Document/Exhibit Description Pages Size
1: 10-K Annual Report 33 146K
2: EX-3 Exhibit 3.2 9 35K
3: EX-4 Exhibit 4.16E 10 31K
4: EX-4 Exhibit 4.17C 12 29K
5: EX-10 Exhibit 10.10 67 222K
6: EX-10 Exhibit 10.15 96 292K
7: EX-10 Exhibit 10.26 3 16K
8: EX-10 Exhibit 10.60 6 28K
9: EX-10 Exhibit 10.61 21 70K
10: EX-10 Exhibit 10.62 21 70K
11: EX-10 Exhibit 10.63 21 70K
12: EX-10 Exhibit 10.64 21 70K
13: EX-10 Exhibit 10.65 21 70K
14: EX-10 Exhibit 10.66 21 70K
15: EX-10 Exhibit 10.67 51 214K
16: EX-10 Exhibit 10.68 8 23K
17: EX-10 Exhibit 10.69 1 7K
18: EX-13 Annual or Quarterly Report to Security Holders 29 115K
19: EX-21 Subsidiaries of the Registrant 1 7K
20: EX-27 Financial Data Schedule (Pre-XBRL) 1 11K
22: EX-99 Exhibit 99.1 2 10K
21: EX-99 Miscellaneous Exhibit 2 9K
Securities and Exchange Commission
Washington, D.C. 20549
(Mark
One) 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, 1994
or
( ) 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 33-30874
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-3526817
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
60606
165 North Canal Street (Zip code)
Chicago, Illinois
(Address of prinicpal executive offices) (312) 559-7000
(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, $.01 par value New York 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 requirements for the past 90 days. YES X NO
As of March 1, 1995, the aggregate market value of common shares held by
nonaffiliates (based on the closing price as reported on the New York Stock
Exchange composite tape) was approximately $778 million.
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT MARCH 1, 1995
Common Stock 31,283,954 Shares
Non-Voting Common Stock 12,835,304 Shares
DOCUMENTS INCORPORATED BY REFERENCE:
PART OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORATED
Sections of Annual Report to Shareholders for
Year Ended December 31, 1994 as specified herein. II and IV
Sections of the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held in May, 1995 III
1
PART I
ITEM 1. BUSINESS
The Company
Chicago and North Western Transportation Company (together with its
subsidiaries, the "Company") is the holding company for the nation's eighth
largest railroad based on total operating revenues and miles of road operated,
transporting approximately 53 billion ton miles of freight in 1994. The
railroad was chartered in 1836 and currently operates approximately 5,400
miles of track in nine states in the Midwest and West. The Company's east-
west main line between Chicago and Omaha is the principal connection between
the lines of the Union Pacific Railroad and the lines of major eastern
railroads, providing the most direct transcontinental route in the nation's
central corridor.
The Company hauls a wide variety of freight, classified into five major
business groups: Energy (Coal); Agricultural Commodities; Automotive, Steel
and Chemicals; Intermodal; and Consumer Products. The Company's Energy
business group also includes its subsidiary, Western Railroad Properties,
Incorporated ("WRPI"), which transports low-sulfur coal in unit trains from
the southern Powder River Basin in Wyoming (the "Powder River Basin"), part of
the largest reserve of low-sulfur coal in the United States, and is one of
only two rail carriers originating traffic from the Powder River Basin. WRPI
provides service principally under long-term contracts and is a highly
efficient, low-cost operation. In addition to these major business groups,
the Company provides commuter service in the Chicago area under a service
contract with a regional transportation authority.
The Company, through its subsidiaries, is the successor to the business
of CNW Corporation, which was acquired in 1989 in a leveraged, going-private
transaction (the "Acquisition") led by Blackstone Capital Partners L.P.
("Blackstone"). The Company went public through a stock offering in 1992.
Blackstone and its affiliates sold substantially all their shares in
connection with a secondary stock offering in 1993.
On May 3, 1994, an amendment to the Company's restated Certificate of
Incorporation was approved by the Company's shareholders, 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
re-named 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.
Recent Developments - Transaction with Union Pacific Corporation
On March 10, 1995, the Company and Union Pacific Corporation ("Union
Pacific") announced that they had agreed that Union Pacific will acquire 100%
of the Company's common stock at a price of $35 per share in cash, subject,
among other things, to negotiation and execution of a mutually satisfactory
definitive purchase agreement and approvals by the respective boards of
directors of the Company and Union Pacific. On March 16, 1995, the respective
boards of directors approved, and the Company, Union Pacific and Union
2
Pacific's wholly owned subsidiary, UP Rail, Inc. ("UP Rail") executed, an
Agreement and Plan of Merger ("Merger Agreement"), dated as of March 16, 1995.
A copy of the Merger Agreement is filed as Exhibit 10.67, hereto, and
incorporated herein by reference. The Merger Agreement provides, among other
things, for the acquisition of all of the issued and outstanding shares of
common stock, par value $.01 per share, of the Company (the "Shares") by UP
Rail at a price of $35 per Share pursuant to a tender offer for all Shares,
(the "Offer") followed by a merger.
The Offer is conditioned upon, among other things, (1) there having been
validly tendered and not withdrawn prior to the expiration of the Offer a
number of shares which, when added to the shares of non-voting common stock of
the Company, par value $.01 per share (the "Non-Voting Common Stock")
beneficially owned by Union Pacific and its wholly owned subsidiary, UP Rail,
Inc. (assuming conversion thereof into Shares), constitutes at least a
majority of the Shares outstanding on a fully diluted basis (assuming
conversion of the Non-Voting Common Stock into shares) and (2) the Interstate
Commerce Commission's ("ICC") March 7, 1995 approval of Union Pacific's
application for an order authorizing the common control of the rail
subsidiaries of the Company and Union Pacific having become final and
effective prior to the expiration of the Offer. On April 6, 1995 (provided
that no stays have been entered by any court or the ICC prior to such time),
the ICC approval will be final and effective. However, there can be no
assurance that such ICC order will become effective at that time.
The Company and UP Rail also on March 16, 1995, executed the Company
Stock Option Agreement, which provides for the grant by the Company to Union
Pacific, subject to certain conditions (including Union Pacific ownership,
with its affiliates, of at least 85% and less than 90.01% of the number of
Shares then outstanding (assuming conversion of Union Pacific's shares of Non-
Voting Common Stock into Shares)) of an irrevocable option to purchase, at the
tender offer price per share, such number of Shares as, when added to the
number of Shares owned by Union Pacific and its affiliates immediately prior
to such purchase, would result in Union Pacific and its affiliates owning
immediately thereafter 90.01% of the then outstanding Shares. A copy of the
Company Stock Option Agreement is filed as Exhibit 10.68, hereto, and
incorporated herein by reference.
Freight Business Groups
The Company groups its freight traffic into five major business groups,
each of which is organized to service a particular commodity and customer
base. These business groups transport coal; agricultural commodities;
automotive, steel and chemical products; and consumer products; and provide
intermodal services, primarily hauling containers on double-stack trains under
agreements with large international marine shipping companies. The Company
seeks to maintain and enhance its competitive position by tailoring its
capabilities to fit its particular customer base in such areas as equipment
availability, scheduling, special purpose loading facilities and flexible
contract terms.
3
Set forth below is a five-year comparison of gross revenues and volumes
of the Company's five freight business groups.
[Enlarge/Download Table]
Net Freight Revenue and Loads by Business Group
(Revenue in millions, loads in thousands)
1994 1993 1992 1991 1990
Revenue Loads Revenue Loads Revenue Loads Revenue Loads Revenue Loads
Energy (Coal):
Core RR $ 127.8 83.3 $ 110.8 76.6 $ 96.8 83.1 $ 107.9 89.9 $ 99.5 89.3
WRPI 225.1 824.0 204.9 708.9 169.0 554.9 176.4 572.7 150.8 483.4
Agricultural
Commodities 189.8 315.9 178.5 304.5 180.3 320.6 174.1 296.1 174.8 309.9
Automotive,
Steel and
Chemicals 208.9 358.1 188.9 332.3 178.0 318.0 166.3 291.9 194.1 296.5
Intermodal 125.2 765.4 116.3 714.0 111.2 689.2 105.9 618.0 97.0 593.4
Consumer
Products 143.0 217.1 133.3 215.3 137.5 226.4 137.9 224.8 133.5 221.0
Total $ 1,019.8 2,563.8 $ 932.7 2,351.6 $ 872.8 2,192.2 $ 868.5 2,093.4 $ 849.7 1,993.5
Energy (Coal). Coal transportation is the Company's largest revenue-
producing activity, handled by both WRPI and the core railroad. WRPI, which
commenced operations in 1984, transports low-sulfur coal directly from ten of
the fifteen mines of the Powder River Basin in Wyoming to the lines of the
Union Pacific Railroad at South Morrill, Nebraska, for forwarding to
electricity generating facilities primarily in the midwestern and south
central states. WRPI originated 90.8% of the total coal loads handled by the
Company in 1994. In addition, the core railroad transports a substantial
volume of coal over its lines, including a significant number of trains
carrying WRPI coal which re-enter the core railroad at Council Bluffs, Iowa,
enroute to midwestern electricity generating facilities.
Western Railroad Properties, Incorporated. The Powder River Basin is
part of the largest reserve of sub-bituminous coal in the United States. In
recent years, coal from the Powder River Basin has experienced a growing
demand from electric utilities and other industrial customers due to the
comparatively low cost of the delivered product (on a BTU basis) and the low-
sulfur nature of the coal. The cost of the coal is lower because the reserves
are relatively close to the earth's surface. In addition to lower mining
costs, competition among the Powder River Basin mines and transportation
suppliers has resulted in lower delivered cost of Powder River Basin coal than
the delivered cost of local coal in most regions of the United States. Demand
for Powder River Basin coal has also increased due to the reduced
environmental impact because of its low-sulfur content. Demand for low-sulfur
coal has increased due to the passage of the 1990 Amendments to the Clean Air
Act. The Clean Air Act requires electric generating facilities to reduce
their sulfur dioxide emissions. Utilities can accomplish this by burning coal
with low-sulfur content, such as Powder River Basin coal, or by continuing to
burn high-sulfur coal through the use of scrubbing devices designed to remove
the sulfur from the smoke emissions or other balancing mechanisms.
4
WRPI Operating Statistics
(in millions)
1994 1993 1992 1991 1990
Tonnage 86.7 73.9 57.2 58.4 49.0
Revenues $225.1 $204.9 $169.0 $176.4 $150.8
Operating income $ 85.3 1/ $ 94.6 $ 80.7 $ 68.8 2/ $ 62.3
___________________
1/ 1994 operating income decreased compared with 1993 due to increased
operating expenses caused by congestion. A $69 million 1994-1995 capital
program to expand train handling capacity is expected to alleviate this
congestion.
2/ Operating income was reduced by a special charge of $6.8 million in 1991.
1992 tonnage and revenues decreased from 1991 levels due to abnormally
mild weather, which reduced the demand for electricity. In addition, first
quarter 1991 shipments were high to meet contracted minimum shipping
requirements deferred from 1990.
WRPI handles coal for customers principally under long-term transportation
contracts, with over 97% of WRPI's 1994 revenues derived from such contracts.
The large percentage of revenues under long-term contracts, combined with the
inherent stability of demand for coal from WRPI's electric utility customers,
has provided a stable source of revenue. During 1994, WRPI had 52 contracts
with electric utilities and other industrial users of low-sulfur coal. The
remaining terms of these contracts vary between four months and 20 years. The
ten largest WRPI customers accounted for approximately 66% of 1994 WRPI
revenues. The weighted average remaining life (based on tonnages) of the
transportation contracts at December 31, 1994, for these ten customers was
approximately seven years. Most of these facilities have been designed to
burn sub-bituminous, low-sulfur coal.
Core Railroad Coal. The core railroad's coal business is comprised
primarily of trains transporting western coal to midwestern utilities over the
Company's east-west main line. Such traffic accounted for 81% of the core
railroad's coal revenues in 1994. The top ten customers accounted for 86% of
1994 coal revenue of the core railroad. The core railroad's coal is shipped
principally under long-term contracts; the weighted remaining average life
(based on tonnages) at December 31, 1994 of the contracts for these ten
customers was approximately four years. Profit margins on the core railroad
coal movements are generally lower than on WRPI movements.
Agricultural Commodities. The core railroad is one of the largest rail
transporters of grain in the United States, operating over 750 miles of "grain
gathering" lines. More than 140 multiple-car grain loading facilities in
Iowa, Minnesota, Wisconsin, Illinois and Nebraska provide shipments to
processors, barge terminals or the gateways of Chicago, Omaha, Kansas City and
St. Louis for delivery to other carriers.
The agricultural commodities group consists of the following commodities:
5
Percent of 1994 Agricultural
Commodities Revenue
Corn and soybeans 30.5%
Wheat 7.6
Barley, oats and other grains 9.2
Subtotal grain 47.3%
Corn syrup 8.1%
Soybean meal and oil 9.3
Feed and flour 11.7
Malt 3.9
Subtotal grain products 33.0%
Agricultural chemicals 7.2%
Potash and sulfur 12.5
Total 100.0%
In 1994, approximately 70% of grain shipments was for domestic
processing and the balance was for feed lots and other users. 1994 grain
shipments decreased due to 1993 flooding in the Midwest, which reduced the
quantity and quality of the corn harvest in the Company's service territory.
The core railroad has historically benefitted from long-term relationships
with its grain customers. Continuation of these stable relationships is
important because changes in weather, government farm policies and import-
export demand makes the movement of agricultural products fluctuate
unpredictably. The agricultural commodities business is conducted primarily
with large grain firms, grain processing companies and fertilizer producers.
Automotive, Steel and Chemicals. The Automotive, Steel and Chemicals
business group serves domestic and international auto manufacturers, steel
producers, iron ore mining operations and industrial and petroleum chemical
firms.
The Company delivers parts to and transports finished domestic vehicles
from two assembly plants in Illinois and Wisconsin. The Company also
transports finished domestic and import vehicles to the Company's regional
distribution facilities in West Chicago, Illinois; St. Paul, Minnesota; and
Milwaukee, Wisconsin. In 1994, four auto customers accounted for 96% of total
automotive revenues.
The Company delivers scrap steel to and handles finished and semi-
finished steel from two steel mills in Illinois and Nebraska. In 1994, these
two firms produced 61% of C&NW total steel revenue. In addition, the Company
also transports steel and iron ore for the major integrated producers in the
United States. Three customers comprised 86% of total ore revenues through
the Escanaba, Michigan ore port in 1994.
The Company's chemical business is basically composed of shipments of raw
materials and chemicals from a petroleum refinery in Minnesota, a
ethylene/polyethylene producer in Iowa and overhead movements of industrial
chemicals, primarily soda ash destined for the Eastern U.S. These three
segments accounted for 53% of total chemical revenues for 1994.
6
Intermodal. The Intermodal business group provides the transportation of
various types of consumer products through a combination of railroad transport
and transport by water or motor carriers. Intermodal traffic includes the
movement of trailers-on-flat-car ("TOFC"); containers-on-flat-car ("COFC"); or
unit trains of double-stack container cars, where the Company has been a
pioneer. Intermodal transport has been among the fastest growing areas of the
railroad business in the past decade and technological advances have made
double-stack container service a highly cost-efficient method of transport
since 1984. Double-stack container traffic now accounts for approximately 82%
of the group's volume.
The Intermodal business group's primary business is supplying intermodal
transportation across the east-west main line directly to major international
containership lines involved in intermodal trade. In addition to providing
rail transportation, the Company provides terminal services to these customers
at the Company's "Global I" and "Global II" double-stack terminal facilities.
These facilities, located in the Chicago area, were specifically designed to
economically handle modern double-stack unit trains. The Company believes
that these facilities are among the nation's premier intermodal loading and
unloading facilities and are of continuing strategic importance to the
Company's ability to provide high quality intermodal service to its customers.
While the Company's intermodal volume has grown rapidly in the past
several years, from 581,000 loads in 1989 to 765,000 loads in 1994, net
revenues from intermodal services have grown less rapidly, from $97.0 million
in 1990 to $125.2 million in 1994. Volumes have shifted from higher revenue,
higher cost TOFC/COFC to the lower cost double-stack method of transport. The
lower unit costs associated with double-stack movements have been shared with
customers, resulting in higher profit margins for the Company and lower unit
costs for the customers.
Consumer Products. This business group includes a variety of consumer
oriented commodities including food products, paper and related products,
lumber and plywood, construction materials and some minerals such as silica
sand and bentonite clay. Due to the diversity of customers and the products
they ship, this business group, as a whole, closely tracks general economic
conditions, and is very sensitive to other railroad and truck competition.
Commuter Line
Since July 1, 1975, the Company has operated Chicago suburban commuter
service under a purchase of service agreement with a regional transportation
authority. The present agreement expires on December 31, 1998, and provides
for the Company to receive a small profit for operating the service in
addition to being reimbursed for the costs of commuter operations in excess of
revenue fares collected. In 1994, gross revenues from the Commuter Line were
approximately $82 million.
Under a related agreement, the Company received approximately $13 million
from the regional transportation authority during 1994 for the regional
transportation authority's share of track improvements in the commuter
operations territory.
7
Employees
The Company's employment levels and gross wages paid are shown in the
following table:
1994 1993 1992 1991 1990
Average employees for the year 7,122 6,980 7,018 7,549 8,060
Gross payroll (millions) $327 $306 $292 $294 $309
Competition
The Company is subject to significant competition for freight traffic
from rail, motor and water carriers. Strong competition among rail carriers
exists in most major rail corridors. The principal factor in the Company's
ability to compete for freight traffic is price. Quality of service and
efficiency of operations are also significant factors, particularly in the
intermodal area, where competition from motor carriers is substantial. Barge
lines and motor carriers have certain cost advantages over railroads because
they are not obligated to acquire, maintain or pay real estate taxes on the
rights-of-way they use. WRPI's principal competitor is the Burlington
Northern Railroad, a substantially larger carrier which has access to all of
the Powder River Basin mines.
Railroad Regulation
The core railroad and WRPI, along with other common carriers engaged in
interstate transportation, are subject to the regulatory jurisdiction of the
Interstate Commerce Commission ("ICC") in various matters, including rates
charged for transportation services (to the extent they are still regulated),
issuance of securities and assumption of obligations or liabilities, the
extension and abandonment of rail lines, and the consolidation, merger and
acquisition or control of carriers. ICC jurisdiction over rate matters
generally is limited to general rate increases and to situations where
railroads have market dominance and rates charged exceed a stated percentage
of the variable costs of providing service. The core railroad, WRPI and other
railroads are also subject to the jurisdiction of the Federal Railroad
Administration with respect to safety appliances and equipment, railroad
engines and cars, protection of employees and passengers, and safety standards
for track.
The conversion to Common Stock of the Non-Voting Common Stock of the
Company issued to UP Rail in connection with the Company's 1992
recapitalization (see Note 12 to Consolidated Financial Statements) requires
the approval of the ICC. On January 29, 1993, UP Rail filed a control
application with the ICC requesting the ICC issue an order that would permit
UP to, among other things, convert its shares of Non-Voting Common Stock into
Common Stock of the Company, vote such shares, acquire additional shares if it
determines to do so and (subject to the approval of the Company) coordinate
further the services of the railroad subsidiaries of UP and the Company, in
each of the above cases without the need to obtain any further control
authorization from the ICC. On December 13, 1994, the commissioners of the
ICC voted to approve the control application, subject to a standard labor
protection condition and a requirement that the Soo Line Railroad Company
("Soo") be permitted to admit third parties to certain joint facilities
8
operated by Soo and the Company. On March 7, 1995, the ICC served its written
opinion on this matter, and on April 6, 1995 (provided that no stays have been
entered by any court or the ICC prior to such time), the approval will be
final and effective. See Item 1 "BUSINESS -- Recent Developments -
Transaction with Union Pacific Corporation" and Item 13 "Certain Relationships
and Related Transactions -- UP Rail and UP."
Labor relations in the railroad industry are governed by the Railway
Labor Act ("RLA") instead of the National Labor Relations Act. The national
collective bargaining agreements with the major national railway labor
organizations covering the union employees of certain railroads, including
certain subsidiaries of the Company, became open for modification in January
of 1995. Under the RLA, when these agreements are open for modification,
their terms remain in effect until new agreements are reached, and typically
neither management nor labor is permitted to take economic action (such as a
strike) until an extended process of negotiation, mediation and federal
investigation is completed.
Railroad industry personnel are covered by the Railroad Retirement Act
("RRA") instead of the Social Security Act. Employer contributions under the
RRA are currently approximately triple those under the Social Security Act.
Operating Statistics
Set forth below are certain operating statistics for the Company during
the last five years.
Freight Statistics
1994 1993 1992 1991 1990
Loadings
(thousands) 2,563.8 2,351.6 2,192.2 2,093.4 1,993.5
Freight train
miles (thousands) 14,642 13,219 11,809 11,365 11,353
Revenue ton miles
(millions) 53,119 46,114 40,986 40,601 37,205
Average length of
haul (miles) 307 299 288 292 296
Net tons per load 65.9 65.8 64.3 66.8 64.5
Distribution of Traffic (Loads)
1994 1993 1992 1991 1990
Originated 44.7% 43.7% 41.5% 41.4% 38.6%
Terminated 24.8 24.1 24.4 24.8 25.4
Overhead 1/ 17.6 18.3 18.1 18.1 18.5
Local 2/ 12.9 13.9 16.0 15.7 17.5
100.0% 100.0% 100.0% 100.0% 100.0%
1/ Overhead represents traffic over the Company's rail lines that is neither
originated nor terminated on such lines.
2/ Local represents traffic that is both originated and terminated on the
Company's rail lines.
9
The following table reflects the Company's operating expenses as a
percentage of revenues.
Operating Expense Ratios
Percent of Revenue
1994 1993 1992 1991 1990
Transportation 33.9% 33.5% 31.5% 33.4% 35.2%
Way and Structures 11.5 13.5 13.5 13.5 14.3
Equipment 20.5 18.9 19.4 19.0 17.6
Depreciation 6.5 6.6 6.6 6.8 7.6
Other Operating Expenses 7.2 7.0 8.3 7.8 8.2
Special Charges 1/ 0.4 0.5 3.0 11.8 1.4
80.0% 80.0% 82.3% 92.3% 84.3%
1/ Special charges comprise employee reduction and relocation costs of $4.8
million in 1994, $3.4 million in 1993, $30.0 million in 1992, $76.8
million in 1991 and $13.4 million in 1990; $39.0 million for environmental
and personal injury reserves in 1991; and $1.6 million for management fees
payable to a previous principal stockholder in 1993.
ITEM 2. PROPERTIES
Trackage and Rolling Stock. The status of the Company's trackage at
December 31, 1994 was as follows:
Miles of Track
Main line 1,997
Branch lines 2,506
Operated under trackage rights 885
Total railroad
(includes 2,962 miles of welded rail) 5,388
Additional main tracks 939
Yard switching and other track 2,463
Total railroad and yard tracks 8,790
Weight of Rail Owned (miles)
130 lbs. or greater 1,384
100 to 119 lbs. 3,016
Less than 100 lbs. 974
10
At December 31, 1994, the Company's motive power and freight train car
fleets were as follows:
Rolling Stock Statistics 1/
Diesel locomotive units:
Owned 185
Leased 591
Total 776
Capacity (thousands of horsepower) 2,444
Average age since built or rebuilt (years) 12.1
Bad order ratio 2/ 15.3%
Covered
Box Flat Gondola Hoppers Hopper Other Total
Freight train car
and auto racks -
Owned 1,753 124 849 2,362 2,044 887 8,019
Leased 5,052 480 2,202 2,135 10,972 591 21,432
Total 6,805 604 3,051 4,497 13,016 1,478 29,451
Capacity (thousands
of tons) 3/ 524 25 286 409 1,286 15 2,545
Average age since
built or rebuilt
(years) 21.4
Bad order ratio 5.6%
11
1/ Does not include the Commuter Line's fleet of 53 diesel units and 293
coaches, which are leased at a nominal cost.
2/ Bad order ratio reflects the ratio of unusable rolling stock to total
rolling stock. This ratio includes locomotives in shop for regularly
scheduled inspections and 56 locomotives (or 6.8% of the total) being
held for sale, potential rebuilding programs, spare parts or as a reserve
to accommodate surges in business levels.
3/ Excludes capacity of 1,266 auto racks, which are not rated in tons.
Western Railroad Properties, Incorporated. WRPI's trackage consists of a
103-mile line (the "Joint Line"), which is jointly owned with Burlington
Northern Railroad, the only other railroad originating service from the Powder
River Basin area, and a 107-mile line which connects the Joint Line to the
Union Pacific Railroad in western Nebraska.
A trust for the benefit of a subsidiary of the Union Pacific Corporation
(the "WRPI Trust") owns 101 miles of track and certain support facilities and
leases them to WRPI under a 75-year lease (the "Lease"). Lease rentals by
WRPI to the WRPI Trust provide a fixed return to the WRPI Trust plus a
contingent return to the WRPI Trust measured by a varying percentage of
available cash flow or operating revenues. Under the Lease, WRPI is required
to transport substantially all of its coal over this line, where it is
interchanged with the Union Pacific Railroad. WRPI owns the land under the
line and leases it to the WRPI Trust. The core railroad operates the line as
agent for WRPI under an operating agreement, with WRPI receiving all revenues
and being responsible for all operating expenses.
The Company believes that the amount and condition of its property, track
and rolling stock are adequate to maintain the current level of operations.
The Company anticipates future expenditures will be required to continue its
strategy to achieve low-cost leadership in its markets.
Capital and Maintenance Expenditures. Over the last five years, the
following track improvements and maintenance have been effected and the
following amounts have been spent to maintain and improve rail service.
Track Improvements
1994 1993 1992 1991 1990
Ties inserted
(new and reusable) 798,119 598,475 620,717 575,036 652,933
Miles of rail laid
(new and reusable) 468.5 183.8 170.6 167.7 145.3
Miles of track surfaced 2,561.0 3,544.0 2,868.0 3,089.0 3,290.0
Cubic yards of ballast
installed 901,582 607,283 748,496 480,275 593,256
12
Capital and Maintenance Expenditures
Maintenance (excluding)
Year Ended Capital Expenditures depreciation and rent
December 31, Road Equipment Road Equipment Total
1994 $131.9 $ 8.8 $109.5 $106.3 $ 356.5
1993 99.4 16.4 117.1 93.7 326.6
1992 79.4 3.9 111.3 86.0 280.6
1991 77.1 7.3 136.0 85.2 305.6
1990 60.1 1.7 120.2 90.3 272.3
Total $447.9 $38.1 $594.1 $461.5 $1,541.6
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 1994 were $140.7 million, compared with $115.8
million in 1993, and $83.3 million in 1992. The majority of these
expenditures were for improvements to the railroad plant, structures and
equipment.
Not included in the chart above is $440 million (excluding $97.4 million
related to the sale and leaseback of certain locomotives and freight cars in
1990) representing the cost to lessors of freight cars and locomotives which
the Company leased during the five-year period. The Company acquired 63
locomotives and 1,598 freight cars under operating leases with a cost to the
lessors of approximately $279 million in 1994. The Company expects to acquire
52 locomotives and approximately 1,900 freight cars under operating leases
which have a cost to the lessors of approximately $185 million in 1995.
A $144 million capital expenditures program is presently budgeted for
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 Powder River Basin by WRPI, and construction of new
facilities to serve shippers.
Other Property. The Company owns various facilities including those for
maintenance, stores and yards throughout its system. It leases, and at the
expiration of the lease in 1996 will at a nominal price become the owner of,
an iron ore handling facility at Escanaba, Michigan, which transports ore by
conveyor belts from car to boat or from car to stockpile to boat.
The Company is the lessor of certain real estate under approximately
1,600 leases for commercial, agricultural and industrial uses and owns
additional real estate available for such uses. The Company continues to
identify and sell real estate not needed for present or planned rail
operations. The Company owns several repair facilities, including a heavy
freight car repair facility at Clinton, Iowa, and other facilities for
locomotive heavy repair at Marshalltown, Iowa; Chicago, Illinois; and Proviso,
Illinois.
13
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters
The Company's operations are subject to a variety of federal, state and
local environmental and pollution control statutes and regulations which
govern air emissions from equipment and facilities, discharges to water and
the generation, handling, storage, transportation, treatment and disposal of
hazardous substances. While over time, substantial expenditures by the
Company may be required to comply with such existing and future statutes and
regulations, the Company believes that, based on present information, such
compliance can be achieved without a material adverse effect on the financial
condition or competitive position of the Company.
The federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA") and many state "superfund" laws, subject
to certain limitations and defenses, impose strict, joint and several
liability on current and prior owners or operators of contaminated properties
and persons that arranged for disposal of hazardous substances at such
properties. The Company, as owner and prior owner of properties used in rail
or other industrial operations or leased to others for such purposes, is
subject to liability from such laws without regard to when contamination may
have occurred.
The Company is the lessor of real property under approximately 1,600
leases for commercial, agricultural and industrial uses and owns or leases
numerous other sites. The Company has 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 December 31, 1994 the Company's reserve for environmental liabilities
was $30 million. No offsets were credited for possible insurance recoveries,
as the Company believes, to a large extent, it would not be able to obtain
such recoveries. The reserves were determined based on the Company's
anticipated cost of remediation at all known sites, including those where no
claim or enforcement action has been issued, taking into consideration the
extent of damage and the Company's remediation cost history. The Company has
not discounted its environmental liabilities as the timing of remediation
payments is uncertain. Environmental regulations and remediation processes
are subject to future change, and determining the actual cost of remediation
will require further investigation and remediation experience. Therefore, the
ultimate cost cannot be determined at this time. However, while such cost may
vary from the Company's current estimate, the Company believes the difference
between its reserve and the ultimate liability will not be material.
The Company has been named as a potentially responsible party ("PRP") in
three proceedings under CERCLA and in five state superfund matters, all but
one of which is in the Midwest. The Company is also a defendant in one
private CERCLA cost recovery action. The Company's reserves for environmental
proceedings include these cases. 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.
Following is a listing of the sites of which the Company is currently
aware in which CERCLA or similar state superfund claims for remedial
investigation, feasibility study and/or remediation costs have been made:
14
Ninth Avenue Dump - This proceeding, ongoing since 1988, involves the
remediation of a contaminated dump area in Gary, Indiana designated by the
United States Environmental Protection Agency ("U.S. EPA") as a CERCLA site.
The Company is alleged to have been a generator of hazardous substances
deposited at the site. Approximately 180 other PRPs have also been identified
as generators or transporters. The U.S. EPA has previously issued unilateral
administrative orders under Section 106 of CERCLA to a large number of PRPs,
including the Company, to undertake an interim remedial action and final
remedial action based on the remedy selected in the original Record of
Decision. Subsequently, on September 13, 1994, the Regional Administrator of
U.S. EPA signed an amended Record of Decision amending the selected final site
remedy. On January 3, 1995, U.S. EPA issued an additional unilateral
administrative order to the Company and 94 other PRPs, which order requires
the Company and the named PRPs to undertake the final remedial action, as
amended. Work on the interim remedial action has been completed at a cost of
approximately $20 million. That remedial action was undertaken by a group of
PRPs which has subsequently brought suit in the U.S. District Court in the
Northern District of Indiana against the Company and 92 other defendants
seeking contribution for the costs incurred for the interim remediation and
for future costs to conduct the final remedial action. Total remediation
costs, including EPA's response and oversight costs and natural resources
damages are estimated by the PRPs' consultants to be $45,000,000. The Company
has had discussions with the participant group in order to resolve the claims
pending in the litigation and the requirements of the Order issued by U.S.
EPA.
Moss-American Site - The Company is the owner of approximately one-third
of an area in Milwaukee County, Wisconsin, which was designated by the U.S.
EPA as a CERCLA site during 1985. The remainder of the site is owned by
Milwaukee County. The site was previously occupied by Moss-American, a
division of Kerr-McGee Oil Company as a wood treatment facility and is
contaminated with creosote and other hazardous substances from the wood
treatment process. The Company purchased the property from Kerr-McGee in
1980. The U.S. EPA has previously completed a remedial investigation and
feasibility study and issued a Record of Decision which specified a
remediation plan estimated at approximately $26 million by U.S. EPA. Both the
Company and Milwaukee County have refused to undertake the remedy. Kerr-McGee
has agreed to the terms of a Consent Decree which obligates it to undertake
the remediation and has agreed to pay one million dollars of approximately
$1.9 million in U.S. EPA costs. The Company has filed comments with the
Department of Justice opposing the approval of the proposed Consent Decree
between U.S. EPA and Kerr-McGee. Milwaukee County has filed for leave to
intervene in the Consent Decree proceeding in the U.S. District Court in
Milwaukee and to oppose entry of the Consent Decree and to initiate suit
against U.S. EPA, the Wisconsin Department of Natural Resources ("Wisconsin
DNR"), Kerr-McGee and the Company. U.S. EPA has made a claim against the
Company and the County seeking approximately $900,000 of response costs. The
matter is in negotiation. Kerr-McGee has also indicated that it will seek
recovery from the Company for a percentage of the remediation costs. That
claim is also in negotiation. Subsequently, U.S. EPA has determined that the
treatment of contaminated soils in a bio-slurry reactor, as previously
specified in the Record of Decision, will not effectively remediate creosote
contaminated soils to levels acceptable to the Agency or the Wisconsin DNR.
Kerr-McGee has undertaken additional investigation of the site and is
negotiating with the Agency to select an appropriate method of remediation.
At this time, with no specified remedy or work plan, the cost of remediation
of the site cannot be estimated.
15
West Minneapolis Site - The Company is a defendant in a cost recovery
suit brought in the U.S. District Court in Minnesota during 1992 by Riverwalk
Partnership formerly known as Stanton-Harstad Properties ("Stanton-Harstad")
and the Minneapolis Community Development Agency ("MCDA"). Stanton-Harstad is
the former owner of some property located in Minneapolis, previously owned by
the Chicago, St. Paul, Minneapolis and Omaha Railway Company (the "Omaha"),
one of the Company's predecessors, which operated a rail yard, roundhouse and
coal gassification plant on the property in the early part of the twentieth
century. Stanton-Harstad alleges that it has incurred expenses of
approximately $250,000 for remediation of contamination discovered on the
property allegedly caused by prior rail operations of Omaha. The MCDA is
owner of property previously owned by Stanton-Harstad and Glacier Park, an
affiliate of Burlington Northern (the "BN Property") which lies adjacent to
the Omaha Property. Subsequent to the remediation performed by Stanton-
Harstad, MCDA incurred expenses alleged to be in excess of $2 million, for
remediation costs on both the Omaha and BN Properties. MCDA also alleged
damages for diminution in value and delay in development of its property.
Consolidated Container Corporation was named as a defendant in both suits, and
Burlington Northern Railroad and Glacier Park were named as defendants in the
suit brought by MCDA. The claims of MCDA against Consolidated Container,
Burlington Northern, Glacier Park and the Company have been settled. In
connection with that settlement, settling defendants have secured an
assignment of MCDA's claim against Stanton-Harstad. In addition, all of the
remaining parties have settled with Consolidated Container Company, leaving
only Stanton-Harstad's claim against the Company and the Company's third party
claims against Burlington Northern and Glacier Park.
Junker Landfill - During 1994, the Company received notice from the
Wisconsin DNR that it has been identified as a PRP for having generated
hazardous substances that were disposed of at the Junker Landfill in Hudson,
Wisconsin. The Wisconsin DNR is currently investigating the site and has
indicated that it will place the site on the National Priority List, which
would designate it as a CERCLA site. The Company has joined with other PRPs
to negotiate a plan of investigation and remediation for the site so that it
will not be listed. It is believed that approximately 700 companies sent
waste to Junker Landfill and may be designated as PRPs. Information regarding
potential cost of investigation and remediation is limited; however, the best
estimate is that such costs are approximately $6 million.
Marina Cliffs Barrel Dump Site - During 1994, the Company was notified by
the Wisconsin DNR that it and approximately one hundred other companies are
identified as PRPs for having generated hazardous substances that were
disposed of at the Marina Cliffs Barrel Dump Site in South Milwaukee,
Wisconsin. The Wisconsin DNR is currently investigating this site and has
indicated it may place the site on the National Priority List. At this time,
the Company has no specific information concerning the dump site or the
potential costs of investigation and remediation.
Environmental Pacific Corporation - During 1994, the Company received
notice from the California Environmental Protection Agency, Department of
Toxic Substances Control (the "California EPA"), that the Company and eighteen
other entities have been identified as generators of approximately one million
pounds of spent batteries which have been illegally transported and stored at
the site in Gardena, California. The batteries involved were originally
disposed of under contract with Environmental Pacific Corporation in Amity,
Oregon in accordance with applicable federal hazardous waste regulations. It
16
is alleged by the California EPA that the batteries were not disposed of by
Environmental Pacific Corporation, but, rather, were transported to California
and that appropriate disposal from the California site will be required. The
Company has joined with the other generators to undertake disposal of the
batteries, the cost of which the PRPs estimate will not exceed $1 million.
Based on the information available, the batteries generated by the Company
constitute approximately 8% of those at the site.
DM&E Roundhouse - During 1994, the Company and the Dakota, Minnesota and
Eastern Railroad were identified by the U.S. EPA as PRPs for certain
contamination existing at the DM&E Roundhouse in Huron, South Dakota. This
facility was previously owned by the Company and sold to Dakota, Minnesota and
Eastern in 1986. Lagoons near the Roundhouse and adjacent properties are
alleged to be contaminated with hazardous substances discharged from the
Roundhouse. The Company and the DM&E have been requested to participate in an
investigation and remediation of the site. The Company and DM&E initiated a
preliminary site assessment. The U.S. EPA is reviewing the site assessment
and has requested additional investigation. At this time, the Company has no
estimate of potential remediation costs.
Ripon PP Landfill - The Company was notified by the Wisconsin DNR in 1994
that the Company is a PRP 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. At this time the
Company has no specific information as to the number of PRPs involved, the
specific environmental issues related to the landfill or the potential costs
of investigation and remediation.
During 1994, the Company settled environmental litigation with respect to
the following sites:
Union Scrap Iron and Metal Company III - During December 1994, the
Company and other PRPs entered into a consent and settlement agreement with
U.S. EPA at a cost to the Company within its existing reserve.
Rock, Michigan Groundwater - During June 1994, the Company entered into a
settlement agreement with the Michigan DNR whereby the Company reimbursed the
Michigan DNR for a portion of its investigation costs and was relieved of
additional liability for this matter.
Litigation
The Company is party to a number of other legal actions arising in the
ordinary course of business, including actions involving personal injury
claims. In management's opinion, the legal actions to which the Company is a
party will not in the aggregate have a material adverse effect on the
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1994.
17
Executive Officers of the Registrant
Listed below are the names, present titles and ages of all executive
officers of the Company or its predecessor and the positions held during the
last five years. Each executive officer holds office until his successor
shall have been elected or appointed or until his death, resignation or
removal. There have been no arrangements or understandings between any
executive officer and any other person or persons pursuant to which he was
selected as an executive officer. There are no family relationships between
any executive officer and any director or other executive officer.
Name Age, Business Experience and Other Directorships
Robert Schmiege age 53, Chairman and Chief Executive Officer since
August of 1988; and a Director since July of 1988.
James E. Martin age 68, Director since May of 1992; Executive Vice
President-Operations since May of 1994; President of
the Belt Railway Company of Chicago from 1989 to April
of 1994.
F. Gordon Bitter age 52, Senior Vice President-Finance and Accounting
since October of 1994; Senior Vice President of The
Perkin-Elmer Corporation and President of the Metco
Division from 1992 to December of 1993; Senior Vice
President-Finance and Administration of the Perkin-
Elmer Corporation from 1990 to 1992, and Vice
President-Finance and Chief Financial Officer from May
1988 to December 1991.
Paul A. Lundberg age 43, Senior Vice President-Transportation Services
since May of 1994; Vice President-Labor Relations from
July of 1989 to April of 1994.
Arthur W. Peters age 52, Senior Vice President-Sales and Marketing since
June of 1988.
Dennis E. Waller age 48, Senior Vice President-Engineering and Equipment
since May of 1994; Vice President-Engineering and
Materials from October of 1990 to April of 1994; Vice
President-Motive Power and Materials from December of
1988 to September of 1990.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information for the Company for the periods and at the dates indicated. As
explained in Note 1(f) to the 1993 Consolidated Financial Statements,
effective January 1, 1992, the Company changed its method of accounting for
postretirement benefits other than pensions and effective January 1, 1991, the
Company changed its method of accounting for income taxes.
The historical financial information (other than operating data) for each
of the five years in the period ended December 31, 1994 was derived from
consolidated financial statements, of which the three most recent years are
incorporated by reference herein and were audited by Arthur Andersen LLP,
independent public accountants, whose reports thereon are incorporated by
reference herein.
18
Years ended December 31,
1994 1993 1992 1991 1990
(Dollars in millions)
except per share amounts)
Income Statement Data:
Operating revenues $1,129.8 $1,043.2 $ 985.0 $ 979.0 $960.7
Operating expenses 1/ 903.9 834.1 810.8 904.0 810.1
Operating income 225.9 209.1 174.2 75.0 150.6
Other income, net 7.1 11.0 8.1 11.1 7.5
Interest expense 97.5 105.4 126.1 156.8 174.6
Income (loss) before
income taxes 135.5 114.7 56.2 (70.7) (16.5)
Income (loss) before
extraordinary item and
cumulative effect 84.0 64.0 37.4 (43.5) (58.5)
Net income (loss) 2/ 84.0 53.2 (56.2) (72.5) (56.4)
Income (loss) available for
common shareholders 84.0 53.2 (114.9) (102.8) (76.1)
Income (loss) per share before
extraordinary item and
cumulative effect 3/ 1.86 1.44 (.58) (3.39) (3.59)
Net income (loss) per share 3/ 1.86 1.20 (3.15) (4.72) (3.49)
Years Ended December 31,
1994 1993 1992 1991 1990
Operating Data:
Revenue ton miles
(millions) 4/ 53,119 46,114 40,986 40,601 37,705
Operating ratio (%) 5/ 80.0 80.0 82.3 92.3 84.3
December 31,
1994 1993 1992 1991 1990
(Dollars in millions)
Balance Sheet Data:
Working capital $ (90.8) $ (51.9) $ (72.2) $ (75.6) $ (48.3)
Total assets 2,218.6 2,135.9 2,072.0 2,089.0 1,905.1
Long-term debt 1,033.7 1,142.8 1,227.9 1,224.3 1,213.1
Preferred Stock - - - 207.4 177.1
Common shareholders'
equity 315.9 226.2 144.0 (98.5) 4.4
1/ Special charges included in operating expenses consist of employee
reduction and relocation costs in 1994, 1993, 1992, 1991 and 1990, a
charge in 1993 for management fees payable to a previous principal
stockholder, and environmental and personal injury costs in 1991. Such
special charges totaled $4.8 million in 1994; $5.0 million in 1993; $30.0
million in 1992; $115.8 million in 1991; and $13.4 million in 1990.
19
2/ Net income for 1993 has been reduced by a $10.8 million extraordinary
loss related to the refinancing of long-term debt. The 1992 net loss
includes a $91.0 million extraordinary loss related to the
Recapitalization and a $2.6 million charge for the cumulative effect of a
change in the method of accounting for other postretirement benefits.
The 1991 net loss includes a $25.6 million charge for the cumulative
effect of a change in the method of accounting for income taxes and a
$3.4 million extraordinary loss on prepayment of long-term debt.
3/ Income (loss) per share is calculated after deducting preferred stock
dividends and accretion to liquidation value from net income (loss).
Such amounts totalled $58.7 million in 1992; $30.3 million in 1991 and
$19.7 million in 1990.
4/ Revenue ton miles equals the product of the weight in tons of freight
carried for hire and the distance in miles carried on the Company's
lines.
5/ Operating ratio is the ratio of operating expenses to operating revenues.
Special charges increased the operating ratio by 0.4, 0.5, 3.0, 11.8, and
1.4 percentage points for the years ended December 31, 1994, 1993, 1992,
1991 and 1990, respectively.
PART II
The following items are incorporated into this report by reference to the
sections of the Company's 1994 Annual Report to Shareholders shown below:
Annual Report Section Title
(If Applicable)
Item Description and Page Number
5 Market for the Registrant's Stock Listing,
Common Equity and Related inside back cover
Shareholders Matters.
7 Management's Discussion and Management Discussion and
Analysis of Financial Condition Analysis of Financial
and Results of Operations. Condition and Results
of Operations,
pages 16 through 21.
8 Financial Statements, Supplementary Pages 22 through 32.
Data and the Report of
Independent Public Accountants.
Event Subsequent to Date of Auditors' Report (Unaudited)
Reference is made to Part I, Item 1 "BUSINESS -- Recent
Developments - Transaction with Union Pacific Corporation"
for a discussion of Union Pacific's acquisition of the
Company.
20
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the directors of the Company will be set
forth under the caption "Nominees for Election as Directors," "Directors
Continuing in Office Until 1996" and "Directors Continuing in Office until
1997" in the Company's Proxy Statement for the Annual Meeting of Shareholders
and is hereby incorporated by reference. The Annual Meeting is scheduled to
be held at 9:00 a.m. (CST), on May 2, 1995, at the Harris Trust and Savings
Bank Auditorium, 111 West Monroe, 8th Floor, Chicago, Illinois.
Information with regard to the Company's executive officers appears in
Part I of this Form 10-K under the caption "Executive Officers of the
Registrant."
Item 11. Executive Compensation
Information with respect to this item will be set forth under the
caption "Executive Compensation" in the Company's Proxy Statement for the
Annual Meeting of Shareholders and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to this item will be set forth under the
caption "Security Ownership of Certain Beneficial Owners and Management" in
the Company's Proxy Statement for the Annual Meeting of Shareholders and is
hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item will be set forth under the
caption "Certain Relationships and Related Transactions" in the Company's
Proxy Statement for the Annual Meeting of Shareholders and is hereby
incorporated by reference.
21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Incorporated
Page by Reference to
Number Page Number in
of this Annual Report
Form 10-K to Shareholders
(a) 1. Financial Statements
Report of independent public accountants 32
Consolidated statement of income--years
ended December 31, 1992, 1993 and 1994 22
Consolidated balance sheet--
December 31, 1993 and 1994 23
Consolidated statement of cash flows--years
ended December 31, 1992, 1993 and 1994 24
Notes to Consolidated Financial Statements 25-31
(a) 2. Financial Statement Schedules
Report of independent public accountants 31
Selected Quarterly Financial Data for the
years ended December 31, 1993 and 1994 30
Schedule II -- Valuation and qualifying
accounts and reserves 30
22
(a) 3. Exhibits
Many Company exhibits are incorporated by reference to previous filings
of the Company as defined below:
The Form S-8 filed on October 17, 1994 by Chicago and North
Western Transportation Company, file number 33-56047 (the "1994
Form S-8").
Quarterly Report of Chicago and North Western Transportation
Company for the quarter ended September 30, 1994 (the "3rd Quarter
1994 10-Q").
The Proxy Statement filed on March 28, 1994 by Chicago and North
Western Holdings Corp (the "1994 Proxy Statement").
The Form S-8 filed on December 10, 1993 by Chicago and North
Western Holdings Corp., file number 33-51405 (the "1993 Form S-
8").
The Form S-4 filed by Chicago and North Western Holdings Corp.,
file number 33-30874 (the "Form S-4").
The Form S-1 filed on March 27, 1992 by Chicago and North Western
Holdings Corp., file number 33-45265 (the "1992 Form S-1").
The Annual Report of Chicago and North Western Holdings Corp. on
Form 10-K for the year ended December 31, 1993, file number 33-
30874 (the "1993 10-K").
The Annual Report of Chicago and North Western Holdings Corp. on
Form 10-K for the year ended December 31, 1992, file number 33-
30874 (the "1992 10-K").
The Annual Report of Chicago and North Western Holdings Corp. on
Form 10-K for the year ended December 31, 1990, file number 33-
30874 (the "1990 10-K").
Number
3.1 Restated Certificate of Incorporation of Chicago and North Western
Holdings Corp. (incorporated by reference to Exhibit 4.1 to 1993
Form S-8).
3.1a Certificate of Amendment of Restated Certificate of Incorporation
filed May 5, 1994 (incorporated by reference to Exhibit 4.2 to the
1994 Form S-8).
* 3.2 By-Laws of Chicago and North Western Transportation Company
(formerly Chicago and North Western Holdings Corp.) current as of
May 9, 1994.
4.1 Specimen form of Certificate of Common Stock (incorporated by
reference to Exhibit 4.1 to the 1992 Form S-1).
23
Number
4.14 Second Participation and Loan Agreement dated as of December 20,
1990 among Western Railroad Properties, Incorporated as Lessee and
Citibank, N.A., not individually but solely as Trustee, as Lessor,
and UP Leasing Corporation, as Beneficial Owner, and Union Pacific
Corporation as Beneficial Owner Parent, and Chicago and North
Western Transportation Company and CNW Corporation and Chemical
Bank as Administrative Agent and Continental Bank, N.A. and the
Long-Term Credit Bank of Japan, Ltd., Chicago Branch, as Co-
Agents, and Banque Paribas, New York Branch and Manufacturers
Hanover Trust Company as Lead Managers (incorporated by reference
to Exhibit 10.19 to the 1990 10-K).
4.14a Amendment dated as of August 26, 1994, to the Second Participation
and Loan Agreement dated as of December 20, 1990 among Western
Railroad Properties, Incorporated as Lessee and Citibank, N.A.,
Trustee under the Trust Agreement, as Lessor, and UP Leasing
Corporation, as Beneficial Owner, and Union Pacific Corporation,
as Beneficial Owner Parent, and Chicago and North Western Railway
Company, as successor to Chicago and North Western Transportation
Company and CNW Corporation, and Chemical Bank, as Administrative
Agent and Continental Bank N.A. and The Long-Term Credit Bank of
Japan, Ltd., Chicago Branch, as Co-Agents, and Banque Paribas, New
York Branch, as Lead Manager (incorporated by reference to Exhibit
4.14a to the 3rd Quarter 1994 10-Q).
4.16 Credit Agreement among Chicago and North Western Transportation
Company, Chicago and North Western Holdings Corp., the Lenders
named therein, Bank of Montreal, as issuing bank, the Co-Agents
named therein and Chemical Bank, as Agent, dated as of March 27,
1992 (incorporated by reference to Exhibit 4.16 to the 1992 10-K).
4.16a First Amendment and Waiver dated as of April 7, 1992 to the Credit
Agreement dated as of March 27, 1992, among Chicago and North
Western Transportation Company, Chicago and North Western Holdings
Corp., the Lenders named therein, Bank of Montreal, as Issuing
Bank, the Co-Agents party thereto and Chemical Bank, as Agent
(incorporated by reference to Exhibit 4.16a to the 1992 10-K).
4.16b Amendment dated as of September 10, 1993, to the Credit Agreement
dated as of March 27, 1992, as previously amended, among Chicago
and North Western Transportation Company, Chicago and North
Western Holdings Corp., the Lenders named therein, Bank of
Montreal, as Issuing Bank, the Co-Agents party thereto and
Chemical Bank, as Agent (incorporated by reference to Exhibit
4.16b to the 1993 10-K).
4.16c Master Assignment and Acceptance Agreement, dated as of September
10, 1993, among Chicago and North Western Transportation Company,
Chicago and North Western Holdings Corp., the Lenders named
therein, Bank of Montreal, an Issuing Bank, the Co-Agents named
therein and Chemical Bank, as Agent (incorporated by reference to
Exhibit 4.16c to the 1993 10-K).
24
Number
4.16d Amendment dated as of August 26, 1994 to the Credit Agreement
dated as of March 27, 1992, as previously amended, among Chicago
and North Western Railway Company (formerly Chicago and North
Western Transportation Company), Chicago and North Western
Transportation Company (formerly Chicago and North Western
Holdings Corp.), the Lenders named therein, Bank of Montreal, as
Issuing Bank, the Co-Agents party thereto and Chemical Bank, as
Agent (incorporated by reference to Exhibit 4.16d of the 3rd
Quarter 1994 10-Q).
* 4.16e Amendment dated as of December 2, 1994 to the Credit Agreement
dated as of March 27, 1992, as previously amended, among Chicago
and North Western Railway Company (formerly Chicago and North
Western Transportation Company), Chicago and North Western
Transportation Company (formerly Chicago and North Western
Holdings Corp.), the lenders named therein, Bank of Montreal, as
Issuing Bank, the Co-Agents party thereto and Chemical Bank, as
Agent.
4.17 Senior Secured Note Purchase Agreement among Chicago and North
Western Transportation Company, Chicago and North Western Holdings
Corp., and the Purchasers listed on Schedule I thereto dated March
27, 1992 (incorporated by reference to Exhibit 4.17 to the 1992
10-K).
4.17a First Amendment and Waiver, dated as of April 7, 1992, to the
Senior Secured Note Purchase Agreement, dated as of March 27,
1992, among Chicago and North Western Transportation Company,
Chicago and North Western Holdings Corp., and The Purchasers named
there (incorporated by reference to Exhibit 4.17a to the 1992
10-K).
4.17b Second Amendment, dated as of August 26, 1994, to the Senior
Secured Note Purchase Agreement, dated as of March 27, 1992, as
previously amended, among Chicago and North Western Railway
Company (formerly Chicago and North Western Transportation
Company) (the Issuer), Chicago and North Western Transportation
Company (formerly Chicago and North Western Holdings Corp.) and
the Purchasers named therein (incorporated by reference to Exhibit
4.17b of the 3rd Quarter 1994 10-Q).
* 4.17c Third Amendment, dated as of August 26, 1994, to the Senior
Secured Note Purchase Agreement, dated as of March 27, 1992, as
previously amended, among Chicago and North Western Railway
Company (formerly Chicago and North Western Transportation
Company) (the Issuer), Chicago and North Western Transportation
Company (formerly Chicago and North Western Holdings Corp.) and
the Purchasers named therein.
25
Number
4.18 Master Collateral Agreement and Intercreditor Agreement among
certain participating creditors of Chicago and North Western
Transportation Company and Chemical Bank, as agent, dated as of
March 27, 1992 (incorporated by reference to Exhibit 4.18 to the
1992 10-K).
10.2 Second Amended and Restated Stockholders Agreement, dated as of
March 30, 1992, among Chicago and North Western Holdings Corp.,
CNW Corporation, Chicago and North Western Transportation Company,
Blackstone Capital Partners L.P., Blackstone Family Investment
Partnership L.P., Blackstone Advisory Directors Partnership L.P.,
Chemical Investments, Inc., The Prudential Insurance Company of
America, DLJ Capital Corporation, Union Pacific Corporation, UP
Rail, Inc. and the Management Group (incorporated by reference to
Exhibit 10.2 to the 1992 Form S-1).
10.2a Letter Agreement dated October 1, 1992 releasing certain persons
from the Second Amended and Restated Stockholders Agreement
(incorporated by reference to Exhibit 10.2a to the 1992 10-K).
10.2b Agreement dated as of December 1, 1992 among Chicago and North
Western Holdings Corp., Blackstone Capital Partners, L.P.,
Blackstone Family Investment Partnership, L.P., Blackstone
Advisory Directors Partnership, Chemical Investments Inc.,
Prudential Insurance Company of America, DLJ Capital Corporation,
Union Pacific Corporation, UP Rail, Inc., CNW Corporation, Chicago
and North Western Transportation Company and the Management Group
(incorporated by reference to Exhibit 10.2b to the 1992 10-K).
10.3 Registration Rights Agreement, dated as of July 14, 1989, among
Chicago and North Western Holdings Corp., Blackstone Capital
Partners L.P., DLJ Capital Corporation, Union Pacific Corporation
and the Management Group (the "Registration Rights Agreement")
(incorporated by reference to Exhibit 10.3 to Form S-4).
10.4 Amendment No. 1 to Registration Rights Agreement, dated as of July
24, 1989 (incorporated by reference to Exhibit 10.4 to Form S-4).
10.5 Exchange Agreement between Chicago and North Western Holdings
Corp. and UP Rail, Inc. dated March 30, 1992 (incorporated by
reference to Exhibit 10.5 to the 1992 10-K).
10.7 Gillette-Douglas Joint Line Agreement between Burlington Northern,
Inc. and Chicago and North Western Transportation Company
(incorporated by reference to Exhibit 10.9 to Form S-4).
10.8 Letter Agreement dated March 4, 1986 between Chicago and North
Western Transportation Company, Western Railroad Properties
Incorporated and Burlington Northern Railroad Company for the
purchase of an undivided one-half interest in Burlington
Northern's Coal Creek Junction and Caballo Junction, Wyoming line
of railroad (incorporated by reference to Exhibit 10.10 to Form S-
4).
26
Number
10.9 Agreement for Modification of Joint Line Agreement and for Interim
Trackage Rights dated April 21, 1986 (incorporated by reference to
Exhibit 10.11 to Form S-4).
*# 10.10 Chicago and North Western Transportation Company Supplemental
Pension Plan, amendment and restatement effective January 1, 1989.
10.14 One North Western Center Lease (incorporated by reference to
Exhibit 10.20 to Form S-4).
*# 10.15 Chicago and North Western Railway Company Profit Sharing and
Retirement Savings Program (as amended and restated January 1,
1989).
# 10.16 Bonus Plan of Chicago and North Western Holdings Corp., adopted
March 9, 1992 (incorporated by reference to Exhibit 10.16 to the
1992 10-K).
# 10.17 Chicago and North Western Transportation Company Executive
Retirement Plan, dated January 1, 1989 (incorporated by reference
to Exhibit 10.46 to the 1990 10-K).
10.19 Purchase of Service Agreement between Commuter Rail Division and
Chicago and North Western Transportation Company, October 1, 1984
to December 31, 1988 (incorporated by reference to Exhibit 10.22
to Form S-4).
* 10.26 Amendment No. 10 to Purchase of Service Agreement between Commuter
Rail Division and Chicago and North Western Railway to December
31, 1998.
# 10.27 Chicago and North Western Transportation Company Excess Benefit
Retirement Plan dated January 1, 1989 (incorporated by reference
to Exhibit 10.36 to the 1989 10-K).
# 10.34 Equity Incentive Plan for Key Employees of Chicago and North
Western Holdings Corp. and Subsidiaries (incorporated by reference
to Exhibit 10.48 to Form S-4).
# 10.35 Form of Non-Qualified Stock Option Agreement, dated as of July 14,
1989, between Chicago and North Western Holdings Corp., and
certain of the Management Investors (incorporated by reference to
Exhibit 10.49 to Form S-4).
# 10.42 Rollover Option Agreement, dated as of July 14, 1989, between
Chicago and North Western Holdings Corp. and Robert A. Jahnke
(incorporated by reference to Exhibit 10.57 to Form S-4).
# 10.43 Rollover Option Agreement, dated as of July 14, 1989, between
Chicago and North Western Holdings Corp. and Arthur W. Peters
(incorporated by reference to Exhibit 10.58 to Form S-4).
27
Number
# 10.44 Rollover Option Agreement, dated as of July 14, 1989, between
Chicago and North Western Holdings Corp. and Thomas A. Tingleff
(incorporated by reference to Exhibit 10.59 to Form S-4).
10.45 Agreement for UP Trackage Rights, dated as of July 14, 1989, by
and among Union Pacific Railroad Company, Missouri Pacific
Railroad Company, CNW Corporation and Chicago and North Western
Transportation Company (incorporated by reference to Exhibit 10.60
to Form S-4).
10.46 Supplemental Form of Agreement for UP Trackage Rights, dated as of
January 31, 1990 (incorporated by reference to Exhibit 10.39 to
the 1990 10-K).
10.47 Amendment to Agreement for UP Trackage Rights dated as of December
20, 1990 (incorporated by reference to Exhibit 10.40 to the 1990
10-K).
10.52 Letter of Intent, dated January 23, 1992 among Chicago and North
Western Holdings Corp., CNW Corporation, Union Pacific
Corporation, UP Rail, Inc. and UP Leasing Corporation
(incorporated by reference to Exhibit 10.52 to the 1992 Form S-1).
# 10.53 Chicago and North Western Holdings Corp. 1992 Equity Incentive
Plan dated April 7, 1992 (incorporated by reference to Exhibit
10.53 to the 1992 10-K).
# 10.53b Second Amendment to The Chicago and North Western Holdings Corp.
1992 Equity Incentive Plan (incorporated by reference to Exhibit
10.53b to the 1993 10-K).
# 10.54 Chicago and North Western Holdings Corp. 1994 Equity Incentive
Plan (incorporated by reference to Exhibit 22 to 1994 Proxy
Statement).
10.55 AT&T Corporate Center office sublease between AT&T Communications,
Inc. (as Landlord) and Chicago and North Western Transportation
Company (as Tenant) dated as of October 25, 1993 (incorporated by
reference to Exhibit 10.55 to 1993 10-K).
# 10.56 Chicago and North Western Holdings Corp. Directors' Deferred
Compensation Plan (incorporated by reference to Exhibit 10.56 to
1993 10-K).
# 10.57 Chicago and North Western Holdings Corp. Directors' Pension and
Retirement Savings Plan (incorporated by reference to Exhibit
10.57 to 1993 10-K).
# 10.58 Chicago and North Western Holdings Corp. Directors' Pension and
Retirement Savings Plan Trust (incorporated by reference to
Exhibit 10.58 to 1993 10-K).
28
Number
10.59 Agreement as of June 21, 1993 among Chicago and North Western
Holdings Corp., Blackstone Capital Partners L.P., Blackstone
Family Investment Partnership II L.P., Blackstone Advisory
Directors Partnership L.P., Chemical Investments, Inc., The
Prudential Insurance Company of America, DLJ Capital Corporation,
Donaldson, Lufkin & Jenrette Securities Corporation, Union Pacific
Corporation, UP Rail, Inc., CNW Corporation, Chicago and North
Western Transportation Company, Chicago and North Western
Acquisition Corporation, UP Leasing Corporation and certain
individuals (incorporated by reference to Exhibit 10.59 to 1993
10-K).
* 10.60 Letter Agreement dated December 14, 1994 between Chicago and North
Western Transportation Company and The Blackstone Group for
financial advisory services.
*# 10.61 Change of Control Employment Agreement among Chicago and North
Western Transportation Company, Chicago and North Western Railway
Company and F.G. Bitter.
*# 10.62 Change of Control Employment Agreement among Chicago and North
Western Transportation Company, Chicago and North Western Railway
Company and Paul A. Lundberg.
*# 10.63 Change of Control Employment Agreement among Chicago and North
Western Transportation Company, Chicago and North Western Railway
Company and James E. Martin.
*# 10.64 Change of Control Employment Agreement among Chicago and North
Western Transportation Company, Chicago and North Western Railway
Company and Arthur W. Peters.
*# 10.65 Change of Control Employment Agreement among Chicago and North
Western Transportation Company, Chicago and North Western Railway
Company and Dennis E. Waller.
*# 10.66 Form of Change of Control Employment Agreement among Chicago and
North Western Transportation Company, Chicago and North Western
Railway Company and Executives (entered into with each of 22 Vice
Presidents of Chicago and North Western Railway Company).
* 10.67 Agreement and Plan of Merger by and among Union Pacific
Corporation, UP Rail, Inc. and Chicago and North Western
Transportation Company dated as of March 16, 1995.
* 10.68 Company Stock Option Agreement dated as of March 16, 1995, among
UP Rail, Inc. and the Company.
*# 10.69 James Martin Retention Arrangement.
* 13. Chicago and North Western Transportation Company 1995 Annual
Report to Shareholders (only those portions incorporated by
reference in this Form 10-K are deemed "filed").
* 21. Subsidiaries of Chicago and North Western Transportation Company.
29
Number
* 27. Financial Data Schedule
28. Railroad Common Control Application before the Interstate Commerce
Commission, Finance Docket No. 32133, Union Pacific Corporation,
Union Pacific Railroad Company and Missouri Pacific Railroad
Company - Control - Chicago and North Western Holdings Corp. and
Chicago and North Western Transportation Company, volumes 1 - 4
(incorporated by reference to Exhibit 28 to the 1992 10-K).
* 99. Press Release issued by the Company on March 10, 1995.
* 99.1 Press Release issued by the Company and Union Pacific on March 17,
1995.
* Filed herewith.
# Management contract or compensatory plan or arrangement.
Note: On May 6, 1994, the name of Chicago and North Western Holdings Corp.
was changed to Chicago and North Western Transportation Company and the
name of its wholly-owned subsidiary, Chicago and North Western
Transportation Company was changed to Chicago and North Western Railway
Company.
No report on Form 8-K was filed in the fourth quarter of 1994.
30
SIGNATURES
Pursuant to the requirements of Section 12 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
Principal Executive Officer
By /s/ Robert Schmiege
Robert Schmiege
Chairman, President and Chief Executive Officer
Principal Finance and Accounting Officer
By /s/ F. G. Bitter
F. G. BITTER
Senior Vice President-Finance and Accounting
March 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date Signed
/s/ Robert Schmiege Director March 22, 1995
Robert Schmiege
/s/ Richard K. Davidson Director March 22, 1995
Richard K. Davidson
/s/ James E. Martin Director March 22, 1995
James E. Martin
/s/ James Mossman Director March 22, 1995
James Mossman
/s/ Harold A. Poling Director March 22, 1995
Harold A. Poling
/s/ Samuel K. Skinner Director March 22, 1995
Samuel K. Skinner
/s/ James R. Thompson Director March 22, 1995
James R. Thompson
31
SCHEDULE II
CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Millions of dollars
Column A Column B Column C Column D Column E
Additions
Balance charged to Balance
at Costs Other Deductions at end
beginning and accounts describe of
Description of period expenses describe (1) period
Year Ended December 31, 1994
Reserves deducted
from assets to which
they apply--
Reserve for uncollectible
revenues and
other charges $ 4.1 $ 1.7 $ - $1.4 $ 4.4
Reserve for deferred
tax assets 37.6 - - 6.2 (2) 31.4
Year Ended December 31, 1993
Reserves deducted from
assets to which
they apply--
Reserve for uncollectible
revenues and
other charges $ 4.0 $ 0.9 $ - $ 0.8 $ 4.1
Reserve for deferred
tax assets 43.1 - - 5.5 (2) 37.6
Year Ended December 31, 1992
Reserves deducted
from assets to which
they apply--
Reserve for uncollectible
revenues and
other charges $ 4.0 $ 0.6 $ - $ 0.6 $ 4.0
Reserve for deferred
tax assets 52.1 - - 9.0 (2) 43.1
(1) Write off of uncollectible accounts, unless otherwise noted.
(2) Reduction for expiring fully-reserved investment
tax credits and change in estimated use of credits.
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chicago and North Western Transportation Company:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Chicago and North Western
Transportation Company's Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated January
27, 1995. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the Index to Financial
Statement Schedules is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1995
Dates Referenced Herein and Documents Incorporated by Reference
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