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, 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 April 30, 1995
Common Stock, $0.01 par value 43,505,659 Shares
<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
MARCH 31, 1995
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 1
Consolidated Condensed Balance Sheets -
March 31, 1995 and December 31, 1994 2
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 1995 and 1994 3
Computation of Primary Earnings per Common Share 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 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 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, 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.
[Page 1]<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
ASSETS
<S> <C> <C>
Current Assets:
Cash and equivalents $ 19.3 $ 12.7
Accounts receivable, net 247.6 232.3
Inventories 50.0 46.6
Other current assets 86.5 88.5
Total current assets 403.4 380.1
Investments (held for operating purposes) 260.6 214.6
Properties (net of $715.1 and $686.0 accumulated
depreciation and amortization, respectively) 1,439.0 1,415.3
Intangibles and Other Assets 251.1 220.8
Total assets $2,354.1 $2,230.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Debt due within one year $ 63.3 $ 56.4
Accounts and wages payable 96.8 140.8
Other accrued and current liabilities 147.5 142.4
Total current liabilities 307.6 339.6
Other Liabilities:
Long-term debt 1,002.9 928.8
Deferred income taxes 245.7 204.2
Other deferred credits and liabilities 93.6 80.5
Total other liabilities 1,342.2 1,213.5
Minority Interest 10.3 10.5
Stockholders' Equity:
Preferred stock 7.1 7.1
Common stock .4 .4
Capital surplus 339.2 338.0
Retained earnings 554.6 530.1
Shares held in trust (200.0) (200.0)
ESOP deferred compensation (7.3) (8.4)
Total stockholders' equity 694.0 667.2
Total liabilities and stockholders' equity $2,354.1 $2,230.8
</TABLE>
See accompanying notes to consolidated condensed financial statements.
[Page 2]
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,
1995 1994
<S> <C> <C>
Revenues $ 302.2 $ 265.1
Costs and expenses 213.7 180.7
Depreciation & amortization 32.9 28.2
Operating Income 55.6 56.2
Equity in net earnings of
unconsolidated affiliates 4.0 6.0
Gain on sale of equity investment 39.7
Interest expense (19.5) (15.0)
Pretax income 79.8 47.2
Provision for taxes on income 50.7 17.6
Income before minority interest 29.1 29.6
Minority interest 1.7 2.0
Net Income $ 27.4 $ 27.6
Computation of Primary Earnings per Common Share
Average Primary Common
Shares Outstanding(in thousands) 45,050 45,091
Primary Earnings per Common Share $ .61 $ .61
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 3]<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income $ 27.4 $ 27.6
Adjustments to net income:
Depreciation and amortization 32.9 28.2
Deferred income taxes 45.4 8.1
Equity in undistributed earnings (3.7) (6.0)
Gain on sale of equity investment (39.7) --
Changes in working capital items:
Accounts receivable (10.7) (20.8)
Inventories (3.3) (1.0)
Other current assets (1.5) (8.5)
Accounts payable (44.8) 10.4
Other accrued and current liabilities 5.4 7.0
Other, net 3.2 1.1
Net 10.6 46.1
INVESTING ACTIVITIES:
Property acquisitions (40.8) (72.5)
Proceeds from disposal of property 2.2 4.4
Investment acquisitions (32.1) (21.6)
Purchase of companies, net of cash acquired (10.0) --
Other, net 1.2 10.0
Net (79.5) (79.7)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 91.7 85.5
Repayment of long-term debt (14.4) (38.8)
Proceeds from stock plans 1.5 1.3
Stock repurchased -- (9.5)
Cash dividends paid (3.2) (3.3)
Other, net (.1) 2.3
Net 75.5 37.5
CASH AND EQUIVALENTS
Net increase 6.6 3.9
At beginning of year 12.7 6.6
At end of period $ 19.3 $ 10.5
</TABLE>
See accompanying notes to consolidated condensed financial statements.
[Page 4]<PAGE>
KANSAS CITY SOUTHERN INDUSTRIES, INC.
FORM 10-Q
MARCH 31, 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 March 31, 1995 and December 31, 1994, the results
of operations for the three months ended March 31, 1995 and 1994, and cash
flows for the three months ended March 31, 1995 and 1994.
2. The results of operations for the three months ended March 31, 1995 and
1994 are not necessarily indicative of the results to be expected for the full
year 1995, nor the results experienced for the full year 1994.
3. The accompanying financial statements have been prepared consistent with
accounting principles described more fully in Note 1 of the Registrant's 1994
Annual Report to Stockholders.
4. The Registrant's inventories, $50.0 million at March 31, 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 March 31, 1995, include the equity interests of DST Systems, Inc.
("DST") in Boston Financial Data Services, Inc., 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.
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.
[Page 5]<PAGE>
Combined condensed financial information of unconsolidated affiliates is
shown below (dollars in millions):
<TABLE>
<CAPTION>
Financial Condition
March 31, December 31,
1995 1994
<S> <C> <C>
Current assets $ 388.5 $ 1,129.7
Non-current assets 139.7 143.6
Assets $ 528.2 $ 1,273.3
Current liabilities $ 276.0 $ 933.9
Non-current liabilities 78.0 73.2
Equity of stockholders and partners 174.2 266.2
Liabilities and equity $ 528.2 $ 1,273.3
Investment in unconsolidated affiliates $ 210.2 $ 166.5
</TABLE>
<TABLE>
<CAPTION>
Operating Results
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Revenues:
IFTC $ -- $ 10.2
All others 168.2 143.4
Total Revenues $ 168.2 $ 153.6
Costs and expenses:
IFTC $ -- $ 7.3
All others 156.9 132.6
Total Costs and Expenses $ 156.9 $ 139.9
Net Income:
IFTC $ -- $ 2.9
All others 11.3 10.8
Total Net Income $ 11.3 $ 13.7
Equity in Earnings:
IFTC $ -- $ 1.5
All others 4.0 4.5
Total Equity in Earnings $ 4.0 $ 6.0
</TABLE>
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:
<TABLE>
<CAPTION>
a. Cash Flow Information (in millions):
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Interest paid $ 27.8 $ 22.5
Income taxes paid (refunded) 6.6 (9.6)
</TABLE>
[Page 6]<PAGE>
b. Noncash Investing and Financing Activities:
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.
During the first three months of 1995 and 1994, the Registrant recorded
expenses of $1.1 million and $1.1 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 quarter of 1995, DST acquired mainframe computer equipment for
its Winchester Data Center and production equipment for its output processing
facilities in the amount of $3.6 million. This equipment was 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
Systems, exchanged its equity interest in IFTC for State Street Common stock.
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. Additionally, 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 the Kemper Mutual Funds. In
conjunction with and subject to the SSC transaction, 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. 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.
The collective consideration for the HiPortfolio and Kemper transactions is
approximately $56 million. 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 existing 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 agreement are expected
to be used to pay a dividend to KCSI, to repay bridge financing in connection
with the Kemper transaction described above and for general corporate
purposes. These agreements include facility fees ranging from .07 - .25 % per
annum, below prime interest rates, and for terms ranging from one to five
years. Among other provisions, the agreements limit subsidiary indebtedness,
sale of assets, and coverage ratios. The DST agreements also require minimum
consolidated net worth of $50 million plus 75% of the net proceeds of the
proposed DST capital stock offering discussed in the management's discussion
and analysis of financial condition and results of operations included in this
[Page 7]
Form 10-Q.
9. 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.
10.LITIGATION. The Registrant has had no significant changes in its
outstanding litigation from that previously reported in the Registrant's
Annual Report Form 10-K for the year ended December 31, 1994.
[Page 8]<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Announcements
DST Public Offering - On April 24, 1995, the Registrant's Board of Directors
approved a public offering of 51% of the Common stock of its wholly-owned
subsidiary, DST. The public offering is scheduled for the fourth quarter of
1995 subject to market conditions. A DST offering would only be made by means
of a prospectus and otherwise in compliance with federal and state securities
laws.
Stock Repurchase Program - On April 24, 1995, the Registrant's Board of
Directors also authorized management to repurchase up to six million shares of
the Registrant's Common stock in open market transactions as market conditions
permit and in accordance with applicable laws. Payments received by the
Registrant from DST in retirement of intercompany debt after a DST public
offering would, in part, be used to fund these repurchases. However, it is
anticipated that approximately one million shares at current market prices
could be repurchased prior to the DST offering.
Results of Operations
Segment revenues and operating income comparisons follow (dollars in
millions):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Revenues:
Transportation Services $ 135.0 $ 123.3
Information & Transaction Processing 112.6 97.4
Financial Asset Management 55.4 44.6
Eliminations, Corporate & Other (.8) (.2)
Total $ 302.2 $ 265.1
Operating Income:
Transportation Services 30.3 $ 28.0
Information & Transaction Processing 12.7 12.0
Financial Asset Management 14.8 19.0
Eliminations, Corporate & Other (2.2) (2.8)
Total $ 55.6 $ 56.2
</TABLE>
The Registrant reported first quarter 1995 earnings of $27.4 million, (61 cents
per share), essentially even with the first quarter 1994. Consolidated first
quarter 1995 revenues rose 14% to $302.2 million compared to prior year while
operating income of $55.6 million declined 1% from $56.2 million. Revenue
growth in all of the Registrant's primary business lines was offset by
increased operating expenses, particularly those associated with marketing and
promotional efforts at Janus Capital Corporation ("Janus"). First quarter
1995 earnings also include the one time gain on the sale of DST's 50%
investment in Investors Fiduciary Trust Company ("IFTC") in exchange for an
approximate 4% common stock interest in State Street Boston Corporation,
previously reported in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994. The IFTC transaction resulted in a net gain of
$4.7 million, or 10 cents per share. First quarter results also include non-
cash acquisition related intangible amortization expenses of $.08 and $.06 per
share for 1995 and 1994, respectively.
[Page 9]<PAGE>
TRANSPORTATION SERVICES
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Revenues $ 135.0 $ 123.3
Costs and expenses 90.2 81.3
Depreciation & amortization 14.5 14.0
Operating income 30.3 28.0
Interest expense (12.5) (11.6)
Pretax income 17.8 16.4
Income taxes 7.2 6.7
Net Income $ 10.6 $ 9.7
</TABLE>
Transportation Services, comprised principally of the Kansas City Southern
Railway ("KCSR"), operating income for first quarter 1995 rose 8% over first
quarter 1994 to $30.3 million. Contribution to the Registrant's first quarter
1995 net income totaled $10.6 million, an improvement of 9% over 1994 first
quarter. Revenues of $135 million rose 9.5% compared to prior year.
KCSR 1995 first quarter general commodity carloadings and revenues improved
15% from first quarter 1994 on increased volumes of farm products, pulp/paper,
chemicals and petroleum products, and intermodal traffic. Intermodal traffic
nearly doubled over first quarter 1994 volumes, primarily as a result of
increased traffic over the Kansas City/Dallas route along with new business
alliances with truck carriers and expansion of the Dallas/Atlanta corridor
movements in conjunction with the Norfolk Southern Railway, which began in
late 1994. Unit coal revenues however, declined 11% from first quarter 1994
resulting from a mix of length of haul and rates and the seasonality of coal
shipments.
While KCSR revenues rose in first quarter 1995, the level of operating
expenses also increased, due to the increased traffic levels. KCSR operating
expenses for first quarter 1995 include higher costs for fringe benefits
related to the timing of railroad retirement taxes, fuel on increased levels
of traffic as well as increased price per gallon rate increases, car hire from
increased usage of foreign line equipment, especially related to grain
movements, and interest expense caused by increased borrowing rates.
Transportation Services also included improved results from the Registrant's
Pabtex, Inc. petroleum coke export facility principally on higher volumes.
INFORMATION & TRANSACTION PROCESSING
DST SYSTEMS, INC.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Revenues $ 112.6 $ 97.4
Costs and expenses 85.0 73.5
Depreciation & amortization 14.9 11.9
Operating income 12.7 12.0
Unconsolidated affiliates 4.0 6.0
Gain on sale of equity investment 39.7 --
Interest expense (4.6) (3.6)
Pretax income 51.8 14.4
Income taxes 38.7 4.2
Minority interest -- (.2)
Net Income $ 13.1 $ 10.4
</TABLE> [Page 10]
DST contributed $13.1 million to the Registrant's consolidated earnings, an
increase of 26% over comparable prior year. Increased output processing
volumes and mutual fund shareholder account growth, coupled with the net gain
on sale of its IFTC investment, discussed previously, were the primary factors
for DST's earnings improvement.
DST's mutual fund shareowner accounts grew to 32.5 million at March 31, 1995
from 32.1 million at December 31, 1994, and 29.5 million at March 31, 1994.
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 16%
to $112.6 million in first quarter 1995 from $97.4 in first quarter 1994.
First quarter 1995 also reflects increased management earnout accruals at
Output Technologies, Inc., which become due at the end of 1995. Absent this
and other non-recurring items, operating income increased 19% over the prior
year quarter from higher revenues and improved margins at DST's core
operations. DST's developmental businesses, Belvedere Financial Systems,
Inc., DBS Systems Corp., and international operations reported slightly higher
comparable operating losses from ongoing developmental activities.
Equity in DST's unconsolidated affiliates earnings of $4 million for the first
quarter 1995 declined 33% from prior year, as a result of the absence of
earnings from IFTC and the inclusion of equity losses of Clarke & Tilley Data
Services ("CTDS"). Comparable unconsolidated affiliate earnings (i.e.
excluding the effects of IFTC and CTDS in 1994 and 1995) increased 5% from
first quarter 1994 to 1995. Higher earnings were, however, reported by The
Continuum Company, Boston Financial Data Services, Inc., and Argus Health
Systems, Inc., on improved volumes for their respective business lines. DST's
Midland Data Systems and First of Michigan joint ventures reported slightly
lower earnings than prior years first quarter on lower volumes.
FINANCIAL ASSET MANAGEMENT
JANUS CAPITAL CORP. & BERGER ASSOCIATES, INC.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Revenues $ 55.4 $ 44.6
Costs and expenses 37.6 24.1
Depreciation & amortization 3.0 1.5
Operating income 14.8 19.0
Interest expense (1.1) (.4)
Pretax income 13.7 18.6
Income taxes 5.7 7.3
Minority interest 1.7 2.2
Net Income $ 6.3 $ 9.1
</TABLE>
Financial Asset Management revenues rose 24% to $55.4 million in first quarter
1995 while operating and net contribution to KCSI consolidated results
declined 22% and 31%, respectively, when compared to the equivalent prior year
period. The decline is primarily attributable to Janus advertising campaign
costs which were incurred during first quarter 1995.
Janus contributed $5.4 million to KCSI's 1995 first quarter results, a decline
from the $9.1 million produced in first quarter 1994. Janus assets under
management continued to grow as first quarter fund sales of $1.9 billion
exceeded redemptions and, when coupled with favorable market conditions,
caused total assets to close March 31, 1995, at $24.3 billion versus $22.9
billion at December 31, 1994. Shareowner accounts grew to 2.1 million from
approximately 2 million at December 31, 1994. First quarter revenue growth
was offset by
[Page 11]
higher operating expenses primarily due to increased 1995
marketing and promotional expenses associated with a major print and
television advertising campaign in first quarter 1995, coupled with higher
variable costs to handle the large volume of telephone calls and prospectus
requests generated by the campaign. Higher expenses were also experienced due
to the establishment of Janus' own line of money market funds. The Janus
Money Market Fund, Janus Government Money Market Fund, and Janus Tax Exempt
Money Market Fund opened to investors in the first quarter of 1995. While
first quarter 1995 operating expenses were higher overall, salaries and wages
were 6% lower resulting from termination of certain compensation arrangements
in fourth quarter 1994 as disclosed in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
Berger assets under management totaled $3 billion at March 31, 1995,
essentially unchanged when compared to year end 1994. KCSI acquired a
controlling interest in Berger in late 1994 when it increased its ownership to
over 80%.
ELIMINATIONS, CORPORATE & OTHER
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Revenues $ (.8) $ (.2)
Costs and expenses .9 1.8
Depreciation & amortization .5 .8
Operating loss (2.2) (2.8)
Interest income (expense) (1.3) .6
Pretax loss (3.5) (2.2)
Income tax (benefits) (.9) (.6)
Net loss $ (2.6) $ (1.6)
</TABLE>
Eliminations, Corporate & Other net losses increased $1 million to $2.6
million from the equivalent period in first quarter 1994. Lower general and
administrative expenses by the Registrant were offset by increased interest
expense on higher balances and borrowing interest rates.
TRENDS AND OUTLOOK
The Registrant reported earnings of 61 cents per share for the first quarter
1995, equal to earnings per share in the first quarter of the prior year.
Transportation Services recorded increased earnings as the Registrant's
railroad operations continue to experience increased traffic levels. DST
reported improved first quarter operating income on continued higher volumes.
Janus earnings were depressed, primarily due to the high level of advertising
costs incurred.
A current outlook for the Registrant's three core businesses for the remainder
of 1995 is as follows. Transportation Services - KCSR rail operations may
experience increased traffic levels, as intermodal, paper, and grain traffic
carloadings continue to enjoy strong volumes; however, unit coal revenues are
estimated to be flat when compared with prior year. Information & Transaction
Processing - DST is expected to continue the growth trends exhibited in the
first quarter of 1995, although the first quarter of the year historically is
its strongest based on year end processing. DST's growth will depend on
growth in the mutual fund, insurance, pharmaceutical claim, international, and
other financial services markets it serves. Financial Asset Management -
Janus' and Berger's combined assets under management and shareholder accounts
have shown moderate growth in the first quarter of 1995. Future growth will
be largely dependent on prevailing financial market conditions, relative
performance of Janus' and Berger's products, as well as other factors. The
increased
[Page 12]
marketing expenses incurred in first quarter resulted in increased
volumes for shareowner inquiry and mailings of prospectuses. Historically,
such activities have resulted in longer term increases in shareowner accounts
and assets under management. It is not anticipated that Janus marketing
expenses will be sustained at first quarter 1995 levels for the remainder of
the year.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Summary cash flow data is as follows (in millions):
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Cash flows provided by (used for):
Operating activities $ 10.6 $ 46.1
Investing activities (79.5) (79.7)
Financing activities 75.5 37.5
Net increase in cash and equivalents 6.6 3.9
Cash and equivalents at beginning of year 12.7 6.6
Cash and equivalents at end of period $ 19.3 $ 10.5
</TABLE>
During the first quarter of 1995, the Registrant's cash position increased
from $12.7 million at December 31, 1994, to $19.3 million at March 31, 1995.
The increased cash position was caused primarily by positive operating cash
flows and proceeds from issuance of long term debt in excess of repayments,
somewhat offset by cash used for property acquisitions, investment
acquisitions, and purchase of companies. Operating cash flows for first
quarter 1995 of $10.6 million decreased $35.5 million compared to prior year.
The decrease was chiefly attributable to a decrease in accounts payable due to
the timing of payments to vendors and the non cash gain on the IFTC
transaction, offset by an increase in deferred taxes.
First quarter 1995 cash was invested in KCSR road property additions and
additions related to DST's Winchester Data Center expansion and EDP equipment
needs. Cash was also used for investment acquisitions, principally DST's
investment in international operations; and investments related to the Janus
minority restructuring. Financing cash flows were generated through issuance
of long-term debt in excess of repayments. Debt proceeds were used at KCSR
for working capital, at DST for working capital and acquisition investments,
and at Southern Leasing for portfolio growth. The Registrant also made
principal payments totaling $4.2 million with respect to the Registrant's
Employee Stock Ownership Plan ("ESOP") indebtedness in the first quarter of
1995.
Cash flows from operations are expected to increase during the remainder of
1995 from positive operating income, which has historically resulted in
favorable cash flows. Investing activities will continue to use significant
amounts of cash, although such amounts will be reduced from 1994 levels as
KCSR has essentially completed the roadway capital improvement program. The
Registrant anticipates that future roadway improvement investments will be
funded by KCSR operating cash flow. In addition to operating cash flows, the
Registrant has available financing arrangements at subsidiary levels
(including credit capacity from the previously described new $250 million
credit agreements at DST), remaining credit from $400 million in the
Registrant's previously described new credit agreements, proceeds available
with respect to the Registrant's $200 million Medium Term Notes, of which
$100 million were unissued at March 31, 1995 and $500 million with respect to
a Universal Shelf Offering filed in September 1993 and amended in April 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. As further described under "Recent
Announcements" in Item 2 of this Form 10-Q, the Registrant intends to sell 51%
of DST later this year, market conditions permitting. Should this occur, it
would result in significant cash
[Page 13]
being generated for the Registrant. Such proceeds are currently anticipated
to be used for debt repayment, purchase of Registrant common stock, and
general corporate purposes. 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 1995.
The Registrant's debt ratio (debt as a percent of total debt plus equity) at
March 31, 1995 was 60.6% compared to 59.6% for the year ended December 31,
1994. While consolidated equity increased in first quarter 1995 from a
combination of net income and a decrease in ESOP deferred compensation,
consolidated debt also increased resulting in a slight increase in the debt
ratio.
[Page 14]<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part I, Item 1, Footnote 10 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 4, 1995.
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 Definitive
Proxy Statement. 201,134 shares of the Preferred stock and 39,002,087
shares of the Common stock, or 82.7% and 89.5%, respectively, of the
shares of such stock outstanding on the record date were represented at
the annual meeting. These shares, which vote together as a single class,
were voted on the following matters as follows:
<TABLE>
<CAPTION>
Common Preferred
(1) Election of four directors Shares Shares
<S> <C> <C>
(i) A. Edward Allinson
For 38,495,647 200,244
Withheld 518,879 830
Total 39,014,526 201,074
(ii) Paul F. Balser
For 38,531,577 200,217
Withheld 518,879 830
Total 39,050,456 201,047
(iii) Paul H. Henson
For 38,492,425 200,377
Withheld 518,879 830
Total 39,011,304 201,207
(iv) Landon H. Rowland
For 38,413,183 200,378
Withheld 518,879 830
Total 38,932,062 201,208
(2) Approval of the selection of Price
Waterhouse LLP as auditors for 1995.
For 38,536,392 200,488
Against 329,357 1
Abstentions 136,338 645
Non-votes -0- -0-
Total 39,002,087 201,134
</TABLE>
Based upon the majority of votes required for approval, each of these matters
passed. [Page 15]<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27.1 Financial Data Schedule
b) Reports on Form 8-K
The Registrant filed a Form 8-K dated January 31, 1995 under Items 2 and
7 of such form, reporting the sale by DST Systems, Inc., a wholly-owned
subsidiary of the Registrant, and Kemper Financial Services, Inc., of all of
the outstanding capital stock of IFTC Holdings, Inc., to State Street Boston
Corporation.
[Page 16]<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
11, 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)
[Page 17]
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-1
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 19,300,000
<SECURITIES> 0
<RECEIVABLES> 247,600,000
<ALLOWANCES> 0
<INVENTORY> 50,000,000
<CURRENT-ASSETS> 403,400,000
<PP&E> 2,154,100,000
<DEPRECIATION> 715,100,000
<TOTAL-ASSETS> 2,354,100,000
<CURRENT-LIABILITIES> 307,600,000
<BONDS> 1,002,900,000
<COMMON> 400,000
0
7,100,000
<OTHER-SE> 686,500,000
<TOTAL-LIABILITY-AND-EQUITY> 2,354,100,000
<SALES> 0
<TOTAL-REVENUES> 302,200,000
<CGS> 0
<TOTAL-COSTS> 246,600,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,500,000
<INCOME-PRETAX> 79,800,000
<INCOME-TAX> 50,700,000
<INCOME-CONTINUING> 27,400,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,400,000
<EPS-PRIMARY> .61
<EPS-DILUTED> 0
</TABLE>
