================================================================================
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 June 30, 2000
-------------
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
--------------
Indicate by check X whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X YES NO
----- -----
Indicate the number of shares outstanding of the
Issuer's common stock as of July 31, 2000: 49,153,957 shares
-----------------
================================================================================
<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
FORM 10-Q
Quarter Ended June 30, 2000
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....... 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk................................... 12
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 6. Exhibits and Reports on Form 8-K.................... 14
Signatures............................................................. 15
Index to Exhibits...................................................... 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
Assets
June 30, December 31,
2000 1999
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 1,145 $ 1,543
Receivables, net of allowances of $2,162 and $2,196................................. 90,996 88,035
Materials and supplies.............................................................. 29,369 23,320
Deferred income taxes............................................................... 1,425 1,425
Other current assets................................................................ 4,649 3,284
------------ -----------
Total current assets............................................................. 127,584 117,607
Investments in international affiliates................................................. 213,179 223,046
Properties:
Roadway and structures.............................................................. 833,646 799,947
Equipment........................................................................... 139,047 130,231
------------ -----------
Total properties................................................................. 972,693 930,178
Less accumulated depreciation....................................................... (126,082) (114,182)
-------------- -----------
Net properties................................................................... 846,611 815,996
Other assets, principally deferred financing costs...................................... 2,686 2,854
------------ -----------
Total assets..................................................................... $ 1,190,060 $ 1,159,503
============ ===========
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
Liabilities and Stockholders' Equity
June 30, December 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Short-term debt and current maturities of long-term debt........................... $ 44,450 $ 180,280
Accounts payable................................................................... 44,277 47,239
Accrued expenses................................................................... 95,019 88,397
Income taxes payable............................................................... -- 877
Interest payable................................................................... 2,676 2,943
------------ -----------
Total current liabilities....................................................... 186,422 319,736
Long-term debt......................................................................... 338,343 162,853
Other liabilities...................................................................... 9,990 10,271
Deferred income taxes.................................................................. 160,214 147,663
Deferred income........................................................................ 8,433 9,060
------------ -----------
Total liabilities............................................................... 703,402 649,583
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, 49,049,531 shares and 51,250,231 shares, respectively.......... 490 513
Paid in capital.................................................................... 111,510 116,505
Retained earnings.................................................................. 395,736 396,798
Accumulated other comprehensive loss............................................... (21,078) (3,896)
------------- ------------
Total stockholders' equity...................................................... 486,658 509,920
------------ -----------
Total liabilities and stockholders' equity...................................... $ 1,190,060 $ 1,159,503
============ ===========
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
2
</TABLE>
<PAGE>
<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 Six Months
June 30, Ended June 30,
------------------------- ----------------------
2000 1999 2000 1999
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
Operating revenues........................................... $ 93,027 $ 90,772 $ 184,918 $ 179,292
Operating expenses:
Roadway and structures.................................. 12,766 12,472 28,337 26,370
Equipment ............................................ 17,466 16,988 36,789 35,413
Transportation.......................................... 28,428 26,655 57,593 55,551
General and administrative.............................. 10,124 9,508 19,877 18,850
--------- -------- --------- ---------
Operating expenses.................................. 68,784 65,623 142,596 136,184
--------- -------- --------- ---------
Income from operations....................................... 24,243 25,149 42,322 43,108
Other income (expense):
Interest expense........................................ (6,016) (4,131) (11,217) (8,335)
Other, net ............................................. 263 307 767 579
--------- -------- --------- --------
Total other income (expense), net................... (5,753) (3,824) (10,450) (7,756)
--------- -------- --------- --------
Income before income taxes and equity
in net income (loss) of international affiliates........ 18,490 21,325 31,872 35,352
Provision for income taxes................................... 7,325 8,444 12,626 13,998
--------- -------- --------- ---------
Income before equity in
net income (loss) of international affiliates........... 11,165 12,881 19,246 21,354
Equity in net income (loss) of international affiliates...... (3,390) 5,973 1,133 11,173
--------- -------- --------- ---------
Net income................................................... $ 7,775 $ 18,854 $ 20,379 $ 32,527
========= ======== ========= =========
Earnings per common share outstanding:
Basic................................................... $ 0.16 $ 0.37 $ 0.40 $ 0.64
========= ========== ======== =========
Diluted................................................. $ 0.16 $ 0.37 $ 0.40 $ 0.63
========= ========== ======== =========
Average common shares outstanding:
Basic................................................... 49,435 51,148 50,335 51,145
========= ========== ======== =========
Diluted................................................. 49,446 51,343 50,342 51,281
========= ========== ======== =========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
For the Six Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 20,379 $ 32,527
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization...................................................... 12,718 11,130
Deferred income taxes.............................................................. 12,552 13,204
Equity in net income of international affiliates................................... (1,133) (11,173)
Gains on property sales............................................................ (137) (176)
Net amortization of deferred gain on sale-leaseback of equipment................... (627) (669)
Changes in working capital:
Accounts receivable........................................................... (2,961) 461
Materials and supplies........................................................ (6,049) (7,512)
Other current assets, excluding deferred income taxes......................... (1,365) (1,501)
Accrued disputed switching charges and related interest....................... -- (21,797)
Other current liabilities, excluding debt..................................... 2,515 (6,196)
Other, net......................................................................... (281) 3,436
-------- --------
Net cash provided by operating activities.............................................. 35,611 11,734
-------- --------
Cash flows from investing activities:
Property additions..................................................................... (43,591) (43,489)
Property sales and other transactions.................................................. 73 (372)
Dividends from international affiliate................................................. 1,014 1,099
Investments in international affiliates................................................ (6,706) (30,386)
-------- --------
Net cash used for investing activities................................................. (49,210) (73,148)
-------- --------
Cash flows from financing activities:
Long-term debt issued, net............................................................. 39,660 61,003
Repurchase of common stock............................................................. (26,459) --
Issuance of common stock under stock option plans...................................... -- 131
-------- --------
Net cash provided by financing activities.............................................. 13,201 61,134
-------- --------
Net decrease in cash and cash equivalents................................................... (398) (280)
Cash and cash equivalents, beginning of period.............................................. 1,543 2,972
-------- --------
Cash and cash equivalents, end of period.................................................... $ 1,145 $ 2,692
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest ........................................................................... $ 12,059 $ 8,759
Income taxes........................................................................ 931 5,013
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
4
</TABLE>
<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(Unaudited)
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., Wisconsin Chicago Link Limited, 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 42% equity interest in
English Welsh and Scottish Railway Holdings Limited ("EWS"), a freight railway
in Great Britain, a 24% equity interest in Tranz Rail Holdings Limited ("Tranz
Rail"), a nationwide transportation company in New Zealand, and a 33% equity
interest in Australian Transport Network Limited ("ATN") which provides
commercial rail freight service on the Australian mainland and on the island
state of Tasmania. 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
our audited financial statements and the notes thereto for the year ended
December 31, 1999. In our opinion, the information provided in these statements
reflects all adjustments which are of a normal recurring nature necessary to
fairly present this 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 prior periods have been reclassified to conform with
the 2000 presentation.
Comprehensive Income Information
Comprehensive income consists of net income as reported in the statements
of income and other comprehensive loss, which is comprised solely of foreign
currency translation adjustments. The following table illustrates the
composition of comprehensive income for the periods indicated.
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
-------------------------- ------------------------
2000 1999 2000 1999
------- ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Net income ............................. $ 7,775 $ 18,854 $ 20,379 $ 32,527
Other comprehensive loss:
Currency translation adjustments....... (11,933) (2,877) (17,182) (5,809)
--------- --------- --------- --------
Comprehensive income (loss)................$ (4,158) $ 15,977 $ 3,197 $ 26,718
========= ========= ========= ========
</TABLE>
The accumulated amount of other comprehensive income (loss) through the
date of each balance sheet is presented as a component of stockholders' equity.
5
<PAGE>
Stock Repurchase Program
In March 2000, the Company's Board of Directors authorized up to $35
million to be used to repurchase shares of WCTC's common stock. As of June 30,
2000, the Company had repurchased 2,200,700 shares at an average price of
approximately $12 per share. It is Company policy to retire shares after they
have been repurchased. Common stock, paid in capital and retained earnings have
been reduced as a result of the repurchase.
Recent Accounting Pronouncements
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 effectives 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 to fiscal years beginning after June 15, 2000. In June
2000, SFAS No. 138 was issued which amends the accounting and reporting
standards of SFAS No. 133 for certain derivative and hedging activities. We are
studying the statements to determine the effect on our consolidated financial
position or results of operations, if any. We will adopt SFAS No. 133 and SFAS
No. 138, as required, in fiscal year 2001.
Subsequent Event - Debt Refinancing
On August 1, 2000 the Company refinanced its revolving credit facilities.
Its previous revolving credit facilities, with a capacity of $275 million and a
maturity of October 31, 2000, were replaced with new facilities with a total
capacity of $325 million. Of the new facilities, $175 million have a maturity of
five years and $150 million have a 364 day maturity.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes included herein.
Results of Operations: Second Quarter 2000 Compared to Second Quarter 1999
WCTC net income for the quarter ended June 30, 2000 was $7.8 million
compared to $18.9 million for the same period in 1999. Net income was reduced
by $7.9 million resulting from EWS special items. Operating income for the
second quarter of 2000 was $24.2 million compared to $25.1 million for the
second quarter of 1999.
North American operating revenues. North American operating revenues
during the quarter ended June 30, 2000 were $93.0 million, an increase of $2.3
million over the same period in 1999. Gross freight revenue increased
approximately 3% to $84.8 million in the second quarter of 2000 from $82.4
million in the second quarter of 1999. Volume, as measured by carloads handled
(including as a carload each loaded trailer or container) decreased 3% to
143,400 carloads in 2000 from 148,000 in 1999. The increase in total gross
freight revenues occurred due to a change in the business mix wherein a decrease
in volume for minerals (lower average price per carload) was offset by an
increase in paper volume (higher average price per carload).
Other revenue decreased slightly to $8.2 million compared to $8.3 million
in 1999.
Revenue for nearly all commodity types increased in the second quarter of
2000 compared to the same period last year. Minerals, in particular metallic
ore, was the only commodity group to experience a decline. Minerals experienced
a decrease of $1.2 million from the same period in 1999 primarily because the
1999 results included certain temporary ore shipments which ended in November
1999.
Continued strong demand in the paper industries resulted in an increase in
revenue from paper and other forest products of over 7%. Intermodal revenue
increased nearly 14% over the same period last year with volume up almost 6%.
Industrial products volume increased almost 6% primarily because the continued
strong demand in the paper market created a strong market for chemicals used in
the paper production process and unstable petroleum prices generated early
shipments of asphalt. Food and grain volume decreased by 7% in the second
quarter of 2000 compared to the same period last year primarily due to a loss of
market share for grain.
The following table provides approximate carloads and gross freight revenue
by commodity for the quarters ended June 30:
Carloads Gross Freight Revenues
---------------- ----------------------
(in 000's)
Commodity 2000 1999 2000 1999
--------- ---- ---- ---- ----
Minerals 62,500 69,000 $24,723 $25,940
Paper and other forest products 38,300 37,700 35,384 33,023
Intermodal 16,100 15,200 3,418 3,011
Industrial products 15,000 14,200 12,813 12,445
Food and grain 6,600 7,100 4,939 4,686
Other 4,900 4,800 3,562 3,341
------- ------- ------- --------
Total 143,400 148,000 $84,839 $82,446
======= ======= ======= ========
7
<PAGE>
North American operating expenses. North American operating expenses
increased almost 5%, or $3.2 million, during the second quarter of 2000 compared
to the same period in 1999. The increase was primarily driven by higher labor
and fuel costs. Fuel expenses increased 32% over 1999 levels due to the sharp
rise in the price of diesel fuel. The operating ratio (operating expenses as a
percentage of operating revenues) increased to 73.9% in the second quarter of
2000, compared to 72.3% in the second quarter of 1999.
Labor costs increased over 6% or $1.7 million from the prior year. Factors
contributing to the increase included the rising costs incurred to provide
medical coverage to our employees combined with an average pay increase of 3%
and a slight shift of the labor force mix to higher skilled and better
compensated positions. Overall, the number of employees increased only slightly
from the prior year.
Material expenses decreased to $6.5 million in the second quarter of 2000
from $6.7 million during the second quarter of 1999 primarily due to lower
spending on track related materials. Net equipment rent expenses for locomotives
and freight cars decreased $769,000 in the second quarter of 2000 compared to
the same period in 1999. The decrease, in part, reflects reduced transit times,
which have allowed us to use our equipment more efficiently. Decreases in
business travel, computer services and operating services were mostly offset by
increases in maintenance and utility costs.
Diesel fuel expenses increased 32% over the same period in 1999. The price
per gallon, net of the benefits from the hedging program, rose to 85 cents per
gallon compared to 62 cents per gallon during the three month period ending June
30, 1999. Fuel consumption in gallons decreased modestly as a result of more
efficient operations. The North American operations continue to be 39% hedged
for the remainder of the fiscal year. Additionally, beginning in July, certain
rates were adjusted for a fuel surcharge to partially offset future increases
in fuel prices.
Depreciation expense increased by approximately 16% over the year ago
quarter primarily due to track expansion and improvement projects over the past
year. Other expenses declined by approximately 2% over the 1999 quarter,
primarily due to lower casualty costs.
Interest expense and income taxes. Interest expense increased almost 46%
to $6.0 million during the second quarter of 2000 compared to $4.1 million
during the same period of 1999. This increase resulted from higher average debt
outstanding combined with increased average interest rates on the revolving
credit line. The average debt balance increased mainly to repurchase 2.2 million
shares of our common stock, to purchase additional shares of EWS stock and to
invest in track improvements.
The income tax provision as a percentage of pretax income remained constant
at 39.6%.
Equity in net income (loss) of international affiliates. Results for the
second quarter of 2000 included equity in the net loss of our international
affiliates of $3.4 million compared to net income of $6.0 million for the same
period of 1999. Excluding the effect of special items explained below, equity in
the net income of our international affiliates was $4.5 million in the second
quarter of 2000 compared to $2.7 million in the second quarter of 1999.
Our equity in the net loss of EWS recorded in the second quarter of 2000
was $4.4 million. During the second quarter, EWS recorded certain special items
which reduced our equity in EWS income by approximately $7.9 million.
Specifically, the items included writing down obsolete equipment, establishing a
redundancy provision and expensing previously capitalized project development
costs. Equity in the net income of EWS, excluding the $7.9 million special
items, was approximately $3.5 million compared to $1.8 million recorded in the
second quarter of 1999.
8
<PAGE>
EWS's operating revenues in the quarter increased 8% compared to the second
quarter of 1999. Revenues increased in most commodity segments with the largest
gains obtained in the coal and infrastructure segments. EWS's operating expenses
in the quarter increased approximately 7% primarily due to increased lease
expenses and fuel costs which were partially offset by a reduction in the
pension plan expense. Lease expenses increased over 150% from the second quarter
of 1999 primarily as the result of new locomotive deliveries to upgrade the
quality of the fleet and improve customer service levels. The cost of fuel
increased 46% as the average unhedged price per gallon increased 51% over the
1999 price. EWS has hedges in place for 24% of its expected fuel consumption for
the remainder of 2000.
Our equity in the net income of Tranz Rail for the second quarter of 2000
decreased to $0.8 million versus $4.8 million in 1999. The 1999 results included
certain adjustments, primarily a tax credit, that increased our equity in Tranz
Rail by almost $4.2 million. Excluding the effect of the 1999 adjustments,
second quarter 1999 equity in net income of Tranz Rail would have been
approximately $0.6 million. Tranz Rail's operating revenues remained relatively
flat from a year ago. Operating expenses, excluding certain 1999 adjustments,
decreased slightly. Increases in fuel costs and materials were offset by lower
personnel and contractor costs.
Equity in the net income of ATN was $0.2 million in the second quarter of
2000 compared to equity in the net loss of $0.6 million in the second quarter of
1999. The 1999 results included a write-off of deferred acquisition costs
incurred in an unsuccessful attempt to acquire a rail freight franchise in
Australia.
Results of Operations: First Six Months of 2000
Compared to First Six Months of 1999
WCTC Net income for the six months ended June 30, 2000 was $20.4 million
compared to $32.5 million for the same period in 1999. North American operating
income for the first half of 2000 was $42.3 million compared to $43.1 million
for the first half of 1999.
North American operating revenues. North American operating revenues during
the six months ended June 30, 2000 were $184.9 million, an increase of $5.6
million over the same period in 1999. Gross freight revenue increased to $166.0
million in the first half of 2000 from $163.4 million in the first half of 1999.
Other revenue increased $3.0 million principally due to increased manifest and
intermodal haulage volume, increased switching revenue and an increase in
passenger revenues.
Revenues from minerals decreased almost 5% over the same period last year
primarily due to a decline in shipments of metallic ores. Three factors
contributed to the decline: (1) a build-up of inventory that occurred in late
1999 was responsible for closing the Escanaba ore dock for several weeks in
2000 to deplete excess inventory, (2) in 2000 a major ore producer experienced
mechanical problems that adversely affected volume and (3) the 1999 results
included certain ore shipments which were only temporary and were not continued
in the first half of 2000.
Continued strong demand in the paper industries resulted in an increase in
revenue from paper and other forest products of over 5%. Intermodal revenue
increased 9% over the same period last year. Industrial products volume
increased 5% primarily because the continued strong demand in the paper market
created a strong market for chemicals used in the paper production process. Food
and grain volume decreased by 16% in the first half of 2000 compared to the same
period last year primarily due to a loss of market share for grain.
9
<PAGE>
The following table provides carloads and revenue data by commodity for the
six months ended June 30:
Carloads Gross Freight Revenues
-------- ----------------------
(in 000's)
Commodity 2000 1999 2000 1999
--------- ---- ---- ---- ----
Minerals 108,900 124,500 $47,032 $49,408
Paper and other forest products 76,800 75,900 70,848 67,227
Intermodal 31,000 30,200 6,502 5,943
Industrial products 28,700 27,300 24,644 23,981
Food and grain 12,800 15,200 9,555 9,731
Other 10,200 10,000 7,467 7,072
------- ------- -------- --------
Total 268,400 283,100 $166,048 $163,362
======= ======= ======== ========
North American operating expenses. North American operating expenses
increased almost 5%, or $6.4 million, during the first half of 2000 compared to
the same period in 1999. The increase consisted primarily of higher labor and
fuel costs. The operating ratio increased to 77.1% in the first half of 2000,
compared to 76.0% in the first half of 1999.
Labor costs increased approximately 7% or $4.1 million from the prior year.
Factors contributing to the increase include the rising costs incurred to
provide medical coverage to our employees combined with an average pay increase
of 3% and a slight shift of the labor force mix to higher skilled and better
compensated positions. Overall, the number of employees increased only slightly
from the prior year.
Material expenses decreased to $14.0 million in the first half of 2000 from
$14.3 million during the first half of 1999. Net equipment rent expenses for
locomotives and freight cars decreased $0.5 million in the first half of 2000
compared to the same period in 1999. The decrease, in part, reflects reduced
transit times, which have allowed us to use our equipment more efficiently.
Decreases in business travel and operating services were mostly offset by
increases in maintenance and utility costs.
Diesel fuel expenses increased 34% over the same period in 1999. Fuel
consumption in gallons decreased modestly as a result of more efficient
operations. Depreciation expense increased by over 16% from the first half of
1999 primarily due to the track expansion and improvement projects. Other
expenses declined by approximately $2.2 million over the 1999 period, primarily
due to lower casualty costs.
Interest expense and income taxes. Interest expense increased 35% to $11.2
million during the first half of 2000 compared to $8.3 million during the same
period of 1999. This increase resulted from higher average debt outstanding
combined with increased average interest rates on the revolving credit line.
The income tax provision as a percentage of pretax income remained constant
at 39.6%.
Equity in net income of international affiliates. Results for the first
half of 2000 included equity in the net income of our international affiliates
of $1.1 million compared to $11.2 million for the first half of 1999. Excluding
the effect of special items, equity in the net income of our international
affiliates was $9.0 million in the first half of 2000 compared to $7.9 million
in the first half of 1999.
Our equity in the net loss of EWS for the first half of 2000 was $1.8
million. Equity in the net income of EWS, excluding the $7.9 million special
items explained above, was approximately $6.1 million compared to $5.2 million
recorded in the first half of 1999.
EWS's operating revenues in the first half of 2000 increased almost 7%.
Revenues increased in most of the commodity segments with the largest gains
obtained in the coal and infrastructure segments.
10
<PAGE>
EWS's operating expenses during the same period increased over 7% primarily
due to increased lease expenses and fuel prices.
Our equity in the net income of Tranz Rail for the first half of 2000
decreased to $2.7 million versus $6.3 million in 1999. The 1999 results included
certain adjustments, primarily a tax credit, that increased our equity in Tranz
Rail by almost $4.2 million. Tranz Rail's operating revenues increased slightly
from a year ago. Operating expenses, excluding certain 1999 adjustments,
increased almost 3%, driven by higher fuel and material costs.
Our equity in net income of ATN was $0.2 million in 2000 compared to our
equity in net loss of $0.3 million in 1999. The 1999 results included a $1.0
million effect of a write-off of deferred acquisition costs incurred in an
unsuccessful attempt to acquire a rail freight franchise in Australia.
Financial Condition: June 30, 2000 Compared to December 31, 1999
On August 1, 2000 we refinanced our revolving credit facilities. Our
previous revolving credit facilities, which had a maturity of October 31, 2000,
were replaced with new facilities with a total capacity of $325 million. The new
facilities effectively increased the long-term portion of our debt by $175
million. Our unused credit availability at June 30, 2000 would have been
approximately $108.4 million if such new facilities were in place at that time.
Our total debt outstanding increased approximately $39.7 million during the
first half of 2000 to a total of $382.8 million at June 30, 2000. The issuance
of debt, along with approximately $35.6 million of cash generated from
operations, was used to fund capital expenditures of approximately $43.6
million, to repurchase our common shares for $26.5 million and to invest an
additional $6.7 million in our international affiliates.
The outstanding debt balance constituted 44.0% of our total capitalization
at June 30, 2000 compared to 40.2% at December 31, 1999. The change was
attributable to the increase in the outstanding debt balance combined with a
reduction in stockholders' equity due to the repurchase of common stock and
decreases in the U.S. dollar denominated values of our investments in
international affiliates due to changes in foreign currency exchange rates.
Through June 30, 2000, we spent approximately $26.5 million of the $35.0
million authorized by our Board of Directors to repurchase shares of our common
stock. Approximately 2.2 million shares have been acquired on the open market at
an average price of approximately $12 per share.
In June, we completed the restructuring of the operating leases for some of
our equipment. The new leases, covering 935 railcars and 16 locomotives, will
reduce our annual lease payments by approximately $0.8 million. Also, in June,
we made a $0.5 million capital contribution to ATN. The Board of Directors of
ATN requested the pro rata contribution from all ATN owners.
Disclaimer Regarding Forward-Looking Statements
This report contains or refers to 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 governmental regulation, the
impact of litigation and regulatory proceedings and the actions to be taken by
others (including collective bargaining organizations), revenue forecasts 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.
11
<PAGE>
Item 3. Quantitative And Qualitative Disclosures About Market Risk
In the ordinary course of business, we use various financial instruments
which inherently have some degree of market risk. The quantitative and
qualitative information presented below describes significant aspects of the
financial instrument programs which may have material market risk.
Interest Rate Sensitivity. We are exposed to changes in interest rates
primarily as a result of borrowing activities, which include fixed and floating
rate debt used to maintain liquidity and fund our 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. We are 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 June 30, 2000. The
following table does not contemplate the effects of the recent refinancing.
<TABLE>
<CAPTION>
Fixed Rate Debt Variable Rate Debt Interest Total Debt
------------------- ------------------------ ----------------------
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>
One year $ -- $ 216,611 7.0% $ 2,839 $ 219,450 6.9%
Two years -- -- 2,558 2,558 0.0%
Three years -- -- 2,488 2,488 0.0%
Four years -- -- 1,976 1,976 0.0%
Five years -- -- 1,427 1,427 0.0%
Thereafter 150,000 6.6% -- 4,894 154,894 6.4%
--------- ---------- ---------- ----------
Total $ 150,000 6.6% $ 216,611 7.0% $ 16,182 $ 382,793 6.6%
========= ========= ========= ==========
Fair Value $ 132,384 $ 216,611 $ 12,704 $ 361,699
========= ========= ========= ==========
</TABLE>
Commodity Price Sensitivity. We have a program to hedge against
fluctuations in the price of our diesel fuel purchases. This program includes
forward purchases for delivery at fueling facilities, and various commodity swap
and collar transactions that are accounted for as hedges. Based on historical
information, we believe there is a significant correlation between the market
prices of diesel fuel and #2 heating oil, and our swap and collar transactions
are typically based on the delivery price of #2 heating oil. Our contracts
require us to purchase a defined quantity at a defined price. Such transactions
are generally settled in cash with the counterparty. As of June 30, 2000, we had
hedge arrangements covering approximately 39% of our expected North American
fuel consumption for the balance of 2000. As of June 30, 2000, 6.0 million
notional gallons were included in #2 heating oil swaps and collar arrangements
at contract prices ranging from $0.4100 to $0.5025 per gallon. This price does
not include taxes, transportation costs and certain other fuel handling costs.
As of June 30, 2000, the unrealized gain on these swaps was approximately $2.2
million. Gains and losses from hedge transactions are deferred and matched to
specific fuel purchases. Our international affiliates are also subject to
fluctuations in the price of their diesel fuel purchases. As of June 30, 2000,
EWS was approximately 24% hedged for its fuel purchases for the balance of 2000
while Tranz Rail currently does not have any fuel hedges in place.
12
<PAGE>
Investment in International Affiliates. The value in U.S. dollars of our
investment in international companies and of our 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. We do not hedge this non-cash
exposure. We have entered into zero cost collar arrangements to hedge a portion
of our 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 1.2 million pounds sterling as of June 30, 2000. As of June 30, 2000 the
unrealized gain on these collar arrangements was insignificant.
We do not purchase or hold derivative financial instruments for trading
purposes.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual stockholders' meeting was held on May 18, 2000. At
the meeting, the following directors were elected for a three year term by the
votes indicated:
Number of Shares/Votes
----------------------
Authority
For Withheld
Carl Ferenbach 41,373,577 4,354,717
J. Reilly McCarren 41,371,640 4,356,654
Roland V. McPherson 41,380,203 4,348,091
A. Francis Small 41,363,237 4,365,057
The terms of Thomas E. Evans, Thomas F. Power, Jr., Robert H. Wheeler,
Thomas W. Rissman and John W. Rowe as directors continued after the meeting.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.1 - Revolving Credit Agreement dated as of August 1, 2000 among the
Company and the financial institutions party thereto.
27.0 - Financial Data Schedule for the three month period ended June
30, 2000.
b) Reports on Form 8-K
We did not file any reports on Form 8-K during the three month period
ended June 30, 2000.
14
<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN CENTRAL TRANSPORTATION
CORPORATION
Date: August 14, 2000 By: /s/ Ronald G. Russ
----------------------
Ronald G. Russ
Executive Vice President and
Chief Financial Officer
15
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------------------------------------------------
4.1 Revolving Credit Agreement dated as of August 1, 2000.
27.1 Financial Data Schedule
16
