<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
[_]
TRANSITION REPORT 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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock Purchase Rights Chicago Stock Exchange
Pacific Stock Exchange
</TABLE>
------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $2,229 million on February 28, 1995. For purposes
of this calculation only, the registrant has excluded stock beneficially owned
by directors, officers, and beneficial owners of more than 10% of the
outstanding common stock. By doing so, the registrant does not admit that such
persons are affiliates within the meaning of Rule 405 under the Securities Act
of 1933 or for any other purpose.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Common Stock, $1.00 par value, 152,633,777 shares outstanding as of February
28, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents from which parts thereof have been incorporated
by reference and the part of the Form 10-K into which such information is
incorporated:
<TABLE>
<S> <C>
Annual
Report to
Shareholders
for the
fiscal year
ended
December
31, 1994... PARTS I, II, AND IV
Proxy
Statement
dated March
8, 1995..... PART III
</TABLE>
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
ITEMS 1 and 2. Business and Properties................................... 1
Rail................................................................ 2
Pipeline Investment................................................. 13
ITEM 3.Legal Proceedings................................................. 14
ITEM 4.Submission of Matters to a Vote of Security Holders............... 19
EXECUTIVE OFFICERS OF THE REGISTRANT..................................... 19
PART II
ITEM 5.Market for Registrant's Common Equity and Related Stockholder
Matters................................................................. 20
ITEM 6.Selected Financial Data........................................... 20
ITEM 7.Management's Discussion and Analysis of Results of Operations and
Financial Condition........................................... 20
ITEM 8.Financial Statements and Supplementary Data....................... 21
ITEM 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 21
PART III
ITEM 10. Directors and Executive Officers of the Registrant.............. 21
ITEM 11. Executive Compensation.......................................... 21
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.. 21
ITEM 13. Certain Relationships and Related Transactions.................. 21
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
K....................................................................... 22
SIGNATURES............................................................... S-1
INDEX OF EXHIBITS........................................................ E-1
</TABLE>
i
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Santa Fe Pacific Corporation ("SFP") was incorporated in the State of
Delaware in 1983. A holding company, SFP owns subsidiaries engaged in two
businesses: Rail, consisting principally of The Atchison, Topeka and Santa Fe
Railway Company ("Santa Fe Railway"), a major Class I railroad directly serving
twelve midwestern, western, and southwestern states; and Pipeline, reflecting
SFP's interest in a refined petroleum products pipeline system operating in six
western and southwestern states. Santa Fe Railway, Santa Fe Pacific Pipeline
Partners, L.P., the general partner of which is an indirect, wholly owned
subsidiary of SFP, and SFP Pipeline Holdings, Inc. are also subject to the
filing requirements of Section 13 of the Securities Exchange Act of 1934, as
amended.
On April 29, 1994, SFP's subsidiary, SFP Properties, Inc. merged with and
into SFP, with SFP being the surviving corporation. Santa Fe Railway, Santa Fe
Pacific Gold Corporation ("SFP Gold"), SFP Pipeline Holdings, Inc. and other
direct subsidiaries of SFP Properties, Inc. thereby became direct subsidiaries
of SFP. Prior to September 30, 1994, SFP was engaged in the exploration for and
development of gold properties and the mining and processing of gold ores
through SFP Gold and its subsidiaries.
On June 23, 1994, SFP Gold effected an initial public offering of 19.2
million shares of common stock or approximately 14.6% of its outstanding shares
at a price of $14.00 per share. On June 29, 1994, the SFP Board of Directors
declared a special dividend to holders of SFP common stock as of September 12,
1994, consisting of a pro-rata distribution of its interests in SFP Gold. The
distribution became effective on September 30, 1994. As a result, SFP Gold
operations have been included in discontinued operations.
On June 29, 1994, SFP and Burlington Northern Inc. ("BNI") entered into a
definitive Agreement and Plan of Merger (as amended by amendments dated as of
October 26, 1994, December 18, 1994, and January 24, 1995, the "Merger
Agreement") pursuant to which SFP is to merge with and into BNI, with BNI being
the surviving corporation (the "Merger"). The Merger Agreement was approved by
the stockholders of both SFP and BNI on February 7, 1995. In accordance with
the Merger Agreement, BNI and SFP conducted a joint tender offer in which SFP
purchased 38 million shares and BNI purchased 25 million shares of SFP common
stock at a price of $20 per share, the payment for which shares was made on
February 21, 1995 (the "Tender Offer"). Between the Tender Offer and
consummation of the Merger, SFP has the right but not the obligation under the
Merger Agreement to repurchase up to an additional 10 million shares of SFP
common stock, subject to certain financial conditions and limitations. At
Merger consummation, each remaining outstanding share of SFP common stock will
be converted into the right to receive at least 0.40 of a share of BNI common
stock (the "Exchange Ratio") in a tax-free exchange. The Exchange Ratio will
depend on the number of shares repurchased by SFP between the Tender Offer and
Merger consummation as well as the number of SFP employee stock options which
are exercised prior to consummation of the Merger. The effect of any such
repurchases is to increase the Exchange Ratio up to a maximum of 0.4347;
however, because SFP employee stock options have been exercised since December
31, 1994, the Exchange Ratio will be less than the maximum.
The consummation of the Merger is subject to various conditions, including
approval by the Interstate Commerce Commission (the "ICC"). BNI and SFP filed
their application for approval of the Merger with the ICC on October 13, 1994.
By law, the ICC is required to enter a final order with respect to the merger
within 31 months after the application for approval is filed. Following the
request of BNI and SFP to the ICC to decide the case on an expedited basis, the
ICC originally served an order establishing a schedule that would result in a
final ICC decision within 535 days
1
<PAGE>
from the filing of the application. Thereafter, in response to requests by
several parties to the merger proceeding, the ICC issued an order holding the
procedural schedule in abeyance until the SFP stockholder vote on the Merger
occurred. The ICC issued, effective March 9, 1995, a revised procedural
schedule to consider the application which calls for a final ICC decision no
later than August 23, 1995.
Under the terms of both the Merger Agreement and SFP's credit agreement, SFP
is permitted to repurchase up to $30 million of SFP common stock prior to April
1, 1995 without regard to performance requirements or other limitations. After
that date, the amount and timing of repurchases will be subject to, among other
things, certain financial and other limitations. The shortened approval
schedule adopted by the ICC effective March 9, 1995 will substantially reduce
SFP's ability to make repurchases of its stock because the longer the period of
time before Merger consummation, the more opportunities SFP would have to
exceed the appropriate quarterly tests under the Merger Agreement and its
credit agreement and thus generate capacity to be able to make repurchases.
Reference is made to Note 2 to the consolidated financial statements on page 24
of SFP's 1994 Annual Report to Shareholders for additional information in
connection with the Merger, Tender Offer, and related financing activities,
which information is hereby incorporated by reference.
In the Merger Agreement, BNI and SFP have agreed that either BNI or SFP may
elect to effect the Merger through the use of a holding company and have
established BNSF Corporation ("Holdings") for this purpose. Holdings is jointly
and equally owned by BNI and SFP. If this structure (the "Alternative Merger")
is elected: (1) Holdings will create two new wholly owned subsidiaries, cause
one of the subsidiaries to merge into BNI and cause the other to merge into
SFP; (2) each outstanding share of BNI common stock (other than BNI common
stock held by BNI as treasury stock or owned by SFP or BNI or any subsidiary of
either of them) will be converted into one newly-issued share of Holdings
common stock (par value $0.01 per share); (3) each outstanding share of SFP
common stock (other than SFP common stock held by SFP as treasury stock or
owned by SFP or BNI or any subsidiary of either of them) will be converted into
a minimum of 0.40 of a share of Holdings common stock based on the Exchange
Ratio; and (4) each outstanding share of BNI or SFP common stock then held as
treasury stock by either of BNI or SFP, as the case may be, or owned by BNI or
SFP (other than shares of SFP common stock owned by BNI, which shall remain
outstanding) will be cancelled. The rights of a stockholder of Holdings will be
substantially identical to the rights of a stockholder of BNI, and the
Alternative Merger would have the same economic effect on the stockholders of
SFP and BNI as the Merger in its current structure.
At December 31, 1994, SFP and its subsidiaries had approximately 15,750
employees.
RAIL
One of the nation's major freight railroads, Santa Fe Railway provides
freight rail transportation services and operates over trackage extending from
Chicago to the Gulf of Mexico and the West Coast.
TRACK CONFIGURATION
Santa Fe Railway operates an efficient, high-speed, core railroad system of
approximately 8,350 route miles of track (excluding, among other things, second
main track), approximately 7,400 miles of which are owned route miles,
including easements.
2
<PAGE>
As of December 31, 1994, Santa Fe Railway's total system--including first,
second, third and fourth main tracks, yard tracks, and sidings--consisted of
approximately 15,075 operated miles of track, all of which were owned by or
held under easement by Santa Fe Railway except for 1,345 miles operated under
trackage rights agreements with other parties. Excluding passing, yard, and
switching tracks, approximately 6,500 miles or 87 percent of the main lines
have been laid with 131-pound per yard or heavier rail. Substantially all rail
laid under Santa Fe Railway's rail renewal programs is continuous welded rail.
At December 31, 1994, Santa Fe Railway had approximately 9,000 owned track
miles of welded rail in its system.
EQUIPMENT CONFIGURATION
Santa Fe Railway owned or had under non-cancelable leases exceeding one year
the following units of rolling stock for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Diesel Locomotives...................................... 1,766 1,745 1,696
====== ====== ======
Freight Cars:
Box.................................................... 3,587 3,746 3,784
Open Hopper............................................ 3,490 3,529 3,665
Covered Hopper......................................... 11,195 12,854 13,147
Gondola................................................ 3,323 3,065 2,911
Refrigerator........................................... 3,187 3,331 3,365
Autorack............................................... 3,567 3,578 2,534
Flat................................................... 1,626 1,790 1,792
Tank................................................... 346 428 464
------ ------ ------
Total................................................. 30,321 32,321 31,662
====== ====== ======
Domestic Containers..................................... 7,363 6,468 2,560
====== ====== ======
Trailers................................................ 198 636 665
====== ====== ======
Domestic Chassis........................................ 5,001 4,644 1,822
====== ====== ======
Company Service Cars.................................... 1,678 1,959 1,991
====== ====== ======
</TABLE>
In addition to the containers, trailers, and chassis shown above, Santa Fe
Railway had under short-term leases 2,632, 2,035, and 2,010 containers, 4,679,
4,431, and 4,431 trailers, and 4,186, 3,536, and 3,536 chassis, at December 31,
1994, 1993, and 1992, respectively. At December 31, 1994, 23 serviceable
locomotives and approximately 1,690 serviceable freight cars reflected in the
above table were in storage. The average ages from date of manufacture or
remanufacture of the locomotive and freight car fleets at December 31, 1994
were 8.2 years and 19.4 years, respectively. These averages are not weighted to
reflect the greater capacities of the newer equipment.
A summary of Santa Fe Railway's recent ratios of locomotives and freight cars
on line awaiting or undergoing repairs to the total number of locomotives or
freight cars in the fleet is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Locomotives................................................ 7.2% 7.6% 7.7%
Freight Cars............................................... 7.8% 7.8% 7.4%
</TABLE>
3
<PAGE>
CAPITAL EXPENDITURES AND MAINTENANCE
Capital expenditures of Santa Fe Railway for the periods indicated were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Ties................................................... $ 71.2 $ 58.4 $ 44.5
Rail................................................... 122.3 78.8 60.2
Ballast................................................ 52.9 48.2 37.6
Facilities............................................. 120.2 107.3 24.9
Other Roadway.......................................... 103.4 88.6 57.8
Locomotives............................................ 150.1 125.0 18.3
Freight Cars........................................... 21.7 19.7 13.0
Other.................................................. 2.5 13.1 9.2
------ ------ ------
Total Capital Expenditures......................... 644.3 539.1 265.5
Less Non-Cash Capital Expenditures(1).............. 182.8 157.6 9.5
------ ------ ------
Net Capital Expenditures.......................... $461.5 $381.5 $256.0
====== ====== ======
</TABLE>
--------
(1) Primarily consists of directly financed equipment acquisitions and
projects reimbursed by governmental agencies and other parties.
Santa Fe Railway's increase in capital expenditures in 1994 over 1993 was due
primarily to increased spending on line capacity improvements, which
principally involved double tracking various segments of the main line track.
Additionally, 1994 capital expenditures reflect the purchase of 100 new
locomotives valued at approximately $120 million, while in 1993, 85 new
locomotives were purchased which were valued at approximately $100 million.
Santa Fe Railway also completed during 1994 the combined intermodal facility
and carload transportation center at Alliance, Texas, and the intermodal
facility at Hodgkins/Willow Springs, Illinois. Santa Fe Railway expects capital
expenditures in 1995 to approximate $450 million, including non-cash capital
expenditures for projects reimbursed by governmental agencies and other
parties, and excluding 51 locomotives valued at $61 million which are currently
expected to be acquired in 1995 under a long-term operating lease. Capital
expenditures will include capital maintenance and expansion projects such as
additional line capacity improvements at various locations, and intermodal
facility improvements at Los Angeles and San Bernardino, California, and at
Corwith Yard in Chicago, Illinois.
In addition to the capital expenditures discussed above, amounts expensed for
the costs, including labor, for repairs and maintenance of roadway and track
structures and equipment, exclusive of depreciation, were as follows for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Repairs and maintenance of roadway and track
structures........................................... $243.9 $234.0 $228.0
Repairs and maintenance of equipment.................. $312.8 $287.0 $260.5
</TABLE>
General Electric Company ("GE") has been maintaining locomotives for Santa Fe
Railway under various maintenance agreements since September 1989 and
maintained a total of 527 locomotives as of December 31, 1994. The Electro-
Motive Division of General Motors Corporation ("EMD") began performing
maintenance under a similar agreement in October 1990 and maintained 178
locomotives as of December 31, 1994. Additionally, Santa Fe Railway entered
into a similar agreement with MK Rail Corporation ("MK") in March 1994. The MK
agreement presently provides for the overhaul and maintenance of 277
locomotives and will continue in effect as to each of the locomotives for a
period of eight years following its overhaul. The agreements with GE, EMD,
4
<PAGE>
and MK call for the work to be done at Santa Fe Railway facilities with Santa
Fe Railway employees. Santa Fe Railway intends to acquire 51 new locomotives in
1995 from EMD which will also be maintained under an agreement with EMD.
The majority of maintenance of way expenditures for track have been for rail
and tie refurbishment and surfacing. The extent of Santa Fe Railway's track
maintenance program is depicted in the following chart:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Track miles of rail laid................................. 335 324 304
Ties inserted (in thousands)............................. 1,406 1,547 1,216
Track miles surfaced..................................... 2,871 2,672 2,400
</TABLE>
Santa Fe Railway anticipates that its 1995 track maintenance of way program,
together with expansion projects, will result in the installation of
approximately 250 track miles of rail, the replacement of about 1.4 million
crossties, and the surfacing of approximately 2,700 miles of track.
OPERATING CONFIGURATION
Santa Fe Railway operates modern facilities and equipment for maintenance of
track, locomotives, and freight cars. It also owns or leases other equipment to
support rail operations, such as highway trailers and vehicles. Support
facilities for rail operations include yards and terminals, a system
maintenance terminal in Topeka, Kansas that performs heavy repairs for both
locomotives and freight cars, locomotive maintenance and inspection terminal
facilities at Kansas City, Kansas, and Barstow, California, 18 fueling
facilities located across the system, a centralized system operations center
for train dispatching and operations monitoring in Schaumburg, Illinois,
computers, telecommunications equipment, signal systems, and a locomotive
management system. Transfer facilities for rail-to-rail as well as intermodal
transfer of containers, trailers, and other freight traffic are maintained.
These include 19 major intermodal hubs located across the system and 13
intermodal hub centers off-line used in connection with haulage agreements with
other railroads, and 14 automotive distribution facilities where automobiles
are loaded or unloaded from multi-level rail cars. Corwith Yard in Chicago,
Illinois, and Hobart Yard near Los Angeles, California, are Santa Fe Railway's
largest intermodal facilities in terms of volume, with approximately 711,000
and 627,000 lifts, respectively, in 1994, and Argentine Yard in Kansas City,
Kansas, and Barstow Yard in Barstow, California, are the two largest freight
car sorting yards.
Santa Fe Railway has consolidated train dispatching, crew planning, and fleet
management at Schaumburg, Illinois, to provide operations planning at one
central point. Crew management, customer service functions, and mechanical
administrative functions are consolidated at Topeka, Kansas, and other
transportation and maintenance of way functions are located in Kansas City,
Kansas.
EMPLOYEES AND LABOR RELATIONS
Productivity as measured by revenue ton miles per employee has risen steadily
in the last three years, and compensation and benefits expense per revenue ton
mile has declined, as shown in the table below.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Revenue ton miles/average number of employees
(thousands)............................................ 6,664 6,294 5,722
Compensation and benefits expense/thousand revenue ton
miles.................................................. $8.35 $8.84 $9.82
</TABLE>
5
<PAGE>
Labor unions represent approximately 85 percent of Santa Fe Railway's
employees. Santa Fe Railway is actively involved in industry-wide labor
contract negotiations which began in late 1994. Wages, health and welfare
benefits, work rules, and other issues are being negotiated for all union-
represented employees. These negotiations have traditionally taken place over a
number of months and have previously not resulted in any extended work
stoppages. Existing labor agreements will remain in effect until new agreements
are reached or until the Railway Labor Act's procedures (which include
mediation, cooling-off periods, and the possibility of Presidential
intervention) have been exhausted. The National Mediation Board will mediate
separate national contract talks between the United Transportation Union
("UTU"), the Transportation Communications International Union ("TCU"), and the
National Carriers' Conference Committee ("NCCC"), which represents eight major
railroads, including Santa Fe Railway. Federal lawsuits are pending between the
railroads represented by the NCCC and the Brotherhood of Maintenance of Way
Employees ("BMWE") and the Brotherhood of Locomotive Engineers ("BLE") in which
the railroads seek to require that labor contract negotiations be conducted on
a national basis; the BMWE and BLE have insisted that negotiations take place
solely on an individual railroad basis.
Railroad industry personnel are covered by the Railroad Retirement System
instead of Social Security. Santa Fe Railway's contributions under the Railroad
Retirement System are approximately triple those in industries covered by
Social Security.
Railroad industry personnel are also covered by the Federal Employers'
Liability Act ("FELA") rather than by state workers' compensation systems. FELA
is a fault-based system, with compensation for injuries settled by negotiation
and litigation, not subject to specific statutory limitations on the amount of
recovery. By contrast, most other industries are covered under state
administered no-fault plans with standard compensation schedules. Santa Fe
Railway believes it has adequate reserves for its FELA claims. However, the
future costs of FELA claims are uncertain and such costs could be significantly
higher in the future.
BUSINESS MIX
In serving the midwestern, western, and southwestern regions of the country,
Santa Fe Railway transports a broad range of commodities derived from
manufacturing, agricultural, and natural resource industries. Accordingly,
Santa Fe Railway's financial performance is influenced by general and industry
economic conditions at the international, national, and regional levels. Santa
Fe Railway's traffic volumes are subject to some seasonal variations and in
recent years have tended to peak in March, August, and October.
Major markets served directly by Santa Fe Railway include Albuquerque,
Chicago, Dallas, Denver, Houston, Kansas City, Los Angeles, Oklahoma City,
Phoenix, the San Francisco Bay area, and the United States/Mexico crossings of
El Paso and San Diego. Other major cities are served through Santa Fe Railway's
Intermodal Market Extension ("IMX") terminals located at various off-line
points. Santa Fe Railway serves the major ports of Galveston, Houston, Long
Beach, Los Angeles, Richmond (Oakland), and San Diego.
In addition to market segments where Santa Fe Railway provides direct single
line service, extension of Santa Fe Railway's marketing influence beyond the
end of the system is undertaken by interline rail carrier pricing and service
relationships and through voluntary coordination agreements, haulage
agreements, and cooperative service agreements. Santa Fe Railway currently has
such agreements with Burlington Northern, Union Pacific, Conrail, Grand Trunk,
Kansas City Southern, Toledo, Peoria & Western, and Gateway Western for traffic
where there is a common business interest. Santa Fe Railway has thereby
extended its service into the Northeast, Southeast, and Pacific Northwest, and
has access to the St. Louis gateway. Santa Fe Railway's intermodal
6
<PAGE>
Quality Stack Service reaches the northeastern markets of Boston and
Springfield, Massachusetts; Harrisburg and Morrisville, Pennsylvania; Kearny,
New Jersey; and Syracuse, New York. In January 1995, Santa Fe Railway began
serving the Columbus, Ohio, market for domestic intermodal customers through a
cooperative agreement with Conrail under which Santa Fe provides marketing,
equipment, and billing, and Conrail provides train crews for line haul service.
Santa Fe Railway's marketing organization is centered around four market-
oriented business units: Intermodal, Carload Commodities, Bulk Products, and
Automotive. Besides marketing functions, these four units are responsible for
service design and for equipment distribution and utilization, and they operate
those facilities related to their product line.
Intermodal. Santa Fe Railway was one of the first railroads to enter the
intermodal freight business, which consists of hauling freight containers or
truck trailers by combinations of water, rail, or motor carriers. The
intermodal business is highly service-driven, and in many cases motor carriers
and railroads jointly market intermodal service. The first such joint
intermodal arrangement was Quantum, through which Santa Fe Railway and J. B.
Hunt Transport provide customers full service, customized door-to-door
transportation (truck and rail), with a common communication system and
integrated billing at a single rate.
In 1994, major national Less-Than-Truckload ("LTL") carriers and the
Teamsters union signed a new National Master Freight Agreement that allows the
LTL carriers to shift up to 28 percent of their total line-haul miles to
intermodal service. Santa Fe Railway is a major beneficiary of this service-
sensitive traffic, and it provides transportation services to major LTL
carriers Yellow Freight, Roadway Express, and Consolidated Freightways. Santa
Fe Railway's 1994 LTL volumes increased 102 percent over 1993 levels.
In 1994, intermodal business accounted for over 45 percent of rail revenue.
Traffic volume of intermodal units (trailer or container) increased in 1994 to
over 1.44 million units, up 18 percent from 1993 which was negatively affected
by midwestern flooding.
Santa Fe Railway focused on three types of intermodal business in 1994:
. DIRECT MARKETING. Santa Fe Railway's direct marketing efforts resulted in
approximately 46 percent of total intermodal revenue. These center around
Quantum, traffic contracted from United Parcel Service and the United States
Postal Service, just-in-time parts service for the automotive industry, and
service for nationwide LTL carriers and truckload carriers.
. INTERMODAL MARKETING COMPANIES. Approximately 36 percent of total
intermodal revenue was generated through intermodal marketing companies,
primarily shipper agents and consolidators.
. INTERNATIONAL. International business consists primarily of traffic from
steamship companies and accounted for approximately 18 percent of intermodal
revenues.
Carload Commodities. In addition to its commodity areas, the Carload
Commodities unit is responsible for Santa Fe Railway's Quality Distribution
Centers ("QDC") program. QDC is a joint venture with independent warehouses,
steel centers, and bulk operators through which customers are provided
distribution and consolidation services for a variety of manufactured, semi-
manufactured, and bulk commodities. Door-to-door delivery on an as-needed or
just-in-time basis is provided using a combination of rail cars and highway
trailers. QDC operations handled approximately 32,000 carloads in 1994. Carload
Commodities is also responsible for the following commodities:
7
<PAGE>
. PETROLEUM. Santa Fe Railway transports various petroleum products,
including liquefied petroleum gas ("LPG") between the Midwest and the West
Coast and to Mexico, asphalt from Texas and New Mexico into Arizona, and coke
in the Midwest and from California to the Pacific Northwest.
. CHEMICALS AND PLASTICS. Santa Fe Railway transports chemicals and plastics
resins for industrial and agricultural use. Industrial chemicals and plastics
resins are used by the automotive, housing, and packaging industries, as well
as for feedstocks for other chemical and plastic products. Agricultural
chemicals are transported over Santa Fe Railway's system primarily within the
Midwest and to the West Coast. Santa Fe Railway also offers a truck-competitive
retail transportation product in tank containers for customers shipping
specialty chemicals and other liquids.
. CONSUMER/FOOD PRODUCTS. Beverages, canned goods, and perishables are the
principal food commodities moved over Santa Fe Railway's system, the greatest
volume of which is eastbound traffic originating in California and destined for
eastern and southeastern markets. Other consumer products handled include
cotton, salt, rubber and tires, machinery, aircraft parts, military and other
miscellaneous boxcar shipments.
. BUILDING MATERIALS AND PAPER PRODUCTS. Santa Fe Railway hauls lumber, paper
and paper products, and building materials. Lumber and lumber products move
between East Texas and Chicago and points east, and from the Southeast and the
Northwest coast into California and Arizona.
. METALS. Santa Fe Railway hauls both ferrous and non-ferrous products
including recyclable metals. Santa Fe Railway links the integrated steel mills
in the East with fabricators in the West and Southwest. Service is also
provided to various mini-mills in the Southwest that feed rebar, beams, and
coiled rod to the construction industry. Various non-ferrous products such as
copper, lead, and aluminum are transported for the beverage, automotive, and
telecommunications industries.
Bulk Products. The Bulk Products unit's business includes transportation of
the following commodities:
. COAL. Coal shipments transported on Santa Fe Railway's lines originate
principally in Wyoming, Colorado, and New Mexico on the lines of Santa Fe
Railway and other rail carriers. These shipments are moved to electrical
generating stations and industrial plants in the Midwest and Southwest.
. MINERALS, ORES AND OTHER. Santa Fe Railway provides transportation services
for both the agricultural minerals and industrial ores commodity segments.
Agricultural minerals include sulphur which generally moves via Santa Fe
Railway to the Gulf Coast and thence via vessels to Florida and overseas
markets for use in making phosphatic fertilizers. Potash is transported to
domestic markets and to export points for markets in Canada, Mexico, and
overseas. Industrial ores include various mined and processed commodities such
as cement and aggregates (sand and stone) that generally move from Texas,
Kansas, and California origins to domestic markets for use in general
construction and public work projects, such as highway projects. Borates and
sodium compounds move via Santa Fe Railway to domestic points as well as to
export markets primarily through West Coast ports. Lime, metallic, and non-
metallic ores most often move within domestic markets, with several domestic
producers being served by Santa Fe Railway in the Southwest.
. GRAIN. Santa Fe Railway serves a large portion of the grain-producing
regions of the nation. Santa Fe Railway transports wheat and feed grains to
points in California, Kansas, New Mexico,
8
<PAGE>
Oklahoma, and Texas to be stored, milled, or fed to livestock. Santa Fe Railway
also moves export wheat and feed grains to Texas ports for shipment to foreign
customers.
. GRAIN PRODUCTS. Principal grain products hauled include corn syrup, flour,
soybean meal, vegetable oils, and milled by-products. Flour moves from Kansas
and other producing states to domestic users. Oils and syrups generally move
from the Midwest into California.
Automotive. Santa Fe Railway's Automotive unit handles both assembled motor
vehicles and shipments of vehicle parts to numerous destinations throughout the
Midwest, Southwest, and West.
Freight Statistics. The following tables set forth certain freight
statistics relating to the rail operations of Santa Fe Railway for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Revenue ton-miles (billions).......................... 100.0 90.5 81.4
Revenue per thousand revenue ton-miles................ $26.38 $26.18 $27.16
Average haul per ton (miles).......................... 810 771 740
</TABLE>
REVENUES BY BUSINESS GROUP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Intermodal
Direct Marketing................................ $ 549.9 $ 407.7 $ 350.4
Intermodal Marketing Companies.................. 429.2 373.1 392.5
International................................... 218.8 196.0 169.4
-------- -------- --------
Total Intermodal................................. 1,197.9 976.8 912.3
-------- -------- --------
Carload Commodities
Petroleum....................................... 146.1 138.7 136.2
Chemicals and Plastics.......................... 141.0 133.3 141.0
Consumer/Food Products.......................... 129.1 124.7 127.0
Building Materials and Paper Products........... 120.1 108.1 104.6
Metals.......................................... 83.5 77.6 70.3
-------- -------- --------
Total Carload Commodities........................ 619.8 582.4 579.1
-------- -------- --------
Bulk Products
Coal............................................ 232.0 220.1 194.5
Minerals, Ores and Other........................ 148.2 152.3 162.5
Grain........................................... 130.2 162.9 143.4
Grain Products.................................. 87.4 82.0 80.5
-------- -------- --------
Total Bulk Products.............................. 597.8 617.3 580.9
-------- -------- --------
Automotive
Motor Vehicles.................................. 196.7 164.1 112.4
Vehicle Parts................................... 26.9 27.9 24.9
-------- -------- --------
Total Automotive................................. 223.6 192.0 137.3
-------- -------- --------
Miscellaneous Adjustments........................ -- -- 3.3
-------- -------- --------
Total Freight Revenue............................ $2,639.1 $2,368.5 $2,212.9
======== ======== ========
</TABLE>
9
<PAGE>
CARLOADINGS* BY BUSINESS GROUP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Intermodal:
Direct Marketing................................... 284.0 207.9 173.4
Intermodal Marketing Companies..................... 234.6 219.2 240.3
International...................................... 203.2 184.2 161.4
------- ------- -------
Total Intermodal.................................... 721.8 611.3 575.1
------- ------- -------
Carload Commodities:
Petroleum.......................................... 95.7 92.9 92.7
Chemicals and Plastics............................. 71.6 66.1 68.0
Consumer/Food Products............................. 85.7 77.6 76.4
Building Materials and Paper Products.............. 90.4 83.5 84.6
Metals............................................. 69.9 63.8 53.1
------- ------- -------
Total Carload Commodities........................... 413.3 383.9 374.8
------- ------- -------
Bulk Products
Coal............................................... 379.3 351.1 316.8
Minerals, Ores and Other........................... 123.9 123.8 123.1
Grain.............................................. 112.2 146.8 140.7
Grain Products..................................... 58.1 54.0 54.1
------- ------- -------
Total Bulk Products................................. 673.5 675.7 634.7
------- ------- -------
Automotive
Motor Vehicles..................................... 119.1 103.9 70.3
Vehicle Parts...................................... 14.7 15.9 15.2
------- ------- -------
Total Automotive.................................... 133.8 119.8 85.5
------- ------- -------
Total Carloadings................................... 1,942.4 1,790.7 1,670.1
======= ======= =======
</TABLE>
--------
* Each intermodal carload is equal to two intermodal units (trailers or
containers).
10
<PAGE>
AVERAGE REVENUE PER CAR BY BUSINESS GROUP
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Intermodal
Direct Marketing...................................... $1,936 $1,961 $2,021
Intermodal Marketing Companies........................ 1,829 1,703 1,633
International......................................... 1,077 1,064 1,050
------ ------ ------
Total Intermodal....................................... 1,659 1,598 1,586
------ ------ ------
Carload Commodities:
Petroleum............................................. 1,526 1,492 1,470
Chemicals and Plastics................................ 1,970 2,016 2,071
Consumer/Food Products................................ 1,506 1,608 1,662
Building Materials and Paper Products................. 1,329 1,295 1,237
Metals................................................ 1,195 1,216 1,325
------ ------ ------
Total Carload Commodities.............................. 1,500 1,517 1,545
------ ------ ------
Bulk Products
Coal.................................................. 612 627 614
Minerals, Ores and Other.............................. 1,196 1,230 1,319
Grain................................................. 1,161 1,109 1,019
Grain Products........................................ 1,503 1,521 1,489
------ ------ ------
Total Bulk Products.................................... 888 914 915
------ ------ ------
Automotive
Motor Vehicles........................................ 1,652 1,580 1,599
Vehicle Parts......................................... 1,828 1,751 1,635
------ ------ ------
Total Automotive....................................... 1,671 1,603 1,606
------ ------ ------
Average Revenue Per Car................................ $1,359 $1,323 $1,323
====== ====== ======
</TABLE>
Passenger Operations. Since May 1, 1971, the National Railroad Passenger
Corporation ("Amtrak") has assumed from participating railroads, including
Santa Fe Railway, the responsibility for providing intercity rail passenger
service. Amtrak operates numerous passenger trains daily between major points
on Santa Fe Railway's system. Amtrak compensates Santa Fe Railway under an
amended agreement entered into in 1989 which provides for cost reimbursements
and performance incentives.
REAL ESTATE ACTIVITIES; ENCUMBRANCES
Income net of related expenses attributable to real estate activities of
Santa Fe Railway, principally sales of non-operating properties and leasing
revenues, was $12.1 million for the year ended December 31, 1994, as compared
to $19.4 million in 1993 and $23.9 million in 1992. Santa Fe Railway's non-
operating properties, which include over 1.4 million acres of mountain and
desert lands with possible mineral potential in California, Nevada, and Utah
(which lands are subject to an exploration agreement or mineral leases with SFP
Gold) and over 23,000 acres of other property, are managed by Catellus
Management Corporation under a management agreement.
Substantially all railroad property, real or personal, is subject to liens
securing mortgage bonds. These bonds will mature in October 1995. Certain
locomotives and rolling stock are subject to equipment obligations, as referred
to in Note 12 to the consolidated financial statements on page 28 of SFP's 1994
Annual Report to Shareholders, which information is hereby incorporated by
reference.
11
<PAGE>
GOVERNMENT REGULATION AND LEGISLATION
Rail operations are subject to the regulatory jurisdiction of the ICC, the
United States Department of Transportation ("DOT") and the Occupational Safety
and Health Administration ("OSHA"), and state regulatory agencies. The ICC has
jurisdiction over certain rates, routes, services, issuance or guarantee of
Santa Fe Railway securities, extension, sale or abandonment of rail lines, and
consolidation or merger with, or acquisition of control of, rail common
carriers. DOT and OSHA have jurisdiction under several federal statutes over a
number of safety and health aspects of rail operations. State agencies regulate
some aspects of rail operations with respect to health and safety and in some
instances intrastate freight rates.
Santa Fe Railway is subject to extensive regulation under federal, state and
local environmental laws covering, for example, 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 operations of Santa Fe Railway. Environmental risks are also inherent
in railroad operations which frequently involve transporting chemicals and
other hazardous materials.
Santa Fe Railway expects it will become subject to future requirements
regulating air emissions from diesel locomotives that may increase its
operating costs. During 1995, the United States Environmental Protection Agency
("EPA") must issue regulations nationally applicable to new locomotive engines.
It is anticipated that these regulations will be effective for locomotive
engines installed after 1999. Under some interpretations of federal law, older
locomotive engines may be regulated by states based on standards and procedures
which the State of California ultimately adopts. At this time it is unknown
whether California will adopt any locomotive emission standards.
In February 1995, EPA announced a final Federal Implementation Plan ("FIP")
for three regions in southern California designed to bring ambient air quality
in line with standards under the federal Clean Air Act for the four-county
South Coast (Los Angeles) nonattainment area by 2010 and the Ventura County and
Sacramento nonattainment areas by 2005. The FIP was originally proposed in
February 1994 when the State of California failed to adopt its own State
Implementation Plan ("SIP"). The FIP could be replaced by the California SIP if
the SIP is approved by EPA. In the FIP, EPA anticipates adopting national
emission standards for newly manufactured and remanufactured locomotives. The
FIP adopts a locomotive fleet average requirement for the South Coast area by
the years 2007 and 2010 which would require reductions in nitrogen oxides of 50
percent and 60 percent, respectively, from 1990 baseline emissions. National
emission standards, when adopted, and state emission standards, if eventually
adopted as regulations, would likely increase Santa Fe Railway's operating
costs and could possibly result in the use of alternative fuels to meet the
standards in southern California.
Many of Santa Fe Railway'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. As a result, Santa Fe Railway is now subject and will from time to
time continue to be subject to environmental cleanup 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 cleanup and enforcement costs, without
regard to fault or the legality of the original conduct, on current and former
owners and operators of a site. Accordingly, Santa Fe Railway 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 Santa Fe Railway, its current lessees, former owners or lessees of
properties, or other third parties.
12
<PAGE>
COMPETITION
Rail operations are subject to intense competition from various modes of
transportation, primarily from other railroads, motor carriers, and both inland
and intercoastal water carriers. Competition is based upon price, and quality
and reliability of service. Other major rail systems and smaller rail carriers
compete with Santa Fe Railway in various transport markets for the movement of
most commodities. Motor carrier competition, especially in the intermodal area,
is pervasive throughout all major markets with the exception of the long-haul
electric utility coal markets. In those cases, competition exists from the coal
producing regions of the central and northern Rocky Mountain districts as well
as the eastern United States. Water competition is present between the Texas
Gulf Coast and Mississippi and Illinois River systems as well as between the
West and Gulf Coasts and along the West Coast.
PIPELINE INVESTMENT
Santa Fe Pacific Pipelines, Inc. ("SFP Pipelines"), an indirect, wholly owned
subsidiary of SFP, serves as the general partner of Santa Fe Pacific Pipeline
Partners, L.P. (the "Partnership"), a publicly traded Delaware master limited
partnership formed in 1988 to acquire and operate the refined petroleum
products pipeline business of SFP. Limited partner interests in the Partnership
("Partnership Units") are traded on the New York Stock Exchange under the
symbol "SFL." SFP Pipelines owns a two percent interest as the Partnership's
general partner and an approximate 42 percent interest as limited partner. As
general partner, SFP Pipelines is entitled to receive two percent of all
amounts available for distribution by the Partnership and also an additional
incentive depending upon the level of cash distributions paid to unitholders.
SFP accounts for its interest in the Partnership on the equity basis.
In June 1990, SFP organized SFP Pipeline Holdings, Inc. ("SFP Pipeline
Holdings"), and contributed to SFP Pipeline Holdings all of the outstanding
capital stock of SFP Pipelines. In September 1990, SFP Pipeline Holdings issued
$219 million principal amount of Variable Rate Exchangeable Debentures due 2010
(the "Holdings Debentures") at an eight percent discount. The Holdings
Debentures are exchangeable under certain circumstances at the option of the
holders upon the first to occur of certain specified events or final maturity
for substantially all of the Partnership Units that are owned by SFP Pipelines.
The interest payable with respect to the Holdings Debentures for a particular
quarter is equal to the greater of (i) the distributions of cash from
operations declared by the Partnership on the Partnership Units for which such
Holdings Debentures are exchangeable and (ii) two percent of the weighted
average unpaid balance of such Holdings Debentures outstanding during such
quarter, provided that in no event shall the amount of interest paid on the
Holdings Debentures exceed an average annual rate of 16 percent since their
date of issuance. The Holdings Debentures are listed on the New York Stock
Exchange under the symbol "SFLH."
The Partnership is one of the largest independent pipeline common carriers of
refined petroleum products in the United States, and the largest in the western
United States, in terms of product deliveries, barrel miles, and pipeline
mileage, with approximately 3,300 miles of pipeline and 14 truck loading
terminals serving six states. The Partnership transports refined petroleum
products via underground pipeline in liquid form, including gasoline, diesel
fuel, and commercial and military jet fuel, primarily for integrated petroleum
companies, independent refiners, the United States military, and marketers and
distributors of such products. The Partnership also operates loading terminals
through which refined petroleum products are loaded into tank trucks for
further distribution, and provides pipeline service to 44 customer-owned
terminals, three commercial airports, and 11 military bases.
13
<PAGE>
The Partnership's Pipeline System consists of: (1) the South System, which
comprises two segments, the West Line, which transports products from Los
Angeles to Phoenix and Tucson, Arizona, and various intermediate points, and
the East Line, which transports products from El Paso, Texas to Tucson and
Phoenix, Arizona, and various intermediate points; (2) the North Line, which
transports products primarily from the San Francisco Bay area to various cities
in northern California and western Nevada; (3) the Oregon Line, which
transports products between Portland and Eugene, Oregon and one intermediate
point; and (4) the San Diego Line, which transports products from Los Angeles
basin refineries to San Diego, California, and various intermediate points.
The Pipeline System shipped 349.8 million barrels in 1994, up from 332.7
million barrels in 1993. Approximately 65 percent of the 1994 volumes were
gasoline, with the balance divided approximately equally between jet fuels and
diesel fuels. The volume of refined petroleum products transported in the
Pipeline System is directly affected by the demand for refined petroleum
products in the geographic regions served, which can vary seasonally and is
based upon the different end uses to which the refined petroleum products
delivered may be applied. Although the mix of refined petroleum products
transported varies among the pipeline segments constituting the Pipeline
System, such variation is not substantial. Tariff rates charged shippers for
transportation do not vary for different product types.
During 1994, the Partnership spent $17.9 million for capital improvements.
The Partnership's planned 1995 capital expenditures approximate $32 million.
GOVERNMENT REGULATION AND LEGISLATION
Substantially all of the Partnership's pipeline operations are common carrier
operations that are subject to federal or state rate regulation. The Federal
Energy Regulatory Commission (FERC) exercises economic regulatory jurisdiction
over interstate shipments through the Pipeline System. For a description of
certain FERC proceedings challenging certain of the Partnership's rates and
seeking refunds and prospective rate reductions, see the section entitled "FERC
Proceeding" under Item 3, Legal Proceedings, in the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1994, which section is hereby
incorporated by reference. Intrastate shipments are subject to economic
regulation by the California Public Utilities Commission. The Pipeline System
is also subject to operating and safety regulation by the DOT, OSHA, and by
various state agencies.
The Partnership's operations are subject to federal, state, and local laws
and regulations relating to the protection of the environment, including laws
and regulations applicable to water, air, solid waste, and hazardous
substances. The discharge of, or contamination of property by, hazardous
materials may arise from the transportation and storage of such materials in
the Pipeline System. The normal operations of the Pipeline System may result in
hazards and expose SFP Pipelines to claims and potential liability for injuries
to employees, other persons, property, and the environment.
ITEM 3. LEGAL PROCEEDINGS
Set forth below is a description of certain legal proceedings involving SFP
and its subsidiaries.
SETTLEMENT OF DERIVATIVE STOCKHOLDER ACTION
On December 17, 1992, an amended complaint was filed in an action entitled
David Rodriguez, derivatively on behalf of Santa Fe Pacific Corporation v. John
S. Reed, Robert D. Krebs, W. John Swartz, John J. Schmidt, Joseph F. Alibrandi,
Richard J. Flamson III, George B. Munroe, Jack S.
14
<PAGE>
Parker, Jean Head Sisco, Arthur W. Woelfle, Robert E. Gilmore, Michael A.
Morphy, Edward F. Swift, Kathryn D. Wriston, John S. Runnells, II, Robert H.
West, Alan C. Furth, Ariay Miller, and Benjamin F. Biaggini, Defendants, and
Santa Fe Pacific Corporation, a Delaware corporation, Nominal Defendant, in the
Circuit Court of Cook County, Illinois, County Department, Chancery Division,
No. 92 CH 06618. The amended complaint asserted purported derivative claims on
behalf of SFP against present and former directors of SFP and alleged that the
defendant directors caused SFP to incur liability in connection with the action
brought against SFP in 1985 by Energy Transportation Systems, Inc. and ETSI
Pipeline Project (the "ETSI Litigation"). The four counts of the amended
complaint alleged breach of fiduciary duty and waste of corporate assets for
intentional antitrust violations, negligent failure to stop antitrust
violations, failure to timely settle the ETSI Litigation, and failure to take
appropriate action against persons who committed antitrust violations. The
amended complaint sought damages from the individual defendants in an amount
"not less than $342 million." On December 7, 1993, the Board appointed a
Litigation Committee consisting of Directors Lindig and Roberts to consider and
determine whether or not prosecution of such claims and action was in the best
interest of SFP and its stockholders. The Litigation Committee retained counsel
and started an investigation.
The parties entered a stipulation of settlement which was approved by the
court on December 14, 1994, and the time for appealing the court's order
expired without an appeal having been filed. The settlement is therefore
effective and this matter is now terminated. The settlement resulted in the
payment to SFP of approximately $8,000,000, provided by certain D&O insurance
carriers, which is net of an award of fees and expenses to plaintiff's attorney
of $2,710,000 and an incentive award to plaintiff of $40,000.
MERGER-RELATED LITIGATION
Numerous complaints were filed arising out of SFP's and BNI's proposed
participation in the Merger Agreement. On June 30, 1994, shortly after
announcement of the proposed BNI-SFP Merger, two purported stockholder class
action suits were filed in the Court of Chancery of the State of Delaware
(Miller v. Santa Fe Pacific Corporation, C.A. No. 13587; Cosentino v. Santa Fe
Pacific Corporation, C.A. No. 13588). On July 1, 1994, two additional purported
stockholder class action suits were filed in the Court of Chancery of the State
of Delaware (Fielding v. Santa Fe Pacific Corporation, C.A. No. 13591;
Wadsworth v. Santa Fe Pacific Corporation, C.A. No. 13597).
The actions name as defendants SFP, the individual members of the SFP Board
of Directors, and BNI. In general, the actions variously allege that SFP's
directors breached their fiduciary duties to the stockholders by agreeing to
the proposed merger for allegedly "grossly inadequate" consideration in light
of recent operating results of SFP, recent trading prices of SFP's common stock
and other alleged factors, by allegedly failing to take all necessary steps to
ensure that stockholders will receive the maximum value realizable for their
shares (including allegedly failing to actively pursue the acquisition of SFP
by other companies or conducting an adequate "market check"), and by allegedly
failing to disclose to stockholders the full extent of the future earnings
potential of SFP, as well as the current value of its assets. The Miller and
Fielding cases further allege that the proposed BNI-SFP merger is unfairly
timed and structured and, if consummated, would allegedly unfairly deprive the
stockholders of standing to pursue certain pending stockholder derivative
litigation. Plaintiffs also allege that BNI is responsible for aiding and
abetting the alleged breach of fiduciary duty committed by the SFP Board. The
actions seek certification of a class action on behalf of SFP's stockholders.
In addition, the actions seek injunctive relief against consummation of the
Merger and, in the event that the Merger is consummated, the rescission of the
Merger, an award of compensatory or rescissory damages and other damages,
including court costs and attorneys' fees, an accounting by defendants of all
profits realized by them as a result of the Merger, and various other forms of
relief.
15
<PAGE>
On October 6, 1994, shortly after Union Pacific Corporation ("UPC") issued a
press release in which it announced a proposal for UPC to acquire SFP (the "UPC
Proposal"), plaintiffs in the four lawsuits described above filed in the Court
of Chancery of the State of Delaware a Consolidated Amended Complaint (Miller
v. Santa Fe Pacific Corporation, C.A. No. 13587). In their Consolidated Amended
Complaint, plaintiffs repeat the allegations contained in their earlier
lawsuits and further allege that, in light of the UPC Proposal, SFP's directors
have breached their fiduciary duties by failing to fully inform themselves
about and to adequately explore available alternatives to the merger with BNI,
including the alternative of a merger transaction with UPC, and by failing to
fully inform themselves about the value of SFP. The Consolidated Amended
Complaint seeks the same relief sought in plaintiffs' earlier lawsuits and, in
addition, requests that SFP's directors be ordered to explore alternative
transactions and to negotiate in good faith with all interested persons,
including UPC.
Also on October 6, 1994, UPC filed in the Court of Chancery of the State of
Delaware a lawsuit against SFP, SFP's directors and BNI (Union Pacific
Corporation v. Santa Fe Pacific Corporation, C.A. No. 13778). In its Complaint,
UPC alleged that SFP's management purportedly rejected the UPC Proposal "out-
of-hand" without regard to the facts of the UPC Proposal, and that SFP's
directors breached their fiduciary duties by purportedly refusing to negotiate
with UPC regarding the UPC Proposal, by refusing to terminate the original
merger agreement between BNI and SFP (the "Original Merger Agreement"), and by
failing to include in the Original Merger Agreement a provision allowing SFP to
terminate the Original Merger Agreement in order to enter an agreement with
UPC. UPC sought injunctive relief mandating SFP to negotiate with UPC regarding
the UPC Proposal, a declaration that UPC did not tortiously interfere with
defendants' contractual or other legal rights, an injunction against defendants
from bringing or maintaining any action against UPC alleging that UPC
tortiously interfered with defendants' contractual or other legal rights, a
declaration that the Original Merger Agreement with BNI permitted SFP to
terminate the Original Merger Agreement in order to accept the UPC Proposal or,
in the alternative, that the Original Merger Agreement with BNI was invalid and
unenforceable for failing to include such a provision, and an award of UPC's
costs in bringing its lawsuit, including reasonable attorneys' fees.
Also, on October 6, 1994, five additional purported stockholder class action
suits relating to SFP's proposed participation in the Merger with BNI were
filed in the Court of Chancery of the State of Delaware (Weiss v. Santa Fe
Pacific Corporation, C.A. No. 13779; Lifshitz v. Krebs, C.A. No. 13780; Stein
v. Santa Fe Pacific Corporation, C.A. No. 13782; Lewis v. Santa Fe Pacific
Corporation, C.A. No. 13783; Abramson v. Lindig, C.A. No. 13784). On October 7,
1994, three more purported stockholder class action suits relating to SFP's
proposed participation in the Merger with BNI were filed in the Court of
Chancery of the State of Delaware (Graulich v. Santa Fe Pacific Corporation,
C.A. No. 13786; Anderson v. Santa Fe Pacific Corporation, C.A. No. 13787; Green
v. Santa Fe Pacific Corporation, C.A. No. 13788). All of these lawsuits name as
defendants SFP and the individual members of the SFP Board of Directors; the
Lifshitz case further names BNI as a defendant. In general, these actions
variously allege that, in light of SFP's recent operating results and the UPC
merger proposal, SFP's directors have breached their fiduciary duties to
stockholders by purportedly not taking the necessary steps to ensure that SFP's
stockholders will receive "maximum value" for their shares of SFP stock,
including purportedly refusing to negotiate with UPC or to "seriously consider"
the UPC Proposal and failing to announce any active auction or open bidding
procedures. The actions generally seek relief that is materially identical to
the relief sought in the Miller case, and in addition seek entry of an order
requiring SFP's directors to immediately undertake an evaluation of SFP's worth
as a merger/acquisition candidate and to establish a process designed to obtain
the highest possible price for SFP, including taking steps to "effectively
expose" SFP to the marketplace in an effort to create an "active auction" in
SFP. The Weiss case further seeks entry of an order enjoining SFP's directors
from implementing any poison pill or other device designed to thwart the UPC
Proposal or any other person's proposal to acquire SFP.
16
<PAGE>
The Anderson lawsuit was subsequently withdrawn. On October 14, 1994, the
Chancery Court entered an order consolidating the remaining 11 purported
stockholder class action suits under the heading In Re Santa Fe Pacific
Corporation Shareholder Litigation, C.A. No. 13587 (the "Shareholder
Litigation").
On November 4, 1994, a purported stockholder class action suit relating to
the proposed Merger was filed in the Chancery Division of the Circuit Court of
Cook County of the State of Illinois (Rubin v. Santa Fe Pacific Corporation,
No. 94 CH 10022). The action names as defendants SFP and the individual members
of SFP's Board of Directors. The action alleged that SFP's directors breached
their fiduciary duties to stockholders by rejecting UPC's October 30, 1994
revised merger proposal, which incorporated a revised proposed exchange ratio
of .407 shares of UPC common stock for each share of SFP common stock, and
that, as a result, SFP's stockholders were deprived of the increase in the
market value of their SFP common stock that allegedly would have occurred if
SFP's directors had accepted UPC's October 30, 1994 proposal. The action sought
certification of a class action on behalf of SFP's stockholders, an injunction
preventing SFP and the SFP directors from taking any further action towards
accepting the Merger, an award of unspecified general and special damages,
appointment of a trustee to supervise the requested relief, establishment of a
common fund on behalf of the class and an award of court costs, reasonable
attorneys' fees, and any other relief deemed appropriate by the Court. On
December 12, 1994, SFP and its directors filed a motion to dismiss the Rubin
case on the ground that the consolidated shareholder action previously filed in
the Delaware court is a prior pending action between the same parties for the
same cause.
On February 15, 1995, on motion by plaintiff, the court entered an order
dismissing the Rubin case.
On February 24, 1995, subsequent to UPC's announcement of its intention to
withdraw its tender offer for SFP common stock, a stipulation was entered by
and among the parties to dismiss the UPC lawsuit.
On March 6, 1995, plaintiffs in the Shareholder Litigation filed a Revised
Second Consolidated and Amended Complaint, which supersedes their previously
filed complaints. The Revised Second Consolidated and Amended Complaint
generally repeats many of the same allegations, and requests relief similar to
that requested in plaintiffs' earlier complaints. In addition, the Revised
Second Consolidated and Amended Complaint alleges that SFP's directors have
breached their fiduciary duties: by proceeding with and completing the joint
SFP-BNI Tender Offer; by approving and implementing the Shareholder Rights
Plan, which purportedly resulted in a "premature ending" of the "bidding
process" by allegedly deterring and defeating UPC's acquisition overtures,
exempting BNI from its provisions, and "coercing" SFP stockholders to vote in
favor of the SFP-BNI Merger; by approving the termination fee and expense
reimbursement provisions of the SFP-BNI Merger Agreement, as amended; by
authorizing the stock repurchase provisions of the SFP-BNI Merger Agreement,
which allegedly were designed to "lock-up" the SFP-BNI Merger by providing
shareholders with an "illusory promise" that the Merger Agreement exchange
ratio would increase, while reserving SFP's right not to repurchase such stock;
and by purportedly failing to disclose all material facts necessary for SFP's
stockholders to evaluate in an informed manner and vote on the SFP-BNI Merger,
including purportedly failing to fully disclose the risks that the ICC will not
approve the SFP-BNI Merger and purportedly failing to fully disclose SFP's
intentions with respect to the repurchase of SFP stock, as permitted by the
SFP-BNI Merger Agreement, as well as whether there will be a fair opportunity
for all SFP stockholders to "participate" in any SFP stock repurchases, and on
what basis. As additional relief to that requested in the earlier complaints,
plaintiffs request injunctive and other relief: enjoining consummation of the
SFP-BNI Merger; ordering SFP, SFP's directors, and BNI to make unspecified
supplemental disclosures to stockholders; requiring SFP to conduct a new vote
on the SFP-BNI Merger subsequent to such
17
<PAGE>
disclosures; enjoining SFP from improperly or discriminatorily implementing the
Shareholder Rights Plan or any other "defensive" tactic; ordering SFP's
directors to take all appropriate steps to enhance SFP's value and
attractiveness as a merger or acquisition candidate, including "effectively
exposing" SFP to the marketplace by means of an active auction on a "level
playing field"; and declaring the termination fee and expense reimbursement
provisions of the SFP-BNI Merger Agreement invalid and unenforceable. The
Shareholder Litigation has been set for trial beginning June 12, 1995.
On March 13, 1995, SFP and SFP's directors filed a motion to dismiss the
Shareholder Litigation on the grounds that the Plaintiffs have failed to state
a cause of action upon which relief may be granted. The motion is currently
pending in the Delaware court.
SFP believes that all of these lawsuits are meritless and is opposing them
vigorously.
ICC MERGER CASE
On October 13, 1994, BNI, Burlington Northern Railroad Company ("BN"), SFP,
and Santa Fe Railway ("Applicants") filed a railroad merger and control
application with the ICC, Finance Docket No. 32549, Burlington Northern Inc.
and Burlington Northern Railroad Company--Control and Merger--Santa Fe Pacific
Corporation and The Atchison, Topeka and Santa Fe Railway Company. Applicants
seek an order, pursuant to 49 U.S.C. (S)(S) 11343-11347 (1988), approving and
authorizing BNI's acquisition of control of and merger with SFP, the resulting
common control of BN and Santa Fe Railway by the merged company, the
consolidation of BN and Santa Fe Railway by the merged company, the
consolidation of BN and Santa Fe Railway operations, and the merger of BN and
Santa Fe Railway. The ICC is required to enter a final order with respect to
the Merger within 31 months after the filing of the application. In response to
Applicants' request for the ICC to decide the case on an expedited basis, the
ICC served an order effective as of March 9, 1995 adopting a revised procedural
schedule which provides for a final decision by August 23, 1995. Interested
parties, including other railroads, shippers, and state and federal agencies,
and BNI and SFP stockholders may seek to participate in the ICC proceeding on
the Merger, consistent with applicable ICC rules, regulations, decisions, and
orders, and may participate to support, oppose, or seek to have conditions
imposed on the transaction, or, in the case of other railroads, to be included
in the Merger.
OTHER CLAIMS
SFP and its subsidiaries and affiliates also are parties to a number of other
legal actions arising in the ordinary course of business, including various
governmental proceedings and private civil suits concerning environmental
matters. While the final outcome of these and 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.
For a description of certain claims against SFP Pipelines and the
Partnership, see the sections entitled "East Line Litigation and FERC
Proceeding," "East Line Civil Litigation" and "Environmental Matters" under
Item 3, Legal Proceedings, of the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1994, which sections are hereby incorporated by
reference. Reference is made to Note 8 to the consolidated financial statements
on page 26 of SFP's 1994 Annual Report to Shareholders for information
concerning certain pending administrative appeals between SFP and the Internal
Revenue Service, which information is hereby incorporated by reference.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by SFP to a vote of its securities holders during
the fourth quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, ages, and positions of all executive officers of
SFP (excluding one executive officer who is also a director of SFP) and their
business experience during the past five years. Unless otherwise indicated,
each executive officer listed below has served in his or her present occupation
for at least five years. Executive officers hold office until their successors
are elected or appointed, or until their earlier death, resignation, or
removal.
RUSSELL E. HAGBERG, 44
Senior Vice President and Chief of Staff of Santa Fe Railway since January
1994. Prior to that, Vice President--Transportation of Santa Fe Railway from
June 1991, Vice President--Human Resources of SFP from June 1990, and Vice
President--Human Resources and Administration of Santa Fe Railway from March
1989.
THOMAS N. HUND, 41
Vice President and Controller since July 1990. Formerly, Assistant Vice
President and Controller, Santa Fe Railway from August 1989.
STEVEN F. MARLIER, 49
Senior Vice President and Chief Marketing Officer of Santa Fe Railway since
January 1994. Prior to that, Senior Vice President--Carload Business Unit of
Santa Fe Railway since January 1992. Formerly, Regional Manager/General
Manager, IBM Corporation (computers and data processing).
DONALD G. MCINNES, 54
Senior Vice President and Chief Operating Officer of Santa Fe Railway since
January 1994. Prior to that, Senior Vice President--Intermodal Business Unit of
Santa Fe Railway since January 1992, Vice President--Intermodal of Santa Fe
Railway from July 1989, and Vice President--Administration of Santa Fe Railway
from January 1989.
JEFFREY R. MORELAND, 50
Vice President--Law and General Counsel of SFP since October 1, 1994 and Vice
President--Law and General Counsel of Santa Fe Railway since June 1989.
MARSHA K. MORGAN, 47
Corporate Secretary since December 1990. Prior to that, Treasurer from March
1988.
PATRICK J. OTTENSMEYER, 38
Vice President--Finance of SFP since September 1993. Previously, held a
senior credit position with First Empire State Corporation (banking) from
September 1992, and was Senior Vice President of Security Pacific National Bank
(banking) from October 1989 (which merged with Bank of America National Trust
and Savings Association (banking) in April 1992).
19
<PAGE>
DENIS E. SPRINGER, 49
Senior Vice President and Chief Financial Officer since October 1993. Prior
to that, Senior Vice President, Treasurer and Chief Financial Officer from
January 1992; Vice President, Treasurer and Chief Financial Officer from
January 1991, and Vice President--Finance from April 1988.
IRVIN TOOLE, JR., 53
Chairman, President and Chief Executive Officer, SFP Pipelines and SFP
Pipeline Holdings, Inc. since September 1991. Formerly, Senior Vice President,
Treasurer and Chief Financial Officer, SFP Pipelines from December 1988.
DANIEL J. WESTERBECK, 51
Vice President and Tax Counsel since April 1988.
CATHERINE A. WESTPHAL, 46
Vice President--Corporate Communications since January 1994. Prior to that,
Assistant Vice President--Public Relations from January 1992, Director--Public
Relations from January 1991, and Manager--Public Affairs at Santa Fe Railway
from January 1990.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information as to the principal markets on which the common stock of SFP is
traded, the high and low sales prices of such stock for the two years ending
December 31, 1994, and the frequency and amount of dividends declared on such
stock during such period is set forth below the heading "Common Stock Market
Prices and Dividends" on page 18 of SFP's 1994 Annual Report to Shareholders
and is hereby incorporated by reference. As of February 28, 1995, there were
approximately 68,500 holders of SFP common stock. Statements regarding a
limitation of dividends on SFP common stock and SFP's expectation regarding the
payment of cash dividends in the foreseeable future are set forth in Notes 2
and 12 to the consolidated financial statements on pages 24 and 28,
respectively, of SFP's 1994 Annual Report to Shareholders, and in Management's
Discussion and Analysis of Results of Operations and Financial Condition on
page 12 of SFP's 1994 Annual Report to Shareholders, which information is
hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
There is disclosed on page 1 of SFP's 1994 Annual Report to Shareholders
selected financial data of SFP for each of the last five fiscal years. Such
data with respect to the following topics are incorporated by reference:
Operating Revenues; Income (Loss) from Continuing Operations; Income (Loss)
from Continuing Operations Per Common Share; Income from Discontinued
Operations; Income from Discontinued Operations Per Common Share; Total Assets;
Total Debt; and Cash Dividends Per Common Share.
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 appearing on pages 12 through 18 of SFP's 1994 Annual Report to
Shareholders is hereby incorporated by reference.
20
<PAGE>
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 21,
1995, appearing on pages 19 through 32 of SFP's 1994 Annual Report to
Shareholders, are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors of SFP is provided on pages 2 through 4,
and information concerning "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" is provided under that heading on page 5, of SFP's proxy
statement dated March 8, 1995, and is hereby incorporated by reference.
Information concerning the executive officers of SFP (excluding one executive
officer who is also a director of SFP) is included in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning the compensation of directors and executive officers
of SFP is provided on page 5 (under the heading "Directors' Compensation") and
pages 9 through 14 (excluding the portion of page 14 containing the
"Compensation and Benefits Committee Report on Executive Compensation") of
SFP's proxy statement dated March 8, 1995, and is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the ownership of SFP equity securities by certain
beneficial owners and management is provided on pages 2 through 4, and 6
through 7, and information concerning the proposed Merger with BNI is provided
on page 8, of SFP's proxy statement dated March 8, 1995, and is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
provided on page 5 (under the heading "Certain Relationships and Related
Transactions") of SFP's proxy statement dated March 8, 1995, and is hereby
incorporated by reference.
21
<PAGE>
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:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
1. Consolidated Financial Statements:
Report of Independent Accountants dated February 21, 1995............. [19*]
Consolidated Statement of Operations for the three years ended
December 31, 1994.................................................... [20*]
Consolidated Balance Sheet at December 31, 1994 and 1993.............. [21*]
Consolidated Statement of Cash Flows for the three years ended
December 31, 1994.................................................... [22*]
Consolidated Statement of Shareholders' Equity for the three years
ended
December 31, 1994.................................................... [23*]
Notes to Consolidated Financial Statements............................ [24-32*]
</TABLE>
--------
(* Incorporated by reference from the indicated pages of SFP's Annual Report
to Shareholders for the fiscal year ended December 31, 1994.)
2. Consolidated Financial Statement Schedules:
Consolidated financial statement schedules have been omitted because they are
not applicable or the required information is presented in the financial
statements or the notes to the consolidated financial statements.
3. Exhibits:
See Index to Exhibits on pages E-1-E-4 for a description of the exhibits
filed as a part of this Report.
(b) Reports on Form 8-K
SFP filed the following Reports on Form 8-K during the quarter ended December
31, 1994:
Registrant filed Amendment No. 1 on Form 8-K/A dated October 5, 1994 to
Current Report on Form 8-K (Date of earliest event reported: August 3,
1994) which included under Item 7, Financial Statements and Exhibits,
financial information of SFP amended and restated to reflect SFP's gold
operations as discontinued operations. The Financial information included
Management's Discussion and Analysis of Results of Operations and Financial
Condition, Consolidated Financial Statements, and Notes to Consolidated
Financial Statements.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: October 5, 1994) which referenced under Item 5, Other Events, and
incorporated by reference under Item 7, Financial Statements and Exhibits:
(a) an October 5, 1994 Union Pacific Corporation ("UPC") press release
concerning UPC's proposal of a merger of UPC and SFP; (b) SFP's October 6,
1994 press release announcing the decision of its board of directors to
reject UPC's proposal; and (c) a Burlington Northern Inc. ("BNI") press
release concerning the reaffirmation of the commitment by the board of
directors of BNI to consummate the merger of BNI and SFP as announced on
June 30, 1994.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: October 19, 1994) which referenced under Item 5, Other Events,
and incorporated by reference its October 19, 1994 press release announcing
SFP's 1994 third quarter earnings, which press release included a
Consolidated Statement of Operations, Condensed Balance Sheet, Condensed
Statement of Cash Flows, and other information.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: October 28, 1994) which included under Item 5, Other Events,
information concerning SFP's
22
<PAGE>
distribution to its stockholders of its interests in SFP Gold on September
30, 1994; the proposed merger ("Merger") between SFP and BNI pursuant to
the Agreement and Plan of Merger dated June 29, 1994, as amended on October
26, 1994; UPC's October 5, 1994 unsolicited non-binding written proposal to
acquire SFP; and certain information included in SFP's Supplemental Joint
Proxy Statement/Prospectus dated October 27, 1994 sent to stockholders of
record as of October 19, 1994 in connection with a Special Meeting of
Stockholders then scheduled for November 18, 1994 to consider the Merger,
including Unaudited Pro Forma Combined Financial Statements giving effect
to an exchange of 0.34 shares of BNI common stock for each share of SFP
common stock pursuant to the Agreement and Plan of Merger, as amended, and
other matters under the headings of ICC Approval, Other Regulatory
Approvals, Additional Financial Considerations, Prepayment Offer for
Certain Debt Obligations of SFP, and Certain Pending Litigation. SFP also
incorporated by reference under Item 7, Financial Statements and Exhibits,
certain reports by BNI filed pursuant to the Securities Exchange Act of
1934 on Forms 10-K, 10-Q, and 8-K.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: November 2, 1994) which reported under Item 5, Other Events,
SFP's November 2, 1994 announcement that its board of directors voted to
reject UPC's revised, non-binding proposal to acquire SFP made on October
30, 1994.
Registrant filed a Current Report on Form 8-K (Date of earliest event
reported: November 28, 1994) which included under Item 5, Other Events, the
November 28, 1994 action by the SFP board of directors to declare a
dividend distribution of one right for each outstanding share of SFP common
stock of record on December 9, 1994, pursuant to the Rights Agreement dated
as of November 28, 1994, between SFP and First Chicago Trust Corporation of
New York, as Rights Agent, which agreement was incorporated by reference
under Item 7, Financial Statements and Exhibits.
23
<PAGE>
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/ Denis E. Springer
By: _________________________________
Denis E. Springer
Senior Vice President and Chief
Financial Officer
Dated: March 29, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF SANTA FE
PACIFIC CORPORATION AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Robert D. Krebs Chairman, President and Chief Executive
___________________________________________ Officer (Principal Executive Officer),
Robert D. Krebs and Director
/s/ Denis E. Springer Senior Vice President and Chief Financial
___________________________________________ Officer (Principal Financial Officer)
Denis E. Springer
/s/ Thomas N. Hund Vice President and Controller (Principal
___________________________________________ Accounting Officer)
Thomas N. Hund
Joseph F. Alibrandi* Director
___________________________________________
Joseph F. Alibrandi
John J. Burns, Jr.* Director
___________________________________________
John J. Burns, Jr.
George Deukmejian* Director
___________________________________________
George Deukmejian
Bill M. Lindig* Director
___________________________________________
Bill M. Lindig
Michael A. Morphy* Director
___________________________________________
Michael A. Morphy
Roy S. Roberts* Director
___________________________________________
Roy S. Roberts
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
John S. Runnells II* Director
___________________________________________
John S. Runnells II
Jean Head Sisco* Director
___________________________________________
Jean Head Sisco
Edward F. Swift* Director
___________________________________________
Edward F. Swift
Robert H. West* Director
___________________________________________
Robert H. West
</TABLE>
/s/ Jeffrey R. Moreland
*By: ________________________________
Vice President--Law andGeneral
Counsel Attorney in Fact
Dated: March 29, 1995
S-2
<PAGE>
SANTA FE PACIFIC CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger ("Original Merger Agreement")
dated as of June 29, 1994, between Burlington Northern Inc.
and Santa Fe Pacific Corporation ("SFP"); Letter Agreement
dated June 29, 1994, regarding corporate governance issues;
and Letter Agreement dated June 29, 1994, regarding disclosure
schedules. Incorporated by reference to Exhibits 2, 99.1, and
99.2, respectively, of SFP's Current Report on Form 8-K (Date
of earliest event reported: June 29, 1994) and to Exhibit 2.1
of SFP's Current Report on Form 8-K/A, Amendment No. 1 (Date
of Earliest event reported: June 29, 1994) filed on July 29,
1994 (schedules thereto omitted but will be furnished
supplementally upon request of the Securities and Exchange
Commission).
2.2 Amendment dated October 26, 1994 to Original Merger Agreement.
Incorporated by reference to Exhibit 10.2 to SFP's Current Re-
port on Form 8-K (Date of earliest event reported: October 28,
1994).
2.3 Amendment No. 2 dated December 18, 1994 to Original Merger
Agreement.
2.4 Amendment No. 3 dated January 24, 1995 to Original Merger
Agreement. Incorporated by reference to Appendix A to SFP's
Schedule 13E-4/A (Issuer Tender Offer Statement), Amendment
No. 5 (Date Tender Offer First Published, Sent or Given to
Securityholders: December 23, 1994).
3.1 Restated Certificate of Incorporation of SFP (as amended April
26, 1989). Incorporated by reference to Exhibit 3(a) to SFP's
Report on Form 10-K for the fiscal year ended December 31,
1989.
3.2 By-Laws of SFP (as amended April 27, 1993). Incorporated by
reference to Exhibit 3 to SFP's Report on Form 10-Q for the
Quarter ended March 31, 1993.
4.1 Rights Agreement dated as of November 28, 1994, between SFP
and First Chicago Trust Company of New York, as Rights Agent,
which includes as Exhibit B thereto the Form of Rights Certif-
icate. Incorporated by reference to SFP's Current Report on
Form 8-K (Date of earliest event reported: November 28, 1994).
Amendment No. 1 to Rights Agreement dated as of January 24,
1995. Incorporated by reference to Exhibit 99.2 of SFP's Cur-
rent Report on Form 8-K (Date of earliest event reported: Jan-
uary 24, 1995).
4.2 Restated Indenture, dated as of November 1, 1994, between SFP
and The First National Bank of Chicago. Incorporated by refer-
ence to Exhibit 10.1 to SFP's Current Report on Form 8-K (Date
of earliest event reported: October 28, 1994). SFP Certificate
of Determination by Designated Officer.
4.3 Credit Agreement dated as of January 27, 1995 between SFP and
a consortium of banks ("Credit Agreement"). Incorporated by
reference to Exhibit 99(p) of SFP's 13E-4/A (Issuer Tender Of-
fer Statement), Amendment No. 7 (Date Tender Offer First Pub-
lished, Sent or Given to Securityholders: December 23, 1994).
First Amendment and Waiver dated as of February 17, 1995, to
the Credit Agreement.
SFP is not filing any other instruments evidencing indebted-
ness because the total amount of securities authorized under
any single such instrument does not exceed 10% of SFP's total
assets. SFP will furnish copies of any material instruments
upon request of the Securities and Exchange Commission.
</TABLE>
--------
* Management contract or compensatory plan or arrangement.
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.1* SFP 1983 Incentive Stock Option Plan. Incorporated by refer-
ence to Exhibit 10(b) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1984. Amendments to SFP 1983
Incentive Stock Option Plan dated May 28, 1987 and October 29,
1987 are incorporated by reference to Exhibit 10(b) to SFP's
Report on Form 10-K for the fiscal year ended December 31,
1987. Amendments to SFP 1983 Incentive Stock Option Plan dated
February 27, 1990 are incorporated by reference to Exhibit
10(b) to SFP's Report on Form 10-K for the fiscal year ended
December 31, 1989. Amendment to SFP 1983 Incentive Stock Op-
tion Plan dated December 4, 1990 is incorporated by reference
to Exhibit 10(b) to SFP's Report on Form 10-K for the fiscal
year ended December 31, 1990.
10.2* Santa Fe Pacific Corporation Supplemental Retirement Plan
("Supplemental Plan"). Incorporated by reference to Exhibit
10(d) to SFP's Report on Form 10-K for the fiscal year ended
December 31, 1984. SFP Supplemental Retirement Plan as amended
October 1, 1989, and Amendment to SFP Supplemental Retirement
Plan dated February 27, 1990, are incorporated by reference to
Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal year
ended December 31, 1989. Amendment to Supplemental Plan dated
March 22, 1994, and effective January 1, 1994 is incorporated
by reference to Exhibit 10(b), SFP's Report on Form 10-K for
the fiscal year ended December 31, 1993.
10.3* SFP Incentive Stock Compensation Plan. Incorporated by refer-
ence to Exhibit 10(e) to SFP's Report on Form 10-K for the
fiscal year ended December 31, 1985. Amendments to SFP Incen-
tive Stock Compensation Plan dated May 28, 1987 and October
29, 1987 are incorporated by reference to Exhibit 10(e) to
SFP's Report on Form 10-K for the fiscal year ended December
31, 1987. Amendments to SFP Incentive Stock Compensation Plan
dated March 8, 1989, June 8, 1989, and February 27, 1990 are
incorporated by reference to Exhibit 10(e) to SFP's Report on
Form 10-K for the fiscal year ended December 31, 1989. Amend-
ment to SFP Incentive Stock Compensation Plan effective as of
July 24, 1990 is incorporated by reference to SFP's Report on
Form 10-Q for the Quarter ended June 30, 1990. Amendment to
SFP Incentive Stock Compensation Plan dated December 4, 1990
is incorporated by reference to SFP's Report on Form 10-K for
the fiscal year ended December 31, 1990.
10.4* Indemnity Agreements dated September 23, 1986 by and between
SFP and each of its directors and officers. Incorporated by
reference to Exhibit A to SFP's Annual Meeting of Stockhold-
ers-Notice and Proxy Statement-dated March 18, 1987.
10.5* SFP Form of Severance Agreement dated November 2, 1987 (appli-
cable to 30 persons as of March 15, 1995), as adopted in May
1987 and amended in October 1987. Incorporated by reference to
Exhibit 10(j) to SFP's Report on Form 10-K for the fiscal year
ended December 31, 1987. Amendment to Form of Severance Agree-
ment dated July 24, 1990 is incorporated by reference to SFP's
Report on Form 10-Q for the quarter ended June 30, 1990.
Amendment to Form of Severance Agreement authorized January
25, 1994 is incorporated by reference to Exhibit 10.1 to SFP's
Report on Form 10-Q for the quarter ended June 30, 1994.
Amendment to Form of Severance Agreement dated March 28, 1995.
10.6* Trust Agreement dated July 6, 1987 between SFP and Harris
Trust and Savings Bank as Trustee, as amended on October 28,
1987 and November 2, 1987. Incorporated by reference to Ex-
hibit 10(k) to SFP's Report on Form 10-K for the fiscal year
ended December 31, 1987. Amendment to Trust Agreement dated
September 1, 1988. Incorporated by reference to Exhibit 10(i)
to SFP's Report on Form 10-K for the fiscal year ended Decem-
ber 31, 1988.
</TABLE>
--------
* Management contract or compensatory plan or arrangement.
E-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.7* SFP Supplemental Deferred Compensation Plan. Incorporated by
reference to Exhibit 10(l) to SFP's Report on Form 10-K for
the fiscal year ended December 31, 1987.
10.8* Retirement Policy for Directors of Santa Fe Pacific Corpora-
tion, adopted July 26, 1988, and effective January 1, 1988.
Incorporated by reference to Exhibit 10(l) to SFP's Report on
Form 10-K for the fiscal year ended December 31, 1988.
10.9* SFP Supplemental Executive Retirement Plan adopted as of Octo-
ber 1, 1989 and Amendment to SFP Supplemental Executive Re-
tirement Plan dated as of February 27, 1990. Incorporated by
reference to Exhibit 10(n) to SFP's Report on Form 10-K for
the fiscal year ended December 31, 1989.
10.10* MLP Incentive Plan. Incorporated by reference to Exhibit 10.9
to Amendment No. 1 to Registration Statement on Form S-1 of
SFP Pipeline Holdings, Inc. (Commission File No. 33-35638)
dated August 8, 1990.
10.11* Employment Agreement effective as of June 1, 1990 between
Santa Fe Pacific Pipelines, Inc. and I. Toole, Jr. Incorpo-
rated by reference to Exhibit 10.16 to Amendment No. 1 to Reg-
istration Statement on Form S-1 of SFP Pipeline Holdings, Inc.
(Commission File No. 33-35638) dated August 8, 1990.
10.12* Retirement Benefit Agreement dated February 26, 1992 between
SFP and R. D. Krebs. Incorporated by reference to SFP's Report
on Form 10-K for the fiscal year ended December 31, 1991.
10.13* The Atchison, Topeka and Santa Fe Railway Company Incentive
Compensation Plan. Incorporated by reference to Exhibit 10(n)
to SFP's Report on Form 10-K for the fiscal year ended Decem-
ber 31, 1991.
10.14* The Santa Fe Pacific Pipelines, Inc. Incentive Compensation
Plan. Incorporated by reference to Exhibit 10.8 to Amendment
No. 1 to Registration Statement on Form S-1 of SFP Pipeline
Holdings, Inc. (Commission File No. 33-35638) dated August 8,
1990.
10.15* Santa Fe Pacific Long Term Incentive Stock Plan. Incorporated
by reference to Exhibit 10.1 to SFP's Report on Form 10-Q for
the quarter ended September 30, 1994. Amendment to Santa Fe
Pacific Corporation Long Term Incentive Stock Plan dated May
25, 1993, incorporated by reference to SFP's Report on From
10-Q for the quarter ended June 30, 1993. Amendment to Santa
Fe Pacific Long Term Incentive Stock Plan dated March 28,
1995.
10.16* Santa Fe Pacific Corporation Supplement Retirement and Savings
Plan. Incorporated by reference to Exhibit 10(s) to SFP's Re-
port on From 10-K for the fiscal year ended December 31, 1993.
10.17* The MLP Phantom Unit Incentive Plan. Incorporated by reference
to Exhibit 10 to Form 10-Q of SFP Pipeline Holdings, Inc. for
the quarter ended June 30, 1993.
12 Computation of Ratio of Earnings to Fixed Charges.
13 1994 Annual Report to Shareholders of SFP (Consolidated Finan-
cial Highlights on page 1, and pages 12-32, only).
21 Subsidiaries of SFP.
23 Consent of Independent Accountants.
</TABLE>
--------
* Management contract or compensatory plan or arrangement.
E-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
24 Powers of Attorney.
27 Financial Data Schedule.
99 Santa Fe Pacific Pipeline Partners, L.P. Report on Form 10-K
for the fiscal year ended December 31, 1994 (sections in Item
3, Legal Proceedings, under the headings "East Line Litigation
and FERC Proceeding," "FERC Proceeding," "East Line Civil Lit-
igation," and "Environmental Matters" only).
</TABLE>
--------
* Management contract or compensatory plan or arrangement.
E-4
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 2 dated as of December 18, 1994 (this "Amendment") between
Burlington Northern Inc., a Delaware corporation ("BNI"), and Santa Fe Pacific
Corporation, a Delaware corporation ("SFP").
WHEREAS, BNI and SFP have previously entered into that certain Agreement
and Plan of Merger dated as of June 29, 1994 between BNI and SFP, as amended by
the Amendment thereto dated as of October 26, 1994 (as so amended, the "Merger
Agreement"); and
WHEREAS, the respective Boards of Directors of BNI and SFP have determined
that it is in the best interests of BNI or SFP, as the case may be, and its
respective stockholders to further amend the Merger Agreement as hereinafter set
forth and have duly approved this Amendment No. 2 and authorized its execution
and delivery.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined
herein, shall have the meanings given them in the Merger Agreement, and
each reference in the Merger Agreement to "this Agreement", "hereof",
"herein", "hereunder" or "hereby" and each other similar reference shall be
deemed to refer to the Merger Agreement as amended hereby. All references
to the Merger Agreement in any other agreement between BNI and SFP relating
to the transactions contemplated by the Merger Agreement shall be deemed to
refer to the Merger Agreement as amended hereby.
2. Section 1.2(a)(i) of the Merger Agreement is hereby amended by
deleting the number "0.34" wherever such number appears therein and
inserting in its place the number "0.40".
3. Section 3.3 of the Merger Agreement is hereby amended by inserting
the words "the Offer and" after the phrase "the consummation of" therein.
4. Section 3.5 of the Merger Agreement is hereby amended by (i)
inserting the words ", except for the Offer" after the phrase "SFP
Securities" in the last sentence of Section 3.5(a), (ii) deleting the
phrase "12,000,000 shares were reserved for issuance pursuant to the SFP
Long-Term Incentive Stock Plan, of which
<PAGE>
5,281,405 were available for grant and" and (iii) adding the following new
sentence after the second sentence of Section 3.5(a):
As of May 31, 1994, a total of 12,000,000 shares of SFP Common Stock
were approved for awards under the SFP Long-Term Incentive Stock Plan,
of which 5,281,405 remain available for grant.
5. Section 3.9 of the Merger Agreement is hereby amended by replacing
subparagraph (a) of such section in its entirety with the following:
(a) Each document required to be filed by SFP with the SEC in
connection with the transactions contemplated by this Agreement (the
"SFP Disclosure Documents"), including, without limitation, (i) the
SFP Offer Documents to be filed with the SEC in connection with the
Offer and (ii) the definitive proxy statement of SFP (the "SFP Proxy
Statement") to be filed with the SEC in connection with the Merger,
and any amendments or supplements thereto, will, when filed, comply as
to form in all material respects with the applicable requirements of
the Exchange Act. At the time the offer to purchase and form of
related letter of transmittal contained in the SFP Offer Documents or
any amendment or supplement thereto are first mailed to stockholders
of SFP and at the time of consummation of the Offer, the SFP Offer
Documents, as supplemented or amended, if applicable, will not contain
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. At the time
the SFP Proxy Statement or any amendment or supplement thereto is
first mailed to stockholders of SFP and at the time such stockholders
vote on adoption of this Agreement, the SFP Proxy Statement, as
supplemented or amended, if applicable, will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. At the
time of the filing of any SFP Disclosure Document other than the SFP
Offer Documents and the SFP Proxy Statement and at the time of any
distribution thereof, such SFP Disclosure Document will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order
2
<PAGE>
to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The representations and
warranties contained in this Section 3.9(a) will not apply to
statements or omissions included in SFP Disclosure Documents based
upon information furnished to SFP in writing by BNI specifically for
use therein.
6. Section 3.10 of the Merger Agreement is hereby amended by
replacing such section in its entirety with the following:
SECTION 3.10. Information Supplied. The information supplied or
to be supplied by SFP for inclusion or incorporation by reference in
(i) the BNI Offer Documents or any amendment or supplement thereto
will not, at the time the offer to purchase and form of related letter
of transmittal contained in the BNI Offer Documents or any amendment
or supplement thereto are first mailed to stockholders of SFP and at
the time of the consummation of the Offer, contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading, (ii) the
BNI Proxy Statement or any amendment or supplement thereto will not,
at the time the BNI Proxy Statement is first mailed to stockholders of
BNI and at the time such stockholders vote on adoption of this
Agreement, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, (iii) any BNI Disclosure Document (other than the BNI
Offer Documents and the BNI Proxy Statement) will not, at the time of
effectiveness of such BNI Disclosure Document and at the time of any
distribution thereof contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which
they were made, not misleading, and (iv) the Form S-4 (as defined in
Section 7.3(a)) will not, at the time the Form S-4 becomes effective
under the 1933 Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
3
<PAGE>
7. Section 3.13 of the Merger Agreement is hereby amended by
inserting the words ", and except as set forth in the Joint Proxy
Statement/Prospectus of SFP and BNI dated October 12, 1994 and the
Supplemental Joint Proxy Statement/Prospectus thereto dated October 28,
1994," after the phrase "SFP Form 10-Q" therein.
8. The Merger Agreement is hereby amended by adding the following as
a new Section 3.23:
SECTION 3.23. SFP Rights Agreement. Under the Rights Agreement
between SFP and First Chicago Trust Company of New York, as Rights
Agent, dated as of November 28, 1994 (the "SFP Rights Agreement"), BNI
will not become an "Acquiring Person", no "Shares Acquisition Date" or
"Distribution Date" (as such terms are defined in the SFP Rights
Agreement) will occur, and SFP's shareholders will not be entitled to
receive any benefits under the SFP Rights Agreement as a result of the
approval, execution or delivery of this Agreement, the commencement or
consummation of the Offer or the consummation of the Merger.
9. Section 4.3 of the Merger Agreement is hereby amended by inserting
the words "the Offer and" after the phrase "the consummation of" therein.
10. Section 4.9 of the Merger Agreement is hereby amended by
replacing such section in its entirety with the following:
SECTION 4.9. Disclosure Documents. Each document required to be
filed by BNI with the SEC in connection with the transactions
contemplated by this Agreement (the "BNI Disclosure Documents"),
including, without limitation, (i) the BNI Offer Documents to be filed
with the SEC in connection with the Offer and (ii) the definitive
proxy statement of BNI (the "BNI Proxy Statement") to be filed with
the SEC in connection with the Merger, and any amendments or
supplements thereto, will, when filed, comply as to form in all
material respects with the applicable requirements of the Exchange
Act. At the time the offer to purchase and form of related letter of
transmittal contained in the BNI Offer Documents or any amendment or
supplement thereto are first mailed to stockholders of SFP and at the
time of consummation of the Offer, the BNI Offer Documents, as
supplemented or amended, if applicable, will not contain any untrue
statement of a material fact or omit to state any material
4
<PAGE>
fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. At the time
the BNI Proxy Statement or any amendment or supplement thereto is
first mailed to stockholders of BNI and at the time such stockholders
vote on adoption of this Agreement, the BNI Proxy Statement, as
supplemented or amended, if applicable, will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. At the
time of the filing of any BNI Disclosure Document other than the BNI
Offer Documents and the BNI Proxy Statement and at the time of any
distribution thereof, such BNI Disclosure Document will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The
representations and warranties contained in this Section 4.9 will not
apply to statements or omissions included in BNI Disclosure Documents
based upon information furnished to BNI in writing by SFP specifically
for use therein.
11. Section 4.10 of the Merger Agreement is hereby amended by
replacing such section in its entirety with the following:
SECTION 4.10. Information Supplied. The information supplied or
to be supplied by BNI for inclusion or incorporation by reference in
(i) the SFP Offer Documents or any amendment or supplement thereto
will not, at the time the offer to purchase and form of related letter
of transmittal contained in the SFP Offer Documents or any amendment
or supplement thereto are first mailed to stockholders of SFP and at
the time of the consummation of the Offer, contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading, (ii) the
SFP Proxy Statement or any amendment or supplement thereto will not,
at the time the SFP Proxy Statement is first mailed to stockholders of
SFP and at the time such stockholders vote on adoption of this
Agreement, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made
therein, in light of
5
<PAGE>
the circumstances under which they were made, not misleading and (iii)
any SFP Disclosure Document (other than the SFP Offer Documents and
the SFP Proxy Statement) will not, at the time of effectiveness of
such SFP Disclosure Document and at the time of any distribution
thereof contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
12. Section 4.13 of the Merger Agreement is hereby amended by
inserting the words ", and except as set forth in the Joint Proxy
Statement/Prospectus of SFP and BNI dated October 12, 1994 and the
Supplemental Joint Proxy Statement/Prospectus thereto dated October 28,
1994," after the phrase "BNI Form 10-Q" therein.
13. Section 5.1 of the Merger Agreement is hereby amended by (i)
inserting the words "the Offer," after the phrase "Except for" in
subparagraph (b) thereof, and (ii) replacing subparagraph (f) thereof in
its entirety with the following:
(f) Except for (i) borrowings under existing credit facilities,
replacements therefor and refinancings thereof, (ii) borrowings not to
exceed $1.75 billion in the aggregate under credit facilities in form
and substance reasonably satisfactory to BNI to finance the Offer, to
refinance SFP's currently outstanding 12.65% Senior Notes due October
1, 2000, 8 3/8% Notes due November 1, 2001 and 8 5/8% Notes due
November 1, 2004, to pay penalties, premiums and make-whole payments
required in connection with such refinancing and for working capital
and other corporate purposes, (iii) borrowings in the ordinary course
of business consistent with past practice or (iv) borrowings that are
Customary Actions, SFP will not, and will not permit any Subsidiary of
SFP to, incur any indebtedness for borrowed money or guarantee any
such indebtedness;
14. The final sentence of Section 5.8 is hereby amended to read in
its entirety as follows:
As used in this Agreement, "Takeover Proposal" when used in connection
with any Person shall mean any tender or exchange offer involving such
Person, any proposal for a merger, consolidation or other business
combination involving such Person or any
6
<PAGE>
Subsidiary of such Person, any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of
the assets of, such Person or any Subsidiary of such Person, any
proposal or offer with respect to any recapitalization or
restructuring with respect to such Person or any Subsidiary of such
Person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such Person or any
Subsidiary of such Person other than pursuant to the transactions to
be effected pursuant to this Agreement.
15. The Merger Agreement is hereby amended by adding the following as
a new Section 5.9:
SECTION 5.9. Registration Rights. SFP hereby grants BNI the
registration and other rights set forth in Annex II hereto, which
rights shall become effective without any action by any Person in the
event that this Agreement is terminated for any reason after
consummation of the Offer.
16. Section 6.1 of the Merger Agreement is hereby amended by
inserting the words "the Offer and" after the phrase "Except for" in
subparagraph (b) thereof.
17. Section 6.1 of the Merger Agreement is hereby amended by
replacing subparagraph (f) thereof in its entirety with the following:
(f) Except for (i) borrowings under existing credit facilities,
replacements therefor and refinancings thereof, (ii) borrowings not to
exceed $500 million in the aggregate under credit facilities in form
and substance reasonably satisfactory to SFP to finance the Offer
(iii) borrowings in the ordinary course of business consistent with
past practice or (iv) borrowings that are Customary Actions, BNI will
not, and will not permit any Subsidiary of BNI to, incur any
indebtedness for borrowed money or guarantee any such indebtedness;
18. Section 6.1 of the Merger Agreement is hereby amended by
replacing subparagraph (g) thereof in its entirety with the following:
7
<PAGE>
(g) Except for loans, advances, capital contributions or investments
made in the ordinary course of business consistent with past practice,
except for loans, advances, capital contributions or investments that
are Customary Actions and, except for loans, advances, capital
contributions or investments for the purchase of shares of SFP Common
Stock pursuant to the Offer, BNI will not, and will not permit any
Subsidiary of BNI to, make any loans, advances or capital
contributions to, or investments in, any other Person (other than to
BNI or any Subsidiary of BNI);
19. Article VIII of the Merger Agreement is hereby amended by
replacing such article in its entirety with the following:
ARTICLE VIII
THE OFFER
SECTION 8.1. The Offer. (a) Provided that nothing shall have
occurred that would result in a failure to satisfy any of the
conditions set forth in Annex I hereto, SFP and BNI shall, as promptly
as practicable, but in no event later than December 23, 1994, commence
separate tender offers (together, the "Offer") to purchase, in the
case of SFP, up to 38,000,000 shares of SFP Common Stock and, in the
case of BNI, up to 25,000,000 shares of SFP Common Stock (in each
case, together with the associated rights under the SFP Rights Plan),
at a price of $20.00 per share, net to the seller in cash, with SFP to
be severally obligated to purchase 0.60317 of any shares of SFP Common
Stock accepted for payment pursuant to the Offer and BNI severally
obligated to purchase 0.39683 of any shares of SFP Common Stock
accepted for payment pursuant to the Offer. Notwithstanding any
provision of this Agreement (or any Annex hereto) to the contrary, no
term of the Offer may be amended or modified without the written
consent of both parties hereto.
(b) The several obligations of BNI and SFP under the Offer shall
be subject to the condition that there shall be validly tendered in
accordance with the terms of the Offer prior to the expiration date of
the Offer and not withdrawn 63,000,000 shares of SFP Common Stock and
to the other conditions set forth in Annex I hereto. Each of SFP and
BNI expressly reserves the right to waive any of the conditions to its
obligation
8
<PAGE>
under the Offer, except that the Minimum Condition may not be waived
without the consent of each of SFP and BNI. Furthermore, each of SFP
and BNI shall have the right to determine, in its sole reasonable
discretion, whether the conditions to its obligations under the Offer
have been satisfied.
(c) As soon as practicable on the date of commencement of the
Offer, SFP shall file with the SEC an Issuer Tender Offer Statement on
Schedule 13E-4 with respect to the Offer which will contain the offer
to purchase and form of the related letter of transmittal (together
with any supplements or amendments thereto, collectively the "SFP
Offer Documents"). SFP and BNI each agrees promptly to correct any
information provided by it for use in the SFP Offer Documents if and
to the extent that it shall have become false or misleading in any
material respect. BNI and its counsel shall be given an opportunity
to review and comment on the Schedule 13E-4 prior to its being filed
with the SEC.
(d) As soon as practicable on the date of commencement of the
Offer, BNI shall file with the SEC a Tender Offer Statement on
Schedule 14D-1 with respect to the Offer which will contain the offer
to purchase and form of the related letter of transmittal (together
with any supplements or amendments thereto, collectively the "BNI
Offer Documents"). BNI and SFP each agrees promptly to correct any
information provided by it for use in the BNI Offer Documents if and
to the extent that it shall have become false or misleading in any
material respect. SFP and its counsel shall be given an opportunity to
review and comment on the Schedule 14D-1 prior to its being filed with
the SEC.
(e) Upon satisfaction (or, where permitted, waiver) of the conditions
to the Offer, BNI and SFP shall purchase shares of SFP Common Stock
pursuant to the Offer as set forth in Section 8.1(a) above, provided,
however, that BNI shall not be obligated to purchase more than
25,000,000 shares of SFP Common Stock, and SFP shall not be obligated
to purchase more than 38,000,000 shares of SFP Common Stock.
SECTION 8.2. Action by SFP and BNI. (a) SFP represents that
its Board of Directors at a meeting duly called and held unanimously
resolved
9
<PAGE>
to recommend acceptance of the Offer by those of its stockholders who
wish to receive cash for a portion of their shares of SFP Common
Stock. SFP and BNI agree to take all steps necessary to cause the
offer to purchase and form of the related letter of transmittal to be
disseminated to holders of shares of SFP Common Stock as and to the
extent required by applicable federal securities laws.
(b) As soon as practicable on the day that the Offer is
commenced, SFP will file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") which shall reflect
the recommendations of SFP's Board of Directors with respect to the
Offer described in Section 8.2(a). SFP and BNI each agree promptly to
correct any information provided by it for use in the Schedule 14D-9
if and to the extent that it shall have become false or misleading in
any material respect. SFP agrees to take all steps necessary to cause
the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to holders of shares of SFP Common Stock, in each case as
and to the extent required by applicable federal securities laws. BNI
and its counsel shall be given an opportunity to review and comment on
the Schedule 14D-9 prior to its being filed with the SEC.
20. Section 9.1 of the Merger Agreement is hereby amended as follows:
(a) Clause (vi) of Section 9.1 of the Merger Agreement is amended
to read in its entirety as follows:
(vi) SFP and BNI shall have obtained an opinion of nationally
recognized tax counsel to the effect that the Merger will be tax-free
to BNI, SFP and their respective stockholders for federal income tax
purposes;
(b) Clause (vii) is amended to read in its entirety as follows:
(vii) SFP and BNI shall have purchased shares of SFP Common
Stock pursuant to the Offer.
(c) The phrase "except that the condition set forth in clause
(vii) may not be waived" is added after the phrase "conditions exist"
and
10
<PAGE>
before the phrase ") of" in the first clause of Section 9.1.
21. Section 10.1 of the Merger Agreement is hereby amended by (a)
deleting the "and" at the end of clause (x), (b) replacing the "." at the
end of clause (xi) with a ";" and (c) adding the following new clauses
(xii) and (xiii);
(xii) by SFP, upon payment to BNI of the fee described in
Section 11.4(b), if prior to the purchase of shares of SFP Common
Stock pursuant to the Offer, (A) the board of directors of SFP shall
have withdrawn or modified in a manner adverse to BNI its approval or
recommendation of the Offer, this Agreement or the Merger in order to
permit SFP to execute a definitive agreement in connection with a
Takeover Proposal or in order to approve another tender offer for
shares of SFP Common Stock, in either case, as determined by the board
of directors of SFP, on terms more favorable to SFP's stockholders
than the transactions contemplated hereby, or (B) the board of
directors of SFP shall have recommended any other Takeover Proposal;
and
(xiii) by either BNI or SFP, if the Offer is terminated and SFP
and BNI shall not have purchased shares of SFP Common Stock pursuant
to the Offer.
22. Section 10.2 of the Merger Agreement is hereby amended by
inserting the section number ", 5.9" after the reference to section "4.16"
therein.
23. Section 11.4 of the Merger Agreement is hereby amended by
replacing such section in its entirety with the following:
Section 11.4. Expenses; Certain Payments. (a) Except as
otherwise provided in this Section or agreed in writing by the
parties, each party shall bear its own expenses, including the fees
and expenses of any attorneys, accountants, investment bankers,
brokers, finders or other intermediaries or other Persons engaged by
it, incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) SFP agrees that if this Agreement shall be terminated
pursuant to Section 10.1(v), (vii), (viii), (xii) or (xiii), it will
pay BNI an amount equal to $50,000,000 plus all out-of-pocket
11
<PAGE>
expenses, not to exceed $10,000,000, incurred by BNI in connection
with this Agreement, the Merger, the Offer and all related
transactions by wire transfer of immediately available funds promptly,
but in no event later than two business days, after such termination;
provided that no payment will be required pursuant to this Section
11.4(b) if this Agreement is terminated pursuant to Section 10.1(vii),
(viii) or (xiii) unless, after the date hereof, a new Takeover
Proposal involving SFP has been announced or made (it being understood
that any modification of Union Pacific Corporation's Takeover Proposal
in existence on the date hereof shall be deemed a new Takeover
Proposal).
(c) SFP agrees that if this Agreement shall be terminated
pursuant to Section 10.1(vii), (viii) or (xiii) and no payment is
required by it pursuant to Section 11.4(b), it will reimburse BNI for
all out-of-pocket expenses incurred by BNI in connection with this
Agreement, the Merger, the Offer and all related transactions. Such
payment shall be made by wire transfer of immediately available funds
promptly, but in no event later than two business days, after receipt
by SFP from BNI of documentation of such expenses.
24. The Merger Agreement is hereby amended by adding as Annex I
thereto the following:
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, neither SFP nor BNI
shall be required to accept for payment or pay for any shares of SFP Common
Stock, and may terminate or amend its obligation to purchase shares of SFP
Common Stock under the Offer or may postpone the acceptance for payment of
and payment for shares of SFP Common Stock, if (i) at least 63,000,000
shares of SFP Common Stock shall not have been tendered and not withdrawn
pursuant to the Offer (the "Minimum Condition"), (ii) this Agreement shall
not have been adopted by the stockholders of SFP and BNI in accordance with
Delaware Law, (iii) the applicable waiting period under the HSR Act shall
not have expired or been terminated, (iv) BNI (in the case of SFP) and SFP
(in the case of BNI) shall not have accepted (or shall not concurrently
accept) shares of SFP Common
12
<PAGE>
Stock for payment under the Offer or (v) at any time on or after the date
of this Agreement and prior to the acceptance for payment of shares of SFP
Common Stock, any of the following conditions exist:
(a) any court, arbitrator or governmental body, agency or
official shall have issued any order, or there shall be any statute,
rule or regulation, restraining or prohibiting the consummation of the
Offer or the Merger or the effective operation of the business of BNI,
SFP and their respective Subsidiaries after the Effective Time; or
(b) any actions by or in respect of or filings with any
governmental body, agency, official, or authority required to permit
the consummation of the Offer (other than with respect to the HSR Act)
or the Merger (other than ICC approval) shall not have been obtained,
but excluding any consent, approval, clearance or confirmation the
failure to obtain which could not reasonably be expected to have a
Material Adverse Effect on the Surviving Corporation after the
Effective Time; or
(c) SFP (in the case of BNI) or BNI (in the case of SFP) shall
have failed to perform in any material respect any of its respective
obligations under this Agreement required to be performed by it at or
prior to the consummation of the Offer, or the representations and
warranties of SFP (in the case of BNI) or BNI (in the case of SFP)
shall not have been accurate in all material respects both when made
and at and as of any time prior to the consummation of the Offer as if
made at and as of such time, except for the representations and
warranties of SFP and BNI in Sections 3.5(a) and 4.5(a), respectively,
of the Agreement, which shall be accurate in all respects when made
and at and as of any time prior to the consummation of the Offer as if
made at and as of that time; or
(d) the Agreement shall have been terminated in accordance with
its terms; or
(e) (i) SFP shall not be satisfied, in its sole discretion, that
it has obtained sufficient financing to enable it to satisfy its
obligations under the Offer and to effect the other transactions
referred to in Section 5.1(f)(ii), or (ii) BNI shall not be satisfied,
in its sole discretion, that it has obtained sufficient
13
<PAGE>
financing to enable it to satisfy its obligations under the Offer (it
being understood that each of SFP and BNI will use its reasonable best
efforts to ensure that this condition to its obligations under the
Offer is satisfied no later than December 31, 1994).
which, in the sole judgment of SFP or BNI in any such case, and regardless
of the circumstances (including any action or omission by SFP or BNI)
giving rise to any such condition, makes it inadvisable to proceed with
such acceptance for payment or payment; provided that the Minimum Condition
may be waived only with the consent of each of BNI and SFP.
25. The Merger Agreement is hereby amended by adding as Annex II
thereto the following:
ANNEX II
REGISTRATION RIGHTS
-------------------
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under common control with
such Person. For the purposes of this definition, "control" when used
with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership
of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"Demand Registration" means a Demand Registration as defined in
Section 2.2.
"Piggy-Back Registration" means a Piggy-Back Registration as
defined in Section 2.3.
"Registrable Securities" means the shares of SFP Common Stock
purchased by BNI pursuant to the Offer until (i) a registration
statement covering such SFP Common Stock has been declared effective
14
<PAGE>
by the Commission and it has been disposed of pursuant to such
effective registration statement, (ii) such SFP Common Stock is sold
under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in force) under the 1933 Act are
met, (iii) such SFP Common Stock may be sold without registration
pursuant to Rule 144(k) or (iv) such SFP Common Stock has been
otherwise transferred, SFP has delivered a new certificate or other
evidence of ownership for such SFP Common Stock not bearing the legend
required pursuant to this Agreement and such SFP Common Stock may be
resold without subsequent registration under the 1933 Act.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) Request for Registration.
At any time or from time to time after the termination of the
Agreement, BNI may make a written request for registration under the
1933 Act of all or part of its Registrable Securities (a "Demand
Registration"); provided, that the SFP shall not be obligated to
effect more than two Demand Registrations in total with respect to
such issue of Registrable Securities. Such request will specify the
number of shares of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof.
(b) Effective Registration. A registration will not count as a
Demand Registration until it has become effective.
(c) Managing Underwriting; Additional Demand Registrations. If
BNI shall so elect, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an
underwritten offering. BNI shall select the book-running managing
Underwriter in connection with such offering and any additional
investment bankers and managers to be used in connection with
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the offering; provided that such managing Underwriter and additional
investment bankers and managers must be reasonably satisfactory to
SFP. To the extent Registrable Securities so requested to be
registered are excluded from the offering in accordance with Section
2.3, BNI shall have the right to one additional Demand Registration
under this Section with respect to such Registrable Securities.
SECTION 2.2. Piggy-Back Registration. If at any time SFP
proposes to file a registration statement under the 1933 Act with
respect to an offering by SFP for its own account or for the account
of any of its respective securityholders of any class of security
(other than a registration statement on Form S-4 or S-8 (or any
substitute form that may be adopted by the Commission or a
registration filed), or filed in connection with an exchange offer or
offering of securities solely to SFP's existing securityholders) then
SFP shall give written notice of such proposed filing to BNI as soon
as practicable (but in no event less than 10 days before the
anticipated filing date), and such notice shall offer BNI the
opportunity to register such number of shares of Registrable
Securities as BNI may request (a "Piggy-Back Registration"). SFP shall
use its reasonable best efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the
Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any
similar securities of SFP included therein.
SECTION 2.3. Reduction of Offering. Notwithstanding anything
contained herein, if the managing Underwriter or Underwriters of an
offering described in Section 2.1 or 2.2 deliver a written opinion to
BNI that the size of the offering that is intended to be made is such
that the success of the offering would be materially and adversely
affected by inclusion of all of the Registrable Securities requested
to be included, then the amount of securities to be offered for the
account of BNI shall be reduced to the extent necessary to reduce the
total amount of securities to be included in such offering to the
amount recommended by such managing Underwriter or Underwriters;
provided that, in the case of a Piggy-Back Registration, if securities
are being offered for the account of other persons or
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entities as well as SFP, then with respect to the Registrable
Securities intended to be offered by BNI, the proportion by which the
amount of such class of securities intended to be offered by BNI is
reduced shall not exceed the proportion by which the amount of such
class of securities intended to be offered by such other persons or
entities is reduced.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever BNI requests that
any Registrable Securities be registered pursuant to Section 2.1
hereof, SFP will use its reasonable best efforts to effect the
registration of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable, and
in connection with any such request:
(a) SFP will as expeditiously as reasonably practicable prepare
and file with the SEC a registration statement on any form for which
SFP then qualifies or which counsel for SFP shall deem appropriate and
which form shall be available for the sale of the Registrable
Securities to be registered thereunder in accordance with the intended
method of distribution thereof, and use its reasonable best efforts to
cause such filed registration statement to become and remain effective
for a period of not less than 270 days; provided that if SFP shall
furnish to BNI a certificate signed by either its Chairman or the Vice
Chairman stating that in his good faith judgment it would be
significantly disadvantageous to SFP or its shareholders for such a
registration statement to be filed as expeditiously as reasonably
practicable, SFP shall have a period of not more than 90 days within
which to file such registration statement measured from the date of
receipt of the request in accordance with Section 2.1.
(b) SFP will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto,
furnish to BNI and each Underwriter, if any, of the Registrable
Securities covered by such registration statement copies of such
registration statement as proposed
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to be filed, and thereafter furnish to BNI and such Underwriter, if
any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits
thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as BNI or such
Underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by BNI.
(c) After the filing of the registration statement, SFP will
promptly notify BNI of any stop order issued or threatened by the SEC
and take all reasonable actions required to prevent the entry of such
stop order or to remove it if entered.
(d) SFP will use its reasonable best efforts to (i) register or
qualify the Registrable Securities under such other securities or blue
sky laws of such jurisdictions in the United States as BNI reasonably
(in light of BNI's intended plan of distribution) requests and (ii)
cause such Registrable Securities to be registered with or approved by
such other governmental agencies or authorities in the United States
as may be necessary by virtue of the business and operations of SFP
and do any and all other acts and things that may be reasonably
necessary or advisable to enable BNI to consummate the disposition of
the Registrable Securities owned by BNI; provided that SFP will not be
required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
paragraph (d), (B) subject itself to taxation in any such jurisdiction
or (C) consent to general service of process in any such jurisdiction.
(e) SFP will immediately notify BNI, at any time when a
prospectus relating thereto is required to be delivered under the 1933
Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and promptly
make available to BNI any such supplement or amendment.
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(f) SFP will enter into customary agreements (including an
underwriting agreement in form customary for SFP) and take such other
actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities.
(h) Subject, in the case of BNI, to the Confidentiality
Agreement between BNI and SFP dated as of July 28, 1993 or, in the
case of any Underwriter or Inspector retained by any Underwriter,
customary confidentiality obligations, SFP will make available for
inspection by BNI, any Underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant
or other professional retained by BNI or such Underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of SFP (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause SFP's officers,
directors and employees to supply all information reasonably requested
by any Inspectors in connection with such registration statement.
(i) SFP will furnish to BNI and to each Underwriter, if any, a
signed counterpart, addressed to BNI or such Underwriter, of (i) an
opinion or opinions of counsel to SFP and (ii) a comfort letter or
comfort letters from SFP's independent public accountants, each in
form customary in primary offerings by SFP form and covering such
matters of the type customarily covered by opinions or comfort
letters, as the case may be, as BNI or the managing Underwriter
reasonably requests.
(j) SFP will otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the SEC, and make
available to its security-holders, as soon as reasonably practicable,
its most recent quarterly earnings statement beginning with the first
full quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a)
of the 1933 Act and Rule 158 under the 1933 Act.
(k) SFP will use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange on
which
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similar securities of the same class issued by SFP are then listed.
SFP may require BNI to promptly furnish in writing to SFP such
information regarding the distribution of the Registrable Securities
as SFP may from time to time reasonably request and such other
information as may be legally required in connection with such
registration.
BNI agrees that, upon receipt of any notice from SFP of the
happening of any event of the kind described in Section 3.1(e) hereof,
BNI will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement covering such Registrable
Securities until BNI's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.1(e) hereof, and, if so
directed by SFP, BNI will deliver to SFP all copies, other than
permanent file copies then in BNI's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt
of such notice. In the event SFP shall give such notice, SFP shall
extend the period during which such registration statement shall be
maintained effective (including the period referred to in Section
3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(e)
hereof to the date when SFP shall make available to BNI a prospectus
supplemented or amended to conform with the requirements of Section
3.1(e) hereof.
SECTION 3.2. Registration Expenses. In connection with any
registration statement required to be filed hereunder, SFP shall pay
the following registration expenses incurred in connection with the
registration hereunder (the "Registration Expenses"): (i) all
registration and filing fees, (ii) fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) printing expenses, (iv) internal
expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v)
the fees and expenses incurred in connection with the listing of the
Registrable Securities, (vi) reasonable fees and disbursements of
counsel for SFP and customary fees and expenses for independent
certified public
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accountants retained by SFP (including the expenses of any comfort
letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letters requested
pursuant to Section 3.1(h) hereof), and (vii) the reasonable fees and
expenses of any special experts retained by SFP in connection with
such registration. SFP shall have no obligation to pay any
underwriting fees, discounts or commissions attributable to the sale
of Registrable Securities, or any out-of-pocket expenses of BNI or its
Underwriters (or the agents who manage their accounts).
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by SFP. SFP agrees to indemnify
and hold harmless BNI, its officers, directors and agents, and each
Person, if any, who controls BNI within the meaning of Section 15 of
the 1933 Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable
Securities (as amended or supplemented if SFP shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or
caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages
or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished
in writing to SFP by BNI or on BNI's behalf expressly for use therein;
provided, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of BNI,
its officers, directors and agents, and each Person, if any, who
controls BNI within the meaning of Section 15 of the 1933 Act or
Section 20 of the Exchange Act if it is determined that it was the
responsibility of BNI to provide such person with a current copy of
the prospectus and such current copy of the prospectus would have
cured the defect giving rise to such loss, claim, damage or liability.
SFP also agrees to indemnify
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any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of BNI
provided in this Section 4.1.
SECTION 4.2. Indemnification by BNI. BNI agrees to indemnify
and hold harmless SFP, its officers, directors and agents and each
Person, if any, who controls SFP within the meaning of either Section
15 of the 1933 Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from SFP to BNI, but only with
reference to information relating to BNI furnished in writing by BNI
or on BNI's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. In case any action
or proceeding shall be brought against SFP or its officers, directors
or agents or any such controlling person, in respect of which
indemnity may be sought against BNI, BNI shall have the rights and
duties given to SFP, and SFP or its officers, directors or agents or
such controlling person shall have the rights and duties given to BNI,
by the preceding paragraph. BNI also agrees to indemnify and hold
harmless Underwriters of the Registrable Securities, their officers
and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of SFP
provided in this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. In case
any proceeding (including any governmental investigation) shall be
instituted involving any person in respect of which indemnity may be
sought pursuant to Section 4.1 or 4.2, such person (an "Indemnified
Party") shall promptly notify the person against whom such indemnity
may be sought "Indemnifying Party") in writing and the Indemnifying
Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall
assume the payment of all fees and expenses. In any such proceeding,
any Indemnified Party shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such
counsel
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or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnified Party and the
Indemnifying Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees and expenses
of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all
such fees and expenses shall be reimbursed as they are incurred. In
the case of any such separate firm for the Indemnified Parties, such
firm shall be designated in writing by the Indemnified Parties. The
Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with
such consent, or if there be a final judgment for the plaintiff, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for
fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the indemnifying party agrees that it shall be liable
for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 business
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability arising out of such proceeding.
SECTION 4.4. Contribution. If the indemnification provided for
in this Article 4 is unavailable to the Indemnified Parties in respect
of any losses, claims, damages or liabilities
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referred to herein, then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) as between SFP and BNI on the one
hand and the Underwriters on the other, in such proportion as is
appropriate to reflect the relative benefits received by SFP and BNI
on the one hand and the Underwriters on the other from the offering of
the securities, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of SFP and BNI on the
one hand and of the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations
and (ii) as between SFP on the one hand and BNI on the other, in such
proportion as is appropriate to reflect the relative fault of SFP and
of BNI in connection with such statements or omissions, as well as any
other relevant equitable considerations. The relative benefits
received by SFP and BNI on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total
proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by SFP and BNI
bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover
page of the prospectus. The relative fault of SFP and BNI on the one
hand and of the Underwriters on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by SFP and BNI
or by the Underwriters. The relative fault of SFP on the one hand and
of BNI on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
SFP and BNI agree that it would not be just and equitable if
contribution pursuant to this
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Section 4.4 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages or liabilities referred to in
the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the securities underwritten by it and
distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission, and BNI shall not be required to
contribute any amount in excess of the amount by which the total price
at which BNI's securities were offered to the public exceeds the
amount of any damages which BNI has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No
Person may participate in any underwritten registration filed pursuant
to Section 2.1 hereunder unless such Person (a) agrees to sell such
Person's securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of
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such underwriting arrangements and these registration rights.
SECTION 5.2. Rule 144. SFP covenants that it will file any
reports required to be filed by it under the Exchange Act and that it
will take such further action as BNI may reasonably request, all to
the extent required from time to time to enable BNI to sell
Registrable Securities without registration under the 1933 Act within
the limitation of the exemptions provided by (a) Rule 144 under the
1933 Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the
request of BNI, SFP will deliver to BNI a written statement as to
whether it has complied with such requirements.
SECTION 5.3. Holdback Agreements. (a) Restrictions on Public
Sale by BNI. To the extent not inconsistent with applicable law, when
BNI's securities are included in a registration statement, BNI agrees
not to effect any public sale or distribution of SFP Common Stock, or
any securities convertible into or exchangeable or exercisable for
such securities, including a sale pursuant to Rule 144 under the 1933
Act, during the 14 days prior to, and during the 90-day period
beginning on, the effective date of such registration statement
(except as part of such registration), if and to the extent requested
by SFP in the case of a non-underwritten public offering or if and to
the extent requested by the managing Underwriter or Underwriters in
the case of an underwritten public offering.
(b) Restrictions on Public Sale by SFP and Others. SFP agrees
not to effect any public sale or distribution of any securities of the
class being registered in accordance with Section 2.1 hereof, or any
securities convertible into or exchangeable or exercisable for such
securities, during the 14 days prior to, and during the 90-day period
beginning on, the effective date of any registration statement (except
as part of such registration statement where BNI consents) or the
commencement of a public distribution of Registrable Securities,
including a sale pursuant to Rule 144 under the 1933 Act (except as
part of any such registration, if permitted); provided,
however, that the provisions of this paragraph (b) shall not prevent
the conversion or exchange of any securities pursuant to their terms
into or for
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other securities or sales or distributions pursuant to any dividend or
interest reinvestment plan or director or employer compensation plan.
26. A new Section 1.8 is hereby added to the Merger Agreement as
follows:
Section 1.8. Alternative Transaction Structure. (a) At any time
prior to the Effective Time, either BNI or SFP, in its sole discretion, may
notify the other party (the "Alternative Merger Notice") that it has determined
to restructure the transaction in the manner contemplated by this Section 1.8.
Upon delivery of the Alternative Merger Notice in the manner set forth in
Section 11.1 hereof (the "Alternative Election"), the Merger contemplated by
Section 1.1 of this Agreement shall be restructured in the manner set forth in
this Section 1.8. In such event, all references to the term "Merger" in this
Agreement shall be deemed references to the transactions contemplated by this
Section 1.8, all references to the term "Surviving Corporation" shall be deemed
references to BNSF Corporation, a Delaware corporation ("BNSF"), all references
to the term "Effective Time" in this Agreement shall be deemed references to the
time at which the certificates of merger are duly filed with the Secretary of
State of the State of Delaware (or at such later time as is specified in the
certificate of merger) with respect to the Merger as restructured in the manner
contemplated by this Section 1.8 and Sections 1.2(a), 1.2(b), 1.4 and 1.7 shall
no longer be of any force or effect and the provisions of this Section 1.8 shall
govern the terms of the Merger. Prior to the Effective Time, BNSF will be
controlled equally by BNI and SFP. The Merger, restructured as contemplated by
this Section 1.8, is sometimes referred to as the "Alternative Merger".
(b) Prior to the Effective Time, BNSF will be controlled equally by
BNI and SFP. Prior to the Effective Time of the Alternative Merger, BNI and SFP
will cause BNSF to incorporate two wholly owned subsidiaries as Delaware
corporations ("BNI Merger Sub" and "SFP Merger Sub"). At the Effective Time of
the Alternative Merger, (i) BNI Merger Sub will be merged with and into BNI in
accordance with Delaware Law, whereupon the separate existence of BNI Merger Sub
shall cease, and BNI shall be the surviving corporation, and (ii) SFP Merger Sub
will be merged with and into SFP in accordance with Delaware Law, whereupon the
separate existence of SFP Merger Sub shall cease, and SFP shall be the surviving
corporation.
(c) At the Effective Time of the Alternative Merger, (i) each share
of SFP Common Stock outstanding immediately prior to such Effective Time shall,
except as
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otherwise provided in Section 1.8(d) below, be converted into 0.40 shares of the
common stock of BNSF, no par value (the "BNSF Common Stock"), and (ii) each
share of BNI Common Stock outstanding immediately prior to such Effective Time
shall, except as otherwise provided in Section 1.8(d) below, be converted into
1.0 share of BNSF Common Stock.
(d) Each share of BNI Common Stock or SFP Common Stock (other than
the SFP Common Stock owned by BNI, which shall remain outstanding) held by
either of BNI or SFP as treasury stock or owned by BNI, SFP or any Subsidiary of
either of them immediately prior to the Effective Time of the Alternative Merger
shall be cancelled and no payments shall be made with respect thereto.
(e) The BNSF Common Stock to be received as consideration in the
Alternative Merger by holders of BNI Common Stock or SFP Common Stock is
referred to herein as the "Merger Consideration".
(f) (i) At the Effective Time of the Alternative Merger, each
outstanding option to purchase shares of SFP Common Stock (a "SFP Stock Option")
or BNI Common Stock (or "BNI Stock Option") granted under any employee stock
option or compensation plan or arrangement of SFP or BNI, as the case may be,
shall be cancelled and substituted with an option (a "BNSF Option") to acquire
BNSF Common Stock. Such cancellation and substitution shall comply in all
respects with, and shall be performed in accordance with, the methodology
prescribed by the provisions of Section 424(a) of the Code and the regulations
thereunder, and each BNSF Option shall provide the option holder with rights and
benefits that are no less favorable to him than were provided under the SFP
Stock Option or BNI Stock Option for which it was substituted.
(ii) At or as soon as possible after the Effective Time of the
Alternative Merger, BNSF shall issue to each holder of an SFP Stock Option or
BNI Stock Option which is cancelled pursuant to Section 1.8(f)(i) an agreement
that accurately reflects the terms of the BNSF Option substituted therefor as
contemplated by Section 1.8(f)(i).
(iii) BNSF shall take all corporate actions necessary to reserve such
number of shares of BNSF Common Stock as will be necessary to satisfy exercises
in full of all BNSF Options after the Effective Time. With respect to such BNSF
Common Stock, BNSF shall (i) as soon as practicable after the Effective Time of
the Alternative Merger file with the SEC a Registration Statement on Form S-8
and use its reasonable best efforts to have such registration statement become
and remain continuously
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effective under the 1933 Act and (ii) file with the NYSE a listing application
and use its reasonable best efforts to have such shares admitted to trading
thereon upon exercises of BNSF Options. BNSF shall also use its reasonable best
efforts to ensure that all incentive stock options within the meaning of the
Code continue to qualify as such at all times after such Effective Time.
(g) No certificates or scrip representing fractional shares of BNSF
Common Stock will be issued in the Alternative Merger, but in lieu thereof each
holder of SFP Common Stock otherwise entitled to a fractional share of BNSF
Common Stock will be entitled to receive, from the Exchange Agent in accordance
with the provisions of this Section 1.8 , a cash payment in lieu of such
fractional shares of BNSF Common Stock which would otherwise have been issued
(the "Excess Shares"). The sale of the Excess Shares by the Exchange Agent
shall be executed on the NYSE through one or more member firms of the NYSE and
shall be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of SFP
Common Stock, the Exchange Agent will hold such proceeds in trust (the "Common
Shares Trust") for the holders of the SFP Common Stock. BNSF shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent, incurred in connection with
this sale of the Excess Shares. The Exchange Agent shall determine the portion
of the Common Shares Trust to which each holder of SFP Common Stock shall be
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Shares Trust by a fraction the numerator of which is the
amount of the fractional BNSF Common Stock interest to which such holder of SFP
Common Stock is entitled and the denominator of which is the aggregate amount of
fractional share interests to which such holder of SFP Common Stock is entitled.
As soon as practicable after the determination of the amount of cash, if any, to
be paid to holders of SFP Common Stock in lieu of any fractional shares of BNSF
Common Stock, the Exchange Agent shall make available such amounts to such
holders of SFP Common Stock without interest.
(h) Immediately prior to the Effective Time of the Alternative Merger,
BNSF will become a party to this Agreement, assume all obligations of BNI
hereunder in its capacity as the Surviving Corporation and make the following
representations and warranties to each of BNI and SFP:
(i) Corporate Existence and Power. At the Effective Time, BNSF will
be a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of
29
<PAGE>
incorporation and will have all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to
carry on the businesses of BNI and SFP as such business are now conducted.
At the Effective Time, BNSF will be duly qualified to do business as a
foreign corporation and will be in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on BNSF.
(ii) Corporate Authorization. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation by
BNSF of the transactions contemplated hereby will be within the corporate
powers of BNSF and will have duly authorized by all necessary corporate
action on the part of BNSF. At the Effective Time, this Agreement will
constitute a valid and binding agreement of BNSF.
(iii) Governmental Authorization. At the Effective Time, the
execution, delivery and performance by BNSF of this Agreement and the
consummation of the Merger by BNSF will require no action by or in respect
of, or filing with, any governmental body, agency, official or authority
other than (i) the filing of a certificate of merger in accordance with
Delaware Law; (ii) compliance with any applicable requirements of the
Exchange Act; (iii) compliance with the applicable requirements of the 1933
Act; (iv) compliance with any applicable foreign or state securities or
Blue Sky laws; (v) immaterial actions or filings relating to ordinary
operational matters; and (vi) actions that have theretofore been taken or
filings that have theretofore been made.
(iv) Non-Contravention. At the Effective Time, the execution,
delivery and performance by BNSF of this Agreement and the consummation by
BNSF of the transactions contemplated hereby will not (except, in the case
of clauses (B), (C) and (D) of this Section 1.8(h)(iv), for any such
matters that singly or in the aggregate have not had, and would not
reasonably by expected to have, a Material Adverse Effect on BNSF (A)
contravene or conflict with the certificate of incorporation or bylaws of
BNSF, (B) assuming compliance with
30
<PAGE>
the matters referred to in Section 1.8(h)(iii), contravene or conflict with
or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to BNSF or
any Subsidiary of BNSF, (C) constitute a default under or give rise to any
right of termination, cancellation or acceleration of any right or
obligation of BNSF or any of its Subsidiaries or to a loss of any benefit
to which BNSF or any of its Subsidiaries is entitled under any agreement,
contract or other instrument binding upon BNSF or any of its Subsidiaries
or any license, franchise, permit or other similar authorization held by
BNSF or any of its Subsidiaries or (D) result in the creation or imposition
of any Lien on any asset of BNSF or any Subsidiary of BNSF.
(i) Prior to the Effective Time of the Alternative Merger, BNI and
SFP shall ensure that BNSF, BNI Merger Sub and SFP Merger Sub take no actions
and undertake no operations except as may be necessary in connection with the
consummation of the Merger and the transactions contemplated hereby.
(j) At the time of the Alternative Election, and without any further
action on the part of either SFP or BNI, this Agreement shall be deemed to have
been amended as follows:
(i) The phrase "BNSF," will be added (x) between the phrase
"operation of the business of" and the phrase "BNI, SFP and their" in
Section 9.1(iii) and (y) between the phrase "impose on" and "BNI, SFP or
any" in clause (3) of Section 9.1(v).
(ii) A new Section 9.2(iii) and 9.3(v) will be added as follows:
BNSF shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, and the representations and warranties of BNSF shall have
been accurate in all material respects at and as of the Effective Time.
(iii) Section 9.3(ii) shall be amended to read in its entirety as
follows:
(ii) the BNSF Common Stock required to be issued hereunder shall have
been approved for listing on the NYSE, subject to official notice of
issuance.
31
<PAGE>
(k) BNI and SFP agree that in the event of the Alternative Election,
any other appropriate adjustments shall be made to the other terms and
conditions of this Agreement to reflect the transactions contemplated by this
Section 1.8 with a view to ensuring that the parties hereto and their
stockholders are placed in a position that is as close as possible to the
position they would have been in but for such restructuring.
27. This Amendment shall be construed in accordance with and governed
by the law of the State of Delaware (without regard to principles of
conflict of laws).
28. This Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Amendment shall
become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
29. Except as expressly amended hereby, the Merger Agreement shall
remain in full force and effect.
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
Burlington Northern Inc.
By:_____________________
Title:
Santa Fe Pacific Corporation
By:____________________
Title:
33
<PAGE>
EXHIBIT 4.2
SANTA FE PACIFIC CORPORATION
Certificate of Determination by the Designated Officer
The undersigned, Jeffrey T. Williams, Assistant Secretary of Santa Fe
Pacific Corporation, a Delaware corporation (the "Company"), does hereby certify
that pursuant to the authority granted in the resolutions (the "Resolutions") of
the Board of Directors of the Company adopted on July 27, 1993 and pursuant to
Sections 201, 301 and 303 of the Restated Indenture, dated as of November 1,
1994 (the "Indenture"), between the Company and The First National Bank of
Chicago, as Trustee (the "Trustee"), there was established as of November 1,
1994 two series of securities under the Indenture with the following terms:
1. The securities are entitled "8 3/8% Notes due November 1, 2001" and "8
5/8% Notes due November 1, 2004" (collectively, the "Notes");
2. The 8 3/8% Notes due November 1, 2001 are limited in aggregate
principal amount to $100,000,000 (except for Notes authenticated and
delivered upon registration of, transfer of, or in exchange for, or in
lieu of, other Notes pursuant to Sections 304, 305, 306, 906 or 1107
of the Indenture and except for any Notes which pursuant to Section
303 are deemed never to have been authenticated and delivered
thereunder). The 8 5/8% Notes due November 1, 2004 are limited in
aggregate principal amount to $100,000,000 (except for Notes
authenticated and delivered upon registration of, transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Sections 304,
305, 306, 906 or 1107 of the Indenture and except for any Notes which
pursuant to Section 303 are deemed never to have been authenticated
and delivered thereunder).
3. The principal amount of the 8 3/8% Notes due November 1, 2001 will
mature on November 1, 2001, subject to the provisions of the Indenture
relating to acceleration. The principal amount of the 8 5/8% Notes
due November 1, 2004 will mature on November 1, 2004, subject to the
provisions of the Indenture relating to acceleration.
4. The Notes will bear interest from November 8, 1994 or from the most
recent Interest Payment Date (as defined below) to which interest has
been paid or provided for, at the rate of 8 3/8% per annum, in the
case of the 8 3/8% Notes due November 1, 2001, and 8 5/8% per annum,
in the case of the 8 5/8% Notes due November 1, 2004, payable
semiannually in arrears on May 1 and November 1, of each year (each an
"Interest Payment Date"),
<PAGE>
commencing May 1, 1995, to the persons in whose names the Notes are
registered on the close of business on the immediately preceding
April 15 and October 15, respectively (each a "Regular Record Date").
5. The principal of and interest on the Notes will be payable at the
office or agency of the Company maintained for that purpose, pursuant
to the Indenture, in The City of New York, which shall be initially
the corporate trust office of the Trustee; provided, however, that at
the option of the Company, such payment of interest may be made by
check mailed to the person entitled thereto as provided in the
Indenture.
6. The Notes shall not be subject to redemption, in whole or in part, at
the option of the Company.
7. The Notes shall not be entitled to the benefit of any sinking fund.
8. Subject to paragraph 10 below, the notes shall be issued in
denominations of $1,000 and integral multiples thereof.
9. The Notes shall be defeasible pursuant to Section 1302 or Section 1303
or both such Sections of the Indenture pursuant to a Board Resolution
(as defined in the Indenture).
10. Upon issuance, the Notes will be represented by a global security
deposited with, or on behalf of, The Depository Trust Company, New
York, New York (the "Depository"). Settlement for the Notes will be
made by the Underwriters (as hereinafter defined) in immediately
available funds. All payments of principal and interest shall be made
by the Company in immediately available funds as long as the Notes are
represented by global securities. As long as the Notes are
represented by global securities registered in the name of the
Depository or its nominee, the Notes will trade in the Depository's
Same-Day Funds Settlement System, and secondary market trading
activity in the Notes will therefore be required by the Depositary to
settle in immediately available funds. Except as set forth in the
Indenture or in the prospectus supplement dated November 1, 1994
relating to the Notes, the Notes will not be issuable in definitive
form.
Furthermore, I hereby approve the form of and authorize the execution and
delivery of the Notes (copies of which are attached as Exhibit A and B), the
Indenture (a copy of which is attached as Exhibit C), the Underwriting Agreement
dated November 1, 1994 (a
<PAGE>
copy of which is attached as Exhibit D), and the Pricing Agreement dated
November 1, 1994 (a copy of which is attached as Exhibit E), between the Company
and J.P. Morgan Securities Inc., Goldman, Sachs & Co. and Salomon Brothers Inc.
All capitalized terms used herein and not otherwise defined shall have the
meanings given such terms in the Resolutions.
IN WITNESS WHEREOF, I have set my hand as of this 8th day of November,
1994.
/s/ Jeffrey T. Williams
By: ________________________
Jeffrey T. Williams
Assistant Secretary
<PAGE>
SPECIMEN
SANTA FE PACIFIC CORPORATION
8 3/8% NOTE DUE NOVEMBER 1, 2001
CUSIP No. 802183AC7 $100,000,000.00
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR
A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
SANTA FE PACIFIC CORPORATION, a corporation duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & CO. or registered assigns, the
principal sum of One Hundred Million Dollars on November 1, 2001, and to pay
interest thereon from November 8, 1994 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
May 1 and November 1 in each year, commencing May 1, 1995, at the rate of 8 3/8%
per annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the April 15 or October 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
under its corporate seal.
Dated: November 8, 1994 SANTA FE PACIFIC CORPORATION
By: /s/ Thomas N. Hund
.............................
Vice President and Controller
Attest:
/s/ Jeffrey T. Williams
............................
Assistant Secretary
This is one of the Securities of the series designated therein referred to in
the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
As Trustee
By /s/ R. D. Manella
.................................
Authorized Officer
<PAGE>
This security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under an Indenture, dated as of November 1, 1994 (herein called the "Indenture",
which term shall have the meaning assigned to it in such instrument), between
the Company and The First National Bank of Chicago, as Trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture),
and reference is hereby made to the Indenture for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof, limited in aggregate principal
amount to $100,000,000.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security or certain restrictive covenants and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall occur
and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of
this Security shall not have the right to institute any proceeding with respect
to the Indenture or for the appointment of a receiver or trustee or for any
other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
<PAGE>
SPECIMEN
SANTA FE PACIFIC CORPORATION
8 5/8% NOTE DUE NOVEMBER 1, 2004
CUSIP No. 802183AB9 $100,000,000.00
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR
A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
SANTA FE PACIFIC CORPORATION, a corporation duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & CO. or registered assigns, the
principal sum of One Hundred Million Dollars on November 1, 2004, and to pay
interest thereon from November 8, 1994 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
May 1 and November 1 in each year, commencing May 1, 1995, at the rate of 8 5/8%
per annum, until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the April 15 or October 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
under its corporate seal.
Dated: November 8, 1994 SANTA FE PACIFIC CORPORATION
By: /s/ Thomas N. Hund
.............................
Vice President and Controller
Attest:
/s/ Jeffrey T. Williams
............................
Assistant Secretary
This is one of the Securities of the series designated therein referred to in
the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
As Trustee
By /s/ R. D. Manella
....................................
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under an Indenture, dated as of November 1, 1994 (herein called the "Indenture",
which term shall have the meaning assigned to it in such instrument), between
the Company and The First National Bank of Chicago, as Trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture),
and reference is hereby made to the Indenture for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof, limited in aggregate principal
amount to $100,000,000.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security or certain restrictive covenants and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall occur
and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of
this Security shall not have the right to institute any proceeding with respect
to the Indenture or for the appointment of a receiver or trustee or for any
other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have received from the Holders of a majority in principal amount of
Securities of this series at the time Outstanding a direction inconsistent with
such request, and shall have failed to institute any such proceeding, for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Security for the
enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
<PAGE>
EXHIBIT 4.3
-----------
FIRST AMENDMENT AND WAIVER
FIRST AMENDMENT AND WAIVER, dated as of February 17, 1995 (this
"Amendment"), to the Credit Agreement, dated as of January 27, 1995 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among (i) Santa Fe Pacific Corporation, a Delaware corporation (the "Borrower"),
(ii) the several lenders from time to time parties thereto (the "Lenders"),
(iii) J.P. Morgan Securities Inc., as Arranger, (iv) Chase Securities, Inc.,
Chemical Securities Inc., Goldman, Sachs & Co. and Union Bank of Switzerland, as
Co-Arrangers, (v) Morgan Guaranty Trust Company of New York, The Chase Manhattan
Bank (National Association), Chemical Bank, Pearl Street L.P. and Union Bank of
Switzerland, as Arranging Agents, and (vi) Morgan Guaranty Trust Company of New
York, as Documentation Agent and as Administrative Agent.
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower has requested that certain provisions of the Credit
Agreement be amended in the manner provided for in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.
2. Amendments to Credit Agreement. (a) The definition of "Reference
Lenders" contained in subsection 1.1 of the Credit Agreement is hereby amended
by deleting the name "National Westminster Bank USA" contained therein and
substituting in lieu thereof the name "National Westminster Bank Plc".
(b) The definition of "Specified Securities Issuance" contained in
subsection 1.1 of the Credit Agreement is hereby amended by adding the phrase
"(excluding issuance of shares of common stock of the Borrower pursuant to any
employee or director stock option program, benefit plan or compensation
program)" immediately after the phrase "any equity securities" contained
therein.
(c) Subsection 6.1(a) of the Credit Agreement is hereby amended by
deleting the word "quarterly" contained therein.
(d) Subsection 6.4(f) of the Credit Agreement is hereby amended by
deleting the reference to "clause (b)" contained therein and substituting in
lieu thereof a reference to "clause (a)(ii)".
<PAGE>
2
(e) Subsection 9.8 of the Credit Agreement is hereby amended by adding the
phrase "or having long-term deposit ratings of at least A- from S&P or at least
A3 from Moody's" immediately after the phrase "A3 from Moody's" contained
therein.
(f) Subsection 10.1(c) of the Credit Agreement is hereby amended by
deleting the phrase ".25 or (x)" contained therein and substituting in lieu
thereof the phrase ".25 or (y)".
(g) Subsection 10.3(a) of the Credit Agreement is hereby amended by
deleting it in its entirety and substituting in lieu thereof the following:
"(a) Liens created by the Stock Pledge Agreement and other Liens
existing on the date hereof securing Debt outstanding on the date hereof;
provided that (i) the Stock Pledge Agreement may be modified prior to April
21, 1995 to allow the Liens created thereunder to also secure the Notes
described in clause (ii) of the definition of 'Existing Borrower
Securities,' equally and ratably with the Obligations (as defined in the
Stock Pledge Agreement), (ii) any such modification to the Stock Pledge
Agreement shall be satisfactory in form and substance to the Administrative
Agent, (iii) the Agents and the Lenders shall have received an opinion from
counsel to the Borrower reasonably satisfactory to the Administrative Agent
covering such matters incident to such modification as the Administrative
Agent may reasonably require, and (iv) the Borrower shall have reduced the
Tranche B Revolving Credit Commitment by an amount equal to $200,000,000 in
accordance with subsection 6.3."
(h) Subsection 11.1(g)(i) of the Credit Agreement is hereby amended
by adding a ")" immediately following the last ")" contained therein.
(i) Subsection 13.6(b) of the Credit Agreement is hereby amended by
adding the phrase "or principal" immediately after the phrase "payment of
interest" contained in the proviso contained therein.
3. Waivers to Credit Agreement. (a) The Lenders hereby waive
compliance by the Borrower with the requirement of subsection 8.2(f) of the
Credit Agreement that the Borrower shall make an offer to purchase the Notes
described in clause (ii) of the definition of "Existing Borrower Securities;"
provided that such waiver is given subject to the condition that the Borrower
shall not request Tranche B Revolving Credit Loans in excess of $110,000,000 in
the aggregate without concurrently paying in full or defeasing such Notes
(including payment thereof with proceeds of such Tranche B Revolving Credit
Loans).
(b) The Lenders hereby waive until March 21, 1995 any Default or Event
of Default that may occur and continue under subsection 11.1(g)(i) of the Credit
Agreement as a result of the acceleration or potential acceleration of the Notes
described in clause (ii) of the definition of "Existing Borrower Securities," by
reason of any default under such Notes
<PAGE>
3
occurring as a result of the Borrower's execution and delivery of the
Stock Pledge Agreement; provided that, if such Notes are accelerated, such
waiver is given subject to the condition that such Notes are promptly (but in
any case, not later than 5 Business Days after such acceleration) paid in full.
4. Agreement of Required Lenders. The Required Lenders hereby
consent to the Administrative Agent executing and delivering the modification to
the Stock Pledge Agreement described in clause (ii) of the proviso of subsection
10.3(a) of the Credit Agreement (as amended by this Amendment).
5. Conditions to Effectiveness. This Amendment shall become
effective on the date (the "Amendment Effective Date") on which the Borrower and
the Required Lenders shall have executed and delivered to the Administrative
Agent this Amendment.
6. General.
-------
(a) Representation and Warranties. The Borrower hereby represents
and warrants to the Agents and the Lenders as of the Amendment Effective Date
that the representations and warranties made by the Borrower in the Credit
Agreement are true and correct in all material respects on and as of the
Amendment Effective Date, before and after giving effect to the effectiveness of
this Amendment, as if made on and as of the Amendment Effective Date.
(b) No Other Amendments. Except as expressly amended, modified and
supplemented hereby, the provisions of the Credit Agreement are and shall remain
in full force and effect.
(c) Governing Law; Counterparts. (i) This Amendment and the rights
and obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(ii) This Amendment may be executed by one or more of the parties to
this Amendment on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Administrative Agent. This Amendment
may be delivered by facsimile transmission of the relevant signature pages
hereof.
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
SANTA FE PACIFIC CORPORATION
By: ______________________________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: _____________________________________________
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By: ______________________________________________
Title:
CHEMICAL BANK
By: ______________________________________________
Title:
PEARL STREET L.P.
By: ______________________________________________
Title:
<PAGE>
5
UNION BANK OF SWITZERLAND
By: ______________________________________________
Title:
By: ______________________________________________
Title:
BANK OF AMERICA ILLINOIS
By: ______________________________________________
Title:
BANK OF MONTREAL
By: _____________________________________________
Title:
CREDIT LYONNAIS, CHICAGO BRANCH
By: ______________________________________________
Title:
CREDIT LYONNAIS, CAYMAN ISLANDS
BRANCH
By: ______________________________________________
Title:
<PAGE>
6
DAI-ICHI KANGYO BANK, LTD., CHICAGO
BRANCH
By: ______________________________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By: ______________________________________________
Title:
NATIONAL WESTMINSTER BANK PLC
By: ______________________________________________
Title:
NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH
By: ______________________________________________
Title:
THE NORTHERN TRUST COMPANY
By: ______________________________________________
Title:
SOCIETE GENERALE, SOUTHWEST AGENCY
By: ______________________________________________
Title:
<PAGE>
7
TORONTO DOMINION (TEXAS), INC.
By: _____________________________________________
Title:
THE FIRST NATIONAL BANK OF BOSTON
By: ______________________________________________
Title:
THE BANK OF NEW YORK
By: ______________________________________________
Title:
THE BANK OF TOKYO, LTD., DALLAS
AGENCY
By: _____________________________________________
Title:
CIBC INC.
By: ______________________________________________
Title:
FIRST BANK NATIONAL ASSOCIATION
By: ______________________________________________
Title:
<PAGE>
8
THE MITSUBISHI BANK, LIMITED
By: ______________________________________________
Title:
SWISS BANK CORPORATION, CHICAGO
BRANCH
By: ______________________________________________
Title:
By: ______________________________________________
Title:
THE BANK OF NOVA SCOTIA
By: ______________________________________________
Title:
BANQUE PARIBAS
By: ______________________________________________
Title:
By: ______________________________________________
Title:
<PAGE>
9
COMMERZBANK AKTIENGESELLSCHAFT,
GRAND CAYMAN BRANCH
By: ______________________________________________
Title:
By: ______________________________________________
Title:
FIRST INTERSTATE BANK OF TEXAS N.A.
By: ______________________________________________
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: _____________________________________________
Title:
THE FUJI BANK, LIMITED
By: _____________________________________________
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, CHICAGO BRANCH
By: _____________________________________________
Title:
<PAGE>
10
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD, CHICAGO BRANCH
By: ______________________________________________
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: ______________________________________________
Title:
MITSUI TRUST BANK (U.S.A.)
By: _____________________________________________
Title:
THE NIPPON CREDIT BANK LTD.
By: _____________________________________________
Title:
ROYAL BANK OF CANADA
By: ______________________________________________
Title:
THE SAKURA BANK, LIMITED
By: ______________________________________________
Title:
<PAGE>
11
THE SANWA BANK LIMITED, DALLAS
AGENCY
By: ______________________________________________
Title:
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By: ______________________________________________
Title:
By: ______________________________________________
Title:
BANK OF HAWAII
By: ______________________________________________
Title:
BANCA COMMERCIALE ITALIANA,
CHICAGO BRANCH
By: _____________________________________________
Title:
By: _____________________________________________
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
By: ______________________________________________
Title:
<PAGE>
12
NBD BANK
By: ______________________________________________
Title:
PNC BANK, NATIONAL ASSOCIATION
By: ______________________________________________
Title:
THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By: ______________________________________________
Title:
THE TOKAI BANK, LIMITED,
CHICAGO BRANCH
By: ______________________________________________
Title:
YASUDA TRUST & BANKING CO., LTD.,
CHICAGO BRANCH
By: ______________________________________________
Title:
<PAGE>
EXHIBIT 10.5
------------
AMENDMENT TO SANTA FE PACIFIC CORPORATION SEVERANCE AGREEMENT
-------------------------------------------------------------
The Santa Fe Pacific Corporation Severance Agreements ("Severance
Agreements") as adopted effective May 28, 1987 and as restated effective January
25, 1994, are hereby further amended effective as of the adoption hereof, as set
forth below.
1. The Agreement is modified by substituting the following for the last
sentence of Section 3(iv)(c):
Notwithstanding the foregoing, if you are treated as terminating your
employment by reason of relocation under circumstances described in this
Section 3(iv)(c) and not for any other reason under this Section 3(iv), and
you retain or are offered a position in another location that, in status
and responsibilities, is equal to or better than the position you held at
the time of the change in control of the Corporation, you shall not be
entitled to the benefits described in Section 4(iii)(g)(I).
2. The Agreement is modified by substituting the following for Section
4(iii)(g) thereof:
(g) Except as otherwise provided in Section 3(iv)(c) (relating to
relocation), you shall be entitled to the greater of (I) the Tax Make-Whole
Payment amount, if any, described in Section 4A of this Agreement; or (II)
the Tax Gross-Up Payment amount, if any, described in Section 4B of this
Agreement.
3. The Agreement is modified by adding the following new Section 4A and
Section 4B thereto, to follow immediately after Section 4 thereof:
4A. Tax Make-Whole Payment. Subject to the following provisions of
this Section 4A, the "Tax Make-Whole Payment" shall equal the additional
amount necessary to provide the benefits under Section 4(iii)(b) on an
after-tax basis. However, the amount of the Tax Make-Whole Payment shall
be reduced so that no portion of such payment would constitute an Excess
Parachute Payment, and no portion of such payment would result in the Total
Payments made to you being treated as an Excess Parachute Payment. For
purposes of this Section 4A, the term "Total Payments" means any payment or
benefit received or to be received by you in connection with a change in
control of the Corporation or the termination of your employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Corporation, any person whose actions result in
<PAGE>
a change in control or any person affiliated with the Corporation or such
person) that would, as determined by tax counsel selected by the Company,
result in Excess Parachute Payments equal to or greater than three times
the Base Amount as these terms are defined in Section 280G of the Code.
4B. Tax Gross-Up Payment. The amount of the "Tax Gross-Up Payment"
shall be determined in accordance with the following:
(i) The "Tax Gross-Up Payment" shall equal the sum of:
(A) the amount of any additional tax due under Code Section 4999
by reason of your receipt of Excess Parachute Payments;
(B) the amount of any additional state and local taxes due by
reason of your being subject to the tax described in Section
4B(i)(A); and
(C) the amount of any Federal, state and local taxes (including,
without limitation, taxes due under Code Section 4999) due
by reason of your receipt of the amounts described in
Section 4B(i)(A) and Section 4B(i)(B), and amounts described
in this Section 4B(i)(C).
(ii) For purposes of determining (under this Section 4B) whether a tax
is payable by reason of your receipt of Excess Parachute
Payments, your base amount (as defined below) shall be first
allocated to any income attributable to any awards under the
Stock Plans, to the extent that such awards are treated as
contingent on a change in control (as defined below). Further,
in determining the amount of your Tax Gross-Up Payment under
Section 4B(i), the term Excess Parachute Payments shall not
include any income attributable to awards under the Stock Plans
that are contingent on a change in control, to the extent that
such income exceeds the base amount.
The Severance Agreements shall otherwise remain in full force and effect.
<PAGE>
EXHIBIT 10.15
-------------
AMENDMENT OF THE SANTA FE PACIFIC
LONG TERM INCENTIVE STOCK PLAN
Section VIII of the plan is amended to read as follows, effective January
1, 1995:
The Committee may from time to time, subject to the provisions of the
Plan, grant Awards of Performance Units to employees of the Company
independent of or at the same time as, and in number equal to, grants
of Restricted Stock.
The Committee shall, at the time Performance Units are granted,
designate certain goals for the performance of the Company and/or the
employee and the Performance Period over which the goals must be
achieved. Such designated goals must be achieved in order for the
Participant to receive the full value of the Performance Units
following the end of the Performance Period. For the achievement of
results below the goals warranting full value of the Performance
Units, the Committee may determine the value of the Performance Units
which the Participants are entitled to receive.
To the extent earned in accordance with this Section, all Performance
Units shall be payable in cash as soon as practicable following the
end of the Performance Period.
Termination of employment prior to the end of the Performance Period
for any reason including Death, Disability and Retirement shall result
in the forfeiture of all outstanding Performance Units. However, in
lieu of such forfeiture the Committee may determine that a Participant
is entitled to receive a settlement for her Performance Units by
reason of special circumstances.
RESOLVED, that the proper officers of the Company be and each of them is
hereby authorized in the name and on behalf of the Company to take or cause to
be taken any and all such further action and to execute and deliver or cause to
be executed and delivered all such further agreements, documents, certificates,
and undertakings as in their judgment shall be necessary, appropriate or
advisable to carry into effect the purpose and intent of any and all of the
foregoing resolutions.
Schaumburg, Illinois
March 28, 1995
<PAGE>
EXHIBIT 12
SANTA FE PACIFIC CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio)
Year Ended December 31,
-------------------------
1994 1993 1992
------ ----- ------
Earnings:
Income from continuing operations
before income taxes $351.1 $354.1 $ 41.4
Add (less) income of unconsolidated
subsidiaries greater than distributions (11.2) 5.4 0.1
Amortization of capitalized interest 2.1 1.6 1.4
Fixed charges before interest capitalized
(see below) 158.5 167.3 190.6
------ ------ ------
Total Earnings $500.5 $528.4 $233.5
====== ====== ======
Fixed Charges:
Interest expense including amortization of
debt discount $121.9 $133.4 $164.5
Portion of rentals representing an interest
factor 36.6 33.9 26.1
------ ------ ------
Fixed charges before interest capitalized 158.5 167.3 190.6
Interest capitalized 7.3 8.2 3.7
------ ------ ------
Total Fixed Charges $165.8 $175.5 $194.3
====== ====== ======
Ratio of earnings to fixed charges 3.0 3.0 1.2
====== ====== ======
Earnings in 1993 include a $145.4 million gain on the sale of California lines.
Excluding this gain the ratio would have been 2.2. Earnings in 1993 include a
$320.4 million Rail special charge and a $204.9 million gain on the sale of
California lines. Excluding these items the ratio would have been 1.8.
<PAGE>
EXHIBIT 13
CONSOLIDATED FINANCIAL HIGHLIGHTS
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------
(In millions, except per share data) 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year
Operating Revenues $2,680.9 $2,409.2 $2,251.7 $2,153.5 $2,111.6
Operating Income (Loss) (1) 428.9 317.7 (22.8) 255.4 189.2
Income (Loss) from Continuing Operations (2) 199.4 177.4 21.1 62.4 (245.5)
Income from Discontinued Operations (3) 23.1 161.4 42.4 34.0 162.4
Extraordinary Charges/Accounting Changes - - (168.0) - (28.7)
Net Income (Loss) 222.5 338.8 (104.5) 96.4 (111.8)
Total Capital Expenditures 644.3 539.1 265.5 243.2 378.6
Depreciation and Amortization 200.5 188.4 180.8 184.3 185.0
-------------------------------------------------------------------------------------------------------
At Year End
Total Assets $5,572.9 $5,374.0 $4,946.4 $4,812.1 $4,709.9
Working Capital Deficit (434.7) (396.8) (453.9) (439.4) (378.7)
Total Debt 1,271.0 1,175.8 1,306.7 1,702.0 1,791.2
Shareholders' Equity 1,256.9 1,268.3 928.5 1,036.9 911.7
-------------------------------------------------------------------------------------------------------
Per Common Share Data
Income (Loss) from Continuing Operations (2) $ 1.05 $ 0.95 $ 0.11 $ 0.35 $ (1.51)
Income from Discontinued Operations (3) 0.12 0.86 0.23 0.19 1.00
Extraordinary Charges/Accounting Changes - - (0.91) - (0.18)
Net Income (Loss) 1.17 1.81 (0.57) 0.54 (0.69)
Shareholders' Equity 6.67 6.83 5.11 5.77 5.27
Cash Dividends (4) 0.10 0.10 0.10 0.10 0.10
-------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) 1992 includes a pre-tax special charge of $320.4 million.
(2) 1993 includes a pre-tax gain on sale of California lines of $145.4 million.
1992 includes a pre-tax gain on sale of California lines of $204.9 million
and a pre-tax special charge of $320.4 million. 1990 includes a net pre-tax
charge of $342.1 million related to the settlement of a lawsuit.
(3) Includes after tax gains of $108.3 million related to an exchange of
mineral assets in 1993 and $102.0 million related to the settlement of a
lawsuit in 1990.
(4) 1994 excludes the distribution of SFP's 85.4% interest in the stock of SFP's
former gold subsidiary in September 1994. 1990 excludes the distribution of
SFP's 80% interest in the stock of SFP's former real estate and energy
subsidiaries in December 1990.
<TABLE>
<CAPTION>
CONTENTS
-------------------------------------------------
<S> <C>
Letter to the Shareholders 2
Consolidated Financial Review 12
Reports of Management
and Independent Accountants 19
Consolidated Financial Statements and Notes 20
Directors and Officers 33
</TABLE>
SANTA FE PACIFIC CORPORATION | 1
<PAGE>
CONSOLIDATED FINANCIAL REVIEW
Santa Fe Pacific Corporation and Subsidiary Companies
Management's Discussion and Analysis of
Results of Operations and Financial Condition.
Merger Activities
Santa Fe Pacific Corporation (SFP or Company) signed an agreement to merge with
Burlington Northern Inc. (BNI) (the Merger) pursuant to an Agreement and Plan of
Merger dated June 29, 1994, as amended (the Merger Agreement). The Merger was
approved by SFP and BNI shareholders on February 7, 1995, and in accordance with
the Merger Agreement, BNI and SFP conducted a tender offer to purchase a total
of 63 million shares of SFP common stock at a price of $20 per share (the Tender
Offer). Between the Tender Offer and consummation of the Merger, SFP has the
right to purchase an additional 10 million shares, subject to certain
limitations of the Merger Agreement and the SFP Credit Facility (defined below).
At Merger consummation, each remaining outstanding share of SFP common stock
will be converted into at least 0.40 of a share of BNI common stock (the
Exchange Ratio) in a tax-free exchange. The Exchange Ratio will depend on the
number of shares purchased by SFP between the Tender Offer and Merger
consummation as well as the number of SFP stock options which are exercised
prior to consummation of the Merger. The Merger Agreement provides for a maximum
Exchange Ratio of 0.4347; however, as SFP stock options have been exercised
since December 31, 1994, the Exchange Ratio will be less than the maximum. The
consummation of the Merger is subject to various conditions, including approval
by the Interstate Commerce Commission (ICC).
Under current law, the ICC has a maximum of 31 months to approve the Merger
after the application is filed; however, the ICC had previously established a
535 day schedule for a final decision from the filing date of the ICC
application, which occurred on October 13, 1994. This schedule was held in
abeyance until the shareholders' vote on the Merger. The ICC recently requested
comments on a proposed 180-day schedule for the review of railroad mergers and
specifically asked for comments on whether the new schedule should apply to the
BNI-SFP merger. BNI and SFP have asked the ICC to apply a 165-day schedule to
the Merger. The ICC has the matter under consideration, and it has not yet
rendered a decision. Currently, there can be no assurance that the ICC will
issue a decision on the Merger any sooner than the 31-month period permitted by
law.
Under the terms of the Tender Offer, SFP purchased 38 million shares of SFP
common stock and BNI purchased 25 million shares of SFP common stock. In
connection with the Tender Offer, SFP has obtained a bank loan facility (Credit
Facility) up to $1.56 billion which consists of a $1 billion term loan, a $310
million revolving credit facility and a $250 million revolving credit facility.
On February 21, 1995, SFP borrowed $760 million under the term loan to purchase
the 38 million shares of SFP common stock. SFP intends to borrow up to an
additional $350 million in 1995, which will be used in part to retire SFP's $200
million 12.65% senior notes maturing 1998-2000, including any costs associated
with such retirement. The debt repayment is expected to result in an after-tax
extraordinary charge for the early retirement of debt of approximately $20
million.
If the Tender Offer and related financing activities had been completed at
December 31, 1994, SFP's long-term debt would have increased by up to $910
million and SFP's stockholders' equity would have decreased by approximately
$780 million. SFP's total debt to total capitalization ratio would have
increased from 50% to approximately 82%.
Borrowings under the Credit Facility are based on variable interest rates
(e.g., LIBOR or prime) plus a credit spread which varies based on the financial
performance of the Company. The variable rate plus the credit spread was
approximately 7.6% on February 21, 1995. Terms of the Credit Facility also
require SFP to enter into interest rate hedging transactions for two-thirds of
outstanding borrowings under the term loan or up to $667 million to protect
against increases in interest rates. As of February 21, 1995 the Company had
entered into various interest rate swap transactions with a total notional
principal amount of $200 million. The interest rate swaps mature from December
1996 through December 1998 and were entered into to match maturities under the
term loan. The interest rate swaps require payment of a fixed interest rate of
approximately 7.6% and the receipt of a variable interest rate based on LIBOR.
The transactions will be settled quarterly and will be recognized as a component
of interest expense as incurred.
Repayment terms of outstanding borrowings under the Credit Facility are as
follows: (i) the $1 billion term loan requires repayment of $50 million in 1996,
$100 million in both 1997 and 1998, $150 million in 1999, $200 million in 2000
and $400 million in 2001; (ii) outstanding borrowings under the $310 million
revolving credit facility are payable at the earliest of (a) December 31, 1997,
(b) six months after ICC approval of the Merger or (c) six months after
termination of the Merger Agreement; and (iii) outstanding borrowings under the
$250 million revolving credit facility are payable on December 31, 1999. SFP
pays commitment fees of 0.3% per annum on the unused portion of the revolving
credit facilities. The use of borrowings under the term loan are generally
restricted; however, up to $360 million of the revolving credit facilities can
be used by SFP for working capital needs and other general corporate purposes.
The Credit Facility contains various covenants including: limitations on
indebtedness, dividends and stock repurchases; maintenance of various financial
ratios; and certain restrictions related to the disposition of assets. After the
Tender Offer and related financing activities it is anticipated that SFP will
not pay any cash dividends in the foreseeable future.
Subject to the limitations set forth in the Merger Agreement and the Credit
Facility, repurchases of up to an additional 10 million shares of SFP common
stock after the Tender Offer and before the Merger, including the amount and
timing of any such repurchases, will be in the sole discretion of SFP.
Accordingly, although SFP anticipates that at least $50 million would be
available for repurchases under the terms of the Credit Facility in 1995, there
can be no assurance that SFP will make any repurchases. To have the $50 million
available for repurchases, SFP would have to comply with the minimum capital
expenditure and maximum total debt provisions of the Merger Agreement. If
regulatory approval of the Merger is expedited, as discussed above, it is likely
that the number of shares SFP would repurchase would be less than if regulatory
approval is not expedited.
12 | SANTA FE PACIFIC CORPORATION
<PAGE>
Revenue Information
<TABLE>
<CAPTION>
----------------------------------------------------------------
Year Ended December 31,
-----------------------------
(In millions) 1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C>
Freight Revenue
Intermodal
Direct Marketing $ 549.9 $ 407.7 $ 350.4
Intermodal Marketing Companies 429.2 373.1 392.5
International 218.8 196.0 169.4
----------------------------------------------------------------
Total Intermodal 1,197.9 976.8 912.3
----------------------------------------------------------------
Carload Commodities
Petroleum 146.1 138.7 136.2
Chemicals & Plastics 141.0 133.3 141.0
Consumer/Food Products 129.1 124.7 127.0
Building Materials & Paper
Products 120.1 108.1 104.6
Metals 83.5 77.6 70.3
----------------------------------------------------------------
Total Carload Commodities 619.8 582.4 579.1
----------------------------------------------------------------
Bulk Products
Coal 232.0 220.1 194.5
Minerals, Ores & Other 148.2 152.3 162.5
Grain 130.2 162.9 143.4
Grain Products 87.4 82.0 80.5
----------------------------------------------------------------
Total Bulk Products 597.8 617.3 580.9
----------------------------------------------------------------
Automotive
Motor Vehicles 196.7 164.1 112.4
Vehicle Parts 26.9 27.9 24.9
----------------------------------------------------------------
Total Automotive 223.6 192.0 137.3
----------------------------------------------------------------
Total Revenue Before Adjustments 2,639.1 2,368.5 2,209.6
Miscellaneous Adjustments - - 3.3
----------------------------------------------------------------
Total Freight Revenue 2,639.1 2,368.5 2,212.9
Other Revenues 41.8 40.7 38.8
----------------------------------------------------------------
Total Operating Revenues $2,680.9 $2,409.2 $2,251.7
================================================================
</TABLE>
Results of Operations
1994 Compared with 1993
SFP reported 1994 net income of $222.5 million or $1.17 per share compared to
1993 net income of $338.8 million or $1.81 per share. The decrease in net income
is attributable to lower income from discontinued operations which included an
after tax gain of $108.3 million on the exchange of mineral assets in 1993 and a
full year of operations included in 1993. Only nine months of discontinued
operations are included in 1994 due to the distribution of SFP's interest in
Santa Fe Pacific Gold Corporation (SFP Gold) to SFP shareholders in September
1994 (see Other Matters--Distribution of SFP Gold to Shareholders). Income from
continuing operations was $199.4 million or $1.05 per share compared to $177.4
million or $0.95 per share in the prior year. This increase is primarily
attributable to: (1) an increase in operating income of $111.2 million at The
Atchison, Topeka and Santa Fe Railway Company (Santa Fe Railway) principally due
to higher business levels in 1994 as well as revenue losses and the costs of
midwest floods included in prior year results; (2) higher equity income from
earnings of Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership) of
$16.0 million due primarily to environmental and litigation charges of $12.2
million included in 1993; and (3) lower income tax expense of $25.0 million. The
above are partially offset by a $145.4 million pre-tax gain on the sale of rail
lines in California in 1993 (see Note 4--Gain on Sale of California Lines).
Special items in 1994 include pre-tax gains of $29.5 million from a change in
postretirement medical benefits eligibility requirements, $23.7 million related
to the sale of an investment, and $10.5 million related to a favorable
litigation settlement. In addition, 1994 includes pre-tax expense of $13.7
million for fourth quarter costs related to the Merger, and $12.3 million
related to an adverse appellate court decision.
Special items in 1993 include pre-tax gains of $145.4 million from the sale of
rail lines in southern California and $21.6 million related to the favorable
outcome of arbitration and litigation settlements. In addition, 1993 includes
the $12.2 million impact of Pipeline Partnership environmental and litigation
charges, and an increase in income tax expense of $23.5 million for the
retroactive effect of the increase in the federal income tax rate from 34% to
35%.
Excluding discontinued operations and special items in both years, SFP's 1994
net income was $181.4 million or $0.95 per share compared to $114.5 million or
$0.61 per share in 1993.
Santa Fe Railway
Operating income was $428.9 million and represents an increase of $111.2 million
or 35% over the $317.7 million reported in 1993. The increase is the result of
continued growth in revenues due to growth in business and the impact of midwest
floods in 1993 partially offset by increased expenses in 1994 resulting from
higher traffic volumes. The operating ratio in 1994 decreased to 84.0% from
86.8% in 1993.
Operating revenues increased by $271.7 million or 11% in 1994 reflecting an 8%
increase in carloadings and a 3% increase in average revenue per car.
Intermodal revenues increased 23% to $1,197.9 million as volumes increased 18%
and average revenue per car increased 4%. The increase in intermodal volume was
attributable to growth in business as well as the impact of midwest floods in
1993. Direct marketing volumes, which include less than truckload (LTL)
carriers, the J. B. Hunt alliance and United Parcel Service, increased 37%.
Revenues from intermodal marketing companies increased 15% due to volume and
revenue per unit increases, including additional longer-haul transcontinental
freight. International revenues increased 12% principally reflecting increased
volumes.
Carload commodities revenues increased 6% to $619.8 million primarily due to
an 8% growth in volumes. Building materials and paper products revenues
increased 11% reflecting continued strength in the housing market. Revenue from
petroleum products increased 5% as Santa Fe Railway moved more oxygenates, which
are blended with gasoline for compliance with the Clean Air Act. Also, shipments
of carbon black used by the auto industry increased. Chemicals and plastics
revenues increased $7.7 million reflecting an 8% increase in volumes, partially
offset by a 2% decrease in average revenue per car due to changes in the type of
commodity shipped.
Bulk products revenues decreased 3% to $597.8 million as a decline in whole
grain revenues due to lower export shipments was partially offset by increased
coal demand.
Automotive revenues increased 16% to $223.6 million principally reflecting
higher volumes, the result of the overall strong year in the automotive
industry.
SANTA FE PACIFIC CORPORATION | 13
<PAGE>
Operating expenses of $2,252.0 million increased $160.5 million or 8% from
1993. Compensation and benefits expense of $835.7 million increased 4%, the
result of higher volumes and inflation, partially offset by continued operating
efficiencies. Revenue ton miles per average employee improved by 6%. Contract
services expense of $395.6 million increased $73.9 million and reflects the
expanded use of third parties for locomotive maintenance and overhauls and an
increase in other contract services like drayage and ramping, due largely to the
higher business volumes. Fuel expense of $252.7 million increased $13.6 million
from 1993 and reflects a volume related increase in consumption partially offset
by a 7% decrease in price. Equipment rents expense rose $18.8 million to $248.2
million due primarily to increased business volumes. Materials and supplies
expense decreased $8.9 million to $118.8 million from 1993 reflecting lower
locomotive material expense, partially the result of the increased use of
contract services for locomotive repairs. Other expense of $200.5 million
increased $15.1 million from 1993 reflecting volume and inflationary increases.
Equity in Earnings of Pipeline Partnership
SFP's 44% investment in the Pipeline Partnership produced equity income of $34.6
million, including a $1.4 million credit for the change in postretirement
medical eligibility requirements, compared to $18.6 million in the prior year,
which included the $12.2 million litigation and environmental charges. The
Pipeline Partnership's revenues increased 4%, primarily resulting from increased
volumes. Operating expenses at the Pipeline Partnership decreased by 17% due
principally to the special litigation and environmental charge in 1993.
Interest Expense/Other Income (Expense)-Net
Interest expense of $121.9 million declined by $11.5 million or 9% principally
due to lower average debt levels. Other income-net of $9.5 million is $3.7
million above last year primarily due to a $23.7 million gain on the sale of an
investment and a $28.1 million attribution gain resulting from the change in
postretirement medical benefits eligibility requirements. The above are
partially offset by $21.6 million in income from favorable
arbitration/litigation settlements in 1993, merger related costs in 1994, and
lower interest income and income from real estate activities in 1994.
Income Taxes
Income tax expense decreased $25.0 million as 1993 included $23.5 million of
expense for the retroactive impact of the increase in the federal tax rate from
34% to 35% on temporary differences at January 1, 1993.
Discontinued Operations
Income from discontinued operations of $23.1 million decreased $138.3 million
primarily due to an after-tax gain of $108.3 million on the exchange of mineral
assets with Hanson Natural Resources Company (Hanson) in 1993 and a full year of
operations included in 1993 compared to nine months of operations in 1994. SFP
Gold was distributed to shareholders on September 30, 1994. Operating income
from gold operations was $10.7 million higher in 1994 as ounces sold for the
first nine months in 1994 were 676,000 compared to 591,000 for the full year of
1993, reflecting increased sales from existing mines as well as mines received
in the exchange of assets with Hanson. However, 1993 included operating income
from coal and aggregate operations of $35 million related to assets which were
exchanged with Hanson. Additionally, 1994 includes transaction and other costs
related to the distribution to shareholders.
1993 Compared with 1992
SFP had 1993 net income of $338.8 million or $1.81 per share compared to a 1992
net loss of $104.5 million or $0.57 per share. Income from continuing operations
was $177.4 million or $0.95 per share compared to $21.1 million or $0.11 in the
prior year. These increases primarily relate to: (1) higher operating income of
$340.5 million at 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) lower interest
expense of $31.1 million; (3) higher income from discontinued operations
primarily due to an after tax gain of $108.3 million on the exchange of mineral
assets in 1993; and (4) a $163.0 million charge in 1992 for an accounting
change. The above are partially offset by: (1) a $59.5 million decline in pre-
tax gains on the sale of rail lines in southern California; and (2) the increase
in the federal income tax rate from 34% to 35% during 1993.
1993 includes the special items discussed previously. Additionally, special
items in 1992 included a pre-tax gain of $204.9 million from the sale of rail
lines in southern California. Also, 1992 included pre-tax special charges of
$320.4 million at Santa Fe Railway principally related to a new labor agreement,
operations centralization and increased environmental accruals (see Other
Matters-Environmental 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 Standard (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 discontinued operations and special items in both years, SFP's 1993
net income was approximately $114.5 million or $0.61 per share compared to $96.4
million or $0.52 per share in 1992.
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 and
increased business levels in 1993, partially offset by the negative impact of
midwest floods in 1993. 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.
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 revenues increased by 7% to $976.8 million primarily due to a 6%
increase in carloadings which reflected a continued growth in business despite
the negative impact of the midwest floods in 1993. The average intermodal
revenue per car increased 1% principally reflecting a shift in mix to higher
rated direct marketing traffic. Continued growth of Santa Fe Railway's alliance
with J.B. Hunt was the principal factor for the 17% increase in direct market-
14 SANTA FE PACIFIC CORPORATION
<PAGE>
ing 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.
Carload commodities revenues increased by 1% to $582.4 million as carloadings
increased 2% while average revenue per car declined 2%. Metals revenues of $77.6
million were $7.3 million higher principally due to an increase in steel
shipments along the west coast. Building materials & paper products revenues
rose 3% to $108.1 million due to higher average revenue per car reflecting a
shift in mix to higher rated lumber products shipments.
Bulk products revenues increased by 6% to $617.3 million principally
reflecting a 6% increase in volumes. Coal revenues increased 13% 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
14% to $162.9 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. Minerals, ores and other revenues declined 6% to $152.3 million
primarily due to sluggish international markets and foreign competition in the
sulphur and potash industries.
Automotive revenues increased by $54.7 million to $192.0 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.
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 11% reflecting efficiencies and volume growth.
Contract services expense increased $44.8 million to $321.7 million and reflects
higher ramping/deramping and drayage costs related to increased intermodal
shipments, and expanded use of locomotive maintenance and overhaul contract
services. 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. 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. Operating expenses increased by $137.4 million excluding the 1992
special charge.
Equity in Earnings of Pipeline Partnership
SFP's investment in the Pipeline Partnership produced equity income of $18.6
million including the $12.2 million of expense for SFP's portion of special
litigation and environmental charges, a decrease of $5.5 million compared to
1992 which included $4.5 million of expense for SFP's portion of a special
environmental charge. The Pipeline Partnership's revenues increased 7%
principally reflecting a 3% volume increase and 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 income of $30.8
million in 1993 compared to $28.6 million in 1992.
Interest Expense/Other Income (Expense)-Net
Interest expense declined by $31.1 million or 19% due principally to lower
outstanding debt as well as favorable variable interest rates. Other income
(expense)-net increased by $6.1 million to $5.8 million reflecting $21.6 million
related to the favorable outcome of arbitration and litigation settlements,
partially offset by lower interest income and reduced income from real estate
activities.
Income Taxes
Income tax expense in 1993 of $176.7 million was $156.4 million above 1992 and
reflects the increase in pre-tax income as well as the increase in the federal
tax rate from 34% to 35%, including $23.5 million for the impact on temporary
differences at January 1, 1993.
Discontinued Operations
Income from discontinued operations, net of income taxes increased $119.0
million due to an after tax gain of $108.3 million related to the exchange of
mineral assets with Hanson and higher operating income from gold. Ounces sold
doubled to 591,000 in 1993, which reflects increased sales from existing mines
as well as production in the second half of the year from mines received in the
exchange of assets with Hanson. Operating income from coal and aggregate
operations declined by approximately $14 million as 1993 included only six
months of operations due to the exchange of these assets with Hanson.
Financial Condition
Liquidity and Capital Resources
See discussion of SFP's 1995 Tender Offer and related financing activities in
Merger Activities. SFP anticipates that it will fund payment of its cash
requirements, other than those related to the Tender Offer and related financing
activities, in 1995 through internally generated funds, existing cash balances
and revolving credit facilities borrowings. Cash needs in 1995 include capital
expenditures, principal payments on long-term debt, including $95.8 million for
the repayment of mortgage bonds, as well as commitments for operating leases,
maintenance agreements for locomotives and minimum payments under haulage
agreements with other railroads (see Note 14: Hedging Activities, Leases and
Other Commitments). Capital expenditures in 1995 are expected to approximate
$500 million, including non-cash capital expenditures of approximately $125
million primarily for either directly financed or leased equipment acquisitions,
and reimbursed projects.
Cash provided by operating activities from continuing operations for the year
ended December 31, 1994 was $476.1 million. It primarily consisted of net
earnings before depreciation and deferred taxes, reduced by restructuring
payments, which principally include employee severance, relocation costs and
other labor related payments. During 1994, additional cash of $200.0 million was
provided by the issuance of senior notes maturing in 2001 and 2004. In addition,
$72.5 million was received as principal payments on a note receivable. Also,
$50.0 million was received through additional sales of accounts receivable.
Santa Fe
SANTA FE PACIFIC CORPORATION 15
<PAGE>
Railway has replaced a previous accounts receivable sales agreement with a new
agreement which allows sales up to $300 million, with $275 million outstanding
at December 31, 1994. Capital expenditures during 1994, including non-cash
capital expenditures of $182.8 million primarily for directly financed equipment
acquisitions and reimbursed projects at Santa Fe Railway, totaled $644.3
million. Capital expenditures in 1994 were higher than in 1993 due to increased
spending on rail expansion projects and facilities which include line capacity
improvements, terminal access improvements, intermodal facilities and other
projects, and additional equipment, including the receipt of 100 new
locomotives, compared to 85 received in the prior year. Both years include
significant spending on the Alliance, Texas intermodal and carload
transportation center and the Willow Springs, Illinois intermodal facility.
These facilities were completed and opened during 1994. Cash capital
expenditures were primarily funded through cash generated from continuing
operations. Principal payments on long-term borrowings during 1994 were $255.9
million.
For the year ended December 31, 1993, cash provided by operating activities
from continuing operations was $296.1 million. During 1993, additional cash of
$247.6 million was provided by the sale of assets at Santa Fe Railway, including
$226.9 million from the sale of rail lines in southern California. In addition,
$72.5 million was received as principal payments on a note receivable. Capital
expenditures during 1993, including non-cash capital expenditures of $157.6
million primarily for directly financed equipment acquisitions and reimbursed
projects at Santa Fe Railway, totaled $539.1 million. Capital expenditures in
1993 were significantly higher than in 1992 due to increased spending on rail
expansion projects and facilities which include the facilities at Alliance,
Texas and Willow Springs, Illinois. Additionally, 1993 capital expenditures
include the purchase of 85 new locomotives valued at approximately $100 million,
while in 1992, 90 new locomotives with a fair market value in excess of $100
million were acquired through an operating lease. Cash capital expenditures were
primarily funded through cash generated from continuing operations. Principal
payments on long-term borrowings during 1993 were $242.6 million.
For the year ended December 31, 1992, cash provided by operating activities
from continuing operations was $250.6 million. Additionally, cash of $319.0
million was provided by the sale of assets at Santa Fe Railway, including $255.0
million from the sale of rail lines in southern California. In addition, $72.5
million was received as principal payments on a note receivable. Capital
expenditures during 1992, including non-cash capital expenditures of $9.5
million, totaled $265.5 million and were used for equipment and improvements to
track structure and facilities at Santa Fe Railway. The expenditures were
primarily funded through cash generated from continuing operations. Principal
payments on long-term borrowings during 1992 were $407.5 million, including
$201.0 million of proceeds from the sale of rail lines in southern California
used to retire debt.
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
Distribution of SFP Gold to Shareholders
In June 1994, SFP Gold completed an initial public offering of 14.6% of its
common stock. Approximately 19 million shares were sold at a price of $14 per
share resulting in net proceeds of $250.3 million, the majority of which was
used for the repayment of outstanding debt at SFP Gold. SFP distributed its
remaining 85.4% interest in SFP Gold to SFP shareholders and SFP Gold became a
separate, independent entity on September 30, 1994. Holders of record of SFP
common stock received a distribution of one share of common stock of SFP Gold
for every approximately 1.7 shares of SFP common stock held. Under a ruling
obtained from the Internal Revenue Service, the distribution was tax-free to SFP
shareholders. Accordingly, the consolidated financial statements and notes
present SFP Gold as a discontinued operation.
Labor Negotiations
SFP is actively involved in industrywide labor contract negotiations which began
in late 1994. Wages, health and welfare benefits, work rules and other issues
are being negotiated for all rail union employees, which represent over 85% of
Santa Fe Railway's work force. These negotiations have traditionally taken place
over a number of months and have previously not resulted in any extended work
stoppages.
Environmental Contingencies
The Company is subject to extensive regulation under federal, state and local
environmental laws covering, for example, 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 operations of
the Company. Environmental risks are also inherent in railroad operations which
frequently involve transporting chemicals and other hazardous materials.
Santa Fe Railway expects it will become subject to future requirements
regulating air emissions from diesel locomotives that may increase its operating
costs. During 1995, the Environmental Protection Agency (EPA) must issue
regulations applicable to new locomotive engines. It is anticipated that these
regulations will be effective for locomotive engines installed after 1999. Under
some interpretations of federal law, older locomotive engines may be regulated
by states based on standards and procedures which the State of California
ultimately adopts. At this time it is unknown whether California will adopt any
locomotive emission standards.
In addition, 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. As
a result, 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 former 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
16 SANTA FE PACIFIC CORPORATION
<PAGE>
the Company, its current lessees, former
owners or lessees of properties, or other third parties.
At December 31, 1994, SFP had been named a potentially responsible party (PRP)
at seven sites on the EPA's National Priorities List. SFP is also potentially
liable for the cost of clean-up at other sites identified by the EPA and other
agencies. SFP has identified approximately 125 sites where costs exist for
environmental clean-up and monitoring, including some where no claim has been
asserted and no agency is currently involved. These sites include, among other
things: closed facilities, 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. Estimated costs at sites where SFP
is a PRP are generally based on cost sharing agreements which vary from site to
site. These costs are typically allocated based on the financial condition of
other PRP's, 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, an additional accrual of $67 million was recorded as part of the rail
special charge to provide for future costs of this nature. The Company also
monitors accruals for environmental sites that 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. At
December 31, 1994 and 1993, the Company had accrued liabilities for
environmental costs of approximately $126 million and $125 million,
respectively. The Company has not included any reduction in costs for
anticipated recovery from insurance.
Payments recorded against environmental liabilities totaled $20.0 million,
$13.5 million and $6.3 million for the years ended December 31, 1994, 1993 and
1992, respectively. The majority of these payments related to mandatory clean-up
efforts. Capital expenditures related to environmental sites were insignificant
during this period. The Company anticipates that approximately 75% of the
accrued costs at December 31, 1994 will be paid over the next five years, with
approximately $25 million of payments occurring in 1995. 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.
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.
Rail Restructuring
During 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 approximately $149 million
of the charge. The agreement provides for further reductions in average crew
sizes on through freight trains, and elimination of productivity payments which
were required when reduced crews were used. This 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 1992 agreement
covers approximately 2,000 employees. Costs of the agreement 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 have declined significantly over time through
attrition, recall to work, and other factors.
The charge also included approximately $73 million related to centralization.
In 1992, Santa Fe Railway decided to centralize many operating support
functions. Centralization began in late 1992 and by the fall of 1993, Santa Fe
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. The charge provided for the
cost of 700 relocations, reductions of 600 administrative and clerical
positions, and abandonment of facilities. Most of the costs of centralization
have been paid. Centralization of the above activities is estimated to have
resulted in annual cost savings to the Company of approximately $20 million. The
majority of these annual savings were realized in 1994 as the centralization of
operating support functions was substantially completed in 1993.
Additionally, the charge included approximately $31 million for other cost
saving initiatives, including an adjustment of accruals established for other
operating craft labor agreements reached in prior periods.
In the fourth quarter of 1994, based upon a review of the adequacy of the
restructuring reserve as well as an actuarial review of Santa Fe Railway's
liability for personal injury claims, the Company reduced the restructuring
reserve by approximately $30 million and increased the per
SANTA FE PACIFIC CORPORATION 17
<PAGE>
sonal injury reserve by approximately $30 million. The restructuring over
accrual primarily resulted from lower than anticipated reserve board levels due
to higher business volumes while the higher personal injury reserve requirement
primarily resulted from greater actuarial loss development partially offset by
reduced employee injuries. At December 31, 1994, the balance of the
restructuring liability was $218.7 million. The majority of the balance
represents the present value of future deferred benefit payments related to the
1992 eastern lines agreement and similar agreements reached in and accrued for
in prior years. Restructuring costs paid were $64.4 million in 1994, $80.9
million in 1993 and $118.9 million in 1992. In 1995, the Company expects
payments of approximately $50 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 $13 million
supporting certain of its obligations under labor agreements.
Hedging Activities
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 on commodities 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 benefit from decreases in fuel
prices.
At December 31, 1994, the Company had entered into various commodity swap
transactions with several counterparties covering approximately 180 million
gallons of diesel fuel which is anticipated to cover approximately 45% of 1995
fuel purchases. These swap arrangements have an average price of 48 cents per
gallon. This price does not include taxes, fuel handling costs and any
differences that may occur from time to time between the prices of commodities
hedged and the purchase price of the Company's diesel fuel. The effect of the
Company's fuel hedging activities was to increase operating expense by $4.4
million and $12.4 million in 1994 and 1993, respectively, and to reduce
operating expense by $0.9 million in 1992. The effect of the Company's fuel
hedging activities since the inception of its fuel hedging program in 1990, has
been to increase operating expense by approximately $2 million. The unrealized
gain related to the fair market value of the Company's fuel hedging transactions
at December 31, 1994 was $1.6 million.
In addition, during 1994 the Company had outstanding four related interest
rate swap transactions with a total notional principal amount of $100 million,
for the purpose of establishing rates in anticipation of an expected future debt
offering. The swap transactions called 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. In conjunction with the debt offering in November 1994,
the Company closed out the swap transactions which resulted in a gain of $10.9
million. The gain was deferred and will be recognized over the term of the
borrowing. As of December 31, 1994, the Company had no outstanding hedging
transactions related to interest rates, although, the Company has subsequently
entered into various interest rate transactions in conjunction with the Tender
Offer and related financing activities (see Merger Activities).
The Company monitors its hedging positions and the credit ratings of its
counterparties and does not anticipate losses due to counterparty non-
performance.
Common Stock Market Prices and Dividends
Santa Fe Pacific Corporation common stock is traded on the New York, Chicago and
Pacific Stock Exchanges. The following table sets forth the high and low closing
prices per share of SFP common stock as reported in the Wall Street Journal for
the period indicated.
<TABLE>
<CAPTION>
1994 1993
----------------------------------
High Low High Low
=====================================================
<S> <C> <C> <C> <C>
First Quarter $26 1/8 $22 3/8 $15 3/8 $12 7/8
Second Quarter $24 1/4 $20 $18 3/8 $14 3/4
Third Quarter $23 $18 1/2 $18 7/8 $17
Fourth Quarter* $17 5/8 $12 5/8 $22 1/4 $18 1/2
=====================================================
</TABLE>
*On September 30, 1994, SFP distributed the Company's approximate 85% interest
in SFP Gold to SFP shareholders on a pro-rata basis, which is reflected in the
stock price beginning in the fourth quarter of 1994. For a further discussion of
the distribution, see Other Matters-Distribution of SFP Gold to Shareholders.
SFP paid a cash dividend of $0.10 per share in both 1994 and 1993.
As of January 31, 1995, there were approximately 71,000 holders of record of
SFP common stock.
18 SANTA FE PACIFIC CORPORATION
<PAGE>
REPORT OF MANAGEMENT
To the Shareholders of Santa Fe Pacific Corporation
The accompanying consolidated financial statements of Santa Fe Pacific
Corporation and subsidiary companies were prepared by management, who are
responsible for their integrity and objectivity. They were prepared in
accordance with generally accepted accounting principles and properly include
amounts that are based on management's best judgments and estimates. Other
financial information included in this annual report is consistent with that in
the consolidated financial statements.
The Company maintains a system of internal accounting controls, supported by
adequate documentation, to provide reasonable assurance that assets are
safeguarded and that the books and records reflect the authorized transactions
of the Company. Limitations exist in any system of internal accounting controls
based upon the recognition that the cost of the system should not exceed the
benefits derived. The Company believes its system of internal accounting
controls, augmented by its internal auditing function, appropriately balances
the cost/benefit relationship.
Independent accountants provide an objective assessment of the degree to which
management meets its responsibility for fairness of financial reporting. They
regularly evaluate the system of internal accounting controls and perform such
tests and other procedures as they deem necessary to express an opinion on the
fairness of the consolidated financial statements.
The Board of Directors pursues its responsibility for the Company's financial
statements through its Audit Committee which is composed solely of directors who
are not officers or employees of the Company. The Audit Committee meets
regularly with the independent accountants, management and the internal
auditors. The independent accountants and the Company's internal auditors have
direct access to the Audit Committee, with and without the presence of
management representatives, to discuss the scope and results of their audit work
and their comments on the adequacy of internal accounting controls and the
quality of financial reporting.
/s/ Robert D. Krebs
Robert D. Krebs
Chairman, President and Chief Executive Officer
/s/ Denis E. Springer
Denis E. Springer
Senior Vice President and Chief Financial Officer
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, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, 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 21, 1995
SANTA FE PACIFIC CORPORATION | 19
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------
(In millions, except per share data) 1994 1993 1992
================================================================================================================
<S> <C> <C> <C>
Operating Revenues $2,680.9 $2,409.2 $2,251.7
----------------------------------------------------------------------------------------------------------------
Operating Expenses
Compensation and benefits 835.7 799.8 798.8
Contract services 395.6 321.7 276.9
Fuel 252.7 239.1 205.5
Equipment rents 248.2 229.4 186.0
Depreciation and amortization 200.5 188.4 180.8
Materials and supplies 118.8 127.7 127.5
Other 200.5 185.4 178.6
Rail special charge -- -- 320.4
----------------------------------------------------------------------------------------------------------------
Total Operating Expenses 2,252.0 2,091.5 2,274.5
----------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 428.9 317.7 (22.8)
Equity in Earnings of Pipeline Partnership 34.6 18.6 24.1
Interest Expense 121.9 133.4 164.5
Gain on Sale of California Lines -- 145.4 204.9
Other Income (Expense)--Net 9.5 5.8 (0.3)
----------------------------------------------------------------------------------------------------------------
Income From Continuing Operations Before Income Taxes 351.1 354.1 41.4
Income Taxes 151.7 176.7 20.3
----------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 199.4 177.4 21.1
Income from Discontinued Operations, Net of Income Taxes 23.1 161.4 42.4
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) $ 222.5 $ 338.8 $ (104.5)
================================================================================================================
Income (Loss) Per Share of Common Stock
Continuing Operations $ 1.05 $ 0.95 $ 0.11
Discontinued Operations 0.12 0.86 0.23
Extraordinary Charge -- -- (0.03)
Cumulative Effect of a Change in Accounting -- -- (0.88)
----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 1.17 $ 1.81 $ (0.57)
================================================================================================================
Average Number of Common and Common Equivalent Shares 190.8 187.2 184.8
================================================================================================================
(See notes to consolidated financial statements)
</TABLE>
20 | SANTA FE PACIFIC CORPORATION
<PAGE>
CONSOLIDATED BALANCE SHEET
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
December 31,
-------------------
(In millions) 1994 1993
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents, at cost which approximates market $ 176.4 $ 70.3
Accounts receivable, less allowances 62.0 96.1
Materials and supplies 95.3 92.3
Note receivable--current 36.2 72.5
Current portion of deferred income taxes 98.6 99.3
Other 25.2 27.2
----------------------------------------------------------------------------------------------------------
Total current assets 493.7 457.7
----------------------------------------------------------------------------------------------------------
Note Receivable -- 36.2
Other Long-Term Assets 337.9 323.3
----------------------------------------------------------------------------------------------------------
Properties, Plant and Equipment 6,291.8 5,886.1
Less--accumulated depreciation and amortization 1,550.5 1,577.7
----------------------------------------------------------------------------------------------------------
Net properties 4,741.3 4,308.4
----------------------------------------------------------------------------------------------------------
Net Assets of Discontinued Operations -- 248.4
----------------------------------------------------------------------------------------------------------
Total Assets $5,572.9 $5,374.0
----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 724.8 $ 669.8
Long-term debt due within one year 203.6 184.7
----------------------------------------------------------------------------------------------------------
Total current liabilities 928.4 854.5
----------------------------------------------------------------------------------------------------------
Long-Term Debt Due After One Year 1,067.4 991.1
Postretirement Benefits Liability 258.1 284.7
Rail Restructuring Liability 171.1 257.8
Other Long-Term Liabilities 699.1 601.7
Deferred Income Taxes 1,191.9 1,115.9
----------------------------------------------------------------------------------------------------------
Total Liabilities 4,316.0 4,105.7
----------------------------------------------------------------------------------------------------------
Commitments and Contingencies (See Notes 2, 14 and 15)
----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common stock, $1 par value, shares authorized, 600.0 million; 1994 shares issued and
outstanding, 190.0 million and 188.3 million; 1993 shares issued and outstanding,
190.0 million and 185.6 million 190.0 190.0
Paid-in capital 825.8 869.7
Retained income 290.5 340.3
Treasury stock, at cost (49.4) (131.7)
----------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,256.9 1,268.3
----------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $5,572.9 $5,374.0
----------------------------------------------------------------------------------------------------------
</TABLE>
(See notes to consolidated financial statements)
SANTA FE PACIFIC CORPORATION | 21
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Santa Fe Pacific Corporation and Subsidiary Companies
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
(In millions) 1994 1993 1992
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ 222.5 $ 338.8 $(104.5)
Adjustments to reconcile net income (loss) to operating cash flows:
Income from discontinued operations, net of income taxes (23.1) (161.4) (42.4)
Depreciation and amortization 200.5 188.4 180.8
Deferred income taxes 100.7 139.0 53.0
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 (64.4) (80.9) (118.9)
Imputed interest expense 20.7 26.6 23.3
Gain on sales of property, plant and equipment (6.2) (156.0) (218.7)
Other--net (57.7) (22.4) (20.0)
Changes in Working Capital:
Accounts receivable:
Sale of accounts receivable--net 50.0 - 12.0
Other changes (15.9) (25.3) (19.5)
Materials and supplies (3.0) (3.6) (11.2)
Accounts payable and accrued liabilities 55.0 51.6 40.0
Other (3.0) 1.3 (6.7)
-----------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities--Continuing Operations 476.1 296.1 250.6
Discontinued Operations--net 54.3 67.7 79.0
-----------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 530.4 363.8 329.6
-----------------------------------------------------------------------------------------------------
Investing Activities
Cash used for capital expenditures (461.5) (381.5) (256.0)
Proceeds from the sale of property, plant and equipment 16.2 247.6 319.0
Other--net 81.0 70.3 43.8
Discontinued Operations--net (49.4) (99.8) (68.2)
-----------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For) Investing Activities (413.7) (163.4) 38.6
-----------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from borrowings 232.0 6.5 -
Principal payments on borrowings (255.9) (242.6) (407.5)
Cash dividends paid (18.7) (18.5) (18.2)
Other--net 23.4 20.7 16.0
Discontinued Operations--net 8.6 41.7 (4.6)
-----------------------------------------------------------------------------------------------------
Net Cash Used For Financing Activities (10.6) (192.2) (414.3)
-----------------------------------------------------------------------------------------------------
Increase (Decrease) In Cash and Cash Equivalents 106.1 8.2 (46.1)
Cash and Cash Equivalents:
Beginning of year 70.3 62.1 108.2
-----------------------------------------------------------------------------------------------------
End of year $ 176.4 $ 70.3 $ 62.1
-----------------------------------------------------------------------------------------------------
(See notes to consolidated financial statements)
</TABLE>
22 | SANTA FE PACIFIC CORPORATION
<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
(Shares in thousands) (Dollars in millions) Stock Stock Stock Stock Capital Income
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991 190,021 10,209 $190.0 $(309.2) $1,013.5 $ 142.6
1992 net loss - - - - - (104.5)
Cash dividends declared - - - - - (18.2)
Exercise of stock options - (1,995) - 60.5 (46.4) -
Other - (20) - 0.6 (0.4) -
--------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1992 190,021 8,194 $190.0 $(248.1) $ 966.7 $ 19.9
1993 net income - - - - - 338.8
Cash dividends declared - - - - - (18.5)
Exercise of stock options - (3,231) - 97.1 (73.8) -
Issuance of restricted stock - (777) - 23.2 (23.2) -
Other - 224 - (3.9) - 0.1
--------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 190,021 4,410 $190.0 $(131.7) $ 869.7 $ 340.3
1994 net income - - - - - 222.5
Cash dividends declared - - - - - (18.7)
Distribution of gold subsidiary - - - - - (253.6)
Exercise of stock options - (2,574) - 78.8 (50.2) -
Other - (116) - 3.5 6.3 -
--------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 190,021 1,720 $190.0 $ (49.4) $ 825.8 $ 290.5
==========================================================================================================================
</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, 1994.
(See notes to consolidated financial statements)
SANTA FE PACIFIC CORPORATION | 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Santa Fe Pacific Corporation and Subsidiary Companies
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Santa Fe Pacific Corporation and subsidiary companies (SFP or Company) that are
majority owned and controlled, directly or indirectly, by SFP. The principal
subsidiary is The Atchison, Topeka and Santa Fe Railway Company (Santa Fe
Railway). 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 non-cash capital expenditures
totaling $182.8 million, $157.6 million, and $9.5 million in 1994, 1993, and
1992, respectively. Non-cash capital expenditures consist principally of
directly financed equipment acquisitions and reimbursed projects.
Materials and Supplies
Material and supply inventories are valued at the lower of cost (average or
first-in, first-out) or market.
Note Receivable
The note receivable included in the consolidated balance sheet relates to
the sale of a subsidiary in 1986. Principal payments of $72.5 million were
received in both 1994 and 1993. Remaining proceeds to be received from the note
are $36.2 million in 1995.
Properties, Plant and Equipment
Properties, plant and equipment are stated at cost and include capitalized
interest incurred during construction of $7.3 million in 1994, $8.2 million in
1993 and $3.7 million in 1992. 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 net salvage is
charged to accumulated depreciation and no gain or loss is recognized.
Depreciation is computed using the straight-line method over the estimated
service life of the asset. The weighted average annual depreciation rate in
effect at December 31, 1994 was 2.8% for track structure, 5.0% for equipment
and 2.1% for other road properties.
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.
Note 2: Merger Activities
SFP signed an agreement to merge with Burlington Northern Inc. (BNI) (the
Merger) pursuant to an Agreement and Plan of Merger dated June 29, 1994, as
amended (the Merger Agreement). The Merger was approved by SFP and BNI
shareholders on February 7, 1995, and in accordance with the Merger Agreement,
BNI and SFP conducted a tender offer to purchase a total of 63 million shares
of SFP common stock at a price of $20 per share (the Tender Offer). Between the
Tender Offer and consummation of the Merger, SFP has the right to purchase an
additional 10 million shares, subject to certain limitations of the Merger
Agreement and the SFP Credit Facility (defined below). At Merger consummation,
each remaining outstanding share of SFP common stock will be converted into at
least 0.40 of a share of BNI common stock (the Exchange Ratio) in a tax-free
exchange. The Exchange Ratio will depend on the number of shares purchased by
SFP between the Tender Offer and Merger consummation as well as the number of
SFP stock options which are exercised prior to consummation of the Merger. The
Merger Agreement provides for a maximum Exchange Ratio of 0.4347; however, as
SFP stock options have been exercised since December 31, 1994, the Exchange
Ratio will be less than the maximum. The consummation of the Merger is subject
to various conditions, including approval by the Interstate Commerce Commission
(ICC).
Under current law, the ICC has a maximum of 31 months to approve the Merger
after the application is filed; however, the ICC had previously established a
535 day schedule for a final decision from the filing date of the ICC
application, which occurred on October 13, 1994. This schedule was held in
abeyance until the shareholders' vote on the Merger. The ICC recently requested
comments on a proposed 180-day schedule for the review of railroad mergers and
specifically asked for comments on whether the new schedule should apply to the
BNI-SFP merger. BNI and SFP have asked the ICC to apply a 165-day schedule to
the Merger. The ICC has the matter under consideration, and it has not yet
rendered a decision. Currently, there can be no assurance that the ICC will
issue a decision on the Merger any sooner than the 31-month period permitted by
law.
Under the terms of the Tender Offer, SFP purchased 38 million shares of SFP
common stock and BNI purchased 25 million shares of SFP common stock. In
connection with the Tender Offer, SFP has obtained a bank loan facility (Credit
Facility) up to $1.56 billion which consists of a $1 billion term loan, a $310
million revolving credit facility and a $250 million revolving credit facility.
On February 21, 1995, SFP borrowed $760 million under the term loan to purchase
the 38 million shares of SFP common stock. SFP intends to borrow up to an
additional $350 million in 1995, which will be used in part to retire SFP's $200
million 12.65% senior notes maturing 1998-2000, including any costs associated
with such retirement. The debt repayment is expected to result in an after-tax
extraordinary charge for the early retirement of debt of approximately $20
million.
If the Tender Offer and related financing activities had been completed at
December 31, 1994, SFP's long-term debt would have increased by up to $910
million and SFP's stockholders' equity would have decreased by approximately
$780 million. SFP's total debt to total capitalization ratio would have
increased from 50% to approximately 82%.
Borrowings under the Credit Facility are based on variable interest rates
(e.g., LIBOR or prime) plus a credit spread which varies based on the financial
performance of the Company. The variable rate plus the credit spread was
approximately 7.6% on February 21, 1995. Terms of the Credit Facility also
require SFP to enter into interest rate hedging transactions for two-thirds of
outstanding borrowings under the term loan or up to $667 million to protect
against increases in interest rates. As of February 21, 1995 the Company had
entered into various interest rate swap transactions with a total notional
principal amount of $200 million. The interest rate swaps mature from December
1996 through
24 | SANTA FE PACIFIC CORPORATION
<PAGE>
December 1998 and were entered into to match maturities under the term loan. The
interest rate swaps require payment of a fixed interest rate of approximately
7.6% and the receipt of a variable interest rate based on LIBOR. The
transactions will be settled quarterly and will be recognized as a component of
interest expense as incurred.
Repayment terms of outstanding borrowings under the Credit Facility are as
follows: (i) the $1 billion term loan requires repayment of $50 million in 1996,
$100 million in both 1997 and 1998, $150 million in 1999, $200 million in 2000
and $400 million in 2001; (ii) outstanding borrowings under the $310 million
revolving credit facility are payable at the earliest of (a) December 31, 1997,
(b) six months after ICC approval of the Merger or (c) six months after
termination of the Merger Agreement; and (iii) outstanding borrowings under the
$250 million revolving credit facility are payable on December 31, 1999. SFP
pays commitment fees of 0.3% per annum on the unused portion of the revolving
credit facilities. The use of borrowings under the term loan are generally
restricted; however, up to $360 million of the revolving credit facilities can
be used by SFP for working capital needs and other general corporate purposes.
The Credit Facility contains various covenants including: limitations on
indebtedness, dividends and stock repurchases; maintenance of various financial
ratios; and certain restrictions related to the disposition of assets. After the
Tender Offer and related financing activities it is anticipated that SFP will
not pay any cash dividends in the foreseeable future.
Subject to the limitations set forth in the Merger Agreement and the Credit
Facility, repurchases of up to an additional 10 million shares of SFP common
stock after the Tender Offer and before the Merger, including the amount and
timing of any such repurchases, will be in the sole discretion of SFP.
Accordingly, although SFP anticipates that at least $50 million would be
available for repurchases under the terms of the Credit Facility in 1995, there
can be no assurance that SFP will make any repurchases. To have the $50 million
available for repurchases, SFP would have to comply with the minimum capital
expenditure and maximum total debt provisions of the Merger Agreement. If
regulatory approval of the Merger is expedited, as discussed above, it is likely
that the number of shares SFP would repurchase would be less than if regulatory
approval is not expedited.
Note 3: Discontinued Operations
In June 1994, Santa Pacific Gold Corporation (SFP Gold), SFP's gold
subsidiary, completed an initial public offering of 14.6% of its common stock.
Approximately 19 million shares were sold at a price of $14 per share resulting
in net proceeds of $250.3 million, the majority of which was used for the
repayment of outstanding debt at SFP Gold. SFP distributed its remaining 85.4%
interest in SFP Gold to SFP shareholders and SFP Gold became a separate,
independent entity on September 30, 1994. Holders of record of SFP common stock
received a distribution of one share of common stock of SFP Gold for every
approximately 1.7 shares of SFP common stock held. Under a ruling obtained from
the Internal Revenue Service, the distribution was tax-free to SFP shareholders.
Income from discontinued operations in 1994, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Year Ended December 31,
------------------------------
(In millions) 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $273.7 $298.6 $220.6
------------------------------------------------------------------
Income before income taxes 44.2 296.1 63.1
Income taxes 21.1 134.7 20.7
------------------------------------------------------------------
Income from discontinued operations $ 23.1 $161.4 $ 42.4
==================================================================
</TABLE>
Income from discontinued operations in 1994 includes SFP's portion of SFP
Gold's results of operations through September 30, 1994, net of transaction and
other costs related to the distribution. In June 1993, SFP Gold closed an asset
exchange with Hanson Natural Resources Company (Hanson). SFP Gold received
certain gold assets of Hanson, and Hanson acquired essentially all coal and
aggregate assets of SFP Gold. The exchange was recorded as a purchase of assets,
and the results from the gold assets were reflected in income prospectively from
the date of closing. Income from discontinued operations for 1993 includes an
after tax gain on the exchange of $108.3 million.
Note 4: Gain on Sale of California Lines
In November 1992, Santa Fe Railway announced it would sell approximately 340
miles of rail lines and property to eight southern California transportation
agencies. Santa Fe Railway received both 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 plan to use these facilities for commuter lines.
The sale encompassed three separate closings which occurred in December 1992,
March 1993, and June 1993. Santa Fe Railway received cash proceeds of $226.9
million in 1993 and $255.0 million in 1992, 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.
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 for
$50 million. Proceeds of $126.0 million were used to retire debt related to
discontinued operations in 1993; and proceeds of $201.0 million were used to
retire debt in 1992 (see Note 12: Long-Term Debt).
Note 5: Rail Special Charge
During 1992, Santa Fe Railway recorded a $320.4 million pre-tax special
charge, which included provisions of approximately $253 million for
restructuring and $67 million for environmental (see Note 15: Environmental and
Other Contingencies).
Approximately $149 million of the restructuring charge related to a 1992
eastern lines crew consist agreement and revised estimates related to a previous
agreement. The agreement provided for further reductions in average crew size on
through freight trains, and elimination of productivity payments which were
required when reduced crews were used. This 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
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 have declined significantly
over time through attrition, recall to work, and other factors.
The restructuring charge also included approximately $73 million related to
centralization. In 1992, Santa Fe Railway decided to centralize many operating
support functions. Centralization began in late 1992 and by the fall of 1993,
Santa Fe Railway had centralized train
SANTA FE PACIFIC CORPORATION | 25
<PAGE>
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. The charge provided for the cost of approximately 700
relocations, reductions of 600 administrative and clerical positions, and
abandonment of facilities. Most of the costs of centralization have been paid.
Additionally, the restructuring charge included approximately $31 million for
other cost saving initiatives, including an adjustment of accruals established
for other operating craft labor agreements reached in prior periods.
In the fourth quarter of 1994, based upon a review of the adequacy of the
restructuring reserve as well as an actuarial review of Santa Fe Railway's
liability for personal injury claims, the Company reduced the restructuring
reserve by approximately $30 million and increased the personal injury reserve
by approximately $30 million. The restructuring over accrual primarily resulted
from lower than anticipated reserve board levels due to higher business volumes
while the higher personal injury reserve requirement primarily resulted from
greater actuarial loss development partially offset by reduced employee
injuries. At December 31, 1994, the balance of the restructuring liability was
$218.7 million. The majority of the balance represents the present value of
future deferred benefit payments related to the 1992 eastern lines agreement and
similar agreements reached in and accrued for in prior years. Restructuring
costs paid were $64.4 million in 1994, $80.9 million in 1993 and $118.9 million
in 1992. In 1995, the Company expects payments of approximately $50 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 $13 million supporting certain of its
obligations under labor agreements.
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. Other
long-term assets include $71.7 million and $61.5 million at December 31, 1994
and 1993, respectively, for SFP's investment in the Pipeline Partnership.
Pipeline Holdings also issued the Pipeline Exchangeable Debentures (Pipeline
Debentures) (see Note 12: Long-Term Debt) which are traded on the New York Stock
Exchange and under certain circumstances can be exchanged for common units that
represent SFP's 42% limited partnership interest in the Pipeline Partnership.
Interest on the Pipeline Debentures is paid quarterly and is equal to the
greater of (a) distributions of cash from operations declared by the Pipeline
Partnership for the 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.
SFP, through its wholly owned subsidiaries, received annual cash distributions
from the Pipeline Partnership of $25.1 million in 1994, 1993 and 1992. $22.8
million of these distributions was used in each of these years to pay interest
costs on the Pipeline Debentures.
The following table sets forth selected financial data for the Pipeline
Partnership:
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
--------------------------------------------------------------------
(In millions, except per unit data)
<S> <C> <C> <C>
Statement of Operations Data
Total revenues $228.1 $219.5 $205.0
Operating income 111.0 78.3(1) 91.4(1)
Interest expense 37.6 37.1 36.9
Income before cumulative
effect of accounting change 76.9 41.6 54.1
Cumulative effect of
accounting change - - (16.4)(2)
Net income 76.9 41.6 37.7
Per Unit Data
Income before accounting
change $ 3.93 $ 2.13 $ 2.77
Cumulative effect of
accounting change - - (.84)(2)
Net income 3.93 2.13 1.93
Cash distributions per unit 2.80 2.80 2.80
<CAPTION>
December 31, 1994 1993
--------------------------------------------------------------------
<S> <C> <C>
Balance Sheet Data
Total current assets $ 87.8 $ 67.7
Net properties, plant and equipment 613.0 616.6
Total assets 714.8 697.0
Total current liabilities 31.8 35.6
Long-term debt 355.0(3) 355.0(3)
Total partners' capital 288.0 265.9
====================================================================
</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.
(3) Pipeline Holdings is contingently liable for $355.0 million of Pipeline
Partnership long-term debt.
Note 7: Other Income (Expense)--Net
Other income (expense)--net consisted of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C>
Real estate activities $ 12.1 $ 19.4 $ 23.9
Interest income 5.4 11.7 17.8
Corporate administrative expenses (24.8) (22.4) (22.3)
Accounts receivable fees (12.1) (8.3) (9.4)
Curtailment gain-postretirement
benefits 28.1(1) - -
Gain on sale of investment 23.7 - -
Arbitration/litigation settlements (1.7) 21.6 -
Merger related costs (15.8) - -
Other--net (5.4) (16.2) (10.3)
----------------------------------------------------------------
Total $ 9.5 $ 5.8 $ (0.3)
================================================================
</TABLE>
(1) Gain resulting from a change in eligibility requirements related to
postretirement benefits. (See Note 17: Other Postretirement Benefits).
Note 8: Income Taxes
The provision for income taxes applicable to continuing operations
consisted of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 46.3 $ 33.5 $(32.0)
State 4.7 4.2 (0.7)
---------------------------------------------
Total Current 51.0 37.7 (32.7)
---------------------------------------------
Deferred:
Federal 84.6 124.6 40.7
State 16.1 14.4 12.3
---------------------------------------------
Total Deferred 100.7 139.0 53.0
---------------------------------------------
Total $151.7 $176.7 $ 20.3
=============================================
</TABLE>
26 | SANTA FE PACIFIC CORPORATION
<PAGE>
Income taxes from continuing operations as reflected in the consolidated
statement of operations differ from the amounts computed by applying the
statutory federal corporate tax rate to income from continuing operations as
follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
-------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate
(35% in 1994-1993, 34% in 1992) $122.9 $123.9 $14.1
Increase (decrease) in taxes
resulting from:
State income taxes, net of
federal benefit 13.5 12.1 7.7
1% increase in federal tax rate - 23.5 -
Other 15.3 17.2 (1.5)
-------------------------------------------------------------
Total $151.7 $176.7 $20.3
-------------------------------------------------------------
</TABLE>
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. SFP recorded additional income tax expense of $23.5 million,
representing the impact of the 1% rate increase on SFP's net beginning of year
deferred income tax liability.
Principal temporary differences that gave rise to the net deferred tax
liability at December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993
------------------------------------------------------------------------
<S> <C> <C>
Deferred tax debits:
Accrued liabilities not deductible until paid:
Casualty and environmental $ 131.8 $ 114.8
Postretirement benefits 105.3 110.8
Restructuring 86.0 119.5
Other 109.7 124.2
Non-expiring AMT credit carryforwards 108.6 93.7
Other 12.8 13.5
------------------------------------------------------------------------
Subtotal $ 554.2 $ 576.5
------------------------------------------------------------------------
Deferred tax credits:
Depreciation $(1,443.6) $(1,267.4)
Condemnation sales (128.2) (211.8)
Other (75.7) (113.9)
------------------------------------------------------------------------
Subtotal $(1,647.5) $(1,593.1)
------------------------------------------------------------------------
Net deferred tax liability $(1,093.3) $(1,016.6)
------------------------------------------------------------------------
</TABLE>
During 1994, 1993 and 1992, SFP made income tax payments, net of refunds, of
$69.4 million, $23.9 million and $8.2 million, respectively.
SFP's federal income tax returns have been examined through 1990. All years
prior to 1981 are closed. Issues relating to the years 1981-1990 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 that might be assessed for
open years through 1994.
Note 9: Accounts Receivable
In December 1994, a special purpose subsidiary of Santa Fe Railway sold, with
limited recourse, variable rate certificates which mature in December 1999
evidencing undivided interests in an accounts receivable master trust. The
master trust's assets include an ownership interest in a revolving portfolio of
Santa Fe Railway's accounts receivable which are used to support the
certificates. At December 31, 1994, $275 million of certificates sold were
outstanding and were supported by receivables in the master trust of $354
million. A maximum of $300 million of certificates can be sold if the master
trust balance is increased by receivables which are eligible for sale. Santa Fe
Railway has retained the collection responsibility with respect to the accounts
receivable held in trust. Santa Fe Railway is exposed to credit loss related to
collection of accounts receivable to the extent that the amount of receivables
in the master trust exceeds the amount of certificates sold.
The proceeds from the sale were used to reduce the amount of accounts
receivable sold under a previous agreement which expired in December 1994. The
amount of accounts receivable sold under the previous agreement was $225 million
at December 31, 1993. Similar to the prior agreement, costs related to the new
agreement vary on a monthly basis and are generally related to certain interest
rates. Costs related to accounts receivable sales, which are included in Other
Income (Expense)--Net, were $12.1 million, $8.3 million and $9.4 million in
1994, 1993 and 1992, respectively.
SFP maintains an allowance for doubtful accounts based upon the estimated
collectibility of all accounts receivable, including accounts receivable sold.
Activity in the allowance for doubtful accounts for the three years ended
December 31, 1994 was as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $21.6 $17.3 $22.8
Additions charged to expense 7.6 7.8 5.7
Deductions 6.6 3.5 11.2
-----------------------------------------------------------------
Balance at end of year $22.6 $21.6 $17.3
-----------------------------------------------------------------
</TABLE>
Note 10: Properties, Plant and Equipment
The major classes of properties, plant and equipment are as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Track structure $ 2,506.3 $ 2,326.8
Equipment 2,015.1 1,952.6
Other road properties 1,640.4 1,478.9
Real estate and other 130.0 127.8
-----------------------------------------------------------------
Total 6,291.8 5,886.1
Accumulated depreciation and amortization (1,550.5) (1,577.7)
-----------------------------------------------------------------
Net properties $ 4,741.3 $ 4,308.4
-----------------------------------------------------------------
</TABLE>
Note 11: Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 31, 1994 and 1993 consisted
of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993
-----------------------------------------------------------
<S> <C> <C>
Accounts and wages payable $190.3 $141.8
Accrued claims 106.4 90.3
Vacations 51.5 49.8
Rail restructuring 47.6 57.8
Taxes other than income taxes 36.4 34.3
Interest 31.9 28.1
Other 260.7 267.7
-----------------------------------------------------------
Total $724.8 $669.8
-----------------------------------------------------------
</TABLE>
SANTA FE PACIFIC CORPORATION | 27
<PAGE>
Note 12: Long-Term Debt
Long-term debt at December 31, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
(In millions) 1994 1993
======================================================================
<S> <C> <C>
Equipment Obligations, weighted average rate
of 8.6%, maturing from 1995 to 2009 $ 498.9 $ 478.9
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
Senior Notes, 8.625%, maturing 2004 100.0 -
Senior Notes, 8.375%, maturing 2001 100.0 -
Mortgage Bonds, 4%, maturing 1995 95.8 95.8
Term Loan, 6.3% (variable), maturing 1995 36.2 108.7
Bank Term Loan, (variable) - 50.0
Other Obligations, 10.3%, maturing from
1995-2014 38.0 40.2
Debt discount (16.9) (16.8)
----------------------------------------------------------------------
Total long-term debt 1,271.0 1,175.8
Due within one year (203.6) (184.7)
----------------------------------------------------------------------
Due after one year $1,067.4 $ 991.1
======================================================================
</TABLE>
In the fourth quarter of 1993, the Company established four related interest
rate swap transactions with a total notional principal amount of $100 million,
for the purpose of establishing rates in anticipation of a debt issuance under a
shelf registration statement. The swap transactions called 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. In conjunction with the fourth quarter
1994 issuance of the ten year 8.625% senior notes, the Company closed out the
swap transactions which resulted in a gain of $10.9 million. The gain was
deferred and will be recognized over the term of the borrowing.
During 1994, SFP had a $200 million revolving credit facility for general
corporate purposes, which was replaced with $250 million and $310 million
revolving credit facilities in conjunction with the Tender Offer and related
financing activities (see Note 2: Merger Activities). As of December 31, 1994,
no borrowings were outstanding under the $200 million revolving credit facility.
In December 1992, SFP accelerated the repayment of borrowings related to a
1990 litigation settlement. This early debt retirement resulted in an
extraordinary charge of $5.0 million, net of applicable tax benefits of $3.0
million, reflecting the write off of unamortized debt discount. The repayment
was made using a portion of the 1992 proceeds from Santa Fe Railway's sale of
rail lines in southern California (see Note 4: Gain on Sale of California
Lines).
As of December 31, 1994, projected principal repayments of long-term debt in
1995 through 1999, excluding capital leases, are $201.9 million, $45.5 million,
$41.9 million, $108.7 million and $103.8 million, respectively. SFP paid
interest totaling $102.6 million in 1994, $111.3 million in 1993 and $142.2
million in 1992.
Most 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. Certain other debt agreements of the Company and its subsidiaries
include covenants that limit indebtedness and intercompany dividends, require
maintaining various financial ratios, and restrict the disposition of assets.
See Note 2: Merger Activities for a discussion of changes to SFP's long-term
debt structure which occurred subsequent to December 31, 1994.
Note 13: Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments at December 31,
1994 and 1993, 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 book value
because of the short maturity of those instruments.
Note Receivable
The fair value of the Note Receivable approximates book value since the variable
interest rate on the note approximates current interest rates.
Other Investments
SFP maintains various investments of common stock in nonmarketable securities
which are accounted for under a cost basis. The carrying value of these
investments at December 31, 1994 and 1993 was $45 million and $46 million,
respectively, compared with estimated fair values, based on the underlying net
assets, of $123 million and $117 million, respectively.
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 that would
be offered to the Company for debt of the same remaining maturities. The
carrying value of debt at December 31, 1994 and 1993 was $1,271.0 million and
$1,175.8 million, respectively, compared with estimated fair values of
approximately $1,359 million and $1,371 million, respectively.
Note 14: Hedging Activities, Leases and Other
Commitments
Hedging Activities
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 on commodities 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 benefit from decreases in fuel
prices.
At December 31, 1994, the Company had entered into various commodity swap
transactions with several counterparties covering approximately 180 million
gallons of diesel fuel which is anticipated to cover approximately 45% of 1995
fuel purchases. These swap arrangements have an average price of 48 cents per
gallon. This price does not include taxes, fuel handling costs and any
differences that may occur from time to time between the prices of commodities
hedged and the purchase price of the Company's diesel fuel. The effect of the
Company's fuel hedging activities was to increase operating expense by $4.4
million and $12.4 million in 1994 and 1993, respectively, and to reduce
operating expense by $0.9 million in 1992. The effect of the Company's fuel
hedging activities since the inception of its fuel hedging program in 1990, has
been to increase operating expense by approximately $2 million. The unrealized
gain related to the fair market value of the Company's fuel hedging transactions
at December 31, 1994 was $1.6 million.
From time to time, the Company enters into various interest rate hedging
transactions for the purpose of managing exposure to fluctuation in interest
rates and establishing rates in anticipation of future debt issuances. During
1994, the Company closed out four related interest
28 SANTA FE PACIFIC CORPORATION
<PAGE>
rate swap transactions in conjunction with the issuance of debt (see Note 12:
Long-Term Debt). As of December 31, 1994, the Company had no outstanding hedging
transactions related to interest rates, although, the Company has subsequently
entered into various interest rate transactions in conjunction with the Tender
Offer and related financing activities (see Note 2: Merger Activities).
The Company monitors its hedging positions and the credit ratings of its
counterparties and does not anticipate losses due to counterparty non-
performance.
Leases
SFP leases certain locomotives, freight cars, trailers, data processing
equipment and other property. Future minimum lease payments (which reflect
operating leases having non-cancelable lease terms in excess of one year) as of
December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------
(In millions)
======================================
<S> <C>
1995 $ 54.6
1996 51.9
1997 40.1
1998 34.1
1999 31.8
Later years 146.4
--------------------------------------
Total minimum payments $358.9
======================================
</TABLE>
Rental expense for all operating leases related to continuing operations was
$103.6 million in 1994, $94.9 million in 1993 and $72.8 million in 1992.
Contingent rentals and sublease rentals were not significant.
Other Commitments
Santa Fe Railway has entered into agreements with certain locomotive suppliers
to maintain a portion of its locomotive fleet. As of December 31, 1994, these
agreements obligate Santa Fe Railway to make minimum annual payments over
periods ranging from one 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. Together, these
agreements require minimum annual payments of approximately $80 million in 1995,
$76 million in 1996, $75 million in 1997, $74 million in 1998, $73 million in
1999, and $385 million in total thereafter through 2012. Payments under the
agreements totaled approximately $103 million, $68 million and $62 million in
1994, 1993 and 1992, respectively.
In connection with the closing of the sale of rail lines in southern
California, Santa Fe Railway has entered into various shared use agreements with
the agencies, which require Santa Fe Railway to pay the agencies approximately
$6 million annually to maintain track structure and facilities.
Note 15: Environmental and Other Contingencies
Environmental
The Company is subject to extensive regulation under federal, state and local
environmental laws covering, for example, 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 operations of
the Company. Environmental risks are also inherent in railroad operations which
frequently involve transporting chemicals and other hazardous materials.
Santa Fe Railway expects it will become subject to future requirements
regulating air emissions from diesel locomotives that may increase its operating
costs. During 1995, the Environmental Protection Agency (EPA) must issue
regulations applicable to new locomotive engines. It is anticipated that these
regulations will be effective for locomotive engines installed after 1999. Under
some interpretations of federal law, older locomotive engines may be regulated
by states based on standards and procedures which the State of California
ultimately adopts. At this time it is unknown whether California will adopt any
locomotive emission standards.
In addition, 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. As
a result, 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 former 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, former
owners or lessees of properties, or other third parties.
At December 31, 1994, SFP had been named a potentially responsible party (PRP)
at seven sites on the EPA's National Priorities List. SFP is also potentially
liable for the cost of clean-up at other sites identified by the EPA and other
agencies. SFP has identified approximately 125 sites where costs exist for
environmental clean-up and monitoring, including some where no claim has been
asserted and no agency is currently involved. These sites include, among other
things: closed facilities, 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. Estimated costs at sites where SFP
is a PRP are generally based on cost sharing agreements which vary from site to
site. These costs are typically allocated based on the financial condition of
other PRP's, 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, an additional accrual of $67 million was recorded as part of the rail
special charge to provide for future costs of this nature (see Note 5: Rail
Special Charge). The Company also monitors accruals for environmental sites that
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. At December 31, 1994 and 1993, the Company had
accrued liabilities for environmental costs of approximately $126 million and
$125 million, respectively. The Company has not included any reduction in costs
for anticipated recovery from insurance.
Payments recorded against environmental liabilities totaled $20.0 million,
$13.5 million and $6.3 million for the years ended December 31,
SANTA FE PACIFIC CORPORATION | 29
<PAGE>
1994, 1993 and 1992, respectively. The majority of these payments related to
mandatory clean-up efforts. Capital expenditures related to environmental sites
were insignificant during this period. The Company anticipates that
approximately 75% of the accrued costs at December 31, 1994 will be paid over
the next five years, with approximately $25 million of payments occurring in
1995. 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.
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 nearly 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 applicable to continuing operations
relating to the Retirement and Supplemental Plans for 1994, 1993 and 1992 were
as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
Retirement Plan
-------------------------
(In millions) 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C>
Components of pension
(income) expense
Service cost $ 7.4 $ 6.0 $ 7.1
Interest cost 42.4 41.9 39.1
Actual return on plan assets (10.1) (110.4) (58.5)
Net amortization and deferral (53.0) 46.6 (5.3)
---------------------------------------------------------------
Total $(13.3) $ (15.9) $(17.6)
===============================================================
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
Supplemental Plan
-------------------------
(In millions) 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C>
Components of pension expense
Service cost $0.1 $0.1 $0.1
Interest cost 0.6 0.6 0.7
Net amortization and deferral 0.6 0.5 0.6
---------------------------------------------------------------
Total $1.3 $1.2 $1.4
===============================================================
</TABLE>
The following table shows the reconciliation of the funded status of the plans
with amounts recorded at December 31, 1994 and 1993. The Company uses a
September 30 measurement date.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Retirement Plan
-------------------
(In millions) 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily invested in
common stock, and U.S. and corporate bonds $ 626.3 $ 657.3
Actuarial present value of projected
benefit obligation
Accumulated benefit obligation
Vested (484.9) (535.1)
Nonvested (24.9) (30.5)
Provision for future salary increases (30.5) (40.4)
----------------------------------------------------------------------
Excess of plan assets over projected benefit
obligation 86.0 51.3
Unrecognized net loss 13.8 33.5
Unrecognized prior service cost 9.8 13.4
Unrecognized net assets being recognized
ratably through 2002 (14.2) (16.1)
----------------------------------------------------------------------
Prepaid pension asset $ 95.4 $ 82.1
======================================================================
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Supplemental Plan
-------------------
(In millions) 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of projected benefit
obligation
Accumulated vested benefit obligation $(7.5) $(8.3)
Provision for future salary increases (2.3) (0.6)
----------------------------------------------------------------------
Projected benefit obligation (9.8) (8.9)
Unrecognized net gain (3.0) (0.8)
Unrecognized prior service cost 2.9 -
Unrecognized net transition obligation being
recognized ratably through 2003 5.1 5.6
Adjustment required to recognize minimum
liability (2.7) (4.2)
----------------------------------------------------------------------
Accrued pension liability $(7.5) $(8.3)
----------------------------------------------------------------------
Major assumptions
(Retirement and Supplemental Plans):
Discount rate 8.5% 7.0%
Rate of increase in compensation levels 4.0% 4.0%
Expected return on market related value of
plan assets 9.75% 9.75%
======================================================================
</TABLE>
Note 17: Other Postretirement Benefits
As of June 1994, salaried employees who have rendered ten years of service after
attaining age 45 are eligible for both medical benefits and life insurance
coverage during retirement. Prior to June 1994, salaried employees who had
attained age 55 and rendered ten years of service were eligible. This change in
eligibility requirements resulted in a $29.5 million pre-tax curtailment gain in
1994 relating to employees who are no longer currently eligible for
postretirement medical benefits, and a negative plan amendment due to a
reduction in the accumulated postretirement benefit obligation related to
remaining eligible active employees. $28.1 million of the curtailment gain was
reflected in Other Income (Expense)-Net with the remaining $1.4 million recorded
in Equity in Earnings of Pipeline Partnership.
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 Statement of Financial Accounting Standard (SFAS) No. 106
effective January 1, 1992 (see Note 18: Change in
30 | SANTA FE PACIFIC CORPORATION
<PAGE>
Method of Accounting for Postretirement and Postemployment Benefits). Components
of net periodic postretirement benefit cost applicable to continuing operations
relating to the medical plan and the life insurance plan were as follows:
<TABLE>
<CAPTION>
Medical Plan
------------------
(In millions) 1994 1993
--------------------------------------------------------------
<S> <C> <C>
Components of net periodic
postretirement benefit cost
Service cost $ 4.0 $ 3.3
Interest cost 14.5 15.1
Net amortization and deferral (4.8) (3.4)
--------------------------------------------------------------
Total $13.7 $15.0
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Life Insurance Plan
-------------------
(In millions) 1994 1993
--------------------------------------------------------------
<S> <C> <C>
Components of net periodic
postretirement benefit cost
Service cost $0.2 $0.2
Interest cost 3.4 3.9
--------------------------------------------------------------
Total $3.6 $4.1
==============================================================
</TABLE>
SFP's policy is to fund benefits payable under the medical and life
insurance plans as they come due. The following table shows the reconciliation
of the plans' obligations to amounts accrued at December 31, 1994 and 1993. The
Company uses a September 30 measurement date.
<TABLE>
<CAPTION>
Medical Plan
------------------
(In millions) 1994 1993
--------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $114.4 $138.6
Fully eligible active plan participants 13.4 16.1
Other active plan participants 36.8 76.1
--------------------------------------------------------------
Accumulated postretirement
benefit obligation 164.6 230.8
--------------------------------------------------------------
Unrecognized prior service credit 42.8 41.3
Unrecognized net gain (loss) 0.2 (40.3)
--------------------------------------------------------------
Accrued postretirement liability $207.6 $231.8
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Life Insurance Plan
-------------------
(In millions) 1994 1993
--------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $40.4 $45.8
Fully eligible active plan participants 0.1 0.2
Other active plan participants 3.4 4.9
--------------------------------------------------------------
Accumulated postretirement
benefit obligation 43.9 50.9
--------------------------------------------------------------
Unrecognized net loss (1.0) (5.5)
--------------------------------------------------------------
Accrued postretirement liability $42.9 $45.4
==============================================================
</TABLE>
The unrecognized prior service credit will be amortized straight line over
the average future service to full eligibility of the active participants.
For 1995, the assumed health care cost trend rate for managed care medical
costs is 11% 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 13% and is assumed to decrease gradually to 5% by 2006
and remain constant thereafter. 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 $27.8 million and the
combined service and interest components of net periodic postretirement benefit
cost recognized in 1994 by $2.6 million. In 1994, the assumed health care cost
trend rate for managed care medical costs was 11.5% and was 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 was 14% in 1994 and was
assumed to decrease gradually to 5% by 2006 and remain constant thereafter.
The weighted-average discount rate assumed in determining the accumulated
postretirement benefit obligation was 8.5% and 7% in 1994 and 1993,
respectively. The assumed weighted-average salary increase was 4.0% in 1994 and
1993.
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 $3.2
million, $3.3 million and $3.5 million in 1994, 1993 and 1992, 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 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. SFAS No. 112 requires these benefits be recognized if they are
vested, and payment is probable and can be reasonably estimated. Before 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.
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 can usually be exercised no earlier
than one year after the date of grant and expire ten years after the date of
grant.
Also, approximately 900,000 shares of restricted stock have been granted
under these plans. The restrictions on a majority of these shares lapse upon
attaining certain corporate performance objectives, completing a required
vesting period, or upon a change in control. Shareholder approval of the Merger
is considered a change in control and accordingly, approximately 750,000 shares
of restricted stock vested in February 1995.
As a result of the distribution of SFP Gold common stock on September 30,
1994, SFP's outstanding stock options were adjusted resulting in a 6.7 million
increase in outstanding options, accompanied with a decrease in the related
exercise price resulting in a decline in average option price. These adjustments
complied with regulations under the Internal Revenue Code and resulted from
adjustment provisions in the
Santa Fe Corporation 31
<PAGE>
respective plans. The maximum number of shares available under these plans
increased by a combined 6.7 million shares. A total of 16.2 million shares,
including additional shares that may be granted in exchange for shares tendered
to the Company to pay for an option exercise is the maximum available under the
Long Term Plan, and a total of 20.8 million shares is the maximum available
under the Incentive Compensation Plan.
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; (4) limited stock appreciation rights; and (5)
stock appreciation rights. Aggregate awards of 11.1 million shares under the
Long Term Plan and 16.9 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.
Approximately 14.5 million and 4.9 million of outstanding options at December
31, 1994 and 1993, respectively, were exercisable within the next year. Option
activity in all plans during 1994, 1993 and 1992 is summarized below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
SFP Average
Shares Price
===============================================================================
<S> <C> <C>
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
Granted 328,795 12.52
Adjustment for spin-off of gold subsidiary 6,666,629
Exercised 2,999,605 7.70
Surrendered or terminated 129,595 12.58
-------------------------------------------------------------------------------
Options outstanding at December 31, 1994 14,470,071 $ 8.05*
===============================================================================
</TABLE>
* Reflects adjustment to market price of stock subsequent to September 1994
distribution of SFP Gold common stock.
Note 20: Stockholder Rights Plan
On November 28, 1994, SFP declared a dividend distribution of one preferred
stock purchase right for each common share outstanding to stockholders of record
as of December 9, 1994. Pursuant to the Rights Agreement of November 28, 1994 as
amended on January 24, 1995 (the Rights Agreement), each right may under certain
circumstances be exercised to buy one one-hundredth of a newly issued share of
Series A Junior Participating Preferred Stock at a price of $50. The rights may
only be exercised after a person or group acquires ownership of 15% or more of
SFP's common shares or commences a tender or exchange offer which upon
consummation would result in ownership of 15% or more of the common shares. The
rights, which do not have voting rights, expire on December 9, 2004 and may be
redeemed by SFP at a price of $.01 per right at any time until 15 days, subject
to extension, after a public announcement of the acquisition of 15% of SFP's
common stock.
Subject to the terms of the amendment described below, if 15% of SFP's common
stock is acquired by any person or if certain other events occur, then
generally, each right not owned by a 15% -or-more stockholder will entitle the
holder to purchase, at the right's then-current exercise price, shares of SFP
common stock, having a value of twice the right's exercise price. The Board of
Directors of SFP may, at its sole discretion, delay distribution of the rights,
and has done so in regards to the Merger. In addition, if SFP is involved in a
merger or other business combination transaction with another person in which
its common shares are changed or converted, or sells 50% or more of its assets
or earnings power, each right will entitle its holder to purchase shares of
common stock of the surviving corporation having a value of twice the rights'
exercise price.
Note 21: Summarized Quarterly Operating Results (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
1994 1993
-----------------------------------------------------------------------------
(In millions, except per share data) First Second Third Fourth First Second Third Fourth
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues $631.5 $658.2 $680.2 $711.0 $583.2 $609.1 $585.8 $631.1
------------------------------------------------------------------------------------------------------------------------------------
Operating Income $ 90.7 $ 97.4 $117.8 $123.0 $ 71.2 $ 82.1 $ 49.6 $114.8
------------------------------------------------------------------------------------------------------------------------------------
Income (Loss)
Continuing Operations $ 54.2 $ 48.4 $ 50.5 $ 46.3 $106.4 $ 28.2 $(10.3) $ 53.1
Discontinued Operations, Net of Income Taxes 13.9 9.2 -- -- 20.7 119.3 7.5 13.9
------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 68.1 $ 57.6 $ 50.5 $ 46.3 $127.1 $147.5 $ (2.8) $ 67.0
------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Per Common Share
Continuing Operations $ 0.29 $ 0.25 $ 0.27 $ 0.24 $ 0.57 $ 0.15 $(0.05) $ 0.28
Discontinued Operations 0.07 0.05 -- -- 0.11 0.64 0.04 0.08
------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Per Common Share $ 0.36 $ 0.30 $ 0.27 $ 0.24 $ 0.68 $ 0.79 $(0.01) $ 0.36
====================================================================================================================================
</TABLE>
(1) The sum of income per share from discontinued operations and net income
(loss) per share for the four quarters of 1993 does not equal the related
net income (loss) per share for the full year due to incremental shares
resulting from stock options.
32 | SANTA FE PACIFIC CORPORATION
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF SANTA FE PACIFIC CORPORATION
--------------------------------------------
PINE CANYON LAND COMPANY (DE) 100%
SANTA FE PACIFIC INSURANCE COMPANY (VT) 100%
THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY (DE) 100%
Alameda Belt Line (CA) 50%
Aubrey Water Company (AZ) 100%
The Belt Railway Company of Chicago (IL) 8.33%
Central California Traction Company (CA) 33.33%
The Dodge City and Cimarron Valley 100%
Railway Company (KS)
The Gulf and Inter-State Railway Company 100%
of Texas (TX)
Houston Belt & Terminal Railway Company (TX) 25%
Kansas City Terminal Railway Company (MO) 8.33%
Los Angeles Junction Railway Company (CA) 100%
The Oakland Terminal Railway (CA) 50%
Oklahoma City Junction Railway Company (OK) 100%
Rio Grande, El Paso and Santa Fe 100%
Railroad Company (TX)
St. Joseph Terminal Railroad Company (MO) 50%
Santa Fe Financial Holdings, Inc. (DE) 100%
Santa Fe Forwarding Company (DE) 100%
Santa Fe Rail Equipment Company (DE) 100%
Santa Fe Receivables Corporation (DE) 100%
Santa Fe Terminal Services, Inc. (DE) 100%
Star Lake Railroad Company (DE) 100%
Sunset Railway Company (CA) 50%
Texas City Terminal Railway Company (TX) 33.33%
TTX Company (DE) 10.9%
The Wichita Union Terminal Railway Company (KS) 33.33%
BNSF CORPORATION (DE) 50%
CONSTELLATION 130, INC. (CA) 100%
LIMITED PARTNERSHIP MANAGEMENT, INC. (DE) 100%
SANTA FE PACIFIC RAILROAD COMPANY (ACT OF CONGRESS) 100%
SFP PIPELINE HOLDINGS, INC. (DE) 100%
Santa Fe Pacific Pipelines, Inc. (DE) 100%
SUNSET COMMUNICATIONS COMPANY (DE) 100%
WALKER-KURTH LUMBER COMPANY (TX) 100%
THE ZIA COMPANY (DE) 100%
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the Registration
Statments on Form S-8 (Nos. 33-12072; 33-26814; 33-33413; 33-41409; 33-60628;
33-57001; 33-55987; and 33-63208, (ii) the Prospectus constituting part of the
Registration Statement on Form S-3 (No. 33-51435) and (iii) the Prospectus
constituting part of 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 21, 1995 appearing on page 19 of the 1994 Annual
Report to Shareholders which is incorporated in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Kansas City, Missouri
March 29, 1995
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
WHEREAS, SANTA FE PACIFIC CORPORATION, a Delaware corporation (the "Company"),
will file with the Securities and Exchange Commission, under the provisions of
the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K
for the fiscal year ended December 31, 1994; and
WHEREAS, the undersigned serve the Company in the capacity indicated;
NOW, THEREFORE, the undersigned hereby constitutes and appoints DENIS E.
SPRINGER and JEFFREY R. MORELAND, his attorney with full power to act for him in
his name, place and stead, to sign his name in the capacity set forth below, to
the Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1994, and to any and all amendments to such Annual Report on Form
10-K, and hereby ratifies and confirms all that said attorney may or shall
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been executed by the
undersigned this 28th day of March, 1995.
/S/ JOSEPH F. ALIBRANDI /S/ JOHN J. BURNS, JR.
--------------------------------- ---------------------------------
Joseph F. Alibrandi, Director John J. Burns, Jr., Director
/S/ GEORGE DEUKMEJIAN /S/ ROBERT D. KREBS
--------------------------------- ---------------------------------
George Deukmejian, Director Robert D. Krebs, Chairman,
President, Chief Executive
Officer and Director
/S/ BILL M. LINDIG /S/ MICHAEL A. MORPHY
--------------------------------- ---------------------------------
Bill M. Lindig, Director Michael A. Morphy, Director
/S/ ROY S. ROBERTS /S/ JOHN S. RUNNELLS II
--------------------------------- ---------------------------------
Roy S. Roberts, Director John S. Runnells II, Director
/S/ JEAN HEAD SISCO /S/ EDWARD F. SWIFT
--------------------------------- ---------------------------------
Jean Head Sisco, Director Edward F. Swift, Director
/S/ ROBERT H. WEST
---------------------------------
Robert H. West, Director
S-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
December 31, 1994 Santa Fe Pacific Corporation and subsidiary companies
consolidated financial statements and accompanying notes and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 176
<SECURITIES> 0
<RECEIVABLES> 121
<ALLOWANCES> (23)
<INVENTORY> 95
<CURRENT-ASSETS> 494
<PP&E> 6,292
<DEPRECIATION> 1,551
<TOTAL-ASSETS> 5,573
<CURRENT-LIABILITIES> 928
<BONDS> 1,067
<COMMON> 190
0
0
<OTHER-SE> 1,067
<TOTAL-LIABILITY-AND-EQUITY> 5,573
<SALES> 0
<TOTAL-REVENUES> 2,681
<CGS> 0
<TOTAL-COSTS> 2,252
<OTHER-EXPENSES> (44)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> 351
<INCOME-TAX> 152
<INCOME-CONTINUING> 199
<DISCONTINUED> 23
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 00.0<F2>
<FN>
<F1> Includes equity in earnings of Pipeline of $35 million and other income
(expense) -- net of $9 million.
<F2> Not applicable.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
----------
EAST LINE LITIGATION AND FERC PROCEEDING
In August 1992, two East Line refiners, Navajo Refining Company ("Navajo") and
El Paso Refinery, L.P. ("El Paso") filed separate, though similar, civil
lawsuits against the Partnership arising from the Partnership's alleged failure
to provide additional pipeline capacity to Phoenix and Tucson, Arizona from El
Paso, Texas. The Navajo action also sought an injunction to prohibit the
Partnership from reversing the direction of flow (from westbound to eastbound)
of its six-inch diameter pipeline between Phoenix and Tucson. In addition, El
Paso filed a protest/complaint with the FERC in September 1992 seeking to block
the reversal of the six-inch pipeline and challenging the Partnership's
proration policy as well as the Partnership's existing East Line tariffs.
FERC PROCEEDING
---------------
On September 29, 1992, the FERC's Oil Pipeline Board ordered an investigation
into the issues raised in the El Paso filing and, on October 19, 1992, the FERC
assigned an administrative law judge to the case. The FERC ruled in April,
1993, and has subsequently confirmed on rehearing, that the challenges to
proration, line reversal and East Line tariffs must proceed under a complaint
proceeding. That ruling expressly places the burden of proof on the complaining
parties, who must show that the Partnership's rates and practices there at issue
violate the requirements of the Interstate Commerce Act.
In August 1993, Chevron U.S.A. Products Company ("Chevron") filed a complaint
with the FERC challenging the Partnership's West Line tariffs and claiming that
a service charge at the Partnership's Watson Station is in violation of the
Interstate Commerce Act. In September 1993, the FERC ruled that the
Partnership's West Line tariffs are deemed "just and reasonable" under the
Energy Policy Act of 1992 ("EPACT") and may only be challenged on the basis of
"changed circumstances" and consolidated the various outstanding matters into a
single proceeding. Navajo, which, under a 1985 FERC rate case settlement, had
been prohibited from challenging the Partnership's rates until November 1993,
filed a complaint against certain East Line and West Line rates in December
1993. ARCO Products Company ("ARCO") and Texaco Refining and Marketing Inc.
("Texaco") filed their own complaint challenging certain West Line rates in
January 1994. Refinery Holding Company, L.P., a partnership formed by El Paso's
long-term, secured creditors that purchased El Paso's refinery in May 1993 is
the only other major outside party to the FERC proceeding.
On April 20, 1994, the FERC ruled that because of Navajo's complaint against
certain West Line rates, other parties seeking to challenge West Line rates
would not need to demonstrate "changed circumstances" in order to do so.
However, the Partnership requested reconsideration of that portion of the ruling
pertaining to parties other than Navajo and, on July 20, 1994, the FERC reversed
a portion of the April 20, 1994 ruling, reaffirming that, other than with
respect to Navajo, the Partnership's West Line rates are deemed just and
reasonable under the provisions of EPACT. Accordingly, any shipper other than
Navajo that wishes to challenge the Partnership's West Line rates will need to
demonstrate "changed circumstances." On September 16, 1994, the FERC denied
certain other parties' request for a rehearing of the July 20, 1994 ruling. On
December 12, 1994, ARCO, Texaco and Chevron filed testimony in which they sought
to demonstrate the required "changed circumstances" in order to challenge the
Partnership's West Line rates. ARCO and Texaco have also sought review by the
United States Court of Appeals for the District of Columbia of the FERC's
rulings on the "grandfathering" of the West Line rates under EPACT.
-8-
<PAGE>
At the direction of the FERC Administrative Law Judge, on February 14, 1994, the
Partnership submitted a cost and revenue study for its South Line, detailing
unadjusted rate base, operating expenses and revenues for the calendar year
1993.
On June 24, 1994, the complainants filed their cases-in-chief with the FERC,
seeking refunds for shipments between 1990 and 1993 aggregating in the range of
$15 million to $20 million, as well as tariff rate reductions of between 40% and
50% for future shipments. Three sets of joint testimony were filed, one by
Chevron and Navajo, a second by El Paso and Refinery Holding Company, L.P., and
a third by ARCO and Texaco. While each set of testimony was different in
certain respects, the claims for relief are generally based on cost of service
calculations developed from the detailed information included in the
Partnership's cost and revenue study, but with the complainants applying
different rate-making methodologies than the Partnership believes to be
appropriate.
On August 17, 1994, the FERC Staff submitted its case-in-chief in the FERC
proceeding, in which the FERC Staff also developed costs of service for the
Partnership's East and West Lines based on adjusted 1993 operating costs, but
did not present testimony concerning reparations or specific tariff rate
reductions. On January 30, 1995 and March 6, 1995, the FERC Staff filed exhibits
modifying its original presentation in certain respects. In a number of
respects, the FERC Staff has employed rate-making methodologies that were
generally similar to those presented by the complainants. In their testimony,
both the FERC Staff and several complainants, among other things, argue against
the Partnership's entitlement to an income tax allowance in its cost of service.
The FERC Staff and several complainants utilize the Partnership's capital
structure at the time of its formation in December 1988, or a hypothetical
capital structure, for the purpose of establishing the Partnership's 1985
starting rate base under FERC Order 154-B. In addition, the FERC Staff and
complainants generally excluded the majority of the Partnership's civil and
regulatory litigation expense from their cost of service calculations. Each of
these positions is detrimental to the Partnership's existing rate structure and,
if adopted by the FERC in a final decision, would result in a substantial
payment of reparations and reduction of existing rates.
While recognizing that FERC rate-making methodology is subject to interpretation
and leaves certain issues for determination on a case-by-case basis, Partnership
management believes that certain of the positions taken by the complainants and
the FERC Staff in their testimony are contrary to existing FERC precedent. For
example, the entitlement of a pipeline partnership to include an allowance for
income taxes in its cost of service has recently been ruled upon favorably by
the FERC Administrative Law Judge in the Lakehead Pipe Line Company, Limited
Partnership rate case; that ruling is presently on appeal before the FERC. The
Partnership's rates being challenged in the FERC proceeding were established
pursuant to FERC-approved settlements resolving a prior rate proceeding and have
not been changed since 1991, when they were adjusted in accordance with those
agreements. The Partnership continues to believe that its rates and practices
are lawful under FERC precedent and will continue its vigorous defense of that
position. However, because of the complexity of the issues involved and the
nature of FERC rate-making methodology, it is possible that the rates at issue
in the FERC proceeding will not ultimately be found just and reasonable. If the
FERC were to deny the Partnership's entitlement to an allowance for income taxes
in its cost of service, or otherwise reach adverse decisions on certain other
key issues in the proceeding which result in significant reparations being paid
and a significant reduction in the Partnership's current tariffs, such adverse
outcome could have a material adverse effect on the Partnership's results of
operations, financial condition and ability to maintain its current quarterly
cash distribution.
-9-
<PAGE>
The present procedural schedule calls for the Partnership to submit its case-in-
chief in response to the shippers' and FERC Staff's testimony on April 4, 1995
and for hearings to commence before a FERC Administrative Law Judge in October
1995.
EAST LINE CIVIL LITIGATION
--------------------------
The civil actions brought by Navajo and El Paso (El Paso Refining, Inc., and El
Paso Refinery, L.P. v. Santa Fe Pacific Pipelines, Inc. and Santa Fe Pacific
Pipeline Partners, L.P., No. 92-9144, County Court No. 5, El Paso County) were
filed in New Mexico and Texas, respectively, seeking actual, punitive and
consequential damages arising from the Partnership's alleged failure to provide
additional pipeline capacity to Phoenix and Tucson from El Paso. The Navajo
action also sought an injunction to prohibit the Partnership from reversing the
direction of flow (from westbound to eastbound) of its six-inch diameter
pipeline between Phoenix and Tucson, which was planned to occur, and did occur,
during the third quarter of 1992 upon completion of the second phase of the East
Line expansion. This six-inch pipeline had previously flowed from Phoenix to
Tucson but was temporarily reversed, in August 1991, to accommodate East Line
shipments to Phoenix during the Partnership's expansion of the eight-inch
diameter pipeline that flows from Tucson to Phoenix. Generally, the lawsuits
allege that the refiners proceeded with significant refinery expansions under
the belief that the Partnership would provide whatever pipeline capacity was
required to transport their product into Arizona, and that they were damaged by
their inability to ship additional volumes into that highly competitive market.
This belief of Navajo and El Paso was purportedly obtained from oral
representations by General Partner personnel and from language contained in a
January 1989 settlement agreement with Navajo, relating to a 1985 FERC rate
case.
On July 28, 1993, the Partnership reached a settlement with Navajo whereby
Navajo agreed to dismiss its pending civil litigation in New Mexico and withdraw
any challenge to the direction of flow of the six-inch pipeline, including any
such challenge in the FERC proceeding. The Partnership agreed to make certain
cash payments to Navajo over three years and to undertake and complete an
additional pipeline capacity expansion between El Paso and Phoenix if certain
events related to volume levels and proration of pipeline capacity should occur
within the next five years.
El Paso's August 1992 civil action, as amended, claims unspecified actual
damages, which appear to include the $190 million cost of its refinery
expansion, plus punitive and consequential damages. In October 1992, El Paso
filed a petition for reorganization under Chapter 11 of the federal bankruptcy
laws and halted refinery operations. In November 1993, the El Paso bankruptcy
was converted from a Chapter 11 to a Chapter 7 proceeding, and an interim
trustee was appointed. In February 1994, a permanent trustee and a new judge
were named to handle these proceedings. During 1994, the bankruptcy trustee for
El Paso retained legal counsel for purposes of pursuing this litigation. In
addition, initial rounds of discovery were conducted by both parties in late-
1994 and early-1995. Should the action proceed to trial, it is anticipated that
such trial would begin in early to mid-1996, however, to date, there have been
no hearings before the court and there is no pre-trial schedule. The
Partnership intends to vigorously defend itself in this action.
ENVIRONMENTAL MATTERS
The Partnership is, from time to time, subject to environmental clean up and
enforcement actions. In particular, the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund" law) generally
imposes joint and several liability for cleanup and enforcement costs, without
regard to fault or the legality of the original conduct, on current or
predecessor owners and operators of a site. Since August 1991, the Partnership,
along with several other respondents, has been involved in one cleanup ordered
by the United States Environmental
-10-
<PAGE>
Protection Agency ("EPA") related to ground water contamination in the vicinity
of the Partnership's storage facilities and truck loading terminal at Sparks,
Nevada. In addition, the Partnership is also involved in six ground water
hydrocarbon remediation efforts under administrative orders issued by the
California Regional Water Quality Control Board at, or adjacent to, its
facilities at Colton, Concord, Mission Valley, Brisbane, San Jose and West
Sacramento, California.
The investigation and remediation at the Sparks terminal is also the subject of
a lawsuit brought in January 1991 entitled Nevada Division of Environmental
Protection v. Santa Fe Pacific Pipelines, Inc., Southern Pacific Transportation
Company, Shell Oil Company, Time Oil Company, Berry-Hinckley Terminal, Inc.,
Chevron U.S.A., Inc., Texaco Refining and Marketing, Inc., Air BP, a division of
BP Oil, Unocal Corporation, and Golden Gate Petroleum Company, Case No.
CV91-546, in the Second Judicial District Court of the State of Nevada in and
for the County of Washoe. This lawsuit was subsequently joined by the County of
Washoe Health District and the City of Sparks, Nevada. The various parties seek
remediation of the contamination at and adjacent to the Sparks terminal as well
as unspecified, but potentially significant, damages and statutory penalties.
In addition, the Partnership was named as one of the defendants in a number of
other lawsuits brought by property owners seeking unspecified, but potentially
substantial, damages for alleged property value diminishment attributable to
soil or groundwater contamination arising from the defendants' operations.
In October 1994, the Second Judicial District Court ruled that all of the
outstanding cases against the respondent group, including the state, county,
city and property owner cases, shall be consolidated for trial purposes. In
February 1995, the Court established a procedural schedule which calls for the
trial to commence in January 1996. The Partnership is vigorously defending
itself in these actions, although it will continue to pursue settlement
discussions to reduce the costs and uncertainties of extended litigation.
With respect to the Sparks remediation, in September 1992, the EPA approved the
respondents' remediation plans and an estimate of remediation costs was made in
accordance with that plan. As a result, the Partnership recorded a $10 million
provision for environmental costs in the third quarter of 1992 which included
the Partnership's estimated share of remediation costs at Sparks and at two
other facilities. A contractor has been selected for the installation of the
remediation system. In January 1995, system design, engineering and permitting
activities began, and it is expected that the system will be operational by
September 1995. A Joint Defense, Mediation and Arbitration Agreement Among
Defendants has been reached by the ten participants, which establishes cost
allocation percentages among the participants.
As previously reported, in 1993, the EPA issued a Notice of Violations to the
Partnership associated with an oxygenate blending equipment malfunction at the
Partnership's Phoenix terminal. During the fourth quarter of 1994, the
Partnership agreed to pay the EPA a fine of $300,000 arising from this Notice of
Violations.
Reference is made to Note 4 to the Partnership's consolidated financial
statements, beginning on page F-9 of this Report, for additional discussion of
these matters.
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