3.11.205: Meldung: Kansas City Southern Comp.: 2005 Third Quarter Results
Wednesday November 2, 8:43 am ET
KANSAS CITY, Mo.-- Nov. 2, 2005--Kansas City Southern:
Third Quarter Highlights
* Kansas City Southern (KCS) now includes U.S. rail operations (The Kansas City Southern Railway Company and Texas Mexican Railway Company) and Mexican rail operations (TFM, S.A. de C.V.).
* VAT/Put settlement in Mexico results in KCS 100% ownership of Mexican operations.
* Consolidated revenues reach record $384.6 million as a result of the 2005 acquisitions.
* Consolidated net income of $110.5 million, primarily a result of VAT/Put settlement.
* Strong July and August business levels at U.S. operations.
* July rail operations in Mexico were negatively impacted by hurricane Emily; September"s U.S. and Mexican rail operations were negatively impacted by hurricanes Katrina and Rita. The combined impact of the three hurricanes resulted in an estimated $12 million reduction in operating income in the third quarter.
Third Quarter 2005
Kansas City Southern (NYSE: KSU - News) today announced consolidated quarterly earnings of $110.5 million, or $1.14 per fully diluted share, compared with $8.9 million, or $0.14 per fully diluted share in 2004.
KCS reported record consolidated revenues for third quarter 2005 of $384.6 million. On a historical basis, this represents an increase of $221.4 million, substantially as a result of the acquisition of the Texas Mexican Railway Company and TFM.
Consolidated operating expenses for the third quarter of 2005 were $386.5 million versus $144.0 million in the third quarter of 2004, primarily due to the previously referenced acquisitions, and increased claims reserves. In July, hurricane Emily reduced operating income from Mexican operations by $1.8 million. In September, hurricanes Katrina and Rita negatively impacted U.S. operations by approximately $7.8 million and Mexican operations by $2.4 million.
Third quarter 2005 consolidated net income was positively impacted by the Vat/Put settlement. The Company recorded a one-time non-cash gain of $134.7 million (including tax benefits of $2.8 million and related legal and consulting fees) as a result of the VAT/Put settlement reached with the Mexican Government on September 12, 2005. The settlement resolved all outstanding disputes between the Company and the Mexican Government concerning the VAT claim and Put obligation, and achieved KCS"s goal of becoming the 100% owner of TFM.
Finally, an actuarial study of U.S. operations" casualty reserves was completed that indicated significant adverse developments in claims. Based on this study, increased reserves for employee injuries, third-party claims, as well as occupational illness claims, resulted in a charge to U.S. operations third quarter operating income of $37.8 million.
KCS also achieved record consolidated revenues for the nine months ended September 30, 2005 of $963.9 million, which on a historical basis represents an increase of $499.0 million, primarily due to the completion of the acquisition of control the Texas Mexican Railway Company on January 1, 2005, and TFM on April 1, 2005.
Operating income for the 2005 nine-month period was $14.5 million compared to $56.1 for 2004, reflecting the negative impact of the third quarter 2005 increase in claims reserve and the second quarter 2005 non-cash, pre-tax charge of $35.6 million related to the reversal of deferred profit sharing NOL benefits in Mexican operations. Net income available to common shareholders was $89.1 million, $1.04 per share on a fully diluted basis, compared with 2004 net income of $17.1 million, or $0.27 per fully diluted share.
Comments from the Chairman
"U.S. rail operations had strong momentum going into the third quarter that would have generated significantly different results absent the impact of the hurricanes. The good news is that our employees made it through a very dangerous period without any serious injuries, and that the damage to the rail infrastructure was minimal. The cost impacts were primarily the result of clean-up, the interruption of service, the repositioning of equipment away from the path of the two September storms, and the storage of that equipment while waiting for embargoes to be lifted.
"The third quarter revenues from U.S. operations were also affected by the storms, especially in the chemicals & petroleum products area. Fortunately, the plants and refineries are ramping up production. While full production is not expected to be restored until December, chemical & petroleum product revenues have already returned to near pre-hurricane levels.
"The hurricanes" aftermath has highlighted the growing importance of the Meridian Speedway, the Company"s east-west rail corridor linking Dallas with Meridian, Mississippi, located far north of the Gulf Coast and the most direct route between the Southeast and Southwest, West, and Mexico. The impact of the hurricanes will only hasten the continued development of this valuable rail corridor into a strategically integral part of KCS"s NAFTA Rail system.
"Also notable in the third quarter was the resolution of the longstanding issue with the Mexican Government involving the VAT credit. On September 12th, we reached a settlement by which KCS was able to achieve 100% ownership of TFM in exchange for the VAT certificate. With these issues behind us, the full integration of TFM into the KCS rail network can be completed, as management focuses fully on realizing the strategic and economic value of the NAFTA Rail network. We continue to believe that this settlement was in the best interest of both KCS and the Mexican Government.
"During the third quarter, a new management team took over at TFM led by Javier Rion, who was named chief executive officer. Significant progress is also being made in developing long-term strategies to grow Mexican-based revenues and dramatically improve TFM"s profitability. One of those strategies involves working with the port developers of Lazaro Cardenas, Mexican officials, and ocean shipping carriers to structure expanded service options that will provide greater market reach into both Mexican and U.S. markets. An integrated transload and intermodal infrastructure is being designed to support growth at the port as well as facilitate TFM"s efforts to promote a faster rate of truck-to-rail conversion. In addition, an in-depth analysis of TFM"s current commodity pricing mechanism has been undertaken that will result in much more market-based rates going forward. In an effort to maximize cost savings opportunities, we have created an international purchasing group headquartered in Kansas City that will have authority over all KCS purchasing, materials management, fuel purchases, and asset utilization. Finally, we are in the final phase of our preparations to implement MCS at TFM in the first quarter of 2006. We continue to be encouraged by the wealth of opportunities for both business growth and cost savings that full ownership of TFM provides us, while recognizing that it will take some time for management to implement the many changes required to maximize the value of the combined systems.
"The same determination and commitment that KCS demonstrated in resolving issues in Mexico and dealing with the effects of hurricanes Emily, Katrina and Rita will be directed toward developing the enormous potential of KCS"s unique NAFTA franchise. We are more encouraged now than ever before that we have created a competitive cross border rail system that will deliver significant future value for our shareholders."
Headquartered in Kansas City, MO, KCS is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holdings include The Kansas City Southern Railway Company and The Texas-Mexican Railway Company, serving the central and south central U.S. Its international holdings include TFM, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lazaro Cardenas, Tampico and Veracruz, and a 50% interest in The Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS" North American rail holdings and strategic alliances are primary components of a NAFTA Railway system, linking the commercial and industrial centers of the U.S., Canada and Mexico.
Kansas City Southern
William H. Galligan, 816-983-1551
Source: Kansas City Southern