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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 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 April 30, 1999: 51,145,644 shares
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<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
FORM 10-Q
Quarter Ended March 31, 1999
CONTENTS PAGE
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets........................... 1
Consolidated Statements of Income..................... 3
Consolidated Statements of Cash Flows................. 4
Notes to Consolidated Financial Statements............ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..................................... 10
Part II - Other Information
Item 1. Legal Proceedings.................................... 11
Item 5. Other Information.................................... 11
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
March 31, December 31,
1999 1998
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 4,687 $ 2,972
Receivables, net of allowance for doubtful accounts of $1,918
and $1,847 at March 31, 1999 and December 31, 1998............................... 81,002 78,525
Materials and supplies.............................................................. 32,089 23,610
Deferred income taxes............................................................... 1,295 1,295
Other current assets................................................................ 1,972 1,418
----------- -----------
Total current assets............................................................. 121,045 107,820
Investments in international affiliates................................................. 174,768 173,750
Properties:
Roadway and structures.............................................................. 718,081 706,995
Equipment........................................................................... 121,226 118,990
----------- -----------
Total properties................................................................. 839,307 825,985
Less accumulated depreciation....................................................... (99,445) (94,850)
----------- -----------
Net properties................................................................... 739,862 731,135
Other assets, principally deferred financing costs...................................... 3,123 3,335
----------- -----------
Total assets..................................................................... $ 1,038,798 $ 1,016,040
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
Liabilities and Stockholders' Equity
March 31, December 31,
1999 1998
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Short-term debt.................................................................... $ 2,389 $ 2,118
Accounts payable................................................................... 48,161 46,116
Accrued expenses................................................................... 91,908 87,404
Accrued disputed switching charges and associated interest......................... -- 21,797
Income taxes payable............................................................... 819 4,219
Interest payable................................................................... 4,745 2,560
----------- -----------
Total current liabilities....................................................... 148,022 164,214
Long-term debt......................................................................... 294,484 271,681
Other liabilities...................................................................... 4,932 4,722
Deferred income taxes.................................................................. 126,611 121,116
Deferred income........................................................................ 9,974 10,313
----------- -----------
Total liabilities............................................................... 584,023 572,046
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, 51,145,644 shares at March 31, 1999
and 51,142,644 shares at December 31, 1998...................................... 511 511
Paid in capital.................................................................... 114,873 114,833
Retained earnings.................................................................. 343,614 329,941
Accumulated other comprehensive income............................................. (4,223) (1,291)
----------- -----------
Total stockholders' equity...................................................... 454,775 443,994
----------- -----------
Total liabilities and stockholders' equity...................................... $ 1,038,798 $ 1,016,040
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
For the Quarter Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
Operating revenues......................................................................... $ 88,520 $ 83,957
Operating expenses:
Roadway and structures................................................................ 13,898 13,672
Equipment ......................................................................... 18,425 16,921
Transportation........................................................................ 28,896 27,708
General and administrative............................................................ 9,342 9,668
-------- --------
Operating expenses................................................................ 70,561 67,969
-------- --------
Income from operations..................................................................... 17,959 15,988
Other income (expense):
Sale of rights under transportation agreement......................................... -- 5,445
Interest expense...................................................................... (4,204) (4,208)
Other, net ......................................................................... 272 138
-------- --------
Total other income (expense), net................................................. (3,932) 1,375
-------- --------
Income before income taxes and equity in net income of
international affiliates.............................................................. 14,027 17,363
Provision for income taxes................................................................. 5,554 6,875
-------- --------
Income before equity in net income of international affiliates............................. 8,473 10,488
Equity in net income of international affiliates........................................... 5,200 9,941
-------- --------
Net income................................................................................. $ 13,673 $ 20,429
======== ========
Earnings per common share:
Basic................................................................................. $ .27 $ .40
======== ========
Diluted............................................................................... $ .27 $ .40
======== ========
Average common shares outstanding:
Basic................................................................................. 51,143 51,014
======== ========
Diluted, including dilutive effect of common stock options............................ 51,219 51,369
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
For the Quarter Ended
March 31,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 13,673 $ 20,429
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization...................................................... 5,538 4,844
Deferred income taxes.............................................................. 5,495 6,629
Equity in net income of international affiliates................................... (5,200) (9,941)
Gains on property sales............................................................ (72) (65)
Net amortization of deferred gain on sale-leaseback of equipment................... (339) (280)
Changes in working capital:
Accounts receivable........................................................... (2,477) (2,849)
Materials and supplies........................................................ (8,479) (3,954)
Other current assets, excluding deferred income taxes......................... (554) (5)
Accrued disputed switching charges and related interest....................... (21,797) 305
Other current liabilities..................................................... 5,334 7,256
Other, net......................................................................... 210 (40)
-------- --------
Net cash (used for) provided by operating activities................................... (8,668) 22,329
-------- --------
Cash flows from investing activities:
Property additions..................................................................... (14,092) (19,640)
Property sales and other transactions.................................................. 262 405
Dividend from affiliate................................................................ 1,099 1,167
-------- --------
Net cash used for investing activities................................................. (12,731) (18,068)
-------- --------
Cash flows from financing activities:
Long-term debt issued.................................................................. 23,074 --
Repayment of long-term debt............................................................ -- (1,283)
Issuance of common stock under stock option plans...................................... 40 145
-------- --------
Net cash provided by (used for) financing activities................................... 23,114 (1,138)
-------- --------
Net increase in cash and cash equivalents.............................................. 1,715 3,123
Cash and cash equivalents, beginning of period......................................... 2,972 4,630
-------- --------
Cash and cash equivalents, end of period............................................... $ 4,687 $ 7,753
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 1,899 $ 4,291
Income taxes........................................................................ 3,459 --
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
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<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1999
Basis of Presentation
The consolidated financial statements presented herein 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 33% equity interest in English
Welsh and Scottish Railway Holdings Limited ("EWS"), whose subsidiaries operate
railways in Great Britain, a 24% equity interest in Tranz Rail Holdings Limited
("Tranz Rail"), which operates 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
In January 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". 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 first quarter
of 1999, comprehensive income was $10.7 million, as compared to comprehensive
income of $17.7 million in the first quarter 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.
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<PAGE>
Sale of Rights Under Transportation Agreement
Prior to November 1997, the Company, together with another railroad,
handled metallic ore movements from the upper Midwest to a steel plant in Utah
under a five year transportation agreement that was scheduled to terminate in
1999. In March 1998, the Company sold its rights under this transportation
agreement for $5.4 million. The amount, paid in two equal installments in March
1998 and March 1999, was recorded as non-operating income in the Company's
financial statements in 1998.
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: First Quarter 1999 Compared to First Quarter 1998
The Company's net income for the quarter ended March 31, 1999 was $13.7
million compared to $20.4 million for the same period in 1998.
Operating revenues. Operating revenues during the quarter ended March 31,
1999 were $88.5 million compared with $84.0 million for the same period in 1998,
an increase of 5%. Gross freight revenues for the quarter ended March 31, 1999
increased in four 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 March 31, 1999
approximated 135,100 carloads compared with approximately 136,600 carloads in
1998.
Gross freight revenues for minerals increased by 2%, primarily due to
increased demand for roofing material and increases in coal shipments to power
producers in the Company's operating territory. Intermodal volume and gross
freight revenues increased by 20% and 18%, respectively, primarily due to
increased market share resulting from service improvements in the first quarter
of 1999. Volume and gross freight revenues for food and grain increased by 27%
and 11%, respectively, primarily due to increases in shipments of corn and other
grains in the Company's operating territory.
Both volume and gross freight revenues for industrial products decreased by
13%, primarily due to a reduction of steel shipments from a major customer of
ACRI caused by the continued pressure on the steel industry from low price
imports from offshore countries. Gross freight revenues for paper and other
forest products was flat for the first quarter of 1999.
The Company began providing haulage services in August 1998 for Canadian
National Railway's carload and bulk commodity trains between Superior, Wisconsin
and Chicago. Operating revenues for the first quarter of 1999 include $6.5
million related to this service.
Operating expenses and operating income. Operating expenses for the first
quarter of 1999 were $70.6 million, $2.6 million or 4% higher than last year.
The increase consists primarily of higher casualty costs, equipment rents and
depreciation, offset in part by a decrease in labor expense and fuel costs. The
Company's operating ratio (operating expenses as a percentage of operating
revenues) was 79.7% in the first quarter of 1999, compared to 81.0% in the first
quarter of 1998. Operating income for the first quarter of 1999 was $18.0
million, $2.0 million or 12% higher than last year.
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<PAGE>
Casualty costs increased by $2.2 million in the first quarter of 1999 as
compared to the same period in 1998 due to an increase in personal injury claims
related to train accidents during the quarter. Equipment rents increased by $1.2
million or 20% primarily due to additional lease costs associated with freight
cars which the Company sold and leased back in December 1998, as well as new
leases entered into during the second half of 1998. Depreciation increased by
$0.6 million or 13% primarily due to higher capital spending programs on track
and structures to support increasing volume levels related to the haulage
arrangement with Canadian National Railway.
Labor expense decreased by $0.5 million or 2%, primarily due to a reduction
in incentive provisions in the first quarter of 1999. Fuel expense decreased by
$0.6 million or 10% in the first quarter of 1999 compared with the same period
of 1998 primarily as a result of a 14% decrease in fuel prices partially offset
by a 3% increase in fuel consumption.
Interest expense and income taxes. Interest expense for the first quarter
of 1999 was $4.2 million, the same as the first quarter of 1998.
The income tax provision for the first quarter of 1999 was $5.6 million, a
decrease of $1.3 million from the first quarter of 1998, due to lower pre-tax
income.
Equity in net income of international affiliates. The Company's 1999 first
quarter results included equity in net income of its international affiliates of
$5.2 million as compared to $9.9 million for the same period of 1998.
The Company's equity in the net income of EWS for the first quarter of 1999
was $3.4 million versus $7.9 million in the same quarter a year ago. EWS's
operating revenues in the quarter declined 12%, reflecting the reduction of
certain freight rates to market levels and weakness in the steel market. EWS's
operating expenses in the quarter declined 4%.
The Company's equity in the net income of Tranz Rail for the first quarter
of 1999 was $1.6 million versus $2.0 million in the same quarter a year ago.
Tranz Rail's operating revenues decreased 1% as New Zealand's economy remains
under pressure. Operating expenses increased 2% including redundancy costs
associated with Tranz Rail's planned work force reduction. In addition, the
value of the New Zealand dollar was $0.53 compared to the U. S. dollar in the
first quarter of 1999, an 8% decline from the year-ago quarter.
The contribution from ATN for the first quarter of 1999 was $0.2 million
versus a slight loss in the year-ago quarter.
Financial Condition: March 31, 1999 Compared to December 31, 1998
The Company generated cash in the amount of $1.4 million during the first
three months of 1999 from a cash dividend received from Tranz Rail and the sale
of assets and $23.1 million from financing activities. These resources, as well
as cash on hand, were used to finance capital-related expenditures of $14.1
million and operating activities which used $8.7 million of cash. The amount of
cash used for operating activities includes a $21.8 million use of cash to
satisfy the BOCT judgment as discussed in Part II, Item 1. "Legal Proceedings".
The Company had $296.9 million of total debt outstanding at March 31, 1999,
which constituted 39.5% of its total capitalization, compared to 38.1% at
December 31, 1998. At March 31, 1999, the Company's aggregate unused borrowing
availability under its loan facilities totaled $50.0 million.
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<PAGE>
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 $0.6 million was expensed through March
31, 1999. In addition the Company plans to replace certain hardware and systems
with a total cost estimated to be approximately $1 million. Through March 31,
1999, approximately $0.6 million of this amount has been spent and capitalized.
As of March 31, 1999, approximately 80% of the Company's systems have been
modified and Y2K modifications and testing will continue throughout 1999.
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 systems leased or licensed from them by the Company are Y2K
compliant with other systems (primarily client server systems) scheduled to
become Y2K compliant by mid-1999. The Company generally incurs no additional
charges from UPT for making their systems Y2K compliant. UPT, along with the
Company, will continue to review and test these systems throughout 1999.
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
expected to be modified or replaced by September 30, 1999 and tested throughout
that year.
Electronic Interchange - WCTC has electronic exchange of information with
customers, vendors, other railroads, and financial institutions. The Company is
in the process of contacting other parties with whom it exchanges data to
determine the status of their Y2K modification efforts. The Company expects to
be able to process electronic interchange transactions in existing formats with
proper interpretation of the century date by the middle of 1999. The Company is
working with UPT in testing the new standard with other railroads and with its
trading partners.
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 is contacting and working with its
suppliers on those items that are critical to operations or safety related and
with other railroads on those items that are common to the industry. As of March
31, 1999, these efforts were approximately 60% complete with the remainder
expected to be substantially completed by the middle of 1999. Testing will
continue throughout 1999.
Contingency Plans - The Company plans to develop and have in place
contingency plans for areas of particular concern by the end of the third
quarter of 1999.
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.
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<PAGE>
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 is replacing approximately one-third of its information systems
with Y2K compliant systems, retiring some non-compliant systems, and remediating
the remainder of its systems so that it will be Y2K compliant. EWS projects that
it will be Y2K compliant on all critical systems, components and processes by
July 1999. EWS's expenditures for Y2K compliance were approximately $3.7 million
through March 31, 1999, and it estimates that an additional $5.6 million will be
required, in addition to the cost of replacement systems. The railway system
used by EWS is owned and operated by Railtrack, and EWS's operations and
financial results could be materially adversely affected if Railtrack fails to
achieve Y2K compliance. Railtrack has indicated that it will be Y2K compliant,
and EWS is maintaining close liaison with Railtrack's Y2K program. EWS is
developing contingency plans within each of its business areas and with key
customers to deal with 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 March
31, 1999. Tranz Rail's capital expenditures for new financial systems and Y2K
compliance were approximately NZ$19.0 million through March 31, 1999 and it
estimates that an additional NZ$1.0 million of such expenditures will be
required. Tranz Rail is currently developing 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.
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.
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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 March 31, 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 $ -- $ -- $ 2,389 $ 2,389 0.0%
2000 -- 132,477 5.2% 2,050 134,527 5.1%
2001 -- -- 1,851 1,851 0.0%
2002 -- -- 1,741 1,741 0.0%
2003 -- -- 1,270 1,270 0.0%
Thereafter 150,000 6.6% -- 5,095 155,095 6.4%
--------- --------- --------- ---------
Total $ 150,000 6.6% $ 132,477 5.2% $ 14,396 $ 296,873 5.7%
========= ========= ========= =========
Fair Value $ 150,320 $ 132,477 $ 11,880 $ 294,677
========= ========= ========= =========
</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 March 31, 1999, the
Company had hedge arrangements covering approximately 57% of its expected fuel
consumption for balance of 1999. As of March 31, 1999, 12.3 million notional
gallons were included in diesel fuel swaps at a weighted average contract price
of $.4907 per gallon. This price does not include taxes, transportation costs
and certain other fuel handling costs. As of March 31, 1999, the unrealized loss
on these swaps was $0.5 million. Additionally, at March 31, 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.
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 did
not have any foreign currency forward exchange contracts in place as of March
31, 1999 to hedge its foreign currency exposure. Accordingly, the Company's net
worth and net earnings fluctuates as the value of those currencies fluctuates.
The Company does not purchase or hold derivative financial instruments for
trading purposes.
-10-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
BOCT Complaint
On March 31, 1999 the Company satisfied the judgment 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 amount of the judgment had been
accrued in the Company's financial statements, and satisfaction of the judgment
had no effect on the Company's balance sheet. Interest was accruing on the
judgment, and payment of interest on increased borrowings resulting from
satisfaction of the judgment is not expected to affect the Company's results of
operations compared to prior periods.
Item 5. Other Information
Aqaba Railway Company
In November 1998, the Company announced that a consortium including WCI was
named as the preferred bidder for a 25 year contract to operate the assets of
the Aqaba Railway Company ("ARC") which is owned by the Government of Jordan
("GOJ"). The ARC system includes approximately 300 kilometers of railroad
trackage that primarily serves the Jordan Phosphates Mines Company ("JPMC")
hauling phosphate, sulphur and phosphoric acid. As preferred bidder, the
consortium is negotiating a final concession agreement with the GOJ and a final
transportation agreement with JPMC. If an agreement is reached, the Company
expects to make an investment in the operating company of up to approximately
$9.0 million over two years for an approximate 33% share. The funds for the
Company's investment will be derived from internally generated funds and
borrowings under existing credit facilities.
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.
As reported in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, 336 conductors employed by the Company's North American
operating subsidiaries have been represented by the United Transportation Union
("UTU") since 1997. During 1998 the Company and the UTU negotiated an initial
labor agreement which was not ratified by the employees represented by the UTU.
The Company is continuing to negotiate with the UTU under the auspices of
National Mediation Service and believes that negotiations of the terms of a new
labor agreement are nearly finished. Any labor agreement negotiated with the UTU
will be subject to ratification by the employees represented by the UTU. The
Company is unable to predict whether a reasonable agreement with the UTU can be
negotiated and ratified without labor disruption.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
The exhibits set forth on the accompanying Index to Exhibits are filed as
part of this report.
The Company filed no reports on Form 8-K during the quarter ended March 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: May 14, 1999 By: /s/ Walter C. Kelly
------------------------
Walter C. Kelly
Vice President, Finance
Date: May 14, 1999 By: /s/ Walter C. Kelly
------------------------
Walter C. Kelly
Chief Accounting Officer
-13-
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Exhibit No. Description Page
- ---------- ----------- ----
27 Financial Data Schedule 18
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 1999 (unaudited) and the
Condensed Consolidated Statement of Income for the Three Months Ended March 31,
1999 (unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,687
<SECURITIES> 0
<RECEIVABLES> 82,920
<ALLOWANCES> 1,918
<INVENTORY> 32,089
<CURRENT-ASSETS> 121,045
<PP&E> 839,307
<DEPRECIATION> 99,445
<TOTAL-ASSETS> 1,038,798
<CURRENT-LIABILITIES> 148,022
<BONDS> 294,484
0
0
<COMMON> 511
<OTHER-SE> 454,264
<TOTAL-LIABILITY-AND-EQUITY> 1,038,798
<SALES> 0
<TOTAL-REVENUES> 88,520
<CGS> 0
<TOTAL-COSTS> 70,561
<OTHER-EXPENSES> (272)
<LOSS-PROVISION> 89
<INTEREST-EXPENSE> 4,204
<INCOME-PRETAX> 14,027
<INCOME-TAX> 5,554
<INCOME-CONTINUING> 8,473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,673
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
