-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Lu/s6Ou0FTiOUEw6y8sPqxHVPwF9r9EctN7aNeVmeuLldj5AVNqaonF+Sndr54/h +zSOiA5L8rjV/X61GZMvBg== 0000950131-94-000467.txt : 19940404 0000950131-94-000467.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950131-94-000467 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA FE PACIFIC CORP CENTRAL INDEX KEY: 0000732639 STANDARD INDUSTRIAL CLASSIFICATION: 4011 IRS NUMBER: 363258709 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08627 FILM NUMBER: 94519859 BUSINESS ADDRESS: STREET 1: 1700 EAST GOLF RD CITY: SCHAUMBURG STATE: IL ZIP: 60173-5860 BUSINESS PHONE: 7089956000 FORMER COMPANY: FORMER CONFORMED NAME: SANTA FE SOUTHERN PACIFIC CORP DATE OF NAME CHANGE: 19890516 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 1-8627 ------------ SANTA FE PACIFIC CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-3258709 (State of Incorporation) (I.R.S. Employer Identification No.) 1700 East Golf Road Schaumburg, Illinois 60173-5860 (Address of principal executive offices, including zip code) 708/995-6000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1.00 par value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange
------------ Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $3,614.7 million on March 1, 1994, excluding stock beneficially owned by directors, officers, and beneficial owners of more than 10% of the outstanding common stock, without admission of affiliate status of such persons for any other purpose. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Common Stock, $1.00 par value 186,217,883 shares outstanding on March 1, 1994. List hereunder the documents from which parts thereof have been incorporated by reference and the part of the Form 10-K into which such information is incorporated: Annual Report to Shareholders for the fiscal year ended December 31, 1993...................................... PARTS I, II, AND IV Proxy Statement dated March 9, 1994.................... PART III
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PAGE ---- PART I ITEMS 1 and 2. Business and Properties.................................... 1 Rail...................................................................... 1 Gold...................................................................... 11 Pipeline.................................................................. 20 ITEM 3.Legal Proceedings.................................................. 22 ITEM 4.Submission of Matters to a Vote of Security Holders................ 24 EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 24 PART II ITEM 5.Market for Registrant's Common Equity and Related Stockholder Matters........................................................ 25 ITEM 6.Selected Financial Data............................................ 26 ITEM 7.Management's Discussion and Analysis of Results of Operations and Financial Condition............................................ 26 ITEM 8.Financial Statements and Supplementary Data........................ 26 ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................... 26 PART III ITEM 10.Directors and Executive Officers of the Registrant................ 26 ITEM 11.Executive Compensation............................................ 26 ITEM 12.Security Ownership of Certain Beneficial Owners and Management.... 27 ITEM 13.Certain Relationships and Related Transactions.................... 27 PART IV ITEM 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 27 SIGNATURES................................................................ S-1 CONSOLIDATED FINANCIAL STATEMENT SCHEDULES................................ F-1 INDEX OF EXHIBITS......................................................... E-1
i PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES Santa Fe Pacific Corporation ("SFP") was incorporated in the State of Delaware in 1983. A holding company, SFP owns subsidiaries engaged in three segments of business: Rail, consisting principally of The Atchison, Topeka and Santa Fe Railway Company ("Santa Fe Railway"), a major Class I railroad operating in 12 midwestern, western, and southwestern states; Gold, including Santa Fe Pacific Gold Corporation and its subsidiaries, which are engaged in the exploration for and development of gold properties and the mining and processing of gold ores; and Pipeline, reflecting SFP's interest in a refined petroleum products pipeline system operating in six western and southwestern states. Santa Fe Railway, an indirect, wholly owned subsidiary of SFP, Santa Fe Pacific Pipeline Partners, L.P., the general partner of which is an indirect, wholly owned subsidiary of SFP, and SFP Pipeline Holdings, Inc., an indirect, wholly owned subsidiary of SFP, are also subject to the filing requirements of Section 13 of the Securities Exchange Act of 1934, as amended. At December 31, 1993, SFP and its subsidiaries had approximately 16,700 employees. Below is a table showing revenues and operating income for each of SFP's businesses for the years ended December 31, 1993, 1992, and 1991. Reference is made to Note 21 to the consolidated financial statements on page 31 of SFP's Annual Report to Shareholders for additional financial information including identifiable assets attributable to SFP's businesses.
YEAR ENDED DECEMBER 31, --------------------------- 1993 1992 1991 -------- -------- -------- (IN MILLIONS) REVENUES BY BUSINESS: Rail........................................... $2,409.2 $2,251.7 $2,153.5 Gold........................................... 298.6 220.6 179.4 Pipeline....................................... 18.6 24.1 27.1 -------- -------- -------- TOTAL REVENUES.................................. $2,726.4 $2,496.4 $2,360.0 ======== ======== ======== OPERATING INCOME BY BUSINESS: Rail........................................... $ 317.7 $ 297.6 $ 255.4 Rail Special Charge........................... -- (320.4) -- -------- -------- -------- Total Rail.................................... 317.7 (22.8) 255.4 Gold........................................... 86.5 76.3 59.5 Pipeline....................................... 18.6 24.1 27.1 -------- -------- -------- TOTAL OPERATING INCOME.......................... $ 422.8 $ 77.6 $ 342.0 ======== ======== ========
RAIL One of the nation's major freight railroads, Santa Fe Railway operated as of December 31, 1993, approximately 8,536 route miles of track (approximately 7,620 of which are owned route miles including easements) extending from Chicago to the Gulf of Mexico and the West Coast and operated related facilities in twelve midwestern, western, and southwestern states. TRACK CONFIGURATION Santa Fe Railway has worked since 1988 to develop an efficient, high-speed, core railroad system, to consist of approximately 7,500 owned route miles, through sizable reductions in miles of track. Since December 31, 1988, Santa Fe Railway has sold over 3,800 owned route miles, reducing its owned core route mileage by one-third. 1 In 1993, Santa Fe Railway and eight southern California transportation agencies completed the sale to the agencies of certain interests in approximately 340 miles of rail lines and additional property, for cash as well as relief of obligations to reimburse certain state and county agencies for capital improvements previously paid for by the agencies and the State of California. Santa Fe Railway retained all rights necessary for its freight operations in southern California. The transportation agencies plan on using the facilities acquired for commuter service. In that connection, Santa Fe Railway began a multi-year program with certain government agencies in 1993 to upgrade signalling and construct new double and triple tracks on a 60-mile segment between Fullerton and San Bernardino, California, to facilitate freight and planned commuter service over the segment. In cooperation with another government agency, Santa Fe Railway is making improvements between Richmond and Bakersfield, California, to enhance the corridor's capacity for passenger service. As of December 31, 1993, Santa Fe Railway's total system consisted of approximately 15,300 operated miles of track, all of which were owned by or held under easement by Santa Fe Railway except for 1,221 miles operated under trackage rights agreements with other parties. Excluding passing, yard, and switching tracks, approximately 6,485 miles or 87 percent of the main lines have been laid with 131-pound or heavier rail. Substantially all rail laid under Santa Fe Railway's rail renewal programs is continuous welded rail. At December 31, 1993, Santa Fe Railway had approximately 9,000 owned track miles of welded rail in its system. EQUIPMENT CONFIGURATION Santa Fe Railway owned or had under non-cancelable leases exceeding one year the following units of rolling stock for the periods indicated:
YEAR ENDED DECEMBER 31, -------------------- 1993 1992 1991 ------ ------ ------ Diesel Locomotives...................................... 1,745 1,696 1,716 ====== ====== ====== Freight Cars: Box.................................................... 3,746 3,784 3,920 Open Hopper............................................ 3,529 3,665 4,162 Covered Hopper......................................... 12,854 13,147 13,298 Gondola................................................ 3,065 2,911 3,005 Refrigerator........................................... 3,331 3,365 3,554 Autorack............................................... 819 819 853 Flat................................................... 1,790 1,792 1,746 Tank................................................... 428 464 465 ------ ------ ------ TOTAL................................................ 29,562 29,947 31,003 ====== ====== ====== Containers.............................................. 8,503 4,570 3,514 ====== ====== ====== Trailers................................................ 5,067 5,096 4,729 ====== ====== ====== Chassis................................................. 8,180 5,358 3,519 ====== ====== ====== Company Service Cars.................................... 1,959 1,991 2,176 ====== ====== ======
The autoracks shown above are installed on Santa Fe Railway-owned flatcars. In addition, autoracks (owned by Santa Fe Railway or under non-cancelable leases exceeding one year) which are installed on flatcars under short-term lease from others totaled 2,759, 1,715, and 1,608 at December 31, 1993, 1992, and 1991, respectively. At December 31, 1993, 96 serviceable locomotives and approximately 1,130 serviceable freight cars reflected in the above table were in storage. The average ages from date of manufacture or 2 remanufacture of the locomotive and freight car fleets at December 31, 1993, were 8.1 years and 19.0 years, respectively. These averages are not weighted to reflect the greater capacities of the newer equipment. A summary of Santa Fe Railway's recent ratios of locomotives and freight cars on line awaiting or undergoing repairs to the total number of locomotives or freight cars in the fleet is as follows:
YEAR ENDED DECEMBER 31, -------------- 1993 1992 1991 ---- ---- ---- Locomotives................................................... 7.6% 7.7% 7.4% Freight Cars.................................................. 7.8% 7.4% 6.2%
CAPITAL EXPENDITURES AND MAINTENANCE Capital expenditures of Santa Fe Railway for the periods indicated were as follows:
YEAR ENDED DECEMBER 31, -------------------- 1993 1992 1991 ------ ------ ------ (IN MILLIONS) Ties................................................... $ 58.4 $ 44.5 $ 39.2 Rail................................................... 78.8 60.2 53.5 Ballast................................................ 48.2 37.6 37.7 Facilities............................................. 107.3 24.9 13.6 Other Roadway.......................................... 88.6 57.8 48.2 Locomotives............................................ 125.0 18.3 40.6 Freight Cars........................................... 19.7 13.0 4.3 Other.................................................. 13.1 9.2 4.8 ------ ------ ------ Total Capital Expenditures......................... 539.1 265.5 241.9 Less Non-Cash Capital Expenditures(1).............. 157.6 9.5 35.2 ------ ------ ------ Net Capital Expenditures.......................... $381.5 $256.0 $206.7 ====== ====== ======
- -------- (1) Primarily consists of directly financed equipment acquisitions and projects reimbursed by governmental agencies and other parties. Santa Fe Railway's capital expenditures in 1993 were significantly higher than in 1992 due to increased spending on rail expansion projects and facilities which include the Alliance, Texas, intermodal and carload transportation center and the Hodgkins/Willow Springs, Illinois, intermodal facility. Additionally, 1993 capital expenditures reflect the purchase of 85 new locomotives valued at approximately $100 million, while in 1992, 90 new locomotives with a fair market value in excess of $100 million were acquired through an operating lease. Santa Fe Railway expects capital expenditures to exceed $550 million in 1994, including amounts expected to be reimbursed by governmental agencies. Of the $550 million, approximately $200 million is allocated for expansion projects (approximately $65 million of which are expected to be reimbursed by governmental agencies and other parties), approximately $60 million for the acquisition of 50 new locomotives, and the remainder for capital maintenance. Expansion projects include continued work on the combined intermodal facility and carload transportation center at Alliance, Texas, adjacent to the Fort Worth Alliance Airport. Completion of the new facility, which will consolidate existing local yards and terminal operations in north Texas, is scheduled for the first half of 1994. Work is also scheduled to be completed in the fall of 1994 on a 90-acre intermodal facility at Hodgkins/Willow Springs, Illinois, located adjacent to a United Parcel Service hub being constructed. Additional expansion projects include work at San Bernardino, California, on a new intermodal facility and the completion of a new automotive facility. Various line and terminal capacity improvements at other locations are also expected. 3 In addition to the capital expenditures discussed above, amounts expensed for the costs, including labor, for repairs and maintenance of roadway and track structures and equipment, exclusive of depreciation, were as follows for the periods indicated:
YEAR ENDED DECEMBER 31, -------------------- 1993 1992 1991 ------ ------ ------ (IN MILLIONS) Repairs and maintenance of roadway and track structures........................................... $234.0 $228.0 $221.5 Repairs and maintenance of equipment.................. $287.0 $260.5 $251.0
General Electric Company ("GE") has been maintaining locomotives for Santa Fe Railway under various maintenance agreements since September 1989 and maintained a total of 428 locomotives as of December 31, 1993. The Electro- Motive Division of General Motors Corporation ("EMD") began performing maintenance under a similar agreement in October 1990 and maintained 179 locomotives as of December 31, 1993. Additionally, Santa Fe Railway entered into a similar agreement with Morrison Knudsen Corporation ("MK") in March 1994 for the overhaul and maintenance of 278 locomotives over the next 12 years. The agreements with GE, EMD, and MK call for the work to be done at Santa Fe Railway facilities with Santa Fe Railway employees. The 50 new locomotives to be acquired in 1994 also will be maintained under agreement with GE. The majority of capital and maintenance of way expenditures for track have been for rail and tie refurbishment and surfacing. The extent of Santa Fe Railway's track maintenance program is depicted in the following chart:
YEAR ENDED DECEMBER 31, ----------------- 1993 1992 1991 ----- ----- ----- Track miles of rail laid................................... 324 304 251 Ties inserted (in thousands)............................... 1,547 1,216 1,164 Track miles surfaced....................................... 2,672 2,400 2,521
Santa Fe Railway anticipates that its 1994 track maintenance of way program, together with expansion projects, will result in the installation of approximately 380 miles of welded rail, the replacement of about 1.5 million crossties, and the surfacing of approximately 2,450 miles of track. OPERATING CONFIGURATION Santa Fe Railway operates modern facilities and equipment for maintenance of track, locomotives, and freight cars. It also owns or leases other equipment to support rail operations, such as highway trailers and vehicles. Support facilities for rail operations include yards and terminals, a centralized system operations center for dispatching, computers, telecommunications, signal systems, a locomotive management system, and transfer facilities for rail-to- rail as well as intermodal transfer of containers, trailers, and other freight traffic. In 1993, Santa Fe Railway consolidated train dispatching, crew planning, and fleet management at Schaumburg, Illinois, to provide the basis for operations planning at one central point. Crew management, customer service functions, and mechanical administrative functions were consolidated at Topeka, Kansas, and other transportation and maintenance of way functions were relocated to Kansas City. These consolidations, which were completed in the fall of 1993, are expected to lead to operational efficiencies, including improved utilization of assets and improved service, as well as a reduction in annual operating expenses. EMPLOYEES AND LABOR RELATIONS Productivity as measured by revenue ton miles per employee has risen steadily in the last three years, and compensation and benefits expense per revenue ton mile has declined, as shown in the table below.
YEAR ENDED DECEMBER 31, ----------------- 1993 1992 1991 ----- ----- ----- Revenue ton miles/average number of employees (thousands). 6,477 6,023 5,450 Compensation and benefits expense/revenue ton miles (cents).................................................. .86 .93 .97
4 Labor unions represent over 80 percent of Santa Fe Railway's employees. Major issues concerning wages, health and welfare benefits, work rules, and other matters were resolved in 1991 for substantially all of Santa Fe Railway's crafts. Following a brief industry-wide strike ended by Congressional resolution in April 1991, a Special Board created by President Bush made a binding determination to accept the recommendations of a Presidential Emergency Board which prescribed terms for settlement of the disputes. Key economic terms under the national settlement included wage increases totaling ten percent over the five-year life of the arrangement and a series of lump sum payments which approximate 17 percent over the life of the agreement. Rail workers agreed to pay a share of their health care costs. The settlement also increased the "basic day" miles which each conductor, brakeman, and fireman must travel to earn a day's pay by 20 percent over the five-year period. The basic day change and other provisions of the settlement partially offset the cash impact of the wage increases and lump-sum payments granted all employees covered by the settlement. The national settlement governs the parties through at least December 31, 1994. In 1992, a national labor dispute with the machinists union over the recommendations of Presidential Emergency Board ("PEB") No. 220 was resolved following a strike against CSX Transportation, Inc. and the subsequent shutdown of freight operations by the remaining national freight railroads. The arbitrator's decision under strike-ending Congressional legislation imposed a final and binding settlement closely following the recommendations of PEB No. 220. The settlement was in all key respects identical to the 1991 national settlements with other unions discussed above and will govern the parties through at least December 31, 1994. Santa Fe Railway began a major effort to improve the productivity of its train crews in September 1989 through crew consist agreements and expanded crew districts. In January 1992, members of the UTU on the Texas lines and Coast lines, the western half of Santa Fe Railway's system, ratified new agreements that further reduced the size of crews on freight trains and simplified certain work rules, while establishing additional security and benefits for employees. In September 1992, negotiations with the UTU produced another agreement updating a 1990 crew consist agreement for the remaining half of the system. Now all through freight trains on the Santa Fe Railway system not making an unusual number of stops between terminals operate with two-person crews and all other trains have only three crew members. Santa Fe Railway's average crew size has been reduced from 3.7 in 1989 to about 2.5 as of December 31, 1993. Locomotive engineers are not involved in the UTU agreements; Santa Fe Railway previously reached a five-year agreement with the Brotherhood of Locomotive Engineers effective January 1, 1990, settling wage and work rule issues, which agreement will govern the parties through at least December 31, 1994. Railroad industry personnel are covered by the Railroad Retirement System instead of Social Security. Santa Fe Railway's contributions under the Railroad Retirement System are approximately triple those in industries covered by Social Security. Railroad industry personnel are also covered by the Federal Employers' Liability Act ("FELA") rather than by state workers' compensation systems. FELA is a fault-based system, with compensation for injuries settled by negotiation and litigation, not subject to specific statutory limitations on the amount of recovery. By contrast, most other industries are covered under state administered no-fault plans with standard compensation schedules. Santa Fe Railway believes it has adequate reserves for its FELA claims; however, the future costs of FELA claims are uncertain and such costs could be significantly higher in the future. 5 BUSINESS MIX In serving the midwestern, western, and southwestern regions of the country, Santa Fe Railway transports a broad range of commodities derived from manufacturing, agricultural, and natural resource industries. Accordingly, Santa Fe Railway's financial performance is influenced by the economic conditions of these industries, both at the national and regional levels, as well as by the overall condition of the national and world economy. Santa Fe Railway's traffic volumes are subject to some seasonal variations and in recent years have tended to peak in March, August, and October. Santa Fe Railway markets both carload and intermodal service. Major markets served directly by Santa Fe Railway include Albuquerque, Chicago, Dallas, Denver, Houston, Kansas City, Los Angeles, Phoenix, the San Francisco Bay area, and the United States/Mexico crossings of El Paso and San Diego. Other major cities are served through Santa Fe Railway's Intermodal Market Extension ("IMX") terminals located at various off-line points. In addition to market segments where Santa Fe Railway provides direct single line service, extension of Santa Fe Railway's marketing influence beyond the end of the system is undertaken by interline rail carrier pricing and service relationships and through voluntary coordination agreements, haulage agreements, and cooperative service agreements. Santa Fe Railway currently has such agreements with Burlington Northern, Union Pacific, Conrail, Grand Trunk, Norfolk Southern, Kansas City Southern, Toledo, Peoria & Western, and Gateway Western for traffic where there is a joint marketing interest. Santa Fe Railway has thereby extended its service into the Northeast, Southeast, and Pacific Northwest, and has access to the St. Louis gateway. Santa Fe Railway's intermodal Quality Stack Service reaches the northeastern markets of Boston and Springfield, Massachusetts; Harrisburg and Morrisville, Pennsylvania; Kearney, New Jersey; and Syracuse, New York. In June 1993, Santa Fe Railway and Burlington Northern entered into a haulage agreement which gives Santa Fe Railway direct access to southeastern markets from Oklahoma to Memphis, Tennessee and Birmingham, Alabama, over Burlington Northern lines. Service is provided to both intermodal and carload customers under the agreement, with Burlington Northern crews operating Santa Fe Railway's trains, and Santa Fe Railway responsible for marketing, equipment, and billing. In 1993, Santa Fe Railway also joined with the National Railways of Mexico to provide once-a-week doublestack service for steamship customers between Los Angeles, California, and Mexico City, Mexico, via El Paso, Texas. Intermodal. Santa Fe Railway was one of the first railroads to enter the intermodal freight business, which consists of hauling freight containers or truck trailers by a combination of water, rail, and motor carriers. The intermodal business has become highly service-driven, and in some cases motor carriers and railroads have begun to jointly market intermodal service. Through a joint intermodal arrangement known as Quantum, Santa Fe Railway and J. B. Hunt Transport provide customers full service, customized door-to-door transportation (truck and rail), with a common communication system and integrated billing at a single rate. Both the volume of traffic and the geographic areas served have expanded significantly since the service was inaugurated in 1990. In 1993, Santa Fe Railway and J. B. Hunt Transport began container service and began moving shipments to the Southeast under Santa Fe Railway's new haulage agreement with Burlington Northern. Santa Fe Railway continues to handle intermodal shipments of intermodal cargo for KLLM, a nationwide motor carrier specializing in temperature controlled transportation. Santa Fe Railway also carries international intermodal traffic through a contract with The Rail-Bridge Corp., the doublestack operating subsidiary of "K" Line, and through contracts with Maersk, Hyundai, and OOCL. Santa Fe Railway is also one of the underlying carriers for APL Land Transport Services, providing doublestack service between Los Angeles and the Midwest. Santa Fe Railway's Intermodal Business Unit ("IBU") combines both marketing and operating functions relating to its intermodal business. Intermodal business accounts for over 40 percent of rail revenue. Traffic volume of intermodal units (trailer or container) increased in 1993 to over 1.22 million units, up 6.3 percent from 1992. 6 Santa Fe Railway's IBU focuses on three types of intermodal business: . DIRECT MARKETING. Santa Fe Railway's direct marketing efforts result in approximately 41 percent of total intermodal revenue and center around Quantum, traffic contracted from United Parcel Service and the United States Postal Service, just-in-time parts service for the automotive industry, and service for nationwide LTL (less than trailer load) carriers and truckload carriers. . INTERMODAL MARKETING COMPANIES. Approximately 39 percent of total intermodal revenue is generated through intermodal marketing companies, primarily shipper agents and consolidators. . INTERNATIONAL. The IBU's international business consists primarily of traffic from steamship companies and accounts for approximately 20 percent of intermodal revenues. Carload. In 1992, Santa Fe Railway created a Carload Business Unit ("CBU") to complement its IBU. Besides being responsible for carload marketing, sales, and customer service functions, the CBU coordinated transportation services and equipment distribution with operating management in 1993. Effective January 1, 1994, Santa Fe Railway implemented organizational changes designed to meet customer expectations by more effectively coordinating its marketing and operations. The new organization is centered around four market-oriented business units: the IBU, and new automotive, bulk products, and carload commodities business units in place of the CBU. Besides marketing functions, these four units are responsible for equipment distribution and utilization, and service design, and they will operate those facilities related to their product line. The automotive unit is responsible for all automotive services and facility operations. The bulk products unit is responsible for grain, coal, and minerals. In addition to Santa Fe Railway's Quality Distribution Center ("QDC") program, the carload commodities unit is responsible for chemicals, lumber, primary metals, consumer products and related commodities. Santa Fe Railway's 1993 carload business included transportation of the following commodities: . CHEMICALS AND PETROLEUM. Chemicals for industrial and agricultural use are the two major chemical groups transported by Santa Fe Railway. Industrial chemicals are used by the automotive and housing industries, as well as by the chemical industry as feedstock for other chemical products. Major industrial chemical markets are in the East and California. Agricultural chemicals are transported over Santa Fe Railway's system primarily to the South and the Midwest, and to Texas Gulf ports for export. Santa Fe Railway also handles liquified petroleum gas (LPG) shipments from California to Arizona and from Kansas to Mexico, as well as refined petroleum products. . COAL. Coal shipments transported on Santa Fe Railway's lines originate principally in Wyoming, Colorado, and New Mexico on the lines of Santa Fe Railway and other rail carriers. These shipments are moved to electrical generating stations and industrial plants in the Midwest and Southwest. . VEHICLES AND PARTS. Santa Fe Railway handles both assembled motor vehicles and shipments of vehicle parts to numerous destinations throughout the Midwest, Southwest, and West. . WHOLE GRAIN. Santa Fe Railway serves a large portion of the grain-producing regions of the nation. Santa Fe Railway transports wheat and feed grains to points in California, Kansas, Oklahoma, and Texas to be stored, milled, or fed to livestock. Santa Fe Railway also moves export wheat to Texas ports for shipment to foreign consumers. . MINERALS AND ORES. Sulphur generally moves via Santa Fe Railway to the Gulf Coast and thence via vessels to Florida and overseas markets for use in making phosphatic fertilizers. Potash is transported to domestic markets and to export points for markets in Canada, Mexico, and 7 overseas. Cement and aggregates (sand and stone) generally move from Texas, Kansas, and California origins to domestic markets for use in general construction and public work projects, such as highway projects. . FOREST PRODUCTS. Santa Fe Railway hauls lumber, paper and paper products, and building supplies. Lumber and lumber products move between East Texas and Chicago and points east, and from the Southeast and the Northwest coast into California. . CONSUMER PRODUCTS. Beverages, canned goods, and grocery products are the principal food commodities moved over Santa Fe Railway's system, the greatest volume of which is eastbound traffic from California. . GRAIN PRODUCTS. Principal grain products hauled include corn syrup, flour, soybean meal, and vegetable oils. Flour moves from Kansas and other producing states to export points. Oils and meals generally move from the Midwest into California. . PRIMARY METALS. Santa Fe Railway hauls scrap metal, sheet metal, steel ingots, rods, and angle bars among other primary metals. Under its QDC program, Santa Fe Railway currently operates 45 warehouses, 13 steel centers, and 17 bulk transfer sites. These facilities handle a variety of manufactured, semi-manufactured, and bulk commodities and provide door-to-door delivery on an as-needed or just-in-time basis using a combination of rail cars and highway trailers. QDC operations handled approximately 24,000 carloads in 1993. Freight Statistics. The following tables set forth certain freight statistics relating to the rail operations of Santa Fe Railway for the periods indicated:
YEAR ENDED DECEMBER 31, ----------------- 1993 1992 1991 ----- ----- ----- Revenue ton miles (billions)............................... 93.1 85.6 80.8 Revenue per ton-mile (cents)............................... 2.54 2.58 2.61 Average haul per ton (miles)............................... 794 779 774
REVENUES BY BUSINESS GROUP
YEAR ENDED DECEMBER 31, -------------------------- 1993 1992 1991 -------- -------- -------- (IN MILLIONS) Intermodal Business Unit: Direct Marketing............................... $ 404.1 $ 345.7 $ 290.5 Intermodal Marketing Companies................. 376.6 398.4 402.2 International.................................. 196.1 168.2 150.1 -------- -------- -------- Total Intermodal Business Unit.................. 976.8 912.3 842.8 -------- -------- -------- Carload Business Unit: Chemicals and Petroleum........................ 281.3 282.7 258.6 Coal........................................... 220.1 193.8 190.5 Vehicles and Parts............................. 191.2 136.7 144.1 Whole Grain.................................... 160.6 143.4 145.8 Minerals and Ores.............................. 143.1 157.0 166.0 Forest Products................................ 121.6 115.9 102.7 Consumer Products.............................. 113.9 117.1 116.2 Grain Products................................. 82.3 80.4 71.1 Primary Metals................................. 77.6 70.3 69.8 -------- -------- -------- Total Carload Business Unit..................... 1,391.7 1,297.3 1,264.8 -------- -------- -------- Miscellaneous Adjustments....................... -- 3.3 5.5 -------- -------- -------- Total Freight Revenue........................... $2,368.5 $2,212.9 $2,113.1 ======== ======== ========
8 CARLOADINGS*
YEAR ENDED DECEMBER 31, ----------------------- 1993 1992 1991 ------- ------- ------- (IN THOUSANDS) Intermodal Business Unit: Direct Marketing.................................... 206.3 171.9 143.5 Intermodal Marketing Companies...................... 221.0 242.8 239.4 International....................................... 184.0 160.4 132.6 ------- ------- ------- Total Intermodal Business Unit....................... 611.3 575.1 515.5 ------- ------- ------- Carload Business Unit: Chemicals and Petroleum............................. 164.6 164.1 153.0 Coal................................................ 351.1 316.9 305.9 Vehicles and Parts.................................. 119.1 85.5 83.4 Whole Grain......................................... 145.7 139.5 136.0 Minerals and Ores................................... 118.1 119.7 120.8 Forest Products..................................... 87.6 87.8 82.3 Consumer Products................................... 75.4 74.4 82.3 Grain Products...................................... 54.0 54.0 51.3 Primary Metals...................................... 63.8 53.1 51.7 ------- ------- ------- Total Carload Business Unit.......................... 1,179.4 1,095.0 1,066.7 ------- ------- ------- Total Carloadings.................................... 1,790.7 1,670.1 1,582.2 ======= ======= =======
- -------- * Each intermodal carload is equal to two intermodal units (trailers or containers). AVERAGE REVENUE PER CAR
YEAR ENDED DECEMBER 31, -------------------- 1993 1992 1991 ------ ------ ------ Intermodal Business Unit: Direct Marketing...................................... $1,959 $2,011 $2,024 Intermodal Marketing Companies........................ 1,704 1,641 1,681 International......................................... 1,066 1,049 1,132 ------ ------ ------ Total Intermodal Business Unit......................... 1,598 1,586 1,635 ------ ------ ------ Carload Business Unit: Chemicals and Petroleum............................... 1,709 1,722 1,690 Coal.................................................. 627 611 623 Vehicles and Parts.................................... 1,605 1,599 1,728 Whole Grain........................................... 1,102 1,028 1,072 Minerals and Ores..................................... 1,212 1,312 1,374 Forest Products....................................... 1,389 1,321 1,247 Consumer Products..................................... 1,510 1,574 1,412 Grain Products........................................ 1,523 1,489 1,386 Primary Metals........................................ 1,216 1,323 1,349 ------ ------ ------ Total Carload Business Unit............................ 1,180 1,185 1,186 ------ ------ ------ Average Revenue Per Car................................ $1,323 $1,323 $1,332 ====== ====== ======
Passenger Operations. Since May 1, 1971, the National Railroad Passenger Corporation ("Amtrak") has assumed from participating railroads, including Santa Fe Railway, the responsibility for providing intercity rail passenger service. Amtrak operates numerous passenger trains daily 9 between major points on Santa Fe Railway's system. Amtrak compensates Santa Fe Railway under an amended agreement entered into in 1989 which provides for cost reimbursements and performance incentives. REAL ESTATE ACTIVITIES; ENCUMBRANCES Income net of related expenses attributable to real estate activities of Santa Fe Railway, principally sales of non-operating properties and leasing revenues, was $19.4 million for the year ended December 31, 1993, as compared to $23.9 million in 1992 and $45.6 million in 1991. Santa Fe Railway's non- operating properties, which include over 1.4 million acres of mountain and desert lands with possible mineral potential in California, Nevada, and Utah (which lands are subject to an exploration agreement or mineral leases with Santa Fe Pacific Gold Corporation) and over 23,000 acres of other property, are managed by Catellus Development Corporation, a former affiliate, under a management agreement. Substantially all railroad property, real or personal, is subject to liens securing mortgage bonds, and certain locomotives and rolling stock are subject to equipment obligations, as referred to in Note 11 to the consolidated financial statements on page 27 of SFP's 1993 Annual Report to Shareholders. GOVERNMENT REGULATION AND LEGISLATION Rail operations are subject to the regulatory jurisdiction of the Interstate Commerce Commission ("ICC"), the Occupational Safety and Health Administration ("OSHA"), the United States Department of Transportation ("DOT"), and state regulatory agencies. The ICC has jurisdiction over certain rates, routes, services, issuance or guarantee of Santa Fe Railway securities, extension, sale or abandonment of rail lines, and consolidation or merger with or acquisition of control of rail common carriers. State agencies regulate some aspects of rail operations with respect to health and safety and in some instances intrastate freight rates. DOT and OSHA have jurisdiction under several federal statutes over a number of safety and health aspects of rail operations. Santa Fe Railway is subject to extensive regulation under federal, state and local environmental laws concerning, among other things, discharges to waters, air emissions, toxic substances, and the generation, handling, storage, transportation, and disposal of waste and hazardous materials. These laws and regulations have the effect of increasing the cost and liabilities associated with the conduct of operations. Environmental risks are also inherent in railroad operations which frequently involve the transportation of chemicals and other hazardous materials. Santa Fe Railway expects it will become subject to new requirements regulating air emissions from diesel locomotives that may increase its operating costs in the future. By 1995, the United States Environmental Protection Agency ("EPA") must issue regulations applicable to new locomotive engines. Emissions from locomotive engines (other than new locomotive engines) may be regulated by states based on standards and procedures which the State of California ultimately adopts. The California standards are currently in the process of being developed. In February 1994, EPA announced a federal implementation plan designed to bring California ambient air quality in line with standards under the federal Clean Air Act for the four-county Los Angeles region by 2010 and Ventura County and the Sacramento area by 2005. Final regulations are planned to be adopted within one year following public hearings. The shipping business--including airline, truck, rail, and maritime industries--are included within the reach of the proposed rules which include pollution fees and emissions standards. Nitrogen oxide locomotive emission standards eventually promulgated as regulations under EPA's plan will likely increase Santa Fe Railway's operating costs and could possibly require the use of alternative fuels to meet 10 the standards. Also, ships docking at the Ports of Long Beach and Los Angeles could be faced with fees beginning in 2001 based on their engine emissions. This could have the effect of diverting some maritime intermodal traffic to other ports that are not served by Santa Fe Railway. Many of Santa Fe Railway's land holdings are and have been used for industrial and transportation-related purposes or leased to commercial and industrial companies whose activities may have resulted in discharges onto the property. As a result, Santa Fe Railway is now subject and will continue from time to time to be subject to environmental cleanup and enforcement actions. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, generally imposes joint and several liability for cleanup and enforcement costs, without regard to fault or the legality of the original conduct, on current and predecessor owners and operators of a site. Accordingly, Santa Fe Railway may be responsible under CERCLA and other applicable federal and state statutes for all or part of the costs to clean up sites at which wastes have been released by Santa Fe Railway, its current lessees, predecessor owners or lessees of properties, or other third parties. Estimates of Santa Fe Railway's ultimate liabilities associated with Superfund and other environmental sites are difficult to predict with certainty due to, among other factors, the number of parties involved, possible remediation alternatives, lengthy time frames, and potential recoveries from third parties. During 1992, management completed an internal assessment of Santa Fe Railway's environmental liabilities, including a site-by-site analysis of properties with potentially significant environmental exposure. As a result of this review and analysis, it was determined that an additional accrual of $67 million was appropriate to provide for future costs of this nature which was recorded in the third quarter of 1992 as part of a rail special charge. In addition, SFP monitors, on a regular basis, accruals for environmental sites which have been identified. Payments of these accrued costs are expected to be made over the next five years. It is the opinion of SFP management that any costs in excess of recorded liabilities will not have a material adverse effect on the consolidated financial position of SFP. COMPETITION Rail operations are subject to intense competition from various modes of transportation, primarily from other railroads, motor carriers, and both inland and intercoastal water carriers. Competition is based upon price and quality and reliability of service. Other major rail systems and smaller rail carriers compete with Santa Fe Railway in various transport markets for the movement of most commodities. Motor carrier competition, especially in the intermodal area, is pervasive throughout all major markets with the exception of the long-haul electric utility coal markets. In those cases, competition exists from the coal producing regions of the central and northern Rocky Mountain districts as well as the eastern United States. Water competition is present between the Texas Gulf Coast and Mississippi and Illinois River systems as well as between the West and Gulf Coasts and along the West Coast. GOLD Santa Fe Pacific Gold Corporation and its subsidiaries ("SFP Gold") are engaged in the exploration for and development of gold properties and the mining and processing of gold ores. SFP Gold's three gold mines consist of the Twin Creeks Mine, which was formed from the consolidation of the Rabbit Creek Mine and the Chimney Creek Mine, and the Lone Tree Mine, both in northern Nevada, and the Mesquite Mine in southern California. SFP Gold acquired the Mesquite Mine and the Chimney Creek Mine in an exchange of assets with Hanson Natural Resources Company ("HNRC") on June 25, 1993 (the "Exchange"). The Mesquite Mine and the Chimney Creek Mine had previously been operated by Gold Fields Mining Corporation ("Gold 11 Fields"), a partner in HNRC. In the Exchange, SFP Gold acquired HNRC's gold assets, including the Chimney Creek and Mesquite mines, two advanced exploration projects in Nevada and Montana, and other gold prospects in North America and Chile. In return, HNRC received essentially all of SFP Gold's coal assets, including the Lee Ranch Mine, a large surface coal mine in New Mexico, undeveloped coal reserves in northwest New Mexico, and six aggregates quarries in Oklahoma, Texas, New Mexico, Arizona, and California. Formerly named Santa Fe Pacific Minerals Corporation, SFP Gold changed its name to its current one following the Exchange to reflect its focus on gold operations. Reference is made to Note 3 to the consolidated financial statements on page 24 of SFP's 1993 Annual Report to Shareholders for further information concerning the Exchange. Reference is also made to Note 23 on page 32 of SFP's 1993 Annual Report to Shareholders for information concerning gold reserves. In connection with the following description of SFP Gold's mines, reference is made to the following map of areas of mineral rights controlled by SFP Gold and the location of individual mines. SFP is continuing to review the possibility of establishing SFP Gold as a separate public company. As part of this process, SFP Gold is considering an initial public offering of up to 20 percent of SFP Gold stock, and in that event, SFP is considering a distribution of the remaining interest in SFP Gold to SFP shareholders following SFP Gold's initial public offering. This evaluation and the timing of any distribution by SFP involve a number of economic, business, legal, tax, and other considerations, including prior approval from the SFP Board of Directors. SFP is pursuing a ruling from the Internal Revenue Service that a distribution of SFP Gold shares to existing SFP shareholders would be tax free. 12 13 OPERATING PROPERTIES Twin Creeks Mine. The Twin Creeks Mine is believed by SFP Gold to be North America's third-largest primary gold mine. It is located approximately 45 miles northeast of Winnemucca, Nevada, and is accessed by a paved public road, an improved public road, and two improved roads owned by SFP Gold. Mining at the Twin Creeks Mine is conducted in three open pits utilizing conventional open- pit mining methods. During 1994, the Company expects to mine 70.0 million tons of overburden, 17.0 million tons of run-of-mine heap-leach ore, and 2.0 million tons of oxide mill ore at the mine. The current equipment fleet consists of large electric and hydraulic shovels coupled with 150-, 170-, and 190-ton haul trucks working on 40-foot benches, and a smaller-sized fleet for mining 20-foot ore benches consisting of hydraulic shovels, front-end loaders, and 85- and 150-ton haul trucks. The mining fleet is supported with a full set of ancillary equipment. The equipment fleet is generally in good condition. Gold mineralization at the Twin Creeks Mine occurs at the north end of the Rabbit Trend, a nearly 60-mile long, north-south zone containing numerous sediment-hosted Carlin-type deposits and other occurrences of gold mineralization. The deposits at the Twin Creeks Mine lie in the Getchell mining district which occupies the eastern flank of the Osgood Mountains. The deposits occur in a complexly folded and faulted sequence of sedimentary rocks with minor amounts of interlayered basalt. The deposits are overlain by zero to 600 feet of alluvium. Gold mineralization is controlled by both stratigraphy and structure. At the Twin Creeks Mine, gold occurs in both refractory and oxide ores. Refractory ores contain variable amounts of pyrite, realgar, orpiment, stibnite, and organic carbon. In oxide ores, the refractory minerals and carbonaceous matter are absent, and gold is associated with antimony-rich limonite. Ore is processed at the Twin Creeks Mine through either oxide milling or heap leaching depending upon the grade of ore. High-grade (approximately 0.05 ounces per ton and greater) oxide ore is processed through one of two separate oxide milling facilities. The south mill has a nominal 3,000 tons per day capacity and historically has had a recovery rate of approximately 91 percent of the gold contained in the ore processed. Gold is recovered through conventional carbon adsorption, pressure-stripping, and electro-winning. The north mill has a nominal capacity of 2,500 tons per day and historically has had a recovery rate of approximately 94 percent of the gold contained in the ore processed. Run-of-mine heap leaching is used to recover gold from low-grade ores (generally, less than 0.05 ounces per ton). Leach cycles at the Twin Creeks Mine are typically 180 days and achieve approximately 65 percent gold recovery. Approximately 50 percent of the future oxide gold production from the Twin Creeks Mine is expected to come from run-of-mine heap leaching. For the last half of 1993, the Twin Creeks Mine processed an average of 5,354 tons of mill ore per day. Over a full year, the Twin Creeks Mine has the capacity to produce approximately 500,000 ounces of gold. Water for operations at the Twin Creeks Mine is obtained from area wells, in- pit wells, and pit-dewatering operations. Water pumped from the pit sumps and wells currently totals approximately 2,000 gallons per minute, and is either consumed in processing and mining or is required by permit terms to be treated and released at drinking water standards prescribed under the Clean Water Act. Electric power sufficient for existing operations is either purchased from Sierra Pacific Power Company or provided by an on-site, natural gas-fired power plant owned by SFP Gold which is capable of providing approximately 40 percent to 50 percent of the mine's existing electric power needs. SFP Gold is evaluating a sulfide expansion, estimated to require a $125 million to $150 million capital investment over a two to three year period, which would, if successfully implemented, enable SFP Gold to process refractory ores at the Twin Creeks Mine. If SFP Gold determines not 14 to proceed with the sulfide expansion, it may not be able to recover up to 57 percent of the reserves at the mine. The sulfide expansion will require approval of an operating permit from the federal Bureau of Land Management ("BLM"), and an approval by the Nevada State Engineer of an increase in the mine's dewatering rate by 18,000 gallons per minute which would bring the total appropriation to the level estimated to be required to extract all of the mine's reserves. Lone Tree Mine. The Lone Tree Mine is located 34 miles southeast of Winnemucca, Nevada, one-half mile south of Interstate 80, to which it is connected by an improved road owned by SFP Gold. Mining at the Lone Tree Mine is conducted in one open pit utilizing conventional open-pit mining methods. During 1994, SFP Gold expects to mine 31.2 million tons of overburden, 2.2 million tons of run-of-mine heap leach ore, 1.3 million tons of conventional heap-leach ore, 71,000 tons of oxide mill ore, and 323,000 tons of refractory ore at the mine. The current equipment fleet consists of large hydraulic shovels and backhoes coupled with 150-ton haul trucks, working on 40-foot benches in overburden and 20-foot benches in ore. The mining fleet is supported with a full set of ancillary equipment. The equipment fleet is generally in good condition. The deposit at the Lone Tree Mine is a sediment-hosted gold deposit which occurs in silicified and brecciated siltstone, sandstone, and argillite within a steeply-dipping structure known as the Wayne Zone. This zone consists of several parallel to sub-parallel shear zones. Gold mineralization is controlled primarily by structures with gold occupying fractures. Some stratigraphic control exists, especially where the rock units are brittle and easily fractured. Gold occurs in both refractory and oxide ores. In the refractory ore, the gold is dominantly associated with pyrite, and to a lesser extent, with arsenopyrite. In the oxide ore, the arsenopyrite and pyrite are absent, and gold is associated with limonite. Oxide milling at the Lone Tree Mine consists of a standard SAG mill and ball mill grinding circuit, followed by a CIL cyanide leaching circuit with a nominal 2,500 tons per day capacity. Gold is recovered from the loaded carbon through a conventional pressure-stripping and electro-winning process. Heap leaching at the Lone Tree Mine is conducted both as run-of-mine and conventional heap leaching. Conventional heap leaching cycles are typically 13 months and achieve approximately 70 percent recovery of the contained gold value. Run-of-mine leaching cycles are also typically 13 months and achieve an overall recovery rate of approximately 40 percent of the contained gold. Heap leaching produced all of the gold at the Lone Tree Mine through mid-October 1993, totaling over 255,000 ounces, and will continue to contribute a significant portion of the gold produced at the Lone Tree Mine throughout its life. In mid 1992, SFP Gold initiated a sulfide expansion at the mine. In February 1994, SFP Gold completed the expansion, which included the addition of a refractory mill, that is currently processing refractory ores at the rate of 2,500 tons per day. SFP Gold also completed construction of an oxygen plant, an extension to the maintenance shop and warehouse, additions to the pit dewatering system, expansion of the leach pad capacity and addition of two carbon circuits in the heap-leach processing facility. When the pressure- oxidation circuit of the refractory mill is not operating, high-grade oxide ores will be processed through the oxide circuit of the refractory mill. The oxide circuit of the mill began operation in October of 1993. The sulfide expansion will increase annual production from the Lone Tree Mine to approximately 200,000 ounces of gold. SFP Gold estimates that the cost of processing refractory ore will be between $18 and $20 per ton, depending on the mineralogical characteristics of the material. It also estimates that its ability to process refractory ores at the Lone Tree Mine as a result of the sulfide expansion has increased the estimated life of the mine by approximately 9 years to a remaining life of 16 years. SFP Gold is pursuing a mining permit for Section 14 of the Lone Tree Mine from the BLM. Because of its geological setting, the Lone Tree Mine will require the removal of increasingly large 15 volumes of water to maintain a relatively dry, minable pit as the pit deepens. The Nevada State Engineer requires mines to obtain permits to appropriate mine- dewatering rights. SFP Gold has permits from the Nevada State Engineer to pump approximately 33,460 gallons of water per minute from the wells on the mine site and to discharge this water into the Humboldt River. Appropriations for pumping an additional 42,000 gallons per minute have been requested to ensure that mining operations can continue as higher volumes of water must be removed. Although SFP Gold anticipates it will be successful in obtaining the necessary water appropriations and other permits, there is no assurance that such permits will be obtained. Failure to obtain any necessary permits could result in a curtailment of gold production, reduction of reserves, or both. SFP Gold's ability to recover up to 50 percent of its reserves at the Lone Tree Mine could be adversely affected by its failure to obtain the requested dewatering permits. Mesquite Mine. The Mesquite Mine is located in Imperial County in southern California and is accessed by a paved road owned by SFP Gold which connects to a paved state highway. Mining at the Mesquite Mine is conducted in three open pits utilizing conventional open-pit mining methods. During 1994, SFP Gold expects to mine 21.7 million tons of overburden, 2.8 million tons of run-of- mine heap-leach ore, and 8.0 million tons of conventional heap-leach ore. The current equipment fleet consists of large hydraulic shovels and front-end loaders coupled with 85- and 150-ton haul trucks, working on 40-foot benches in overburden and 20-foot benches in ore. The mining fleet is supported with a full set of ancillary equipment. The equipment fleet is generally in good condition; however, since the Mesquite Mine only has about six years remaining in its economic life, SFP Gold is rebuilding, rather than replacing the older equipment. The deposits at the Mesquite Mine lie on the southwestern flank of the Chocolate Mountains, in highly metamorphosed rocks which have an extremely complex structural history. Faulting had a strong control on the mineralization. Gold mineralization occurs in structurally-prepared metamorphosed rock in the Mine Area. Gold in the oxide-ore zones occurs in association with disseminated pyrite which has oxidized to limonite and as microscopic fracture coatings. Conventional heap-leaching cycles at the Mesquite Mine are typically 75 to 100 days long and achieve gold recoveries which have historically approximated 78 percent. Run-of-mine heap-leaching cycles at the mine are typically longer and recoveries are approximately 50 percent. Gold is recovered from the pregnant solution from both heap-leaching processes by means of carbon adsorption, pressure stripping, and electro-winning. SFP Gold's current plans are to increase conventional heap-leaching rates to 8.0 million tons per year, and run-of-mine heap leaching to over 2.0 million tons per year. Facilities are in place to accomplish these goals with the exception of additional leach pads, which are being designed and permitted at this time. Production at the Mesquite Mine is estimated to average approximately 200,000 ounces of gold per year for the period 1994 through 1998, declining to approximately 40 percent of that amount in 1999, the last year of the mine's anticipated operating life, reflecting a partial year's production. The Mesquite Mine is currently running nearly at capacity. Operations at the Mesquite mine draw water from three wells located on land owned by SFP Gold within the mine, approximately four miles south of the processing facility. Water usage is permitted for up to 2,493 gallons per minute, with current water usage in the order of 680 gallons per minute. Potable water is provided by an on-site, reverse-osmosis plant owned and operated by SFP Gold. Electrical power is supplied by the Imperial Irrigation District via a seven-mile-long, 92-kilovolt line feeding into a substation at the mine. Portions of the Mesquite mine, including a significant portion of the area currently under exploration by SFP Gold within the areas surrounding the mine area, are located within the proposed Chuckwalla Critical Habitat area for the desert tortoise, as designated by the United States 16 Fish and Wildlife Service ("USFWS"). SFP Gold believes it has complied with all desert tortoise mitigation requirements imposed by the BLM and the USFWS. However, recent proposals with regard to critical tortoise habitat may place additional burdens on the mine which could materially affect the operations. OPERATING DATA Operating data for the Twin Creeks Mine represent production and cost information for the Rabbit Creek Mine through December 31, 1993, and for the Chimney Creek Mine received in the Exchange for the period June 26 through December 31, 1993. The Lone Tree Mine commenced production in August 1991. Operating data for the Mesquite Mine, which was also received in the Exchange, cover the period June 26 through December 31, 1993. In March 1992, SFP Gold exchanged its 30 percent interest in a joint venture gold mine (the "Marigold Joint Venture") for the mineral rights and reserves that now make up the southern extension of the Lone Tree Mine and additional exploration mineral rights.
YEAR ENDED DECEMBER 31, ----------------------- 1993 1992 1991 ------- ------- ------- Ounces Sold (thousands)............................. 591 295 164 Average Sales Price (per ounce)..................... $ 387 $ 394 $ 410 Production (thousands of ounces of gold) Twin Creeks Mine................................... 346.2 160.9 122.6 Lone Tree Mine..................................... 158.6 129.0 36.4 Mesquite Mine...................................... 106.1 -- -- Marigold Joint Venture(1).......................... -- 6.0 19.6 ------- ------- ------- Total Production................................. 610.9 295.9 178.6 ======= ======= ======= Cash Costs Per Ounce(2) Twin Creeks Mine................................... $ 177 $ 182 $ 168 Lone Tree Mine..................................... 149 130 103 Mesquite Mine...................................... 165 -- -- Marigold Joint Venture............................. -- 306 296 Weighted Average Cash Costs Per Ounce............ $ 167 $ 162 $ 169 Total Costs Per Ounce(2) Twin Creeks Mine................................... $ 259 $ 254 $ 212 Lone Tree Mine..................................... 201 173 160 Mesquite Mine...................................... 255 -- -- Marigold Joint Venture............................. -- 387 389 Weighted Average Total Costs Per Ounce........... $ 243 $ 222 $ 221
- -------- (1) Data for the Marigold Joint Venture include only SFP Gold's 30 percent share. (2) Cash costs per ounce refer to cash costs of production which include cash costs of milling, general and administrative expenses at the mine site (including overhead, taxes other than on income, royalties, and credits for silver by-products) and the applicable portion of mining and overburden- removal cash costs that benefit current production. Total costs include cash costs of production plus depreciation, depletion, and amortization charged to current production. Cash and total costs of production include certain costs which are calculated on a units-of- production basis and are, therefore, directly affected by the level of reserves and expected remaining life of each mine. RESERVES SFP Gold calculates its proven and probable gold reserves by methods generally applied in the mining industry using a multi-disciplinary team of SFP Gold geologists, engineers, and 17 geostatisticians. Reserves reported by SFP Gold are regularly audited and verified by Pincock, Allen & Holt, a division of Hart Crowser, Inc. ("PAH") which reviews the methods used to estimate the reserves. PAH's audit of SFP Gold's reserves as of December 31, 1993, verified that SFP Gold's reserves models are prepared according to accepted engineering practice and the minable reserves satisfy the requirements for classification as proven and probable gold reserves. The following table lists SFP Gold's reserves as of December 31 for the years from 1991 through 1993 as well as the tons of ore identified by SFP Gold and average gold grade of such ore as of December 31, 1993. RESERVES(1) (IN THOUSANDS, EXCEPT AVERAGE GOLD GRADE)
AS OF DECEMBER 31 OF EACH YEAR ------------------------------------------- 1993 1992 1991 ------------------------------- ----- ----- AVERAGE TONS GOLD GRADE CONTAINED CONTAINED OF ORE (OZ. PER TON) OUNCES OUNCES ------- ------------ --------- ----------- Operating Properties: Twin Creeks Mine(2)................ 137,154 0.062 8,523 3,255 3,457 Lone Tree Mine..................... 65,167 0.062 4,028 3,136 2,118 Mesquite Mine(3)................... 54,408 0.029 1,570 -- -- Marigold Joint Venture(4).......... -- -- -- -- 206 ------- ----- ------ ----- ----- Total............................ 256,729 0.055 14,121 6,391 5,781 ======= ===== ====== ===== =====
- -------- (1) The term "reserves" means that part of a mineral deposit which can be reasonably assumed to be economically and legally extracted or produced at the time of the reserves determination. The term "economically," as used in the definition of reserves, implies that profitable extraction or production under defined investment assumptions has been established or analytically demonstrated. The assumptions made must be reasonable, including assumptions concerning the prices and costs that will prevail during the life of the project. The term "legally," as used in the definition of reserves, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for reserves to exist, there should not be any significant uncertainty concerning issuance of these permits or resolution of legal issues. The term "proven reserves" means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling, and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral content of reserves are well established. The term "probable reserves" means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. The term "contained ounces" means that the reserves are estimated to encompass a stated number of ounces of gold in place. The number of ounces ultimately recovered and available for sale depends upon mining efficiency and processing efficiency. SFP Gold currently estimates overall recovery of 11.2 million ounces from the 14.1 million contained ounces. (2) For all dates prior to December 31, 1993, reserves for the Twin Creeks Mine include only reserves at the Rabbit Creek Mine. The information listed for the period ended December 31, 1993, includes reserves located at both the Rabbit Creek Mine and the Chimney Creek Mine. If SFP Gold determines not to proceed with the sulfide expansion at the Twin Creeks Mine (discussed earlier), it may not be able to recover up to 57 percent of the reserves at the mine. 18 (3) No reserves information is shown for the Mesquite Mine for dates prior to December 31, 1993, since the mine was not acquired by SFP Gold until June 1993 as part of the Exchange. (4) In March 1992, SFP Gold exchanged its 30 percent interest in the Marigold Joint Venture for the mineral rights and reserves that now make up the southern extension of the Lone Tree Mine and additional exploration mineral rights. Data for the Marigold Joint Venture include only SFP Gold's 30 percent share. The reserves listed as of December 31, 1993, have been calculated assuming a realizable price for gold of $400 per ounce. The price of $400 per ounce was selected because it is within the recent trading range of the gold spot market and is available in the current gold forward market within the life of SFP Gold's reserves. However, there can be no assurance that this price will be realized. In 1993, SFP Gold realized an average price of approximately $387 per ounce of gold sold. SFP Gold believes that, for a substantial portion of its reserves, the costs of recovery are significantly below the gold prices used to estimate the reserves. Even at much lower gold prices, SFP Gold's operating margin would be positive for most of the reserves. SFP Gold believes that if its reserves estimates were to be based on a gold price of $350 per ounce, with current operating costs, reserves as of December 31, 1993, would decrease by approximately 13 percent. If reserves estimates were based on a gold price of $450 per ounce, with current operating costs, reserves as of December 31, 1993, would increase by approximately 10 percent. EXPLORATION SFP Gold spent approximately $17 million on exploration during 1992 in the United States, and approximately $22 million in 1993, including approximately $3 million spent on foreign projects. In 1994, expenditures of between $25 million and $30 million are planned with approximately 75 percent to be spent in the United States and 25 percent on foreign projects. SFP Gold maintains an inventory of active exploration projects in the United States and at foreign locations. In an average year, about one-third of the projects are discontinued with a similar number of new projects added to maintain a full spectrum of exploration activity. SFP Gold's exploration team presently consists of approximately 140 individuals, including over 60 geologists. Varying numbers of consulting geologists are employed as needed to assist during peak work periods. About 90 staff members cover exploration in the United States and Canada from offices in Albuquerque, New Mexico; Reno, Winnemucca, and Elko, Nevada; and Helena, Montana. The foreign staff members are at offices in Copiapo and Santiago, Chile; Trinidad, Uruguay; San Luis Potosi, Mexico; and Timmins, Canada. MINERAL RIGHTS HOLDINGS SFP Gold is one of the largest holders of mineral rights in the western United States, controlling over 6.8 million acres of private mineral rights, including over 1.8 million acres in northern Nevada, where the majority of the gold production in the United States is located. SFP Gold also controls over 200,000 acres of mineral rights through unpatented mining claims on federal land. GOVERNMENT REGULATION AND LEGISLATION SFP Gold's mining operations and exploration activities are subject to extensive federal, state, and local laws and regulations governing exploration, development, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, reclamation, mine safety, toxic substances, and other matters. Compliance with such laws and regulations has increased the costs of planning, designing, drilling, developing, constructing, operating, and closing SFP Gold's mines and other facilities. It is possible that the costs and delays associated with compliance with such laws and regulations could become such that SFP Gold would not proceed with the development or operation of a mine. 19 Both the United States House of Representatives and Senate have passed bills that seek to reform the General Mining Law of 1872 (the "Mining Law"), which governs exploration and mining activities on unpatented mining claims and related activities on federal lands. The bills have been tentatively scheduled to be considered by a House-Senate conference committee; however, the House conferees have not been selected. The pending legislation contains strict new environmental protection standards and conditions, additional reclamation requirements and extensive new procedural steps which would likely result in delays in permitting and could have a material adverse effect on SFP Gold's ability to develop minerals on federal lands. The pending bills would also impose royalties on gold production from currently unpatented mining claims. Imposition of a significant royalty could have a material adverse effect on SFP Gold's future profitability from the production of minerals from federal lands. SFP Gold cannot predict the extent to which any such changes will actually occur or the likely effect the proposed reforms will have on SFP Gold or its level of reserves. Such bills, if enacted, could reduce the profitability of portions of SFP Gold's operations. Approximately 52 percent of SFP Gold's reserves are located on private mineral rights, approximately 39 percent on federal land controlled by SFP Gold through unpatented mining claims with first-half final certificates, and approximately 9 percent on unpatented mining claims without first-half final certificates. Issuance of first-half final certificates generally confirms equitable title is vested in the applicant and segregates the land from all further entry under the public land and minerals laws. It is possible that the amendments to the Mining Law that are ultimately adopted will exempt the unpatented mining claims for which SFP Gold has received first-half final certificates from the royalty and the limitations on patenting contemplated by the legislation. COMPETITION SFP Gold competes with other mining companies and private individuals in connection with the acquisition of unpatented mining claims and mineral leases on gold and other precious metals prospects and in connection with the recruitment and retention of qualified employees. PIPELINE Santa Fe Pacific Pipelines, Inc. ("SFP Pipelines"), an indirect, wholly owned subsidiary of SFP, serves as the general partner of Santa Fe Pacific Pipeline Partners, L.P. (the "Partnership"), a publicly traded Delaware master limited partnership formed in 1988 to acquire and operate the refined petroleum products pipeline business of SFP. SFP Pipelines owns a two percent interest as the Partnership's general partner and an approximate 42 percent interest as limited partner (the "Common Units"). The Common Units were subject to certain priorities in favor of the publicly held Preference Units representing approximately 56 percent of all interests in the Partnership for the initial five years of the Partnership's operation. Effective January 1, 1994, all distinctions between units outstanding, including the Common Units, were eliminated. The units are traded on the New York Stock Exchange under the symbol "SFL." As general partner, SFP Pipelines is entitled to receive two percent of all amounts available for distribution by the Partnership and also an additional incentive depending upon the level of cash distributions paid to unitholders. SFP accounts for its interests in the Partnership on the equity basis. In June 1990, SFP organized SFP Pipeline Holdings, Inc. ("SFP Pipeline Holdings"), and contributed to SFP Pipeline Holdings all of the outstanding capital stock of SFP Pipelines. In September 1990, SFP Pipeline Holdings issued $219 million principal amount of Variable Rate Exchangeable Debentures due 2010 (the "Holdings Debentures") at an 8 percent discount. The Holdings Debentures are exchangeable under certain circumstances at the option of the holders upon the first to occur of certain specified events or final maturity for substantially all of the Common Units that are owned by SFP Pipelines. The interest payable with respect to the Holdings Debentures for a particular quarter is equal to the greater of (i) the distributions of cash from 20 operations declared by the Partnership on the Common Units for which such Holdings Debentures are exchangeable and (ii) two percent of the weighted average unpaid balance of such Holdings Debentures outstanding during such quarter, provided that in no event shall the amount of interest paid on the Holdings Debentures exceed an average annual rate of 16 percent since their date of issuance. The Holdings Debentures are listed on the New York Stock Exchange under the symbol "SFLH." The Partnership is one of the largest independent pipeline common carriers of refined petroleum products in the United States, and the largest in the western United States, in terms of product deliveries, barrel miles, and pipeline mileage, with approximately 3,300 miles of pipeline and 14 truck loading terminals serving six states. The Partnership transports refined petroleum products via underground pipeline in liquid form, including gasoline, diesel fuel, and commercial and military jet fuel, primarily for integrated petroleum companies, independent refiners, the United States military, and marketers and distributors of such products. The Partnership also operates loading terminals through which refined petroleum products are loaded into tank trucks for further distribution, and provides pipeline service to 44 customer-owned terminals, three commercial airports, and 12 military bases. The Partnership's Pipeline System consists of: (1) the South Line, which comprises two segments, the West Line, which transports products from Los Angeles to Phoenix and Tucson, Arizona, and various intermediate points, and the East Line, which transports products from El Paso, Texas to Tucson and Phoenix, Arizona, and various intermediate points; (2) the North Line, which transports products primarily from the San Francisco Bay area to various cities in northern California and western Nevada; (3) the Oregon Line, which transports products between Portland and Eugene, Oregon and one intermediate point; and (4) the San Diego Line, which transports products from Los Angeles basin refineries to San Diego, California, and various intermediate points. The Pipeline System shipped 332.7 million barrels in 1993, up from 323.4 million barrels in 1992. Approximately 66 percent of the 1993 volumes were gasoline, with the balance divided approximately equally between jet fuels and diesel fuels. The volume of refined petroleum products transported in the Pipeline System is directly affected by the demand for refined petroleum products in the geographic regions served, which can vary seasonally and is based upon the different end uses to which the refined petroleum products delivered may be applied. Although the mix of refined petroleum products transported varies among the pipeline segments constituting the Pipeline System, such variation is not substantial. Tariff rates charged shippers for transportation do not vary for different product types. During 1993, the Partnership spent $21.1 million for capital improvements. The Partnership's planned 1994 capital expenditures approximate $22 million. GOVERNMENT REGULATION AND LEGISLATION Substantially all of the Partnership's pipeline operations are common carrier operations that are subject to federal or state rate regulation. The Federal Energy Regulatory Commission (FERC) exercises economic regulatory jurisdiction over interstate shipments through the Pipeline System. Intrastate shipments are subject to economic regulation by the California Public Utilities Commission. The Pipeline System is also subject to operating and safety regulation by the DOT, OSHA, and by various state agencies. The Partnership's operations are subject to federal, state, and local laws and regulations relating to the protection of the environment, including laws and regulations applicable to water, air, solid waste, and hazardous substances. The discharge of hazardous materials or contamination of property by hazardous materials may arise from the transportation and storage of such materials in 21 the Pipeline System. The normal operations of the Pipeline System may result in hazards and expose SFP Pipelines to claims and potential liability for injuries to employees, other persons, property, and the environment. During the quarter ended September 30, 1993, the Partnership completed a comprehensive re- evaluation of its potential liabilities associated with environmental remediation activities and, as a result, recorded a $15 million provision to increase its existing reserve for environmental remediation costs. ITEM 3. LEGAL PROCEEDINGS Set forth below is a description of certain legal proceedings involving SFP and its subsidiaries. On January 30, 1987, New TC Holding Corporation ("New TC") and Ticor, Inc. ("Ticor") filed suit in the Superior Court of the State of California for the County of Los Angeles against SFP Properties, Inc. (formerly known as Southern Pacific Company), a wholly owned subsidiary of SFP (the "New TC Lawsuit"). In the complaint, New TC, which purchased all of the outstanding common stock of Ticor from SFP Properties, Inc. pursuant to a Share Purchase Agreement dated September 30, 1983, sought an order declaring that SFP Properties, Inc. is obligated by the terms of the Share Purchase Agreement to defend and hold harmless New TC and certain of its subsidiaries from losses which may exceed $100 million. On February 24, 1993, this case was dismissed by the court for lack of prosecution. SFP Properties, Inc. has reached an agreement in principle to pay New TC and Ticor $1.2 million in settlement of all claims made in the New TC Lawsuit and the third-party action filed in the Great American Lawsuit (described below). In another lawsuit, Great American Insurance Company ("Great American") seeks indemnity from Ticor for various claims and losses pursuant to the indemnity provisions of the 1977 Share Purchase Agreement in which Ticor purchased Constellation Reinsurance Company ("Con Re") from Great American (the "Great American Lawsuit"). Great American alleges that Con Re breached certain agreements with Great American, and that Ticor is required to indemnify and hold Great American harmless with respect to all losses incurred in connection therewith. In turn, Ticor seeks indemnity from SFP Properties, Inc. under the 1983 Share Purchase Agreement between New TC and SFP Properties, Inc. referred to above. Ticor's third-party complaint against SFP Properties, Inc., filed on December 22, 1989, alleges not only that SFP Properties, Inc. is responsible to indemnify Ticor under the 1983 Share Purchase Agreement between New TC and SFP Properties, Inc., but that SFP Properties, Inc.'s failure to infuse funds into Con Re and to implement less onerous tax allocation arrangements prior to Con Re's liquidation was the proximate cause of Con Re's failure to satisfy the claims now made against Great American. Ticor alleges that SFP Properties, Inc. had an implied contractual duty to Ticor to refrain from such conduct. On or about December 14, 1990, Ticor filed a petition for reorganization pursuant to Chapter 11 of the Bankruptcy Code, and both Great American's action against Ticor and Ticor's third-party action against against SFP Properties, Inc. were stayed. The Bankruptcy Court thereafter entered an order disallowing Great American's claim in its entirety, and the action brought by Great American against Ticor was dismissed, with prejudice. Subsequently, as described above, SFP Properties, Inc. reached an agreement in principle to pay New TC and Ticor $1.2 million in settlement of all claims made in the third- party action filed in the Great American Lawsuit and the New TC Lawsuit. On December 17, 1992, an amended complaint was filed in an action entitled David Rodriguez, derivatively on behalf of Santa Fe Pacific Corporation v. John S. Reed, Robert D. Krebs, W. John Swartz, John J. Schmidt, Joseph F. Alibrandi, Richard J. Flamson III, George B. Munroe, Jack S. Parker, Jean Head Sisco, Arthur W. Woelfle, Robert E. Gilmore, Michael A. Morphy, Edward F. Swift, Kathryn D. Wriston, John S. Runnells, II, Robert H. West, Alan C. Furth, Arjay Miller, and 22 Benjamin F. Biaggini, Defendants, and Santa Fe Pacific Corporation, a Delaware corporation, Nominal Defendant, in the Circuit Court of Cook County, Illinois, County Department, Chancery Division, No. 92 CH 06618. The amended complaint asserts purported derivative claims on behalf of SFP against present and former directors of SFP and alleges that the defendant directors caused SFP to incur liability in connection with the action brought against SFP in 1985 by Energy Transportation Systems, Inc. and ETSI Pipeline Project (the "ETSI Litigation"). The four counts of the amended complaint allege breach of fiduciary duty and waste of corporate assets for intentional antitrust violations, negligent failure to stop antitrust violations, failure to timely settle the ETSI Litigation, and failure to take appropriate action against persons who committed antitrust violations. The amended complaint seeks damages from the individual defendants in an amount "not less than $342 million." On December 7, 1993, the Board appointed a Litigation Committee consisting of Directors Lindig and Roberts to consider and determine whether or not prosecution of such claims and action is in the best interest of SFP and its stockholders. In August 1991, the EPA issued an order to SFP Pipelines and nine additional parties regarding investigation and cleanup of contamination in the vicinity of the Partnership's storage facilities and truck loading terminal at Sparks, Nevada. The investigation and remediation at the Sparks terminal is also the subject of a lawsuit filed January 1, 1991, entitled Nevada Division of Environmental Protection v. Santa Fe Pacific Pipelines, Inc., Southern Pacific Transportation Company, Shell Oil Company, Time Oil Company, Berry-Hinkley Terminal, Inc., Chevron U.S.A., Inc., Texaco Refining and Marketing, Inc., Air BP, a division of BP Oil, Unocal Corporation, and Golden Gate Petroleum Company, Case No. CV91-546, in the Second Judicial District Court of the State of Nevada in and for the County of Washoe, seeking remediation of contamination allegedly due to operations of SFP Pipelines and other defendants and which involves potential monetary sanctions that could exceed $100,000. This lawsuit was subsequently joined by the County of Washoe Health District and the City of Sparks. Several lawsuits also have been brought against the ten respondents for alleged property value diminishment. Pursuant to the EPA order, a report on a detailed site investigation, along with a proposed remediation plan, was submitted to the EPA on March 6, 1992. In September 1992, the EPA approved the respondents' remediation plan and an estimate of remediation costs was made in accordance with that plan. During the quarter ended September 30, 1992, the Partnership recorded a $10 million provision for environmental remediation costs at Sparks, Nevada, and two sites in California. Effective December 10, 1993, Santa Fe Railway entered into an agreement with the South Coast Air Quality Management District ("District"), a political subdivision of the State of California, with respect to alleged violations of air emission regulations dating from January 1991. The agreement covers 48 Notices of Violation concerning smoke emissions from 71 locomotives operating in California's South Coast Air Basin. Under the agreement, Santa Fe Railway contributed $173,500 to the District to support its Locomotive Propulsion Systems Task Force Account or other locomotive emissions research or demonstration projects mutually agreed upon by the District and Santa Fe Railway, and contributed $4,000 to be used for certain audit expenses. In addition, Santa Fe Railway has agreed to purchase and install measuring meters and to implement a compliance reporting program to monitor locomotive emissions for an approximate total cost of $300,000. During the quarter ended June 30, 1993, the EPA issued a Notice of Violations to the Partnership associated with an oxygenate blending equipment malfunction at the Partnership's Phoenix terminal. It is possible that the Partnership will be required to pay in excess of $100,000 in fines arising from this Notice of Violations. SFP and its subsidiaries also are parties to a number of other legal actions arising in the ordinary course of business, including various governmental proceedings and private civil suits concerning environmental matters. While the final outcome of these and other legal actions cannot be predicted with certainty, considering the meritorious legal defenses available, it is the opinion of 23 SFP management that none of these legal actions, when finally resolved, will have a material adverse effect on the consolidated financial position of SFP. Reference is made to Note 8 to the consolidated financial statements on page 26 of SFP's 1993 Annual Report to Shareholders for information concerning certain pending administrative appeals between SFP and the Internal Revenue Service. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted by SFP to a vote of its securities holders during the fourth quarter of 1993. EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the names, ages, and positions of all executive officers of SFP (excluding executive officers who are also directors of SFP) and their business experience during the past five years. Unless otherwise indicated, each executive officer listed below has served in his or her present occupation for at least five years. Executive officers hold office until their successors are elected or appointed, or until their earlier death, resignation, or removal. CAROL R. BEERBAUM, 50 Vice President--Human Resources since June 1992. Formerly, Senior Vice President, Human Resources, PHH Homequity, Inc. (relocation and real estate management services) from May 1990, and Vice President, Human Resources of PHH Homequity, Inc. from January 1987. JEROME F. DONOHOE, 55 Vice President--Law since July 1984. Also, partner with Mayer, Brown & Platt (law firm) since September 1990. RUSSELL E. HAGBERG, 43 Senior Vice President and Chief of Staff of Santa Fe Railway since January 1994. Prior to that, Vice President--Transportation of Santa Fe Railway from June 1991, Vice President--Human Resources of SFP from June 1990, and Vice President--Human Resources and Administration of Santa Fe Railway from March 1989. THOMAS N. HUND, 40 Vice President and Controller since July 1990. Formerly, Assistant Vice President and Controller of Santa Fe Railway from August 1989. Prior to that, Assistant Controller of SFP. STEVEN F. MARLIER, 48 Senior Vice President and Chief Marketing Officer of Santa Fe Railway since January 1994. Prior to that, Senior Vice President--Carload Business Unit of Santa Fe Railway since January 1992. Formerly, Regional Manager/General Manager, IBM Corporation (computers and data processing). DONALD G. MCINNES, 53 Senior Vice President and Chief Operating Officer of Santa Fe Railway since January 1994. Prior to that, Senior Vice President--Intermodal Business Unit of Santa Fe Railway since January 1992, Vice President--Intermodal of Santa Fe Railway from July 1989, Vice President--Administration of Santa Fe Railway from January 1989, and General Manager of Eastern Region of Santa Fe Railway from July 1987. 24 JEFFREY R. MORELAND, 49 Vice President--Law and General Counsel of Santa Fe Railway since June 1989. Prior to that, General Counsel of SFP from April 1988. MARSHA K. MORGAN, 46 Corporate Secretary since December 1990. Prior to that, Treasurer from March 1988, and Assistant Treasurer from 1983. PATRICK J. OTTENSMEYER, 38 Vice President--Finance of SFP since September 1993. Previously, held a senior credit position with First Empire State Corporation (banking) from September 1992, was Senior Vice President of Security Pacific National Bank (banking) from October 1989 (which merged with Bank of America National Trust and Savings Association (banking) in April 1992), and held other positions with Security Pacific National Bank from 1984. DENIS E. SPRINGER, 48 Senior Vice President and Chief Financial Officer since October 1993. Prior to that, Senior Vice President, Treasurer and Chief Financial Officer from January 1992, Vice President, Treasurer and Chief Financial Officer from January 1991, Vice President--Finance from April 1988, and Assistant Vice President--Finance from October 1984. IRVIN TOOLE, JR., 52 Chairman, President and Chief Executive Officer, SFP Pipelines and SFP Pipeline Holdings, Inc. since September 1991. Formerly, Senior Vice President, Treasurer and Chief Financial Officer, SFP Pipelines from December 1988, and Vice President--Administration and Treasurer, SFP Pipelines from February 1986. DANIEL J. WESTERBECK, 50 Vice President and Tax Counsel since April 1988. Formerly, Assistant Vice President and Tax Counsel from October 1984. CATHERINE A. WESTPHAL, 45 Vice President--Corporate Communications since January 1994. Prior to that, Assistant Vice President--Public Relations from January 1992, Director--Public Relations from January 1991, and Manager--Public Affairs at Santa Fe Railway from January 1989. RICHARD T. ZITTING, 64 Chairman and Chief Executive Officer, SFP Gold, a subsidiary of SFP, since January 1994. Prior to that, President, SFP Gold or its predecessors from November 1978. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information as to the principal markets on which the Common Stock of SFP is traded, the high and low sales prices of such stock for the two years ending December 31, 1993, the frequency and 25 amount of dividends declared on such stock during such period and the approximate number of record holders of the Common Stock is set forth below the heading "Common Stock Market Prices and Dividends" on page 18 of SFP's 1993 Annual Report to Shareholders and is hereby incorporated by reference. A statement regarding a limitation of dividends on SFP Common Stock is set forth in Note 11 to the consolidated financial statements on page 27 of SFP's 1993 Annual Report to Shareholders and is hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA There is disclosed on page 1 of SFP's 1993 Annual Report to Shareholders selected financial data of SFP for each of the last five fiscal years. Such data with respect to the following topics are incorporated by reference: Revenues; Income (Loss) from Continuing Operations; Income (Loss) from Continuing Operations Per Common Share; Total Assets; Total Debt; and Cash Dividends Per Common Share. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS Management's Discussion and Analysis of Results of Operations and Financial Condition appearing on pages 14 through 18 of SFP's 1993 Annual Report to Shareholders is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of SFP and subsidiary companies, together with the report thereon of Price Waterhouse dated February 4, 1994, appearing on pages 19 through 32 of SFP's 1993 Annual Report to Shareholders, are hereby incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the directors of SFP is provided on pages 2 through 4 and on pages 5 and 6 ("Legal Proceedings") of SFP's proxy statement dated March 9, 1994, and is hereby incorporated by reference. Pursuant to the retirement policy of the Board, one current director, Mr. George B. Munroe, age 72, will not stand for re-election at the 1994 Annual Meeting. Mr. Munroe, a director since 1972, retired in February 1987, from his position as Chairman of the Board and Chief Executive Officer of Phelps Dodge Corporation (copper mining, manufacturing, and specialty chemicals). He is a director of New York Life Insurance Company, The New York Times Company, and Phelps Dodge Corporation. Information concerning the executive officers of SFP (excluding one executive officer who is also a director of SFP) is included in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION Information concerning the compensation of directors and executive officers of SFP is provided on pages 4 through 5 ("Directors' Compensation") and pages 8 through 13 (excluding the portion 26 of page 13 containing the "Compensation and Benefits Committee Report on Executive Compensation") of SFP's proxy statement dated March 9, 1994, and is hereby incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning the ownership of SFP equity securities by certain beneficial owners and management is provided on pages 2 through 4, and 6 through 7 of SFP's proxy statement dated March 9, 1994, and is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions is provided on page 4 ("Certain Relationships and Related Transactions") of SFP's proxy statement dated March 9, 1994, and is hereby incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) The following documents are filed as a part of this report:
PAGE ----- 1. Consolidated Financial Statements: Report of Independent Accountants dated February 4, 1994.................. [19*] Consolidated Statement of Operations for the three years ended December 31, 1993........................................................ [20*] Consolidated Balance Sheet at December 31, 1993 and 1992.................. [21*] Consolidated Statement of Cash Flows for the three years ended December 31, 1993........................................................ [22*] Consolidated Statement of Shareholders' Equity for the three years ended December 31, 1993.................................................. [23*] Notes to Consolidated Financial Statements................................ [24*] 2. Consolidated Financial Statement Schedules: Report of Independent Accountants on Consolidated Financial Statement Schedules for the three years ended December 31, 1993 F-1...... F-1 Schedule V--Property, Plant and Equipment for the three years ended December 31, 1993........................................................ F-2 Schedule VI--Accumulated Depreciation, Depletion, and Amortization of Properties for the three years ended December 31, 1993................ F-4 Schedule VII--Guarantees of Securities of Other Issuers as of December 31, 1993........................................................ F-5 Schedule VIII--Valuation and Qualifying Accounts for the three years ended December 31, 1993, 1992, and 1991.................................. F-6 Schedule X--Supplementary Income Statement Information for the three years ended December 31, 1993...................................... F-7
All other schedules have been omitted because they are not applicable or the required information is presented in the financial statements or the notes to the consolidated financial statements. 27 3. Exhibits: See Index to Exhibits on pages E-1-E-4 for a description of the exhibits filed as a part of this Report. (B) Reports on Form 8-K SFP filed no Reports on Form 8-K during the quarter ended December 31, 1993. - -------- * Incorporated by reference from the indicated pages of SFP's Annual Report to Shareholders for the fiscal year ended December 31, 1993. 28 REPORT OF INDEPENDENT ACCOUNTANTS ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULES To the Shareholders, Chairman and Board of Directors of Santa Fe Pacific Corporation Our audits of the consolidated financial statements referred to in our report dated February 4, 1994 appearing on page 19 of the 1993 Annual Report to Shareholders of Santa Fe Pacific Corporation and subsidiary companies (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Consolidated Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these Consolidated Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE Kansas City, Missouri February 4, 1994 F-1 SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT FOR YEARS 1993, 1992 AND 1991 (IN MILLIONS)
BALANCE AT BALANCE BEGINNING ADDITIONS OTHER AT END DESCRIPTION OF YEAR AT COST RETIREMENTS CHANGES OF YEAR ----------- --------- --------- ----------- ------- -------- 1993 - ---- Rail Track structure............. $2,199.8 $185.4 $ 58.4 $ -- $2,326.8 Equipment................... 1,864.0 149.5 60.9 -- 1,952.6 Other road properties....... 1,337.5 192.8 51.4 -- 1,478.9 Real estate and other....... 122.7 11.4 6.3 -- 127.8 -------- ------ ------ ------ -------- Total Rail................ 5,524.0 539.1 177.0 -- 5,886.1 Gold......................... 445.5 107.1 2.2 227.9(1) 778.3 -------- ------ ------ ------ -------- Total..................... $5,969.5 $646.2 $179.2 $227.9 $6,664.4 ======== ====== ====== ====== ======== 1992 - ---- Rail Track structure............. $2,202.9 $142.3 $145.4 $ -- $2,199.8 Equipment................... 1,910.2 36.6 82.8 -- 1,864.0 Other road properties....... 1,264.6 83.3 10.4 -- 1,337.5 Real estate and other....... 116.6 3.3 (2.8) -- 122.7 -------- ------ ------ ------ -------- Total Rail................ 5,494.3 265.5 235.8 -- 5,524.0 Gold......................... 381.2 66.5 2.2 -- 445.5 Corporate.................... 1.2 -- 1.2 -- -- -------- ------ ------ ------ -------- Total..................... $5,876.7 $332.0 $239.2 $ -- $5,969.5 ======== ====== ====== ====== ======== 1991 - ---- Rail Track structure............. $2,185.1 $130.4 $112.6 $ -- $2,202.9 Equipment................... 1,981.4 47.0 117.5 (0.7) 1,910.2 Other road properties....... 1,280.0 62.9 78.3 -- 1,264.6 Real estate and other....... 117.2 1.6 2.2 -- 116.6 -------- ------ ------ ------ -------- Total Rail................ 5,563.7 241.9 310.6 (0.7) 5,494.3 Gold......................... 299.2 87.5 5.5 -- 381.2 Corporate.................... 19.5 1.3 19.6 -- 1.2 -------- ------ ------ ------ -------- Total..................... $5,882.4 $330.7 $335.7 $ (0.7) $5,876.7 ======== ====== ====== ====== ========
- -------- (1) Represents excess of fair value of gold assets received over coal and aggregate assets given up in exchange with Hanson Natural Resources Company ("HNRC"). See Note 3 to Financial Statements on page 24 in the 1993 Santa Fe Pacific Corporation Annual Report to Shareholders (Gain on Exchange of Mineral Assets). F-2 SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Rates used for computing annual depreciation and amortization provisions for properties are as follows (in percent): Railroad properties Locomotives................................................. 5.59 to 6.04 Freight cars................................................ 2.52 to 6.13 Track structure............................................. 1.25 to 3.18 Other road properties....................................... .67 to 8.82 Other railroad equipment.................................... 3.13 to 14.07 Gold properties Productive properties....................................... (1) Machinery and equipment..................................... 6.70 to 33.00 Buildings................................................... 6.70 to 16.00
- -------- (1) See Note 1 to Financial Statements on page 24 in the 1993 Santa Fe Pacific Corporation Annual Report to Shareholders (Summary of Significant Accounting Policies: Properties, and Exploration and Development Costs). F-3 SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTIES FOR YEARS 1993, 1992 AND 1991 (IN MILLIONS)
BALANCE AT BALANCE BEGINNING OTHER AT END DESCRIPTION OF YEAR ADDITIONS RETIREMENTS CHANGES OF YEAR ----------- --------- --------- ----------- ------- -------- 1993 - ---- Rail Track structure............ $ 420.0 $ 62.1 $ 42.3 $118.2(1) $ 558.0 Equipment.................. 828.9 92.1 48.4 -- 872.6 Other road properties...... 279.6 28.3 49.6 (118.2)(1) 140.1 Real estate and other...... 6.8 -- -- 0.2 7.0 -------- ------ ------ ------ -------- Total Rail............... 1,535.3 182.5 140.3 0.2 1,577.7 Gold........................ 94.9 59.0 1.2 (62.2)(2) 90.5 -------- ------ ------ ------ -------- Total.................... $1,630.2 $241.5 $141.5 $(62.0) $1,668.2 ======== ====== ====== ====== ======== 1992 - ---- Rail Track structure............ $ 465.5 $ 60.8 $106.3 $ -- $ 420.0 Equipment.................. 790.6 89.4 51.1 -- 828.9 Other road properties...... 278.3 29.2 27.9 -- 279.6 Real estate and other...... 7.0 -- 0.2 -- 6.8 -------- ------ ------ ------ -------- Total Rail............... 1,541.4 179.4 185.5 -- 1,535.3 Gold........................ 66.3 34.8 6.2 -- 94.9 -------- ------ ------ ------ -------- Total.................... $1,607.7 $214.2 $191.7 $ -- $1,630.2 ======== ====== ====== ====== ======== 1991 - ---- Rail Track structure............ $ 514.9 $ 54.9 $104.3 $ -- $ 465.5 Equipment.................. 818.7 93.1 121.2 -- 790.6 Other road properties...... 340.9 36.1 98.7 -- 278.3 Real estate and other...... 7.1 -- 0.1 -- 7.0 -------- ------ ------ ------ -------- Total Rail............... 1,681.6 184.1 324.3 -- 1,541.4 Gold........................ 46.3 23.9 3.9 -- 66.3 Corporate................... 10.1 -- 10.1 -- -- -------- ------ ------ ------ -------- Total.................... $1,738.0 $208.0 $338.3 $ -- $1,607.7 ======== ====== ====== ====== ========
- -------- (1) Transfer of excess reserves from Other Road Properties to Track Structure as a result of depreciation studies filed with the Interstate Commerce Commission. (2) Represents accumulated depreciation on coal and aggregate assets acquired by HNRC in the asset exchange. See Note 3 to Financial Statements on page 24 in the 1993 Santa Fe Pacific Corporation Annual Report to Shareholders (Gain on Exchange of Mineral Assets). F-4 SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE VII--GUARANTEES OF SECURITIES OF OTHER ISSUERS DECEMBER 31, 1993
TOTAL NAME OF ISSUER OF TITLE OF ISSUE AMOUNT SECURITIES GUARANTEED OF EACH CLASS OF GUARANTEED AND NATURE OF BY REGISTRANT SECURITIES GUARANTEED OUTSTANDING(A) GUARANTEE - --------------------- --------------------- -------------- --------- (MILLIONS) SFPP, L.P.(b) First Mortgage Notes due $356.7 Principal and 1994 to 2004 interest
- -------- (a) None of the securities were owned by the Registrant, none were held in the treasury of the issuer, and none were in default. (b) SFPP, L.P. is the operating partnership of Santa Fe Pacific Pipeline Partners, L.P. ("Pipeline Partnership"). A subsidiary of Santa Fe Pacific Corporation, the general partner of the Pipeline Partnership, is contingently liable for this amount. F-5 SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS 1993, 1992 AND 1991
BALANCE AT ADDITIONS BALANCE BEGINNING CHARGED TO AT END DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS OF PERIOD ----------- ---------- ---------- ---------- --------- (IN MILLIONS) Allowance for Doubtful Accounts - ------------------------------- Year Ended December 31, 1993........ $11.2 $7.8 $2.6 $16.4 Year Ended December 31, 1992........ $11.6 $5.7 $6.1 $11.2 Year Ended December 31, 1991........ $11.1 $6.3 $5.8 $11.6
F-6 SANTA FE PACIFIC CORPORATION AND SUBSIDIARY COMPANIES SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR YEARS 1993, 1992 AND 1991 The following amounts have been charged to operating expenses:
1993 1992 1991 ------ ------ ------ (IN MILLIONS) Maintenance and repairs............................... $560.2 $515.9 $494.2 ====== ====== ====== Taxes, other than payroll and income Real estate and personal property.................... $ 23.1 $ 22.3 $ 23.6 Other................................................ $ 14.8 $ 16.3 $ 16.3 ------ ------ ------ Total............................................... $ 37.9 $ 38.6 $ 39.9 ====== ====== ======
Other supplementary income statement items have been omitted from this schedule either because the required information is disclosed elsewhere in the consolidated financial statements or the notes to consolidated financial statements or the amounts charged to operating expenses do not exceed one percent of total consolidated revenues. F-7 SIGNATURES SANTA FE PACIFIC CORPORATION, PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. SANTA FE PACIFIC CORPORATION /s/ Robert D. Krebs By: _________________________________ Robert D. Krebs Chairman, President and Chief Executive Officer Dated: March 30, 1994 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF SANTA FE PACIFIC CORPORATION AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE --------- ----- /s/ Robert D. Krebs - ------------------------------------------- Robert D. Krebs Chairman, President and Chief Executive Officer (Principal Executive Officer), and Director /s/ Denis E. Springer - ------------------------------------------- Denis E. Springer Senior Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Thomas N. Hund - ------------------------------------------- Thomas N. Hund Vice President and Controller (Principal Accounting Officer) Joseph F. Alibrandi* - ------------------------------------------- Joseph F. Alibrandi* Director George Deukmejian* - ------------------------------------------- George Deukmejian* Director Bill M. Lindig* - ------------------------------------------- Bill M. Lindig Director Michael A. Morphy* - ------------------------------------------- Michael A. Morphy Director
S-1
SIGNATURE TITLE --------- ----- George B. Munroe* - ------------------------------------------- George B. Munroe Director Roy S. Roberts* - ------------------------------------------- Roy S. Roberts Director John S. Runnells II* - ------------------------------------------- John S. Runnells II Director Jean Head Sisco* - ------------------------------------------- Jean Head Sisco Director Edward F. Swift* - ------------------------------------------- Edward F. Swift Director Robert H. West* - ------------------------------------------- Robert H. West Director
/s/ Jeffrey R. Moreland *By__________________________________ Vice President--Law and General Counsel, The Atchison, Topeka and Santa Fe Railway Company Attorney in Fact Dated: March 30, 1994 S-2 SANTA FE PACIFIC CORPORATION INDEX OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3(a) Restated Certificate of Incorporation of SFP (as amended April 26, 1989). Incorporated by reference to Exhibit 3(a) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1989. (b) By-Laws of SFP (as amended April 27, 1993). Incorporated by reference to Exhibit 3 to SFP's Report on Form 10-Q for the quarter ended March 31, 1993. 4(a) SFP is not filing any instruments evidencing indebtedness because the total amount of securities authorized under any single such instrument does not exceed 10% of SFP's total assets. SFP will furnish copies of any material instruments upon request of the Securities and Exchange Commission. 10(a)* SFP 1983 Incentive Stock Option Plan. Incorporated by reference to Exhibit 10(b) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1984. Amendments to SFP 1983 Incentive Stock Option Plan dated May 28, 1987 and October 29, 1987 are incorporated by reference to Exhibit 10(b) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1987. Amendments to SFP 1983 Incentive Stock Option Plan dated February 27, 1990 are incorporated by reference to Exhibit 10(b) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1989. Amendment to SFP 1983 Incentive Stock Option Plan dated December 4, 1990 is incorporated by reference to Exhibit 10(b) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1990. (b)* Santa Fe Pacific Corporation Supplemental Retirement Plan ("Supplemental Plan"). Incorporated by reference to Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1984. Supplemental Plan as amended October 1, 1989, and Amendment to Supplemental Plan dated February 27, 1990, are incorporated by reference to Exhibit 10(d) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1989. Amendment to Supplemental Plan dated March 22, 1994, and effective January 1, 1994. (c)* SFP Incentive Stock Compensation Plan. Incorporated by reference to Exhibit 10(e) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1985. Amendments to SFP Incentive Stock Compensation Plan dated May 28, 1987 and October 29, 1987 are incorporated by reference to Exhibit 10(e) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1987. Amendments to SFP Incentive Stock Compensation Plan dated March 8, 1989, June 8, 1989, and February 27, 1990 are incorporated by reference to Exhibit 10(e) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1989. Amendment to SFP Incentive Stock Compensation Plan effective as of July 24, 1990 is incorporated by reference to SFP's Report on Form 10-Q for the Quarter ended June 30, 1990. Amendment to SFP Incentive Stock Compensation Plan dated December 4, 1990 is incorporated by reference to SFP's Report on Form 10-K for the fiscal year ended December 31, 1990. (d)* Indemnity Agreements dated September 23, 1986 by and between SFP and each of its directors and officers. Incorporated by reference to Exhibit A to SFP's Annual Meeting of Stockholders-Notice and Proxy Statement-dated March 18, 1987.
- -------- * Management contract or compensatory plan or arrangement. E-1
EXHIBIT NUMBER DESCRIPTION ------- ----------- (e)* SFP Form of Severance Agreement dated November 2, 1987 (applicable to 29 persons as of March 22, 1994), as adopted in May 1987 and amended in October 1987. Incorporated by reference to Exhibit 10(j) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1987. Amendment to Form of Severance Agreement dated July 24, 1990 is incorporated by reference to SFP's Report on Form 10-Q for the Quarter ended June 30, 1990. Amendment to Form of Severance Agreement adopted January 25, 1994. (f)* Trust Agreement dated July 6, 1987 between SFP and Harris Trust and Savings Bank as Trustee, as amended on October 28, 1987 and November 2, 1987. Incorporated by reference to Exhibit 10(k) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1987. Amendment to Trust Agreement dated September 1, 1988. Incorporated by reference to Exhibit 10(i) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1988. (g)* SFP Supplemental Deferred Compensation Plan. Incorporated by reference to Exhibit 10(l) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1987. (h)* Retirement Policy for Directors of Santa Fe Pacific Corporation, adopted July 26, 1988, and effective January 1, 1988. Incorporated by reference to Exhibit 10(l) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1988. (i)* SFP Supplemental Executive Retirement Plan adopted as of October 1, 1989 and Amendment to SFP Supplemental Executive Retirement Plan dated as of February 27, 1990. Incorporated by reference to Exhibit 10(n) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1989. (j)* MLP Incentive Plan. Incorporated by reference to Exhibit 10.9 to Amendment No. 1 to Registration Statement on Form S-1 of SFP Pipeline Holdings, Inc. (Commission File No. 33-35638) dated August 8, 1990. (k)* Employment Agreement effective as of June 1, 1990 between Santa Fe Pacific Pipelines, Inc. and I. Toole, Jr. Incorporated by reference to Exhibit 10.16 to Amendment No. 1 to Registration Statement on Form S-1 of SFP Pipeline Holdings, Inc. (Commission File No. 33-35638) dated August 8, 1990. (l)* Retirement Benefit Agreement dated February 26, 1992 between SFP and R. D. Krebs. Incorporated by reference to SFP's Report on Form 10-K for the fiscal year ended December 31, 1991. (m)* Severance Agreement effective June 3, 1991 between R. T. Zitting and Santa Fe Pacific Gold Corporation. Incorporated by reference to Exhibit 10(a) to SFP's Report on Form 10-Q for the quarter ended September 30, 1991. (n)* The Atchison, Topeka and Santa Fe Railway Company Incentive Compensation Plan. Incorporated by reference to Exhibit 10(n) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1991. (o)* Santa Fe Pacific Gold Corporation Incentive Compensation Plan. Incorporated by reference to Exhibit 10(o) to SFP's Report on Form 10- K for the fiscal year ended December 31, 1991.
- -------- * Management contract or compensatory plan or arrangement. E-2
EXHIBIT NUMBER DESCRIPTION ------- ----------- (p)* The Santa Fe Pacific Pipelines, Inc. Incentive Compensation Plan. Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to Registration Statement on Form S-1 of SFP Pipeline Holdings, Inc. (Commission File No. 33-35638) dated August 8, 1990. Amendment to the Santa Fe Pacific Pipelines, Inc. Incentive Compensation Plan dated January 12, 1994. (q)* Executive Employment Agreement of June 29, 1992 between C. R. Beerbaum and SFP. Incorporated by reference to Exhibit 10(q) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1992. (r)* Santa Fe Pacific Long Term Incentive Stock Plan. Incorporated by reference to Exhibit 10(r) to SFP's Report on Form 10-K for the fiscal year ended December 31, 1992. Amendment to Santa Fe Pacific Corporation Long Term Incentive Stock Plan dated May 25, 1993, incorporated by reference to SFP's Report on Form 10-Q for the quarter ended June 30, 1993. (s)* Santa Fe Pacific Corporation Supplemental Retirement and Savings Plan. (t)* The MLP Phantom Unit Incentive Plan. Incorporated by reference to Exhibit 10 to Form 10-Q of SFP Pipeline Holdings, Inc. for the quarter ended June 30, 1993. (u)* Santa Fe Pacific Gold Corporation Phantom Stock Option Plan. (v) Asset Exchange Agreement, dated as of January 25, 1993, First Amendment to Asset Exchange Agreement, dated June 1, 1993, and Second Amendment to Asset Exchange Agreement, dated as of June 25, 1993. Incorporated by reference to SFP's Current Report on Form 8-K dated June 25, 1993. 13 1993 Annual Report to Shareholders of SFP (Consolidated Financial Highlights on page 1, and pages 14-32, only.) 21 Subsidiaries of SFP. 23(a) Consent of Independent Accountants. (b) Consent of Pincock, Allen & Holt 24 Powers of Attorney.
- -------- * Management contract or compensatory plan or arrangement. E-3 GRAPHICS APPENDIX Page 13 consists of a map depicting areas of minerals rights controlled by Santa Fe Pacific Gold Corporation in the western United States as well as the location of exploration offices, company mines, and company headquarters. EX-10.B 2 AMENDMENT TO SUPP RET PL Exhibit 10(b) AMENDMENT OF THE SANTA FE PACIFIC CORPORATION SUPPLEMENTAL RETIREMENT PLAN The Santa Fe Pacific Corporation Supplemental Retirement Plan (the "Supplemental Plan") was amended by the Board of Directors of the SFP so that, effective as of January 1, 1994, the Supplemental Plan was amended: 1. By deleting Paragraph 1(b) and inserting the following in its stead: (b) . . . those benefits thereunder would be limited as a result of Section 2.09 of the Plan. 2. By deleting Paragraph 2(a) and inserting the following in its stead: (a) by calculating the amount of the monthly benefit to which the participant, surviving spouse, or contingent annuitant would be entitled under the Plan without regard to the limitation set forth in Section 14.01 of the Plan and without regard to the limitation on Compensation set forth in Section 2.09 of the Plan. 3. By deleting the words ". . . combined with the benefit payable under the SFP Corporation Supplemental Executive Retirement Plan" where it appears in Paragraph 5. EX-10.E 3 AM TO SEVERENCE AGREEMEN Exhibit 10(e) AMENDMENT TO SANTA FE PACIFIC CORPORATION SEVERANCE AGREEMENT The Santa Fe Pacific Corporation Severance Agreements ("Severance Agreements") as adopted effective May 27, 1987, and as amended from time to time, is hereby further amended, effective as of the adoption hereof, as set forth below. ARTICLE FIRST In the third paragraph of the Severance Agreement, the phrase "or its Affiliates", should be inserted after the word "Corporation" where it first and third appears therein. ARTICLE SECOND All references to "Santa Fe Southern Pacific" shall be deleted wherever it appears therein and "Santa Fe Pacific" inserted in its stead. ARTICLE THIRD Paragraph number 1 of the Severance Agreement shall be amended by substituting the following after the second semicolon therein: "and provided further, that if a change in control of the Corporation, as defined in Section 2, shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of not less than the later of (a) thirty-six (36) months beyond the month in which such change in control of the Corporation occurred, (b) in the event Interstate Commerce Commission approval of such change in control involving the Corporation or its Affiliate is required, the effective date of the Interstate Commerce Commission approval or, if later, the first anniversary of the consummation of the transaction, provided, however that if the Corporation determines that it will not consummate the transaction, the date of such determination, or (c) in the event that Interstate Commerce Commission approval of such change in control involving the Corporation or its Affiliate is required, and the Interstate Commerce Commission determines that the proposed transaction will not be approved, the date of such Interstate Commerce Commission determination." ARTICLE FOURTH Section 3(iv) shall be amended by substituting the following in its stead: (iv) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurence after a change in control of the Corporation of any of the following circumstances unless, in the case of paragraphs (a), (b), (c), and (d), such circumstances are corrected in all material respects prior to the Date of Termination (as defined in Section 3(vi)) specified in the Notice of Termination (as defined in Section 3(v)) given is respect thereof: (a) Position and Duties. The assignment to you of a position with the Corporation or an Affiliate of the Corporation that violates the following requirements of Section 3(iv)(a)(I) or Section 3(iv)(a)(II): (I) Management. You shall not be assigned a position that is not a senior management position. However, this Section 3(iv)(a)(I) shall not prevent your being assigned a senior management position: (A) with an Affiliate of the Corporation, provided that such assignment does not result in a significant reduction of your responsibilities; (B) with responsibilities that are different from the responsibilities assigned to you imemediately prior to the time of the change in control of the Corporation, provided that such assignment does not result in a significant reduction of your responsibilities; or (C) with reporting relationships that are different from your reporting relationships immediately prior to the time of change in control of the Corporation, provided that such assignment does not result in a significant reduction of your responsibilities. -2- (II) Significant Adverse Change in Duties. You shall not be assigned a position that requires a significant adverse alteration in the nature or status of responsibilities or conditions from those in effect immediately prior to a change in control of the Corporation, provided this will not preclude a change in a reporting relationship. Assignment with Affiliate. This Section 3(iv)(a) shall not prevent your being assigned to a position with an Affiliate of the Corporation, but only to the extent that any such position satisfies the requirements of Section 3(iv)(a)(I) and Section 3(iv)(a)(II). (b) Compensation. The failure by the Corporation to provide compensation to you which satisfies the requirements of all of Section 3(iv)(b)(I), Section 3(iv)(b)(II), Section 3(iv)(b)(III) and Section 3(iv)(b)(IV): (I) Current Compensation. The rate of your annual salary and other current cash compensation (disregarding compensation that is contingent on satisfaction of performance standards) shall not be less than the rate of your annual salary and other current cash compensation (disregarding compensation that is contingent on satisfaction on performance standards) immediately prior to the change in control of the Corporation, except that such compensation may be reduced if there are comparable reductions for all senior management employees of the Corporation (or all senior management employees of the Corporation or all senior management employees of an Affiliate of the Corporation, if you are then employed by the Affiliate) and all management personnel of any person in control of the Corporation. -3- (II) Fringe benefits. You and your family shall be provided with fringe benefit coverage while employed by the Corporation or an Affiliate on substantially the same basis, and to substantially the same extent, as such coverage is provided to other senior management employees of the Corporation or an Affiliate from time to time. For purposes of this Section 3(iv)(b)(II), the term "fringe benefit coverage" shall include coverage provided under any plan that is a welfare benefit plan (as defined in ERISA, which defines welfare benefit plans to include such things as life insurance, health (medical), accident and disability plans) or a pension plan (as defined in ERISA). (III) Material Compensation Plans. The failure of the Corporation to maintain compensation plans that are material to your aggregate compensation in effect prior to a change in control of the Corporation, unless an equitable substitute arrangement is adopted, both in respect to the amount of benefits and level of participation relative to other participants, and in respect to benefits and level of participation that existed at the time of the change of control of the Corporation. (IV) Vacation. You shall be provided with the number of paid vacation days to which you are entitled on the basis of your years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect immediately prior to the change in control of the Corporation. -4- (c) Relocation. The relocation of the Corporation's principal executive offices to a location outside the Chicago Metropolitan Area (or, if different, the metropolitan area in which such offices are located immediately prior to the change in control of the Corporation) or the Corporation's requiring you to be based anywhere other than the Corporation's principal executive offices except to the extent you were based outside the principal executive offices prior to the change in control of the Corporation or except to the extent for required travel on the Corporation's business to the extent substantially consistent with your business travel obligations prior to the change in control of the Corporation). Notwithstanding the foregoing, if you retain or are offered a position in another location that is equal to or better in status and responsibilities than the position you held at the time of the change in control of the Corporation, you shall not be entitled to benefits under this Agreement on an after-tax basis, as set forth in Section 4(iii)(g). (d) Assumption by Successor. The failure of any successor to the corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated by Section 5 of this Agreement. Your right to terminate your employment pursuant to this Section 3(iv) shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason under this Agreement. For purposes of this Agreement, the term "Affiliate" means (I) any person during any period in which the person directly or indirectly owns more than 50% of the voting power of the Corporation and (II) any other person if more than 50% of the combined voting power of the securities of such person is directly or indirectly owned by the Corporation or by any person described in clause (I) next above. ARTICLE FIFTH Section 4(iii)(b) shall be amended in respect to Severance Agreements held by Senior Executives as follows: (b) You shall be entitled to the following: -5- (I) If your employment by the Corporation shall be terminated by the Corporation other than for Cause or Disability, or if your employment by the Corporation shall be terminated by you for Good Reason described in Section 3(iv)(b)(I) or Section 3(iv)(b)(III) (relating to certain reductions in compensation), then the Corporation shall pay to you a lump sum severance payment equal to the sum of: (A) 200% of your Annual Salary (as described below), which shall be in lieu of any further salary payments to you for periods subsequent to your Date of Termination, and (B) 200% of the Maximum Incentive Award (as described below), which shall be in lieu of any further payments to you under the Corporation's Annual Incentive Compensation Plan for the year in which your Date of Termination occurs, and for any subsequent years. Payments under this paragraph (I) shall be made to you at the time specified in Section 4(iv). (II) If your employment by the Corporation shall be terminated by you for Good Reason, other than for Good Reason described in Section 3(iv)(b)(I) and Section 3(iv)(b)(III) (relating to certain reductions in compensation), then the Corporation shall make monthly installment payments to you, at an annual rate equal to the sum of (A) your Annual Salary plus (B) the Maximum Incentive Award, which payments shall be made for the period beginning on your Date of Termination and ending on the earliest to occur of 1) the 24-month anniversary of your Date of Termination; 2) the date of your death; or 3) the date you are in Competition (as described below). If payments under this paragraph (II) terminate by reason of your being in Competition, such payments shall not recommence regardless of whether you subsequently refrain from Competition. Amounts payable under this paragraph (II) shall be in lieu of any further salary payments to you for periods subsequent to your Date of Termination, and shall be in lieu of any further payments to you under the Corporation's Annual Incentive Compensation Plan for the year in which your Date of Termination occurs, and for any subsequent years. Payment under this paragraph (II) shall be made in installments notwithstanding any provisions of Section 4(iv) to the contrary unless mutually agreed by the parties. For purposes of this Section 4: 1) Your "Severance Payments" shall be the payments provided under paragraphs 4(iii)(b), (c) and (d) of this Agreement. 2) Your "Annual Salary" shall be your annual salary as in effect as of your Date of Termination, the highest consecutive twelve (12) months' salary over the twenty-four (24) month period preceding your Date of Termination, or your annual salary in effect immediately prior to the change in control of the Corporation, whichever is greatest. -6- 3) Your "Maximum Incentive Award" shall be the maximum incentive award payable to you under the Corporation's Annual Incentive Compensation Plan for the year in which your Date of Termination occurs, assuming for purposes hereof that all performance objectives for such year had been met at the maximum levels and that you are entitled to a full award thereunder. 4) You shall be considered to be in "Competition" during any period in which you are employed by, perform any material services for, or own any interest in (except for an interest of not more than 1% in any publicly traded business) any Class I railroad, or any company or other enterprise that offers shipping services to the public (including, without limitation, trucking services, rail services, air-freight services, and water-going freight services). Notwithstanding the foregoing provisions of this Section 4(iii)(b), in no event shall the amount payable under this Section 4(iii)(b) exceed the sum of the amount of salary payments plus the amount of bonus payments (determined on the basis used for determining the amount of your Maximum Incentive Award, above), on an undiscounted basis, which you would have received had you remained in the employ of the Corporation until the earlier of 1) your "Normal Retirement Date" (as defined in the Corporation's Retirement Plan) to the extent permitted by law or 2) the date on which you are subject to mandatory retirement. You may elect, in lieu of receipt of the salary replacement payments described in Section 4(iii)(b)(I)(A) or Section 4(iii)(b)(II)(A), whichever is applicable, the benefits provided for under Section C.1.c. or Section C.1.d, Section D.3, Section D.4, and Section D.5 of The Atchison, Topeka and Santa Fe Railway Company Severance Program, as they may be amended from time to time (the "Severance Program"), the terms and provisions of which are incorporated herein by reference. This Severance Agreement is part of a formal severance program and you will receive Vesting and Benefit Service for the period in which severance payments are made. ARTICLE SIXTH Section 4(iii)(b) shall be amended with respect to Severance Agreements held by Senior managers as set forth above, with the deletion of the phrase "200% of" whenever it appears in Section 4(iii)(b)(I), and by the substitution of the phrase "12-month anniversary" for the phrase "24-month anniversary" where the latter phrase appears in Section 4(iii)(b)(II). ARTICLE SEVENTH Section 4(iii)(c) and 4(iii)(d) shall be amended by inserting the phrase "Long Term Incentive Stock Plan" and before the phrase "Incentive Stock Compensation Plan", where it appears therein. -7- ARTICLE EIGHTH Section 4(iii)(g) shall be amended by inserting the following at the beginning thereof: "(g) the Corporation shall pay you an additional amount necessary to provide the benefits under subsection (b) on an after-tax basis, (except that this benefit shall be limited to the extent set forth in Section 3(iv)(c) relating to termination for good reason; however, ..." The Severance Agreements shall otherwise remain in full force and effect. -8- EX-10.P 4 AM OF INCENTIVE COMP PLN Exhibit 10(p) AMENDMENT OF THE SANTA FE PACIFIC PIPELINES INCENTIVE COMPENSATION PLAN WHEREAS, Santa Fe Pacific Pipelines, Inc. has adopted the Santa Fe Pacific Pipelines, Inc. Incentive Compensation Plan ("ICP"); and WHEREAS, pursuant to Article X, the Pipelines Incentive Committee established under the ICP may amend the plan from time to time; and WHEREAS, the Pipelines Incentive Committee wishes to amend the ICP at this time. RESOLVED, the ICP is hereby amended by deleting the first paragraph of Section XII of the ICP and to insert the following in its stead. In the event of a "Change in Control" or "SFP Change in Control" of Santa Fe Pacific Pipelines as herein defined, the ICP shall remain in effect through the end of the year in which such Change in Control occurred, during which time, Santa Fe Pacific Pipelines is contractually bound to maintain the ICP, and provided further that the membership of the Pipelines Incentive Committee cannot be changed during such period. The Plan shall otherwise remain in full force and effect. Approved this 12 day of January, 1994. Pipelines Incentive Committee By: /s/ Irwin Toole, Jr. ------------------------------------------ President and Chief Executive Officer - Santa Fe Pacific Pipelines By: /s/ R. L. Edwards ------------------------------------------ Senior Vice President and Chief Financial Officer - Santa Fe Pacific Pipelines By: /s/ Lyle B. Boarts ------------------------------------------ Vice President - Human Resources - Santa Fe Pacific Pipelines EX-10.S 5 SUPP RET & SAVINGS PLAN Exhibit 10 (s) SANTA FE PACIFIC CORPORATION SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN ARTICLE I GENERAL Section 1.1 Establishment of Plan and Purpose. Santa Fe Pacific Corporation (hereinafter the "Company"), has established the Santa Fe Pacific Supplemental Retirement and Savings Plan, (hereinafter the "Plan"), effective May 1, 1994. The purpose of this Plan is to provide certain highly compensated employees of the Company and certain of its subsidiaries (hereinafter the "Employing Companies"), the opportunity to defer the receipt of compensation and to receive additional retirement income from the Employing Companies. This plan is not intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended (hereinafter the "Code"), or be subject to Part 2, 3, or 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended, (hereinafter "ERISA"). Section 1.2 Affiliated Companies. The term "Affiliated Company" shall mean every corporation (including the Company) which is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code). The Company and each Affiliated Company which, with the consent of the Company adopts the Plan are referred to herein collectively as the "Employing Companies" and individually as an"Employing Company". Section 1.3 Plan Administration. The authority to control and manage the operation and administration of the Plan shall be vested in the Employee Benefits Committee (hereinafter the "Committee"), appointed to act under The Santa Fe Pacific Retirement and Savings Plan for Salaried Employees (hereinafter the "Savings Plan"). Any interpretation of the Plan by the Committee or its delegate and any decision made by the Committee or its delegate on any other matter within its discretion are final and binding on all persons. The Committee shall have discretionary authority to administer, construe and interpret the Plan, to decide all questions including but not limited to eligibility, payment of any benefits hereunder and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee shall act with or without a meeting by the vote or concurrence of a majority of its members; but no member of the Committee who is a Participant shall take part in any Committee action or any matter that has particular reference to his own interest hereunder. The Committee shall administer this Plan and discharge its responsibilities hereunder in a uniform and non-discriminatory manner as to all Participants. Section 1.4 Non-Alienation. Benefits payable to any individual under the Plan may not be voluntarily or involuntarily assigned, alienated, pledged or subject to attachment, anticipation, garnishment, levy, execution or other legal or equitable process. Section 1.5 Source of Benefits. Subject to the terms and conditions of the Plan, any amount payable to or on account of a Participant under this Plan by any Employing Company shall be paid from the general assets of that Employing Company or from one or more trusts, the assets of which are subject to the claims of the Employing Companies' general creditors. None of the individuals entitled to benefits under the Plan shall have any preferred claim on, or any beneficial ownership interest in, any assets of any Employing Company or of any such trust, and any rights of such individuals under the Plan or any such trust shall constitute unsecured contractual rights only. Section 1.6 Plan Not Contract of Employment. The Plan does not constitute a contract of employment, and nothing in the Plan will give any participant the right to be retained in the employ of any Employing Company, nor any right or claim to any benefit under the Plan, except to the extent specifically provided under the terms of the Plan. Section 1.7 Notices. Any notice or document required to be given to or filed with an Employing Company, the Company or the Committee shall be considered to be given or filed: (a) on the date delivered to the Vice President Human Resources of the Company; or (b) three days after the date sent by certified mail to the Secretary of the Company. Section 1.8 Applicable Law. The Plan shall be construed and administered in accordance with the internal laws of the State of Illinois. Section 1.9 Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. Section 1.10 Plan Year. The Plan Year shall be the calendar year. ARTICLE II PARTICIPATION Section 2.1 Participation. The Compensation and Benefits Committee of the Company shall establish from time to time the Employing Companies which may participate and the class -2- of highly-compensated employees of each Employing Company who shall be eligible for the benefits provided in Article IV below (hereinafter the "Participants"); provided, however, that the class of eligible employees of each Employing Company shall be limited to employees who are members of a select group of management or highly compensated employees within the meaning of Section 401(a)(1) of ERISA. If the Company determines that participation by one or more Participants shall cause the Plan as applied to any Employing Company to be subject to Part 2, 3, or 4 of Title I of ERISA, the entire interest of such Participant or Participants under the Plan shall be immediately paid to such Participant by the applicable Employing Company, notwithstanding any election of the Participant, or shall otherwise be segregated from the Plan in the discretion of the Company, and such Participant or Participants shall cease to have any interest under the Plan. ARTICLE III VESTING Section 3.1 Vesting. A Participant shall be fully vested in his deferral amounts and earnings at all times and subject to investment gains and losses. A Participant shall be vested in Employer Matching Contributions in accordance with the vesting schedule set forth in Section 6.3 of the Savings Plan. ARTICLE IV DEFERRALS Section 4.1 Deferral Elections. To become a Participant, subject to such additional terms, conditions and limitations as the Committee may from time to time impose, a Participant may make an irrevocable election to defer receipt of certain eligible compensation otherwise payable to him by his Employer for a Plan Year by filing a Deferral Election Form indicating his or her desire to have a portion of his or her eligible compensation deferred. Such deferral elections shall be made as follows: (a) With the approval of the Compensation and Benefits Committee of the Board, a Participant may elect not to participate in the Savings Plan and may elect to defer up to 12% of i) Compensation as defined in the Savings Plan, ii) base salary that is not eligible compensation under the Savings Plan, and iii) one-half of any cash incentive payments otherwise payable to him by his Employing Company that Plan Year; or -3- (b) Unless the Compensation and Benefits Committee of the Board otherwise specifies, a Participant may elect to defer up to 12% of i) base salary that is not eligible Compensation under the Savings Plan, ii) one-half of any cash incentive payments, and iii) that to the extent that a Participant is subject to a limitation on before-tax contributions under Section 402(g)(1) of the Code to the Savings Plan, the amounts which could have been deferred into the Savings Plan but for such limitation may be deferred under this Plan ("Deferred Compensation"). (c) Such elections shall be made annually and in writing, and filed with the Committee at such time and in such manner as the Committee shall provide. A Participant must specify the percentage, if any, which he chooses to defer and authorize his Employing Company to make regular payroll deductions. A separate notice will be required for deferrals in each Plan Year. Each such notice shall specify the year in which the deferred compensation shall be paid, which may not be sooner than two (2) years after the compensation is earned. A Participant may make additional deferral elections for amounts payable on a specified date, provided such elections are made at least one (1) year prior to the specified date for payment. A Participant may further defer such payment until his early retirement date under the Santa Fe Pacific Retirement Plan and may thereafter make one further election to defer such amount to a subsequent date. In the absence of a specified date for payment, such deferred compensation shall be paid in accordance with Article VI. The Account (as described below) of each Participant shall be credited with the amount deferred by the Participant as of the date on which the amount of such Deferred Compensation is communicated to the Plan recordkeeper which shall be as soon as reasonably practicable after the date the compensation would otherwise have been payable to Participant, or, if such date is not an Accounting Date, as of the first Accounting Date occurring thereafter. (d) A Participant may elect to suspend all future deferrals in a Plan Year other than in respect to incentive payments, and will not be permitted to resume participation until the next Plan Year. Section 4.2 Employer Matching Contribution. Subject to such limitations as the Committee may from time to time impose, for each Plan Year, Participants shall be credited with an "Employer Matching Contribution" equal to 100% of the first 4% of the compensation deferred hereunder that would be payable during that Plan Year other than amounts deferred under clause (iii) of subsection 4.1(b). ARTICLE V PLAN ACCOUNTING Section 5.1 Accounts. The Committee shall establish an Account for each Participant who files a Deferral Election Form under subsection 4.1. Each Account shall be adjusted in accordance with this Article V in a uniform, non- discriminatory manner, as of such periodic "Accounting Dates" as may be determined by the Committee from time to time (which Accounting Dates shall be not less frequent than quarterly.) As of each Accounting Date, the -4- balance of each Account shall be adjusted as follows: (a) first, charge to the Account balance the amount of any distributions under the Plan with respect to that Account that have not previously been charged; (b) then, credit to the Account balance the amount of the compensation to be deferred by the Participant in accordance with the provisions of subsection 4.1 and the amount of Employer Matching Contributions to be credited in accordance with Section 4.2 that have not previously been credited; (c) then, adjust the Account balance for the applicable assumed rate of earnings in accordance with subsection 5.2. Section 5.2 Adjustment of Accounts for Earnings. The amounts credited to a Participant's Account in accordance with subsections 4.1 and 4.2 shall be adjusted as of each Accounting Date to reflect the value of an investment equal to the Participant's Account balance in one or more assumed investments that the Committee offers from time to time, and which the Participant directs the Committee to use for purposes of adjusting his Account. Such amount shall be determined without regard to taxes that would be payable with respect to any such assumed investment. The Committee may eliminate any assumed investment alternative at any time; provided, however, that the Committee may not retroactively eliminate any assumed investment alternative. To the extent permitted by the Committee, the Participant may elect to have different portions of his Account balance for any period adjusted on the basis of different assumed investments. Notwithstanding the election by Participants of certain assumed investments and the adjustment of their Accounts based on such investment decisions, the Plan does not require, and no trust or other instrument maintained in connection with the Plan shall require that any assets or amounts which are set aside in a trust or otherwise for the purpose of paying Plan benefits shall actually be invested in the investment alternatives selected by Participants. Section 5.3 Participant Statements. At least quarterly, the Committee shall cause to be furnished to each Participant a statement indicating, on the basis of the latest available information, the status of the Participants' Accounts. ARTICLE VI PAYMENT OF DEFERRED AMOUNTS Section 6.1 Termination of Employment. Subject to the provisions of subsection 1.5, upon a Participant's death or termination of active employment, the Participant's entire Account -5- balance, including the Employer's Matching Contribution on amounts deferred prior to the Participant's death or termination date, shall be paid to or on account of the Participant as follows: (a) in a single lump sum payment as soon as practicable after his date of death or termination of active employment, or if elected by the Participant at least one year prior to termination, on January 31 of the year following termination; or (b) if elected by the Participant at least one year prior to the distribution or such time period as may be established by the Committee, in annual installments over a period of ten or fewer years, beginning as soon as practicable after date of death or termination of active employment. Section 6.2 Beneficiary Designation. Each Participant may, from time to time by signing a form furnished by the Committee, designate any legal or natural person or persons (who may be designated contingently or successively) to whom his benefits under the Plan are to be paid if he dies before he receives all of his benefits. A beneficiary designation form will be effective only when the signed form is filed with the Committee while the Participant is alive and will cancel all beneficiary designation forms filed earlier. If a deceased Participant failed to designate a beneficiary as provided above, or if the designated beneficiary of a deceased Participant died before him, his benefits shall be paid in accordance with the following order of priority: (i) to his surviving spouse, if any; (ii) to his surviving children in equal shares; or (iii) the estate of the last to die of the Participant or his designated beneficiary. The benefits under this plan shall be paid in a lump sum unless the beneficiary has completed an election form in accordance with subsection 6.1(b). Section 6.3 Withholding for Tax Liability. The Company may withhold or cause to be withheld from any payment of benefits made pursuant to the Plan any taxes required to be withheld with regard to such payment. Section 6.4 Hardship Distributions. The Committee may, pursuant to rules adopted by it and applied in a uniform manner, accelerate the date of distribution of a Participant's Account because of hardship at any time. "Hardship" shall mean an unforeseeable, severe financial condition resulting from (a) a sudden and unexpected illness or accident of the Participant or his dependent (as defined in section 152(a) of the Code); (b) loss of the Participant's property due to casualty; or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, but which may not be relieved through other available resources of the Participant, as determined by the Committee in accordance with uniform rules adopted by it. -6- ARTICLE VII CHANGE IN CONTROL Section 7.1 Change in Control. In the event of a change in control as defined in The Atchison, Topeka and Santa Fe Railway Company Severance Program, all Accounts shall be fully vested and the Company shall be obligated to transmit funds equal to the outstanding liabilities under this Plan to such trust as may be established by the Company to provide for security of benefits hereunder. ARTICLE VIII AMENDMENT OR TERMINATION Section 8.1 Administrative Amendments. The Chief Executive Officer of the Company may make minor or administrative amendments to the Plan. Section 8.2 Amendments and Termination. The Board of Directors of the Company may amend the Plan at any time and may terminate the Plan at any time without the consent of the participants or beneficiaries, provided however, that no amendment shall divest any Participant or beneficiary of the credits to his Account, or any rights to which he would have been entitled if the Plan had been terminated immediately prior to the effective date of such amendment. Any Employing Company may terminate its participation in the Plan at any time, provided that it has made adequate provision for any amount payable by it under the terms of the Plan as in effect on the date it terminates its participation in the Plan. Upon termination of the Plan as to any Employing Company, the Company may, in its discretion applied in a uniform manner, provided that amounts attributed to that Employing Company shall be distributed in accordance with the provisions of 6.1. Upon termination of the Plan as to all Employing Companies, the Company may, in its sole discretion applied in a uniform manner to all Participants, cause a lump sum payment of all benefits for all Participants to be made as soon as reasonably practicable or the date established for payment under subsection 4.1(c). -7- EX-10.U 6 PHANTOM STX OPTION PLAN EXHIBIT 10(u) SANTA FE PACIFIC GOLD CORPORATION PHANTOM STOCK OPTION PLAN ------------------------- SECTION 1 GENERAL ------- 1.1. Purpose. The Santa Fe Pacific Gold Corporation Phantom Stock Option Plan (the "Plan") has been established by Santa Fe Pacific Gold Corporation (the "Company") to: (a) attract and retain executives and key managers providing services to the Company; (b) motivate participating employees by means of appropriate incentives, to achieve long-range goals; (c) provide incentive compensation opportunities which are competitive with those of other corporations in the gold mining industry; and (d) further the identity of interests of Participants and the Company; and thereby promote the long-term financial interest of the Company. 1.2. Effective Date. The Plan shall be effective as of July 1, 1993 (the "Effective Date"). The Plan shall be unlimited in duration and, in the event of Plan termination, all Plan provisions shall remain in effect as to outstanding awards until those awards expire or otherwise terminate. 1.3. Definitions. The following definitions are applicable to the Plan: "Board" means the Board of Directors of the Company. "Cause" means (a) the willful and continued failure by the Participant to substantially perform the Participant's duties with the Company (other than any such failure resulting from the Participant's incapacity due to physical or mental illness), or (b) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of this definition, no act, or failure to act, shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant's action or omission was in the best interests of the Company. "Change in Control" means the occurrence of one of the following events: (a) any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities under a benefit plan of Santa Fe Pacific Corporation ("SFP") or any corporation owned, directly or indirectly, by the stockholders of SFP in substantially the proportions as their ownership of stock of SFP, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of SFP representing 25% or more of the combined voting power of SFP's then outstanding securities. (b) during any period of two consecutive years (not including any period ending prior to the Effective Date), individuals who at the beginning of such period constitute the Board of Directors of SFP, and any new director (other than a director designated by a person who has entered into an agreement with SFP to effect a transaction permitted under paragraphs (a), (c) or (d) of this definition) whose election by the Board of Directors of SFP or nomination for election by SFP's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority of the Board of Directors of SFP; (c) the stockholders of SFP approve a merger or consolidation of SFP with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of SFP outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the merged or consolidated entity) more than 75% of the combined voting power of the voting securities of SFP or such merged or consolidated entity 2 outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of SFP or similar transaction in which no "person" acquires more than 25% of the combined voting power of SFP's then outstanding securities; (d) the stockholders of SFP approve a plan of complete liquidation of SFP or the sale or disposition of all or substantially all of SFP's assets. The sale or disposition of all or substantially all of SFP's assets shall mean a sale or other disposition transaction or series of related transactions involving assets of SFP or of any direct or indirect subsidiary of SFP (including the stock of any direct or indirect subsidiary of SFP) in which the value of the assets or stock being sold or otherwise disposed of (as measured by the purchase price being paid therefor or by such other method as the Board of Directors of SFP determines is appropriate in a case where there is no readily ascertainable purchase price) constitutes more than two-thirds of the fair market value of SFP. For purposes of the preceding sentence, the "fair market value of SFP" shall be the aggregate fair market value of SFP's outstanding common stock (on a fully diluted basis) plus the aggregate market value of SFP's other outstanding equity securities. The aggregate market value of SFP's common stock shall be determined by multiplying the number of shares of SFP's common stock (on a fully diluted basis) outstanding on the date of execution and delivery of a definitive agreement ("Transaction Date") with respect to the sale or disposition by SFP of all of substantially all of SFP's assets by the average closing price for SFP's common stock for the ten trading days immediately preceding the Transaction Date. The aggregate market value of any other equity securities of SFP shall be determined in a manner similar to that prescribed in the immediately preceding sentence for determining the aggregate market value of SFP's common stock of by such other method as the Board of Directors of SFP shall determine is appropriate; or (e) an event or series of events whereby more than 25% of the stock of the Company or more than 25% of 3 the assets of the Company are conveyed or transferred to the ownership or control of any person other than an entity in which SFP owns more than 80% of the voting securities or equity interests. If SFP ceases to own 75% of the combined voting power of the Company's then outstanding voting securities, the Company shall be substituted for SFP as used in this definition of change in Control. Notwithstanding anything herein to the contrary, a pro rata distribution by SFP to its stockholders of SFP's interest in such voting securities of the Company shall not constitute a Change in Control. "Committee" means the Committee designated by the Board to administer the Plan which shall consist of two or more disinterested persons within the meaning of Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act. "Initial Public Offering" or "IPO" means an initial public offering of the Company's common stock. "Participant" means any employee of the Company or any subsidiary of the Company who is selected for participation in the Plan in accordance with subsection 1.5. "Phantom Stock Option" has the meaning ascribed to it in subsection 2.1. "Retirement" means the Participant's voluntary termination of employment with the Company on or after his early retirement date as defined in the pension plan maintained by the Company under which the Participant is entitled to have the Participant's benefits calculated. "Share Value" of a share of Phantom Stock, as of any date, means the value of such share determined in accordance with a formula established by the Committee. Such formula may reflect the Company's performance in adding gold reserves, adding gold production and increasing pre-tax cash flow and may be changed or modified by the Committee at any time in its sole discretion; provided, however, once the formula is established by the Committee it may not be changed or modified in any manner that would impair the rights of Participants with respect to awards previously granted under the Plan. 4 "Valuation Date" means the date that the Share Value is determined. Prior to an IPO the following rules shall apply: (a) The Effective Date and the last day of each calendar quarter thereafter shall be Valuation Dates; provided, however, the Committee shall designate such other Valuation Dates as it may determine in its sole discretion. (b) The calculation of the Share Value shall be made within 60 days of the applicable Valuation Date. Once calculated, Participants shall be notified of the Share Value and such Share Value shall remain in effect until Participants are notified that a new Share Value has been determined as of a succeeding Valuation Date. Notwithstanding the foregoing provisions of the Plan, in the event of an IPO, the day of the IPO and each day thereafter shall be a Valuation Date and the Share Value with respect to each such Valuation Date shall be the fair market value of a share of Company stock on that date as determined by the Committee. 1.4. Administration. The authority to manage and control the operation and administration of the Plan shall be vested in the Committee. Subject to the express provisions of the Plan, the Committee shall have the sole and complete authority: (a) to select Participants in the Plan; (b) to make awards in such forms and amounts as it shall determine; (c) to impose such limitations, restrictions and conditions upon such awards as it shall deem appropriate; (d) to interpret the Plan and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan; (e) to correct any defect or omission or to reconcile any inconsistency in the Plan or in any award granted hereunder; and (f) to make all other determinations and to take all other actions necessary or advisable for the implementation and administration of the Plan. The Committee's determinations on matters within its authority shall be conclusive and binding upon the Company and all other persons. All expenses associated with the Plan shall be borne by the Company. The Committee may delegate any of its authority hereunder to such persons as it deems appropriate; provided, however, such authority may not be delegated with respect to the grant of such awards. 1.5. Participation. Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, the executives and managers of the Company who will 5 participate in the Plan. Participation in the Plan in any year does not assure or entitle a person to participation in any subsequent year. 1.6. Governing Law. This Plan shall be governed by the internal laws of the State of New Mexico without regard to any principles of conflict of laws. 1.7. Successors. The obligations of the Company under the Plan shall be binding upon any assignee or successor in interest to the Company. SECTION 2 PHANTOM STOCK OPTION 2.1. Definition. A Phantom Stock Option is an award that entitles its holder to receive from the Company upon the Option's exercise an amount equal to: (a) the number of shares of "Phantom Stock" as to which the Option is being exercised; Multiplied by (b) the excess of the Share Value of a share of Phantom Stock on the date of exercise over the Share Value of a share of Phantom Stock on the date that the option was granted. 2.2. Option Awards. The Committee in its sole discretion shall determine the number of shares of Phantom Stock, if any, to be awarded to an individual Participant with respect to each Phantom Stock Option, and the Share Value of each such share on the grant date. Unless determined otherwise by the Committee, any such award shall vest as follows:
Percentage of Interval Shares Vested -------- ------------- Date of grant up to first anniversary 0% First anniversary up to second anniversary 33-1/3% Second anniversary up to third anniversary 66-2/3%
6 Third anniversary and thereafter 100% Notwithstanding the foregoing, unless determined otherwise by the Committee, all Phantom Stock Options awarded to a Participant shall become vested in accordance with the following rules: (a) Death. All Phantom Stock Options awarded to a Participant shall become fully vested upon the Participant's death. (b) Retirement, Disability and Severance Program. If a Participant terminates employment on account of Retirement, disability (as determined by the Committee in its sole discretion) or under the Company's Severance Program, the number of the Participant's vested shares on such termination date shall be determined by multiplying the number of shares subject to the Option by a fraction, the numerator of which is the number of full months in the period beginning on the Option's grant date and ending on the Participant's termination date, and the denominator of which is the number of full months in the period beginning on the Option's grant date and ending on the date that the Option would have become fully vested if the Participant's employment had not terminated. (c) Change in Control. All Phantom Stock Options awarded to a Participant shall become fully vested upon a Change in Control. 2.3. Exercise. A Participant may exercise his vested Phantom Stock Options in whole or in part by written notice to the Company prior to the Option's Expiration Date. The amount payable upon exercise of the Phantom Stock Option shall be payable in cash as soon as practicable following receipt of such notice. 2.4. Option Expiration Date. The "Expiration Date" with respect to a Phantom Stock Option or any portion thereof means the date established by the Committee at the time of grant. 2.5. Compliance With Applicable Laws and Withholding of Taxes. All awards and payments under the Plan are subject to withholding of all applicable taxes. SECTION 3 Miscellaneous ------------- 7 3.1. Transferability. No award under the Plan, and no interest therein, shall be transferable except as designated by the Participant by will or by the laws of descent and distribution. All awards shall be redeemable during the Participant's lifetime only by the Participant, and after the Participant's death, the awards shall be redeemable by the Participant's legal representative in accordance with the terms of the Plan and the award. 3.2. Termination of Employment. After a Participant's termination of employment, the Participant's vested Phantom Stock Options may be exercised in accordance with subsection 2.3, subject to the following rules: (a) If a Participant voluntarily terminates his employment with the Company for reasons other than death, disability or retirement, or the Participant's employment is terminated by the Company for Cause, any outstanding Phantom Stock Options shall expire, except to the extent that the Committee permits exercise after such termination date. (b) If the Participant's employment terminates on account of the Participant's Retirement or disability, or the Participant's employment is terminated by the Company for reasons other than Cause, the Participant's vested Phantom Stock Options may be exercised for a period of three months after such termination, but no later than the Option's Expiration Date; provided, however, if such Participant's employment terminates prior to an IPO, the Participant's vested Phantom Stock Options shall be exercisable for a period of six months after such termination, but no later than the Option's Expiration Date. (c) If the Participant's employment terminates by reason of death, the Participant's Phantom Stock Options may be exercised by the person or persons to whom that right passes by will or by the laws of descent and distribution for a period of twelve months after the date of death, but no later than the Option's Expiration Date. 3.3. Employment and Stockholder Status. The Plan does not constitute a contract of employment, and selection as a Participant will not give any employee or Participant the right to be retained in the employ of the Company, or any right or claim to any benefit under the Plan unless such right or claim has specifically accrued under the terms of the Plan. No award 8 under the Plan shall confer upon the holder thereof any right as a stockholder of the Company. 3.4. Adjustments to Number of Options Awarded Under the Plan. In the event of any change in the outstanding shares of common stock of the Company by reason of any stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, exchange of shares or otherwise, the terms and the number of any outstanding Phantom Stock Options will be equitably adjusted by the Board in its sole discretion to preserve the benefit of the award for the Company and the Participant. 3.5. Shares of Stock Subject to Plan. Subject to adjustment in accordance with subsection 3.4, the number of shares of Phantom Stock with respect to which awards may be granted under the Plan shall not exceed, in the aggregate, 4,000,000. 3.6. Agreement With Company. At the time of any awards under the Plan, the Committee will require a Participant to enter into an agreement with the Company in a form specified by the Committee, agreeing to the terms and conditions of the Plan and to such additional terms and conditions, not inconsistent with the Plan, as the Committee may, in its sole discretion, prescribe. SECTION 4 4.1. Amendment and Termination of Plan. The Board may at any time and in any way amend, suspend or terminate the Plan; provided, however, no such amendment, suspension or termination shall: (a) impair the rights of Participants with respect to awards previously granted under the Plan; (b) be made without shareholder approval to the extent such approval is required by law, agreement or the rules of any exchange or automated quotation system upon which shares of the Company's common stock is listed; or (c) make any change that would disqualify the Plan, intended to be so qualified, from the exemption provided by Rule 16b-3. 9 EX-13 7 ANNUAL REPORT
CONSOLIDATED FINANCIAL HIGHLIGHTS - ------------------------------------------------------------------------------------------------------------ Santa Fe Pacific Corporation and Subsidiary Companies Year Ended December 31, ---------------------------------------------------- (In millions, except per share data) 1993 1992 1991 1990 1989 ====================================================== ==================================================== FOR THE YEAR Revenues $2,726.4 $2,496.4 $2,360.0 $2,297.1 $2,352.7 Operating Income (Loss) (1) 422.8 77.6 342.0 291.1 (133.0) Income (Loss) from Continuing Operations (2) 338.8 63.5 96.4 (101.2) (275.2) Net Income (Loss) (3) 338.8 (104.5) 96.4 (111.8) 14.6 Total Capital Expenditures 646.2 332.0 330.7 473.9 340.0 Depreciation, Depletion and Amortization 247.9 216.1 208.4 196.3 195.1 - ------------------------------------------------------ ---------------------------------------------------- AT YEAR END Total Assets $5,937.0 $5,345.4 $5,220.6 $5,066.2 $5,368.7 Working Capital Deficit (343.3) (404.4) (398.3) (345.8) (379.1) Total Debt 1,375.8 1,451.5 1,844.4 1,945.3 2,222.1 Shareholders' Equity 1,268.3 928.5 1,036.9 911.7 851.6 - ------------------------------------------------------ ---------------------------------------------------- PER COMMON SHARE DATA Income (Loss) from Continuing Operations (2) $ 1.81 $ 0.34 $ 0.54 $ (0.62) $ (1.73) Net Income (Loss) (3) 1.81 (0.57) 0.54 (0.69) 0.09 Shareholders' Equity 6.83 5.11 5.77 5.27 5.39 Cash Dividends (4) 0.10 0.10 0.10 0.10 0.10 - ------------------------------------------------------ ----------------------------------------------------
(1) 1992 and 1989 include pre-tax rail special charges of $320.4 million and $441.8 million, respectively. (2) Includes items in Note 1. In addition, 1993 includes a pre-tax gain on sale of California lines of $145.4 million, a pre-tax gain on the exchange of mineral assets of $217.5 million, 1992 includes a pre-tax gain on sale of California lines of $204.9 million and 1990 includes a net pre-tax charge of $187.1 million related to the settlement of two lawsuits. (3) Includes items in Notes 1 and 2. In addition, includes discontinued operations, extraordinary charges and cumulative effect of accounting changes. (4) 1990 excludes the distributions of SFP's 80% interest in the stock of SFP's former real estate and energy subsidiaries which occurred in December 1990. 1 CONSOLIDATED FINANCIAL REVIEW Santa Fe Pacific Corporation and Subsidiary Companyies MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. REVENUE INFORMATION (IN MILLIONS)
SANTA FE RAILWAY OPERATING REVENUES - ------------------------------------------------------------------------------- Year Ended December 31, - ------------------------------------------------------------------------------- 1993 1992 1991 =============================================================================== Freight Revenues Intermodal Business Unit Direct Marketing $ 404.1 $ 345.7 $ 290.5 Intermodal Marketing Companies 376.6 398.4 402.2 International 196.1 168.2 150.1 - ------------------------------------------------------------------------------- Total Intermodal Business Unit 976.8 912.3 842.8 - ------------------------------------------------------------------------------- Carload Business Unit Chemicals and Petroleum 281.3 282.7 258.6 Coal 220.1 193.8 190.5 Vehicles and Parts 191.2 136.7 144.1 Whole Grain 160.6 143.4 145.8 Minerals and Ores 143.1 157.0 166.0 Forest Products 121.6 115.9 102.7 Consumer Products 113.9 117.1 116.2 Grain Products 82.3 80.4 71.1 Primary Metals 77.6 70.3 69.8 - ------------------------------------------------------------------------------- Total Carload Business Unit 1,391.7 1,297.3 1,264.8 - ------------------------------------------------------------------------------- Total Revenue Before Adjustments 2,368.5 2,209.6 2,107.6 Miscellaneous Adjustments - 3.3 5.5 - ------------------------------------------------------------------------------- Total Freight Revenues 2,368.5 2,212.9 2,113.1 Other Revenues 40.7 38.8 40.4 - ------------------------------------------------------------------------------- Total Operating Revenues $2,409.2 $2,251.7 $2,153.5 =============================================================================== SANTA FE PACIFIC GOLD-OPERATING REVENUES - ------------------------------------------------------------------------------- Gold $ 228.7 $ 116.4 $ 67.2 Other 6.1 2.8 2.8 Coal and Aggregates 63.8 101.4 109.4 - ------------------------------------------------------------------------------- Total Operating Revenues $ 298.6 $ 220.6 $ 179.4 ===============================================================================
RESULTS OF OPERATIONS 1993 COMPARED WITH 1992 Santa Fe Pacific Corporation (SFP or Company) reported 1993 net income of $338.8 million or $1.81 per share compared to a net loss of $104.5 million or $0.57 per share last year. Excluding special items in both years, SFP's 1993 net income was approximately $167.6 million or $0.90 per share compared to $138.8 million or $0.75 per share in 1992. The improved results are due to higher operating income at The Atchison, Topeka and Santa Fe Railway Company (Santa Fe Railway), Santa Fe Pacific Gold Corporation (SFP Gold) and SFP's equity investment in Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership) and lower interest expense, partially offset by reduced other income--net. Special items in 1993 include pre-tax gains of $217.5 million on the exchange of mineral assets (see Other Matters--Exchange of Mineral Assets), $145.4 million from the sale of rail lines in southern California (see Other Matters-- Sale of California Lines) and $21.6 million related to the favorable outcome of arbitration and litigation settlements. In addition, 1993 includes $12.2 million of pre-tax expense for SFP's portion of environmental and litigation charges at the Pipeline Partnership, and an increase in income tax expense of $32.0 million for the retroactive effect from the date of enactment of the increase in the federal income tax rate from 34% to 35%. Special items in 1992 include a pre-tax gain of $204.9 million from the sale of rail lines in southern California (see Other Matters--Sale of California Lines). Additionally, 1992 included pre-tax charges of $320.4 million at Santa Fe Railway principally related to a new labor agreement, operations centralization, and increased environmental accruals (see Note 5: Rail Special Charge) and $4.5 million for SFP's portion of environmental charges at the Pipeline Partnership. Also, a charge of $163.0 million after taxes was recorded for the adoption of Statement of Financial Accounting Standards (SFAS) No.'s 106 and 112, on accounting for postretirement and postemployment benefits other than pensions. This charge represented the cumulative effect of the new principle on years prior to 1992. Finally, an extraordinary charge of $5.0 million after taxes was recorded on early extinguishment of debt. Santa Fe Railway Operating income was $317.7 million and represents an increase of 7% compared to adjusted 1992. The increase reflects continued growth in revenues despite an estimated $40 million in lost revenue due to midwest flooding, and increased efficiencies related to operations, partially offset by increased expenses from higher traffic volumes and from flooding in the midwest. The operating ratio of 86.8% was even with adjusted 1992. Santa Fe Railway operating revenues increased by $157.5 million or 7% in 1993 reflecting a 7% increase in carloadings while average revenue per car remained constant. The volume increase occurred despite the midwest flooding. Intermodal Business Unit (IBU) revenues increased by 7% to $976.8 million primarily due to a 6% increase in carloadings. Continued growth of Santa Fe Railway's alliance with J.B. Hunt was the principal factor for the 17% increase in direct marketing revenues. International revenues improved by 17% reflecting both continued growth in shipments from existing customers and new contracts. Intermodal Marketing Companies' revenue declined 5% due to lower volumes. The average IBU revenue per car increased 1% principally reflecting a shift in mix to higher rated direct marketing traffic. 14 Carload Business Unit (CBU) revenues increased by 7% to $1,391.7 million as carloadings increased 8% while average revenue per car declined slightly. Vehicles and parts revenues increased by $54.5 million to $191.2 million due principally to new business related to a long-term automotive contract with General Motors in the Arizona and southern California corridors which began in December, 1992. Coal revenues increased 14% to $220.1 million and include traffic related to Wisconsin Electric Power's long-term purchase agreement with the Pittsburg & Midway Coal Mine located near Raton, New Mexico which began in the third quarter of 1992. Whole grain revenues increased 12% to $160.6 million reflecting both higher volumes due to a rise in export shipments and higher average revenue per car due to longer haul shipments and rate increases. Primary metals revenues of $77.6 million were $7.3 million higher principally due to an increase in steel shipments along the west coast. Forest products revenues rose 5% to $121.6 million due to favorable average revenue per car reflecting a shift in mix to higher rated lumber products shipments. Minerals and ores revenues declined 9% to $143.1 million due to sluggish international markets and foreign competition in the sulphur and potash industries. Santa Fe Railway operating expenses increased by $137.4 million to $2,091.5 million, excluding the $320.4 million special charge in the prior year. Compensation and benefits expense rose slightly as higher traffic levels and cost escalations were offset by increased efficiencies, which include the effect of a crew consist agreement reached in September 1992 with the United Transportation Union reducing crew sizes on the eastern half of the railroad. Revenue ton miles per average employee improved by 8% reflecting efficiencies and volume growth. Fuel expense of $239.1 million rose $33.6 million reflecting a 9% increase in consumption and a 7% higher price. The increase in consumption reflects the higher traffic volumes as well as additional consumption associated with flood-related train detours. The higher fuel price includes a 4.3 cent increase in federal tax on fuel which became effective October 1, 1993. Equipment rents expense increased by $43.4 million to $229.4 million due to the higher traffic volume, the lease of equipment for new business and additional expenses associated with flood-related train detours. Other expenses rose by $51.6 million to $507.1 million due to the higher volume levels including ramping/deramping and drayage costs for IBU shipments, and various other contract service costs. SFP Gold SFP Gold operating income increased by 13% to $86.5 million due to higher operating income from gold which reflects increased sales from existing mines as well as production in the second half of the year from mines received in the exchange of assets with Hanson Natural Resources Company (Hanson), an affiliate of Hanson, PLC. (see Other Matters--Exchange of Mineral Assets). Ounces sold doubled to 591,000 in 1993, as sales from the Twin Creeks Mine (which represents a combination of SFP Gold's Rabbit Creek Mine and the Chimney Creek Mine received in the exchange) increased by 113% to 336,000 ounces. In addition, Lone Tree Mine sold 143,000 ounces, an increase of 11,000 ounces over 1992 and the Mesquite Mine, obtained as part of the asset exchange, sold 112,000 ounces. The average price of gold sold of $387 an ounce was 2% below 1992 but 8% above the 1993 average spot price due to effective hedging strategies. Operating income from coal and aggregate operations declined by approximately $14 million as 1993 included only six months of operations due to the exchange of these assets with Hanson. Pipeline SFP's equity investment in the Pipeline Partnership produced operating income of $30.8 million excluding the $12.2 million special litigation and environmental charge, an increase of $2.2 million over the $28.6 million in 1992, excluding the $4.5 million special environmental charge. The Pipeline Partnership's revenues increased 7% principally reflecting a 3% volume increase and a 4% increase in average revenue per barrel. Adjusted operating expenses at the Pipeline Partnership increased by $10.5 million due to higher major maintenance and administrative expenses. Other Income--Net/Interest Expense Other income--net increased by $4.7 million to $6.9 million reflecting $21.6 million related to favorable outcome of arbitration and litigation settlements, partially offset by lower interest income and reduced income from real estate activities. Interest expense declined by $37.8 million or 21% due principally to lower outstanding debt as well as favorable variable interest rates. Income Taxes Income tax expense in 1993 includes an increase of approximately $32 million which reflects the retroactive impact of the increase in the federal tax rate from 34% to 35% from the date of enactment of the Omnibus Budget Reconciliation Act of 1993, signed into law on August 10, 1993. A majority of this increase relates to additional tax expense related to temporary differences at January 1, 1993. SFAS No. 109--``Accounting for Income Taxes'' requires deferred taxes to be provided using enacted tax rates in effect during the years in which the differences are expected to reverse. 1992 COMPARED WITH 1991 SFP had a 1992 net loss of $104.5 million or $0.57 per share. Excluding special items discussed previously, SFP's 1992 net income was approximately $138.8 million or $0.75 per share compared to 1991 net income of $96.4 million or $0.54 per share. This improvement in adjusted 1992 income is due to higher operating income at Santa Fe Railway and SFP Gold and lower interest expense, partially offset by lower other income--net. Santa Fe Railway Operating income was $297.6 million, excluding the special charge of $320.4 million, and represents an increase of 17% compared to 1991. The operating ratio as adjusted, improved from 88.1% in 1991 to 86.8% in 1992, the result of higher revenues and increased efficiencies related to operating expenses. 15 CONSOLIDATED FINANCIAL REVIEW - -------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies Santa Fe Railway operating revenues increased by $98.2 million or 5% in 1992 due to a 6% increase in carloadings partially offset by a 1% decrease in the average revenue per car. IBU revenues increased by 8% to $912.3 million as carloadings were up 11% while average revenue per car declined by 3%. Growth of J.B. Hunt shipments was the principal factor for the 19% increase in direct marketing revenues. International revenues improved by 12% principally reflecting continued growth in shipments from existing customers. The average revenue per car declined due to a shift in traffic mix, reflecting growth in international container shipments which move at lower average rates, as well as competitive pressures within all IBU segments. CBU revenues increased by 3% to $1,297.3 million as carloadings increased 3% while average revenue per car remained relatively constant. Chemicals and petroleum revenues increased by 9% to $282.7 million due largely to increased shipments of plastics and agricultural and industrial chemicals. Forest products revenues increased by 13% to $115.9 million due to both favorable volume and average revenue per car including a rebound in the housing market which resulted in increased shipments of lumber and other forest products. Grain products revenues of $80.4 million increased by $9.3 million reflecting increased shipments of corn syrup, soybean meal and tapioca. The average revenue per car within grain products was higher reflecting in part increases in rates on export flour traffic. Minerals and ores revenues declined 5% to $157.0 million as competitive pressures depressed sulphur and potash rates. Vehicles and parts revenues decreased by $7.4 million to $136.7 million principally reflecting declines in long haul traffic which caused the average revenue per car to decline by 7%. Santa Fe Railway operating expenses increased by $56.0 million to $1,954.1 million, excluding the $320.4 million special charge. Compensation and benefits expense increased 2% reflecting increased levels of traffic and cost escalations. Average employees for the year declined 4% to 14,218 partially due to a new labor agreement with train crew personnel, and revenue ton miles per average employee increased by 11% reflecting improved efficiency and volume growth. Fuel expense of $205.5 million declined by $1.2 million principally reflecting a 3% decline in price. Fuel consumption increased only 2% despite the 6% increase in traffic volume, due to the lease of 90 new, fuel efficient locomotives in 1992 as well as other conservation efforts. Equipment rents expense increased by $23.8 million to $186.0 million due to the higher traffic volume as well as the lease of locomotives. Materials and supplies expense declined by 6% to $127.5 million principally reflecting reduced equipment maintenance. Other expenses increased by $27.6 million to $455.5 million largely reflecting volume related increases including ramping/deramping and drayage costs for IBU shipments. SFP Gold SFP Gold operating income increased by 28% to $76.3 million. Higher operating income from gold was partially offset by lower operating income from coal and increased exploration and development costs. Operating income from gold increased by approximately $19 million principally reflecting an 80% increase in sales to 295,000 ounces. Lone Tree Mine, which began production in August, 1991, sold 132,000 ounces, an increase of 104,000 ounces over 1991. Rabbit Creek sales increased by 36% to 157,000 ounces reflecting increased mine production. The average price of gold sold of $394 an ounce was 4% below 1991 but 15% above the 1992 average spot price due to effective hedging strategies. Operating income from coal declined by $2.9 million due to a 19% decline in sales partially offset by a 12% increase in price. Both are principally the result of reduced spot market sales. Pipeline SFP's equity investment in the Pipeline Partnership produced operating income of $28.6 million excluding the $4.5 million special environmental charge. This was an increase of $1.5 million over the $27.1 million in 1991. The Pipeline Partnership's revenues increased 6% principally reflecting an increase in average revenue per barrel. Adjusted operating expenses at the Pipeline Partnership increased by $6.1 million due to higher depreciation and facility costs. Other Income-Net/Interest Expense Other income-net declined by $29.6 million to $2.2 million reflecting reduced income from real estate activities at Santa Fe Railway and lower interest income. Interest expense declined by $46.2 million or 20% due to both lower outstanding debt and favorable variable interest rates. FINANCIAL CONDITION Liquidity and Capital Resources Cash provided by operations is generally SFP's primary source of liquidity and for the year ended December 31, 1993 was $351.9 million. It primarily consists of net earnings before depreciation and deferred taxes, reduced by restructuring payments, which include employee severance, relocation costs and other labor related payments. During 1993, additional cash of $247.9 million was provided by the sale of assets at Santa Fe Railway, including $226.9 million from the sale of lines in southern California (see Other Matters--Sale of California Lines). In addition, long-term borrowings provided $188.8 million in cash while $72.5 million was received as principal payments on a note receivable. Capital expenditures during 1993, including non-cash capital expenditures of $157.6 million primarily for directly financed equipment acquisitions and reimbursed projects at Santa Fe Railway, totaled $646.2 million. Capital expenditures in 1993 were significantly higher than in 1992 due to increased spending on rail expansion projects and 16 facilities which include the Alliance, Texas intermodal and carload transportation center and the Willow Springs, Illinois intermodal facility, and the Lone Tree Mine expansion project at SFP Gold. Additionally, 1993 capital expenditures reflect the purchase of 85 new locomotives valued at approximately $100 million, while in 1992, 90 new locomotives with a fair market value in excess of $100 million were acquired through an operating lease. Approximately 83% of capital expenditures were used for equipment and improvements to track structure and rail facilities, and 17% for development of gold properties. Cash expenditures were primarily funded through cash generated from operations and project financings. Principal payments on long term borrowings and deferred gold revenues during 1993 were $382.4 million, and include the use of $126.0 million of proceeds from the sale of lines in southern California to retire debt. For the year ended December 31, 1992, cash provided by operations was $312.2 million. Additionally, cash of $320.7 million was provided by the sale of assets at Santa Fe Railway, including $255.0 million from the sale of lines in southern California. In addition, $72.5 million was received as principal payments on a note receivable. Capital expenditures during 1992, including non-cash capital expenditures of $9.5 million, totaled $332.0 million. Approximately 80% of capital expenditures were used for equipment and improvements to track structure and facilities at Santa Fe Railway, and 20% for development of mining properties. The expenditures were primarily funded through cash generated from operations and project financings. Principal payments on long term borrowings and deferred gold revenues during 1992 were $444.2 million, including $201.0 million of proceeds from the sale of lines in southern California used to retire debt. During the year ended December 31, 1991, cash provided by operations was $241.9 million. Additional cash of $91.0 million was provided through the sale of assets, principally branch lines and real estate at Santa Fe Railway. Also, $36.3 million was received as a principal payment on a note receivable and proceeds of $36.2 million were received from the sale of SFP stock. Capital expenditures in 1991, including non-cash capital expenditures of $35.2 million primarily related to directly financed equipment acquisitions at Santa Fe Railway, totaled $330.7 million. Approximately 73% of capital expenditures were used for equipment and improvements to track structure at Santa Fe Railway and 27% for development of mining properties. The expenditures were primarily funded through the cash generated from operations, project and equipment financings, and other sources. Principal payments on long-term borrowings and deferred gold revenues during 1991 were $157.4 million. Management anticipates that it will fund payment of current obligations, including principal payments on long term debt, in 1994 through internally generated funds. SFP capital expenditures in 1994 are anticipated to exceed $600 million, including non-cash capital expenditures of approximately $150 million primarily for directly financed equipment acquisitions and reimbursed projects at Santa Fe Railway. The remaining expenditures will be funded through the use of internally generated funds as well as various financings. In addition, Santa Fe Railway's agreement to sell accounts receivable expires in December 1994 (see Note 9: Sales of Accounts Receivable). Currently, $225 million is outstanding under the agreement. It is the Company's intention to replace or extend this agreement with a similar facility prior to the December 1994 expiration. The Company also has funds available through a $173.6 million credit facility which can be used for general corporate purposes. No borrowings were outstanding under the facility at December 31, 1993. In addition, in December 1993, the Company filed a shelf registration statement with the Securities and Exchange Commission (SEC), for the issuance of up to $250 million in debt securities, none of which had been issued as of December 31, 1993. At present, the payment of external and intercompany dividends are limited in amount by certain debt covenants of the Company. At December 31, 1993 no payment of external dividends was allowed; however, the Company believes that it could change the designation of SFP Gold under the restrictive debt agreement or distribute SFP Gold to SFP shareholders to eliminate the dividend restriction. Inflation Because of the capital intensive nature of SFP's businesses and because depreciation is based on historical cost, the full effect of inflation is not reflected in operating expenses. An assumption that all operating assets were replaced at current price levels would result in depreciation charges substantially greater than historically reported amounts. OTHER MATTERS Exchange of Mineral Assets On June 25, 1993, SFP Gold completed an asset exchange with Hanson, in which SFP Gold received certain gold assets of a subsidiary of Hanson including operating gold mines in Nevada and California, two late stage development projects in Nevada and Montana and other gold prospects. Hanson acquired essentially all coal assets of SFP Gold including the Lee Ranch Mine and undeveloped coal reserves and six crushed stone and aggregate quarries. The exchange was recorded as a purchase business combination. The fair value of the gold assets for financial reporting purposes was approximately $425 million. SFP recognized an after tax, non-cash gain of $108.3 million on the exchange which represents the excess of the fair value of the gold assets received over the sum of the carrying value of the coal and aggregate assets and expenses of the exchange (see Note 3: Gain on Exchange of Mineral Assets). 17 CONSOLIDATED FINANCIAL REVIEW - -------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies Potential SFP Gold Transactions SFP is continuing to review the possibility of establishing the gold operation as a separate public company. As part of this process SFP is considering an initial public offering of up to 20% of SFP Gold stock, followed by a distribution of the remaining interest in SFP Gold to SFP shareholders. This evaluation and the timing of any distribution involve a number of economic, business, legal, tax, and other considerations, including prior approval from the SFP Board of Directors. The company is pursuing a ruling from the Internal Revenue Service that a distribution of SFP Gold shares to existing SFP shareholders would be tax free. Sale of California Lines In November 1992, Santa Fe Railway announced that it and eight southern California transportation agencies had reached definitive agreements for the sale to the agencies of certain interests in approximately 340 miles of rail lines and additional property, for cash and relief of obligations to reimburse certain state and county agencies for capital improvements previously paid for by the agencies and the State of California. Santa Fe Railway retained all rights necessary for its freight operations in southern California. The transportation agencies anticipate using these facilities for commuter lines. Cash proceeds of $226.9 million in 1993 and $255.0 million in 1992 were received resulting in pre-tax gains of $145.4 million and $204.9 million in 1993 and 1992, respectively (see Note 2: Gain on Sale of California Lines). A substantial portion of the net proceeds in both years were used to reduce outstanding debt. Both of the gains recognized are net of the cost of the properties and other expenses of sale. Additionally, the 1993 gain is net of an obligation retained by Santa Fe Railway which under certain conditions, requires Santa Fe Railway to repurchase a portion of the properties sold for $50 million. Environmental The Company is subject to extensive regulation under federal, state, and local environmental laws concerning, among other things, discharges to waters, air emissions, toxic substances, and the generation, handling, storage, transportation, and disposal of waste and hazardous materials. These laws and regulations have the effect of increasing the cost and liabilities associated with the conduct of operations. Environmental risks are also inherent in railroad operations which frequently involve the transportation of chemicals and other hazardous materials. Santa Fe Railway expects it will become subject to new requirements regulating air emissions from diesel locomotives that may increase its operating costs in the future. By 1995, the United States Environmental Protection Agency must issue regulations applicable to new locomotive engines. Locomotive engines (other than new locomotive engines) may be regulated by states based on standards and procedures which the State of California ultimately adopts. The California standards are currently in the process of being developed. In addition, because many of SFP's land holdings are and have been used for industrial or transportation related purposes or leased to commercial or industrial companies whose activities may have resulted in discharges onto the property, the Company is now subject and will from time to time continue to be subject to environmental clean-up and enforcement actions. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as the ``Superfund'' law, generally imposes joint and several liability for clean-up and enforcement costs, without regard to fault or the legality of the original conduct, on current and predecessor owners and operators of a site. Accordingly, SFP may be responsible under CERCLA and other federal and state statutes for all or part of the costs to clean up sites at which certain substances may have been released by the Company, its current lessees, predecessor owners or lessees of properties, or other third parties. Estimates of the Company's ultimate liabilities associated with Superfund and other environmental sites are difficult to predict with certainty due to, among other factors, the number of parties involved, possible remediation alternatives, lengthy time frames, and potential recoveries from third parties. During 1992, management completed an internal assessment of Santa Fe Railway's environmental liabilities, including a site-by-site analysis of properties with potentially significant environmental exposure. As a result of this review and analysis it was determined that an additional accrual of $67 million was appropriate to provide for future costs of this nature which was recorded in the third quarter of 1992 as part of a rail special charge. In addition, the Company monitors, on a regular basis, accruals for environmental sites which have been identified. Payment of these accrued costs are expected to be made over the next five years. It is the opinion of SFP management that any costs in excess of recorded liabilities will not have a material adverse effect on the consolidated financial position of SFP. COMMON STOCK MARKET PRICES AND DIVIDENDS Santa Fe Pacific Corporation common stock is traded on the New York, Chicago and Pacific Stock Exchanges. The quarterly price range per share for the years 1993 and 1992 is as follows: - ------------------------------------------------------ 1993 1992 - ------------------------------------------------------ High Low High Low - -------------- ------- ------- ------- ------- First Quarter $15-5/8 $12-3/4 $14-1/8 $11-1/8 Second Quarter $18-3/8 $14-1/2 $13-3/8 $11 Third Quarter $19-1/8 $16-3/4 $12-7/8 $10-7/8 Fourth Quarter $22-1/2 $18 $13-7/8 $10-5/8 - -------------- ------- ------- ------- ------- SFP paid a cash dividend of $0.10 per share in both 1993 and 1992. As of January 31, 1994, there were approximately 75,000 holders of record of SFP common stock. 18 REPORT OF MANAGEMENT TO THE SHAREHOLDERS OF SANTA FE PACIFIC CORPORATION The accompanying consolidated financial statements of Santa Fe Pacific Corporation and subsidiary companies were prepared by management, who are responsible for their integrity and objectivity. They were prepared in accordance with generally accepted accounting principles and properly include amounts that are based on management's best judgments and estimates. Other financial information included in this annual report is consistent with that in the consolidated financial statements. The Company maintains a system of internal accounting controls, supported by adequate documentation, to provide reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the Company. Limitations exist in any system of internal accounting controls based upon the recognition that the cost of the system should not exceed the benefits derived. The Company believes its system of internal accounting controls, augmented by its internal auditing function, appropriately balances the cost/benefit relationship. Independent accountants provide an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting. They regularly evaluate the system of internal accounting controls and perform such tests and other procedures as they deem necessary to express an opinion on the fairness of the consolidated financial statements. The Board of Directors pursues its responsibility for the Company's financial statements through its Audit Committee which is composed solely of directors who are not officers or employees of the Company. The Audit Committee meets regularly with the independent accountants, management and the internal auditors. The independent accountants and the Company's internal auditors have direct access to the Audit Committee, with and without the presence of management representatives, to discuss the scope and results of their audit work and their comments on the adequacy of internal accounting controls and the quality of financial reporting. /s/ Robert D. Krebs Robert D. Krebs Chairman, President and Chief Executive Officer /s/ Denis E. Springer Denis E. Springer Senior Vice President and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS, CHAIRMAN AND BOARD OF DIRECTORS OF SANTA FE PACIFIC CORPORATION In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Santa Fe Pacific Corporation and subsidiary companies at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Note 18 to the consolidated financial statements includes a description of a change in the method of accounting for postretirement and postemployment benefits other than pensions effective January 1, 1992. /s/ Price Waterhouse Price Waterhouse Kansas City, Missouri February 4, 1994 19
CONSOLIDATED STATEMENT OF OPERATIONS - ---------------------------------------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies Year Ended December 31, ------------------------------- (In millions, except per share data) 1993 1992 1991 ============================================================================ =============================== REVENUES Rail $2,409.2 $2,251.7 $2,153.5 Gold 298.6 220.6 179.4 Pipeline 18.6 24.1 27.1 - ----------------------------------------------------------------------------- ------------------------------- Total revenues 2,726.4 2,496.4 2,360.0 - ----------------------------------------------------------------------------- ------------------------------- OPERATING EXPENSES Rail 2,091.5 1,954.1 1,898.1 Rail Special Charge - 320.4 - Gold 212.1 144.3 119.9 - ----------------------------------------------------------------------------- ------------------------------- Total operating expenses 2,303.6 2,418.8 2,018.0 - ----------------------------------------------------------------------------- ------------------------------- Operating Income 422.8 77.6 342.0 Other Income Net 6.9 2.2 31.8 Gain on Sale of California Lines 145.4 204.9 - Gain on Exchange of Mineral Assets 217.5 - - Interest Expense 142.4 180.2 226.4 - ----------------------------------------------------------------------------- ------------------------------- Income Before Income Taxes 650.2 104.5 147.4 Income Tax 311.4 41.0 51.0 - ----------------------------------------------------------------------------- ------------------------------- Income Before Extraordinary Charge and Cumulative Effect of a Change in Accounting 338.8 63.5 96.4 Extraordinary Charge on Early Retirement of Debt, Net of Income Taxes - (5.0) - Cumulative Effect of a Change in Accounting for Postretirement and Postemployment Benefits, Net of Income Taxes - (163.0) - - ----------------------------------------------------------------------------- ------------------------------- Net Income (Loss) $ 338.8 $ (104.5) $ 96.4 ============================================================================= =============================== INCOME (LOSS) PER SHARE OF COMMON STOCK Before Extraordinary Charge and Cumulative Effect of a Change in Accounting $ 1.81 $ 0.34 $ 0.54 Extraordinary Charge - (0.03) - Cumulative Effect of a Change in Accounting - (0.88) - - ----------------------------------------------------------------------------- ------------------------------- Net Income (Loss) $ 1.81 $ (0.57) $ 0.54 ============================================================================ =============================== Average Number of Common and Common Equivalent Shares 187.2 184.8 178.0 ============================================================================ =============================== (See notes to consolidated financial statements)
20
CONSOLIDATED BALANCE SHEET - -------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies December 31, -------------------- (In millions) 1993 1992 =============================================================================================== ==================== ASSETS CURRENT ASSETS Cash and cash equivalents, at cost which approximates market $ 96.4 $ 100.1 Accounts receivable, less allowances 103.5 97.0 Inventories 120.4 107.4 Note receivable--current 72.5 72.5 Current portion of deferred income taxes 78.1 90.4 Other 107.6 70.2 - ----------------------------------------------------------------------------------------------- -------------------- Total current assets 578.5 537.6 - ----------------------------------------------------------------------------------------------- -------------------- Note Receivable 36.2 108.7 Other Long-Term Assets 326.1 359.8 - ----------------------------------------------------------------------------------------------- -------------------- Properties, Plant and Equipment 6,664.4 5,969.5 Less: Accumulated depreciation, depletion and amortization 1,668.2 1,630.2 - ----------------------------------------------------------------------------------------------- -------------------- Net properties 4,996.2 4,339.3 - ----------------------------------------------------------------------------------------------- -------------------- Total Assets $5,937.0 $5,345.4 =============================================================================================== ==================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 715.7 $ 723.3 Deferred gold revenues--current 15.4 12.9 Long-term debt due within one year 190.7 205.8 - ----------------------------------------------------------------------------------------------- -------------------- Total current liabilities 921.8 942.0 - ----------------------------------------------------------------------------------------------- -------------------- Long-Term Debt Due After One Year 1,185.1 1,245.7 Postretirement Benefits Liability 291.2 283.2 Rail Restructuring Liability 257.8 254.6 Deferred Gold Revenues 133.8 149.3 Other Long-Term Liabilities 644.4 557.7 Deferred Income Taxes 1,234.6 984.4 - ----------------------------------------------------------------------------------------------- -------------------- Total Liabilities 4,668.7 4,416.9 - ----------------------------------------------------------------------------------------------- -------------------- COMMITMENTS AND CONTINGENCIES (See Note 14 and Note 15) - ----------------------------------------------------------------------------------------------- -------------------- SHAREHOLDERS' EQUITY Common stock 190.0 190.0 Paid-in capital 869.7 966.7 Retained income 340.3 19.9 Treasury stock, at cost (131.7) (248.1) - ----------------------------------------------------------------------------------------------- -------------------- Total shareholders' equity 1,268.3 928.5 - ----------------------------------------------------------------------------------------------- -------------------- Total Liabilities and Shareholders' Equity $5,937.0 $5,345.4 =============================================================================================== ==================== (See notes to consolidated financial statements)
21 CONSOLIDATED STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies
Year Ended December 31, -------------------------------- (In millions) 1993 1992 1991 ==================================================================================== ================================ OPERATING ACTIVITIES Net income (loss) $ 338.8 $ (104.5) $ 96.4 Adjustments to reconcile net income (loss) to operating cash flows: Depreciation, depletion and amortization 247.9 216.1 208.4 Deferred income taxes 215.8 66.2 20.9 Cumulative effect of a change in accounting for postretirement and postemployment benefits, net of income taxes -- 163.0 -- Rail special charge -- 320.4 -- Rail restructuring costs paid (80.9) (118.9) (104.5) Imputed interest expense 26.6 23.3 23.8 Gain on exchange of mineral assets (217.5) -- -- Gain on sales of property, plant and equipment (156.0) (218.7) (36.9) Other--net (8.0) (23.8) 16.1 Changes in Working Capital: Accounts receivable (16.8) (13.9) 1.0 Inventories (9.9) (18.1) (4.5) Accounts payable and accrued liabilities 48.8 47.9 51.5 Short term investments and other current assets (36.9) (26.8) (30.3) - ------------------------------------------------------------------------------------ -------------------------------- Net Cash Provided By Operating Activities 351.9 312.2 241.9 - ------------------------------------------------------------------------------------ -------------------------------- INVESTING ACTIVITIES Cash used for capital expenditures (488.6) (322.5) (295.5) Proceeds from the sale of property, plant and equipment 247.9 320.7 91.0 Other--net 77.3 40.4 57.3 - ------------------------------------------------------------------------------------ -------------------------------- Net Cash Provided By (Used For) Investing Activities (163.4) 38.6 (147.2) - ------------------------------------------------------------------------------------ -------------------------------- FINANCING ACTIVITIES Proceeds from long-term borrowings and deferred gold revenues 188.8 17.7 91.4 Principal payments on long-term borrowings and deferred gold revenues (382.4) (444.2) (157.4) Proceeds from sale of stock -- -- 36.2 Decrease in restricted funds -- 14.9 15.9 Cash dividends paid (18.5) (18.2) (17.9) Other--net 19.9 15.5 12.0 - ------------------------------------------------------------------------------------ -------------------------------- Net Cash Used For Financing Activities (192.2) (414.3) (19.8) - ------------------------------------------------------------------------------------ -------------------------------- Increase (Decrease) In Cash and Cash Equivalents (3.7) (63.5) 74.9 Cash and Cash Equivalents: Beginning of year 100.1 163.6 88.7 - ------------------------------------------------------------------------------------ -------------------------------- End of year $ 96.4 $ 100.1 $ 163.6 ==================================================================================== ================================
(See notes to consolidated financial statements) 22 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - -------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies
Shares of Shares of Common Treasury Common Treasury Paid-In Retained (Shares in thousands) (Dollars in millions) Stock Stock Stock Stock Capital Income =================================================== ==================================================================== BALANCE DECEMBER 31, 1990 190,021 17,051 $ 190.0 $(516.9) $1,166.1 $ 72.5 1991 net income -- -- -- -- -- 96.4 Dividends declared -- -- -- -- -- (17.9) Sale of common stock -- (4,043) -- 122.4 (86.2) -- Exercise of stock options -- (1,511) -- 45.8 (35.9) -- Shareholder rights redemption -- (1,311) -- 39.8 (31.2) (8.4) Other -- 23 -- (0.3) 0.7 -- - --------------------------------------------------- -------------------------------------------------------------------- BALANCE DECEMBER 31, 1991 190,021 10,209 $ 190.0 $(309.2) $1,013.5 $ 142.6 1992 net loss -- -- -- -- -- (104.5) Dividends declared -- -- -- -- -- (18.2) Exercise of stock options -- (1,995) -- 60.5 (46.4) -- Other -- (20) -- 0.6 (0.4) -- - --------------------------------------------------- -------------------------------------------------------------------- BALANCE DECEMBER 31, 1992 190,021 8,194 $ 190.0 $(248.1) $ 966.7 $ 19.9 1993 net income -- -- -- -- -- 338.8 Dividends declared -- -- -- -- -- (18.5) Exercise of stock options -- (3,231) -- 97.1 (73.8) -- Issuance of restricted stock -- (777) -- 23.2 (23.2) -- Other -- 224 -- (3.9) -- 0.1 - --------------------------------------------------- -------------------------------------------------------------------- BALANCE DECEMBER 31, 1993 190,021 4,410 $ 190.0 $ (131.7) $ 869.7 $ 340.3 =================================================== ====================================================================
Note: SFP has authorized common stock of 600 million shares with a par value of $1.00. Also authorized are 200 million shares of preferred stock with a par value of $1.00, none of which was outstanding at December 31, 1993. (See notes to consolidated financial statements) 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of Santa Fe Pacific Corporation and subsidiary companies (SFP or Company) which are majority owned and controlled, directly or indirectly, by SFP. The equity method is used to account for investments in 20% to 50% owned entities. All significant intercompany transactions have been eliminated. Reclassifications Certain comparative prior year amounts in the consolidated financial statements and notes have been reclassified to conform with the current year presentation. Statement of Cash Flows SFP considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. In addition to amounts reported as ``Cash Used for Capital Expenditures,'' SFP had noncash capital expenditures totaling $157.6 million, $9.5 million, and $35.2 million in 1993, 1992, and 1991, respectively. Noncash capital expenditures consist principally of directly financed equipment acquisitions and reimbursed projects at The Atchison, Topeka and Santa Fe Railway Company (Santa Fe Railway). The exchange of mineral assets was a non-cash transaction and has been excluded from the Statement of Cash Flows (see Note 3: Gain on Exchange of Mineral Assets). Accounts Receivable SFP maintains an allowance for doubtful accounts based upon the estimated collectibility of all trade accounts receivable. Allowances for doubtful accounts of $16.4 million and $11.2 million have been applied as a reduction of accounts receivable at December 31, 1993 and 1992, respectively. Other Current Assets Other current assets include $76.8 million and $48.9 million at December 31, 1993 and 1992, respectively, of deferred mining costs at Santa Fe Pacific Gold Corporation (SFP Gold). Inventories Material and supply inventories, which represent substantially all inventories, are valued at the lower of cost (average or first-in, first-out) or market. Note Receivable The note receivable included in the consolidated balance sheet relates to the sale of a subsidiary in 1986. Principal payments of $72.5 million were received in both 1993 and 1992. Remaining proceeds to be received from the note are $72.5 million in 1994 and $36.2 million in 1995. Properties Properties are stated at cost and include capitalized interest incurred during construction of $8.7 million in 1993, $3.8 million in 1992, and $4.4 million in 1991. Additions and replacements are capitalized. Expenditures for maintenance and repairs are charged to income. Upon normal sale or retirement of depreciable railroad property, cost less salvage, net of cost of removal, is charged to accumulated depreciation and no gain or loss is recognized. With respect to all other property sold or retired, gain or loss is recognized. Depreciation of railroad properties is computed under the straight-line method. Depreciation and depletion of gold operating properties is based on either the unit-of-production or straight-line method. Exploration and Development Costs Exploration and development costs incurred in gold operations, prior to the determination of the feasibility of proceeding with mining operations, are expensed as incurred. Development costs incurred thereafter are capitalized and amortized on a unit-of-production basis. NOTE 2: GAIN ON SALE OF CALIFORNIA LINES In November 1992, Santa Fe Railway announced that it and eight southern California transportation agencies had reached definitive agreements for the sale to the agencies of certain interests in approximately 340 miles of rail lines and additional property, for cash and relief of obligations to reimburse certain state and county agencies for capital improvements previously paid for by the agencies and the State of California. Santa Fe Railway retained all rights necessary for its freight operations in southern California. The transportation agencies anticipate using these facilities for commuter lines. Cash proceeds of $226.9 million in 1993 and $255.0 million in 1992 were received resulting in pre-tax gains of $145.4 million and $204.9 million in 1993 and 1992, respectively. Both of the gains recognized are net of the cost of the properties and other expenses of the sale. Additionally, the 1993 gain is net of an obligation retained by Santa Fe Railway which under certain conditions, requires the repurchase of a portion of the properties sold for $50 million. Proceeds of $126.0 million and $201.0 million were used to retire debt in 1993 and 1992, respectively (see Note 11: Long-Term Debt). NOTE 3: GAIN ON EXCHANGE OF MINERAL ASSETS On June 25, 1993, SFP Gold closed an asset exchange with Hanson Natural Resources Company (Hanson), an affiliate of Hanson, PLC. SFP Gold received certain gold assets of Hanson, including two operating gold mines in Nevada and California, two late stage development projects in Nevada and Montana and other gold prospects. Hanson acquired essentially all coal assets of SFP Gold including the Lee Ranch Mine and undeveloped coal reserves and six crushed stone and aggregate quarries. The exchange was recorded as a purchase of assets and accordingly, the results from the gold assets have been reflected in operations prospectively from the date of closing. The fair value of the gold assets for financial reporting purposes was approximately $425 million. SFP recognized an after tax, non-cash gain of $108.3 million on the exchange which represents the excess of the fair value of the gold assets received over the sum of the carrying value of the coal and aggregate assets and expenses of the exchange. 24 The following represents SFP's unaudited pro forma results of operations for the years ended December 31, 1993 and 1992, respectively, assuming the exchange had occurred at the beginning of each fiscal year, but excluding the gain on the transaction, described above. The pro forma results include higher amortization resulting from the write-up of the gold assets received in the exchange. The pro forma results do not reflect any operating efficiencies and cost savings which SFP believes are achievable with respect to the gold assets received in the exchange.
- ---------------------------------------------------------------------------- Year Ended December 31, 1993 1992 ==================================================== ==================== (In millions, except per share data) Revenues $2,744.3 $2,582.8 - ---------------------------------------------------- -------------------- Income before extraordinary charge and cumulative effect of a change in accounting 220.6 62.9 Extraordinary charge -- (5.0) Cumulative effect of a change in accounting -- (163.0) - ---------------------------------------------------- -------------------- Net Income (Loss) $ 220.6 $ (105.1) - ---------------------------------------------------- -------------------- Income per share of common stock Before extraordinary charge and a change in accounting $ 1.18 $ 0.34 Extraordinary charge -- (0.03) Cumulative effect of a change in accounting -- (0.88) - ---------------------------------------------------- -------------------- Net Income (Loss) per share $ 1.18 $ (0.57) ==================================================== ====================
NOTE 4: RAIL OPERATING EXPENSES The operating expenses of Santa Fe Railway, excluding the 1992 Rail Special Charge discussed in Note 5, consisted of the following:
- ---------------------------------------------------------------------------- (In millions) 1993 1992 1991 ======================================== ================================ Compensation and benefits $ 799.8 $ 798.8 $ 781.8 Fuel 239.1 205.5 206.7 Equipment rents 229.4 186.0 162.2 Depreciation and amortization 188.4 180.8 184.3 Materials and supplies 127.7 127.5 135.2 Other 507.1 455.5 427.9 - ---------------------------------------- -------------------------------- Total $2,091.5 $1,954.1 $1,898.1 ======================================== ================================
NOTE 5: RAIL SPECIAL CHARGE During 1992, Santa Fe Railway recorded a $320.4 million pre-tax special charge which included provisions for restructuring and environmental. Restructuring Approximately $253 million of the charge related to restructuring and included $149 million for the present value of costs of an agreement reached in 1992 with the United Transportation Union (UTU) which provided for reduced crew sizes and elimination of productivity payments on the eastern half of the railroad while establishing additional security and other benefits for UTU employees. $73 million of the charge was for costs related to the centralization of certain operations. These costs include relocation, amounts associated with vacated facilities and the present value of employees' separation. The remainder of the restructuring portion of the charge related to other employee and facility costs. Restructuring costs paid in 1993 totaled $80.9 million and were primarily related to the operations centralization and employee related costs for the above crew consist and other previously established labor agreements. A significant portion of the remaining restructuring expenditures will be incurred over the next several years; however, certain labor agreement modifications will not be paid until the employees' retirement. Santa Fe Railway has obtained letters of credit of approximately $18 million supporting certain of its obligations under these labor agreements. Environmental Approximately $67 million of the special charge was to increase accruals for environmental clean-up and remediation, primarily on abandoned properties (see Note 15: Contingencies). During 1993, payments charged to the environmental reserve were approximately $13 million, with the majority of remaining expenditures expected to be incurred over the next five years. NOTE 6: PIPELINE PARTNERSHIP A wholly owned subsidiary of SFP, SFP Pipeline Holdings, Inc. (Pipeline Holdings), through its wholly owned subsidiary, holds an aggregate 44% common unit ownership in Santa Fe Pacific Pipeline Partners, L.P. (Pipeline Partnership), a Delaware limited partnership. This interest is held through a 2% general partner interest and a 42% limited partner interest. The Company accounts for its interest in the partnership under the equity method. Pipeline Holdings also issued the Pipeline Exchangeable Debentures (Pipeline Debentures) (see Note 11: Long-Term Debt) which are traded on the New York Stock Exchange and under certain circumstances are exchangeable for common units that represent SFP's 42% limited partnership interest in the Pipeline Partnership. Interest on the Pipeline Debentures is payable quarterly and is equal to the greater of (a) distributions of cash from operations declared by the Pipeline Partnership for such quarter on the number of common units for which the Pipeline Debentures are then exchangeable or (b) 2% of the unpaid Pipeline Debentures principal balance. During 1993, 1992 and 1991, SFP, through its wholly owned subsidiaries, received cash distributions of $25.1 million, $25.1 million, and $23.8 million, respectively, from the Pipeline Partnership. Of these distributions $22.8 million, $22.8 million, and $22.0 million, respectively, were used to pay interest costs on the Pipeline Debentures. The following table sets forth selected financial data for the Pipeline Partnership:
- ---------------------------------------------------------------------------- Year ended December 31, 1993 1992 1991 ======================================== ================================ (In millions, except per unit data) Income Statement Data Total revenues $219.5 $205.0 $193.4 Operating income 78.3 91.4 95.8 Interest expense 37.1 36.9 36.9 Net income 41.6 54.1(1) 60.6 Per Unit Data Net income per unit $ 2.13 $ 2.77(1) $ 3.10 Cash distributions per unit 2.80 2.80 2.75 - ---------------------------------------- -------------------------------- December 31, 1993 1992 ======================================== ==================== Balance Sheet Data Total current assets $ 67.7 $ 58.4 Net properties, plant and equipment 616.6 618.1 Total assets 697.0 684.9 Total current liabilities 35.6 21.6 Long-term debt 355.0 355.0 Total partners' capital 265.9 279.0 ======================================== ====================
(1) 1992 net income and net income per unit exclude a charge for the cumulative effect of a change in accounting for postretirement and postemployment benefits of $16.4 million or $0.84 per unit. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Santa Fe Pacific Corporation and Subsidiary Companies NOTE 7: OTHER INCOME-NET Other income-net consisted of the following:
- -------------------------------------------------------------------- (In millions) 1993 1992 1991 ==================================== ============================ Real estate activities $ 19.4 $ 23.9 $ 45.6 Interest income 12.8 19.9 32.0 Corporate administrative expenses (24.2) (22.3) (20.0) Accounts receivable fees (8.3) (9.4) (14.5) Arbitration/litigation settlements 21.6 - - Other-net (14.4) (9.9) (11.3) - ------------------------------------ ---------------------------- Total $ 6.9 $ 2.2 $ 31.8 ==================================== ============================
NOTE 8: INCOME TAXES The provision for income taxes consisted of the following:
- -------------------------------------------------------------------- (In millions) 1993 1992 1991 ==================================== ============================ Current: Federal $ 66.8 $(24.6) $26.7 State 5.8 (0.6) 3.4 - ------------------------------------ ---------------------------- Total Current 72.6 (25.2) 30.1 - ------------------------------------ ---------------------------- Deferred: Federal 213.3 54.3 18.1 State 25.5 11.9 2.8 - ------------------------------------ ---------------------------- Total Deferred 238.8 66.2 20.9 - ------------------------------------ ---------------------------- Total $311.4 $ 41.0 $51.0 ==================================== ============================
Income taxes as reflected in the consolidated statement of operations differ from the amounts computed by applying the statutory federal corporate tax rate to income as follows:
- -------------------------------------------------------------------- (In millions) 1993 1992 1991 ==================================== ============================ Federal income tax at statutory rate (35% in 1993, 34% in 1992-1991) $227.5 $ 35.5 $50.1 Increase (decrease) in taxes resulting from: State income taxes, net of federal benefit 20.3 7.5 4.1 1% increase in federal tax rate 25.5 - - Exchange of mineral assets 23.5 - - Depletion (8.7) (3.5) (3.0) Other 23.3 1.5 (0.2) - ------------------------------------ ---------------------------- Total $311.4 $ 41.0 $51.0 ==================================== ============================
The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," as of January 1, 1992 having previously accounted for income taxes under SFAS No. 96. The adoption of SFAS No. 109 had no impact on 1992 net income. Both SFAS No. 96 and No. 109 required that deferred income taxes be determined based on temporary differences between the financial reporting and tax basis of the Company's assets and liabilities using enacted tax rates in effect during the years in which the differences are expected to reverse. The Omnibus Budget Reconciliation Act of 1993 resulted in an increase in the maximum corporate federal income tax rate from 34% to 35% retroactive to January 1, 1993. In accordance with SFAS No. 109, SFP recorded additional income tax expense of $25.5 million, representing the impact of the 1% rate increase on SFP's net beginning of year deferred income tax liability. The impact of the tax increase as of August 10, 1993, the date of enactment, was approximately $32 million. The difference between the $25.5 million impact as of the beginning of the year and the $32 million impact as of August 10, 1993 is due to taxable income and temporary differences generated during the period January 1, 1993 through August 10, 1993. Principal temporary differences that gave rise to the net deferred tax liability at December 31, 1993 and 1992 were as follows:
- --------------------------------------------------------------------------- (In millions) 1993 1992 ================================================ ======================= Deferred tax debits: Accrued liabilities not deductible until paid: Restructuring $ 119.5 $ 144.6 Postretirement benefits 113.3 108.2 Other 243.2 247.5 Non-expiring AMT credit carryforwards 106.9 88.0 Other 26.1 39.4 - ------------------------------------------------ ----------------------- Subtotal $ 609.0 $ 627.7 - ------------------------------------------------ ----------------------- Deferred tax credits: Depreciation $(1,303.1) $(1,231.8) Condemnation sales (211.8) (123.1) Other (250.6) (166.8) - ------------------------------------------------ ----------------------- Subtotal $(1,765.5) $(1,521.7) - ------------------------------------------------ ----------------------- Net deferred tax liability $(1,156.5) $ (894.0) ================================================ =======================
During 1993 and 1992, SFP made income tax payments, net of refunds, of $23.9 million and $8.2 million, respectively. During 1991, SFP received net refunds of $8.5 million. The federal income tax returns of SFP have been examined through 1988. All years prior to 1981 are closed. Issues relating to the years 1981-1988 are being contested through various stages of administrative appeal. In addition, SFP and its subsidiaries have various state income tax returns in the process of examination, administrative appeal or litigation. Management believes that adequate provision has been made for any adjustment which might be assessed for open years through 1993. NOTE 9: SALES OF ACCOUNTS RECEIVABLE Santa Fe Railway has an agreement to sell, on a revolving basis, an undivided percentage interest in certain accounts receivable, with limited recourse, to a financial institution. The agreement, which expires in December 1994, allows for sales of accounts receivable up to a maximum of $225.0 million. Santa Fe Railway acts as collection agent under the agreement. The amount of accounts receivable sold under the agreement was $225.0 million at both December 31, 1993 and 1992. The financial institution purchases an interest in a pool of receivables that has generally ranged from $250-$325 million during 1993 and 1992. Santa Fe Railway is exposed to credit loss related to collection of accounts receivable to the extent that the purchased interest exceeds the amount of accounts receivable sold. Costs related to the agreement vary on a monthly basis and are generally related to certain interest rates. These costs, which are included in Other Income-Net, were $8.3 million, $9.4 million and $14.5 million in 1993, 1992 and 1991, respectively. 26 NOTE 10: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at December 31, 1993 and 1992 consisted of the following:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Accounts and wages payable $169.2 $172.0 Accrued claims 90.3 88.3 Rail restructuring 57.8 122.6 Vacations 52.1 50.5 Taxes other than income taxes 36.9 39.5 Interest 29.6 30.7 Other 279.8 219.7 - ------------------------------------------------------------ Total $715.7 $723.3 ============================================================
NOTE 11: LONG-TERM DEBT Long-term debt at December 31, 1993 and 1992 consisted of the following:
- ------------------------------------------------------------ (In millions) 1993 1992 - ------------------------------------------------------------ Equipment Obligations, weighted average rate of 8.9%, maturing from 1994 to 2008 $ 478.9 $ 453.1 Pipeline Exchangeable Debentures, 10.4% (variable), maturing 2010 219.0 219.0 Senior Notes, 12.65%, maturing from 1998 to 2000 200.0 200.0 Gold Master Credit Facility, 4.2% (variable) maturing from 1996 to 1998 140.0 -- Term Loan, 4.0% (variable), maturing from 1994 to 1995 108.7 181.2 Mortgage Bonds, 4%, maturing 1995 95.8 95.8 Lone Tree Gold Facility 4.5% (variable) maturing from 1994 to 2000 60.0 17.7 Bank Term Loan, 4.1% (variable), maturing from 1994 to 1997 50.0 130.8 Minerals Credit Agreement (variable) -- 126.0 Other Obligations, 9.4% to 10.3%, maturing from 1994-2014 40.2 44.9 Debt discount (16.8) (17.0) - ------------------------------------------------------------ Total long-term debt 1,375.8 1,451.5 - ------------------------------------------------------------ Due within one year (190.7) (205.8) - ------------------------------------------------------------ Due after one year $1,185.1 $1,245.7 ============================================================
Under the Bank Term Loan, SFP has a $173.6 million revolving credit facility for general corporate purposes. SFP pays commitment fees of 3/8% per annum on the unused portion of the Bank Term Loan and revolving credit facility, payable quarterly. As of December 31, 1993, no borrowings were outstanding under the revolving credit facility. In October 1993, SFP Gold entered into a $190 million unsecured revolving credit facility involving several banks (Gold Master Credit Facility). SFP Gold is required to pay a commitment fee of 0.05% on outstanding commitments and a facility fee of 0.26% on outstanding borrowings. As of December 31, 1993, $140.0 million was outstanding under the Gold Master Credit Facility. The use of proceeds from the Gold Master Credit Facility is restricted to financing transaction costs associated with the exchange of mineral assets (see Note 3: Gain on Exchange of Mineral Assets), and financing working capital requirements. All the assets of the Lone Tree Gold Mine are pledged as collateral for the cash and gold borrowings under Lone Tree Mining, Inc.'s Gold Loan Agreement (Lone Tree Gold Facility) (see Note 13: Deferred Gold Revenues). Additionally, cash and gold borrowings under the Lone Tree Gold Facility are guaranteed by SFP. In December 1992, SFP accelerated the repayment of borrowings related to a 1990 litigation settlement. The early extinguishment of debt resulted in an extraordinary charge of $5.0 million, net of applicable tax benefits of $3.0 million, reflecting the write off of unamortized debt discount. Additionally, in March 1993, SFP acceler-ated the repayment of $126.0 million associated with the Minerals Credit Agreement. Both of the above repayments were made using a portion of the 1992 and 1993 proceeds from Santa Fe Railway's sale of California lines (see Note 2: Gain on Sale of California lines). In December 1993, SFP filed a shelf registration statement with the SEC, for the issuance of up to $250 million in debt securities, none of which had been issued at December 31, 1993. As of December 31, 1993, projected principal repayments of long term debt during the five years 1994 through 1998, excluding capital leases, are $188.9 million, $218.5 million, $56.1 million, $102.5 million and $202.7 million, respectively. Total interest paid was $120.7 million in 1993, $158.5 million in 1992 and $177.6 million in 1991. Substantially all railroad property is subject to liens securing Mortgage Bonds or Equipment Obligations. The payment of cash dividends by SFP is restricted by various debt covenants. Such restrictions vary with levels of income and other factors. At December 31, 1993, no payment of dividends was allowed; however, the Company believes that it could change the designation of SFP Gold under the restrictive debt agreement or distribute SFP Gold to SFP shareholders to eliminate the dividend restriction. Certain other debt agreements of the Company and its subsidiaries include covenants which place limitations on indebtedness and intercompany dividends, require the maintenance of various financial ratios, and restrict the disposition of assets. Pipeline Holdings is contingently liable for $355.0 million of Pipeline Partnership debt. NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments at December 31, 1993 and 1992, and the methods and assumptions used to estimate such fair values, are as follows: Cash and short-term investments The fair value of cash and short-term investments approximates the carrying amount because of the short maturity of those instruments. Note Receivable The fair value of the Note Receivable approximates the carrying amount as the variable interest rate on the note approximates current interest rates. Other Investments SFP maintained an investment in common stock which became publicly traded during 1993. The carrying value of the investment at December 31, 1993 was $10.6 million. In January 1994, the investment was sold resulting in a pre-tax gain of approximately $25 million. Additionally, SFP maintains various other investments in common stock with a carrying value at December 31, 1993 and 1992 of approximately $17 million and $27 million, respectively, which are accounted for under a cost basis. These investments are in non-publicly traded companies which have no quoted market prices; therefore, a reasonable estimate of fair value could not be made. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Santa Fe Pacific Corporation and Subsidiary Companies Long-Term Debt The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates which would be offered to the Company for debt of the same remaining maturities. The carrying value of debt at December 31, 1993 and 1992 was $1,375.8 million and $1,451.5 million compared with estimated fair values of approximately $1,595 million and $1,620 million, respectively. NOTE 13: DEFERRED GOLD REVENUES SFP Gold has borrowed gold to finance the development of its Twin Creeks and Lone Tree Mines. Proceeds from the sale of the borrowed gold are recorded as deferred revenue at the average price realized. As SFP Gold delivers gold from production, in repayment of the gold loan, revenue will be recorded at this average loan price, reducing the deferred revenue balance accordingly. Deferred gold revenue borrowings outstanding under loan and security agreements for the Twin Creeks and Lone Tree Mines total $98.0 million and $51.2 million, respectively, as of December 31, 1993, and $111.0 million and $51.2 million, respectively, as of December 31, 1992. Under the agreements, all assets of the mines are pledged as collateral. Interest on the borrowings are based on the banks' cost of gold funding plus a credit spread of 1%. As of December 31, 1993, repayments under the agreements, in ounces of gold, during the next five years 1994 through 1998 are 36,844; 67,552; 55,252; 55,252 and 64,484, respectively. NOTE 14: LEASES AND OTHER COMMITMENTS SFP leases certain locomotives, freight cars, trailers, data processing equipment and other property. Future minimum lease payments for operating leases (which reflect operating leases having non-cancelable lease terms in excess of one year) as of December 31, 1993 are summarized as follows: - ------------------------------------------------------------- (In millions) - ------------------------------------------------------------- 1994 $61.7 1995 56.2 1996 47.0 1997 36.7 1998 30.5 Later years 174.7 - ------------------------------------------------------------- Total minimum payments $406.8 ============================================================= Rental expense for all operating leases was $97.7 million in 1993, $76.2 million in 1992 and $70.7 million in 1991. Contingent rentals and sublease rentals were not significant. Santa Fe Railway has entered into agreements with certain locomotive suppliers which provide for maintenance on a portion of its locomotive fleet. As of December 31, 1993, these agreements obligate Santa Fe Railway to make minimum annual payments over periods ranging from two to eighteen years. Santa Fe Railway has also entered into haulage agreements with other rail carriers under which it is required to make minimum payments if specified traffic levels are not met. In the aggregate, these agreements require minimum annual payments of approximately $63 million in 1994, $52 million in 1995, $50 million in 1996, $51 million in 1997, $52 million in 1998, and $327 million in total thereafter through 2012. Payments under the agreements totaled approximately $68 million, $62 million and $49 million in 1993, 1992 and 1991 respectively. In connection with the closing of the sale of California lines, Santa Fe Railway has entered into various shared use agreements with the agencies which require Santa Fe Railway to pay the agencies approximately $6.0 million annually for the maintenance of track structure and facilities. In addition, Santa Fe Railway is committed to acquire locomotives valued at approximately $62 million in 1994. SFP Gold is committed to acquire mining equipment valued at approximately $7.0 million in 1994. Santa Fe Railway has entered into hedging positions which are anticipated to cover approximately two-thirds of 1994 fuel purchases. These positions are settled quarterly based on average commodity prices with gains or losses recognized within fuel expense upon settlement. SFP Gold has entered into various forward sales contracts, excluding gold loans (see Note 13: Deferred Gold Revenues), providing for the future delivery of gold. The forward sales contracts have an aggregate sales value of approximately $224 million which commit SFP Gold to the future delivery of 570,500 ounces of gold at an average price of $393 per ounce. Scheduled delivery dates under the forward sales contracts range from the beginning to the end of 1994. In addition, SFP Gold has committed 114,000 ounces in 1994 under call options at prices ranging between $375 and $385 per ounce and has purchased put options on 114,000 ounces at strike prices ranging between $318 and $331 per ounce. These put and call options expire at a rate of 9,500 ounces per month during 1994. NOTE 15: CONTINGENCIES Environmental The Company is subject to extensive regulation under federal, state and local environmental laws concerning, among other things, discharges to waters, air emissions, toxic substances, and the generation, handling, storage, transportation, and disposal of waste and hazardous materials. These laws and regulations have the effect of increasing the cost and liabilities associated with the conduct of operations. Environmental risks are also inherent in railroad operations which frequently involve the transportation of chemicals and other hazardous materials. Santa Fe Railway expects it will become subject to new requirements regulating air emissions from diesel locomotives that may increase its operating costs in the future. By 1995, the United States Environmental Protection Agency must issue regulations applicable to new locomotive engines. Locomotive engines (other than new locomotive engines) may be regulated by states based on standards and procedures which the State of California ultimately adopts. The California standards are currently in the process of being developed. In addition, because many of SFP's land holdings are and have been used for industrial or transportation related purposes or leased to 28 commercial or industrial companies whose activities may have resulted in discharges onto the property, the Company is now subject and will from time to time continue to be subject to environmental clean-up and enforcement actions. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as the ``Superfund'' law, generally imposes joint and several liability for clean-up and enforcement costs, without regard to fault or the legality of the original conduct, on current and predecessor owners and operators of a site. Accordingly, SFP may be responsible under CERCLA and other federal and state statutes for all or part of the costs to clean up sites at which certain substances may have been released by the Company, its current lessees, predecessor owners or lessees of properties, or other third parties. Estimates of the Company's ultimate liabilities associated with Superfund and other environmental sites are difficult to predict with certainty due to, among other factors, the number of parties involved, possible remediation alternatives, lengthy time frames, and potential recoveries from third parties. During 1992, management completed an internal assessment of Santa Fe Railway's environmental liabilities, including a site-by-site analysis of properties with potentially significant environmental exposure. As a result of this review and analysis it was determined that an additional accrual of $67 million was appropriate to provide for future costs of this nature which was recorded in the third quarter of 1992 as part of the rail special charge (see Note 5: Rail Special Charge). In addition, the Company monitors, on a regular basis, accruals for environmental sites which have been identified. Payment of these accrued costs are expected to be made over the next five years. It is the opinion of SFP management that any future costs in excess of recorded liabilities will not have a material adverse effect on the consolidated financial position of SFP. Other Claims and Litigation SFP is also a party to a number of other legal actions arising in the ordinary course of business, including various governmental proceedings and private civil suits. While the final outcome of these other legal actions cannot be predicted with certainty, considering the meritorious legal defenses available, it is the opinion of SFP management that none of these other legal actions, when finally resolved, will have a material adverse effect on the consolidated financial position of SFP. NOTE 16: PENSION PLANS SFP and its subsidiaries have two significant defined benefit pension plans, the trusteed noncontributory Santa Fe Pacific Corporation Retirement Plan (Retirement Plan) and the Santa Fe Pacific Corporation Supplemental Retirement Plan (Supplemental Plan). The Retirement Plan complies with Employee Retirement Income Security Act of 1974 (ERISA) requirements and covers substantially all officers and employees of SFP and its subsidiaries not covered by collective bargaining agreements. Benefits payable under the Retirement Plan are based on compensation during the 60 highest paid consecutive months of service during the ten years immediately preceding retirement and years of service. SFP's funding policy is to contribute annually not less than the ERISA minimum, and not more than the maximum amount deductible for income tax purposes. The Supplemental Plan is an unfunded plan that provides supplementary retirement benefits primarily to certain executives. Components of pension income and expense relating to the Retirement and Supplemental Plans for 1993, 1992 and 1991 were as follows:
RETIREMENT PLAN (In millions) 1993 1992 1991 - ----------------------------------------------------------------- Components of pension (income) expense Service cost $ 6.6 $ 7.7 $ 8.7 Interest cost 42.4 39.6 40.4 Actual return on plan assets (111.7) (59.1) (99.9) Net amortization and deferral 47.2 (5.4) 37.0 - ----------------------------------------------------------------- Total $(15.5) $(17.2) $(13.8) ================================================================= SUPPLEMENTAL PLAN (In millions) 1993 1992 1991 - ----------------------------------------------------------------- Components of pension expense Service cost $0.1 $0.1 $0.1 Interest cost 0.7 0.7 0.7 Net amortization and deferral 0.5 0.6 0.6 - ----------------------------------------------------------------- Total $1.3 $1.4 $1.4 =================================================================
Plan assets and liabilities are measured at September 30. A reconciliation of the funded status of the plans with amounts recorded is shown as follows: RETIREMENT PLAN
(In millions) 1993 1992 - ----------------------------------------------------------------- Plan assets at fair value, primarily invested in common stock, and U.S. and corporate bonds $ 667.0 $ 597.5 Actuarial present value of projected benefit obligation Accumulated benefit obligation Vested (540.7) (425.7) Nonvested (30.8) (29.3) Provision for future salary increases (43.5) (47.4) - ----------------------------------------------------------------- Excess of plan assets over projected benefit obligation 52.0 95.1 Unrecognized net (gain) loss 31.3 (30.1) Unrecognized prior service cost 13.4 17.8 Unrecognized net transition asset being recognized ratably through 2002 (16.1) (18.1) - ----------------------------------------------------------------- Prepaid pension asset $ 80.6 $ 64.7 ================================================================= SUPPLEMENTAL PLAN (In millions) 1993 1992 - ------------------------------------------------------------------ Actuarial present value of projected benefit obligation Accumulated vested benefit obligation $(8.6) $(7.4) Provision for future salary increases (0.6) (1.2) - ------------------------------------------------------------------ Projected benefit obligation (9.2) (8.6) Unrecognized net gain (0.8) (1.2) Unrecognized net transition obligation being recognized ratably through 2003 5.7 6.3 Adjustment required to recognize minimum liability (4.3) (3.9) - ------------------------------------------------------------------ Accrued pension liability $(8.6) $(7.4) - ------------------------------------------------------------------ Major assumptions (Retirement and Supplemental Plans): Discount rate 7.0% 8.5% Rate of increase in compensation levels 4.0% 5.5% Expected return on market value of plan assets 9.75% 11.0% ==================================================================
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Santa Fe Pacific Corporation and Subsidiary Companies NOTE 17: OTHER POSTRETIREMENT BENEFITS In addition to the Company's defined benefit pension plans, salaried employees who have attained age 55 and who have rendered ten years of service are eligible for both medical benefits and life insurance coverage during retirement. The retiree medical plan is contributory and provides benefits to retirees, their covered dependents and beneficiaries. Retiree contributions are adjusted annually. The plan also contains fixed deductibles, coinsurance and out-of- pocket limitations. The life insurance plan is noncontributory and covers retirees only. The Company adopted SFAS No. 106 effective January 1, 1992 (see Note 18: Change in Method of Accounting for Postretirement and Postemployment Benefits). Components of net periodic postretirement benefit cost relating to the medical plan and the life insurance plan were as follows:
MEDICAL PLAN (In millions) 1993 1992 - ------------------------------------------------------------ Components of net periodic postretirement benefit cost Service cost $ 3.8 $ 5.4 Interest cost 15.3 18.4 Net amortization and deferral (3.5) -- - ------------------------------------------------------------ Total $15.6 $23.8 ============================================================ LIFE INSURANCE PLAN (In millions) 1993 1992 - ------------------------------------------------------------ Components of net periodic postretirement benefit cost Service cost $ 0.3 $ 0.2 Interest cost 3.9 3.8 - ------------------------------------------------------------ Total $ 4.2 $ 4.0 ============================================================
Prior to 1992, the costs of these benefits were generally recognized when paid and for 1991 were $13.6 million. SFP's policy is to fund benefits payable under the medical and life insurance plans as due. The following table shows the reconciliation of the plans' obligations to amounts accrued at December 31, 1993 and 1992. The Company uses a September 30 measurement date.
MEDICAL PLAN (In millions) 1993 1992 - ------------------------------------------------------------ Accumulated postretirement benefit obligation Retirees $139.0 $114.4 Fully eligible active plan participants 16.2 9.5 Other active plan participants 80.2 57.1 - ------------------------------------------------------------ Accumulated postretirement benefit obligation 235.4 181.0 - ------------------------------------------------------------ Unrecognized prior service credit 42.1 45.6 Unrecognized net gain (loss) (39.7) 3.1 - ------------------------------------------------------------ Accrued postretirement liability $237.8 $229.7 ============================================================ LIFE INSURANCE PLAN (In millions) 1993 1992 - ------------------------------------------------------------ Accumulated postretirement benefit obligation Retirees $45.9 $43.6 Fully eligible active plan participants 0.2 -- Other active plan participants 5.1 4.3 - ------------------------------------------------------------ Accumulated postretirement benefit obligation 51.2 47.9 - ------------------------------------------------------------ Unrecognized net gain (loss) (5.4) (1.3) - ------------------------------------------------------------ Accrued postretirement liability $45.8 $46.6 ============================================================
The unrecognized prior service credit will be amortized straight line over the average future service to full eligibility of the active population. For 1994, the assumed health care cost trend rate for managed care medical costs is 11.5% and is assumed to decrease gradually to 5% by 2006 and remain constant thereafter. For medical costs not in managed care, the assumed health care cost trend rate is 14% and is assumed to decrease gradually to 5% by 2006 and remain constant thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the medical plan by $36.5 million and the aggregate of the service and interest components of net periodic postretirement benefit cost recognized in 1993 by $3.2 million. In 1993, the assumed health care cost trend rate for managed care medical costs was 12% and was assumed to decrease gradually to 5.5% by 2006 and remain constant thereafter. For medical costs not in managed care, the assumed health care cost trend rate was 15% in 1993 and was assumed to decrease gradually to 6.5% by 2006 and remain constant thereafter. The weighted-average discount rate assumed in determining the accumulated postretirement benefit obligation was 7% and 8.5% in 1993 and 1992, respectively. The assumed weighted-average salary increase was 4.0% and 5.5% in 1993 and 1992, respectively. Other Plans Under collective bargaining agreements, Santa Fe Railway participates in multiemployer benefit plans which provide certain postretirement health care and life insurance benefits for eligible union employees. Insurance premiums paid attributable to retirees, which are generally expensed as incurred, were $3.3 million, $3.5 million and $3.7 million in 1993, 1992 and 1991, respectively. NOTE 18: CHANGE IN METHOD OF ACCOUNTING FOR POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 106 requires that an actuarial method be used to 30 accrue the expected cost of postretirement health care and other benefits over employees' years of service. SFAS No. 112 relates to benefits provided to former or inactive employees after employment but before retirement and requires recognition of these benefits if they are vested and payment is probable and reasonably estimable. Prior to 1992, the cost of most postretirement and certain postemployment benefits were expensed when paid. The cumulative effect of this change in accounting attributable to years prior to 1992 was to decrease 1992 net income by $163.0 million, net of the related income tax benefit of $97.0 million. The impact of SFAS No. 106 comprises approximately $158 million of the change. Additionally, expenses in 1992 were $14 million higher than in 1991 as a result of the change in accounting for these costs. NOTE 19: STOCK OPTION AND GROWTH PLANS Under various plans, the most significant of which are the Santa Fe Pacific Long Term Incentive Stock Plan (Long Term Plan) and the Santa Fe Pacific Incentive Stock Compensation Plan (Incentive Compensation Plan), options have been granted to employees to purchase common stock of SFP at a price not less than the fair market value at the date of grant. Options are generally exercisable no earlier than one year after the date of grant and expire ten years after the date of grant. Under these plans, approximately 0.8 million shares of restricted stock have been granted with the restrictions on such shares lapsing no earlier than one year from the date of grant and upon the attainment of certain corporate performance objectives or the completion of a required vesting period. A total of 10 million shares, excluding 2 million additional shares that may be granted in exchange for shares tendered to the Company to pay for an option exercise, and a total of 18.4 million shares may be used under the Long Term Plan and Incentive Compensation Plan, respectively. The Long Term Plan replaced the Incentive Compensation Plan and no new grants will be made under the Incentive Compensation Plan. Under these plans, awards may be granted in the form of (1) options to purchase SFP common stock; (2) shares of restricted stock, which may be issued in combination with performance units; (3) Performance Units; and (4) stock appreciation rights. Awards of 6.6 million shares under the Long Term Plan and 14.6 million shares under the Incentive Compensation Plan, of SFP common stock, net of options surrendered or terminated, have been made in the form of options, stock appreciation rights, and restricted stock. Approximately 4.9 million of outstanding options are exercisable within the next year. Option activity in all plans during 1993, 1992 and 1991 is summarized below:
SFP Average Shares Price - -------------------------------------------------------------- Options outstanding at December 31, 1990 15,610,892 $ 7.46 Granted 343,700 7.22 Exercised 2,022,221 6.21 Surrendered or terminated 2,887,071 9.20 ---------- Options outstanding at December 31, 1991 11,045,300 $ 7.23 Granted 70,000 12.31 Exercised 2,114,257 6.93 Surrendered or terminated 750,475 8.43 ---------- Options outstanding at December 31, 1992 8,250,568 $ 7.24 Granted 5,814,770 17.17 Exercised 3,284,947 7.21 Surrendered or terminated 176,544 9.91 ---------- Options outstanding at December 31, 1993 10,603,847 $12.65 ==============================================================
NOTE 20: STOCKHOLDER RIGHTS PLAN AND SALE OF STOCK In January 1991, the SFP Board of Directors voted to redeem by means of a share distribution the rights to purchase Series A Junior Participating Preferred Stock of SFP issued under a rights agreement. Holders of record of the rights as of the close of business on February 15, 1991, received an amount of SFP common stock, with a current market price equal to $0.05 per right in March 1991. The redemption resulted in an issuance of approximately 1.3 million shares of common stock. In October 1991, SFP sold 4,043,039 shares of stock, and received net proceeds of approximately $36.2 million. These shares were purchased as a result of options which had been granted to underwriters to cover over-allotments in conjunction with the sale of SFP stock by a significant shareholder through a secondary offering. The shares were issued through use of treasury stock held by the Company. NOTE 21: INFORMATION ON BUSINESS SEGMENTS Identifiable assets at December 31, 1993, 1992, and 1991, and capital expenditures and depreciation and amortization expenses for the three years then ended, are as follows:
- ------------------------------------------------------------------ (In millions) 1993 1992 1991 - ------------------------------------------------------------------ Identifiable assets Rail $4,906.9 $4,603.8 $4,558.7 Gold 832.6 485.4 446.7 Pipeline 65.1 72.2 80.7 Corporate 132.4 184.0 134.5 - ------------------------------------------------------------------ Total $5,937.0 $5,345.4 $5,220.6 ================================================================== Properties, plant and equipment Rail Track structure $2,326.8 $2,199.8 $2,202.9 Equipment 1,952.6 1,864.0 1,910.2 Other road properties 1,478.9 1,337.5 1,264.6 Real estate and other 127.8 122.7 116.6 - ------------------------------------------------------------------ Total Rail $5,886.1 $5,524.0 $5,494.3 Gold 778.3 445.5 381.2 Corporate -- -- 1.2 - ------------------------------------------------------------------ Total $6,664.4 $5,969.5 $5,876.7 ================================================================== Accumulated depreciation, depletion and amortization Rail Track structure $ 558.0 $ 420.0 $ 465.5 Equipment 872.6 828.9 790.6 Other road properties 140.1 279.6 278.3 Real estate and other 7.0 6.8 7.0 - ------------------------------------------------------------------ Total Rail $1,577.7 $1,535.3 $1,541.4 Gold 90.5 94.9 66.3 - ------------------------------------------------------------------ Total $1,668.2 $1,630.2 $1,607.7 ================================================================== Depreciation, depletion and amortization expense Rail Track structure $ 62.1 $ 60.8 $ 54.9 Equipment 92.1 89.4 93.1 Other road properties 34.3 31.1 36.1 Real estate and other -- -- 0.2 - ------------------------------------------------------------------ Total Rail $ 188.5 $ 181.3 $ 184.3 Gold 59.4 34.8 23.7 Corporate -- -- 0.4 - ------------------------------------------------------------------ Total $ 247.9 $ 216.1 $ 208.4 ================================================================== Capital expenditures Rail $ 539.1 $ 265.5 $ 241.9 Gold 107.1 66.5 87.5 Corporate -- -- 1.3 - ------------------------------------------------------------------ Total $ 646.2 $ 332.0 $ 330.7 ==================================================================
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Santa Fe Pacific Corporation and Subsidiary Companies NOTE 22: SUMMARIZED QUARTERLY OPERATING RESULTS (UNAUDITED)
(In millions, except per share data) 1993 1992 First Second Third Fourth First Second Third Fourth - ---------------------------------------------------------------------------------------------------------- Revenues $653.3 $675.0 $665.5 $732.6 $616.7 $605.4 $642.1 $632.2 Operating Income (Loss) $105.5 $108.6 $65.2 $143.5 $96.3 $87.8 $(215.1) $108.6 Income (Loss) Before Extraordinary Charge and Accounting Change $127.1 $147.5 $(2.8) $67.0 $28.2 $26.5 $(165.1) $173.9 Extraordinary Charge on Early Retirement of Debt, Net of Income Taxes -- -- -- -- -- -- -- (5.0) Cumulative Effect of a Change in Accounting for Postretirement and Postemployment Benefits, Net of Income Taxes -- -- -- -- (163.0) -- -- -- - ---------------------------------------------------------------------------------------------------------- Net Income (Loss) $127.1 $147.5 $(2.8) $67.0 $(134.8) $26.5 $(165.1) $168.9 ========================================================================================================== Income (Loss) Per Common Share Before Extraordinary Charge and Accounting Change $0.68 $0.79 $(0.01) $0.36 $0.15 $0.14 $(0.89) $0.94 Extraordinary Charge -- -- -- -- -- -- -- (0.03) Cumulative Effect of a Change in Accounting -- -- -- -- (0.88) -- -- -- - --------------------------------------------------------------------------------------------------------- Net Income (Loss) Per Common Share $0.68 $0.79 $(0.01) $0.36 $(0.73) $0.14 $(0.89) $0.91 =========================================================================================================
(1) The sum of net income (loss) per share for the four quarters of 1993 does not equal net income (loss) per share for the full year due to incremental shares resulting from stock options. (2) 1993 income (loss) includes a first quarter $145.4 million pre-tax gain on sale of California lines, a second quarter $217.5 million pre-tax gain on the exchange of mineral assets, and a third quarter increase in income tax expense of approximately $32 million reflecting the retroactive impact of the increase in the federal income tax rate to 35%. (3) 1992 income (loss) includes a third quarter $320.4 million pre-tax rail special charge and a fourth quarter $204.9 million pre-tax gain on sale of California lines. NOTE 23: GOLD RESERVES (UNAUDITED)
As of December 31, 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------- Proven and probable gold reserves (thousands of ounces) Contained 14,121 6,391 5,781 4,743 3,793 Portion projected recoverable 11,240 5,144 4,716 3,921 3,094 - ----------------------------------------------------------------------------- Average price received (per ounce) $387 $394 $410 $420 $445 Ounces produced (in thousands) 611 296 179 51 4 - -----------------------------------------------------------------------------
32 EX-21 8 SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF SANTA FE PACIFIC CORPORATION -------------------------------------------- PINE CANYON LAND COMPANY (DE) SFP FIBER OPTICS, INC. (DE) SANTA FE PACIFIC INSURANCE COMPANY (VT) SFP PROPERTIES, INC. (DE) THE ATCHISON, TOPEKA, AND SANTA FE RAILWAY COMPANY (DE) 100% Alameda Belt Line (CA) 50% Aubrey Water Company (AZ) 100% The Belt Railway Company of Chicago (IL) 8.33% Central California Traction Company (CA) 33.33% The Dodge City and Cimarron Valley Railway Company (KS) 100% The Gulf and Inter-State Railway Company of Texas (TX) 100% Houston Belt & Terminal Railway Company (TX) 25% Kansas City Terminal Railway Company (MO) 8.33% Los Angeles Junction Railway Company (CA) 100% The Oakland Terminal Railway (CA) 50% Oklahoma City Junction Railway Company (OK) 100% Rio Grande, El Paso and Santa Fe Railroad Company (TX) 100% St. Joseph Terminal Railroad Company (MO) 50% Santa Fe Financial Holdings, Inc. (DE) 100% Santa Fe Forwarding Company (DE) 100% Santa Fe Rail Equipment Company (DE) 100% Santa Fe Terminal Services, Inc. (DE) 100% Star Lake Railroad Company (DE) 100% Sunset Railway Company (CA) 50% Texas City Terminal Railway Company (TX) 33.33% TTX Company (DE) 10.9% The Wichita Union Terminal Railway Company (KS) 33.33% CONSTELLATION 130, INC. (CA) 100% LIMITED PARTNERSHIP MANAGEMENT, INC, (DE) 100% SANTA FE PACIFIC GOLD CORPORATION (DE) 100% Santa Fe Canadian Mining, LTD. 100% Minera Gold Fields De Mexico, S.A. 100% Minera Santa Fe Pacific Chile Limitada 99% Santa Fe Pacific Gold South America, Inc. 100% (1% in Minera Santa Fe Pacific Chile Limitada) San Juan Basin Coal Holding Company 100% Santa Fe Pacific Mining, Inc. (KS) 100% Hospah Coal Company (DE) 100% SFPG Mining Company (DE) 100% Compania Minera Florida, S.A. 100% Compania Minera Santa Fe Uruguay S.A. 100% Lone Tree Mining, Inc. (DE) 100% Rabbit Creek Mining, Inc. (DE) 100% SANTA FE PACIFIC RAILROAD COMPANY (ACT OF CONGRESS) 100% SANTA FE PACIFIC CAPITAL, INC. (IL) 100% SFP PIPELINE HOLDINGS, INC. (DE) 100% Santa Fe Pacific Pipelines, Inc. (DE) 100% SUNSET COMMUNICATIONS COMPANY (DE) 100% WALKER-KURTH LUMBER COMPANY (TX) 100% THE ZIA COMPANY (DE) 100% EX-23.A 9 CONSENT OF PRICE WATER Exhibit 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of (i) the Registration Statement of Form S-3 (No. 33-51435), (ii) the Registration Statements on Form S-8 (Nos. 33-12072; 33-26814; 33-33413; 33-41409; 33-60628; and 33-63208) and (iii) Post-Effective Amendment 1-D on Form S-8 to the Registration Statement on Form S-14 (No.2-87755) of Santa Fe Pacific Corporation of our report dated February 4, 1994 appearing on page 19 of the 1993 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Consolidated Financial Statement Schedules which appears on page F-1 of this Form 10-K. /s/ Price Waterhouse PRICE WATERHOUSE Kansas City, Missouri March 30, 1994 EX-23.B 10 CONSENT Exhibit 23(b) March 28, 1994 The Board of Directors Santa Fe Pacific Corporation We hereby consent to the references to our firm in Santa Fe Pacific Corporation's 1993 Annual Report to shareholders on Form 10-K which Annual Report is incorporated by reference in the Prospectuses constituting part of (i) the Registration Statement on Form S-3 (No. 33-51436), (ii) the Registration Statements on Form S-8 (No. 33-12072; 33-26814; 33-33413; 33-41409; 33-60628; and 33-68208), and (iii) the Post-Effective Amendment 1-D on Form S-8 to the Registration Statement on Form S-14 (No. 2-87755) of Santa Fe Pacific Corporation. PINCOCK, ALLEN & HOLT By: /s/ GEORGE ARMBRUST ---------------------------------- George Armbrust Manager, Geological Services EX-24 11 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY WHEREAS, SANTA FE PACIFIC CORPORATION, a Delaware corporation ("the Company"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1993; and WHEREAS, the undersigned serve the Company in the capacity indicated; NOW, THEREFORE, the undersigned hereby constitutes and appoints DENIS E. SPRINGER and JEFFREY R. MORELAND, his attorney with full power to act for him in his name, place and stead, to sign his name in the capacity set forth below, to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1993, and to any and all amendments to such Annual Report on Form 10-K, and hereby ratifies and confirms all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been executed by the undersigned this 22nd day of March, 1994. /s/ JOSEPH F. ALIBRANDI /s/ GEORGE DEUKMEJIAN - ----------------------------------- ----------------------------------- Joseph F. Alibrandi, Director George Deukmejian, Director /s/ ROBERT D. KREBS /s/ BILL M. LINDIG - ----------------------------------- ----------------------------------- Robert D. Krebs, Chairman, Bill M. Lindig, Director President, Chief Executive Officer and Director /s/ MICHAEL A. MORPHY /s/ GEORGE B. MUNROE - ----------------------------------- ----------------------------------- Michael A. Morphy, Director George B. Munroe, Director /s/ ROY S. ROBERTS /s/ JOHN S. RUNNELLS II - ----------------------------------- ----------------------------------- Roy S. Roberts, Director John S. Runnells II, Director /s/ JEAN HEAD SISCO /s/ EDWARD F. SWIFT - ----------------------------------- ----------------------------------- Jean Head Sisco, Director Edward F. Swift, Director /s/ ROBERT H. WEST - ----------------------------------- Robert H. West, Director -----END PRIVACY-ENHANCED MESSAGE-----