- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
FORM 10-K/A
Amendment No. 1 to
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the fiscal year
ended December 31, 1997
Commission File Number 0-19150
WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3541743
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6250 North River Road, Suite 9000
Rosemont, Illinois 60018
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (847) 318-4600
This Amendment No. 1 amends Registrant's Annual Report on Form
10-K by adding the consolidated financial statements of
English Welsh & Scottish Railway Holdings Limited pursuant to
Rule 3-09 of Regulation S-X.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
AND SCHEDULES
PAGE
----
INDEPENDENT AUDITORS' REPORT........................................ 28*
FINANCIAL STATEMENTS
Consolidated Balance Sheets................................ 29-30*
Consolidated Statements of Income.......................... 31*
Consolidated Statements of Changes in Stockholders' Equity.. 32*
Consolidated Statements of Cash Flows...................... 33*
Notes to Consolidated Financial Statements................. 34-49*
FINANCIAL STATEMENTS OF ENGLISH WELSH & SCOTTISH RAILWAY HOLDINGS LIMITED **
Auditor's Report.......................................... A-4
Consolidated Profit and Loss Account...................... A-5
Consolidated Balance Sheet................................ A-6-7
Reconciliation of Movements in Shareholders' Funds........ A-8
Consolidated Cash Flow Statement.......................... A-9
Notes to Consolidated Financial Statements ............... A-10-32
Note*: The page numbers indicated are those under which such information was
filed as part of the Company's Report on Form 10-K filed on March 31,
1998. Such information is not being amended by this Report on Form
10-K/A.
Note**: The amounts shown in the English Welsh & Scottish Railway Holdings
Limited financial statements are stated in pounds sterling. At March
31, 1998, each pound sterling equaled US $1.6413.
A-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this Report:
PAGE
----
(a)(1) Financial Statements
Consolidated Balance Sheets............................... 29-30*
Consolidated Statements of Income......................... 31*
Consolidated Statements of Changes in Stockholders' Equity 32*
Consolidated Statements of Cash Flows..................... 33*
Notes to Consolidated Financial Statements................ 34-49*
(2) Schedules
Financial Statements of English Welsh & Scottish Railway Holdings
Limited **
Auditor's Report......................................... A-4
Consolidated Profit and Loss Account..................... A-5
Consolidated Balance Sheet............................... A-6-7
Reconciliation of Movements in Shareholders' Funds....... A-8
Consolidated Cash Flow Statement......................... A-9
Notes to Consolidated Financial Statements .............. A-10-32
(3) Exhibits
The exhibits set forth in the Index to Exhibits in the Report on Form
10-K filed on March 31, 1998 are not being amended by this Report on
Form 10-K/A.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1997.
The information provided on the Report on Form 10-K filed on March
31, 1998 is not being amended by this Report on Form 10-K/A.
Note*: The page numbers indicated are those under which such information was
filed as part of the Company's Report on Form 10-K filed on March 31,
1998. Such information is not being amended by this Report on Form
10-K/A.
Note**: The amounts shown in the English Welsh & Scottish Railway Holdings
Limited financial statements are stated in pounds sterling. At March
31, 1998, each pound sterling equaled US $1.6413.
A-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
(Registrant)
Date: September 29, 1998 By: /s/ Walter C. Kelly
----------------------------
Walter C. Kelly
Vice-President, Finance
A-3
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of English Welsh & Scottish Railway
Holdings Limited:
We have audited the accompanying consolidated balance sheets of English Welsh &
Scottish Railway Holdings Limited and subsidiaries as of 31 March 1997 and 31
March 1998 and the related consolidated profit and loss accounts,
reconciliations of movements in shareholders' funds and consolidated cash flows
for the period from the company's incorporation on 16 October 1995 to 31 March
1997 and for the year ended 31 March 1998. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom which are substantially consistent with those in the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by mangement, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of English Welsh &
Scottish Railway Holdings Limited and subsidiaries as of 31 March 1997 and 31
March 1998 and the results of their operations and their cash flows for the
period from the company's incorporation on 16 October 1995 to 31 March 1997 and
for the year ended 31 March 1998 in conformity with generally accepted
accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have effected the results of operations for the period from the
company's incorporation on 16 October 1995 to 31 March 1997 and for the year
ended 31 March 1998 and shareholders' equity at 31 March 1997 and 31 March 1998
to the extent summarised in supplemental note 27 to the consolidated financial
statements.
KPMG London
Chartered Accountants 29 September 1998
Registered Auditors
A-4
<PAGE>
<TABLE>
<CAPTION>
Consolidated profit and loss account
for the year ended 31 March 1998
in millions Note 1998 1997
12 months 17 1/2 months
Restated
---- --------- --------
<S> <C> <C> <C>
Turnover 2
Continuing operations
Ongoing 507.0 609.0
Acquisitions 21.2 -
----- -----
528.2 609.0
Operating costs 3
(acquisitions and continuing operations) (460.1) (592.3)
----- -----
Operating profit/(loss)
Continuing operations 4
Ongoing 69.2 16.7
Acquisitions (1.1) -
----- -----
68.1 16.7
Profit/(Loss) on sale of fixed assets 0.1 (0.2)
Net interest payable and similar charges 7 (11.3) (15.8)
----- -----
Profit on ordinary activities before taxation 4 56.9 0.7
Tax on profit on ordinary activities 8 (8.5) 0.9
----- -----
Retained profit on ordinary activities after
taxation for the period 48.4 1.6
===== =====
</TABLE>
There were no differences between the profit and loss account shown above and
that prepared on a historical cost basis.
A-5
<PAGE>
<TABLE>
<CAPTION>
Consolidated balance sheet
at 31 March 1998
in millions Note 1998 1997
Restated
---- ----- --------
<S> <C> <C> <C>
Fixed assets
Tangible assets 10 445.6 276.3
Goodwill 12 5.4 5.3
Negative goodwill 12 (126.2) (25.3)
----- -----
(120.8) (20.0)
Investments 11 1.3 -
----- -----
326.1 256.3
----- -----
Current assets
Stocks 13 20.3 9.0
Debtors due in more than one year 14 96.3 66.8
Debtors due within one year 14 113.2 99.0
----- -----
209.5 165.8
Cash at bank and in hand 20.6 28.1
----- -----
250.4 202.9
Creditors: amounts falling due within one year 15 (117.9) (106.3)
----- -----
Net current assets 132.5 96.6
----- -----
Total assets less current liabilities 458.6 352.9
Creditors: amounts falling due after more than one year 16 (187.7) (137.1)
Provisions for liabilities and charges 17 (114.2) (110.1)
Deferred income 18 (5.8) (4.3)
----- -----
Net assets 150.9 101.4
===== =====
Capital and reserves
Called up share capital 19 99.4 98.6
Share premium reserve 20 1.5 1.2
Profit and loss account 20 50.0 1.6
----- -----
Equity shareholders' funds 150.9 101.4
===== =====
</TABLE>
These financial statements were approved by the board of directors on 14 July
1998 and were signed on its behalf by:
E A Burkhardt
Chairman and Chief Executive
A-6
<PAGE>
<TABLE>
<CAPTION>
Company balance sheet
at 31 March 1998
in millions Note 1998 1997
Restated
---- ---- --------
<S> <C> <C> <C>
Fixed assets
Investments 11 96.0 49.3
Current assets
Debtors 14 125.1 110.1
Creditors : amounts falling due within one year 15 (14.4) (2.8)
----- -----
Net current assets 110.7 107.3
----- -----
Total assets less current liabilities 206.7 156.6
Creditors: amounts falling due after more than one year 16 (55.8) (55.2)
----- -----
Net assets 150.9 101.4
===== =====
Capital and reserves
Called up share capital 19 99.4 98.6
Share premium reserve 20 1.5 1.2
Revaluation reserve 20 52.6 2.8
Profit and loss account (2.6) (1.2)
----- -----
Equity shareholders' funds 150.9 101.4
===== =====
</TABLE>
These financial statements were approved by the board of directors on 14 July
1998 and were signed on its behalf by:
E A Burkhardt
Chairman and Chief Executive
A-7
<PAGE>
<TABLE>
<CAPTION>
Group Statement of Total Recognised Gains and Losses
for the year ended 31 March 1998
in millions 1998 1997
12 Months 17 1/2 months
Restated
--------- --------
<S> <C> <C>
Profit for the financial period 48.4 1.6
Prior year adjustments (Note 9) 3.4 -
---- ---
Total recognised gains and losses recognised since last annual report 51.8 1.6
==== ===
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of movements in shareholders' funds
for the year ended 31 March 1998
in millions 1998 1997
Group Company Group Company
17 1/2 17 1/2
months Months
Restated Restated
----- ------- -------- --------
<S> <C> <C> <C> <C>
Profit/(Loss) for the financial period 48.4 (2.2) 1.6 (1.2)
New share capital subscribed 0.8 0.8 98.6 98.6
Share premium arising on new share capital 0.3 0.3 1.2 1.2
Revaluation of investment in subsidiaries - 50.6 - 2.8
----- ----- ----- -----
Net addition to shareholders' funds 49.5 49.5 101.4 101.4
Opening shareholders' funds (originally 119.2 million
before deducting a prior year adjustments of
17.8 million) 101.4 101.4 - -
----- ----- ----- -----
Closing shareholders' funds 150.9 150.9 101.4 101.4
===== ===== ===== =====
</TABLE>
The impact of prior year adjustments on opening shareholders funds is as
follows.
Opening shareholders funds as previously stated 119.2
Transfer of negative goodwill to intangible assets (21.2)
Amortisation of negative goodwill 1.3
Capitalisation of interest 2.1
-----
Opening shareholders funds restated 101.4
=====
A-8
<PAGE>
<TABLE>
<CAPTION>
Consolidated cash flow statement
for the year ended 31 March 1998
in millions Note 1998 1997
Restated
---- ---- --------
<S> <C> <C> <C>
Net cash inflow from operating activities 23 61.6 76.1
Return on investments and servicing of finance 24 (13.1) (14.3)
Taxation paid - (1.2)
Capital expenditure and financial investment 24 (77.2) (29.3)
Acquisitions and disposals 24 (22.9) (243.9)
---- -----
Net cash outflow before financing (51.6) (212.6)
Financing
Issue of ordinary share capital 0.3 99.8
Long term loans raised 68.8 185.0
Costs of raising long term loans (0.9) (11.7)
Repayment of long term loans (24.0) (32.4)
Repayment of finance leases (0.1) -
---- -----
Net cash inflow from financing 44.1 240.7
---- -----
(Decrease)/Increase in cash and cash equivalents 25 (7.5) 28.1
==== =====
</TABLE>
A-9
<PAGE>
Notes
(forming part the financial statements)
1 Accounting Policies
The following accounting policies have been applied consistently in
dealing with items which are considered material in relation to the
group's financial statements.
Basis of Preparation
The financial statements have been prepared in accordance with
applicable accounting standards and under the historical cost
convention modified to include the revaluation of investments in
subsidiaries within the financial statements of the company. The prior
year figures have been restated as explained in Note 9 to take account
of the directors decision to adopt FRS 10 "Goodwill and Intangible
Assets" with retrospective effect such that goodwill whether negative
or positive is capitalised and amortised through the profit and loss
account. In addition the directors considered that it is now more
appropriate to the group's business to adopt a policy of capitalising
interest on loans entered into to finance capital expenditure.
Basis of consolidation
The group accounts consolidate the accounts of English Welsh & Scottish
Railway Holdings Limited and all its subsidiary undertakings. These
accounts are made up to 31 March 1998. The consolidated accounts are
based on accounts of subsidiary undertakings, all of which are
coterminous with those of the parent company, and on the accounts of
the parent company. The acquisition method of accounting has been
adopted. Under this method, the results of subsidiary and associated
undertakings acquired in the period are included in the consolidated
profit and loss account from the date of acquisition. In the company's
accounts, investments in subsidiary undertakings are revalued to
reflect the underlying book value of the net assets of the
subsidiaries. The result for the year dealt with in the financial
statements of English Welsh & Scottish Railway Holdings Limited is
disclosed in note 20 to these accounts. The company has taken advantage
of section 230(4) of the Companies Act 1985 and has not presented its
own profit and loss account.
Goodwill
The group has decided on early adoption of FRS 10 "Goodwill and
Intangible Assets".
Goodwill whether negative or positive is disclosed as an intangible
asset. Negative goodwill up to the fair value of non monetary assets
acquired is amortised to the profit and loss account in periods in
which these assets are recovered. Negative goodwill in excess of the
fair value of the assets acquired is amortised over the period in which
the losses to which it relates are expected to accrue. Positive
goodwill is amortised over 20 years.
Fixed assets and depreciation
Depreciation is provided by the company to write off the cost less the
estimated residual value of tangible fixed assets by equal instalments
over their estimated useful economic lives from the time assets come
into service as follows:
o Freehold buildings 40 years
o Leasehold land and buildings life of lease
o Plant, machinery and equipment 3 to 10 years
o Rolling stock 20 to 50 years
o Infrastructure 10 to 30 years
No depreciation is provided on freehold land.
A-10
<PAGE>
Notes continued
1 Accounting Policies continued
Capitalisation of interest
Interest incurred on funding fixed assets in the course of construction
is capitalised up until the asset in question is commissioned.
Leases
Where the group enters into a lease which entails taking substantially
all the risks and rewards of ownership of an asset, the lease is
treated as a 'finance lease'. The asset is recorded in the balance
sheet as a tangible fixed asset and is depreciated over its estimated
useful life or the term of the lease, whichever is shorter. Future
instalments under such leases, net of finance charges, are included
within creditors. Rentals payable are apportioned between the finance
element, which is charged to the profit and loss account, and the
capital element which reduces the outstanding obligation for future
instalments. All other leases are accounted for as 'operating leases'
and the rental charges are charged to the profit and loss account on a
straight line basis over the life of the lease.
Government grants
Capital based government grants are included within accruals and
deferred income in the balance sheet and credited to trading profit
over the estimated useful economic lives of the assets to which they
relate. Revenue based government grants are credited to trading profit
in the period in which the expenditure to which they relate is
incurred.
Stocks
Stocks are stated at the lower of cost and net realisable value.
Pensions and other post-retirement benefits
The expected cost of providing pensions, as calculated periodically by
professionally qualified actuaries, is charged to the profit and loss
account so as to spread the cost over the service lives of employees in
the scheme in such a way that the pension cost is a substantially level
percentage of current and expected future pensionable payroll.
Differences between the amount charged to the profit and loss account
and payments made to schemes are treated as assets or liabilities in
the Balance Sheet. Further details are given in Note 22 to the
accounts.
Taxation
The credit for taxation is based on the profit for the period and takes
into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes.
Provision is made for deferred tax only to the extent that it is
probable that an actual liability will crystallise within the
foreseeable future. Partial provision is also made for timing
differences arising on the pension fund prepayment.
Foreign Exchange
Transactions in foreign currencies are recorded at the rate ruling at
the date of the transaction or at the contract rate if the transaction
is covered by a forward exchange contract. Monetary assets and
liabilities denominated in foreign currencies are translated at the
rate of exchange ruling at balance sheet date or, if appropriate, at
the forward exchange contract rate. All differences are taken to the
profit and loss account except where they arise on loans or deposits
which are being used to fund capital expenditure in which case they are
capitalised.
2 Turnover
Turnover is stated net of value added tax and represents amounts
invoiced to third parties and estimates in respect of amounts not
invoiced.
Turnover and operating profit is attributable to one activity, the
haulage of freight and mail by rail and other related services
throughout England, Wales and Scotland.
A-11
<PAGE>
Notes continued
3 Operating costs
<TABLE>
<CAPTION>
in millions 1998 12 Months 1997
-------------------------------- --------
Continuing Total 17 1/2
Operations Months
Ongoing Acquisitions Restated
------- ------------ ----- --------
<S> <C> <C> <C> <C>
Change in stock of spares (13.3) 2.0 (11.3) 2.1
Other operating income - - - (0.3)
Raw materials and consumables 41.4 2.1 43.5 83.3
Other external charges 230.9 8.1 239.0 239.9
Staff costs (Note 6) 164.6 9.3 173.9 253.5
Depreciation and other amounts written off
tangible and intangible fixed assets 14.2 0.8 15.0 13.8
----- ---- ----- -----
437.8 22.3 460.1 592.3
===== ==== ===== =====
</TABLE>
The prior year figures include exceptional items of 59.7 million in staff
costs and 3.3 million in other external charges.
4 Profit on ordinary activities before taxation
<TABLE>
<CAPTION>
in millions 1998 1997
---- ----
<S> <C> <C>
Profit on ordinary activities before taxation is stated after charging
Auditors' remuneration:
Audit 0.2 0.4
Other services 0.2 0.5
Depreciation and other amounts written off tangible fixed assets:
Owned 13.5 13.4
Leased 1.6 1.7
Hire of plant and machinery - rentals payable under operating leases 0.2 0.2
Other operating leases 2.0 1.6
after crediting
Grants credited to profit and loss account 4.0 0.3
Rents receivable from property 8.4 8.5
Amortisation of negative goodwill 2.7 1.3
</TABLE>
In addition to the above the auditors received 3,800 (1997: 1,931,000)
during the year in relating to the acquisition of subsidiaries. These costs have
been capitalised.
The operating profit dealt with in the accounts of the parent company was
0.3 million (1997: 0.3 million).
A-12
<PAGE>
Notes continued
5 Remuneration of directors
1998 1997
---- ----
Aggregate emoluments of directors 196,434 168,970
Number of directors for whom retirement benefits are
accruing under a money purchase scheme 1 1
Number of directors for whom retirement benefits are
accruing under a defined benefits scheme 1 1
Number of directors eligible for shares under a long
term incentive scheme 1 1
Directors interests in the ordinary share capital of the company and
options granted during the year are disclosed in the Director's Report.
1,448,695 (1997: 1,453,772) was paid to Wisconsin Central Transportation
Incorporated in relation to a management contract incorporating among other
things, the provision of the services of E A Burkhardt and T F Power.
32,000 (1997: 32,000) was paid or is payable to Berkshire Partners for the
services of C Ferenbach and R K Lubin.
16,000 (1997: 16,000) was paid or is payable to Fay Richwhite for the
services of D M Richwhite.
16,000 (1997: 12,000) was paid or is payable to McLachlan Rissman & Doll
for the services of T W Rissman.
Transactions involving directors
Clarke & Co. a business owned by R J G Clarke was paid 30,186 (1997:
59,208) during the period for the provision of consultancy and other
professional services.
McLachlan Rissman & Doll a partnership in which T W Rissman has an
interest, was paid 139,230 (1997: 137,888) during the period for the provision
of legal and other professional services.
Railroad Financial Corporation, a specialist adviser on financing rail
equipment, in which T W Rissman has an interest was paid 160,911 (1997: nil)
during the period for the provision of consultancy services.
6 Staff numbers and costs
1998 1997
No. No.
----- -----
Average number of people employed:
Management and operation of rail freight services 7,070 7,066
===== =====
The aggregate payroll costs of these persons were as follows:
in millions Total Total
1998 1997
----- -----
Wages & salaries 149.0 159.1
Social security costs 11.9 12.6
Other pension costs (see note 22) 1.9 3.0
Other staff costs 11.1 19.1
Redundancy costs - 59.7
----- -----
173.9 253.5
===== =====
A-13
<PAGE>
Notes continued
7 Net interest payable and similar charges
<TABLE>
<CAPTION>
in millions 1998 1997
---- ----
<S> <C> <C>
Other interest receivable and similar income 1.1 2.4
Other interest payable and similar charges:
On bank loans, overdrafts and other loans repayable within five years (14.0) (15.6)
On bank loans repayable in more than five years (2.5) (4.3)
Finance charges payable in respect of finance leases and hire purchase contracts (0.1) 0.3
Exchange gain/(loss) on monies on deposit 0.1 (0.7)
---- ----
(16.5) (20.3)
Interest capitalised 4.1 2.1
---- ----
(12.4) (18.2)
---- ----
(11.3) (15.8)
==== ====
</TABLE>
8 Taxation
in millions 1998 1997
---- ----
UK corporation tax at 31% (1997: 33%) on the profit for the
period on ordinary activities for the year to 31 March 1998 (4.7) (2.1)
Deferred Taxation (3.8) 3.0
--- ---
(8.5) 0.9
=== ===
The group has a low effective tax rate due to the availability of
substantial capital allowances.
Deferred taxation includes a credit of 0.8 million (1997: 1.3 million)
resulting from the reduction in the rate of corporation tax from 31% to 30%
announced in the budget on 17 March 1998.
9 Prior Year Adjustments
In December 1997 the Accounting Standards Board issued FRS10 "Goodwill and
Intangible Assets" which the Group has elected to implement immediately. The
standard requires that goodwill whether positive or negative be disclosed as an
intangible asset and amortised through the profit and loss account. The impact
of this change in accounting policy is to increase the reported profits for the
year by 3.5 million (1997: 1.3 million), and reduce shareholders funds in the
consolidated balance sheet by 122.7 million (1997: 20.0 million) as a
consequence of the transfer of negative goodwill from Capital Reserve to
Intangible Assets.
The Group has elected to capitalise interest paid on deposits and costs
associated with the purchase of locomotives, until they come into service. The
impact of this change in accounting policy is to increase the reported profits
for the year by 4.1 million (1997: 2.1 million).
A-14
<PAGE>
Notes continued
10 Tangible fixed assets
<TABLE>
<CAPTION>
in millions Land & Rolling Plant, Infra- Assets in Total
buildings stock machinery structure course of
& construction
equipment
--------- ----- --------- --------- ------------ -----
Group
<S> <C> <C> <C> <C> <C> <C>
Cost
(or valuation)
At 1 April 1997 30.5 225.4 16.3 0.7 30.3 303.2
Additions 3.2 11.2 1.3 3.2 62.9 81.8
Acquisitions of
subsidiaries 21.3 78.7 3.0 - - 103.0
Disposals - (0.4) (0.3) - - (0.7)
Transfers 1.2 2.8 0.5 1.9 (6.5) (0.1)
---- ----- ---- --- ---- -----
At 31 March 1998 56.2 317.7 20.8 5.8 86.7 487.2
==== ===== ==== === ==== =====
Depreciation and
diminution in value
At 1 April 1997 (1.1) (12.7) (12.7) (0.4) - (26.9)
Charge for period (1.0) (12.5) (1.4) (0.2) - (15.1)
On disposals - 0.1 0.2 - - 0.3
Transfers - - 0.1 - - 0.1
--- ---- ---- --- --- ----
At 31 March 1998 (2.1) (25.1) (13.8) (0.6) - (41.6)
=== ==== ==== === === ====
Net book value
At 31 March 1998 54.1 292.6 7.0 5.2 86.7 445.6
==== ===== ==== === ==== =====
At 31 March 1997 29.4 212.7 3.6 0.3 30.3 276.3
==== ===== ==== === ==== =====
</TABLE>
On acquisition of the companies detailed in Note 11 to the financial
statements, fair values were assigned to the assets and liabilities in
accordance with FRS 7.
The net book value of land and buildings at 31 March 1998 comprises:
in millions Group Company Group Company
1998 1998 1997 1997
---- ---- ---- ----
Freehold land and buildings 27.2 - 18.8 -
Long leasehold 24.8 - 10.4 -
Short leasehold 2.1 - 0.2 -
---- --- ---- ---
54.1 - 29.4 -
==== === ==== ===
Included in freehold land and buildings is land valued at 17,650,000 which
is not depreciated. Included in fixed assets is 6.2 million (1997: 2.1 million)
of capitalised interest.
A-15
<PAGE>
Notes continued
10 Tangible fixed assets continued
Included within the amounts for fixed assets are the following amounts
relating to leased assets. These assets are held on subleases granted by the
British Railways Board to subsidiary companies prior to their acquisition by the
company. The headleases are finance leases which continue to be held by the
British Railways Board. The subleases transfer all the benefits and obligations
of ownership inherent in the headleases to the subsidiaries. All future
liabilities arising under the headleases, and included within the subleases,
were discharged to the British Railways Board on acquisition of the
subsidiaries. In addition, within the analysis below are assets with a net book
value of 0.1 million (1997: 0.2 million) for which liabilities continue to
exist.
Assets held under finance leases
in millions Rolling Plant, Total
stock machinery
and
equipment
----- --------- -----
Cost:
At 1 April 1997 40.0 0.2 40.2
Additions - - -
---- --- ----
At 31 March 1998 40.0 0.2 40.2
---- --- ----
Depreciation:
At 1 April 1997 (14.0) - (14.0)
Additions - - -
Provided in the period (1.5) (0.1) (1.6)
---- --- ----
At 31 March 1998 (15.5) (0.1) (15.6)
---- --- ----
Net Book Value
At 31 March 1998 24.5 0.1 24.6
==== === ====
At 31 March 1997 26.0 0.2 26.2
==== === ====
11 Fixed asset investments - company
<TABLE>
<CAPTION>
Own Shares Associates Trade Total
Investment
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Group
As at 1 April 1997 - - - -
Acquired on the acquisition of subsidiaries - 0.6 0.6 1.2
Additions 0.8 - - 0.8
Less provision (0.7) - - (0.7)
--- --- --- ---
At 31 March 1998 0.1 0.6 0.6 1.3
=== === === ===
</TABLE>
EW & S Employee Share Trust, was created on 14 November 1996. The trustee,
EWS Trustees Ltd, at their absolute discretion determines at its absolute
discretion which directors and employees are to participate in a bonus share
plan in any fiscal year. All costs incurred in the administration of the trust
are charged to the profit and loss account as incurred.
At the date of signing these accounts the trust held 1,277,554 shares of
which 1,164,977 were under option to employees and directors.
A-16
<PAGE>
Notes continued
11 Fixed asset investments - company continued
in millions Own Value of shares in Total
shares subsidiaries
------ ------------ -----
Company
At 1 April 1997 restated - 49.3 49.3
Reduction of cost - (3.2) (3.2)
Additions at cost 0.8 - 0.8
Less provision (0.7) - (0.7)
Revaluation - 49.8 49.8
--- ---- ----
At 31 March 1998 0.1 95.9 96.0
=== ==== ====
Investments in group companies have been revalued to reflect the underlying
book value of the net assets of the subsidiaries adjusted for the goodwill
arising on consolidation.
The companies in which the company's interest is more than 10% are as
follows:
<TABLE>
<CAPTION>
Country of Principal activity Class and
registration or percentage of
incorporation shares held
Group & company
------------- ------------------ ---------------
<S> <C> <C> <C>
Subsidiary undertakings
Boreal & Austral Railfreight Ltd England & Wales Holding company 100% 1 Ordinary
New Locomotive Finance Ltd England & Wales Acquisition and leasing of 100% 1 Ordinary
rolling stock
Res (December) Ltd England & Wales Holding company 100% 1 Ordinary
Rail Express Systems Ltd England & Wales Haulage of mail by rail and 100% 1 Ordinary
provision of charter
passenger services
Loadhaul Ltd England & Wales Dormant 100% 1 Ordinary
English Welsh & Scottish England & Wales Haulage of freight by rail 100% 1 Ordinary
Railway Ltd
Mainline Freight Ltd England & Wales Dormant 100% 1 Ordinary
NPJV Ltd England & Wales Dormant 100% 1 Ordinary
LGJV Ltd England & Wales Dormant 100% 1 Ordinary
EWS Finance Ltd England & Wales Acquisition and leasing of 100% 1 Ordinary
rolling stock
East & West Ltd England & Wales Holding company 100% 1 Ordinary
Railfreight Distribution Ltd England & Wales Haulage of freight by rail 100% 1 Ordinary
EW & S Trustees Ltd England & Wales Trustee of employee share 100% 1 Ordinary
trust
Associated undertakings
Allied Continental Intermodal
Services Ltd England & Wales Railfreight 25% 1 Ordinary
Autotrax Limited England & Wales Terminal management 24% 1 Ordinary
Intermodal Wagon Systems
Limited England & Wales Railfreight 25% 1 Ordinary
Unilog NV Belgium Railfreight 45% 1BFr Ordinary
</TABLE>
The investments in associated undertakings are unlisted. In the opinion of
the directors, the aggregate value of these investments is not less than the
amounts at which they are stated in the balance sheet.
A-17
<PAGE>
Notes continued
11 Fixed asset investments - company continued
On 22 November 1997 EWS completed the acquisition of 100% of the share
capital of Railfreight Distribution Limited ("RfD") from the British Railways
Board ("BRB"). In connection with that acquisition:
o BR has agreed that RfD will not be required to pay toll charges for
access to the Channel Tunnel until 30 April 2005, such charges
being met by BR.
o In the event that freight operations through the Channel Tunnel are
terminated, RfD may be required to sell certain tunnel related
assets to a publicly owned railway company and to pay a 5 million
penalty.
o RfD intends to continue its Channel Tunnel operations after April
2005, but will not be able to do so unless Eurotunnel materially
reduces its charges. The present contractual arrangements do not
compel Eurotunnel to do this, and there is no certainty that it
will. Full provision is therefore made for all liabilities which
would arise if RfD discontinued Channel Tunnel operations after
April 2005.
o BR has agreed to pay a restructuring grant to RfD in respect of
specified expenditure to a maximum of 25 million within two years
of the acquisition date. The amount of the grant received during
the year was 3.5 million. The grant is potentially repayable over
10 years from 2007 if average total access charges fall below and
volumes exceed specified levels. No provision has been made for
repayment of grants received to date.
The cash consideration on this purchase was 2.0 million and acquisition
costs totalled 2.2 million. Negative goodwill of 103.9 million arising on the
acquisition is included in Note 12. The final adjustments to consideration
payable are not yet finalised.
The directors estimate of fair value of the assets of RfD are set out in
the table below.
<TABLE>
<CAPTION>
in millions Book value Re-valuation Other Fair value of
adjustments the group
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Fixed assets
Tangible 13.7 71.1 - 84.8
Intangible 1.2 - - 1.2
----- ---- ---- -----
14.9 71.1 - 86.0
Current assets
Stocks 7.0 - - 7.0
Debtors 94.1 - - 94.1
Pension prepayment - - 15.5 15.5
----- ---- ---- ----
Total assets 116.0 71.1 15.5 202.6
===== ==== ==== =====
Liabilities
Provisions
Deferred tax - - (2.7) (2.7)
Other (12.1) - (5.0) (17.1)
----- ---- ---- -----
(12.1) - (7.7) (19.8)
Creditors
Trade creditors (20.8) - - (20.8)
Other creditors (43.6) - - (43.6)
Accruals (10.3) - - (10.3)
----- ---- ---- -----
Total Liabilities (86.8) - (7.7) (94.5)
----- ---- ---- -----
Net Assets 29.2 71.1 7.8 108.1
===== ==== ==== =====
</TABLE>
Included in the group profit for the year is a loss of 0.2 million incurred
from the date of acquisition by Railfreight Distribution Limited.
A-18
<PAGE>
Notes continued
11 Fixed asset investments -company continued
On 31 March 1998 the group acquired from National Power PLC the assets of
its rail division for cash consideration of 18.7 million. Goodwill of 0.4
million arising on the acquisition is disclosed in Note 12.
The directors estimate of fair value of the assets acquired are set out in
the table below.
in millions Book value and
fair value of the
group
-----
Fixed assets
Tangible 18.2
Current assets
Stocks 0.5
----
Total assets 18.7
====
Liabilities
Creditors
Other creditors (0.4)
----
Total Liabilities (0.4)
----
Net Assets 18.3
====
The National Power Rail Division contributed neither a profit or a loss to
the group's results.
12 Goodwill
Intangible assets consist of goodwill arising on the acquisition of
businesses acquired by the group. No goodwill is recorded in the books
of the company.
<TABLE>
<CAPTION>
in millions Negative Positive Total
Goodwill Goodwill Goodwill
-------- -------- --------
<S> <C> <C> <C>
Restated at 1 April 1997 (25.3) 5.3 (20.0)
Goodwill arising on acquisitions during the year (103.9) 0.4 (103.5)
Amortisation of goodwill during the year 3.0 (0.3) 2.7
----- --- -----
Balance at 31 March 1998 (126.2) 5.4 (120.8)
===== === =====
</TABLE>
The accumulated positive goodwill amortised is 0.6 million and the
accumulated negative goodwill credited to the profit and loss account is 4.5
million at 31 March 1998.
A-19
<PAGE>
Notes continued
13 Stocks
Stocks held by the group comprise spare parts held for the maintenance
of the group's assets. No stocks were held by the company.
14 Debtors
<TABLE>
<CAPTION>
in millions Group Company Group Company
1998 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Amounts falling due within one year
Trade debtors 80.4 - 84.2 -
Amounts owed by group undertakings - 123.2 - 107.3
Other debtors 24.0 1.9 8.1 2.8
Prepayments and accrued income 8.8 - 6.7 -
----- ----- ---- -----
113.2 125.1 99.0 110.1
===== ===== ==== =====
Amounts falling due after more than one year
Pension fund prepayment 82.1 - 66.8 -
Promissory notes 14.2 - - -
----- ----- ---- -----
96.3 - 66.8 -
===== ===== ==== =====
</TABLE>
15 Creditors: amounts falling due within one year
<TABLE>
<CAPTION>
in millions Group Company Group Company
1998 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bank loans and overdrafts 5.0 12.6 7.5 0.7
Obligations under finance leases and hire purchase contracts 0.5 - - -
Amounts owed by associate undertakings 0.1 - - -
Trade creditors 50.8 0.1 60.4 -
Other creditors including taxation and social security:
Corporation tax 5.6 - 0.9 -
Other taxes and social security costs 19.1 - 15.2 -
Other creditors 8.7 1.3 10.2 1.1
----- ---- ----- ---
89.8 14.0 94.2 1.8
Accruals and deferred income 28.1 0.4 12.1 1.0
----- ---- ----- ---
117.9 14.4 106.3 2.8
===== ==== ===== ===
</TABLE>
16 Creditors: amounts falling due after more than one year
<TABLE>
<CAPTION>
in millions Group Company Group Company
1998 1998 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bank loans (net of unamortised financing costs) 185.7 55.8 137.0 55.2
Obligations under finance leases and hire purchase contracts 2.0 - 0.1 -
----- ---- ----- ----
187.7 55.8 137.1 55.2
===== ==== ===== ====
</TABLE>
A-20
<PAGE>
Notes continued
16 Creditors: amounts falling due after more than one year continued
Interest Rates and Security on Loans
The bank loans include:
76.8 million (1997: 89.3 million) secured by a first fixed and floating
charge over all the assets and shares of the Group, except for those to which a
charge attaches under the terms of the contract for the carriage of mail for the
Post Office and the shares and assets of New Locomotive Finance Ltd, Railfreight
Distribution Ltd, EWS Finance Ltd and East & West Ltd.
55.8 million (1997: 55.2 million) attracting interest at LIBOR plus 0.65%
and is secured in the same manner as the above loan but ranks after it in order
of preference.
31.1 million (1997: nil) secured by a fixed and floating charge over the
assets of New Locomotive Finance Ltd and secondary floating charge over the
assets of the group, except for those of Railfreight Distribution Ltd, East &
West Ltd and EWS Finance Ltd.
27.0 million (1997: nil) secured by a fixed and floating charge over the
assets of EWS Finance Ltd and secondary floating charge over the assets of the
group, except for those of Railfreight Distribution Ltd, East & West Ltd and New
Locomotive Finance Ltd.
Bank loans payable by instalments
in millions Group Company
1998 1997 1998 1997
---- ---- ---- ----
Amounts falling due:
between one and two years 20.0 5.0 - -
between two and five years 109.9 76.8 - -
payable after five years 55.8 55.2 55.8 55.2
----- ----- ---- ----
185.7 137.0 55.8 55.2
===== ===== ==== ====
The maturity of obligations under finance leases and hire purchase
contracts is as follows:
in millions Group Company Group Company
1998 1998 1997 1997
---- ---- ---- ----
Within one year 0.5 - 0.1 -
In the second to fifth years 2.0 - 0.1 -
Over five years - - - -
--- --- --- ---
2.5 - 0.2 -
Less future finance charges - - - -
--- --- --- ---
2.5 - 0.2 -
=== === === ===
A-21
<PAGE>
Notes continued
17 Provisions for liabilities and charges
<TABLE>
<CAPTION>
in millions Contaminated Deferred Redundancy Other Total
Land Tax & Provisions Provisions
Provision Provision Restructuring
Provision
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Group
At 1 April 1997 16.1 18.7 38.3 37.0 110.1
Utilised during period (0.5) - (13.9) (7.1) (21.5)
Arising on acquisition of subsidiary
undertaking 4.4 2.7 - 12.7 19.8
Transferred to deferred income during
the year - - - (1.6) (1.6)
Charge/(credit) for the period in the
profit and loss account - 3.9 - 3.5 7.4
---- ---- ---- ---- -----
At 31 March 1998 20.0 25.3 24.4 44.5 114.2
==== ==== ==== ==== =====
</TABLE>
The amounts provided for deferred taxation and the amounts not provided
are set out below:
<TABLE>
<CAPTION>
in millions 1998 1997
Provided Unprovided Provided Unprovided
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Difference between accumulated depreciation and
amortisation and capital allowances 3.7 45.9 - 52.0
Timing difference on pension fund surplus 24.6 - 20.7 -
Timing difference on provision for redundancies and
restructuring (5.0) - (2.0) (4.8)
Other timing differences 2.0 10.7 - (9.6)
---- ---- ---- ----
25.3 56.6 18.7 37.6
==== ==== ==== ====
</TABLE>
18 Deferred Income
in millions 1998 1997
---- ----
Government capital grants 1.8 1.6
Other deferred income 4.0 2.7
--- ---
5.8 4.3
=== ===
Government capital grants
At 1 April 1997 1.6
Receivable during the period 0.3
Credited to profit and loss account (0.1)
---
At 31 March 1998 1.8
===
A-22
<PAGE>
Notes continued
19 Called up share capital
<TABLE>
<CAPTION>
Number of shares Group and Company
1998 1997 1998 1997
No No in millions in millions
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Authorised
Ordinary shares of 1 each 125,000,000 125,000,000 125 125
=========== =========== === ===
</TABLE>
Allotted, called up and fully paid No in millions
-- -----------
Ordinary shares of 1 each
At 1 April 1997 98,603,022 98.6
Shares issued at a premium of 0.30 667,664 0.7
Shares issued at a premium of 0.69 162,134 0.1
---------- ----
99,432,820 99.4
========== ====
At 31 March 1998 options totalling 7,821,019 (1997: 7,546,521) were in
issue exercisable at the prices and over the time frames detailed below.
Exercisable between Exercise Number
price options
----- -------
10 September 1999 and 10 September 2006 1.00 900,000
10 September 1999 and 10 September 2003 1.00 1,600,000
10 September 1999 and 10 September 2006 1.00 1,050,000
16 September 2000 and 16 September 2004 1.30 100,000
16 September 2000 and 16 September 2004 1.69 179,498
18 November 2000 and 18 November 2004 1.69 35,000
At any time 2.20 3,956,521
---------
7,821,019
=========
At 31 March 1998 warrants totalling 3,602,842 (1997: 3,565,747) were in
issue which are exercisable at the warrant holders discretion at a price of 0.01
each. Subsequent to the balance sheet date a further 633,338 (1997: 667,661)
shares were issued to the Employee Share Trust in respect of options granted to
employees giving rise to an entitlement to a further 21,275 (1997: 24,059)
warrants.
A-23
<PAGE>
Notes continued
20 Reserves
<TABLE>
<CAPTION>
Group Group & Group Company Group
Company
in millions Share Capital reserve Revaluation Profit and loss
premium 1998 reserve account
Account 1998 1998
1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
At 1 April 1997 1.2 21.2 20.6 (1.8)
Interest capitalised - - - 2.1
Transfer to intangible assets - (21.2) (17.8) 1.3
--- ---- ---- ----
Restated 1.2 - 2.8 1.6
Premium on shares issued 0.3 - - -
Retained profit for period - - - 48.4
Revaluation of investment in
subsidiaries - - 49.8 -
--- ---- ---- ----
At 31 March 1998 1.5 - 52.6 50.0
=== ==== ==== ====
</TABLE>
Company
The company's loss for the financial period was 1.4 million (1997: 1.2 million).
21 Commitments
(i) Capital commitments at the end of the financial year for which no
provision has been made.
in millions Group Company Group Company
1998 1998 1997 1997
---- ---- ---- ----
Contracted 411.0 - 1.1 -
Authorised but not contracted 45.1 - 0.3 -
----- --- --- ---
456.1 - 1.4 -
===== === === ===
(ii) There were no commitments at the year end to enter into finance leases
starting after the year end.
(iii) Annual commitments under non-cancellable operating leases are as
follows:
<TABLE>
<CAPTION>
in millions 1998 1997
Land and Other Land and Other
buildings buildings
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Group
Operating leases which expire:
Within one year 0.6 - - -
In the second to fifth years inclusive - 0.4 0.6 0.1
Over five years 0.9 - 0.9 -
--- --- --- ---
1.5 0.4 1.5 0.1
=== === === ===
</TABLE>
The company did not have any commitments under non-cancellable operating
leases.
A-24
<PAGE>
Notes continued
21 Commitments continued
(iv) Fuel Hedge Contracts
English Welsh & Scottish Railway Ltd has entered into a number of fuel
hedge contracts for gas oil, none of which extend beyond 31 March 1999. The
quantity hedged is equivalent to twenty one weeks consumption.
(v) Interest Rate Contracts
English Welsh & Scottish Railway Holdings Ltd entered into a contract
commencing on 17 January 1997 of three years duration to pay or receive as
appropriate the difference between interest on 25 million at a fixed rate of
7.08% and 3 month LIBOR.
English Welsh & Scottish Railway Holdings Ltd entered into a contract
commencing on 4 September 1997 of five years duration to pay or receive as
appropriate the difference between interest on 25 million at a fixed rate of
7.269% and 3 month LIBOR.
New Locomotive Finance Ltd entered into a contract commencing on 15 January
1998 of two years duration to pay or receive as appropriate the difference
between interest on USD52 million at a fixed rate of 6.07% and 3 month
USD-LIBOR.
22 Pension scheme
Contributions to the group's defined benefit pension scheme are charged to
the profit and loss account so as to spread the cost of pensions over employees'
working lives with the group. The contributions are determined by a qualified
actuary using the projected unit method. The most recent valuation was at 1
April 1998. The assumptions adopted by the pension fund's actuary which have the
most significant effect on the results of the valuation are detailed below.
These assumptions are:
o Salary inflation has been assumed to be 6.5% per annum.
o Pensions growth has been assumed to be 4.5% per annum.
o Return on investments has been assumed to be 9% (1997:8.5%) per annum.
The most recent actuarial valuation showed that the market value of the
scheme's assets was 580.1 million (1997: 348.2 million) and that the actuarial
value of those assets represented at least 110% of the liabilities for benefits
that had accrued to members, after allowing for expected future increases in
earnings. Since acquisition a surplus has arisen of 18.1 million which is being
amortised to the profit and loss account over the estimated working lives of the
employees.
On 15 October 1997 the trustees of the Railway Pension Scheme agreed a
package of benefit improvements for members. At the same time it was agreed that
employer contributions, previously 7.5% of pensionable pay, would cease for
three years and that employee contributions would continue at 5% of pensionable
pay.
On 22 June 1998 the trustees of the Railway Pension Scheme, agreed the same
package of benefit improvements for RfD employees. Similarly it was agreed that
employer contributions, previously 7.5% of pensionable pay, would cease for
three years and that employee contributions would continue at 5% of pensionable
pay.
In addition, the group operates a defined contribution pension scheme under
which members contributions are matched on a pound for pound basis. The pension
cost charge for the period amounted to 1.9 million (1997: 3 million).
A-25
<PAGE>
Notes continued
23 Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
in millions 1998 1997
17 1/2
months
---- ------
<S> <C> <C>
Operating profit 68.1 16.7
Depreciation charge 15.1 15.1
Amortisation of goodwill (2.7) (1.3)
Provision against shares held by EW & S Employee Share Trust 0.7 -
(Increase)/Decrease in stocks (3.8) 2.1
(Increase)/Decrease in debtors 65.9 (12.8)
Increase/(Decrease) in creditors and provision (81.7) 56.3
---- ----
Net cash inflow from operating activities 61.6 76.1
==== ====
</TABLE>
24 Analysis of cash flows for headings netted in the cash flow statement
<TABLE>
<CAPTION>
in millions 1998 1997
17 1/2
months
---- ------
<S> <C> <C>
Returns on investments and servicing of finance
Interest received 1.1 2.4
Interest paid (14.2) (16.7)
---- ----
Net cash outflow for returns on investments and servicing of finance (13.1) (14.3)
==== ====
Capital expenditure and financial investment
Purchase of tangible fixed assets (77.7) (30.3)
Sale of tangible fixed assets 0.5 1.0
---- ----
Net cash outflow for capital expenditure and financial investment (77.2) (29.3)
==== ====
Acquisitions and disposals
Acquisition of subsidiary (4.2) (243.9)
Acquisition of National Power rail unit assets (18.7) -
---- -----
Net cash outflow for acquisitions and disposals (22.9) (243.9)
==== =====
</TABLE>
A-26
<PAGE>
Notes continued
25 Analysis of net debt
<TABLE>
<CAPTION>
in millions At 1 April Cash flow Acquisition Non cash At 31
1997 changes March 1998
---- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Cash at bank 28.8 4.4 - - 33.2
Overdraft (0.7) (11.9) - - (12.6)
----- ---- --- --- -----
28.1 (7.5) - - 20.6
Debt due after one year (137.0) (51.4) - 2.7 (185.7)
Debt due within one year (7.5) 7.5 - (5.0) (5.0)
Finance leases (0.2) 0.1 (2.4) - (2.5)
----- ---- --- --- -----
(144.7) (43.8) (2.4) (2.3) (193.2)
----- ---- --- --- -----
Total (116.6) (51.3) (2.4) (2.3) (172.6)
===== ==== === === =====
</TABLE>
in millions 1998 1997
17 1/2
months
---- ------
Reconciliation of net cash flow to movement in debt
(Decrease)/Increase in cash in the period (7.5) 28.1
Cash inflow from increase in debt and lease financing (43.8) (140.9)
----- -----
Change in debt resulting from cash flows (51.3) (112.8)
Finance leases acquired with subsidiaries (2.4) (0.2)
Amortisation of finance costs (2.3) (3.6)
----- -----
Movement in net debt in period (56.0) (116.6)
Net debt at 31 March 1997 (116.6) -
----- -----
Net debt at 31 March 1998 (172.6) (116.6)
===== =====
26 Ultimate parent company and parent undertaking of larger group
The company has no parent undertaking and therefore its results are not
consolidated in the accounts of any other entity.
A-27
<PAGE>
Notes continued
27 Supplemental US GAAP information
As at 31 March 1998, Wisconsin Central Transportation Corporation
(WCTC), a US company registered with the US Securities and Exchange
Commission (SEC), held an approximate 34% interest in English Welsh &
Scottish Railway Holdings Limited (EWSRH).
a) Basis of analysis :
In compliance with UK legislation, the first accounts of EWSRH covered
a period from incorporation to 31 March 1997, a period of
approximately seventeen and a half months. Set out below (to comply
with the SEC's rule that precludes audited financial statements
covering periods in excess of twelve months) is a summary of those
results analysing how they arose between the period from incorporation
to 31 March 1996 and the years ended 31 March 1997 and 1998.
<TABLE>
<CAPTION>
Year ended Year ended 5 1/2 months Period ended
31 March 31 March ended 31 31 March
in millions 1998 1997 March 1996 1997
---- ---- ---------- ----
Profit and loss account :
<S> <C> <C> <C> <C>
Turnover 528.2 535.5 73.5 609.0
Change in stock of spares 11.3 (0.6) (1.5) (2.1)
Other operating income - 0.2 0.1 0.3
Raw materials and consumables (43.5) (80.0) (3.3) (83.3)
Other external charges (239.0) (203.2) (36.7) (239.9)
Staff costs (173.9) (169.4) (21.1) (190.5)
Redundancy and restructuring costs - (63.0) - (63.0)
Depreciation (15.0) (12.3) (1.5) (13.8)
----- ----- ---- -----
Operating costs (460.1) (528.3) (64.0) (592.3)
----- ----- ---- -----
Operating profit 68.1 7.2 9.5 16.7
Profit/(loss) on sale of fixed assets 0.1 (0.2) - (0.2)
Other interest recievable and similar income 1.1 1.8 0.6 2.4
Interest payable and similar charges (12.4) (16.2) (2.0) (18.2)
----- ----- ---- -----
Profit/(loss) on ordinary activities before taxation 56.9 (7.4) 8.1 0.7
Current taxation (4.7) 1.1 (3.2) (2.1)
Deferred taxation (3.8) 3.0 - 3.0
----- ----- ---- -----
Retained profit/(loss) for the period 48.4 (3.3) 4.9 1.6
===== ===== ==== =====
Reconciliation of movement in shareholders' funds:
Retained profit/(loss) for the period 48.4 (3.3) 4.9 1.6
New share capital subscribed 0.8 7.6 91.0 98.6
Share premium arising on new share capital 0.3 1.2 - 1.2
----- ----- ---- -----
Net addition to shareholders' funds 49.5 5.5 95.9 101.4
Opening shareholders' funds 101.4 95.9 - -
----- ----- ---- -----
Closing shareholders' funds 150.9 101.4 95.9 101.4
===== ===== ==== =====
</TABLE>
A-28
<PAGE>
Notes continued
27 Supplemental US GAAP information continued
<TABLE>
<CAPTION>
Year ended Year ended 5 1/2 months Period ended
31 March 31 March ended 31 31 March
in millions 1998 1997 March 1996 1997
---- ---- ---------- ----
Cash flow statement:
<S> <C> <C> <C> <C>
Operating profit 68.1 7.2 9.5 16.7
Depreciation charge 15.1 13.7 1.4 15.1
Amortisation of goodwill (2.7) (1.3) - (1.3)
Provision against shares held by
EWS employee share trust 0.7 - - -
(Increase)/Decrease in stocks (3.8) 0.6 1.5 2.1
(Increase)/Decrease in debtors 65.9 32.6 (45.4) (12.8)
Increase/(Decrease) in creditors and provisions (81.7) 13.2 43.1 56.3
----- ----- ----- -----
Net cash flow from operating activities 61.6 66.0 10.1 76.1
Interest received 1.1 1.8 0.6 2.4
Interest paid (14.2) (14.7) (2.0) (16.7)
----- ----- ----- -----
Net cash outflow from returns on investment and
servicing of finance (13.1) (12.9) (1.4) (14.3)
Purchase of fixed assets (77.7) (27.8) (2.5) (30.3)
Sale of fixed assets 0.5 (0.4) 1.4 1.0
----- ----- ----- -----
Net cash inflow from capital expenditure and
financial investment (77.2) (28.2) (1.1) (29.3)
Acquisitions of subsidiaries (22.9) 0.3 (244.2) (243.9)
Financing :
Issue of ordinary share capital 0.3 8.8 91.0 99.8
Long term loans raised 68.8 5.0 180.0 185.0
Costs of raising long term finance (0.9) (3.0) (8.7) (11.7)
Repayment of long term loans (24.0) (32.4) - (32.4)
Repayment of finance leases (0.1) - - -
----- ----- ----- -----
Net cash inflow from financing 44.1 (21.6) 262.3 240.7
Taxation paid - (1.2) - (1.2)
----- ----- ----- -----
(Decrease)Increase in cash and cash equivalents (7.5) 2.4 25.7 28.1
===== ===== ===== =====
</TABLE>
A-29
<PAGE>
Notes continued
27 Supplemental US GAAP information continued
31 March 31 March
in millions 1998 1997
---- ----
Fixed assets :
Tangible assets 445.6 276.3
Intangible assets (120.8) (20.0)
Investments 1.3 -
----- -----
326.1 256.3
Current assets:
Stocks 20.3 9.0
Debtors due in more than one year 96.3 66.8
Debtors due within one year 113.2 99.0
Cash at bank and in hand 20.6 28.1
----- -----
250.4 202.9
Creditors: amounts falling due within one year (117.9) (106.3)
----- -----
Net current assets 132.5 96.6
----- -----
Total assets less current liabilities 458.6 352.9
Creditors: amounts falling due after more than one year (187.7) (137.1)
Provisions for liabilities and charges (114.2) (110.1)
Deferred Income (5.8) (4.3)
----- -----
Net assets 150.9 101.4
===== =====
Capital and reserves
Called up share capital 99.4 98.6
Share premium reserve 1.5 1.2
Profit and loss account 50.0 1.6
----- -----
Equity shareholders' funds 150.9 101.4
===== =====
A-30
<PAGE>
Notes continued
27 Supplemental US GAAP information continued
b) Summary of significant differences between UK and US GAAP.
As stated in note 9, the UK GAAP profit and loss account for the
period ended 31 March 1997 has been restated to reflect changes in
accounting policy.
Set out below is a reconciliation of the profit/(loss) and
shareholders' funds as set out above under UK GAAP to those under
US GAAP to comply with SEC requirements.
<TABLE>
<CAPTION>
Year ended Year ended 5 1/2 months
31 March 31 March ended 31
in millions 1998 1997 March 1996
---- ---- ----------
<S> <C> <C> <C>
Net profit/(loss) in accordance with UK GAAP 48.4 (3.3) 4.9
Redundancy and restructuring costs (a) - 63.0 -
Expenditure on rolling stock (b) 13.1 21.8 6.4
Pensions (c) 2.0 1.4 0.3
Capitalisation of interest (d) - 0.2 -
Taxation (e) (11.5) (29.2) (2.2)
Amortisaton of goodwill (f) (0.5) (3.0) (0.2)
Application of negative goodwill
to fixed assets (g) 0.8 - -
---- ---- ---
Net profit in accordance with US GAAP 52.3 50.9 9.2
==== ==== ===
</TABLE>
As at As at
31 March 31 March
in millions 1998 1997
---- ----
Shareholders' funds in accordance with UK GAAP 150.9 101.4
Redundancy and restructuring costs (a) 63.0 63.0
Expenditure on rolling stock (b) 41.3 28.2
Pensions (c) 3.7 1.7
Capitalisation of interest (d) 0.2 0.2
Taxation (e) (42.9) (31.4)
Amortisaton of goodwill (f) (3.7) (3.2)
Application of negative goodwill
to fixed assets (g) 0.8 -
----- -----
Shareholders' funds in accordance with US GAAP 213.3 159.9
===== =====
A-31
<PAGE>
Notes continued
27 Supplemental US GAAP information continued
The material adjustments made for US GAAP purposes as analysed above are as
follows:
a) redundancy and restructuring costs in connection with the acquisition
of businesses which must be expensed under FRS 7: "Fair Values in
Acquisition Accounting" in the UK, but treated as fair value
adjustments in the acquisition balance sheet for US GAAP purposes,
provided certain criteria are met;
b) deferral, net of 6.9 million, 2.8 million and 0.1 million of
amortisation, for the years ended 31 March 1998 and 31 March 1997 and
the 5 1/2 month period ended 31 March 1996, respectively, of certain
expenditures relating to rolling stock which have been expensed in the
UK GAAP accounts;
c) difference in calculation of pension surplus and charge between SSAP
24: "Acounting for Pensions" in the UK and SFAS 87: "Employers'
Accounting for Pensions" and SFAS 88: "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Plans and for
Termination Benefits" for US GAAP purposes;
d) capitalisation of interest costs relating to the purchase of fixed
assets which have been expensed in the UK GAAP accounts;
e) full provisions for deferred taxation under US GAAP for the
consequences of all temporary differences between carrying values for
financial reporting and tax purposes (UK GAAP only recognises deferred
tax assets and liabilities to the extent that they relate to timing
differences which are expected to reverse in the foreseeable future)
and taxation adjustments for other items included in the reconciliaton
above;
f) goodwill has been adjusted as a result of certain US/UK GAAP
differences, notably being increased by the redundancy and
restructuring costs resulting in the elimination of the capital
reserve (negative goodwill) arising under UK GAAP. Goodwill is
amortised over a 40 year period for US GAAP purposes;
g) under acquisition accounting for US GAAP the capital reserve (negative
goodwill) arising under UK GAAP is partially eliminated against fixed
assets;
h) the group prepares its Consolidated Statements of Cashflows under
Financial Reporting Standard No. 1 "Cashflow Statements" (FRS 1). Its
objectives and principles are similar to those set out in the US
Statement of Financial Accounting Standards No. 95, "Statement of Cash
Flows" (SFAS 95). The principal difference between the standards
relates to classification. Under FRS 1, the Group presents its
cashflows from (a) operating activities; (b) returns on investments
and servicing of finance; (c) taxation; (d) investing activities and
(e) financing activities. SFAS 95 requires only three categories of
cashflow activities: (a) operating; (b) investing and (c) financing .
Cashflows from taxation and returns on investments and servicing of
finance shown under FRS 1 would be included as cashflow from operating
activities under SFAS 95. In addition, under FRS 1, cash and cash
equivalents include short term borrowings with original maturities of
three months or less. SFAS 95 requires movements on such short term
borrowings to be shown under financial activities.
A-32
