Exhibit 99.1
PRO FORMA FINANCIAL INFORMATION
In April 2003, KCS completed the sale of 400,000 shares of its Series C
Preferred Stock, resulting in net proceeds of approximately $193.0 million.
Annual preferred stock dividends related to these shares are approximately $8.5
million, which will be reflected as a reduction of net earnings in determining
earnings available to common stockholders and earnings per share in periods
following the sale of the Series C Preferred Stock. Additionally, to the extent
that the assumed conversion of these shares into 13,389,121 shares of common
stock would have a dilutive impact on earnings per share, such shares will be
included in the computation of diluted earnings per share in future periods.
In April 2003, KCS and Grupo TMM announced a series of transactions that were
approved by both respective boards of directors, that would, following KCS
shareholder approval and satisfaction of other conditions, place KCSR, Tex-Mex
and TFM under the common control of a single transportation holding company,
NAFTA Rail. Grupo TFM holds an 80% interest in TFM, which holds a 100% interest
in Mexrail. Mexrail wholly-owns Tex-Mex.
Under the terms of the agreement, Multimodal, a subsidiary of Grupo TMM, would
receive 18 million shares of NAFTA Rail representing approximately 22% (20%
voting, 2% subject to voting restrictions) of NAFTA Rail outstanding shares,
$200 million in cash and a potential incentive payment of between $100 million
and $180 million based upon the resolution of certain future contingencies. See
Note 17 of the Notes to Pro Forma Condensed Consolidated Financial Statements
for further information.
On August 23, 2003, Grupo TMM sent a notice to KCS claiming to terminate the
Acquisition Agreement because Grupo TMM shareholders failed to approve the
Acquisition Agreement. Accordingly, while KCS intends to pursue all reasonable
legal means available to it in enforcing the Acquisition Agreement, no assurance
can be given that KCS will be able to consummate the Acquisition. See "Risk
Factors--KCS Risk Factors--Risks Related to Our Business--We may be unable to
complete the Acquisition."
Notwithstanding this uncertainty, the following pro forma condensed consolidated
financial statements are presented to illustrate the impact of the Acquisition
on KCS's historical financial statements and reflect the effect of the various
transactions necessary to consummate the agreements as if the transaction had
occurred on January 1, 2003 and January 1, 2004 for income statement purposes
for the year ended December 31, 2003 and the three months ended March 31, 2004,
respectively, and as of March 31, 2004 for balance sheet purposes. The
historical financial statements of Grupo TFM are prepared under the principles
of International Financial Reporting Standards ("IFRS") and include a
reconciliation between U.S. Generally Accepted Accounting Principles ("US GAAP")
and IFRS. The Grupo TFM historical financial information included in these pro
forma financial statements is reflected under US GAAP and therefore no
reconciliation of financial information between US GAAP and IFRS is required for
these purposes.
The following summarizes selected pro forma financial information of KCS
assuming the transaction acquiring a controlling interest in Grupo TFM had been
completed as of March 31, 2004.
KANSAS CITY SOUTHERN
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2004
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA
ADJUSTMENTS
KCS GRUPO TFM ----------- PRO
HISTORICAL HISTORICAL DEBIT CREDIT FORMA
------------ ----------- ----------- ---------- -----------
ASSETS:
Current Assets:
Cash and cash equivalents $ 188.6 $ 3.1 $ 8.3 (4) $200.0 (4) $ -
Accounts receivable, net 109.1 202.1 3.3 (11) 304.8
Inventories 41.9 17.5 59.4
Other current assets 25.0 12.3 37.3
------------ ----------- ----------- ---------- -----------
TOTAL CURRENT ASSETS 364.6 235.0 8.3 203.3 401.5
------------ ----------- ----------- ---------- -----------
Investments 446.5 7.9 393.4 (1) 61.0
Concession rights and related assets - 1,163.9 29.1 (2,8,10) 6.1 (3) 1,186.9
Properties, net 1,372.0 659.8 2,031.8
Goodwill 10.6 - 10.6
Deferred income taxes and employees statutory
profit sharing - 250.2 250.2
Other assets 31.1 29.2 60.3
------------ ----------- ----------- ---------- -----------
TOTAL ASSETS $2,224.8 $2,346.0 $ 37.4 $602.8 $4,002.3
============ =========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Debt due within one year $ 9.9 $ 186.6 $ 196.5
Accounts and wages payable and accrued
liabilities 176.9 184.0 3.3 (11) 354.5
------------ ----------- ----------- ---------- -----------
TOTAL CURRENT LIABILITIES 186.8 370.6 3.3 - 551.0
------------ ----------- ----------- ---------- -----------
OTHER LIABILITIES:
Long-term debt 564.4 773.0 8.3 (4) 1,345.7
Deferred income taxes 391.7 - 8.8 (10) 400.5
Other liabilities and deferred credits 111.4 30.5 6.1 (3) 135.8
------------ ----------- ----------- ---------- -----------
TOTAL OTHER LIABILITIES 1,067.5 803.5 6.1 17.1 1,882.0
------------ ----------- ----------- ---------- -----------
MINORITY INTEREST - 355.8 - 40.3 (16) 396.1
------------ ----------- ----------- ---------- -----------
STOCKHOLDERS' EQUITY
Preferred stock 6.1 - - - 6.1
Redeemable cumulative convertible perpetual
preferred stock 0.4 - - - 0.4
Common / capital stock 0.6 807.0 807.0 (6) - 0.6
New issue, non-voting common, $. 01 par - - - 0.2 (7) 0.2
Treasury shares and effect on purchase of
subsidiary shares - (222.0) - 222.0 (6) -
Retained earnings 847.4 231.1 231.1 (6) - (7) 847.4
Capital surplus 115.7 - - 202.5 (7) 318.2
Accumulated other comprehensive income (loss) 0.3 - 0.3
------------ ----------- ----------- ---------- -----------
Total stockholders' equity 970.5 816.1 1,038.1 424.7 1,173.2
------------ ----------- ----------- ---------- -----------
------------ ----------- ----------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,224.8 $2,346.0 $1,050.6 $482.1 $4,002.3
============ =========== =========== ========== ===========
See notes to proforma condensed consolidated financial statements.
The following summarizes selected pro forma financial information of KCS
assuming the transaction acquiring a controlling interest in Grupo TFM had been
completed as of January 1, 2004.
KANSAS CITY SOUTHERN
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA
ADJUSTMENTS
KCS GRUPO TFM ----------- PRO
HISTORICAL HISTORICAL DEBIT CREDIT FORMA
---------- ---------- -------- ---------- ----------
REVENUES $147.8 $167.5 $ 315.3
Costs and expenses 117.6 121.0 1.0 (14) 239.6
Depreciation and amortization 12.8 22.2 0.2 (15) 35.2
---------- ---------- -------- ---------- ----------
OPERATING INCOME 17.4 24.3 1.2 - 40.5
Equity in net earnings of unconsolidated affiliates:
Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. 1.3 - 1.3 (9) -
Other 0.1 - 0.1
Interest expense (10.8) (27.9) 0.6 (5) (39.3)
Other income (expense) 1.5 0.1 0.3 (5) 1.3
---------- ---------- -------- ---------- ----------
Income before income taxes 5.3 (3.5) 3.4 - (1.6)
Income tax provision (benefit) 1.9 (7.3) (0.8) (10) - (6.2)
---------- ---------- -------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 3.4 3.8 2.6 - 4.6
MINORITY INTEREST - (0.9) 1.0 (16) - (1.0)
---------- ---------- -------- ---------- ----------
NET INCOME 3.4 2.9 2.7 - 3.6
PREFERRED STOCK DIVIDENDS 2.2 - - (12) 2.2
---------- ---------- -------- ---------- ----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 1.2 $ 2.9 $ 2.7 $ - $ 1.4
---------- ---------- -------- ---------- ----------
BASIC EARNINGS PER COMMON SHARE:
NET INCOME $ 0.02 $ 0.02 (12)
========== ==========
Basic Weighted Average Common shares outstanding (IN THOUS) 62,504 80,504 (13)
---------- ----------
DILUTED EARNINGS PER COMMON SHARE:
NET INCOME $ 0.02 $ 0.02 (12)
========== ==========
Diluted Weighted Average Common shares outstanding (IN THOUS) 63,811 81,811 (13)
---------- ----------
See notes to proforma condensed consolidated financial statements.
The following summarizes selected pro forma financial information of KCS
assuming the transaction acquiring a controlling interest in Grupo TFM had been
completed as of January 1, 2003.
KANSAS CITY SOUTHERN
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2003
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA
ADJUSTMENTS
KCS GRUPO TFM ----------- PRO
HISTORICAL HISTORICAL DEBIT CREDIT FORMA
---------- ---------- -------- ---------- ----------
REVENUES $581.3 $698.5 $1,279.8
Costs and expenses 487.9 503.7 4.2 (14) 995.8
Depreciation and amortization 64.3 87.2 0.8 (15) 152.3
---------- ---------- -------- ---------- ----------
OPERATING INCOME 29.1 107.6 5.0 - 131.7
Equity in net earnings of unconsolidated affiliates:
Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. 12.3 - 12.3 (9) -
Other (1.3) - (1.3)
Interest expense (46.4) (111.1) 0.1 (5) (157.6)
Other income (expense) 6.8 (13.8) 1.2 (5) (8.2)
---------- ---------- -------- ---------- ----------
Income before income taxes 0.5 (17.3) 18.6 - (35.4)
Income tax provision (benefit) (2.8) (51.5) (2.4) (10) - (56.7)
---------- ---------- -------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 3.3 34.2 16.2 - 21.3
MINORITY INTEREST - (6.9) 1.4 (16) - (8.3)
---------- ---------- -------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 3.3 27.3 17.6 - 13.0
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF INCOME TAXES 8.9 - - - 8.9
---------- ---------- -------- ---------- ----------
NET INCOME 12.2 27.3 17.6 - 21.9
PREFERRED STOCK DIVIDENDS 5.9 - 2.8 (12) 8.7
---------- ---------- -------- ---------- ----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 6.3 $27.3 $ 20.4 $ - $ 13.2
---------- ---------- -------- ---------- ----------
BASIC EARNINGS PER COMMON SHARE:
INCOME BEFORE ACCOUNTING CHANGE $ (0.04) $ 0.05 (12)
========== ==========
NET INCOME $ 0.10 $ 0.17 (12)
========== ==========
Basic Weighted Average Common shares outstanding (IN THOUS) 61,725 79,725 (13)
---------- ----------
DILUTED EARNINGS PER COMMON SHARE:
INCOME BEFORE ACCOUNTING CHANGE $ (0.04) $ 0.05 (12)
========== ==========
NET INCOME $ 0.10 $ 0.16 (12)
========== ==========
Diluted Weighted Average Common shares outstanding (IN THOUS) 61,725 81,082 (13)
---------- ----------
See notes to proforma condensed consolidated financial statements.
KANSAS CITY SOUTHERN
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: REMOVAL OF THE EQUITY INVESTMENT IN GRUPO TFM & MEXRAIL
Pursuant to the Acquisition Agreement, Kansas City Southern (the "Company" or
"KCS") would acquire a controlling interest in Grupo Transportacion Ferroviaria
Mexicana, S.A. de C.V. ("Grupo TFM"), resulting in the full consolidation of
Grupo TFM's balance sheet into NAFTA Rail, successor to KCS. Accordingly, the
equity investment as of March 31, 2004 reflected on the Company's condensed
consolidated balance sheet would be eliminated. KCS and Grupo TMM are in dispute
over Grupo TMM's attempt to terminate the agreement entered into on April 20,
2003 by KCS and Grupo TMM and other parties under which KCS would acquire
control of TFM.
On May 9, 2003, the Company closed on its 51% investment in Mexrail, Inc.
("Mexrail") for a total of $32.7 million. The Mexrail shares were placed in a
voting trust while awaiting the approval of the Surface Transportation Board
("STB"). On August 29, 2003, KCS received a demand by TFM to repurchase from KCS
shares of Mexrail sold to KCS in May 2003. On September 23, 2003, the STB issued
a decision finding no need to rule on the transfer back to TFM of the 51%
interest in Mexrail that KCS acquired on May 9, 2003. On September 30, 2003, TFM
repurchased the Mexrail shares from KCS at the price KCS paid TFM in May 2003.
Accordingly, Grupo TFM continues to consolidate the balance sheet and operating
results of Mexrail.
NOTE 2: CREATION OF IDENTIFIABLE INTANGIBLE ASSETS
Additional identifiable intangibles or goodwill may result from the Grupo TFM
acquisition. The current value of the consideration to obtain a controlling
interest in Grupo TFM exceeds the current book value of the underlying net
assets by approximately $7.0 million, which is reflected on the condensed
consolidated pro forma balance sheet as an addition to concession assets. The
Company has not completed a fair value appraisal or any associated allocation of
excess purchase price to the fair value of tangible assets as of this date. At
the time those processes are completed, the allocation of the purchase price
could change and may include certain identifiable intangibles assets, such as
customer contracts, customer relationships or similar items. For purposes of
these pro forma financial statements, the Company has assumed the difference in
value will be assigned to concession assets.
NOTE 3: RECOGNITION OF THE DEFERRED GAIN ON THE SALE OF MEXRAIL
On April 1, 2002, the Company sold its 49% interest in Mexrail to TFM for $31.4
million resulting in a pre-tax gain of $4.4 million, which was reported in the
Company's Consolidated Statement of Income for the year ended December 31, 2002.
In addition, the transaction resulted in the recognition of a deferred gain, of
which $6.1 million remained unamortized as of March 31, 2004. Assuming the
transaction contemplated had occurred on March 31, 2004, the remaining
unamortized gain on the April 2002 Mexrail transaction would be eliminated from
the Company's long-term liabilities and reflected with an offsetting adjustment
to concession assets as part of the transaction. Also see Note 2.
NOTE 4: TRANSACTION FINANCING
As described above, part of the transaction consideration includes a payment of
$200 million. This payment may be made by the Company, at its option, in a
combination of additional common stock issuance to Grupo TMM and cash. For
purposes of these pro forma financial statements, the Company has assumed that
the entire payment of $200 million will be made in cash with a combination of
the net proceeds of the sale of 4.25% Redeemable Cumulative Convertible
Perpetual Preferred Stock, Series C ("Convertible Preferred Stock") of
approximately $193.0 million, completed in April 2003, with the remainder funded
from proceeds from borrowings under the Company's credit facility. The pro forma
financial statements presented herein reflect the effect of these transactions.
Also see Note 7.
The Convertible Preferred Stock is redeemable at the option of a holder only in
the event of a "fundamental change", which is defined as "any transaction or
event (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) in connection with which all or substantially all of the Company's
Common stock is exchanged for, converted into, acquired for or constitutes
solely the right to receive common stock that is not listed on a United States
national securities exchange or approved for quotation on the Nasdaq National
Market or similar system. The practical effect of this provision is to limit the
Company's ability to eliminate a holder's ability to convert the Convertible
Preferred Stock into common shares of a publicly traded security through a
merger or consolidation transaction. In no other circumstances is the Company
potentially obligated to redeem the Convertible Preferred Stock for cash.
Accordingly, since the Company is in a position to control a "fundamental
change" the Convertible Preferred Stock is classified as permanent equity
capital.
NOTE 5: ADJUSTMENTS TO INTEREST INCOME AND INTEREST EXPENSE
The proforma condensed consolidated income statement for the year ended December
31, 2003 and the three months ended March 31, 2004 reflect a $1.2 million and
$0.3 million reduction to interest income, respectively. These adjustments
reflect the fact that, assuming the Acquisition had been consummated as of the
beginning of each proforma income statement presented, the Company's cash
balance that had arisen from the issuance of the Convertible Preferred Stock
would have been used to fund the $200 million payment described above, and thus,
interest income relating to that cash balance would not have been realized.
Similarly, had the Acquisition been consummated as of the beginning of each
proforma income statement period presented, cash would not have been available
to pay down $49.3 million of debt during December 2003 and $38.5 million during
March 2004. Therefore, an adjustment has been made to the pro forma condensed
consolidated income statements to increase interest expense by $0.1 million for
the year ended December 31, 2003 and $0.6 million for the three months ended
March 31, 2004.
NOTE 6: ELIMINATION OF GRUPO TFM STOCKHOLDERS' EQUITY
As a result of NAFTA Rail obtaining a controlling interest in Grupo TFM, its
assets and liabilities would be consolidated with NAFTA Rail. Accordingly, Grupo
TFM's stockholders' equity amounts would be eliminated in the consolidation
process.
NOTE 7: ISSUANCE OF NEW SECURITIES
As noted above, Grupo TMM will receive as consideration for the transaction 18
million shares of NAFTA Rail. This pro forma adjustment reflects the addition to
stockholders' equity of a total of $202.7 million of equity based upon 18
million common shares as part of the initial agreement and assuming a stock
price of $11.26 per share. The assumed stock price was derived by averaging the
closing price of the Company's common stock five days before and five days after
the announcement of the transaction on April 21, 2003. The total allocation of
the new capital is $0.2 million, which is comprised of 18 million shares of new
non-voting common stock with a par value of $.01 per share and $202.5 million,
which is reflected as capital surplus representing the value of the stock issued
in excess of par. Note the cost of the purchase would have increased by
approximately $56 million if a current stock price of $13.97 per share was used.
This stock price of $13.97 was determined by averaging the closing price of the
Company's common stock five days before and five days subsequent to March 31,
2004. In the event the terms of the Acquisition Agreement are substantially
modified, the actual purchase price and resulting purchase accounting would be
adjusted to reflect current prices.
In April 2003, the Company issued 400,000 shares of $1.00 par value 4.25%
Convertible Preferred Stock resulting in net proceeds of approximately $193.0
million (net of fees of approximately $7.0 million). This transaction is
reflected in the accompanying KCS historical consolidated balance sheet as of
March 31, 2004 as new capital of $0.4 million, capital surplus of $110.9 million
and retained earnings of $81.7 million.
Holders of the Convertible Preferred Stock are entitled to receive any dividends
declared by the Company's
board of directors at the rate of 4.25% per annum, payable quarterly in arrears
on February 15, May 15, August 15 and November 15 of each year, commencing
August 15, 2003. The dividends are cumulative from the date of initial issuance
and accumulated but unpaid dividends cumulate dividends at the annual rate of
4.25%. In addition, the Company will also pay "special dividends" if it fails to
comply with certain obligations under a registration rights agreement. A holder
may convert its Convertible Preferred Stock into shares of the Company's Common
Stock only under certain circumstances, relating to: (i) the trading price of
the Company's Common Stock; (ii) a credit rating downgrade; (iii) the trading
price per share of the Convertible Preferred Stock; (iv) redemption of the
Convertible Preferred Stock; and (v) the occurrence of certain corporate
transactions.
The conversion rate may be adjusted upon the occurrence of certain events.
Subject to certain conditions, on or after May 20, 2008, the Company will have
the option to redeem some or all of the shares of Convertible Preferred Stock at
a redemption price of 100% of the liquidation preference, plus accumulated and
unpaid dividends, if any, to the redemption date. In the event of a "fundamental
change," the Company may be required to purchase shares of the Convertible
Preferred Stock at the option of the holder at a price equal to 100% of the
liquidation preference plus any accumulated and unpaid dividends, including
special dividends, if any, to, but excluding, the purchase date.
The Company may elect to pay the purchase price in cash, Common Stock, or a
combination of cash and Common Stock. If the Company elects to pay all or a
portion of the purchase price in shares of Common Stock, the Common Stock will
be valued at a specified discount. The Company agreed to file with the
Securities and Exchange Commission a shelf registration statement with respect
to the resale of the Convertible Preferred Stock and the Common Stock issuable
upon conversion of the Convertible Preferred Stock and to keep the shelf
registration statement effective for a specified period of time. In addition,
the Company will be required to pay to holders of the Convertible Preferred
Stock liquidated damages in the form of special dividends or liquidated damages
payments, as applicable, if the Company fails to register the Convertible
Preferred Stock and the Common Stock issuable upon conversion of the Convertible
Preferred Stock within, and to keep such registration statement effective
during, the specified time periods.
NOTE 8: ELIMINATION OF EQUITY BASIS DIFFERENCE IN GRUPO TFM
The calculation of the Company's net equity in Grupo TFM's underlying net assets
utilizing the Company's current ownership percentage of approximately 46.6% as
compared to the amount recorded as an investment as of March 31, 2004 of
approximately $393.4 million results in a basis difference of approximately
$13.4 million. This difference in basis results from a number of factors, the
most significant of which is the changing ownership interest in Grupo TFM, which
produced a difference in investment basis that occurred when TFM acquired the
Mexican Government's 24.6% interest in Grupo TFM during 2002. This basis
difference would have been amortized over time; however, due to the contemplated
transaction wherein the Company will obtain a controlling interest in Grupo TFM,
the remaining basis difference will be recognized at the date of the
transaction. The pro forma financial statements as stated herein recognize the
elimination of this basis difference as an addition to concession assets on the
condensed consolidated balance sheet. See Note 2.
NOTE 9: ELIMINATION OF EQUITY EARNINGS FROM GRUPO TFM
Assuming the contemplated transaction would have been consummated on January 1,
2003 or January 1, 2004, as applicalbe, the Company would have consolidated
earnings of Grupo TFM and accordingly, the equity in earnings of Grupo TFM would
be eliminated.
NOTE 10: PROVISION FOR INCOME TAXES / DEFERRED INCOME TAXES
The pro forma condensed consolidated income statement reflects the income tax
impacts of the pro forma adjustments utilizing an income tax rate of 38.25%, but
excluding any consideration of the equity earnings of Grupo TFM, since the
Company has not previously provided a tax provision on these amounts.
In addition, the recognition of additional identifiable intangible assets in the
form of concession assets creates an additional deferred tax liability
associated with those assets. The pro forma condensed consolidated balance sheet
as of March 31, 2004 recognizes the deferred tax liability of approximately $8.8
million using the tax rate noted above.
NOTE 11: CONSOLIDATION ELIMINATIONS
These pro forma adjustments reflect the elimination of intercompany amounts
between the Company, Grupo TFM and Mexrail, assuming the three entities were
consolidated for financial reporting purposes.
NOTE 12: COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share for the purposes of the pro forma consolidated income
statement reflect pro forma consolidated net income, less dividends on the
Company's $25 par preferred stock of approximately $242,000 annually, less
dividends on the Company's $.01 par Convertible Preferred Stock of approximately
$8.5 million annually, divided by the weighted average outstanding shares as
described in Note 13 below. Note the proforma adjustment includes only $2.8
million for preferred dividends as the historical financial statements of the
Company reflect $5.7 million of dividends related to the Convertible Preferred
Stock for the year ended December 31, 2003 and $0.2 million related to the $25
par preferred stock.
Diluted earnings per share for the purposes of the pro forma consolidated
condensed income statements reflect pro forma consolidated net income, less
dividends on the Company's $25 par preferred stock of approximately $242,000
annually, divided by the weighted average diluted outstanding shares as
described in Note 13 below.
The assumed conversion of the Company's $1.00 par Convertible Preferred Stock
(convertible into 13,389,121 common shares) would have been anti-dilutive to the
pro forma diluted earnings per share computations in each of the periods
presented. Accordingly, conversion of preferred shares into common shares was
not assumed and these shares were not included in the pro forma diluted earnings
per share computations. Total preferred dividends, however, were subtracted from
net income in the computation of the pro forma diluted earnings per share.
NOTE 13: WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average basic shares outstanding are calculated beginning with
Company historical average basic shares (61,725,000 for the year ended December
31, 2003 and 62,504,000 for the three months ended March 31, 2004) plus
18,000,000 assumed shares to be issued as described in Note 7 above.
For the three months ended March 31, 2004, the weighted average diluted shares
outstanding are calculated beginning with Company historial average diluted
shares of 63,811,000 plus 18,000,000 assumed shares to be issued as described in
the Note 7 above, but excluding the 13,389,121 shares assuming full conversion
of the Convertible Preferred Stock into common utilizing a conversion rate of
33.4728 for each share of preferred to common. As stated in Note 12 above, the
inclusion of the 13,389,121 shares would have had an anti-dilutive effect on the
computations of pro forma dilutive earnings per share.
For the year ended December 31, 2003, the weighted average diluted shares
outstanding are calculated beginning with Company historical average diluted
shares of 61,725,000 plus 1,375,000 shares assumed for the conversion of stock
options that were treated as anti-dilutive for the calculation of the historical
diluted earnings per share computation but would be dilutive under the pro forma
dilutive earnings per share computation plus 18,000,000 assumed shares to be
issued as described in Note 7 above, but excluding the
13,389,121 shares assuming full conversion of the Convertible Preferred Stock
into common utilizing a conversion rate of 33.4728 for each share of preferred
to common.
NOTE 14: CONSULTING AGREEMENT
In connection with the transaction, the Company intends to enter into a
consulting agreement with a consulting firm ("Consultant") controlled by Jose
Serrano Segovia with an initial term of three years. In consideration of
services provided, Consultant will receive an annual fee of $0.6 million in
cash, plus up to 2.1 million shares of restricted common stock of the Company.
The restricted stock vests based upon the achievement of certain events as
defined in the consulting agreement and/or ratably over the term of the
agreement in certain circumstances. The pro forma condensed consolidated
financial statements herein reflect the effect of these transactions as follows.
The restricted stock will be accounted for as compensation expense based upon
the assumed fair market value at date of vesting and expensed in the period the
stock vests.
The annual fee is reflected as additional operating costs and expenses of $0.6
million for the year ended December 31, 2003 and $0.1 million for the three
months ended March 31, 2004. An initial 750,000 shares of restricted stock vest
ratably over the term of the agreement. For purposes of the pro forma statements
of income, the Company has assumed a calculated value of stock based upon the
stock price of $14.49 for the year ended December 31, 2003 and $13.97 for the
three months ended March 31, 2004, which are the stock prices derived by
averaging of the closing price of the Company's common stock five days before
and five days after December 31, 2003 and March 31, 2004, respectively. The
resulting amounts are reflected as compensation expense and amortized on a
straight line basis over three years. The additional compensation expense is
approximately $3.6 million for the year ended December 31, 2003 and $0.9 million
for the three months ended March 31, 2004. The Company recognizes that the
prospective accounting for these shares will result in variable accounting
treatment and the resulting expense will be dependent upon the Company's stock
price at the actual time the stock vests. Since the Company cannot predict the
future price of the Company's stock, the pro forma adjustments assume the stock
prices as noted above.
The consulting agreement provides for additional vesting of restricted stock
totaling 1,350,000 shares, in increments of 525,000, 125,000 and 700,000 shares
depending on the achievement of certain events ("contingent shares"). These
events include the completion of an agreement with TFM labor unions and events
related to the VAT tax issue. While the Company cannot predict the ultimate
timing of achievement of these events and thus their pro forma effect on the
adjusted financial statements, the Company would intend to record compensation
expense at the time and in the quarter or annual period in which these shares
vest, at then fair value as determined by the Company's stock price. No
adjustments for these contingent shares have been made in the attached pro forma
financial statements due to the uncertainty of their realization and vesting.
The calculated value of these contingent shares is approximately $18.9 million
based upon the stock price of $13.97 as noted above. The actual impact to the
Company's financial statements related to the restricted stock is dependent upon
the price of the Company's stock at the time the restricted stock vests and
which the Company cannot predict. A $1.00 per share change, either higher or
lower, in the Company's stock price at the time the restricted stock vests could
result in higher or lower compensation expense of approximately $1.4 million,
assuming all 1.35 million contingent shares vested at the same time.
NOTE 15: AMORTIZATION OF IDENTIFIABLE INTANGIBLES - CONCESSION ASSETS
The transactions as described above result in a net addition to concession
assets of approximately $23.0 million, including $8.8 million of deferred income
tax impact described in Note 10 above. For purposes of the pro forma income
statements presented herein, this balance is amortized over the remaining
amortizable life of the concession assets of 33 years. This results in
additional amortization expense of approximately $0.8 million for the year ended
December 31, 2003 and $0.2 million for the three months ended March 31, 2004.
NOTE 16: MINORITY INTEREST
As previously reported, TFM repurchased the Mexican Government's 24.6% interest
in Grupo TFM in June 2002. Since the purchase of the Mexican Government 24.6%
interest was completed by Grupo TFM's subsidiary, TFM, and the fact that the
Mexican Government also continues to maintain a 20% minority interest in TFM,
the Mexican Government retained an indirect 4.9448% minority interest in Grupo
TFM through its ownership of TFM. The pro forma adjusting entries to minority
interest reflect the continuing indirect minority ownership in Grupo TFM by the
Mexican Government for the periods indicated. For the pro forma condensed
consolidated balance sheet as of March 31, 2004, an additional $40.3 million of
minority interest was added to the pro forma balances representing 4.9448% of
Grupo TFM's net assets. For the pro forma condensed consolidated income
statements, the amount of minority interest in Grupo TFM's US GAAP net income
was computed for the periods presented resulting in approximately $1.4 million
for the year ended December 31, 2003 and $0.1 million for the three months ended
March 31, 2004.
NOTE 17: VAT RELATED MATTERS
The impact of any settlement of the VAT dispute between TFM and the Mexican
Government on the Company's consolidated financial statements will be dependent
upon the timing and amount of any such settlement.
It is expected that the value of any consideration received from the Mexican
Government from the settlement of the VAT dispute will be recorded as income by
TFM and Grupo TFM, net of related income taxes. If a binding agreement is
reached before the consummation of the Acquisition, the Company would record its
proportionate share of any such gain through its equity in earnings of Grupo
TFM, based upon its existing ownership of 46.6%. If the Acquisition is
subsequently consummated, the proceeds from any settlement received and retained
by TFM, including the impacts of any additional consideration as may become
payable as discussed below, would impact the Company's allocation of the
purchase price to assets acquired and liabilities assumed, likely impacting
amounts otherwise allocable to long-lived assets, including intangibles, as
presented herein.
If the VAT dispute were settled following the consummation of the Acquisition,
the Company would record in income its proportionate share of any such gain
through its consolidation of the operating results of Grupo TFM, based upon its
pre-acquisition ownership interest of 46.6%. The portion of any gain
attributable to the
acquired interest of Grupo TMM would likely constitute a pre-acquisition
contingency and not impact the Company's operating results, but rather would be
considered in the allocation of the purchase price to assets acquired and
liabilities assumed, likely reducing amounts otherwise allocable to long-lived
assets, including intangibles, as presented herein.
Pursuant to the terms of the Acquisition, if the value of the consideration
received by TFM in connection with the settlement of the VAT dispute exceeds the
amount payable pursuant to the Put Agreement in place between the Mexican
Government, Grupo TFM, Grupo TMM and the Company, whereby the Mexican Government
may put its ownership in TFM to the other parties, additional amounts will be
payable by the Company or TFM to Grupo TMM, depending on the amount of such
excess. Such payment would range from $100 million to $180 million. Any such
payment would constitute additional consideration for the purchase of Grupo
TMM's interest in Grupo TFM and as such would likely increase amounts allocable
to long-lived assets, including intangibles, as presented herein.
NOTE 18: CONSIDERATION OF THE MEXICAN GOVERNMENT'S PUT RIGHTS REGARDING ITS 20%
MINORITY INTEREST IN TFM
The provisions of the "Put Agreement" obligate Grupo TFM or KCS to purchase the
Mexican Government's 20% minority interest in TFM under certain conditions. As
disclosed in the Company's Form 10-Q for the three months ended March 31, 2004,
the total estimated purchase price of the Mexican Government's minority interest
was approximately $478 million. The calculation of the purchase price is
dependent upon inflationary factors of the Mexican economy and foreign exchange
rate factors, which the Company can not predict. While the Company along with
Grupo TFM are currently exploring financing alternatives, the source and cost
any such financing for this obligation is not reasonably determinable at this
time . In addition, the acquisition of the Mexican Government's interest and
funding of this obligation could be affected by the outcome and settlement of
TFM's VAT dispute with the Mexican Government.
Due to the uncertainties noted above, the accompanying pro forma financial
statements do not reflect the impact of the acquisition of additional shares of
TFM which could arise under the Put Agreement. If, following the consummation of
the acquisition of Grupo TFM shares from Grupo TMM, the Company acquires the
remaining shares of TFM held by the Mexican Government pursuant to the Put
Agreement, the accompanying pro forma financial statements would be generally
impacted as follows. The excess of the purchase price over the carrying value of
minority interest would be allocated to the assets and liabilities of Grupo TFM,
based upon their fair values, with the likely impact being an increase to
recorded amounts for long-lived assets, including intangibles, as presented
herein. Additionally, the minority interest in earnings of Grupo TFM would be
eliminated from the pro forma income statement, offset by the costs of any debt
financing incurred to finance the purchase and any increases in depreciation or
amortization expense relating to the application of purchase accounting.