.5 $5,876.7
======== ======== ========
Accumulated depreciation, depletion and
amortization
Rail
Track structure.................................. $ 558.0 $ 420.0 $ 465.5
Equipment........................................ 872.6 828.9 790.6
Other road properties............................ 140.1 279.6 278.3
Real estate and other............................ 7.0 6.8 7.0
-------- -------- --------
Total Rail..................................... $1,577.7 $1,535.3 $1,541.4
Gold............................................... 90.5 94.9 66.3
-------- -------- --------
Total.......................................... $1,668.2 $1,630.2 $1,607.7
======== ======== ========
Depreciation, depletion and amortization expense
Rail
Track structure.................................. $ 62.1 $ 60.8 $ 54.9
Equipment........................................ 92.1 89.4 93.1
Other road properties............................ 34.3 31.1 36.1
Real estate and other............................ -- -- 0.2
-------- -------- --------
Total Rail..................................... $ 188.5 $ 181.3 $ 184.3
Gold............................................... 59.4 34.8 23.7
Corporate.......................................... -- -- 0.4
-------- -------- --------
Total.......................................... $ 247.9 $ 216.1 $ 208.4
======== ======== ========
Capital expenditures
Rail............................................... $ 539.1 $ 265.5 $ 241.9
Gold............................................... 107.1 66.5 87.5
Corporate.......................................... -- -- 1.3
-------- -------- --------
Total.......................................... $ 646.2 $ 332.0 $ 330.7
======== ======== ========
</TABLE>
31--2
<PAGE>
SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 22: SUMMARIZED QUARTERLY OPERATING RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1993 1992
---------------------------- -------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------ ------- ------ ------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $653.3 $675.0 $665.5 $732.6 $ 616.7 $605.4 $ 642.1 $632.2
Operating Income (Loss).. $105.5 $108.6 $ 65.2 $143.5 $ 96.3 $ 87.8 $(215.1) $108.6
Income (Loss)
Before Extraordinary
Charge and Accounting
Change................ $127.1 $147.5 $ (2.8) $ 67.0 $ 28.2 $ 26.5 $(165.1) $173.9
Extraordinary Charge on
Early Retirement of
Debt, Net of Income
Taxes................. -- -- -- -- -- -- -- (5.0)
Cumulative Effect of a
Change in Accounting
for Postretirement and
Postemployment Bene-
fits, 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 Before Extraordi-
nary Charge and Account-
ing Change.............. $ 0.68 $ 0.79 $(0.01) $ 0.36 $ 0.15 $ 0.14 $ (0.89) $ 0.94
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
====== ====== ====== ====== ======= ====== ======= ======
</TABLE>
- --------
(1) The sum of net income (loss) per share for the four quarters of 1993 does
not equal net income (loss) per share for the full year due to incremental
shares resulting from stock options.
(2) 1993 income (loss) includes a first quarter $145.4 million pre-tax gain on
sale of California lines, a second quarter $217.5 million pre-tax gain on
the exchange of mineral assets, and a third quarter increase in income tax
expense of approximately $32 million reflecting the retroactive impact of
the increase in the federal income tax rate to 35%.
(3) 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.
NOTE 23: GOLD RESERVES (UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1993 1992 1991 1990 1989
- ------------------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Proven and probable gold reserves (thousands of
ounces)
Contained.................................... 14,121 6,391 5,781 4,743 3,793
Portion projected recoverable................ 11,240 5,144 4,716 3,921 3,094
------ ----- ----- ----- -----
Average price received (per ounce)............. $387 $394 $410 $420 $445
Ounces produced (in thousands)................. 611 296 179 51 4
------ ----- ----- ----- -----
</TABLE>
32
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-51435),
(ii) the Registration Statements on Form S-8 (Nos. 33-12072; 33-26814; 33-
33413; 33-41409; 33-60628; and 33-63208) 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 appearing on page 19 of Exhibit 13 of this Form
10-K/A.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
October 5, 1994
