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, 2004
KANSAS CITY SOUTHERN
(Exact name of company as specified in its charter)
DELAWARE 1-4717 44-0663509
(State or other (Commission file (IRS Employer
jurisdiction of incorporation) number) 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, 2004 entitled, "Kansas City Southern First
Quarter Results Reflect Improved Domestic Performance,"
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 12. Results of Operations and Financial Condition.
Kansas City Southern ("KCS" or "Company") is furnishing under Item 12 of this
Current Report on Form 8-K the information included as Exhibit 99.1 and Exhibit
99.2 of this report. Exhibit 99.1 is the Company's press release, dated April
29, 2004, announcing KCS's first quarter earnings and operating results.
Included in Exhibit 99.2 are schedules regarding certain financial information
discussed during the Company's first quarter 2004 conference call.
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: April 30, 2004 By: /s/ Ronald G. Russ
Ronald G. Russ
Executive Vice President and Chief Financial Officer
EXHIBIT 99.1
KANSAS CITY SOUTHERN PRESS RELEASE
Cathedral Square - 427 West 12th Street - P.O. Box 219335
Kansas City, Missouri 64121-9335 NYSE SYMBOL: KSU
Date: April 29, 2004
Media Contact: William H. Galligan 816/983-1551
William.h.galligan@kcsr.com
Kansas City Southern First Quarter Results Reflect Improved Domestic Performance
Kansas City, MO. Kansas City Southern (KCS or Company) (NYSE: KSU) reported
operating income of $17.4 million in the first quarter of 2004, a
substantial gain over the $6.8 million reported in the first quarter of
2003. However, these gains were offset by lower equity earnings from Grupo
Transportacion Ferroviaria Mexicana, S.A. de C.V. (Grupo TFM), debt
retirement costs, and higher tax expense. KCS consolidated net income for
first quarter of 2004 was $3.4 million, which after preferred stock
dividends amounted to $0.02 per diluted common share, compared with net
income of $13.6 million, which after preferred stock dividends amounted to
$0.22 per diluted common share. First quarter of 2003 net income included a
one-time benefit of $8.9 million ($0.14 per diluted share) related to the
cumulative effect of a change in accounting method.
The $10.6 million increase in KCS domestic consolidated operating income
resulted from a $7.6 million increase (5.4%) in consolidated revenues, and
a $3.0 million (2.3%) reduction in costs and expenses quarter to quarter.
The reduction in consolidated costs and expenses was due primarily to lower
casualty and insurance expense, depreciation expense, and equipment costs.
During the first quarter of 2004, revenues from the Company's principal
operating subsidiary, The Kansas City Southern Railway (KCSR) increased
$8.2 million, or 5.9%, compared to the first quarter of 2003. This increase
was primarily driven by an 11% increase in freight revenues in the first
quarter 2004 compared with first quarter 2003. Agriculture & minerals
commodity group revenues increased by 22.3% quarter to quarter led by solid
growth in both domestic and export grain traffic. Paper & forest products
revenues grew by 8.4%, reflecting strong gains in pulp and paper, and
lumber. Intermodal & automotive revenues increased by 8.2% based primarily
on strong traffic growth on KCSR's strategic Meridian Speedway. Chemical &
petroleum products continued to rebound and posted a 2.6% increase in first
quarter 2004 compared to first quarter of 2003. Coal was the only commodity
group recording a decrease with revenues down 9.5% almost totally due to
maintenance outages at two of the principal coal-burning electric utilities
served by KCSR. In 2003, these outages occurred during the second quarter
rather than the first. During April 2004, volume at those plants had
returned to normal levels.
KCSR's first quarter of 2004 total operating expenses decreased $3.7
million (3.9%) from the comparable period in 2003. Decreases in casualty
and insurance ($3.0 million), material and supplies ($1.9 million), and
equipment costs ($1.1 million) were the primary factors driving the
improvements in operating expenses. Additionally, depreciation expense
decreased $3.1 million in the first quarter of 2004, primarily as a result
of changes in estimates related to a recently completed KCS depreciation
study, which was approved by the Surface Transportation Board. Partially
offsetting these positive results was a
$2.0 million (15.9%) increase in fuel expenses caused by persistently high
fuel prices. KCSR's operating expenses, as well as its yields on its
freight revenue, have benefited from sustained excellent operating metrics.
KCSR continues to rank among the best in the industry in terms of the
primary publicly reported performance standards of average train velocity,
average terminal dwell time, and cars on-line. Higher
revenues, lower expenses, and excellent service performance have combined
to improve KCSR's operating ratio to 84% for the first quarter of 2004
compared with 93.3% in the first quarter of 2003.
For KCS on a consolidated earnings basis, the impact of higher operating
profit for first quarter 2004 over comparable 2003 was dampened by lower
equity earnings from Grupo TFM, which decreased approximately $5.6 million
quarter to quarter. Grupo TFM's first quarter revenues were slightly lower
($1 million) than comparable 2003, though revenues and volumes strengthened
during March 2004. The revenue impact of the continuing weak North American
automobile market was offset by solid gains in chemical and petrochemical
businesses. Grupo TFM's operating expenses were relatively flat compared to
first quarter 2003 despite a $2 million increase in fuel expense. The
primary factor in reduced equity earnings for Grupo TFM this quarter was a
$7.3 million deferred tax benefit (calculated under U.S. GAAP) compared to
a $23 million benefit in the first quarter of 2003, a $15.7 million
reduction.
Diluted earnings per share information:
Earnings (loss) per share information (1):
First Quarter
---------------------------
2004 2003
----------- ------------
U.S. Operations $ 0.06 $ 0.03
Grupo TFM and PCRC (including allocated interest), preliminary (0.04) 0.05
----------- ------------
Income (loss) before cumulative effect of accounting change 0.02 0.08
Cumulative effect of accounting change, net of income taxes --- 0.14
----------- ------------
Net Income (loss) $ 0.02 $ 0.22
----------- ------------
Also impacting quarter-to-quarter net income comparisons is a one-time
favorable benefit of $8.9 million (net of income taxes) taken in the first
quarter of 2003 relating to the cumulative effect arising from a required
change in the method of accounting for removal costs of certain track
structure assets. In addition, during the first quarter of 2004, KCS
recorded a $2.4 million reduction in casualty and insurance expenses
related to insurance settlements. Offsetting this were $4.2 million in debt
retirement costs as a result of the write-off of unamortized debt issuance
costs associated with early debt retirement following the March 30, 2004
placement of a new $250 million senior-secured credit facility, and a $2.1
million increase in the provision for doubtful accounts to increase the
Company's bad debt reserves.
---------
(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.
Comments from the Chairman
Michael R. Haverty, KCS's Chairman, President and Chief Executive
Officer stated, "We are pleased that the positive revenue growth, the
operating performance improvements, and the stringent cost management
experienced at KCSR in the fourth quarter of 2003 continued during the
first quarter of 2004. Additionally, four of KCSR's five commodity groups
achieved growth, with the fifth, coal, affected by regularly scheduled
maintenance outages at key utility plants served rather than changed market
conditions. While a stronger economy has provided opportunities for some
new and expanded markets, the primary catalysts for growth have been KCSR's
much improved operating performance and customer service.
"Although disappointed in lower equity earnings from Grupo TFM, we fully
recognize that the decrease in the contribution level to KCS is primarily
the result of accounting for deferred taxes and the weakness of the Mexican
peso versus the U.S. dollar rather than weakness in the TFM rail franchise.
We are encouraged that TFM's business strengthened toward the end of the
quarter, and that it has successfully brought on new business to replace
that temporarily lost because of a weak North American automobile market.
The 19% increase in cross border carloadings between KCSR and TFM
underlines our continued commitment to NAFTA-related traffic and the
strength of the market."
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 the "Risk Factors" and the
"Cautionary Information" sections of the Company's Form 10-K for the
year-ended December 31, 2003 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.
Kansas City Southern
Consolidated Statements of Income
(dollars in millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
-------------------------------
2004 2003
--------------- -------------
Revenues $ 147.8 $ 140.2
Costs and expenses
Compensation and benefits 50.8 50.5
Purchased services 15.6 15.1
Fuel 14.8 12.8
Equipment costs 13.0 14.0
Depreciation and amortization 12.8 15.9
Casualties and insurance 5.7 8.1
Other leases 2.7 2.5
Other 15.0 14.5
--------------- -------------
Total costs and expenses 130.4 133.4
Operating income 17.4 6.8
Equity in net earnings of unconsolidated affiliates
Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (preliminary) 1.3 6.9
Other 0.1 0.1
Interest expense (10.8) (11.5)
Debt retirement costs (4.2) -
Other income 1.5 1.3
--------------- -------------
Income before income taxes and
cumulative effect of accounting change 5.3 3.6
Income tax provision (benefit) 1.9 (1.1)
--------------- -------------
Income before cumulative effect of accounting change 3.4 4.7
Cumulative effect of accounting change, net of income taxes - 8.9
--------------- -------------
Net income $ 3.4 $ 13.6
Preferred stock dividends 2.2 0.1
--------------- -------------
Net income available to Common shareholders $ 1.2 $ 13.5
=============== =============
Per Share Data
------------------------------------------------------------------------------------------------------------------------------------
Basic weighted average Common shares outstanding (in thousands) 62,504 61,427
Basic earnings per Common share
Income before cumulative effect of accounting change $ 0.02 $ 0.08
Cumulative effect of accounting change - 0.14
--------------- -------------
Net income $ 0.02 0.22
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average Common shares outstanding (in thousands) 63,811 62,863
Diluted earnings per Common share
Income before cumulative effect of accounting change $ 0.02 $ 0.08
Cumulative effect of accounting change - 0.14
--------------- -------------
Net income $ 0.02 $ 0.22
------------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 99.2
Kansas City Southern
Operating Statements
Dollars in Millions
First Quarter First Quarter Year Ended
2004 2003 2003
---------------------- --------------------- ---------------------
Revenues
Freight Revenue $ 99.3 $ 88.9 $ 379.2
Intermodal and Automotive Revenue 14.6 13.5 59.1
Unit Coal Revenue 21.6 23.9 90.9
Haulage Revenue 2.6 2.5 10.5
Other Revenue 9.7 11.4 41.6
---------------------- --------------------- ---------------------
Total Revenues 147.8 140.2 581.3
---------------------- --------------------- ---------------------
Operating Expenses
Compensation and Benefits 50.8 50.5 197.8
Purchased Services 15.6 15.1 63.5
Fuel 14.8 12.8 47.4
Material and Supplies 5.5 7.4 26.9
Casualties & Insurance 5.7 8.1 56.4
Equipment Costs 13.0 14.0 57.4
Other 5.7 3.6 13.9
---------------------- --------------------- ---------------------
Net Operating Expenses 111.1 111.5 463.3
---------------------- --------------------- ---------------------
Fixed Expenses
Other lease 2.7 2.5 9.8
Depreciation 12.8 15.9 64.3
Taxes (Other Than Income) 3.8 3.5 14.8
---------------------- --------------------- ---------------------
Total Fixed Expenses 19.3 21.9 88.9
---------------------- --------------------- ---------------------
Total Expenses 130.4 133.4 552.2
---------------------- --------------------- ---------------------
Operating Income $ 17.4 $ 6.8 $ 29.1
====================== ===================== =====================
Note:
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Kansas City Southern Railway
Carloadings By Commodity - First Quarter 2004
Dollars in Thousands
Carloadings Revenue
First Quarter % First Quarter %
-------------------------- ------------------------
2004 2003 Change 2004 2003 Change
------------ ----------- ------- ----------- ----------- ---------
Coal
47,857 46,480 3.0% Unit Coal $ 21,557 $ 23,891 (9.8)%
682 658 3.6% Other Coal 364 342 6.4%
------------ ----------- ----------- -----------
48,539 47,138 3.0% Total 21,921 24,233 (9.5)%
------------ ----------- ----------- -----------
Chemical & Petroleum Products
1,455 1,414 2.9% Agri Chemicals 911 953 (4.4)%
4,011 3,664 9.5% Gases 4,022 3,563 12.9%
7,042 5,307 32.7% Organic 6,397 5,430 17.8%
5,058 5,634 (10.2)% Inorganic 5,344 5,823 (8.2)%
13,603 14,440 (5.8)% Petroleum 9,950 9,465 5.1%
4,511 5,552 (18.8)% Plastics 5,327 5,919 (10.0)%
------------ ----------- ----------- -----------
35,680 36,011 (0.9)% Total 31,951 31,153 2.6%
------------ ----------- ----------- -----------
Agriculture and Minerals
12,475 11,291 10.5% Domestic Grain 10,335 8,673 19.2%
7,490 5,278 41.9% Export Grain 7,115 4,390 62.1%
7,099 7,615 (6.8)% Food Products 6,052 6,112 (1.0)%
6,909 5,678 21.7% Ores and Minerals 3,994 3,172 25.9%
4,029 3,583 12.4% Stone, Clay & Glass 3,231 2,769 16.7%
------------ ----------- ----------- -----------
38,002 33,445 13.6% Total 30,727 25,116 22.3%
------------ ----------- ----------- -----------
Paper & Forest Products
23,284 22,685 2.6% Pulp/Paper 18,791 17,206 9.2%
1,826 1,694 7.8% Scrap Paper 1,142 1,025 11.4%
6,542 7,159 (8.6)% Pulpwood/Logs/Chips 2,922 3,354 (12.9)%
8,105 6,991 15.9% Lumber/Plywood 7,939 6,719 18.2%
4,365 4,648 (6.1)% Metal/Scrap 3,588 3,569 0.5%
2,129 1,621 31.3% Military/Other carloads 2,334 2,010 16.1%
------------ ----------- ----------- -----------
46,251 44,798 3.2% Total 36,716 33,883 8.4%
------------ ----------- ----------- -----------
Intermodal & Automotive
1,079 1,395 (22.7)% Automotive 871 1,156 (24.7)%
79,561 70,389 13.0% Intermodal 13,756 12,357 11.3%
------------ ----------- ----------- -----------
80,640 71,784 12.3% Total 14,627 13,513 8.2%
------------ ----------- ----------- -----------
249,112 233,176 6.8% TOTAL FOR BUSINESS UNITS 135,942 127,898 6.3%
4,621 7,700 (40.0)% Haulage 2,645 2,487 6.4%
(859) (817) (5.1)% Adjustments - (1,025) 100.0%
------------ ----------- ----------- -----------
252,874 240,059 5.3% TOTAL $ 138,587 $ 29,360 7.1%
============ =========== =========== ===========
Kansas City Southern
-----------------------
Consolidated Balance Sheets Preliminary
-----------------------
(Dollars in Millions)
March 31, 2004 December 31, 2003
(Unaudited)
Assets
Cash $ 188.6 $ 135.4
Accounts receivable 109.1 114.6
Inventories 41.9 36.8
Other current assets 25.0 21.3
---------------------- -----------------------
Total current assets 364.6 308.1
Investments 446.5 442.7
Properties, net of depreciation 1,372.0 1,362.5
Other assets 41.7 39.6
---------------------- -----------------------
Total assets $ 2,224.8 $ 2,152.9
====================== =======================
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 9.9 $ 9.9
Accounts payable 42.8 45.5
Accrued liabilities 134.1 119.4
---------------------- -----------------------
Total current liabilities 186.8 174.8
Long-term debt 564.4 513.5
Deferred income taxes 391.7 391.5
Other 111.4 109.4
Stockholders' equity 970.5 963.7
---------------------- -----------------------
Total liabilities and stockholders' equity $ 2,224.8 $ 2,152.9
====================== =======================