SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 29, 2003
KANSAS CITY SOUTHERN
(Exact name of company as specified in its charter)
DELAWARE 1-4717 44-0663509
- ---------------------------- ------------------------ -----------------------
(State or other jurisdiction (Commission file number) (IRS Employer
of incorporation) Identification Number)
427 West 12th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code:
(816) 983 - 1303
Not Applicable
(Former name or former address if changed since last report)
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit No. Document
(99) Additional Exhibits
99.1 Press Release issued by Kansas City Southern dated April
29, 2003 entitled, "Kansas City Southern Reports First
Quarter 2003 Earnings," is attached hereto as Exhibit 99.1
99.2 The following schedules are attached hereto as Exhibit
99.2 - Kansas City Southern Operating Statements, Kansas
City Southern Railway Carloadings by Commodity, Kansas
City Southern Consolidated Balance Sheets
Item 9. Regulation FD Disclosure (Results of Operations and Financial
Condition under Item 12)
Kansas City Southern ("KCS" or "Company") is furnishing under Item 9 and Item 12
of this Current Report on Form 8-K the information included as Exhibit 99.1 and
Exhibit 99.2 of this report in accordance with interim procedures promulgated by
the Securities and Exchange Commission in Release No. 33-8126. Exhibit 99.1 is
the Company's press release, dated April 29, 2003, announcing KCS's first
quarter 2003 earnings and operating results. Included in Exhibit 99.2 are
schedules regarding certain financial information discussed at the Company's
first quarter 2003 analyst presentation and conference call.
The information included in this Current Report on Form 8-K, including Exhibit
99.1 and Exhibit 99.2, is required by Item 12 of Form 8-K furnished pursuant to
Item 9 and Item 12 and shall not be deemed to be "filed" for the purposes of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that Section.
SIGNATURE
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
hereunto duly authorized.
Kansas City Southern
Date: May 1, 2003 By: /s/ Louis G. Van Horn
----------------------------------------
Louis G. Van Horn
Vice President and Comptroller
(Principal Accounting Officer)
EXHIBIT 99.1
KANSAS CITY SOUTHERN PRESS RELEASE
427 WEST 12TH STREET, KANSAS CITY, MISSOURI 64105 NYSE SYMBOL: KSU
Date: April 29, 2003
Media Contract: William H. Galligan, 816/983-1551 or
william.h.galligan@kcsr.com
Kansas City Southern Reports First Quarter 2003 Earnings
Earnings Analysis & Commentary
Kansas City Southern ("KCS" or "Company") reported a $1.9 million increase in
net income to $13.6 million (22(cent) per diluted share) for the first quarter
of 2003 compared to $11.7 million (19(cent) per diluted share) for the first
quarter of 2002. Net income for the first quarter of 2003 included a one-time
favorable benefit of $8.9 million (net of income taxes) relating to the
cumulative effect arising from a required change in the method of accounting for
removal costs of certain track structure assets. First quarter 2003 results also
included a $5.2 million decline in income tax expense and a $2.1 million
increase in equity in net earnings from the Company's investment in Grupo
Transportacion Ferroviaria Mexicana, S.A. de C.V. ("Grupo TFM") compared to the
first quarter of 2002. These positive factors were offset by a $6.6 million
decline in operating income, a $3.1 million decrease in other income and a $0.2
million increase in interest expense quarter to quarter. Additionally, during
the first quarter of 2002, KCS recorded a $4.4 million gain on the sale to TFM,
S.A. de C.V. ("TFM") of the Company's ownership interest in Mexrail, Inc.
("Mexrail"- a former 49% owned unconsolidated affiliate). Mexrail wholly owns
the Texas Mexican Railway Company (Tex-Mex).
Diluted earnings per share information 1 is as follows:
First Quarter
-------------------------
2003 2002
----------- ----------
U.S. operations $ 0.03 $ 0.18
Grupo TFM and PCRC (including allocated interest) 0.05 0.01
----------- ----------
Income before cumulative effect of accounting change 0.08 0.19
Cumulative effect of accounting change, net of income tax 0.14 -
----------- ----------
Total diluted earnings per share $ 0.22 $ 0.19
----------- ----------
Consolidated operating income was $6.8 million for the first quarter of 2003
compared to $13.4 million for the first quarter of 2002. This $6.6 million
decline resulted from a $3.7 million reduction in revenues and a $2.9 increase
- ----------------------------------
1 The components of the diluted earnings per share information include
measurements that are not presented under accounting principles generally
accepted in the United States of America ("U.S. GAAP"). This presentation
includes an internal allocation of interest expense from U.S. operations to
Grupo TFM. Management believes this interest expense allocation results in a
more accurate reflection of the diluted earnings per share relating to the
contribution of Grupo TFM to the consolidated net income of KCS. The interest
expense allocation is based upon the initial amount of capital invested by KCS
in Grupo TFM and is calculated utilizing a blended interest rate applicable to
the Company's indebtedness composition. This measurement is presented to provide
the reader of these financial statements with a better understanding of the
impact of financing costs on the earnings per share related to KCS's investment
in Grupo TFM. The nearest GAAP measurement is included in the consolidated
statements of income included in this press release.
in costs and expenses quarter to quarter. During the first quarter of 2003,
revenues from the Company's principal operating subsidiary, The Kansas City
Southern Railway Company ("KCSR") declined $2.9 million compared to the first
quarter of 2002. Revenues from other subsidiaries were approximately $0.8
million lower quarter to quarter due to lower demand.
Revenues for certain commodity groups at KCSR, including paper and forest
products, certain chemical products and intermodal traffic continued to improve
during the first quarter of 2003. Paper and forest product revenues increased
$1.9 million quarter to quarter due to continued strength in the housing market
and strong demand from paper mills served by KCSR. Chemical revenues increased
due to certain plant expansions and new business and intermodal traffic
increased approximately $0.9 million quarter to quarter. In addition, other KCSR
revenues were approximately $1.6 million higher quarter to quarter due mostly to
an increase in demurrage (rail car retention) revenue. These improvements,
however, were offset by declines for coal, automotive and plastic revenues,
which on a combined basis dropped $8.0 million quarter to quarter. Coal revenues
declined $4.5 million due in part to the loss of certain business resulting from
the expiration of a contract in the second quarter of 2002. Also contributing to
lower coal revenues in the first quarter of 2003 was the impact of scheduled
maintenance outages at several of KCSR's electric utility customers, which by
comparison, were longer in duration than the maintenance outages in the first
quarter of 2002. In addition, most of the utilities served by KCSR were building
inventory last year but reducing inventory in the first quarter of this year.
Automotive revenues declined $2.3 million due to the loss of certain traffic in
May 2002.
First quarter 2003 consolidated costs and expenses increased $2.9 million
compared to first quarter of 2002 due primarily to higher expenses for fuel,
purchased services and depreciation. The most significant factor was higher fuel
costs, which rose $3.3 million quarter to quarter due to a 42% increase in the
average price per gallon arising from market conditions partially offset by a 6%
reduction in fuel usage. Purchased services increased $1.1 million quarter to
quarter and depreciation expense was $1.0 million higher due to the
implementation of the Company's transportation operating platform, Management
Control System ("MCS") in the third quarter of 2002. These costs were partially
offset by dramatic improvements in car hire, which declined $3.0 million, or
58%, quarter to quarter due to the reduction of third party cars on KCSR's rail
lines coupled with improvements in fleet utilization, which reduced utilization
lease payments. This improvement is a direct benefit of the implementation of
MCS, which has enhanced the effectiveness of KCSR's operations management. The
Company's consolidated operating ratio was 95.1% for the first quarter of 2003
compared to 90.7% for the same period last year.
Equity in earnings from Grupo TFM increased approximately $2.1 million quarter
to quarter. This increase included the impact of the Company's increased
ownership of Grupo TFM to 46.6% from 36.9%, which the Company obtained
indirectly through the purchase by TFM of the Mexican government's former 24.6%
ownership of Grupo TFM in July 2002. Grupo TFM's first quarter 2003 revenues
declined approximately 1% and operating expenses were approximately 1% higher
compared to the first quarter of 2002. First quarter 2003 results for Grupo TFM
include a $23.0 million deferred income tax benefit (calculated under accounting
principles generally accepted in the United States of America -"U.S. GAAP")
compared to a deferred income tax benefit of $5.3 million in the first quarter
of 2002. This variance was caused by fluctuations in the peso exchange rate and
benefits derived from the impact of inflation on net operating losses in Mexico.
The Company reports its equity in Grupo TFM under U.S. GAAP while Grupo TFM
reports under International Accounting Standards.
Other income declined approximately $3.1 million quarter to quarter primarily as
a result of higher gains recorded on the sales of property in the first quarter
of 2002.
Comments from the Chairman
Michael R. Haverty, KCS Chairman, President and Chief Executive Officer said,
"We have been encouraged by signs of economic growth in certain commodity
segments during the first three months of 2003. Overall revenues, however,
continued to be unfavorably impacted by the uncertain economy while first
quarter operating expenses were negatively affected, primarily by higher fuel
costs. The MCS system, however, is now operating effectively and management
expects that, as the Company moves forward through 2003, we will experience
increased accessorial revenues and a reduction in costs, as evidenced by reduced
car hire expense this quarter, as operating personnel move further down the
learning curve and are better able to leverage the benefits of this system.
Grupo TFM continues to be one of the rail transportation leaders in North
America and the most profitable segment of our business. We are very excited
about the long-term growth prospects of this rail franchise as evidenced by the
recent announcement to place KCSR, Tex Mex and TFM under the common control of a
single transportation holding company, NAFTA Rail. We believe that by placing
these three railroads together under common control, competition will be
enhanced and shippers in the NAFTA trade corridor will have a strong
transportation alternative as they make their decisions to move goods between
the United States, Mexico and Canada. KCS already owns KCSR and has significant
investments in Tex-Mex and TFM, so this is just a natural business progression
offering KCS and Grupo TMM shareholders greater value through the operating
efficiencies that will come from common ownership and control.
As we look to the remainder of 2003, KCSR management will be focused on
improving its domestic operating results. KCS will also be strategically focused
on the transaction to place KCSR, Tex-Mex and TFM under common control in order
to realize the shareholder value that this transaction is expected to provide.
2003 is shaping up to be a year filled with great opportunities and we look
forward to capitalizing on these opportunities."
KCS is comprised of, among others, The Kansas City Southern Railway Company
("KCSR") and equity investments in Grupo TFM, Southern Capital Corporation
("Southern Capital") and Panama Canal Railway Company ("PCRC").
This press release includes statements concerning potential future events
involving the Company, which could materially differ from the events that
actually occur. The differences could be caused by a number of factors including
those factors identified in a Current Report on Form 8-K dated December 11, 2001
filed by the Company with the Securities and Exchange Commission ("SEC")
(Commission file no. 1-4717). The Company will not update any forward-looking
statements in this press release to reflect future events or developments.
(Financial Information Attached)
KANSAS CITY SOUTHERN
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share data)
(Unaudited)
Three Months
Ended March 31,
-----------------------------------
2003 2002
-------------- --------------
Revenues $ 140.2 $ 143.9
Costs and expenses 117.5 115.6
Depreciation and amortization 15.9 14.9
-------------- --------------
Operating income 6.8 13.4
Equity in net earnings of unconsolidated affiliates:
Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (preliminary) 6.9 4.8
Other 0.1 0.1
Gain on sale of Mexrail, Inc. - 4.4
Interest expense (11.5) (11.3)
Other income 1.3 4.4
-------------- --------------
Income before income taxes and cumulative effect of accounting change 3.6 15.8
Income tax provision (benefit) (1.1) 4.1
-------------- --------------
Income before cumulative effect of accounting change $ 4.7 $ 11.7
Cumulative effect of accounting change, net of income taxes 8.9 -
-------------- --------------
Net Income $ 13.6 $ 11.7
============== ==============
Per Share Data:
Basic Weighted Average Common shares outstanding (in thousands) 61,427 59,777
Basic Earnings per Common share
Income before cumulative effect of accounting change $ 0.08 $ 0.20
Cumulative effect of accounting change 0.14 -
-------------- --------------
Net Income $ 0.22 $ 0.20
============== ==============
Diluted Weighted Average Common shares outstanding (in thousands) 62,863 61,842
Diluted Earnings per Common share
Income before cumulative effect of accounting change $ 0.08 $ 0.19
Cumulative effect of accounting change 0.14 -
-------------- --------------
Net Income $ 0.22 $ 0.19
============== ==============
PRELIMINARY
GRUPO TRANSPORTACION FERROVIARIA MEXICANA
CONSOLIDATED INCOME STATEMENT
U.S. GAAP BASIS
($ in Thousands)
Three Months Ended March 31,
2003 2002
---- ----
OPERATING REVENUE $ 168,524 $ 170,783
OPERATING EXPENSES 136,737 135,013
-------------------------------------------
OPERATING PROFIT 31,787 35,770
INTEREST EXPENSE (27,482) (19,297)
EXCHANGE GAIN/(LOSS) (5,064) 815
OTHER INCOME (EXPENSE) (3,561) (4,252)
-------------------------------------------
PRE TAX INCOME (4,320) 13,036
INCOME TAX PROVISION (BENEFIT) (23,003) (5,252)
-------------------------------------------
INCOME BEFORE MINORITY INTEREST 18,683 18,288
MINORITY INTEREST (3,685) (3,822)
-------------------------------------------
NET INCOME $ 14,998 $ 14,466
===========================================
U.S. GAAP OPERATING RATIO 81.14% 79.06%
-------------------------------------------
KCS EQUITY IN NET EARNINGS OF GRUPO TFM $ 6,896 $ 4,806
LESS: ALLOCATION OF INTEREST (3,769) (3,505)
ADJUSTED CONTRIBUTION TO NET INCOME OF KCS 2 $ 3,127 $ 1,301
- -----------------------------------
2 This schedule includes a measurement that is not presented under U.S. GAAP.
The adjusted contribution of Grupo TFM to the net income of KCS includes an
internal allocation of interest expense applied against the equity in net
earnings of the Company's investment in Grupo TFM. Management believes this
interest expense allocation results in a more accurate reflection of the
contribution of Grupo TFM to the consolidated net income of KCS. The interest
expense allocation is based upon the initial amount of capital invested by KCS
in Grupo TFM and is calculated utilizing a blended interest rate applicable to
the Company's indebtedness composition. This measurement is presented to provide
the reader of these financial statements with a better understanding of the
impact of financing costs on the contribution of Grupo TFM to the consolidated
net income of KCS. The nearest GAAP measurement is included in the consolidated
statements of income included in this press release.
EXHIBIT 99.2
Kansas City Southern
Operating Statements
Dollars in Millions
First Quarter First Quarter Year Ended
2003 2002 2002
---------------------- --------------------- ---------------------
Revenues
Freight Revenue $ 89.1 $ 88.3 $ 360.1
Intermodal and Automotive Revenue 13.5 15.0 59.9
Unit Coal Revenue 24.3 28.3 98.7
Haulage Revenue 2.5 2.4 10.0
Other Revenue 10.8 9.9 37.5
---------------------- --------------------- ---------------------
Total Revenues 140.2 143.9 566.2
---------------------- --------------------- ---------------------
Operating Expenses
Compensation 34.6 34.3 137.1
Fringe Benefits 15.9 15.1 60.7
Fuel 12.8 9.5 38.4
Material and Supplies 7.4 8.4 29.1
Car Hire 2.2 5.2 19.7
Purchased Services 15.1 14.0 59.6
Casualties & Insurance 8.1 7.9 25.2
Other 3.6 3.7 20.1
---------------------- --------------------- ---------------------
Net Operating Expenses 99.7 98.1 389.9
---------------------- --------------------- ---------------------
Fixed Expenses
Leases, Net 14.3 13.5 55.0
Depreciation 15.9 14.9 61.4
Taxes (Other Than Income) 3.5 4.0 11.9
---------------------- --------------------- ---------------------
Total Fixed Expenses 33.7 32.4 128.3
---------------------- --------------------- ---------------------
Total Expenses 133.4 130.5 518.2
---------------------- --------------------- ---------------------
Operating Income $ 6.8 $ 13.4 $ 48.0
====================== ===================== =====================
Note:
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Kansas City Southern Railway
Carloadings By Commodity - Year to Date March 31, 2003
Dollars in Thousands
Carloadings Revenue
Year to Date Year to Date
- -------------------------------------------- ----------------------------------------
% %
2003 2002 Change 2003 2002 Change
- ------------- ------------ ----------- ---------- ----------- -----------
Coal
46,480 57,592 (19.3)% Unit Coal $ 23,891 $ 28,281 (15.5)%
658 881 (25.3)% Other Coal 342 459 (25.5)%
- ------------- ------------ ---------- ------------
47,138 58,473 (19.4)% Total 24,233 28,740 (15.7)%
- ------------- ------------ ---------- ------------
Chemical & Petroleum Products
1,414 1,821 (22.4)% Agri Chemicals 953 1,404 (32.1)%
3,664 3,240 13.1% Gases 3,563 3,119 14.2%
5,307 5,414 (2.0)% Organic 5,430 5,424 0.1%
5,634 4,864 15.8% Inorganic 5,823 5,158 12.9%
14,440 13,087 10.3% Petroleum 9,465 9,650 (1.9)%
5,552 7,454 (25.5)% Plastics 5,919 7,116 (16.8)%
- ------------- ------------ ---------- ------------
36,011 35,880 0.4% Total 31,153 31,871 (2.3)%
- ------------- ------------ ---------- ------------
Agriculture and Minerals
11,291 12,124 (6.9)% Domestic Grain 8,673 9,136 (5.1)%
5,278 4,915 7.4% Export Grain 4,390 4,153 5.7%
7,615 7,283 4.6% Food Products 6,112 6,222 (1.8)%
5,678 5,056 12.3% Ores and Minerals 3,172 2,828 12.2%
3,583 3,662 (2.2)% Stone, Clay & Glass 2,769 2,812 (1.5)%
- ------------- ------------ ---------- ------------
33,445 33,040 1.2% Total 25,116 25,151 (0.1)%
- ------------- ------------ ---------- ------------
Paper & Forest Products
22,685 20,569 10.3% Pulp/Paper 17,206 15,153 13.5%
1,694 1,543 9.8% Scrap Paper 1,025 897 14.3%
7,159 8,786 (18.5)% Pulpwood/Logchips 3,354 3,699 (9.3)%
6,991 6,798 2.8% Lumber/Plywood 6,719 6,115 9.9%
4,648 4,249 9.4% Metal/Scrap 3,569 3,466 3.0%
1,621 1,888 (14.1)% Military/Other Carloads 2,010 2,606 (22.9)%
- ------------- ------------ ---------- ------------
44,798 43,833 2.2% Total 33,883 31,936 6.1%
- ------------- ------------ ---------- ------------
Intermodal & Automotive
1,395 5,771 (75.8)% Automotive 1,156 3,505 (67.0)%
70,389 63,711 10.5% Intermodal 12,357 11,459 7.8%
- ------------- ------------ ---------- ------------
71,784 69,482 3.3% Total 13,513 14,964 (9.7)%
- ------------- ------------ ---------- ------------
233,176 240,708 (3.1)% TOTAL FOR BUSINESS UNITS 127,898 132,662 (3.6)%
7,675 5,781 32.8% Haulage 2,487 2,442 1.8%
(817) (2,062) 60.4% Adjustments (1,025) (1,265) 19.0%
- ------------- ------------ ---------- ------------
240,034 244,427 (1.8)% TOTAL $ 129,360 $ 133,839 (3.3)%
============= ============ ========== ============
Note:
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Kansas City Southern
Consolidated Balance Sheets Preliminary
March 31, 2003 December 31, 2002
---------------- ---------------
(Unaudited)
Assets
Cash $ 64.0 $ 9.0
Accounts receivable 108.8 118.5
Inventories 36.3 34.2
Other current assets 20.8 44.5
---------------- ---------------
Total current assets 229.9 216.2
Investments 430.3 423.1
Properties, net of depreciation 1,339.8 1,337.4
Other assets 29.3 32.1
---------------- ---------------
Total assets $ 2,029.3 $ 2,008.8
================ ===============
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 10.0 $ 10.0
Accounts payable 44.1 47.7
Accrued liabilities 135.7 128.6
---------------- ---------------
Total current liabilities 189.8 186.3
Long-term debt 571.7 572.6
Deferred income taxes 392.4 392.8
Other 103.7 104.2
Stockholders' equity 771.7 752.9
---------------- ---------------
Total liabilities and
stockholders' equity $ 2,029.3 $ 2,008.8
================ ===============