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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark
One)
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended June 30, 1994.
( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission File No. 33-30874
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
Delaware Corporation - I.R.S. No. 13-3526817
165 North Canal Street
One North Western Center
Chicago, Illinois 60606
Registrant's Telephone Number (312) 559-7000
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 requirements for the past 90 days.
Yes X No
Chicago and North Western Transportation Company has the following common
shares, par value $.01 per share, outstanding at July 15, 1994:
Common 43,916,757<PAGE>
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Statement
The following (a) condensed balance sheet as of December 31, 1993, which has
been derived from audited financial statements, and (b) unaudited, interim
financial statements included herein have been prepared by the Company
pursuant to the published rules and regulations of the Securities and Exchange
Commission and, in the case of interim financial statements, in the opinion of
management, reflect all adjustments (which adjustments, except those described
in Note 2, consist only of normal recurring items) necessary to present fairly
the results of operations of the Company. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's 1993 Annual Report
on Form 10-K.<PAGE>
3
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
millions of dollars except for per share amounts
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Operating revenues $282.6 $257.0 $556.5 $511.7
Operating expenses 229.3 204.3 455.0 413.4
Operating income $ 53.3 $ 52.7 $101.5 $ 98.3
Other income, net 5.5 3.4 5.7 7.8
Interest expense 24.1 27.4 46.7 54.9
Income before income taxes $ 34.7 $ 28.7 $ 60.5 $ 51.2
Income taxes:
Currently payable $ 0.4 $ 0.3 $ 0.7 $ 0.6
Deferred 12.8 9.7 22.3 17.3
$ 13.2 $ 10.0 $ 23.0 $ 17.9
Net income $ 21.5 $ 18.7 $ 37.5 $ 33.3
Earnings per common share $ 0.47 $ 0.43 $ 0.83 $ 0.76
Shares used in earnings per
share computation (thousands) 45,181 43,667 45,202 43,625
See accompanying notes to condensed consolidated financial statements.<PAGE>
4
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
June 30, December 31,
1994 1993
millions of dollars
Current assets:
Cash and temporary cash investments $ 90.8 $ 70.9
Accounts receivable, net 130.8 140.9
Materials and supplies, at average cost 38.0 27.7
Prepaid expenses and other 12.3 9.3
$ 271.9 $ 248.8
Property:
Road $1,972.0 $1,938.6
Equipment 156.2 155.3
Accumulated depreciation (307.1) (273.1)
$1,821.1 $1,820.8
Other assets $ 70.6 $ 66.3
Total assets $2,163.6 $2,135.9
See accompanying notes to condensed consolidated financial statements.<PAGE>
5
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1994 1993
millions of dollars
Current liabilities:
Accounts payable and accrued expenses $ 183.3 $ 179.4
Payroll and vacation pay 40.6 35.3
Interest 9.2 10.9
Taxes 19.0 16.2
Total, excluding long-term debt
due within one year $ 252.1 $ 241.8
Long-term debt due within one year 72.1 58.9
$ 324.2 $ 300.7
Casualties and environmental reserve 75.6 78.3
Other liabilities 85.1 84.3
Deferred income taxes 324.3 303.6
Long-term debt, excluding amounts due
within one year:
C&NW Railway 695.5 730.4
WRPI 391.9 412.4
Total $1,087.4 $1,142.8
Total liabilities $1,896.6 $1,909.7
Stockholders' equity:
Common stock, par value $.01 per share,
authorized 250,000,000 shares, issued
43,942,236 shares and outstanding
43,916,757 shares (of which 12,835,304
are non-voting) at June 30, 1994 $ 0.4 $ 0.4
Capital surplus 540.8 537.5
Retained income (274.2) (311.7)
$ 267.0 $ 226.2
Total liabilities and stockholders' equity $2,163.6 $2,135.9
See accompanying notes to condensed consolidated financial statements.<PAGE>
6
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
June 30,
1994 1993
millions of dollars
Cash flow from operating activities:
Net income $ 37.5 $ 33.3
Items not affecting cash flow from operating activities:
Depreciation 36.9 34.3
Amortization of debt cost 3.6 4.4
Gain from sales of property, net - (3.7)
Deferred income taxes 22.3 17.3
Cash provided from operating activities
before changes in assets and liabilities $100.3 $ 85.6
Changes in assets and liabilities:
Decrease in accounts receivable 10.1 0.9
(Increase) in other current assets except cash (13.3) (8.7)
Increase in accounts payable and accruals 10.3 8.7
(Decrease) in noncurrent reserves for special charges (4.4) (4.7)
Other, net (5.3) 6.2
Net cash flow from operating activities $ 97.7 $ 88.0
Cash flow from financing activities:
Proceeds from debt financing $ 0.1 $ 0.6
Proceeds from issuance of common stock 1.8 0.6
Payments on long-term debt (31.5) (19.8)
Prepayment of long-term debt (11.1) (0.4)
Net cash flow used for financing activities $(40.7) $(19.0)
Cash flow from investing activities:
Additions to property $(44.3) $(39.7)
Proceeds from property dispositions 6.8 6.0
Other, net 0.4 1.4
Net cash flow used for investing activities $(37.1) $(32.3)
Increase in cash and temporary cash investments $ 19.9 $ 36.7
Cash and temporary cash investments - beginning of period 70.9 44.2
- end of period $ 90.8 $ 80.9
See accompanying notes to condensed consolidated financial statements.<PAGE>
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Change of name.
On May 3, 1994, an amendment to the Company's Restated Certificate of
Incorporation was approved by the Company's stockholders, changing the
Company's name from Chicago and North Western Holdings Corp. to Chicago
and North Western Transportation Company, effective May 6, 1994. The
Company's wholly-owned subsidiary, Chicago and North Western
Transportation Company was renamed Chicago and North Western Railway
Company. During February of 1994, the Company's intermediate holding
company subsidiaries, Chicago and North Western Acquisition Corp. and CNW
Corporation, were eliminated by merger.
2) Prior period errors.
Six months ended June 30, 1994 results were reduced for the correction of
net prior period errors and irregularities, which occurred primarily in
1993, of $1.7 million ($2.7 million pretax) or $.04 per share. $2.2
million ($3.6 million pretax) or $.05 per share was related to the fourth
quarter of 1993. See Other Matters.
3) Lease commitments.
During March of 1994, the Company entered into a leveraged operating lease
agreement for 65 locomotives and 250 freight cars to be delivered in 1994,
which have a cost to the lessors of $110 million. The leased equipment
serves as collateral for $84 million of 7.52% pass through trust
certificates issued in March of 1994, and with a final maturity in 2014.
The pass through trust certificates are not direct obligations of, or
guaranteed by, the Company.
4) Other income, net consists of the following:
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
(millions of dollars)
Interest income $ 0.9 $ 0.7 $ 1.5 $ 1.0
Gain (loss) from sales of
property and investment, net (0.4) 2.2 - 5.3
Rents from property not
used in operations 0.6 0.9 1.6 2.0
Financing commitment fees (0.2) (0.1) (0.2) (0.3)
Proceeds from loan repayment
previously written-off 3.3 - 3.3 -
Unrealized gain on excess
fuel hedges 1.4 - - -
Other, net (0.1) (0.3) (0.5) (0.2)
$ 5.5 $ 3.4 $ 5.7 $ 7.8
<PAGE>
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd.)
5) Additional disclosures to Condensed Consolidated Statement of Cash Flows
(millions of dollars) are as follows:
The following cash payments were made in the periods shown:
Six Months Ended
June 30,
1994 1993
Interest $44.6 $54.7
Income taxes 1.3 0.7
The Company considers all short-term investments which have an original
maturity of less than ninety days as cash equivalents.
6) Contingent liabilities.
The Company's operations are subject to a variety of federal, state and
local environmental and pollution control statutes and regulations. The
Company has been named as a potentially responsible party ("PRP") in four
proceedings under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), and in four state
Superfund matters. The Company is also a defendant in one private CERCLA
cost recovery action. The current estimate of the total cost of
remediation for these proceedings to all PRPs aggregates approximately $82
million. The Company has assumed that other PRPs will pay appropriate
shares of remediation obligations, except when the Company is aware they
are incapable of doing so. In such instances, the Company has
reapportioned the potential liability and provided a reserve.
The Company has additionally provided reserves for environmental exposure
from current and former railroad operating properties, fueling facilities,
leased properties and pending litigation and enforcement actions. The
Company's environmental exposure is reevaluated periodically. At June 30,
1994, the Company's reserve for environmental liabilities was $30 million.<PAGE>
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Revenues
Net freight revenues were $255.8 million in the second quarter of 1994, an
increase of $26.7 million, or 11.7%, compared with 1993. The total number of
loads handled in the second quarter of 1994 was 650,366, an increase of 65,394
loads, or 11.2%, compared with 1993. Net freight revenues were $502.6 million
for the six months ended June 30, 1994, an increase of $45.9 million or 10.1%
compared with 1993. The total number of loads handled in the six months ended
June 30, 1994 was 1,260,901, an increase of 122,222 loads or 10.7%. The
balance of the operating revenues resulted from the Company's commuter and
other operations.
Freight Revenue Comparison by Business Group (millions of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
Percent Percent
1994 1993 Change 1994 1993 Change
Energy $ 88.6 $ 75.2 17.8 % $180.8 $151.2 19.6 %
Agricultural Commodities 52.3 54.4 (3.9) 103.5 110.3 (6.2)
Intermodal 31.6 28.2 12.1 60.5 56.6 6.9
Automotive, Steel
and Chemicals 58.5 54.2 7.9 111.7 102.7 8.8
Consumer Products 39.2 36.8 6.5 73.3 71.5 2.5
Gross freight revenues $270.2 $248.8 8.6 $529.8 $492.3 7.6
Allowances, absorptions
and adjustments (14.4) (19.7) (26.9) (27.2) (35.6) (23.6)
Net freight revenues $255.8 $229.1 11.7 $502.6 $456.7 10.1
Commuter 19.8 21.9 (9.6) 40.4 43.8 (7.8)
Other 7.0 6.0 16.7 13.5 11.2 20.5
Total operating revenues $282.6 $257.0 10.0 $556.5 $511.7 8.8
Load Comparison by Business Group (loads in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
Percent Percent
1994 1993 Change 1994 1993 Change
Energy 225.9 185.1 22.0 % 456.7 367.7 24.2 %
Agricultural Commodities 77.8 80.7 (3.6) 150.3 158.7 (5.3)
Intermodal 191.0 167.5 14.0 365.2 334.4 9.2
Automotive, Steel
and Chemicals 98.4 96.4 2.1 184.9 173.7 6.4
Consumer Products 57.3 55.3 3.6 103.8 104.2 (0.4)
Total loads 650.4 585.0 11.2 1,260.9 1,138.7 10.7
<PAGE>
10
Operating Revenues - (Cont'd.)
ENERGY--Volume and gross revenues increased for the second quarter and six
months compared to 1993 because of coal originated in the southern Powder
River Basin in Wyoming. Volume increases were due to new contracts and
additional volume to existing customers. Western coal shipments increased 22%
and 25% for the quarter and six months, respectively, compared to 1993 and
core railroad coal shipments increased 18% for the quarter and six months
compared to 1993. Revenue increases were less than volume increases due to
new and renewed contracts at rates lower than those in place in 1993. Coal
shipments for the remainder of the year are expected to increase over 1993
levels. Western Coal growth capacity is being enhanced through a $45 million
capital program to increase the capacity and improve operations of the
Company's Western Railroad Properties, Incorporated (WRPI) coal hauling line.
This expansion is necessary to meet the increasing demand for low-sulfur coal
from the southern Powder River Basin.
AGRICULTURAL COMMODITIES--Volume and gross revenues decreased for the second
quarter due to poor product availability resulting from the effects of
abnormal 1993 weather conditions as shipments of raw grains for the quarter
decreased 6.5%. Volume and gross revenues decreased for the six months
compared to 1993 due to the effects of abnormal 1993 weather conditions and
service problems caused by severe winter weather. Shipments of raw grains and
finished grain products for the six months were down 7.1% and 4.4%,
respectively, compared to 1993. Traffic for the remainder of 1994 is expected
to increase slightly compared to 1993 levels.
INTERMODAL--Volume and gross revenues for the second quarter and six months
increased due to increased traffic from existing international steamship and
TOFC customers. Volume increases are higher than revenue increases as a
result of traffic moving at lower rates due to market pressures. These
increases are expected to continue for the remainder of 1994.
AUTOMOTIVE, STEEL AND CHEMICALS--Volume and gross revenues increased for the
second quarter and six months compared to 1993. Automobile shipments
increased 12.8% for the quarter and 11.2% for the six months due to higher
production and market share gains from General Motors' Janesville, Wisconsin,
plant; increased overhead volumes resulting from an industry-wide increase in
automobile production and sales; and an increase from the resumption of
shipments from Chrysler's Belvidere, Illinois plant, which was closed from May
of 1993 until November of 1993 for retooling. Metallic ore shipments
decreased 15.8% for the quarter due to higher volume in 1993, resulting from
accelerated shipments in anticipation of a strike. Traffic for the remainder
of 1994 is expected to increase compared to 1993.
CONSUMER PRODUCTS--Volume and gross revenues increased for the second quarter
due to increases in clay and non metallic minerals, lumber and construction
materials. Volume decreased slightly for the six months due to business that
was diverted to the Wisconsin Central route due to that railroad's acquisition
of the Fox River Valley Railroad, partially offset by increases in clay and
metallic minerals, lumber and construction material traffic. Revenues for the
six months increased due to a change in traffic mix. Traffic for the
remainder of 1994 is expected to remain flat compared to 1993 levels.<PAGE>
11
Operating Expenses
Operating expenses were $229.3 million for the quarter ended June 30, 1994, an
increase of $25.0 million, or 12.2%, compared with 1993. Operating expenses
were $455.0 million for the six months ended June 30, 1994, an increase of
$41.6 million, or 10.1%, compared with 1993. The increases for the quarter
and six months ended June 30, 1994 are primarily due to increases in traffic
volume and increased congestion on the Company's WRPI subsidiary. A portion
of the Company's 1994 capital expenditures program covers expansion of the
joint line to alleviate this congestion. The table below is a comparison of
operating expenses.
Operating Expenses (millions of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
Percent Percent
1994 1993 Change 1994 1993 Change
Compensation and benefits $101.4 $ 95.7 6.0 % $204.5 $192.5 6.2 %
Diesel fuel 21.8 16.3 33.7 44.0 34.3 28.3
Material & purchased services 23.8 19.8 20.2 46.2 40.0 15.5
Hire of freight equipment 19.1 16.0 19.4 37.8 31.3 20.8
Other rents 18.2 17.5 4.0 36.5 35.7 2.2
Depreciation 18.3 17.0 7.6 36.9 34.3 7.6
Casualties 10.3 8.3 24.1 19.8 18.4 7.6
Other* 16.4 13.7 19.7 29.3 26.9 8.9
Total expenses $229.3 $204.3 12.2 $455.0 $413.4 10.1
*Other includes property taxes, utilities, vehicle operating costs, FRA and
railroad association fees and other general expenses.
Compensation and benefits expense increased in the 1994 periods due to
increased overtime and new train and engine service employees to handle
increased volume and WRPI congestion; training costs for new personnel; and
increased motive power repairs. Fringe benefit costs increased compared with
1993 due to an increase in the health and welfare insurance rate, and
increased profit sharing expense. Compensation and benefits expense as a
percentage of operating revenues was 35.9% in the second quarter of 1994
compared with 37.2% in 1993 and 36.7% for the six months ended June 30, 1994
compared with 37.6% in 1993.
Diesel fuel expense for the second quarter increased due to a 22% increase in
consumption related to the increase in traffic and congestion on WRPI and a 9%
increase in the average price per gallon. Diesel fuel expense for the six
months increased in 1994 due to a 21% increase in consumption related to the
increase in traffic, WRPI congestion and severe winter weather and a 6%
increase in the average price per gallon.
Material and purchased services for the second quarter increased compared to
1993 primarily due to reduced billings for repairing foreign-line cars and
increased car repair billings from foreign lines to repair CNW cars. Material
and purchased services for the six months increased in 1994 due to decreased
car repair billings related to severe winter weather, increased car repair
billings from foreign lines and the correction of a prior period error,
partially offset by reduced expenses related to a 1993 car repair program that
was not undertaken in 1994.<PAGE>
12
Operating Expenses - (Cont'd.)
Hire of freight equipment for the second quarter and six months increased in
1994 due to increased traffic, WRPI congestion, and new equipment leases, and
additionally for the six months due to severe winter weather.
Other rents increased for the second quarter and six months in 1994 due to new
locomotive leases, partially offset by reduced computer rentals and WRPI
contingent rent.
Depreciation expense increased for the second quarter and six months in 1994
primarily due to increased traffic levels on WRPI, where track structure
components are depreciated on the unit of production method.
Casualty expense, which includes personal injury, environmental and insurance
expense, increased for the quarter and six months due to increased
occupational hazard claims, partially offset for the six months by a credit
resulting from the favorable settlement of a personal injury case in 1994.
Other expenses increased for the second quarter and six months in 1994
primarily due to a $2.8 million increase in the estimated medical benefits
payable to retired management personnel.
OTHER INCOME, NET
Other income increased for the second quarter of 1994 due to a gain of $3.3
million related to a receipt of proceeds from a loan previously written off
and a $1.4 million unrealized gain on excess fuel hedges, partially offset by
a net loss on land sales for the 1994 quarter compared with a gain in the 1993
quarter. Other income decreased for the six months due to a gain of $5.3
million related to a telecommunications easement sale and other land sales in
1993 which did not recur in 1994, partially offset by the $3.3 million gain on
the previously written off loan. See Note 4 to Condensed Consolidated
Financial Statements for a summary of other income, net.
INTEREST EXPENSE
Interest expense decreased by $3.3 million for the six month period in 1994
compared to 1993 due to the Company's refinancing of the Term and Standby
portions of its Debt Facilities in September of 1993 and lower debt levels.
INCOME TAXES
The income tax provision increased compared to 1993 due to the increase in
pretax income in 1994 and an increase in the corporate tax rate.
EARNINGS PER SHARE
Earnings per share for the second quarter of 1994 increased $.04 or 9.3% to
$0.47 compared to 1993. Earnings per share for the six months of 1994
increased $.07 or 9.2% to $0.83 compared to 1993. Earnings per share
increases on a percentage basis were less than net income increases due to an
increase in the outstanding shares caused by the issuance of an additional
1,371,265 shares in connection with a secondary stock offering in July of 1993
and exercises of management stock options.<PAGE>
13
OTHER MATTERS
The Company's results for the six months ended June 30, 1994, included an
adjustment in the first quarter for prior period errors and irregularities
which reduced net income $1.7 million, which was disclosed in the Company's
first quarter Form 10-Q. The net adjustment, for inappropriate recording of
certain operating expenses, reflects the conclusions of an investigation,
conducted for the audit committee of the Company's board of directors, by the
Company's outside counsel and the Company's independent public accountants, as
well as a review, conducted by special counsel to the audit committee, of a
part of the investigation. The net adjustment is not material to the
Company's financial position or results of operations for the six months ended
June 30, 1994 or prior periods. The investigation concluded that there was no
evidence that any funds or other assets were improperly diverted from the
Company.
The net adjustment results from errors and irregularities that increased net
income in past periods by approximately $4.4 million, offset by those that
decreased net income in past periods by approximately $2.4 million. The
problems were the result of inappropriate recording of certain operating
expenses, and relate primarily to the fourth quarter of 1993, resulting in a
net overstatement of $2.2 million ($.05 per share) in 1993 fourth quarter
reported net income of $24.5 million, or $.54 per share (an overstatement of
$3.6 million in pretax income), and a net overstatement of approximately $1.7
million ($.03 per share) in 1993 reported net income of $53.2 million, or
$1.20 per share (an overstatement of $2.7 million in pretax income). The
investigation also identified errors and irregularities in the earlier
quarters in 1993 and in fiscal 1992 and 1991, that resulted in a net
understatement of $.02 per share in reported loss in 1991 (in which there was
a reported net loss of $4.72 per share); no net effect on reported net loss
per share for 1992; a net understatement of $.01 per share in reported
earnings in each of the first two quarters of 1993 (in which there were
reported net earnings per share of $.33 and $.43, respectively); and no effect
on reported loss per share for the third quarter of 1993.
The Company has cooperated with a preliminary inquiry by the Securities and
Exchange Commission to determine whether there have been any violations of
federal securities laws.
LIQUIDITY
At June 30, 1994, the Company's working capital totaled a negative $52.3
million, while cash and temporary cash investments totaled $90.8 million. The
Company has historically been able to operate with negative working capital
due to a higher turnover rate for receivables than accounts payable. The
Company has consolidated indebtedness that is substantial in relation to its
common stockholders' equity. As of June 30, 1994, the Company had long-term
indebtedness including current maturities of $1.2 billion and common
stockholders' equity of $267.0 million.
The Company's cash requirements for financing and investing activities through
the end of 1994 are comprised of interest and principal payments under its
outstanding indebtedness and capital expenditures. The Debt Facilities and <PAGE>
14
LIQUIDITY - (Cont'd.)
WRPI's loan agreements require additional debt payments based on calculations
of excess cash flow as defined in their respective agreements. Such
additional payments are reflected as prepayments of long-term debt on the
condensed consolidated statement of cash flows.
The Company believes that its cash flow from operations, together with
approximately $47 million available to it under the Debt Facilities on a
revolving credit basis, will allow it to meet its liquidity and capital
expenditure requirements during the foreseeable future. However, the Company
believes that its ability to make principal and interest payments on its
outstanding indebtedness and to comply with the financial covenants under the
Debt Facilities, including a current ratio, an interest coverage ratio, a
leverage ratio and a net worth test, is dependent upon the Company's future
performance and business growth, which are subject to financial, economic,
competitive and other factors affecting the Company and its subsidiaries, many
of which are beyond the Company's control.
The Debt Facilities materially restrict the Company from paying dividends on
or redeeming capital stock.
The Company uses financial derivatives to limit its exposure to interest rate
and fuel commodity market risks and to comply with provisions of its debt
agreements. As of June 30, 1994, interest rate market risks exist as the
Company has $612 million of floating rate debt and $425 million of fixed rate
debt previously swapped to floating rate through early 1996. The Company has
interest rate caps and swaps in place effectively fixing or limiting increases
in the rates on between $825 million and $865 million of such floating rate
exposure through various dates in 1996. The Company uses diesel fuel caps and
floors to reduce diesel fuel market risk. The Company currently uses
approximately ten million gallons of fuel per month for its freight
operations. As of June 30, 1994, the Company has caps and floors covering
three million gallons per month through the remainder of 1994. In addition,
6.4 million gallons per month are covered by a fixed price purchase commitment
through December, 1994.
CAPITAL AND MAINTENANCE EXPENDITURES
The Company allocates funds for capital and maintenance expenditures based on
its capital needs indicated by its long-term planning and availability of
internally generated funds or suitable long-term financing.
Capital expenditures in the first six months of 1994 were $44.3 million. A
$175 million capital expenditure program is presently authorized for the
Company in 1994, although some of these expenditures may not be incurred until
1995. The majority of the capital expenditures program covers replacement of
rail, ties, and other track material system-wide, expansion of train handling
capacity from the southern Powder River Basin by WRPI, and construction of new
facilities to serve shippers. The Company has taken delivery of locomotives
and freight cars under operating leases with a cost to lessors of $211 million
in the first six months of 1994 and expects to acquire additional equipment
under operating leases with a cost to lessors of $74 million during the
remainder of 1994.<PAGE>
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has received a claim from the insurance carriers for
Subaru of America for flood damages to Subaru automobiles at a storage
facility in Kenosha, Wisconsin. The automobiles were allegedly damaged in two
flooding events, one on April 20, 1993, and the other on June 18, 1993. It is
claimed that at that time the vehicles were subject to a transportation
contract which obligated the Company to provide a storage facility having
adequate drainage and that the Company failed to do so. Subaru's insurance
carriers are claiming losses in the amount of $11.8 million. Based on the
Company's current information and applicable property damage insurance
coverage (less deductible), management believes that the possibility that the
ultimate resolution of this matter will have a material adverse affect on the
financial position or results of operations of the Company is remote.
RIPON PP LANDFILL -- The Company was notified by the Wisconsin
Department of Natural Resources in February, 1994 that the Company is a
potentially responsible party with respect to the Ripon PP Landfill. It is
alleged that the Company is a generator or transporter of waste that was
disposed in the Ripon PP Landfill between 1948 and 1967. The Company has
undertaken an investigation to determine its liability, if any, with respect
to this matter. At this time the Company has no specific information as to
the number of potentially responsible parties involved, the specific
environmental issues related to the landfill or the potential costs of
investigation and remediation. Based on the Company's current information,
management believes that the possibility that the ultimate resolution of this
matter will have a material adverse affect on the financial position or
results of operations of the Company is remote.
DM&E ROUNDHOUSE - HURON, SOUTH DAKOTA -- In February of 1994, the
Company received notice from the United States Environmental Protection Agency
that the Company and the Dakota, Minnesota and Eastern Railroad ("DM&E") are
potentially responsible with respect to certain contamination existing at the
DM&E Roundhouse in Huron, South Dakota. The Company and the DM&E have been
requested to participate in an investigation and remediation of the site. The
Company and DM&E have secured the services of a consultant to perform a site
assessment in response to U.S. EPA request. At this time the Company has
limited information concerning the nature of the contamination and the
potential costs involved in an investigation and/or remediation. Based on the
Company's current information, management believes that the possibility that
the ultimate resolution of this matter will have a material adverse affect on
the financial position or results of operations of the Company is remote.
There have been no material changes to previously reported
litigation.<PAGE>
16
Item 4. Submission of Matters to a Vote of Security Holders.
(a), (b) and (c). At the Company's annual meeting of stockholders on
May 3, 1994, the following matters were voted upon:
1. Election of the following persons as directors of the
Company by the votes shown in the table below:
Broker
Votes Votes Non-
Director In Favor Withheld Abstentions Votes
James E. Martin 27,749,246 28,158 0 0
James J. Mossman 27,738,846 38,558 0 0
James R. Thompson 27,749,027 28,377 0 0
In addition, the terms of Messrs. Robert Schmiege, Richard
K. Davidson, Harold A. Poling, and Samuel K. Skinner
continued after the meeting.
2. Amendment of the Company's Restated Certificate of
Incorporation to change its name from Chicago and North
Western Holdings Corp. to Chicago and North Western
Transportation Company. On this item, 27,386,765 votes were
cast in favor, 25,740 against, 364,699 abstained, and 200
were broker non-votes.
3. Approval of the Company's 1994 Equity Incentive Plan, an
employee stock option plan covering two million shares of
Common Stock. On this item, 25,862,176 votes were cast in
favor, 1,261,532 against, 437,359 abstained, and 216,337
were broker non-votes.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On April 22, 1994, the Company filed a report on Form 8-K
containing the text of a press release dated April 22, 1994,
announcing an estimate of first quarter 1994 earnings and the
results of an investigation into accounting errors and
irregularities.<PAGE>
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
By:
Date: August 1, 1994 /s/ JOHN M. BUTLER
JOHN M. BUTLER
Acting Senior Vice President-Finance and Accounting
Date: August 1, 1994 /s/ JAMES P. DALEY
JAMES P. DALEY
Senior Vice President, General Counsel and Secretary
<PAGE>
