(Kansas City Southern issued the following news release on August 3.)
KANSAS CITY, Mo. — Kansas City Southern today reported second quarter 2005 financial results, which included the consolidation of TFM’s results following the acquisition of control on April 1, 2005. For the second quarter 2005, KCS consolidated revenues were $381.1 million versus $153.9 million in 2004. On a same rail system comparative basis, KCS consolidated second quarter revenues grew 12.5% over the 2004 pro forma combined revenues of the Company.
In connection with the April 1, 2005, acquisition of an additional 48.5% interest in GTFM, KCS consolidated operating expenses for the second quarter of 2005 were adversely impacted by a non-cash, pre-tax charge of $35.6 million related to a series of Mexican Supreme Court rulings, which eliminated TFM’s ability to use net operating losses to offset future employer statutory profit sharing contributions. In addition, consolidated pre-tax operating expenses were adversely impacted by $4.1 million related to the reduction of the carrying values of certain GTFM assets to reflect KCS’ revised plans relating to future use; $3.6 million in depreciation relating to the preliminary allocation of the purchase price; $4.9 million associated with disputed withholding tax receivables with the Mexican government, and $3.2 million associated with the higher bad debt and claims costs experienced by GTFM. After factoring in the impact of these pre-tax charges, KCS consolidated operating expenses were $386.4 million for the second quarter of 2005 versus $134.4 million in 2004, which is not comparable due to the consolidation of GTFM commencing in the second quarter of 2005.
Primarily as a result of the above described charges related to GTFM, KCS recorded a net loss of $25.8 million, or $(0.32) diluted earnings per share, for the second quarter of 2005, compared with $7.0 million of net income available to common shareholders, $0.11 diluted earnings per share, for the second quarter of 2004.
Year-to-Date 2005 Highlights
— Consolidated revenues of $579.3 million, which excludes first quarter 2005 revenues of GTFM.
— KCSR revenues increased 19.4% to $357.9 million.
— KCSR operating income improved 19.1% to $55.6 million.
— GTFM revenues increased to $354.2 million, or 9.7% on a separate company basis.
— Cross border KCSR-TFM revenues increased 25.9%.
Comments from the Chairman
“During the second quarter, KCS began the essential steps of consolidating its North American operations following the acquisition of the 48.5% additional interest in GTFM,” stated Chairman, President and Chief Executive Officer Michael R. Haverty. “The progress made in growing the franchise was encouraging, especially as a great deal of attention was directed toward re-organizing the operations and marketing functions of KCSR, Tex Mex, and TFM, and strengthening the balance sheet at TFM.
“KCSR streamlined its rail operations into three divisions in order to sharpen focus on strategic points along its system. Being able to focus on key traffic and interchange points will help KCSR structure its service to meet capacity issues as its traffic volumes steadily increase. The Tex Mex began a major upgrade of its track infrastructure funded by a 25-year, $50 million RRIF loan to expand capacity and ensure the efficient handling of growing traffic volumes between the U.S. and Mexico. TFM continued to make steady progress in re-organizing its marketing, operations, and finance and accounting functions to conform with and be integrated into the KCS system, including investing in the communications infrastructure required to ensure a timely installation of MCS in the first quarter of 2006.
“We were very pleased that Francisco Javier Rion elected to join TFM as chief executive officer. Highly respected within the Mexican and international business communities, he joins TFM with 30 years’ experience in the transportation industry, most recently serving as president of the Rail Control Solutions Division of Bombardier Transportation in the UK. Prior to that he served as Bombardier’s president and managing director in Mexico City. We are confident that Javier will help take TFM to a new level of service performance and profitability. We look forward to investors and the financial community having the opportunity to get to know Javier in the near future.
“He replaces Vicente Corta, who had served as interim chief executive officer since April 2005. Vicente remains a partner in the law firm of White & Case, S.C., and will continue to serve as counsel to TFM in Mexico. We are grateful to Vicente for his valuable leadership through this critical time of transition, and look forward to continuing our close association.
“The second quarter was a period of transition for TFM. Several major efforts were undertaken in the finance area such as the refinancing of high interest rate debt, re-evaluation of the balance sheet as required by purchase accounting, and a review of TFM’s accounting operations and procedures. In addition, the decision was made to invest in SAP R-5 to be installed for use in 2007, following its installation for use by KCS’ U.S. operations in 2006.
“Also of note during the quarter was the progress of the Panama Canal Railway Company (PCRC), which in June had its first $1 million freight revenue month. During the month, average weekly container volumes approached 1,900 compared with about 700 a year ago. The progress made in the second quarter is indicative of growth we expect to continue in the future.
“Favorable progress has been made in a short time period in transforming KCS into a significantly larger transportation company. With every passing day, we identify new opportunities which serve to confirm our long-held belief that putting this system together will be of great benefit to North American shippers, as well as to our shareholders. Given the complexities of the transition everyone should be encouraged by how rapidly and smoothly the process has gone and can look forward to KCS being uniquely positioned to take advantage of newly emerging international traffic patterns.”
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, founded in 1887, and The Texas Mexican Railway Company, founded in 1885, serving the central and south central U.S. Its international holdings include a controlling interest in 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. Visit www.kcsi.com for more information.