<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
[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 (I.R.S. employer
of organization) identification no.)
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.
Outstanding
Class at April 30, 1994
- - ------------------------------- ----------------------
Common stock, without par value 1,350 shares
<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 $ 11.4 $ 31.9
$5.4 in 1994 and 1993)......................................
Accounts and notes receivable, net of allowance 105.7 112.0
for doubtful accounts.......................................
Notes receivable from Rio Grande Receivables, 35.1 24.1
Inc......................................................... 52.5 46.5
Materials and supplies, at cost.............................. 51.7 41.4
Other current assets......................................... -------- --------
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
======== ========
(Continued)
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
--------- ------------
(in millions)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES $ 133.9 $ 119.4
Accounts and wages payable.................... 112.2 121.5
Accrued payables.............................. 54.3 62.2
Current portion of long-term debt............. 1.9 1.8
Redeemable preference shares of a subsidiary.. 501.6 520.9
Other current liabilities..................... -------- --------
803.9 825.8
Total current liabilities.................... -------- --------
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.
3
<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.
4
<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.
5
<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.
6
<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.
7
<PAGE>
(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.
(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.
8
<PAGE>
(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.................
LONG-TERM DEBT...................... 581.5 200.9 21.5 - 803.9
DEFERRED INCOME TAXES............... 584.0 169.3 43.5 - 796.8
OTHER LIABILITIES................... 754.3 81.7 (1.7) - 834.3
REDEEMABLE PREFERENCE SHARES........ 497.7 239.8 26.6 (131.5) 632.6
STOCKHOLDER'S EQUITY................ - 43.8 - - 43.8
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY............................ 1,942.6 337.0 11.1 (348.1) 1,942.6
-------- -------- ------ ------- --------
$4,360.1 $1,072.5 $101.0 $(479.6) $5,054.0
======== ======== ====== ======= ========
</TABLE>
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS - DECEMBER 31, 1993
<TABLE>
<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
LONG-TERM DEBT....................... $ 588.6 $ 201.3 $ 35.9 $ - $ 825.8
DEFERRED INCOME TAXES................ 705.8 171.6 38.9 - 916.3
OTHER LIABILITIES.................... 757.1 82.4 (1.8) - 837.7
REDEEMABLE PREFERENCE SHARES......... 507.4 240.3 26.1 (131.5) 642.3
STOCKHOLDER'S EQUITY................. - 44.2 - - 44.2
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>
(6) SUPPLEMENTAL CONDENSED COMBINING FINANCIAL INFORMATION (Continued)
------------------------------------------------------
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)
====== ====== ===== ====== ======
</TABLE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF OPERATIONS -
THREE MONTHS ENDED MARCH 31, 1993
<TABLE>
<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>
(6) SUPPLEMENTAL CONDENSED COMBINING FINANCIAL INFORMATION (Continued)
------------------------------------------------------------------
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
======= ===== ===== ======= =======
</TABLE>
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED MARCH 31, 1993
<TABLE>
<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>
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.
11
<PAGE>
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.
. 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.
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<PAGE>
. 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.
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<PAGE>
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>
. 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 $.506 per gallon
(excluding handling costs). Additionally, approximately 50% of 1995
estimated fuel needs are hedged at $.476 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. Also during the first quarter of 1993, the Company reduced its
roadway maintenance and repair expenditures
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<PAGE>
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.
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
15
<PAGE>
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 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
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<PAGE>
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).
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.
17
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
There have been no significant developments in legal proceedings since
the filing of the Company's 1993 Annual Report on Form 10-K.
ITEM 5. OTHER INFORMATION
-----------------
Effective April 23, 1994, Mr. G. P. Michael resigned as Vice-President-
Operations of the Company. Effective May 2, 1994, Mr. C. Wayne Calder was
appointed Vice President and Chief Transportation Officer for the Company. Mr.
Calder, as well as the Vice President and Chief Mechanical Officer and the Vice
President and Chief Engineer, will report directly to Mr. E. L. Moyers,
President and Chief Executive Officer for the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) During the quarter ended March 31, 1994, no reports on Form 8-K
were filed by the Company.
18
<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
Date: May 13, 1994 By /s/ L. C. Yarberry
------------------- ---------------------------------
Vice President-Finance
(Principal Financial Officer)
19
