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 September 30, 1995
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 November 8, 1995
Common Stock, $.01 per share par value 40,612,460 Shares
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1995
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 1
Consolidated Condensed Balance Sheets -
September 30, 1995 and December 31, 1994 2
Consolidated Condensed Statements of Income -
Three and Nine Months Ended September 30, 1995 and 1994 3
Computation of Primary Earnings per Common Share 3
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 5. Other Information 18
- Public Offering of DST Systems, Inc.
- Pro Forma Financial Information
- Stockholder Rights Plan
- Dividend Reinvestment Plan
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 30
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1995
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. These Consolidated Condensed
Financial Statements should 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, 1994.
On October 31, 1995, DST Systems, Inc. ("DST"), a wholly-owned subsidiary of
the Registrant, and the Registrant effected an Initial Public Offering for a
total of 22 million shares of DST Common stock. In conjunction with the
offering, the Registrant completed an exchange of 4.3 million shares of DST
Common stock for 1.8 million shares of Registrant Common stock held by the DST
portion of the Employee Stock Ownership Plan. On November 6, 1995, the
underwriters exercised an over-allotment option for an additional 3.3 million
DST shares owned by the Registrant, effectively completing the DST offering.
As a result of these transactions, the Registrant will retain an approximate
41% interest in DST, and account for DST as an equity investment in the
future. See Note 1 to the Consolidated Condensed Financial Statements for
additional information. The Consolidated Condensed Financial Statements
should be read in conjunction with Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent
Developments - included in this Form 10-Q. Additional information regarding
the DST offering and its estimated affect upon the Registrant is included in
the unaudited pro forma financial information presented in Part II, Item 5 to
this Form 10-Q.
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
ASSETS
<S> <C> <C>
Current Assets:
Cash and equivalents $ 14.6 $ 12.7
Accounts receivable, net 263.3 232.3
Inventories 47.7 46.6
Other current assets 102.1 88.5
Total current assets 427.7 380.1
Investments (held for operating purposes) 291.8 214.6
Properties (net of $740.6 and $686.0 accumulated
depreciation and amortization, respectively) 1,505.1 1,415.3
Intangibles and Other Assets 282.5 220.8
Total assets $ 2,507.1 $2,230.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year $ 96.4 $ 56.4
Accounts and wages payable 129.4 140.8
Other accrued and current liabilities 166.2 142.4
Total current liabilities 392.0 339.6
Other Liabilities:
Long-term debt 1,038.1 928.8
Deferred income taxes 265.8 204.2
Other deferred credits and liabilities 103.1 80.5
Total other liabilities 1,407.0 1,213.5
Minority Interest 11.3 10.5
Stockholders' Equity:
Preferred stock 7.1 7.1
Common stock .4 .4
Capital surplus 304.0 338.0
Retained earnings 585.3 530.1
Shares held in trust (200.0) (200.0)
ESOP deferred compensation -- (8.4)
Total stockholders' equity 696.8 667.2
Total liabilities and
stockholders' equity $ 2,507.1 $2,230.8
</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 Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 323.3 $ 273.4 $ 934.2 $ 805.7
Costs and expenses 216.8 185.6 669.6 547.5
Depreciation and amortization 38.0 30.7 107.5 86.3
Operating Income 68.5 57.1 157.1 171.9
Equity in net earnings of
unconsolidated affiliates 4.2 6.8 13.2 17.9
Gain on sale of equity investment -- -- 39.7 --
Interest expense (20.5) (15.2) (59.3) (39.7)
Pretax income 52.2 48.7 150.7 150.1
Provision for taxes on income 20.2 18.4 78.5 56.1
Income before minority interest 32.0 30.3 72.2 94.0
Minority interest 3.1 1.7 7.4 6.0
Net Income 28.9 28.6 64.8 88.0
Less-dividends on preferred stock .1 .1 .2 .2
Net Income Applicable to
Common Stockholders $ 28.8 $ 28.5 $ 64.6 $ 87.8
Computation of Primary Earnings per Common Share
Average Primary Common
Shares Outstanding(in thousands) 44,032 45,092 44,493 45,112
Primary Earnings per Common Share: $ .65 $ .64 $ 1.45 $ 1.95
Cash Dividends Paid:
Per Common share $.071/2 $ .071/2 $ .221/2 $.221/2
Per Preferred share $ .25 $ .25 $ .75 $ .75
</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>
Nine Months
Ended September 30,
1995 1994
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $ 64.8 $ 88.0
Adjustments to net income:
Depreciation and amortization 107.5 86.3
Deferred income taxes 59.3 31.4
Equity in undistributed earnings (12.2) (17.6)
Gain on sale of equity investment (39.7) --
Changes in working capital items:
Accounts receivable (26.1) (20.7)
Inventories (1.0) (3.7)
Other current assets (16.2) 1.6
Accounts and wages payable (24.6) 23.3
Other accrued and current liabilities 24.6 .8
Other, net 15.2 (1.9)
Net 151.6 187.5
INVESTING ACTIVITIES:
Property acquisitions (146.9) (216.2)
Proceeds from disposal of property 8.3 15.7
Purchase of companies, net of cash acquired (49.7) (1.0)
Investment and loans with affiliates (50.9) (23.0)
Proceeds from disposal of investments -- 4.5
Other, net .7 4.4
Net (238.5) (215.6)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 244.7 148.0
Repayment of long-term debt (99.8) (70.4)
Proceeds from stock plans 5.7 3.8
Stock repurchased (47.2) (10.2)
Cash dividends paid (9.9) (10.0)
Other, net (4.7) (10.6)
Net 88.8 50.6
CASH AND EQUIVALENTS:
Net increase 1.9 22.5
At beginning of year 12.7 6.6
At end of period $ 14.6 $ 29.1
</TABLE>
See accompanying notes to consolidated condensed financial statements.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1995
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 September 30, 1995 and December 31, 1994, the
results of operations for the three and nine months ended September 30, 1995
and 1994, and cash flows for the nine months ended September 30, 1995 and
1994.
On October 31, 1995, DST Systems, Inc. ("DST") and the Registrant effected an
initial public offering for a total of 22 million shares of DST Common stock.
The initial offering price was $21 per share. Of the 22 million shares,
19,450,000 and 2,550,000 were offered by DST and the Registrant, respectively.
On November 6, 1995, an over-allotment option, granted by the Registrant to
the underwriters, for an additional 3,300,000 DST shares owned by the
Registrant was exercised, effectively completing the DST offering. The
approximate $384.0 million in net proceeds received by DST have been used to
reduce outstanding indebtedness to the Registrant and borrowings on bank
credit lines, and for working capital. The approximate $200 million in net
proceeds, after applicable income taxes, received by the Registrant from sale
of DST stock and repayment of indebtedness by DST have been or will be used
for repayment of debt, repurchase of Registrant Common stock and general
corporate purposes. In conjunction with the offering, the Registrant
completed an exchange of 4,253,508 shares of DST Common stock for 1,820,000
shares of Registrant Common stock held by the DST portion of the Employee
Stock Ownership Plan. The 1,820,000 shares received in the exchange have
been accounted for as treasury shares by the Registrant. Upon completion of
all associated transactions, the Registrant will own approximately 41% of the
outstanding Common stock of DST, and will recognize an estimated one-time
gain of approximately $140 million, net of taxes, during fourth quarter 1995.
DST will cease to be included in the Registrant's consolidation, and will be
accounted for as an equity investment in accordance with the Registrant's
accounting policy described more fully in Note 1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
See further discussion in Part II, Item 5 "Pro Forma Financial Information",
which gives effect to the offering and associated transactions as of September
30, 1995 for balance sheet purposes; January 1, 1995 for income statement
purposes covering the nine months ended September 30, 1995; and January 1,
1994 for income statement purposes covering the year ended December 31, 1994,
after giving effect to the pro forma adjustments described therein.
2. The results of operations for the three and nine months ended September 30,
1995 and 1994 are not necessarily indicative of the results to be expected for
the full year 1995.
3. The accompanying financial statements have been prepared consistent with
accounting principles described more fully in Note 1 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
4. The Registrant's inventories, $47.7 million at September 30, 1995 and $46.6
million at December 31, 1994, 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 September 30, 1995 include the equity interests of DST in Boston
Financial Data Services, Inc., The Continuum Company, Inc., Argus Health
Systems, Inc., 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.
On January 31, 1995, DST completed the sale of its 50% ownership in IFTC
Holdings, Inc., which wholly-owns Investors Fiduciary Trust Company ("IFTC"),
to State Street Boston Corporation ("State Street"), in a non-cash, tax-free
exchange for State Street Common stock. At closing of the transaction, DST
received 2,986,111 shares of State Street Common stock (representing an
approximate 4% interest in State Street). As a result of this transaction,
DST recognized a net gain of $4.7 million in first quarter 1995. With the
closing of the transaction, IFTC ceases to be an unconsolidated affiliate of
DST and no further equity in earnings of IFTC will be recorded by DST.
Combined condensed financial information of unconsolidated affiliates is shown
below (dollars in millions):
Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Current assets $ 412.1 $ 1,129.7
Non-current assets 163.0 143.6
Assets $ 575.1 $ 1,273.3
Current liabilities $ 273.3 $ 933.9
Non-current liabilities 91.9 73.2
Equity of stockholders and partners 209.9 266.2
Liabilities and equity $ 575.1 $ 1,273.3
Investment in unconsolidated affiliates $ 119.9 $ 166.5
</TABLE>
Operating Results
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
IFTC $ -- $ 11.0 $ -- $ 32.2
All others 188.7 138.7 533.6 423.8
Total Revenues $ 188.7 $ 149.7 $ 533.6 $ 456.0
Costs and expenses:
IFTC $ -- $ 7.7 $ -- $ 23.1
All others 176.8 125.5 496.9 389.3
Total Costs and
Expenses $ 176.8 $ 133.2 $ 496.9 $ 412.4
Net Income:
IFTC $ -- $ 3.3 $ -- $ 9.1
All others 11.9 13.2 36.7 34.5
Total Net Income $ 11.9 $ 16.5 $ 36.7 $ 43.6
Equity in Earnings:
IFTC $ -- $ 1.6 $ -- $ 4.5
All others 4.2 5.2 13.2 13.4
Total Equity in
Earnings $ 4.2 $ 6.8 $ 13.2 $ 17.9
</TABLE>
6. For purposes of the Statement of Cash Flows, the Registrant considers all
short-term liquid investments with a maturity of generally three months or
less to be cash equivalents. Other required supplementary disclosures follow:
a. Cash Flow Information (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1994
<S> <C> <C>
Interest paid $ 64.9 $ 55.8
Income taxes paid 20.0 3.8
</TABLE>
b. Noncash Investing and Financing Activities:
During the first nine months of 1995 and 1994, the Registrant recorded
expenses of $8.4 million and $3.2 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.
In the first nine months of 1995, DST acquired mainframe computer equipment
and software for its Winchester Data Center and production equipment for its
output processing facilities in the amount of $15.2 million. These purchases
were financed through vendor installment notes and capital leases which
required no direct outlay of cash.
As further described in Note 5, the Registrant's wholly-owned subsidiary, DST,
exchanged its equity interest in IFTC for State Street Common stock. Further
details regarding the IFTC transaction, including unaudited pro forma combined
financial statements, are disclosed in a Form 8-K filed by the Registrant
dated January 31, 1995.
In the first quarter of 1994, the Registrant issued approximately 234,000
shares of Common stock under the Seventh Offering of the Employees Stock
Purchase Plan. These shares, totaling a purchase price of approximately $4.4
million, were subscribed and paid for through employee payroll deductions in
1993.
7. In February 1995, DST's wholly-owned subsidiary, Clarke & Tilley Limited,
purchased HiPortfolio Pty Ltd. ("HiPortfolio"), an Australian provider of
portfolio accounting software and services. As part of this transaction, DST
acquired the rights to the software marketed by HiPortfolio.
As previously disclosed in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994, DST signed a definitive agreement to purchase
substantially all of the assets and business operations of Supervised Service
Company ("SSC"), a subsidiary of Kemper Financial Services, Inc. ("Kemper"),
and the mutual fund shareholder servicing system software owned by Kemper
Service Company ("KSC") used to service clients of SSC and certain of the
Kemper Mutual Funds. In conjunction with and subject to these transactions,
DST also agreed to enter into long-term contracts with Kemper to provide
mutual fund shareholder system services and portfolio accounting system
services for the Kemper Mutual Funds. The transaction was completed on April
17, 1995.
The collective consideration for the HiPortfolio and Kemper transactions was
approximately $56 million, $49.7 million net of cash acquired. DST financed
these transactions through borrowings from the Registrant and banks. The
transactions resulted in the recording of intangibles as the total purchase
price exceeded the fair value of the underlying net assets. These additional
assets are being depreciated over lives ranging from 3-7 years, while
intangibles are being amortized over periods of 7-15 years.
8. On May 5, 1995, the Registrant established credit agreements for both KCSI
and DST in the amounts of $400 million and $250 million, respectively. These
credit agreements replace approximately $420 million of Registrant credit
agreements, which had been in place for varying periods since 1992. Proceeds
of the KCSI credit facility are anticipated to be used for general corporate
purposes. The proceeds from the DST credit agreements were used to pay a $150
million dividend to KCSI, to repay bridge financing in connection with the
Kemper transaction described in Note 7, and for general corporate purposes.
These agreements include facility fees ranging from .07 - .25 % per annum,
below prime interest rates, and terms ranging from one to five years. Among
other provisions, the agreements limit subsidiary indebtedness and sales of
assets, and require certain coverage ratios.
9. In August 1995, the Registrant entered into a forward stock purchase
contract ("the contract") as a means of securing a potentially favorable price
for the repurchase of its Common stock in connection with the stock repurchase
program authorized by the Registrant's Board of Directors on April 24, 1995.
The contract, which is not held for trading purposes, allows the Registrant to
purchase from a major international financial institution two million shares
of the Registrant's Common stock over various time periods at an aggregate
price of $88.2 million. In addition to the aggregate market price, the
contract includes an escalating transaction premium which would have totaled
approximately $300,000 if the contract were to have been settled as of
September 30, 1995. The contract also contains provisions which allow the
Registrant to elect a net cash or net share settlement in lieu of physical
settlement of the shares. The transaction will be recorded in the
Registrant's financial statements upon settlement of the contract in
accordance with the Registrant's accounting policies with respect to treasury
stock described more fully in the Notes to Financial Statements included in
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994. Any appreciation or depreciation in the Registrant's stock related to
the contract will be reflected as an equity component upon settlement of the
contract. On September 30, 1995, the fair value of two million shares of the
Registrant's Common stock was $91.0 million, based on quoted market prices.
The contract involves, to varying degrees, elements of credit and market risk;
however, the Registrant does not anticipate any material adverse effect on its
financial position resulting from its involvement in this contract, nor does
it anticipate nonperformance by the counter party. The contract is unsecured.
10.On September 19, 1995, the Registrant's Board of Directors approved a
Stockholder Rights Plan ("Plan"). Distribution of the rights under that Plan
will have no dilutive effect, will not affect reported earnings per share,
will not be taxable to the Registrant or stockholders and will not change the
manner in which the Registrant's shares are presently traded. A summary of
the Plan is set forth under Part II, Item 5 of this Form 10-Q.
11.On November 10, 1995, the Registrant completed the purchase of 49% of the
common stock of Mexrail, Inc. ("Mexrail"), including Mexrail's wholly-owned
subsidiary, The Texas Mexican Railway Company ("Tex-Mex"), from
Transportacion Maritima Mexicana, S.A. de C.V. Tex-Mex operates a rail line
extending from Corpus Christi to Laredo, Texas. The purchase price of $23
million, which is subject to certain conditions, was financed through the
Registrant's existing credit lines. The investment will be accounted for
under the equity method of accounting.
12.On April 19, 1995, the Registrant filed Amendment No.1 to its Registration
Statement on Form S-3 with the SEC (File No. 33-69648), registering $500
million in securities. The Registrant has not yet requested that the
Registration Statement be declared effective and no securities have been
issued.
13.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, 1994.
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 ("KCSR"), along with Southern Leasing Corporation,
Pabtex, Inc., Trans-Serve, Inc. and other subsidiaries supporting the
transportation segment.
Information & Transaction Processing - See "Recent Developments" below for
a discussion on the change in ownership relative to DST as a result of
DST's stock offering in October 1995. DST, a 100% owned subsidiary as of
September 30, 1995, together with its subsidiaries and joint ventures,
(principally The Continuum Company, Inc., Boston Financial Data Services,
Inc., Argus Health Systems, Inc.), provides sophisticated information
processing and computer software services and products, primarily to
mutual funds, insurance providers, banks and other financial services
organizations.
Financial Asset Management - Management of investments for mutual funds,
private and other accounts through Janus Capital Corporation ("Janus"), an
83% owned subsidiary and Berger Associates, Inc. ("Berger"), an 80% owned
subsidiary.
Eliminations, Corporate & Other - Primarily general administrative and
corporate operations of the Registrant and other minor subsidiaries.
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction
with the Notes to Consolidated Condensed Financial Statements included in this
Form 10-Q and the financial statements and notes thereto included in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.
Recent Developments
DST Stock Offering - On October 31, 1995, DST and the Registrant effected an
initial public offering for a total of 22 million shares of DST Common stock.
The initial offering price was $21 per share. Of the 22 million shares,
19,450,000 and 2,550,000 were offered by DST and the Registrant, respectively.
In conjunction with the offering, the Registrant completed an exchange of
4,253,508 shares of DST Common stock for 1,820,000 shares of Registrant Common
stock held by the DST portion of the Employee Stock Ownership Plan. On
November 6, 1995, an over-allotment option, granted by the Registrant to the
underwriters, for an additional 3,300,000 DST shares owned by the Registrant
was exercised, effectively completing the DST offering. As a result of these
transactions, the Registrant owns approximately 41% of the outstanding Common
stock of DST. Accordingly, subsequent to the closing of these transactions,
DST will cease to be included in the Registrant's consolidation, and will be
accounted for as an equity investment in the future. See additional
discussion in Liquidity and Capital Resources within the Management's
Discussion and Analysis of Financial Condition and Results of Operations in
this Form 10-Q.
Stockholder Rights Plan - On September 19, 1995, the Registrant's Board of
Directors approved a Stockholder Rights Plan ("Plan"). Distribution of the
rights under that Plan will have no dilutive effect, will not affect reported
earnings per share, will not be taxable to the Registrant or stockholders and
will not change the manner in which the Registrant's shares are presently
traded. The Board declared a dividend of one right for each share of the
Registrant's Common stock outstanding to stockholders of record on October 12,
1995. The Rights will not be exercisable and will be inseparable from and
trade automatically with the Registrant's Common stock until certain events
occur (as defined in the Plan) which would trigger provisions of the rights.
A summary of the Plan is set forth herein under Part II, Item 5 of this Form
10-Q.
Dividend Reinvestment Plan - On September 19, 1995, the Registrant's Board of
Directors also adopted a dividend reinvestment plan which will allow
registered common stockholders to reinvest all or a portion of the dividends
on Common shares enrolled in the plan. Registered stockholders will also be
permitted to make additional cash payments to purchase up to $5,000 of
Registrant stock quarterly. The plan is expected to be implemented by January
1, 1996.
Mexrail, Inc. Investment - On November 10, 1995, the Registrant purchased 49%
of the common stock of Mexrail, Inc. ("Mexrail"), including Mexrail's
wholly-owned subsidiary, The Texas Mexican Railway Company ("Tex-Mex"), from
Transportacion Maritima Mexicana, S.A. de C.V. The Tex-Mex operates a rail
line extending from Corpus Christi to Laredo, Texas. The purchase price of
$23 million (which is subject to certain conditions) was financed through
existing credit lines. The investment will be accounted for under the equity
method of accounting.
Results of Operations
Segment revenues and operating income comparisons follow (dollars in
millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Transportation Services $ 139.0 $ 130.3 $ 407.8 $ 377.0
Information & Transaction Processing 122.7 98.8 353.9 297.4
Financial Asset Management 63.2 45.2 176.0 133.5
Eliminations, Corporate & Other (1.6) (.9) (3.5) (2.2)
Total $ 323.3 $ 273.4 $ 934.2 $ 805.7
Operating Income:
Transportation Services $ 28.7 $ 34.2 $ 61.7 $ 93.6
Information & Transaction Processing 11.2 5.4 32.7 27.0
Financial Asset Management 29.9 21.2 69.6 59.8
Eliminations, Corporate & Other (1.3) (3.7) (6.9) (8.5)
Total $ 68.5 $ 57.1 $ 157.1 $ 171.9
</TABLE>
The Registrant reported third quarter 1995 earnings of $28.9 million ($0.65
per share), slightly higher than the $28.6 million ($0.64 per share) earned in
the third quarter 1994. Consolidated revenues rose 18% to $323.3 million
compared to the prior period due to growth in all of the Registrant's primary
business segments. Operating income rose 20% to $68.5 million as compared to
$57.1 million in the third quarter 1994, primarily a result of improved
operating results in the Information & Transaction Processing and Financial
Asset Management segments. The increases in revenues and operating income
were substantially offset by i) increased interest expense due to higher debt
balances related to purchases of companies, investments in affiliates and
repurchase of Registrant Common stock and ii) reduced earnings on equity
investments, primarily due to DST's sale of Investors Fiduciary Trust Company
("IFTC"), which provided $1.7 million in pretax equity earnings during third
quarter 1994.
For the nine months ended September 30, 1995, earnings of $64.8 million ($1.45
per share) decreased 26% from the comparable prior period earnings of $88.0
million ($1.95 per share). However, year to date 1995 results include
approximately $19.7 million, or $0.44 per share, of unusual costs and expenses
incurred through the second quarter related to employee separations and other
personnel related activities, unusual system congestion related expenses, and
reserves for contracts, leases and property in the Transportation Services
segment. These costs and expenses were partially offset by a one-time net
gain of $4.7 million on the sale of DST's 50% investment in IFTC in exchange
for an approximate 4% Common stock interest in State Street Boston
Corporation, as previously reported in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
Third quarter and year to date 1995 results also include non-cash acquisition
related intangible amortization expenses of $0.09 per share and $0.26 per
share, respectively, as compared to $0.06 per share and $0.18 per share for
the third quarter and year to date 1994, respectively. The significant
increases in amortization expense in 1995 are due to DST acquisitions (SSC and
HiPortfolio), the fourth quarter 1994 Berger Associates, Inc. acquisition and
1995 additional purchase price payments, and the 1995 additional investment in
Janus Capital Corporation.
TRANSPORTATION SERVICES
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 139.0 $ 130.3 $ 407.8 $ 377.0
Costs and expenses 95.2 83.8 301.5 245.3
Depreciation and amortization 15.1 12.3 44.6 38.1
Operating income 28.7 34.2 61.7 93.6
Unconsolidated affiliates -- (.1) .1 (.1)
Interest expense (12.9) (12.0) (38.3) (32.6)
Pretax income 15.8 22.1 23.5 60.9
Income taxes 6.8 9.0 10.0 25.1
Net income $ 9.0 $ 13.1 $ 13.5 $ 35.8
</TABLE>
Transportation Services, comprised principally of The Kansas City Southern
Railway Company ("KCSR"), reported earnings of $9.0 million for the third
quarter 1995, approximately 31% below the $13.1 million for the same period in
1994. Although revenues rose 7% to $139.0 million as compared to third
quarter 1994, operating income declined from $34.2 million to $28.7 million,
primarily as a result of higher operating costs associated with continued
efforts to ease the system operating difficulties and increased traffic
volumes.
KCSR general commodity carloadings improved 6% in third quarter 1995 as
compared to the same period in 1994 on increased volumes in farm products,
pulp/paper, and chemicals and petroleum products, partially offset by lower
lumber/wood traffic. Intermodal units continued to outperform 1994,
experiencing a 46% volume improvement over third quarter 1994. Unit coal
revenues decreased approximately 4% due to fewer long hauls to an electric
utility generator plant served by KCSR, partially offset by an increase in
shorter hauls as a result of the resumption of shipments to a Monticello,
Texas electric utility plant ("TUMCO"), which had been out of service since
late 1993 and returned on line in June 1995.
KCSR operating expenses in third quarter 1995 were 11% higher than third
quarter 1994 due to ongoing costs associated with system operations as
previously discussed and higher traffic volumes. In particular, personnel
costs, materials and supplies, fuel and car hire expenses exceeded the amounts
incurred during the same period in 1994. Additionally, depreciation and
amortization expense rose 23% over third quarter 1994, reflecting the
completion of the KCSR roadbed improvement program in late 1994. Interest
expense for the three months ended September 30, 1995 was slightly higher than
the comparable prior period based on higher average debt balances during third
quarter 1995.
Transportation Services also included improved results from the Registrant's
Pabtex petroleum coke export facility because of higher volumes.
For the nine months ended September 30, 1995 as compared to the same period in
1994, Transportation Services contribution to the Registrant's consolidated
net income declined 62%, from $35.8 million to $13.5 million. Revenues
increased 8% to $407.8 million, resulting from volume increases in farm
products, pulp/paper, chemicals and petroleum products, and intermodal
traffic, but were more than offset by the previously discussed unusual costs
and expenses incurred in the second quarter, higher operational costs in the
third quarter, depreciation associated with the completion of the roadbed
improvement program and interest expense attributable to higher debt.
INFORMATION & TRANSACTION PROCESSING
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $122.7 $ 98.8 $353.9 $297.4
Costs and expenses 92.4 77.7 269.6 229.7
Depreciation and amortization 19.1 15.7 51.6 40.7
Operating income 11.2 5.4 32.7 27.0
Unconsolidated affiliates 4.1 6.4 13.0 17.6
Gain on sale of equity investment -- -- 39.7 --
Interest expense (7.3) (3.5) (17.9) (10.9)
Pretax income 8.0 8.3 67.5 33.7
Income taxes 3.4 2.9 44.6 10.3
Minority interest -- (.8) (.2) (1.1)
Net income $ 4.6 $ 6.2 $ 23.1 $ 24.5
</TABLE>
The Information & Transaction Processing (primarily comprised of DST Systems,
Inc. and affiliates) contribution to Registrant consolidated net income de-
clined 26% to $4.6 million during third quarter 1995 as compared to $6.2 million
in the same period in 1994, despite a $5.8 million or 107% increase in
operating income over the same period for prior year. The decline in earnings
is attributable to the absence of IFTC earnings ($1.7 million pre-tax in third
quarter 1994), increased depreciation and amortization expense (22% higher
than third quarter 1994) due to increased capital additions and the acquisi-
tions of SSC and HiPortfolio discussed in the Notes to Consolidated Condensed
Financial Statements in this Form 10-Q, and higher interest expense related
to the indebtedness associated with the $150 million dividend to the
Registrant in May 1995. Together these items reduced third quarter 1995 DST
net income by approximately $3.9 million after-tax, equivalent to $0.09 per
Registrant share.
DST consolidated revenues increased 24% to $122.7 million in third quarter
1995 as mutual fund shareowner accounts serviced (representative of the growth
in DST's mutual fund clients) rose to 35.5 million at September 30, 1995, an
increase of 13% over comparable September 30, 1994 and 11% over year end 1994,
leading to increased mutual fund processing volumes. The increase in revenues
helped raise operating income to $11.2 million, a 107% increase over the $5.4
million recorded in third quarter 1994. Operating income for DST's established
interrelated business activities increased to $11.4 million on a 15% increase
in mutual fund processing revenues over third quarter 1994, offset partially by
$2.1 million in expenses from i) transition costs associated with the
conversion of new accounts as a result of agreements with Kemper Service
Company and Kemper Financial Services, Inc., as previously reported, and ii)
increased accruals for a performance-based incentive compensation program in
connection with a 1991 acquisition, which program will be completed at
December 31, 1995.
DST's developmental and international business units reported operating losses
of $300,000 during third quarter 1995 as compared to a loss of $3.0 million
for the comparable period in 1994. The reduced loss in third quarter 1995 as
compared to 1994 is due to a 119% increase in revenues for these business
units (to $19.3 million) as compared to third quarter 1994 and the inclusion
of losses incurred by Clarke & Tilley Data Services ("CTDS") in 1994 results,
as they were not deconsolidated until the end of third quarter 1994 following
an ownership restructuring. Losses have continued for these units as a
result of costs and expenses increasing at a higher rate than revenues due to
continued product development and integration of acquired companies and
products to existing DST services. Both Belvedere Financial Systems, Inc.
and DBS Systems Corp. experienced losses due to these developmental efforts.
Equity in earnings of unconsolidated affiliates of $4.1 million for the third
quarter was 36% less than the $6.4 million recorded in the same period in
1994. As previously discussed, third quarter 1995 does not include any
earnings from IFTC, while the same period in 1994 included $1.7 million
pre-tax IFTC equity earnings. Additionally, DST deconsolidated CTDS, a
foreign joint venture, at the end of third quarter 1994. DST recorded equity
in CTDS losses of $700,000 during the third quarter 1995. Improved earnings
reported by The Continuum Company, Boston Financial Data Services, Inc. and
Argus Healths Systems, Inc., as a result of improved volumes for their
respective businesses, helped offset the decreases associated with IFTC and
CTDS.
Information & Transaction Processing's contribution to the Registrant's
consolidated net income decreased 6% to $23.1 million for the first nine
months of 1995 as compared to $24.5 million for the comparable period in 1994.
Revenues rose 19% to $353.9 million, including an increase of 96% from
developmental and international business units, during the nine months ended
September 30, 1995 versus the same period in 1994. Costs and expenses
increased 17% to $269.6 million, of which $51.8 million was attributable to
the developmental and international business units. The increase in costs was
partially due to $5.2 million in expenses related to the Kemper agreements
and performance-based incentive accruals as discussed previously.
Depreciation and amortization was $10.9 million (27%) higher in third quarter
1995 than third quarter 1994 as a result of increased capital additions and
the acquisitions of SSC and HiPortfolio. Equity in earnings of unconsoli-
dated affiliates decreased $4.6 million primarily due to the previously
discussed sale of IFTC in the first quarter 1995.
FINANCIAL ASSET MANAGEMENT
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 63.2 $ 45.2 $176.0 $133.5
Costs and expenses 29.9 22.7 96.7 67.7
Depreciation and amortization 3.4 1.3 9.7 6.0
Operating income 29.9 21.2 69.6 59.8
Interest expense (1.2) (.3) (3.8) (1.1)
Pretax income 28.7 20.9 65.8 58.7
Income taxes 11.8 8.2 27.0 22.9
Minority interest 3.1 2.5 7.6 7.1
Net income $ 13.8 $ 10.2 $ 31.2 $ 28.7
</TABLE>
Financial Asset Management, comprised of Janus Capital Corporation and Berger
Associates, Inc., contributed $13.8 million to third quarter 1995 consolidated
results, a 35% increase over the $10.2 million for the comparable period in
1994. Consolidated revenues increased 40% to $63.2 million and operating
income increased 41% to $29.9 million during the third quarter 1995 versus
third quarter 1994 as a result of an increase in assets under management to
$33.2 billion (an improvement of 28% over December 31, 1994) and the inclusion
of Berger as a consolidated subsidiary. Net income did not increase in
proportion to revenue and operating income due to increased intangible
amortization and interest expense associated with the acquisition of a
controlling interest in Berger in late 1994 along with additional purchase
price payments in 1995, and purchase of additional ownership in Janus in early
1995.
In addition to the growth in assets under management, shareholder accounts
grew to 2.5 million as compared to the 2.4 million at year end 1994.
Continued favorable market conditions during the third quarter of 1995 helped
to fuel the improvements in assets under management and shareholder accounts,
resulting in a revenue improvement. Operating expenses increased 32% to $29.9
million from $22.7 million recorded in the third quarter 1994, primarily
attributable to the inclusion of Berger as a consolidated subsidiary and
higher business volumes. As noted previously, depreciation and amortization
expense in third quarter 1995 exceeded the comparable period in 1994 by $2.1
million or 162% due to the acquisition of additional ownership in both Berger
and Janus.
For the nine months ended September 30, 1995, Financial Asset Management
contributed $31.2 million to the Registrant's consolidated results, $2.5
million or 9% greater than the comparable 1994 period. The first nine months
of 1995 included earnings of Berger, which was not consolidated until fourth
quarter 1994. Janus revenues increased 14% to $151.7 million for the nine
months ended September 30, 1995, while Berger revenues included in the
consolidated results were $24.3 million. Cost and expenses were 43% higher
for the nine months ended September 30, 1995 as compared to the same period in
1994, primarily attributable to the inclusion of Berger in consolidation and
increases in Janus marketing and promotional expenses incurred predominantly
in the first quarter of 1995. Depreciation and amortization during this
period was $3.7 million higher than the same period in 1994 due to the
previously discussed acquisitions of additional ownership in Berger and Janus.
ELIMINATIONS, CORPORATE & OTHER
<TABLE>
<CAPTION> Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ (1.6) $ (.9) $ (3.5) $(2.2)
Costs and expenses (.7) 1.4 1.8 4.8
Depreciation and amortization .4 1.4 1.6 1.5
Operating loss (1.3) (3.7) (6.9) (8.5)
Unconsolidated affiliates .1 .5 .1 .4
Interest income .9 .6 .7 4.9
Pretax loss (.3) (2.6) (6.1) (3.2)
Income tax (benefits) (1.8) (1.7) (3.1) (2.2)
Net income (loss) $ 1.5 $ (.9) $ (3.0) $(1.0)
</TABLE>
Eliminations, Corporate & Other recorded net income of $1.5 million versus a
loss of $0.9 million for the equivalent period in 1994, primarily due to
improved cost control at the KCSI Holding Company and the reduction of certain
employee retiree benefit accruals.
For the first nine months of 1995, Eliminations, Corporate & Other contributed
a net loss of $3.0 million as compared to a loss of $1.0 million for the
comparable period in 1994. Comparability with 1994 is affected by the
reversal in second quarter 1994 of certain employment tax and interest expense
accruals resulting from the favorable outcome of long standing employment tax
issues, which reduced overall 1994 costs and expenses.
TRENDS AND OUTLOOK
The Registrant reported earnings of $0.65 per share for the third quarter
1995, slightly higher than third quarter 1994 earnings of $0.64 per share.
Consolidated revenues increased 18% to $323.3 million from revenue growth in
all of the Registrant's primary business segments. Transportation Services
reported decreased earnings as system operating issues increased operational
costs disproportionately with the revenue increase associated with improved
traffic levels. Information & Transaction Processing reported lower results
due to the absence of earnings from IFTC and higher interest and amortization
expense. Financial Asset Management earnings were higher on increased
revenues at Janus and the inclusion of Berger in late 1994.
A current outlook for the remainder of 1995 is as follows:
i) Transportation Services - KCSR rail operations are expected to continue to
experience increased traffic levels, led by the intermodal, farm products,
chemicals, petroleum and paper/pulp components. Unit coal revenues, which are
slightly ahead of prior year's results, should reflect the benefits associated
with resumption of shipments to the "TUMCO" electric utility plant, but
otherwise generally equalize on an annual basis. Continued improvement to
system operations caused by increased traffic levels is anticipated throughout
the remainder of 1995.
ii) Financial Asset Management - Both Janus and Berger experienced growth of
assets under management in the third quarter, while shareholder accounts
improved slightly. Future growth will be largely dependent on prevailing
financial market conditions, which have generally been favorable in the first
nine months of 1995, and relative performance of Janus and Berger products.
Costs and expenses should continue at operating levels consistent with the
rate of growth, if any, in revenues.
iii) As noted previously, the Registrant will record a gain of approximately
$140 million, net of taxes, during fourth quarter 1995, as a result of the DST
public offering and associated transactions. The Registrant would expect to
experience continuing benefits from its equity partner relationship with DST
in the future.
Liquidity and Capital Resources
Summary cash flow data is as follows (in millions):
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1995 1994
<S> <C> <C>
Cash flows provided by (used for):
Operating activities $ 151.6 $ 187.5
Investing activities (238.5) (215.6)
Financing activities 88.8 50.6
Net increase in cash and equivalents 1.9 22.5
Cash and equivalents at beginning of year 12.7 6.6
Cash and equivalents at end of period $ 14.6 $ 29.1
</TABLE>
During the first nine months of 1995, the Registrant's cash position improved
from $12.7 million at December 31, 1994 to $14.6 million at September 30,
1995. Operating cash flows together with proceeds from issuance of additional
long term debt were used for property acquisitions, purchase of companies and
investment in affiliates. Operating cash flows for the first nine months of
1995 were $35.9 million lower than the comparable period in 1994, chiefly
attributable to lower net income, an increase in other current assets and a
decrease in accounts payable, partially offset by higher depreciation and
amortization and an increase in other accrued and current liabilities. Net
income includes a non cash gain of $4.7 million, net of deferred taxes, from
the sale of IFTC, as described more fully in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
For the nine months ended September 30, 1995, cash was invested in KCSR road
property and DST's expansion of its Winchester Data Center and related data
processing equipment needs. KCSR capital expenditures for property
acquisitions have declined approximately $38.2 million or 39% in the first
nine months of 1995 compared to the same period in 1994 due to the completion
of a long term capital improvement program in late 1994. Cash was also used
for the purchase of companies, primarily DST's acquisitions of SSC and
HiPortfolio, and additional investment in international companies.
Investments and loans with affiliates increased over the prior period
principally as a result of the January 1995 Janus minority restructuring.
Financing cash flows were generated through the issuance of long term debt in
excess of repayments. The debt proceeds were used for KCSR working capital
purposes, DST working capital and acquisition investments, and Registrant
Common stock repurchases. Additionally, the Registrant retired its remaining
Employee Stock Ownership Plan indebtedness by making payments of $13.2 million
during 1995, comprised of a $4.2 million scheduled payment and $9.0 million in
accelerated payments.
As a result of the DST public offering, operating cash flows provided by DST
will no longer be available to the Registrant as DST will be deconsolidated,
and therefore, Registrant operating cash flows are expected to decline. This
decline, however, will be partially offset by lower Registrant interest
expense as a result of decreased debt balances from Registrant repayment of
credit lines with proceeds from the offering. Additionally, cash flows
from operations generated by the Registrant's Transportation Services and
Financial Asset Management segments are expected to increase during the final
quarter of 1995 from positive operating income, which have historically
provided favorable cash flows, and higher levels of depreciation and
amortization than prior year. Investing activities, such as roadway
improvement investments, will continue to use significant amounts of cash,
although such amounts will be lower than 1994 levels as a result of the
completion of both KCSR's roadbed capital improvement program and
expansion of the DST Winchester Data Center. The Registrant anticipates that
capital expenditures will be funded primarily by operating cash flow and
through the issuance of long term debt as required.
As further discussed under "Recent Developments" in Part I, Item 2 of this
Form 10-Q, the completion of the DST public offering on October 31, 1995 will
provide the Registrant with more than $200 million, net of taxes, through the
sale of 5,850,000 shares of DST Common stock and repayment by DST of
outstanding indebtedness to the Registrant. Such proceeds are anticipated to
be used for Registrant debt repayment, repurchase of Registrant Common stock
and general corporate purposes. See additional information in Part II, Item 5
"Pro Forma Financial Information" in this Form 10-Q.
In addition to operating cash flows and the proceeds generated from the DST
public offering, the Registrant has available financing arrangements at
subsidiary levels and remaining credit of $137 million at September 30, 1995
from the Registrant's previously described new $400 million credit agreement.
Also, proceeds are available with respect the Registrant's $200 million Note
and Medium Term Notes shelf filing (of which $100 million were unused at
September 30, 1995), and $500 million with respect to a Universal Shelf
Offering filed in September 1993 and as amended April 19, 1995. 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 positive operating
cash flows, proceeds from the DST public offering and available financing
resources are sufficient to fund working capital and other requirements for
the remainder of 1995.
The Registrant's debt ratio (total debt as a percent of total debt plus
equity) at September 30, 1995 was 61.9% compared to 59.6% as of December 31,
1994. While consolidated equity increased during the first nine months of
1995, consolidated debt more than proportionately increased as a result of
borrowings to finance acquisitions, investments and Registrant Common stock
repurchases as described earlier. It is anticipated that the debt ratio will
decline by December 31, 1995 primarily from the use of cash proceeds from the
DST stock offering, partially offset by repurchases of Registrant Common
stock. <PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part I, Item 1, Note 13 to the Consolidated Condensed Financial Statements of
this Form 10-Q is hereby incorporated herein by reference.
Item 5. Other Information
Public Offering of DST Systems, Inc.
On October 31, 1995, DST Systems, Inc. ("DST") and the Registrant effected an
initial public offering for a total of 22 million shares of DST Common stock.
The initial offering price was $21 per share. Of the 22 million shares,
19,450,000 and 2,550,000 were offered by DST and the Registrant, respectively.
On November 6, 1995, an over-allotment option, granted by the Registrant to
the underwriters, for an additional 3,300,000 DST shares owned by the
Registrant was exercised, effectively completing the DST offering. The net
proceeds received by DST have been used to reduce outstanding indebtedness to
the Registrant and banks, and for working capital. The net proceeds received
by the Registrant have been or will be used for repayment of debt, repurchase
of Registrant Common stock and general corporate purposes. In conjunction
with the offering, the Registrant completed an exchange of 4,253,508 shares of
DST Common stock for 1,820,000 shares of Registrant Common stock held by the
DST portion of the Employee Stock Ownership Plan ("ESOP"). Upon completion of
all associated transactions, the Registrant will own approximately 41% of the
outstanding Common stock of DST, and will recognize an estimated one-time
gain of approximately $140 million, net of taxes, during fourth quarter 1995.
DST will cease to be included in the Registrant's consolidation, and will be
accounted for as an equity investment in accordance with the Registrant's
accounting policy described more fully in Note 1 of the Registrant's Annual
Report to Stockholders on Form 10-K for the year ended December 31, 1994. The
ESOP, a plan for Registrant and DST employees not covered by collective
bargaining agreements, was amended to a multi-employer plan prior to the DST
offering.
Pro Forma Financial Information
The following unaudited pro forma financial statements give effect to the
public offering of DST Common stock and associated transactions as of
September 30, 1995 for balance sheet purposes; January 1, 1995 for income
statement purposes covering the nine months ended September 30, 1995; and
January 1, 1994 for income statement purposes covering the year ended December
31, 1994, after giving effect to the pro forma adjustments described in the
accompanying notes. The pro forma financial information is based on, and
should be read in conjunction with, the historical financial statements and
notes related thereto of the Registrant which are on file with the Securities
and Exchange Commission (File No. 1-4717).
<PAGE>
The following summarizes selected pro forma financial information of the
Registrant assuming the DST Systems, Inc. Common stock public offering and
associated transactions had been completed September 30, 1995.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Registrant Pro Forma
Historical Adjustments Pro Forma
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and equivalents $ 14.6 $ 6.7 (3) $ 21.3
Accounts receivable, net 263.3 (126.5)(2) 136.8
Inventories 47.7 (8.0)(2) 39.7
Other current assets 102.1 (21.2)(2) 80.9
Total current assets 427.7 (149.0) 278.7
Investments (held for
operating purposes) 291.8 (51.6)(4) 240.2
Properties (net of $740.6
accumulated depreciation
and amortization) 1,505.1 (231.2)(2) 1,273.9
Intangibles and Other Assets, net 282.5 (78.3)(2) 204.2
Total assets $2,507.1 $ (510.1) $1,997.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year $ 96.4 $ (78.9)(2) $ 17.5
Accounts and wages payable 129.4 (48.5)(2) 80.9
Other accrued and current
liabilities 166.2 (38.8)(2) 127.4
Total current liabilities 392.0 (166.2) 225.8
Other Liabilities:
Long-term debt 1,038.1 (274.3)(5) 763.8
Deferred income taxes 265.8 27.0 (6) 292.8
Other deferred credits
and liabilities 103.1 (36.6)(2) 66.5
Total other liabilities 1,407.0 (283.9) 1,123.1
Minority Interest 11.3 (0.7)(2) 10.6
Stockholders' Equity:
Preferred stock 7.1 7.1
Common stock .4 .4
Capital surplus 304.0 (201.5)(7) 102.5
Retained earnings 585.3 142.2 (6) 727.5
Shares held in trust (200.0) (200.0)
Total stockholders' equity 696.8 (59.3) 637.5
Total liabilities and
stockholders' equity $2,507.1 $ (510.1) $1,997.0
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.<PAGE>
The following summarizes selected pro forma financial information of the
Registrant assuming the DST Systems, Inc. Common stock public offering and
associated transactions had been completed January 1, 1995.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(Dollars in Millions, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Registrant Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues $ 934.2 $ (340.8)(2) $ 593.4
Costs and expenses 669.6 (265.5)(2) 404.1
Depreciation and amortization 107.5 (51.6)(2) 55.9
Operating Income 157.1 (23.7) 133.4
Equity in net earnings of
unconsolidated affiliates 13.2 (1.8)(8) 11.4
Gain on sale of equity investment 39.7 (39.7)(2) -
Interest expense (59.3) 22.2 (9) (37.1)
Pretax income 150.7 (43.0) 107.7
Provision for taxes on income 78.5 (37.9)(10) 40.6
Income before minority interest 72.2 (5.1) 67.1
Minority interest 7.4 0.2 (2) 7.6
Net Income $ 64.8 $ (5.3) $ 59.5
Primary Earnings per Common Share:
(based upon weighted average shares
outstanding of 44,493,000 historical
and 40,173,000 pro forma)(11) $ 1.45 $ 1.48
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.<PAGE>
The following summarizes selected pro forma financial information of the
Registrant assuming the DST Systems, Inc. Common stock public offering and
associated transactions had been completed January 1, 1994.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(Dollars in Millions, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Registrant Pro Forma
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Revenues $1,097.9 $(391.3)(2) $706.6
Costs and expenses 776.3 (307.6)(2) 468.7
Depreciation and amortization 119.1 (57.3)(2) 61.8
Operating Income 202.5 (26.4) 176.1
Equity in net earnings of
unconsolidated affiliates 24.8 (10.4)(8) 14.4
Interest expense (53.6) 16.4 (9) (37.2)
Pretax income 173.7 (20.4) 153.3
Provision for taxes on income 63.5 (8.9)(10) 54.6
Income before minority interest 110.2 (11.5) 98.7
Minority interest 5.3 1.1 (2) 6.4
Net Income $ 104.9 $ (12.6) $ 92.3
Primary Earnings per Common Share:
(based upon weighted average shares
outstanding of 45,061,000 historical
and 40,741,000 pro forma)(11) $ 2.32 $ 2.26
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.<PAGE>
Kansas City Southern Industries, Inc.
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
General
Note 1:
On October 31, 1995, DST Systems, Inc. ("DST"), formerly a wholly owned
subsidiary of the Registrant, and the Registrant effected an initial public
offering for DST Common stock. In conjunction with the offering, the
Registrant exchanged shares of its DST Common stock for 1,820,000 shares of
Registrant Common stock held by the DST portion of the Employee Stock
Ownership Plan ("ESOP"). With the completion of these transactions, the
Registrant owns approximately 41% of the outstanding DST Common stock.
Accordingly, DST will cease to be included in the Registrant's consolidation,
and will be accounted for as an equity investment.
The accompanying unaudited pro forma income statements give effect to i) the
public offering of DST shares by KCSI and DST and the use of resulting net
proceeds for each company, respectively, ii) the exchange of the DST shares
for KCSI shares held by the ESOP, iii) the exchange by DST of its 50% interest
in IFTC for shares of State Street common stock on January 31, 1995 as
previously discussed in this Form 10-Q and iv) the $150 million cash dividend
paid by DST to the Registrant in May 1995, assuming these transactions
occurred on January 1, 1995 for the nine months ended September 30, 1995; and
January 1, 1994 for the year ended December 31, 1994. However, in accordance
with Securities and Exchange Commission rules and regulations, the pro forma
income statements exclude the effect of the one-time gain recognized by the
Registrant in connection with these transactions. The accompanying unaudited
pro forma balance sheet gives effect to transactions i) and ii) above
assuming these transactions occurred on September 30, 1995.
As a result of transactions i) and ii) above, the Registrant will receive net
proceeds, after applicable income taxes, of approximately $200 million. As
more fully discussed in the following Notes, these proceeds are assumed to be
used to repurchase Registrant Common stock in the amount of $116.6 million
and to repay $75.0 million of unsecured lines of credit. The remaining
amount is assumed to be used for general corporate purposes. The $150
million in proceeds from transaction iv) above were used principally for
repayment of Registrant's unsecured lines of credit.
The pro forma consolidated financial data presented herein is based on certain
assumptions and do not purport to represent what the Registrant's results of
operations would have been had such transactions, in fact, occurred at the
dates indicated, or to project the Registrant's results of operations or
financial condition to any future date or period. The pro forma financial
data are based upon and should be read in conjunction with the historical
consolidated financial statements including the notes thereto, included in
this Form 10-Q and the Registrant's Annual Report to Form 10-K for the year
ended December 31, 1994.
Note 2:
Assuming the DST public offering and ESOP share exchange occurred on January
1, 1995 or January 1, 1994 for pro forma income statement purposes or
September 30, 1995 for the pro forma balance sheet, DST's assets, liabilities
and various income statement components would not have been included in the
Registrant's consolidated financial statements in the periods presented.
These amounts include consideration of elimination entries made by the
Registrant (as presented in the Registrant's Eliminations, Corporate & Other
segment) required for consolidation, and therefore will differ from DST
historical amounts.
Unaudited Pro Forma Consolidated Condensed Balance Sheet
Note 3:
Reflects the proceeds received by the Registrant in connection with the sale
of 5,850,000 shares (2,550,000 initial, 3,300,000 secondary) of DST common
stock, associated taxes due as a result of the offerings and ESOP exchange,
repayment by DST (from their portion of offering proceeds) of intercompany
debt and related interest owed to the Registrant, and the Registrant's use of
proceeds to repay outstanding debt on unsecured lines of credit as follows (in
millions):
<TABLE>
<S> <C>
DST cash balance deconsolidated (Note 2) $ (4.3)
Proceeds from Registrant offering
of DST Common stock, net of taxes on
offering and ESOP exchange 37.5
DST repayment of intercompany debt
and interest to Registrant 165.1
Registrant repayment on lines of credit (75.0)
Repurchase of Registrant Common stock (116.6)
$ 6.7
</TABLE>
Note 4:
Reflects the Registrant's net increase in its investment basis in DST as a
result of the offering and ESOP exchange transactions as follows (in millions):
<TABLE>
<S> <C>
DST investment balance deconsolidated, net
of Registrant investment in DST (Note 2) $(144.5)
Registrant basis write-up in DST, net 92.9
$ (51.6)
</TABLE>
Note 5:
Assumes Registrant uses $75 million of proceeds received from the offering to
repay existing unsecured lines of credit as follows (in millions):
<TABLE>
<S> <C>
DST external long term debt balance
deconsolidated (Note 2) $(199.3)
Registrant repayment on lines of credit (75.0)
$(274.3)
</TABLE>
Note 6:
The pro forma adjustments to retained earnings and deferred income taxes
reflect the estimated one-time gain recognized by the Registrant as a result
of the offering and ESOP exchange transactions as follows (in millions):
<TABLE>
<S> <C>
Estimated one-time after tax gain on DST
offering and ESOP exchange $ 142.2
DST deferred income tax balance
deconsolidated (Note 2) $ (46.0)
Deferred income tax impact to the
Registrant related to offering 73.0
$ 27.0
</TABLE>
Note 7:
Reflects the value of the Registrant shares received in connection with the
ESOP exchange transaction and the assumed repurchase of 2,500,000 shares of
Registrant Common stock (using an assumed price of $46 5/8 and to be treated
as treasury stock) as follows (in millions):
<TABLE>
<S> <C>
ESOP exchange $ (84.9)
Repurchase of Registrant Common stock (116.6)
$(201.5)
</TABLE>
Unaudited Pro Forma Consolidated Condensed Income Statements
Note 8:
Reflects the Registrant's approximate 41% equity in the pro forma net earnings
of DST, assuming the offering and ESOP exchange transactions occurred at
January 1, 1995 or January 1, 1994. DST pro forma earnings for these periods
have been adjusted to assume the IFTC sale occurred at the beginning of the
respective year, and for the elimination of historical interest expense due to
DST repayment of existing debt balances from their portion of the offering
proceeds.
<TABLE>
<S> <C>
For the nine months ended September 30, 1995 (in millions):
DST equity in net earnings of unconsolidated
affiliates deconsolidated (Note 2) $ (13.0)
Registrant's approximate 41% equity in
DST's pro forma earnings 11.2
$ (1.8)
For the year ended December 31, 1994 (in millions):
DST equity in net earnings of unconsolidated
affiliates deconsolidated (Note 2) $ (24.5)
Registrant's approximate 41% equity in
DST's pro forma earnings 14.1
$ (10.4)
</TABLE>
Note 9:
Reflects the elimination of historical interest expense due to the repayment of
the Registrant's unsecured lines of credit from the assumed use of i) $75
million in proceeds from the offerings and repayment of DST intercompany debt
and related interest, and ii) the entire $150 million cash dividend by DST to
the Registrant, at January 1, 1995 or January 1, 1994 as follows (in millions):
<TABLE>
<S> <C>
For the nine months ended September 30, 1995:
DST interest expense
deconsolidated (Note 2) $ (9.8)
Reduction in Registrant interest expense on
unsecured lines of credit (12.4)
$ (22.2)
For the year ended December 31, 1994:
DST interest expense
deconsolidated (Note 2) $ (5.6)
Reduction in Registrant interest expense on
unsecured lines of credit (10.8)
$ (16.4)
</TABLE>
Note 10:
Reflects the income tax effects for the pro forma adjustments using the
Registrant's combined federal and state statutory tax rates as follows:
<TABLE>
<S> <C>
For the nine months ended September 30, 1995:
DST provision for taxes on income
deconsolidated (Note 2) $ (43.7)
Reduction of Registrant's interest expense 4.9
Registrant's approximate 41% interest in
DST pro forma earnings (net of dividends
received deduction) 0.9
$ (37.9)
For the year ended December 31, 1994:
DST provision for taxes on income
deconsolidated (Note 2) $ (14.3)
Reduction of Registrant's interest expense 4.3
Registrant's approximate 41% interest in
DST pro forma earnings (net of dividends
received deduction) 1.1
$ (8.9)
</TABLE>
Note 11:
Assumes the reduction in shares outstanding as a result of the 1,820,000
shares received by the Registrant in connection with the ESOP exchange
transaction and use of net proceeds from the offering to repurchase 2,500,000
shares of Registrant stock at an assumed price of $46 5/8, the price used in
the ESOP exchange on October 31, 1995.<PAGE>
Stockholder Rights Plan
Summary of Rights to Purchase Series A Preferred Stock
On September 19, 1995, the Board of Directors of Kansas City Southern
Industries, Inc. (the "Company") declared a dividend distribution of one Right
for each outstanding share of the Company's Common Stock, $0.01 par value per
share (the "Common Stock"), of the Company to the stockholders of record on
October 12, 1995, (the "Record Date"). Each Right entitles the registered
holder to purchase from the Company 1/1,000ths of a share of Series A
Preferred Stock (the "Preferred Stock") or in some circumstances, Common
Stock, other securities, cash or other assets as summarized below at a price
of $210.00 per share (the "Purchase Price"), (both shares and price are
subject to adjustment as described below). The complete terms and conditions
of the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and Harris Trust & Savings Bank, as Rights Agent, dated as
of September 19, 1995, as may be amended from time to time. Capitalized terms
not defined herein are defined in the Rights Agreement.
Each share outstanding on the Record Date will receive one Right. Until the
Distribution Date (or the earlier redemption or expiration of the Rights),
shares of Common Stock issued (whether newly issued or from treasury) will
have the Rights automatically attached. Following the Distribution Date,
shares of Common Stock issued will be accompanied by Rights only in certain
instances.
In the event that a Person or group of affiliated or associated persons (an
"Acquiring Person") becomes the beneficial owner of or announces a tender or
exchange offer for 20 percent or more of the outstanding shares of Common
Stock of the Company (or 15 percent in the case the Independent Directors
determine such Person is an "Adverse Person"), proper provision shall be made
so that each holder of a Right, other than of Rights that are or were
beneficially owned by the Acquiring Person (which will thereafter be null and
void), will thereafter have the right to receive upon exercise that number of
shares of the Preferred Stock (or in certain circumstances, Common Stock or
assets or other securities of the Company) having a market value of two times
the exercise price of the Right. In the event that the Company were acquired
in a merger or other business combination transaction (other than pursuant to
a Permitted Offer) or more than 50 percent of the Company's (together with its
subsidiaries) assets or earning power were sold, proper provision shall be
made so that each holder of a Right, other than of Rights that are or were
beneficially owned by an Acquiring Person (which will thereafter be null and
void) shall thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of the Right, that number of shares of the
highest priority voting securities of the acquiring company (or certain of its
affiliates) that at the time of such transaction would have a market value of
two times the exercise price of the Right. If the Rights are exercised to
acquire the Preferred Stock, then the Rights will not be exercisable to
acquire the securities of any Acquiring Person.
Until ten calendar days following the earlier to occur of (unless extended by
the Board of Directors and subject to the earlier redemption or expiration of
the Rights): (i) the date of a public announcement that an Acquiring Person
acquired, or obtained the right to acquire, beneficial ownership of 20 percent
or more of the outstanding shares of the Common Stock of the Company (or 15
percent in the case the Independent Directors determine such Person is an
"Adverse Person"), or (ii) the commencement or announcement of an intention to
make a tender offer or exchange offer (other than a Permitted Offer) that
would result in an Acquiring Person beneficially owning 20 percent or more of
such outstanding shares of Common Stock of the Company (or 15 percent in the
case the Independent Directors determine such Person is an "Adverse
Person")(the earlier of such dates being called the "Distribution Date"), the
Rights will be evidenced, with respect to any of the Company's Common Stock
certificates outstanding as of the Record Date, by such Common Stock
certificate. The certificates for shares of Common Stock issued after the
Record Date, but prior to the Distribution Date will have a notation
referencing the Rights Agreement. The Rights Agreement provides that, until
the Distribution Date, the Rights will be transferred with and only with the
Company's Common Stock, and until the Distribution Date (or earlier redemption
or expiration of the Rights), the surrender for transfer of any of the
Company's Common Stock certificates outstanding as of the Record Date, will
also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Company's Common
Stock as of the close of business on the Distribution Date and such separate
Rights Certificates alone will evidence the Rights.
Permitted Offer is defined in the Rights Agreement as a tender offer that is
for all outstanding Common Stock of the Company at a price and on terms
determined to be adequate prior to the purchase of shares under such tender or
exchange offer, by at least a majority of the Independent Directors, taking
into account all factors that such directors deem relevant including, without
limitation, prices that could reasonably be achieved if the Company or its
assets were sold on an orderly basis designed to realize maximum value and
otherwise in the best interests of the Company and its stockholders (other
than the Person or any Affiliate or Associate thereof for whose benefit the
offer is being made).
An Independent Director means any member of the Board of Directors of the
Company, while such person is a member of the Board, who is not an Acquiring
Person, an Affiliate or Associate of an Acquiring Person, or a representative
or nominee of an Acquiring Person or of any such Affiliate or Associate and
was a member of the Board prior to the Share Acquisition Date, and any
successor of an Independent Director, while such successor is a member of the
Board, who is not an Acquiring Person, an Affiliate or Associate of an
Acquiring Person, or representative or nominee of an Acquiring Person or of
any such Affiliate or Associate, and who is recommended or elected to succeed
the Independent Director by a majority of the remaining Independent Directors.
The Purchase Price payable, and the number of shares of Preferred Stock (or
Common Stock, other securities, cash or other assets, as the case may be)
issuable upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of the Preferred Stock, (ii) upon
the grant to holders of the Preferred Stock of certain rights or warrants to
subscribe for shares of the Preferred Stock or convertible securities at less
than the current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends out of earnings or retained
earnings or dividends payable in the Preferred Stock) or of subscription
rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1 percent in
such Purchase Price. No fractional shares will be issued (other than
fractional shares which are integral multiples of 1/1,000ths of a share of
Preferred Stock) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the Preferred Stock on the last Trading Date
prior to the date of exercise.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on October 12, 2005, unless earlier redeemed by the Company as
described below.
At any time prior to 5:00 p.m. Kansas City, Missouri time on the tenth
calendar day after the first date after the public announcement that an
Acquiring Person has acquired beneficial ownership of 20 percent (or 15
percent in some instances) or more of the outstanding shares of the Common
Stock of the Company (the "Share Acquisition Date"), the Company may redeem
the Rights in whole, but not in part, at a price of $0.005 per Right (the
"Redemption Price"). Following the Share Acquisition Date, but prior to an
event listed in Section 13(a) of the Rights Agreement (i.e. a merger,
consolidation or sale of more than 50 percent of the assets or earnings power
of the Company and its subsidiaries), the Company may redeem the Rights in
connection with any event specified in Section 13(a) in which all stockholders
are treated alike and which does not include the Acquiring Person or its
Affiliates or Associates. In addition, the Company's right of redemption may
be reinstated following an inadvertent trigger of the Rights (as determined by
the Board) if an Acquiring Person reduces its beneficial ownership to 10
percent or less of the outstanding shares of Common Stock of the Company in a
transaction or series of transactions not involving the Company. Immediately
upon the action of the Board of Directors of the Company electing to redeem
the Rights, the Company shall make announcement thereof, and upon such
election, the right to exercise the Rights will terminate and the only right
of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders of the Company, stockholders may, depending on the
circumstances, recognize taxable income in the event that the Rights become
exercisable for the Preferred Stock (or other securities, as the case may be)
of the Company.
Prior to the Distribution Date the Company may amend or supplement any
provision of the Rights Agreement without the consent of the holders of the
Rights. Following the Distribution Date, the Company may amend the provisions
of the Rights Agreement in order to cure any ambiguity, to correct any defect
or inconsistency, to make changes deemed necessary or desirable so long as
such changes do not adversely affect the interests of the holders of the
Rights (excluding the interests of any Acquiring Person and its affiliates and
associates). In either case, however, the Company may not amend or supplement
the Rights Agreement to change or supplement the Redemption Price, Final
Expiration Date, the Purchase Price or the number of 1/1,000ths of a share of
Preferred Stock for which a Right is exercisable.
The Rights may have the effect of impeding a change in control of the Company
without the prior consent of the Company's Board of Directors, and the Rights
could cause substantial dilution to a person that attempts to acquire the
Company without conditioning the offer on redemption of the Rights by the
Company's Board of Directors or on the acquisition by such person of a
substantial number of Rights. The Rights will not interfere with any
Permitted Offer for all of the outstanding Common Stock that has the approval
of the Independent Directors.
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to the Registrant's Registration Statement on Form
8-A (File No. 1-4717) dated October 24, 1995, and this summary is qualified
by reference thereto. A copy of the Rights Agreement is available free of
charge from the Company by written request to Kansas City Southern Industries
Inc., 114 West 11th Street, Kansas City, Missouri 64105. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference. In the event of a conflict between this
summary and the Rights Agreement, the Rights Agreement will prevail.
Dividend Reinvestment Plan
On September 19, 1995, the Registrant's Board of Directors adopted a dividend
reinvestment plan which will allow registered common stockholders to reinvest
all or a portion of the dividends on Common shares enrolled in the plan.
Registered stockholders will also be permitted to make additional cash
payments to purchase up to $5,000 of Registrant stock quarterly. The plan is
expected to be implemented by January 1, 1996.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 4.1 - Stockholder Rights Plan
The Rights Agreement by and between the Registrant and Harris Trust and
Savings Bank dated as of September 19, 1995 and attached as Exhibit 99 to
the Form 8-A dated (File No. 1-4717) October 24, 1995, which has been
filed with the Commission, is hereby incorporated herein by reference
pursuant to Rule 12b-32 as Exhibit 4.1
Exhibit 10.1 - Tax Disaffiliation Agreement
The Tax Disaffiliation Agreement by and between the Registrant and DST
Systems, Inc. dated as of October 23, 1995, which has been filed with the
Commission as Exhibit 10.4 in the DST Systems, Inc. Registration Statement
on Form S-1 dated September 1, 1995 (Registration No. 33-96526), is hereby
incorporated herein by reference pursuant to Rule 12b-32 as Exhibit 10.1.
Exhibit 10.2 - Form of the Employee Stock Ownership Plan, as amended
The Employee Stock Ownership Plan, as amended, dated October 26, 1995,
which has been filed with the Commission as Exhibit 10.6 in the DST
Systems, Inc. Registration Statement on Form S-1 dated September 1, 1995
(Registration No. 33-96526), is hereby incorporated herein by reference
pursuant to Rule 12b-32 as Exhibit 10.2.
Exhibit 27.1 - Financial Data Schedule<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
November 13, 1995.
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)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE, SUBMITTED AS EXHIBIT 27.1 TO FORM 10-Q, CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEET
AND STATEMENT OF INCOME OF KANSAS CITY SOUTHERN INDUSTRIES, INC., COMMISSION
FILE NUMBER 1-4717, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 14,600,000
<SECURITIES> 0
<RECEIVABLES> 263,300,000
<ALLOWANCES> 0
<INVENTORY> 47,700,000
<CURRENT-ASSETS> 427,700,000
<PP&E> 2,245,700,000
<DEPRECIATION> 740,600,000
<TOTAL-ASSETS> 2,507,100,000
<CURRENT-LIABILITIES> 392,000,000
<BONDS> 1,038,100,000
<COMMON> 400,000
0
7,100,000
<OTHER-SE> 689,300,000
<TOTAL-LIABILITY-AND-EQUITY> 2,507,100,000
<SALES> 0
<TOTAL-REVENUES> 934,200,000
<CGS> 0
<TOTAL-COSTS> 777,100,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,300,000
<INCOME-PRETAX> 150,700,000
<INCOME-TAX> 78,500,000
<INCOME-CONTINUING> 64,800,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,800,000
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 0
</TABLE>
