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KANSAS CITY, Mo.--July 30, 1997--Kansas City Southern Industries Inc. ("KCSI'' or "Company'') announces improved second quarter 1997 consolidated earnings of $31.8 million, or 29 cents per share (87 cents per share pre-split) compared to $22.4 million, or 19 cents per share (57 cents per share pre-split) in second quarter 1996.
Second quarter earnings per share improved 53% year over year. Consolidated earnings for the six months ending June 30, 1997, were $60.3 million, or 55 cents per share, vs. $42.3 million, or 35 cents per share, for the same period in 1996. Consolidated revenues increased 22% and 20% for the three and six months ending June 30, 1997, respectively, vs. the same periods in 1996. All data has been restated to reflect the 3-for-1 stock split announced by the board of directors on July 29, 1997.
Second quarter 1997 earnings of the Financial Asset Management ("FAM'') segment increased more than 39% over second quarter 1996 primarily due to higher assets, revenues and operating margins. Revenue gains due to growth in assets under management by Janus Capital Corp. ("Janus'') and Berger Associates Inc. ("Berger'') exceeded the proportionate growth in costs and expenses.
FAM earnings for the six months ending June 30, 1997 improved $16.9 million over comparable 1996 as a result of a 4% higher FAM operating margin and a 46% increase in revenues. Equity earnings from DST increased $4.9 million.
The Transportation segment reported a $0.5 million increase in second quarter 1997 earnings after equity losses of $3.0 million recorded in connection with the start-up of Grupo Transportacion Ferroviara Mexicana, S.A. de C.V. ("Grupo TFM''), the joint venture of KCSI and Transportacion Maritima Mexicana which began commercial operation on June 23, 1997.
The substantial increase in 1997 earnings, exclusive of the Grupo TFM start-up charges, is attributable to revenue increases from The Kansas City Southern Railway Company ("KCSR''), the inclusion of earnings from Gateway Western Railway Company ("Gateway Western''), and reduced interest expense. The 1996 period also included certain allocated Holding Company non-recurring operating expenses. Year to date 1997 Transportation earnings improved 50 percent over the same period in 1996.
Earnings Per Share and Common Shares Outstanding Comparisons(a): Quarter Ended 6 Months Ended June 30 June 30 1997 1996 1997 1996 Transportation Exclusive of Grupo TFM equity losses $0.03 $ -- $0.06 $0.02 Equity losses from Grupo TFM (0.03) -- (0.03) -- Total Transportation -- -- 0.03 0.02 Financial Asset Management 0.29 0.19 0.52 0.33 Total Earnings Per Share $0.29 $0.19 $0.55 $0.35 Weighted Average Primary Common Shares Outstanding (000's) 109,518 117,857 109,944 118,950 Actual Common Shares Outstanding (000's) 107,175 113,046
(a) All data has been restated to reflect the 3-for-1 stock split announced by the board of directors on July 29, 1997, payable September 16 to shareholders of record August 25, 1997.
Financial Asset Management
Second Quarter 1997:
FAM second quarter 1997 earnings were $31.5 million compared to $22.6 million reported in second quarter 1996. Revenues were $35.5 million higher (46%) than the comparable period for 1996, primarily from a 43% increase in average assets under management by Janus and Berger in second quarter 1997 compared to second quarter 1996.
Janus and Berger assets under management increased $10.4 billion during second quarter 1997 as a result of net sales and market appreciation. Assets under management totaled $63.6 billion at June 30, 1997 vs. $42.8 billion at June 30, 1996.
While revenues for the quarter ending June 30, 1997 increased 46% over the comparable prior year period, FAM operating expenses increased at a lower proportionate rate. Accordingly, FAM's operating income increased 57% over second quarter 1996. The improved margin was primarily attributable to utilization of state of the art technology and increased shareholder balances.
Second quarter 1997 equity earnings from DST increased to $5.7 million from $5.0 million in the comparable period of 1996, primarily due to improved operating margins compared to second quarter 1996.
Year to Date:
Year to date 1997 FAM earnings totaled $57.0 million, improving 42% over the same period in 1996. Revenues and operating income increased $68.6 and $35.6 million, respectively, over comparable 1996 periods.
As of June 30, 1997, assets under management had increased $13.3 billion since Dec. 31, 1996. Also, shareowner accounts numbered more than 2.8 million as of June 30, 1997 (a 4% increase from December 31, 1996).
Year to date 1997 equity earnings from DST were $11.8 million vs. $6.9 million in 1996. 1996 amounts reflect the Company's share of DST's $10.2 million non-recurring charge in first quarter 1996 related to a former DST equity affiliate, The Continuum Company, Inc. Exclusive of this item, DST's 1997 earnings reflect an increase in mutual fund, output processing and subscriber management revenues, and higher operating margins compared to 1996.
TRANSPORTATION
Second Quarter 1997:
Transportation contributed $0.3 million to KCSI's second quarter 1997 earnings vs. a $0.2 million loss for the 1996 period. Exclusive of the losses from the Company's investment in Grupo TFM, earnings for the quarter increased $3.5 million compared to the same period in 1996.
Transportation revenues for second quarter 1997 increased 8% over the 1996 period, from $129.7 million to $139.9 million (includes Gateway Western revenues). Higher KCSR revenues included a 34% increase in domestic and export gains, a 5% increase in unit coal and a 6% increase in intermodal. KCSR's increase in revenues was achieved from slightly lower carloadings (down 1.5%), indicative of KCSR's focus on higher yield traffic. Continuing efforts to hold cost increases proportional to revenue increases resulted in revenues increasing at a greater rate than variable operating expenses for the second quarter 1997.
The Company recorded $3.0 million in equity losses during second quarter 1997 associated with its investment in Grupo TFM. Of this total, $2.6 million represented the Company's proportionate share of a one-time charge recorded by Grupo TFM with respect to financing-related fees in connection with the final installment payment of the TFM, S.A. de C.V. purchase price.
Transportation interest expense decreased 12% from second quarter 1996 due to the repayment of KCSR and Carland Inc. debt using proceeds from the Southern Capital Corporation, LLC ("Southern Capital'') transaction. Interest of $7.4 million ($4.3 million in second quarter) related to the indebtedness incurred in connection with the Company's investment in Grupo TFM was capitalized through June 23, 1997 (the date Grupo TFM began commercial operation of the Northeast Rail Lines).
Year to date 1997:
Transportation earnings for the six months ended June 30, 1997, increased 50% over the 1996 period, from $2.2 million to $3.3 million.
Transportation revenues increased 5%, from $260.6 million to $274.2 million, primarily due to higher KCSR revenues and the addition of Gateway Western, partially offset by the loss of revenue from Southern Leasing Corporation (which was dissolved in October 1996).
KCSR's operating ratio, a common efficiency measurement among Class I Railroads, was 87.9% for the first six months of 1997. The Southern Capital Joint venture transaction, while increasing 1997 KCSR net income, also has the effect of increasing KCSR's 1997 operating ratio from 86.1% to 87.9% due to the shift of interest costs to lease expense. After factoring in the effect of this shift in costs, the 1997 six-month operating ratio compared favorably with the 1996 six-month ratio of 86.6%.
BUSINESS OUTLOOK
Landon H. Rowland, KCSI Chairman, President and Chief Executive Officer, said, "The Company's second quarter earnings illustrate the operating successes of each of our business divisions.
"Continued growth in assets under management by Janus and Berger, coupled with efficient operations, resulted in an increase in the Financial Asset Management segment's contribution to consolidated earnings by 39% over second quarter 1996 and 24% over first quarter 1997. Janus revenues surpassed $100 million in an individual quarter for the first time in its history.
"The Transportation segment, and KCSR in particular, is beginning to realize the benefits of operational improvements made during 1996, as evidenced by the reduction in variable operating expenses as a percentage of revenues during 1997. Grupo TFM's success in assuming the operations of the Northeast Rail Lines in Mexico, together with the acquisition of Gateway Western, have provided KCSR with opportunities to grow the railroad business by offering distinctive advantages for the north-south movement of commodities and containers.
"Based on continuous improvement initiatives and an emphasis on controlling variable costs, our two core business divisions are positioned to provide unique opportunities for growth and success.''
The comments above include forward-looking statements, and KCSI's actual operating results may differ from such statements. Readers need to refer to KCSI's Current Report on Form 8-K dated Nov. 12, 1996, together with the Current Report on Form 8-K/A dated June 3, 1997, for a discussion of the factors that cause such differences.
Kansas City Southern Industries Inc. and Subsidiary Companies Consolidated Condensed Statements of Income (dollars in millions, except per share data) (Unaudited) Three Months Six Months Ended June 30, Ended June 30, 1997(a) 1996 1997(a) 1996 Revenues $252.6 $206.9 $490.4 $408.2 Costs and expenses 166.8 142.0 330.5 283.8 Depreciation and amortization 18.4 19.2 36.9 38.2 Operating income 67.4 45.7 123.0 86.2 Equity in net earnings (losses) of unconsolidated affiliates: DST Systems Inc. 5.7 5.0 11.8 6.9 Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (3.0) (3.0) Other 1.2 0.2 1.8 1.5 Interest expense (13.6) (14.2) (27.3) (27.1) Other, net 4.3 5.3 10.3 9.9 Pretax income 62.0 42.0 116.6 77.4 Income tax provision 24.3 15.7 45.7 28.2 Minority interest in consolidated earings 5.9 3.9 10.6 6.9 Net income $31.8 $22.4 $60.3 $42.3 Per share data(b): Primary common shares outstanding (in thousands) 109,518 117,837 109,944 118,950 Primary earnings per common share(c) $0.29 $0.19 $0.55 $0.35 Notes: (a) Gateway Western Railway Co. has been included as if it were a consolidated subsidiary as of Jan. 1, 1997. Gateway Western was reported as an unconsolidated wholly owned subsidiary in first quarter 1997 pending approval from the Surface Transportation Board of the company's acquisition of Gateway Western. Accordingly, while accumulation of first quarter and second quarter net income will total year to date 1997 net income, the detail statement of income line items will not total year to date 1997 amounts. (b) All per share data has been restated to reflect the 3-for-1 stock split declared by the company's board of directors on July 29, 1997, payable Sept. 16, 1997 to stockholders of record as of Aug. 25, 1997. (c) The accumulation of the 1996 first quarter and second quarter primary earnings per common share does not total the primary earnings per common share for the six months ended June 30, 1996, as a result of repurchases of company common shares during 1996. Kansas City Southern Industries Inc. and subsidiary companies Quarterly Segment Financial Information dollars in millions unaudited Second Quarter 1997(a) Holding Company and Transportation- Consolidated KCSR Related Affiliates Transportation Transportation Revenues $ 126.2 $ 13.7 $ 139.9 Costs and expenses 99.5 11.3 110.8 Depreciation and amortization 13.7 1.3 15.0 Operating income (loss) 13.0 1.1 14.1 Equity in net earnings(losses) of unconsolidated affiliates: Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (3.0) (3.0) Other 0.6 0.4 1.0 Interest expense (9.5) (1.7) (11.2) Other, net 0.6 0.3 0.9 Pretax income (loss) 4.7 (2.9) 1.8 Income tax provision (benefit) 2.1 (0.6) 1.5 Net income (loss) $ 2.6 $ (2.3) $ 0.3 Second Quarter 1996 Holding Company and Transportation- Consolidated KCSR Related Affiliates Transportation Transportation Revenues $ 121.6 $ 8.1 $ 129.7 Costs and expenses 91.3 10.8 102.1 Depreciation and amortization 14.9 1.0 15.9 Operating income (loss) 15.4 (3.7) 11.7 Equity in net earnings (losses)of unconsolidated affiliates: Grupo Transportacion Ferroviaria Mexicana, S.A.de C.V. Other 0.3 0.3 Interest expense (12.2) (0.5) (12.7) Other, net 0.7 (0.2) 0.5 Pretax income (loss) 3.9 (4.1) (0.2) Income tax provision (benefit) 1.6 (1.6) Net income (loss) $ 2.3 $ (2.5) $ (0.2) Second Quarter 1997(a) Holding Company & Financial Asset Consolidated Janus & Management- Financial Asset Berger Related Affiliates Management Financial Asset Management Revenues $ 113.1 $ (0.4) $ 112.7 Costs and expenses 54.6 1.4 56.0 Depreciation and amortization 3.3 0.1 3.4 Operating income (loss) 55.2 (1.9) 53.3 Equity in net earnings (losses) of unconsolidated affiliates: DST Systems Inc. 5.7 5.7 Other 0.2 0.2 Interest income (expense) (1.7) (0.7) (2.4) Other, net 1.3 2.1 3.4 Pretax income 55.0 5.2 60.2 Income tax provision 22.0 0.8 22.8 Minority interest in consolidated earnings 5.9 5.9 Net income $ 27.1 $ 4.4 $ 31.5 Second Quarter 1996 Holding Company & Financial Asset Consolidated Janus & Management- Financial Asset Berger Related Affiliates Management Financial Asset Management Revenues $ 77.8 $ (0.6) $ 77.2 Costs and expenses 38.3 1.6 39.9 Depreciation and amortization 3.1 0.2 3.3 Operating income (loss) 36.4 (2.4) 34.0 Equity in net earnings (losses) of unconsolidated affiliates: DST Systems Inc. 5.0 5.0 Other (0.1) (0.1) Interest income (expense) (1.6) 0.1 (1.5) Other, net 0.9 3.9 4.8 Pretax income 35.7 6.5 42.2 Income tax provision 14.5 1.2 15.7 Minority interest in consolidated earnings 3.9 3.9 Net income $ 17.3 $ 5.3 $ 22.6 (a) Gateway Western Railway Co. has been included as if it were a consolidated subsidiary as of Jan. 1, 1997. Gateway Western was reported as an unconsolidated wholly owned subsidiary in first quarter 1997 pending approval from the Surface Transportation Board of the Company's acquisition of Gateway Western. Accordingly, while accumulation of first quarter and second quarter net income will total year to date 1997 net income, the detail Statement of Income line items will not total year to date 1997 amounts. Kansas City Southern Industries Inc. and subsidiary companies Year to Date Segment Financial Information dollars in millions unaudited Six Months Ended June 30, 1997 (a) Holding Company and Transportation- Consolidated KCSR Related Affiliates Transportation Transportation Revenues $ 247.2 $ 27.0 $ 274.2 Costs and expenses 193.0 22.6 215.6 Depreciation and amortization 27.3 3.2 30.5 Operating income (loss) 26.9 1.2 28.1 Equity in net earnings (losses) of unconsolidated affiliates: Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (3.0) (3.0) Other 1.1 0.4 1.5 Interest expense (19.2) (3.4) (22.6) Other, net 3.0 0.4 3.4 Pretax income (loss) 11.8 (4.4) 7.4 Income tax provision (benefit) 5.2 (1.1) 4.1 Net income (loss) $ 6.6 $ (3.3) $ 3.3 Six Months Ended June 30, 1996 Holding Company and Transportation- Consolidated KCSR Related Affiliates Transportation Transportation Revenues $ 244.9 $ 15.7 $ 260.6 Costs and expenses 185.4 16.4 201.8 Depreciation and amortization 29.5 2.4 31.9 Operating income (loss) 30.0 (3.1) 26.9 Equity in net earnings (losses) of unconsolidated affiliates: Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. Other 0.9 0.9 Interest expense (24.3) (0.6) (24.9) Other, net 1.6 (0.5) 1.1 Pretax income (loss) 7.3 (3.3) 4.0 Income tax provision (benefit) 3.0 (1.2) 1.8 Net income (loss) $ 4.3 $ (2.1) $ 2.2 Six Months Ended June 30, 1997 (a) Holding Company & Financial Asset Consolidated Janus & Management- Financial Asset Berger Related Affiliates Management Financial Asset Management Revenues $ 216.7 $ (0.5) $ 216.2 Costs and expenses 112.2 2.7 114.9 Depreciation and amortization 6.2 0.2 6.4 Operating income (loss) 98.3 (3.4) 94.9 Equity in net earnings of unconsolidated affiliates: DST Systems Inc. 11.8 11.8 Other 0.3 0.3 Interest income (expense) (3.2) (1.5) (4.7) Other, net 1.6 5.3 6.9 Pretax income 97.0 12.2 109.2 Income tax provision 38.4 3.2 41.6 Minority interest in consolidated earnings 10.6 10.6 Net income $ 48.0 $ 9.0 $ 57.0 Six Months Ended June 30, 1996 Holding Company & Financial Asset Consolidated Janus & Management- Financial Asset Berger Related Affiliates Management Financial Asset Management Revenues $ 147.9 $ (0.3) $ 147.6 Costs and expenses 78.8 3.2 82.0 Depreciation and amortization 6.1 0.2 6.3 Operating income (loss) 63.0 (3.7) 59.3 Equity in net earnings of unconsolidated affiliates: DST Systems Inc. 6.9 6.9 Other 0.6 0.6 Interest income (expense) (2.7) 0.5 (2.2) Other, net 1.7 7.1 8.8 Pretax income 62.0 11.4 73.4 Income tax provision 25.1 1.3 26.4 Minority interest in consolidated earnings 6.9 6.9 Net income $ 30.0 $ 10.1 $ 40.1 (a) Gateway Western Railway Co. has been included as if it were a consolidated subsidiary as of Jan. 1, 1997. Gateway Western was reported as an unconsolidated wholly owned subsidiary in first quarter 1997 pending approval from the Surface Transportation Board of the Company's acquisition of Gateway Western. Accordingly, while accumulation of first quarter and second quarter net income will total year to date 1997 net income, the detail Statement of Income line items will not total year to date 1997 amounts.
Contact:
Kansas City Southern Industries Inc., Kansas City William H. Galligan, 816/983-1551