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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission File Number 1-4717
KANSAS CITY SOUTHERN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 44-0663509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)Identification No.)
114 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
(816) 556-0303
(Registrant's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (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
registrant 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, 1994
Common Stock, without par value 43,465,892 Shares
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
MARCH 31, 1994
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 1
Consolidated Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 2
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 1994 and 1993 3
Computation of Primary Earnings per Common Share 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1.Legal Proceedings 15
Item 4.Submission of Matters to a Vote of Security Holders 15
Item 6.Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
MARCH 31, 1994
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTRODUCTORY COMMENTS
The Consolidated Condensed Financial Statements included herein have been
prepared by the Registrant, 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 Registrant
believes that the disclosures are adequate to enable a reasonable
understanding of the information presented. It is suggested that these
Consolidated Condensed Financial Statements be read in conjunction with the
financial statements and the notes thereto included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
ASSETS
<S> <C> <C>
Current Assets:
Cash and equivalents $ 10.5 $ 6.6
Accounts receivable, net 215.5 194.7
Inventories 49.3 48.3
Other current assets 93.7 86.1
Total current assets 369.0 335.7
Investments (held for operating purposes) 202.2 174.5
Properties (net of $615.3 and $599.4 accumulated
depreciation and amortization, respectively) 1,262.0 1,192.6
Intangibles and Other Assets 169.5 214.2
Total assets $2,002.7 $1,917.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year $ 70.4 $ 63.5
Accounts and wages payable 77.3 70.9
Other accrued and current liabilities 143.3 154.0
Total current liabilities 291.0 288.4
Other Liabilities:
Long-term debt 811.0 776.2
Deferred income taxes 192.0 184.7
Other deferred credits and liabilities 104.2 99.1
Total other liabilities 1,107.2 1,060.0
Minority Interest 5.6 5.9
Stockholders' Equity:
Preferred stock 7.1 7.1
Common stock 31.3 30.9
Capital surplus 308.7 303.9
Retained earnings 463.4 439.0
Shares held in trust (200.0) (200.0)
ESOP deferred compensation (11.6) (18.2)
Total stockholders' equity 598.9 562.7
Total liabilities and stockholders' equity $2,002.7 $1,917.0
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Millions, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Revenues $ 265.1 $ 214.6
Costs and expenses $ 208.9 $ 169.6
Operating Income 56.2 45.0
Equity in net earnings of
unconsolidated affiliates 6.0 2.9
Interest expense (15.0) (10.7)
Pretax income 47.2 37.2
Provision for taxes on income 17.6 13.3
Income before minority interest 29.6 23.9
Minority interest 2.0 1.8
Income before cumulative effect of
accounting changes 27.6 22.1
Cumulative effect of changes in
accounting for income taxes and
postretirement benefits,
net of taxes (6.5)
Net Income 27.6 15.6
Less-dividends on preferred stock .1 .1
Net Income Applicable to
Common Stockholders $ 27.5 $ 15.5
Computation of Primary Earnings per Common Share
Average Primary Common
Shares Outstanding(in thousands) 45,091 44,565
Primary Earnings per Common Share:
Income before cumulative effect of
accounting changes $ .61 $ .49
Cumulative effect of accounting changes (.14)
Total $ .61 $ .35
Cash Dividends Paid:
Per Common share $ .07 1/2 $ .07 1/2
Per Preferred share $ .25 $ .25
</TABLE>
See accompanying notes to consolidated condensed financial statements.<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $27.6 $15.6
Adjustments to net income:
Depreciation and amortization 28.2 20.8
Deferred income taxes 8.1 (1.0)
Equity in undistributed earnings (6.0) (1.8)
Changes in working capital items:
Accounts receivable (20.8) (3.8)
Inventories (1.0) (3.9)
Other current assets (8.5) 2.6
Accounts payable 10.4 (18.8)
Other accrued and current liabilities 7.0 20.1
Other, net 1.1 3.8
Net 46.1 33.6
INVESTING ACTIVITIES:
Property acquisitions (72.5) (24.8)
Proceeds from disposal of property 4.4 5.1
Investment acquisitions (21.6) (54.5)
Proceeds from disposal of investments -- 3.9
Other, net 10.0 2.5
Net (79.7) (67.8)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 85.5 143.2
Repayment of long-term debt (38.8) (70.3)
Proceeds from stock plans 1.3 .1
Stock repurchased (9.5)
Cash dividends paid (3.3) (3.3)
Other, net 2.3 .6
Net 37.5 70.3
CASH AND EQUIVALENTS
Net increase 3.9 36.1
At beginning of year 6.6 15.4
At end of period $10.5 $51.5
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
MARCH 31, 1994
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Registrant, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of normal
interim closing procedures) necessary to present fairly the financial position
of Kansas City Southern Industries, Inc. ("Registrant" or "KCSI") and its
subsidiary companies as of March 31, 1994 and December 31, 1993, the results
of operations for the three months ended March 31, 1994 and 1993, and cash
flows for the three months ended March 31, 1994 and 1993.
2. The results of operations for the three months ended March 31, 1994 and
1993 are not necessarily indicative of the results to be expected for the full
year 1994, nor the results experienced for the full year 1993.
3. The accompanying financial statements have been prepared consistent with
accounting principles described more fully in Note 1 of the Registrant's 1993
Annual Report to Stockholders.
4. The Registrant's inventories, $49.3 million at March 31, 1994 and $48.3
million at December 31, 1993, principally represent material and supplies
related to rail transportation and DST's output processing operations. Other
components of inventories are immaterial.
5. Investments in unconsolidated affiliates and certain other investments
accounted for under the equity method of accounting include all entities in
which the Registrant or its subsidiaries have significant influence but not
more than 50% control. Investments in unconsolidated affiliates (joint
ventures) at March 31, 1994, include the equity interests of DST Systems, Inc.
("DST") in Boston Financial Data Services, Inc., Investors Fiduciary Trust
Company ("IFTC"), The Continuum Company, Inc. ("Continuum"), Argus Health
Systems, Inc. ("Argus"), Midland Data Systems, Inc. and Midland Loan Services,
L.P.(collectively "Midland"), First of Michigan Capital Corporation, and
certain other venture operations plus the Registrant's interests in other
companies. Among other provisions, the joint venture agreements contain
"change of control" provisions affecting the rights of the partners to acquire
the other partners' equity interests in the event of circumstances which would
result in a change of control.
<PAGE>
Combined condensed financial information of unconsolidated affiliates is shown
below (dollars in millions):
Financial Condition
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Current assets $1,116.5 $1,047.7
Non-current assets 160.9 150.1
Assets $1,277.4 $1,197.8
Current liabilities $ 905.3 $ 856.8
Non-current liabilities 144.8 122.9
Equity of stockholders and partners 227.3 218.1
Liabilities and equity $1,277.4 $1,197.8
Investment in unconsolidated affiliates $ 150.3 $ 126.3
</TABLE>
Operating Results
<TABLE>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Revenues:
IFTC $ 10.2 $ 12.2
All others 143.4 59.9
Total Revenues $ 153.6 $ 72.1
Costs and expenses:
IFTC $ 7.3 $ 10.1
All others 132.6 57.7
Total Costs and Expenses $ 139.9 $ 67.8
Net Income:
IFTC $ 2.9 $ 2.1
All others 10.8 2.2
Total Net Income $ 13.7 $ 4.3
Equity in Earnings:
IFTC $ 1.5 $ 1.0
All others 4.5 1.0
Total Equity in Earnings $ 6.0 $ 2.0
</TABLE>
<PAGE>
6. For purposes of the Statement of Cash Flows, the Registrant considers all
short-term investments with an original maturity of generally three months or
less to be cash equivalents. Other required supplementary disclosures follow:
a. Cash Flow Information (in millions):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Interest paid $22.5 $ 14.7
Income taxes paid (refunded) (9.6) (3.7)
</TABLE>
b. Noncash Investing and Financing Activities:
In the first quarter of 1994, the Registrant issued approximately 235,000
shares of Common stock under the Seventh Offering of the Employees Stock
Purchase Plan. These shares, totalling a purchase price of approximately $4.4
million, were subscribed and paid for, through employee payroll deductions, in
1993.
During the first three months of 1994 and 1993, the Registrant recorded
expenses of $1.1 million and $1.0 million, respectively, related to its
existing ESOP. These charges, which were non-cash in nature, had the effect
of decreasing retained earnings and ESOP deferred compensation with no overall
effect upon stockholders' equity.
The Registrant issued $100 million in debt securities in first quarter 1993.
As part of this transaction, the Registrant incurred $1.5 million in discount
and underwriting fees which were transferred directly to the underwriters.
These discount and underwriting fees represent non-cash amounts, which will be
amortized over the respective term of the indebtedness.
7. In December 1993, the American Institute of Certified Public Accountants
issued Statement of Position No. 93-6 ("SOP 93-6") "Employers Accounting for
Employee Stock Ownership Plans", which became effective for fiscal years
beginning after December 15, 1993. The Registrant's ESOP shares are
grandfathered under the provisions of SOP 93-6 and accordingly, the
Registrant's accounting policies and procedures as described in the Annual
Report on Form 10-K for the year ended December 31, 1993 were not affected by
SOP 93-6. SOP 93-6 does, however, require additional disclosures regarding
the Registrant's ESOP plan as follows, (in millions at March 31, 1994):
Number of Common shares allocated to
plan participants 4.6
Cost of unallocated ESOP shares $11.1
8. LITIGATION. The Registrant has had no significant changes in its
outstanding litigation from that previously reported in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993 other than noted below.
SWEPCO Litigation
As was previously disclosed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, KCSR was a defendant in a lawsuit filed in
the District Court of Bowie County, Texas by Southwestern Electric Power
Company ("SWEPCO"). In that case, SWEPCO alleged that KCSR was required to
reduce SWEPCO's coal transportation rate due to changed circumstances
allegedly creating a "gross inequity" under the provisions of the coal
transportation contract existing among SWEPCO, KCSR and the Burlington
Northern Railroad. SWEPCO is KCSR's largest single customer. KCSR and SWEPCO
have reached an agreement to settle this litigation and a motion to dismiss
the case against KCSR has been filed with the Court. This matter was
concluded, as predicted, without material adverse effect on the financial
condition or future results of operations of the Registrant.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Kansas City Southern Industries, Inc. (the "Registrant") is a Delaware
corporation, organized in 1962, which engages in supervising the operations of
its subsidiaries and providing certain managerial, legal and financial
services to its subsidiaries.
The Registrant's business activities by industry segment and principal
subsidiary companies are:
Transportation Services - Operating a Class I Common Carrier Railroad
system through the Registrant's 100% owned subsidiary The Kansas City
Southern Railway Company and its affiliated trucking and other
subsidiaries ("KCSR") along with other subsidiaries supporting the
transportation segment.
Information & Transaction Processing - DST Systems, Inc., ("DST") a 100%
owned subsidiary, together with its subsidiaries and joint ventures
(principally The Continuum Company, Inc., Boston Financial Data Services,
Inc., Investors Fiduciary Trust Company, Argus Health Systems, Inc.,
Midland Data Services, Inc. and Midland Loan Services L.P.), designs,
maintains and operates proprietary on-line shareowner accounting and
record keeping data processing systems, primarily for mutual funds,
financial services institutions and insurance companies. In addition to
data processing, subsidiaries of DST also provide computer output
microfilm/microfiche, printing and graphic design services.
Financial Asset Management - Management of investments for mutual funds
and private accounts through Janus Capital Corporation ("Janus"), an 81%
owned subsidiary.
Corporate and Other - Primarily general administrative and corporate
operations of the Registrant and other minor subsidiaries.
Results of Operations
Segment revenues and operating income comparisons follow (dollars in
millions):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Revenues:
Transportation Services $ 123.3 $ 94.7
DST Systems, Inc. 97.4 80.6
Janus Capital Corp. 44.6 34.8
Eliminations, Corporate & Other (.2) 4.5
Total $ 265.1 $ 214.6
Operating Income:
Transportation Services $ 28.0 $ 22.5
DST Systems, Inc. 12.0 8.4
Janus Capital Corp. 19.0 15.3
Eliminations, Corporate & Other (2.8) (1.2)
Total $ 56.2 $ 45.0
</TABLE>
The Registrant reported first quarter 1994 earnings of $27.6 million, (61 cents
per share), a 24% increase over the $22.1 million, (49 cents per share) before
accounting changes earned in first quarter 1993 and 74% improved over first
quarter 1993 net income of $15.6 million, (35 cents per share). First
quarter 1993 results include a charge of $6.5 million (14 cents per share)
related to the adoption of Statement of Financial Accounting Standards Nos.
106 and 109 for postretirement benefits and income taxes. Consolidated first
quarter 1994 revenues rose 24% to $265.1 million compared to prior year while
operating income rose 25% to $56.2 million. Consolidated earnings were also
affected by an increase in earnings of unconsolidated affiliates, discussed
in the DST section below and higher interest expense primarily from financing
associated with the MidSouth Corporation acquisition completed in June 1993.
Consolidated income tax was also higher on a combination of increased pretax
earnings and higher federal tax rates.
TRANSPORTATION SERVICES
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Revenues $123.3 $94.7
Costs and expenses 95.3 72.2
Operating income 28.0 22.5
Unconsolidated affiliates -- .8
Interest expense (11.6) (4.6)
Pretax income 16.4 18.7
Income taxes 6.7 7.1
Income before accounting changes $ 9.7 $11.6
</TABLE>
Transportation Services, comprised principally of KCSR, operating income for
first quarter 1994 rose 24% on a 30% increase in revenues. Transportation
Services contribution to KCSI consolidated results for first quarter 1994 was
$9.7 million versus comparable prior year of $11.6 million. First quarter
1993 results include a one-time after tax gain of $1.3 million on the sale of
real estate and approximately $1.5 million of unit coal revenues from the now
temporarily shut down Tumco electric generating plant. Excluding this one-
time real estate gain and the lost unit coal revenues, Transportation Services
results were essentially unchanged from prior year. First quarter 1994
results were also reduced by higher MidSouth acquisition interest,
depreciation and amortization costs.
KCSR, which includes MidSouth, first quarter revenues rose 38% compared to
1993. When including MidSouth in prior year results, KCSR revenues rose 4%.
General commodity revenues increased from higher carloadings of lumber/wood,
pulp/paper, chemicals and petroleum products and farm products. Intermodal
traffic also increased in first quarter 1994 as TOFC/COFC carloadings rose 9%
over first quarter 1993. When including MidSouth in prior year statistics,
overall general commodity carloadings rose 5% over prior year. Unit coal
revenues rose 3% in first quarter 1994 compared to prior year from a mix of
length of haul and rates even though overall coal tonnage declined slightly
(primarily from the late 1993 shutdown of the Tumco electric generating plant
served by KCSR, currently scheduled to reopen in fourth quarter 1995).
While KCSR revenues rose in first quarter 1994, the level of operating
expenses also increased. KCSR operating expenses for first quarter 1994
exceeded prior year primarily resulting from MidSouth acquisition related
costs, increased car hire on higher traffic levels, severe weather and yard
congestion and costs related to a voluntary management buyout program. The
higher operating expenses were, in part, caused by the accelerated pace of
combined KCSR/MidSouth freight traffic and resultant costs to help ease
traffic congestion. The merged rail systems are producing increased business
volumes, which were not anticipated until late 1994.
Transportation Services also include positive results from operations at the
Registrant's Pabtex petroleum coke export facility and increased Southern
Leasing Corporation earnings on higher volumes. However, interest expense in
first quarter 1994 was also higher when compared to prior year due primarily
to financing related to the MidSouth acquisition.
INFORMATION & TRANSACTION PROCESSING
DST SYSTEMS, INC.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Revenues $97.4 $80.6
Costs and expenses 85.4 72.2
Operating income 12.0 8.4
Unconsolidated affiliates 6.0 2.1
Interest expense (3.6) (2.6)
Pretax income 14.4 7.9
Income taxes 4.2 2.6
Minority interest (.2)
Income before accounting changes $10.4 $ 5.3
</TABLE>
DST recorded first quarter 1994 earnings contribution to the Registrant's
consolidated earnings of $10.4 million, an increase of 96% over comparable
prior year. Increased first quarter 1994 output services volumes coupled with
mutual fund shareowner account growth and favorable results from joint venture
operations were the primary factors in accounting for DST's earnings growth.
DST's mutual fund shareowner accounts grew to 29.5 million at March 31, 1994
from 28 million at December 31, 1993. Shareowner account growth was caused by
overall mutual fund industry trends and led to increased mutual fund
processing volumes. DST's output services operations, Output Technologies,
Inc., experienced increased volumes on year end processing work, which
resulted in higher revenues. DST revenues rose 21% to $97.4 million in first
quarter 1994, even without Vantage Computer Systems, Inc. revenues, which are
included in first quarter 1993, while operating expenses rose only 18%
resulting in an increase in operating margins.
Equity in DST's unconsolidated affiliates earnings were also higher in first
quarter 1994 compared to prior year. These favorable results are due to the
recording of earnings from The Continuum Company, Inc., which became a DST
affiliate in late 1993, along with favorable first quarter operating results
of Boston Financial Data Services, Inc.; Argus Health Systems, Inc.; and
Investors Fiduciary Trust Company, all on increased business volumes. DST's
Midland joint ventures also reported improved results for first quarter 1994
compared to prior year, primarily from higher loan conversion and servicing
fees for Resolution Trust Company loan processing work.
FINANCIAL ASSET MANAGEMENT
JANUS CAPITAL CORP.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Revenues $ 44.6 $ 34.8
Costs and expenses 25.6 19.5
Operating income 19.0 15.3
Interest expense (.4) (.2)
Pretax income 18.6 15.1
Income taxes 7.3 5.8
Minority interest 2.2 1.8
Income before accounting changes $ 9.1 $ 7.5
</TABLE>
Janus revenues rose 28% to $44.6 million for first quarter 1994, while Janus'
contribution to the Registrant's consolidated earnings rose 21% to $9.1
million compared to prior year. Janus' earnings were, however, below results
for fourth quarter 1993 on lower revenues and higher operating expenses.
Janus, together with other investment management advisors, suffered in first
quarter 1994 from a rise in interest rates and a general financial market
decline which affected fund investment performance and decreased total assets
under management. Janus began the quarter with total assets under management
of $22.2 billion and despite a declining financial market, held assets under
management relatively stable as total assets declined only $200 million to
close at $22 billion on March 31, 1994. Shareowners accounts increased
slightly in first quarter 1994 to close March 31, 1994 at 2.1 million
accounts.
ELIMINATIONS, CORPORATE & OTHER
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1993
<S> <C> <C>
Revenues $ (.2) $ 4.5
Costs and expenses 2.6 5.7
Operating loss (2.8) (1.2)
Interest income (expense) .6 (3.3)
Pretax loss (2.2) (4.5)
Income tax (benefits) (.6) (2.2)
Loss before cumulative effect of
accounting changes (1.6) (2.3)
Cumulative effect of accounting
changes, net of tax (6.5)
Net loss $ (1.6) $ (8.8)
</TABLE>
Eliminations, Corporate & Other losses before cumulative effect of accounting
changes declined in first quarter 1994 compared to prior year. The absence of
gains on the sales of certain marketable securities, which were included in
first quarter 1993 results, were somewhat offset by lower Registrant general
and administrative costs as operating losses increased. First quarter 1994
pretax loss benefitted, however, from lower interest related costs as funded
debt was allocated to operating subsidiaries instead of these financing costs
being borne at the Registrant Holding Company level.
TRENDS AND OUTLOOK
The Registrant reported improved earnings for first quarter 1994 compared to
prior year. First quarter 1994 earnings at 61 cents per share represent the
highest first quarter earnings in the Registrant's history. DST reported
improved first quarter results and Janus earnings remained stable in recently
volatile financial markets. The Registrant's railroad operations continue to
experience increased traffic levels and challenges associated with the merger
of the KCSR and MidSouth rail systems, and continuation of the MidSouth
roadbed upgrade program previously disclosed. These challenges are being
managed and improvements are expected.
A current outlook for the remainder of 1994 in the Registrant's three core
businesses is as follows; (a) Information & Transaction Processing - DST is
expected to continue growth trends exhibited in first quarter 1994 although,
historically, the first quarter of the year is its strongest from year end
output processing volumes. DST's growth will depend upon growth in the mutual
fund, insurance, pharmaceutical claims, international and other financial
services markets it serves. (b) Financial Asset Management - Janus earnings
and assets under management have remained relatively stable during 1994, in
spite of volatile market conditions. Janus' growth will be largely dependent
upon prevailing financial market conditions. (c) Transportation Services -
KCSR/MidSouth rail transportation operations may continue to experience
temporary traffic congestion, (associated with increased traffic levels and
the roadway improvement program), lost unit coal revenues associated with the
Tumco electric generating plant and in recent months, even though overall
carloadings are increasing, export grain carloadings have recently declined as
a result of the 1993 Midwest flooding, while domestic grain has remained
stable.
Liquidity and Capital Resources
During the first quarter of 1994, the Registrant's cash position increased
from $6.6 million at December 31, 1993 to $10.5 million at March 31, 1994.
The increased cash position was caused primarily by increased operating cash
flows and proceeds from long-term debt in excess of repayments but somewhat
offset by cash used for property acquisitions. Operating cash flows for first
quarter 1994 of $46.1 million improved $12.5 million when compared to prior
year. The improvement in operating cash flows is attributable to increased
earnings, higher depreciation and amortization, and deferred taxes somewhat
offset by changes in working capital items.
First quarter 1994 cash was invested in KCSR road property additions, (related
principally to KCSR/MidSouth capital improvement programs) and growth related
property additions at DST. Cash was also used for investment acquisitions,
principally DST purchases of additional Continuum stock in first quarter 1994.
Financing cash flows were generated through issuance of long-term debt in
excess of repayments. Debt proceeds were used at KCSR for working capital,
DST for working capital and Continuum stock purchases and Southern Leasing for
leasing portfolio growth. Other cash was used for debt repayment and cash
dividends to stockholders. The Registrant also made principal payments
totalling $9.6 million with respect to the Registrant's Employee Stock
Ownership Plan ("ESOP") indebtedness in first quarter 1994.
Cash flow from operations are expected to increase during the remainder of
1994 from positive operating income, which has historically resulted in
favorable cash flows. Investing activities will continue to use significant
amounts of cash as KCSR continues its roadway capital improvement program,
currently anticipated to be completed in 1995. The Registrant anticipates
that the KCSR/MidSouth roadway program will be funded by KCSR operating cash
flow. In addition to operating cash flows, the Registrant has available
financing arrangements at subsidiary levels, remaining proceeds from $350
million in various credit agreements, of which $60 million was unused and
available at March 31, 1994, proceeds available with respect to the
Registrant's $200 million Medium Term Notes, of which $100 million were issued
at March 31, 1994 and $500 million with respect to a Universal Shelf Offering
filed in September 1993. The Registrant has not yet requested that the $500
million Universal Shelf Offering be declared effective by the Securities and
Exchange Commission and no securities have been issued. The Registrant
believes these positive operating cash flows and available financing resources
are sufficient to fund working capital and other requirements for the
remainder of 1994.
The Registrant's debt ratio (debt as a percent of total debt plus equity)
improved in first quarter 1994 from 59.9% at December 31, 1993 to 59.5% at
March 31, 1994. While consolidated debt increased in first quarter 1994,
total equity also increased from a combination of net income and a decrease in
ESOP deferred compensation related to principal payments on the Registrant's
Employee Stock Ownership Plan indebtedness in first quarter 1994 and resulted
in a decline in the debt ratio.
Other
As disclosed in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, the Registrant's Board of Directors has undertaken a
comprehensive study, with the assistance of outside consultants, of the
Registrant's strategic possibilities. This study is continuing and is focused
on how to best position the Registrant for future growth, while capitalizing
on opportunities to create long term value for stockholders. The study is not
complete, but is expected to be concluded within the next few months. If the
Registrant embarks on any specific transaction or strategy, appropriate
announcements will be made.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part I, Item 1, Footnote 8 to the 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 Registrant held its Annual Meeting of Stockholders on May 3, 1994.
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.
c) Listed below is each matter voted on at the Registrant's Annual Meeting.
Each of these matters are fully described in the Registrant's Proxy
Statement pursuant to Rule 14A. In consideration of these matters, the
following votes were cast:
<TABLE>
<S> <C> <C>
Common Preferred
(1) Election of four directors Shares Shares
(i) George W. Edwards Jr.
For 39,238,560 171,644
Withheld 267,602 10,789
Total 39,506,162 182,433
(ii) Michael G. Fitt
For 39,273,388 171,644
Withheld 267,602 10,789
Total 39,540,990 182,433
(iii) Thomas A. McDonnell
For 39,282,963 171,644
Withheld 267,602 10,789
Total 39,550,565 182,433
(iv) Morton I. Sosland
For 39,288,742 171,644
Withheld 267,602 10,789
Total 39,556,344 182,433
(2) Approval of an Amendment to KCSI's
Certificate of Incorporation to
Increase the Number of Authorized
Shares of Common Stock
For 30,796,075 167,075
Against 8,561,855 14,018
Abstentions 179,961 1,290
Non-votes -- --
Total 39,537,891 182,383
<PAGE>
(3) Approval of Amendment to KCSI's
Certificate of Incorporation to set
a Par Value for the Common Stock
For 38,999,321 172,474
Against 390,309 8,279
Abstentions 148,886 1,630
Non-votes -- --
Total 39,538,516 182,383
(4) Approval of the selection of Price
Waterhouse as auditors for 1994.
For 39,081,380 178,842
Against 266,452 3,401
Abstentions 190,684 140
Non-votes -- --
Total 39,538,516 182,383
</TABLE>
Based upon the majority of votes required for approval, each of these matters
passed.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None
b) Reports on Form 8-K
None<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant 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, 1994.
Kansas City Southern Industries, Inc.
/s/ Joseph D. Monello
Joseph D. Monello
Vice President & Chief Financial Officer
(Principal Financial Officer)
/s/ Louis G. Van Horn
Louis G. Van Horn
Comptroller
(Principal Accounting Officer)
