<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, 1995
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, 1995
----------------------------------- ---------------------
Common stock, without par value 1,350 shares
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
(in millions)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents................... $ - $ 54.4
Accounts and notes receivable, net of
allowance for doubtful accounts........... 170.7 176.6
Notes receivable from Rio Grande
Receivables, Inc.......................... 83.1 96.1
Materials and supplies, at cost............. 73.1 71.1
Other notes receivable...................... 7.5 7.2
Other current assets........................ 65.1 62.6
-------- --------
Total current assets...................... 399.5 468.0
-------- --------
PROPERTY, AT COST
Roadway and structures...................... 5,806.0 5,800.6
Railroad equipment.......................... 1,917.3 1,871.5
Other property.............................. 243.0 239.1
-------- --------
Total property............................ 7,966.3 7,911.2
Less accumulated depreciation and
amortization.............................. 2,759.2 2,779.2
-------- --------
Property, net............................. 5,207.1 5,132.0
-------- --------
OTHER ASSETS AND DEFERRED CHARGES
Notes receivable and other investments...... 96.4 95.3
Other assets and deferred charges........... 98.2 94.1
-------- --------
Total other assets........................ 194.6 189.4
-------- --------
Total assets.............................. $5,801.2 $5,789.4
======== ========
</TABLE>
(Continued)
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
(in millions)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts and wages payable...................... $ 128.9 $ 151.0
Accrued payables................................ 121.1 137.1
Current portion of long-term debt............... 60.8 59.5
Redeemable preference shares of a subsidiary.... 1.9 1.9
Other current liabilities....................... 605.3 629.3
-------- --------
Total current liabilities..................... 918.0 978.8
-------- --------
ADVANCES PAYABLE TO PARENT........................ 32.5 -
-------- --------
LONG-TERM DEBT.................................... 774.6 725.3
-------- --------
DEFERRED INCOME TAXES............................. 1,044.2 1,038.4
-------- --------
OTHER LIABILITIES................................. 702.2 720.5
-------- --------
REDEEMABLE PREFERENCE SHARES OF A
SUBSIDIARY...................................... 41.9 42.3
-------- --------
STOCKHOLDER'S EQUITY
Common Stock................................... 424.9 424.9
Additional paid-in capital..................... 1,090.1 1,090.1
Retained income................................ 1,491.9 1,488.2
Advances to parent (719.1) (719.1)
-------- --------
Total stockholder's equity................... 2,287.8 2,284.1
-------- --------
Total liabilities and stockholder's equity... $5,801.2 $5,789.4
======== ========
</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,
------------------------
1995 1994
------ ------
(IN MILLIONS) (RESTATED)
<S> <C> <C>
OPERATING REVENUES
Railroad....................................... $744.3 $726.1
Other.......................................... 16.1 16.0
------ ------
Total........................................ 760.4 742.1
------ ------
OPERATING EXPENSES
Railroad...................................... 718.4 692.3
Other......................................... 15.3 15.3
------ ------
Total....................................... 733.7 707.6
------ ------
OPERATING INCOME................................. 26.7 34.5
------ ------
OTHER INCOME
Gains from sales of property................... 15.8 10.5
Real estate rentals, net....................... 5.1 4.8
Interest income................................ 1.7 0.9
Other income (expense), net.................... (19.0) (13.3)
------ ------
Total........................................ 3.6 2.9
------ ------
INTEREST EXPENSE................................. 24.1 28.2
------ ------
INCOME BEFORE INCOME TAXES....................... 6.2 9.2
------ ------
INCOME TAXES
Current........................................ 0.1 61.1
Deferred....................................... 2.4 (57.4)
------ ------
Total........................................ 2.5 3.7
------ ------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING........................... 3.7 5.5
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POST-EMPLOYMENT BENEFITS IN 1994
(Net of income tax benefits of $3.8)........... - (6.0)
------ ------
NET INCOME (LOSS)................................ $ 3.7 $ (0.5)
====== ======
</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
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL ADVANCES
NUMBER OF PAID-IN RETAINED TO
SHARES AMOUNT CAPITAL INCOME PARENT TOTAL
---------- ---------- ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994....... 1,350 $424.9 $1,090.1 $1,488.2 $(719.1) $2,284.1
NET INCOME.......................... - - - 3.7 - 3.7
----- ------ -------- -------- ------- --------
BALANCES AT MARCH 31, 1995.......... 1,350 $424.9 $1,090.1 $1,491.9 $(719.1) $2,287.8
===== ====== ======== ======== ======= ========
</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,
------------------------
1995 1994
------ ------
(in millions) (restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................. $ 3.7 $ (0.5)
------ ------
Adjustments to net income (loss):
Gains from sales of property................................ (15.8) (10.5)
Depreciation and amortization............................... 63.1 61.1
Deferred income taxes....................................... 2.4 (61.3)
Cumulative effect of change in accounting for post-
employment benefits in 1994............................... - 9.8
Other adjustments........................................... (67.1) (65.0)
------ ------
Total adjustments......................................... (17.4) (65.9)
------ ------
Net cash used for operating activities...................... (13.7) (66.4)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Property sold and retired..................................... 17.9 14.2
Capital expenditures.......................................... (77.2) (55.3)
Change in notes receivable and other investments, net......... (3.7) (2.4)
------ ------
Net cash used for investing activities........................ (63.0) (43.5)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of costs.................. - 54.4
Debt and revolver drawdown (repayment), net................... (9.8) (190.7)
Advances to parent, net....................................... 32.5 (17.3)
Dividends paid................................................ - (53.8)
Proceeds from issuance of stock, net of costs................. - 294.4
Redeemable preference shares repayment........................ (0.4) (0.4)
------ ------
Net cash provided by financing activities................... 22.3 86.6
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS......................... (54.4) (23.3)
CASH AND CASH EQUIVALENTS - BEGINNING OF
THE PERIOD.................................................... 54.4 51.7
------ ------
CASH AND CASH EQUIVALENTS - END OF THE
PERIOD........................................................ $ - $ 28.4
====== ======
</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, 1995
(UNAUDITED)
(1) OWNERSHIP AND PRINCIPLES OF CONSOLIDATION
-----------------------------------------
Southern Pacific Transportation Company ("SPT") is a wholly-owned
subsidiary of Southern Pacific Rail Corporation ("SPRC"); 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 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"), the Denver and Rio Grande Western Railroad Company ("D&RGW")
and SPCSL Corp. ("SPCSL"), on a consolidated basis. SPRC transferred ownership
of D&RGW to SPT effective October 1, 1994 by a contribution to capital. The
consolidated financial statements have been restated to reflect the combined
results of operations and cash flows of the companies for prior periods
presented. These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1994. 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) SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1995 1994
------ ------
(IN MILLIONS)
<S> <C> <C>
CASH PAYMENTS:
Interest......................... $ 4.6 $23.7
NON-CASH TRANSACTIONS:
Capital lease obligations for
railroad equipment............. 60.4 8.6
</TABLE>
7
<PAGE>
(3) OTHER
-----
In November 1994, the Burlington Northern Railroad Company ("BN") and
the Atchison, Topeka & Santa Fe Railway Company ("ATSF") filed an application
with the Interstate Commerce Commission ("ICC") for approval of a proposed
merger of the two companies. The BN/ATSF application is currently pending
before the ICC. In connection with the proposed merger, on April 13, 1995, the
Company entered into an agreement with BN and ATSF to provide trackage and
haulage rights over portions of each other's rail lines, effective upon the
completion of the proposed BN/ATSF merger. As a result of this agreement, the
Company will not seek further conditions and will not oppose the proposed
BN/ATSF merger.
On March 31, 1995, the Company and Union Pacific entered into an
agreement to settle the outstanding litigation, which was reported in the
Company's Annual Report on Form 10-K for the period ending December 31, 1994,
relating to the compensation SSW would pay for trackage rights over Union
Pacific Railroad Company lines between Kansas City and St. Louis. Under the
settlement agreement, the Company paid Union Pacific $30.76 million on April 3,
1995 and executed a note agreeing to pay Union Pacific $30.76 million, plus
interest at 7%, on April 3, 1996. As a result of the settlement agreement, both
parties agreed to dismiss their claims in the ICC and court proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 1995 Compared to Three Months Ended March 31,
--------------------------------------------------------------------------
1994
----
The Company had net income of $3.7 million for the first quarter of 1995
compared to a net loss of $0.5 million for the first quarter of 1994 (which
included a $6.0 million charge for the cumulative effect of a change in
accounting for post-employment benefits under Statement of Financial Accounting
Standards ("FAS") No. 112 adopted by the Company effective January 1, 1994).
The Company had operating income of $26.7 million for the first quarter 1995
compared to $34.5 million for the 1994 quarter. For the first quarter of 1995,
railroad operating revenues increased 2.5% and railroad operating expenses
increased 3.8% over the 1994 period.
Operating Revenues. In the first quarter of 1995, railroad operating revenues
- ------------------
increased $18.2 million, or 2.5%, compared to the first quarter of 1994.
Railroad freight operating revenues increased $17.8 million, or 2.5%, due
primarily to increased shipments of coal, metals and ores and intermodal
traffic. Carloads for chemicals and petroleum products and forest products
declined for the 1995 quarter compared to the 1994 quarter. Other railroad
revenues (primarily switching and demurrage) increased $0.4 million during the
first quarter of 1995 compared to the the 1994 quarter due primarily to the
increase in traffic volume. For the first quarter of 1995, carloads increased
2.5% and revenue ton-miles increased 11.1% compared to the same period in 1994.
The average net freight revenue per ton-mile for the first quarter of 1995
declined by 7.7% compared to the first quarter of 1994 due principally to an
increase in traffic volume for commodities which generate lower revenue per ton-
mile (e.g., coal and intermodal traffic).
8
<PAGE>
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, 1995 and
1994.
CARLOAD AND GROSS FREIGHT REVENUE COMPARISON
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
Gross Freight
Carloads Gross Freight Revenues Revenue per Carload
------------------------------ ------------------------------ ------------------------------
1995 1994 % Change 1995 1994 % Change 1995 1994 % Change
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTERMODAL................... 172.8 163.6 5.6% $205.1 $188.7 8.7% $1,187 $1,153 2.9%
COAL......................... 87.0 74.3 17.1 82.9 70.7 17.3 953 952 0.1
CHEMICAL AND PETROLEUM
PRODUCTS................... 77.3 88.4 (12.6) 142.4 156.1 (8.8) 1,842 1,766 4.3
FOOD AND AGRICULTURAL
PRODUCTS................... 57.0 57.0 - 96.8 96.6 0.2 1,698 1,695 0.2
FOREST PRODUCTS.............. 51.9 56.8 (8.6) 101.1 107.0 (5.5) 1,948 1,884 3.4
METALS AND ORES.............. 49.1 43.7 12.4 71.7 69.4 3.3 1,460 1,588 (8.1)
CONSTRUCTION MATERIALS
AND MINERALS............... 41.0 40.0 2.5 40.3 38.9 3.6 983 973 1.0
AUTOMOTIVE................... 18.8 17.6 6.8 44.4 46.0 (3.5) 2,356 2,611 (9.8)
----- ----- ------ ------
TOTAL.................... 554.9 541.4 2.5% $784.7 $773.4 1.5% $1,414 $1,428 (1.0)%
===== ===== ====== ======
</TABLE>
- Intermodal carloads and revenue for the first quarter 1995
increased over the same period in 1994 due to increased
container-on-flatcar ("COFC") business with major steamship
accounts. The increase in revenue per carload was due to an
increase in length of haul for both COFC and trailer-on-flatcar
traffic.
- Coal carloadings and revenue increased for the 1995 period due
to continued demand for the low-sulfur high-BTU content coal
produced by Company-served mines. This demand was from both
existing utility customers and new utility customers and was
enhanced by the customers' ability to blend the low-sulfur coal
with higher sulfur coal in order to satisfy requirements of the
Clean Air Act.
- Chemical and petroleum products carloads and revenue decreased
during the first quarter of 1995. A portion of this decrease was
attributable to reduced fertilizer traffic attributable to the
flooding in California during January and March 1995, a longer
than planned maintenance shutdown for a primary crude oil
customer, and to a change in the classification of certain
plastics traffic. Revenue per carload increased for the 1995
quarter over the 1994 quarter due primarily to changes in the
commodity mix.
- Forest products carloads and revenue decreased during the first
quarter of 1995 due, in part, to reduced lumber and paper
traffic caused by severe weather and flooding in California
during the first quarter of 1995, to a slowdown in the
construction markets
9
<PAGE>
affecting lumber traffic and to a strike by millworkers
affecting paper traffic which ended in March 1995.
- Carloads and revenue for metals and ores traffic increased in
the first quarter of 1995 compared to the first quarter of 1994
due primarily to the startup of iron ore traffic between
Minnesota and Utah in August 1994 and to a strong sulfuric acid
market. Revenue per carload decreased for the 1995 period due to
the higher share of lower-rated iron ore traffic in the
commodity mix.
- Construction materials and minerals carloads and revenue
increased for the 1995 period due principally to increased
demand for minerals shipments from existing shippers partially
offset by limited growth for aggregates and cement shipments
attributable to the severe weather and flooding in California
during the first quarter of 1995.
- Automotive carloads increased during the first quarter of 1995
compared to the first quarter of 1994 due to strong northbound
shipments from Mexico. The decline in revenue and revenue per
carload is due to competitive rate pressures.
Operating Expenses. Railroad operating expenses for the first quarter of 1995
- ------------------
increased $26.1 million, or 3.8%, compared to the first quarter of 1994. The
following table sets forth a comparison of the Company's railroad operating
expenses during the three months ended March 31, 1995 and 1994.
RAILROAD OPERATING EXPENSE COMPARISON
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994 % Change
-------- -------- --------
(in millions)
<S> <C> <C> <C>
LABOR AND FRINGE BENEFITS...... $269.7 $273.6 (1.4)%
FUEL........................... 62.1 57.5 8.0
MATERIALS AND SUPPLIES......... 47.4 45.7 3.7
EQUIPMENT RENTAL............... 77.1 81.9 (5.9)
DEPRECIATION AND AMORTIZATION.. 63.1 61.1 3.3
OTHER.......................... 199.0 172.5 15.4
------ ------
TOTAL........................ $718.4 $692.3 3.8%
====== ======
</TABLE>
- Labor and fringe benefit costs decreased $3.9 million, or 1.4%,
for the first quarter of 1995 compared to the first quarter of
1994. The Company reduced employment by 1.0% to a total of
18,685 as of the end of March 1995 compared to 18,882 at the end
of March 1994. The expense decrease includes an adjustment in
the first quarter of 1995 to reflect reduced costs associated
with non-agreement fringe benefits as well as reduced payroll
taxes attributable to the reduced number of employees. Partially
offsetting these expense reductions were increased labor costs
attributable to the increase in traffic volume for the first
quarter of 1995 compared to the first quarter of 1994. There was
a 4.3% increase in train crew starts for the 1995 period over
the 1994 period, while gross ton-miles increased 8.8%.
10
<PAGE>
Expressed as a percentage of operating revenues, labor and
fringe benefit expenses declined to 35.5% for the first quarter
of 1995 compared to 36.9% for the first quarter of 1994.
- Fuel expenses increased $4.6 million, or 8.0%, for the first
quarter of 1995 compared to the same period in 1994. The
increase is a result of an increase in fuel consumption of 6.5%
for the 1995 quarter compared to the 1994 quarter attributable
to the increase in traffic volume, coupled with an increase in
the average price per gallon of fuel (which includes handling
and fuel hedging costs) from $.55 during the first quarter of
1994 to $.56 during the first quarter of 1995. Included in the
first quarter 1995 fuel expense is $2.5 million related to fuel
hedging contracts compared to $4.2 million for the 1994 quarter.
While total fuel expense increased for the 1995 quarter, fuel
efficiency also increased by approximately 4% as measured by
gallons consumed per gross ton-mile.
- Material and supplies expenses increased $1.7 million, or 3.7%,
for the first quarter of 1995 compared to the first quarter of
1994 due primarily to increased freight car repair material and
transportation safety equipment expenses.
- Equipment rental costs decreased $4.8 million, or 5.9%, for the
first quarter of 1995 compared to the first quarter of 1994. The
decrease is primarily attributable to the conversion of freight
car equipment from operating lease to capital lease late in
1994. In addition, short-term locomotive lease expenses were
lower compared to the 1994 quarter. Partially offsetting these
expense decreases was a $2.6 million increase in net car hire
attributable to the increase in traffic volume.
- Depreciation and amortization expense increased $2.0 million, or
3.3%, for the first quarter of 1995 due to an increase in the
depreciable property base.
- Other expenses increased $26.5 million, or 15.4%, for the first
quarter of 1995 compared to the first quarter of 1994. This
category of expense includes outside 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 period were casualty costs, joint
facility costs, purchased equipment repair costs and information
system outsourcing costs. Casualty costs increased $10.1 million
for the first quarter of 1995 compared to the 1994 quarter due
primarily to the severe weather and flooding in California as
well as to increased equipment costs associated with derailments
during the first quarter of 1995. Partially offsetting these
increased casualty costs was a $5 million insurance recovery
received as a partial settlement of claims relating to the 1993
midwest flood. Joint facility costs increased $9.9 million due
to increased billings for maintenance, increased interest rental
payments as well as costs associated with a new haulage
agreement for traffic between Memphis and Chicago. Purchased
equipment repair costs increased $4.2 million and included
increased freight car pool maintenance costs and increased
power-by-the-mile costs. Information system outsourcing costs
increased $2.1 million for the first quarter of 1995 compared to
the same period in 1994.
11
<PAGE>
Other Income and Interest Expense. Other income was $3.6 million for the first
- ---------------------------------
quarter of 1995 compared to $2.9 million for the same period in 1994. The
increased income was due primarily to a $5.3 million increase in gains on sales
of property and a $0.8 million increase in interest income attributable to
increased notes receivable from land and property sales. Partially offsetting
the increased income for first quarter of 1995 were increased expenses of
$4.8 million associated with the sale of accounts receivable. Interest expense
was $24.1 million for the first quarter of 1995 compared to $28.2 million for
the first quarter of 1994, a decrease of $4.1 million associated primarily with
the repayment of the Company's $290 million Senior Secured Notes in December
1994, partially offset by increased interest expense associated with the higher
level of capitalized lease obligations for new locomotives and freight cars
outstanding during the first quarter of 1995 compared to the first quarter of
1994.
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 1995, 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.
The capital and debt transactions completed over the last two years
have substantially improved the Company's liquidity. The Company anticipates
that, for the next few years, cash flows generated by rail operations, while
expected to continue to improve, will be insufficient to meet its cash needs
including acquisition of equipment and other necessary capital expenditures. In
order to satisfy these cash flow requirements, as well as satisfy financial
covenants in its credit facilities, the Company must continue to improve its
operating results and obtain equipment financing while maintaining its bank
credit facilities for use from time to time as required. In addition, in order
to reduce the need for further borrowing, the Company expects to continue to
sell real estate assets with substantial values that are not necessary to its
transportation operations. However, levels of assets 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.
As of March 31, 1995, the Company had no cash and cash equivalents.
The Company had $300 million available under its revolving credit facility and
$150 million available under a separate term loan facility.
Continued implementation of the Company's strategic plan will require
the ongoing availability of additional sources of funding, including secured
equipment and capital lease financing to upgrade the Company's locomotive and
railcar fleet, as well as borrowings under the Company's bank credit facilities.
The Company will remain leveraged to a significant extent and its debt service
and capital lease obligations will continue to be substantial.
Operating Activities
--------------------
As shown in the Consolidated Condensed Statements of Cash Flows, cash
used for operating activities was $13.7 million for the first quarter of 1995
compared to $66.4 million for the first quarter of 1994. The change between
periods is due primarily to the net effect of changes in taxes and in accounts
receivable and payable between periods based on the timing of receipts and
payments. The Company expects to fund its
12
<PAGE>
operations (including scheduled interest and capital lease payments) over the
next twelve months with cash from operations, property sales, secured equipment
financing, capital leases and borrowings under its bank credit facilities.
The Company had working capital deficits of $518.5 million and $541.6
million at March 31, 1995 and 1994, respectively. The decreased deficit is due
primarily to increased receivables on hand at March 31, 1995 compared to March
31, 1994.
The Company received cash proceeds from sales and retirements of real
estate and other property totalling $17.9 million and $14.2 million for the
first quarter of 1995 and 1994, respectively.
Capital Expenditures
--------------------
Capital expenditures (exclusive of capital leases) for the first
quarter of 1995 were $77.2 million compared to $55.3 million for the same period
in 1994. The 1995 amount includes approximately $63.9 million for roadway and
structures and $8.0 million for rebuilt locomotives. The 1994 amount includes
approximately $33.0 million for roadway and structures and $18.1 million for
rebuilt locomotives. During the first quarter of 1995, the Company rebuilt 22
locomotives compared to 49 locomotives during the first quarter of 1994. The
Company expects 1995 capital expenditures for railroad operations to be
approximately $324 million (exclusive of capital leases).
The Company is continuing its plan of expansion and upgrading of its
locomotive and freight car fleets principally through capitalized lease
financing. The Company received 18 remanufactured locomotives during the first
quarter of 1995 and has 282 new locomotives on order to be delivered by year
end 1995, 203 of which, along with 17 of the remanufactured locomotives, are
being financed by capitalized lease financing and 76 to be acquired under an
operating lease with a purchase option. During the first quarter of 1995, the
Company received 210 of 920 new hopper cars on order and 269 of 1,500
reconditioned freight cars with the remainder to be received by the end of 1995.
The Company has completed capitalized lease financing for the 203 new
locomotives, 17 remanufactured locomotives and 920 new hopper cars. The total
expected capitalized lease obligation to be incurred in 1995 is approximately
$380 million.
Financing Activities
--------------------
During the first quarter of 1995, the Company incurred $60.4 million
of capitalized lease obligations related to locomotive and freight car
acquisitions and repaid $9.8 million of debt.
In May 1995, the Company completed the capitalized leveraged lease
financing for 203 new locomotives, 17 remanufactured locomotives and 920 new
hopper cars. This financing includes the issuance of non-recourse debt of $302
million for the leveraged portion of the leases. As of March 31, 1995, $10.5
million of equipment has been received and included in the capital lease
obligations incurred during the first quarter of 1995.
13
<PAGE>
Other
-----
In November 1994, the Burlington Northern Railroad Company ("BN") and
the Atchison, Topeka & Santa Fe Railway Company ("ATSF") filed an application
with the Interstate Commerce Commission ("ICC") for approval of a proposed
merger of the two companies. The BN/ATSF application is currently pending
before the ICC. In connection with the proposed merger, on April 13, 1995, the
Company entered into an agreement with BN and ATSF to provide trackage and
haulage rights over portions of each other's rail lines, effective upon the
completion of the proposed BN/ATSF merger. As a result of this agreement, the
Company will not seek further conditions and will not oppose the proposed
BN/ATSF merger.
On March 31, 1995, the Company and Union Pacific entered into an
agreement to settle the outstanding litigation, which was reported in the
Company's Annual Report on Form 10-K for the period ending December 31, 1994,
relating to the compensation SSW would pay for trackage rights over Union
Pacific Railroad Company lines between Kansas City and St. Louis. Under the
settlement agreement , the Company paid Union Pacific $30.76 million on April 3,
1995 and executed a note agreeing to pay Union Pacific $30.76 million, plus
interest at 7%, on April 3, 1996. As a result of the settlement agreement, both
parties agreed to dismiss their claims in the ICC and court proceedings.
To ensure stability of its fuel costs, the Company has entered into
fuel hedging agreements covering approximately 95% of its estimated 1995 fuel
needs at an average purchase price of $.49 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.
14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
Union Pacific-Missouri Pacific Trackage Rights Compensation. - On
March 31, 1995, the Company and Union Pacific entered into an agreement to
settle the outstanding litigation, which was reported in the Company's Annual
Report on Form 10-K for the period ending December 31, 1994, relating to the
compensation SSW would pay for trackage rights over Union Pacific Railroad
Company lines between Kansas City and St. Louis. Under the settlement agreement,
the Company paid Union Pacific $30.76 million on April 3, 1995 and executed a
note agreeing to pay Union Pacific $30.76 million, plus interest at 7%, on April
3, 1996. As a result of the settlement agreement, both parties agreed to dismiss
their claims in the ICC and court proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) During the quarter ended March 31, 1995, no reports on
Form 8-K were filed by the Company.
15
<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 12, 1995 By /s/ B. C. Kane
--------------- ----------------------------
Controller
(Principal Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPT 1ST
QUARTER 1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 270
<ALLOWANCES> (9)
<INVENTORY> 73
<CURRENT-ASSETS> 400
<PP&E> 7,966
<DEPRECIATION> 2,759
<TOTAL-ASSETS> 5,801
<CURRENT-LIABILITIES> 918
<BONDS> 775
<COMMON> 425
0
0
<OTHER-SE> 1,863
<TOTAL-LIABILITY-AND-EQUITY> 5,801
<SALES> 0
<TOTAL-REVENUES> 760
<CGS> 0
<TOTAL-COSTS> 734
<OTHER-EXPENSES> 19
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 6
<INCOME-TAX> 2
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
