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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
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Commission File Number 0-19150
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WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3541743
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6250 North River Road, Suite 9000
Rosemont, Illinois 60018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (847) 318-4600
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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
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Indicate the number of shares outstanding of the
Issuer's common stock as of October 31, 1999: 51,250,231 shares
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION
FORM 10-Q
Quarter Ended September 30, 1999
CONTENTS PAGE
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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........ 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................... 12
Part II - Other Information
Item 5. Other Information.................................... 12
Item 6. Exhibits and Reports on Form 8-K..................... 12
Signatures.............................................................. 13
Index to Exhibits....................................................... 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
Assets
September 30, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 3,615 $ 2,972
Receivables, net of allowance for doubtful accounts of $1,830
and $1,847 at September 30, 1999 and December 31, 1998........................... 84,053 78,525
Materials and supplies.............................................................. 26,848 23,610
Deferred income taxes............................................................... 1,295 1,295
Other current assets................................................................ 2,730 1,418
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Total current assets............................................................. 118,541 107,820
Investments in international affiliates................................................. 219,454 173,750
Properties:
Roadway and structures.............................................................. 769,723 706,995
Equipment........................................................................... 127,183 118,990
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Total properties................................................................. 896,906 825,985
Less accumulated depreciation....................................................... (109,105) (94,850)
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Net properties................................................................... 787,801 731,135
Other assets, principally deferred financing costs...................................... 2,924 3,335
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Total assets..................................................................... $ 1,128,720 $ 1,016,040
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The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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<TABLE>
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
Liabilities and Stockholders' Equity
September 30, December 31,
1999 1998
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(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Short-term debt.................................................................... $ 2,471 $ 2,118
Accounts payable................................................................... 45,155 46,116
Accrued expenses................................................................... 89,663 87,404
Accrued disputed switching charges and associated interest......................... -- 21,797
Income taxes payable............................................................... -- 4,219
Interest payable................................................................... 4,941 2,560
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Total current liabilities....................................................... 142,230 164,214
Long-term debt......................................................................... 331,249 271,681
Other liabilities...................................................................... 10,786 4,722
Deferred income taxes.................................................................. 141,089 121,116
Deferred income........................................................................ 9,358 10,313
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Total liabilities............................................................... 634,712 572,046
Stockholders' equity:
Preferred stock, par value $1.00; authorized 1,000,000
shares; none issued or outstanding.............................................. -- --
Common stock, par value $.01; authorized 150,000,000 shares;
issued and outstanding, 51,247,231 shares at September 30, 1999
and 51,142,644 shares at December 31, 1998...................................... 512 511
Paid in capital.................................................................... 116,465 114,833
Retained earnings.................................................................. 378,450 329,941
Accumulated other comprehensive income............................................. (1,419) (1,291)
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Total stockholders' equity...................................................... 494,008 443,994
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Total liabilities and stockholders' equity...................................... $ 1,128,720 $ 1,016,040
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
For the Quarter Ended For the Nine Months
September 30, Ended September 30,
------------------------ -----------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Operating revenues........................................... $ 92,065 $ 88,814 $ 271,357 $ 257,730
Operating expenses:
Roadway and structures.................................. 13,326 12,986 39,696 38,538
Equipment ............................................ 15,934 15,454 51,347 46,615
Transportation.......................................... 28,398 26,107 83,949 79,523
General and administrative.............................. 9,059 7,917 27,909 26,777
Non-recurring personnel reorganization costs............ 3,874 -- 3,874 --
--------- --------- --------- ---------
Operating expenses.................................. 70,591 62,464 206,775 191,453
--------- --------- --------- ---------
Income from operations....................................... 21,474 26,350 64,582 66,277
Other income (expense):
Sale of rights under transportation agreement........... -- -- -- 5,445
Interest expense........................................ (4,703) (4,321) (13,038) (12,805)
Other, net ............................................. 450 443 1,029 817
--------- --------- --------- ---------
Total other income (expense), net................... (4,253) (3,878) (12,009) (6,543)
--------- --------- --------- ---------
Income before income taxes and
equity in net income of international affiliates........ 17,221 22,472 52,573 59,734
Provision for income taxes................................... 6,820 8,899 20,818 23,653
--------- --------- --------- ---------
Income before equity in
net income of international affiliates.................. 10,401 13,573 31,755 36,081
Equity in net income of international affiliates............. 5,581 5,841 16,754 22,789
--------- --------- --------- ---------
Net income................................................... $ 15,982 $ 19,414 $ 48,509 $ 58,870
========= ========= ========= =========
Earnings per common share outstanding
Basic................................................... $ 0.31 $ 0.38 $ 0.95 $ 1.15
========= ========= ========= =========
Diluted................................................. $ 0.31 $ 0.38 $ 0.95 $ 1.15
========= ========= ========= =========
Average common shares outstanding
Basic................................................... 51,245 51,135 51,179 51,059
========= ========= ========= =========
Diluted................................................. 51,374 51,304 51,312 51,343
========= ========= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
For the Nine Months
Ended September 30,
-----------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................................... $ 48,509 $ 58,870
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization...................................................... 17,141 15,154
Deferred income taxes ......................................................... 19,973 22,201
Equity in net income of international affiliates................................... (16,754) (22,789)
Gains on property sales............................................................ (230) (297)
Net amortization of deferred gain on sale-leaseback of equipment................... (955) (842)
Changes in working capital:
Accounts receivable........................................................... (5,528) (8,906)
Materials and supplies........................................................ (3,238) (5,782)
Other current assets, excluding deferred income taxes......................... (1,312) 1,695
Accrued disputed switching charges and related interest....................... (21,797) 915
Other current liabilities..................................................... (540) 21,629
Other, net......................................................................... 6,064 (863)
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Net cash provided by operating activities................................................... 41,333 80,985
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Cash flows from investing activities:
Property additions..................................................................... (73,624) (82,470)
Property sales and other transactions.................................................. 806 1,904
Investments in international affiliate................................................. (31,582) --
Dividend from international affiliate.................................................. 2,156 2,224
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Net cash used for investing activities...................................................... (102,244) (78,342)
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Cash flows from financing activities:
Long-term debt issued.................................................................. 59,921 --
Proceeds from sale of debt securities.................................................. -- 150,000
Repayments of long-term debt........................................................... -- (154,073)
Debt issuance costs.................................................................... -- (3,258)
Issuance of common stock under stock option plans...................................... 1,633 2,260
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Net cash provided by (used for) financing activities........................................ 61,554 (5,071)
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Net increase (decrease) in cash and cash equivalents 643 (2,428)
Cash and cash equivalents, beginning of period.............................................. 2,972 4,630
--------- ---------
Cash and cash equivalents, end of period.................................................... $ 3,615 $ 2,202
========= =========
Supplemental cash flow information: Cash paid during the period for:
Interest .......................................................................... $ 11,143 $ 9,566
Income taxes....................................................................... 5,064 227
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
Basis of Presentation
The consolidated financial statements present the results of operations of
Wisconsin Central Transportation Corporation ("WCTC") and its wholly owned
subsidiaries, Wisconsin Central Ltd., Fox Valley & Western Ltd., WCL Railcars,
Inc., Sault Ste. Marie Bridge Company, Wisconsin Central International, Inc.
("WCI"), WC Canada Holdings, Inc. and Algoma Central Railway Inc. ("ACRI").
WCTC, through WCI, also holds a 39% equity interest in English Welsh and
Scottish Railway Holdings Limited ("EWS"), which operates railways in Great
Britain, a 24% equity interest in Tranz Rail Holdings Limited ("Tranz Rail"), a
nationwide railway in New Zealand, and a 33% equity interest in Australian
Transport Network Limited ("ATN") which provides all the commercial rail freight
service in Tasmania, an island state of Australia. 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, 1998. In the opinion of management, the
information provided in these statements reflects all adjustments, which are of
a normal recurring nature, necessary to present fairly such information. The
results of operations for any interim period are not necessarily indicative of
the results of operations for an entire year.
Reclassifications
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
Comprehensive Income Information
The Company's comprehensive income consists of (a) net income as reported
in the statements of income and (b) other comprehensive income (loss), which is
comprised solely of foreign currency translation adjustments. The Company has
not recorded income tax effects of its foreign currency translation adjustments.
For the three months ended September 30, 1999, comprehensive income was $21.7
million, as compared to comprehensive income of $20.0 million for the three
months ended September 30, 1998. For the first nine months of 1999,
comprehensive income was $48.4 million, as compared to comprehensive income of
$55.5 million for the first nine months of 1998. The accumulated amount of other
comprehensive income through the date of each balance sheet is presented as a
component of stockholders' equity. Comprehensive income is reported in the
statement of changes in stockholders' equity in the Company's annual financial
statements.
English Welsh & Scottish Railway Holdings Limited
In June and August 1999, the Company increased its ownership interest in
EWS from approximately 33% to approximately 39% on a fully diluted basis,
through private purchases with a total price of $31.6 million. The transactions
were funded from the Company's existing credit facilities.
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Personnel Reorganization
As previously disclosed in a Form 8-K filed with the Securities and
Exchange Commission on July 9, 1999, Edward A. Burkhardt, the Company's
Chairman, Chief Executive Officer and a Director, resigned effective August 31,
1999. As a result of agreements entered into between the Company and Mr.
Burkhardt, as well as the reorganization of other personnel, a $3.9 million
pre-tax charge was recorded in the third quarter of 1999 for personnel
reorganization costs.
Recent Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", establishes accounting and
reporting standards for derivatives and for hedging activities. As issued, SFAS
No. 133 was effective for all fiscal years beginning after June 15, 1999. In
June 1999, SFAS No. 137 was issued, effectively deferring the date of required
adoption of SFAS No. 133 fiscal years beginning after June 15, 2000. The Company
is studying the statement to determine its effect on the consolidated financial
position or results of operations, if any. The Company will adopt SFAS No. 133,
as required, in fiscal year 2001.
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes included herein.
Results of Operations: Third Quarter 1999 Compared to Third Quarter 1998
The Company's net income for the quarter ended September 30, 1999 was $16.0
million compared to $19.4 million for the same period in 1998. Included in the
quarter ended September 30, 1999 is a one-time, pretax personnel reorganization
charge of $3.9 million. Excluding the after-tax effect of this one-time charge,
net income for the quarter ended September 30, 1999 was $18.3 million.
Operating revenues. Operating revenues during the quarter ended September
30, 1999 were $92.1 million compared with $88.8 million for the same period in
1998, an increase of 4%. Gross freight revenues for the quarter ended September
30, 1999 increased in three of six commodity groups, compared with the same
period in 1998. Traffic volume, as measured by carloads handled (including as a
carload each loaded trailer or container), for the quarter ended September 30,
1999 approximated 140,600 carloads compared with approximately 139,400 carloads
in 1998.
Volume and gross freight revenues for minerals increased 1% and 9%,
respectively, primarily due to increases in shipments of construction
aggregates, increased demand for roofing material and increases in rail
shipments of iron ore sourced from the upper Midwest. Intermodal volume and
gross freight revenues increased 29% and 39%, respectively, primarily due to
increased market share resulting from service improvements in the third quarter
of 1999. Volume and gross freight revenues for food and grain increased 4% and
1%, respectively, primarily due to increases in market share of wheat and corn
shipments related to reduction of inventory levels.
Volume and gross freight revenues for industrial products decreased 9% and
6%, respectively, primarily due to a reduction in steel shipments caused by
continued pressure on the steel industry from low priced imports from offshore
countries as well as decreases in shipments of agricultural fertilizers. Volume
and gross freight revenues for paper and other forest products decreased 4% and
3%, respectively, primarily due to higher levels of imported paper products.
Other volume and gross freight revenues decreased 9% and 18%, respectively,
primarily due to decreases in shipments of scrap metal from steel producers in
the Company's operating territory.
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<PAGE>
The Company began providing haulage services in August 1998 for Canadian
National Railway's ("CN") carload and bulk commodity trains between Superior,
Wisconsin and Chicago. Operating revenues for the third quarter of 1999 include
$5.7 million related to this service compared to $3.1 million for the third
quarter of 1998.
Operating expenses and operating income. Operating expenses for the third
quarter of 1999 were $70.6 million, including the one-time personnel
reorganization charge of $3.9 million. Without this one-time charge, operating
expenses were $66.7 million, $4.3 million or 7% higher than last year. The
increase consists primarily of higher equipment rents, property taxes and
depreciation. The Company's operating ratio (operating expenses as a percentage
of operating revenues) was 76.7% in the third quarter of 1999 compared to 70.3%
in the third quarter of 1998. Operating income for the third quarter of 1999 was
$21.5 million, a decrease of $4.9 million or 19% compared to last year.
Equipment rents increased by $0.5 million or 9% in the third quarter of
1999, primarily due to additional lease costs associated with freight cars which
the Company sold and leased back in December 1998. Property taxes increased by
$1.1 million due to the successful appeal of property tax assessments in the
third quarter of 1998, which resulted in a $1.0 million reduction of property
taxes in that quarter. Depreciation increased by $0.9 million or 17% primarily
due to higher capital spending programs on track and structures to support
increasing volume levels related to the haulage arrangement with CN. Other
costs, such as fuel, materials, intermodal expenses and contract services,
experienced slight increases primarily due to increases in volume.
Interest expense and income taxes. Interest expense for the third quarter
of 1999 was $4.7 million, an increase of $0.4 million from the third quarter of
1998, primarily due to an increase in the average outstanding borrowings during
the quarter related to the additional investment in EWS.
The income tax provision for the third quarter of 1999 was $6.8 million, a
decrease of $2.1 million compared to the third quarter of 1998, due to lower
pre-tax income.
Equity in net income of international affiliates. The Company's 1999 third
quarter results included equity in net income of its international affiliates of
$5.6 million as compared to $5.8 million for the same period of 1998.
The Company's equity in the net income of EWS for the third quarter of 1999
was $4.7 million versus $5.2 million in the same quarter a year ago. EWS's
operating revenues in the quarter declined 4%, primarily reflecting weakness in
infrastructure traffic. EWS's operating expenses in the quarter decreased 2% as
labor and track access cost reductions more than offset incremental locomotive
lease expense.
The Company's equity in the net income of Tranz Rail for the third quarter
of 1999 was $0.7 million versus $0.3 million in the same quarter a year ago.
Tranz Rail's operating revenues increased nearly 10% in the quarter, reflecting
improving Asian and New Zealand economies. Tranz Rail's operating expenses in
the quarter increased 8% primarily due to increased volumes.
The contribution from ATN for the third quarter of 1999 was $0.2 million
versus $0.3 million in the year-ago quarter, primarily reflecting an increase in
fuel costs.
Results of Operations: First Nine Months of 1999 Compared to First
Nine Months of 1998
The Company's net income for the nine months ended September 30, 1999 was
$48.5 million compared to $58.9 million for the same period in 1998.
Operating Revenues. Operating revenues during the nine months ended
September 30, 1999 were $271.4 million compared with $257.7 million for the same
period in 1998. Gross freight revenues for the nine months ended September 30,
1999 increased in three of six commodity groups, compared with the same period
in 1998. Volume, as measured by carloads handled, for the nine months ended
September 30, 1999 approximated 423,700 compared with approximately 414,400
carloads in 1998.
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Volume and gross freight revenues for minerals increased 3% and 7%,
respectively, primarily due to increased demand for roofing material and
increases in rail shipments of iron ore sourced from the upper Midwest.
Intermodal volume and gross freight revenues increased 30% and 31%,
respectively, primarily due to increased market share resulting from service
improvements in the first nine months of 1999. Volume and gross freight revenues
for food and grain increased 15% and 6%, respectively, primarily due to
increases in shipments of corn and other grains in the Company's operating
territory.
Volume and gross freight revenues for industrial products decreased 11% and
9%, respectively, primarily due to a reduction in steel shipments from a major
customer of ACRI caused by continued pressure on the steel industry from low
priced imports from offshore countries. Both volume and gross freight revenues
for paper and other forest products decreased 3% primarily due to weak market
demand for coated paper. Other gross freight revenues decreased 9% primarily due
to decreases in shipments of scrap metal from steel producers in the Company's
operating territory.
Operating revenues related to the haulage services for CN, which began in
August 1998, totaled $18.6 million for the nine months ended September 30, 1999.
Operating expenses and operating income. Operating expenses for the first
nine months of 1999 were $206.8 million, including the one-time personnel
reorganization charge of $3.9 million. Without this one-time charge, operating
expenses were $202.9 million compared with $191.5 million for the same period in
1998. Operating expenses for 1999 included increases in equipment rents,
depreciation, casualty costs and property taxes. The Company's operating ratio
was 76.2% for the first nine months of 1999 compared to 74.3% for the same
period of 1998. Operating income for the first nine months of 1999 was $64.6
million, a decrease of $1.7 million or 3% compared to the same period last year.
Equipment rents increased by $4.7 million or 28% in the first nine months
of 1999 primarily due to additional lease costs associated with freight cars
which the Company sold and leased back in December 1998, new leases entered into
during the second half of 1998 and increased rents paid to other railroads
related to the increase in intermodal carloads. Depreciation increased by $2.1
million or 14% primarily due to higher capital spending programs on track and
structures to support increasing volume levels related to the haulage
arrangement with CN. Casualty costs increased by $2.2 million or 51% due to an
increase in personal injury claims related to train accidents during the first
nine months of 1999. Property taxes increased by $0.8 million due to the
successful appeal of property tax assessments in the third quarter of 1998,
which resulted in a $1.0 million reduction of property taxes in that quarter.
Interest expense and income taxes. Interest expense for the first nine
months of 1999 was $13.0 million, an increase of $0.2 million from the same
period last year, due to an increase in average outstanding borrowings during
the period, partially offset by a lower effective interest rate on the Company's
floating rate borrowings.
The income tax provision for the first nine months of 1999 was $20.8
million, a decrease of $2.8 million from the first nine months of 1998, due to
lower pre-tax income.
Equity in net income of international affiliates. The Company's results
for the first nine months of 1999 included equity in net income of its
international affiliates of $16.8 million as compared to $22.8 million for the
same period in 1998.
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<PAGE>
The Company's equity in the net income of EWS for the first nine months
of 1999 was $9.9 million, versus $18.7 million for the same period a year ago.
EWS's operating revenues for the first nine months of 1999 declined by 8%, while
operating expenses decreased by 2% over the same period. Factors contributing to
the decrease in EWS's operating revenues were the weakness in Great Britain's
steel market, weakness in infrastructure traffic and the reduction of certain
freight rates to market levels. The decrease in EWS's operating expenses
included reductions in labor and track access costs which offset incremental
locomotive lease expense.
The Company's equity in the net income of Tranz Rail for the first nine
months of 1999 was $7.0 million, versus $3.7 million for the same period a year
ago. The increase in Tranz Rail's contribution is largely the result of several
significant one-time items that had a favorable after-tax impact of $3.9 million
on the Company's equity in net income of Tranz Rail. These one-time items
included a tax credit resulting from a review of deferred tax provisioning
partially offset by redundancy provisions and the write-off of certain
previously capitalized pre-commencement costs.
The Company recognized equity in the net loss of ATN of $0.2 million for
the first nine months of 1999 as a result of a charge recognized by ATN for
costs incurred in the unsuccessful attempt to acquire V-Line Freight. This
charge had a $1.0 million after-tax effect on the Company's equity in ATN for
the first nine months of 1999.
Financial Condition: September 30, 1999 Compared to December 31, 1998
The Company generated cash in the amount of $44.3 million during the first
nine months of 1999 from operations, cash dividends received from Tranz Rail and
the sale of assets and $61.6 million from financing activities. These resources,
as well as cash on hand, were used to finance capital-related expenditures of
$73.6 million and additional investments in EWS totaling $31.6 million. The
amount of cash provided by operating activities was net of $21.8 million used to
satisfy the BOCT judgment as described under "BOCT Complaint" in Item 3 of Part
I of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
The Company had $333.7 million of total debt outstanding at September 30,
1999, which constituted 40.3% of its total capitalization, compared to 38.1% at
December 31, 1998. In June 1999, the Company entered into a revolving credit
agreement with a capacity of $50 million that expires on December 31, 1999 to
augment its existing loan facilities. The addition of this facility brought the
Company's aggregate unused borrowing availability under its loan facilities to
$64.0 million at September 30, 1999. The Company plans to replace this
additional facility with a similar facility prior to its expiration. The
Company's other revolving credit facilities, which have a capacity of $183
million, are scheduled to expire on October 31, 2000. The Company expects to
either extend or replace these facilities prior to their expiration.
In September 1999, the Company entered into a guaranty of up to 33% of
ATN's total credit facility of AUS$8.5 million.
Year 2000
In 1997 WCTC began to assess and modify its computer systems so that they
can process transactions involving the Year 2000 ("Y2K") and beyond. The
Company's Y2K efforts have been a high priority since then. Costs to modify
these systems are currently estimated to be $1.6 million and are expensed as
incurred. Of this amount, approximately $1.0 million was expensed through
September 30, 1999. In addition the Company plans to replace certain hardware
and systems with a total cost estimated to be approximately $1.0 million.
Through September 30, 1999, approximately $0.9 million of this amount has been
spent and capitalized. As of September 30, 1999, approximately 98% of the
Company's systems have been modified. Y2K modifications, contingency planning
and testing will continue through the end of the year.
Railroad Operating Systems - The Company's wholly owned operating
subsidiaries lease or license certain railroad operating systems from Union
Pacific Technologies ("UPT"), a division of the Union Pacific Corporation. These
systems represent a significant portion of the Company's total systems and UPT
has the responsibility for making such systems Y2K compliant. UPT reported that
all of the mainframe and client server systems leased or licensed from it by the
Company are Y2K compliant. The Company generally incurs no additional charges
from UPT for making its systems Y2K compliant. UPT, along with the Company, will
continue to review and test these systems through the end of the year.
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Financial and Administrative Systems - The Company generally utilizes
off-the-shelf software which it runs on IBM AS/400 hardware for its financial
and administrative systems. In addition, the IBM AS/400 platform along with
personal computers, including client-server systems, are utilized in a variety
of ways throughout the operations of the Company. This hardware and software is
now Y2K compliant and testing will continue through the end of the year.
Electronic Interchange - WCTC has electronic exchange of information with
customers, vendors, other railroads, and financial institutions. The Company has
contacted other parties with whom it exchanges data to determine the status of
their Y2K modification efforts. The Company is also working with UPT in testing
the new standard with other railroads and with its trading partners. The Company
expects to be able to process electronic interchange transactions in existing
formats with proper interpretation of the century date.
Vendor Supplied and Embedded Systems - In addition to traditional computer
hardware and software, the Company utilizes a variety of vendor supplied
equipment, machinery and systems which contain embedded systems or software that
could experience Y2K problems. The Company has contacted and worked with its
suppliers and other railroads on items critical to operations and does not
expect significant disruptions to its operations. Testing will continue through
the end of the year.
Contingency Plans - As of September 30, 1999, the Company has completed
approximately 60% of its contingency plans for critical areas with the remainder
to be completed by year end.
WCTC believes that its systems will be successfully and timely modified.
However the failure to do so, or the failure to become Y2K compliant on the part
of third parties with whom the Company does business or is dependent upon, could
materially impact the operations and financial results of the Company for the
year 2000.
The Company's international affiliates are also dealing with Y2K
compliance. The Company's investments in those affiliates and its equity in
their earnings could be affected by the outcome of their Y2K efforts.
EWS - EWS has replaced approximately one-third of its information systems
with Y2K compliant systems, retired some non-compliant systems and, where
necessary, remediated the remainder of its systems so that they are Y2K
compliant. EWS was Y2K compliant on all critical systems, components and
processes during September 1999. EWS's expenditures for Y2K compliance were
approximately $6.3 million through September 30, 1999, and it estimates that an
additional $2.8 million will be required to fund business continuity planning,
non-critical systems and component replacement and remediation and additional
staffing up to and over the millenium transition period. The railway system used
by EWS is owned and operated by Railtrack and has been independently assessed as
Y2K compliant. EWS continues to maintain close liaison with Railtrack's Y2K
program. However, EWS's operations and financial results could be adversely
affected if Railtrack experiences any undue problems over the millenium
transition period. EWS has developed contingency plans within each of its
business areas and with key customers to deal with any problems that may arise
out of Y2K non-compliance.
Tranz Rail - Tranz Rail has replaced its core financial systems with a new
system that is Y2K compliant and is updating its other systems to be Y2K
compliant. Tranz Rail reports that it is substantially Y2K compliant at
September 30, 1999. Tranz Rail's capital expenditures for new financial systems
and Y2K compliance were approximately NZ$20 million through September 30, 1999.
Tranz Rail has developed contingency plans to cover unexpected failures of
essential supplies or undetected internal process faults should they occur.
Both the Company and its affiliates could be adversely affected, directly
and indirectly, by any general disruption in business activity that results from
actual or feared failures related to Y2K problems.
-10-
<PAGE>
Disclaimer Regarding Forward-Looking Statements
This report contains certain statements that are "forward-looking", within
the meaning of Section 21E of the Securities Exchange Act of 1934, including
statements regarding, among other matters, the beliefs, expectations, plans and
estimates of the Company with respect to certain future events, including
without limitation the impact of Y2K issues on computer systems, the impact of
governmental regulation, the impact of litigation and regulatory proceedings and
the actions to be taken by others (including collective bargaining
organizations) and similar expressions concerning matters that are not
historical facts. Such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other factors
that could cause actual events to differ materially from those expressed in
those statements.
Item 3 - Quantitative And Qualitative Disclosures About Market Risk
In the ordinary course of business, the Company utilizes various financial
instruments which inherently have some degree of market risk. The quantitative
and qualitative information presented below describe significant aspects of the
Company's financial instrument programs which have material market risk.
Interest Rate Sensitivity. The Company is exposed to changes in interest
rates primarily as a result of its borrowing activities, which include fixed and
floating rate debt used to maintain liquidity and fund its business operations.
The nature and amount of long-term debt can be expected to vary as a result of
future business requirements, market conditions and other factors. The Company
is not currently a party to any interest rate risk management transactions. The
table below presents principal cash flows and related weighted average interest
rates by contractual maturity dates of debt instruments as of September 30,
1999.
<TABLE>
<CAPTION>
Fixed Rate Debt Variable Rate Debt Total Debt
------------------- --------------------- Interest ---------------------
Average Average Free Average
Interest Interest Debt Interest
Maturity Amount Rate Amount Rate Amount Amount Rate
-------- --------- ------- --------- ------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $ -- $ -- $ 633 $ 633 0.0%
2000 -- 169,174 5.6% 2,380 171,554 5.6%
2001 -- -- 2,202 2,202 0.0%
2002 -- -- 2,103 2,103 0.0%
2003 -- -- 1,640 1,640 0.0%
Thereafter 150,000 6.6% -- 5,588 155,588 6.4%
--------- --------- -------- ---------
Total $ 150,000 6.6% $ 169,174 5.6% $ 14,546 $ 333,720 5.8%
========= ========= ======== =========
Fair Value $ 140,239 $ 169,174 $ 11,262 $ 320,675
========= ========= ======== =========
</TABLE>
Commodity Price Sensitivity. The Company has a program to hedge against
fluctuations in the price of its diesel fuel purchases. This program includes
forward purchases for delivery at fueling facilities, and various commodity swap
and collar transactions which are accounted for as hedges. Swap transactions are
typically based on the delivery price of #2 heating oil and require the Company
to purchase a defined quantity at a defined price. Swap transactions are
generally settled in cash with the counterparty. Based on historical
information, the Company believes there is a significant correlation between the
market prices of diesel fuel and #2 heating oil. As of September 30, 1999, the
Company had hedge arrangements covering approximately 67% of its expected fuel
consumption for the balance of 1999. As of September 30, 1999, 11.1 million
notional gallons were included in diesel fuel swaps at a weighted average
contract price of $.4634 per gallon. This price does not include taxes,
transportation costs and certain other fuel handling costs. As of September 30,
1999, the unrealized gain on these swaps was $1.7 million. Additionally, at
September 30, 1999, the Company maintained fuel inventories used in normal
operations which were not material to the Company's overall financial position
and therefore represent no significant market exposure.
-11-
<PAGE>
Investment in Affiliates. The value in U.S. dollars of the Company's
investment in companies outside the United States and of the Company's equity in
the earnings of those companies fluctuates from time to time as the value in
U.S. dollars of the currencies of those countries fluctuates. The Company does
not hedge this exposure. The Company has entered into zero cost collar
arrangements to hedge a portion of its foreign currency exposure on future
management fees from EWS which are payable in pounds sterling. The collars have
put strikes ranging from $1.5500 to $1.6000 and call strikes ranging from
$1.6520 to $1.6935 with a notional amount of 2.25 million pounds sterling as of
September 30, 1999. As of September 30, 1999, there was no unrealized gain or
loss on these collar arrangements.
The Company does not purchase or hold derivative financial instruments for
trading purposes.
PART II - OTHER INFORMATION
Item 5. Other Information
Labor Matters
In April 1999, employees of the Company's U. S. subsidiaries represented by
the Brotherhood of Locomotive Engineers ratified a labor agreement which had
been reached in February 1999. The agreement settles wage and work rule issues
for approximately 300 of the Company's locomotive engineers for a term ending in
2001.
In September 1999, employees of the Company's U. S. subsidiaries
represented by the United Transportation Union ratified a labor agreement which
had been reached in August 1999. The agreement settles wage and work rule issues
for more than 350 of the Company's conductors through the year 2000.
Item 6. Exhibits and Reports on Form 8-K
The exhibit set forth on the accompanying Index to Exhibits is filed as
part of this report.
The Company filed a report on Form 8-K dated July 9, 1999 reporting that
the Company's Chairman, President and Chief Executive Officer had resigned his
director and officer positions with the Company effective August 31, 1999.
-12-
<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
Date: November 12, 1999 By: /s/ Ronald G. Russ
---------------------------
Ronald G. Russ
Executive Vice President,
Chief Financial Officer
-13-
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 30, 1999 (unaudited) and the
Condensed Consolidated Statement of Income for the Three Months Ended September
30, 1999 (unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000874213
<NAME> WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3615
<SECURITIES> 0
<RECEIVABLES> 85883
<ALLOWANCES> (1830)
<INVENTORY> 26848
<CURRENT-ASSETS> 118541
<PP&E> 896906
<DEPRECIATION> (109105)
<TOTAL-ASSETS> 1128720
<CURRENT-LIABILITIES> 142230
<BONDS> 331249
0
0
<COMMON> 512
<OTHER-SE> 483496
<TOTAL-LIABILITY-AND-EQUITY> 1128720
<SALES> 0
<TOTAL-REVENUES> 92065
<CGS> 0
<TOTAL-COSTS> 70591
<OTHER-EXPENSES> (450)
<LOSS-PROVISION> 89
<INTEREST-EXPENSE> 4703
<INCOME-PRETAX> 17221
<INCOME-TAX> 6820
<INCOME-CONTINUING> 10401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15982
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.31
</TABLE>
