<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-6146
SOUTHERN PACIFIC TRANSPORTATION COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-6001323W
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
SOUTHERN PACIFIC BUILDING
ONE MARKET PLAZA
SAN FRANCISCO, CA 94105
TELEPHONE NUMBER (415) 541-1000
INDICATE BY CHECKMARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT APRIL 30, 1994
----- -----------------------------
<S> <C>
Common stock, without par value 1,350 shares
</TABLE>
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY
INDEX TO AMENDED FORM 10-Q/A
The following sections of the Registrant's Form 10-Q for the quarter ended
March 31, 1994 have been amended and are included in this report in their
entirety:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS....................................... 3-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 12-16
</TABLE>
2
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
--------- ------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including restricted cash
of $5.4 in 1994 and 1993)............................ $ 11.4 $ 31.9
Accounts and notes receivable, net of allowance for
doubtful accounts.................................... 105.7 112.0
Notes receivable from Rio Grande Receivables, Inc..... 35.1 24.1
Materials and supplies, at cost....................... 52.5 46.5
Other current assets.................................. 51.7 41.4
-------- --------
Total current assets................................ 256.4 255.9
-------- --------
PROPERTY, AT COST
Roadway and structures................................ 5,646.6 5,496.9
Railroad equipment.................................... 1,630.1 1,612.2
Other property........................................ 174.6 174.3
-------- --------
Total property...................................... 7,451.3 7,283.4
Less accumulated depreciation......................... 2,838.4 2,792.1
-------- --------
Property, net....................................... 4,612.9 4,491.3
-------- --------
OTHER ASSETS AND DEFERRED CHARGES
Notes receivable from Rio Grande Receivables, Inc..... 27.8 27.8
Other assets and deferred charges..................... 156.9 162.2
-------- --------
Total other assets.................................. 184.7 190.0
-------- --------
Total assets...................................... $5,054.0 $4,937.2
======== ========
</TABLE>
(Continued)
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
--------- ------------
(IN MILLIONS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts and wages payable............................ $ 133.9 $ 119.4
Accrued payables...................................... 112.2 121.5
Current portion of long-term debt..................... 54.3 62.2
Redeemable preference shares of a subsidiary.......... 1.9 1.8
Other current liabilities............................. 501.6 520.9
-------- --------
Total current liabilities........................... 803.9 825.8
-------- --------
LONG-TERM DEBT (Note 4)................................. 796.8 916.3
-------- --------
DEFERRED INCOME TAXES................................... 834.3 837.7
-------- --------
OTHER LIABILITIES....................................... 632.6 642.3
-------- --------
REDEEMABLE PREFERENCE SHARES OF A SUBSIDIARY............ 43.8 44.2
-------- --------
STOCKHOLDER'S EQUITY
Common Stock.......................................... 424.9 424.9
Additional paid-in capital (Note 4)................... 909.9 615.5
Retained income....................................... 1,309.3 1,314.7
Advances to parent.................................... (701.5) (684.2)
-------- --------
Total stockholder's equity.......................... 1,942.6 1,670.9
-------- --------
Total liabilities and stockholder's equity........ $5,054.0 $4,937.2
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1994 1993
------- --------
(IN MILLIONS)
<S> <C> <C>
OPERATING REVENUES
Railroad................................................. $ 634.5 $ 581.0
Other.................................................... 16.0 12.7
------- --------
Total.................................................. 650.5 593.7
------- --------
OPERATING EXPENSES
Railroad................................................. 614.7 592.8
Other.................................................... 15.4 12.2
------- --------
Total.................................................. 630.1 605.0
------- --------
OPERATING INCOME (LOSS).................................... 20.4 (11.3)
------- --------
OTHER INCOME
Gains from sales of property............................. 10.5 6.8
Real estate rentals, net................................. 4.8 4.0
Interest income.......................................... 0.7 0.2
Other income (expense), net.............................. (11.8) (9.9)
------- --------
Total.................................................. 4.2 1.1
------- --------
INTEREST EXPENSE........................................... 26.9 21.9
------- --------
LOSS BEFORE INCOME TAXES................................... (2.3) (32.1)
------- --------
INCOME TAXES (BENEFIT)
Current.................................................. -- --
Deferred................................................. (0.9) (12.3)
------- --------
Total.................................................. (0.9) (12.3)
------- --------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING...... (1.4) (19.8)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POST-EMPLOYMENT BENEFITS IN 1994 (NOTE 5) AND POST-
RETIREMENT BENEFITS OTHER THAN PENSIONS IN 1993 (Net of
income tax benefits of $2.6 and $61.2, respectively)...... (4.0) (98.9)
------- --------
NET LOSS................................................... $ (5.4) $ (118.7)
======= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ADVANCES
-------------- PAID-IN RETAINED TO
SHARES AMOUNT CAPITAL INCOME PARENT TOTAL
-------------- ---------- -------- -------- --------
(IN MILLIONS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31,
1993................... 1,200 $ 424.9 $615.5 $1,314.7 $(684.2) $1,670.9
Net loss................ -- -- -- (5.4) -- (5.4)
Common Stock issued..... 150 -- 294.4 -- -- 294.4
Advances to parent...... -- -- -- -- (17.3) (17.3)
------ ------- ------ -------- ------- --------
Balances at March 31,
1994................... 1,350 $ 424.9 $909.9 $1,309.3 $(701.5) $1,942.6
====== ======= ====== ======== ======= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1994 1993
------- -------
(IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $ (5.4) $(118.7)
------- -------
Adjustments to net loss
Cumulative effect of change in accounting for post-
employment benefits in 1994 and post-retirement benefits
in 1993................................................. 6.6 160.1
Gains from sales of property............................. (10.5) (6.8)
Depreciation............................................. 55.9 56.0
Deferred income taxes.................................... (3.5) (73.5)
Other adjustments........................................ (43.2) (50.4)
------- -------
Total adjustments...................................... 5.3 85.4
------- -------
Net cash used for operating activities................. (0.1) (33.3)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Property sold and retired.................................. 13.7 9.5
Capital expenditures....................................... (172.8) (47.2)
Other investing activities................................. (2.6) (2.5)
------- -------
Net cash used for investing activities................... (161.7) (40.2)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of costs............... 54.4 --
Debt and revolver drawdown (repayment), net................ (189.8) 51.4
Advances to parent, net.................................... (17.3) (2.3)
Common stock issued........................................ 294.4 --
Redeemable preference shares repayment..................... (0.4) (0.4)
------- -------
Net cash provided by financing activities................ 141.3 48.7
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................... (20.5) (24.8)
CASH AND CASH EQUIVALENTS-BEGINNING OF THE PERIOD............ 31.9 45.4
------- -------
CASH AND CASH EQUIVALENTS-END OF THE PERIOD.................. $ 11.4 $ 20.6
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
7
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
(1) OWNERSHIP AND PRINCIPLES OF CONSOLIDATION
Southern Pacific Transportation Company (SPT) is a wholly-owned subsidiary of
Southern Pacific Rail Corporation (SPRC) (formerly Rio Grande Industries,
Inc.); therefore, per share data are not shown in the accompanying consolidated
condensed financial statements. As used in this document, the Company refers to
SPT together with its subsidiaries. The consolidated condensed financial
statements are prepared on the historical cost basis of accounting and include
the accounts of SPT and all significant subsidiary companies, including St.
Louis Southwestern Railway Company (SSW) and SPCSL Corp. (SPCSL), on a
consolidated basis. SPRC also owns Rio Grande Holding, Inc. (RGH) which owns
The Denver and Rio Grande Western Railroad Company (D&RGW). SPRC management
continues to review and consider the placement of various subsidiaries within
the corporate structure of SPRC. These consolidated condensed financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
Effective January 1, 1994 the Company changed its methods of accounting for
post-employment benefits pursuant to Financial Accounting Standards Board
Statement No. 112. In the opinion of management, all adjustments (consisting of
normal, recurring accruals) necessary for a fair presentation of interim period
results have been included. However, these results are not necessarily
indicative of results for a full year.
(2) RECLASSIFICATIONS
Certain of the prior period amounts have been reclassified to conform to the
March 31, 1994 consolidated condensed financial statement presentation.
(3) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1994 1993
------- -------
(IN MILLIONS)
<S> <C> <C>
CASH PAYMENTS:
Interest (a)........................................... $ 23.7 $ 13.6
Income taxes........................................... -- --
NON-CASH TRANSACTIONS:
Capital lease obligations for railroad equipment....... 8.6 --
</TABLE>
- - --------
(a) The increase in interest paid is due to the timing of payments associated
with the different debt instruments held during each period. A substantial
amount of the 1993 indebtedness has been repaid.
(4) CAPITAL AND DEBT TRANSACTIONS
SPRC closed the offering and sale of 25,000,000 shares of common stock for
$21.00 per share (before underwriting discounts, commissions and offering
expenses) on March 2, 1994.
In connection with the foregoing transaction, the Company issued 150 shares
of common stock for total consideration of $294.4 million from its parent.
Proceeds from this transaction were used for repayment of the $175 million
revolving credit facility (including interest thereon) and to purchase $118.9
million of D&RGW property.
8
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1994
(UNAUDITED)
(5) POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting Standards Board (FAS) issued
Statement No. 112 "Employers' Accounting for Postemployment Benefits". FAS 112
requires employers to recognize the obligation to provide benefits to former or
inactive employees after employment but before retirement, if certain
conditions are met. Effective January 1, 1994, the Company adopted FAS 112 and
recorded a $6.6 million pre-tax charge ($4.0 million after tax). The Company's
policy continues to be to fund the cost of postemployment benefits as the
benefits are payable.
(6) SUPPLEMENTAL CONDENSED COMBINING FINANCIAL INFORMATION
SPT issued $290 million of Senior Secured Notes in 1993. SSW is the guarantor
of those notes. The following presents supplemental condensed combining
financial information (in millions):
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS--MARCH 31, 1994
<TABLE>
<CAPTION>
SPT SSW NON- ADJUSTMENTS COMPANY
ISSUER GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... $ 173.9 $ 63.5 $ 19.0 $ -- $ 256.4
Advances to
parent/Investment in
subsidiaries........... 50.7 428.9 -- (479.6) --
Property, net........... 3,985.9 549.8 77.2 -- 4,612.9
Other assets and
deferred charges....... 149.6 30.3 4.8 -- 184.7
-------- -------- ------ ------- --------
Total assets.......... $4,360.1 $1,072.5 $101.0 $(479.6) $5,054.0
======== ======== ====== ======= ========
Current liabilities..... 581.5 200.9 21.5 -- 803.9
Long-term debt.......... 584.0 169.3 43.5 -- 796.8
Deferred income taxes... 754.3 81.7 (1.7) -- 834.3
Other liabilities....... 497.7 239.8 26.6 (131.5) 632.6
Redeemable preference
shares................. -- 43.8 -- -- 43.8
Stockholder's equity.... 1,942.6 337.0 11.1 (348.1) 1,942.6
-------- -------- ------ ------- --------
Total liabilities and
stockholder's equity. $4,360.1 $1,072.5 $101.0 $(479.6) $5,054.0
======== ======== ====== ======= ========
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS--DECEMBER 31, 1993
<CAPTION>
SPT SSW NON- ADJUSTMENTS COMPANY
ISSUER GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.......... $ 190.2 $ 34.7 $ 31.0 $ -- $ 255.9
Advances to
parent/Investment in
subsidiaries........... 36.8 445.3 -- (482.1) --
Property, net........... 3,860.3 553.3 77.7 -- 4,491.3
Other assets and
deferred charges....... 142.5 42.4 5.1 -- 190.0
-------- -------- ------ ------- --------
Total assets.......... $4,229.8 $1,075.7 $113.8 $(482.1) $4,937.2
======== ======== ====== ======= ========
Current liabilities..... $ 588.6 $ 201.3 $ 35.9 $ -- $ 825.8
Long-term debt.......... 705.8 171.6 38.9 -- 916.3
Deferred income taxes... 757.1 82.4 (1.8) -- 837.7
Other liabilities....... 507.4 240.3 26.1 (131.5) 642.3
Redeemable preference
shares................. -- 44.2 -- -- 44.2
Stockholder's equity.... 1,670.9 335.9 14.7 (350.6) 1,670.9
-------- -------- ------ ------- --------
Total liabilities and
stockholder's equity. $4,229.8 $1,075.7 $113.8 $(482.1) $4,937.2
======== ======== ====== ======= ========
</TABLE>
9
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1994
(UNAUDITED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS--THREE MONTHS ENDED
MARCH 31, 1994
<TABLE>
<CAPTION>
SPT SSW NON- ADJUSTMENTS COMPANY
ISSUER GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues...... $506.2 $104.5 $ 39.8 $ -- $ 650.5
Operating expenses...... 487.1 101.2 41.8 -- 630.1
------ ------ ------ ------ -------
Operating income
(loss)............... 19.1 3.3 (2.0) -- 20.4
Other income (expense).. 8.4 6.0 (0.1) (10.1) 4.2
Interest expense........ 29.3 6.4 1.3 (10.1) 26.9
------ ------ ------ ------ -------
Income (loss) before
income taxes and
before change in
accounting........... (1.8) 2.9 (3.4) -- (2.3)
Income taxes (benefit).. (2.7) 1.1 0.7 -- (0.9)
------ ------ ------ ------ -------
Net income (loss) before
change in accounting... 0.9 1.8 (4.1) -- (1.4)
Cumulative effect on
years' prior to 1994 of
change in accounting
for post-employment
benefits............... (3.3) (0.7) -- -- (4.0)
------ ------ ------ ------ -------
Net income (loss)....... $( 2.4) $ 1.1 $ (4.1) $ -- $ ( 5.4)
====== ====== ====== ====== =======
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS--THREE MONTHS ENDED
MARCH 31, 1993
<CAPTION>
SPT SSW NON- ADJUSTMENTS COMPANY
ISSUER GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenues...... $458.7 $103.1 $ 31.9 $ -- $ 593.7
Operating expenses...... 471.1 96.4 37.5 -- 605.0
------ ------ ------ ------ -------
Operating income
(loss)............... (12.4) 6.7 (5.6) -- (11.3)
Other income (expense).. 5.1 (1.3) (0.1) (2.6) 1.1
Interest expense........ 16.8 6.9 0.8 (2.6) 21.9
------ ------ ------ ------ -------
Income (loss) before
income taxes and
before change in
accounting........... (24.1) (1.5) (6.5) -- (32.1)
Income taxes (benefit).. (13.2) (0.5) 1.4 -- (12.3)
------ ------ ------ ------ -------
Net income (loss) before
change in accounting... (10.9) (1.0) (7.9) -- (19.8)
Cumulative effect on
years prior to 1993 of
change in accounting
for postretirement
benefits other than
pensions............... (84.9) (6.0) (8.0) -- (98.9)
------ ------ ------ ------ -------
Net income (loss)....... $(95.8) $ (7.0) $(15.9) $ -- $(118.7)
====== ====== ====== ====== =======
</TABLE>
10
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONCLUDED)
MARCH 31, 1994
(UNAUDITED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS--THREE MONTHS ENDED
MARCH 31, 1994
<TABLE>
<CAPTION>
SPT SSW NON- ADJUSTMENTS COMPANY
ISSUER GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities... $ 6.6 $(1.1) $(5.6) $ -- $ (0.1)
Cash flows from
investing activities... (157.0) (4.5) (0.2) -- (161.7)
Cash flows from
financing activities... 123.2 12.4 5.7 -- 141.3
------- ----- ----- ----- -------
Net change in cash and
cash equivalents....... (27.2) 6.8 (0.1) -- (20.5)
Cash and Cash
Equivalents--Beginning
of Period.............. 32.6 1.4 (2.1) -- 31.9
------- ----- ----- ----- -------
Cash and Cash
Equivalents--End of
Period................. $ 5.4 $ 8.2 $(2.2) $ -- $ 11.4
======= ===== ===== ===== =======
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS--THREE MONTHS ENDED
MARCH 31, 1993
<CAPTION>
SPT SSW NON- ADJUSTMENTS COMPANY
ISSUER GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities... $ (57.6) $26.9 $(2.6) $ -- $ (33.3)
Cash flows from
investing activities... (33.9) (5.7) (0.6) -- (40.2)
Cash flows from
financing activities... 45.2 0.6 2.9 -- 48.7
------- ----- ----- ----- -------
Net change in cash and
cash equivalents....... (46.3) 21.8 (0.3) -- (24.8)
Cash and Cash
Equivalents--Beginning
of Period.............. 39.4 8.0 (2.0) -- 45.4
Cash and Cash
Equivalents--End of
Period................. $ (6.9) $29.8 $(2.3) $ -- $ 20.6
======= ===== ===== ===== =======
</TABLE>
(7) OTHER
To ensure stability of its fuel costs, the Company has entered into fuel
hedging agreements covering approximately 90 percent of its 1994 estimated fuel
needs at an average purchase price of $0.51 per gallon (excluding handling
costs). These agreements limit potential gains and losses relating to changes
in the market price of fuel. Additionally, approximately 50 percent of 1995
estimated fuel needs are hedged at an average purchase price of $0.48 per
gallon (excluding handling costs). The amounts the Company pays or receives
related to each month's hedging agreements are recorded as an adjustment to
fuel expense for that month.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 Compared to Three Months Ended March 31,
1993
The Company had a net loss of $5.4 million for the first quarter of 1994
after deducting $4.0 million for the cumulative effect of a change in
accounting for postemployment benefits under Statement of Financial Accounting
Standards FAS No. 112 adopted by the Company effective January 1, 1994 compared
to a net loss of $118.7 million for the first quarter of 1993 after deducting
$98.9 million for the cumulative effect of a change in accounting for
postretirement benefits other than pensions under FAS 106 adopted by the
Company effective January 1, 1993. The Company had operating income of $20.4
million for the 1994 period compared to a $11.3 million operating loss for the
1993 period. Operating results for the first quarter of 1993 were adversely
affected by severe weather and flooding in California, Oregon and Arizona, a
significant decline in automotive shipments and a shortage of power due to a
temporary reduction in the number of locomotives leased by the Company, as well
as a slower than anticipated recovery in certain segments of the economy. For
the first quarter of 1994, railroad operating revenues increased 9.2% over the
same period in 1993, while railroad operating expenses increased 3.7% over the
1993 period.
Operating Revenues. In the first quarter of 1994, railroad operating revenues
increased $53.5 million compared to the first quarter of 1993. Railroad freight
operating revenues increased $47.5 million, due primarily to increased coal,
intermodal, construction material and minerals, metals and ores and automotive
carloads. Other railroad revenues (primarily switching and demurrage) increased
$6.0 million compared to the 1993 period due primarily to the increased traffic
volume. For the first quarter of 1994, carloads increased 14.2% and revenue
ton-miles increased 13.3% compared to the first quarter of 1993. The average
net freight revenue per ton-mile declined by 4.3% compared to the first quarter
of 1993 due principally to an increase in traffic volume for commodities which
generate lower revenue per ton-mile (e.g., coal and intermodal traffic) as well
as increases in revenue deductions and allowances.
The following table compares traffic volume (in carloads), gross freight
revenues (before contract allowances and adjustments) and gross freight revenue
per carload by commodity group for the three months ended March 31, 1994 and
1993.
CARLOAD AND GROSS FREIGHT REVENUE COMPARISON THREE MONTHS ENDED MARCH 31, 1994
AND 1993
<TABLE>
<CAPTION>
GROSS FREIGHT
CARLOADS GROSS FREIGHT REVENUES REVENUE PER CARLOAD
------------------- -------------------------------------------------------
1994 1993 %CHANGE 1994 1993 % CHANGE 1994 1993 %CHANGE
----- ----- ------- -------- -------- ------------------ -------- ---------
(IN THOUSANDS) (DOLLARS IN MILLIONS EXCEPT REVENUE PER CARLOAD)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermodal.............. 161.3 129.7 24.4% $ 182.4 $ 154.8 17.8% $ 1,131 $ 1,194 (5.3)%
Chemical and petroleum
products............... 86.0 84.3 2.0 149.0 137.3 8.5 1,733 1,629 6.4
Food and agricultural
products............... 56.0 57.9 (3.3) 87.0 83.3 4.4 1,554 1,439 8.0
Coal.................... 37.7 23.7 59.1 28.0 23.8 17.6 743 1,004 (26.0)
Forest products......... 56.3 54.7 2.9 97.1 91.5 6.1 1,725 1,673 3.1
Metals and ores......... 42.2 38.3 10.2 64.4 55.9 15.2 1,526 1,460 4.5
Construction materials
and minerals........... 38.9 31.0 25.5 34.6 29.0 19.3 889 935 (4.9)
Automotive.............. 17.4 14.5 20.0 34.0 28.1 21.0 1,954 1,938 0.8
----- ----- -------- -------- -------- --------
Total................... 495.8 434.1 14.2% $ 676.5 $ 603.7 12.1% $ 1,364 $ 1,391 (1.9)%
===== ===== ======== ======== ======== ========
</TABLE>
. Intermodal carloads for the first quarter of 1994 increased over the same
period in 1993 due to increased container-on-flat car ("COFC") business
with major steamship accounts, as well as the inclusion of additional
revenue empty car movements in the carload figures. The decline in
revenue per carload was due to a reduction in length of haul for COFC
traffic, as well as to the lower revenue per car associated with revenue
empty car movements.
12
<PAGE>
. Chemical and petroleum products carloads increased slightly during the
first quarter of 1994 due to increased shipments of environmental wastes,
plastics, organic chemicals and fertilizers. Revenue per carload
increases for the 1994 period were primarily due to changes in product
mix and implementation of yield improvement strategies including selected
price increases.
. Coal carloadings and revenue increased for the 1994 period due to
continued demand for the low sulfur high BTU content coal produced by
Company-served mines. This demand is from both existing utility customers
and new utility customers and has been enhanced by the ability to blend
the low sulfur coal with higher sulfur coal in order to satisfy
requirements of the Clean Air Act. The reduction in revenue per carload
is due primarily to a change in customer mix resulting in a reduction in
the average length of haul for the 1994 period.
. Food and agricultural products carloads declined for the first quarter of
1994 compared to the first quarter of 1993 due primarily to reductions in
grain traffic caused by a reduced crop harvest that resulted from the
severe Midwest flooding during the third and fourth quarters of 1993. The
revenue per carload increase for the 1994 period is due to increased
length of haul and changes in commodity mix.
. Carload volume in forest products increased in 1994 through growth in
wood chip, particle board, lumber stock and finished paper products
traffic. Revenue per carload increases were due to price increases in
lumber products where strong demand in the California, Arizona and
transcontinental markets helped support price increase activity.
. Carloads and revenue for metals and ores increased in the first quarter
of 1994 compared to the first quarter of 1993 due to growth in copper
concentrates and finished products traffic that was depressed by flooding
in Arizona during the first quarter of 1993. Growth in ferrous metals
carloads and revenue was generated by strong pipe and scrap markets.
. Construction materials and minerals carloads increased for the 1994
period due to increased traffic in sand and gravel, cement and
miscellaneous building materials associated with increases in highway and
building construction. The decline in revenue per carload reflects the
increase of sand and gravel traffic in the commodity mix resulting in a
lower revenue per carload, as well as to a reduced length of haul.
. Automotive carloads and revenue grew for the 1994 period due to strong
demand for trucks and automobiles associated with general economic
growth.
Operating Expenses. Railroad operating expenses for the first quarter of 1994
increased $21.9 million, or 3.7%, compared to the first quarter of 1993.
Operating expenses for the first quarter of 1993 were reduced by non-recurring
adjustments to inventory and property taxes, as well as to charges to reserves
for labor and other costs established in prior years as discussed below. The
following table sets forth a comparison of the Company's railroad operating
expenses during the three months ended March 31, 1994 and 1993.
RAILROAD OPERATING EXPENSE COMPARISON
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993 % CHANGE
------ ------ --------
(IN MILLIONS)
<S> <C> <C> <C>
Labor and fringe benefits............................. $245.0 $247.8 (1.1)%
Fuel.................................................. 48.0 47.5 1.1
Materials and supplies................................ 36.4 27.4 32.8
Equipment rental...................................... 77.6 68.4 13.5
Depreciation and amortization......................... 55.9 56.0 (0.2)
Other................................................. 151.8 145.7 4.2
------ ------
Total............................................... $614.7 $592.8 3.7 %
====== ======
</TABLE>
13
<PAGE>
. Labor and fringe benefit costs decreased $2.8 million, or 1.1%, for the
first quarter of 1994 compared to the first quarter of 1993. The Company
reduced employment by 2,986 or 15.1% to a total of 16,748 as of the end
of March 1994 compared to March 1993. This employment decline includes a
reduction of over 1,400 in the roadway maintenance area resulting in
reduced labor costs for day-to-day repair and maintenance activities, as
well as reduced capitalized labor costs. The employment decline also
includes a reduction of approximately 315 employees associated with the
January 1, 1994 implementation of the outsourcing plan for management
information services functions. However, additional traffic volume during
the first quarter of 1994 resulted in a 5.9% increase in overtime and a
6.0% increase in train crew starts substantially offsetting the reduced
costs associated with lower employment. In addition, certain employee
wage guarantees and other costs incurred in 1993 were charged against
reserves established in prior years further reducing the impact of the
employment decline. Expressed as a percentage of operating revenues,
labor and fringe benefit expenses declined to 37.7% for the first quarter
of 1994 compared to 41.8% for the first quarter of 1993.
. Fuel expenses increased $0.5 million, or 1.1%, for the first quarter of
1994 compared to the same period in 1993. The increase is a result of an
increase in fuel consumption attributable to the increase in traffic
volume, substantially offset by a reduced cost per gallon (which includes
handling costs) from $.58 per gallon during the first quarter of 1993 to
$.51 per gallon during the first quarter of 1994. Included in the 1994
fuel expense is $3.7 million related to fuel hedging contracts. The
Company has entered into fuel hedging agreements covering 90% of its 1994
estimated fuel needs at an average purchase price of $.51 per gallon
(excluding handling costs). Additionally, approximately 50% of 1995
estimated fuel needs are hedged at $.48 per gallon.
. Material and supplies expenses increased $9.0 million, or 32.8%, for the
first quarter of 1994. The increase is due to an increase in freight car
repair material purchased during the 1994 quarter, as well as to a $5.0
million non-recurring inventory adjustment in the first quarter of 1993
primarily related to restoring inventory materials that had been
previously released from inventory but had not been used. Also during the
first quarter of 1993, the Company reduced its roadway maintenance and
repair expenditures and activity in response to reduced revenues during
that period. During the first quarter of 1994, the Company rebuilt or
overhauled 70 road locomotives (49 capitalized, 21 expensed) compared to
14 road locomotives (all expensed) during the first quarter of 1993.
. Equipment rental costs increased $9.2 million, or 13.5%, for the first
quarter of 1994 compared to the first quarter of 1993. The increase
includes a $7.6 million increase in car hire and $1.4 million increase in
locomotive lease costs. In large part, these increases are associated
with increased traffic volume during the first quarter of 1994 compared
to the same period during 1993. In addition, the Company had reduced the
number of short-term locomotives it leased in the first quarter of 1993
in an effort to reduce costs.
. Depreciation expense was relatively unchanged for the first quarter of
1994 compared to the same period in 1993. Expenses remained stable
between periods due to modest changes in the total depreciable property
base.
. Other expenses increased $6.0 million, or 4.1%, for the first quarter of
1994 compared to the first quarter of 1993. This category of expense
includes purchased repairs and services, joint facility rent and
maintenance costs, casualty costs and property and other taxes. Expenses
in this category which increased significantly over the prior year were
property taxes and excise taxes. Property tax expense showed a $5.0
million increase over 1993 because the 1993 amount was reduced by the
favorable settlement of disputed property taxes in California. Excise
taxes increased by $3.8 million over the prior year due to the enactment
of an increase in the federal excise tax on fuel in October 1993.
Partially offsetting these increases were reduced casualty expenses of
approximately $6.1 million and reduced joint facility expense of $2.2
million. Casualty expenses declined primarily because the 1993 amount
included the costs from a derailment in Ogden, Utah. Joint facility
costs, net declined as the result of increased billings associated with
the renegotiation of a joint facility agreement in the second quarter of
1993.
14
<PAGE>
Other Income and Interest Expense. Other income was $4.2 million for the
first quarter of 1994 compared to $1.1 million for the same period in 1993. The
increased income is due primarily to a $3.7 million increase in gain from sales
of property, partially offset by decreases in miscellaneous income. There were
also modest increases in real estate rental income and interest income for the
1994 quarter. Interest expense for the first quarter of 1994 was $26.9 million
compared to $21.9 million for the first quarter of 1993, an increase of $5.0
million. The increased interest expense is principally attributable to
increased capital lease obligations during the first quarter of 1994 and to
interest expense associated with the Company's $290 million Senior Secured
Notes issued in April 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is capital intensive and requires on-going substantial
expenditures for, among other things, improvements to roadway, structures and
technology, acquisitions and repair of equipment, and maintenance of the rail
system. During the first quarter of 1994, and for a number of years before
that, the Company's railroad operations did not produce sufficient cash flows
to meet its capital expenditure, debt service and other cash needs. As a
result, the Company relied on proceeds from transit corridor, real estate and
other asset sales, borrowings and other financings for these purposes.
On March 2, 1994, SPRC closed an offering of 25,000,000 shares of common
stock for net proceeds of $503.6 million. In connection with the foregoing
transaction, the Company issued 150 shares of common stock for total
consideration of $294.4 million from SPRC. Proceeds from this transaction were
used for repayment of the $175 million revolving credit facility (including
interest thereon) and to purchase $118.9 million of D&RGW property. This has
significantly improved the Company's liquidity; however, the Company
anticipates that, for the next few years, cash flows generated by rail
operating results will continue to be insufficient to meet its cash needs
including acquisition of equipment. In order to satisfy these cash flow
requirements, as well as satisfy financial covenants in its credit facilities,
the Company must not only continue to improve its operating results but also
continue to obtain equipment financing, and sell transit corridors and other
real estate assets with substantial values that are not necessary to its
transportation operations. At March 31, 1994, the Company had no outstanding
balance on its revolving credit facility with $200 million of available
capacity.
The Company's real estate department will continue its "traditional" real
estate activities consisting of sales and leases of industrial and commercial
properties located in developed areas on the Company's system. In addition, the
Company will emphasize sales of transit corridors for use by public
transportation systems and consolidated freight corridors for use by more than
one railroad. The timing of sales to public agencies often is difficult to
predict and such sales can be subject to delays created by funding issues and
other matters. Thus, levels of asset sales may vary substantially from period
to period, which in turn can cause significant variations in the Company's net
income or loss, cash flows and liquidity. In addition, the closing of real
estate sales is customarily subject to the satisfaction of various closing
conditions and similar contingencies.
OPERATING ACTIVITIES
As shown in the Consolidated Condensed Statements of Cash Flows, cash used
for operating activities was $0.1 million for the first quarter of 1994
compared to $33.3 million for the first quarter of 1993. The $33.2 million
improvement is due primarily to improved operating results for the 1994
quarter. Included in the operating cash flows is a $23.7 million payment of
interest during the first quarter of 1994 compared to $13.6 million for the
first quarter of 1993. The increase is due to the timing of interest payments
associated with the different debt instruments held during each period. The
Company is unable to predict whether cash flows from operating activities will
be sufficient to fund its operations (including scheduled interest and capital
lease payments) over the next twelve months, but expects to be able to fund its
operations for such period with cash from operations, cash on hand, secured
equipment financing, capital leases and, if necessary, borrowings under the
revolving credit facility.
15
<PAGE>
The Company had working capital deficits of $547.5 million and $569.9 million
at March 31, 1994 and 1993, respectively. The improvement is due primarily to a
reduction in current portion of long-term debt and other current liabilities at
March 31, 1994.
The Company received cash proceeds from sales and retirements of real estate
and other property totalling $13.7 million and $9.5 million for the first
quarter of 1994 and 1993, respectively.
CAPITAL EXPENDITURES
Capital expenditures (exclusive of capital leases) for the first quarter of
1994 were $172.8 million compared to $47.2 million for the same period in 1993.
The 1994 amount includes approximately $118.9 million for property purchased
from D&RGW and $18.1 million for rebuilt locomotives. The 1993 amount was
primarily for roadway and structures expenditures. The Company expects 1994
capital expenditures for railroad operations to be approximately $230 million
(exclusive of capital leases and the D&RGW property purchase). The Company
expects to fund 1994 capital expenditures with cash from operations, cash on
hand, secured equipment financings and, if necessary, borrowings under the
revolving credit facility.
During the latter part of 1993 and in 1994, the Company began a plan of
expansion and upgrading of its locomotive and freight car fleets principally
through capitalized lease financing. The Company received 8 new locomotives
during the first quarter of 1994 and has an additional 125 new locomotives and
133 remanufactured locomotives on order to be delivered during the balance of
1994. In addition, the Company plans to acquire 670 new and approximately 1,850
refurbished freight cars during the year. In total, the capitalized present
value of minimum lease payments for the locomotives and freight cars to be
acquired by capital lease during 1994 is expected to be approximately $315
million.
FINANCING ACTIVITIES
SPRC closed the offering and sale of 25,000,000 share of common stock for
$21.00 per share (before underwriting discounts, commissions and offering fees)
on March 2, 1994.
In connection with the foregoing transaction, the Company issued 150 shares
of common stock for total consideration of $294.4 million from its parent.
Proceeds from this transaction were used for repayment of the $175 million
revolving credit facility including interest thereon) and to purchase $118.9
million of D&RGW property.
OTHER
In November 1992, FAS No. 112 was issued. FAS 112 requires employers to
recognize the obligation to provide benefits to former or inactive employees
after employment but before retirement, if certain conditions are met.
Effective January 1, 1994, the Company adopted FAS 112 and recorded a $6.6
million pre-tax charge ($4.0 million after tax). The Company's policy continues
to be to fund the cost of post-employment benefits as the benefits are payable.
Effective January 1, 1993, the Company adopted FAS 106 "Employers' Accounting
for Post-retirement Benefits Other Than Pensions" and recorded a $160.1 million
pre-tax ($98.9 million after tax) charge.
To ensure stability of its fuel costs, the Company has entered into fuel
hedging agreements covering approximately 90 percent of its 1994 estimated fuel
needs at an average purchase price of $0.51 per gallon (excluding handling
costs). Additionally, approximately 50 percent of 1995 estimated fuel needs are
hedged at an average purchase price of $0.48 per gallon (excluding handling
costs). However, in the event that fuel prices decline below the average
purchase price under the hedging agreements, the Company will not receive any
benefit from these fuel hedging agreements and may in fact pay more for fuel
than it would have paid in the absence of such agreements.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Southern Pacific Transportation
Company
/s/ B. C. Kane
Date: July 28, 1994 By __________________________________
Controller
(Principal Accounting Officer)
17
