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 September 30, 2001
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 October 31, 2001
- --------------------------------------------------------------------------------
Common Stock, $.01 per share par value 58,939,118 Shares
- --------------------------------------------------------------------------------
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 2001
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 2
Consolidated Condensed Balance Sheets -
September 30, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Income -
Three and Nine Months Ended September 30, 2001 and 2000 4
Computation of Basic and Diluted Earnings per Common Share 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 5
Consolidated Condensed Statements of Changes in Stockholders' Equity -
Nine Months Ended September 30, 2001 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Qualitative and Quantitative Disclosures About Market Risk 28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 29
- ----------
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 2001
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. (the "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 accounting
principles generally accepted in the United States of America 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, 2000 (as amended), and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Form 10-Q. Results for the three and nine months
ended September 30, 2001 are not necessarily indicative of the results expected
for the full year 2001.
As a result of the July 12, 2000 spin-off of Stilwell Financial Inc.
("Stilwell"), the Company's formerly wholly-owned financial services segment,
the accompanying Consolidated Condensed Financial Statements for the three and
nine months ended September 30, 2000 reflects the results of operations and cash
flows of Stilwell as discontinued operations. Additionally, periods presented in
the accompanying Consolidated Condensed Financial Statements reflect a
one-for-two reverse stock split, which was completed on July 12, 2000 in
conjunction with the spin-off of Stilwell.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions)
September 30, December 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 26.9 $ 21.5
Accounts receivable, net 141.4 135.0
Inventories 28.8 34.0
Other current assets 19.0 25.9
-------- ---------
Total current assets 216.1 216.4
Investments in unconsolidated affiliates 379.9 358.2
Properties (net of $660.0 and $622.9 accumulated
depreciation and amortization, respectively) 1,323.0 1,327.8
Intangibles and Other Assets 43.4 42.1
-------- ----
Total assets $1,962.4 $ 1,944.5
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year $ 42.8 $ 36.2
Accounts and wages payable 48.3 52.9
Accrued liabilities 120.7 159.9
-------- ---------
Total current liabilities 211.8 249.0
-------- ---------
Other Liabilities:
Long-term debt 642.0 638.4
Deferred income taxes 347.4 332.2
Other deferred credits 96.2 81.5
-------- ---------
Total other liabilities 1,085.6 1,052.1
-------- ---------
Stockholders' Equity:
Preferred stock 6.1 6.1
Common stock 0.6 0.6
Retained earnings 662.2 636.7
Accumulated other comprehensive loss (3.9) -
------------ ---------
Total stockholders' equity 665.0 643.4
-------- ---------
Total liabilities and stockholders' equity $1,962.4 $ 1,944.5
-------- ---------
See accompanying notes to consolidated condensed financial statements.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
-------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Millions, Except per Share Data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2001 2000 2001 2000
------- ------- ------- -------
Revenues $ 144.6 $ 144.1 $ 431.8 $ 437.4
Costs and expenses
Salaries, wages and benefits 48.7 50.5 145.4 149.5
Purchased services 16.9 14.6 48.6 44.8
Depreciation and amortization 14.7 13.8 43.6 42.4
Operating leases 12.1 12.3 36.5 37.4
Fuel 11.5 12.2 35.3 35.3
Casualties and insurance 6.2 12.0 28.6 25.2
Car hire 3.5 4.1 15.7 11.1
Other 15.0 10.1 43.1 40.8
------- ------- ------- -------
Total costs and expenses 128.6 129.6 396.8 386.5
------- ------- ------- -------
Operating Income 16.0 14.5 35.0 50.9
Equity in net earnings of unconsolidated affiliates:
Grupo Transportacion Ferroviaria
Mexicana, S.A. de C.V. 7.5 2.6 23.5 18.8
Other (0.6) 1.5 (0.2) 3.3
Interest expense (13.2) (18.3) (42.9) (54.2)
Other, net 0.9 1.2 3.0 4.8
------- ------- ------- -------
Income from continuing operations
before income taxes, extraordinary
item and cumulative effect of
accounting change 10.6 1.5 18.4 23.6
Income tax provision (benefit) 1.6 (1.1) (1.6) 1.8
------- ------- ------- -------
Income from continuing operations
before extraordinary item and
cumulative effect of accounting change 9.0 2.6 20.0 21.8
Income from discontinued operations,
net of income taxes - 23.4 - 363.8
------- ------- ------- -------
Income before extraordinary item and
cumulative effect of accounting change 9.0 26.0 20.0 385.6
Extraordinary item, net of income taxes
Debt retirement costs - KCSI - (1.1) - (7.0)
Debt retirement costs - Grupo TFM - (1.7) - (1.7)
Cumulative effect of accounting change,
net of income taxes - - (0.4) -
------- ------- ------- -------
Net Income $ 9.0 $ 23.2 $ 19.6 $ 376.9
======= ======= ======= =======
Per Share Data
Basic Earnings per Common share
Continuing operations $ 0.15 $ 0.05 $ 0.34 0.38
Discontinued operations - 0.40 - 6.46
------- ------- ------- -------
Basic Earnings per Common share before
extraordinary item and cumulative
effect of accounting change 0.15 0.45 0.34 6.84
Extraordinary item, net of income taxes - (0.05) - (0.15)
Cumulative effect of accounting change,
net of income taxes - - (0.01) -
------- ------- ------- -------
Total Basic Earnings per Common share $ 0.15 $ 0.40 $ 0.33 $ 6.69
======= ======= ======= =======
Diluted Earnings per Common share
Continuing operations $ 0.15 $ 0.05 $ 0.33 $ 0.37
Discontinued operations - 0.39 - 6.17
------- ------- ------- -------
Diluted Earnings per Common share before
extraordinary item and cumulative
effect of accounting change 0.15 0.44 0.33 6.54
Extraordinary item, net of income taxes - (0.05) - (0.15)
Cumulative effect of accounting
change, net of income taxes - - (0.01) -
------- ------- ------- -------
Total Diluted Earnings per Common share $ 0.15 $ 0.39 $ 0.32 $ 6.39
======= ======= ======= =======
Weighted Average Common Shares
Outstanding (in thousands)
Basic 58,656 57,478 58,442 56,353
Dilutive potential common shares 2,515 1,380 2,492 1,751
------ ------ ------ ------
Diluted 61,171 58,858 60,934 58,104
Dividends Per Share:
Per Preferred share $ .25 $ .25 $ .75 $ .75
======= ======= ======= =======
See accompanying notes to consolidated condensed financial statements.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months
Ended September 30,
-------------------
2001 2000
------- -------
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $ 19.6 $ 376.9
Adjustments to reconcile net income
to net cash from continuing operations
Income from discontinued operations - (363.8)
Depreciation and amortization 43.6 42.4
Deferred income taxes 14.9 23.4
Equity in undistributed earnings of unconsolidated affiliates (23.3) (22.1)
Distributions from unconsolidated affiliates 3.0 -
Gain on sale of assets (3.5) (3.4)
Extraordinary items, net of tax - 7.5
Tax benefit realized upon exercise of stock options 4.6 9.0
Changes in working capital items:
Accounts receivable (6.4) 12.4
Inventories 5.2 6.3
Other current assets 7.6 2.3
Accounts and wages payable (4.6) (32.9)
Accrued liabilities (26.0) (12.7)
Other, net (4.5) 7.0
------- -------
Net cash provided by operating activities of
continuing operations 30.2 52.3
------- -------
INVESTING ACTIVITIES:
Property acquisitions (42.2) (79.0)
Proceeds from disposal of property 15.0 6.6
Investment in and loans with affiliates (6.1) (3.8)
Other, net (0.8) 1.7
------- -------
Net cash used for investing activities of
continuing operations (34.1) (74.5)
------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 35.0 1,017.0
Repayment of long-term debt (24.8) (969.6)
Proceeds from stock plans 5.6 17.8
Debt issuance costs (0.4) (17.6)
Cash dividends paid (0.2) (4.8)
Other, net (5.9) (2.3)
------- -------
Net cash provided by financing
activities of continuing operations 9.3 40.5
------- -------
CASH AND EQUIVALENTS:
Net increase in cash provided by continuing operations 5.4 18.3
At beginning of year 21.5 11.9
------- -------
At end of period $ 26.9 $ 30.2
======= =======
See accompanying notes to consolidated condensed financial statements.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in millions, except share amounts)
(Unaudited)
Accumulated
other
$25 Par $.01 Par Retained comprehensive
Preferred stock Common stock Earnings income Total
--------------- ------------ -------- ------ -----
Balance at December 31, 2000 $ 6.1 $ 0.6 $ 636.7 $ - $ 643.4
Comprehensive income:
Net income 19.6
Cumulative effect of
accounting change (0.9)
Change in fair market value
of cash flow hedge of
unconsolidated affiliate (3.0)
Comprehensive income 15.7
Dividends (0.2) (0.2)
Options exercised and stock
subscribed . - - 6.1 - 6.1
------- ------- ------- ------- -------
Balance at September 30, 2001 $ 6.1 $ 0.6 $ 662.2 $ (3.9) $ 665.0
------- ------- ------- ------- -------
See accompanying notes to consolidated condensed financial statements.
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" or "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 September 30, 2001 and December
31, 2000, the results of operations for the three and nine months ended
September 30, 2001 and 2000, and cash flows for the nine months ended
September 30, 2001 and 2000.
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, 2000 (as amended). The results
of operations for the three and nine months ended September 30, 2001 are
not necessarily indicative of the results to be expected for the full year
2001. Certain 2000 information has been reclassified to conform to the
current period presentation.
3. On June 14, 2000, KCSI's Board of Directors approved the spin-off of
Stilwell Financial Inc. ("Stilwell"), the Company's formerly wholly-owned
financial services subsidiary. KCSI completed its spin-off of Stilwell on
July 12, 2000 through a special dividend of Stilwell common stock
distributed to KCSI common stockholders of record on June 28, 2000
("Spin-off"). The Spin-off occurred after the close of business of the New
York Stock Exchange on July 12, 2000, and each KCSI stockholder received
two shares of the common stock of Stilwell for every one share of KCSI
common stock owned on the record date. The total number of Stilwell shares
distributed was 222,999,786.
Also on July 12, 2000, KCSI completed a reverse stock split whereby every
two shares of KCSI common stock was converted into one share of KCSI common
stock. All periods presented in the accompanying consolidated condensed
financial statements reflect this one-for-two reverse stock split, which
had previously been approved by KCSI common stockholders. The total number
of KCSI shares outstanding immediately following this reverse split was
55,749,947.
As a result of the Spin-off, the accompanying consolidated condensed
financial statements for the three and nine-month periods ended September
30, 2000 reflect the results of operations and cash flows of Stilwell for
the applicable periods as discontinued operations. The following table
provides the results of operations information of Stilwell, which is
included in the accompanying consolidated condensed financial statements
for the periods indicated prior to the Spin-off (in millions):
7/1/00- 1/1/00-
7/12/00 7/12/00
-------- --------
Revenues $ 79.8 $1,187.9
Operating expenses 38.8 646.2
-------- --------
Operating income 41.0 541.7
Equity in earnings of unconsolidated
affiliates 2.4 37.0
Gain on litigation settlement - 44.2
Gain on sale of Janus common stock - 15.1
Interest expense and other, net 1.0 18.6
-------- --------
Pretax income 44.4 656.6
Income tax provision 16.6 233.3
Minority interest in consolidated earnings 4.4 59.5
-------- --------
Income from discontinued operations,
net of income taxes $ 23.4 $ 363.8
-------- --------
A stock purchase agreement with Thomas H. Bailey, the Chairman, President
and Chief Executive Officer of Janus Capital Corporation ("Janus"), and
another Janus stockholder (the "Janus Stock Purchase Agreement") and
certain restriction agreements with other Janus minority stockholders
contain, among other provisions, mandatory put rights. The Janus Stock
Purchase Agreement, and certain stock purchase agreements and restriction
agreements with other minority stockholders also contain provisions whereby
upon the occurrence of a Change in Ownership (as defined in such
agreements), Stilwell may be required to purchase such holders' Janus
stock. The fair market value price for the purchase or sale under the
mandatory put rights or the Change in Ownership provisions would be equal
to fifteen times the net after-tax earnings of Janus over the period
indicated in the relevant agreement or in some circumstances as
determined by Janus' Stock Option Committee or as determined by an
independent appraisal. The Janus Stock Purchase Agreement has been assigned
to Stilwell and Stilwell has assumed and agreed to discharge KCSI's
obligations under that agreement; however, KCSI is obligated as a guarantor
of Stilwell's obligations under that agreement. With respect to other
restriction agreements not assigned to Stilwell, Stilwell has agreed to
perform all of KCSI's obligations under these agreements and KCSI has
agreed to transfer all of its benefits and assets under these agreements to
Stilwell. In addition, Stilwell has agreed to indemnify KCSI for any and
all losses incurred with respect to the Janus Stock Purchase Agreement and
all other Janus minority stockholder agreements.
In recent filings, Stilwell disclosed that in March and April 2001,
Stilwell acquired 202,042 shares of Janus common stock from several
minority stockholders of Janus exercising their put rights under certain of
the agreements discussed above. On September 4, 2001, Janus purchased from
employees (other than Mr. Bailey) approximately 139,000 shares of Janus
common stock. On May 1, 2001, Stilwell announced that it completed the
purchase of 600,000 shares of Janus common stock from Mr. Bailey under the
terms and conditions of the Janus Stock Purchase Agreement. In addition, in
recent filings, Stilwell disclosed that it expects to purchase 609,950
shares of Janus common stock, representing approximately 6.3% of the
currently outstanding stock of Janus, from Mr. Bailey and one other
minority stockholder for an approximate cost of $613 million. KCSI
believes, based on discussions with Stilwell management, that Stilwell has
adequate financial resources available to fund any obligation under the
mandatory purchase and sale provisions and Change in Ownership provisions
described above, including the purchase of the remaining 609,950 shares
from Mr. Bailey and such minority stockholder. However, if Stilwell were
unable to meet its obligations with respect to these agreements, KCSI would
be obligated to make the payments under these agreements. Upon completion
of the purchase of the 609,950 shares of Janus common stock from Mr. Bailey
and the minority stockholder by Stilwell, KCSI will be relieved of its
obligations to make any payments under the mandatory put rights included
within these agreements.
4. 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. The
following is a reconciliation from the weighted average shares used for the
basic earnings per share computation and the diluted earnings per share
computation for the three and nine months ended September 30, 2001 and
2000, respectively (in thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Basic shares 58,656 57,478 58,442 56,353
Effect of Dilution:
Stock Options 2,515 1,380 2,492 1,751
------ ------ ------ ------
Diluted Shares 61,171 58,858 60,934 58,104
------ ------ ------ ------
Excluded from Diluted
Computation* 79 60 44 24
------ ------ ------ ------
* Excluded from the applicable periods diluted earnings per share
computation because the exercise prices were greater than the average
market price of the common shares.
For the three and nine months ended September 30, 2000, potentially
dilutive securities at certain Stilwell related subsidiaries and affiliates
affected the numerator of the diluted earnings per share calculation. These
adjustments totaled approximately $0.3 million and $5.4 million for the
three and nine months ended September 30, 2000, respectively, and only
affected the diluted earnings per share from discontinued operations
computation. Preferred dividends are the only adjustments that affect the
numerator of the diluted earnings per share from continuing operations
computation. Adjustments related to preferred dividends were not material
for the periods presented.
5. 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
September 30, 2001 include, among others, equity interests in Grupo
Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"), Southern
Capital Corporation, LLC ("Southern
Capital"), Mexrail, Inc. ("Mexrail"), the Panama Canal Railway Company
("PCRC") and Panarail Tourism Company ("Panarail").
The Company is party to certain agreements with Transportacion Maritima
Mexicana, S.A. de C.V. ("TMM"), covering the Grupo TFM and Mexrail
ventures. KCSI owns approximately 36.9% of Grupo TFM and 49% of Mexrail.
TMM (together with certain of its affiliates) owns approximately 38.5% 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.
Condensed financial information of certain unconsolidated affiliates as
furnished by those affiliates is shown below. All information (including
Grupo TFM) is presented on a U.S. GAAP basis. Financial information of
immaterial unconsolidated affiliates has been omitted:
Financial Condition (dollars in millions):
September 30, 2001 December 31, 2000
--------------------------------------------- ---------------------------------------------
Southern Southern
Mexrail PCRC Grupo TFM Capital Mexrail PCRC Grupo TFM Capital
-------- -------- -------- -------- -------- -------- -------- --------
Current assets $ 37.8 $ 3.8 $ 269.7 $ 2.3 $ 24.6 $ 7.1 $ 190.9 $ 0.2
Non-current assets 53.8 77.3 1,926.2 242.1 42.7 48.6 1,885.6 262.0
-------- -------- -------- -------- -------- -------- -------- --------
Assets $ 91.6 $ 81.1 $2,195.9 $ 244.4 $ 67.3 $ 55.7 $2,076.5 $ 262.2
======== ======== ======== ======== ======== ======== ======== ========
Current liabilities $ 58.8 $ 3.2 $ 364.5 $ 0.7 $ 32.2 $ 0.6 $ 80.5 $ 0.4
Non-current
liabilities 5.9 53.6 573.7 201.0 6.7 37.1 817.8 212.5
Minority interest - - 373.1 - - - 357.2 -
Equity of stockholders
and partners 26.9 24.3 884.6 42.7 28.4 18.0 821.0 49.3
-------- -------- -------- -------- -------- -------- -------- --------
Liabilities and
equity $ 91.6 $ 81.1 $2,195.9 $ 244.4 $ 67.3 $ 55.7 $2,076.5 $ 262.2
======== ======== ======== ======== ======== ======== ======== ========
KCSI's investment $ 13.2 $ 11.6 $ 329.4 $ 21.3 $ 13.3 $ 9.5 $ 306.0 $ 24.6
======== ======== ======== ======== ======== ======== ======== ========
Operating Results (dollars in millions):
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2001 2000 2001 2000
-------------------- --------------------
Revenues:
Mexrail $ 11.7 $ 16.0 $ 40.8 $ 42.9
PCRC - - - -
Grupo TFM 168.1 165.2 496.0 475.2
Southern Capital 7.6 7.6 22.7 23.1
Operating costs and expenses:
Mexrail $ 13.6 $ 13.7 $ 44.2 $ 39.8
PCRC 0.9 (0.5) 1.8 0.4
Grupo TFM 123.6 128.0 323.1 338.8
Southern Capital 6.4 7.0 19.6 20.9
Net income (loss):
Mexrail $ (0.7) $ 2.3 $ (1.5) $ 2.4
PCRC (0.3) 0.9 (0.6) 0.2
Grupo TFM 20.1 0.3 63.6 39.4
Southern Capital 1.1 0.7 3.1 2.3
6. Noncash Investing and Financing Activities. The Company initiated the
Twelfth Offering of KCSI common stock under the Employee Stock Purchase
Plan ("ESPP") during 2000. Stock subscribed under the Twelfth Offering will
be issued to employees in 2002 and is being paid for through employee
payroll deductions in 2001. During the first nine months of 2001, the
Company has received approximately $3.7 million from payroll deductions
associated with this offering of the ESPP.
In the first quarter of 2000, the Company issued approximately 94,149
shares of KCSI common stock under the Eleventh Offering of the ESPP. These
shares, totaling a purchase price of approximately $6.3 million, were
subscribed and paid for through employee payroll deductions in 1999.
In conjunction with the January 2000 refinancing of the Company's debt
structure, KCSI borrowed $125 million under a $200 million 364-day senior
unsecured competitive advance/revolving credit facility to retire debt
obligations. Stilwell assumed this credit facility and repaid the $125
million in March 2000. Upon such assumption, KCSI was released from all
obligations, and Stilwell became the sole obligor, under this credit
facility. The Company's indebtedness decreased as a result of the
assumption of this indebtedness by Stilwell.
7. Derivative Instruments and Hedging Activities. 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 requires that derivatives be
recorded on the balance sheet as either assets or liabilities measured at
fair value. Changes in the fair value of derivatives are recorded either
through current earnings or as other comprehensive income, depending on the
type of hedge transaction. For fair value hedge transactions (changes in
the fair value of an asset, liability or an unrecognized firm commitment
are hedged), changes in the fair value of the derivative instrument will
generally be offset in the income statement by changes in the hedged item's
fair value. For cash flow hedge transactions (the variability of cash flows
related to a variable rate asset, liability or a forecasted transaction are
hedged), changes in the fair value of the derivative instrument will be
reported in other comprehensive income to the extent it offsets future
changes in cash flows related to the variable rate asset, liability or
forecasted transaction, with the difference reported in current earnings.
Gains and losses on the derivative instrument reported in other
comprehensive income would be reclassified in earnings in the periods in
which earnings are impacted by the variability of the cash flow of the
hedged item. The ineffective portion of all hedge transactions will be
recognized in current period earnings.
The Company has five separate interest rate cap agreements for an aggregate
notional amount of $200 million designated as a cash flow hedge. The
Company's objective is to manage its interest rate risk through the use of
these interest rate caps or other such derivative instruments in accordance
with the provisions of its credit facilities. These interest rate cap
agreements are designed to hedge the Company's exposure to movements in the
London Inter-bank Offered Rate ("LIBOR") on which the Company's variable
rate interest is calculated. $100 million of the aggregate notional amount
provides a cap on the Company's LIBOR interest rate of 7.25% plus the
applicable spread, while $100 million limits the LIBOR interest rate to 7%
plus the applicable spread. By holding these interest rate cap agreements,
the Company is able to limit the risk of rising interest rates on its
variable rate debt.
KCSI adopted the provisions of SFAS 133 effective January 1, 2001. As a
result of this change in the method of accounting for derivative financial
instruments, the Company recorded an after-tax charge to earnings of $0.4
million in the first quarter of 2001. This charge is presented as a
cumulative effect of an accounting change in the accompanying consolidated
condensed financial statements. This amount represents the ineffective
portion of interest rate cap agreements. The Company recorded an additional
$0.2 million charge during the first nine months for changes in the fair
value of its interest rate hedging instruments from January 1, 2001 to
September 30, 2001. As of September 30, 2001, the interest rate cap asset
had a fair value of less than $0.1 million.
In addition, through September 30, 2001, the Company has recorded a
reduction to its stockholders' equity (accumulated other comprehensive
income) of approximately $3.9 million for its portion of the amount
recorded by Southern Capital for the adjustment to the fair value of
interest rate swap transactions. The Company also reduced its investment in
Southern Capital by the same amount.
8. Registration of Senior Unsecured Notes. During the third quarter of 2000,
the Company completed a $200 million private offering of debt securities
through its wholly-owned subsidiary, KCSR. The offering, completed pursuant
to Rule 144A under the Securities Act of 1933 in the United States and
Regulation S outside the United States, consisted of 8-year Senior
Unsecured Notes ("Senior Notes").
On January 25, 2001, the Company filed a Form S-4 Registration Statement
with the Securities and Exchange Commission ("SEC") registering exchange
notes under the Securities Act of 1933. The Company filed Amendment No. 1
to this Registration Statement and the SEC declared this Registration
Statement, as amended, effective on March 15, 2001, thereby providing the
opportunity for holders of the Senior Notes to exchange them for registered
notes with substantially identical terms. The registration exchange offer
expired on April 16, 2001 and all of the original Senior Notes were
exchanged for $200 million of registered notes. The registered notes bear a
fixed annual interest rate of 9.5% and are due on October 1, 2008.
9. Cost Reduction Plan. During the first quarter of 2001, KCSI announced a
cost reduction strategy designed to keep the Company competitive during the
existing economic slow-down. The cost reduction strategy resulted in a
reduction of approximately 5% of the Company's total workforce (excluding
Train and Engine personnel). Additionally, KCSI implemented a voluntary,
temporary salary reduction for middle and senior management and temporarily
suspended certain management benefits. As part of the cost reduction plan,
the Company also delayed the implementation of its new computer system,
Management Control System ("MCS"). KCSI management expects to begin
implementation of MCS in phases beginning with phase 1 in the fourth
quarter of 2001. Phase 1 will apply mainly to waybilling functions at the
Company's customer service center. Other phases of MCS implementation are
currently planned for 2002. Further, the planned capital expenditures for
2001were reduced by approximately $16 million. These capital reductions
will not affect the planned maintenance for the physical structure of the
railroad, but will limit the amount of discretionary expenditures for
projects such as capacity improvements. During the first quarter of 2001,
the Company recorded approximately $1.3 million of costs related to
severance benefits associated with the workforce reduction.
10. Waiver for Bank Debt Covenants. Due to the impact of the economic slow-down
in the United States on the operations of the Company, the Company
requested and received from lenders a waiver from certain of the financial
and coverage covenant provisions outlined in the credit agreement of the
Company's $750 million Senior Secured Credit Facilities. This waiver was
granted on March 19, 2001 and was effective until May 15, 2001. In
addition, the Company requested an amendment to the applicable covenant
provisions of the credit agreement. The amendment, among other things,
revised certain of the covenant provisions (including financial and
coverage provisions) through March 31, 2002 to provide the Company with
time to strengthen its financial position and pursue various financing
alternatives. The lenders approved and executed the amendment to the credit
agreement on May 10, 2001. At September 30, 2001, the Company had $418
million borrowed under these facilities, comprised of $383 million of term
debt and $35 million under the revolving credit facility and was in
compliance with the applicable covenant provisions as amended.
11. Litigation. 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, 2000.
The following provides a discussion of the Bogalusa cases and the
Jaroslawicz 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 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 allegedly 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
Illinois Central Corporation ("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 in January
2002. The trial of a second group of Mississippi plaintiffs is also
scheduled for January 2002.
KCSR is currently negotiating a settlement with regard to these cases.
Management believes that any resulting settlement will not have a material
effect on the Company's results of operations.
Jaroslawicz Class Action. On October 3, 2000, a lawsuit was filed in the
New York State Supreme Court purporting to be a class action on behalf of
the Company's preferred shareholders, and naming the Company, its Board of
Directors and Stilwell as defendants. This lawsuit seeks a declaration that
the Company's Spin-off was a defacto liquidation of the Company, alleges
violation of Directors' fiduciary duties to the preferred shareholders and
also seeks a declaration that the preferred shareholders are entitled to
receive the par value of their shares and other relief. The Company filed a
motion to dismiss with prejudice in the New York Supreme Court on December
22, 2000; the plaintiff filed its brief in opposition to the motion to
dismiss on February 1, 2001, and the Company served reply papers on March
7, 2001. The motion to dismiss is now fully briefed and a ruling has not
been rendered. Management believes the suit to be groundless and will
continue to defend the matter vigorously.
12. Condensed Consolidating Financial Information. In September 2000, KCSR
issued $200 million of 9.5% Senior Notes due 2008. KCSI registered exchange
notes with the SEC that have substantially identical terms and associated
guarantees and all of the initial Senior Notes were exchanged for $200
million of registered exchange notes. These registered notes are unsecured
obligations of KCSR, however, they are also jointly and severally and fully
and unconditionally guaranteed on an unsecured senior basis by KCSI and
certain of the subsidiaries (all of which are wholly-owned) within the KCSI
consolidated group.
The accompanying condensed consolidating financial information has been
prepared and presented pursuant to SEC Regulation S-X Rule 3-10 "Financial
statements of guarantors and issuers of guaranteed securities registered or
being registered." This information is not intended to present the
financial position, results of operations and cash flows of the individual
companies or groups of companies in accordance with accounting principles
generally accepted in the United States of America.
Condensed Consolidating Statements of Income
Nine months ended September 30, 2001 (dollars in millions) (unaudited)
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCSI
------- ------ ------------ ------------ ----------- ----
Revenues $ - $ 394.5 $ 43.8 $ 13.0 $ (19.5) $ 431.8
Costs and expenses 9.8 357.0 36.6 12.9 (19.5) 396.8
------- ------- ------- ------- ------- -------
Operating income (loss) (9.8) 37.5 7.2 0.1 - 35.0
Equity in net earnings of
unconsolidated affiliates
and subsidiaries 26.7 27.0 (0.1) 24.1 (54.4) 23.3
Interest expense (0.5) (41.8) (2.5) (0.3) 2.2 (42.9)
Other, net 0.2 4.7 0.3 - (2.2) 3.0
------- ------- ------- ------- ------- -------
Income from continuing
operations before income
taxes 16.6 27.4 4.9 23.9 (54.4) 18.4
Income tax provision (benefit) (3.4) (0.3) 1.9 0.2 - (1.6)
------- ------- ------- ------- ------- -------
Income before cumulative effect
of accounting change 20.0 27.7 3.0 23.7 (54.4) 20.0
------- ------- ------- ------- ------- -------
Cumulative effect of accounting
change, net of income taxes (0.4) (0.4) - - 0.4 (0.4)
------- ------- ------- ------- ------- -------
Net income $ 19.6 $ 27.3 $ 3.0 $ 23.7 $ (54.0) $ 19.6
======= ======= ======= ======= ======= =======
Nine months ended September 30, 2000 (dollars in millions) (unaudited)
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCSI
------ ------ ------------ ------------ ----------- ----
Revenues $ - $ 400.5 $ 46.1 $ 6.2 $ (15.4) $ 437.4
Costs and expenses 7.6 349.1 39.4 5.8 (15.4) 386.5
------- ------- ------- ------- ------- -------
Operating income (loss) (7.6) 51.4 6.7 0.4 - 50.9
Equity in net earnings of
unconsolidated affiliates
and subsidiaries 26.1 20.7 0.1 19.8 (44.6) 22.1
Interest expense (2.8) (53.5) (3.2) (1.0) 6.3 (54.2)
Other, net 3.7 6.7 0.4 - (6.0) 4.8
------- ------- ------- ------- ------- -------
Income from continuing
operations before
income taxes 19.4 25.3 4.0 19.2 (44.3) 23.6
Income tax provision (benefit) (2.4) 1.4 1.7 1.1 - 1.8
------- ------- ------- ------- ------- -------
Income from continuing operations 21.8 23.9 2.3 18.1 (44.3) 21.8
Income from discontinued operations 363.8 - - 363.8 (363.8) 363.8
-------- -------- -------- -------- -------- --------
Income before extraordinary items 385.6 23.9 2.3 381.9 (408.1) 385.6
Extraordinary items, net of
income taxes (8.7) (1.1) - (1.7) 2.8 (8.7)
------- ------- ------- ------- ------- -------
Net income $ 376.9 $ 22.8 $ 2.3 $ 380.2 $(405.3) $ 376.9
======= ======= ======= ======= ======= =======
Condensed Consolidating Balance Sheet
As of September 30, 2001 (dollars in millions) (unaudited)
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCSI
------ ------ ------------ ------------ ----------- ----
ASSETS:
Current assets $ 4.3 $ 183.1 $ 36.4 $ 5.6 $ (13.3) $ 216.1
Investments held for operating
purposes and investments in
Subsidiaries 688.2 462.9 (0.1) 368.4 (1,139.5) 379.9
Properties, net 0.3 1,229.8 91.0 1.9 - 1,323.0
Intangibles and other assets 1.7 29.7 13.1 - (1.1) 43.4
-------- -------- -------- -------- -------- --------
Total assets $ 694.5 $1,905.5 $ 140.4 $ 375.9 $(1,153.9) $1,962.4
======== ======== ======== ======== ======== ========
LIABILITIES AND EQUITY:
Current liabilities $ (9.7) $ 202.4 $ 19.3 $ 13.1 $ (13.3) $ 211.8
Long-term debt 1.6 628.3 7.3 4.8 - 642.0
Payable to affiliates 5.1 - 33.1 - (38.2) -
Deferred income taxes 9.9 323.9 9.9 4.9 (1.2) 347.4
Other liabilities 22.6 67.9 5.7 - - 96.2
Stockholders' equity 665.0 683.0 65.1 353.1 (1,101.2) 665.0
-------- -------- -------- -------- -------- --------
Total liabilities and equity $ 694.5 $1,905.5 $ 140.4 $ 375.9 $(1,153.9) $1,962.4
======== ======== ======== ======== ======== ========
As of December 31, 2000 (dollars in millions)
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCSI
------ ------ ------------ ------------ ----------- ----
ASSETS:
Current assets $ 16.9 $ 179.7 $ 32.6 $ 10.1 $ (22.9) $ 216.4
Investments held for operating
purposes and investments in
Subsidiaries 666.3 445.0 0.7 343.8 (1,097.6) 358.2
Properties, net 0.3 1,230.1 95.2 2.2 - 1,327.8
Intangibles and other assets 0.2 29.1 14.5 0.3 (2.0) 42.1
-------- -------- -------- -------- -------- --------
Total assets $ 683.7 $1,883.9 $ 143.0 $ 356.4 $(1,122.5) $1,944.5
======== ======== ======== ======== ======== ========
LIABILITIES AND EQUITY:
Current liabilities $ 21.8 $ 221.1 $ 21.2 $ 7.8 $ (22.9) $ 249.0
Long-term debt 1.6 624.0 7.7 5.1 - 638.4
Payable to affiliates 3.4 - 32.8 - (36.2) -
Deferred income taxes 7.2 313.4 9.7 3.9 (2.0) 332.2
Other liabilities 6.3 65.8 9.4 - - 81.5
Stockholders' equity 643.4 659.6 62.2 339.6 (1,061.4) 643.4
-------- -------- -------- -------- -------- --------
Total liabilities and equity $ 683.7 $1,883.9 $ 143.0 $ 356.4 $(1,122.5) $1,944.5
======== ======== ======== ======== ======== ========
Condensed Consolidating Statements of Cash Flows
Nine months ended September 30, 2001 (dollars in millions) (unaudited)
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCSI
------ ------ ------------ ------------ ----------- ----
Net cash flows provided by (used
for) operating activities: $ (7.7) $ 31.1 $ 0.1 $ 5.5 $ 1.2 $ 30.2
-------- -------- -------- -------- -------- --------
Investing activities:
Property acquisitions - (40.2) (2.0) - - (42.2)
Investments in and loans
to affiliates - (2.0) - (7.3) 3.2 (6.1)
Other, net - 9.7 5.1 - (0.6) 14.2
-------- -------- -------- -------- -------- --------
Net - (32.5) 3.1 (7.3) 2.6 (34.1)
-------- -------- -------- -------- -------- --------
Financing activities:
Proceeds from issuance of
long-term debt - 35.0 - - - 35.0
Repayment of long-term debt - (23.2) (1.4) (0.2) - (24.8)
Proceeds from loans from
affiliates 1.7 - - - (1.7) -
Debt issuance costs - (0.4) - - - (0.4)
Proceeds from stock plans 5.6 - - - - 5.6
Cash dividends paid (0.2) - - - - (0.2)
Other, net (0.3) (3.9) (1.7) 2.1 (2.1) (5.9)
-------- -------- -------- -------- -------- --------
Net 6.8 7.5 (3.1) 1.9 (3.8) 9.3
-------- -------- -------- -------- -------- --------
Cash and equivalents:
Net increase (decrease) (0.9) 6.1 0.1 0.1 - 5.4
At beginning of period 1.5 17.4 2.1 0.5 - 21.5
-------- -------- -------- -------- -------- --------
At end of period $ 0.6 $ 23.5 $ 2.2 $ 0.6 $ - $ 26.9
======== ======== ======== ======== ======== ========
Nine months ended September 30, 2000 (dollars in millions) (unaudited)
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCSI
------ ------ ------------ ------------ ----------- ----
Net cash flows provided by (used
for) operating activities: $ (3.2) $ 57.8 $ 9.0 $ 13.4 $ (24.7) $ 52.3
-------- -------- -------- -------- -------- --------
Investing activities:
Property acquisitions - (74.7) (4.3) - - (79.0)
Investments in and loans
to affiliates (40.1) - - (4.4) 40.7 (3.8)
Repayment of loans to affiliates 544.8 - - - (544.8) -
Other, net 1.1 2.5 0.8 - 3.9 8.3
-------- -------- -------- -------- -------- --------
Net 505.8 (72.2) (3.5) (4.4) (500.2) (74.5)
-------- -------- -------- -------- -------- --------
Financing activities:
Proceeds from issuance of
long-term debt 125.0 892.0 - - - 1,017.0
Repayment of long-term debt (648.3) (291.6) (29.5) (0.2) - (969.6)
Proceeds from loans from affiliates - 46.2 32.9 - (79.1) -
Repayment of loans from affiliates - (577.6) - - 577.6 -
Debt issuance costs - (17.6) - - - (17.6)
Proceeds from stock plans 17.8 - - - - 17.8
Cash dividends paid (4.8) (15.2) (4.8) (8.7) 28.7 (4.8)
Other, net 3.2 (2.8) (0.4) - (2.3) (2.3)
-------- -------- -------- -------- -------- --------
Net (507.1) 33.4 (1.8) (8.9) 524.9 40.5
-------- -------- -------- -------- -------- --------
Cash and equivalents:
Net increase (4.5) 19.0 3.7 0.1 - 18.3
At beginning of period 5.2 4.2 2.2 0.3 - 11.9
-------- -------- -------- -------- -------- --------
At end of period $ 0.7 $ 23.2 $ 5.9 $ 0.4 $ - $ 30.2
======== ======== ======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The discussions set forth below, as well as other portions of this Form 10-Q,
contain 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
the consolidated 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 "Risk
Factors" section of the Company's Registration Statement on Form S-4, as amended
and declared effective on March 15, 2001, which is on file with the U.S.
Securities and Exchange Commission (Registration No. 333-54262) and those
factors identified in the "Risk Factors" section of the Company's Registration
Statement on Form S-3, as amended and declared effective on June 5, 2001, which
is on file with the SEC (Registration No. 333-61006) and which "Risk Factors"
sections are 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. This
discussion should be read in conjunction with these consolidated condensed
financial statements and the related notes thereto, and is qualified by
reference thereto.
Kansas City Southern Industries, Inc., a Delaware corporation organized in 1962,
is a holding company ("KCSI HC") with principal operations in rail
transportation. On July 12, 2000, the Company completed its spin-off of Stilwell
Financial Inc. ("Stilwell"), the Company's formerly wholly-owned financial
services subsidiary.
KCSI HC supplies its various subsidiaries with managerial, legal, tax, financial
and accounting services, in addition to managing other "non-operating" and more
passive investments. KCSI HC's principal subsidiaries and affiliates include,
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"), an
approximate 37% owned unconsolidated affiliate, which owns 80% of the
common stock of TFM, S.A. de C.V. ("TFM");
o Mexrail, Inc. ("Mexrail"), a 49% owned unconsolidated affiliate, which
wholly owns The Texas Mexican Railway Company ("Tex Mex");
o Southern Capital Corporation, LLC ("Southern Capital"), a 50% owned
unconsolidated affiliate that leases locomotive and rail equipment
primarily to KCSR;
o Panama Canal Railway Company ("PCRC"), an unconsolidated affiliate of which
KCSR indirectly owns 50% of the common stock; and
o Panarail Tourism Company ("Panarail"), a 50% owned unconsolidated
affiliate.
Unless specifically indicated otherwise, all per share information included
herein is presented on a diluted basis and reflects the one-for-two reverse
stock split that occurred on July 12, 2000 in conjunction with the spin-of of
Stilwell.
RECENT DEVELOPMENTS
Shelf Registration Statements and Public Securities Offerings. The Company filed
a Universal Shelf Registration Statement on Form S-3 (Registration No. 33-69648)
in September 1993, as amended in April 1996, for the offering of up to $500
million aggregate amount of securities (the "Initial Shelf"). The Securities and
Exchange Commission ("SEC") declared the Initial Shelf effective on April 22,
1996; however, no securities have been issued thereunder. The Company has
carried forward $200 million aggregate amount of unsold securities from the
Initial Shelf to a Shelf Registration Statement filed on Form S-3 (Registration
No. 333-61006) on May 16, 2001, as amended on June 5, 2001, for the offering of
up $450 million aggregate amount of securities (the "Second Shelf"). The SEC
declared the Second Shelf effective on June 5, 2001. Securities in the aggregate
amount of $300 million remain available under the Initial Shelf.
On June 7, 2001, the Company announced plans for concurrent public offerings of
$115 million of mandatory convertible units and 4 million shares of the
Company's common stock under the Second Shelf. These offerings were independent
of each other and completion of one was not contingent on the other. Anticipated
proceeds from these offerings were to be applied to reduce existing bank debt.
However, on June 19, 2001, the Company issued a press release stating that
because of management's belief that the current stock price did not properly
reflect the valuation of the Company, pursuing these offerings would not be in
the best interest of KCSI's current shareholders.
Purchase of Additional Interest in Grupo TFM. On June 13, 2001, KCSI and
Transportacion Maritima Mexicana, S.A. de C.V. ("TMM") announced, subject to
certain financing and other customary conditions, their intention to exercise
their call and cause TFM to purchase the 24.6% interest in Grupo TFM currently
owned by the Mexican government for approximately $249 million. The purchase
price will be calculated by accreting the Mexican government's initial
investment of $200 million from the date of the Mexican government's investment
through the date of the purchase by TFM, using an interest rate on one-year U.S.
Treasuries. Approximately $81 million of the purchase price will be offset with
amounts due to TFM as a result of the reversion of a portion of the concession
to the Mexican government by TFM that covers the Hercules-Mariscala rail line.
The remainder of the funds required to purchase the Mexican government's Grupo
TFM shares are anticipated to be raised at TFM. Due to the tragic events of
September 11, 2001, the timing of this transaction was delayed and is expected
to be completed when markets are more favorable.
Change in Certifying Accountant. On June 20, 2001, the Company notified the
accounting firm of PricewaterhouseCoopers LLP ("PWC"), the Company's principal
accountant during the two most recent fiscal years, that PWC had been replaced
as the Company's principal accountant. Additionally on June 20, 2001, the
Company engaged the accounting firm of KPMG LLP ("KPMG") as its principal
accountant for the current fiscal year.
For the two most recent fiscal years, the reports of PWC on the Company's
financial statements contained no adverse opinion or disclaimer of opinion and
were not qualified as to uncertainty, audit scope or accounting principle. The
decision to change certifying accountants was discussed by the Company's Audit
Committee and approved by the Chairman of the Audit Committee. The selection of
KPMG was made after the completion of a competitive proposal process, which
involved all five major accounting firms and began in April 2001.
New Rules Governing Major Railroad Mergers and Consolidations. On June 11, 2001,
the Surface Transportation Board ("STB") issued new rules governing major
railroad mergers and consolidations involving two or more "Class I" railroads
(railroads with annual revenues of at least $250 million, as indexed for
inflation). These new rules substantially increase the burden on rail merger
applicants to demonstrate that a proposed transaction would be in the public
interest. The new rules require applicants to demonstrate that, among other
things, a proposed transaction would enhance competition where necessary to
offset negative effects of the transaction, such as competitive harm, and to
address fully the impact of the transaction on transportation service.
The STB recognized, however, that a merger between KCSR and another Class I
carrier would not necessarily raise the same concerns and risks as potential
mergers between larger Class I railroads. Accordingly, the STB decided that for
a merger proposal involving KCSR and another Class I railroad, the STB will
waive the application of the new rules and apply the rules previously in effect
unless it is persuaded that the new rules should apply.
KCSI enters into lease for new Corporate Headquarters. On June 26, 2001, the
Company entered into a 15-year lease agreement for its new corporate
headquarters building in downtown Kansas City, Missouri. The lease agreement is
subject to completion of the building, which is currently expected to be in
April 2002.
Additionally, in June 2001, the Company sold the building that currently serves
as its corporate headquarters in Kansas City, Missouri in anticipation of
occupying these new facilities in the second quarter of 2002. The Company
realized a net gain of approximately $0.9 million from this sale. The Company
will remain in the existing building until the new corporate office facilities
are completed and available for occupancy. Further, in June 2001, the Company
received $0.5 million for the sale of an option providing the holder of the
option the right to purchase the Company's 80% ownership in the common stock of
Wyandotte Garage Corporation, an owner and operator of a parking facility
located in downtown Kansas City, Missouri adjacent to the Company's existing
headquarters building. The amount received for this option is nonrefundable and
the option is exercisable upon the resolution of certain shareholder matters.
The $0.5 million gain received for the option has been deferred until completion
of the transaction or until the option expires.
Registration of Senior Unsecured Notes. During the third quarter of 2000, the
Company completed a $200 million private offering of debt securities through its
wholly-owned subsidiary, KCSR. The offering, completed pursuant to Rule 144A
under the Securities Act of 1933 in the United States and Regulation S outside
the United States, consisted of 8-year Senior Unsecured Notes ("Senior Notes").
On January 25, 2001, the Company filed a Form S-4 Registration Statement with
the SEC registering exchange notes under the Securities Act of 1933. The Company
filed Amendment No. 1 to this Registration Statement and the SEC declared this
Registration Statement, as amended, effective on March 15, 2001, thereby
providing the opportunity for holders of the initial Senior Notes to exchange
them for registered notes with substantially identical terms. The registration
exchange offer expired on April 16, 2001 and all of the original Senior Notes
were exchanged for $200 million of registered notes. These registered notes bear
a fixed annual interest rate of 9.5% and are due on October 1, 2008.
Cost Reduction Plan. During the first quarter of 2001, KCSI announced a cost
reduction strategy designed to keep the Company competitive during the existing
economic slow-down. The cost reduction strategy resulted in a reduction of
approximately 5% of the Company's total workforce (excluding Train and Engine
personnel). Additionally, KCSI implemented a voluntary, temporary salary
reduction for middle and senior management and temporarily suspended
certain management benefits. As part of the cost reduction plan, the Company
also delayed the implementation of its new computer system, Management Control
System ("MCS"). KCSI management expects to begin implementation of MCS in phases
beginning with phase 1 in the fourth quarter of 2001. Phase 1 will apply mainly
to waybilling functions at the Company's customer service center. Other phases
of MCS implementation are currently planned for 2002. Further, the planned
capital expenditures for 2001 were reduced by approximately $16 million. These
capital reductions will not affect the planned maintenance for the physical
structure of the railroad, but will limit the amount of discretionary
expenditures for projects such as capacity improvements. During the first
quarter of 2001, the Company recorded approximately $1.3 million of costs
related to severance benefits associated with the workforce reduction.
Waiver for Bank Debt Covenants. Due to the impact of the recent economic
slow-down in the United States on the operations of the Company, the Company
requested and received from lenders a waiver from certain of the financial and
coverage covenant provisions outlined in the credit agreement of the Company's
$750 million Senior Secured Credit Facilities. This waiver was granted on March
19, 2001 and was effective until May 15, 2001. In addition, the Company
requested an amendment to the applicable covenant provisions of the credit
agreement. The amendment, among other things, revised certain of the covenant
provisions (including financial and coverage provisions) through March 31, 2002
to provide the Company with time to strengthen its financial position and pursue
various financing alternatives. The lenders approved and executed the amendment
to the credit agreement on May 10, 2001. At September 30, 2001, the Company had
$418 million borrowed under these facilities, comprised of $383 million of term
debt and $35 million under the revolving credit facility and was in compliance
with the applicable covenant provisions as amended.
Implementation of Derivative Standard. 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 requires that derivatives be recorded on the balance sheet as either
assets or liabilities measured at fair value. Changes in the fair value of
derivatives are recorded either through current earnings or as other
comprehensive income, depending on the type of hedge transaction. For fair value
hedge transactions (changes in the fair value of an asset, liability or an
unrecognized firm commitment are hedged), changes in the fair value of the
derivative instrument will generally be offset in the income statement by
changes in the hedged item's fair value. For cash flow hedge transactions (the
variability of cash flows related to a variable rate asset, liability or a
forecasted transaction are hedged), changes in the fair value of the derivative
instrument will be reported in other comprehensive income to the extent it
offsets changes in cash flows related to the variable rate asset, liability or
forecasted transaction, with the difference reported in current earnings. Gains
and losses on the derivative instrument reported in other comprehensive income
would be reclassified in earnings in the periods in which earnings are impacted
by the variability of the cash flow of the hedged item. The ineffective portion
of all hedge transactions will be recognized in current period earnings.
The Company currently has five separate interest rate cap agreements for an
aggregate notional amount of $200 million designated as a cash flow hedge. The
Company's objective is to manage its interest rate risk through the use of these
interest rate caps or other such derivative instruments in accordance with the
provisions of its credit facilities. These interest rate cap agreements are
designed to hedge the Company's exposure to movements in the London Inter-bank
Offered Rate ("LIBOR") on which the Company's variable rate interest is
calculated. $100 million of the aggregate notional amount provides a cap on the
Company's LIBOR interest rate of 7.25% plus the applicable spread, while $100
million limits the LIBOR interest rate to 7% plus the applicable spread. By
holding these interest rate cap agreements, the Company is able to limit the
risk of rising interest rates on its variable rate debt.
KCSI adopted the provisions of SFAS 133 effective January 1, 2001. As a result
of this change in the method of accounting for derivative financial instruments,
the Company recorded an after-tax charge to earnings of $0.4 million in the
first quarter of 2001. This charge is presented as a cumulative effect of an
accounting change in the accompanying financial statements. This amount
represents the ineffective portion of interest rate hedging instruments. The
Company recorded an additional $0.4 million charge during the first nine months
for changes in the fair value of its interest rate hedging instruments from
January 1, 2001 to September 30, 2001. As of September 30, 2001, the interest
rate cap asset had a fair value of less than $0.1 million.
In addition, through September 30, 2001, the Company recorded a reduction to its
stockholders' equity (accumulated other comprehensive loss) of approximately
$3.9 million for its portion of the amount recorded by Southern Capital for the
adjustment to the fair value of interest rate swap transactions. The Company
also reduced its investment in Southern Capital by the same amount.
RESULTS OF OPERATIONS
The following table summarizes the income statement components of the continuing
operations of the Company for the three and nine-month periods ended September
30, 2001 and 2000, respectively, (in millions) for use in the analysis below.
See the financial statements accompanying this Form 10-Q for other captions not
presented in this table.
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Revenues $ 144.6 $ 144.1 $ 431.8 $ 437.4
Costs and expenses 128.6 129.6 396.8 386.5
------- ------- ------- -------
Operating income 16.0 14.5 35.0 50.9
Equity in net earnings of
unconsolidated affiliates 6.9 4.1 23.3 22.1
Interest expense (13.2) (18.3) (42.9) (54.2)
Other, net 0.9 1.2 3.0 4.8
------- ------- ------- -------
Income from continuing operations
before income taxes 10.6 1.5 18.4 23.6
Income tax provision (benefit) 1.6 (1.1) (1.6) 1.8
------- ------- ------- -------
Income from continuing
operations $ 9.0 $ 2.6 $ 20.0 $ 21.8
======= ======= ======= =======
Three Months Ended September 30, 2001 Compared With Three Months Ended
September 30, 2000
Income from Continuing Operations. The Company reported income from continuing
operations of $9.0 million (15(cent) per diluted share) for the third quarter of
2001 compared to income from continuing operations of $2.6 million (5(cent) per
diluted share) for the third quarter of 2000. This $6.4 million quarter to
quarter increase resulted primarily from improvements in domestic operating
income of $1.5 million, equity earnings from Grupo TFM of $4.9 million and
interest expense of $5.1 million. These improvements were partially offset by a
$2.1 million quarter to quarter change in equity earnings (losses) from other
unconsolidated affiliates (primarily Mexrail and PCRC) and a $2.7 million
increase in the income tax provision.
Revenues. Consolidated revenues for the third quarter of 2001 totaled $144.6
million compared to $144.1 million in the third quarter of 2000. This increase
resulted from slightly higher KCSR/Gateway Western revenues ($0.2 million) and
increases at certain other subsidiaries ($0.3 million). KCSR/Gateway Western
revenue growth was driven primarily by strength in coal revenues, which improved
15% quarter to quarter. Quarter to quarter revenue increases also occurred for
certain lumber products, domestic grain, plastics, certain chemical products and
military shipments. These improvements were partially offset by overall quarter
to quarter revenue decreases for chemical and petroleum products, agriculture
and mineral products and intermodal products, primarily reflecting the existing
slow economic conditions. See KCSR/Gateway Western discussion below for detailed
analysis.
Operating Expenses. Consolidated costs and expenses declined $1 million in the
third quarter of 2001 to $128.6 million compared to $129.6 million in the third
quarter of 2000. This resulted from a $5.5 million decrease in KCSR/Gateway
Western expenses offset by a $4.5 million increase in expenses at certain other
subsidiaries (primarily as a result of a $3.0 million reduction to the allowance
for doubtful accounts due to the collection of an outstanding receivable
recorded in the third quarter of 2000). Quarter to quarter declines in salaries
and wages, fuel, car hire and casualties and insurance were partially offset by
increases in purchased services, fringe benefits and other expenses. See
KCSR/Gateway Western discussion below for detailed analysis.
Interest Expense. Interest expense for the third quarter of 2001 declined $5.1
million (28%) from the third quarter of 2000 primarily as a result of lower
interest rates on variable rate debt (variable rate debt approximates $418
million at September 30, 2001) and lower amortization of debt issuance costs due
to the refinancing of debt in the third quarter of 2000 (see above).
Income Tax Expense. For the three months ended September 30, 2001, the income
tax provision was $1.6 million compared to an income tax benefit of $1.1 million
for the three months ended September 30, 2000. The variance in income tax
expense is primarily the result of an increase in the Company's domestic
operating results and changes in associated book/tax temporary differences and
certain non-taxable items. Exclusive of equity earnings from Grupo TFM for each
of the respective periods, the Company recognized pre-tax income of $3.1 million
for the three months ended September 30, 2001 compared to a pre-tax loss of $1.1
million for the three months ended September 30, 2000. The Company intends to
indefinitely reinvest the equity earnings from Grupo TFM and accordingly, the
Company does not provide deferred income tax expense for the excess of its book
basis over the tax basis of its investment in Grupo TFM.
Unconsolidated Affiliates. The Company recorded equity earnings of $6.9 million
for the third quarter of 2001 compared to $4.1 million for the third quarter of
2000. This increase is primarily the result of higher equity earnings from Grupo
TFM, which increased $4.9 million (exclusive of the 2000 extraordinary item
discussed below) quarter to quarter, partially offset by a $1.2 decline in
equity earnings from Mexrail and equity losses of $0.9 million recorded from
PCRC relating mostly to costs associated with the start-up of the business. PCRC
commenced operations in July 2001. Grupo TFM revenues increased 2% to $168.0
million in the third quarter of 2001 from $165.2 million in the third quarter of
2000, while total costs and expenses dropped 3% quarter to quarter, leading to
an improved operating profit of nearly 20% (computed under accounting principles
generally accepted in the United States of America - "U.S. GAAP"). Lower costs
for fuel, car hire and losses associated with the sale of operating property
were partially offset by higher employee costs, purchased services and lease
expense. Additionally, third quarter 2001 results include a deferred tax benefit
of $12.0 million (calculated under U.S. GAAP) compared to a deferred tax expense
of $10.7 million for the third quarter of 2000. The variance in the deferred tax
calculation of Grupo TFM is mostly attributable to fluctuations in the peso
exchange rate and inflation in Mexico. The Company reports its equity in Grupo
TFM under U.S. GAAP while Grupo TFM reports under International Accounting
Standards.
Income from Discontinued Operations. Net income for the third quarter of 2000
includes income from discontinued operations (i.e. Stilwell) of $23.4 million.
As a result of the spin-off of Stilwell effective July 12, 2000, the Company did
not report income from discontinued operations for the third quarter of 2001.
Extraordinary Items. During the third quarter of 2000, the Company refinanced
$200 million of bank debt with a $200 million offering of 8-year senior
unsecured notes and Grupo TFM refinanced $300 million of bank debt with a U.S.
Commercial Paper program. Accordingly, in the accompanying consolidated
condensed financial statements for the three months ended September 30, 2000,
the Company reported after-tax extraordinary debt retirement costs of $2.8
million (5(cent) per diluted share) related to the Company's debt refinancing
($1.1 million) and the Company's proportionate share of the refinancing costs at
Grupo TFM ($1.7 million).
Nine Months Ended September 30, 2001 Compared With The Nine Months Ended
September 30, 2000
Income from Continuing Operations. For the nine months ended September 30, 2001,
income from continuing operations was $20.0 million (33(cent) per diluted share)
compared to $21.8 million (37(cent) per diluted share) for the nine months ended
September 30, 2000. This $1.8 million period to period decline was primarily due
to a $15.9 million decrease in domestic operating income partially offset by a
$4.7 million increase in equity earnings from Grupo TFM, an $11.3 million
decrease in interest expense and a $3.4 million improvement in the income tax
provision (benefit). The Company's equity earnings for the nine months ended
September 30, 2001 reflect the Company's proportionate share ($9.1 million) of
the income recorded by Grupo TFM relating to the reversion of certain concession
assets to the Mexican government.
Revenues. Consolidated revenues for year to date 2001 totaled $431.8 million
compared to $437.4 million in the same period in 2000. This $5.6 million decline
resulted from lower KCSR/Gateway Western revenues of approximately $7.8 million
partially offset by higher revenues from certain other smaller subsidiaries.
Year to date 2001 revenue growth occurred in certain commodities, including coal
(6%), automotive (102%), plastics (13%), military/other (41%) and certain forest
and chemical commodities. These revenue improvements, however, were offset by
overall declines in chemical and petroleum products (3%), agriculture and
mineral products (9%), paper and forest products (4%) and
intermodal revenues (12%) resulting mostly from lower production due to the
continued weakness in the U.S. economy. See KCSR/Gateway Western discussion
below for detailed analysis.
Operating Expenses. Consolidated operating expenses increased $10.3 million (3%)
to $396.8 million for the nine months ended September 30, 2001 compared to
$386.5 million for the same period in 2000, resulting from higher KCSR/Gateway
Western expenses of $3.4 million and higher expenses at certain other
subsidiaries of $6.9 million. The increase in KCSR/Gateway Western expenses was
mostly attributable to higher costs for purchased services, car hire and
casualties and insurance, partially offset by lower year to date costs for
salaries and wages, fringe benefits, materials and supplies and operating
leases. The Company's consolidated expenses for year to date 2001 include
approximately $1.3 million of one-time costs related to severance benefits for
the workforce reduction discussed in "Recent Developments", an approximate $0.9
million non-recurring gain on the sale of certain operating real estate and an
approximate $1.1 million expense related to a litigation settlement at a
subsidiary. Year to date 2000 consolidated expenses include the impact of the
$3.0 million reduction of the allowance for doubtful accounts discussed above.
See KCSR/Gateway Western discussion below for detailed analysis.
Interest Expense. Interest expense for the nine months ended September 30, 2001
declined $11.3 million compared to the nine months ended September 30, 2000 as a
result of lower interest rates on variable rate debt and lower amortization
related to debt issue costs as discussed above in the third quarter analysis.
Income Tax Expense. For the nine months ended September 30, 2001, the income tax
benefit was $1.6 million compared to an income tax provision of $1.8 million for
the nine months ended September 30, 2000. The variance in income tax expense is
primarily the result of a decline in the Company's domestic operating results
and changes in associated book/tax temporary differences and certain non-taxable
items. Exclusive of equity earnings from Grupo TFM for each of the respective
periods, the Company recognized a pre-tax loss of $5.1 million for the nine
months ended September 30, 2001 compared to pre-tax income of $4.8 million for
the nine months ended September 30, 2000.
Unconsolidated Affiliates. The Company recorded equity earnings of $23.3 million
for the nine months ended September 30, 2001 compared to $22.1 million for the
nine months ended September 30, 2000. This increase is primarily the result of
higher equity earnings from Grupo TFM, which increased $4.7 million period to
period, partially offset by a $2.2 million decline in equity earnings from
Mexrail and equity losses of $0.9 million recorded from PCRC as discussed above.
Equity earnings from Grupo TFM were $23.5 million year to date 2001 compared to
$18.8 million (excluding the impact of the 2000 extraordinary item discussed
above) in the same period in 2000. During the first quarter of 2001, TFM
recorded approximately $54 million in pre-tax income relating to the reversion
of certain concession assets to the Mexican Government. The Company's year to
date equity earnings from Grupo TFM reflect our proportionate share of this
income of approximately $9.1 million. Grupo TFM's revenues increased 4.4% to
$496.0 million for the first nine months of 2001 from $475.2 million for the
first nine months of 2000. These higher revenues were offset by an approximate
9% increase in operating expenses (exclusive of the income related to the
reversion of certain concession assets to the Mexican government) resulting in a
period to period decline in ongoing operating income of approximately 9%. Under
U.S. GAAP, the deferred tax expense for Grupo TFM was $12.6 million for the nine
months ended September 30, 2001 compared to a deferred tax benefit of $18.9
million (excluding the impact of the 2000 extraordinary item) for the same
period in 2000. The Company reports its equity in Grupo TFM under U.S. GAAP
while Grupo TFM reports its financial results under International Accounting
Standards.
Income from Discontinued Operations. Net income for the nine months ended
September 30, 2000 includes income from discontinued operations (Stilwell) of
$363.8 million. As a result of the spin-off of Stilwell effective July 12, 2000,
the Company did not report income from discontinued operations during year to
date 2001.
Cumulative effect of accounting change and extraordinary items. As a result of
the implementation of SFAS 133 discussed above, the Company recorded an
after-tax charge to earnings of $0.4 million in the first quarter of 2001. This
charge is presented as a cumulative effect of an accounting change in the
accompanying consolidated condensed statements of income for the nine months
ended September 30, 2001. In the first quarter of 2000, the Company completed a
debt refinancing whereby it retired approximately $400 million of its debt
securities prior to maturity. As a result of this refinancing, the Company
reported extraordinary debt retirement costs of approximately $5.9 million,
after tax, (10(cent) per diluted share) in the first quarter of 2000.
Additionally, as discussed above, the Company reported $2.8 million of
extraordinary debt retirement costs during the third quarter of 2000. Debt
retirement costs arising from all
debt refinancing transactions completed in 2000 totaled $8.7 million (15(cent)
per diluted share) and are presented as extraordinary items in the accompanying
consolidated condensed financial statements for the nine months ended September
30, 2000.
Combined KCSR/Gateway Western Operating Results
The following discussion provides a comparative analysis of the revenue and
expense components of KCSR/Gateway Western operating companies for the three and
nine month-periods ended September 30, 2001 versus the three and nine
month-periods ended September 30, 2000. The information presented herein
reflects the results of KCSR/Gateway Western operating companies on a
stand-alone basis. The results of KCSR subsidiaries and affiliates are excluded.
Revenues
The following table summarizes the revenues and carload statistics of
KCSR/Gateway for the periods indicated. Certain prior period amounts have been
reclassified to reflect changes in the business groups and to conform to the
current period presentation.
Carloads and
Revenues Intermodal Units
---------------------------------------------- --------------------------------------
(in millions) (in thousands)
Three months Nine months Three months Nine months
ended September 30, ended September 30, ended September 30, ended September 30,
2001 2000 2001 2000 2001 2000 2001 2000
General commodities:
Chemical and petroleum $ 30.2 $ 31.6 $ 92.9 $ 95.7 33.6 39.3 110.6 117.5
Paper and forest 34.8 33.6 97.3 101.1 47.8 47.3 138.4 147.4
Agriculture and mineral 22.3 23.0 64.5 70.8 31.6 33.5 93.4 101.8
------- ------- ------- ------- ------- ------- ------- -------
Total general commodities 87.3 88.2 254.7 267.6 113.0 120.1 342.4 366.7
Intermodal and automotive 14.3 15.7 50.9 46.4 70.4 73.4 220.7 194.7
Coal 31.1 27.0 87.0 82.3 53.3 49.3 148.0 143.8
------- ------- ------- ------- ------- ------- ------- -------
Carload revenues and carload
and intermodal units 132.7 130.9 392.6 396.3 236.7 242.8 711.1 705.2
Other rail-related revenues 10.0 11.6 30.4 34.5 ======= ======= ======= =======
------- ------- ------- -------
Total KCSR/Gateway
Western revenues 142.7 142.5 423.0 430.8
Other subsidiary revenues 1.9 1.6 8.8 6.6
------- ------- ------- -------
Total consolidated revenues $ 144.6 $ 144.1 $ 431.8 $ 437.4
======= ======= ======= =======
Chemical and petroleum products. For the three and nine months ended September
30, 2001, chemical and petroleum product revenues decreased $1.4 million (4.4%)
and $2.8 million (2.9%), respectively, compared to the same periods in 2000.
Higher revenues for plastic products were offset by declines in most other
chemical products. The increase in revenues for plastic products resulted from a
plant expansion by a customer in late 2000. The decline in other chemical and
petroleum products resulted primarily from lower industry production reflecting
the continuing impact of the slowdown of the U.S. economy. These volume related
revenue declines were somewhat mitigated through certain price increases taken
in 2001. Management believes that at such time that economic conditions improve,
the demand for chemical and petroleum products could increase resulting in an
increase in related revenues.
Paper and forest products. Paper and forest product revenues increased $1.2
million (3.6%) for the three months ended September 30, 2001 and decreased $3.8
million for the nine months ended September 30, 2001 compared to the same
periods in 2000. Military and other carloads increased $1.1 million and $2.5
million for the three and nine months ended September 30, 2001, respectively,
due to the transfer of certain National Guard personnel and related equipment to
a military base near our rail lines. Additionally, third quarter and year to
date 2001 revenues for pulpwood and logchips increased $0.7 million and $0.9
million, respectively, due to a fungus problem with logchips during 2000 that
has since been resolved. Further, third quarter 2001 carloads and revenues for
certain lumber products increased approximately 2% due to new business. These
third quarter and year to date revenue increases were offset by declines in most
other paper and forest product commodities. The continued decline in the growth
of the U.S. economy has affected the paper and forest product industry
significantly as the need for raw materials in related manufacturing and
production industries
has decreased. Certain price increases during 2001 have partially offset related
volume declines. Management believes an improvement in the economic conditions
could increase demand for paper and forest products resulting in an increase in
related revenues.
Agriculture and mineral products. For the three and nine months ended September
30, 2001, agriculture and mineral product revenues decreased $0.7 million (3.0%)
and $6.3 million (8.9%), respectively, compared to the same periods in 2000.
Domestic grain shipments improved slightly in the third quarter of 2001 compared
to the third quarter of 2000 due mostly to an increase in the length of haul and
traffic mix. However, domestic grain revenues for the nine months ended
September 30, 2001 declined $3.1 million compared to the same period in 2000 due
mostly to a general decline in the production of poultry in the United States,
which has decreased demand for grain deliveries to the Company's poultry
producing customers. Additionally, during the first and second quarters of 2001
flooding in Iowa and Minnesota forced a temporary shift in the origination of
some domestic grain shipments to Illinois and Indiana, which resulted in
significantly shorter hauls for KCSR. Quarter to quarter and year to date
declines for export grain, food products, ores and minerals and stone, clay and
glass product revenues resulted mostly from the ongoing weakness in both the
U.S. and global economies.
Intermodal and automotive. For the three and nine months ended September 30,
2001, intermodal and automotive revenues decreased $1.4 million (8.9%) and
increased $4.5 million (9.7%), respectively, compared to the same periods in
2000. The $1.4 million quarter to quarter decline resulted from lower intermodal
(10.6%) and automotive revenues (1.9%) due to lower traffic volume mostly
resulting from the continued weakness in the U.S. economy. Automotive revenues
were also impacted by the loss of certain Ford business in the third quarter of
2001 due to competitive pricing from another railroad. The Company's on-time
performance for this Ford automotive traffic approximated 98%, which management
believes could lead to future business in the automotive marketplace. The $4.5
million year to date increase resulted from an $9.0 million increase in
automotive revenues partially offset by a $4.5 million decline in intermodal
revenues. Automotive revenues increased as a result of the following: (i) Mazda
traffic originating at the International Freight Gateway ("IFG") at the former
Richards-Gebaur airbase, which is located adjacent to and connects to KCSR's
main line near Kansas City; and (ii) Ford business originating on the CSX in
Louisville and interchanged with the Gateway Western in East St. Louis. This
Ford automotive traffic was shipped to Kansas City via Gateway Western and
interchanged with Union Pacific Railroad for delivery to the western part of the
United States. Year to date 2001 intermodal revenues declined due to several
factors including i) the impact of the slow-down in the U.S. economy, which has
caused related declines in demand; ii) customer erosion due to service delays
arising from congestion experienced in the first quarter of 2001; and iii) a
marketing agreement with Norfolk Southern, which provides that KCSR will perform
haulage services for Norfolk Southern from Meridian, Mississippi to Dallas,
Texas for an agreed upon haulage fee. This marketing agreement was entered into
in May 2000, but was not fully operational until June 2000. A portion of the
decline in intermodal revenues results from the Norfolk Southern haulage traffic
that replaced existing intermodal revenues as KCSR is now receiving a smaller
per unit haulage fee than the share of revenue it received as part of the
intermodal movement. The margins on this traffic are improved, however, because
it has a lower cost base to KCSR as certain costs such as fuel and car hire are
incurred and paid by Norfolk Southern.
Coal. For the three and nine months ended September 30, 2001, coal revenues
increased $4.1 million (15.2%) and $4.7 million (5.7%), respectively, compared
to the same 2000 periods. These increases were primarily a result of higher
demand from coal customers replenishing depleted stockpiles and to satisfy
weather-related demands as a result of hot weather conditions in the summer
months. Net tons of coal shipped increased approximately 8% quarter to quarter
and 2% year to date. Also contributing to the increase was the return of the
Kansas City Power and Light Hawthorn plant to production in the second quarter
of 2001. The Hawthorn plant had been out of service since January 1999 due to an
explosion at the Kansas City facility.
Costs and Expenses
The following table summarizes the costs and expenses of KCSR/Gateway Western
for the three and nine-month periods ended September 30, 2001 and 2000,
respectively (in millions). Certain prior period amounts have been reclassified
to conform to the current period presentation.
Three Months Nine Months
Ended September 30, Ended September 30,
------------------ -------------------
2001 2000 2001 2000
------- ------ ------- ------
Salaries, wages and benefits $ 47.6 $ 48.8 $ 141.5 $ 144.9
Fuel 11.5 12.2 35.3 35.3
Operating leases 13.6 13.9 40.9 42.5
Depreciation and amortization 13.7 13.0 40.7 39.4
Purchased services 13.5 11.1 37.0 35.9
Casualties and insurance 5.8 11.8 27.6 24.5
Materials and supplies 7.5 7.5 22.1 23.6
Car Hire 3.5 4.1 15.7 11.1
Other 5.9 5.7 17.1 17.3
------- ------ ------- ------
Total KCSR/Gateway Western
costs and expenses 122.6 128.1 377.9 374.5
Other expenses 6.0 1.5 18.9 12.0
------- ------- ------- -------
Total KCSI expenses $ 128.6 $ 129.6 $ 396.8 $ 386.5
======= ======= ======= =======
Salaries, Wages and Benefits. For the three months and nine months ended
September 30, 2001, salaries, wages and benefits expense declined $1.2 million
and $3.4 million, respectively, compared to the three and nine months ended
September 30, 2000. The $1.2 million quarter to quarter decline resulted
primarily from a $1.5 million reduction in salaries and wages as a result of
lower employee headcount arising from the workforce reduction discussed above in
"Recent Developments," partially offset by higher health care costs. The $3.4
million year to date decline resulted primarily from reduced employee counts and
the use of fewer relief crews coupled with lower fringe benefits. Year to date
fringe benefit costs were lower because of a decline in stock option exercises
and reductions in retirement-based costs for certain union employees partially
offset by higher health insurance costs. These year to date declines were also
partially offset by the one-time severance costs of approximately $1.3 million
associated with the workforce reduction.
Fuel. Fuel costs for the three months ended September 30, 2001 decreased $0.7
million compared to the three months ended September 30, 2000 primarily as a
result of lower fuel prices. The average price per gallon declined 14% during
the third quarter of 2001 compared to the same period in 2000. Fuel costs were
approximately $35.3 million for both the nine months ended September 30, 2001
and 2000. For the year to date 2001, a 4% decline in the average price per
gallon was offset by a 4% increase in fuel usage compared to year to date 2000.
Fuel costs represented approximately 9.3% of total costs and expenses for the
nine months ended September 30, 2001 compared to 9.4% for the same period in
2000.
Operating Leases. For the three and nine months ended September 30, 2001,
operating lease expense decreased $0.3 million (2.2%) and $1.6 million (3.8%)
compared to the three and nine months ended September 30, 2000, respectively.
These declines resulted due to the expiration of certain leases that have not
been renewed due to better fleet utilization.
Depreciation and Amortization. Depreciation and amortization expense increased
$0.7 million and $1.3 million for the quarter and year to date 2001 periods
compared to the same 2000 periods. These increases are attributable to increases
in the asset base partially offset by property retirements and lower STB
approved depreciation rates.
Purchased Services. For the three and nine months ended September 30, 2001,
purchased services expense increased $2.4 million and $1.1 million,
respectively, compared with the same periods in 2000. The $2.4 million quarter
to quarter increase relates mostly to higher locomotive repairs arising from our
agreement with General Electric to perform maintenance on our 50 GE AC 4400
locomotives at the new repair facility located on our railroad. Additionally, as
a result of employee headcount reductions at our car repair facilities, costs
related to car repairs performed by third parties have risen and car repairs
performed by our employees and billed to other railroads have declined. The $1.1
million year
to date increase is attributable to higher locomotive and car repairs as well as
higher professional fees related to casualty claims, partially offset by
declines related to intermodal lift services and lower environmental compliance
costs. The decline in intermodal lift services resulted from a decline in
trailers handled at terminals coupled with an increase in lift charges billed to
others.
Casualties and Insurance. For the three months ended September 30, 2001,
casualties and insurance expense declined $6.0 million compared to the three
months ended September 30, 2000 primarily as a result of a $4.2 million charge
recorded in the third quarter of 2000 for the adverse judgment related to the
Duncan lawsuit. Casualties and insurance expense for the nine months ended
September 30, 2001 increased $3.1 million compared to the nine months ended
September 30, 2000. Excluding the impact of the Duncan case lawsuit in the third
quarter of 2000, casualties and insurance costs would have increased $7.3
million. This increase resulted from $8.5 million higher derailment costs
related to several significant first quarter 2001 derailments and higher
personal injury costs associated with a third party claim. These first quarter
derailments had a residual effect on our service levels due to mainline
downtime, which resulted in some congestion and operating inefficiencies during
the first quarter and early second quarter 2001. Casualties and insurance
expenses decreased significantly in the second and third quarters of 2001
compared to the first quarter of 2001 as a result of fewer derailments.
Car Hire. For the three months ended September 30, 2001, car hire expense, (car
hire payable, net of receivables), declined $0.6 million compared to the three
months ended September 30, 2000, primarily as a result of more efficient
operations, which led to a decline in the number of freight cars and trailers
from other railroads and third parties on the Company's rail line. As operations
have continued to improve throughout the year, third quarter 2001 car hire costs
have also continued to improve, declining 38% and 46% compared to the second and
first quarters of 2001, respectively. For the nine months ended September 30,
2001, car hire expense increased $4.6 million compared to the same period in
2000. As discussed above, an unusual number of significant first quarter 2001
derailments coupled with the effects of the economic slowdown, line washouts and
flooding had an impact on the efficiency of the Company's U.S. operations during
the first quarter and early second quarter of 2001, which led to some
congestion. The effects of this congestion resulted in a period to period
increase in the number of freight cars from other railroads on the Company's
rail line as well as a lower number of KCSR freight cars being used by other
railroads. These factors contributed to the period to period increase in car
hire expense. Also contributing to the increase in car hire expense was the
larger number of auto rack cars being used to serve the increase in automotive
traffic period to period.
Operating Income and Operating Ratio. Operating income for KCSR/Gateway Western
for the three months ended September 30, 2001 increased $5.7 million, or 39.6%,
compared to the same three-month period in 2000. This increase in operating
income resulted from a slight increase in revenues and a 4.3% decline in
operating expenses. These factors also resulted in a combined KCSR/Gateway
Western operating ratio of 85.9% in the third quarter of 2001 compared to 89.9%
in the third quarter of 2000. Year to date 2001 KCSR/Gateway Western operating
income decreased $11.2 million, or 19.9%, to $45.1 million, resulting from a
1.8% decrease in revenues coupled with a 0.9% increase in operating expenses.
These factors also resulted in a combined KCSR/Gateway Western operating ratio
of 89.3% for the nine months ended September 30, 2001 compared to 86.9% for the
same period in 2000.
TRENDS AND OUTLOOK
The Company's third quarter 2001 diluted earnings per share from continuing
operations ($.15) increased 200% compared to the quarter ended September 30,
2000 ($.05). Year to date 2001 diluted earnings per share from continuing
operations ($.33) decreased 11% compared to the year to date period ended
September 30, 2000 ($.37). The Company's year to date 2001 domestic operating
results have been adversely affected by the slowdown of the U.S. economy and
competitive revenue pressures. Additionally, although certain year to date 2001
costs such as car hire and casualties and insurance are higher compared to 2000,
improvements in the cost structure have been evident during each quarter of 2001
as operations have became more fluid and efficient. Fuel costs continued to
decline quarter to quarter in 2001 due to lower fuel prices. Car hire costs have
showed continued improvement, declining approximately 46.2% in the third quarter
of 2001 compared to the first quarter of 2001. Higher year to date casualty
costs were driven by an unusually large number of first quarter 2001 derailments
and are not indicative of an ongoing trend. Additionally, despite lower variable
interest rates, interest costs continue to impact the domestic operating results
of the Company.
A current outlook for the Company's businesses for the remainder of 2001 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):
Despite the economic turmoil currently facing our country, the Company's
domestic revenues and cost structure showed signs of improvement during the
third quarter of 2001 compared to the third quarter of 2000 and the previous two
quarters of 2001. Coal revenues, increased 15% for the third quarter of 2001 and
6% for the first nine months of 2001 compared to the same periods in 2000.
However, most commodities have remained weak in the midst of the declining
economy and the Company expects fourth quarter revenues to remain relatively
flat compared to the third quarter of 2001. A significant improvement in the
Company's revenues for its various commodity sectors is not expected to occur
until an economic recovery begins.
Third quarter costs and expenses for KCSR/Gateway Western improved 4% compared
to the third quarter of 2000 and 1% and 7% compared to the second and first
quarters of 2001, respectively. Consequently, the operating ratio for the third
quarter of 2001 improved compared to the third quarter of 2000 and the first two
quarters of 2001. Management expects variable costs to be at levels
proportionate with revenue activity assuming normalized rail operations, except
for fuel expenses, which are expected to mirror market conditions. Overall, the
Company expects continued improvement in costs and expenses during the fourth
quarter of 2001.
The Company expects to continue to participate in the earnings/losses from its
equity investments in Grupo TFM, Southern Capital, Mexrail and PCRC. Due to the
variability of factors affecting the Mexican economy, management can make no
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. The Company
commenced operations in Panama in July 2001. Management believes this should
provide the Company with opportunities for future earnings growth beginning in
the latter part of 2002.
The Company and it's partner, Transportacion Maritima Mexicana, S.A. de C.V.,
have announced their intention to exercise their call and cause TFM to purchase
the 24.6% interest in Grupo TFM currently held by the Mexican government. This
transaction was delayed due to the events of September 11, 2001, and the Company
currently expects TFM to complete the purchase of the Mexican government's 24.6%
ownership in Grupo TFM when the markets are more favorable. Management believes
this is an opportunity to add value to a vital component of the Company's NAFTA
franchise.
LIQUIDITY AND CAPITAL RESOURCES
Unless otherwise indicated, the discussion below addresses the liquidity and
capital of the continuing operations of the Company.
Summary cash flow data for the continuing operations of the Company is as
follows (in millions):
Nine Months
Ended September 30,
2001 2000
------- -------
Cash flows provided by (used for):
Operating activities $ 30.2 $ 52.3
Investing activities (34.1) (74.5)
Financing activities 9.3 40.5
------- -------
Cash and equivalents:
Net increase (decrease) 5.4 18.3
At beginning of year 21.5 11.9
------- -------
At end of period $ 26.9 $ 30.2
------- -------
During the nine months ended September 30, 2001, the Company's consolidated cash
position increased $5.4 million from December 31, 2000. This increase resulted
mostly from income from continuing operations, net proceeds from issuance of
long-term debt and proceeds from the disposal of property, partially offset by
property acquisitions and investments in and loans with affiliates. Net
operating cash inflows were $30.2 million and $52.3 million for the nine
months ended September 30, 2001 and 2000, respectively. This $22.1 million
decrease in operating cash flows was primarily attributable to lower income from
continuing operations, lower cash flows related to the tax benefit associated
with the exercise of stock options, and a reduction due to fluctuations in
certain non-cash adjustments to net income.
Net investing cash outflows were $34.1 million and $74.5 million during the nine
months ended September 30, 2001 and 2000, respectively. This $40.4 million
difference results primarily from lower year to date 2001 capital expenditures
and an increase in funds received from property dispositions, partially offset
by higher investments in affiliates. During the third quarter of 2001, the
Company entered into a sale/leaseback transaction whereby it sold 446 boxcars to
a third party for approximately $7.8 million. The Company realized a $4.7
million gain on this transaction, which has been deferred and will be recognized
ratably over the lease term. The proceeds received from the sale of these
boxcars are included as funds received from property dispositions in the
accompanying cash flow statement and were used to reduce the Company's
outstanding debt.
During the nine months ended September 30, 2001, financing cash outflows were
used primarily for the repayment of debt while financing cash inflows were
generated from proceeds from issuance of long-term debt and proceeds from the
issuance of common stock under stock plans. Net financing cash inflows were $9.3
million for the nine months ended September 30, 2001 compared with net financing
cash inflows of $40.5 million during the comparable 2000 period. This difference
was primarily due to $10.2 million of net long-term borrowings and $5.6 million
of proceeds from stock plans during the first nine months of 2001 compared to
$47.4 million of net long-term borrowings and proceeds from stock plans of $17.8
million during the first nine months of 2000. The Company paid only $0.2 million
of dividends during the nine months ended September 30, 2001 compared to $4.8
million for the same 2000 period. During the nine months ended September 30,
2000, the Company paid $17.6 million of debt issuance costs including $13.4
million associated with the January 2000 restructuring of the Company's debt and
approximately $4.2 million associated with the $200 million offering of debt
securities in the third quarter of 2000.
Cash flows from operations are expected to be slightly positive during the
fourth quarter of 2001 arising from operating income, which has historically
resulted in positive operating cash flows. Investing activities will continue to
use significant amounts of cash. Future roadway improvement projects will be
primarily funded by operating cash flows or, secondarily, through borrowings
under existing lines of credit.
In addition to operating cash flows, the Company has financing available through
its various lines of credit with a maximum borrowing amount of $100 million. As
of September 30, 2001, $65 million was available under these lines of credit.
These credit agreements contain, among other provisions, various financial
covenants. As discussed in "Recent Developments", the Company requested and
received from lenders of its credit facilities a waiver from certain of its
financial and coverage covenants. In addition, an amendment to the credit
agreement was executed on May 10, 2001. This amendment temporarily revises
certain of the financial and coverage covenant provisions through March 31, 2002
to provide the Company with time to strengthen its financial position and pursue
various financing alternatives. As a result of certain financial covenants
contained in the credit agreements, maximum utilization of the Company's
available lines of credit may be restricted.
In connection with the Company's debt restructuring in January 2000, KCSR
entered into senior secured credit facilities ("KCS Credit Facilities")
providing financing of up to $750 million, including a $200 million term loan
due January 11, 2001 that was repaid with the proceeds from the private offering
of Senior Notes (see "Recent Developments"). On January 25, 2001, the Company
filed a Form S-4 Registration Statement with the SEC registering exchange notes
under the Securities Act of 1933. The Company filed Amendment No. 1 to this
Registration Statement and the SEC declared this Registration Statement, as
amended, effective on March 15, 2001, thereby providing the opportunity for
holders of the initial Senior Notes to exchange them for registered notes. The
registration exchange offer expired on April 16, 2001 and all of the initial
Senior Notes were exchanged for $200 million of registered notes.
As discussed in "Recent Developments", the Company filed the Initial Shelf on
Form S-3 (Registration No. 33-69648) in September 1993, as amended in April
1996, for the offering of up to $500 million in aggregate amount of securities.
The SEC declared the Initial Shelf effective on April 22, 1996; however, no
securities have been issued thereunder. The Company has carried forward $200
million aggregate amount of unsold securities from the Initial Shelf to the
Second Shelf filed on Form S-3 (Registration No. 333-61006) on May 16, 2001 for
the offering of up to $450 million in aggregate amount of securities. The SEC
declared the Second Shelf effective on June 5, 2001. Securities in the
aggregate amount of $300 million remain available under the Initial Shelf. The
Company has not engaged an underwriter for those remaining securities and
currently has no plans to issue any of the remaining securities under the
Initial Shelf. Subject to certain restrictions under the KCS Credit Facilities,
the Company expects that any net proceeds from the sale of securities under the
Initial Shelf would be added to our general funds and used principally for
general corporate purposes, including working capital, capital expenditures, and
acquisitions of or investments in businesses and assets.
On June 7, 2001, the Company announced plans for concurrent public offerings of
$115 million of mandatory convertible units and 4 million shares of the
Company's common stock under the Second Shelf. These offerings were independent
of each other and completion of one was not contingent on the other. Anticipated
proceeds from these offerings were to be used to reduce existing bank debt.
However, on June 19, 2001, the Company issued a press release stating that
because of management's belief that the current stock price did not properly
reflect the valuation of the Company, pursuing these offerings would not be in
the best interest of KCSI's current shareholders. Securities in the aggregate
amount of $450 million remain available under the Second Shelf.
In January 2000, KCSI borrowed $125 million under a $200 million 364-day senior
unsecured competitive advance/revolving credit facility to retire other debt
obligations. Stilwell assumed this credit facility and repaid the $125 million
in March 2000. Upon such assumption, KCSI was released from all obligations, and
Stilwell became the sole obligor, under this credit facility. The Company's
indebtedness decreased as a result of the assumption of this indebtedness by
Stilwell.
The Company believes, based on current expectations, that its operating cash
flows and available financing resources are sufficient to fund anticipated
operating, capital and debt service requirements and other commitments through
2001. The Company is currently exploring financing alternatives to reduce its
existing term bank debt.
The Company's consolidated ratio of debt to total capitalization was 50.7% and
51.2% at September 30, 2001 and December 31, 2000, respectively. The Company's
debt increased $10.2 million from December 31, 2000 to $684.8 million at
September 30, 2001 as a result of net long-term borrowings. This increase in
debt was offset by an increase in the Company's stockholders' equity, which
increased $21.6 million from December 31, 2000 to $665.0 million at September
30, 2001. This increase was due primarily to net income and the issuance of
common stock under the stock plans. Management anticipates that the ratio of
debt to total capitalization will remain flat during the remainder of 2001.
Other
New Accounting Pronouncements. In July 2001, the Financial Accounting Standards
Board ("FASB") issued Statement No. 141, "Business Combinations" ("SFAS 141"),
and Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS
141 will become effective for any business combination initiated after June 30,
2001 and requires purchase method accounting. Under SFAS 142, goodwill with an
indefinite life will no longer be amortized; however, both goodwill and other
intangible assets will need to be tested annually for impairment. The goodwill
and intangible assets statement will be effective for fiscal years beginning
after December 31, 2001. In June 2001, the FASB issued Statement No. 143,
"Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 will become
effective for all asset retirement obligations in effect as of and after June
15, 2002. Under SFAS 143, the fair value of a liability for an asset retirement
obligation must be recognized in the period in which it is incurred if a
reasonable estimate of the fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. In August 2001, the FASB issued Statement No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). Under SFAS 144,
an impairment loss is recognized if the carrying amount of a long-lived asset is
not recoverable from its undiscounted cash flows. The impairment loss is equal
to the difference between the carrying amount and fair value of the asset. The
Company is currently evaluating the impact, if any, that adoption of these new
accounting pronouncements will have on its financial statements.
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, 2000.
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 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 29, 2001 under
Item 5 of such form clarifying its position concerning a previously
announced offering of its common stock.
The Company furnished a Current Report on Form 8-K dated July 10, 2001
announcing the date of its second quarter 2001 earnings release and
conference call. The information included in this Current Report on Form
8-K was furnished pursuant to Item 9 and shall not be deemed to be filed.
The Company furnished a Current Report on Form 8-K dated July 25, 2001
reporting its second quarter 2001 operating results. The information
included in this Current Report on Form 8-K was furnished pursuant to Item
9 and shall not be deemed to be filed.
The Company furnished a Current Report on Form 8-K dated October 10, 2001
announcing the date of its third quarter 2001 earnings release and
conference call. The information included in this Current Report on Form
8-K was furnished pursuant to Item 9 and shall not be deemed to be filed.
The Company furnished a Current Report on Form 8-K dated October 31, 2001
reporting its third quarter 2001 operating results. The information
included in this Current Report on Form 8-K was furnished pursuant to Item
9 and shall not be deemed to be filed.
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 November 8, 2001.
Kansas City Southern Industries, Inc.
/s/ Robert H. Berry
--------------------------------------------------------
Robert H. Berry
Senior 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)