FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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
(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.)
427 West 12th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
(816) 983-1303
(Company's telephone number, including area code)
Kansas City Southern Industries, Inc.,
114 West 11th Street, Kansas City, Missouri
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 April 30, 2002
- --------------------------------------------------------------------------------
Common Stock, $.01 per share par value 60,080,501 Shares
- --------------------------------------------------------------------------------
KANSAS CITY SOUTHERN
FORM 10-Q
MARCH 31, 2002
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 2
Consolidated Condensed Balance Sheets -
March 31, 2002 and December 31, 2001 3
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 2002 and 2001 4
Computation of Basic and Diluted Earnings per Common Share 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2002 and 2001 5
Consolidated Condensed Statement of Changes in Stockholders' Equity -
Three Months Ended March 31, 2002 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Qualitative and Quantitative Disclosures About Market Risk 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
- ----------
KANSAS CITY SOUTHERN
FORM 10-Q
MARCH 31, 2002
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTRODUCTORY COMMENTS
The Consolidated Condensed Financial Statements included herein have been
prepared by Kansas City Southern ("Company" or "KCS"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to enable a reasonable
understanding of the information presented. These Consolidated Condensed
Financial Statements should be read in conjunction with the financial statements
and the notes thereto, as well as Management's Discussion and Analysis of
Financial Condition and Results of Operations, included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 (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 months ended March
31, 2002 are not necessarily indicative of the results expected for the full
year 2002.
2
KANSAS CITY SOUTHERN
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions)
March 31, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 56.8 $ 24.7
Accounts receivable, net 129.6 130.0
Inventories 28.2 27.9
Other current assets 45.1 71.8
--------- ---------
Total current assets 259.7 254.4
Investments 382.3 386.8
Properties (net of $677.9 and $660.2 accumulated
depreciation and amortization, respectively) 1,325.2 1,327.4
Goodwill 10.8 19.3
Other Assets 21.9 23.0
--------- ---------
Total assets $ 1,999.9 $ 2,010.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year $ 47.9 $ 46.7
Accounts and wages payable 41.7 50.4
Accrued liabilities 163.3 160.4
--------- ---------
Total current liabilities 252.9 257.5
--------- ---------
Other Liabilities:
Long-term debt 580.0 611.7
Deferred income taxes 371.1 370.2
Other deferred credits 97.2 91.2
--------- ---------
Total other liabilities 1,048.3 1,073.1
--------- ---------
Stockholders' Equity:
Preferred stock 6.1 6.1
Common stock 0.6 0.6
Retained earnings 694.2 676.5
Accumulated other comprehensive loss (2.2) (2.9)
--------- ---------
Total stockholders' equity 698.7 680.3
--------- ---------
Total liabilities and stockholders' equity $1,999.9 $ 2,010.9
========= =========
See accompanying notes to consolidated condensed financial statements.
3
KANSAS CITY SOUTHERN
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Millions, Except per Share Data)
(Unaudited)
Three Months
Ended March 31,
2002 2001
-------- --------
Revenues $ 142.5 $ 144.0
Costs and expenses
Compensation and benefits 49.4 49.1
Depreciation and amortization 14.9 14.4
Purchased services 14.0 12.0
Operating leases 12.1 12.8
Fuel 9.5 12.4
Casualties and insurance 7.9 14.6
Other 21.3 22.6
-------- --------
Total costs and expenses 129.1 137.9
-------- --------
Operating income 13.4 6.1
Equity in net earnings of unconsolidated affiliates:
Grupo Transportacion Ferroviaria
Mexicana, S.A. de C.V. 4.8 11.1
Other 0.1 0.1
Gain on sale of Mexrail, Inc. 4.4 -
Interest expense (11.3) (15.2)
Other income 4.4 1.0
-------- --------
Income before income taxes and cumulative effect of
accounting change 15.8 3.1
Income tax provision (benefit) 4.1 (3.2)
-------- --------
Income before cumulative effect of accounting change 11.7 6.3
-------- --------
Cumulative effect of accounting change,
net of income taxes - (0.4)
-------- --------
Net income $ 11.7 $ 5.9
======== ========
Per Share Data
Basic Earnings per Common share
Income before cumulative effect of accounting change $ 0.20 $ 0.11
Cumulative effect of accounting change, net of
income taxes - (0.01)
-------- --------
Total Basic Earnings per Common share $ 0.20 $ 0.10
======== ========
Diluted Earnings per Common share
Income before cumulative effect of accounting change $ 0.19 $ 0.10
Cumulative effect of accounting change, net of income taxes - 0.00
-------- --------
Total Diluted Earnings per Common share $ 0.19 $ 0.10
======== ========
Weighted Average Common Shares Outstanding (in thousands)
Basic 59,777 58,257
Potential dilutive common shares 2,065 2,519
-------- --------
Diluted 61,842 60,776
======== ========
Dividends Per Share:
Per Preferred share $ .25 $ .25
Per Common share - -
See accompanying notes to consolidated condensed financial statements.
4
KANSAS CITY SOUTHERN
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months
Ended March 31,
-------------------
2002 2001
-------- -------
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $ 11.7 $ 5.9
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 14.9 14.4
Deferred income taxes 1.0 4.8
Equity in undistributed earnings of unconsolidated
affiliates (4.9) (11.2)
Distributions from unconsolidated affiliates - 3.0
Gain on sale of Mexrail, Inc. (4.4) -
Gain on sale of property (4.5) -
Tax benefit realized upon exercise of stock options 0.8 2.8
Changes in working capital items:
Accounts receivable (0.6) (5.3)
Inventories (0.4) 2.2
Other current assets 26.7 2.2
Accounts and wages payable (8.7) (8.5)
Accrued liabilities 6.1 3.4
Other, net (0.5) 0.1
-------- -------
Net cash provided by operating activities 37.2 13.8
-------- -------
INVESTING ACTIVITIES:
Property acquisitions (17.4) (13.9)
Proceeds from disposal of property 9.3 0.5
Investment in and loans to affiliates (1.8) (0.4)
Proceeds from the sale of Mexrail, Inc. 31.4 -
Other, net 1.3 0.2
-------- -------
Net cash provided by (used for) investing
activities 22.8 (13.6)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 15.0
Repayment of long-term debt (30.5) (7.9)
Proceeds from stock plans 2.1 0.8
Cash dividends paid (0.1) (0.1)
Other, net 0.6 (0.9)
-------- -------
Net cash provided by (used for) financing
activities (27.9) 6.9
-------- -------
CASH AND EQUIVALENTS:
Net increase in cash and cash equivalents 32.1 7.1
At beginning of year 24.7 21.5
-------- -------
At end of period $ 56.8 $ 28.6
======== =======
See accompanying notes to consolidated condensed financial statements.
5
KANSAS CITY SOUTHERN
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in millions, except share amounts)
(Unaudited)
Accumulated
$25 Par $.01 Par other
Preferred Common Retained comprehensive
stock stock Earnings income Total
------- ------- ------- ------ -------
Balance at December 31, 2001 $ 6.1 $ 0.6 $ 676.5 $ (2.9) $ 680.3
Comprehensive income:
Net income 11.7
Change in fair market value
of cash flow hedge of
unconsolidated affiliate 0.7
Comprehensive income 12.4
Dividends (0.1) (0.1)
Options exercised and stock
subscribed - - 6.1 - 6.1
------- ------- ------- ------ -------
Balance at March 31, 2002 $ 6.1 $ 0.6 $ 694.2 $ (2.2) $ 698.7
======= ======= ======= ======= =======
See accompanying notes to consolidated condensed financial statements.
6
KANSAS CITY SOUTHERN
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Accounting Policies and Interim Financial Statements. In the opinion of the
management of Kansas City Southern ("Company" or "KCS"), the accompanying
unaudited consolidated condensed financial statements contain all adjustments
(consisting of normal closing procedures) necessary to present fairly the
financial position of the Company and its subsidiary companies as of March 31,
2002 and December 31, 2001, the results of its operations for the three months
ended March 31, 2002 and 2001, its cash flows for the three months ended March
31, 2002 and 2001, and its changes in stockholders' equity for the three months
ended March 31, 2002. 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, 2001 (as amended). The
results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results to be expected for the full year 2002.
Certain comparative prior year amounts in the consolidated condensed financial
statements have been reclassified to conform to the current period presentation.
2. Earnings Per Share Data. 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 months ended March 31, 2002 and 2001,
respectively (in thousands):
Three Months
Ended March 31,
-------------
2002 2001
------ ------
Basic shares 59,777 58,257
Effect of Dilution:
Stock Options 2,065 2,519
------ ------
Diluted Shares 61,842 60,776
====== ======
Excluded from Diluted Computation 20 34
------ ------
Shares were 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. Preferred dividends are the only adjustments that
affect the numerator of the diluted earnings per share computation. Adjustments
related to preferred dividends were not material for the periods presented.
3. Investments. Investments in unconsolidated affiliates and certain other
investments accounted for under the equity method generally include all entities
in which the Company or its subsidiaries have significant influence, but not
more than 50% voting control. Investments in unconsolidated affiliates at March
31, 2002 include, among others, equity interests in Grupo Transportacion
Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"), Southern Capital Corporation,
LLC ("Southern Capital"), and the Panama Canal Railway Company ("PCRC").
The Company, our Mexican partner, Grupo TMM, S.A. de C.V. ("Grupo TMM"), and
certain of Grupo TMM's affiliates entered into an agreement on February 27, 2002
with TFM, S.A. de C.V. ("TFM") to sell to TFM all of the common stock of
Mexrail, Inc., ("Mexrail") a former 49% unconsolidated affiliate of the Company.
Mexrail owns the northern half of the international railway bridge at Laredo and
all of the common stock of The Texas-Mexican Railway Company ("Tex Mex"). The
sale closed on March 27, 2002 and the Company received approximately $31.4
million for its 49% interest in Mexrail. The Company used the proceeds from the
sale to reduce debt. Although the Company no longer directly owns 49% of
Mexrail, it retains an indirect ownership through its 36.9% ownership of Grupo
TFM. The proceeds from the sale of Mexrail to TFM exceeded the carrying value of
the Company's investment in Mexrail by $11.2 million. The Company recognized a
$4.4 million gain on the sale of Mexrail to TFM in the first quarter of 2002,
while the remaining $6.8 of excess proceeds has been deferred.
7
The Company is party to certain agreements with Grupo TMM covering the Grupo TFM
joint venture. KCS owns approximately 36.9% of Grupo TFM while Grupo TMM
(together with certain of its affiliates) owns approximately 38.4% of Grupo TFM.
These agreements contain "change in control" provisions, provisions intended to
preserve the Company's and TMM's proportionate ownership of the joint venture,
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.
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 is shown
below. All amounts, including those for Grupo TFM, are presented under
accounting principles generally accepted in the United States of America ("U.S.
GAAP"). March 31, 2002 balance sheet information for Mexrail is included below
in the consolidated accounts of Grupo TFM due to the sale of Mexrail to TFM on
March 27, 2002. Financial information of immaterial unconsolidated affiliates
has been omitted:
Financial Condition (dollars in millions):
March 31, 2002 December 31, 2001
---------------------------- -------------------------------------
Southern Southern
PCRC Grupo TFM Capital Mexrail PCRC Grupo TFM Capital
------ --------- ------- ------- ------ --------- -------
Current assets $ 2.4 $ 304.1 $ 0.2 $ 34.9 $ 3.6 $ 294.3 $ 2.5
Non-current assets 92.4 1,986.4 240.6 59.3 85.5 1,924.3 240.6
------ -------- ------- ------ ------ -------- -------
Assets $ 94.8 $2,290.5 $ 240.8 $ 94.2 $ 89.1 $2,218.6 $ 243.1
====== ======== ======= ====== ====== ======== =======
Current liabilities $ 9.8 $ 389.9 $ 0.7 $ 42.8 $ 10.8 $ 350.8 $ 196.6
Non-current liabilities 63.0 610.1 190.5 27.5 55.3 593.8 -
Minority interest - 379.8 - - - 376.3 -
Equity of stockholders
and partners 22.0 910.7 49.6 23.9 23.0 897.7 46.5
------ -------- ------- ------ ------ -------- -------
Liabilities and
equity $ 94.8 $2,290.5 $ 240.8 $ 94.2 $ 89.1 $2,218.6 $ 243.1
====== ======== ======= ====== ====== ======== =======
KCS's investment $ 11.1 $ 339.2 $ 24.8 $ 11.7 $ 11.9 $ 334.4 $ 23.2
====== ======== ======= ====== ====== ======== =======
Operating Results (dollars in millions):
Three Months
Ended March 31,
---------------------
2002 2001
-------- --------
Revenues:
Mexrail $ 13.3 $ 14.6
PCRC 1.0 -
Grupo TFM 157.5 156.1
Southern Capital 7.5 7.6
Operating costs and expenses:
Mexrail $ 13.3 $ 15.3
PCRC 2.9 0.4
Grupo TFM 122.0 70.3
Southern Capital 5.7 6.7
Net income (loss):
Mexrail $ 0.0 $ (0.3)
PCRC (1.8) 0.0
Grupo TFM 13.0 30.2
Southern Capital 1.9 0.9
4. Noncash Investing and Financing Activities. The Company initiated the
Thirteenth Offering of KCS common stock under the Employee Stock Purchase Plan
("ESPP") during 2001. Stock subscribed under the Thirteenth Offering will be
issued to employees in 2003 and is being paid for through employee payroll
deductions in 2002. During the first quarter of 2002, the Company received
approximately $0.6 million from payroll deductions associated with the
Thirteenth Offering of the ESPP. In the first quarter of 2002, the Company
issued approximately 611,107 shares of KCS under the Twelfth Offering of the
ESPP. These shares, totaling a purchase price of approximately $4.5 million,
were subscribed
8
and paid for through employee payroll deductions in 2001. During the first
quarter of 2001, the Company received approximately $1.0 million associated with
the Twelfth Offering of the ESPP.
5. Derivative Financial Instruments. The Company adopted the provisions of
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("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 and represents the ineffective portion of interest rate cap
agreements that the Company held at the time of adoption of SFAS 133. These
interest rate cap agreements, which expired during the first quarter of 2002,
had a fair value of approximately zero at December 31, 2001 and were completely
charged off during 2001. During the first quarter of 2002, the Company did not
record any adjustments to income for derivative transactions. The Company does
not currently have any derivative financial instruments outstanding.
In addition, the Company records adjustments to its stockholders' equity
(accumulated other comprehensive income (loss)) for its portion of the
adjustment to the fair value of interest rate swap transactions to which
Southern Capital, a 50% owned unconsolidated affiliate, is a participant. The
Company also adjusts its investment in Southern Capital by the change in the
fair value of these derivative instruments. During the first quarter of 2002,
the Company recorded comprehensive income of $0.7 million related to an
adjustment to the fair value of interest rate swap transactions of Southern
Capital. During the first quarter of 2001, the Company recorded ($2.3) million
of comprehensive income (loss) associated with these interest rate swap
transactions.
6. Cost Reduction Plan. During the first quarter of 2001, the Company
implemented a cost reduction strategy designed to keep the Company competitive
during the economic slow-down existing at that time. The cost reduction
strategy, among other things, resulted in a reduction of approximately 6% of the
Company's total workforce quarter to quarter (both management and union
employees). Additionally, KCS implemented a voluntary, temporary salary
reduction for middle and senior management and temporarily suspended certain
management benefits. This voluntary, temporary salary reduction ended December
31, 2001. The Company also delayed the implementation of its new computer
system, Management Control System ("MCS"). During November 2001, a small
functional part of MCS was installed relating to waybilling functions at the
Company's customer service center. Management expects to fully implement MCS in
mid-2002. Also as part of the cost reduction strategy, 2001 planned capital
expenditures were reduced by approximately $16 million. These capital reductions
did not affect the maintenance for the physical structure of the railroad, but
limited 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.
7. Waiver and Amendments for Credit Facility Covenants. As discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001, as
amended by Amendment No. 1 on Form 10-K/A ("2001 Form 10-K"), during the first
quarter of 2001, the Company requested and received from lenders a waiver from
certain of the financial and coverage covenant provisions outlined in the credit
agreement for the Company's senior secured credit facility ("KCS Credit
Facility"). This waiver was granted on March 19, 2001 and was effective until
May 15, 2001. In addition, on May 10, 2001, the lenders approved and executed an
amendment to the applicable covenant provisions of the credit agreement, which,
among other things, revised certain of the covenant provisions (including
financial and coverage provisions) through March 31, 2002. As further discussed
in Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Developments Concerning Dispute with Grupo TMM" in the
2001 Form 10-K, due to the uncertainty of the timing of the dispute resolution
with Grupo TMM and the associated transactions, as well as the return on April
1, 2002 of the leverage ratio covenant provision to the original calculation
under the credit agreement, the Company obtained, as a precautionary measure, an
additional amendment to the credit agreement. This amendment, which was approved
by the lenders on March 28, 2002, revises the leverage ratio covenant provision
for the period April 1, 2002 through June 29, 2002. At March 31, 2002, the
Company had $369.4 million of term debt borrowed under the KCS Credit Facility
and there were no borrowings outstanding under the revolving debt portion of the
credit facility. The Company was in compliance with all covenant provisions of
the credit agreement (as amended) at March 31, 2002.
9
8. Commitments and Contingencies. The Company has had no significant changes in
its outstanding litigation or other commitments and contingencies from that
previously reported in Note 11 of the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 in the Notes to Consolidated Financial
Statements. The following provides an update of the Bogalusa cases.
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 (plaintiffs) have asserted claims to recover damages allegedly
caused by exposure to the released chemicals. On October 29, 2001, KCSR and
representatives for its excess insurance carriers negotiated a settlement in
principle with the plaintiffs for $22.3 million. The settlement was finalized
with the execution of a Master Global Settlement Agreement ("MSGA") in early
2002. In Louisiana, the Court will evaluate the MSGA at a fairness hearing and
decide whether the proposed settlement is fair for the class of plaintiffs. In
Mississippi, the plaintiffs are expected to individually execute release
instruments. The first payment under the MSGA of $11.1 million was made on April
1, 2002, reducing the recorded liability from $22.3 million to $11.2 million.
The Company also has recorded an insurance receivable of $19.3 million related
to the Bogalusa cases.
9. New Accounting Pronouncement. Effective January 1, 2002, the Company
implemented Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 142 provides, among other things,
that goodwill with an indefinite life shall no longer be amortized, but shall be
evaluated for impairment on an annual basis. SFAS 142 also requires separate
presentation of goodwill on the balance sheet and impairment losses are to be
shown as a separate item on the income statement. Additionally, changes in the
carrying amount of goodwill should be disclosed in the footnotes to the
financial statements. SFAS 142 also requires various transitional disclosures
until all periods presented reflect the provisions of SFAS 142. These
transitional disclosures include the presentation of net income and earnings per
share information adjusted to exclude amortization expense (including the
related income tax effects) for all periods presented. The reconciliation of
reported net income to adjusted net income is presented in the table below. For
the three months ended March 31, 2001, the adjustment to add back amortization
expense associated with goodwill did not have an impact on the related basic or
diluted earnings per share computations.
In accordance with SFAS 142, the Company has presented its goodwill as a
separate line item on the balance sheet. The Company is in the process of
performing its transitional goodwill impairment test to determine if existing
goodwill was impaired at the time of adoption of SFAS 142. Management does not
believe that any impairment will result from this evaluation. During the quarter
ended March 31, 2002, the Company's goodwill decreased $8.5 million due to the
sale of Mexrail to TFM. A gain was recognized on the Mexrail transaction, and
thus, there was no impairment of this goodwill to be recognized as a change in
accounting principle.
Three Months
Ended March 31,
---------------------
2002 2001
-------- --------
Reported net income $ 11.7 $ 5.9
Add back: Amortization of goodwill,
net of income taxes - 0.1
-------- --------
Adjusted net income $ 11.7 $6.0
======== ========
10. Condensed Consolidating Financial Information. In September 2000, KCSR
issued $200 million of 9.5% Senior Notes due 2008. These notes are unsecured
obligations of KCSR, however, they are also jointly and severally and fully and
unconditionally guaranteed on an unsecured senior basis by KCS and certain of
the subsidiaries (all of which are wholly-owned) within the KCS consolidated
group. KCS 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.
10
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 U.S. GAAP.
Condensed Consolidating Statements of Income
Three months ended March 31, 2002 (dollars in millions)
---------------------------------------------------------------------------
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCS
Revenues $ - $ 140.3 $ 6.0 $ 3.7 $ (7.5) $ 142.5
Costs and expenses 2.2 123.9 6.8 3.7 (7.5) 129.1
------ -------- ------- -------- -------- --------
Operating income
(loss) (2.2) 16.4 (0.8) - - 13.4
Equity in net
earnings of
unconsolidated
affiliates and
subsidiaries 8.9 7.3 - 4.9 (16.2) 4.9
Gain on sale of Mexrail 4.4 4.4 - - (4.4) 4.4
Interest expense (0.3) (10.8) (0.2) (0.1) 0.1 (11.3)
Other income 0.1 0.9 3.4 0.1 (0.1) 4.4
------ -------- ------- -------- -------- --------
Income before
income taxes 10.9 18.2 2.4 4.9 (20.6) 15.8
Income tax provision
(benefit) (0.8) 4.0 0.9 - - 4.1
------ -------- ------- -------- -------- --------
Net income $ 11.7 $ 14.2 $ 1.5 $ 4.9 $ (20.6) $ 11.7
====== ======== ======= ======== ======== ========
Three months ended March 31, 2001 (dollars in millions)
---------------------------------------------------------------------------
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCS
------ -------- ------- -------- -------- --------
Revenues $ - $ 139.8 $ 6.6 $ 5.5 $ (7.9) $ 144.0
Costs and expenses 2.4 132.6 5.2 5.6 (7.9) 137.9
------ -------- ------- -------- -------- --------
Operating income
(loss) (2.4) 7.2 1.4 (0.1) - 6.1
Equity in net
earnings of
unconsolidated
affiliates and
subsidiaries 8.0 11.6 - 11.6 (20.0) 11.2
Interest expense (0.2) (15.5) (0.1) (0.1) 0.7 (15.2)
Other income - 1.7 - - (0.7) 1.0
------ -------- ------- -------- -------- --------
Income before
income taxes 5.4 5.0 1.3 11.4 (20.0) 3.1
Income tax provision
(benefit) (0.9) (2.9) 0.5 0.1 - (3.2)
------ -------- ------- -------- -------- --------
Income before
cumulative effect
of accounting change 6.3 7.9 0.8 11.3 (20.0) 6.3
------ -------- ------- -------- -------- --------
Cumulative effect of
accounting change, net
of income taxes (0.4) (0.4) - - 0.4 (0.4)
------ -------- ------- -------- -------- --------
Net income $ 5.9 $ 7.5 $ 0.8 $ 11.3 $ (19.6) $ 5.9
====== ======== ======= ======== ======== ========
11
Three months ended March 31, 2002 (dollars in millions)
---------------------------------------------------------------------------
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCS
------ -------- ------- -------- -------- --------
ASSETS:
Current assets $ 34.1 $ 246.2 $ 25.4 $ 6.6 $ (52.6) $ 259.7
Investments 715.4 409.7 - 391.1 (1,133.9) 382.3
Properties, net 0.3 1,285.8 37.4 1.7 - 1,325.2
Goodwill and other
assets 1.7 31.4 1.0 0.2 (1.6) 32.7
------ -------- ------- -------- -------- --------
Total assets $751.5 $1,973.1 $ 63.8 $ 399.6 $(1,188.1) $1,999.9
====== ======== ======= ======== ======== ========
LIABILITIES AND EQUITY:
Current liabilities $ 3.8 $ 270.9 $ 7.4 $ 23.6 $ (52.8) $ 252.9
Long-term debt 1.3 571.3 2.8 4.6 - 580.0
Payable to affiliates 12.2 - 0.5 - (12.7) -
Deferred income taxes 9.5 352.2 5.0 6.0 (1.6) 371.1
Other liabilities 26.0 67.5 3.6 0.1 - 97.2
Stockholders equity 698.7 711.2 44.5 365.3 (1,121.0) 698.7
------ -------- ------- -------- -------- --------
Total liabilities
and equity $751.5 $1,973.1 $ 63.8 $ 399.6 $(1,188.1) $1,999.9
====== ======== ======= ======== ======== ========
Three months ended March 31, 2001 (dollars in millions)
---------------------------------------------------------------------------
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCS
------ -------- ------- -------- -------- --------
ASSETS:
Current assets $ 25.5 $ 223.4 $ 22.0 $ 6.6 $ (23.1) $ 254.4
Investments 701.4 413.6 - 376.4 (1,104.6) 386.8
Properties, net 0.3 1,287.1 38.2 1.8 - 1,327.4
Goodwill and other
assets 1.7 40.4 1.7 0.1 (1.6) 42.3
------ -------- ------- -------- -------- --------
Total assets $728.9 $1,964.5 $ 61.9 $ 384.9 $(1,129.3) $2,010.9
====== ======== ======= ======== ======== ========
LIABILITIES AND EQUITY:
Current liabilities $ 7.2 $ 252.3 $ 6.9 $ 14.2 $ (23.1) $ 257.5
Long-term debt 1.3 602.9 2.8 4.7 - 611.7
Payable to affiliates 4.8 - 0.6 - (5.4) -
Deferred income taxes 9.5 350.9 5.2 6.2 (1.6) 370.2
Other liabilities 25.8 62.0 3.4 - - 91.2
Stockholders equity 680.3 696.4 43.0 359.8 (1,099.2) 680.3
------ -------- ------- -------- -------- --------
Total liabilities
and equity $728.9 $1,964.5 $ 61.9 $ 384.9 $(1,129.3) $2,010.9
====== ======== ======= ======== ======== ========
12
Condensed Consolidating Statements of Cash Flows
Three months ended March 31, 2002 (dollars in millions)
---------------------------------------------------------------------------
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCS
------ -------- ------- -------- -------- --------
Net cash flows
provided by (used
for) operating
activities: $(10.5) $ 42.7 $ (4.4) $ 9.3 $ 0.1 $ 37.2
------ -------- ------- -------- -------- --------
Investing activities:
Property acquisitions - (17.2) (0.2) - - (17.4)
Investments in and
loans to affiliates - - - (9.1) 7.3 (1.8)
Proceeds from sale
of investments - 31.4 - - - 31.4
Other, net (0.1) 6.5 4.3 - (0.1) 10.6
------ -------- ------- -------- -------- --------
Net (0.1) 20.7 4.1 (9.1) 7.2 22.8
------ -------- ------- -------- -------- --------
Financing activities:
Proceeds from issuance
of long-term debt - - - - - -
Repayment of long-term
debt - (30.4) - (0.1) - (30.5)
Proceeds from loans
from affiliates 7.3 - - - (7.3) -
Proceeds from
stock plans 2.1 - - - - 2.1
Cash dividends paid (0.1) - - - - (0.1)
Other, net 0.4 0.1 0.1 - - 0.6
------ -------- ------- -------- -------- --------
Net 9.7 (30.3) 0.1 (0.1) (7.3) (27.9)
------ -------- ------- -------- -------- --------
Cash and equivalents:
Net increase decrease) (0.9) 33.1 (0.2) 0.1 - 32.1
At beginning of period 1.3 23.2 - 0.2 - 24.7
------ -------- ------- -------- -------- --------
At end of period $ 0.4 $ 56.3 $ (0.2) $ 0.3 $ - $ 56.8
====== ======== ======= ======== ======== ========
Three months ended March 31, 2001 (dollars in millions)
---------------------------------------------------------------------------
Non-
Subsidiary Guarantor Guarantor Consolidating Consolidated
Parent Issuer Subsidiaries Subsidiaries Adjustments KCS
------ -------- ------- -------- -------- --------
Net cash flows
provided by (used
for) operating
activities: $ (2.9) $ 14.6 $ 2.5 $ 0.3 $ (0.7) $ 13.8
------ -------- ------- -------- -------- --------
Investing activities:
Property acquisitions - (13.7) (0.2) - - (13.9)
Investments in and
loans to affiliates - - - (2.8) 2.4 (0.4)
Other, net - 0.2 0.6 - (0.1) 0.7
------ -------- ------- -------- -------- --------
Net - (13.5) 0.4 (2.8) 2.3 (13.6)
------ -------- ------- -------- -------- --------
Financing activities:
Proceeds from issuance
of long-term debt - 15.0 - - - 15.0
Repayment of
long-term debt - (7.9) - - (7.9) -
Proceeds from loans
from affiliates 2.4 - - - (2.4) -
Proceeds from
stock plans 0.8 - - - - 0.8
Cash dividends paid (0.1) - - - - (0.1)
Other, net (1.3) 0.4 - - - (0.9)
------ -------- ------- -------- -------- --------
Net 1.8 7.5 - - (2.4) 6.9
------ -------- ------- -------- -------- --------
Cash and equivalents:
Net increase (decrease) (1.1) 8.6 2.9 (2.5) (0.8) 7.1
At beginning of period 1.5 19.1 0.4 0.5 - 21.5
------ -------- ------- -------- -------- --------
At end of period $ 0.4 $ 27.7 $ 3.3 $ (2.0) $ (0.8) $ 28.6
====== ======== ======= ======== ======== ========
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The discussion set forth below, as well as other portions of this Form 10-Q,
contains forward-looking comments that are not based upon historical
information. Such forward-looking comments are based upon information currently
available to management and management's perception thereof as of the date of
this Form 10-Q. Readers can identify these forward-looking comments by the use
of such verbs as expects, anticipates, believes or similar verbs or conjugations
of such verbs. The actual results of operations of Kansas City Southern ("KCS"
or the "Company") could materially differ from those indicated in
forward-looking comments. The differences could be caused by a number of factors
or combination of factors including, but not limited to, those factors
identified in the Company's Current Report on Form 8-K dated December 11, 2001,
which is on file with the U.S. Securities and Exchange Commission (File No.
1-4717) and is hereby incorporated by reference herein. Readers are strongly
encouraged to consider these factors when evaluating 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.
General
Kansas City Southern ("KCS" or the "Company") is a Delaware corporation.
KCS, formerly named Kansas City Southern Industries, Inc., is a holding
company and its principal subsidiaries and affiliates include the following:
o The Kansas City Southern Railway Company ("KCSR"), a wholly-owned subsidiary;
o Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM"),
a 36.9% owned unconsolidated affiliate, which owns 80% of the common stock
of TFM, S.A. de C.V. ("TFM") and wholly owns Mexrail, Inc. ("Mexrail").
Mexrail owns 100% of 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 to KCSR;
o Panama Canal Railway Company ("PCRC"), an unconsolidated affiliate of which
KCSR owns 50% of the common stock. PCRC owns all of the common stock of
Panarail Tourism Company ("Panarail").
KCS, as the holding company, supplies its various subsidiaries with managerial,
legal, tax, financial and accounting services, in addition to managing other
"non-operating" investments.
RECENT DEVELOPMENTS
Sale of Mexrail, Inc. to TFM. The Company, Grupo TMM, and certain of Grupo TMM's
affiliates entered into an agreement on February 27, 2002 with TFM to sell to
TFM all of the common stock of Mexrail. Mexrail owns the northern half of the
international railway bridge at Laredo, Texas and all of the common stock of the
Tex Mex. The sale closed on March 27, 2002 and the Company received
approximately $31.4 million for its 49% interest in Mexrail. The Company used
the proceeds from the sale of Mexrail to reduce debt. Although the Company no
longer directly owns 49% of Mexrail, it retains an indirect ownership through
its 36.9% ownership of Grupo TFM. The proceeds from the sale of Mexrail to TFM
exceeded the carrying value of the Company's investment in Mexrail by $11.2
million. The Company recognized a $4.4 million gain on the sale of Mexrail to
TFM in the first quarter of 2002, while the remaining $6.8 of excess proceeds
has been deferred.
Company Changes Name to Kansas City Southern. On May 2, 2002, at the Annual
Meeting of Stockholders, the shareholders of the Company approved a proposal to
amend the Certificate of Incorporation to change the name of the Company from
"Kansas City Southern Industries, Inc." to "Kansas City Southern." The name
change became effective on May 2, 2002 following the filing of the amended
Certificate of Incorporation with the Secretary of State of the State of
Delaware. The name change reflects the change in the Company's business and
holdings following the spin-off of Stilwell Financial Inc. on July 12, 2000. By
dropping "Industries, Inc." from the name, KCS will maintain
14
the identification in the marketplace of the Company and KCSR, while emphasizing
our focus on transportation rather than a variety of industries. The name change
does not require a change in the security ticker symbol of KSU on the New York
Stock Exchange.
Changes to Mexican Tax Law. As discussed in the Company's Annual Report on Form
10-K for the year ended December 31, 2001, as amended by Amendment No. 1 on Form
10-K/A ("2001 Form 10-K"), effective January 1, 2002, Mexico implemented changes
in its income tax laws. One of these changes reduced the Mexican corporate
income tax rate from 35% to 32% in one-percent increments beginning in 2003,
resulting in a 32% income tax rate in 2005. Accordingly, under accounting
principles generally accepted in the United States of America ("U.S. GAAP"),
Grupo TFM recorded an additional $1.7 million deferred tax expense arising from
this rate change due to a related decline in its deferred tax asset. After
consideration of minority interest, this rate change resulted in a $0.5 million
reduction in the Company's equity in earnings of Grupo TFM for the first quarter
of 2002.
Another initial change in the Mexican tax law was the repeal of the provision
that allowed Grupo TFM to utilize certain tax credits resulting from the
purchase of diesel fuel to offset non-income taxes. According to the management
of Grupo TFM, because of the unintended adverse impact of this provision of the
law on the railroad industry, the law has been modified to conform with the
provision of the earlier law, which provides that these credits are not limited
and may be used to offset taxes other than income.
Waiver and Amendments for Credit Facility Covenants. As discussed in the 2001
Form 10-K, during the first quarter of 2001, the Company requested and received
from lenders a waiver from certain of the financial and coverage covenant
provisions outlined in the credit agreement for the Company's senior secured
credit facility ("KCS Credit Facility"). This waiver was granted on March 19,
2001 and was effective until May 15, 2001. In addition, on May 10, 2001, the
lenders approved and executed an amendment to the applicable covenant provisions
of the credit agreement, which, among other things, revised certain of the
covenant provisions (including financial and coverage provisions) through March
31, 2002. As further discussed in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Developments Concerning
Dispute with Grupo TMM" in the 2001 Form 10-K, due to the uncertainty of the
timing of the dispute resolution with Grupo TMM and the associated transactions,
as well as the return on April 1, 2002 of the leverage ratio covenant provision
to the original calculation under the credit agreement, the Company obtained, as
a precautionary measure, an additional amendment to the credit agreement. This
amendment, which was approved by the lenders on March 28, 2002, revises the
leverage ratio covenant provision for the period April 1, 2002 through June 29,
2002. At March 31, 2002, the Company had $369.4 million of term debt borrowed
under the KCS Credit Facility. There were no borrowings of revolving debt under
the KCS Credit Facility at March 31, 2002. At March 31, 2002, the Company was in
full compliance with all covenant provisions of the credit agreement (as
amended) and management believes that the Company will be in compliance at the
end of the second quarter and for the foreseeable future.
KCSR and The Burlington Northern and Santa Fe Railway Company ("BNSF") Form
Marketing Alliance. On April 22, 2002, KCSR and BNSF entered into a marketing
agreement forming a comprehensive joint marketing alliance to promote
cooperation, revenue growth and extend market reach for both railroads in the
United States and Canada. The marketing alliance is also designed to improve
operating efficiencies for both KCSR and BNSF in key market areas, as well as
provide customers with expanded service options. KCSR and BNSF will coordinate
marketing and operational initiatives in a number of target markets. Plans are
being developed to enhance competitive options for shippers in the West Lake and
West Lake Charles, Louisiana, region. Similarly, KCSR and BNSF will also
coordinate operations to provide improved and extended service options for grain
customers. The marketing alliance is expected to allow the two railroads to be
more responsive to shippers' requests for rates and service, whenever mutually
advantageous. Coal and unit train operations are excluded from the marketing
alliance, as well as any points where KCSR and BNSF are the only direct rail
competitors. Movements to and from Mexico by either party are also excluded.
Management believes this new marketing alliance will provide important
opportunities to grow KCSR's revenue base, particularly in the chemical, grain
and forest product markets, and provide both participants with expanded access
to important markets and provide shippers with enhanced options and competitive
alternatives.
15
RESULTS OF OPERATIONS
The following table summarizes the income statement components of the Company
for the three months ended March 31, respectively, for use in the analysis
below. See consolidated condensed statements of income accompanying this Form
10-Q for other captions not presented in this table (in millions):
Three Months
Ended March 31,
--------------------
2002 2001
------- -------
Revenues $ 142.5 $ 144.0
Costs and expenses 129.1 137.9
------- -------
Operating income 13.4 6.1
Equity in net earnings of
unconsolidated affiliates 4.9 11.2
Gain on sale of Mexrail, Inc. 4.4 -
Interest expense (11.3) (15.2)
Other, net 4.4 1.0
------- -------
Income before income taxes and cumulative
effect of accounting change 15.8 3.1
Income tax provision (benefit) 4.1 (3.2)
------- -------
Income before cumulative effect of accounting
change 11.7 6.3
Cumulative effect of accounting change,
net of income taxes - (0.4)
------- -------
Net income $ 11.7 $ 5.9
======= =======
The following table summarizes the revenues and carload statistics of KCSR for
the three months ended March 31, 2002 and 2001, respectively. 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 Three months
ended March 31, ended March 31,
-------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
General commodities:
Chemical and petroleum $ 31.9 $ 32.6 35.9 41.2
Paper and forest 32.0 30.1 43.8 44.5
Agriculture and mineral 23.8 21.3 33.0 30.9
-------- -------- -------- --------
Total general commodities 87.7 84.0 112.7 116.6
Intermodal and automotive 14.2 18.6 67.0 76.8
Coal 28.8 27.6 58.5 46.5
-------- -------- -------- --------
Carload revenues and carload
and intermodal units 130.7 130.2 238.2 239.9
Other rail-related revenues 9.7 9.9 ======== ========
-------- --------
Total KCSR revenues 140.4 140.1
Other subsidiary revenues 2.1 3.9
-------- --------
Total consolidated revenues $ 142.5 $ 144.0
======== ========
16
The following table summarizes KCS consolidated costs and expenses for the three
months ended March 31, 2002 and 2001, respectively. Certain prior year amounts
have been reclassified for conform to the current year presentation.
Three Months
Ended March 31,
------------------
2002 2001
------- ------
Compensation and benefits $ 49.4 $ 49.1
Depreciation and amortization 14.9 14.4
Purchased services 14.0 12.0
Operating leases 12.1 12.8
Fuel 9.5 12.4
Casualties and insurance 7.9 14.6
Car hire 5.2 6.5
Other 16.1 16.1
------ ------
Total consolidated costs and expenses $129.1 $137.9
====== ======
Three Months Ended March 31, 2002 Compared With Three Months Ended
March 31, 2001
Net Income. For the three months ended March 31, 2002, net income increased $5.8
million to $11.7 million (19(cent) per diluted share) from $5.9 million
(10(cent) per diluted share) for the three months ended March 31, 2001. This
quarter to quarter increase was primarily the result of an $8.8 million decline
in operating expenses, a $3.9 million decrease in interest expense, a $3.4
million increase in other income and a $4.4 million gain realized on the sale of
Mexrail to TFM. These increases were partially offset by a $1.5 million decrease
in revenue, a $6.3 million decrease in equity in net earnings of unconsolidated
affiliates and a $7.3 million increase in the income tax provision.
Revenues. Consolidated revenues for the three months ended March 31, 2002 were
$142.5 million compared to $144.0 million for the three months ended March 31,
2001. An increase in revenues for KCSR of $0.3 million was offset by a decline
of approximately $1.8 million from other subsidiaries, resulting mostly from
volume declines at the Company's bulk coke handling facility and its railroad
tie plant. The following discussion provides an analysis of KCSR revenues by
commodity group.
Chemical and petroleum products. For the three months ended March 31, 2002,
revenues for chemical and petroleum products decreased $0.7 million (2.2%)
compared to the three months ended March 31, 2001. Higher revenue for gases and
inorganic products were offset by declines in other chemical and petroleum
products. The increase in revenues for gases was primarily the result of an
increase in production by a single customer during the quarter. The increase in
revenue for inorganic products was primarily the result of increased access to
production facilities in Geismar, Louisiana and new business previously shipped
by other rail carriers. The decline in other chemical and petroleum products was
primarily the result of lower industrial production as a result of the continued
slowdown of the U.S. economy. Volume related revenue declines were somewhat
mitigated through longer hauls and selective price increases. Chemical and
petroleum products revenue accounted for 24.4% and 25.0% of total carload
revenues for the three months ended March 31, 2002 and 2001, respectively.
Paper and forest products. Paper and forest product revenues increased $1.9
million (6.3%) for the three months ended March 31, 2002 compared with the same
period of 2001. Increases in revenues for paper and lumber products as well as
military shipments were partially offset by a decrease in metal product
revenues. The increase in revenue for shipments of lumber products resulted from
volume gains due to strength in the home building market, as well as certain
rate increases and longer hauls. Higher revenue for paper products was due
mostly to an increase in the revenue per carload arising from targeted rate
increases and longer hauls. Demand driven volume declines contributed to lower
revenue for metal products quarter to quarter. Paper and forest products revenue
accounted for 24.5% and 23.1% of total carload revenues for the three months
ended March 31, 2002 and 2001, respectively.
Agricultural and mineral products. Agricultural and mineral product
revenues increased $2.5 million (11.7%) for the three months ended March 31,
2002 compared to the three months ended March 31, 2001. This increase resulted
mostly from strength in the export grain and food product markets partially
offset by lower revenues for ores and minerals. Higher demand for export grain
and food products coupled with increases in certain rates and length of haul
17
led to the increase in related revenue. Demand also improved slightly for
domestic grain shipments to poultry producers due to an increase in consumer
consumption. Agricultural and mineral products accounted for 18.2% of total
carload revenues for the first quarter of 2002 compared to 16.4% for the first
quarter of 2001.
Intermodal and automotive. Intermodal and automotive revenues decreased
$4.4 million (23.7%) for the three months ended March 31, 2002 compared to the
same period in 2001. This decrease was primarily the result of a 6.2% decline in
carload volume for intermodal traffic and a 50% decline in automotive carloads.
These traffic declines were mostly due to the impact of the weakness in the U.S.
economy on the intermodal and automotive industries. Automotive revenues were
also significantly 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 was approximately 98%, and
accordingly, management believes this on-time performance could lead to future
business in the automotive marketplace. Intermodal and automotive product
revenues accounted for 10.9% of total carload revenues for the first quarter of
2002 compared to 14.3% for the first quarter of 2001.
Coal. Coal revenues increased $1.2 million (4.3%) for the three months
ended March 31, 2002 compared to the same period in 2001, resulting mostly from
a 30% increase in tons delivered due to higher customer demand, as well as the
re-opening of the KCPL Hawthorn plant in June 2001. Hawthorn had been out of
service since January 1999 due to an explosion at the Kansas City facility.
Revenue increases resulting from higher traffic levels were somewhat mitigated
by a contractual rate reduction for KCSR's largest customer, Southwestern
Electric Power Company ("SWEPCO" - a wholly owned subsidiary of American
Electric Power Company, Inc.). This rate reduction, as well as the loss of a
coal customer beginning in April 2002 due to the expiration of the contract, is
expected to result in a reduction of coal revenues during the remainder of 2002.
Coal revenues accounted for 22.0% of total carload revenues for the first
quarter of 2002 compared to 21.2% for the first quarter of 2001.
Other. Other rail related revenues decreased $0.2 million for the three
months ended March 31, 2002 compared to the same period in 2001 primarily due to
decreases in switching revenue partially offset by increases in haulage,
demurrage, and other revenue.
Costs and Expenses. Consolidated costs and expenses decreased $8.8 million for
the three months ended March 31, 2002 compared to the same period in 2001
primarily as a result of lower KCSR expenses of $9.3 million and higher expenses
at certain other subsidiaries of $0.5 million.
Compensation and Benefits. Consolidated compensation and benefits expense
for the three months ended March 31, 2002 increased $0.3 million to $49.4
million compared to $49.1 million for the three months ended March 31, 2001. A
$2.3 million decrease in compensation expense resulted from reduced employee
counts, lower overtime costs, and the use of fewer relief crews due to improved
operating efficiency. This decrease was offset by a $2.6 million increase in
fringe benefits as a result of a 15% increase in health and welfare costs during
the first quarter of 2002 and a $2.0 million reduction in retirement-based costs
for certain union employees recorded during the first quarter of 2001.
Additionally, first quarter 2001 costs for compensation and benefits include
approximately $1.3 million associated with a workforce reduction.
Depreciation and Amortization. Consolidated depreciation and amortization
expense was $14.9 million for the three months ended March 31, 2002 compared to
$14.4 million for the same period in 2001. This $0.5 million increase resulted
from a higher asset base partially offset by property retirements. Depreciation
and amortization expense is expected to increase by approximately $2.3 million
in 2002 compared to 2001 due to the implementation of the Company's Management
Control System ("MCS"), which is scheduled to occur in mid-2002.
Purchased Services. For the three months ended March 31, 2002, purchased
services expense increased $2.0 million compared with the same period in 2001.
This increase resulted from higher costs for locomotive and car repairs
contracted to third parties as well as other general purchased services.
Operating Leases. For the three months ended March 31, 2002, operating
lease expense decreased as a result of the expiration of certain leases that
have not been renewed due to continued improvements in fleet utilization. Lease
expense is expected to increase in the second quarter of 2002 as a result of
costs associated with the lease for the Company's new corporate headquarters
building. The Company began leasing this new facility in April 2002. The annual
lease payment is expected to be approximately $2.5 million. The net increase in
lease expense is expected to be approximately $1.9 million in 2002 compared to
2001.
18
Fuel. For the three months ended March 31, 2002, fuel expense decreased
$2.9 million or 23.4% compared to the same period in 2001. This decrease in fuel
expense was the result of a 26.1% decrease in the average price per gallon
somewhat mitigated by a 4.3% increase in fuel usage. Fuel costs represented
approximately 7.8% of total KCSR operating expenses for the quarter ended March
31, 2002 compared to 9.4% for the same period in 2001.
Casualties and Insurance. For the three months ended March 31, 2002,
casualties and insurance expense decreased $6.7 million compared to the three
months ended March 31, 2001. KCSR experienced several significant derailments in
the first quarter of 2001 as well as the settlement of a significant personal
injury claim. Costs in the first quarter of 2001 related to these significant
derailments approximated $8.5 million compared to derailment expense of
approximately $2.5 million for the first quarter of 2002.
Car Hire. Car hire expense for the first quarter of 2002 decreased $1.3
million compared to the first quarter of 2001. During the first quarter of 2002,
KCSR was operating a more efficient and well-controlled railroad compared to the
first quarter of 2001, leading to an improvement in car utilization and
reduction of car hire costs. An unusual number of derailments (as discussed in
casualties and insurance), as well as the effects of line washouts and flooding
had a significant adverse impact on the efficiency of the Company's U.S.
operations during the first quarter of 2001. The resulting inefficiency led to
congestion on KCSR, which contributed to an increase in the number of freight
cars from other railroads on the Company's rail line, as well as fewer KCSR
freight cars being used by other railroads during the first quarter of 2001.
Operating Income and KCSR Operating Ratio. Consolidated operating income
for the three months ended March 31, 2002 increased $7.3 million, or 120%
compared to $6.1 million for the same period in 2001. This increase resulted
from an $8.8 million decrease in operating expenses partially offset by a $1.5
million decrease in revenues. The operating ratio for KCSR improved to 87.2% for
the three months ended March 31, 2002 compared to 94.0% for the same period in
2001.
Interest Expense. Consolidated interest expense for the three months ended March
31, 2002 declined $3.9 million (26%) compared to the same period in 2001. This
decrease was primarily the result of lower interest rates (LIBOR) on variable
rate debt as well as a lower average debt balance partially offset by a slight
increase in amortization related to debt issue costs.
Other Income. For the three months ended March 31, 2002, the Company's other
income increased $3.4 million compared to the prior year quarter primarily as a
result of a $3.3 million gain recorded on the sale of non-operating property.
Income Tax Expense. For the three months ended March 31, 2002, the Company's
income tax provision was $4.1 million compared to an income tax benefit of $3.2
million of the prior year quarter. This $7.3 million increase in income tax
expenses resulted primarily from an increase in the Company's domestic operating
income and gains recorded on the sale of the Company's investment in Mexrail and
non-operating property. As the Company intends to indefinitely reinvest the
equity earnings from Grupo TFM, 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. Excluding equity earnings of Grupo TFM, the consolidated effective
income tax rate for the three months ended March 31, 2002 was 37.3% compared to
(40.0%) for the same period in 2001.
Equity in Net Earnings (Losses) of Unconsolidated Affiliates. For the three
months ended March 31, 2002, the Company recorded equity in net earnings of
unconsolidated affiliates of $4.9 million compared to $11.2 million for the same
period in 2001. This decrease is primarily the result of lower equity earnings
from Grupo TFM of $6.3 million and PCRC of $0.8 million partially offset by an
increase in equity in earnings from Southern Capital of $0.5 million and Mexrail
of $0.3 million.
For the three months ended March 31, 2001, equity in earnings from Grupo TFM
reflected 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. Exclusive of this 2001 reversion income, the Company's
first quarter 2002 equity in earnings from Grupo TFM increased $2.8 million
compared to the same period in 2001. Grupo TFM's revenue for the three months
ended March 31, 2002 improved 1% compared to the same period in 2001 while
operating expenses declined slightly for the same period. Under International
Accounting Standards ("IAS"), Grupo TFM's first quarter 2002 operating ratio was
19
77.3% compared to 79.8% in the same period in 2001. Grupo TFM's results for the
first quarter of 2002 include a $3.5 million deferred tax benefit (calculated
under U.S. GAAP) compared to a deferred income tax expense of $21.7 million in
the first quarter of 2001. This variance resulted from an income tax provision
on the reversion income recorded in the first quarter of 2001, as well as
fluctuations in the peso exchange rate and inflation. Also contributing to Grupo
TFM's deferred income tax calculation in the first quarter of 2002 was an
approximate $1.7 million expense arising from the change in the Mexican
corporate income tax rate, which is being reduced from 35% to 32% in one percent
increments beginning in 2003. Under U.S. GAAP, the impact of this 3% graduated
rate reduction was recognized for deferred tax purposes in the first quarter of
2002. This rate reduction adversely impacted the results under U.S. GAAP because
Grupo TFM has a deferred tax asset, which had previously been recorded based
upon higher income tax rates and was reduced as a result of the rate reduction.
After consideration of minority interest, this rate change resulted in a $0.5
million reduction in the Company's equity earnings of Grupo TFM during the first
quarter 2002.
The Company reports its equity in Grupo TFM under U.S. GAAP while Grupo TFM
reports under IAS. Because the Company is required to report its equity in
earnings (losses) in Grupo TFM under U.S. GAAP and Grupo TFM reports under IAS,
differences in deferred income tax calculations and the classification of
certain operating expense categories occur. The deferred tax calculations are
significantly impacted by fluctuations in the relative value of the Mexican peso
compared to the U.S. dollar and the rate of Mexican inflation, and result in
significant variability in the amount of equity in earnings (losses) reported by
the Company.
Cumulative Effect of Accounting Change. The Company adopted the provisions of
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("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.
TRENDS AND OUTLOOK
The Company continues to make progress toward its goal of improving domestic
profitability and reducing corporate debt. Despite the impact of the continuing
lagging economy, the Company was able to maintain its revenue during the first
quarter of 2002 and more than double its operating income compared to the same
period in 2001. The Company's first quarter 2002 diluted earnings per share
increased 90% compared to first quarter of 2001. Domestic operating income
increased 120% to $13.4 million from $6.1 million in the first quarter of 2001,
despite the current economic environment and competitive revenue pressures.
Consolidated revenues for the first quarter of 2002 declined slightly, while
operating expenses decreased $8.8 million quarter to quarter, primarily as a
result of lower costs for compensation, fuel, car hire and casualties. The
decline in compensation costs reflects improved operational efficiency and a 6%
employee reduction arising from the cost reduction strategy implemented at the
end of March 2001. Fuel costs were substantially lower due to an approximate
$0.20 decline in the average market price per gallon and the Company's forward
purchase position at December 31, 2001. Casualty expenses were lower due to the
absence of significant derailment and personal injury casualty events
experienced during the first quarter of 2001. Additionally, Grupo TFM continues
to provide growth to our earnings as ongoing equity in earnings increased $2.8
million quarter to quarter.
The Company has been aggressively reducing its debt balance since the spin-off
of Stilwell Financial Inc. in July 2000. The Company's corporate debt balance as
of the date of the spin-off was approximately $682 million compared to
approximately $628 million at March 31, 2002. The Company has further reduced
its debt balance by approximately $30 million through additional payments since
March 31, 2002. This trend is the result of a focused costs control, sound cash
management and the sale of various assets, including the Company's investment in
Mexrail to TFM in March 2002. Debt reduction will continue to be a high priority
for the Company.
The Company has resolved its dispute with its Mexican partner, Grupo TMM in a
manner satisfactory for both parties. Management believes that the Mexrail
transaction will help promote better operational efficiency and provide more
synergistic opportunities for the NAFTA rail network.
20
A current outlook for the Company's businesses for the remainder of 2002 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):
As discussed in the Company's 2001 Form 10-K, management expects coal revenues
for the remainder of 2002 to decline as a result of a contractual rate reduction
at SWEPCO, as well as the loss of business due to the expiration of a contract
that was not renewed. Management believes, however, that total revenues for 2002
will remain essentially flat compared to 2001 as these anticipated coal revenue
declines are expected to be offset by higher revenues in other commodity groups
through new business and targeted rate increases. As discussed above, the
Company recently announced a marketing agreement with BNSF, which management
believes will provide important opportunities to grow the Company's revenue
base, particularly in the chemical, grain and forest product markets.
Except as outlined herein, variable costs and expenses are expected to be
proportionate with revenue activity, assuming normalized rail operations. Fuel
prices are expected to fluctuate subject to market conditions. To mitigate the
market risk associated with fuel, the Company currently has approximately 47% of
its remaining budgeted fuel usage for 2002 under purchase commitments, which
lock in a specific price. Casualty expenses are expected to be lower in the
remainder of 2002 compared to 2001 based on the Company's continued focus and
success on safety issues and the settlement approach implemented during 2001.
Insurance costs are expected to rise as the insurance industry responds to the
September 11, 2001 terrorist attacks and health care costs are also expected to
be higher in 2002 based on the market trends. These increases are expected to be
offset by declines in certain railroad retirement issues as described further in
"Recent Developments - New Railroad Retirement Improvement Act" of the Company's
2001 Form 10-K. Depreciation expense is expected to increase beginning in
mid-2002 following the implementation of MCS and operating lease expense is
expected to remain relatively flat.
The Company expects to continue to participate in the earnings/losses from its
equity investments in Grupo TFM, Southern Capital 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.
KCS and Grupo TMM have a call option exercisable on or prior to July 31, 2002 to
purchase the 24.6% interest in Grupo TFM currently owned by the Mexican
government. It is the intention of the Company and Grupo TMM to exercise this
call option on or prior to its expiration on July 31, 2002. The purchase price
will be calculated by accreting the Mexican government's initial investment of
$199 million from the date of the Mexican government's investment through the
date of the purchase, using the interest rate on one-year U.S. Treasury
securities. Various financing alternatives are currently being explored. One
source of financing could include the use of approximately $81 million due to
TFM from the Mexican government as a result of the reversion, during the first
quarter of 2001, of a portion of the Concession to the Mexican government by TFM
that covers the Hercules-Mariscala rail line. The remainder of the financing
required to purchase the Mexican government's Grupo TFM shares is expected to be
raised at TFM or by the Company and Grupo TMM, respectively. Management expects
this transaction to be completed during the second quarter of 2002. However,
there can be no assurances that the Company and Grupo TMM will be able to
complete this transaction prior to the expiration of the call option.
LIQUIDITY AND CAPITAL RESOURCES
Summary cash flow data for the Company is as follows (in millions):
Three Months
Ended March 31,
-------------------------
2002 2001
------- -------
Cash flows provided by (used for):
Operating activities $ 37.2 $ 13.8
Investing activities 22.8 (13.6)
Financing activities (27.9) 6.9
------- -------
Cash and equivalents:
Net increase 32.1 7.1
At beginning of year 24.7 21.5
------- -------
At end of period $ 56.8 $ 28.6
======= =======
21
During the three months ended March 31, 2002, the Company's consolidated cash
position increased $32.1 million from December 31, 2001. This increase resulted
primarily from operating activities and from the net proceeds from the sale of
Mexrail to TFM. Net operating cash inflows were $37.2 million and $13.8 million
for the three months ended March 31, 2002 and 2001, respectively. The $23.4
million increase in operating cash flows was primarily attributable to higher
net income and changes in working capital balances, comprised mainly of the
receipt of an income tax refund during the first quarter of 2002.
Net investing cash inflows (outflows) were $22.8 million and ($13.6) million for
the three months ended March 31, 2002 and 2001, respectively. This $36.4 million
difference was driven by proceeds received from the sale of the Company's
investment in Mexrail of $31.4 million and proceeds received from the sale of
other assets of approximately $9.3 million in the first quarter of 2002. These
cash inflows were partially offset by a $3.5 million increase in capital
expenditures and a $1.4 million increase in investments in and loans to
affiliates.
For the three months ended March 31, 2002, financing cash outflows were used
primarily to repay long-term debt while cash inflows were generated from
proceeds from the issuance of common stock under stock plans. For the first
quarter of 2002, net financing cash outflows were $27.9 million compared to net
financing cash inflows of $6.9 million for the first quarter of 2001. This
difference was primarily due to repayments of long-term debt of $30.5 million
during the first quarter of 2002 compared with long-term borrowings of $7.1
million during the first three months of 2001.
Management expects cash flows from operations to be positive throughout the
remainder of 2002 as a result of operating income, which has historically
resulted in positive operating cash flows. Investing activities are projected to
use significant amounts of cash for capital expenditures. Future roadway
improvement projects will continue to be primarily funded by operating cash
flows or, secondarily, through borrowings under the Company's line of credit.
The Company's consolidated ratio of debt to total capitalization was 47.3% and
49.2% at March 31, 2002 and December 31, 2001, respectively. The Company's debt
decreased $30.5 million from December 31, 2001 to $627.9 million at March 31,
2002 as a result of the repayment of long-term debt. This decrease in debt was
coupled with an increase in the Company's stockholders' equity of $18.4 million
to $698.7 million at March 31, 2002. This increase was due primarily to net
income of $11.7 million and the issuance of common stock under the stock plans.
Management anticipates that the ratio of debt to total capitalization will
decline slightly during the remainder of 2002 as debt continues to be reduced
and equity increases.
In addition to operating cash flows, the Company has financing available under
the revolving portion ("KCS Revolver") of the KCS Credit Facility with a maximum
borrowing amount of $100 million. As of March 31, 2002, all $100 million was
available under the KCS Revolver. The KCS Credit Facility contains, among other
provisions, various financial covenants. As a result of certain financial
covenants contained in the credit agreement, maximum utilization of the
Company's available line of credit may be restricted. The Company was in full
compliance with all covenant provisions of the credit agreement (as amended) at
March 31, 2002 and expects to be in compliance at the end of the second quarter
and for the foreseeable future. See "Recent Developments - Waiver and Amendments
for Credit Facility Covenants" for a discussion of the amendments to the KCS
Credit Facility.
The Company filed a Universal Shelf Registration Statement on Form S-3 ("Initial
Shelf" - 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 a Shelf
Registration Statement filed on Form S-3 ("Second Shelf" - 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 and securities in the aggregate amount of $450 million remain
available under the Second Shelf. To date, no securities have been issued under
either the Initial Shelf or Second Shelf.
As discussed in the 2001 Form 10-K, Grupo TMM and KCS, or either Grupo TMM or
KCS, could be required to purchase the Mexican government's interest in TFM.
However, this provision is not exercisable prior to October 31, 2003 without the
consent of Grupo TFM. If KCS and Grupo TMM, or either KCS or Grupo TMM alone had
been required to purchase the Mexican government's 20% interest in TFM as of
March 31, 2002, the total purchase price would have been approximately $537.2
million.
22
During 2001, Southern Capital, a 50% owned unconsolidated affiliate that
provides KCSR with access to equipment financing alternatives, refinanced its
five-year credit facility, which was scheduled to mature on October 19, 2001,
with a one-year bridge loan for $201 million. There was $190.5 million borrowed
under the bridge loan as of March 31, 2002. Southern Capital is currently in the
process of refinancing the bridge loan with long-term debt. This refinancing
transaction is expected to occur during the second quarter of 2002.
The Company believes, based on current expectations, that its cash and other
liquid assets, operating cash flows, access to capital markets, borrowing
capacity, and other available financing resources are sufficient to fund
anticipated operating, capital and debt service requirements and other
commitments through 2002. However, the Company's operating cash flows and
financing alternatives can be impacted by various factors, some of which are
outside of the Company's control. For example, if the Company were to experience
a substantial reduction in revenues or a substantial increase in operating costs
or other liabilities, its operating cash flows could be significantly reduced.
Additionally, the Company is subject to economic factors surrounding capital
markets and the Company's ability to obtain financing under reasonable terms is
subject to market conditions. Further, the Company's cost of debt relative to
potential future debt financing transactions could be impacted by independent
rating agencies, which assign debt ratings based on certain credit measurements
such as interest coverage and leverage ratios.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes in the Company's Quantitative and
Qualitative Disclosures About Market Risk from that previously reported in the
Annual Report on Form 10-K for the year ended December 31, 2001.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part I, Item 1. Financial Statements, Note 8 to the Consolidated Condensed
Financial Statements of this Form 10-Q is hereby incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company held its 2002 Annual Meeting of Stockholders ("Annual
Meeting") on May 2, 2002. A total of 55,168,602 shares of the Common
Stock, $.01 per share par value, and Preferred Stock, par value $25.00 per
share, or 91.7% of the outstanding voting stock on the record date
(60,188,041 shares), was represented at the Annual Meeting, thereby
constituting a quorum. These shares voted together as a single class.
b) Proxies for the meeting were solicited pursuant to Regulation 14A; there
was no solicitation in opposition to management's nominees for directors
as listed in such Proxy Statement and all such nominees were elected. The
voting for the election of directors was as follows:
Total
Shares
-----------
Election of Two Directors
(i) Rodney E. Slater
For 54,079,560
Against -
Withheld 1,287,136
-----------
Total 55,366,696
===========
(ii) Byron G. Thompson
For 53,683,372
Against -
Withheld 1,287,136
-----------
Total 54,970,508
===========
c) Listed below are the other matters voted on at the Company's Annual
Meeting. These matters are fully described in the Company's Definitive
Proxy Statement. The voting was as follows:
Total
Shares
-----------
Amendment of the Certificate of Incorporation
To Change the Company Name from "Kansas City
Southern Industries, Inc." to "Kansas City Southern"
For 54,920,981
Against 154,083
Abstentions 93,538
Non-votes -
-----------
Total 55,168,602
===========
24
Ratification of the Board of Directors'
selection of KPMG LLP as the Company's
Independent Accountants for 2002
For 54,352,073
Against 679,693
Abstentions 138,836
Non-votes -
-----------
Total 55,168,602
===========
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(3) Articles of Incorporation and Bylaws
Articles of Incorporation
3.1 Certificate of Amendment of Certificate of Incorporation of Kansas City
Southern is attached to this Form 10-Q as Exhibit 3.1
Bylaws
3.2 By-laws of Kansas City Southern, as amended and restated to May 2, 2002,
is attached to this Form 10-Q as Exhibit 3.2
(4) Instruments Defining the Right of Security Holders, Including Indentures
4.1 Exhibit 4.1 to the Company's Registration Statement (Commission File No.
333-54262), he Indenture, dated as of September 27, 2000, among the
Company, The Kansas City Southern Railway Company, certain other
subsidiaries of the Company and The Bank of New York, as trustee (the
"2000 Indenture"), is hereby incorporated by reference as Exhibit 4.1
(10) Material Contracts
10.1 Third Amendment to the Credit Agreement (dated as of January 11, 2000)
dated as of March 28, 2002, among Kansas City Southern Industries, Inc.
The Kansas City Southern Railway Company, the Lenders party hereto and
The Chase Manhattan Bank, as administrative agent, collateral agent,
issuing bank and swingline lender is attached to this Form 10-Q as
Exhibit 10.1
b) Reports on Form 8-K
The Company furnished a Current Report on Form 8-K dated January 7, 2002
announcing the date of its fourth quarter and year-end 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 filed a Current Report on Form 8-K dated January 15, 2002
under Item 5 of such form, announcing that the Mexican courts agreed to
hear the legal actions initiated by NAFTA Rail S.A. de C.V., a Mexican
subsidiary of KCS, challenging certain resolutions adopted by Grupo TFM at
the end of 2001.
25
The Company furnished a Current Report on Form 8-K dated January 31, 2002
reporting its fourth quarter and year-end 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 May 10, 2002.
Kansas City Southern
/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)
26