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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 March 31, 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
CHICAGO AND NORTH WESTERN HOLDINGS CORP.
(Former name or former address, if changed since last report.)
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 April 15, 1994:
Common 43,791,362<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
March 31,
1994 1993
Operating revenues $273.9 $254.7
Operating expenses 225.7 209.1
Operating income $ 48.2 $ 45.6
Other income, net 0.2 4.4
Interest expense 22.6 27.5
Income before income taxes $ 25.8 $ 22.5
Income taxes:
Currently payable $ 0.3 $ 0.3
Deferred 9.5 7.6
$ 9.8 $ 7.9
Net income $ 16.0 $ 14.6
Earnings per common share $ 0.35 $ 0.33
Shares used in earnings per share computation (thousands) 45,305 43,633
See accompanying notes to condensed consolidated financial statements.<PAGE>
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CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
1994 1993
millions of dollars
Current assets:
Cash and temporary cash investments $ 54.9 $ 70.9
Accounts receivable, net 137.8 140.9
Materials and supplies, at average cost 39.0 27.7
Prepaid expenses and other 10.5 9.3
$ 242.2 $ 248.8
Property:
Road $1,948.9 $1,938.6
Equipment 156.0 155.3
Accumulated depreciation (292.4) (273.1)
$1,812.5 $1,820.8
Other assets $ 71.9 $ 66.3
Total assets $2,126.6 $2,135.9
See accompanying notes to condensed consolidated financial statements.<PAGE>
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CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1994 1993
millions of dollars
Current liabilities:
Accounts payable and accrued expenses $ 176.5 $ 179.4
Payroll and vacation pay 37.6 35.3
Interest 9.4 10.9
Taxes 18.3 16.2
Total, excluding long-term debt
due within one year $ 241.8 $ 241.8
Long-term debt due within one year 55.0 58.9
$ 296.8 $ 300.7
Casualties and environmental reserve 75.3 78.3
Other liabilities 81.6 84.3
Deferred income taxes 311.9 303.6
Long-term debt, excluding amounts due
within one year:
C&NW Railway 715.1 730.4
WRPI 401.3 412.4
Total $1,116.4 $1,142.8
Total liabilities $1,882.0 $1,909.7
Stockholders' equity:
Common stock, par value $.01 per share,
authorized 250,000,000 shares, issued
43,813,266 shares and outstanding
43,787,787 shares (of which 12,835,304
are non voting) at March 31, 1994 $ 0.4 $ 0.4
Capital surplus 539.9 537.5
Retained income (295.7) (311.7)
$ 244.6 $ 226.2
Total liabilities and stockholders' equity $2,126.6 $2,135.9
See accompanying notes to condensed consolidated financial statements.<PAGE>
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CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
1994 1993
millions of dollars
Cash flow from operating activities:
Net income $ 16.0 $ 14.6
Items not affecting cash flow from operating activities:
Depreciation 18.5 17.3
Amortization of debt cost 1.7 2.2
Gain from sales of property, net (0.4) (3.2)
Deferred income taxes 9.5 7.6
Cash provided from operating activities
before changes in assets and liabilities $ 45.3 $ 38.5
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 3.1 (9.6)
(Increase) in other current assets except cash (12.5) (9.6)
(Decrease) in accounts payable and accruals - (1.4)
(Decrease) in noncurrent reserves for special charges (2.9) (0.8)
Other, net (10.1) 6.2
Net cash flow from operating activities $ 22.9 $ 23.3
Cash flow from financing activities:
Proceeds from debt financing $ - $ 0.6
Proceeds from issuance of common stock 1.1 0.4
Payments on long-term debt (24.9) (6.6)
Prepayment of long-term debt (5.4) -
Net cash flow used for financing activities $(29.2) $ (5.6)
Cash flow from investing activities:
Additions to property $(11.3) $(12.9)
Proceeds from property dispositions 1.5 3.5
Other, net 0.1 (0.2)
Net cash flow used for investing activities $ (9.7) $ (9.6)
Increase (decrease) in cash & temporary cash investments $(16.0) $ 8.1
Cash and temporary cash investments - beginning of period 70.9 44.2
- end of period $ 54.9 $ 52.3
See accompanying notes to condensed consolidated financial statements.<PAGE>
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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 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.
2) Prior period errors.
First quarter 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
March 31,
1994 1993
(millions of dollars)
Interest income $ 0.6 $ 0.4
Gain from sales of property, net 0.4 3.2
Rents from property not used in operations 1.0 1.1
Unrealized loss on excess fuel hedges (1.4) -
Other, net (0.4) (0.3)
$ 0.2 $ 4.4
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:
1994 1993
Interest $22.2 $25.0
Income taxes $ 0.4 $ -
The Company considers all short-term investments which have an original
maturity of less than ninety days as cash equivalents.<PAGE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter 1994 Compared to First Quarter 1993
Operating Revenues
Net freight revenues were $246.8 million in 1994, an increase of $19.2
million, or 8.4%, compared with 1993. The total number of loads handled in
1994 was 610,535, an increase of 56,828 loads, or 10.3%, compared with 1993.
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 March 31,
Percent
Change
1994 1993 from 1993
Energy $ 92.2 $ 76.0 21.3 %
Agricultural Commodities 51.2 55.9 (8.4)
Intermodal 28.9 28.4 1.8
Automotive, Steel and Chemicals 53.2 48.5 9.7
Consumer Products 34.1 34.7 (1.7)
Gross freight revenues $259.6 $243.5 6.6
Allowances, absorptions and adjustments (12.8) (15.9) (19.5)
Net freight revenues $246.8 $227.6 8.4
Commuter 20.6 21.9 (5.9)
Other 6.5 5.2 25.0
Total operating revenues $273.9 $254.7 7.5 %
Load Comparison by Business Group (loads in thousands)
Three Months Ended March 31,
Percent
Change
1994 1993 from 1993
Energy 230.8 182.6 26.4 %
Agricultural Commodities 72.5 78.0 (7.1)
Intermodal 174.2 166.9 4.4
Automotive, Steel and Chemicals 86.5 77.3 11.9
Consumer Products 46.5 48.9 (4.9)
Total loads 610.5 553.7 10.3 %
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Operating Revenues - (Cont'd.)
ENERGY--Volume and gross revenues increased compared to 1993 related to 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 and core railroad coal shipments increased 28% and 18%,
respectively. 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.
AGRICULTURAL COMMODITIES--Volume and gross revenues decreased due to poor crop
availability resulting from the effects of the 1993 midwestern flooding and
service problems caused by severe winter weather. Shipments of raw grains and
finished grain products were down 8% and 10%, respectively. Traffic for the
remainder of 1994 is expected to increase slightly compared to 1993 levels.
INTERMODAL--Volume and gross revenues increased due to increased traffic from
existing 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 compared
to 1993. Automobile shipments increased 10% due to higher production and
market share gains from General Motors' Janesville, Wisconsin, plant and
increased overhead volumes resulting from an industry-wide increase in
automobile production and sales. Metallic ore shipments increased 20%.
Traffic for the remainder of 1994 is expected to increase compared to 1993
levels in part due to 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.
CONSUMER PRODUCTS--Volume and gross revenues decreased due to business that
was diverted to the Wisconsin Central route due to that railroad's acquisition
of the Fox River Valley Railroad. Traffic for the remainder of 1994 is
expected to remain flat compared to 1993 levels.
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Operating Expenses
Operating expenses were $225.7 million in 1994, an increase of $16.6 million,
or 7.9%, compared with 1993 primarily due to increased labor, fuel, and hire
of freight equipment caused by traffic increases and severe winter weather.
The table below is a comparison of operating expenses.
Operating Expenses (millions of dollars)
Percent change
1994 1993 from 1993
Compensation and benefits $103.1 $ 96.8 6.5 %
Diesel fuel 22.2 18.0 23.3
Material and purchased services 22.4 20.2 10.9
Hire of freight equipment 18.7 15.3 22.2
Other rents 18.3 18.2 0.5
Depreciation 18.6 17.3 7.5
Casualties 9.5 10.1 (5.9)
Other* 12.9 13.2 (2.3)
Total expenses $225.7 $209.1 7.9 %
*Other includes property taxes, utilities, vehicle operating costs, FRA and
railroad association fees, and other general expenses.
1994 compensation and benefits expense increased due to train and engine
payroll expense related to higher traffic levels and severe winter weather,
and a 1.4% increase in the number of employees. Payroll taxes and other
fringe benefit costs increased compared with 1993 due to increased payroll
taxes related to higher wages, an increase in the health and welfare insurance
rate, and increased profit sharing expense. Railroad labor costs as a
percentage of railroad operating revenues were 37.6% in 1994 compared with
38.0% in 1993.
Diesel fuel expense in 1994 increased due to a 20.2% increase in consumption
related to the increase in traffic and severe winter weather and a 2.5%
increase in the average price per gallon.
Material and purchased services increased compared to 1993 primarily due to
reduced billings for repairing foreign-line cars due to severe winter weather
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.
Hire of freight equipment increased due to increased traffic, severe winter
weather and new equipment leases.
Depreciation expense increased 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, decreased due to a credit resulting from the favorable settlement of
a personal injury case in 1994.<PAGE>
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OTHER INCOME, NET
Other income decreased compared to 1993 due to a gain of $2.9 million related
to a telecommunications easement sale in 1993 and a $1.4 million unrealized
loss on excess fuel hedges in 1994. See Note 4 to Condensed Consolidated
Financial Statements for a summary of other income, net.
INTEREST EXPENSE
Interest expense decreased by $4.9 million compared to 1993 due to the
Company's refinancing of the Term and Standby portions of its Debt Facilities
in September of 1993, lower debt levels and lower interest rates.
INCOME TAXES
The income tax provision increased compared to 1993 due to the increase in
pretax income in 1994.
OTHER MATTERS
The Company's first quarter 1994 results included an adjustment for prior
period errors and irregularities which reduced net income $1.7 million. 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 first quarter of 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 is cooperating with a preliminary inquiry by the Securities and
Exchange Commission to determine whether there have been any violations of
federal securities laws. In addition, although they were not involved in any
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way in the underlying errors and irregularities, the Company's senior vice
president-Finance and Accounting and its vice president and controller, have
been dismissed because of the manner in which they handled the matter after
they discovered it. Two other Company employees were also dismissed. The
Operating department has been restructured and the Company's senior vice
president-Operations, although not involved in the errors and irregularities,
has been reassigned to the position of senior vice president-Planning.
LIQUIDITY
At March 31, 1994, the Company's working capital totaled a negative $54.6
million, while cash and temporary cash investments totaled $54.9 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 March 31, 1994, the Company had long-term
indebtedness including current maturities of $1.2 billion and common
stockholders' equity of $244.6 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
WRPI's loan agreements require additional debt payments based on calculations
of excess cash flow as defined in their respective agreements.
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.
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 quarter of 1994 were $11.3 million. A $193
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 plans to acquire equipment under
operating leases with a cost to lessors of $221 million in 1994.<PAGE>
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
MARINA CLIFFS BARREL DUMP SITE -- In April of 1994, the Company was
notified by the Wisconsin Department of Natural Resources that the railroad
and approximately 100 other companies have been identified as potentially
responsible parties for having generated waste that was disposed of at the
Marina Cliffs Barrel Dump Site, South Milwaukee, Wisconsin. The Wisconsin
Department of Natural Resources is currently investigating this site and has
indicated that it may place the site on the National Priority List which would
designate it as a superfund site. 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 concerning the dump site or the
potential costs of investigation and remediation. Based on the limited
information available, the Company believes that its potential liability, if
any, will not materially affect the financial condition of the Company.
GARDENA, CALIFORNIA DUMP SITE -- In March of 1994, the Company
received notice from the California Environmental Protection Agency (the
"California EPA"), Department of Toxic Substances Control that the railroad
and ten other companies have been identified as generators of spent batteries
which have been illegally transported and stored at a 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 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. At this time
the Company has no other information relating to the total number of batteries
involved at the site or the potential cost of investigation and disposal.
Based on the limited information available, the Company believes that its
potential liability, if any, will not materially affect the financial
condition of the Company.
There have been no material changes to previously reported
litigation.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
No report on Form 8-K was filed on behalf of the Company during
the quarter ended March 31, 1994.<PAGE>
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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: May 13, 1994 /s/ JOHN M. BUTLER
JOHN M. BUTLER
Acting Senior Vice President-Finance and Accounting
Date: May 13, 1994 /s/ JAMES P. DALEY
JAMES P. DALEY
Senior Vice President, General Counsel and Secretary
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