10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-4717
KANSAS CITY SOUTHERN
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
427 West 12th Street,
Kansas City, Missouri
(Address of principal
executive offices)
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44-0663509
(I.R.S. Employer
Identification No.)
64105
(Zip Code)
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816.983.1303
(Registrants telephone
number, including area code)
None
(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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Class
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Outstanding at April 23, 2009
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Common Stock, $0.01 per share par value
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91,578,296 Shares
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Kansas
City Southern
Form 10-Q
March 31, 2009
Index
2
Kansas
City Southern
Form 10-Q
March 31, 2009
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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Introductory
Comments.
The Consolidated Financial Statements included herein have been
prepared by Kansas City Southern, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission
(SEC). As used herein, KCS or the
Company may refer to Kansas City Southern or, as the
context requires, to one or more subsidiaries of Kansas City
Southern. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
U.S. generally accepted accounting principles
(U.S. GAAP) have been condensed, or omitted
pursuant to such rules and regulations. The Company believes
that the disclosures are adequate to enable a reasonable
understanding of the information presented. These Consolidated
Financial Statements and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in this
Form 10-Q
should be read in conjunction with the consolidated financial
statements and the related notes, as well as Managements
Discussion and Analysis of Financial Condition and Results of
Operations, included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008. Results for the three
months ended March 31, 2009 are not necessarily indicative
of the results expected for the full year ending
December 31, 2009.
3
Kansas
City Southern
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Three Months Ended
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March 31,
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2009
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2008
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(In millions, except share
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and per share amounts)
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(Unaudited)
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Revenues
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$
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346.0
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$
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450.6
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Operating expenses:
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Compensation and benefits
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78.0
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101.8
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Purchased services
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44.5
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51.2
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Fuel
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43.3
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77.8
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Equipment costs
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39.1
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44.4
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Depreciation and amortization
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47.1
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40.3
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Casualties and insurance
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12.5
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18.6
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Materials and other
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33.0
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33.1
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Total operating expenses
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297.5
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367.2
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Operating income
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48.5
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83.4
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Equity in net earnings of unconsolidated affiliates
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1.0
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4.1
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Interest expense
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(41.8
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)
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(39.5
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)
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Debt retirement costs
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(5.9
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)
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Foreign exchange gain (loss)
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(5.1
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)
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2.5
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Other income
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1.5
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3.0
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Income (loss) before income taxes and noncontrolling interest
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(1.8
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)
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53.5
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Income tax expense
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0.4
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15.7
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Net income (loss)
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(2.2
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)
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37.8
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Noncontrolling interest
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(0.1
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)
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0.1
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Net income (loss) attributable to Kansas City Southern and
subsidiaries
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(2.1
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)
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37.7
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Preferred stock dividends
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5.4
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4.8
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Net income (loss) available to common shareholders
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$
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(7.5
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)
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$
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32.9
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Earnings (loss) per share:
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Basic earnings (loss) per share
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$
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(0.08
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)
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$
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0.43
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Diluted earnings (loss) per share
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$
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(0.08
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)
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$
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0.39
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Average shares outstanding (in thousands):
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Basic
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90,743
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76,253
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Potentially dilutive common shares
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21,231
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Diluted
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90,743
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97,484
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See accompanying notes to consolidated financial statements.
4
Kansas
City Southern
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March 31,
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December 31,
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2009
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2008
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(In millions, except
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share amounts)
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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141.7
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$
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229.9
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Accounts receivable, net
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160.3
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163.8
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Restricted funds
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38.2
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34.0
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Materials and supplies
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95.2
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96.3
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Deferred income taxes
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62.8
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62.8
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Other current assets
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93.3
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98.8
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Total current assets
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591.5
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685.6
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Investments
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58.2
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60.5
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Property and equipment, net of accumulated depreciation of
$924.2 million and $914.2 million at March 31,
2009 and December 31, 2008, respectively
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3,501.4
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3,416.3
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Concession assets, net of accumulated amortization of
$199.4 million and $186.5 million at March 31,
2009 and December 31, 2008, respectively
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1,167.7
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1,182.1
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Deferred income taxes
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46.9
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36.4
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Other assets
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52.8
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58.3
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Total assets
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$
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5,418.5
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$
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5,439.2
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Debt due within one year
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$
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23.1
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$
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637.4
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Accounts payable and accrued liabilities
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460.9
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455.4
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Total current liabilities
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484.0
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1,092.8
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Long-term debt
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2,038.9
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1,448.7
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Deferred income taxes
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501.5
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492.4
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Other noncurrent liabilities and deferred credits
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214.1
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220.1
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Total liabilities
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3,238.5
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3,254.0
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Commitments and contingencies
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Stockholders equity:
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$25 par, 4% noncumulative, preferred stock,
840,000 shares authorized, 649,736 shares issued,
242,170 shares outstanding
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6.1
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6.1
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Series D cumulative convertible perpetual
preferred stock, $1 par, 5.125%, 210,000 shares
authorized and issued, 209,995 shares outstanding with a
liquidation preference of $210.0 million at March 31,
2009 and December 31, 2008, respectively
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0.2
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0.2
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$.01 par, common stock, 400,000,000 shares authorized;
106,252,860 shares issued at March 31, 2009 and
December 31, 2008, respectively; 91,579,243 and
91,463,762 shares outstanding at March 31, 2009 and
December 31, 2008, respectively
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0.9
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0.9
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Paid-in capital
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575.6
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572.3
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Retained earnings
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1,330.1
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1,337.6
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Accumulated other comprehensive loss
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(6.5
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)
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(5.6
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)
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Total stockholders equity
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1,906.4
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1,911.5
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Noncontrolling interest
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273.6
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273.7
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Total equity
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2,180.0
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2,185.2
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Total liabilities and equity
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$
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5,418.5
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$
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5,439.2
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See accompanying notes to consolidated financial statements.
5
Kansas
City Southern
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Three Months Ended March 31,
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2009
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2008
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(In millions) (Unaudited)
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Operating activities:
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|
|
|
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Net income (loss)
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$
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(2.2
|
)
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$
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37.8
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
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Depreciation and amortization
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47.1
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40.3
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Deferred income taxes
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|
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(0.4
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)
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15.6
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Equity in undistributed earnings of unconsolidated affiliates
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(1.0
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)
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(4.1
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)
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Share-based compensation
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2.1
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|
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3.2
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Other deferred compensation
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(1.6
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)
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4.6
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Distributions from unconsolidated affiliates
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4.0
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Gain on sale of assets
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(1.0
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)
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|
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(1.2
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)
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Debt retirement costs
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5.9
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Changes in working capital items:
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Accounts receivable
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3.5
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10.0
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Materials and supplies
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1.1
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(6.0
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)
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Other current assets
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5.5
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(9.2
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)
|
Accounts payable and accrued liabilities
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5.5
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6.3
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Other, net
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(0.7
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)
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17.4
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|
|
|
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Net cash provided by operating activities
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63.8
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118.7
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Investing activities:
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Capital expenditures
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(99.9
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)
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(92.5
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)
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Proceeds from disposal of property
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3.7
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2.3
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Contribution from NS for MSLLC (net of change in restricted
contribution)
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(1.5
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)
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14.8
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Property investments in MSLLC
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(17.8
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)
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(16.9
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)
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Other, net
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|
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(62.6
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)
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|
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Net cash used for investing activities
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|
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(115.5
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)
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|
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(154.9
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)
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Financing activities:
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Proceeds from issuance of long-term debt
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214.0
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72.8
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Repayment of long-term debt
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(238.7
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)
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(15.3
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)
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Debt costs
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|
(9.3
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)
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|
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(0.5
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)
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Proceeds from stock plans
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|
|
0.3
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|
|
|
1.1
|
|
Preferred stock dividends paid
|
|
|
(2.8
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)
|
|
|
(4.9
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)
|
|
|
|
|
|
|
|
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Net cash provided by (used for) financing activities
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|
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(36.5
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)
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|
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53.2
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|
|
|
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Cash and cash equivalents:
|
|
|
|
|
|
|
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Net increase (decrease) during each period
|
|
|
(88.2
|
)
|
|
|
17.0
|
|
At beginning of year
|
|
|
229.9
|
|
|
|
55.5
|
|
|
|
|
|
|
|
|
|
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At end of period
|
|
$
|
141.7
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|
|
$
|
72.5
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
Kansas
City Southern and Subsidiaries
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$1 Par
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Accumulated
|
|
|
|
|
|
|
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$25 Par
|
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Cumulative
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$.01 Par
|
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Other
|
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Preferred
|
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Preferred Stock
|
|
|
Common
|
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Paid-in
|
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Retained
|
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Comprehensive
|
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Noncontrolling
|
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Stock
|
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Series D 5.125%
|
|
|
Stock
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Capital
|
|
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Earnings
|
|
|
Income (Loss)
|
|
|
Interest
|
|
|
Total
|
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|
|
|
|
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|
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|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
6.1
|
|
|
$
|
0.2
|
|
|
$
|
0.9
|
|
|
$
|
572.3
|
|
|
$
|
1,337.6
|
|
|
$
|
(5.6
|
)
|
|
$
|
273.7
|
|
|
$
|
2,185.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(2.2
|
)
|
Change in fair value of fuel swaps, net of tax benefit of
$0.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(1.0
|
)
|
Cumulative translation adjustment FTVM, net of tax
benefit of $0.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.1
|
)
|
|
|
(0.9
|
)
|
|
|
(0.1
|
)
|
|
|
(3.1
|
)
|
Dividends on $25 par preferred stock ($0.25/share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Dividends on series D cumulative preferred stock
($25.63/share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(5.3
|
)
|
Options exercised and stock subscribed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
6.1
|
|
|
$
|
0.2
|
|
|
$
|
0.9
|
|
|
$
|
575.6
|
|
|
$
|
1,330.1
|
|
|
$
|
(6.5
|
)
|
|
$
|
273.6
|
|
|
$
|
2,180.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
7
Kansas
City Southern
|
|
1.
|
Accounting
Policies and Interim Financial Statements.
|
In the opinion of the management of KCS, the accompanying
unaudited consolidated financial statements contain all
adjustments necessary for a fair presentation of the results for
interim periods. All adjustments made were of a normal and
recurring nature. Certain information and footnote disclosure
normally included in financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted. These
consolidated financial statements should be read in conjunction
with the financial statements and accompanying notes included in
the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008. The results of
operations for the three months ended March 31, 2009, are
not necessarily indicative of the results to be expected for the
full year ending December 31, 2009. Certain prior year
amounts have been reclassified to conform to the current year
presentation.
Effective January 1, 2009, the Company adopted FASB
Statement of Financial Accounting Standards No. 160
Noncontrolling Interests in Consolidated Financial
Statements an amendment of
ARB No. 51 (SFAS 160) on a
prospective basis, except for the presentation and disclosure
requirements, which apply retrospectively. As a result of the
adoption, the Company reported noncontrolling interests as a
separate component of equity in the consolidated balance sheets
and the net income or loss attributable to noncontrolling
interests is separately identified in the consolidated
statements of operations. Prior period amounts have been
reclassified to conform to the current period presentation as
required by SFAS No. 160. These reclassifications did not
have any impact on the Companys previously reported
results of operations.
|
|
2.
|
Share-Based
Compensation.
|
Nonvested Stock. The Kansas City Southern 2008
Stock Option and Performance Award Plan (Stock Option and
Performance Award Plan) provides for the granting of
nonvested stock awards to directors, officers and other
designated employees and contractors. The grant date fair value
is based on the closing market price on the date of the grant.
These awards are subject to forfeiture if employment terminates
during the vesting period, which is generally five year cliff
vesting for employees and one year for directors. The grant date
fair value of nonvested shares, less estimated forfeitures, is
recorded to compensation expense on a straightline basis over
the vesting period.
A summary of nonvested stock activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
Nonvested stock at December 31, 2008
|
|
|
828,257
|
|
|
$
|
31.74
|
|
|
|
|
|
Granted
|
|
|
55,724
|
|
|
|
17.51
|
|
|
|
|
|
Vested
|
|
|
(77,557
|
)
|
|
|
27.67
|
|
|
|
|
|
Forfeited
|
|
|
(44,640
|
)
|
|
|
29.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock at March 31, 2009
|
|
|
761,784
|
|
|
$
|
31.26
|
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost related to nonvested stock was
$1.8 million and $1.4 million for the three months
ended March 31, 2009 and 2008, respectively. The total
income tax benefit recognized in the statement of operations for
nonvested stock awards was $0.7 million and
$0.5 million for the three months ended March 31, 2009
and 2008, respectively.
As of March 31, 2009, $11.7 million of unrecognized
compensation costs related to nonvested stock is expected to be
recognized over a weighted-average period of 1.40 years.
The fair value (at vest date) of shares vested during the three
months ended March 31, 2009 was $1.4 million.
8
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
Performance Based Awards. During 2008 and
2007, the Company granted performance based nonvested stock
awards. The awards granted establish an annual target number of
shares that generally vest at the end of a three year requisite
service period following the grant date. In addition to the
three year service condition, the number of nonvested shares to
be received depends on the attainment of certain annual
performance goals. The number of nonvested shares ultimately
earned will range from zero to 200% of the annual target award.
A summary of performance based nonvested awards activity at
target is as follows:
|
|
|
|
|
|
|
|
|
|
|
Target Number of
|
|
|
Weighted-Average Grant
|
|
|
|
Shares *
|
|
|
Date Fair Value
|
|
|
Nonvested stock at December 31, 2008
|
|
|
385,880
|
|
|
$
|
32.71
|
|
Granted
|
|
|
4,165
|
|
|
|
16.78
|
|
Vested
|
|
|
(47,054
|
)
|
|
|
30.57
|
|
Forfeited
|
|
|
(11,958
|
)
|
|
|
30.98
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock at March 31, 2009
|
|
|
331,033
|
|
|
$
|
32.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The performance shares earned in 2008 and 2007 were 92,324 and
119,226 which was approximately 62% and 120% of the annual
target award granted for the 2008 and 2007 performance periods,
respectively. For the 2009 performance period, participants in
the aggregate can earn up to a maximum of 352,504 shares. |
The Company expenses the grant date fair value of the awards
which are probable of being earned based on forecasted annual
performance goals over the three year performance period.
Compensation expense on performance based awards was
$0.1 million and $1.6 million for the three months
ended March 31, 2009 and 2008, respectively. The total
income tax benefit recognized in the statement of operations for
performance based awards was less than $0.1 million and
$0.6 million for the three months ended March 31, 2009
and 2008, respectively.
As of March 31, 2009, $0.9 million of unrecognized
compensation cost related to performance based awards is
expected to be recognized over a weighted-average period of
0.51 years. The unrecognized compensation cost includes
only the amount determined to be probable of being earned based
upon the attainment of the annual performance goals. The fair
value (at vest date) of shares vested during the three months
ended March 31, 2009 was $0.6 million.
|
|
3.
|
Earnings
(Loss) Per Share Data.
|
Basic earnings (loss) per common share is computed by dividing
income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period.
Restricted stock granted to employees and officers is included
in weighted average shares for purposes of computing basic
earnings (loss) per common share as it is earned. Diluted
earnings (loss) per share adjusts basic earnings (loss) per
common share for the effects of potentially dilutive common
shares, if the effect is not antidilutive. Potentially dilutive
common shares include the dilutive effects of shares issuable
upon the conversion of preferred stock to common stock and
shares issuable under the Stock Option and Performance Award
Plan.
The following table reconciles the weighted average shares used
for the basic earnings (loss) per share computation to the
shares used for the diluted earnings (loss) per share
computation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Basic shares
|
|
|
90,743
|
|
|
|
76,253
|
|
Effect of dilution
|
|
|
|
|
|
|
21,231
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
90,743
|
|
|
|
97,484
|
|
|
|
|
|
|
|
|
|
|
9
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
For the three months ended March 31, 2009, the assumed
conversion of preferred stock to 7,000,000 shares of common
stock and approximately 561,000 stock options were excluded from
the computation of diluted shares because the impact would have
been antidilutive due to the loss reported in the period. For
the three months ended March 31, 2008, approximately 46,000
stock options were excluded from the computation of diluted
shares because the impact would have been anti-dilutive as the
option price was higher than the average market price.
The following table reconciles net income (loss) available to
common stockholders for purposes of basic earnings (loss) per
share to net income (loss) available to common stockholders for
purposes of diluted earnings (loss) per share (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss) available to common stockholders for purposes
of computing basic earnings (loss) per share
|
|
$
|
(7.5
|
)
|
|
$
|
32.9
|
|
Effect of dividends on conversion of convertible preferred stock
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders for purposes
of computing diluted earnings (loss) per share
|
|
$
|
(7.5
|
)
|
|
$
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Fair
Value Measurements.
|
Financial Accounting Standards No. 157 Fair Value
Measurements (SFAS 157), defines fair
value, establishes a framework for measuring fair value and
enhances disclosures regarding fair value measurements. KCS
adopted SFAS 157 prospectively for financial assets and
liabilities recognized at fair value on a recurring basis on
January 1, 2008. Effective January 1, 2009, KCS
adopted SFAS 157 prospectively for assets and liabilities
recognized at fair value on a nonrecurring basis. These assets
and liabilities are measured at fair value on an ongoing basis
but are subject to fair value only in certain circumstances.
SFAS 157 requires all assets and liabilities recognized at
fair value to be classified into a three-level hierarchy. In
general, fair values determined by Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Company has the ability to
access. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, and inputs other than
quoted prices that are observable for the asset or liability.
Level 3 inputs are unobservable inputs for the asset or
liability, and include situations where there is little, if any,
market activity for the asset or liability. In certain cases,
the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the level in
the fair value hierarchy within which the fair value measurement
in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in
its entirety. The Companys assessment of the significance
of a particular input to the fair value in its entirety requires
judgment and considers factors specific to the asset or
liability.
Assets and liabilities measured at fair value on a recurring
basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Assets (Liabilities)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
at Fair Value
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(i)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9.8
|
|
|
$
|
9.8
|
|
Derivative financial instruments
|
|
|
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets (liabilities), at fair value
|
|
$
|
|
|
|
$
|
(8.6
|
)
|
|
$
|
9.8
|
|
|
$
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Assets (Liabilities)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
at Fair Value
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(i)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12.4
|
|
|
$
|
12.4
|
|
Derivative financial instruments
|
|
|
|
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets (liabilities), at fair value
|
|
$
|
|
|
|
$
|
(5.7
|
)
|
|
$
|
12.4
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Investments with Level 1 and/or Level 2 inputs are
classified as a Level 3 investment in their entirety if it
has at least one significant Level 3 input. |
The following table presents additional information about assets
and liabilities measured at fair value on a recurring basis for
which the Company has utilized Level 3 inputs to determine
fair value.
Changes in Level 3 assets measured at fair value on a
recurring basis (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
12.4
|
|
|
$
|
37.8
|
|
Total gains/(losses) (realized and unrealized)
|
|
|
|
|
|
|
|
|
Purchases, issuances and settlements
|
|
|
(2.6
|
)
|
|
|
(14.6
|
)
|
Transfers in and/or out of level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9.8
|
|
|
$
|
23.2
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Derivative
Instruments.
|
The Company does not engage in the trading of derivative
financial instruments except where the Companys objective
is to manage the variability of forecasted interest payments
attributable to changes in interest rates, fuel price risk, or
foreign currency fluctuations. In general, the Company enters
into derivative transactions in limited situations based on
managements assessment of current market conditions and
perceived risks.
Interest Rate Swaps. During 2008, the Company
entered into five forward starting interest rate swaps, which
have been designated as cash flow hedges under the Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities
(SFAS 133). The forward starting interest rate
swaps effectively convert interest payments from variable rates
to fixed rates. The swaps are highly effective as defined by
SFAS 133 and as a result there will be de minimus
statement of operations variability associated with
ineffectiveness of these hedges. The hedging instruments have an
aggregate notional amount of $250.0 million at an average
fixed rate of 2.71%, with forward starting settlements indexed
to the three-month LIBOR occurring every quarter, expiring
September of 2010 through March of 2011.
Fuel Derivative Transactions. In January 2009,
the Company entered into fuel swap agreements, which have been
designated as cash flow hedges under SFAS 133. The
effective portion of the gain or loss on the derivative
instruments is reported as a component of other comprehensive
income (loss) and reclassified into earnings in the same period
or periods during which the hedged transaction affects earnings.
Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment
of the effectiveness are recognized in current earnings. As of
March 31, 2009, the Company has outstanding fuel swap
agreements for 11.3 million gallons of diesel fuel
purchases ratably through the end of 2009 at an average swap
price of $1.74 per gallon.
11
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
Foreign Exchange Contracts. The purpose of the
foreign exchange contracts of Kansas City Southern de
México, S.A. de C.V., a wholly-owned subsidiary of KCS
(KCSM), is to limit exposure arising from exchange
rate fluctuations in its Mexican peso-denominated monetary
assets and liabilities. Management determines the nature and
quantity of any hedging transactions based upon exposure and
market conditions. These foreign currency contracts are
accounted for as free-standing financial instruments and
accordingly, all changes in fair value are recognized in
earnings. As of March 31, 2009, the Company had one Mexican
peso call option outstanding in the notional amount of
$1.7 million based on the average exchange rate of Ps.12.5
per U.S. dollar. This call option will expire on
May 29, 2009.
The following table presents the fair value of derivative
instruments included in the consolidated balance sheet as of
March 31, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Balance Sheet
|
|
Fair
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
Derivatives designated as hedging instruments under
SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
Other assets
|
|
$
|
|
|
|
Other non-current liabilities & deferred credits
|
|
$
|
6.0
|
|
Fuel swap contracts
|
|
Other current assets
|
|
|
|
|
|
Accounts payable & accrued liabilities
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments under
SFAS 133
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
Derivatives not designated as hedging instruments under
SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
0.2
|
|
|
Accounts payable & accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
0.2
|
|
|
|
|
$
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amounts affecting the
consolidated statement of operations for the three months ended
March 31, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/ (Loss)
|
|
Gain/ (Loss)
|
|
|
|
|
|
|
Location of
|
|
|
Amount of
|
|
|
Recognized in
|
|
Recognized in
|
|
|
|
Amount of
|
|
|
Gain/(Loss)
|
|
|
Gain/(Loss)
|
|
|
Income on Derivative
|
|
Income on Derivative
|
|
|
|
Gain/(Loss)
|
|
|
Reclassified from
|
|
|
Reclassified from
|
|
|
(Ineffective Portion
|
|
(Ineffective Portion
|
|
Derivatives in Cash
|
|
Recognized in
|
|
|
Accumulated OCI
|
|
|
Accumulated OCI
|
|
|
and Amount Excluded
|
|
and Amount Excluded
|
|
Flow Hedging
|
|
OCI on Derivative
|
|
|
into Income
|
|
|
into Income
|
|
|
from Effectiveness
|
|
from Effectiveness
|
|
Relationships
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Testing)
|
|
Testing)
|
|
|
Interest rate contracts
|
|
$
|
(0.7
|
)
|
|
|
Interest expense
|
|
|
$
|
(0.7
|
)
|
|
Interest expense
|
|
$
|
|
|
Fuel swap contracts
|
|
|
(1.6
|
)
|
|
|
Fuel expense
|
|
|
|
(0.2
|
)
|
|
Fuel Expense
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(2.3
|
)
|
|
|
|
|
|
$
|
(0.9
|
)
|
|
|
|
$
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
|
|
|
Gain/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in
|
|
|
Recognized in
|
|
|
|
|
|
|
Derivatives not designated as
|
|
|
|
|
Income on
|
|
|
Income on
|
|
|
|
|
|
|
hedging instruments
|
|
|
|
|
Derivative
|
|
|
Derivative
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
Other income
(expense
|
)
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
On January 14, 2009, pursuant to an offer to purchase, The
Kansas City Southern Railway Company, a wholly-owned subsidiary
of KCS (KCSR) commenced a cash tender offer and
consent solicitation for any and all outstanding
$200.0 million KCSR
71/2% Senior
Notes due June 15, 2009 (the
71/2% Senior
Notes). As of January 28, 2009 (the consent
deadline), KCSR received consents in connection with the tender
offer and consent solicitation from holders of over 88% of the
71/2% Senior
Notes. On January 29, 2009, KCSR purchased the tendered
notes in accordance with the terms of the tender offer with
proceeds received in 2008 from the issuance of the
$190.0 million 13.0% Senior Notes due
December 28, 2013 and other borrowings. On March 16,
2009, the Company transferred $24.2 million in principal
and interest to U.S. Bank N.A., the trustee, in connection
with the legal defeasance of the
71/2% Senior
Notes to be paid to the remaining holders upon maturity on
June 15, 2009.
On February 11, 2009, KCSM entered into Amendment
No. 3 and Waiver No. 2 (KCSM Amendment
No. 3) to its unsecured credit agreement dated
June 14, 2007 (the 2007 KCSM Credit Agreement).
KCSM Amendment No. 3 amended Section 7.4 of the 2007
KCSM Credit Agreement to permit KCSMs loan of
$4.2 million to Panama Canal Railway Company
(PCRC) made on December 28, 2007. KCSM
Amendment No. 3 also waived any Defaults or Events of
Default (as defined in the 2007 KCSM Credit Agreement) resulting
from KCSMs compliance with Section 7.4 of the 2007
KCSM Credit Agreement prior to the effective date of KCSM
Amendment No. 3.
On March 30, 2009, KCSM issued $200.0 million of
121/2% Senior
Notes due April 1, 2016 (the
121/2% Senior
Notes), which bear interest semiannually at a fixed annual
rate of
121/2%.
The
121/2% Senior
Notes were issued at a discount to par value, resulting in an
$11.0 million discount and a yield to maturity of
133/4%.
The
121/2% Senior
Notes are unsecured, unsubordinated obligations and rank pari
passu in right of payment with KCSMs existing and future
unsecured, unsubordinated obligations. KCSM used a portion of
the net proceeds from the offering, to repay all amounts
outstanding under the 2007 KCSM Credit Agreement. Upon repayment
of the outstanding amounts, KCSM terminated the 2007 KCSM Credit
Agreement, effective March 30, 2009. The
121/2% Senior
Notes are redeemable at KCSMs option in whole or in part
on and after April 1, 2013, at the following redemption
prices (expressed as percentages of principal amount) plus any
accrued and unpaid interest: 2013 106.250%,
2014 103.125%, 2015 100.000%. In
addition, KCSM may redeem up to 35% of the notes any time prior
to April 1, 2012 from the proceeds of the sale of capital
stock in KCSM or KCS. The
121/2% Senior
Notes include certain covenants that restrict or prohibit
certain actions.
|
|
7.
|
Commitments
and Contingencies.
|
Concession Duty. Under the Concession, the
Mexican government has the right to receive a payment from KCSM
equivalent to 0.5% of KCSMs gross revenue during the first
15 years of the Concession period and 1.25% during the
remaining years of the Concession period. For the three months
ended March 31, 2009 and 2008, the concession duty expense
amounted to $0.7 million, and $1.1 million,
respectively, which was recorded within operating expenses.
Litigation. The Company is a party to various
legal proceedings and administrative actions, all of which,
except as set forth below, are of an ordinary, routine nature
and incidental to its operations. Included in these proceedings
are various tort claims brought by current and former employees
for job related injuries and by third parties for injuries
related to railroad operations. KCS aggressively defends these
matters and has established liability reserves, which management
believes are adequate to cover expected costs. Although it is
not possible to predict the outcome of any legal proceeding, in
the opinion of management, other than those proceedings
described in detail below, such proceedings and actions should
not, individually, or in the aggregate, have a material adverse
effect on the Companys financial condition and liquidity.
However, a
13
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
material adverse outcome in one or more of these proceedings
could have a material adverse impact on the operating results of
a particular quarter or fiscal year.
Environmental Liabilities. The Companys
U.S. operations are subject to extensive federal, state and
local environmental laws and regulations. The major
U.S. environmental laws to which the Company is subject
include, among others, the Federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA,
also known as the Superfund law), the Toxic Substances Control
Act, the Federal Water Pollution Control Act, and the Hazardous
Materials Transportation Act. CERCLA can impose joint and
several liabilities for cleanup and investigation costs, without
regard to fault or legality of the original conduct, on current
and predecessor owners and operators of a site, as well as those
who generate, or arrange for the disposal of, hazardous
substances. The Company does not believe that compliance with
the requirements imposed by the environmental legislation will
impair its competitive capability or result in any material
additional capital expenditures, operating or maintenance costs.
The Company is, however, subject to environmental remediation
costs as described below.
The Companys Mexico operations are subject to Mexican
federal and state laws and regulations relating to the
protection of the environment through the establishment of
standards for water discharge, water supply, emissions, noise
pollution, hazardous substances and transportation and handling
of hazardous and solid waste. The Mexican government may bring
administrative and criminal proceedings and impose economic
sanctions against companies that violate environmental laws, and
temporarily or even permanently close non-complying facilities.
The risk of incurring environmental liability is inherent in the
railroad industry. As part of serving the petroleum and
chemicals industry, the Company transports hazardous materials
and has a professional team available to respond to and handle
environmental issues that might occur in the transport of such
materials. Additionally, the Company is a partner in the
Responsible
Care®
program and, as a result, has initiated additional
environmental, health and safety programs. The Company performs
ongoing reviews and evaluations of the various environmental
programs and issues within the Companys operations, and,
as necessary, takes actions intended to limit the Companys
exposure to potential liability.
The Company owns property that is, or has been, used for
industrial purposes. Use of these properties may subject the
Company to potentially material liabilities relating to the
investigation and cleanup of contaminants, claims alleging
personal injury, or property damage as the result of exposures
to, or release of, hazardous substances. Although the Company is
responsible for investigating and remediating contamination at
several locations, based on currently available information, the
Company does not expect any related liabilities, individually or
collectively, to have a material impact on its financial
position or cash flows. Should the Company become subject to
more stringent cleanup requirements at these sites, discover
additional contamination, or become subject to related personal
or property damage claims, the Company could incur material
costs in connection with these sites.
The Company records liabilities for remediation and restoration
costs related to past activities when the Companys
obligation is probable and the costs can be reasonably
estimated. Costs of ongoing compliance activities to current
operations are expensed as incurred. The Companys recorded
liabilities for these issues represent its best estimates (on an
undiscounted basis) of remediation and restoration costs that
may be required to comply with present laws and regulations.
Although these costs cannot be predicted with certainty,
management believes that the ultimate outcome of identified
matters will not have a material adverse effect on the
Companys consolidated financial position or cash flows.
Environmental remediation expense was $1.9 million and
$1.8 million for the three months ended March 31, 2009
and 2008, respectively, and was included in casualties and
insurance expense on the consolidated statements of operations.
Additionally, as of March 31, 2009, KCS had a liability for
environmental remediation of $6.5 million. This amount was
derived from a range of reasonable estimates
14
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
based upon the studies and site surveys described above and in
accordance with the Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies
(SFAS 5).
Casualty Claim Reserves. The Companys
casualty and liability reserve is based on actuarial studies
performed on an undiscounted basis. This reserve is based on
personal injury claims filed and an estimate of claims incurred
but not yet reported. While the ultimate amount of claims
incurred is dependent on various factors, it is
managements opinion that the recorded liability is a
reasonable estimate of aggregate future payments. Adjustments to
the liability are reflected as operating expenses in the period
in which changes to estimates are known. Casualty claims in
excess of self-insurance levels are insured up to certain
coverage amounts, depending on the type of claim and year of
occurrence. The activity in the reserve follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
90.7
|
|
|
$
|
90.0
|
|
Accruals, net (includes the impact of actuarial studies)
|
|
|
5.2
|
|
|
|
6.0
|
|
Payments
|
|
|
(6.5
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
89.4
|
|
|
$
|
92.1
|
|
|
|
|
|
|
|
|
|
|
The casualty claim reserve balance as of March 31, 2009 is
based on an updated study of casualty reserves for data through
November 30, 2008 and review of the last four months
experience. The activity for the three months ended
March 31, 2009 primarily relates to the net settlements and
the reserves for Federal Employers Liability Act
(FELA), third-party, and occupational illness
claims. The changes to the reserve in the current year compared
to the prior year primarily reflect litigation settlements and
the current accruals related to the trend of loss experience
since the date of the prior study.
Reflecting potential uncertainty surrounding the outcome of
casualty claims, it is reasonably possible based on assessments
that future costs to settle casualty claims may range from
approximately $85 million to $94 million. While the
final outcome of these claims cannot be predicted with
certainty, management believes that the $89.4 million
recorded is the best estimate of the Companys future
obligations for the settlement of casualty claims at
March 31, 2009.
Management believes that previous reserve estimates for prior
claims were reasonable based on current information available.
The Company is continuing its practice of accruing monthly for
estimated claim costs, including any changes recommended by
completed studies and evaluation of recent known trends; based
on this practice, management believes all accruals are
appropriately reflected.
Antitrust Lawsuit. In May 2007, KCSR, along
with other Class I U.S. railroads (and, in some cases,
the Association of American Railroads), was included in various
Federal district court actions alleging that the railroads
conspired to fix fuel surcharges in violation of
U.S. antitrust laws. On November 6, 2007, the Judicial
Panel on Multidistrict Litigation ordered that these putative
class action cases be consolidated for pretrial handling before
the United States District Court for the District of Columbia,
where the matters remain pending (the Multidistrict
Litigation). KCSR entered into an agreement with the
plaintiffs in the Multidistrict Litigation to toll the statute
of limitations as to KCSR and KCSR was not named as a defendant
in the Consolidated Amended Complaint filed on April 15,
2008. The Multidistrict Litigation will proceed without KCSR as
a party. In any event, KCSR maintains there is no merit to the
price fixing allegations asserted against the Company. If KCSR
is named as a defendant in lawsuits making such claims in the
future, either in the Multidistrict Litigation or otherwise, the
Company intends to vigorously contest such allegations.
Certain Disputes with Ferromex. KCSM and
Ferrocarril Mexicano, S.A. de C.V. (Ferromex)
both initiated administrative proceedings seeking a
determination by the Mexican Secretaría de
Comunicaciones y
15
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
Transportes (Ministry of Communications and
Transportation or SCT) of the rates that the
companies should pay each other in connection with the use of
trackage rights. The SCT issued a ruling setting the rates for
trackage rights in March of 2002. KCSM and Ferromex challenged
the ruling.
Following the trial and appellate court decisions, in February
2006 the Mexican Supreme Court sustained KCSMs appeal of
the SCTs trackage rights ruling, in effect vacating the
ruling and ordering the SCT to issue a new ruling consistent
with the Courts decision. On June 27, 2008, KCSM was
served with the new ruling issued by the SCT. In this ruling,
the SCT established the consideration that KCSM and Ferromex
must pay each other in connection with the use of the trackage
rights granted in their respective concessions between 2002 and
2004, and further stated that in the event KCSM and Ferromex
failed to reach an agreement in connection with the rates for
the years after 2004, the SCT shall make a determination along
the same lines. In September 2008, KCSM and Ferromex appealed
this new ruling with the Mexican Tribunal Federal de Justicia
Fiscal y Administrativa (Administrative and Fiscal
Federal Court).
KCSM and Ferromex both initiated administrative proceedings
seeking a determination by the SCT of the rates that the
companies should pay each other in connection with the use of
interline and terminal services. The SCT issued a ruling setting
the rates for interline and terminal services in August of 2002.
KCSM and Ferromex both challenged the ruling. In April 2005, the
Administrative and Fiscal Federal Court ruled in favor of KCSM
in the challenge to the SCT interline and terminal services
decision. Ferromex, however, challenged this court ruling before
the Fifteenth Collegiate Court, and the Court ruled in its
favor. Both Ferromex and KCSM have challenged the ruling on
different grounds. This most recent challenge is now before the
Mexican Supreme Court, which as of the date of this filing has
yet to issue a decision on the matter.
In addition to the above, Ferromex has filed three commercial
proceedings against KCSM. In the first claim, which was served
in 2001 and is related to the payment of consideration for
interline services, KCSM received a favorable decision and
Ferromex has been ordered to pay related costs and expenses.
Ferromex has appealed the decision. KCSM received an unfavorable
decision in the second claim filed in 2004 and has filed a
challenge to this judgment, the outcome of which is still
pending. The third claim, filed in 2006, is an action for access
to records related to interline services between 2002 and 2004.
A final decision has not been rendered on the third claim. KCSM
is continually analyzing all of the records related to this
dispute to determine the adequacy of the reserves for the
amounts due to, as well as due from, Ferromex.
KCSM expects various proceedings and appeals related to the
matters described above to continue over the next few years.
Although KCSM and Ferromex have challenged these matters based
on different grounds and these cases continue to evolve,
management believes the reserves related to these matters are
adequate and does not believe there will be a future material
impact to the results of operations arising out of these
disputes.
Disputes Relating to the Provision of Services to a Mexican
Subsidiary of a Large U.S. Auto
Manufacturer. KCSM is involved in several
disputes related to providing service to a Mexican subsidiary of
a large U.S. auto manufacturer (the Auto
Manufacturer).
In March 2008, the Auto Manufacturer filed an arbitration suit
against KCSM under a contract entered into in 1999 for services
to the Auto Manufacturers plants in Mexico, which, as
amended, had a stated termination date of January 31, 2008.
The Auto Manufacturer claims that the contract was implicitly
extended and continued in effect beyond its stated termination
date, and that KCSM is therefore required to continue abiding by
its terms, including, but not limited to, the rates contemplated
in such contract. KCSM claims that the contract did in fact
expire on its stated termination date of January 31, 2008,
and that services rendered thereafter are thus subject to the
general terms and conditions (including rates) applicable in the
absence of a specific contract, pursuant to Mexican law.
Accordingly, KCSM filed a counterclaim against the Auto
Manufacturer to, among other things, recover the applicable rate
difference between the rates under the contract and KCSMs
rates. The Auto Manufacturer is also seeking a declaration by
the arbitrator that the rates being assessed by KCSM are
discriminatory, even though the rates being charged are within
the legal
16
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
rate limits set by Mexican law for such freight transportation.
KCSM believes that the facts of this dispute provide it with
strong legal arguments and intends to vigorously defend its
claims in this proceeding. As a result, management believes the
final resolution of these claims will not have any material
impact on KCSMs results of operations.
In May 2008, the arbitrator ordered that KCSM continue providing
the service in the same way and at the same rates as it had done
through March 2008, and ordered the Auto Manufacturer to provide
a guaranty by depositing with KCSM the difference between the
rates under the agreement and KCSMs rates. KCSM initiated
a judicial proceeding seeking enforcement of the Auto
Manufacturers obligation to provide the guaranty and on
January 8, 2009, KCSM received a court ruling ordering the
Auto Manufacturer to deposit the amount of the guaranty with
KCSM as required by the arbitrator. On February 11, 2009,
the Auto Manufacturer was granted an injunction to avoid making
the payment, but was ordered to provide a guaranty for the
amount as determined by the court. The Auto Manufacturer posted
a bond as a guaranty in March of 2009 and filed an appeal
requesting that the amount of the guaranty be reduced. On April
2, 2009, the Collegiate Court reduced the amount of the guaranty
to an amount it determined would compensate KCSM for the delay
until the appeal was decided.
In May 2008, the SCT initiated a proceeding against KCSM, at the
Auto Manufacturers request, alleging that KCSM
impermissibly bundled international rail services and engaged in
discriminatory pricing practices with respect to rail services
provided by KCSM to the Auto Manufacturer. In March of 2009, the
SCT issued a decision determining that KCSM had engaged in the
activities alleged, but imposed no sanction since this was the
first time KCSM had engaged in such activities. KCSM intends to
challenge the SCTs decision.
On July 23, 2008, the SCT delivered notice to KCSM of new
proceedings against KCSM, claiming, among other things, that
KCSM refused to grant Ferromex access to certain trackage over
which Ferromex alleges it has trackage rights on six different
occasions and thus denied Ferromex the ability to provide
service to the Auto Manufacturer at this location.
KCSM does not believe that these SCT proceedings will have a
material adverse effect on its results of operations or
financial condition. However, if KCSM is ultimately sanctioned
in connection with the bundling and discriminatory pricing
practices alleged by the Auto Manufacturer, any such sanction
would be considered a generic sanction under Mexican
law (i.e., sanctions applied to conduct not specifically
referred to in specific subsections of the Mexican railway law).
If challenges against any such sanction are conclusively ruled
adversely to KCSM and a sanction is effectively imposed, and if
the SCT imposes other generic sanctions on four
additional occasions over the remaining term of KCSMs
railroad concession from the Mexican government (the
Concession), KCSM could be subject to possible future SCT
action seeking revocation of its Concession. Likewise, if each
of the six refusals to allow Ferromex to serve the Auto
Manufacturer in Coahuila were to be finally decided to warrant a
separate sanction, KCSM could be subject to a future SCT action
seeking revocation of its Concession. Revocation of the
Concession would materially adversely affect KCSMs results
of operations and financial condition.
Disputes Relating to the Scope of the Mandatory Trackage
Rights. KCSM and Ferromex are parties to various
cases involving disputes over the application and proper
interpretation of the mandatory trackage rights. In particular,
in August 2002, the SCT issued a ruling related to
Ferromexs trackage rights in Monterrey, Nuevo León.
KCSM and Ferromex both appealed the SCTs ruling and after
considerable litigation, on September 17, 2008, the Mexican
Administrative and Fiscal Federal Court announced a decision,
which if upheld, would grant Ferromex rights that KCSM believes
to be broader than those set forth in both its and
Ferromexs concession titles. KCSM further believes that
this decision conflicts with current applicable law and with
relevant judicial precedents. KCSM has challenged such
resolution and intends to continue to pursue all other remedies
available to it. KCSM believes that there will be no material
adverse effect on KCSMs results of operations or financial
condition from the outcome of this case.
17
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
Other SCT Sanction Proceedings. In April 2006,
the SCT initiated proceedings against KCSM, claiming that KCSM
had failed to make certain minimum capital investments projected
for 2004 and 2005 under its five-year business plan filed with
the SCT prior to its April 2005 acquisition by Kansas City
Southern (collectively, the Capital Investment
Proceedings). KCSM believes it made capital expenditures
exceeding the required amounts. KCSM responded to the SCT by
providing evidence in support of its investments and explaining
why it believes sanctions are not appropriate. In May 2007, KCSM
was served with an SCT resolution regarding the Capital
Investment Proceeding for 2004, where the SCT determined that
KCSM had indeed failed to make the minimum capital investments
required for such year, but resolved to impose no sanction as
this would have been KCSMs first breach of the relevant
legal provisions. In June 2007, KCSM was served with an SCT
resolution regarding the Capital Investment Proceeding for 2005,
where the SCT determined that KCSM had indeed failed to make the
minimum capital investments required for such year, and imposed
a fine in the amount of Ps.46,800. KCSM has filed actions
challenging both the 2004 and 2005 investment plan resolutions
issued by the SCT. KCSM will have the right to challenge any
adverse ruling by the Mexican Administrative and Fiscal Federal
Court.
KCSM believes that even if sanctions are ultimately imposed as a
consequence of the Capital Investment Proceedings, there will be
no material adverse effect on its results of operations or
financial condition. However, each of these potential sanctions
is considered a generic sanction under Mexican law
(i.e., sanctions applied to conduct not specifically referred to
in specific subsections of the Mexican railway law). If these
potential sanctions are conclusively ruled adversely against
KCSM and sanctions are imposed, and if the SCT imposes other
sanctions related to KCSMs capital investments or other
generic sanctions on three additional occasions over
the remaining term of the Concession, KCSM could be subject to
possible future SCT action seeking revocation of its Concession.
Revocation would materially adversely affect the results of
operations and financial condition of KCSM.
Mancera Proceeding. In February 2006, Mancera
Ernst & Young, S.C., (Mancera) filed a
claim against KCSM seeking payment for an additional contingency
fee for costs and expenses related to Manceras
representation of KCSM in its value added tax or VAT
claim against the Mexican government. Following litigation, KCSM
was notified on February 10, 2009 that the Appeals Court of
Mexico City released KCSM from any obligation for damages to
Mancera but increased the amount of fees to be paid to Mancera
above the contractual terms outlined in its engagement agreement
with Mancera as interpreted by KCSM. KCSM has appealed this
decision and intends to vigorously defend the matter. In
addition, the Company believes that it has adequately reserved
for its obligation and does not believe that the final
resolution of this claim will have a material effect on the
Companys financial statements.
Third Party Contractual Agreements. In the
normal course of business, the Company enters into various third
party contractual agreements related to the use of other
railroads or municipalities infrastructure needed
for the operations of the business. The Company is involved in
certain disputes involving transportation rates and charges
related to these agreements. While the outcome of these matters
can not be predicted with certainty, the Company does not
believe, when finally resolved, that these disputes will have a
material effect on its results of operations or financial
condition. However, an unexpected adverse resolution could have
a material effect on the results of operations in a particular
quarter or year.
Credit Risk. The Company continually monitors
risks related to the downturn in the economy and certain
customer receivable concentrations. Significant changes in
customer concentration or payment terms, deterioration of
customer credit-worthiness or further weakening in economic
trends could have a significant impact on the collectability of
the Companys receivables and operating results. If the
financial condition of the Companys customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. The Company has
recorded reserves for uncollectability based on its best
estimate at March 31, 2009.
18
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
|
|
8.
|
Geographic
Information.
|
The Company strategically manages its rail operations as one
reportable business segment over a single coordinated rail
network that extends from the midwest and southeast portions of
the United States south into Mexico and connects with other
Class I railroads. Financial information reported at this
level, such as revenues, operating income and cash flows from
operations, is used by corporate management, including the
Companys chief operating decision-maker, in evaluating
overall financial and operational performance, market
strategies, as well as the decisions to allocate capital
resources.
The following tables (in millions) provide information by
geographic area pursuant to Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information
(SFAS 131) as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
Revenues
|
|
2009
|
|
|
2008
|
|
|
U.S.
|
|
$
|
208.7
|
|
|
$
|
244.6
|
|
Mexico
|
|
|
137.3
|
|
|
|
206.0
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
346.0
|
|
|
$
|
450.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Long-lived Assets
|
|
2009
|
|
|
2008
|
|
|
U.S.
|
|
$
|
2,417.8
|
|
|
$
|
2,342.1
|
|
Mexico
|
|
|
2,251.3
|
|
|
|
2,256.3
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
4,669.1
|
|
|
$
|
4,598.4
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Condensed
Consolidating Financial Information.
|
KCSR has outstanding $275.0 million of 8.0% Senior
Notes due 2015 and $190.0 million of 13.0% Senior
Notes due 2013, which are unsecured obligations of KCSR, which
are also jointly and severally and fully and unconditionally
guaranteed on an unsecured senior basis by KCS and certain
wholly-owned domestic subsidiaries. As a result, the following
accompanying condensed consolidating financial information
(in millions) has been prepared and presented pursuant to
SEC
Regulation S-X
Rule 3-10
Financial statements of guarantors and issuers of
guaranteed securities registered or being registered. This
condensed information is not intended to present the financial
position, results of operations and cash flows of the individual
companies or groups of companies in accordance with
U.S. GAAP. The 8.0% Senior Notes were registered by
means of an amendment to KCS shelf registration statement
filed and declared effective by the SEC on May 23, 2008.
The 13.0% Senior Notes were registered under KCS
shelf registration statement filed and declared effective by the
SEC on November 21, 2008.
19
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
183.9
|
|
|
$
|
2.9
|
|
|
$
|
166.2
|
|
|
$
|
(7.0
|
)
|
|
$
|
346.0
|
|
Operating expenses
|
|
|
1.3
|
|
|
|
152.3
|
|
|
|
3.8
|
|
|
|
147.7
|
|
|
|
(7.6
|
)
|
|
|
297.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1.3
|
)
|
|
|
31.6
|
|
|
|
(0.9
|
)
|
|
|
18.5
|
|
|
|
0.6
|
|
|
|
48.5
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
5.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
1.0
|
|
|
|
(6.3
|
)
|
|
|
1.0
|
|
Interest expense
|
|
|
(0.7
|
)
|
|
|
(18.6
|
)
|
|
|
|
|
|
|
(23.0
|
)
|
|
|
0.5
|
|
|
|
(41.8
|
)
|
Debt retirement costs
|
|
|
|
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(5.9
|
)
|
Foreign exchange loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
(5.1
|
)
|
Other income
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
(1.1
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
|
4.0
|
|
|
|
9.4
|
|
|
|
(0.9
|
)
|
|
|
(8.0
|
)
|
|
|
(6.3
|
)
|
|
|
(1.8
|
)
|
Income tax expense (benefit)
|
|
|
6.2
|
|
|
|
4.4
|
|
|
|
(0.3
|
)
|
|
|
(9.9
|
)
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2.2
|
)
|
|
|
5.0
|
|
|
|
(0.6
|
)
|
|
|
1.9
|
|
|
|
(6.3
|
)
|
|
|
(2.2
|
)
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Kansas City Southern and
subsidiaries
|
|
$
|
(2.2
|
)
|
|
$
|
5.0
|
|
|
$
|
(0.6
|
)
|
|
$
|
2.0
|
|
|
$
|
(6.3
|
)
|
|
$
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
217.7
|
|
|
$
|
4.1
|
|
|
$
|
237.5
|
|
|
$
|
(8.7
|
)
|
|
$
|
450.6
|
|
Operating expenses
|
|
|
3.2
|
|
|
|
189.4
|
|
|
|
6.2
|
|
|
|
177.5
|
|
|
|
(9.1
|
)
|
|
|
367.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(3.2
|
)
|
|
|
28.3
|
|
|
|
(2.1
|
)
|
|
|
60.0
|
|
|
|
0.4
|
|
|
|
83.4
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
40.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
4.2
|
|
|
|
(41.4
|
)
|
|
|
4.1
|
|
Interest expense
|
|
|
(0.5
|
)
|
|
|
(16.3
|
)
|
|
|
(0.3
|
)
|
|
|
(22.6
|
)
|
|
|
0.2
|
|
|
|
(39.5
|
)
|
Foreign exchange gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
2.5
|
|
Other income
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
1.5
|
|
|
|
(0.5
|
)
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
|
36.9
|
|
|
|
14.7
|
|
|
|
(2.4
|
)
|
|
|
45.6
|
|
|
|
(41.3
|
)
|
|
|
53.5
|
|
Income tax expense (benefit)
|
|
|
(0.9
|
)
|
|
|
6.3
|
|
|
|
(0.9
|
)
|
|
|
11.2
|
|
|
|
|
|
|
|
15.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
37.8
|
|
|
|
8.4
|
|
|
|
(1.5
|
)
|
|
|
34.4
|
|
|
|
(41.3
|
)
|
|
|
37.8
|
|
Noncontrolling interest
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Kansas City Southern and
subsidiaries
|
|
$
|
37.7
|
|
|
$
|
8.4
|
|
|
$
|
(1.5
|
)
|
|
$
|
34.4
|
|
|
$
|
(41.3
|
)
|
|
$
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
30.3
|
|
|
$
|
178.0
|
|
|
$
|
3.4
|
|
|
$
|
397.8
|
|
|
$
|
(18.0
|
)
|
|
$
|
591.5
|
|
Investments held for operating purposes and affiliate investment
|
|
|
2,143.6
|
|
|
|
33.2
|
|
|
|
1.9
|
|
|
|
1,705.9
|
|
|
|
(3,826.4
|
)
|
|
|
58.2
|
|
Property and equipment, net
|
|
|
|
|
|
|
1,522.9
|
|
|
|
211.8
|
|
|
|
1,766.7
|
|
|
|
|
|
|
|
3,501.4
|
|
Concession assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,167.7
|
|
|
|
|
|
|
|
1,167.7
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.9
|
|
|
|
|
|
|
|
46.9
|
|
Other assets
|
|
|
1.0
|
|
|
|
36.3
|
|
|
|
|
|
|
|
28.7
|
|
|
|
(13.2
|
)
|
|
|
52.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,174.9
|
|
|
$
|
1,770.4
|
|
|
$
|
217.1
|
|
|
$
|
5,113.7
|
|
|
$
|
(3,857.6
|
)
|
|
$
|
5,418.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
363.0
|
|
|
$
|
(308.4
|
)
|
|
$
|
120.4
|
|
|
$
|
326.8
|
|
|
$
|
(17.8
|
)
|
|
$
|
484.0
|
|
Long-term debt
|
|
|
0.2
|
|
|
|
889.5
|
|
|
|
0.4
|
|
|
|
1,148.8
|
|
|
|
|
|
|
|
2,038.9
|
|
Deferred income taxes
|
|
|
(23.5
|
)
|
|
|
371.4
|
|
|
|
79.1
|
|
|
|
74.5
|
|
|
|
|
|
|
|
501.5
|
|
Other liabilities
|
|
|
4.0
|
|
|
|
131.4
|
|
|
|
7.3
|
|
|
|
84.8
|
|
|
|
(13.4
|
)
|
|
|
214.1
|
|
Stockholders equity
|
|
|
1,831.2
|
|
|
|
655.1
|
|
|
|
9.9
|
|
|
|
3,205.2
|
|
|
|
(3,795.0
|
)
|
|
|
1,906.4
|
|
Noncontrolling interest
|
|
|
|
|
|
|
31.4
|
|
|
|
|
|
|
|
273.6
|
|
|
|
(31.4
|
)
|
|
|
273.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,174.9
|
|
|
$
|
1,770.4
|
|
|
$
|
217.1
|
|
|
$
|
5,113.7
|
|
|
$
|
(3,857.6
|
)
|
|
$
|
5,418.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
21.9
|
|
|
$
|
354.0
|
|
|
$
|
3.4
|
|
|
$
|
319.6
|
|
|
$
|
(13.3
|
)
|
|
$
|
685.6
|
|
Investments held for operating purposes and affiliate investment
|
|
|
2,280.4
|
|
|
|
45.2
|
|
|
|
1.8
|
|
|
|
722.8
|
|
|
|
(2,989.7
|
)
|
|
|
60.5
|
|
Property and equipment, net
|
|
|
|
|
|
|
1,593.6
|
|
|
|
213.4
|
|
|
|
1,609.3
|
|
|
|
|
|
|
|
3,416.3
|
|
Concession assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,182.1
|
|
|
|
|
|
|
|
1,182.1
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36.4
|
|
|
|
|
|
|
|
36.4
|
|
Other assets
|
|
|
1.0
|
|
|
|
37.6
|
|
|
|
|
|
|
|
33.5
|
|
|
|
(13.8
|
)
|
|
|
58.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,303.3
|
|
|
$
|
2,030.4
|
|
|
$
|
218.6
|
|
|
$
|
3,903.7
|
|
|
$
|
(3,016.8
|
)
|
|
$
|
5,439.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
415.1
|
|
|
$
|
391.8
|
|
|
$
|
120.7
|
|
|
$
|
178.1
|
|
|
$
|
(12.9
|
)
|
|
$
|
1,092.8
|
|
Long-term debt
|
|
|
0.2
|
|
|
|
454.1
|
|
|
|
0.6
|
|
|
|
993.8
|
|
|
|
|
|
|
|
1,448.7
|
|
Deferred income taxes
|
|
|
(27.5
|
)
|
|
|
367.7
|
|
|
|
79.4
|
|
|
|
72.8
|
|
|
|
|
|
|
|
492.4
|
|
Other liabilities
|
|
|
4.0
|
|
|
|
134.3
|
|
|
|
7.5
|
|
|
|
88.5
|
|
|
|
(14.2
|
)
|
|
|
220.1
|
|
Stockholders equity
|
|
|
1,911.5
|
|
|
|
651.1
|
|
|
|
10.4
|
|
|
|
2,296.8
|
|
|
|
(2,958.3
|
)
|
|
|
1,911.5
|
|
Noncontrolling interest
|
|
|
|
|
|
|
31.4
|
|
|
|
|
|
|
|
273.7
|
|
|
|
(31.4
|
)
|
|
|
273.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,303.3
|
|
|
$
|
2,030.4
|
|
|
$
|
218.6
|
|
|
$
|
3,903.7
|
|
|
$
|
(3,016.8
|
)
|
|
$
|
5,439.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
CONDENSED
CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding intercompany activity
|
|
$
|
64.8
|
|
|
$
|
57.4
|
|
|
$
|
0.8
|
|
|
$
|
(59.2
|
)
|
|
$
|
|
|
|
$
|
63.8
|
|
Intercompany activity
|
|
|
(53.4
|
)
|
|
|
(103.5
|
)
|
|
|
|
|
|
|
156.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used)
|
|
|
11.4
|
|
|
|
(46.1
|
)
|
|
|
0.8
|
|
|
|
97.7
|
|
|
|
|
|
|
|
63.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(34.7
|
)
|
|
|
(0.6
|
)
|
|
|
(65.6
|
)
|
|
|
1.0
|
|
|
|
(99.9
|
)
|
Return of investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65.0
|
|
|
|
(65.0
|
)
|
|
|
|
|
Contribution from NS for MSLLC (net of change in restricted
contribution)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
Property investments in MSLLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.8
|
)
|
|
|
|
|
|
|
(17.8
|
)
|
Loans to affiliates
|
|
|
(8.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7
|
|
|
|
|
|
Other investing activities
|
|
|
|
|
|
|
91.1
|
|
|
|
|
|
|
|
(86.4
|
)
|
|
|
(1.0
|
)
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used)
|
|
|
(8.7
|
)
|
|
|
56.4
|
|
|
|
(0.6
|
)
|
|
|
(106.3
|
)
|
|
|
(56.3
|
)
|
|
|
(115.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
33.7
|
|
|
|
|
|
|
|
189.0
|
|
|
|
(8.7
|
)
|
|
|
214.0
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(204.7
|
)
|
|
|
|
|
|
|
(34.0
|
)
|
|
|
|
|
|
|
(238.7
|
)
|
Debt costs
|
|
|
|
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
(9.3
|
)
|
Other financing activities
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(65.0
|
)
|
|
|
65.0
|
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used)
|
|
|
(2.5
|
)
|
|
|
(176.1
|
)
|
|
|
|
|
|
|
85.8
|
|
|
|
56.3
|
|
|
|
(36.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
0.2
|
|
|
|
(165.8
|
)
|
|
|
0.2
|
|
|
|
77.2
|
|
|
|
|
|
|
|
(88.2
|
)
|
At beginning of year
|
|
|
|
|
|
|
177.9
|
|
|
|
0.2
|
|
|
|
51.8
|
|
|
|
|
|
|
|
229.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of period
|
|
$
|
0.2
|
|
|
$
|
12.1
|
|
|
$
|
0.4
|
|
|
$
|
129.0
|
|
|
$
|
|
|
|
$
|
141.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Kansas
City Southern
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
KCSR
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
KCS
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding intercompany activity
|
|
$
|
3.4
|
|
|
$
|
63.7
|
|
|
$
|
1.2
|
|
|
$
|
50.4
|
|
|
$
|
|
|
|
$
|
118.7
|
|
Intercompany activity
|
|
|
0.9
|
|
|
|
8.6
|
|
|
|
(0.7
|
)
|
|
|
(8.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
|
|
|
4.3
|
|
|
|
72.3
|
|
|
|
0.5
|
|
|
|
41.6
|
|
|
|
|
|
|
|
118.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(43.6
|
)
|
|
|
|
|
|
|
(48.9
|
)
|
|
|
|
|
|
|
(92.5
|
)
|
Contribution from NS for MSLLC (net of change in restricted
contribution)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.8
|
|
|
|
|
|
|
|
14.8
|
|
Property investments in MSLLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.9
|
)
|
|
|
|
|
|
|
(16.9
|
)
|
Other investing activities
|
|
|
|
|
|
|
(34.8
|
)
|
|
|
(0.5
|
)
|
|
|
(25.0
|
)
|
|
|
|
|
|
|
(60.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used
|
|
|
|
|
|
|
(78.4
|
)
|
|
|
(0.5
|
)
|
|
|
(76.0
|
)
|
|
|
|
|
|
|
(154.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72.8
|
|
|
|
|
|
|
|
72.8
|
|
Repayment of long-term debt
|
|
|
(0.4
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
(15.3
|
)
|
Other financing activities
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used)
|
|
|
(4.2
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
62.0
|
|
|
|
|
|
|
|
53.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
|
0.1
|
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
27.6
|
|
|
|
|
|
|
|
17.0
|
|
At beginning of year
|
|
|
(0.2
|
)
|
|
|
27.6
|
|
|
|
0.1
|
|
|
|
28.0
|
|
|
|
|
|
|
|
55.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of period
|
|
$
|
(0.1
|
)
|
|
$
|
16.9
|
|
|
$
|
0.1
|
|
|
$
|
55.6
|
|
|
$
|
|
|
|
$
|
72.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Kansas City Southern:
We have reviewed the accompanying consolidated balance sheet of
Kansas City Southern and subsidiaries (the Company) as of
March 31, 2009, the related consolidated statements of
operations and cash flows for the three-month periods ended
March 31, 2009 and 2008, and the related consolidated
statement of changes in stockholders equity and
noncontrolling interest for the three-month period ended
March 31, 2009. These consolidated financial statements are
the responsibility of the Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial
statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of the Company as of
December 31, 2008, and the related consolidated statements
of income, stockholders equity and comprehensive income,
and cash flows for the year then ended (not presented herein);
and in our report dated February 13, 2009, we expressed an
unqualified opinion on those consolidated financial statements.
Our report refers to the Companys adoption of Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, effective
January 1, 2007. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of
December 31, 2008 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
KPMG LLP
Kansas City, Missouri
April 30, 2009
24
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The discussion below, as well as other portions of this
Form 10-Q,
contain forward-looking statements that are not based upon
historical information. Such forward-looking statements are
based upon information currently available to management and
managements perception thereof as of the date of this
Form 10-Q.
Readers can identify these forward-looking statements by the use
of such verbs as expects, anticipates,
believes or similar verbs or conjugations of such
verbs. The actual results of operations of Kansas City Southern
(KCS or the Company) could materially
differ from those indicated in forward-looking statements. The
differences could be caused by a number of factors or
combination of factors including, but not limited to, those
factors identified in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in the Companys annual report on
Form 10-K
for the year ended December 31, 2008, which is on file with
the U.S. Securities and Exchange Commission (File
No. 1-4717)
incorporated by reference and in Part II
Item 1A Risk Factors in the
Form 10-K
and any updates contained herein. Readers are strongly
encouraged to consider these factors when evaluating
forward-looking statements. Forward-looking statements contained
in this
Form 10-Q
will not be updated.
This discussion is intended to clarify and focus on the
Companys results of operations, certain changes in its
financial position, liquidity, capital structure and business
developments for the periods covered by the consolidated
financial statements included under Item 1 of this
Form 10-Q.
This discussion should be read in conjunction with those
consolidated financial statements and the related notes, and is
qualified by reference to them.
Critical
Accounting Policies and Estimates.
The Companys discussion and analysis of its financial
position and results of operations is based upon its
consolidated financial statements. The preparation of the
financial statements requires estimation and judgment that
affect the reported amounts of revenue, expenses, assets, and
liabilities. The Company bases its estimates on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the accounting for assets
and liabilities that are not readily apparent from other
sources. If the estimates differ materially from actual results,
the impact on the consolidated financial statements may be
material. The Companys critical accounting policies are
disclosed in the 2008 annual report on
Form 10-K.
There have been no significant changes with respect to these
policies during the first three months of 2009.
Overview.
The Company is engaged in the freight rail transportation
business operating a single coordinated rail network under one
reportable business segment. The primary operating subsidiaries
of the Company consists of the following: The Kansas City
Southern Railway Company (KCSR), Kansas City
Southern de México, S.A. de C.V. (KCSM),
Meridian Speedway, LLC (MSLLC), and The Texas
Mexican Railway Company (TexMex). The Company
generates revenues and cash flows by providing customers with
freight delivery services within its regions, and throughout
North America through connections with other Class I rail
carriers. Customers conduct business in a number of different
industries, including electric-generating utilities, chemical
and petroleum products, industrial and consumer products,
agriculture and mineral products, automotive products and
intermodal transportation. Appropriate eliminations and
reclassifications have been recorded in deriving consolidated
financial statements.
First
Quarter Analysis.
The Company reported quarterly losses of $0.08 per diluted share
on consolidated net loss of $2.1 million for the three
months ended March 31, 2009, compared to quarterly earnings
of $0.39 per diluted share on consolidated net income of
$37.7 million for the same period in 2008. This earnings
decline reflects a 23.2% reduction in revenues during the three
months ended March 31, 2009 as compared to the same period
in 2008. This significant revenue decline was primarily driven
by the economic downturn that has affected most business
sectors, and has resulted in industry-wide declines in
carload/unit volumes. The revenue declines were
25
partially offset by reduced fuel costs, reflecting reduced
consumption and prices, and increased efficiency. The revenue
declines were further mitigated by the Companys cost
control program including modifications to the Companys
operations in response to volumes and reduced headcount;
however, due to increased depreciation and amortization expense
and because certain operating costs are fixed in the short-term,
operating expenses as a percentage of revenues increased to
86.0% for the three months ended March 31, 2009 as compared
to 81.5% for the same period in 2008.
Cash flows from operations decreased to $63.8 million as
compared to $118.7 million for the three month periods
ended March 31, 2009 and 2008, respectively, a decrease of
$54.9 million from the prior year period. The decrease is
primarily due to lower carload/unit volumes as previously
discussed. Capital expenditures are a significant use of cash
due to the capital intensive nature of railroad operations. Cash
used for capital expenditures for the three months ended
March 31, 2009 was $99.9 million as compared to
$92.5 million for the same period in 2008.
Results
of Operations.
Net income (loss) for the first quarter of 2009 decreased
$39.8 million compared to the prior year first quarter.
The following summarizes KCS statement of operations
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Dollars
|
|
|
Percent
|
|
|
Revenues
|
|
$
|
346.0
|
|
|
$
|
450.6
|
|
|
$
|
(104.6
|
)
|
|
|
(23
|
)%
|
Operating expenses
|
|
|
297.5
|
|
|
|
367.2
|
|
|
|
(69.7
|
)
|
|
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
48.5
|
|
|
|
83.4
|
|
|
|
(34.9
|
)
|
|
|
(42
|
)%
|
Equity in net earnings of unconsolidated affiliates
|
|
|
1.0
|
|
|
|
4.1
|
|
|
|
(3.1
|
)
|
|
|
(76
|
)%
|
Interest expense
|
|
|
(41.8
|
)
|
|
|
(39.5
|
)
|
|
|
(2.3
|
)
|
|
|
6
|
%
|
Debt retirement costs
|
|
|
(5.9
|
)
|
|
|
|
|
|
|
(5.9
|
)
|
|
|
100
|
%
|
Foreign exchange gain (loss)
|
|
|
(5.1
|
)
|
|
|
2.5
|
|
|
|
(7.6
|
)
|
|
|
(304
|
)%
|
Other income
|
|
|
1.5
|
|
|
|
3.0
|
|
|
|
(1.5
|
)
|
|
|
(50
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and noncontrolling interest
|
|
|
(1.8
|
)
|
|
|
53.5
|
|
|
|
(55.3
|
)
|
|
|
(103
|
)%
|
Income tax expense
|
|
|
0.4
|
|
|
|
15.7
|
|
|
|
(15.3
|
)
|
|
|
(97
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2.2
|
)
|
|
|
37.8
|
|
|
|
(40.0
|
)
|
|
|
(106
|
)%
|
Noncontrolling interest
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
(200
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Kansas City Southern and
subsidiaries
|
|
$
|
(2.1
|
)
|
|
$
|
37.7
|
|
|
$
|
(39.8
|
)
|
|
|
(106
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Revenues.
The following summarizes revenues (in millions) and
carload statistics (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Carloads and Units
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
March 31,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Dollars
|
|
|
Percent
|
|
|
2009
|
|
|
2008
|
|
|
Units
|
|
|
Percent
|
|
|
Chemical and petroleum
|
|
$
|
71.5
|
|
|
$
|
86.7
|
|
|
$
|
(15.2
|
)
|
|
|
(18
|
)%
|
|
|
55.5
|
|
|
|
61.6
|
|
|
|
(6.1
|
)
|
|
|
(10
|
)%
|
Industrial and consumer products
|
|
|
82.0
|
|
|
|
123.9
|
|
|
|
(41.9
|
)
|
|
|
(34
|
)%
|
|
|
66.1
|
|
|
|
94.8
|
|
|
|
(28.7
|
)
|
|
|
(30
|
)%
|
Agriculture and minerals
|
|
|
82.6
|
|
|
|
108.8
|
|
|
|
(26.2
|
)
|
|
|
(24
|
)%
|
|
|
62.2
|
|
|
|
71.8
|
|
|
|
(9.6
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general commodities
|
|
|
236.1
|
|
|
|
319.4
|
|
|
|
(83.3
|
)
|
|
|
(26
|
)%
|
|
|
183.8
|
|
|
|
228.2
|
|
|
|
(44.4
|
)
|
|
|
(19
|
)%
|
Intermodal
|
|
|
30.6
|
|
|
|
35.8
|
|
|
|
(5.2
|
)
|
|
|
(15
|
)%
|
|
|
114.6
|
|
|
|
124.1
|
|
|
|
(9.5
|
)
|
|
|
(8
|
)%
|
Automotive
|
|
|
12.3
|
|
|
|
28.3
|
|
|
|
(16.0
|
)
|
|
|
(57
|
)%
|
|
|
10.6
|
|
|
|
27.2
|
|
|
|
(16.6
|
)
|
|
|
(61
|
)%
|
Coal
|
|
|
47.3
|
|
|
|
47.0
|
|
|
|
0.3
|
|
|
|
1
|
%
|
|
|
75.0
|
|
|
|
72.8
|
|
|
|
2.2
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carload revenues, carloads and units
|
|
|
326.3
|
|
|
|
430.5
|
|
|
|
(104.2
|
)
|
|
|
(24
|
)%
|
|
|
384.0
|
|
|
|
452.3
|
|
|
|
(68.3
|
)
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
|
19.7
|
|
|
|
20.1
|
|
|
|
(0.4
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues(i)
|
|
$
|
346.0
|
|
|
$
|
450.6
|
|
|
$
|
(104.6
|
)
|
|
|
(23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Included in revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge
|
|
$
|
16.8
|
|
|
$
|
41.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, revenues
decreased $104.6 million compared to the same period in
2008, primarily due to the overall decrease in carload/unit
volumes resulting from the downturn in the economy, decreased
fuel surcharge, and fluctuations in the U.S. dollar against
the Mexican peso exchange rate. Revenue per carload/unit
decreased by 10.7% due to unfavorable commodity mix and fuel
surcharge partially offset by an increase in core pricing.
27
|
|
|
|
|
Revenues by commodity
|
|
|
group for the three months
|
|
|
ended March 31,
2009
|
|
Chemical and petroleum. Revenues decreased
$15.2 million for the three months ended March 31,
2009, compared to the same period in 2008, due to declines in
volume and fuel surcharge. The decrease in demand for most
chemical products was the result of the downturn in the economy.
Plastic shipments to auto-related facilities also decreased,
driven by the overall downturn in the automotive industry.
|
|
.
|
Industrial and consumer products. Revenues decreased
$41.9 million for the three months ended March 31,
2009, compared to the same period in 2008, primarily due to
decreases in volume and fuel surcharge. Forest products were
affected by decreased demand, resulting from temporary mill
shutdowns, bringing inventory in line with demand. Volumes in
metals and scrap decreased primarily in pipe products and steel
slab shipments. Pipe product volumes decreased as a result of
lower demand for pipes used for drilling oil. Steel slab
shipments decreased as the demand for products such as
automobiles and appliances declined during the first quarter of
2009.
|
|
|
|
|
|
Agriculture and minerals. Revenues decreased
$26.2 million for the three months ended March 31,
2009, compared to the same period in 2008, due to decreases in
volume and fuel surcharge. Grain traffic accounted for the
majority of the decrease in revenues and carloads as traffic
patterns shifted due to reduced vessel freight rates and a
decline in cross-border traffic into Mexico, as availability of
crops in Mexico has been sufficient to meet the demand. These
factors also resulted in a decrease in the length of haul and
revenue per carload compared to the prior quarter.
|
|
|
Intermodal. Revenues decreased
$5.2 million for the three months ended March 31, 2009
compared to the same period in 2008, driven by decreases in
volume and fuel surcharge. Due to the downturn in the economy,
volumes of imports and exports of intermodal containerized
business decreased.
Automotive. Revenues decreased
$16.0 million for the three months ended March 31,
2009, compared to the same period in 2008. The volume decrease
was driven by the continued overall downturn in the automotive
industry as consumer uncertainty and tightening credit markets
have reduced overall demand for new vehicles and resulted in
several unscheduled plant shutdowns.
Coal. Revenue increased $0.3 million for
the three months ended March 31, 2009, compared to the same
period in 2008, due to increases in volume and length of haul
resulting from increased demand and improved velocity for unit
coal trains destined for coal-fired electric generating
facilities. This overall revenue increase was partially offset
by a decline in petroleum coke volumes, used primarily in the
cement and steel industry, due to reduced demand in these
markets.
Operating
Expenses.
Operating expenses, as shown below (in millions),
decreased $69.7 million for the three months ended
March 31, 2009, when compared to the same period in 2008,
primarily due to decreased carload/unit volumes, cost control
actions and fluctuations in the U.S. dollar against the
Mexican peso exchange rate. Certain prior period amounts have
been reclassified to conform to the current year presentation.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Dollars
|
|
|
Percent
|
|
|
Compensation and benefits
|
|
$
|
78.0
|
|
|
$
|
101.8
|
|
|
$
|
(23.8
|
)
|
|
|
(23
|
)%
|
Purchased services
|
|
|
44.5
|
|
|
|
51.2
|
|
|
|
(6.7
|
)
|
|
|
(13
|
)%
|
Fuel
|
|
|
43.3
|
|
|
|
77.8
|
|
|
|
(34.5
|
)
|
|
|
(44
|
)%
|
Equipment costs
|
|
|
39.1
|
|
|
|
44.4
|
|
|
|
(5.3
|
)
|
|
|
(12
|
)%
|
Depreciation and amortization
|
|
|
47.1
|
|
|
|
40.3
|
|
|
|
6.8
|
|
|
|
17
|
%
|
Casualties and insurance
|
|
|
12.5
|
|
|
|
18.6
|
|
|
|
(6.1
|
)
|
|
|
(33
|
)%
|
Materials and other
|
|
|
33.0
|
|
|
|
33.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
297.5
|
|
|
$
|
367.2
|
|
|
$
|
(69.7
|
)
|
|
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits. Compensation and
benefits decreased $23.8 million for the three months ended
March 31, 2009, compared to the same period in 2008,
primarily due to the decrease in compensation and benefits paid
in Mexico from the fluctuations of the U.S. dollar against
the Mexican peso, lower incentive compensation expense,
including the Mexico statutory profit sharing expense, and a
reduction in head count due to cost control actions.
Purchased services. Purchased services
decreased $6.7 million for the three months ended
March 31, 2009, compared to the same period in 2008,
primarily due to an increase in car repairs billed to other
railroads and joint facility income and a decrease in locomotive
maintenance and corporate expenses, partially offset by an
increase in track structure maintenance.
Fuel. Fuel expense decreased
$34.5 million for the three months ended March 31,
2009, compared with the same period in 2008, primarily due to
lower diesel fuel prices, lower consumption and increased fuel
efficiency.
Equipment costs. Equipment costs decreased
$5.3 million for the three months ended March 31,
2009, compared with the same period in 2008, primarily due to a
decrease in the use of other railroads freight cars and
lower freight car lease expense.
Depreciation and amortization. Depreciation
and amortization expenses increased $6.8 million for the
three months ended March 31, 2009, compared to the same
period in 2008, primarily due to a larger asset base reflecting
recent capital expenditures to expand capacity.
Casualties and insurance. Casualties and
insurance expenses decreased $6.1 million for the three
months ended March 31, 2009, compared to the same period in
2008, primarily due to fewer derailments and lower average cost
per derailment and a reduction to a large derailment reserve
reflecting managements revised expectations regarding
resolution.
Materials and other. Materials and other
expense decreased $0.1 million. Materials and supplies used
for the maintenance of locomotives and freight cars and employee
expenses were lower as compared to the same period in 2008. In
addition, the first quarter of 2008 included a favorable outcome
related to a legal dispute.
Non-Operating
Expenses.
Equity in Net Earnings (Losses) of Unconsolidated
Affiliates. Equity in earnings from
unconsolidated affiliates was $1.0 million for the three
month period ended March 31, 2009, compared to
$4.1 million for the same period in 2008. Significant
components of this change are as follows:
|
|
|
|
|
Equity in earnings from the operations of PCRC was
$0.3 million for the three month period ended
March 31, 2009, compared to $1.5 million for the same
period in 2008. The decrease is primarily due to a reduction in
container volume attributable to the downturn in the economy.
|
|
|
|
Equity in earnings of Southern Capital Corporation, LLC was
$1.1 million for the three month period ended
March 31, 2009, compared to $1.3 million for the same
period in 2008. The decrease is primarily attributed to a
reduction in lease income due to casualty units as well as
leases that expired in the fourth quarter of 2008.
|
29
|
|
|
|
|
KCSMs equity in earnings of Ferrocarril y Terminal del
Valle de México, S.A. de C.V. (FTVM) was a loss
of $0.4 million for the three month period ended
March 31, 2009, compared to earnings of $1.3 million
for the same period in 2008. The decrease for the three months
ended March 31, 2009 is primarily due to the decrease in
operating income compared with the same period in 2008.
|
Interest Expense. Interest expense increased
by $2.3 million for the three months ended March 31,
2009, compared to the same period in 2008, mainly due to higher
average debt balances.
Debt Retirement Costs. Debt retirement costs
were $5.9 million for the three months ended March 31,
2009. In January 2009, KCSR redeemed its
71/2% Senior
Notes due June 15, 2009 and expensed $5.3 million for
cash tender offer expenses and unamortized debt issuance costs.
In addition, KCSM repaid all amounts outstanding under the 2007
KCSM Credit Agreement and upon termination, wrote-off the
unamortized debt issuance cost related to this debt.
Foreign Exchange. For the three months ended
March 31, 2009 and 2008, the average Mexican peso exchange
rate per U.S. dollar was Ps.14.49 and Ps.10.76,
respectively, resulting in a foreign exchange loss of
$5.1 million compared to a foreign exchange gain of
$2.5 million for the same period in 2008.
Other Income. Other income decreased by
$1.5 million for the three months ended March 31,
2009, compared to the same period in 2008, primarily due to fees
paid by KCSM related to an amendment to the 2007 KCSM Credit
Agreement in the first quarter of 2009, decreases in gains on
sale of property and lower dividend and interest income.
Income Tax Expense. For the three months ended
March 31, 2009, the income tax provision was
$0.4 million as compared to $15.7 million for the same
period in 2008. The decrease in income taxes was due to a
pre-tax loss for the three months ended March 31, 2009
compared to pre-tax income for the same period in 2008,
partially offset by adjustments related to the settlement of tax
audits. The effective income tax rate was (22.2%) and 29.3% for
the three months ended March 31, 2009 and 2008,
respectively. The change in the effective tax rate was due to
lower pre-tax income, a shift in the composition of income in
different taxing jurisdictions and foreign exchange rate
fluctuations.
Liquidity
and Capital Resources.
Overview.
KCS primary uses of cash are to support operations;
maintain and improve its railroad; pay debt service and
preferred stock dividends; acquire new and maintain existing
locomotives, rolling stock and other equipment; and meet other
obligations. See Cash Flow Information below.
As of March 31, 2009, KCS has a debt capitalization ratio
(total debt as a percentage of total debt plus total equity) of
48.6 percent. Its primary sources of liquidity are cash
flows generated from operations, borrowings under its revolving
credit facility and access to debt and equity capital markets.
Although KCS has had more than adequate access to the capital
markets, as a non-investment grade company, the financial terms
under which funding is obtained often contain restrictive
covenants. The covenants constrain financial flexibility by
restricting or prohibiting certain actions, including the
ability to incur additional debt for any purpose other than
refinancing existing debt, create or suffer to exist additional
liens, make prepayments of particular debt, pay dividends on
common stock, make capital investments, engage in transactions
with stockholders and affiliates, issue capital stock, sell
certain assets, and engage in mergers and consolidations or in
sale-leaseback transactions. The Company was in compliance with
all of its debt covenants as of March 31, 2009. On
March 31, 2009, total available liquidity (the unrestricted
cash balance plus revolving credit facility availability) was
approximately $142 million.
The Company believes, based on current expectations, that cash
and other liquid assets, operating cash flows, access to capital
markets, and other available financing resources will be
sufficient to fund anticipated operating, capital and debt
service requirements and other commitments in the foreseeable
future. KCS has no significant debt maturities until 2011. As
previously announced, the Company intends to implement a program
giving KCS the option of issuing equity up to an aggregate
amount of $75 million from time to time and at its
discretion. During the first quarter the Company continued to
make capital investments to expand its system,
30
primarily for the Victoria-Rosenberg line, which the Company
expects to complete in the second quarter of 2009. The Company
currently expects that capital expenditures in the second half
of 2009 will be approximately half the capital spending of the
first half of 2009.
KCS operating cash flow and financing alternatives can be
unexpectedly impacted by various factors, some of which are
outside of its control. For example, if KCS was to experience a
continued reduction in revenues or a substantial increase in
operating costs or other liabilities, its operating cash flows
could be significantly reduced, increasing the risk of
non-compliance with debt covenants. Additionally, the Company is
subject to economic factors surrounding capital markets and its
ability to obtain financing under reasonable terms is subject to
market conditions. Recent volatility in capital markets and the
tightening of market liquidity could impact KCS access to
capital. Further, KCS cost of debt can be impacted by
independent rating agencies, which assign debt ratings based on
certain factors including credit measurements such as interest
coverage and leverage ratios, liquidity and competitive position.
On March 24, 2009, Standard & Poors Rating
Service (S&P) lowered the corporate rating on
KCS from B+ to B, the senior secured debt rating from BB to BB-,
the senior unsecured debt rating from BB- to B+, the preferred
stock rating from CCC+ to CCC and placed all ratings for KCS on
Credit Watch with negative implications. On April 6, 2009
S&P affirmed all of KCS ratings, removed the Company
from Credit Watch and changed the outlook to negative. On
March 23, 2009, Moodys Investors Service
(Moodys) lowered the corporate family and
senior unsecured debt ratings of KCSM from B1 to B2, affirmed
the ratings of KCS and KCSR and changed the outlook from stable
to negative for all issuers.
On January 14, 2009, pursuant to an offer to purchase, KCSR
commenced a cash tender offer and consent solicitation for any
and all outstanding $200.0 million KCSR
71/2% Senior
Notes due June 15, 2009 (the
71/2% Senior
Notes). As of January 28, 2009 (the consent
deadline), KCSR received consents in connection with the tender
offer and consent solicitation from holders of over 88% of the
71/2% Senior
Notes. On January 29, 2009, KCSR purchased the tendered
notes in accordance with the terms of the tender offer with
proceeds received in 2008 from the issuance of the
$190.0 million 13.0% Senior Notes due
December 28, 2013 and other borrowings. On March 16,
2009, the Company transferred $24.2 million in principal
and interest to U.S. Bank N.A., the trustee, in connection
with the legal defeasance of the
71/2% Senior
Notes to be paid to the remaining holders upon maturity on
June 15, 2009.
On March 30, 2009, KCSM issued $200.0 million of
121/2% Senior
Notes due April 1, 2016 (the
121/2% Senior
Notes), which bear interest semiannually at a fixed annual
rate of
121/2%.
The
121/2% Senior
Notes were issued at a discount to par value, resulting in an
$11.0 million discount and a yield to maturity of
133/4%.
The
121/2% Senior
Notes are unsecured, unsubordinated obligations and rank pari
passu in right of payment with KCSMs existing and future
unsecured, unsubordinated obligations. KCSM used a portion of
the net proceeds from the offering, to repay all amounts
outstanding under its unsecured credit agreement dated
June 14, 2007 (the 2007 KCSM Credit Agreement).
Upon repayment of the outstanding amounts, KCSM terminated the
2007 KCSM Credit Agreement, effective March 30, 2009. The
121/2% Senior
Notes are redeemable at KCSMs option in whole or in part
on and after April 1, 2013, at the following redemption
prices (expressed as percentages of principal amount) plus any
accrued and unpaid interest: 2013 106.250%,
2014 103.125%, 2015 100.000%. In
addition, KCSM may redeem up to 35% of the notes any time prior
to April 1, 2012 from the proceeds of the sale of capital
stock in KCSM or KCS. The
121/2% Senior
Notes include certain covenants that restrict or prohibit
certain actions.
31
Cash
Flow Information.
Summary cash flow data follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows provided by (used for):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
63.8
|
|
|
$
|
118.7
|
|
Investing activities
|
|
|
(115.5
|
)
|
|
|
(154.9
|
)
|
Financing activities
|
|
|
(36.5
|
)
|
|
|
53.2
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(88.2
|
)
|
|
|
17.0
|
|
Cash and cash equivalents beginning of year
|
|
|
229.9
|
|
|
|
55.5
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
141.7
|
|
|
$
|
72.5
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2009, the
consolidated cash position decreased $88.2 million from
December 31, 2008, primarily due to lower cash provided by
operating activities, the repurchase and defeasance of the
71/2% Senior
Notes and repayment of borrowings under the 2007 KCSM Credit
Agreement, which was partially offset by the proceeds from the
issuance of the
121/2% Senior
Notes. As compared to the three months ended March 31,
2008, cash flows from operating activities decreased
$54.9 million as a result of lower carload/unit volumes due
to the downturn in the economy and decreased fuel surcharges.
Net investing cash outflows decreased $39.4 million due to
the purchase of locomotives in 2008 which were financed in the
second quarter of 2008. Financing activity cash outflows
increased $89.7 million due to the repurchase of the
71/2% Senior
Notes, repayment of the 2007 KCSM Credit Agreement, partially
offset by the proceeds from the issuance of the
121/2% Senior
Notes.
KCS cash flow from operations has historically been
sufficient to fund operations, roadway capital expenditures,
other capital improvements and debt service. External sources of
cash (principally bank debt, public and private debt, preferred
stock and leases) have been used to refinance existing
indebtedness and to fund acquisitions, new investments and
equipment additions.
Capital
Expenditures.
Capital improvements for roadway track structures and
improvements are generally funded with cash flows from
operations. KCS has historically used external sources such as
loans or lease financing for equipment acquisition.
The following summarizes the cash capital expenditures by type
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Roadway capital program
|
|
$
|
45.5
|
|
|
$
|
49.5
|
|
Equipment
|
|
|
2.3
|
|
|
|
8.6
|
|
Capacity
|
|
|
44.2
|
|
|
|
20.0
|
|
Locomotive acquisitions
|
|
|
|
|
|
|
10.8
|
|
Information technology
|
|
|
2.7
|
|
|
|
2.0
|
|
Other
|
|
|
5.2
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
99.9
|
|
|
$
|
92.5
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, approximately
45% of total capital expenditures related to the
Victoria-Rosenberg line, which is expected to be substantially
completed in the second quarter of 2009.
32
Other
Matters.
Employee and Labor Relations. KCSM union
employees are covered by one labor agreement, which was signed
on June 23, 1997, between KCSM and the Sindicato de
Trabajadores Ferrocarrileros de la República Mexicana
(Mexican Railroad Union), for a term of 50 years, for the
purpose of regulating the relationship between the parties and
improving conditions for the union employees. Approximately 80%
of KCSM employees are covered by this labor agreement. The
compensation terms under this labor agreement are subject to
renegotiation on an annual basis and all other terms are subject
to negotiation every two years. Compensation terms and other
benefits have been renegotiated and KCSM finalized these terms
with the union during the fourth quarter of 2008 with the
exception of the KCSM retirement benefit which is still under
negotiations. The anticipated resolution of the retirement
benefit in 2009 is not expected to have a material impact to the
consolidated financial statements. The union labor negotiation
with the Mexican Railroad Union has not historically resulted in
any strike, boycott, or other disruption in KCSMs business
operations.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
There was no material change during the quarter from the
information set forth in Part II, Item 7A.
Quantitative and Qualitative Disclosure about Market
Risk in the Annual Report on
Form 10-K
for the year ended December 31, 2008.
|
|
Item 4.
|
Controls
and Procedures.
|
|
|
(a)
|
Disclosure
Controls and Procedures
|
As of the end of the fiscal quarter for which this Quarterly
Report on
Form 10-Q
is filed, the Companys Chief Executive Officer and Chief
Financial Officer have each reviewed and evaluated the
effectiveness of the Companys disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have each
concluded that the Companys current disclosure controls
and procedures are effective to ensure that information required
to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and include
controls and procedures designed to ensure that information
required to be disclosed by the Company in such reports is
accumulated and communicated to the Companys management,
including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure.
|
|
(b)
|
Changes
in Internal Control over Financial Reporting
|
There have not been any changes in the Companys internal
control over financial reporting that occurred during the fiscal
quarter for which this Quarterly Report on
Form 10-Q
is filed that have materially affected, or are reasonably likely
to materially affect, the Companys internal controls over
financial reporting.
|
|
Item 4T.
|
Controls
and Procedures.
|
Not applicable.
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
For information related to the Companys settlements and
other legal proceedings, see Note 7, Commitments and
Contingencies under Part I, Item 1, of this quarterly
report on
Form 10-Q.
There were no material changes during the quarter in the Risk
Factors disclosed in Item 1A Risk
Factors in our annual report on
Form 10-K
for the year ended December 31, 2008.
33
|
|
Item 2.
|
Unregistered
Sale of Equity Securities and Use of Proceeds.
|
None
|
|
Item 3.
|
Defaults
upon Senior Securities.
|
None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None
|
|
Item 5.
|
Other
Information.
|
None
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibits Filed with this Report
|
|
|
2
|
.1
|
|
Registration Rights Agreement, dated March 30, 2009
(2009 KCSM Registration Rights Agreement), between
Kansas City Southern de México, S.A. de C.V.
(KCSM) and Banc of America Securities, LLC, as
representative of the placement agents listed therein, is
attached to this
Form 10-Q
as Exhibit 2.1.
|
|
4
|
.1
|
|
Indenture, dated March 30, 2009, between KCSM and U.S. Bank
National Association, as trustee (the 2009 KCSM
Indenture), is attached to this
Form 10-Q
as Exhibit 4.1.
|
|
10
|
.1
|
|
2009 KCSM Registration Rights Agreement. (See Exhibit 2.1)
|
|
10
|
.2
|
|
2009 KCSM Indenture (See Exhibit 4.1)
|
|
10
|
.3
|
|
Amended and Restated Kansas City Southern Annual Incentive Plan,
as approved by the Companys Compensation and Organization
Committee on March 10, 2009, is attached to this
Form 10-Q
as Exhibit 10.3.
|
|
10
|
.4
|
|
English translation of the Employment Agreement, dated
April 20, 2006, between Kansas City Southern de
México, S.A. de C.V. and José Guillermo Zozaya Delano,
is attached to this
Form 10-Q
as Exhibit 10.4
|
|
15
|
.1
|
|
Letter regarding unaudited interim financial information is
attached to this
Form 10-Q
as Exhibit 15.1.
|
|
31
|
.1
|
|
Principal Executive Officers Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 is attached
to this
Form 10-Q
as Exhibit 31.1.
|
|
31
|
.2
|
|
Principal Financial Officers Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 is attached
to this
Form 10-Q
as Exhibit 31.2.
|
|
32
|
.1
|
|
Principal Executive Officers Certification furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
is attached to this
Form 10-Q
as Exhibit 32.1.
|
|
32
|
.2
|
|
Principal Financial Officers Certification furnished
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
is attached to this
Form 10-Q
as Exhibit 32.2.
|
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibits Incorporated by Reference
|
|
|
10
|
.5
|
|
Third Supplemental Indenture dated January 27, 2009,
between The Kansas City Southern Railway Company, Kansas City
Southern, Gateway Eastern Railway Company, Pabtex I, L.P.,
Pabtex GP, LLC, SIS Bulk Holding, Inc., Southern Development
Company, Southern Industrial Services, Inc., and Trans-Serve,
Inc., and U.S. Bank National Association, as Trustee filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K
on February 2, 2009 (File
No. 1-4717),
is incorporated herein by reference as Exhibit 10.5.
|
|
10
|
.6
|
|
Amendment No. 3 and Waiver No. 2 dated as of
February 11, 2009, to the 2007 KCSM Credit Agreement filed
as Exhibit 10.43.3 to the Companys Annual Report on
Form 10-K
on February 17, 2009 (File
No. 1-4717),
is incorporated herein by reference as Exhibit 10.6.
|
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized and in
the capacities indicated on April 30, 2009.
Kansas City Southern
Michael W. Upchurch
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Mary K. Stadler
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
35