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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, 2000
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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 3 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 October 31, 2000: 46,391,357 shares
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<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION
FORM 10-Q
Quarter Ended September 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.........................................13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K..........................15
Signatures...................................................................16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
Assets
September 30, December 31,
2000 1999
------------- ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents........ .............. $ 1,900 $ 1,543
Receivables, net of allowances
of $2,168 and $2,196........................ 94,169 88,035
Materials and supplies.......................... 25,592 23,320
Deferred income taxes........................... 1,425 1,425
Other current assets............................ 4,796 3,284
------------ -----------
Total current assets........................ 127,882 117,607
Investments in international affiliates........... 202,126 223,046
Properties:
Roadway and structures.......................... 857,088 799,947
Equipment....................................... 142,636 130,231
------------ -----------
Total properties............................. 999,724 930,178
Less accumulated depreciation............... (131,185) (114,182)
-------------- -----------
Net properties............................. 868,539 815,996
Other assets, principally deferred financing costs. 3,197 2,854
------------ -----------
Total assets................................ $ 1,201,744 $ 1,159,503
============ ===========
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
1
<PAGE>
WISCONSIN CENTRAL TRANSPORTATION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
Liabilities and Stockholders' Equity
September 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Audited)
Current liabilities:
Short-term debt and current maturities of
long-term debt................................... $ 83,600 $ 180,280
Accounts payable.................................... 42,031 47,239
Accrued expenses.................................... 89,193 88,397
Income taxes payable................................ -- 877
Interest payable.................................... 5,245 2,943
--------- ---------
Total current liabilities........................ 220,069 319,736
Long-term debt........................................ 314,923 162,853
Other liabilities..................................... 10,235 10,271
Deferred income taxes................................. 169,490 147,663
Deferred income....................................... 8,114 9,060
--------- ---------
Total liabilities................................ 722,831 649,583
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, 48,226,357 shares
and 51,250,231 shares, respectively.............. 482 513
Paid in capital..................................... 110,565 116,505
Retained earnings................................... 399,984 396,798
Accumulated other comprehensive loss................ (32,118) (3,896)
--------- ---------
Total stockholders' equity..................... 478,913 509,920
--------- -----------
Total liabilities and stockholders' equity.....$1,201,744 $1,159,503
========== ==========
The accompanying notes to consolidated financial
statements are an integral part of these
financial statements.
2
<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 Nine Months
September 30, Ended September 30,
------------------------- -----------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues........................................... $ 96,334 $ 92,065 $ 281,252 $ 271,357
Operating expenses:
Roadway and structures.................................. 13,910 13,326 42,247 39,696
Equipment ............................................ 14,733 15,934 51,522 51,347
Transportation.......................................... 29,887 28,398 87,480 83,949
General and administrative.............................. 10,038 9,059 29,915 27,909
Property tax settlement................................. (2,365) -- (2,365) --
Personnel reorganization costs.......................... 900 3,874 900 3,874
--------- --------- --------- ---------
Operating expenses.................................. 67,103 70,591 209,699 206,775
--------- --------- --------- ---------
Income from operations....................................... 29,231 21,474 71,553 64,582
Other income (expense):
Interest expense....................................... (6,730) (4,703) (17,957) (13,038)
Other, net ........................................... 1,035 450 1,810 1,029
---------- --------- --------- ---------
Total other income (expense), net.................. (5,695) (4,253) (16,147) (12,009)
---------- ---------- ---------- ---------
Income before income taxes and equity
in net income of international affiliates............... 23,536 17,221 55,406 52,573
Provision for income taxes................................... 9,318 6,820 21,942 20,818
--------- --------- --------- ---------
Income before equity in
net income of international affiliates.................. 14,218 10,401 33,464 31,755
Equity in net income of international affiliates............. 326 5,581 1,459 16,754
--------- --------- --------- ---------
Net income................................................... $ 14,544 $ 15,982 $ 34,923 $ 48,509
========= ========= ========= =========
Earnings per common share outstanding:
Basic................................................... $ 0.30 $ 0.31 $ 0.70 $ 0.95
========= ========= ========= =========
Diluted................................................. $ 0.30 $ 0.31 $ 0.70 $ 0.95
========= ========= ========= =========
Average common shares outstanding:
Basic................................................... 48,837 51,245 49,832 51,179
========= ========= ========= =========
Diluted................................................. 48,838 51,374 49,837 51,312
========= ========= ========= =========
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 Nine Months
Ended September 30,
2000 1999
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income .......................................................................... $ 34,923 $ 48,509
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization...................................................... 19,392 17,141
Deferred income taxes.............................................................. 21,827 19,973
Equity in net income of international affiliates................................... (1,459) (16,754)
Gains on property sales............................................................ (727) (230)
Net amortization of deferred gain on sale-leaseback of equipment................... (946) (955)
Changes in working capital:
Accounts receivable........................................................... (6,134) (5,528)
Materials and supplies........................................................ (2,272) (3,238)
Other current assets, excluding deferred income taxes......................... (1,512) (1,312)
Accrued disputed switching charges and related interest....................... -- (21,797)
Other current liabilities, excluding debt..................................... (2,987) (540)
Other, net......................................................................... (36) 6,064
--------- --------
Net cash provided by operating activities.............................................. 60,069 41,333
-------- --------
Cash flows from investing activities:
Property additions..................................................................... (72,493) (73,624)
Property sales and other transactions.................................................. 545 806
Dividends from international affiliate................................................. 1,860 2,156
Investments in international affiliates................................................ (6,706) (31,582)
-------- --------
Net cash used for investing activities................................................. (76,794) (102,244)
--------- ---------
Cash flows from financing activities:
Long-term debt issued, net............................................................. 55,390 59,921
Debt issuance costs.................................................................... (601) --
Repurchase of common stock............................................................. (38,888) --
Issuance of common stock under stock option plans...................................... 1,181 1,633
-------- --------
Net cash provided by financing activities.............................................. 17,082 61,554
-------- --------
Net increase in cash and cash equivalents................................................... 357 643
Cash and cash equivalents, beginning of period.............................................. 1,543 2,972
-------- --------
Cash and cash equivalents, end of period.................................................... $ 1,900 $ 3,615
======== ========
Supplemental cash flow information: Cash paid during the period for:
Interest .............................................................................. $ 16,531 $ 9,566
Income taxes........................................................................... 1,035 227
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
September 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 Ltd., 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 43% 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 accounting
principles that are generally accepted in the United States of America 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 income (loss). Other comprehensive income
(loss) is comprised solely of foreign currency translation adjustments. The
following table illustrates the composition of comprehensive income for the
periods indicated.
Quarter ended Nine months ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
(in thousands)
Net income ......................... $14,544 $15,982 $34,923 $48,509
Other comprehensive income (loss):
Currency translation adjustments.... (11,040) 5,681 (28,222) (128)
------- ------- ------- -------
Comprehensive income.................. $ 3,504 $21,663 $ 6,701 $48,381
======= ======= ======= =======
The accumulated amount of other comprehensive income through the date of
each balance sheet is presented as a component of stockholders' equity.
5
<PAGE>
Stock Repurchase Program
In October 2000, the Company's Board of Directors increased the amount of
funds authorized to be used to repurchase shares of WCTC's common stock to $70
million. As of September 30, 2000, the Company had repurchased 3,128,300 shares
at an average price of approximately $12.43 per share. It is Company policy to
retire shares after they have been repurchased. Common stock, paid in capital
and retained earnings were 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 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 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 instruments and hedging
activities.
The Company expects to adopt SFAS No. 133, as amended, effective January 1,
2001. SFAS No. 133 requires the Company to recognize all derivatives on the
balance sheet at fair value. Based on this pronouncement, the Company's fuel
hedge program would be classified as a cash flow hedge. Changes in the fair
value of the fuel hedge program will be recognized in other comprehensive income
and the corresponding asset or liability will be recognized on the balance
sheet. Based on the Company's fuel hedge positions at September 30, 2000, the
Company estimates that an asset and accumulated other comprehensive income of
approximately $1.4 million for the fair value of its fuel hedge portfolio would
have been reported if SFAS No. 133, as amended, had been adopted at that time.
Debt Refinancing
On August 1, 2000 the Company refinanced its revolving credit facilities.
Its previous revolving credit facilities, with a capacity of $283 million and a
maturity of October 31, 2000, were replaced with new facilities with a total
capacity of $325 million. Of the total $325 million capacity, $175 million has a
maturity of five years and $150 million has 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: Third Quarter 2000 Compared to Third Quarter 1999
WCTC net income for the quarter ended September 30, 2000 was $14.5 million
compared to $16.0 million for the same period in 1999. Included in the quarter
ended September 30, 2000 is a pretax favorable property tax settlement with the
State of Wisconsin of approximately $2.4 million, on a claim that dates back to
1995, partially offset by a pretax personnel reorganization charge of $0.9
million. Included in the quarter ended September 30, 1999 is a pretax personnel
reorganization charge of $3.9 million. Operating income for the third quarter of
2000 was $29.2 million compared to $21.5 million for the third quarter of 1999.
North American operating revenues. North American operating revenues during
the quarter ended September 30, 2000 were $96.3 million, an increase of $4.3
million over the same period in 1999. Gross freight revenue increased
approximately 2.9% to $84.1 million in the third quarter of 2000 from $81.8
million in the third quarter of 1999. Volume, as measured by carloads handled
(including as a carload each loaded trailer or container), decreased 0.5% to
139,900 carloads in 2000 from 140,600 in 1999.
Revenue for nearly all commodity types increased in the third 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 $0.3 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 4.9%. Intermodal revenue
increased 1.9% over the same period last year. Industrial products revenue
increased 3.9% 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 revenues increased slightly even though volume decreased due to a
change in mix to higher revenue shipments originating on our own lines.
The following table provides approximate carloads and gross freight revenue
by commodity for the quarters ended September 30:
Gross Freight Revenues
Carloads (in 000's)
-------- ----------------------
Commodity 2000 1999 2000 1999
--------- ---- ---- ---- ----
Minerals 60,800 61,900 $ 24,971 $ 25,253
Paper and other forest products 36,800 36,700 34,773 33,141
Intermodal 16,800 16,400 3,447 3,382
Industrial products 13,500 12,900 11,901 11,449
Food and grain 6,700 7,600 5,127 5,044
Other 5,300 5,100 3,478 3,930
------- ------- -------- --------
Total 139,900 140,600 $ 84,149 $ 81,747
======= ======= ======== ========
Other revenue increased to $12.2 million compared to $10.3 million in 1999
mostly due to a fuel surcharge on certain shipments in 2000 and increases in
demurrage and intermodal haulage.
7
<PAGE>
North American operating expenses. North American operating expenses
decreased $3.5 million, or 4.9%, during the third quarter of 2000 compared to
the same period in 1999. Excluding the favorable $2.4 million property tax
settlement recognized in the third quarter of 2000 and the $0.9 and $3.9 million
restructuring charges recognized in the third quarter of 2000 and 1999,
respectively, North American operating expenses were $68.6 million in 2000
compared to $66.7 million in 1999. The increase was primarily driven by
increased labor, fuel and depreciation expenses partially offset by lower
material and equipment costs.
The operating ratio (operating expenses as a percentage of operating
revenues) decreased to 69.7% in the third quarter of 2000, compared to 76.7% in
the third quarter of 1999. Excluding the effects of the favorable property tax
settlement and the reorganization costs, the operating ratio improved to 71.2%
in the third quarter of 2000 compared to 72.5% in the same quarter of 1999.
Labor costs increased over 3.5% or $1.0 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.
Diesel fuel expenses increased 19.5% over the same period in 1999. The
price per gallon, net of the benefits from the hedging program, rose to 88 cents
per gallon compared to 68 cents per gallon during the three month period ended
September 30, 1999. Fuel consumption, in gallons per gross ton mile, decreased
modestly as a result of more efficient operations. Fuel costs for the North
American operations are 37% hedged for the remainder of the fiscal year.
Material expenses decreased to $6.0 million in the third quarter of 2000
from $7.2 million during the third quarter of 1999. Net equipment costs for
locomotives and freight cars decreased 10.3% to $5.7 million in the third
quarter of 2000 compared to $6.4 million in the same period in 1999. The
decrease reflects more efficient use of equipment combined with certain
favorable renegotiated lease terms.
Depreciation expense increased by approximately 10.1% over the same quarter
last year, primarily due to track expansion and improvement projects over the
past year.
In the third quarter of 2000 we incurred a pretax $0.9 million charge to
restructure the organization. The restructuring, which will result, by year-end,
in a reduction of 44 budgeted salaried positions, is expected to improve annual
cash flow by approximately $3 million. The restructuring simplified the
organizational structure by consolidating functions to improve managerial
efficiency. In particular, the Transportation Department became a flatter
organization, with clearer lines of accountability. The changes to the
Engineering Department reflect current and projected reductions in capital
spending.
As a result of agreements entered into with the our former Chairman and
Chief Executive Officer, Edward A. Burkhardt, who resigned effective August 31,
1999, as well as the reorganization of other personnel, third quarter 1999
results included a $3.9 million pretax reorganization charge.
Interest expense and income taxes. Interest expense increased almost 43.1%
to $6.7 million during the third quarter of 2000 compared to $4.7 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 due to the repurchase of
3.1 million shares of our common stock, the purchase of additional shares of EWS
stock and the investment in track improvements throughout the past year.
The income tax provision as a percentage of pretax income remained constant
at 39.6%.
8
<PAGE>
Equity in net income (loss) of international affiliates. Results for the
third quarter of 2000 included equity in the net income of our international
affiliates of $0.3 million compared to net income of $5.6 million for the same
period of 1999. Excluding the effects of special items explained below, equity
in the net income of our international affiliates was $1.5 million in the third
quarter of 2000 compared to $5.6 million in the third quarter of 1999.
Our equity in the net income of EWS recorded in the third quarter of 2000 was
$0.6 million compared to $4.7 million in 1999. The 2000 results include an
adjustment to the second quarter reorganization charge. Excluding the special
charge, we would have reported equity in the net income of EWS of approximately
$1.5 million. EWS's operating revenues during the quarter increased 3% compared
to the third quarter of 1999. Revenues increased in most commodity segments with
the largest gains obtained in the infrastructure segment. EWS's operating
expenses during the quarter increased approximately 9%, primarily due to
increased lease expenses and fuel costs which were partially offset by a
reduction in the pension plan expense. Lease expenses increased 116% from the
third 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 57% as the average unhedged price per gallon increased about
71% over the 1999 price. EWS has hedges in place for 23% of its expected fuel
consumption for the remainder of 2000.
Our equity in the net loss of Tranz Rail for the third quarter of 2000 was
$0.3 million compared to equity in the net income of Tranz Rail of $0.7 million
in 1999. Tranz Rail's operating revenues increased 1.1% over 1999 while the
operating expenses increased 6.4%. The increase in operating expenses was
primarily due to higher fuel prices and redundancy costs of $0.3 million
associated with a company reorganization.
Equity in the net income of ATN decreased by approximately $0.1 million in
the third quarter of 2000 compared to the same period in 1999.
Results of Operations:
First Nine Months of 2000 Compared to First Nine Months of 1999
WCTC net income for the nine months ended September 30, 2000 was $34.9
million compared to $48.5 million for the same period in 1999. North American
operating income for the first nine months of 2000 was $71.5 million compared to
$64.6 million for the first nine months of 1999.
North American operating revenues. North American operating revenues during
the nine months ended September 30, 2000 were $281.3 million, an increase of
$9.9 million over the same period in 1999. Gross freight revenue increased to
$250.2 million in the first nine months of 2000 from $245.1 million in the first
nine months of 1999. Other revenue increased $4.8 million principally due to
increased manifest and intermodal haulage volume and increased switching
revenue.
Revenues from minerals decreased almost 3.6% 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 nine months of 2000.
Continued strong demand in the paper industries resulted in an increase in
revenue from paper and other forest products of over 5.2%. Intermodal revenue
increased 6.7% over the same period last year. Industrial products volume
increased 4.7% 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 revenues decreased slightly primarily due to a loss of market share
for grain.
9
<PAGE>
The following table provides carloads and revenue data by commodity for the
nine months ended September 30:
Gross Freight Revenues
Carloads (in 000's)
Commodity 2000 1999 2000 1999
--------- ---- ---- ---- ----
Minerals 169,700 186,500 $ 72,003 $ 74,661
Paper and other forest products 113,600 112,600 105,621 100,368
Intermodal 47,800 46,600 9,949 9,325
Industrial products 42,100 40,200 36,545 35,430
Food and grain 19,600 22,800 14,682 14,775
Other 15,500 15,000 11,395 10,554
------- ------- -------- --------
Total 408,300 423,700 $250,195 $245,113
======= ======= ======== ========
North American operating expenses. North American operating expenses
increased almost 1.4%, or $2.9 million, during the first nine months of 2000
compared to the same period in 1999. The increase consisted primarily of higher
labor and fuel costs. The operating ratio decreased to 74.6% in the first nine
months of 2000, compared to 76.2% in the first nine months of 1999.
Labor costs increased approximately 6.0% or $5.1 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 average number of employees was unchanged
from the prior year.
Material expenses decreased to $20.0 million in the first nine months of
2000 from $21.5 million during the first nine months of 1999. Net equipment
expenses for locomotives and freight cars decreased $1.2 million in the first
nine months 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.
Diesel fuel expenses increased 29.2% over the same period in 1999 primarily
due to price increases offset partially by reduced fuel consumption as a result
of more efficient operations. Depreciation expense increased 14.4% from the
first nine months of 1999 primarily due to track expansion and improvement
projects.
Interest expense and income taxes. Interest expense increased 37.7% to
$18.0 million during the first nine months of 2000 compared to $13.0 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
nine months of 2000 included equity in the net income of our international
affiliates of $1.5 million compared to $16.8 million for the first nine months
of 1999. Excluding the effects of special items, equity in the net income of our
international affiliates was $10.5 million in the first nine months of 2000
compared to $13.5 million in the first half of 1999.
Our equity in the net loss of EWS for the first nine months of 2000 was
$1.2 million. Equity in the net income of EWS, excluding the $8.8 million
related to reorganization changes during the second and third quarters, was
approximately $7.6 million compared to $9.9 million recorded in the first nine
months of 1999.
EWS's operating revenues in the first nine months of 2000 increased 5.6%.
Revenues increased in most of the commodity segments with the largest gains
obtained in the coal and infrastructure segments. EWS's operating expenses
during the same period increased 7.9% primarily due to increased lease expenses
and fuel prices.
10
<PAGE>
Our equity in the net income of Tranz Rail for the first nine months of
2000 decreased to $2.5 million versus $7.0 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
1.7% from a year ago. Operating expenses, excluding certain 1999 adjustments,
increased 1.7%, driven by higher fuel costs.
Our equity in net income of ATN was $0.2 million in 2000 compared to our
equity in net loss of $0.2 million in 1999. The 1999 results included the effect
of a $1.0 million write-off of deferred acquisition costs incurred in an
unsuccessful attempt to acquire a rail freight franchise in Australia.
Financial Condition: September 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 date of October 31,
2000 and a capacity of $283 million, were replaced with new facilities with a
total capacity of $325 million. Our unused credit availability at September 30,
2000 was $92.1 million.
Our total debt outstanding increased approximately $55.4 million during the
first nine months of 2000 to a total of $398.5 million at September 30, 2000.
The issuance of debt, along with approximately $60.1 million of cash generated
from operations, was used primarily to fund capital expenditures of
approximately $72.5 million, to repurchase our common shares for $38.9 million
and to invest an additional $6.7 million in our international affiliates.
The outstanding debt balance constituted 45.4% of our total capitalization
at September 30, 2000 compared to 40.2% at December 31, 1999. The change was
attributable to an 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.
The increase in outstanding debt was primarily due to increased borrowings
to fund share repurchases. During the nine months ended September 2000, we used
$38.9 million to repurchase shares of our common stock. Approximately 3.1
million shares were acquired on the open market at an average price of
approximately $12.43 per share.
Recent Events
On October 20, 2000, it was announced that a committee, led by former
Chairman and Chief Executive Officer, Edward A. Burkhardt, filed a preliminary
consent solicitation with the Securities and Exchange Commission ("SEC")
proposing certain stockholder actions, including the replacement of our current
Board of Directors with a new Board of Directors.
On November 3, 2000, we announced that we had retained the investment
banking firm of Goldman, Sachs & Co. to act as financial advisor in evaluating
various strategic alternatives, including, but not limited to, the sale of the
Company and divestiture of our international holdings.
On November 9, 2000 we announced that we had retained the investment
banking firm of Deutsche Bank AG to act as a financial advisor in connection
with the potential disposition of shares in Tranz Rail Holdings.
On November 14, 2000 we filed a Definitive Revocation of Consent Statement
with the SEC opposing the proposals of the committee and have begun mailing
materials explaining our position to shareholders with a record date of
October 23, 2000.
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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 the exploration of strategic
alternatives, 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.
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<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 all-in weighted average interest
rates (inclusive of facility and other fees) by contractual maturity dates of
debt instruments as of September 30, 2000.
<TABLE>
<CAPTION>
Commercial Paper and
Fixed Rate Debt Variable Rate Debt Interest Total
Average Average Free Average
Debt Interest Interest Debt Interest
Maturity Amount Rate Amount Rate Amount Amount Rate
-------- ----------- ------ --------- --------- -------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
One year $ -- $ 80,921 7.2% $ 2,679 $ 83,600 7.0%
Two years -- -- 2,678 2,678 0.0%
Three years -- -- 2,643 2,643 0.0%
Four years -- -- 2,637 2,637 0.0%
Five years -- 152,000 7.4% 2,555 154,555 7.3%
Thereafter 150,000 6.8% -- 2,410 152,410 6.7%
--------- --------- --------- ---------
Total $ 150,000 6.8% $ 232,921 7.3% $ 15,602 $ 398,523 6.8%
========= ========= ========= =========
Fair Value $ 133,025 $ 232,921 $ 12,286 $ 378,232
========= ========= ========= =========
</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 September 30, 2000,
we had hedge arrangements covering approximately 37% of our expected North
American fuel consumption for the balance of 2000. As of September 30, 2000, 3.0
million notional gallons were included in #2 heating oil swaps and collar
arrangements at contract prices ranging from $0.4250 to $0.5025 per gallon. This
price does not include taxes, transportation costs and certain other fuel
handling costs. As of September 30, 2000, the unrealized gain on these swaps was
approximately $1.4 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 September 30, 2000, EWS was approximately 23% hedged for its fuel purchases
for the balance of 2000 while Tranz Rail did not have any fuel hedges in place.
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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 a zero cost collar to hedge a portion of our
foreign currency exposure on future management fees from EWS which are payable
in pounds sterling. The collar has a put strike of $1.5500 and a call strike of
$1.6520 with a notional amount of 0.9 million pounds sterling as of September
30, 2000. As of September 30, 2000 the unrealized gain on this collar
arrangement was insignificant.
We do not purchase or hold derivative financial instruments for trading
purposes.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 - Financial Data Schedule for the three month period ended
September 30, 2000.
b) Reports on Form 8-K
We did not file any reports on Form 8-K during the three month period
ended September 30, 2000.
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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 14, 2000 By: /s/ Ronald G. Russ
----------------------
Ronald G. Russ
Executive Vice President and
Chief Financial Officer
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