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 June 30, 1997
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Commission File Number 0-19150
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION
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(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
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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 July 31, 1997: 50,974,679 shares
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION
FORM 10-Q
Quarter Ended June 30, 1997
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 4. Submission of Matters to a Vote of Security Holders......... 12
Item 6. Exhibits and Reports on Form 8-K............................ 12
Signatures................................................................. 13
Index to Exhibits.......................................................... 14
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
Assets
June 30, December 31,
1997 1996
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(Unaudited) (Audited)
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Current assets:
Cash and cash equivalents ............................................................ $ 4,512 $ 5,637
Receivables, net of allowance for doubtful accounts of $1,195
and $2,256 at June 30, 1997 and December 31, 1996 ................................. 79,937 74,118
Receivables from insurance companies ................................................. 4,482 7,425
Income taxes receivable .............................................................. 1,156 2,804
Materials and supplies ............................................................... 28,735 17,530
Deferred income taxes ................................................................ 1,050 1,475
Other current assets ................................................................. 2,497 2,641
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Total current assets .............................................................. 122,369 111,630
Investment in affiliates ................................................................. 136,542 114,652
Properties:
Roadway and structures ............................................................... 553,807 438,101
Equipment ............................................................................ 102,186 90,683
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Total properties .................................................................. 655,993 528,784
Less accumulated depreciation ........................................................ (72,264) (63,791)
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Net properties .................................................................... 583,729 464,993
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Total assets ...................................................................... $ 842,640 $ 691,275
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
Liabilities and Stockholders' Equity
June 30, December 31,
1997 1996
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(Unaudited) (Audited)
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Current liabilities:
Short-term debt ...................................................................... $ 1,039 $ 731
Accounts payable ..................................................................... 49,916 44,428
Accrued expenses ..................................................................... 84,091 74,442
Accrued disputed switching charges and associated interest ........................... 19,271 19,271
Interest payable ..................................................................... 2,535 731
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Total current liabilities ......................................................... 156,852 139,603
Long-term debt ........................................................................... 252,363 164,303
Other liabilities ........................................................................ 4,411 4,028
Deferred income taxes .................................................................... 83,006 73,244
Deferred income .......................................................................... 10,391 10,951
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Total liabilities ................................................................. 507,023 392,129
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, 50,892,229 shares at June 30, 1997
and 50,778,867 shares at December 31, 1996 ........................................ 509 508
Paid in capital ...................................................................... 109,907 108,405
Cumulative translation adjustment .................................................... 10,665 14,012
Retained earnings .................................................................... 214,536 176,221
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Total stockholders' equity ........................................................ 335,617 299,146
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Total liabilities and stockholders' equity ........................................ $842,640 $691,275
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
For the Quarter Ended For the Six Months
June 30, Ended June 30,
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1997 1996 1997 1996
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Operating revenues:
Operating revenues before disputed
switching charges .................................. $ 84,993 $ 70,064 $ 165,254 $ 135,429
Disputed switching charges ............................. --- (13,278) --- (13,278)
--------- -------- ---------- ----------
Operating revenues ................................. 84,993 56,786 165,254 122,151
Operating expenses:
Roadway and structures ................................. 10,562 9,263 22,831 19,196
Equipment .............................................. 17,206 15,613 36,347 34,065
Transportation ......................................... 26,506 21,378 51,521 45,984
General and administrative ............................. 9,572 8,380 18,323 16,002
--------- -------- ---------- ----------
Operating expenses ................................. 63,846 54,634 129,022 115,247
--------- -------- ---------- ----------
Income from operations ...................................... 21,147 2,152 36,232 6,904
Other income (expense):
Interest on disputed switching charges ................. --- (2,493) --- (2,493)
Other interest expense ................................. (3,673) (2,337) (6,852) (4,380)
Other, net ............................................. 317 407 595 999
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Total other income (expense), net .................. (3,356) (4,423) (6,257) (5,874)
--------- -------- ---------- ----------
Income (loss) before income taxes and
equity in net income of affiliates ..................... 17,791 (2,271) 29,975 1,030
Provision (credit) for income taxes ......................... 7,047 (899) 11,870 408
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Income (loss) before equity in
net income of affiliates ............................... 10,744 (1,372) 18,105 622
Equity in net income of affiliates .......................... 9,937 8,900 20,210 14,972
--------- -------- ---------- ----------
Net income .................................................. $ 20,681 $ 7,528 $ 38,315 $ 15,594
========= ======== ========== ==========
Earnings per common share outstanding ....................... $ 0.41 $ 0.15 $ 0.75 $ 0.31
========= ======== ========== ==========
Average common shares outstanding ........................... 50,858 50,582 50,830 50,551
========= ======== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
For the Six Months Ended
June 30,
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1997 1996
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Cash flows from operating activities:
Net income ............................................................................ $ 38,315 $ 15,594
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization ..................................................... 8,509 6,386
Deferred income taxes ............................................................. 11,835 318
Equity in net income of affiliates ................................................ (20,210) (14,972)
Gains on property sales ........................................................... (301) (533)
Net amortization of deferred gain on sale-leaseback of equipment .................. (560) (895)
Changes in working capital:
Accounts receivable .......................................................... (5,819) (21,259)
Receivables from insurance companies ......................................... 2,943 (10,672)
Note receivable .............................................................. -- 13,213
Materials and supplies ....................................................... (11,205) (2,900)
Other current assets, excluding deferred income taxes ........................ (113) 230
Accrued derailment claims .................................................... (1,143) 6,910
Accrued disputed switching charges ........................................... -- 16,778
Interest payable on disputed switching charges ............................... -- 2,493
Current liabilities .......................................................... 18,084 5,062
Other, net ........................................................................ 383 (69)
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Net cash provided by operating activities ............................................. 40,718 15,684
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Cash flows from investing activities:
Property acquisition .................................................................. (91,707) --
Property additions .................................................................... (36,647) (25,602)
Property sales and other transactions ................................................. 2,457 1,328
Investment in affiliates .............................................................. (8,401) (30,676)
Dividend from affiliate ............................................................... 3,374 --
Deferred costs ........................................................................ (790) (1)
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Net cash used for investing activities ................................................ (131,714) (54,951)
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Cash flows from financing activities:
Long-term debt issued ................................................................. 88,368 40,919
Issuance of common stock under stock option plans ..................................... 1,503 1,939
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Net cash provided by financing activities ............................................. 89,871 42,858
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Net (decrease) increase in cash and cash equivalents .................................. (1,125) 3,591
Cash and cash equivalents, beginning of period ........................................ 5,637 5,303
--------- ---------
Cash and cash equivalents, end of period .............................................. $ 4,512 $ 8,894
========= =========
Supplemental cash flow information: Cash paid (received) during the period for:
Interest .......................................................................... $ 5,423 $ 4,491
Income taxes ...................................................................... 35 (810)
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1997
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 ("SSM"),
Wisconsin Central International, Inc. ("WCI"), WC Canada Holdings, Inc. and
Algoma Central Railway Inc. ("ACRI"). WCTC, through WCI, also holds a 23% equity
interest in Tranz Rail Holdings Limited ("Tranz Rail"), which operates a
nationwide railway in New Zealand, and a 34% equity interest in English Welsh
and Scottish Railway Holdings Limited ("EW&S"), whose subsidiaries operate
railways in Great Britain. WCTC 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, 1996. 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.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation. Included in these amounts were $783,000 and
$582,000, which were reclassified to operating revenues from non-operating
income for the quarters ended June 30, 1997 and 1996, respectively, and
$1,745,000 and $919,000 which were so reclassified for the six months ended June
30, 1997 and 1996, respectively.
Duck Creek North Acquisition
On January 27, 1997, SSM completed the purchase of 207 route miles of
railroad track and trackage rights in Wisconsin and the Upper Peninsula of
Michigan from the Union Pacific Railroad Company ("UP"). The rail lines,
commonly known as the "Duck Creek North" lines, extend from North Green Bay,
Wisconsin to Ishpeming, Michigan; from Powers to Antoine, Michigan; from
Quinnesec, Michigan to Niagara, Wisconsin; and from Cascade to Palmer, Michigan.
Freight shipments over the lines consist of materials for the paper industry and
high volumes of iron ore used in steel-making which are shipped from the
Marquette ore range to Escanaba, Michigan for transloading to vessels. The rail
lines, together with contiguous property and associated facilities, were
purchased for approximately $85.0 million of cash plus provisions for labor
protection and other reserves of $2.8 million and deferred acquisition costs of
$0.8 million. The purchase was funded through borrowings under existing
revolving credit facilities. This acquisition is referred to herein as the "Duck
Creek North Acquisition".
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On January 6, 1997, two shippers on the lines, Inland Steel Company and LTV
Steel Company, Inc., filed a petition with the Surface Transportation Board
("STB") seeking to stay the transaction and seeking imposition of protective
conditions. The STB denied the stay, finding a failure to demonstrate a
likelihood of success on the merits of protective conditions. On January 28,
1997, the United Transportation Union also filed a petition seeking imposition
of labor protective conditions. Both petitions remain pending at the STB. The
Company does not believe the outcome of either petition will have a material
impact on the Duck Creek North acquisition.
Safety Compliance Agreement with FRA
On February 7, 1997, WCL and FV&W entered into a voluntary cooperative
Safety Compliance Agreement with the Federal Railroad Administration ("FRA")
pursuant to the Safety Assurance and Compliance Program ("SACP"). The SACP is a
program, initiated by the FRA in March of 1995, to permit railroads and the FRA
to develop and monitor agreed upon programs to improve safety conditions on a
systematic basis throughout a railroad. The SACP will focus on improving track
conditions, inspection procedures and training for railroad employees. The
Company expects that the SACP will result in increased capital expenditures that
will result in improved safety and increased utility of its track. The Company
also expects certain operating expenses to increase while the track improvements
are made.
English Welsh & Scottish Railway Holdings Limited
WCI had invested approximately $45.0 million in EW&S for a 31% ownership
interest as of December 31, 1996. The Company has been granted performance-based
options to acquire additional shares in EW&S to compensate it for its leadership
of the acquisition consortium, and has entered into a management service
agreement with EW&S, under which the Company earned compensation of $0.4 million
in the second quarter of 1997. On February 21, 1997, the Company invested an
additional $8.4 million to exercise a portion of these options, increasing its
equity ownership position to approximately 34%. In addition, EW&S has issued
options to certain of its officers and directors, and warrants to the investment
banking firm that facilitated the acquisition of EW&S. Assuming that all options
and warrants are exercised, the Company's equity interest in EW&S will be
approximately 34%.
Wausau/Hayward Acquisition
On May 31, 1997, WCL began operations over 18 route miles of rail lines
serving Wausau and Hayward, Wisconsin. WCL acquired the track from the UP for
$3.9 million, subject to certain final adjustments. The transaction was approved
on April 17, 1997 by the U.S. Surface Transportation Board. The Wausau trackage
extends ten miles from Wausau to Kelly, Wisconsin, plus a two-mile branch line
from Kelly to Schofield. The Hayward line extends six miles from Hayward to
Hayward Junction, connecting with WCL's main line between Chicago and Superior,
Wisconsin. The two line segments serve ten principal customers with principal
commodities which include roofing granules, paper products, steel, lumber and
building materials from Wausau and oriented board and wood chips from Hayward.
BOCT Arbitration
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, as supplemented, awarded BOCT $16.8 million of
disputed switching and car hire reclaim charges, and $2.5 million of interest
relating to such charges. Based
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upon the arbitration panel's ruling, the Company recorded pretax provisions of
$15.8 million in 1996, representing amounts awarded in excess of previously
recorded accruals. Additional interest through June 30, 1997 of $836,000 has
been accrued on the unpaid award amount and is included in other interest
expense in the consolidated statement of income.
The litigation between BOCT and the Company continues. The U.S. District
Court has affirmed the arbitration award and also authorized WCL to pursue the
defenses that were not subject to arbitration, including claims to be brought
before the STB. In April 1997, the Company filed papers with the STB contesting
substantially all switching charges. The Company expects to appeal parts of the
District Court order once it becomes final.
Waukesha Environmental Matter
On April 2, 1996, WCL received a request for documents from the U.S.
Department of Justice ("DOJ") relating to the demolition of a foundry and
roundhouse on the Company's property in Waukesha, Wisconsin, performed by
contractors for WCL in 1993. A request for additional documents was received on
November 21, 1996. WCL has complied with the requests. 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 of the Act. In June of 1997, WCL was
notified by the EPA that the DOJ had determined there was no cause to seek
criminal prosecution against WCL or any individual employees. The matter has
been referred to DOJ's Environmental and Natural Resources Division. If the DOJ
or the USEPA determines that a civil action should be brought against the
Company, the Company will vigorously defend itself. If it were to be determined
that WCL violated the Asbestos NESHAP or the Act, WCL could be subject to fines
of up to $25,000 per day for each violation for the Act as well as additional
fines for violation of NESHAP.
Weyauwega Accident
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. The total
cost for the derailment is currently estimated at $27.3 million. The Company
believes that its insurance policies will cover substantially all these costs,
in excess of the $2.5 million of deductibles, due to the derailment. During the
first quarter of 1996, the Company recorded a pretax provision of $2.5 million
for the combined deductibles under its property damage and liability insurance
policies. Through June 30, 1997, the Company had funded $26.1 million in costs
incurred as a result of this derailment and received $20.3 million in
reimbursements from insurance companies. The Company's Consolidated Balance
Sheet includes an insurance receivable of $4.5 million as of June 30, 1997. 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. All
potential claimants were notified of the class action, and thirteen families and
two businesses joined the lawsuit which is in discovery phase. In addition, one
business has filed a separate suit for damages in the District Court of Waupaca
County. It is the opinion of management that the resolution of these matters
will not have a material adverse effect on the Company's financial position.
On August 8, 1997, the National Transportation Safety Board ("NTSB")
released the results of its investigation of the incident, determining that the
probable cause of the accident was a switch point rail that broke due to an
undetected bolt hole crack that progressed from improper maintenance because the
Company
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had not ensured that the two employees responsible for inspecting the track
structure were properly trained. The employees in question were each 20 year
railroad veterans who met Federal Railway Administration track inspector
qualifications.
Union Representation of Certain Employees
On July 18, 1997, the National Mediation Board ("NMB") notified WCL, FV&W
and SSM that its locomotive engineers and conductors had designated the
Brotherhood of Locomotive Engineers ("BLE") and the United Transportation Union
("UTU"), respectively, as their collective bargaining agents. The NMB stated
that among engineers, 29.7% voted in favor of the BLE and 21.6% in favor of the
UTU. Among conductors, 43.6% voted in favor of the UTU and 17.0% in favor of the
BLE. Under the Railway Labor Act, a plurality of votes will elect a union when
50% or more of the employees vote in favor of union representation. The
designation of BLE as representative of 273 engineers and the UTU as
representative of 289 conductors is the first time unions have been elected to
represent employees in the Company's U.S. operations. Engineers and conductors
make up approximately 28% of the approximate 2,030 employees in WCTC's U.S. rail
operations.
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: Second Quarter 1997 Compared to Second Quarter 1996
The Company's net income for the quarter ended June 30, 1997 was $20.7
million compared to $7.5 million for the same period in 1996. Second quarter
1996 net income was reduced by $9.5 million, due to the switching charges and
interest related to the BOCT arbitration ruling discussed in the Notes to
Consolidated Financial Statements.
Operating revenues. Operating revenues for the second quarter of 1997 were
$85.0 million, which was $28.2 million, or 50% higher than the year-ago period.
Operating revenues for the second quarter of 1996 were reduced by $13.3 million
as a result of the accrual for switching charges awarded in the BOCT
arbitration. Gross revenues for the quarter ended June 30, 1997 increased in 13
of 15 commodity groups, compared with the same period in 1996. Traffic volume,
as measured by carloads handled (including as a carload each loaded trailer or
container), for the quarter ended June 30, 1997 approximated 145,700 carloads
compared with approximately 113,100 carloads in 1996.
The business added by the Duck Creek North lines, which were acquired
January 27, 1997, contributed to the Company's overall increases in volume and
gross revenues. Metallic ore volume increased by nearly 23,900 carloads, or
152%, from the same period in 1996, primarily as a result of the Duck Creek
North acquisition.
Other large increases in revenues occurred in clay products, woodpulp,
lumber, paper, wood fibers and intermodal. Volume and gross revenues for clay
products increased by 27% and 40%, respectively, due primarily to increased
consumption of coating clays used in the paper industry. Woodpulp volume and
gross revenues increased by 10% and 19%, respectively, due primarily to
increased demand by the paper industry. Volume and gross revenues for lumber
increased by 29% and 28%, respectively, due primarily to increased market share
of longer haul eastern Canadian shipments. Volume and gross revenues for paper
increased by 11% and 20%, respectively, due primarily to an overall
strengthening in the paper market. Volume and
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gross revenues for wood fibers increased by 8% and 20%, respectively, due
primarily to increased demand by the paper industry. Intermodal volume and gross
revenues increased by 10% and 22%, respectively, due to increased market share
and growth in the joint rate intermodal service which the Company together with
Canadian National Railway began on April 1, 1996.
Operating revenues during the second quarter of 1997 also included rental
income of $0.5 million from Metra, the commuter rail system for Northeastern
Illinois, which commenced operations of a commuter service on the Company's
tracks between Chicago and Antioch, Illinois in August 1996.
Operating expenses. Operating expenses for the second quarter of 1997 were
$63.8 million, $9.2 million or 17% higher than last year. Increases in labor,
equipment rents, fuel, materials and depreciation were primarily caused by
increased traffic levels and the additional operations of the Duck Creek North
lines. The Company's operating ratio (operating expenses as a percentage of
operating revenues) was 75.1% in the second quarter of 1997, compared to 78.0%
in the second quarter of 1996 before the BOCT switching charges.
Labor expense increased by $3.0 million or 13% in the second quarter of
1997 as compared to the same period in 1996 primarily due to a 7% increase in
the work force and an average 3.5% increase in wages and salaries granted to
employees at the beginning of the year, as well as a decrease in the amount of
labor related to infrastructure projects billable to others. Net equipment rent
expense increased by $1.5 million or 24% primarily due to increased car hire
costs as a result of overall increases in traffic and congestion due to track
improvement activity in the Company's operating territory. Fuel expense
increased by $0.6 million or 11% in the second quarter of 1997 as compared with
the same period of 1996 primarily due to the increase in traffic which led to a
fuel consumption increase of 14%. Materials expense increased by $1.7 million or
31% primarily due to increased repair costs for freight cars owned by other
railroads offset by favorable variances in billings to such railroads as well as
the increased trackage and facilities associated with the Duck Creek North
acquisition. Depreciation increased by $1.2 million or 37% primarily due to the
addition of the Duck Creek North lines.
Interest expense and income taxes. Interest expense, excluding the interest
related to the BOCT arbitration ruling, increased $1.3 million in the second
quarter of 1997 to $3.7 million, primarily due to the increased borrowings to
finance the Duck Creek North Acquisition.
The income tax provision for the second quarter of 1997 was $7.0 million,
an increase of $7.9 million from the second quarter of 1996, due to the increase
in pre-tax income.
Equity in net income of affiliates. The Company's 1997 second quarter
results included equity in net income of its affiliates of $9.9 million as
compared to $8.9 million for the same period of 1996. The Company's equity in
the net income of Tranz Rail for the second quarter of 1997 was $2.5 million,
versus $3.1 million in the same quarter a year ago. The Tranz Rail contribution
includes a previously unrecognized tax benefit of $1.8 million partially offset
by a $1.4 million after tax provision for employee severance arrangements
related to plans to reengineer business processes. The Company's equity in the
net income of EW&S for the second quarter of 1997 was $7.5 million versus $5.8
million in the same quarter a year ago.
Results of Operations: First Six Months of 1997 Compared to First Six Months of
1996
The Company's net income for the six months ended June 30, 1997 was $38.3
million compared with $15.6 million for the same period in 1996. Net income for
the first six months of 1996 was reduced by $9.5 million due to the BOCT
arbitration award, and $1.5 million due to the March 1996 derailment in
Weyauwega, Wisconsin discussed in the Notes to Consolidated Financial
Statements.
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Operating revenues. Operating revenues during the six months ended June 30,
1997 were $165.3 million compared with $135.4 million for the same period in
1996 excluding the charges related to the BOCT arbitration ruling, an increase
of 22%. Gross revenues for the six months ended June 30, 1997 increased in 14 of
15 commodity groups compared with the same period in 1996. Traffic volume, as
measured by carloads handled, for the six months ended June 30, 1997
approximated 283,200 carloads compared with approximately 227,900 carloads in
1996, an increase of 55,300 carloads or approximately 24%.
Metallic ore volume and gross revenues increased by 77% and 58%,
respectively, due primarily to the acquisition of the Duck Creek North lines.
Intermodal volume increased by approximately 7,700 carloads or 29% compared to
the same period in 1996 primarily due to the new joint rate intermodal service
which the Company together with CN started on April 1, 1996.
Other large increases in WCTC's revenue totals occurred in paper, lumber,
clay products and woodpulp. Paper volume and gross revenues increased by 6% and
18%, respectively, from the year ago period, primarily due to an overall
strengthening in the paper market. Volume and gross revenues for lumber
increased by 18% and 22%, respectively, primarily due to increased market share
and higher revenues per carload due to longer hauls. Volume and gross revenues
for clay products increased by 24% and 38%, respectively, primarily due to
increased demand for raw materials used in the production of roofing materials,
as well as increased demand for coating clays used in the paper industry. Volume
and gross revenues for woodpulp increased by 12% and 25%, respectively,
primarily due to increased demand by the paper industry.
Also contributing to operating revenues during the six months ended June
30, 1997 was an increase in management fees from affiliates of $0.8 million. In
addition, operating revenues during the first six months of 1997 included rental
income of $1.0 million from Metra, the commuter rail system for Northeastern
Illinois, which commenced operations of a commuter service on the Company's
tracks between Chicago and Antioch, Illinois in August 1996.
Operating expenses. Operating expenses for the first six months of 1997
were $129.0 million compared with $115.2 million for the same period in 1996, an
increase of 12%. Increases in labor, fuel, equipment rents, materials and
depreciation were primarily caused by increased traffic levels, the cooperative
SACP agreement entered into with the FRA as discussed in the Notes to
Consolidated Financial Statements, and the additional operations of the Duck
Creek North lines. The Company's operating ratio (operating expenses as a
percentage of operating revenues) was 78.1% compared to 85.1% in the first six
months of 1996 before the BOCT switching charges.
Labor expense increased by $4.7 million or 10% in the first six months of
1997 as compared to the same period in 1996 primarily due to a 5% increase in
the work force to handle the increased traffic and an average 3.5% increase in
wages and salaries granted to employees at the beginning of the year. Fuel
expense increased by $1.3 million or 12% in the first six months of 1997 as
compared with the same period of 1996 primarily due to a 6% increase in fuel
prices over 1996 as well as the increase in traffic which led to a 6% increase
in fuel consumption. Net equipment rent expense increased by $2.5 million or 18%
primarily due to increased car hire costs as a result of overall increases in
traffic congestion in the Company's operating territory. Materials expense
increased by $2.2 million or 18% in the first six months of 1997 as compared
with the same period of 1996 primarily as a result of increased costs associated
with maintenance of the Company's car and locomotive fleet. Depreciation
increased by $2.1 million or 34% primarily due to the addition of the Duck Creek
North lines.
-10-
<PAGE>
Interest Expense and Income Taxes. Interest expense, excluding the interest
related to the BOCT arbitration ruling, increased $2.5 million in the first six
months of 1997 to $6.9 million, primarily due to the increased borrowings to
finance the Duck Creek North acquisition.
The income tax provision for the first six months of 1997 was $11.9
million, an increase of $11.5 million over the first six months of 1996, due to
the increase in pre-tax income.
Equity in net income of affiliates. The Company's 1997 first six months
results included equity in net income of its affiliates of $20.2 million as
compared to $15.0 million for the same period of 1996. The Company's equity in
the net income of Tranz Rail for the first six months of 1997 was $5.7 million,
versus $6.1 million in the same period a year ago. The Company received its
first dividend in March 1997 from Tranz Rail in the amount of $3.4 million. The
Company's equity in the net income of EW&S for the first six months of 1997 was
$14.6 million versus $8.9 million in the same period a year ago. EW&S's 1996
contribution included less than a full six months of results for the trainload
freight companies which were acquired from British Rail on February 24, 1996. On
February 21, 1997, the Company invested an additional $8.4 million in EW&S,
increasing its equity ownership position from approximately 31% to approximately
34%.
Financial Condition: June 30, 1997 Compared to December 31, 1996
The Company generated cash in the amount of $46.5 million during the first
six months of 1997 from operations, the cash dividend received from Tranz Rail
and the sale of assets and $89.9 million from financing activities. These
resources, as well as cash on hand, were used to finance the Company's
acquisitions of the Duck Creek North and Wausau/Hayward lines of $92.5 million,
the additional investment in EW&S of $8.4 million and other capital-related
expenditures of $36.6 million. The Company expects that the SACP agreement
entered into with the FRA as discussed in the Notes to Consolidated Financial
Statements will result in an increase in its 1997 roadway and structures capital
expenditures.
The Company had $253.4 million of total debt outstanding at June 30, 1997,
which constituted 43.0% of its total capitalization, compared to 35.6% at
December 31, 1996. At June 30, 1997, the Company's aggregate unused borrowing
availability under its loan facilities totaled $92.5 million.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual stockholders' meeting was held on May 15, 1997. At the
meeting, Edward A. Burkhardt, Carl Ferenbach, Roland V. McPherson, Thomas F.
Power, Jr., Thomas W. Rissman and Robert H. Wheeler were reelected as directors
of the Company, and A. Francis Small, who has served as a director since
December 1996, was also elected for another term. Votes on election of the
directors were as follows:
Votes Against or Abstentions and
Nominee Votes For Withheld Broker Non-Votes
- ---------------- ---------- -------- ----------------
E. A. Burkhardt 47,340,027 277,628 0
C. Ferenbach 47,338,124 279,531 0
R. V. McPherson 47,342,545 275,110 0
T. F. Power, Jr. 47,341,758 275,897 0
T. W. Rissman 47,337,069 280,586 0
A. F. Small 47,338,834 278,821 0
R. H. Wheeler 47,339,550 278,105 0
At the meeting a proposal to approve the Company's 1997 Long-Term Incentive
Plan passed, with 32,613,911 votes cast for the proposal, 14,928,628 votes cast
against the proposal or withheld and 75,116 abstentions and broker non-votes.
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: August 13, 1997 By: /s/ Walter C. Kelly
-----------------------
Walter C. Kelly
Vice President, Finance
Date: August 13, 1997 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-
<TABLE>
<CAPTION>
EXHIBIT NO. 11
Statement re Computation of Per Share Earnings
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
(in thousands, except per share amounts)
(Unaudited)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
-------------------------- -----------------------
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income .................................................. $ 20,681 $ 7,528 $ 38,315 $ 15,594
======== ======= ======== ========
Weighted average common shares outstanding:
Primary ................................................ 50,858 50,582 50,830 50,551
======== ======= ======== ========
Fully diluted .......................................... 51,961 51,713 51,951 51,704
======== ======= ======== ========
Earnings per common share outstanding:
Primary ................................................ $ 0.41 $ 0.15 $ 0.75 $ 0.31
======== ======= ======== ========
Fully diluted .......................................... $ 0.40 $ 0.15 $ 0.74 $ 0.30
======== ======= ======== ========
-15-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 30, 1997 (unaudited) and the
Condensed Consolidated Statement of Income for the Six Months Ended June 30,
1997 (unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,512
<SECURITIES> 0
<RECEIVABLES> 81,132
<ALLOWANCES> 1,195
<INVENTORY> 28,735
<CURRENT-ASSETS> 122,369
<PP&E> 655,993
<DEPRECIATION> 72,264
<TOTAL-ASSETS> 842,640
<CURRENT-LIABILITIES> 156,852
<BONDS> 252,363
0
0
<COMMON> 509
<OTHER-SE> 335,108
<TOTAL-LIABILITY-AND-EQUITY> 842,640
<SALES> 165,254
<TOTAL-REVENUES> 165,254
<CGS> 0
<TOTAL-COSTS> 129,022
<OTHER-EXPENSES> (595)
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> 6,852
<INCOME-PRETAX> 29,975
<INCOME-TAX> 11,870
<INCOME-CONTINUING> 18,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,315
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
</TABLE>
