SOUTHERN PACIFIC TRANSPORTATION CO, 10-K405, 1996-03-29

SOUTHERN PACIFIC TRANSPORTATION CO
10-K405, 1996-03-29
RAILROADS, LINE-HAUL OPERATING

Previous: SOUTHERN INDIANA GAS & ELECTRIC CO, 10-K405, 1996-03-29

Next: SOUTHLAND CORP, 10-K, 1996-03-29

<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1995

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES AND
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.)
incorporation or organization) 94105
SOUTHERN PACIFIC BUILDING (Zip code)
ONE MARKET PLAZA (415) 541-1000
SAN FRANCISCO, CALIFORNIA (Registrant's telephone number,
(Address of principal executive offices) including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
------------------- ---------------------
Southern Pacific Transportation Company
First and Refunding Mortgage 8.2% Bonds, New York Stock Exchange
Series B, Due December 1, 2001

Securities registered pursuant to Section 12(g) of the Act:
None
----
(Title of Class)

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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
-----

As of March 15, 1996, none of the registrant's Common Stock was held by
non-affiliates.

The number of shares outstanding of the registrant's Common Stock as of
March 15, 1996 was 1,350.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS REPORT WITH THE
REDUCED DISCLOSURE FORMAT.

<PAGE>

BECAUSE THE COMPANY IS FILING THIS ANNUAL REPORT UNDER THE REDUCED DISCLOSURE
FORMAT PROVIDED BY GENERAL INSTRUCTION J(2) OF FORM 10-K, CERTAIN ITEMS HAVE
BEEN OMITTED IN THEIR ENTIRETY, OR IN PART, AS FOLLOWS:

OMITTED IN ENTIRETY:

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

OMITTED IN PART:

ITEM 1. BUSINESS.
ITEM 2. PROPERTIES.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART ITEM DESCRIPTION PAGE
- ---------------------------------------------------------------------- ---------
I 1 and 2 Business and Properties............................... 1
General............................................... 1
Proposed Merger with Union Pacific.................... 1
Railroad Operations................................... 2
Service Territory..................................... 3
Traffic............................................... 4
Physical Plant and Equipment.......................... 5
Transit Corridor and Real Estate Sales................ 8
Employees and Labor................................... 9
Governmental Regulation............................... 10
Competition........................................... 11
Environmental Matters................................. 12
3 Legal Proceedings..................................... 14
II 5 Market For Registrant's Common Equity and Related
Stockholder's Matters.............................. 16
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 16
8 Financial Statements and Supplementary Data........... 23
9 Changes in and Disagreements With Auditors on
Accounting and Financial Disclosure................ 23
IV 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................... 24
Index to Financial Statements and Financial Statement
Schedules.......................................... 29

Southern Pacific Transportation Company ("SPT" or the "Company") is a
wholly-owned subsidiary of Southern Pacific Rail Corporation ("SPRC"). Unless
the context otherwise requires, references herein to the Company include SPT and
its subsidiaries, including St. Louis Southwestern Railway Company ("SSW"), The
Denver and Rio Grande Western Railroad Company ("D&RGW") and SPCSL Corp.
("SPCSL"), and references to SPRC include SPRC and its subsidiaries, including
SPT and its subsidiaries.
<PAGE>

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

GENERAL

The Company, through the integrated network of its principal subsidiaries,
transports freight over approximately 16,400 miles of first main track
throughout the western United States. The Company operates in 16 states over
five main routes. The Company serves most west coast ports and large population
centers west of the Mississippi and connects with eastern railroads at Chicago,
St. Louis, Kansas City, Memphis and New Orleans. The Company's rail lines reach
the principal Gulf ports south from Chicago and east from the Los Angeles basin.
It interchanges with Mexican railroads at six gateways into Mexico. Mileage
operated by the Company increased during 1995 due to an agreement entered into
by the Company on April 13, 1995 with Burlington Northern Railroad Company
("BN") and The Atchison, Topeka and Santa Fe Railway Company ("ATSF"), effective
upon completion of the merger of those railroads on September 22, 1995, to
provide trackage and haulage rights over portions of each other's rail lines.

The principal commodities hauled in the Company's carload operations are coal,
chemicals and petroleum products, food and agricultural products and forest
products (including paper, paper products and lumber). Intermodal container and
trailer operations continue to be the Company's largest single traffic category.
In 1995, the largest five shippers accounted for less than 17% of the Company's
gross freight revenues, with no shipper providing more than 7% of such revenue.

In addition to its rail business, the Company historically has received
substantial cash flow from "traditional" real estate sales and leasing
activities. Beginning in 1989, transit corridor sales became a dominant
component of the Company's asset sales program, with the Company usually
retaining operating rights over these corridors to continue freight rail service
to its customers. In 1995, however, the Company completed no transit corridor
sales and no major corridor sales are pending at this time.

PROPOSED MERGER WITH UNION PACIFIC

On August 3, 1995, the Board of Directors of SPRC approved an agreement
providing for the merger of SPRC and Union Pacific Railroad Company ("UPRR"), a
wholly-owned subsidiary of Union Pacific Corporation ("UP"). Under the terms of
the agreement, a subsidiary of UP acquired 25% of the common stock of SPRC at a
price of $25.00 per share pursuant to a tender offer. The merger requires
approval by the Surface Transportation Board ("STB") of the Department of
Transportation (successor to the Interstate Commerce Commission ("ICC")). Based
upon the 255 day procedural schedule adopted by the ICC, the earliest a decision
can be expected is August 1996. The shares purchased in the tender offer are
held in a voting trust pending a decision by the STB. Following receipt of
STB approval and the satisfaction of other conditions, SPRC (and the UP
subsidiary that purchased SPRC stock in the cash tender offer) would be merged
into UPRR. In the merger, each share of SPRC stock would be converted, at the
holder's election (subject to proration), into the right to receive $25.00 in
cash or 0.4065 shares of UP common stock. Of the shares of SPRC common stock
outstanding immediately prior to the merger (other than the shares previously
acquired by UP in the tender offer), 20% would be acquired for cash and 80%
would be acquired in exchange for shares of UP common stock.

1
<PAGE>

dividends, issuing stock, redeeming or repurchasing shares of its stock, making
compensation changes, making loans, advances, capital contributions or
investments (except for railroad and real estate joint ventures and certain
other transactions) and engaging in transactions with affiliates. In addition,
among other things, the agreement restricts SPRC, including the Company, from
incurring debt other than pursuant to arrangements existing on the date of the
merger agreement (the Company's $450 million of bank credit facilities and
replacements therefor and refinancings thereof, and capital leases to finance
the rebuilding of freight cars and purchase of equipment under existing
commitments), plus borrowings not to exceed $12.5 million in the fiscal year
ended December 31, 1995, $25 million in the fiscal year ending December 31,
1996, and $12.5 million in the fiscal quarter ending March 31, 1997.

On November 30, 1995, UPRR and SPRC filed an application for the proposed
merger with the ICC and the application process is ongoing. The earliest closing
of the transaction, if approved, would be September 1996.

On January 17, 1996 at a special meeting called to consider the proposed
merger, the stockholders of SPRC voted to proceed with the transaction.

RAILROAD OPERATIONS

The following table sets forth certain freight and operating statistics
relating to the Company's rail operations for the periods indicated. The
operating ratios show consolidated operating expenses expressed as a percentage
of consolidated operating revenues. The decrease in revenue per ton-mile
evidences the intense competitive pressures under which the Company operates,
particularly those affecting its intermodal activities, as well as increases in
commodities with lower revenue per ton-mile. The increase in revenue ton-miles
per gallon of fuel primarily reflects the results of the Company's program to
rehabilitate and upgrade the quality of its locomotive fleet. The increase in
labor productivity, as measured by revenue ton-miles per employee, is primarily
the result of Company programs to limit the growth or reduce employment combined
with increases in traffic volume. The increase in employment resulted from
additional train and engine crews hired to improve customer service and
additional maintenance of way employment associated with an increased capital
program in 1995.

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenue ton-miles (billions)................... 152.9 139.1 123.6
Revenue per ton-mile (dollars)................. $ .019 $ .021 $ .022
Total carloads (thousands) (1)................. 2,335 2,274 2,078
Average length of haul (miles)................. 1,067 1,026 990
Gallons of fuel (millions)...................... 449.4 436.0 408.9
Average cost per gallon......................... $ .58 $ .58 $ .62
Revenue ton-miles per gallon................... 340 319 302
Total employees (year end)...................... 19,089 18,010 18,982
Revenue ton-miles per employee (thousands)(2).. 8,053 7,456 5,845
Operating ratio (%)(3).......................... 100.4 92.6 100.7

</TABLE>
- ------------------
(1) Includes intermodal carloads with an assumed two containers per carload.
Intermodal carloads hold from two to ten containers.
(2) Calculated based on average monthly employment for 1995,1994 and 1993.
(3) 1995 includes a special charge of $112.6 million. The operating ratio
excluding the special charge would have been 96.8%.

2
<PAGE>

SERVICE TERRITORY

The Company's routes and service territory are described below.

Central Corridor Route. The Central Corridor Route links Northern California
and the Pacific Northwest with Kansas, Missouri and Illinois, traversing the
Rocky Mountain states. The eastern end of this route reaches the rail gateway
cities of Kansas City, St. Louis and Chicago. This route handles a diverse mix
of traffic including eastbound forest products, perishables and processed foods,
as well as significant volumes of finished automobiles and other manufactured
goods. The bulk of the Company's low sulfur, high BTU coal traffic originates
along this route in the mountainous territory of Colorado and Utah and moves
east.

Pacific Coast Route (I-5 Corridor). The north-south route connects the forest
product resource base of the Pacific Northwest with the major consuming markets
in California and Arizona.

Sunset Route. The Company's Sunset Route is a direct line from the Los Angeles
Basin to Houston and other Gulf Coast ports, as well as the eastern rail
gateways of Memphis and New Orleans. This route structure supports the Company's
presence in carload origination of chemicals and plastics in the Gulf region.

Golden State Route. This route connects Southern California and Arizona with
the industrial midwest and the rail gateways of Kansas City, St. Louis and
Chicago. A wide range of products is handled in the corridor including
intermodal, metals and ores, agricultural products and miscellaneous
manufactured products.

Mid-America Route. The Mid-America Route links the petrochemical producing
region along the Gulf of Mexico with industrial users and consuming markets in
the midwest and northeast. This route serves the cities of Dallas/Ft. Worth,
Shreveport, Memphis, Kansas City and St. Louis.

Mexico. The Company serves Mexico through interchanges with Mexican railroads
at six gateways in California, Texas and Arizona.

BN/ATSF Trackage Rights. On April 13, 1995, the Company entered into an
agreement with BN and ATSF, effective upon completion of their merger on
September 22, 1995, to provide trackage and haulage rights over portions of each
other's rail lines. This trackage rights agreement extends the Company's Central
Corridor route from Pueblo, Colorado to Ft. Worth, Texas and from Ft. Worth
north through the grain producing regions of Oklahoma and Kansas to Kansas City.
For intermodal and auto traffic, these trackage rights provide an additional
route from Hutchinson, Kansas to Chicago.

3
<PAGE>

TRAFFIC

Set out below is a comparison of the Company's carload volumes and gross
freight revenues (before contract allowances and adjustments) by commodity
groups in 1995. A more detailed discussion of the traffic generated by each
group follows the table. For a discussion of the 1995 results of operations
compared to those of 1994, reference is made to Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.

<TABLE>
<CAPTION>
Year Ended December 31, 1995
-----------------------------------------------
Carloads Gross Freight Revenue
------------------- ---------------------
Number % of Dollars % of
(thousands) Total (millions) Total
----------- ----- ---------- -----
<S> <C> <C> <C> <C>
Intermodal.............................. 710.1 30.4% $ 833.1 25.6%
Coal.................................... 368.6 15.8 354.5 10.9
Chemical and petroleum products......... 327.5 14.0 582.5 17.9
Food and agricultural products.......... 240.2 10.3 411.6 12.7
Forest products......................... 212.8 9.1 406.8 12.5
Metals and ores......................... 206.5 8.8 304.4 9.4
Construction materials and minerals..... 190.6 8.2 180.4 5.5
Automotive.............................. 78.8 3.4 180.5 5.5
------- ----- -------- -----
Total.......................... 2,335.1 100.0% $3,253.8 100.0%
======= ===== ======== =====

</TABLE>

Intermodal. The intermodal freight business consists of hauling freight
containers or truck trailers by a combination of water, rail and motor carriers,
with rail carriers serving as the link between motor carriers and between ports
and motor carriers. The Company's marketing efforts are focused on direct
negotiations with major steamship lines for international container traffic and
with marketing agents (primarily shipper agents and consolidators) and motor
carriers for domestic container and trailer traffic. This traffic is
particularly sensitive to general economic conditions.

The Company's intermodal revenues are derived in large part from goods
produced in the Pacific Rim and shipped by rail from west coast ports to east
coast markets. This traffic is carried on the Company's lines from its terminals
at Oakland or Los Angeles/Long Beach to Chicago, St. Louis, New Orleans or
Houston, or through connecting carriers, beyond to the U.S. eastern seaboard.
Most of this traffic uses the Company's Intermodal Container Transfer Facility
("ICTF") in Southern California. In some cases, motor carriers and railroads
have begun to jointly market intermodal service. The Company provides stack-
train and trailer-on-flatcar service among its 26 intermodal facilities across
the system.

Coal. The Company serves important sources of low-sulfur, high BTU coal in
Colorado and Utah, which has represented a growing share of the Company's
commodity mix. This traffic is subject to intense competition from other coal
sources, such as Eastern coal particularly from the Illinois Basin.

Chemical and Petroleum Products. The Company transports a wide range of
industrial, chemical and plastic products which constitute the primary commodity
and product groups included in this traffic. Most of the traffic originates
within Texas where the Company directly serves chemical and plastics plants.
The Company's routes enable it to transport these products from Texas directly
to end-user markets on the west coast and through interchanges at major gateways
to end-user markets on the east coast. Shipper demand is closely tied to
fluctuations in end-user demand and also is sensitive to the availability of
safe, predictable transportation service.

Food and Agricultural Products. Grain and grain products constitute the
primary commodity groups included in this traffic. The Company is a major
transporter of grain products to Mexico. Shipper demand is affected by
competition among sources of grain and grain products as well as price
fluctuations in international markets for key commodities. Other food and
consumer goods included in

4
<PAGE>

this traffic are shipments primarily from sources in California to consumer
markets in the eastern part of the U.S.

Forest Products. This traffic includes lumber stock, plywood and various paper
products. Most of the traffic originates in Oregon and Northern California with
destinations throughout the U.S. However, certain product sources in the Pacific
Northwest have been adversely affected by environmental concerns. In response,
the Company is pursuing alternate sources in Canada and the Southern U.S. to
increase volumes. The transportation market for lumber is affected by housing
starts and remodeling activity, while the transportation market for paper
products is driven by end-user demand for packaging and newsprint.

Metals and Ores. Metals and ores traffic includes both ferrous and non-ferrous
metals and is concentrated on the steel mills of the west and shipments from
copper mines and smelters in the southwest. These markets are sensitive to
demand for construction and pipeline projects along with demand for industrial
production and consumer goods with substantial metals components. The markets
also are affected by commodity prices in international markets and subject to
the substitution of imported metals.

Other. The traffic generated by the business development groups discussed
above amounted to approximately 89.0% of the Company's gross freight revenues
for 1995. Other commodity and product groups included in the Company's traffic
include automobiles, automotive parts, construction materials, non-metallic
minerals and government traffic.

Mexico. The Company's Mexico Group, headquartered in Houston, serves as a
marketing and service link between the Company's business development groups and
markets in Mexico. The Company maintains a working relationship with FNM. During
1995, 178,000 carloads, or 7.6% of the Company's total carloads, were from
traffic with Mexico. The Company also provides intermodal container service
linking the ICTF and Mexico City and has developed joint marketing arrangements
with Mexican trucking companies establishing single through rates on a truck-
rail-truck delivery system. Mexico has announced plans to privatize its rail
system in the future. The impact this will have on Company traffic cannot be
predicted.

PHYSICAL PLANT AND EQUIPMENT

Roadway, Yards and Structures. At December 31, 1995, the Company had
approximately 24,100 miles of track in operation, consisting of approximately
16,400 miles of first main track and approximately 7,700 miles of additional
main track, passing track, way switching track and yard switching track. Miles
of first main track include operating rights on 4,283 miles of track owned by
other railroads. The Company regularly analyzes certain branchlines for
possible sale, lease or abandonment. During 1995, the Company sold or leased
approximately 172 miles of such lines. To the extent proceeds from such
dispositions are less than the Company's basis in those properties, a non-cash
financial statement loss would be recognized.

Principal railroad yard facilities owned by the Company are located at Eugene,
Oregon; Sacramento, Roseville, Oakland, Los Angeles and West Colton, California;
Houston, Texas; Pine Bluff, Arkansas; Kansas City, Kansas; Denver, Pueblo
and Grand Junction, Colorado; and Salt Lake City, Utah. As part of its effort to
increase the efficiency of operations, the Company is identifying and assessing
opportunities for consolidation of its railroad yard facilities.

Equipment. The Company has been engaged in a program to expand and upgrade its
locomotive and freight car fleets principally through capitalized lease
financing. During 1995, the Company received and financed through capitalized
lease 18 remanufactured locomotives, 279 new locomotives, 920 new hopper cars,
1,042 used hopper cars and 1,100 reconditioned freight cars. In addition, the
Company finalized capitalized lease financing during 1995 for approximately
1,600 remanufactured freight cars delivered in 1994. The total capitalized lease
obligation incurred in 1995

5
<PAGE>

was approximately $522 million. The Company plans on completing the acquisition
of approximately 500 reconditioned freight cars by May 1996 for an estimated
$14.1 million in capitalized lease obligations.

At December 31, 1995, the Company owned (including equipment under capitalized
leases) or leased the equipment described in the table below. The table excludes
equipment held under short-term leases. At December 31, 1995, there were 79
locomotives subject to short-term leases. At December 31, 1995, there were
approximately 1,855 non-serviceable freight cars in storage, which included
freight cars awaiting sale to a third party for rehabilitation and leaseback and
freight cars scheduled for repair.

<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------------------
Owned Leased Total
--------------------- ------------------- --------------------
Average Average Average
Description Units Age Units Age Units Age
- --------------------- ----- ------- ----- ------- ----- -------
(years) (years) (years)
<S> <C> <C> <C> <C> <C> <C>
Locomotives:
Road............................ 1,854 8.1 263 13.9 2,117 8.8
Other........................... 285 20.6 25 22.9 310 20.8
----- ----- -----
Total........................ 2,139 288 2,427
===== ===== =====
Freight Cars:
Box............................. 14,417 16.3 2,961 11.4 17,378 15.5
Tank............................ 72 26.2 18 4.0 90 21.8
Gondola......................... 2,647 20.0 2,874 7.4 5,521 13.5
Hopper.......................... 10,517 16.6 6,464 9.1 16,981 13.7
Flat............................ 4,722 22.3 1,532 7.1 6,254 18.6
------ ------ ------
Total...................... 32,375 13,849 46,224
======= ====== ======
Company service units................ 1,221 125 1,346
Highway trailers and tractors........ - 4,547 4,547

</TABLE>

At December 31, 1994, the Company owned and leased 2,106 and 307 locomotives,
respectively and 32,344 and 12,285 freight cars, respectively.

6
<PAGE>

The components of the Company's equipment lease and rental expense are shown
below (in millions of dollars):

Year Ended December 31,
----------------------------
1995 1994 1993
------- ------- ------
Operating lease equipment............. $ 70.7 $ 89.9 $109.1
Net car hire expense from other
railroads............................ 70.6 57.1 54.8
Private cars, intermodal and other
equipment............................ 186.2 183.7 177.1
------ ------ ------
Total............................ $327.5 $330.7 $341.0
====== ====== ======

The Company plans on acquiring through operating leases approximately 3,300
freight cars during 1996 at an estimated annual operating lease expense in 1996
of $10.1 million and approximately $16 million annually thereafter.

Capital Expenditures and Maintenance. Improvement and on-going maintenance of
roadway, structures and equipment are essential components of the Company's
efforts to improve service and reduce operating costs. The Company faces large
capital investment requirements in order to meet the challenges of its major
competitors, particularly as a result of the recent BN/ATSF merger. The
increasing service competition that has developed and will be accelerating will
require substantial additional capital expenditures for additional equipment,
track improvements and other new facilities and technology. See "Competition".

Over the past three years, the Company made the following railroad capital
expenditures in order to maintain and improve train service (in millions of
dollars):

RAILROAD CAPITAL EXPENDITURES

Year Ended December 31,
-----------------------------
1995(1) 1994 1993(2)
------- ------ -------
Roadway and structures....... $381.3 $188.1 $209.5
Railroad Equipment:
Locomotives............. 30.0 69.9 21.1
Freight cars............ 23.9 6.4 6.5
Other........................ 5.3 5.2 7.3
------ ------ ------
Total................... $440.5 $269.6 $244.4
====== ====== ======
Capitalized leases........... $522.3 $265.2 $ 57.0
====== ====== ======
____________
(1) Includes purchase of office building from SPRC for $41.2 million.
(2) Excludes equipment previously under operating leases purchased with $65.3
million of the proceeds from certain securities offerings ($30.1 million for
locomotives and $35.2 million for freight cars).

Roadway and structures capital expenditures for 1995 increased substantially
over prior year amounts due to a number of factors including expenditures for
main line double tracking in Arizona, various yard capacity improvements
including new track connections to facilitate train movement over BN/ATSF
trackage rights, an accelerated capital maintenance plan and the purchase of an
intermodal facility in Chicago.

7
<PAGE>

The Company's capital expenditures for railroad operations for 1996 are
expected to be approximately $337 million (exclusive of capital leases),
including $312 million for roadway and structures and $25 million for railroad
equipment and other items. The Company plans on completing the acquisition of
approximately 500 reconditioned freight cars by May 1996 for an estimated $14.1
million in capitalized lease obligations.

The following table shows the Company's expenses for on-going maintenance and
repairs of roadway and structures and railroad equipment (including
administrative and inspection costs) for the periods indicated (in millions of
dollars):

MAINTENANCE EXPENDITURES

Year Ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
Roadway and structures....... $174.8 $202.8 $247.1
Railroad Equipment:
Locomotives............. 244.3 236.0 240.9
Freight cars............ 140.8 133.7 127.4
Other........................ 1.4 (0.6) 3.6
------ ------ ------
Total................... $561.3 $571.9 $619.0
====== ====== ======

TRANSIT CORRIDOR AND REAL ESTATE SALES

The disposition of urban and intercity transit corridors and surplus real
estate, mostly in metropolitan areas along the Company's rights of way, has been
a major component of the Company's business strategy and is conducted as part of
the Company's ordinary course of business. The Company markets properties that
are classified generally into two distinct types: (1) transit corridors and
consolidated freight corridors, which are typically sold to public agencies, and
(2) traditional real estate, which is typically sold to different groups of
potential buyers. From January 1, 1989 through December 31, 1995, the Company
received over $1.8 billion in proceeds from its real estate asset disposition
program. During that time, such sales were necessary for the Company to meet its
capital expenditure, debt service and other cash needs. Of the $1.8 billion in
proceeds, a total of $380 million was received during 1994 and 1995, with $235
million coming from the Alameda Corridor sale in December 1994. Sales in 1995
totaled $60 million and did not include any substantial transit corridor sales.
The Company has identified certain operating properties that it might sell in
the future if it can do so without impacting its railroad operations. Management
has not made a firm decision to remove any of these properties from its
operating system. In order to enhance the value of certain properties and
facilitate their disposition, the Company may in the future, as it has in the
past, participate with others in the development of such properties by
contributing the property and funding to joint ventures or other entities,
participating in sale and leaseback arrangements and engaging in other
transactions that do not involve immediate cash proceeds. In addition, in order
to facilitate sales or otherwise enhance values of transit corridors and other
facilities, the Company may form joint ventures with private partners or public
entities or engage in other innovative transactions.

Transit Corridors. The Company's sales efforts have focused particularly on,
and most of the proceeds since January 1, 1989 resulted from, the sale of
transit corridor properties that consist of the Company's rights of way and
related tracks and rail stations that provide a natural corridor over which a
metropolitan, regional or other geographic area can establish and operate public
transportation systems or consolidated freight corridors (for use by more than
one railroad). The Company usually retains freight operating rights over these
corridors to continue rail service to its customers. During 1994, the Ports of
Los Angeles and Long Beach purchased SPT's Alameda Corridor for $235 million.
Earlier sales include the Los Angeles County Transportation Commission's
purchase of over $400 million of SPT's property and the Peninsula Corridor Joint
County Powers Board's purchase of SPT's Peninsula Corridor

8
<PAGE>

for approximately $220 million, with an additional $110 million of property
covered by purchase options, approximately $65 million of which have not lapsed,
been exercised or extinguished. There were no large transit corridor sales in
1995 and no large transit corridor sales are anticipated during 1996.

Traditional Real Estate. In addition to transit corridors, the Company sells
traditional real estate that consists principally of industrial and commercial
properties located in developed areas on the Company's system. The Company's
supply of properties includes several thousand parcels that are available or
could be made available for sale within the next few years (without including
properties currently leased by the Company to tenants).

Lease Activities. The Company actively administers approximately 11,000 leases
that represent most of the Company's annual rental income. Generally, the
Company does not target its leased properties for sale unless the annual rental
does not reflect an appropriate return on the property. Under its leases, the
Company receives annual gross rental income of nearly $42 million, which
includes income from uses of its rights of way for such purposes as signboards,
longitudinal fiber optics and pipelines.

EMPLOYEES AND LABOR

Labor and related expenses accounted for approximately 38% of the Company's
railroad operating expenses in 1995 (excluding the special charge). At December
31, 1995, the Company employed 19,089 persons, which represents an increase of
approximately 1,079 from December 31, 1994. The December 31, 1995 employment
figure includes 18,790 employed in the Company's rail operations. These
increases resulted from additional train and engine crews brought on to improve
customer service and additional maintenance of way employment associated with an
increased capital program in 1995.

As of December 31, 1995, approximately 89% of the Company's railroad employees
were covered by collective bargaining agreements with railway labor
organizations that are organized along craft lines, where employees are grouped
together by job and historical practice. Historically, many collective
bargaining agreements in the railroad industry have been negotiated on a
nationwide basis with the railroads being represented by the National Railway
Labor Conference. In November 1993, the Company withdrew its participation with
the National Railway Labor Conference with respect to the current bargaining
round indicating it would negotiate wage and work rule agreements separately
from any nationwide negotiations conducted by other Class I railroads.

Labor relations in the railroad industry are subject to extensive governmental
regulation under the Railway Labor Act ("RLA"). The most recent national
collective bargaining agreements with the major railway labor organizations and
the railroads, including the Company, became subject to negotiated modification
in 1988, and negotiations failed to resolve the wage and work rule issues. After
various presidential and legislative actions in 1991, because of its constrained
financial condition, the Company was authorized to negotiate separately with
certain of its employee unions, rather than on a nationwide basis with the
railroads being represented by a bargaining committee, as is typically the case.
These negotiations resulted in wage rates that were lower than the national
rates for most of the Company's union employees and relieved the Company of the
requirement to make certain lump sum payments to employees. These concessions
were applied to the Company's railroad subsidiaries (other than D&RGW). The
agreements covered over 15,400 union employees of the Company until they expired
in 1995.

In November 1993, the Company entered into a labor agreement with the United
Transportation Union ("UTU"), which represents approximately 2,300 trainmen and
switchmen on the Company's Western Lines. The agreement, which resolved the
issues from 1988 and continues through 1997, provided for a reduction of 210
surplus employees, the elimination of a reserve board (employees who are paid a
percentage of salary but stay home awaiting recall), and a wage freeze through
the end of

9
<PAGE>

1997. As a result, the Company became the only Class I railroad without reserve
boards for any of its lines.

All of the Company's labor agreements became subject to modification (except
the Western Lines UTU Agreement) in January 1995. Wages for approximately half
of the Company's employees covered by these agreements returned to wage levels
prevailing under nationwide railway collective bargaining agreements in 1995.
Wages for the other employees covered by the agreements (including the Western
Lines UTU) do not require restoration to national wage levels and are subject to
resolution in the current round of negotiations which began in late 1994. In
addition, most of the Company's labor agreements (except for the agreement
related to UTU employees on the Company's Western Lines) provide for cost-of-
living increases on a semi-annual basis that began July 1, 1995. The additional
cost to the Company of these automatic increases could be substantial.

As a result of local negotiations in the current bargaining round, the Company
has entered into six agreements which run through 1997 (including the Western
Lines UTU Agreement). Those agreements, which cover in excess of 6,800
employees, have been ratified by the union membership and cover all trainmen and
switchmen on the St. Louis Southwestern Railway Company, the signalmen
systemwide, yardmasters systemwide, switchmen on the Company's Eastern Lines,
shopcraft supervisors on the St. Louis Southwestern Railway Company, locomotive
engineers system wide, train dispatchers and the Company's intermodal facilities
at Long Beach and Oakland. Those agreements do not provide for general wage
increases; however, they do provide for a 3% lump sum payment based on the
performance of the Company as measured by its operating ratio. A few of these
agreements provided for cost of living increases on July 1, 1995 and on July 1,
1996 but none thereafter. As of February 1996, the Company is in negotiations
with its clerical employees, shop craft employees and maintenance of way
employees representing approximately 8,900 employees.

Under the RLA, labor agreements are renegotiated when they become open for
modification, but their terms remain in effect until new agreements are reached.
Typically, neither management nor labor is permitted to take economic action
until extended procedures are exhausted.

Railroad industry personnel are covered by the Railroad Retirement Act ("RRA")
instead of the Social Security Act. Employer contributions under the RRA are
currently substantially higher than those under the Social Security Act and may
rise further because of the increasing proportion of retired employees receiving
benefits relative to the number of working employees.

Railroad industry personnel are also covered by the Federal Employer's
Liability Act ("FELA") rather than by state workers' compensation systems. FELA
is a fault-based system, with compensation for injuries settled by negotiation
and litigation. By contrast, most other industries are covered under state-
administered no-fault plans with standard compensation schedules.

Special Charge. In June 1995, the Company's Board of Directors approved
plans aimed at reducing future operating costs and increasing productivity,
which resulted in a $112.6 million pretax special charge. The charge includes
$41 million for severance payments to be made for 582 employees (both management
and labor), $4 million related to costs associated with terminating certain
leased facilities, and approximately $68 million for the expected loss on the
sale, lease or abandonment of 600 miles of light density rail lines.

GOVERNMENTAL REGULATION

The Company is subject to environmental, safety, health, and other regulations
generally applicable to all businesses. In addition, the Company, like other
rail common carriers, is subject to regulation by the Surface Transportation
Board ("STB"), an independent agency within the U.S. Department of
Transportation, by the Federal Railroad Administration, by state departments of
transportation, and by some state regulatory agencies.

10
<PAGE>

Prior to January 1, 1996, rail common carriers were subject to regulation by
the Interstate Commerce Commission ("ICC"). Effective January 1, 1996, pursuant
to the ICC Termination Act of 1995, the ICC was abolished and certain of its
regulatory functions were transferred to the newly created STB. The STB has
jurisdiction, which is limited in certain circumstances, over, among other
things, rates charged by rail carriers for certain traffic movements, service
levels, car rental payments, the terms under which one railroad may gain access
to another railroad's traffic or facilities, extension or abandonment of rail
lines, consolidation, merger or acquisition of control of rail common carriers
and labor protection for certain transactions.

The Federal Railroad Administration has jurisdiction over railroad safety and
equipment standards. State departments of transportation and regulatory
agencies also have jurisdiction over certain local safety and operating matters;
and these state and local agencies have become more aggressive in their exercise
of jurisdiction.

COMPETITION

The Company's business faces intense competition from railroads and motor
carriers that has increased significantly during the past year. Competition
with other railroads and modes of transportation is generally based on the rates
charged, as well as the quality and reliability of the service provided,
including the ability to provide single line service. The Company's intermodal
traffic and certain other traffic confront highly price sensitive competition,
particularly from motor carriers. The consolidation in recent years of major
western rail systems has resulted in particularly strong competition in the
service territory of the Company. The Company's two major rail competitors have
substantially greater financial and other resources than the resources of the
Company, as well as facilities and technology that in many cases are more
advanced than those of the Company. Competitive pressures have led to a
downward pressure on rates. Should these declining margins continue, it could
have an adverse effect on the Company's operating results.

The Company faces large capital investment requirements in order to meet the
challenges of its major competitors, particularly as a result of the BN/ATSF
merger in 1995. The increasing service competition that has developed and will
be accelerating will require substantial additional capital expenditures for
additional equipment, track improvements and other new facilities and
technology. The Company has identified capital expenditures of more than $1
billion that it believes should be made in excess of normal capital expenditures
over the next four years simply to maintain its current competitive position.
The Company's two major competitors have substantially stronger cash flow and
financial capabilities and their facilities and technology are more advanced
than those of the Company. The completion of the BN/ATSF merger and the
integration of that system occurred more quickly than the Company initially
anticipated. The combined BN/ATSF is a substantially stronger competitor than
either railroad was separately. The stronger financial condition and resources
of the Company's major competitors will allow them to make more investments
designed to enhance service, attract new customers, gain market share and
achieve even more efficient operations. For the first time in several years,
volumes and revenues on intermodal business have declined. The Company believes
this is attributable, in large part, to substantially increased service
competition from the Company's major competitors relating to transit time and
consistency, areas in which the Company has historically lagged certain of its
competitors. This intense service competition, including new single line
service provided by the merged BN/ATSF, is expected to continue and is
impacting other commodities as the BN/ATSF merger has created a much stronger
competitor. BN/ATSF's ability to offer expanded single line service that the
Company cannot offer to its customers will also negatively impact the Company.
Pressure on the Company to improve service and price more aggressively is
expected to continue and could adversely impact operating results because the
Company does not expect to be able to reduce costs as rapidly as it would have
without the increased service competition from the BN/ATSF or to expend capital
equivalent to its competitors and compete with equal service. If SPRC's
proposed merger with UPRR were not completed, management now believes the
Company would have to shrink its service. After several years of extraordinary
capital expenditures to rebuild its locomotive fleet, the Company will not be
able to match the financial resources of BN/ATSF or UP going forward to provide

11
<PAGE>

the facilities and other service enhancing investments necessary to be fully
competitive on a stand-alone basis.

Certain segments of the Company's freight traffic, notably intermodal, face
highly price sensitive competition from trucks, although improvements in
railroad operating efficiencies are tending to lessen the truckers' cost
advantages. Trucks are not obligated to provide or to maintain rights of way
and they do not have to pay real estate taxes on their routes. In recent years,
the trucking industry diverted a substantial amount of freight from the
railroads as truck operators' efficiency over long distances increased. Because
fuel costs constitute a larger percentage of the trucking industry's costs,
declining fuel prices disproportionately benefit trucking operations as compared
to railroad operations. Truck competition has also increased because of
legislation removing many of the barriers to entry into the trucking business
and allowing the use of wider, longer and heavier trailers and multiple trailer
combinations in many areas.

ENVIRONMENTAL MATTERS

The Company's operations are subject to extensive federal, state and local
regulation under environmental laws and regulations concerning, among other
things, emissions to the air, discharges to waters and the generation, handling,
storage, transportation, treatment and disposal of waste or other materials.
Inherent in the railroad operation of the Company is the risk of environmental
liabilities as a result of both current and past operations. The Company
regularly transports chemicals and other hazardous materials for shippers, as
well as using hazardous materials in its own operations. Environmental
liability can extend to previously owned properties, leased properties and
properties owned by third parties, as well as properties currently owned and
used by the Company. Environmental liabilities can be asserted by adjacent
landowners or other third parties in toxic tort litigation. Also, the Company
has indemnified certain property purchasers as to environmental contingencies.

In addition to costs incurred on an on-going basis associated with regulatory
compliance in its business, the Company may have environmental liability in
three general situations. First, under the Federal Comprehensive Environment
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), it might
have liability for having disposed of wastes at waste disposal sites that are
believed to pose threats to the public health or the environment, without regard
to fault or the legality of waste generation or of the original disposal.
Second, under CERCLA and applicable state statutes, the current owner or
operator of any real property, not just waste disposal sites, may incur
liability for hazardous substances located on the property or that have migrated
to adjoining properties even though such wastes were deposited by a prior owner,
operator or tenant. A former owner or operator of real property may incur
liability for hazardous substances located on the property even though such
wastes were deposited by another owner, operator or tenant; and a former owner
or operator of real property may incur liability after the sale of the property
for hazardous waste disposed on the property during the time that it owned,
operated or leased the property. The third general area is that associated with
the accidental release of hazardous materials or substances during a
transportation incident, such as a derailment. Federal, state and local laws
and regulations may impose (again, without regard to fault), requirements for
clean-up of contaminated soils and surface or groundwater resulting from a
derailment; and there may also be long-term monitoring requirements to evaluate
the impacts on the environment and natural resources. In addition, adjacent
land owners or other third parties sometimes initiate toxic tort litigation
against the type of sites described above.

State and local agencies, particularly in California where the Company has
extensive operations, are active in the environmental area. The regulation by
multiple agencies can be expected to increase the Company's future environmental
costs.

The Company has made and will continue to make substantial expenditures
relating to the assessment and remediation of environmental conditions on its
properties, including properties held for sale. During 1995, 1994 and 1993 the
Company spent approximately $34.9 million, $20.8 million and $17.0 million,
respectively, relating to the assessment and remediation of environmental
conditions of operating properties and non-operating properties not held for
sale, excluding the effects of the 1991

12
<PAGE>

derailment at Dunsmuir, California. In 1995, 1994 and 1993, the Company also
incurred approximately $9.6 million, $13.2 million and $12.4 million,
respectively, for environmental matters relating to properties held for sale.
Costs associated with environmental remediation of properties held for sale may
be deferred to the extent such costs, together with estimated future costs and
the existing cost basis of the property do not exceed, in the aggregate, the
amount expected to be realized upon sale.

The Company owns or previously owned two properties and has a partial interest
in four properties that are on the national priorities list ("NPL") under
CERCLA, the federal "superfund" statute. The Company has been informed that it
is or may be a potentially responsible party ("PRP"), together with multiple
other PRP's, with respect to the remediation of eight other properties on such
list. Certain other Company properties are included on lists of sites
maintained under similar state laws. Inclusion of a site on such lists would
allow federal or state "superfund" monies to be spent on clean-up at the sites
if PRP's do not perform the clean-up. The law governing "superfund" sites
provides that PRP's may be jointly and severally liable for the total costs of
remediation. In some instances, liability may be allocated through litigation
or negotiation among the PRP's based on equitable factors, including volume
contribution. Of its properties, including the NPL and PRP properties described
above, the Company has only four sites that individually involved future cost
estimates for environmental matters as of December 31, 1995 in excess of $4
million. The following is a brief description of these properties, three of
which (Roseville, Crystal Chemical and Sparks) are operating properties and the
fourth (Sacramento) is a non-operating property held for sale.

Roseville Rail Yard--Roseville, CA. In 1985, the EPA ordered SPT to furnish a
plan for investigation of hazardous wastes at its 640-acre Roseville, California
locomotive facility and railroad yard which was contaminated through past
cleaning operations. The examination of one part of the yard has been completed
and the selected remedial alternative is in the construction stage. The
Company estimates the cost of the selected remediation will range between $2.5
million and $4.5 million. Based on the Company's analysis of the currently
available information, including the proposed partial remedial action, the total
amount accrued for this site at December 31, 1995 was $4.1 million. The
investigation of the remainder of the yard is in progress and may identify
additional remediation costs that may be incurred in the future.

Crystal Chemical Company Site--Houston, TX. SPT is a prior landowner at a
site near Houston, Texas that was operated as a herbicide manufacturing plant by
Crystal Chemical Company ("Crystal"), a former lessee of SPT. In 1981, Crystal
filed for bankruptcy. Voluntary Purchasing Groups, Inc. ("VPG") had also been
involved with the site in connection with Crystal's operations. In late 1991,
SPT and VPG jointly settled an action filed by the United States. As part of
the settlement, SPT paid $3 million to the United States for past response
costs, and VPG paid SPT $4.5 million to cover VPG's share of the settlement and
estimated remediation costs. SPT is complying with a 1992 EPA order for soil
and ground water remediation at the site. Based upon current estimates,
payments to date and VPG's settlement payment, at December 31, 1995, the Company
had accrued $4.0 million in its environmental reserves for Crystal.

Sparks Railyard/Pipeline Terminal--Sparks, NV. In 1991 the U.S. EPA ordered
SPT and seven other responsible parties (Respondents) to investigate the sources
of petroleum contamination in soils and groundwater at the Sparks
Railyard/Pipeline Terminal and to institute a remedial action plan for removal
of the petroleum contamination. SPT, along with the other respondents have
reached settlements with plaintiffs in several consolidated civil lawsuits by
adjacent landowners and governmental agencies, for claims related to the soils
and groundwater contamination at the Terminal site. SPT's share of these
settlements is approximately $9.6 million. Respondents have also constructed and
put into operation a soils and groundwater treatment system that is expected to
operate for at least the next five years. SPT's share of the costs of the
operation and maintenance of the treatment system is estimated at $2 million
over the five years. As of December 31, 1995, the Company had accrued $10
million in its environmental reserves including amounts due under the settlement
agreements.

13
<PAGE>

SPT Locomotive Works--Sacramento, CA. In June 1988, SPT agreed with a
California regulatory agency to investigate the 240-acre Sacramento railroad
facility. Soils at the site are contaminated and a contaminated groundwater
plume has migrated off site. The investigation and remedial actions that may be
required will take several years to complete. SPT is incurring on-going
characterization and remediation costs for soil and groundwater remediation at
certain of eleven areas on the site. For 1995, 1994 and 1993, these costs were
approximately $9.4 million, $10.4 million and $10.0 million, respectively. The
Sacramento property is included in property held for sale and estimated future
environmental costs for expected investigation and remediation at Sacramento are
approximately $12.0 million. This amount is not included in the Company's
environmental reserves because the property is held for sale and future
environmental costs are expected to be realized upon sale of the property, as
discussed in the fourth paragraph of this section. The amount will be reviewed
as on-going investigations are completed and future remediation decisions are
made. Additional remediation costs may result.

The Company's total costs for the four sites described above and its other
environmental matters cannot be predicted with certainty; however, the Company
has accrued reserves for environmental matters with respect to operating and
non-operating properties not held for sale, as well as certain properties
previously sold, based on the costs estimated to be incurred when such estimated
amounts (or at least a minimum amount) can be reasonably determined based on
information available. At December 31, 1995 and 1994, the Company had accrued
reserves for environmental contingencies of $51.9 million and $65.0 million,
respectively. It is possible that additional losses will be incurred, but such
amounts cannot be reasonably estimated. The Company does not believe that the
disposition of environmental matters known to the Company will have a material
adverse effect on the Company's financial condition or liquidity; however, there
can be no assurance that the impact of such matters on its results of operations
for any given reporting period will not be material.

ITEM 3. LEGAL PROCEEDINGS

Houston-Metro. In 1992, SPT received $45 million from the sale of property to
the Metropolitan Transit Authority ("Metro") in Houston, Texas. Metro later
indicated that it believed an adjustment or credit should be made with respect
to the purchase price for the property. Negotiations between SPT and Metro to
resolve the matter have been unsuccessful. On March 29, 1994, SPT filed a
lawsuit in the U.S. District Court in Houston, Texas seeking a declaratory
judgment that SPT is not required to refund any amounts to Metro under the 1992
sales contract and further seeking damages and/or specific performance requiring
Metro to acquire an additional $30 million of SPT properties. On the same day,
Metro filed a lawsuit in the U.S. District Court in Houston, Texas seeking a
refund from SPT of $19.7 million under the same 1992 sales contract. SPT
subsequently amended its lawsuit to withdraw its claim for damages and/or
specific performance requiring Metro's acquisition of additional SPT property.
SPT also amended its lawsuit to seek a declaratory judgment that Metro is
obligated to reimburse SPT for approximately $38 million of relocation expenses.
The court recently granted SPT's petition requiring Metro to reimburse SPT for
the relocation expenses and denied cross motions for summary judgment on the
issue of whether a refund is owed. A trial on the outstanding issues is
currently scheduled for December 1996.

General. SPT is involved in certain income tax cases relating to prior
periods, but pursuant to an agreement with SPT's former parent as part of SPRC's
acquisition of SPT, the former parent has assumed the liability for any
adjustments to taxes due or reportable on or before October 13, 1988, the date
of acquisition. Accordingly, the Consolidated Financial Statements of the
Company do not make provision for any taxes and interest of SPT that may have
been due or reportable relating to periods ending on or before October 13, 1988.

14
<PAGE>

Although the Company has purchased insurance, the Company has retained certain
risks (consisting principally of a substantial deductible per occurrence) with
respect to losses for third-party liability and property claims. In addition,
various claims, lawsuits and contingent liabilities are pending against the
Company. Management has made provisions for these matters which it believes to
be adequate. The Company does not believe that the disposition of claims,
lawsuits and related matters known to the Company will have a material adverse
effect on the Company's financial condition or liquidity; however, there can be
no assurance that the impact of such matters on its results of operations for
any given reporting period will not be material.

15
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

All issued and outstanding Common Stock of the Company is owned by SPRC.

No dividends were declared or paid in 1995, 1994 or 1993. As of December 31,
1995, there were certain restrictions on the payment of dividends by the Company
and net worth covenants. See Notes 7 and 9 to the Consolidated Financial
Statements.

The advances to SPRC of $719.1 million at December 31, 1995 are not interest
bearing. It is anticipated that the Company will make dividend payments or
advances in the future to SPRC to meet its debt service obligation.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in connection with the Consolidated
Financial Statements and related Notes.

R E S U L T S O F O P E R A T I O N S
- -----------------------------------------

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

The Company had a net loss of $69.0 million for 1995 after a $112.6 million
pre-tax special charge compared to net income of $204.5 million for 1994 (which
included a $9.8 million pre-tax 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).
Net income for 1995 excluding the special charge would have been $4.8 million.
The 1994 amount included $235 million of proceeds from the sale of a
consolidated freight corridor and other related properties located between
downtown Los Angeles and the ports of Los Angeles and Long Beach (the "Alameda
Corridor"). The Company had an operating loss of $12.9 million for 1995
including the special charge (operating income of $99.7 million excluding the
special charge) compared to $231.6 million for 1994. The $112.6 million special
charge includes provisions for employee separation and for the sale, lease or
abandonment of light density rail lines (see Note 2 to the Consolidated
Financial Statements).

The Company's efforts to increase its efficiency and service quality while
reducing costs have encountered greater obstacles than were anticipated when the
efforts commenced in 1993. During 1995 it was necessary to hire additional
employees in order to maintain service levels, and certain planned cost
reductions proved difficult to achieve. Costs increased by almost 5% in 1995
over 1994, even though overall revenues remained essentially flat.

OPERATING REVENUES

In 1995, railroad operating revenues were essentially flat, increasing only
$4.1 million, or 0.1%, compared to 1994. Revenues have been significantly
impacted by increasing service competition relating to transit times and
consistency, areas in which the Company has historically lagged certain of its
competitors. Railroad freight operating revenues increased $16.5 million, or
0.6%, due primarily to increased shipments of coal, metals and ores and
construction materials and minerals. Carloads for chemicals and petroleum
products, food and agricultural products, forest products and intermodal traffic
declined for 1995 compared to 1994. Other railroad revenues (primarily
switching and incidental) decreased $12.4 million during 1995 compared to 1994
due primarily to reduced service revenues associated with reduced temperature

16
<PAGE>

controlled traffic volume, to reduced interline switching revenues and to
reduced demurrage revenues. For 1995, carloads increased 2.7% and revenue ton-
miles increased 9.9% compared to 1994. The average net freight revenue per ton-
mile for 1995 declined by 8.5% compared to 1994 due principally to an increase
in traffic volume for commodities that generate lower revenue per ton-mile
(e.g., coal and iron ore traffic).

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 1995 compared to 1994.

CARLOAD AND GROSS FREIGHT REVENUE COMPARISON
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>

Gross Freight
Carloads Gross Freight Revenues Revenue Per Carload
------------------------- --------------------------- -----------------------
% % %
Commodity Group 1995 1994 Change 1995 1994 Change 1995 1994 Change
- -------------------------- ---- ---- ------ ---- ---- ------ ---- ---- ------
(in thousands) (in millions) (dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermodal................... 710.1 728.1 (2.5) $ 833.1 $ 851.9 (2.2) $1,173 $ 1,170 0.3
Coal......................... 368.6 303.2 21.6 354.5 299.3 18.4 962 987 (2.6)
Chemical and petroleum
products.................... 327.5 342.7 (4.4) 582.5 614.9 (5.3) 1,779 1,794 (0.9)
Food and agricultural
products.................... 240.2 247.0 (2.8) 411.6 414.7 (0.7) 1,714 1,679 2.1
Forest products.............. 212.8 226.2 (5.9) 406.8 432.0 (5.8) 1,912 1,910 0.1
Metals and ores.............. 206.5 181.5 13.8 304.4 275.3 10.6 1,474 1,517 (2.8)
Construction materials and
minerals.................... 190.6 171.5 11.1 180.4 172.0 4.9 946 1,003 (5.6)
Automotive................... 78.8 73.4 7.4 180.5 188.7 (4.3) 2,291 2,571 (10.9)
------- ------- -------- --------
Total.................. 2,335.1 2,273.6 2.7 $3,253.8 $3,248.8 0.2 $1,393 $1,429 (2.5)
======= ======= ======== ========
</TABLE>

o Intermodal carloads and revenue decreased in 1995 compared to 1994 due to
the combined effects of a decrease in trailer-on-flatcar ("TOFC") traffic
caused by stagnant industry intermodal traffic, changes in customer
distribution and shipping patterns, peso devaluation in Mexico and
increases in service competition from major competitors. Partially
offsetting these decreases were 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 TOFC
traffic.

o Coal carloads and revenue increased in 1995 compared to 1994 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 substitute high-BTU, low sulfur Colorado/Utah coal for high
sulfur Eastern coal in order to satisfy requirements of the Clean Air
Act. The revenue per carload declined due to the effect of new short-haul
traffic.

o Chemical and petroleum products carloads and revenue decreased in 1995
compared to 1994 due to traffic declines in plastics, crude oil,
fertilizers and industrial chemical product lines. These declines were
caused by competitive pressures, changes in customer shipping patterns, a
longer than planned maintenance shutdown for a primary crude oil
customer, a change in the classification of certain plastics traffic and,
for fertilizers, the flooding in California
17
<PAGE>

during the spring of 1995. Revenue per carload declined due to changes in
commodity and market mix.

o Food and agricultural products carloads and revenue decreased during 1995
due to reduced shipments of grain, temperature controlled products,
alcoholic beverages and vegetable oils, partially offset by increased
shipments of sugar beets, canned foods and cotton. The increase in
revenue per carload was due to the increased length of haul in grain and
sugar beets traffic.

o Forest products carloads and revenue decreased during 1995 compared to
1994 due, in part, to reduced lumber and paper traffic caused by severe
weather and flooding in California during the spring of 1995, to a
slowdown in the construction markets, to increases in service competition
issues affecting lumber traffic and to a strike by millworkers affecting
paper traffic that ended in March 1995.

o Carloads and revenue for metals and ores traffic increased during 1995
compared to 1994 due primarily to the startup of iron ore traffic between
Minnesota and Utah in August 1994, to increased copper concentrate
traffic due to shifts in customers' markets and to strong pipe and
sulfuric acid markets. Revenue per carload decreased for 1995 due to the
higher share of lower-rated iron ore traffic in the commodity mix.

o Construction materials and minerals carloads and revenue increased in
1995 due principally to increased shipments of aggregates, machinery and
minerals. The revenue per carload reduction was due to the reduced length
of haul associated with aggregates traffic.

o Automotive carloads increased in 1995 compared to 1994 due to strong
northbound shipments from Mexico associated with peso devaluation in the
first quarter of the year, new traffic, the strong startup of a new model
year and the short-term impact of a Teamster strike against certain motor
carriers which ended in mid-October 1995. The decline in revenue and
revenue per carload was due to lower rates in effect during 1995.

OPERATING EXPENSES

Railroad operating expenses for 1995 increased $248.3 million
(including a special charge of $112.6 million), or 8.8%, compared to 1994. The
following table sets forth a comparison of the Company's railroad operating
expenses during the years ended December 31, 1995 and 1994

RAILROAD OPERATING EXPENSE COMPARISON
YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>

%
1995 1994 Change
-------- -------- -------
<S> <C> <C> <C>
Labor and fringe benefits..........$1,119.7 $1,085.1 3.2%
Fuel............................... 262.3 251.3 4.4
Materials and supplies............. 173.4 187.3 (7.4)
Equipment rental................... 327.5 330.7 (1.0)
Depreciation and amortization...... 272.6 249.9 9.1
Other.............................. 808.0 723.5 11.7
Special charge..................... 112.6 - 100.0
-------- --------
Total........................$3,076.1 $2,827.8 8.8%
======== ========
</TABLE>

18
<PAGE>

o Labor and fringe benefit costs increased $34.6 million, or 3.2%, for 1995
compared to 1994. The Company increased rail employment by approximately
5.7% during the year. The increase in employment was due primarily to an
increase in train and engine crews in order to improve customer service
and to address congestion in certain high volume corridors. Train crew
starts increased by 4.4% for 1995 in response to increased traffic volume
as measured by gross ton-miles (up 7.9%) and carloads (up 2.7%) for 1995.
The increased expense was also due to increased costs per start
associated with training the new train and engine crew employees.
Partially offsetting the expense increase were incentive compensation
payments accrued in 1994. Expressed as a percentage of operating
revenues, labor and fringe benefit expenses were 35.8% for 1995 compared
to 34.8% for 1994.

o Fuel expenses increased $11.0 million, or 4.4%, for 1995 compared to
1994. The increase was a result of an increase in gallons consumed of
3.1% for 1995 compared to 1994 attributable to the increase in traffic
volume, coupled with a 1.2% increase in the average price per gallon of
fuel (which includes handling and fuel hedging costs) to $.584 per gallon
for 1995. While total fuel expense increased for 1995, fuel efficiency
also increased by approximately 5.7% as measured by gallons consumed per
gross ton-mile. Fuel expense includes amounts paid to the Company's
suppliers for the purchase of fuel and amounts paid under fuel hedging
contracts. Included in the 1995 fuel expense was $6.8 million paid under
fuel hedging contracts compared to $14.0 million for 1994.

o Materials and supplies expenses decreased $13.9 million, or 7.4%, for
1995 compared to 1994 due primarily to reduced locomotive material
expenses and running repairs as well as to reduced freight car material
expenses. During 1995, the Company rebuilt or overhauled 167 locomotives
compared to 227 during 1994. The decrease in locomotive and freight car
material expense was partially offset by increased maintenance of way
material expenses during 1995.

o Equipment rental costs decreased $3.2 million, or 1.0%, for 1995 compared
to 1994. The decrease was primarily attributable to the conversion of
freight car equipment from operating lease to capital lease late in 1994,
to reduced short-term locomotive lease expenses during 1995, to $6
million received in connection with the renegotiation of terms of an
equipment utilization agreement in 1995, and to $6.9 million of insurance
recoveries in 1995 as final settlement of claims relating to the 1993
midwest flooding. Partially offsetting these expense decreases was an
$11.5 million increase in net car hire attributable to increases in
traffic volume and cycle times.

o Depreciation and amortization expense increased $22.7 million, or 9.1%,
for 1995 due to an increase in the depreciable property base principally
from significant equipment capital lease acquisitions during the year.

o Other expenses increased $84.5 million, or 11.7%, for 1995 compared to
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 1994 were joint facility costs, intermodal rent and equipment repair
costs, information system outsourcing costs, casualty and detour costs
and other costs including utilities, taxes, travel expenses, meals and
lodging expenses and user fees. Joint facility costs increased $31.2

19
<PAGE>

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 and a new trackage rights
agreement for traffic between Hutchinson, Kansas and Chicago. Intermodal
rent and equipment repair costs increased $11.7 million due to increased
facility rent and crane repair costs. Information system outsourcing
costs increased $10.1 million for 1995 compared to 1994. Casualty costs,
including destroyed equipment, increased $4.0 million and detour
expenses increased $4.0 million for 1995 compared to 1994 due primarily
to the severe weather and flooding in California during the spring of
1995. Other costs including utilities, taxes, travel expenses, meals and
lodging expenses and user fees also increased in 1995 compared to 1994.
The Company recorded $21.6 million and $5.0 million in 1995 and 1994,
respectively, for insurance recoveries as final settlement of claims
relating to the 1993 midwest flooding.

o In June 1995 the Company's Board of Directors approved plans aimed at
reducing future operating costs and increasing productivity, which
resulted in a $112.6 million pretax special charge. The charge includes
$41 million for severance payments to be made for 582 employees (both
management and labor), 64 of whom were terminated in 1995 with the
remainder planned for termination before the end of 1996. Approximately
$4 million of the charge was related to costs associated with
terminating certain leased facilities, and approximately $68 million was
for the expected loss on the sale, lease or abandonment of 600 miles of
light density rail lines. Operating revenues and expenses on the branch
lines will be included in operations until such lines are disposed. The
Company continues to evaluate the costs and benefits of the plans
approved by the Board in June 1995.

Other Income (Expense) and Interest Expense. Other income (expense) was a net
income of $24.1 million for 1995 compared to net income of $236.6 million for
1994, a reduction in income of $212.5 million. The decrease was due primarily to
reduced gains on sales of property of $229.1 million. The 1994 results included
the sale of the Alameda Corridor for proceeds of $235 million. Real estate
rental income, net decreased $3.7 million due primarily to additional real
estate lease and signboard rental income received in 1994 and increased 1995
expenses related to property sales and leases. The $3.5 million increase in
interest income was due primarily to increased interest from notes receivable.
The remaining portion of other income was an expense of $60.4 million in 1995
compared to an expense of $77.2 million in 1994, a decreased expense of $16.8
million. This decrease is due primarily to $15.2 million of expense recorded in
December 1994 for the write-off of deferred loan costs and for redemption
premiums attributable to the repayment of the $290 million principal amount
Senior Secured Notes.

Interest expense was $116.6 million for 1995 compared to $118.2 million
for 1994, a decrease of $1.6 million. The decrease was associated primarily
with the repayment of the Company's $290 million Senior Secured Notes in
December 1994. Other decreases were offset by increased interest expense
associated with the higher level of capitalized lease obligations for new
locomotives and freight cars outstanding during 1995 as compared to 1994.

C E R T A I N E F F E C T S O F C O M P E T I T I O N
- --------------------------------------------------------

20
<PAGE>

railroad was separately. The stronger financial condition and resources of the
Company's major competitors will allow them to make more investments designed to
enhance service, attract new customers, gain market share and achieve even more
efficient operations. For the first time in several years, volumes and revenues
on intermodal business have declined. The Company believes this is attributable,
in large part, to substantially increased service competition from the Company's
major competitors relating to transit time and consistency, areas in which the
Company has historically lagged certain of its competitors. This intense service
competition, including new single line service provided by the merged BN/ATSF,
is expected to continue and is impacting other commodities as the BN/ATSF merger
has created a much stronger competitor. BN/ATSF's ability to offer expanded
single line service that the Company cannot offer to its customers will also
negatively impact the Company. Pressure on the Company to improve service and
price more aggressively is expected to continue and could adversely impact
operating results because the Company does not expect to be able to reduce costs
as rapidly as it would have without the increased service competition from the
BN/ATSF or to expend capital equivalent to its competitors and compete with
equal service. If SPRC's proposed merger with UPRR were not completed,
management now believes the Company would have to shrink its service. After
several years of extraordinary capital expenditures to rebuild its locomotive
fleet, the Company will not be able to match the financial resources of BN/ATSF
or UP going forward to provide the facilities and other service enhancing
investments necessary to be fully competitive on a stand-alone basis.

O T H E R
- ---------

The Company anticipates that, for the next few years, if the proposed
merger with UPRR were not completed, cash flows generated by rail operations
would continue to be insufficient to meet all its cash needs including
acquisition of equipment and other necessary capital expenditures. Certain of
SPRC's and the Company's debt agreements contain quarterly financial covenants
and restrictionsbased on minimum tangible net worth, a maximum funded debt to
net worth ratioand a minimum fixed charge coverage ratio. As a result of not
achieving certain ratios and covenants in SPRC's $375 million Senior Notes at
December 31, 1995, SPRC, including the Company, is restricted in incurring
additional indebtedness, except for certain permitted categories of debt,
including $300 million available under its revolving credit facility. In order
to satisfy its cash flow requirements, as well as the financial covenants in its
bank credit facilities, the Company must improve its operating results while
maintaining its bank credit facilities for use as required. In addition, in
order to reduce the need for further borrowing, the Company expects to continue
to sell real estate assets that are not necessary to its transportation
operations. However, the timing of such sales often is difficult to predict.
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. Real estate sales totaled $60 million in 1995 and no large
real estate sales are anticipated during 1996. Because continued compliance with
the financial terms and covenants under its bank credit facilities would require
more gains than now contemplated from the sales of properties in the first and
second quarters, the Company and its banks have agreed to amend those covenants
through the second quarter of 1996 to eliminate the fixed charge coverage test
for these periods. Management of the Company currently believes it will meet its
revised financial covenants in 1996, although the margin will be small. If the
Company were unable to meet these covenants, its liquidity would be
significantly constrained in the latter part of 1996. The Company will remain
leveraged to a significant extent and its debt service and capital lease
obligations will continue to be substantial.

In prior years, the Company has experienced increased costs due to the
effect of inflation on the cost of compensation and benefits, and in the
replacement of or additions to property and equipment. A portion of the
increased labor costs directly affects expenses through increased operating
costs. Fuel costs have fluctuated with market conditions and have directly
affected operating results. Operating efficiencies have, however, partially
offset this impact. Competition and other market factors may continue to
restrict the Company's ability to recover all increases in costs through
increases in the price of services. Certain of the wage agreements obtained in
prior years have reduced the effects of inflation on operating costs but provide
for cost of living increases beginning in 1995. Several of these wage agreements
have been renegotiated and run through 1997 and provide for 3% lump sum payments
based on the performance of the Company as measured by its operating ratio, as
well as cost of living

21
<PAGE>

increases in July 1996. The Company is still in negotiations with its clerical
employees, shop craft employees and maintenance of way employees representing
approximately 8,900 employees.

In June 1995, the Company's Board of Directors approved plans aimed at
reducing future operating costs and increasing productivity, which resulted in a
$112.6 million pretax special charge. The charge includes $41 million for
severance payments to be made for 582 employees (both management and labor), 64
of whom were terminated in 1995 with the remainder planned for termination
before the end of 1996. Approximately $4 million of the charge was related to
costs associated with terminating certain leased facilities, and approximately
$68 million was for the expected loss on the sale, lease or abandonment of 600
miles of light density rail lines. Operating revenues and expenses on the
branch lines will be included in operations until such lines are disposed.
Current liabilities, non-current liabilities and accumulated depreciation at
June 30, 1995 were increased by approximately $28 million, $17 million and $68
million, respectively, as a result of this charge. As part of the plans to
increase productivity, the Company also approved the relocation and training of
up to 300 employees for which future expected costs of approximately $8 million
will be expensed as incurred under current accounting principles. As of
December 31, 1995 64 employees have been terminated and $2.0 million has been
charged to the reserve. The Company continues to evaluate the costs and
benefits of plans approved by the Board in June 1995.

In 1995, the Financial Accounting Standards Board issued Statement No.
121, "Impairment of Long-Lived Assets", which is required to be adopted by
January 1, 1996. The Company has evaluated the potential impact of adopting
this Statement and does not believe the impact to be material at this time.
Future business decisions could impact the financial statement results under
this accounting standard.

To ensure stability of its fuel costs, the Company has entered into
fuel hedging agreements covering approximately 47% of its estimated first
quarter 1996 fuel needs at an average purchase price of $.485 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.
Further fuel hedging activity may occur during 1996.

The Company's Consolidated Financial Statements are prepared on the
historical accounting basis. SPRC reports its financial position and results of
operations on the purchase accounting basis. As a result, the Company reflects
more depreciation expense than its parent, as well as larger gains on sales of
property.

C A U T I O N A R Y S T A T E M E N T
- --------------------------------------

This report contains "forward looking statements" within the meaning of
the federal securities laws, including; management's belief that SPRC will meet
its revised financial covenants in 1996 and that known environmental matters and
other types of claims and litigation will not have a material adverse effect on
the Company's financial condition or liquidity; the Company's expected 1996
capital expenditures and funding therefor, the Company's expectations as to
funding its operations over the next twelve months, and other statements of
expectations, beliefs, plans, and similar expressions concerning matters that
are not historical facts. These statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in the statements. Important factors that could cause such differences
include but are not limited to the increasingly intense competition within the
Company's service territory (see "Certain Effects of Competition" above), the
Company's insufficient cash flow from operations and resulting dependence on
real estate sales, and other constraints on the Company's liquidity and capital
resources, as well as its substantial capital requirements to improve its
service and facilities, existing restrictions on the Company's borrowing
capacity, the Company's continuing exposure to environmental liabilities and
other types of claims and litigation, the impact of federal, state and local
regulation of the Company's business and the possibility for adverse changes in
such governmental regulation, the requirement for STB approval of SPRC's
proposed merger with Union Pacific, natural events such as flooding and
earthquakes, and the effects of adverse general economic

22
<PAGE>

conditions. These and other risks and uncertainties affecting the Company are
discussed in greater detail in other filings by SPRC with the Securities and
Exchange Commission, including but not limited to SPRC's registration statement
on Form S-1 initially filed on June 4, 1994 (File No. 33-79950) and the joint
proxy statement/prospectus dated December 12,1995.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements, including supplementary data and
accompanying report of independent auditors are listed in the Index to
Consolidated Financial Statements and Consolidated Financial Statement Schedules
filed as part of this annual report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

23
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

A. Documents filed as part of this report:

1. The financial statements, financial statement schedules and
accompanying report of independent auditors are listed in the
Index to Financial Statements and Financial Statement Schedules
filed as part of this Annual Report.

2. Exhibits:

DOCUMENT
NUMBER DOCUMENT DESCRIPTION
- -------- --------------------

2.1 Agreement and Plan of Merger by and among Union Pacific Corporation
("Union Pacific"), UP Acquisition Corporation (the "Purchaser"), Union
Pacific Railroad Company and SPRC dated as of August 3, 1995 (filed as
Exhibit (c)(1) to the Schedule 14D-1 of Union Pacific and Purchaser (the
"Schedule 14D-1") filed with the Securities and Exchange Commission (the
"Commission") on August 9, 1995 and incorporated herein by this
reference).

2.2 Letter dated August 9, 1995 to Stockholders of SPRC from Jerry R. Davis,
President and Chief Executive Officer of SPRC (filed as Exhibit 3 to the
Schedule 14D-9 of SPRC (the "Schedule 14D-9") filed with the Commission on
August 9, 1995 and incorporated herein by this reference).

3.1 Southern Pacific Transportation Company Composite Certificate of
Incorporation (incorporated by reference to Exhibit 3A to the Company's
Annual Report on Form 10-K for the year ended December 31, 1980).

3.2 Certificate of Amendment of Certificate of Incorporation of the Company
dated April 1, 1989 (incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1989).

3.3 Certificate of Amendment of Certificate of Incorporation of the Company
dated August 9, 1993 (incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993).

3.4 By-laws of the Company, as adopted October 13, 1988 (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988).

4.2 Debt Instruments: The Company is not filing any instruments evidencing
indebtedness because the total amount of securities authorized under any
such single instrument does not exceed 10% of the Company's total assets.
The registrant agrees to provide the Commission upon request copies of
instruments defining the rights of holders of long-term debt of the
registrant and its subsidiaries for which consolidated financial
statements are required to be filed with the Commission.

9.1 Form of Voting Trust Agreement dated as of August 3, 1995 among Union
Pacific, the Purchaser and Southwest Bank of St. Louis (filed as Exhibit
(c)(9) to the Schedule 14D-1 filed with the Commission on August 9, 1995
and incorporated herein by this reference).

10.1 Written description of SPRC's Management Continuity Plan (described in
Item 3 of the Schedule 14D-9 filed with the Commission on August 9, 1995
and incorporated herein by this reference).*

10.2 Southern Pacific Lines Non-Agreement Severance Benefit Plan, with Schedule
providing Enhanced Severance Program (incorporated by reference to Exhibit
10.2 to SPRC's Annual Report on Form 10-K for the year ended December 31,
1995).*

24
<PAGE>

DOCUMENT
NUMBER DOCUMENT DESCRIPTION
- -------- --------------------
10.3 Southern Pacific Rail Corporation Employment Agreement with E. L. Moyers
dated July 16, 1993 (incorporated by reference to Exhibit 10.14 to SPRC's
Registration Statement on Form S-1 that was initially filed on May 12,
1993 (File No. 33-62608)); Southern Pacific Rail Corporation Agreement
dated March 3, 1994 (accepted March 7, 1994) with E. L. Moyers
(incorporated by reference to 10.17 to SPRC's Annual Report on Form 10-K
for the year ended December 31, 1993); and Agreement with E. L. Moyers
dated February 14, 1995 (incorporated by reference to Exhibit 10.4 to
SPRC's Annual Report on Form 10-K for the year ended December 31, 1994).*

10.4 Form of Registration Rights Agreement (incorporated by reference to
Exhibit 10.19 to SPRC's Registration Statement on Form S-1 that was
initially filed on May 12, 1993 (File No. 33-62608).

10.5 Form of Corporate Matters Agreement (incorporated by reference to Exhibit
10.20 to SPRC's Registration Statement on Form S-1 that was initially
filed on May 12, 1993 (File No. 33-62608).

10.6 Amendment No. 1 to Corporate Matters Agreement dated August 3, 1995
(filed as Exhibit 17 to the Schedule 14D-9 filed with the Commission on
August 9, 1995 and incorporated herein by this reference).

10.7 Form of 1993 Equity Incentive Plan (incorporated by reference to Exhibit
10.21 to SPRC's Registration Statement on Form S-1 that was initially
filed on May 12, 1993 (File No. 33-62608).*

10.8 Employment Agreement with Jerry R. Davis dated February 20, 1995
(incorporated by reference to Exhibit 10.12 to SPRC's Annual Report on
Form 10-K for the year ended December 31, 1994).*

10.9 Employment Agreement with Michael Galardi dated August 8, 1995 (filed as
Exhibit 25 to the Schedule 14D-9 filed with the Commission on August 9,
1995 and incorporated herein by this reference).*

10.10 Employment Agreement with Cannon Y. Harvey dated June 1, 1993 (filed as
Exhibit 10.15 to SPRC's Registration Statement on Form S-1 that was
initially filed on December 17, 1993 (File No. 33-73116) and incorporated
herein by this reference); Amendment to such Agreement dated December 1,
1994 (accepted December 7, 1994) (filed as Exhibit 10.8 to SPRC's Annual
Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by this reference); and Amendment to such Agreement dated June 1,
1995 (filed as Exhibit 19 to the Schedule 14D-9 filed with the Commission
on August 8, 1995 and incorporated herein by this reference).*

10.11 Employment Agreement with Thomas J. Mathews dated August 1, 1993 (filed
as Exhibit 10.16 to SPRC's Registration Statement on Form S-1 that was
initially filed on December 17, 1993 (File No. 33-73116) and incorporated
herein by this reference); Amendment to such Agreement dated January 1,
1995 (filed as Exhibit 10.9 to SPRC's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by this reference);
and Amendment to such Agreement dated June 1, 1995 (filed as Exhibit 20
to the Schedule 14D-9 filed with the Commission on August 8, 1995 and
incorporated herein by this reference).*

10.12 Employment Agreement with Larry R. Parsons dated May 24, 1995 (accepted
June 12, 1995) (filed as Exhibit 24 to the Schedule 14D-9 filed with the
Commission on August 9, 1995 and incorporated herein by this reference).*

10.13 Employment Agreement with Robert F. Starzel dated October 26, 1994
(incorporated by reference to Exhibit 10.10 to SPRC's Annual Report on
Form 10-K for the year ended December 31, 1994).*

25
<PAGE>

DOCUMENT
NUMBER DOCUMENT DESCRIPTION
- -------- --------------------
10.14 Employment Agreement with Donald C. Orris dated February 21, 1995 (filed
as Exhibit 10.11 to SPRC's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by this reference).*

10.15 Confidentiality Agreement dated September 8, 1994 by and between SPRC and
Union Pacific (filed as Exhibit 9 to the Schedule 14D-9 filed with the
Commission on August 9, 1995 and incorporated herein by this reference).

10.16 Shareholders Agreement dated as of August 3, 1995 among Union Pacific,
the Purchaser, The Anschutz Corporation, a Kansas corporation ("TAC"),
Anschutz Foundation, a Colorado not-for-profit corporation (the
"Foundation"), and Mr. Philip F. Anschutz ("Mr. Anschutz") (filed as
Exhibit (c)(2) to the Schedule 14D-1 filed with the Commission on August
9, 1995 and incorporated herein by this reference).

10.17 Shareholders Agreement dated as of August 3, 1995 among Union Pacific,
the Purchaser and MSLEF II (filed as Exhibit (c)(3) to the Schedule 14D-1
filed with the Commission on August 9, 1995 and incorporated herein by
this reference).

10.18 Shareholders Agreement dated as of August 3, 1995 among Union Pacific,
the Purchaser and SPRC (filed as Exhibit (c)(4) to the Schedule 14D-1
filed with the Commission on August 9, 1995 and incorporated herein by
this reference).

10.19 Shareholders Agreement dated as of August 3, 1995 among Union Pacific
Resources Group Inc., a Utah corporation ("Resources"), TAC, the
Foundation and Mr. Anschutz (filed as Exhibit (c)(5) to the Schedule 14D-
1 filed with the Commission on August 9, 1995 and incorporated herein by
this reference).

10.20 Registration Rights Agreement dated as of August 3, 1995 among Union
Pacific, TAC and the Foundation (filed as Exhibit (c)(6) to the Schedule
14D-1 filed with the Commission on August 9, 1995 and incorporated herein
by this reference).

10.21 Registration Rights Agreement dated as of August 3, 1995 between
Purchaser and SPRC (filed as Exhibit (c)(7) to the Schedule 14D-1 filed
with the Commission on August 9, 1995 and incorporated herein by this
reference).

10.22 Registration Rights Agreement dated as of August 3, 1995 among Resources,
TAC and the Foundation (filed as Exhibit (c)(8) to the Schedule 14D-1
filed with the Commission on August 9, 1995 and incorporated herein by
this reference).

10.23 Receivables Purchase Agreement between Southern Pacific Transportation
Company and Southern Pacific Receivables, Inc. dated as of November 3,
1995 (incorporated by reference to Exhibit 10.23 to SPRC's Annual Report
on Form 10-K for the year ended December 31, 1995).

10.24 Receivables Purchase Agreement between St. Louis Southwestern Railway
Company and Southern Pacific Receivables, Inc. dated as of November 3,
1995 (incorporated by reference to Exhibit 10.24 to SPRC's Annual Report
on Form 10-K for the year ended December 31, 1995).

10.25 Receivables Purchase Agreement between The Denver and Rio Grande Western
Railroad Company and Southern Pacific Receivables, Inc. dated as of
November 3, 1995 (incorporated by reference to Exhibit 10.25 to SPRC's
Annual Report on Form 10-K for the year ended December 31, 1995).

26
<PAGE>

DOCUMENT
NUMBER DOCUMENT DESCRIPTION
- -------- --------------------
10.26 Receivables Purchase Agreement between SPCSL Corp. and Southern Pacific
Receivables, Inc. dated as of November 3, 1995 (incorporated by reference
to Exhibit 10.26 to SPRC's Annual Report on Form 10-K for the year ended
December 31, 1995).

21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994).

The Registrant will furnish to a requesting security holder any Exhibit
requested upon payment of the Registrant's reasonable copying charges and
expenses in furnishing the Exhibit.

___________

* Management contract or compensatory plan, contract or arrangement required to
be filed as an Exhibit pursuant to Item 14(c).

B. Reports on Form 8-K.

The Company did not file any reports on Form 8-K during the three
months ended December 31, 1995.

C. Other Exhibits:

No exhibits in addition to those previously filed or listed in Item
14(a)(3) are filed herein.

D. Other Financial Statement Schedules:

No additional financial statement schedules are required.

27
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
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

By: /s/ B. C. Kane
______________________________
B. C. Kane
Controller
(Principal Accounting Officer)

Date: March 25, 1996

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.

Date: March 25, 1996 By: /s/ Jerry R. Davis
______________________________
Jerry R. Davis
Chairman, and Chief Executive Officer and
Director (Principal Executive Officer)

Date: March 25, 1996 By: /s/ Robert F. Starzel
______________________________
Robert F. Starzel
Vice Chairman and Director

Date: March 25, 1996 By: /s/ Donald C. Orris
______________________________
Donald C. Orris
President and Chief Operating
Officer and Director

Date: March 25, 1996 By: /s/ Thomas J. Matthews
______________________________
Thomas J. Matthews
Senior Vice President --
Administration and Director

Date: March 25, 1996 By: /s/ Douglas L. Polson
______________________________
Douglas L. Polson
Director

Date: March 25, 1996 By: /s/ Lawrence C. Yarberry
______________________________
Lawrence C. Yarberry
Vice President--Finance and Director
(Principal Financial Officer)

28
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES

PAGE
----
Report of Independent Auditors.............................................. F-1

Consolidated Balance Sheets, December 31, 1995 and 1994.................... F-2

Consolidated Statements of Operations for the Years Ended
December 31, 1995,1994 and 1993........................................... F-4

Consolidated Statements of Stockholder's Equity for the Years
Ended December 31, 1995, 1994 and 1993.................................... F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.......................................... F-6

Notes to Consolidated Financial Statements, December 31, 1995............... F-7

Schedule:

II. Valuation and Qualifying Accounts................................. F-23

All other schedules are omitted because they are not applicable or because
the required information is shown in the financial statements or the notes
thereto. Columns omitted from schedules filed have been omitted because the
information is not applicable.

Financial statements and summarized financial information of companies
accounted for by the equity method have been omitted because considered in the
aggregate, or individually, they would not constitute a significant subsidiary.

29
<PAGE>

INDEPENDENT AUDITORS' REPORT
----------------------------

The Board of Directors
Southern Pacific Transportation Company:

We have audited the accompanying consolidated balance sheets of Southern Pacific
Transportation Company and Subsidiary Companies (a wholly-owned subsidiary of
Southern Pacific Rail Corporation) as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1995. In
connection with our audits of the consolidated financial statements, we also
have audited financial statement schedule II as of and for each of the years in
the three-year period ended December 31, 1995. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Southern Pacific
Transportation Company and Subsidiary Companies as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule II, as of and for each of the years in the
three-year period ended December 31, 1995, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

As discussed in Note 12 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than pensions
effective January 1, 1993.

/s/ KPMG PEAT MARWICK LLP

San Francisco, California
January 26, 1996

F-1
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
-------- --------
(in millions)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents.............................................. $ 22.7 $ 54.4
Accounts receivable, net of allowance for doubtful accounts
of $7.8 in 1995 and $7.7 in 1994 (Note 4)............................ 103.6 176.6
Notes receivable from affiliates (Note 4)............................... 211.9 96.1
Materials and supplies, at cost......................................... 75.0 71.1
Other notes receivable.................................................. 7.7 7.2
Other current assets.................................................... 57.4 62.6
-------- --------
Total current assets................................................ 478.3 468.0
-------- --------
PROPERTY, AT COST (NOTES 5, 7, 11 AND 14)
Roadway and structures.................................................. 5,979.4 5,800.6
Railroad equipment...................................................... 2,333.8 1,871.5
Other property.......................................................... 257.4 239.1
-------- --------
Total property...................................................... 8,570.6 7,911.2
Less accumulated depreciation and amortization......................... 2,805.3 2,779.2
-------- --------
Property, net....................................................... 5,765.3 5,132.0
-------- --------

OTHER ASSETS AND DEFERRED CHARGES
Investments in affiliated companies.................................... 17.4 17.3
Notes receivable and other investments................................. 82.2 78.0
Notes receivable from Rio Grande Receivables, Inc. (Note 4)............ - 30.0
Other assets and deferred charges...................................... 58.7 64.1
-------- --------
Total other assets.................................................. 158.3 189.4
-------- --------
Total assets..................................................... $6,401.9 $5,789.4
======== ========

</TABLE>

See accompanying notes to consolidated financial statements.

F-2
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
-------- --------
(in millions)
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts and wages payable...................................... $ 140.5 $ 151.0
Accrued payables
Taxes........................................................ 55.8 34.7
Interest..................................................... 42.3 36.7
Vacation pay................................................. 65.8 65.7
Current portion of long-term debt (Note 7).................. 58.9 59.5
Redeemable preference shares of a subsidiary (Note 9)........... 2.0 1.9
Other current liabilities (Note 6).............................. 634.9 629.3
-------- --------
Total current liabilities................................... 1,000.2 978.8
-------- --------
ADVANCES PAYABLE TO PARENT......................................... 122.3 -
-------- --------
LONG-TERM DEBT (NOTE 7)............................................ 1,333.4 725.3
-------- --------
DEFERRED INCOME TAXES (NOTE 8)..................................... 980.0 1,038.4
-------- --------
OTHER LIABILITIES (NOTES 6 AND 12)................................. 710.5 720.5
-------- --------
REDEEMABLE PREFERENCE SHARES OF A SUBSIDIARY (NOTE 9).............. 40.4 42.3
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 11, 12 AND 14)

STOCKHOLDER'S EQUITY
Common stock, without par value: authorized 2,000 shares,
issued and outstanding 1,350 shares.......................... 424.9 424.9
Additional paid-in capital...................................... 1,090.1 1,090.1
Retained income................................................. 1,419.2 1,488.2
Advances to parent.............................................. (719.1) (719.1)
-------- --------
Total stockholder's equity................................... 2,215.1 2,284.1
-------- --------
Total liabilities and stockholder's equity................ $6,401.9 $5,789.4
======== ========

</TABLE>
See accompanying notes to consolidated financial statements.

F-3
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1995 1994 1993
------ ------ ------
(in millions)
<S> <C> <C> <C>
OPERATING REVENUES
Railroad...................................................... $3,060.5 $3,056.4 $2,837.7
Other......................................................... 65.1 63.9 61.0
-------- -------- --------
Total................................................... 3,125.6 3,120.3 2,898.7
-------- -------- --------
OPERATING EXPENSES
Railroad
Labor and fringe benefits (Note 12)........................ 1,119.7 1,085.1 1,132.5
Fuel....................................................... 262.3 251.3 252.4
Materials and supplies..................................... 173.4 187.3 217.6
Equipment rental........................................... 327.5 330.7 341.0
Depreciation and amortization (Note 5)..................... 272.6 249.9 250.1
Other...................................................... 808.0 723.5 666.4
Special charge (Note 2).................................... 112.6 - -
-------- -------- --------
Total railroad.......................................... 3,076.1 2,827.8 2,860.0
Other......................................................... 62.4 60.9 59.5
-------- -------- --------
Total................................................... 3,138.5 2,888.7 2,919.5
-------- -------- --------
OPERATING INCOME (LOSS).......................................... (12.9) 231.6 (20.8)
-------- -------- --------
OTHER INCOME
Gains from sales of property and real estate (Note 5)......... 52.2 281.3 30.7
Real estate and other rentals, net............................ 21.8 25.5 20.3
Interest income............................................... 10.5 7.0 5.2
Other income (expense), net (Note 4).......................... (60.4) (77.2) (45.1)
-------- -------- --------
Total................................................... 24.1 236.6 11.1
-------- -------- --------

INTEREST EXPENSE (NOTE 7)........................................ 116.6 118.2 104.4
-------- -------- --------

INCOME (LOSS) BEFORE INCOME TAXES................................ (105.4) 350.0 (114.1)
-------- -------- --------
INCOME TAXES (BENEFIT) (NOTE 8)
Current....................................................... 13.6 51.3 34.8
Deferred...................................................... (50.0) 88.2 (60.1)
-------- -------- --------
Total................................................... (36.4) 139.5 (25.3)
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING................................ (69.0) 210.5 (88.8)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POST-EMPLOYMENT BENEFITS IN 1994 AND POST-RETIREMENT
BENEFITS OTHER THAN PENSIONS IN 1993 (Net of income tax
benefits of $3.8 and $64.3, respectively) (Note 12)........... - (6.0) (104.2)
-------- -------- --------
NET INCOME (LOSS)................................................ $ (69.0) $ 204.5 $ (193.0)
======== ======== ========

</TABLE>
See accompanying notes to consolidated financial statements.

F-4
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

Common Stock
------------------ Additional Advances
Number Paid-in Retained to
of Shares Amount Capital Income Parent Total
--------- ------ --------- -------- -------- -----
(in millions, except number of shares)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992.................. 1,000 $424.9 $ 330.2 $1,577.2 $(654.1) $1,678.2
Net loss.................................... - - - (193.0) - (193.0)
Dividend to Rio Grande Holding, Inc......... - - - (46.7) - (46.7)
Advances to parent.......................... - - - - (30.1) (30.1)
Common stock issued (Note 10)............... 200 - 445.5 - - 445.5
Contribution of capital..................... - - 20.0 - - 20.0
------ ----- -------- -------- ------- --------
Balances at December 31, 1993.................. 1,200 424.9 795.7 1,337.5 (684.2) 1,873.9
Net income.................................. - - - 204.5 - 204.5
Dividend to Rio Grande Holding, Inc......... - - - (53.8) - (53.8)
Advances to parent.......................... - - - - (34.9) (34.9)
Common stock issued (Note 10)............... 150 - 294.4 - - 294.4
------ ----- -------- -------- ------- --------
Balances at December 31, 1994.................. 1,350 424.9 1,090.1 1,488.2 (719.1) 2,284.1
Net loss.................................... - - - (69.0) - (69.0)
------ ------ -------- -------- ------- --------
Balances at December 31, 1995.................. 1,350 $424.9 $1,090.1 $1,419.2 $(719.1) $2,215.1
====== ====== ======== ======== ======= ========

</TABLE>
See accompanying notes to consolidated financial statements.

F-5
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994 1993
------ ------- --------
<S> <C> <C> <C>
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................................... $ (69.0) $ 204.5 $(193.0)
------- ------- ------
Adjustments to net income (loss):
Depreciation and amortization........................................ 272.6 249.9 250.1
Deferred income taxes................................................ (50.0) 84.4 (124.4)
Gains from sales of property......................................... (52.2) (281.3) (30.7)
Special charge (Note 2).............................................. 112.6 - -
Cumulative effect of change in accounting for post-employment
benefits in 1994 and post-retirement benefits in 1993............. - 9.8 168.5
Changes in:
Receivables, net.................................................. (43.4) (95.7) (9.1)
Materials and supplies............................................ (3.9) (14.2) (3.1)
Other current and non-current assets.............................. 9.2 7.0 5.3
Other current and non-current liabilities......................... (41.7) 41.2 (164.7)
------- ------- ------
Total adjustments............................................. 203.2 1.1 91.9
------- ------- ------
Net cash provided by (used for) operating activities................ 134.2 205.6 (101.1)
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................................... (440.5) (270.1) (313.1)
Property sold and retired.............................................. 47.5 343.4 35.7
Change in notes receivable and other investments, net.................. 21.5 (11.1) (6.1)
------- ------- ------
Net cash provided by (used for) investing activities................ (371.5) 62.2 (283.5)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt, net of costs........................... 225.0 55.6 430.3
Debt and revolver repayment............................................ (139.8) (524.5) (433.0)
Advances from (to) parent, net......................................... 122.3 (34.9) (30.1)
Dividends paid (Note 10)............................................... - (53.8) (46.7)
Proceeds from issuance of stock, net of costs.......................... - 294.4 445.5
Contribution of capital................................................ - - 20.0
Redeemable preference shares repayment................................. (1.9) (1.9) (2.1)
------- ------- ------
Net cash provided by (used for) financing activities................ 205.6 (265.1) 383.9
------- ------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................... (31.7) 2.7 (0.7)
CASH AND CASH EQUIVALENTS-BEGINNING OF THE YEAR........................... 54.4 51.7 52.4
------- ------- -------
CASH AND CASH EQUIVALENTS-END OF THE YEAR................................. $ 22.7 $ 54.4 $ 51.7
======= ======= =======

</TABLE>
See accompanying notes to consolidated financial statements.

F-6
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Ownership, Business and Basis of Presentation - 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 Financial Statements. As used in this document, the
Company refers to SPT together with all of its subsidiaries, which includes St.
Louis Southwestern Railway Company ("SSW"), The Denver and Rio Grande Western
Railroad Company ("D&RGW") and SPCSL Corp. ("SPCSL"). The Company provides
railroad freight transportation service in the Western United States.

The consolidated financial statements are prepared on the historical cost
basis of accounting and include the accounts of the Company and its subsidiaries
companies on a consolidated basis. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents - For statement of cash flow purposes, the
Company considers commercial paper, municipal securities and certificates of
deposit with original maturities when purchased of three months or less to be
cash equivalents.

Investments - Investments in affiliated companies (those in which the
Company has a 20% to 50% ownership interest) are accounted for by the equity
method. Other investments are stated at cost which does not exceed market.

Property - Properties are accounted for on the cost basis. In accordance
with the Company's definition of unit of property, all costs associated with the
installation of rail, ties, ballast and other track improvements are
capitalized. Other costs are capitalized to the extent they increase asset
values or extend useful lives. Retirements are generally recorded using a first-
in, first-out basis. The cost of property and equipment (net of estimated
salvage, removal and restoration costs) is depreciated on the straight line
composite group method, generally based on estimated service lives which are
revised based on periodic depreciation and cost studies. Gains or losses from
disposition of depreciable railroad operating property are credited or charged
to accumulated depreciation except for significant disposal of property. Certain
railroad properties that are not essential to transportation operations may be
sold or held for sale. Gains or losses resulting from sales of real estate no
longer required for railroad operations are recognized as other income in the
consolidated statement of operations.

Revenues - Freight revenues from rail transportation operations are
recognized based on the percentage of completed service method. Other railroad
revenues and other revenues are recognized as earned.

Income taxes - The Company records income taxes using the liability
method, and deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. A change in the tax laws or rates
results in adjustment to the deferred tax liabilities and assets. The effect of
such adjustments are included in income in the period in which the tax laws or
rates are changed.

Reclassifications - Certain of the amounts previously reported have been
reclassified to conform to the current consolidated financial statement
presentation.

F-7
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SPECIAL CHARGE

In June 1995, the Board of Directors approved plans aimed at reducing
future operating costs and increasing productivity which resulted in a $112.6
million pretax charge. The charge includes $41 million for severance payments to
be made for 582 employees (both management and labor), 64 of whom were
terminated in 1995 with the remainder planned for termination before the end of
1996, approximately $4 million of the charge is related to costs associated with
terminating certain leased facilities, and approximately $68 million is for the
expected loss associated with the sale, lease or abandonment of 600 miles of
light density rail lines. Current liabilities, non-current liabilities and
accumulated depreciation at June 30, 1995 were increased by approximately $28
million, $17 million and $68 million, respectively, as a result of this charge.
As part of the plans to increase productivity, the Company also approved the
relocation and training of up to 300 employees for which future expected costs
of approximately $8 million will be expensed as incurred under current
accounting principles. As of December 31, 1995, 64 employees have been
terminated and $2.0 million has been charged to the reserve. The Company
continues to evaluate the costs and benefits of the plans approved by the Board
in June 1995.

3. PROPOSED MERGER WITH UNION PACIFIC

On August 3, 1995, the Board of Directors of SPRC approved an agreement
providing for the merger of SPRC and the Union Pacific Railroad Company
("UPRR"), a wholly-owned subsidiary of Union Pacific Corporation ("UP"). Under
the terms of the agreement, a subsidiary of UP acquired 25% of the common stock
of SPRC at a price of $25.00 per share pursuant to a tender offer. The merger
requires approval by the Surface Transportation Board ("STB") of the Department
of Transportation (successor to the Interstate Commerce Commission ("ICC")).
Based upon the 255 day procedural schedule adopted by the ICC, the earliest a
decision can be expected is August 1996. The shares purchased in the tender
offer are held in a voting trust pending a decision by the STB. Following
receipt of STB approval and the satisfaction of other conditions, SPRC (and the
UP subsidiary that purchased SPRC stock in the cash tender offer) would be
merged into UPRR. In the merger, each share of SPRC stock would be converted, at
the holder's election (subject to proration), into the right to receive $25.00
in cash or 0.4065 shares of UP common stock. Of the shares of SPRC common stock
outstanding immediately prior to the merger (other than the shares previously
acquired by UP in the tender offer), 20% would be acquired for cash and 80%
would be acquired in exchange for shares of UP common stock. In accordance with
the provisions of the UP merger agreement, all 28 executives covered by the
Equity Incentive Plan (see Note 12) waived their rights under that plan.

The merger agreement provides that prior to completion of the merger, or
termination of the merger agreement if that occurs before the merger is
completed, the business of SPRC and its subsidiaries generally will be conducted
in the ordinary course of business consistent with past practice, or pursuant to
"customary actions". Customary actions are defined as actions in the ordinary
course of a person's business where the action is generally recognized as being
customary and prudent for other major enterprises in the person's line of
business. The merger agreement may be terminated by the Board of Directors of
either SPRC or UP if the merger has not occurred on or prior to March 31, 1997.
The agreement restricts SPRC, including the Company, with certain exceptions,
from amending its articles or bylaws, paying dividends, issuing stock, redeeming
or repurchasing shares of its stock, making compensation changes, making loans,
advances, capital contributions or investments (except for railroad and real
estate joint ventures and certain other transactions) and engaging in
transactions with affiliates. In addition, among other things, the agreement
restricts SPRC, including the Company, from incurring debt other than pursuant
to arrangements existing on the date of the merger agreement (The Company's $450
million of bank credit facilities and replacements therefor and refinancings
thereof, and capital leases to finance the rebuilding of freight cars and
purchase of equipment under existing commitments), plus borrowings not to exceed
$12.5 million in the fiscal year ended December 31, 1995, $25 million in the
fiscal year ending December 31, 1996 and $12.5 million in the fiscal quarter
ending March 31, 1997.
F-8
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On January 17, 1996 at a special meeting called to consider the proposed
merger, the stockholders of SPRC voted to proceed with the transaction.

SPRC incurred expenses of $8.1 million associated with the proposed merger
during 1995 and, if the merger is completed, has committed to continuity ,
severance and transaction expenses of up to an additional $45 million.

4. SALE OF RECEIVABLES

The Company has sold its railroad freight receivables on a continuing
basis since 1989 to special purpose subsidiaries of SPRC. Commencing in November
1995, a special purpose subsidiary of SPRC transferred net railroad freight and
other receivables (including interline accounts) with limited recourse to an
accounts receivable master trust and sold certificates of interest in the master
trust to special purpose commercial paper issuers associated with major banking
institutions. The sale price for the receivables sold is based upon the face
amount of the receivables and is reduced by discounts for expected defaults,
servicing costs and anticipated collection periods. A maximum aggregate
certificate amount of $400 million may be outstanding at any time. The proceeds
from this sale were used to replace the previous agreements relating to railroad
receivables.

As of December 31, 1995, 1994 and 1993, the Company had sold $469.8
million, $454.3 million and $391.7 million of net outstanding receivables,
respectively, and had notes receivable from SPRC's subsidiaries for receivables
sold of $211.9 million, $96.1 million and $54.6 million, respectively. In
addition, the Company had an interest bearing receivable from a SPRC
subsidiary, Rio Grande Receivables, Inc., of $30 million outstanding at December
31, 1994 and 1993 included in other assets. Included in other income (expense),
net is approximately $(51.7) million in 1995, $(54.0) million in 1994 and
$(42.0) million in 1993 of discounts and other expenses associated with the
sales of accounts receivable. The new facility provides for the continuing sale
of receivables to the special purpose subsidiary of SPRC for a period of 364
days renewable by agreement of the parties for a period of up to ten years.

5. PROPERTY

The average depreciation rates for the Company's property and equipment
ranged from 1 to 5 percent for roadway and structures, 4 to 7 percent for
locomotives and 3 to 6 percent for freight cars for 1995.

The Company received cash proceeds from sales and retirements of real
estate and property of $47.5 million, $343.4 million and $35.7 million in 1995,
1994 and 1993, respectively. The 1994 amount includes proceeds of $235.0 million
for the sale of a consolidated freight corridor to the ports of Los Angeles and
Long Beach (the "Alameda Corridor"). Gains on sales of property and real estate
on the statements of operations include cash and other consideration and are
reduced by the Company's cost basis in the properties sold (which was $5
million, $72 million and $13 million in 1995, 1994 and 1993, respectively), and
other costs directly relating to the sales (which totaled $3 million, $18
million and $9 million in 1995, 1994, and 1993, respectively). The Company
recorded expenditures of $9 million in 1995, $13 million in 1994 and $12 million
in 1993 in costs relating to environmental conditions on properties held for
sale.

The Company has granted the Peninsula Corridor Joint Powers Board ("JPB")
options to purchase additional rights-of-way and land within five years after
the 1992 closing of the sale of the Peninsula Main Line for $110 million of
which approximately $65 million has not lapsed, been exercised or extinguished.
The Company will retain exclusive freight rights on the sold properties. The net
book value of the rights-of-way and land subject to the JPB options is $20
million.

F-9
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

Other current liabilities include the following amounts (in millions):
<TABLE>
<CAPTION>
December 31,
--------------
1995 1994
------ ------
<S> <C> <C>
Reserve for casualty, freight-related claims and other (current portion).............. $210.0 $225.4
Accrued repairs, equipment rentals and other payables................................. 366.7 375.2
Post-retirement and post-employment benefit obligations............................... 19.2 17.2
Reserve for employee separation and relocation (current portion)...................... 39.0 11.5
------ ------
Total......................................................................... $634.9 $629.3
====== ======
</TABLE>
Included in other non-current liabilities are $311.9 million and $322.0
million for casualty and freight-related claims and $158.4 million and $157.5
million for post-retirement and post-employment benefits other than pensions at
December 31, 1995 and 1994, respectively.

7. LONG-TERM DEBT

Long-term debt is summarized as follows (in millions):

<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
------ ------
<S> <C> <C>
Equipment obligations (9.25-14.25%; due 1996 to 2007)........ $ 278.6 $ 324.5
Mortgage bonds (8.2%; due 1996 to 2001)...................... 29.7 34.7
SPT term loan (6.813-6.875%; due 1997 to 1999)............... 150.0 -
Other debt (4.0-6.0%; due 1996 to 2018)...................... 92.2 93.0
Capitalized lease obligations (Note 11)...................... 841.8 332.6
-------- -------
Total................................................. 1,392.3 784.8
Less current portion......................................... (58.9) (59.5)
-------- -------
Total long-term....................................... $1,333.4 $ 725.3
======== =======
</TABLE>
During 1995, the Company borrowed $150 million under a term loan facility
and repaid $75 million previously borrowed under the Company's $300 million
revolving credit facility. The term loan facility requires repayment in
installments in 1997 through 1999 and has a variable interest rate based on the
LIBOR rate plus 125 basis points or the prime rate depending on the Company's
credit rating. At December 31, 1995, the effective interest rate on the term
loan facility was 6.875%. The $300 million revolving credit facility has a final
maturity date of November 8, 1997 and has a variable interest rate based on the
LIBOR rate plus 87.5 basis points or the prime rate depending on the Company's
credit rating. The Company also repaid $64.8 million of other debt during 1995.
At December 31, 1995, the Company had $300 million of capacity available under
its revolving credit facility.

Certain of SPRC's and the Company's debt agreements contain quarterly
financial covenants and restrictions based on minimum tangible net worth, a
maximum funded debt to net worth ratio and a minimum fixed charge coverage
ratio. As a result of not achieving certain ratios and covenants in SPRC's $375
million Senior Notes at December 31, 1995, SPRC, including the Company, is
restricted in incurring additional indebtedness, except for certain permitted
categories of debt, including $300 million available under its

F-10
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

revolving credit facility. See Note 3. Because continued compliance with the
financial terms and covenants under its bank credit facilities would require
more gains than now contemplated from the sales of properties in the first and
second quarters, the Company and its banks have agreed to amend those covenants
through the second quarter of 1996 to eliminate the fixed charge coverage test
for these periods. Management of the Company currently believes it will meet its
revised financial covenants in 1996, although the margin will be small. If the
Company were unable to meet these covenants, its liquidity would be
significantly constrained in the latter part of 1996. The Company will remain
leveraged to a significant extent and its debt service and capital lease
obligations will continue to be substantial.

Contractual maturities of long-term debt (including capital lease
obligations) during each of the five years subsequent to 1995 and thereafter are
as follows (in millions)

1996................... $ 58.9

1997................... 85.8

1998................... 106.0

1999................... 146.0

2000................... 67.8

Thereafter............. 927.8

Management estimates the fair value of the Company's debt at December 31,
1995 and 1994 was approximately $1,516 million and $783 million, respectively,
based on interest rates for similar issues and financings.

At December 31, 1995, the Company was a party to interest rate swap
agreements for which it pays a variable rate on an aggregate notional amount of
$40 million, which is used to hedge its fixed interest rate exposure on certain
debt and is accounted for as an adjustment of interest expense over the life of
the debt. The Company receives a fixed rate of interest on the swap of 4.9% and
pays a variable rate based on LIBOR, which was 5.9% at December 31, 1995. The
approximate expense to terminate the swap at December 31, 1995 was $0.6 million.

A significant portion of railroad equipment and certain rail lines are
subject to liens securing the mortgage bonds, equipment obligations, capitalized
leases or other debt.

F-11
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. INCOME TAXES

The following summarizes income tax expense (benefit) for the years
indicated (in millions):

Year Ended December 31,
---------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>

CURRENT
Federal..........................$ 11.8 $ 43.5 $ 30.7
State............................ 1.8 7.8 4.1
-------- -------- --------
Total.......................... 13.6 51.3 34.8
-------- -------- --------

DEFERRED
Federal.......................... (44.7) 74.6 (48.4)
State............................ (5.3) 13.6 (11.7)
-------- -------- --------
Total.......................... (50.0) 88.2 (60.1)
-------- -------- --------

DEFERRED TAXES ON CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
FOR POST-EMPLOYMENT BENEFITS
IN 1994 AND POST-RETIREMENT
BENEFITS OTHER THAN PENSIONS
IN 1993

Federal.......................... - (3.3) (54.6)
State............................ - (0.5) (9.7)
-------- -------- --------
Total deferred taxes on
cumulative effect............. - (3.8) (64.3)
-------- -------- --------
TOTAL INCOME TAX EXPENSE
(BENEFIT)........................$ (36.4) $ 135.7 $ (89.6)
======== ======== ========

</TABLE>

Deferred tax expense in 1993 includes $21.2 million related to the change in
the federal tax rate. Total income tax expense (benefit) from continuing
operations differed from the amounts computed by applying the statutory Federal
income tax rate to income before income taxes as a result of the following:

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
-------- -------- --------

<S> <C> <C> <C>
Statutory rate................. (35.0)% 35.0% (35.0)%
State income taxes (net
of federal income tax
benefit)....................... (3.7) 4.7 (4.3)
Cumulative effect of federal
tax rate change (from 34%
to 35% )...................... - 18.6
Other, net..................... 4.2 0.2 (1.5)
---- ---- -----
Effective rate................. (34.5)% 39.9% (22.2)%
==== ==== ======
</TABLE>

F-12
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in millions):
<TABLE>
<CAPTION>

December 31,
----------------------
1995 1994
-------- ---------
<S> <C> <C>

DEFERRED TAX ASSETS:
Accruals and reserves not deducted for tax
purposes until paid................................... $ 395.5 $ 386.6

Net operating loss carryforwards...................... 540.5 501.9

Capital lease obligation.............................. 320.4 135.7

Other................................................. 89.7 110.1
-------- ---------
Total gross deferred tax assets..................... 1,346.1 1,134.3
-------- ---------

DEFERRED TAX LIABILITIES:
Differences in depreciation and cost
capitalization methods (including
deferred gains on property).......................... (2,325.3) (2,171.6)
Other................................................. (0.8) (1.1)
-------- --------
Total gross deferred tax liabilities................ (2,326.1) (2,172.7)
-------- --------
Net deferred tax liability.......................... $ (980.0) $(1,038.4)
======== =========
</TABLE>

The Company has analyzed the sources and expected reversal periods of its
deferred tax assets and liabilities. The Company believes that the tax benefits
attributable to deductible temporary differences and operating loss
carryforwards will be realized by the recognition of future taxable amounts
related to taxable temporary differences for which deferred tax liabilities have
been recorded. Accordingly, the Company believes a valuation allowance for its
deferred tax assets is not necessary.

The former parent of the Company (Santa Fe Pacific Corporation) has agreed
to indemnify SPRC, SPT and its subsidiaries against any federal income tax
liability that may be imposed on the Company or its 80%-owned subsidiaries for
tax periods ending on or prior to October 13, 1988 ("the Acquisition Date").
Years prior to 1984 are closed. SPRC agreed to pay or cause SPT and its
subsidiaries to pay to the former parent any refund of federal income taxes
attributable to the 80%-owned subsidiaries received by SPRC, SPT or its
subsidiaries after the Acquisition Date for any tax period ending on or prior to
the Acquisition Date. Further, the former parent also agreed to indemnify SPRC,
SPT and its subsidiaries, at least in part, for state, local and other taxes in
respect of such periods to and including the Acquisition Date, but only to the
extent that such taxes are due or reportable for periods prior to the
Acquisition Date.

The intercompany tax allocation agreement between the Company and SPRC,
which became effective following the closing of the Acquisition, was amended
January 1, 1992, to provide that SPT and its subsidiaries will pay to SPRC the
lesser of either the amount equal to that which the Company would have paid (or
received) had the Company filed a separate consolidated tax return or which SPRC
would pay as current taxes.

SPRC's consolidated federal income tax returns, in which the Company is
included, for the period October 14, 1988 through 1990, have been examined and
are currently being considered by the Appeals Office of the Internal Revenue
Service ("IRS") regarding various unagreed issues. SPRC's consolidated Federal
income tax returns are currently being examined for the tax years 1991 through
1993. Management believes adequate provision has been made for any potential
adverse result.

F-13
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The IRS's audit of the returns of Rio Grande Holding, Inc. ("RGH"), in
which D&RGW is included, for 1983 and the period ended October 31, 1984, led to
the issuance of a Notice of Deficiency in October 1992 for 1980, 1983 and the
period ended October 31, 1984. The audit of The Anschutz Corporation ("TAC"), of
which RGH and D&RGW were members from November 1, 1984, through October 13,
1988, also led to the issuance of a Notice of Deficiency for the 1979 and 1982
years as the result of the disallowance of net operating loss ("NOL") and
investment tax credit carrybacks from the July 31, 1985 through July 31, 1987
periods. Both notices have been petitioned to the United States Tax Court. RGH
does not expect a resolution of these cases in 1996. RGH's taxable periods from
July 1, 1987 through October 13, 1988, included in the consolidated returns of
TAC, are currently under IRS audit as part of the TAC audit. However, management
believes adequate reserves have been provided to cover any anticipated
deficiencies for these tax years.

As of December 31, 1995, the Company had approximately $1.3 billion of NOLs
that will expire in 2003 through 2010. The NOLs are subject to review and
possible disallowance, in whole or in part, by the IRS audit of the Federal
income tax returns of the Company.

Section 382 of the Internal Revenue Code of 1986, as amended, limits a
corporation's utilization of its NOLs when certain changes in the ownership of
the corporation's stock occur within a three-year period. Such a change has
occurred with respect to SPRC and therefore the Company will be permitted to
deduct a limited amount of its NOLs in each taxable year with regard to losses
carried over from years prior to the change in ownership, commencing with the
year ending December 31, 1994. The Company currently does not expect that the
limitation imposed under Section 382 will have a material adverse impact on the
Company's ability to utilize its NOLs prior to their expiration. However, the
limitation could under certain circumstances delay the Company's utilization of
its NOLs and thereby increase the current portion of the Company's Federal
income taxes. Further, the limitation under certain circumstances could also
cause a portion of the Company's NOLs to expire unutilized.

9. REDEEMABLE PREFERENCE SHARES OF A SUBSIDIARY

SSW, a 99.9%-owned subsidiary of SPT, originally issued $53.5 million
($48.5 million Series A and $5.0 million Series B) of SSW's non-voting
redeemable preference shares. The current carrying amount on the balance sheets
at December 31, 1995 and 1994 reflects the outstanding balances of the
redeemable preference shares of $42.4 million and $44.2 million, respectively.

The Series A shares are subject to mandatory redemption at face value over
a 20-year period commencing in 1991, at which time mandatory dividends shall be
declared and paid over the same period. The overall effective interest rate
since the date of issue is approximately 2.0%. The Series B shares are subject
to mandatory redemption at face value over a 15-year period commencing in 1989.
Mandatory dividends shall be declared and paid over a 10-year period commencing
in 1994. The overall effective interest rate since the date of issue is
approximately 4.9%.

Mandatory redemptions and mandatory dividends of Series A and Series B
shares scheduled for payment during each of the five years subsequent to 1995
are $4.2 million per year.

The Series A and Series B shares restrict certain dividend payments by SSW
to its common and preferred shareholders. Under these provisions, at December
31, 1995, $73.2 million of SSW's historical cost basis retained income was not
restricted. No estimate of the fair value of the preference shares was made by
the Company.

10. CAPITAL AND DEBT TRANSACTIONS

In August 1993 and March 1994 SPRC closed the offering and sale of
30,783,750 shares and 25,000,000 shares of common stock, respectively. In
connection with these offerings, the Company issued 200 shares of common stock
in 1993 and 150 shares of common stock in 1994 for consideration of $445.5
million and $294.4 million from SPRC, respectively. Proceeds from these
transactions were
F-14
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

used to repay debt, purchase equipment operated pursuant to operating leases and
for general corporate purposes.

D&RGW became a subsidiary of SPT on October 1, 1994. Prior to that date,
D&RGW was a wholly-owned subsidiary of Rio Grande Holding, Inc. ("RGH"). All
financial and statistical amounts, including the consolidated financial
statements and related footnotes, include the accounts and data of D&RGW for all
periods presented. In 1993 and 1994, D&RGW paid dividends of $46.7 million and
$53.8 million to RGH, respectively.

11. LEASES

The Company leases certain freight cars, locomotives, data processing
equipment and other property. Future minimum lease payments under noncancelable
leases as of December 31, 1995 are summarized as follows (in millions):

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------ ---------
<S> <C> <C>
YEAR ENDED DECEMBER 31,
1996....................................... $ 76.6 $154.7
1997....................................... 95.4 141.9
1998....................................... 94.2 127.0
1999....................................... 100.2 116.5
2000....................................... 94.6 102.1
Thereafter................................. 1,318.0 251.6
------- ------
Total minimum payments................ 1,779.0 $893.8
======
Less amount representing interest (at rates
ranging from 7.4% to 13.1%)................ (937.2)
-------
Present value of minimum lease payments...... $ 841.8
=======
</TABLE>

Rental expense for noncancelable operating leases with terms over one year
was $166.0 million, $168.7 million and $156.5 million for the years ended
December 31, 1995, 1994 and 1993, respectively. Contingent rentals and sublease
rentals were not significant. The net book value of equipment under capital
lease is approximately $785 million at December 31, 1995.

The Company has expanded and upgraded its locomotive and freight car fleets
principally through capitalized lease financing. During 1995, the Company
received and financed through capitalized lease 18 remanufactured locomotives,
279 new locomotives, 920 new hopper cars, 1,042 used hopper cars and 1,100
reconditioned freight cars. In addition, the Company finalized capitalized lease
financing during 1995 for approximately 1,600 remanufactured freight cars
delivered in 1994. The total capitalized lease obligations incurred in 1995 were
approximately $522 million. The Company plans on completing the acquisition of
approximately 500 reconditioned freight cars by May 1996 for an estimated $14.1
million in capitalized lease obligations. The Company plans on acquiring,
through operating leases, approximately 3,300 freight cars during 1996 at an
estimated annual operating lease expense of $10.1 million in 1996 and
approximately $16 million annually thereafter.

In 1984, the Company entered into a long-term lease agreement with the
ports of Los Angeles and Long Beach relating to the Company's Intermodal
Container Transfer Facility ("the Facility"). Under the terms of the lease, the
Company is obligated to make certain future minimum lease payments and is
subject to additional contingent rentals which are based on the annual volume of
container movements at the Facility. The minimum lease payments, which are $4.5
million for 1996, are included in the table above. However, for each five-year
period from 1997 through 2036, the annual minimum lease

F-15
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

payments and contingent rentals will be determined by the ports based on
independent appraisals of the fair rental value of the property and, therefore,
no amounts are included in the above table for such years. The 1995 expense was
$7.9 million.

The Company leases operating rights on tracks owned by other railroads,
including Union Pacific and BN/ATSF, and shares costs of transportation
facilities and operations with other railroads. Subject to required regulatory
approval, the Company has the right to terminate its usage with certain notice
periods. Net rent expense for trackage rights was $14.0 million in 1995, $6.4
million in 1994 and $1.9 million in 1993. The 1993 amount includes the benefit
of the negotiated settlement of a joint facility case of approximately $10
million.

The Company pays for the use of transportation equipment owned by others
and receives income from others for the use of its equipment. It also shares the
cost of other transportation facilities with other railroads. Rental expense and
income from equipment and the operation of joint facilities are included in
operating expenses on a net basis. Total net equipment lease, rent and car hire
expense was $328 million, $331 million and $341 million for 1995, 1994 and 1993,
respectively.

12. EMPLOYEE BENEFIT AND COMPENSATION PLANS

Pension Plan - The Company is a participating employer under the SPRC
Pension Plan ("Plan"). The Plan is a defined benefit noncontributory pension
plan covering primarily employees not covered by a collective bargaining
agreement. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Pension benefits for normal retirement
are calculated under a formula which utilizes average compensation, years of
benefit service and Railroad Retirement and Social Security pay levels. The
Company's funding policy is to contribute each year an amount not less than the
minimum required contribution under ERISA nor greater than the maximum tax
deductible contribution. The assets of the Plan consist of a variety of
investments including U. S. Government and agency securities, corporate stocks
and bonds and money market funds.

The following summarizes the components of the Company's net periodic
pension cost (in millions):

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service costs - benefits covered during the year....... $ 4.0 $ 5.1 $ 5.5
Interest cost on projected benefit obligation.......... 31.2 29.9 31.2
Actual (return)/loss on plan assets.................... (77.6) 0.7 (40.1)
Net amortization and deferral.......................... 49.4 (32.0) 7.5
----- ------ ------
Net periodic pension cost...................... $ 7.0 $ 3.7 $ 4.1
===== ====== ======

</TABLE>

F-16
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the funded status and amounts recognized in the
Company's balance sheets for the SPRC Pension Plan (in millions):

<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits............................................. $377.2 $335.1
Non-vested benefits......................................... 4.3 6.0
------ ------
Accumulated benefit obligations........................ 381.5 341.1
====== ======
Projected benefit obligations............................... $429.5 $376.9
Fair value of assets in plan................................ 372.9 328.3
------ ------
Projected benefit obligations in excess of plan assets...... (56.6) (48.6)
Unrecognized transition amount.............................. (3.3) (3.9)
Unrecognized gain or loss................................... 8.6 7.8
Unrecognized prior service cost............................. 3.9 4.3
------ ------
Net pension liability included in the balance sheet.... $(47.4) $(40.4)
====== ======
</TABLE>

The following summarizes the significant assumptions used in accounting for
the SPRC Pension Plan:

<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............................................... 7.25% 8.5% 7.25%
Expected rate of increase in future compensation levels...................... 6.0 6.0 6.0
Weighted average expected long-term rate of return on plan assets............ 9.0 9.0 9.0

</TABLE>

Thrift Plan - SPRC has established a defined contribution plan (the "SPRC
Thrift Plan") as an individual account savings and investment plan primarily for
employees of SPRC who are not subject to a collective bargaining agreement.
Eligible participants may contribute a percentage of their compensation and the
Company also contributes using a formula based on participant contributions.

Post-retirement Benefits Other Than Pensions - The Company sponsors several
plans which provide health care and life insurance benefits to retirees who have
met age and service requirements. The contribution rates that are paid by
retirees are adjusted annually to offset increases in health care costs, if any,
and fix amounts payable by the Company. The life insurance plans provide life
insurance benefits for certain retirees. The amount of life insurance is
dependent upon length of service, employment dates and several other factors and
increases in coverage beyond certain minimum levels are borne by the employee.

F-17
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company adopted FAS No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions", effective January 1, 1993. Prior to January 1,
1993, the Company's policy was to expense and fund the cost of all retiree
welfare benefits only as the benefits were payable. The effect of adopting FAS
No. 106 on net income and the net periodic benefit cost (expense) for 1993 was a
charge to earnings of $168.5 million (less income taxes of $64.3 million). The
Company's policy continues to be to fund the cost of all retiree welfare
benefits only as the benefits are payable. Accordingly, there are no plan
assets.

The following table summarizes the plan's accumulated post-retirement
benefit obligation (in millions):

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
HEALTH LIFE HEALTH LIFE
CARE INSURANCE TOTAL CARE INSURANCE TOTAL
------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Retirees................................ $42.2 $ 99.7 $141.9 $41.1 $92.0 $133.1
Fully eligible plan participants........ 11.5 7.8 19.3 8.6 5.4 14.0
Accumulated post-retirement benefit
obligation......................... ------ --------- ------ ------ --------- -------
$53.7 $107.5 $161.2 $49.7 $97.4 $147.1
====== ========= ====== =========
Unrecognized net gain................... 1.6 13.7
Plan amendment.......................... 3.9 4.1
Accrued post-retirement benefit cost.... ------ ------
included in other liabilities...... $166.7 $164.9
====== ======
</TABLE>

As of December 31, 1995 and 1994, the current portion of accrued post-
retirement benefit cost was approximately $18.3 million and $16.3 million,
respectively, and the long-term portion was approximately $148.4 million and
$148.6 million, respectively.

The net periodic post-retirement benefit costs include the following
components (in millions):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Service cost......................................... $ 0.6 $ 0.8
Interest cost........................................ 11.9 12.0
Amortization of plan amendment....................... (0.2) (0.2)
----- -----
Net periodic post-retirement benefit cost.... $12.3 $12.6
===== =====
</TABLE>

For measurement purposes, the Company has not assumed an annual rate of
increase in the per capita cost of covered benefits for future years since the
Company has limited its future contributions to current levels. The weighted
average discount rate used in determining the benefit obligation was 7.25
percent and 8.5 percent in 1995 and 1994, respectively.

Post-employment Benefits - The Company adopted FAS No. 112 "Employers'
Accounting for Post-employment Benefits" effective January 1, 1994. Prior to
January 1, 1994, the Company's policy was to expense and fund the cost of all
post -employment benefits only as the benefits were payable. The effect of
adopting FAS No. 112 on net income was a charge to earnings of $9.8 million
($6.0 million after tax). The Company's policy continues to be to fund the cost
of post-employment benefits as the benefits are payable.

F-18
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Equity Incentive Plan - The SPRC Compensation Committee authorized a grant
of stock bonuses under SPRC's Equity Incentive Plan covering up to 1,555,000
shares of SPRC Common Stock, in the aggregate, to 28 key executive employees of
SPRC and the Company, contingent upon the attainment of certain pre-established
operating ratio objectives and individual performance goals . In accordance with
the provisions of the UP merger agreement, all 28 executives agreed to cancel
these bonus agreements in order to participate in continuity and severance
programs provided for in the merger agreement (see Note 3). In 1994, the Company
charged to expense approximately $7.5 million representing the value of
approximately 413,000 shares which were awarded in January 1995 pursuant to the
Equity Incentive Plan. In 1995, the specified operating ratio objective was not
met and no payments were made under this plan.

13. RELATED PARTIES

The Company has maintained separate accountability for the operating
activities of its principal railroad subsidiaries as to the sharing of freight
revenues and charges for use of railroad equipment and joint facilities.
Interline accounts receivable and payable continue to be settled through the
traditional clearing process between railroads. The railroads are coordinating
and, where appropriate, consolidating the marketing, administration,
transportation and maintenance operations of the railroads.

The Company purchased an office building from SPRC for $41.2 million in
1995.

The Company paid $10.8 million, $10.2 million and $5.6 million in 1995,
1994 and 1993, respectively, to SP Environmental Systems, Inc. ("SPES"), a
wholly-owned subsidiary of SPRC, for professional services regarding
environmental matters, excluding services provided by third parties billed
through SPES.

Subsidiaries of Anschutz Company perform specific services for the Company,
primarily relating to the purchase and administration of locomotive fuel futures
contracts and fiber optic telecommunications. The amount paid by the Company in
1995, 1994 and 1993 for these transactions was $6.7 million, $7.9 million and
$11.4 million, respectively. The Company believes that the terms of the
transactions are comparable to those that could be obtained from unaffiliated
parties.

14. COMMITMENTS AND CONTINGENCIES

The Company is dependent upon the business activity and real estate sales
of its subsidiaries to meet its consolidated debt obligations and to make
payments for employee severance programs, to make capital expenditures expected
to be required by the Company and to pay dividends or make advances to SPRC in
order for SPRC to make principal and interest payments relating to the $375
million 9-3/8% Senior Notes due 2005. The various debt agreements of the Company
contain restrictions as to payment of dividends to SPRC. The Company is
permitted to make advances or dividends to its parent in order for certain
specified interest to be paid by its parent.

On November 4, 1993, the Company and Integrated Systems Solutions
Corporation ("ISSC"), a subsidiary of IBM, entered into a ten-year agreement
under which ISSC handles all of the Company's management information services
("MIS") functions. These include systems operations, application development and
implementation of a disaster recovery plan. Pursuant to the agreement, the
Company is obligated to pay annual base charges of between $45 million and $50
million (which covers, among other things, payments for MIS equipment and
personnel) over a ten-year period subject to adjustments for cost of living
increases and variations in the levels of service provided under the agreement.

Inherent in the operations of the Company is the possibility that there may
exist environmental conditions as a result of current and past operations which
might be in violation of various federal and state laws relating to the
environment. In certain instances, the Company has received notices of asserted
violation of such laws and regulations and has taken or plans to take steps to
address the problems cited or to contest the allegations of violation. The
Company has recorded reserves to provide for environmental costs on certain
operating and non-operating properties. Environmental costs include site
remediation and restoration on a site-by-site basis, as well as costs for
initial site surveys and

F-19
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

environmental studies of potentially contaminated sites. The Company has made
and will continue to make substantial expenditures relating to environmental
conditions on its properties, including properties held for sale. In assessing
its potential environmental liabilities, the Company typically causes on-going
examinations of newly identified sites and evaluations of existing cleanup
efforts to be performed by environmental engineers. These assessments which
usually consider a combination of factors such as the engineering reports, site
visits, area investigations and other steps, are reviewed periodically by
counsel. Due to uncertainties as to various issues such as the required level of
remediation and the extent of participation in clean-up efforts by others, the
Company's total clean-up costs for environmental matters cannot be predicted
with certainty. The Company has accrued reserves for environmental matters with
respect to operating and non-operating properties not held for sale, as well as
certain properties previously sold, based on the costs estimated to be incurred
when such estimated amounts (or at least a minimum amount) can be reasonably
determined based on information available. During the years ended December 31,
1995, 1994 and 1993, the Company recognized expenses of $16.7 million, $15.4
million and $11.8 million, respectively, related to environmental matters. At
December 31, 1995 and 1994 the Company had accrued reserves for environmental
contingencies of $51.9 million and $65.0 million, respectively, which includes
$13.5 million and $13.2 million, respectively, in current liabilities. These
reserves relate to estimated liabilities for operating and non-operating
properties not held for sale and certain properties previously sold and were
exclusive of any significant future recoveries from insurance carriers. It is
possible that additional losses will be incurred, but such amounts cannot be
reasonably estimated. The Company does not believe that disposition of
environmental matters known to the Company will have a material adverse effect
on the Company's financial condition or liquidity; however, there can be no
assurance that the impact of such matters on its results of operations for any
given reporting period will not be material.

A substantial portion of the Company's railroad employees are covered by
collective bargaining agreements with national railway labor organizations that
are organized along craft lines. These agreements are generally negotiated on a
multi-employer basis with the railroad industry represented by a bargaining
committee. The culmination of various Presidential and legislative events in
1992 resulted in the Company negotiating most of its labor agreements
separately. Certain of the wage agreements obtained in 1991, 1992 and 1993 have
reduced the effects of inflation on operating costs but provided for cost of
living increases beginning in 1995.

All of the Company's labor agreements became subject to modification
(except the Western Lines UTU Agreement) in January 1995. Wages for
approximately half of the Company's employees covered by these agreements
returned to wage levels prevailing under nationwide railway collective
bargaining agreements in 1995. Wages for the other employees covered by the
agreements (including the Western Lines UTU) do not require restoration to
national wage levels and are subject to resolution in the current round of
negotiations which began in late 1994. In addition, most of the Company's labor
agreements (except for the agreement related to UTU employees on the Company's
Western Lines) provide for cost-of-living increases on a semi-annual basis
beginning July 1, 1995. The additional cost to the Company of these automatic
increases could be substantial.

As a result of local negotiations in the current bargaining round, the
Company has entered into six agreements which run through 1997 (including the
Western Lines UTU Agreement). Those agreements, which cover in excess of 6,800
employees, have been ratified by the union membership and cover all trainmen and
switchmen on the St. Louis Southwestern Railway Company, the signalmen
systemwide, yardmasters systemwide, switchmen on the Company's Eastern Lines,
shopcraft supervisiors on the St. Louis Southwestern Railway Company, locomotive
engineers system wide, train dispatchers and the Company's intermodal facilities
at Long Beach and Oakland. Those agreements do not provide for general wage
increases; however, they do provide for a 3% lump sum payment based on the
performance of the Company as measured by its operating ratio. A few of these
agreements also provide for cost of living increases on July 1, 1995 and on July
1, 1996 but none thereafter. As of March 1996, the Company is in negotiations
with its clerical employees, shop craft employees and maintenance of way
employees representing approximately 8,900 employees.

F-20
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

To ensure stability of its fuel costs, the Company has entered into fuel
hedging agreements covering approximately 47% of its estimated first quarter
1996 fuel needs at an average purchase price of $.485 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. Further fuel
hedging activity may occur during 1996.

In 1995, the Company settled its claim from insurance companies relating to
the 1993 Midwest flooding. The Company recognized as a reduction of operating
expense $28.5 million and $5.0 million, in 1995 and 1994, respectively, relating
to this settlement.

Although the Company has purchased insurance, the Company has retained
certain risks with respect to losses for third-party liability and property
claims. In addition, various claims, lawsuits and contingent liabilities are
pending against the Company. Management has made provisions for these matters
which it believes to be adequate. The Company does not believe that the
disposition of claims, lawsuits and related matters known to the Company will
have a material adverse effect on the Company's financial condition or
liquidity; however, there can be no assurance that the impact of such matters on
its results of operations for any given reporting period will not be material.

15. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows (in millions):

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Cash payments (refunds):
Interest........................................... $ 78.8 $ 93.2 $ 72.7
Income taxes....................................... - 61.6 60.6
Non-cash transactions:
Sales of real estate for notes receivable.......... - 27.9 -
Capital lease obligations for railroad equipment... 522.3 265.2 57.0

</TABLE>

F-21
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. QUARTERLY DATA (UNAUDITED)

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions)
1995
Operating revenues............. $760.4 $799.3 $789.1 $776.8
Operating income (loss) (a).... 26.7 (81.7) 19.4 22.7
Other income (expense)......... 3.6 (3.0) (0.1) 23.6
Net income (loss) (a).......... 3.7 (66.8) (8.0) 2.1

1994
Operating revenues............. $742.1 $801.7 $801.5 $775.0
Operating income............... 34.5 75.5 65.9 55.7
Other income (expense) (c)..... 2.9 9.9 (3.2) 227.0
Net income (loss) (b) (c)...... (0.5) 34.4 19.7 150.9

___________
(a) Second quarter 1995 data includes a pre-tax special charge of $112.6
million ($73.8 million estimated after tax).
(b) First quarter 1994 data includes an extraordinary charge of $6.0 (net of
taxes) for the change in accounting for post-employment benefits (FAS
112).
(c) Fourth quarter 1994 data includes a pre-tax gain of approximately $227
million on the sale of the Alameda Corridor.

F-22
<PAGE>

SOUTHERN PACIFIC TRANSPORTATION COMPANY
AND SUBSIDIARY COMPANIES

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING TO AT END OF
OF YEAR EXPENSE DEDUCTIONS YEAR
---------- ------- ---------- ---------
(in millions)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Casualty and other claims.......................... $492.4 $144.7 $152.4 $484.7
Post-retirement and post-employment
benefit obligations............................. 174.7 15.4 12.5 177.6
Employee separation and relocation
and other....................................... 11.5 41.0 13.5 39.0
------ ------ ------ ------
Total.............................................. $678.6 $201.1 $178.4 $701.3
====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1994
Casualty and other claims.......................... $448.4 $146.8 $102.8 $492.4
Post-retirement and post-employment
benefit obligations............................. 169.4 23.2 17.9 174.7
Employee separation and relocation
and other....................................... 60.3 - 48.8 11.5
------ ------ ------ ------
Total.............................................. $678.1 $170.0 $169.5 $678.6
====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1993
Casualty and other claims.......................... $467.6 $157.7 $176.9 $448.4
Post-retirement and post-employment
benefit obligations............................. - 181.9 12.5 169.4
Employee separation and relocation
and other....................................... 113.2 2.5 55.4 60.3
------ ------ ------ ------
Total.............................................. $580.8 $342.1 $244.8 $678.1
====== ====== ====== ======

</TABLE>

F-23
<PAGE>

EXHIBIT INDEX

EXHIBITS:
---------

27 Financial Data Schedule

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1995
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 331
<ALLOWANCES> (8)
<INVENTORY> 75
<CURRENT-ASSETS> 478
<PP&E> 8,571
<DEPRECIATION> 2,805
<TOTAL-ASSETS> 6,402
<CURRENT-LIABILITIES> 1,000
<BONDS> 1,333
0
0
<COMMON> 425
<OTHER-SE> 1,790
<TOTAL-LIABILITY-AND-EQUITY> 6,402
<SALES> 0
<TOTAL-REVENUES> 3,126
<CGS> 0
<TOTAL-COSTS> 3,139
<OTHER-EXPENSES> 60
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> (105)
<INCOME-TAX> (36)
<INCOME-CONTINUING> (69)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (69)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>