FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

            [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended March 31, 2000

                                       OR

           [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                        for the transition period from to

                          Commission File Number 1-4717


                    KANSAS CITY SOUTHERN INDUSTRIES, INC.
             (Exact name of Company as specified in its charter)


                    Delaware                             44-0663509
         (State or other jurisdiction of              (I.R.S. Employer
            incorporation or organization)           Identification No.)


     114 West 11th Street, Kansas City, Missouri                64105
    (Address of principal executive offices)                 (Zip Code)


                               (816) 983-1303
              (Company's telephone number, including area code)

                                   No Changes
            (Former name,  former  address and former fiscal year,
                        if changed since last report.)

Indicate by check mark whether the Company (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  Company  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                          Yes [X]              No [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

Class                                              Outstanding at May 10, 2000

Common Stock, $.01 per share par value                      111,430,088 Shares











                    KANSAS CITY SOUTHERN INDUSTRIES, INC.

                                    FORM 10-Q

                                 MARCH 31, 2000

                                      INDEX


PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

Introductory Comments                                                       2

Consolidated Condensed Balance Sheets -
   March 31, 2000 and December 31, 1999                                     3

Consolidated Condensed Statements of Income -
   Three Months Ended March 31, 2000 and 1999                               4

Basic and Diluted Earnings per Common Share                                 4

Consolidated Condensed Statements of Cash Flows -
   Three Months Ended March 31, 2000 and 1999                               5

Notes to Consolidated Condensed Financial Statements                        6

Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                            14

Item 3.     Qualitative and Quantitative Disclosures About Market Risk     27


PART II - OTHER INFORMATION

Item 1.     Legal Proceedings                                              28

Item 5.     Other Information                                              28

Item 6.     Exhibits and Reports on Form 8-K                               28


SIGNATURES                                                                 29


2



                    KANSAS CITY SOUTHERN INDUSTRIES, INC.

                                    FORM 10-Q

                                 MARCH 31, 2000


PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements


INTRODUCTORY COMMENTS

The  Consolidated  Condensed  Financial  Statements  included  herein  have been
prepared by Kansas City Southern Industries, Inc. ("Company" or "KCSI"), without
audit,  pursuant to the rules and  regulations  of the  Securities  and Exchange
Commission.  Certain information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations,  although the Company believes that the disclosures are adequate to
enable  a  reasonable   understanding  of  the  information   presented.   These
Consolidated  Condensed Financial  Statements should be read in conjunction with
the  financial  statements  and the  notes  thereto,  as  well  as  Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations,
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999 and  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations  included in this Form 10-Q.  Results for the three months
ended March 31, 2000 are not necessarily  indicative of the results expected for
the full year 2000.


3


                    KANSAS CITY SOUTHERN INDUSTRIES, INC.
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                              (Dollars in Millions)
                                   (Unaudited)


                                                   March 31,    December 31,
                                                     2000          1999
                                                   --------      ---------

ASSETS
                                                           
Current Assets:
   Cash and equivalents                            $  388.5      $   336.1
   Investments in advised funds                        33.0           23.9
   Accounts receivable, net                           343.7          287.9
   Inventories                                         39.4           40.5
   Other current assets                                55.0           45.1
                                                   --------      ---------
      Total current assets                            859.6          733.5

Investments held for operating purposes               845.9          811.2

Properties (net of $642.7 and $623.3 accumulated
   depreciation and amortization, respectively)     1,377.3        1,347.8

Intangibles and Other Assets, net                     234.6          196.4
                                                   --------      ---------
   Total assets                                    $3,317.4      $ 3,088.9
                                                   ========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Debt due within one year                        $   11.6      $    10.9
   Accounts and wages payable                         223.9          199.1
   Accrued liabilities                                216.0          206.7
                                                   --------      ---------
      Total current liabilities                       451.5          416.7
                                                   --------      ---------

Other Liabilities:
   Long-term debt                                     688.3          750.0
   Deferred income taxes                              467.8          449.2
   Other deferred credits                             129.0          132.6
                                                   --------      ---------
      Total other liabilities                       1,285.1        1,331.8
                                                   --------      ---------

Minority Interest in consolidated subsidiaries         66.9           57.3
                                                   --------      ---------

Stockholders' Equity:
   Preferred stock                                      6.1            6.1
   Common stock                                         1.1            1.1
   Retained earnings                                1,394.7        1,167.0
   Accumulated other comprehensive income             112.0          108.9
                                                   --------      ---------
      Total stockholders' equity                    1,513.9        1,283.1
                                                   --------      ---------

   Total liabilities and stockholders' equity      $3,317.4      $ 3,088.9
                                                   ========      =========


   See accompanying notes to consolidated condensed financial statements.

4

                    KANSAS CITY SOUTHERN INDUSTRIES, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                (Dollars in Millions, Except per Share Data)
                                   (Unaudited)
                                                    Three Months
                                                   Ended March 31,
                                                -------------------
                                                  2000       1999
                                                --------    -------

Revenues                                        $  694.0    $ 385.2

Costs and expenses                                 399.6      242.5
Depreciation and amortization                       31.5       21.1
                                                --------    -------
   Operating Income                                262.9      121.6

Equity in net earnings of unconsolidated affiliates:
   DST Systems, Inc.                                18.0       10.7
   Grupo Transportacion Ferroviaria
      Mexicana, S.A. de C.V.                         8.2        0.5
   Other                                             1.4        1.1
Interest expense                                   (20.1)     (15.0)
Gain on litigation settlement                       44.2        -
Gain on sale of Janus Capital Corporation stock     15.1        -
Other, net                                          12.6        5.8
                                                --------    -------
   Income before income tax, minority
     interest and extraordinary item               342.3      124.7

Income tax provision                               115.9       44.9
Minority interest in consolidated earnings          27.3       11.2
                                                --------    -------

Income before extraordinary item                   199.1       68.6
Extraordinary item, net of income tax
  Debt retirement costs                             (5.9)       -
                                                --------    -------

Net Income                                         193.2       68.6
Other Comprehensive Income (Loss), net of tax:
   Unrealized gain on securities                     5.0        0.2
   Less: reclassification adjustment for
        gains included in net income                (1.3)      (0.3)
   Foreign currency translation adjustments         (0.6)      (1.0)
                                                --------    -------
Comprehensive Income                            $  196.3    $  67.5
                                                ========    =======

   Basic Earnings per Common Share
     Before Extraordinary item                  $   1.79    $  0.62
     Extraordinary item                            (0.05)        -
                                                --------    -------
      Total Basic Earnings per Common Share     $   1.74    $  0.62
                                                ========    =======

   Diluted Earnings per Common Share
     Before Extraordinary item                  $   1.71    $  0.60
     Extraordinary item                            (0.05)        -
                                                --------    -------
      Total Diluted Earnings per Common Share   $   1.66    $  0.60
                                                ========    =======

   Weighted Average Common Shares Outstanding (in thousands)
     Basic                                       111,087    109,843
     Dilutive potential common shares              3,878      3,832
                                                --------    -------
      Diluted                                    114,965    113,675
                                                ========    =======

   Dividends Per Share:
     Per Preferred share                        $    .25    $   .25
     Per Common share                           $    -      $   .04

   See accompanying notes to consolidated condensed financial statements.

5


                    KANSAS CITY SOUTHERN INDUSTRIES, INC.
               CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                              (Dollars in Millions)
                                   (Unaudited)


                                                    Three Months
                                                   Ended March 31,
                                                -------------------
                                                  2000        1999
                                                --------    -------

CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
                                                      
  Net income                                    $  193.2    $  68.6
  Adjustments to net income:
   Depreciation and amortization                    31.5       21.1
   Deferred income taxes                            31.0       15.0
   Equity in undistributed net earnings of
      unconsolidated affiliates                    (27.6)     (12.3)
   Minority interest in consolidated earnings       27.3       11.2
   Employee deferred compensation expenses           1.0       (3.6)
   Gain on sale of Janus Capital Corporation stock (15.1)       -
   Extraordinary item, debt retirement
      costs, net of income tax                       5.9        -
  Deferred commissions                             (44.7)       -
  Changes in working capital items:
   Accounts receivable                             (55.8)     (36.6)
   Inventories                                       1.1       (3.5)
   Other current assets                              5.4        7.7
   Accounts and wages payable                       29.3       (1.7)
   Accrued liabilities                               6.5       35.6
  Other, net                                        (2.4)      (8.7)
                                                --------    -------
   Net                                             186.6       92.8
                                                --------    -------

INVESTING ACTIVITIES:
  Property acquisitions                            (51.8)     (23.9)
  Investment in and loans with affiliates           (3.5)      (1.7)
  Net purchases of investments in advised funds     (6.8)       -
  Other, net                                        (4.7)       0.6
                                                --------    -------
   Net                                             (66.8)     (25.0)
                                                --------    -------

FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt         760.0       31.8
  Repayment of long-term debt                     (827.6)     (28.2)
  Proceeds from stock plans                         26.6       13.4
  Stock repurchased                                  -        (22.3)
  Distributions to minority stockholders of
   consolidated subsidiaries                        (7.0)     (19.6)
  Debt issuance costs                              (13.4)       -
  Cash dividends paid                               (4.7)      (8.9)
  Other, net                                        (1.3)      (0.2)
                                                --------    -------
   Net                                             (67.4)     (34.0)
                                                --------    -------

CASH AND EQUIVALENTS:
  Net increase                                      52.4       33.8
  At beginning of year                             336.1      144.1
                                                --------    -------
  At end of period                              $  388.5    $ 177.9
                                                ========    =======


   See accompanying notes to consolidated condensed financial statements.

6

                    KANSAS CITY SOUTHERN INDUSTRIES, INC.
            NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. In the opinion of the  management  of Kansas City Southern  Industries,  Inc.
("Company"; "KCSI"), the accompanying unaudited consolidated condensed financial
statements  contain all  adjustments  (consisting of normal closing  procedures)
necessary  to present  fairly the  financial  position  of the  Company  and its
subsidiary companies as of March 31, 2000 and December 31, 1999, and the results
of operations and cash flows for the three months ended March 31, 2000 and 1999.

2. The  accompanying  consolidated  condensed  financial  statements  have  been
prepared  consistently  with  accounting  policies  described  in  Note 2 to the
consolidated  financial  statements  included in the Company's  Annual Report on
Form 10-K for the year ended  December 31, 1999.  The results of operations  for
the three  months  ended March 31, 2000 are not  necessarily  indicative  of the
results to be expected for the full year 2000. Certain 1999 information has been
reclassified to conform to the current period presentation.

3. Separation of Business Segments.  On July 9, 1999, KCSI received a tax ruling
from the Internal  Revenue  Service ("IRS") to the effect that for United States
federal income tax purposes,  the planned  separation of the Financial  Services
segment from KCSI through a pro-rata  distribution of Stilwell  Financial,  Inc.
("Stilwell") common stock to KCSI stockholders (the "Separation") qualifies as a
tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as
amended.  Additionally,  in  February  2000,  the  Company  received a favorable
supplementary  tax ruling from the IRS to the effect that the assumption of $125
million  of  KCSI  debt  by  Stilwell   (in   connection   with  the   Company's
re-capitalization  of its debt  structure  as discussed in Note 4) would have no
effect on the previously  issued tax ruling. In contemplation of the Separation,
the  Company's  stockholders  approved a  one-for-two  reverse  stock split at a
special stockholders' meeting held on July 15, 1998. The Company will not effect
the reverse stock split until the Separation is completed.

Stilwell  Registration  Statement  on Form 10. On August 19,  1999,  the Company
reported  that  Stilwell  filed a Form  10  with  the  Securities  and  Exchange
Commission  ("SEC") in connection  with KCSI's proposed  Separation.  The filing
includes an  Information  Statement  that will be provided to KCSI  shareholders
after the Form 10 becomes effective.  The Company has received comments from the
SEC and has been involved in detailed discussions with the SEC on such items. As
part of this process,  the Company filed Amendment #1 to the Stilwell Form 10 on
October 18, 1999, Amendment #2 on December 22, 1999, Amendment #3 on January 19,
2000 and  Amendment #4 dated April 28, 2000.  The Stilwell  Form 10 has not been
declared effective.

Consolidation  of Janus.  In Issue No.  96-16,  the  Emerging  Issues Task Force
("EITF 96-16") of the Financial  Accounting  Standards Board reached a consensus
that  substantive  minority rights that provide a minority  stockholder with the
right to effectively control significant  decisions in the ordinary course of an
investee's  business  could  impact  whether  the  majority  stockholder  should
consolidate  the  investee.  Management  evaluated  the  rights of the  minority
stockholders of its consolidated subsidiaries and concluded that the application
of EITF 96-16 did not affect the Company's  consolidated  financial  statements.
This conclusion with respect to Janus Capital Corporation ("Janus") is currently
under  discussion  with the Staff of the SEC and,  accordingly,  is  subject  to
change.

4. In  preparation  for the  Separation,  the  Company  re-capitalized  its debt
structure in January 2000 through a series of transactions as follows:

Bond Tender and Other Debt Repayment. On December 6, 1999, KCSI commenced offers
to  purchase  and  consent  solicitations  with  respect  to any  and all of the
Company's  outstanding  7.875% Notes due July 1, 2002, 6.625% Notes due March 1,
2005,  8.8% Debentures due July 1, 2022, and 7% Debentures due December 15, 2025
(collectively "Debt Securities" or "notes and debentures").

7

Approximately  $398.4 million of the $400 million  outstanding  Debt  Securities
were validly tendered and accepted by the Company.  Total consideration paid for
the repurchase of these  outstanding  notes and  debentures was $401.2  million.
Funding for the  repurchase  of these Debt  Securities  and for the repayment of
$264 million of borrowings under then existing  revolving credit  facilities was
obtained  from two new credit  facilities  (the "KCS  Credit  Facility"  and the
"Stilwell Credit Facility",  or collectively "New Credit  Facilities"),  each of
which was entered  into on January 11,  2000.  These New Credit  Facilities,  as
described further below, provide for total commitments of $950 million.

In first  quarter  2000,  the  Company  reported  an  extraordinary  loss on the
extinguishment  of the  Company's  notes and  debentures of  approximately  $5.9
million, net of income taxes of approximately $3.2 million.

KCS Credit Facility.  The KCS Credit Facility provides for a total commitment of
$750 million,  comprised of three separate term loans totaling $600 million with
$200 million due January 11,  2001,  $150 million due December 30, 2005 and $250
million due December 30, 2006 and a revolving  credit  facility  available until
January 11, 2006 ("KCS  Revolver").  The availability  under the KCS Revolver is
$150 million and will be reduced to $100 million on the later of January 2, 2001
and the  expiration  date with  respect  to the Grupo TFM  Capital  Contribution
Agreement.  Letters of credit are also available  under the KCS Revolver up to a
limit of $90 million.  Borrowings  under the KCS Credit  Facility are secured by
substantially all of the Transportation segment's assets.

On January 11, 2000,  KCSR  borrowed the full amount ($600  million) of the term
loans and used the proceeds to repurchase the Debt Securities, retire other debt
obligations and pay related fees and expenses.  No funds were initially borrowed
under the KCS Revolver. Proceeds of future borrowings under the KCS Revolver are
to be used for working  capital and for other general  corporate  purposes.  The
letters of credit under the KCS  Revolver are to be used to support  obligations
in connection with the Grupo TFM Capital Contribution Agreement ($15 million may
be used for general corporate purposes).

Interest on the outstanding  loans under the KCS Credit Facility shall accrue at
a rate per annum based on the London  interbank  offered  rate  ("LIBOR") or the
prime rate, as the Company shall select.  Each loan shall accrue interest at the
selected rate plus the applicable  margin,  which will be determined by the type
of loan.  Until the term loan maturing in 2001 is repaid in full, the term loans
maturing  in 2001 and 2005 and all  loans  under the KCS  Revolver  will have an
applicable  margin of 2.75% per annum for LIBOR priced loans and 1.75% per annum
for prime  rate  priced  loans and the term loan  maturing  in 2006 will have an
applicable  margin of 3.00% per annum for LIBOR priced loans and 2.00% per annum
for prime rate based  loans.  The  interest  rate with  respect to the term loan
maturing  in 2001 is also  subject to 0.25% per annum  interest  rate  increases
every three  months  until such term loan is paid in full,  at which  time,  the
applicable  margins for all other loans will be reduced and may fluctuate  based
on the leverage ratio of the Company at that time.

The KCS Credit Facility requires the payment to the banks of a commitment fee of
0.50%  per  annum on the  average  daily,  unused  amount  of the KCS  Revolver.
Additionally  a fee equal to a per annum rate equal to 0.25% plus the applicable
margin  for LIBOR  priced  revolving  loans will be paid on any letter of credit
issued under the KCS Credit Facility.  The KCS Credit Facility  contains certain
covenants,  among others, as follows: i) restricts the payment of cash dividends
to common stockholders;  ii) limits annual capital  expenditures;  iii) requires
hedging instruments with respect to at least 50% of the outstanding  balances of
each of the term loans maturing in 2005 and 2006 to mitigate  interest rate risk
associated with the new variable rate debt; and iv) provides  leverage ratio and
interest  coverage ratio  requirements  typical of this type of debt instrument.
These covenants,  along with other provisions could restrict maximum utilization
of  the  facility.   Issue  costs  relating  to  the  KCS  Credit   Facility  of
approximately  $17.6  million  were  deferred  and  are  being  amortized  on  a
straight-line  basis  over the  respective  term of the  loans.  The  difference
between the  straight-line  method and interest  method of  amortization  is not
material.

8

In accordance  with the  provision  requiring the Company to manage its interest
rate risk through  hedging  activity,  in first quarter 2000 the Company entered
into five separate interest rate cap agreements for an aggregate notional amount
of $200 million  expiring on various  dates in 2002.  The interest rate caps are
linked to LIBOR. $100 million of the aggregate notional amount provides a cap on
the Company's  interest  rate of 7.25% plus the  applicable  spread,  while $100
million   limits  the  interest   rate  to  7%  plus  the   applicable   spread.
Counterparties   to  the  interest  rate  cap  agreements  are  major  financial
institutions  who also  participate  in the New Credit  Facilities.  The Company
believes that credit loss from counterparty non-performance is remote.

Stilwell  Credit  Facility.  On January 11, 2000,  KCSI also arranged a new $200
million 364-day senior unsecured competitive  Advance/Revolving  Credit Facility
("Stilwell Credit Facility"). KCSI borrowed $125 million under this facility and
used the proceeds to retire debt  obligations as discussed  above.  Stilwell has
assumed this credit facility,  including the $125 million  borrowed  thereunder,
and  upon  completion  of  the  Separation,  KCSI  will  be  released  from  all
obligations thereunder. Stilwell repaid the $125 million in March 2000.

Two  borrowing  options are  available  under the Stilwell  Credit  Facility:  a
competitive  advance  option,  which is uncommitted,  and a committed  revolving
credit  option.  Interest on the  competitive  advance  option is based on rates
obtained  from bids as  selected by Stilwell  in  accordance  with the  lender's
standard competitive auction procedures. Interest on the revolving credit option
accrues based on the type of loan (e.g., Eurodollar, Swingline, etc.) with rates
computed using LIBOR plus 0.35% per annum or, alternatively,  the highest of the
prime  rate,  the  Federal  Funds  Effective  Rate  plus  0.005%,  and the  Base
Certificate of Deposit Rate plus 1%.

The Stilwell  Credit  Facility  includes a facility fee of 0.15% per annum and a
utilization  fee of 0.125%  on the  amount of the  outstanding  loans  under the
facility for each day on which the aggregate  utilization of the Stilwell Credit
Facility  exceeds  33% of the  aggregate  commitments  of the  various  lenders.
Additionally,  the Stilwell Credit Facility  contains,  among other  provisions,
various  financial  covenants,  which could restrict maximum  utilization of the
Stilwell  Credit  Facility.  Stilwell may assign or delegate all or a portion of
its rights and obligations  under the Stilwell Credit Facility to one or more of
its domestic subsidiaries.

5. The  effect of stock  options  to  employees  represent  the only  difference
between  the  weighted  average  shares  used for the basic  earnings  per share
computation  compared to the diluted  earnings  per share  computation.  For the
three months ended March 31, 2000 and 1999,  the total  incremental  shares from
assumed  conversion of stock options was 3,878,307 and 3,832,025,  respectively,
and these  incremental  shares  were  included  in the  computation  of  diluted
earnings per share. However,  options to purchase 12,827 shares were excluded in
the first  quarter 2000  computation  because the exercise  prices  exceeded the
average  market price of the common shares.  No options to purchase  shares were
excluded in the first quarter 1999 computation.

The only  adjustments  that  currently  affect the  numerator  of the  Company's
diluted  earnings  per  share  computation   include  preferred   dividends  and
potentially   dilutive   securities  at  subsidiaries   and  affiliates.   These
adjustments were $2.3 and $0.8 million for the three months ended March 31, 2000
and 1999, respectively.

6.    The Company's inventories primarily consist of material and supplies
related to rail transportation.  Other components of inventories are not
significant.

7.  Investments  in  unconsolidated  affiliates  and certain  other  investments
accounted  for under the equity method  generally  include all entities in which
the Company or its subsidiaries  have significant  influence,  but not more than
50% voting control.  Investments in unconsolidated  affiliates at March 31, 2000
include,  among others,  equity interests in DST Systems,  Inc.  ("DST"),  Grupo
Transportacion  Ferroviaria  Mexicana,  S.A.  de C.V.  ("Grupo  TFM"),  Southern
Capital Corporation, LLC ("Southern Capital"), Mexrail, Inc. ("Mexrail") and the
Panama Canal Railway Company.

9

The  Company  is  party  to  certain  agreements  with  Transportacion  Maritima
Mexicana,  S.A. de C.V. ("TMM") covering the Grupo TFM and Mexrail ventures. TMM
(including  its  affiliates)  owns  approximately  38.4% of Grupo TFM and 51% of
Mexrail.  These agreements  contain "change in control"  provisions,  provisions
intended to preserve  the  Company's  and TMM's  proportionate  ownership of the
ventures,  and  super-majority  provisions  with  respect  to voting on  certain
significant transactions.  Such agreements also provide a right of first refusal
in the event that either party initiates a divestiture of its equity interest in
Grupo TFM or Mexrail. Under certain circumstances,  such agreements could affect
the Company's ownership percentage and rights in these equity affiliates.

Combined condensed financial  information of unconsolidated  affiliates is shown
below:



Financial Condition (dollars in millions):


                          March 31, 2000                 December 31, 1999
                  -----------------------------   -----------------------------
                      DST  Grupo TFM (a)  Other      DST   Grupo TFM (a) Other
                  -------- ------------  ------   -------- ------------  ------
                                                       
 Current assets   $  452.1   $   145.0  $  36.8   $   464.5  $   134.4   $ 35.8
 Non-current
   assets          1,906.4     1,913.9    315.6     1,861.8    1,905.7    319.1
                  --------   ---------  -------   ---------  ---------   ------

     Assets       $2,358.5   $ 2,058.9  $ 352.4   $ 2,326.3  $ 2,040.1   $354.9
                  ========   =========  =======   =========  =========   ======
 Current liabi-
  lities          $  259.2   $   251.4  $  41.4   $   285.8  $   255.9   $ 42.1
 Non-current
   liabilities       597.0       660.3    225.0       576.9      672.9    230.0
 Minority interest     -         351.1      -            -       343.9     -
 Equity of stockholders
   and partners    1,502.3       796.1     86.0     1,463.6      767.4     82.8
                  --------   ---------  -------   ---------  ---------   ------

     Liabilities and
       equity     $2,358.5   $ 2,058.9  $ 352.4   $ 2,326.3  $ 2,040.1   $354.9
                  ========   =========  =======   =========  =========   ======

 KCSI's invest-
  ment            $  485.5   $   294.6  $  46.8    $   470.2  $   286.5   $ 45.0
                  ========   =========  =======   =========  =========   ======

     (a)  Grupo TFM is presented on a U.S. GAAP basis.





Operating Results (dollars in millions):

                                       Three Months
                                      Ended March 31,
                                     -------------------
                                      2000        1999
                                     -------     -------
                                           
  Revenues:
   DST                               $ 340.4     $ 292.8
   Grupo TFM (a)                       146.7       112.5
   All others                           27.4        24.7
                                     -------     -------
     Total revenues                  $ 514.5     $ 430.0
                                     =======     =======

  Operating costs and expenses:
   DST                               $ 276.7     $ 242.9
   Grupo TFM  (a)                      106.3        88.7
   All others                           26.3        23.0
                                     -------     -------
     Total operating costs
       and expenses                  $ 409.3     $ 354.6
                                     =======     =======

  Net income:
   DST                               $  56.2     $  33.6
   Grupo TFM  (a)                       19.9         1.4
   All others                            2.2         2.2
                                     -------     -------

     Total net income                $  78.3     $  37.2
                                     =======     =======

(a)   Grupo TFM is presented on a U.S. GAAP basis.

10

8. For  purposes of the  Statement  of Cash Flows,  the  Company  considers  all
short-term liquid  investments with a maturity of generally three months or less
to be cash equivalents.


    Supplemental Cash Flow Information (in millions):

                                                Three Months
                                               Ended March 31,
                                              -----------------
                                               2000       1999
                                              -------    ------
                                                   
      Interest paid                           $  27.5    $ 17.3
      Income taxes paid                          23.9       6.0


Noncash Investing and Financing Activities:

In first quarter 2000, the Company issued  approximately  183,117 shares of KCSI
common stock under the Eleventh  Offering of the Employee  Stock  Purchase  Plan
("ESPP"). These shares, totaling a purchase price of approximately $6.3 million,
were subscribed and paid for through employee payroll  deductions in 1999. There
were no shares of KCSI common  stock issued under an offering of the ESPP during
the first quarter of 1999.

The Company's Board of Directors  declared a quarterly  dividend of $4.6 million
in December 1999, payable in January 2000. Upon declaration, the Company reduced
retained earnings and recorded a liability for the required payment.  In January
2000, the cash was paid to the Company's stockholders.

Company subsidiaries and affiliates hold various investments which are accounted
for as  "available  for sale"  securities  as defined by  Statement of Financial
Accounting  Standards No. 115  "Accounting  for Certain  Investments in Debt and
Equity  Securities".   The  Company  records  its  proportionate  share  of  any
unrealized gains or losses related to these investments,  net of deferred taxes,
in stockholders' equity as accumulated other comprehensive income. For the three
months ended March 31, 2000, the Company recorded its proportionate share of the
increase in the market value of these investments of $8.0 million ($5.0 million,
net of deferred  income  taxes).  For the three months ended March 31, 1999, the
Company'  recorded  its  proportionate  share of the increase in market value of
these investments of $0.3 million ($0.2 million, net of deferred income taxes).

9.    Pursuant to Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), the following provides selected interim financial information
for the Transportation and Financial Services segments (in millions):




                                               Three Months
                                              Ended March 31,
                                           -------------------
                                              2000      1999
                                           --------   --------
                                                
Revenues:
   Transportation                          $  148.9   $  151.9
   Financial Services                         545.1      233.3
                                           --------   --------
   KCSI Consolidated                       $  694.0   $  385.2
                                           ========   ========
  Net Income:
   Transportation                          $    4.5   $    7.6
   Financial Services                         188.7       61.0
                                           --------   --------
   KCSI Consolidated                       $  193.2   $   68.6
                                           ========   ========


11





                                           March 31,     December 31,
                                             2000            1999
                                           ---------       --------
                                                     
  Total Assets:
   Transportation                          $ 1,884.7       $1,857.4
   Financial Services                        1,432.7        1,231.5
                                           ---------       --------

   KCSI Consolidated                       $ 3,317.4       $3,088.9
                                           =========       ========


Sales  between  segments  were not material for the three months ended March 31,
2000 and 1999, respectively.

10. In June 1998,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards No. 133 "Accounting for Derivative
Instruments  and  Hedging   Activities"   ("SFAS  133").  SFAS  133  establishes
accounting  and  reporting  standards  for  derivative  financial   instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities.  It requires recognition of all derivatives as either assets
or liabilities measured at fair value. Initially, the effective date of SFAS 133
was for all fiscal  quarters for fiscal years  beginning after June 15, 1999. In
June 1999, however,  the FASB issued Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement
No. 133",  which deferred the effective date of SFAS 133 for one year so that it
will be effective for all fiscal  quarters of all fiscal years  beginning  after
June 15, 2000.  The Company is reviewing the  provisions of SFAS 133 and expects
adoption by the required date. The adoption of SFAS 133 with respect to existing
hedge transactions  discussed below is not expected to have a material impact on
the Company's results of operations, financial position or cash flows.

The Company  currently has a program to hedge against  fluctuations in the price
of diesel  fuel,  and also enters into fuel  purchase  commitments  from time to
time. At March 31, 2000 KCSR had a diesel fuel cap  transaction  effective  from
April 1, 2000 through June 30, 2000 for three million  gallons at a cap price of
$0.60 per  gallon.  The  Company  also had a diesel  fuel cap for three  million
gallons at a cap price of $0.60 per gallon, which expired on March 31, 2000. The
Company  received  approximately  $396,000  related  to  this  diesel  fuel  cap
transaction and recorded the proceeds as a reduction of diesel fuel expense.

Additionally,  in  accordance  with the  provision  of the KCS  Credit  Facility
requiring the Company to manage its interest rate risk through hedging activity,
in first quarter 2000 the Company  entered into five separate  interest rate cap
agreements for an aggregate  notional amount of $200 million expiring on various
dates in 2002.  The interest rate caps are linked to LIBOR.  $100 million of the
aggregate notional amount provides a cap on the Company's interest rate of 7.25%
plus the  applicable  spread,  while $100 million limits the interest rate to 7%
plus the applicable  spread.  Counterparties to the interest rate cap agreements
are  major  financial  institutions  who  also  participate  in the  New  Credit
Facilities.   The  Company   believes   that   credit  loss  from   counterparty
non-performance is remote.

Further,  the  Company  continues  to  evaluate  alternatives  with  respect  to
utilizing foreign currency  instruments to hedge its U.S. dollar  investments in
Grupo TFM and Nelson as market  conditions  change or exchange rates  fluctuate.
Currently, the Company has no outstanding foreign currency hedges.

11. The Company has had no significant changes in its outstanding  litigation or
other contingencies from that previously reported in the Company's Annual Report
on Form 10-K for the year ended  December 31,  1999.  The  following  provides a
discussion of the Bogalusa Cases and the Duncan Case.

Bogalusa Cases.  In July 1996, KCSR was named as one of twenty-seven  defendants
in various lawsuits in Louisiana and Mississippi arising from the explosion of a
rail car loaded with chemicals

12

in  Bogalusa,  Louisiana  on October  23,  1995.  As a result of the  explosion,
nitrogen  dioxide and oxides of nitrogen were released into the atmosphere  over
parts of that town and the  surrounding  area causing  evacuations and injuries.
Approximately 25,000 residents of Louisiana and Mississippi have asserted claims
to recover damages allegedly caused by exposure to the chemicals.

KCSR neither  owned nor leased the rail car or the rails on which it was located
at the time of the explosion in Bogalusa.  KCSR did, however,  move the rail car
from Jackson to Vicksburg,  Mississippi, where it was loaded with chemicals, and
back to Jackson  where the car was  tendered to the IC. The  explosion  occurred
more than 15 days after the Company last  transported  the rail car. The car was
loaded in excess of its standard weight,  but under the car's capacity,  when it
was transported by the Company to interchange with the IC.

The trial of a group of twenty  plaintiffs in the Mississippi  lawsuits  arising
from the  chemical  release  resulted in a jury verdict and judgment in favor of
KCSR in June  1999.  The jury  found  that KCSR was not  negligent  and that the
plaintiffs  had  failed  to prove  that  they  were  damaged.  The  trial of the
Louisiana  class action is  scheduled to commence on June 11, 2001.  No date has
been scheduled for the trial of the additional plaintiffs in Mississippi.

KCSR believes  that its exposure to liability in these cases is remote.  If KCSR
were to be found  liable for punitive  damages in these  cases,  such a judgment
could have a material  adverse  effect on the Company's  results of  operations,
financial position and cash flows.

Duncan Case. In 1998, a jury in Beauregard Parish,  Louisiana returned a verdict
against KCSR in the amount of $16.3 million. The Louisiana state case arose from
a railroad  crossing  accident which occurred at Oretta,  Louisiana on September
11, 1994, in which three individuals were injured. Of the three, one was injured
fatally,  one was  rendered  quadriplegic  and the third  suffered  less serious
injuries.

Subsequent  to the  verdict,  the  trial  court  held that the  plaintiffs  were
entitled to interest on the judgment from the date the suit was filed, dismissed
the verdict  against one defendant and reallocated the amount of that verdict to
the remaining  defendants.  The resulting total judgment against KCSR,  together
with interest, was $27.4 million as of March 31, 2000.

On November 3, 1999,  the Third Circuit  Court of Appeals in Louisiana  affirmed
the judgment.  Review is now being sought in the  Louisiana  Supreme  Court.  On
March 24, 2000,  the Louisiana  Supreme Court granted KCSR's  Application  for a
Writ of Review  regarding  this case.  Independent  trial  counsel has expressed
confidence to KCSR  management  that the Louisiana  Supreme Court will set aside
the district court and court of appeals  judgments in this case. KCSR management
believes it has meritorious  defenses and that it will ultimately prevail in its
appeal to the Louisiana  Supreme Court.  If the verdict were to stand,  however,
the judgment and interest are in excess of existing insurance coverage and could
have an adverse  effect on the  Company's  consolidated  results of  operations,
financial position and cash flows.

12. Sale of Janus Stock.  In first  quarter 2000,  Stilwell  sold to Janus,  for
treasury, 192,408 shares of Janus common stock and such shares will be available
for awards under Janus'  recently  adopted Long Term Incentive  Plan.  Janus has
agreed that for as long as it has  available  shares of Janus  common  stock for
grant  under that plan,  it will not award  phantom  stock,  stock  appreciation
rights or similar rights. The sale of these shares resulted in an after-tax gain
of  approximately  $15.1  million,  and  together  with the issuance by Janus of
approximately  35,000 shares of restricted stock in first quarter 2000,  reduced
Stilwell's  ownership  to  approximately  81.5%.  After this first  quarter 2000
issuance,  more than 157,000 shares of Janus stock remain in treasury for use in
connection  with its Long Term  Incentive  Plan.  Upon  issuance of all of these
shares in future years, the Company's ownership interest in Janus will be 80.1%.

13

13. Litigation  Settlement.  In January 2000,  Stilwell  received  approximately
$44.2 million in connection  with the settlement of a legal dispute related to a
former equity  investment.  The settlement  agreement  resolves all  outstanding
issues related to this former equity investment. In first quarter 2000, Stilwell
recognized an after-tax gain of approximately  $27.3 million as a result of this
settlement.

14.  Dividends  Suspended for KCSI Common Stock.  During first quarter 2000, the
Company's  Board  of  Directors  announced  that,  based  upon a  review  of the
Company's  dividend  policy  in  conjunction  with  the  New  Credit  Facilities
discussed  above  and in light of the  anticipated  Separation,  it  decided  to
suspend the Common stock  dividend of KCSI under the  existing  structure of the
Company.  This action  complies  with the terms and  covenants of the New Credit
Facilities.  Subsequent  to the  Separation,  the  separate  Boards  of KCSI and
Stilwell will determine the  appropriate  dividend  policy for their  respective
companies.

14


Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations


OVERVIEW

The  discussion  set forth below,  as well as other  portions of this Form 10-Q,
contains comments not based upon historical fact. Such forward-looking  comments
are based upon  information  currently  available to management and management's
perception  thereof as of the date of this Form 10-Q. Readers can identify these
forward-looking  comments  by the use of such  verbs  as  expects,  anticipates,
believes or similar verbs or conjugations  of such verbs.  The actual results of
operations of Kansas City Southern  Industries,  Inc.  ("KCSI" or the "Company")
could materially differ from those indicated in  forward-looking  comments.  The
differences  could be caused by a number of  factors or  combination  of factors
including, but not limited to, those factors identified in the Company's Current
Report  on Form  8-K/A  dated  June 3,  1997,  which  is on file  with  the U.S.
Securities and Exchange  Commission (File No. 1-4717) and is hereby incorporated
by reference herein.  Readers are strongly  encouraged to consider these factors
when evaluating any  forward-looking  comments.  The Company will not update any
forward-looking comments set forth in this Form 10-Q.

The discussion  herein is intended to clarify and focus on the Company's results
of operations,  certain changes in its financial  position,  liquidity,  capital
structure and business  developments for the periods covered by the consolidated
condensed  financial  statements  included  under Item 1 of this Form  10-Q.  As
discussed  below, the Company is in discussions with the Staff of the Securities
and Exchange  Commission as to whether or not Janus Capital  Corporation  should
continue to be classified as a consolidated  subsidiary for financial  reporting
purposes. The outcome of these discussions could result in the Company restating
certain  of  its  consolidated  financial  statements  to  reflect  Janus  as  a
majority-owned  unconsolidated  subsidiary accounted for under the equity method
for financial reporting purposes.  This discussion should be read in conjunction
with these  consolidated  condensed  financial  statements and the related notes
thereto, and is qualified by reference thereto.

KCSI, a Delaware Corporation organized in 1962, is a diversified holding company
with principal operations in rail transportation and financial asset management.
The Company  supplies its various  subsidiaries  with  managerial,  legal,  tax,
financial and accounting services, in addition to managing other "non-operating"
and more passive investments.

The Company's business  activities by industry segment and principal  subsidiary
companies are:

Transportation.  Kansas City Southern Lines, Inc. ("KCSL"), a wholly-owned
subsidiary of the Company, is the holding company for Transportation
segment subsidiaries and affiliates.  This segment includes, among others:

o  The Kansas City Southern Railway Company ("KCSR"), a wholly-owned
   subsidiary;
o  Gateway Western Railway Company ("Gateway Western"), a wholly-owned
   subsidiary;
o  Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo
   TFM"), a 37% owned affiliate, which owns 80% of the common stock of TFM,
   S.A. de C.V. ("TFM");
o  Mexrail, Inc. ("Mexrail"), a 49% owned affiliate, which wholly owns
   the Texas Mexican Railway Company ("Tex Mex");
o  Southern Capital Corporation, LLC ("Southern Capital"), a 50% owned
   affiliate; and
o  Panama Canal Railway Company ("PCRC"), a 50% owned affiliate.

The  businesses  that  comprise the  Transportation  segment  operate a railroad
system that provides  shippers with rail freight  service in key  commercial and
industrial markets of the United States and Mexico.

15

Financial  Services.   Stilwell  Financial,  Inc.  ("Stilwell"  -  formerly  FAM
Holdings,  Inc.),  a  wholly-owned  subsidiary  of the  Company,  is the holding
company for  subsidiaries  and  affiliates  comprising  the  Financial  Services
segment. The primary entities comprising the Financial Services segment are:

o  Janus Capital Corporation ("Janus"), an approximate 81.5% owned
   subsidiary;
o  Stilwell Management, Inc. ("SMI"), a wholly-owned subsidiary of
   Stilwell;
o  Berger LLC ("Berger"), of which SMI owns 100% of the Berger preferred limited
   liability  company  interests  and  approximately  86% of the Berger  regular
   limited liability company interests;
o  Nelson Money Managers Plc ("Nelson"), an 80% owned subsidiary; and
o  DST Systems Inc. ("DST"), an approximate 32% equity investment owned
   by SMI.

The businesses that comprise the Financial  Services  segment offer a variety of
asset  management  and  related  financial  services  to  registered  investment
companies, retail investors, institutions and individuals.


RECENT DEVELOPMENTS

Planned  Separation  of the Company  Business  Segments.  On July 9, 1999,  KCSI
received a tax ruling from the Internal  Revenue  Service  ("IRS") to the effect
that for United States  federal income tax purposes,  the planned  separation of
the  Financial  Services  segment from KCSI through a pro-rata  distribution  of
Stilwell common stock to KCSI  stockholders  (the  "Separation")  qualifies as a
tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as
amended.  Additionally,  in  February  2000,  the  Company  received a favorable
supplementary  tax ruling from the IRS to the effect that the assumption of $125
million  of  KCSI  debt  by  Stilwell   (in   connection   with  the   Company's
re-capitalization of its debt structure as discussed below) would have no effect
on the previously  issued tax ruling.  In contemplation  of the Separation,  the
Company's  stockholders  approved a one-for-two reverse stock split at a special
stockholders'  meeting  held on July 15,  1998.  The Company will not effect the
reverse stock split until the Separation is completed.

Stilwell  Registration  Statement  on Form 10. On August 19,  1999,  the Company
reported  that  Stilwell  filed a Form  10  with  the  Securities  and  Exchange
Commission  ("SEC") in connection  with KCSI's proposed  Separation.  The filing
includes an  Information  Statement  that will be provided to KCSI  shareholders
after the Form 10 becomes effective.  The Company has received comments from the
SEC and has been involved in detailed discussions with the SEC on such items. As
part of this process,  the Company filed Amendment #1 to the Stilwell Form 10 on
October 18, 1999, Amendment #2 on December 22, 1999, Amendment #3 on January 19,
2000 and  Amendment #4 dated April 28, 2000.  The Stilwell  Form 10 has not been
declared effective.

Consolidation  of Janus.  In Issue No.  96-16,  the  Emerging  Issues Task Force
("EITF 96-16") of the Financial  Accounting  Standards Board reached a consensus
that  substantive  minority rights that provide a minority  stockholder with the
right to effectively control significant  decisions in the ordinary course of an
investee's  business  could  impact  whether  the  majority  stockholder  should
consolidate  the  investee.  Management  evaluated  the  rights of the  minority
stockholders of its consolidated subsidiaries and concluded that the application
of EITF 96-16 did not affect the Company's  consolidated  financial  statements.
This  conclusion  with respect to Janus is currently  under  discussion with the
Staff of the SEC and, accordingly, is subject to change.

Re-capitalization  of the  Company's  Debt  Structure.  In  preparation  for the
Separation,  the  Company  re-capitalized  its debt  structure  in January  2000
through a series of transactions as follows:

Bond Tender and Other Debt Repayment. On December 6, 1999, KCSI commenced offers
to  purchase  and  consent  solicitations  with  respect  to any  and all of the
Company's  outstanding  7.875% Notes due July 1, 2002, 6.625% Notes due March 1,
2005,  8.8% Debentures due July 1, 2022, and 7% Debentures due December 15, 2025
(collectively "Debt Securities" or "notes and debentures").

16

Approximately  $398.4 million of the $400 million  outstanding  Debt  Securities
were validly tendered and accepted by the Company.  Total consideration paid for
the repurchase of these  outstanding  notes and  debentures was $401.2  million.
Funding for the  repurchase  of these Debt  Securities  and for the repayment of
$264 million of borrowings under then existing  revolving credit  facilities was
obtained  from two new credit  facilities  (the "KCS  Credit  Facility"  and the
"Stilwell Credit Facility",  or collectively "New Credit  Facilities"),  each of
which was entered  into on January 11,  2000.  These New Credit  Facilities,  as
described further below, provide for total commitments of $950 million.

In first  quarter  2000,  the  Company  reported  an  extraordinary  loss on the
extinguishment  of the  Company's  notes and  debentures of  approximately  $5.9
million, net of income taxes of approximately $3.2 million.

KCS Credit Facility.  The KCS Credit Facility provides for a total commitment of
$750 million,  comprised of three separate term loans totaling $600 million with
$200 million due January 11,  2001,  $150 million due December 30, 2005 and $250
million due December 30, 2006 and a revolving  credit  facility  available until
January 11, 2006 ("KCS  Revolver").  The availability  under the KCS Revolver is
$150 million and will be reduced to $100 million on the later of January 2, 2001
and the  expiration  date with  respect  to the Grupo TFM  Capital  Contribution
Agreement.  Letters of credit are also available  under the KCS Revolver up to a
limit of $90 million.  Borrowings  under the KCS Credit  Facility are secured by
substantially all of the Transportation segment's assets.

On January 11, 2000,  KCSR  borrowed the full amount ($600  million) of the term
loans and used the proceeds to repurchase the Debt Securities, retire other debt
obligations and pay related fees and expenses.  No funds were initially borrowed
under the KCS Revolver. Proceeds of future borrowings under the KCS Revolver are
to be used for working  capital and for other general  corporate  purposes.  The
letters of credit under the KCS  Revolver are to be used to support  obligations
in connection with the Grupo TFM Capital Contribution Agreement ($15 million may
be used for general corporate purposes).

Interest on the outstanding  loans under the KCS Credit Facility shall accrue at
a rate per annum based on the London  interbank  offered  rate  ("LIBOR") or the
prime rate, as the Company shall select.  Each loan shall accrue interest at the
selected rate plus the applicable  margin,  which will be determined by the type
of loan.  Until the term loan maturing in 2001 is repaid in full, the term loans
maturing  in 2001 and 2005 and all  loans  under the KCS  Revolver  will have an
applicable  margin of 2.75% per annum for LIBOR priced loans and 1.75% per annum
for prime  rate  priced  loans and the term loan  maturing  in 2006 will have an
applicable  margin of 3.00% per annum for LIBOR priced loans and 2.00% per annum
for prime rate based  loans.  The  interest  rate with  respect to the term loan
maturing  in 2001 is also  subject to 0.25% per annum  interest  rate  increases
every three  months  until such term loan is paid in full,  at which  time,  the
applicable  margins for all other loans will be reduced and may fluctuate  based
on the leverage ratio of the Company at that time.

The KCS Credit Facility requires the payment to the banks of a commitment fee of
0.50%  per  annum on the  average  daily,  unused  amount  of the KCS  Revolver.
Additionally  a fee equal to a per annum rate equal to 0.25% plus the applicable
margin  for LIBOR  priced  revolving  loans will be paid on any letter of credit
issued under the KCS Credit Facility.  The KCS Credit Facility  contains certain
covenants,  among others, as follows: i) restricts the payment of cash dividends
to common stockholders;  ii) limits annual capital  expenditures;  iii) requires
hedging instruments with respect to at least 50% of the outstanding  balances of
each of the term loans maturing in 2005 and 2006 to mitigate  interest rate risk
associated with the new variable rate debt; and iv) provides  leverage ratio and
interest  coverage ratio  requirements  typical of this type of debt instrument.
These covenants,  along with other provisions could restrict maximum utilization
of  the  facility.   Issue  costs  relating  to  the  KCS  Credit   Facility  of
approximately  $17.6  million  were  deferred  and  are  being  amortized  on  a
straight-line  basis  over the  respective  term of the  loans.  The  difference
between the  straight-line  method and interest  method of  amortization  is not
material.

17

In accordance  with the  provision  requiring the Company to manage its interest
rate risk through  hedging  activity,  in first quarter 2000 the Company entered
into five separate interest rate cap agreements for an aggregate notional amount
of $200 million  expiring on various  dates in 2002.  The interest rate caps are
linked to LIBOR. $100 million of the aggregate notional amount provides a cap on
the Company's  interest  rate of 7.25% plus the  applicable  spread,  while $100
million   limits  the  interest   rate  to  7%  plus  the   applicable   spread.
Counterparties   to  the  interest  rate  cap  agreements  are  major  financial
institutions  who also  participate  in the New Credit  Facilities.  The Company
believes that credit loss from counterparty non-performance is remote.

Stilwell  Credit  Facility.  On January 11, 2000,  KCSI also arranged a new $200
million 364-day senior unsecured competitive  Advance/Revolving  Credit Facility
("Stilwell Credit Facility"). KCSI borrowed $125 million under this facility and
used the proceeds to retire debt  obligations as discussed  above.  Stilwell has
assumed this credit facility,  including the $125 million  borrowed  thereunder,
and  upon  completion  of  the  Separation,  KCSI  will  be  released  from  all
obligations thereunder. Stilwell repaid the $125 million in March 2000.

Two  borrowing  options are  available  under the Stilwell  Credit  Facility:  a
competitive  advance  option,  which is uncommitted,  and a committed  revolving
credit  option.  Interest on the  competitive  advance  option is based on rates
obtained  from bids as  selected by Stilwell  in  accordance  with the  lender's
standard competitive auction procedures. Interest on the revolving credit option
accrues based on the type of loan (e.g., Eurodollar, Swingline, etc.) with rates
computed using LIBOR plus 0.35% per annum or, alternatively,  the highest of the
prime  rate,  the  Federal  Funds  Effective  Rate  plus  0.005%,  and the  Base
Certificate of Deposit Rate plus 1%.

The Stilwell  Credit  Facility  includes a facility fee of 0.15% per annum and a
utilization  fee of 0.125%  on the  amount of the  outstanding  loans  under the
facility for each day on which the aggregate  utilization of the Stilwell Credit
Facility  exceeds  33% of the  aggregate  commitments  of the  various  lenders.
Additionally,  the Stilwell Credit Facility  contains,  among other  provisions,
various  financial  covenants,  which could restrict maximum  utilization of the
Stilwell  Credit  Facility.  Stilwell may assign or delegate all or a portion of
its rights and obligations  under the Stilwell Credit Facility to one or more of
its domestic subsidiaries.

Sale of  Janus  Stock.  In first  quarter  2000,  Stilwell  sold to  Janus,  for
treasury, 192,408 shares of Janus common stock and such shares will be available
for awards under Janus'  recently  adopted Long Term Incentive  Plan.  Janus has
agreed that for as long as it has  available  shares of Janus  common  stock for
grant  under that plan,  it will not award  phantom  stock,  stock  appreciation
rights or similar rights. The sale of these shares resulted in an after-tax gain
of  approximately  $15.1  million,  and  together  with the issuance by Janus of
approximately  35,000 shares of restricted stock in first quarter 2000,  reduced
Stilwell's  ownership  to  approximately  81.5%.  After this first  quarter 2000
issuance,  more than 157,000 shares of Janus stock remain in treasury for use in
connection  with its Long Term  Incentive  Plan.  Upon  issuance of all of these
shares in future years, the Company's ownership interest in Janus will be 80.1%.

Litigation  Settlement.  In January 2000, Stilwell received  approximately $44.2
million in connection with the settlement of a legal dispute related to a former
equity  investment.  The settlement  agreement  resolves all outstanding  issues
related to this  former  equity  investment.  In first  quarter  2000,  Stilwell
recognized an after-tax gain of approximately  $27.3 million as a result of this
settlement.

Dividends  Suspended  for KCSI Common  Stock.  During first  quarter  2000,  the
Company's Board announced  that,  based upon a review of the Company's  dividend
policy in  conjunction  with the New Credit  Facilities  discussed  above and in
light of the  anticipated  Separation,  it decided to suspend  the Common  stock
dividend  of KCSI under the  existing  structure  of the  Company.  This  action
complies with the terms and covenants of the New Credit  Facilities.  Subsequent
to the  Separation,  the separate Boards of KCSI and Stilwell will determine the
appropriate dividend policy for their respective companies.

18

RESULTS OF OPERATIONS

The Company's revenues, operating income and net income by industry segment were
as follows (dollars in millions):


                                                  Three Months
                                                  Ended March 31,
                                               --------------------
                                                 2000        1999
                                               -------      -------
                                                      
Revenues:
  Transportation                               $ 148.9      $ 151.9
  Financial Services                             545.1        233.3
                                               -------      -------
     Total                                     $ 694.0      $ 385.2
                                               =======      =======

Operating Income:
  Transportation                               $  18.0      $  24.4
  Financial Services                             244.9         97.2
                                               -------      -------
     Total                                     $ 262.9      $ 121.6
                                               =======      =======

Net Income:
  Transportation                               $   4.5      $   7.6
  Financial Services                             188.7         61.0
                                               -------      -------
     Total                                     $ 193.2      $  68.6
                                               =======      =======



The Company reported first quarter 2000 consolidated  earnings of $193.2 million
($1.66 per diluted share) compared to $68.6 million ($0.60 per diluted share) in
first quarter 1999.  Consolidated  revenues  rose 80% to $694.0  million  during
first quarter 2000 versus first quarter 1999,  resulting from higher revenues in
the Financial  Services  segment,  led by Janus.  Operating  expenses  increased
approximately 64% quarter to quarter primarily due to increases in the Financial
Services segment reflecting higher costs associated with the growth in revenues.
First quarter 2000  depreciation and amortization  increased nearly 49%, chiefly
because of higher depreciation  arising from Janus'  infrastructure  development
and higher amortization  associated with the deferred  commissions paid by Janus
under the Janus World Funds Plc B shares arrangement.

Operating  income for the three months ended March 31, 2000  increased to $262.9
million,  116%  higher  than the  comparable  1999  period.  This  increase  was
primarily due to lower  proportionate  growth in operating  expenses compared to
revenues in the Financial  Services  segment.  Equity earnings in unconsolidated
affiliates improved $15.3 million, or 124%, due to higher contributions from DST
and Grupo TFM. DST equity earnings increased $7.3 million, while equity earnings
from Grupo TFM were $7.7 million higher (exclusive of related interest expense).
Interest  expense  increased $5.1 million (34%) for the three months ended March
31,  2000  versus  the  comparable  1999  period  due to higher  interest  rates
associated  with the January 2000 debt  re-capitalization,  as well as increased
amortization due to related debt issue costs.

In connection with the Company's re-capitalization of its debt, in first quarter
2000 the Transportation  segment recorded extraordinary debt retirement costs of
approximately  $5.9  million,  after-tax  ($0.05  per  diluted  share).  In  the
Financial Services segment,  one-time after-tax items contributed  approximately
$0.39 per diluted share to the Company's  consolidated earnings per share. These
items were  comprised of the following:  i) an after-tax  gain of  approximately
$27.3 million  resulting from the settlement of litigation  with a former equity
affiliate; ii) a $15.1 million after-tax gain associated with the Company's sale
of 192,408  shares of its Janus common stock to Janus as  discussed  above;  and
iii)  approximately  $3.6 million in equity earnings  representing the Company's
proportionate  share of  non-recurring  items  recorded by DST in first  quarter
2000.

19

TRANSPORTATION

The Transportation  segment's  condensed  Statement of Income was as follows (in
millions):



                                    Consolidated Transportation
                                            (in millions)
                                            Three Months
                                           Ended March 31,
                                    --------------------------
                                        2000           1999
                                    -----------    -----------

                                             
Revenues                            $     148.9    $     151.9
Costs and expenses                        115.0          113.2
Depreciation and amortization              15.9           14.3
                                    -----------    -----------
   Operating income                        18.0           24.4
Equity in net earnings of
  unconsolidated affiliates:
   Grupo TFM                                8.2            0.5
   Other                                    0.6            0.6
Interest expense                          (17.5)         (14.0)
Other, net                                  2.7            0.9
                                    -----------    -----------
   Pretax income                           12.0           12.4
Income tax provision                        1.6            4.8
                                    -----------    -----------
   Income before
   extraordinary item, net of tax          10.4            7.6

   Extraordinary item, net of tax:
     Debt retirement costs                 (5.9)            -
                                    -----------    -----------

   Net Income                       $       4.5    $       7.6
                                    ===========    ===========


The  Transportation  segment  contributed  $4.5 million to the  Company's  first
quarter 2000  consolidated net income, a $3.1 million decrease compared to first
quarter  1999.  Exclusive of the  extraordinary  debt  retirement  costs of $5.9
million  associated  with the  re-capitalization  of the  Company's  debt during
January 2000 (see  "Recent  Developments"),  the  Transportation  segment's  net
income  increased $2.8 million,  or 37%,  quarter to quarter.  This increase was
primarily  due to a $5.7  million  improvement  in the  contribution  (including
related  interest  expense)  from Grupo TFM,  partially  offset by a decrease in
ongoing net income from KCSR/Gateway Western of approximately $2.7 million.

Transportation  revenues  for first  quarter  2000  decreased  $3.0 million (2%)
compared to first  quarter  1999.  Combined  KCSR and Gateway  Western  revenues
increased   approximately  $0.7  million  quarter  to  quarter  (see  below  for
explanation  of  commodity  groups),  offset by lower  revenues  at two  smaller
Transportation  companies  resulting  from reduced  demand.  Operating  expenses
increased  approximately  $3.4 million quarter to quarter  primarily due to a 5%
increase in combined KCSR and Gateway Western operating expenses offset by lower
expenses at several smaller Transportation subsidiaries.  First quarter interest
expense  increased 25% from the prior year quarter due to higher  interest rates
associated with the debt  re-capitalization,  as well as increased  amortization
due to related debt issue costs.

20

The  following is a summary of revenues  and carloads for the combined  KCSR and
Gateway Western major commodity groups:



                                                              Carloads and
                                     Revenues               Intermodal Units
                                ------------------          -----------------
                                    (in millions)            (in thousands)
                                   Three months               Three months
                                  ended March 31,            ended March 31,
                                ------------------          -----------------
                                 2000        1999           2000        1999
                                ------      ------         -----        -----
                                                            
  General commodities:
   Agricultural and mineral     $ 32.5      $ 31.3           44.4        43.6
   Chemical and petroleum         32.0        33.5           39.8        42.1
   Paper and forest               26.2        25.9           41.1        41.3
   Other                           1.6         2.9            6.6        10.7
                                ------      ------         -----        -----
  Total general commodities       92.3        93.6          131.9       137.7
      Coal                        29.2        29.7           48.0        52.8
       Intermodal                 12.3        11.7           52.5        48.6
    Automotive                     3.1         1.1            5.2         1.4
                                ------      ------         -----        -----
  Subtotal - Carload revenues    136.9       136.1          237.6       240.5
      Other                        9.4         9.1            -           -
                                ------      ------         -----        -----
      Total                     $146.3      $145.2          237.6       240.5
                                ======      ======         ======       =====




      Agricultural  and mineral  products -  Agricultural  and  mineral  product
revenues  increased $1.2 million,  (3.7%),  for the three months ended March 31,
2000 versus the comparable  1999 period.  The increase  resulted  primarily from
higher  metal/scrap  product  revenues of  approximately  $2.3 million due to an
improvement   in  the  domestic  oil  market,   which  utilizes  steel  for  oil
exploration.  This increase was partially  offset by lower revenues for domestic
and export grain  movements due to competitive  pricing issues and a weakness in
the export market.  First quarter 2000 domestic  grain revenues  continued to be
impacted  by a loss of market  share due to a rail  line  build-in  by the Union
Pacific to a feed mill serviced by KCSR.  Management  believes this  competitive
situation could continue to affect domestic grain revenues in the near future.

      Chemical and petroleum  products - Chemical and petroleum product revenues
decreased  $1.5  million  (4.3%)  quarter to quarter,  primarily  as a result of
declines in plastics  and soda ash  revenues.  The  revenue  decrease  for these
commodities  is due  primarily  to a  continuing  decline  in demand due to both
domestic and  international  chemical  market  conditions and pricing  pressures
driven by competitive market dynamics.  Also, lower demand for petroleum-related
products  resulted in a slight decrease in related shipments and revenues during
the first quarter 2000.  These declines were partially  offset by an increase in
miscellaneous  chemicals due to increased  demand and changes in traffic mix and
length of haul.

      Paper and forest  products - Paper and forest product  revenues  increased
1.2% for the three  months  ended  March 31, 2000  compared to the three  months
ended March 31, 1999.  This  increase is primarily  due to increased  demand for
lumber  products.  Management  believes  that the  market  for paper and  forest
products  will improve  during the remainder of 2000 compared to the weak market
experienced  in 1999.  Further,  management  believes  there is potential for an
increase in  shipments  to Mexico due to higher  demand for  woodpulp  and scrap
paper,  and a potential  market for lumber and panel products as frame and panel
construction methods become more widely accepted in Mexico.

      Coal - Coal revenues  decreased  1.6% for the three months ended March 31,
2000 compared to the three months ended March 31, 1999, resulting from a decline
in net tons delivered of  approximately  7%. This decline was partially due to a
decrease of tons delivered to one plant because of a longer than planned outage,
as well as reduced  demand at other  plants due to  existing  stockpiles.  These
declines  were  partially  offset by the addition of a new  customer.  In fourth
quarter

21

1999,  KCSR began  serving as a bridge  carrier for coal  deliveries  to a Texas
Utilities electric  generating plant in Martin Lake, Texas.  Management believes
that,  even though coal  revenues  were down  quarter to quarter,  increases  in
average  tons per train  coupled  with  improved  cycle  times will  improve the
profitability of coal traffic and provide for revenue growth.

      Intermodal,  automotive  and other  carload - Intermodal,  automotive  and
other carload  revenues  increased $1.3 million for the three months ended March
31,  2000  versus  the  comparable  1999  period  arising  primarily  from  more
intermodal unit shipments  (8.1%) quarter to quarter,  as well an approximate $2
million  increase  (174%) in  automotive  revenues.  The increase in  intermodal
traffic is attributable to several factors  including the alliance with Canadian
National  /  Illinois  Central  ("CN/IC")  and  east-west   intermodal   traffic
originating from the Norfolk Southern Corporation ("NS"). Automotive traffic has
increased, in part, due to an agreement with General Motors for automobile parts
traffic  originating  in the upper  midwest  and  terminating  in  Mexico.  Also
contributing  to the increase in automotive  revenues was additional  automotive
traffic  handled  by  Gateway  Western  from  Mexico,  Missouri  to Kansas  City
originating  from the NS.  Increases in intermodal and  automotive  traffic were
partially  offset by a decrease in other  carload  revenues,  which is comprised
primarily of haulage traffic at Gateway  Western.  This revenue has declined due
to competitive  issues with the related rail carriers.  Management  expects that
both  intermodal  and  automotive  revenues  will  continue to increase  for the
foreseeable future as the alliance with CN/IC matures.

The  Transportation  segment's total operating  expenses  increased $3.4 million
(2.7%),  to $130.9 million for the three months ended March 31, 2000 from $127.5
million for the three months ended March 31, 1999.  First  quarter  KCSR/Gateway
Western operating costs increased $6.3 million from 1999,  largely due to higher
fuel costs associated with the recent increase in oil prices,  as well as higher
locomotive  lease and  maintenance  costs.  Additionally,  an  increase in stock
option exercises has led to an increase in fringe benefit costs. These increases
were partially  offset by a decrease in car hire expense arising  primarily from
improved   operations   and  the  easing  of   congestion.   Declines  in  other
Transportation  subsidiaries  operating  costs  of  approximately  $2.9  million
related primarily to volume-related revenue declines.

As a result of the lower  proportional  growth in revenues compared to operating
expenses,  operating income for the Transportation segment declined $6.4 million
quarter to quarter.  This factor  also  resulted in a combined  KCSR and Gateway
Western  operating  ratio of 86.0% in first  quarter  2000  compared to 82.2% in
first quarter 1999.

The  Transportation  segment  recorded  equity  earnings  of $8.8  million  from
unconsolidated  affiliates for the three months ended March 31, 2000 compared to
$1.1  million  for the three  months  ended  March 31,  1999.  The  increase  is
attributed  primarily to equity  earnings from Grupo TFM,  reflecting  continued
operating  improvements  and the tax impact of inflation and fluctuations in the
valuation  of the peso  versus the U.S.  dollar.  Grupo  TFM's  operating  ratio
improved to 72.7% in first  quarter 2000 versus  78.8% in first  quarter 1999 as
revenues  increased  approximately 30% quarter to quarter.  Results of Grupo TFM
are reported on a U.S. GAAP basis.

First quarter interest expense  increased 25% from the prior year quarter due to
higher  interest rates  associated with the debt  re-capitalization,  as well as
increased amortization due to related debt issue costs.

22

FINANCIAL SERVICES

The Financial  Services segment's  condensed  Statement of Income was as follows
(in millions):




                                    Three Months
                                   Ended March 31,
                              ------------------------
                                 2000           1999
                              ---------      ---------
                                       
Revenues                      $   545.1      $   233.3
Costs and expenses                284.6          129.3
Depreciation and amortization      15.6            6.8
                              ---------      ---------
   Operating income               244.9           97.2
Equity in net earnings of
  unconsolidated affiliates:
   DST Systems, Inc.               18.0           10.7
   Other                            0.8            0.5
Gain on litigation settlement      44.2            -
Gain on sale of Janus stock        15.1            -
Interest expense                   (2.6)          (1.0)
Other, net                          9.9            4.9
                              ---------      ---------
   Pretax income                  330.3          112.3
Income tax provision              114.3           40.1
Minority interest                  27.3           11.2
                              ---------      ---------
   Net income                 $   188.7      $    61.0
                              =========      =========



Assets  under  management  as of March  31,  2000 and 1999 were as  follows  (in
billions):



                                          March 31,
                                   ------------------------
                                    2000              1999
                                   ------            ------
                                               
JANUS
   Janus Advised Funds:
      Janus Investment Funds (i)   $218.2            $ 96.1
  Janus Aspen Series                 24.0               7.6
      Janus Money Market Funds        9.4               6.3
      Janus World Funds               3.4               0.3
                                   ------            ------

        Total Janus Advised Funds   255.0             110.3

   Janus Sub-Advised Funds
     and Private Accounts            60.3              26.5
                                   ------            ------
              Total Janus           315.3             136.8
                                   ------            ------

BERGER
   Berger Advised Funds               7.1               3.3
   Berger Sub-Advised Funds
     and Private Accounts             1.1               0.4
                                   ------            ------
             Total Berger             8.2               3.7
                                   ------            ------

NELSON                                1.4               1.2
                                   ------            ------

Total Assets Under Management      $324.9            $141.7
                                   ======            ======

(i)   Excludes money market funds.


23

For the three  months  ended March 31,  2000,  the  Financial  Services  segment
reported consolidated earnings of $188.7 million, a $127.7 million increase over
first  quarter  1999.  Exclusive  of the  one-time  items  discussed  in "Recent
Developments"  above, ongoing net income was $86.0 million, or 141%, higher than
comparable  1999.  As a  result  of a 126%  increase  in  average  assets  under
management quarter to quarter,  Financial Services consolidated revenues reached
$545.1 million, an increase of 134% over prior year, and consolidated  operating
margins  improved to 44.9% versus 41.7% in first  quarter 1999.  These  improved
revenues and operating  margins  resulted in a 152% increase in operating income
(to $244.9 million).

Assets under management increased  approximately billion during the three months
ended March 31, 2000, reaching $324.9 billion. Net sales and market appreciation
for the  quarter  totaled  $42.8  and $24.  billion,  respectively,  with  Janus
contributing  $42.1 and $23.6 billion of the respective  totals.  Average assets
under  management for the current  three-month  period were 126% higher than the
same period in 1999. In addition,  shareowner accounts grew more than 28% during
first quarter 2000, surpassing 5.5 million as of March 31, 2000.

Consolidated  operating  expenses  increased  121% (to $300.2  million) in first
quarter 2000 compared to 1999,  largely  reflecting  the  significant  growth in
revenues.  Higher expenses were evident in the following components: i) salaries
and wages, primarily due to investment  performance-based incentive compensation
and an increased number of employees; ii) alliance and third party administrator
fees resulting from increased assets under management  through this distribution
channel;  and iii) marketing and promotion,  reflecting efforts to capitalize on
strong  investment  performance  by both Janus and Berger in the last two years.
Additionally, depreciation and amortization increased by 129% as a result of the
significant  infrastructure  developments  by  Janus,  as well  as  amortization
associated  with the  deferred  commissions  paid on the Janus World Funds Plc B
shares.

Equity in net earnings of DST for the three months ended March 31, 2000 improved
to $18.0  million  from $10.7  million in 1999.  This $7.3  million  improvement
includes approximately $3.6 million from two non-recurring DST items - a gain on
the  settlement  of a legal  dispute with a former  equity  affiliate  and gains
related to sales of  marketable  securities.  Exclusive of these DST gain items,
the Company's  proportionate share of DST earnings improved $3.7 million largely
due to the following: i) a 14.1% increase in revenues,  reflecting growth in the
financial services segment (shareowner accounts serviced reached 61.0 million as
of March 31, 2000 compared to 56.4 million at December 31, 1999 and 51.6 million
at March 31, 1999) and output solutions segment;  and ii) improved  consolidated
operating margins.

The 102% increase in Other,  net quarter to quarter is  attributable to realized
gains by Janus on the sale of short-term  investments,  higher  interest  income
resulting  from an increase  in cash and gains  resulting  from the  issuance of
Janus shares to certain of its employees,  which reduced the Company's ownership
of Janus.

A brief  discussion  of  significant  Janus,  Berger and Nelson items during the
three months ended March 31, 2000 follows:

     Janus
     Janus assets under management  increased $65.8 billion during first quarter
     2000 and $178.5  billion from March 31,  1999.  Janus' net sales growth was
     more than 40% of the total  growth  experienced  during  all of 1999.  This
     growth generally reflects ongoing favorable  investment  performance by the
     various  funds/portfolios  within  the  Janus  group of  mutual  funds  (as
     demonstrated by market appreciation of approximately $23.6 billion in first
     quarter 2000),  marketing and promotional efforts and competitive levels of
     expenses and fees compared to industry standards.

24

     Berger
     Berger assets under  management  increased 24% (to $8.2 billion) during the
     three months ended March 31, 2000 and 122%  compared to the $3.7 billion in
     assets under  management at March 31, 1999.  For the first time in over two
     years,  Berger's shareowner accounts increased during a quarter - almost 7%
     - reflecting positive investment  performance during 1999 and first quarter
     2000.

     Nelson
     Nelson's assets under management  increased to (pound)866 million, a 3% and
     17% improvement compared to asset levels at December 31, 1999 and March 31,
     1999, respectively.  Nelson continues its expansion efforts and the Company
     expects that during this phase of Nelson's development, Nelson will operate
     at a loss.  These  losses,  however,  are not  expected  to have a material
     impact on the Company's results of operations or financial position.


TRENDS AND OUTLOOK

The Company's  first  quarter 2000 diluted  earnings per share of $1.66 was more
than 176% higher than the $0.60 per share in first quarter 1999.  Revenue growth
in the Financial Services segment for the first three months of 2000,  partially
offset by lower proportionate  increases in operating costs,  resulted in a 116%
improvement  in  consolidated  operating  income  quarter to quarter.  While the
Transportation  segment  experienced a decline in revenues and operating  income
for the first  quarter  2000,  Grupo TFM  results  continued  to improve  due to
revenue  growth  and  operating  improvements  and  helped to  increase  ongoing
Transportation  net  income.  Domestically,  results  were  affected  by minimal
revenue growth at KCSR and Gateway, which was the residual effect of the service
issues  experienced  during the second  half of 1999  coupled  with  competitive
pricing  issues.  The majority of these  service  issues have been  resolved and
management  believes the rail  operations  are well  positioned  to  effectively
manage revenue growth opportunities.

In the Financial  Services segment,  continued growth in assets under management
has  resulted in an increase in  revenues,  operating  income and net income for
first quarter 2000 versus the comparable 1999 period.

A current  outlook for the Company's  businesses for the remainder of 2000 is as
follows  (refer to the first  paragraph  of  "Overview"  section of this Item 2,
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations, regarding forward-looking comments):

i) Transportation - Management expects that general commodities,  intermodal and
   automotive  traffic will continue to be largely  dependent on economic trends
   within certain  industries in the  geographic  region served by the railroads
   comprising the NAFTA Railway.  Based on anticipated traffic levels,  revenues
   are expected to increase  slightly  during the  remainder of 2000 compared to
   1999. Variable costs and expenses are expected to be at levels  proportionate
   with revenue activity, except for fuel expenses, which are expected to mirror
   market conditions.

   The 1999  congestion  issues  resulted in some  strained  relationships  with
   customers.  Rebuilding these  relationships  will require focused  management
   efforts and consistent and dependable  customer service in the future. In the
   short-term,  competitive pricing issues and weak export markets for grain and
   chemicals will present revenue challenges to the rail operations. However, in
   the longer term,  Transportation management believes that, with the effective
   cost controls and utilization improvements noted, the NAFTA Railway continues
   to provide an attractive  service for shippers and is well-positioned to take
   advantage of the growth potential of NAFTA traffic.

   Financial  Services - The Financial  Services segment earnings and cash flows
   are heavily dependent on prevailing financial market conditions.  Significant
   increases or decreases in the various  securities  markets,  particularly the
   equity  markets,  can  have  a  material  impact  on the  Financial  Services
   segment's  results  of  operations,   financial  condition  and  cash  flows.

25

   Additionally,  the  Financial  Services  segment  results are affected by the
   relative  performance of Janus, Berger and Nelson products,  introduction and
   market  reception  of new  products,  as well  as  other  factors,  including
   increases  in  the  rate  of  return  of  alternative   investment  products,
   increasing  competition as the number of mutual funds  continues to grow, and
   changes in marketing and distribution channels.

   Based on a higher  level of  assets  under  management  starting  the  second
   quarter, revenues for the remainder of 2000 are expected to exceed comparable
   prior year periods.  Management  expects  ongoing  Financial  Services margin
   pressure  challenges  as  subsidiaries  continue  efforts to ensure  that the
   operational and  administrative  infrastructure  consistently  meets the high
   standards  of  quality  and  service  historically   provided  to  investors.

ii)Equity  Investments - The Company  expects to continue to  participate in the
   earnings/losses  from its equity  investments  in DST,  Grupo  TFM,  Southern
   Capital and Mexrail. Management does not make any assurances as to the impact
   that a change in the value of the peso or a change in Mexican  inflation will
   have on the results of Grupo TFM.


LIQUIDITY AND CAPITAL RESOURCES

Summary cash flow data is as follows (in millions):


                                                   Three Months
                                                  Ended March 31,
                                                -------------------
                                                 2000        1999
                                                -------     -------
                                                      
Cash flows provided by (used for):

   Operating activities                         $ 186.6     $  92.8
   Investing activities                           (66.8)      (25.0)
   Financing activities                           (67.4)      (34.0)
                                                -------     -------
   Cash and equivalents:
    Net increase                                   52.4        33.8
    At beginning of year                          336.1       144.1
                                                -------     -------
    At end of period                            $ 388.5     $ 177.9
                                                =======     =======


During the three months ended March 31, 2000,  the Company's  consolidated  cash
position  increased $52.4 million from December 31, 1999. This increase resulted
primarily from earnings, partially offset by property acquisitions,  payments of
deferred commissions on the Janus World Funds Plc B shares and net repayments of
indebtedness.

Net  operating  cash  inflows  for the  quarter  ended March 31, 2000 were $93.8
million higher than comparable  1999.  This  improvement in operating cash flows
was chiefly  attributable to an increase in net income,  the impact of which was
partially reduced by the $44.7 million in deferred  commission  payments and net
changes in other working capital components.

Net investing  cash  outflows were $66.8 million  during the quarter ended March
31, 2000 compared to $25.0 million during first quarter 1999. This difference is
primarily to higher capital expenditures quarter to quarter. In addition,  Janus
used  approximately  $6.8 million for net  purchases of  investments  in advised
funds during first quarter 2000 versus no activity in comparable 1999.

During first quarter 2000,  financing  cash outflows were used primarily for the
repayment of debt and associated  issuance  costs, as well as for cash dividends
and  distributions to minority  stockholders.  Net cash flows used for financing
purposes  totaled  $67.4  million  during first quarter 2000 compared with $34.0
million  used  during  the  three  months  ended  March 31,  1999.  This was due
primarily to the first quarter 2000 net repayment of  indebtedness in connection
with the re-capitalization.

26

Cash flows from operations are expected to increase during the remainder of 2000
from positive  operating  income,  which has historically  resulted in favorable
operating  cash flows.  Investing  activities  will continue to use  significant
amounts of cash. Future roadway  improvement  projects are expected to be funded
by KCSR operating cash flow.  Based on anticipated  financing  arrangements  for
Grupo TFM, significant additional operational  contributions from the Company to
Grupo TFM are not  expected to be  necessary.  However,  there exists a possible
approximate  $74  million  capital  call if  certain  Grupo TFM  benchmarks,  as
outlined in Grupo TFM's financing  arrangements,  are not met. Additionally,  if
circumstances develop in which a contribution may be requested by Grupo TFM, the
Company  will  evaluate  the  contribution  based on the merits of the  specific
underlying need. Further,  the Company is negotiating for the option to purchase
a  portion  of the  Mexican  Government's  20%  interest  in TFM at a  discount.
Management  anticipates  using working  capital and existing  lines of credit to
fund this transaction in the event it elects to exercise any option granted as a
result of these negotiations.

In addition to operating cash flows, the Company has financing available through
its various lines of credit with a maximum borrowing amount of $460 million.  As
of March 31, 2000, $445 million was available under these lines of credit,  $300
million  of  which  is to be used  solely  by the  Financial  Services  segment.
However,  the Financial  Services segment elected to not renew its May 1999 $100
million 364-day revolver upon expiration on May 12, 2000,  effectively  reducing
available  credit to the Company by this  amount.  Because of certain  financial
covenants  contained in the credit agreements,  however,  maximum utilization of
the Company's available lines of credit may be restricted.

The Company also has a Universal  Shelf  Registration  Statement  ("Registration
Statement")  filed in September 1993, as amended in April 1996 for $500 million.
The SEC  declared  the  Registration  Statement  effective  on April  22,  1996;
however,  no  securities  have been  issued.  The  Company  has not  engaged  an
underwriter for these securities.  Management expects that any net proceeds from
the sale of securities  under the  Registration  Statement would be added to the
general  funds  of the  Company  and  used  principally  for  general  corporate
purposes,  including working capital, capital expenditures,  and acquisitions of
or investments in businesses and assets.

Additionally,  as  discussed  in  "Recent  Developments",   the  Company's  debt
restructuring  in January 2000 included a $200 million term loan that matures on
January 11, 2001.  The Company has the ability and the intent to refinance  this
term loan and is currently  preparing for the completion of this  refinancing in
the second half of 2000.

The Company believes its operating cash flows and available  financing resources
are sufficient to fund working capital and other  requirements for the remainder
of 2000.

The Company's  debt ratio (total debt as a percent of total debt plus equity) at
March  31,  2000 was 31.6%  compared  to 37.2% at  December  31,  1999.  Company
consolidated  debt  declined  $61.0  million  from  December 31, 1999 (to $699.9
million at March 31, 2000) as a result of net repayments in connection  with the
re-capitalization  discussed in "Recent Developments" above. Consolidated equity
increased $230.8 million from December 31, 1999. This increase was due primarily
to net income and the issuance of common stock under the Employee Stock Purchase
Plan and other plans.  This increase in equity  coupled with the decline in debt
resulted in a lower debt ratio at March 31, 2000 compared to December 31, 1999.

Management  anticipates that the debt ratio will continue to decrease during the
remainder of 2000 as a result of expected  net debt  repayments  and  profitable
operations.  Note,  however,  that  unrealized  gains on  "available  for  sale"
securities  are  contingent  on market  conditions  and,  thus,  are  subject to
significant  fluctuations in value.  Significant  declines in the value of these
securities would negatively impact  accumulated other  comprehensive  income and
affect the Company's debt ratio.

27

OTHER

Year 2000. KCSI and its  subsidiaries  experienced no material Year 2000 related
issues when the date moved to January 1, 2000,  nor have any issues arisen as of
the date of this Form 10-Q.  Although the initial  transition  to 2000  occurred
without adverse effects,  there still exists possible Year 2000 issues for those
applications, systems, processes and system hardware that have yet to be used in
live activities and  transactions.  The Company continues to evaluate and pursue
discussions  with its various  customers,  partners  and vendors with respect to
Year 2000 issues.  No assurance  can be made that such parties will be Year 2000
ready. While the Company cannot fully determine the impact, the inability of its
computer  systems  to  operate  properly  in 2000  could  result in  significant
difficulty  in  processing  and  completing  fundamental  transactions.  In such
events,  the Company's results of operations,  financial position and cash flows
could be materially adversely affected.

While  there have been no material  problems  during Year 2000 as of the date of
this Form 10-Q, the Company continues to evaluate the principal risks associated
with its IT and non-IT systems,  as well as third party systems if they were not
to operate  properly in the Year 2000.  Based on work performed and  information
received,   the  Company  believes  its  key  suppliers,   customers  and  other
significant third party  relationships  were and continue to be prepared for the
Year 2000 in all material respects;  however, management of the Company makes no
assurances that all such parties are Year 2000 ready.

The Company and its subsidiaries have identified  alternative plans in the event
that the Year 2000 project does not meet anticipated needs. The Company has made
alternative  arrangements  in the  event  that  critical  suppliers,  customers,
utility  providers  and other  significant  third parties  experience  Year 2000
difficulties.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The Company has had no significant  changes in its  Quantitative and Qualitative
Disclosures  About Market Risk from that  previously  reported in the  Company's
Annual Report on Form 10-K for the year ended December 31, 1999.

28

PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

Part I, Item 1.  Financial  Statements,  Note 11 to the  Consolidated  Condensed
Financial  Statements  of  this  Form  10-Q is  hereby  incorporated  herein  by
reference.


Item 5.  Other Information

By letter dated May 4, 2000, Jose F. Serrano submitted his resignation from
the Board of Directors of Kansas City Southern Industries, Inc. to be
effective on the date of such letter.


Item 6. Exhibits and Reports on Form 8-K

a)     Exhibits

       Exhibit 27.1 -  Financial Data Schedule

b) Reports on Form 8-K

       The  Company  did not file a Current  Report on Form 8-K during the three
       months ended March 31, 2000.

29

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 and in the capacities indicated on May 15, 2000.


Kansas City Southern Industries, Inc.


                              /s/ Joseph D. Monello
                                Joseph D. Monello
                       Vice President and Chief Financial Officer
                          (Principal Financial Officer)



                              /s/ Louis G. Van Horn
                                Louis G. Van Horn
                         Vice President and Comptroller
                         (Principal Accounting Officer)