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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period
ended September 30, 1996 Commission File Number 0-19150
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WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
-----------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3541743
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6250 North River Road, Suite 9000
Rosemont, Illinois 60018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (847) 318-4600
Indicate by check [X] 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.
[X] YES [ ] NO
Indicate the number of shares outstanding of the
Issuer's common stock as of October 31, 1996: 50,739,429 shares
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<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
FORM 10-Q
Quarter Ended September 30, 1996
CONTENTS PAGE
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets.............................1
Consolidated Statements of Income.......................3
Consolidated Statements of Cash Flows...................4
Notes to Consolidated Financial Statements..............5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........8
Part II - Other Information
Item 5. Other Information.......................................12
Item 6. Exhibits and Reports on Form 8-K........................12
Signatures...............................................................13
Index to Exhibits........................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
Assets
Sept. 30, Dec. 31,
1996 1995
---- ----
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents .......................... $ 5,341 $ 1,472
Receivables, net of allowance for doubtful
accounts of $2,153 and $2,096 at September 30,
1996 and December 31, 1995 ...................... 74,079 54,270
Receivables from insurance companies ............... 8,264 --
Income taxes receivable ............................ -- 900
Note receivable .................................... -- 13,213
Materials and supplies ............................. 19,726 17,245
Deferred income taxes .............................. 1,400 1,400
Other current assets ............................... 1,338 1,148
--------- ---------
Total current assets .......................... 110,148 89,648
Investments in affiliates ............................ 97,517 41,416
Properties:
Roadway and structures ............................. 420,576 383,905
Equipment .......................................... 87,650 78,764
--------- ---------
Total properties ................................ 508,226 462,669
Less accumulated depreciation ...................... (60,699) (51,174)
--------- ---------
Net properties .................................. 447,527 411,495
Deferred financing and organization costs, net ....... 1,316 1,673
--------- ---------
Total assets .................................... $ 656,508 $ 544,232
========= =========
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
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<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
Liabilities and Stockholders' Equity
Sept. 30, Dec. 31,
1996 1995
---- ----
(Unaudited) (Audited)
Current liabilities:
Short-term debt ...................................... $ 677 $ 13,619
Accounts payable ..................................... 40,896 33,857
Accrued expenses ..................................... 68,795 54,228
Accrued derailment claims ............................ 3,927 --
Accrued disputed switching charges ................... 16,778 3,500
Interest payable on disputed switching charges ....... 2,701 --
Other interest payable ............................... 1,203 746
-------- --------
Total current liabilities ......................... 134,977 105,950
Long-term debt ........................................... 162,812 123,721
Other liabilities ........................................ 3,956 3,693
Deferred income taxes .................................... 66,815 60,772
Deferred income .......................................... 11,221 12,401
-------- --------
Total liabilities ................................. 379,781 306,537
Stockholders' equity:
Preferred stock, par value $1.00; authorized 1,000,000
shares; none issued or outstanding ................ -- --
Common stock, par value $0.01; authorized 150,000,000
shares; issued and outstanding, 50,738,829 shares
at September 30, 1996 and 50,459,418 shares at
December 31, 1995 ................................. 507 505
Paid in capital ...................................... 108,193 104,801
Cumulative currency translation adjustment ........... 7,573 4,600
Retained earnings .................................... 160,454 127,789
-------- --------
Total stockholders' equity ........................ 276,727 237,695
-------- --------
Total liabilities and stockholders' equity ........ $656,508 $544,232
======== ========
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
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<PAGE>
<TABLE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
For the Quarter Ended For the Nine Months
September 30, Ended September 30,
------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues:
Operating revenues before disputed
switching charges ............................................. $ 71,825 $ 69,890 $ 206,335 $ 197,041
Disputed switching charges ...................................... -- -- (13,278) --
--------- --------- --------- ---------
Operating revenues ........................................... 71,825 69,890 193,057 197,041
Operating expenses:
Roadway and structures .......................................... 8,454 8,261 27,650 24,413
Equipment ....................................................... 16,228 14,243 50,293 42,777
Transportation .................................................. 21,242 18,662 67,226 55,673
General and administrative ...................................... 8,979 7,849 24,981 23,161
Retroactive property tax assessment ............................. -- 3,030 -- 3,030
--------- --------- --------- ---------
Operating expenses ........................................... 54,903 52,045 170,150 149,054
--------- --------- --------- ---------
Income from operations ............................................. 16,922 17,845 22,907 47,987
Other income (expense):
Interest on disputed switching charges .......................... (208) -- (2,701) --
Interest on retroactive property tax assessment ................. -- (682) -- (682)
Other interest expense .......................................... (2,365) (2,182) (6,745) (7,244)
Other, net ...................................................... 1,530 536 3,448 1,515
--------- --------- --------- ---------
Total other income (expense), net ............................ (1,043) (2,328) (5,998) (6,411)
--------- --------- --------- ---------
Income before income taxes, equity in net income
of affiliates and extraordinary item ............................ 15,879 15,517 16,909 41,576
Provision for income taxes ......................................... 6,288 6,081 6,696 16,401
--------- --------- --------- ---------
Income before equity in net income of affiliates
and extraordinary item .......................................... 9,591 9,436 10,213 25,175
Equity in net income of affiliates ................................. 7,480 1,600 22,452 7,891
--------- --------- --------- ---------
Income before extraordinary item ................................... 17,071 11,036 32,665 33,066
Extraordinary item - early extinguishment
of debt, net of income taxes .................................... -- (2,123) -- (2,123)
--------- --------- --------- ---------
Net income ......................................................... $ 17,071 $ 8,913 $ 32,665 $ 30,943
========= ========= ========= =========
Earnings per common share outstanding:
Income before extraordinary item ................................ $ .34 $ .22 $ .65 $ .66
Extraordinary item .............................................. -- (.04) -- (.04)
--------- --------- --------- ---------
Net income .................................................... $ .34 $ .18 $ .65 $ .62
========= ========= ========= =========
Average common shares outstanding .................................. 50,719 50,355 50,608 50,172
========= ========= ========= =========
<FN>
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
</FN>
</TABLE>
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<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
For the Nine Months Ended
September 30,
-------------
1996 1995
---- ----
Cash flows from operating activities:
Net income ............................................ $ 32,665 $ 30,943
Reconciliation of net income to net cash provided
by operating activities:
Extraordinary item - early extinguishment of
debt, net of income taxes ....................... -- 2,123
Depreciation and amortization ..................... 9,880 8,896
Deferred income taxes ............................. 6,043 13,022
Equity in net income of affiliates ................ (22,452) (7,891)
Gains on property sales ........................... (849) (272)
Net amortization of deferred gain on sale-leaseback
of equipment .................................... (1,180) (807)
Changes in working capital:
Accounts receivable .......................... (19,809) (10,145)
Receivables from insurance companies ......... (8,264) --
Note receivable .............................. 13,213 --
Materials and supplies ....................... (2,481) (2,987)
Other current assets, excluding deferred
income taxes ............................... 710 (228)
Accrued derailment claims .................... 3,927 --
Accrued disputed switching charges ........... 13,278 --
Interest payable on disputed switching charges 2,701 --
Other current liabilities .................... 9,121 5,870
Other, net ........................................ 263 314
-------- --------
Net cash provided by operating activities ............. 36,766 38,838
-------- --------
Cash flows from investing activities:
Property acquisition .................................. -- (19,341)
Property additions .................................... (47,251) (52,216)
Property sales and other transactions ................. 2,546 5,816
Return of capital from affiliate ...................... -- 21,045
Investments in affiliates ............................. (30,676) (2,856)
Deferred costs ........................................ (1) (539)
-------- --------
Net cash used for investing activities ................ (75,382) (48,091)
-------- --------
Cash flows from financing activities:
Long-term debt issued ................................. 39,091 80,882
Repayments of long-term debt .......................... -- (73,000)
Deferred financing costs .............................. -- (66)
Debt prepayment penalty ............................... -- (3,515)
Issuance of common stock under stock option plans ..... 3,394 2,990
-------- --------
Net cash provided by financing activities ............. 42,485 7,291
-------- --------
Net increase (decrease) in cash and cash equivalents .. 3,869 (1,962)
Cash and cash equivalents, beginning of period ........ 1,472 5,247
-------- --------
Cash and cash equivalents, end of period .............. $ 5,341 $ 3,285
======== ========
Supplemental cash flow information:
Cash paid (received) during the period for:
Interest .......................................... $ 6,848 $ 7,707
Income taxes ...................................... (247) 6,180
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
-4-
<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1996
Basis of Presentation
The consolidated financial statements presented herein include the results
of operations of Wisconsin Central Transportation Corporation ("WCTC") and its
wholly owned subsidiaries: Wisconsin Central Ltd. ("WCL"); Fox Valley & Western
Ltd. ("FV&W"); WCL Railcars, Inc.; Sault Ste. Marie Bridge Company; Wisconsin
Central International, Inc. ("WCI"); WC Canada Holdings, Inc.; and Algoma
Central Railway Inc. ("ACRI"). Wisconsin Central Transportation Corporation and
its subsidiaries are hereinafter referred to as the Company. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. Accordingly, these unaudited consolidated financial statements should
be read in conjunction with the Company's audited financial statements and the
notes thereto for the year ended December 31, 1995. Certain amounts in the 1995
financial statements have been reclassified to conform to the 1996 presentation.
In the opinion of management, the information provided in these statements
reflects all adjustments necessary to present fairly such information. The
results of operations for any interim period are not necessarily indicative of
the results of operations for the entire year.
Stock Split
On May 16, 1996, the Company's Board of Directors announced a three-for-one
split of the Company's common stock in the form of a stock dividend to
stockholders of record as of May 17, 1996 which was effective May 31, 1996. The
stated par value of each share was not changed from $.01. All share and per
share amounts have been restated to reflect the common stock split.
Authorized Shares
On May 16, 1996, the Company's shareholders approved an amendment of the
Company's Certificate of Incorporation to increase to 150,000,000 the number of
authorized shares of common stock.
Debt Prepayment
In September 1995, the Company prepaid $40.0 million of 11.625% fixed-rate
senior term notes using a combination of increased borrowings under its
revolving credit agreement and cash on hand. In connection therewith, the
Company paid a prepayment penalty of $3,515,000. This resulted in an
extraordinary charge of $2,123,000, net of income taxes, in the third quarter of
1995.
Weyauwega Derailment
On March 4, 1996, the Company had a derailment in Weyauwega, Wisconsin
involving thirty-five cars, fourteen of which contained propane or liquified
petroleum gas and two of which contained sodium hydroxide solution. Although no
one was injured in the derailment, all residents within two
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<PAGE>
miles of the site were evacuated for approximately sixteen days. In addition,
many structures received water damage as a result of burst pipes. The total cost
for the derailment is estimated at $26.2 million. The Company believes that its
insurance policies will cover substantially all expenses, in excess of the
deductibles, due to the derailment. Through September 30, 1996, the Company had
funded $22.3 million in costs incurred as a result of this derailment and
received $15.4 million in reimbursements from insurance companies. The Company
carried an insurance receivable of $8.3 million as of September 30, 1996. During
the first quarter of 1996, the Company recorded a pretax provision of $2.5
million, which represents the combined deductibles under its property damage and
liability insurance policies. The Company has been successful in resolving the
vast majority of claims directly with the claimants. Through October 31, 1996,
approximately 98% of affected residents and 97% of affected businesses had
resolved their claims against the Company. A complaint was filed against the
Company on March 26, 1996 by nine individuals seeking to represent the class of
persons who suffered damages as a result of this derailment. The complaint seeks
punitive and treble damages. Any punitive damages and treble damages may not be
covered by the Company's insurance. The Company does not believe there is any
basis for an award of such damages. On July 9, 1996, the court declined to
certify a class action lawsuit against the Company. The court did, however,
indicate it would appoint a guardian ad litem to review all settlements made on
behalf of affected minors and would notify all claimants who had not settled
their claims of the existence of the action so that these claimants would have
the option of joining the lawsuit should they desire. Since that date, the court
has decided not to appoint a guardian ad litem. All potential claimants have
been notified. Joinder of parties is in process. In addition, one business has
filed a separate suit for damages in the District Court of Waupaca County.
Investments in Great Britain Rail Companies
In the fourth quarter of 1995, a consortium of investors, including WCI and
Berkshire Fund III Investment Corporation, an affiliate of an American private
equity firm ("Berkshire") of which one of the Company's directors is an
executive officer, director and beneficial owner of shares, established a
holding company, North and South Railways Limited, now named English, Welsh &
Scottish Railway Holdings Limited ("EW&S"), to acquire various rail assets of
British Rail from the British government as a part of its privatization of
British Rail. On December 9, 1995, EW&S acquired the stock of Rail express
systems Limited ("Res"). The principal activity of Res is the carriage of
letters for the Royal Mail, a division of the British Post Office. On February
24, 1996, EW&S acquired stock ownership of British Rail's three trainload
freight companies ("TLFs"), Loadhaul Limited, Mainline Freight Limited and
Transrail Freight Limited. These companies are the largest part of British
Rail's operations to be sold and employ over 7,000 staff utilizing 910
locomotives and 19,300 freight cars to haul primarily bulk commodities such as
coal, ore, steel and aggregates throughout Great Britain. The TLFs had combined
revenues of approximately $865 million in their fiscal year ended March 31,
1995.
WCI has invested approximately $44.5 million in EW&S for a 31% ownership
interest as of September 30, 1996. Of this amount, WCI had invested
approximately $13.2 million through December 31, 1995 in connection with EW&S's
acquisition of Res. The Company had also incurred $683,000 of investment related
costs through December 31, 1995, which were reimbursed by EW&S during the first
quarter of 1996. The Company has been granted performance-based options to
acquire additional shares in EW&S to compensate it for its leadership of the
consortium, and has entered into a management consulting agreement with EW&S.
In connection with the EW&S investment, the Company loaned $13.2 million to
Berkshire in December 1995 to temporarily finance its portion of the purchase
price. This loan earned interest
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<PAGE>
at approximately 9.0% and was repaid on February 22, 1996, prior to the
consummation of the purchase of the three TLFs.
Tranz Rail Initial Public Offering
WCTC, through its WCI subsidiary, holds an equity interest in Tranz Rail
Holdings Limited ("Tranz Rail"), which operates 2,400 route miles of railroad in
New Zealand. Tranz Rail completed an initial public offering of its common stock
on June 18, 1996 and is quoted on the NASDAQ stock market in the United States
and listed on the New Zealand stock exchange in New Zealand. As a result of this
offering, the Company's ownership position declined to 22.7% from 30.2%. As of
September 30, 1996, the Company owned the equivalent of 9,561,639 American
Depository Shares ("ADS") of Tranz Rail with a quoted closing price on NASDAQ of
$14.50 per ADS.
BOCT Complaint
On June 4, 1993, WCL was served with a complaint filed by the Baltimore and
Ohio Chicago Terminal Railroad Company ("BOCT") in the United States District
Court for the Northern District of Illinois, Eastern Division. In its complaint,
the BOCT claimed that WCL owed BOCT for intermediate switching and car hire
reclaim charges allegedly incurred from July 1988 through February 1993.
Arbitration hearings were held in Chicago from October 24, 1995 to November 9,
1995. On June 10, 1996, the arbitration panel ruled in favor of BOCT. The
arbitration panel's ruling awarded BOCT $16,778,000 of disputed switching and
car hire reclaim charges, and $2,493,000 of interest relating to such charges.
Based upon the arbitration panel's ruling, the Company recorded pretax
provisions of $15,979,000, representing amounts awarded in excess of previously
recorded accruals.
The litigation between BOCT and the Company continues, with the Company
attempting to raise additional defenses that were not subject to arbitration and
BOCT attempting to confirm the arbitration award.
Property Tax Dispute
In October 1995, the Circuit Court of Dane County ruled in favor of a
Wisconsin Department of Revenue ("WDR") retroactive assessment of personal
property taxes for the tax years 1990 through 1993 against all Wisconsin
railroads, including WCL and FV&W. The Company and the other railroads involved
are appealing the statutory law rulings. As a result of the ruling, the Company
recognized the $3,030,000 retroactive assessment, as well as accrued interest of
$682,000, in its 1995 third quarter statement of income. The railroads,
including WCL and FV&W, have also filed suits at the Federal and state levels
which allege discrimination in the assessment of taxes and also challenge other
WDR tax valuation practices with respect to its 1994 and 1995 tax bills.
Waukesha Environmental
On April 2, 1996, WCL received a grand jury subpoena from the U.S.
Department of Justice ("DOJ") requesting documents relating to the demolition of
a foundry and roundhouse on the Company's property in Waukesha, Wisconsin,
performed by contractors for WCL in 1993. WCL has complied with the subpoena.
Previously, in March 1994, WCL had received a notice of violation of the Clean
Air Act (the "Act") and the National Emission Standard for Asbestos (the
"Asbestos NESHAP") promulgated thereunder from the U.S. Environmental Protection
Agency ("USEPA") in connection with the demolition. The USEPA held a conference
with WCL on April 11, 1994 to discuss the notice prior to a determination of any
enforcement action to be taken under section 113
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<PAGE>
of the Act. Although not currently a target of the DOJ investigation, if it were
to be determined that WCL violated the Asbestos NESHAP, WCL could be subject to
criminal prosecution with fines of up to $500,000 per violation or civil
enforcement with fines of up to $25,000 per day for each violation.
Subsequent Event
In November 1996, the Company prepaid $20.0 million of 10.2% fixed-rate
senior term notes using a combination of increased borrowings under its
revolving credit agreement and cash on hand. In connection therewith, the
Company paid a prepayment penalty of $2.7 million. This will result in an
extraordinary charge of $1.6 million, net of income taxes, in the fourth quarter
of 1996.
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes included herein.
Results of Operations: Third Quarter 1996 Compared to Third Quarter 1995
The Company's net income for the quarter ended September 30, 1996 was $17.1
million compared with $8.9 million for the same period in 1995. The Company's
net income for the quarter ended September 30, 1995 was unfavorably affected by
an extraordinary charge associated with early debt prepayment which totaled $2.1
million, net of income taxes, and a charge for a retroactive property tax
assessment, plus accrued interest, which totaled $2.2 million, net of income
taxes. These items are both discussed in the Notes to Consolidated Financial
Statements. The Company's income before these items was $13.3 million for the
quarter ended September 30, 1995.
Operating revenues. Operating revenues for the third quarter of 1996 were
$71.8 million, which was $1.9 million or 2.8% higher than the year-ago period.
Gross revenues for the quarter ended September 30, 1996 increased in 10 of 15
commodity groups, compared with the same period in 1995. Overall, gross revenues
increased 7.0%. Traffic volume, as measured by carloads handled (including as a
carload each loaded trailer or container), for the quarter ended September 30,
1996 approximated 118,900 carloads compared with approximately 111,000 carloads
in 1995, an increase of 7,900 carloads or approximately 7.1%.
Intermodal volume increased by approximately 6,500 carloads or 65.1%
compared to the same period in 1995. The Company together with Canadian National
Railway ("CN") began a new joint rate intermodal service on April 1, 1996. This
service provides U.S. and Canadian customers with potential transit time savings
in the Chicago/Western Canada corridor by utilizing the Company's lines, which
offer the shortest mileage between Chicago and Superior, Wisconsin.
Other increases in revenue totals occurred in paper, woodpulp, lumber, wood
fibers, chemicals and petroleum products, sand, stone and minerals, coal and
steel. Paper gross revenues increased by 3.1% from the year ago period primarily
due to a softness in the paper market which has increased market share for
shipments by rail versus truck. Gross revenues for woodpulp increased by 4.0%
primarily due to increased market share. Lumber volume and gross revenues
increased by 40.4% and 55.7%, respectively, compared with the same period in
1995 primarily due to higher revenues per carload as a result of longer hauls.
Volume and gross revenues from shipments of chemical and petroleum products
increased by 6.3% and 9.5%, respectively, primarily due to a
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<PAGE>
recovery in shipments of paper coating chemicals. Volume and gross revenues for
sand, stone and minerals increased by 37.2% and 33.1%, respectively, primarily
due to increased market shares in cement and aggregates as well as an increase
in sand shipments for the oil and gas industry. Volume and gross revenues for
coal increased by 26.1% and 23.7%, respectively, primarily due to increased
market share of inbound coal for Wisconsin utilities. Volume and gross revenues
for steel increased by 21.2% and 24.1%, respectively, primarily due to increased
demand from a major customer of ACRI.
Volume and gross revenues for clay products decreased by 3.0% and 4.5%,
respectively, primarily due to a slowdown in shipments of roofing granules and
the softness in coating clays for the paper industry. Metallic ore revenues
declined by 26.2% compared to the same period in 1995 primarily due to weather
related production disruptions at various mining facilities which have adversely
affected their shipping schedules.
Operating expenses. Operating expenses for the third quarter of 1996 were
$54.9 million compared with $52.0 million for the same period in 1995, an
increase of 5.5%. The 1995 amount was impacted by the $3.0 million property tax
assessment discussed in the Notes to Consolidated Financial Statements.
Increases in labor, fuel, equipment rents and joint facilities were the primary
causes of the increased operating expenses. The Company's operating ratio
(operating expenses as a percentage of operating revenues) was 76.4% in the
third quarter of 1996, compared to 70.1% in the third quarter of 1995, excluding
the retroactive property tax assessment in 1995.
Labor expense increased by $1.4 million or 6.7% in the third quarter of
1996 as compared to the same period in 1995 primarily due to a 4.4% increase in
the work force to handle the increased traffic and an average 4.5% increase in
wages and salaries granted to employees at the beginning of the year. Fuel
expense increased by $0.5 million or 10.6% in the third quarter of 1996 as
compared with the same period of 1995 primarily due to a 9.1% increase in fuel
prices during the quarter. Net equipment rent expense increased by $1.2 million
or 19.8% due to additional equipment under operating leases as well as increased
car hire costs for freight cars from other railroads. Joint facilities expense
increased by $0.6 million in the third quarter of 1996 as compared to the same
period in 1995 primarily due to continued train congestion through the Chicago
corridor as well as costs associated with the CN intermodal service which
started on April 1, 1996.
Other income, interest expense and income taxes. Other income, net,
amounted to $1.5 million for the third quarter of 1996 compared to $0.5 million
in the third quarter of 1995. The increase is largely due to $0.6 million of
management fees received from EW&S.
Interest expense for the third quarter of 1996 was $2.6 million compared to
$2.9 million in the third quarter of 1995. Included in interest expense for the
third quarter of 1995 is $0.7 million related to the property tax assessment
discussed in the Notes to Consolidated Financial Statements. Before this item,
interest expense increased $0.4 million, primarily due to increased borrowings
in 1996 to finance the EW&S investment partially offset by a lower effective
interest rate due to the restructuring of debt late in 1995. The income tax
provision for the third quarter of 1996 was $6.3 million, an increase of $0.2
million over the third quarter of 1995, due to higher pre-tax income.
Equity in net income of affiliates. The Company's 1996 third quarter
results included equity in net income of its affiliates of $7.5 million as
compared to $1.6 million for the same period of 1995. The Company's equity in
net income of affiliates included contributions from EW&S of $6.0 million and
from Tranz Rail of $1.5 million, versus $1.6 million from Tranz Rail in the
year-ago period.
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Results of Operations: First Nine Months of 1996 Compared
to First Nine Months of 1995
The Company's net income for the nine months ended September 30, 1996 was
$32.7 million compared with $30.9 million for the same period in 1995. Net
income for the first nine months of 1996 was reduced by $9.6 million due to the
BOCT arbitration award, and by $1.5 million due to the Weyauwega derailment. The
Company's net income for the nine months ended September 30, 1995 was
unfavorably affected by an extraordinary charge associated with early debt
prepayment which totaled $2.1 million, net of income taxes, and a charge for a
retroactive property tax assessment, plus accrued interest, which totaled $2.2
million, net of income taxes. These items are all discussed in the Notes to
Consolidated Financial Statements. The Company's income before these items was
$43.8 million for the nine months ended September 30, 1996 compared to $35.3
million for the same period in 1995.
Operating revenues. Operating revenues during the nine months ended
September 30, 1996 were $193.1 million compared with $197.0 million for the same
period in 1995, a decrease of 2.0%. Operating revenues for the first nine months
of 1996 were negatively affected by the switching charges awarded in the BOCT
arbitration. Excluding these switching charges, operating revenues for the first
nine months increased by $9.3 million or 4.7% to $206.3 million. Gross revenues
for the nine months ended September 30, 1996 increased in 9 of 15 commodity
groups compared with the same period in 1995. Overall, gross revenues increased
4.4%. Traffic volume, as measured by carloads handled (including as a carload
each loaded trailer or container), for the nine months ended September 30, 1996
approximated 346,700 carloads compared with approximately 332,200 carloads in
1995, an increase of 14,500 carloads or approximately 4.4%.
Intermodal volume increased by more than 13,400 carloads or 45.2% compared
to the same period in 1995 primarily due to the new joint rate intermodal
service which the Company together with CN started on April 1, 1996.
Other large increases in revenue totals occurred in paper, lumber, sand,
stone and minerals, coal and steel. Paper volume and gross revenues increased by
8.6% and 10.2%, respectively, from the year ago period, primarily due to a
softness in the paper market which has increased market share for shipments by
rail versus truck. Volume and gross revenues for lumber increased by 13.9% and
40.0%, respectively, primarily due to increased market share and higher revenues
per carload due to longer hauls. Volume and gross revenues for sand, stone and
minerals increased by 20.0% and 26.4%, respectively, primarily due to increased
market shares in cement and aggregates as well as an increase in sand shipments
for the oil and gas industry. Volume and gross revenues for coal increased by
27.2% and 20.9%, respectively, primarily due to increased market share of
inbound coal for Wisconsin utilities. Volume and gross revenues for steel
increased by 14.6% and 18.0%, respectively, primarily due to increased demand
from a major customer of ACRI.
Volume and gross revenues for clay products decreased by 8.8% and 10.4%,
respectively, primarily due to a slowdown in shipments of roofing granules and
the softness in coating clays for the paper industry. Metallic ore revenues
declined by 14.2% compared to the same period in 1995 primarily due to weather
related production disruptions at various mining facilities which have adversely
affected their shipping schedules.
Operating expenses. Operating expenses for the first nine months of 1996
were $170.2 million compared with $149.1 million for the same period in 1995, an
increase of 14.2%. The increase was primarily the result of severe winter
weather, a weaker than expected economy and the Weyauwega derailment. The
Weyauwega derailment led to a $2.5 million increase in operating expenses in
1996 to account for the combined deductible under the Company's two insurance
policies. The 1995
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<PAGE>
amount was impacted by the $3.0 million property tax assessment discussed in the
Notes to Consolidated Financial Statements. Excluding these items, operating
expenses for the first nine months of 1996 were $167.7 million, compared with
$146.0 million for the same period in 1995, an increase of 14.8%. Other
increases in operating expenses occurred in labor, fuel, equipment rents,
materials, joint facilities and casualties and insurance. The Company's
operating ratio (operating expenses as a percentage of operating revenues) was
88.1% in the first nine months of 1996, including the accrual for the switching
charges awarded in the BOCT arbitration and the effects of the Weyauwega
derailment. Excluding these items in 1996 and the retroactive property tax
assessment in 1995, the Company's operating ratio was 81.3% compared to 74.1% in
the first nine months of 1995.
Labor expense increased by $7.1 million or 11.6% in the first nine months
of 1996 as compared to the same period in 1995 primarily due to a 7.1% increase
in the work force to handle the increased traffic and an average 4.5% increase
in wages and salaries granted to employees at the beginning of the year. Fuel
expense increased by $1.4 million or 10.4% in the first nine months of 1996 as
compared with the same period of 1995 primarily due to a 10.1% increase in fuel
prices over 1995. Net equipment rent expense increased by $3.0 million or 16.4%
primarily due to additional equipment under operating leases as a result of
sale-leaseback transactions in 1995 and increased traffic congestion in the
Chicago corridor. Materials expense increased by $2.2 million or 14.0% in the
first nine months of 1996 as compared with the same period of 1995 primarily as
a result of increased costs associated with maintenance of the Company's car and
locomotive fleet, largely due to unusually severe weather during the winter and
spring months. Joint facilities expense increased $1.8 million in the first nine
months of 1996 as compared with the same period of 1995 primarily due to the
continued congestion through the Chicago corridor as well as costs associated
with the CN intermodal move which started on April 1, 1996. Casualties and
insurance costs increased by $0.8 million largely due to derailments, other than
Weyauwega, experienced during the first nine months of 1996.
Other income, interest expense and income taxes. Other income, net, of $3.4
million for the first nine months of 1996 was $1.9 million higher than for the
same period of 1995. The increase is largely due to $1.2 million of management
fees received from EW&S.
Included in interest expense for the first nine months of 1996 is $2.7
million of interest related to the BOCT arbitration award, while 1995 interest
expense includes interest of $0.7 million associated with the retroactive
property tax assessment. Other interest expense decreased $0.5 million in the
first nine months of 1996 to $6.7 million, primarily due to the restructuring of
debt which occurred in late 1995, resulting in a lower effective interest rate.
The income tax provision for the first nine months of 1996 was $6.7 million, a
decrease of $9.7 million over the first nine months of 1995, primarily due to
the reduction of pretax income as a result of the switching charges and interest
awarded in the BOCT arbitration.
Equity in net income of affiliates. The Company's results for the first
nine months of 1996 included equity in net income of its affiliates of $22.5
million as compared to $7.9 million for the same period of 1995. The Company's
equity in net income of affiliates included an initial nine month contribution
from EW&S of $14.9 million and a contribution from Tranz Rail of $7.5 million,
versus $7.9 million from Tranz Rail in the same period a year ago.
Financial Condition: September 30, 1996 Compared to December 31, 1995
The Company generated cash in the amount of $39.3 million during the first
nine months of 1996 from operations and the sale of assets and $42.5 million
from financing activities. These resources,
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<PAGE>
as well as cash on hand, were used to finance the Company's investment in EW&S
of $30.7 million and other capital-related expenditures of $47.3 million.
The Company had $163.5 million of total debt outstanding at September 30,
1996, which constituted 37.1% of its total capitalization, compared to 36.6% at
December 31, 1995. At September 30, 1996, the Company's aggregate unused
borrowing availability under its loan facilities totaled $74.8 million.
PART II - OTHER INFORMATION
Item 5. Other Information
On October 24, 1996, the Company announced that it had signed a letter of
intent to purchase the Union Pacific Railroad Company's rail lines, contiguous
property and associated facilities from North Green Bay, Wisconsin to Ishpeming,
Michigan; from Powers to Antoine, Michigan; from Quinnesac, Michigan to Niagara,
Wisconsin; and from Cascade to Palmer, Michigan. These lines, commonly known as
the Green Bay North Lines, comprise approximately 220 route miles of trackage.
The Company expects the purchase to be consummated by one of its subsidiaries
early in the first quarter of 1997. The Green Bay North Lines carry substantial
shipments of materials for the paper industry, and high volumes of iron ore used
in steel-making from the Marquette ore range to Escanaba, Michigan for
trans-shipment to vessels. A definitive agreement is expected to be reached in
November 1996. Consummation of the transaction is subject to receiving required
governmental approvals and to final approval of the definitive agreement by the
Boards of Directors of both companies.
Separately, on October 17, 1996, Wisconsin Central Ltd. filed an
application with the Surface Transportation Board seeking approval to consummate
its purchase of two line segments totaling 18 route miles of trackage at Wausau
and Hayward, Wisconsin from Union Pacific. That transaction is also expected to
close early in the first quarter of 1997.
Item 6. Exhibits and Reports on Form 8-K
The exhibits set forth on the accompanying Index to Exhibits are filed as
part of this report.
The Company filed no reports on Form 8-K during the quarter for which this
report is filed.
-12-
<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
Date: November 13, 1996 By: /s/ Walter C. Kelly
--------------------------
Walter C. Kelly
Vice President, Finance
Date: November 13, 1996 By: /s/ Walter C. Kelly
--------------------------
Walter C. Kelly
Chief Accounting Officer
-13-
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Description Page
----------- ----------- ----
11 Statement re Computation 17
of Per Share Earnings
27 Financial Data Schedule 18
-14-
EXHIBIT NO. 11
Statement re Computation of Per Share Earnings
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
(in thousands, except per share amounts)
(Unaudited)
For the For the
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Income before extraordinary item ..... $ 17,071 $ 11,036 $ 32,665 $ 33,066
Extraordinary item - early
extinguishment of debt, net
of income taxes ................. -- (2,123) -- (2,123)
-------- -------- -------- --------
Net income ........................... $ 17,071 $ 8,913 $ 32,665 $ 30,943
======== ======== ======== ========
Weighted average common shares
outstanding:
Primary ......................... 50,719 50,355 50,608 50,172
======== ======== ======== ========
Fully diluted ................... 51,952 51,702 51,860 51,624
======== ======== ======== ========
Earnings per common share outstanding:
Primary:
Income before extraordinary
item ........................ $ .34 $ .22 $ .65 $ .66
Extraordinary item ............ -- (.04) -- (.04)
-------- -------- -------- --------
Net income ............. $ .34 $ .18 $ .65 $ .62
======== ======== ======== ========
Fully diluted:
Income before extraordinary
item ........................ $ .33 $ .21 $ .63 $ .64
Extraordinary item ............ -- (.04) -- (.04)
-------- -------- -------- --------
Net income ............. $ .33 $ .17 $ .63 $ .60
======== ======== ======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 30, 1996 (unaudited) and
the Condensed Consolidated Statement of Income for the Nine Months Ended
September 30, 1996 (unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,341
<SECURITIES> 0
<RECEIVABLES> 76,232
<ALLOWANCES> 2,153
<INVENTORY> 19,726
<CURRENT-ASSETS> 110,148
<PP&E> 508,226
<DEPRECIATION> 60,699
<TOTAL-ASSETS> 656,508
<CURRENT-LIABILITIES> 134,977
<BONDS> 162,812
0
0
<COMMON> 507
<OTHER-SE> 276,220
<TOTAL-LIABILITY-AND-EQUITY> 656,508
<SALES> 0
<TOTAL-REVENUES> 193,057
<CGS> 0
<TOTAL-COSTS> 170,150
<OTHER-EXPENSES> 3,448
<LOSS-PROVISION> 450
<INTEREST-EXPENSE> 9,446
<INCOME-PRETAX> 16,909
<INCOME-TAX> 6,696
<INCOME-CONTINUING> 10,213
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<CHANGES> 0
<NET-INCOME> 32,665
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.63
</TABLE>
