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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to ___________
Commission file number 1-4717
KANSAS CITY SOUTHERN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 44-0663509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
114 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (816) 556-0303
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
Preferred Stock, Par Value $25 Per Share,
4% Maximum Dividend, Noncumulative New York Stock Exchange
Common Stock, Without Par Value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
As of March 4, 1994, 43,369,807 shares of Common stock and 243,170 shares of
voting Preferred stock were outstanding. On such date, the aggregate market
value of the voting Common and Preferred stock held by non-affiliates was
$1,982,638,164 (amount computed based on closing prices of Preferred and
Common stock on New York Stock Exchange).
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1993 Annual Report to Stockholders for the fiscal
year ended December 31, 1993, Exhibit 13.1 hereto, are incorporated by
reference into Parts I, II, and IV.
Portions of the Registrant's Definitive Proxy Statement for the 1994 Annual
Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 1993, are incorporated by reference into Part III.
Financial statements and related notes, together with the report of Ernst &
Young, for Investors Fiduciary Trust Company for the fiscal year ended
December 31, 1993, Exhibit 99.1 hereto, are incorporated by reference into
Part IV.
A listing of explanations of graphics used in the Management's Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1993, Exhibit 99.2 hereto, are incorporated by reference into
Part II.
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KANSAS CITY SOUTHERN INDUSTRIES, INC.
1993 FORM 10-K ANNUAL REPORT
Table of contents
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . 22
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . 25
Item 4. Submission of Matters to a Vote of Security Holders. 26
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters. . . . . . . . . . . 28
Item 6. Selected Financial Data. . . . . . . . . . . . . 28
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . 29
Item 8. Financial Statements and Supplementary Data. . . 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . 29
PART III
Item 10. Directors and Executive Officers of the Registrant . 30
Item 11. Executive Compensation . . . . . . . . . . . . . 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . 30
Item 13. Certain Relationships and Related Transactions . 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . 31
Signatures . . . . . . . . . . . . . . . . . . . 36
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Part I
Item 1. Business
(a) GENERAL DEVELOPMENT OF REGISTRANT BUSINESS
The major business developments of Kansas City Southern Industries, Inc.
("Registrant" or "KCSI") and the Registrant's subsidiaries for 1993 are as
follows:
General
1993 Tax Legislation
On August 10, 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993 ("the 1993 Tax Act"). This new tax legislation
changed numerous provisions to the then existing tax law. The most
significant of these changes, affect the Registrant's Transportation Services
operations.
The new tax law increased the corporate tax rate from 34% to 35%.
Accordingly, the Registrant's 1993 earnings include additional income tax
expense attributable to the tax rate increases retroactive to January 1, 1993.
These charges, which are included in the provision for taxes on income,
represent $3.4 million ($.08 per share) related to deferred tax accruals and
$900,000 ($.02 per share) related to current year earnings. In addition, the
new tax law included provisions for higher fuel tax rates, which resulted in
an additional expense to Transportation operations during 1993 of $400,000.
Transportation Services
MidSouth Acquisition. As previously disclosed in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992, the Registrant and
MidSouth Corporation ("MidSouth") signed a definitive merger agreement on
September 21, 1992. The merger agreement provided that holders of MidSouth
Common stock receive $20.50 per share in cash. The transaction was approved
by both boards of directors. At its Annual Meeting of Stockholders on April
30, 1993, MidSouth stockholders approved the merger agreement and on June 4,
1993 the Interstate Commerce Commission announced their approval of the
transaction. On June 10, 1993, the Registrant closed the acquisition of
MidSouth pursuant to the merger agreement. The purchase price for the
acquisition of the MidSouth common stock aggregated approximately $213.5
million paid in cash by the Registrant to holders of MidSouth's common stock
and in connection with the exercise of certain options held by MidSouth
employees and others. Liabilities were assumed in the amount of $306.9
million. The acquisition was funded with proceeds from the Registrant's $250
million credit agreement.
The MidSouth transaction, which was accounted for as a purchase, represents a
significant transaction for the Registrant. Results of operations of the
Registrant for the year ended December 31, 1993 include the operations of
MidSouth as a consolidated subsidiary effective with the closing of the
transaction.
Adjustments were recorded to appropriate asset and liability balances based
upon the fair value of such assets and liabilities. Based upon these
adjustments, the total purchase price exceeded the fair value of the
underlying net assets by a total of approximately $98.3 million and is being
amortized over a period of 40 years. Additional assets are depreciated over
lives ranging from 5-35 years.
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Certain unaudited proforma financial information regarding results of
operations assuming the MidSouth transaction had been completed on January 1,
1993 and 1992, respectively, follows (in millions, except per share amounts):
Years Ended
December 31,
1993 1992
Revenues $ 1,010.2 $ 856.1
Income before cumulative effect
of accounting changes 98.5 67.9
Net income 93.4 67.9
Primary Earnings Per Share:
Before cumulative effect of
accounting changes $ 2.19 $ 1.53
After cumulative effect of
accounting changes 2.08 1.53
Effective January 1, 1994, MidSouth was operationally and administratively
merged into The Kansas City Southern Railway Company ("KCSR", a wholly-owned
subsidiary of the Registrant).
Other Transportation Services Activity
In May 1992, KCSR signed an agreement with the Santa Fe Railway to purchase
portions of its rail line in the Dallas, Texas area. The sale consists of
approximately 90 miles of track and an 80 acre piggyback intermodal facility.
The agreement is being implemented in phases over a two year period and will
gain KCSR direct access to the Dallas/Ft. Worth markets for the first time in
the Registrant's history. Phase I of this agreement was completed on October
31, 1993. Phase I included the portion of Santa Fe's line between
Farmersville, Texas and a switch at Zacka Junction, Texas. Phase II is
anticipated to be completed in second quarter 1994 to acquire the Zacka
Junction facility.
In April 1992, KCSR signed a letter of intent for the purchase of all of the
capital stock of the Graysonia, Nashville & Ashdown Railroad ("GNA") from
Holnam, Inc. The GNA, which was wholly-owned by Holnam, connects with KCSR at
Ashdown, Arkansas and extends 32 miles east. Acquisition of the GNA closed on
December 31, 1992 and was operated in trust until ICC approval was obtained in
June 1993, at which time it was merged into KCSR.
During 1993, KCSR continued emphasis of important safety and quality programs,
which includes the Safety Training Observation Program (S.T.O.P. - originally
established by E.I. DuPont). The S.T.O.P. program is designed to curtail
employee injuries through elimination of unsafe acts in the workplace.
Increased safety awareness achieved positive results during 1991-1993 with an
approximate 31% reduction in Federal Railroad Administration reportable
employee injuries in 1993 as compared to 1992 and an approximate 28% reduction
in employee injuries in 1992 when compared to 1991. The transportation
business continued its substantial commitment towards a safer work environment
in 1993 and remains committed to continuing safety awareness.
Fuel costs represent approximately 7% of KCSR's operating expenses and have
been declining as diesel fuel prices have decreased each of the past three
years. The average 1993 price of fuel declined 8% from 1992 average prices.
Fuel prices stabilized in 1992-1993 due to a general oversupply of crude oil
in world petroleum markets. KCSR operations experienced lower fuel prices in
1992 and 1991, particularly in the latter half of 1991, stemming from
resolution of the 1990-1991 Gulf War and stabilization of relations in the
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Middle East region. Average per gallon diesel fuel prices were 7% lower in
1992 compared to 1991 and were 6% lower in 1991 compared to 1990, resulting in
lower transportation operating costs. Overall fuel costs are also affected by
the ratio of fuel gallons consumed to gross ton miles. This ratio had
declined in both 1991 and 1992, but rose slightly in 1993 from variances in
traffic mix and length of haul. Fuel efficiencies are attributable to more
efficient railway operating practices related to train schedules, reallocation
of locomotive power and general fuel conservation. Fuel usage was also
improved by the purchase of additional new fuel efficient locomotives during
the period 1989-1991, totalling 46 new SD-60 locomotives placed in service.
Additionally, as part of KCSR's locomotive fleet modernization program, 16
GP40 locomotives were refurbished in 1991 and another 17 GP40 used units were
purchased and refurbished in 1993 and early 1994. In 1991, KCSR issued $32.2
million of privately placed Equipment Trust Certificates ("ETC's") to fund
acquisition of 24 of the new locomotive units.
The 46 new locomotive purchases during the period 1989-1991, have caused an
improvement in the average age of KCSR's locomotive fleet. These new fuel
efficient locomotives additionally helped effect a 1% reduction in fuel
gallons consumed per gross ton miles in 1992 compared to 1991 and an 8%
reduction in 1991 compared to 1990. However, in 1993 the ratio of fuel
gallons consumed per gross ton miles increased 2% from a combination of
increased carloading volumes, and variances in traffic mix and length of haul.
KCSR 1993 revenues rose 3% compared to 1992. General commodity revenues,
excluding intermodal traffic, rose 5.5% on generally higher traffic volumes.
The higher traffic volumes resulted, in part, from a strengthening of U.S.
economic conditions, which have continued to rise slowly from a recessionary
period in 1990-1992. Higher traffic levels were experienced in carloadings of
farm products, particularly corn & wheat, non-metallic ores, lumber/wood -
pulp/paper, chemical and petroleum shipments. Intermodal carloadings declined
8% in 1993 as KCSR continues the process of upgrading its current "on-off
ramp" loading facilities in anticipation of greater intermodal traffic in the
future. Unit coal revenues rose modestly in 1993 on overall increased tonnage
but were adversely affected by variances in length of haul and rates. As
evidenced by the increased farm products carloadings, KCSR continues to use
haulage rights with the Union Pacific Railroad (discussed later) allowing KCSR
market access to the corn belt regions of Iowa and Nebraska.
The flooding in the Midwest region of the United States during 1993 did not
materially affect the Registrant's rail transportation operations. KCSR's
trackage, facilities and physical properties were not directly hampered by the
rising flood waters. However, a washout of trackage in the Pittsburg, Kansas
area occurred during heavy rains. While none of KCSR's properties were
directly affected, many of KCSR's interchange partners in the Kansas City
gateway were affected, which resulted in congestion, rerouting of certain
traffic and delays of commodity movements, particularly for grain and coal
shipments. KCSR experienced revenue declines, during third quarter 1993, in
certain commodities due to the inability to interchange shipments with other
railroads. Overall the financial impact was immaterial.
Transportation Division results also benefitted in 1993 from revenue and net
income additions of MidSouth and continuing favorable operations at the
Registrant's petroleum coke export facility (Pabtex, Inc.), which experienced
increased volumes in 1993. MidSouth contributed $67.8 million in revenues to
1993 Transportation Division results, which surpassed comparative prior year
revenues on increased carloadings. MidSouth's 1993 earnings, net of all
acquisition related expenses, were positive after excluding the effect of the
federal income tax rate increase.
3
Information and Transaction Processing
DST Systems, Inc. ("DST")
Vantage Computer Systems, Inc./The Continuum Company, Inc. Transaction.
Effective September 30, 1993, the Registrant's wholly-owned subsidiary, DST,
completed the merger of its 90.5% owned subsidiary, Vantage Computer Systems,
Inc. ("Vantage"), into a subsidiary of The Continuum Company, Inc.
("Continuum"). DST and the minority shareholder of Vantage received a total
of 4 million shares of Continuum stock -- 2,939,000 shares at closing and the
remainder after Continuum shareholder approval was obtained in late 1993. As
a result of this transaction, and additional Continuum stock purchases made by
DST, DST owned approximately 24% of the outstanding common stock of Continuum
at December 31, 1993. In January 1994, DST acquired additional Continuum
shares through privately negotiated transactions. Accordingly, DST currently
owns approximately 29% of Continuum's outstanding common stock. In the
initial exchange, DST exchanged Vantage stock with a book value of
approximately $17 million for Continuum stock with a market value of
approximately $62 million. DST accounted for the initial exchange as a non-
cash, non-taxable exchange in investment basis of Vantage for an investment in
Continuum. Accordingly, no gain recognition was associated with the
transaction. Vantage revenues for the nine months ended September 30, 1993,
were $32.6 million and $38.7 million for the year ended December 31, 1992.
Continuum is a publicly traded international consulting and computer services
firm based in Austin, Texas, which primarily serves the needs of life and
property and casualty insurance companies for computer software and services.
Continuum has annual revenues of approximately $250 million and total assets
of approximately $160 million.
The Vantage/Continuum transaction will allow DST to expand its presence in the
information processing market for the insurance industry and combine the
strengths of both Vantage and Continuum. Prior to the merger, Vantage's
business was primarily centered in the U.S. domestic market while Continuum
has a significant international and domestic presence. Subsequent to this
transaction, DST assumed all of the North American operations data processing
functions for Continuum. DST and Continuum signed an agreement whereby DST
will make available the capabilities of the Winchester Data Center for
Continuum processing requirements. This processing agreement will reduce
overall Continuum processing costs, provide a revenue source for DST and
present opportunities for greater Continuum growth.
Other DST Activity.
Financial institutions within the industries served by DST will continue to
evaluate whether to internalize or outsource their technology needs. This
process will have both positive and negative effects on DST's results;
however, on an overall basis, DST's customer base is expected to grow. In
1993, DST experienced an overall increase in the number of mutual fund
accounts serviced; at December 31, 1993, DST serviced a record total of 28
million mutual fund accounts, a 5.6 million account increase over the 22.4
million accounts serviced at December 31, 1992. The 1993 account increase is
a result of overall mutual fund account growth. Kemper Financial Services
("Kemper"), a DST customer, began conversion of its mutual fund shareowner
processing, which will result in the removal of its accounts from the DST
system. The total number of Kemper accounts, approximately 2.5 million, will
be converted from the DST system in stages by the end of 1994. In early July
1993, the first stage, which encompassed 500,000 Kemper accounts were
converted from the DST system. The loss of 500,000 accounts in 1993 was
offset by account growth from other mutual fund customers and accordingly, did
not have a material financial impact. DST serviced 22.4 million mutual fund
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accounts at December 31, 1992, a 3.7 million increase from the 18.7 million
accounts serviced at December 31, 1991 and 20.4 million accounts at December
31, 1990. The 1991 account decrease is in large part a result of the loss of
the Vanguard group of funds in September 1991, comprising approximately 2.7
million shareowner accounts and the removal of 800,000 broker based accounts
of Prudential Bache in late 1991. Excluding the loss of the Vanguard and
Prudential Bache accounts, mutual fund accounts serviced by DST increased 1.8
million accounts in 1991 when compared to 1990.
During 1993, DST continued marketing of its Automated Work Distributor System
("AWD" TM), an image-based clerical work management system which was completed
and placed in service during 1990. The AWD System's image technology can also
be combined with principles of an intelligent work station. AWD was initially
implemented in several mutual fund transfer agencies, but through expansion,
now resides on more than 4,200 work stations in companies throughout the world
(a 75% increase since December 31, 1992) and is used to service approximately
53% of the mutual fund shareowner accounts on DST's system. AWD is also used
in industries such as insurance, banking and health care. Concurrent with the
Continuum/Vantage merger, discussed earlier, DST and Continuum reached a
license agreement, whereby Continuum will market AWD for use in insurance
industry applications.
During 1993, DST continued marketing of its record keeping system for 401(k)
plans, TRAC-2000 TM. TRAC-2000 TM, introduced in late 1991, represents a
major commitment by DST to offer the mutual fund industry a fully integrated
service for such plans. Integrated with TA2000 TM, DST's mutual fund record
keeping system, TRAC-2000 TM delivers comprehensive 401(k) record keeping and
ancillary services including full compliance testing in accordance with
Department of Labor regulations.
DST's printed output processing businesses, Output Technologies, Inc. ("OTI")
continued to expand in 1993. During 1993, OTI completed the internal
reorganization of its subsidiaries, which included renaming of certain
subsidiaries and merging of certain operations. The overall objective of this
reorganization was consolidation of output related activities, identification
of businesses with the OTI name and alignment into geographic operating
regions. OTI serves as a holding company for businesses which perform printed
output processing, commercial printing, telecommunications and fulfillment,
graphics design, computer output microfilm/microfiche and printing and mailing
of laser printed output primarily for DST's mutual fund clients but also for a
wide range of customers. The OTI concept, which was originally launched in
1990, achieved further growth in 1993 through acquisition and location
expansion. At December 31, 1993, OTI operated in 35 locations throughout the
U.S. During 1993 OTI's laser click volume was 669 million pages of printed
output, an increase of 45% over the 460 million pages in 1992. Management
expects growth in the OTI business will result from DST mutual fund account
growth along with expansion and acquisitions in future years.
During 1993, DST completed the acquisition of Clarke & Tilley Ltd., (96.25%
owned), a United Kingdom company, which markets investment management software
primarily for use in Europe and the Pacific Rim; Corfax Benefit Systems, Ltd.,
(100% owned), a Canadian company, which processes shareowner transactions for
mutual funds and pension accounts in Canada; DBS Systems Corporation, (60%
owned), a United States company, which is developing a software billing system
for the direct broadcast satellite industry; and Belvedere Financial Systems,
Inc. (100% owned), which develops and markets portfolio accounting, and
investment management systems. Each of these transactions was accounted for
as a purchase. The total purchase price exceeded the fair value of the
underlying net assets, which will be amortized over a period of 7-20 years.
Cash paid for these transactions was $15.3 million and liabilities assumed
were $10.3 million.
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Financial Asset Management
Janus Capital Corporation
Janus Capital Corporation ("Janus"), which manages investments for the Janus
group of mutual funds and the IDEX equity funds, insurance companies and other
institutional accounts, continued to experience significant growth in terms of
assets under management and accounts serviced during 1993. Janus assets under
management grew from $15.5 billion at December 31, 1992 to a record $22.2
billion at December 31, 1993 from account growth and market appreciation. The
number of Janus and IDEX Funds shareholders increased from 1.5 million at
December 31, 1992 to a record 2.0 million at December 31, 1993. Janus'
revenues and profitability both increased in 1993 as a result of the increased
assets under management and greater number of shareholder accounts serviced.
While Janus experienced significant growth during 1993, much of that growth
occurred in the first half of 1993. During the third and fourth quarters of
1993 growth in assets under management slowed. Total fund sales were $3.3
billion during the second half of 1993 versus $5.5 billion during the first
six months of 1993, while fund redemption increased to $2.2 billion versus
$1.6 billion, respectively.
During 1993, Janus continued to expand the distribution channels of the Janus
funds by participating in "Schwabs' Mutual Fund OneSource" service of Charles
Schwab as well as a similar program offered by Fidelity Investments. In
addition, Janus introduced two new Janus fund portfolios; Janus Mercury Fund,
an equity fund; Janus Federal Tax Exempt Fund, a tax exempt income fund; and
the Janus Aspen Series, which consists of six portfolios funded through
variable annuity contracts, such as the Janus Retirement Advantage. During
1992, Janus introduced three funds; Janus Enterprise Fund, an equity fund;
Janus Balanced Fund, a combination equity/fixed income fund and Janus Short-
Term Bond Fund, an income fund. Additional portfolio managers have joined the
Janus staff concurrent with the growth in assets under management and new
investment products.
Janus has expanded its assets under management by marketing advisory services
directly to pension plan sponsors, insurance, banking and brokerage firms for
their proprietary investment products. These relationships generated
approximately $920 million and $340 million in new assets in 1993 and 1992,
respectively.
Janus revenues and operating income increases are a direct result of increases
in assets under management and Janus processing services. Assets under
management and shareholder accounts have grown in recent years from a
combination of new money investments or fund sales and market appreciation.
Fund sales have risen in response to marketing efforts, favorable fund
performance and the current popularity of no-load mutual funds. Market
appreciation has resulted from increases in stock investment values. However,
a decline in the stock and bond markets and/or an increase in the rate of
return of alternative investments could negatively impact Janus revenues and
operating income. In addition, the mutual fund market, in general, faces
increasing competition as the number of mutual funds continues to increase,
marketing and distribution channels become more creative and complex, and
investors place greater emphasis on published fund recommendations and
investment category rankings. These factors could also affect Janus and
negatively impact revenues and operating income.
Unconsolidated Affiliates (primarily DST related)
A significant portion of DST and Registrant consolidated earnings are derived
from operations of unconsolidated affiliates, primarily connected with DST.
Major developments during 1993 for unconsolidated affiliates were: (i)
Investors Fiduciary Trust Company ("IFTC", a 50% owned affiliate of DST)
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assets under custody increased to $125.1 billion at December 31, 1993 from
$106.3 billion at December 31, 1992. IFTC earnings for 1993 were flat
compared to 1992. While IFTC assets under custody grew, results were reduced
by a change in the fiduciary fee arrangement between IFTC and its parent
companies and lower investment earnings. Excluding the change in fiduciary
fees, IFTC results were improved over 1992; (ii) as previously discussed, The
Continuum Company, Inc. ("Continuum") became an equity affiliate of DST on
September 30, 1993, when DST exchanged its 90.5% interest in Vantage Computer
Systems, Inc. for an equity interest in Continuum. DST's ownership position
in Continuum is approximately 29% of the outstanding common stock. DST
recorded equity in earnings from Continuum, which contributed positively to
DST 1993 results; (iii) Boston Financial Data Services, Inc. ("BFDS", a 50%
owned affiliate of DST) recorded significantly improved earnings in 1993
primarily from volume related mutual fund growth; (iv) Argus Health Systems,
Inc. ("Argus", a 50% owned affiliate of DST) recorded improved earnings on an
increase in pharmaceutical insurance claims processing volumes. Argus
processed approximately 78 million claims in 1993 versus approximately 49
million claims in 1992, an increase of 59%; (v) First of Michigan Capital
Corp. ("FOM", a 21% owned affiliate of DST) recorded slightly lower earnings
on costs incurred as a result of a failed merger with Comerica, Incorporated,
discussed below; and (vi) Midland Data Systems, Inc. and Midland Loan
Services, L.P. (collectively "Midland", 45-50% owned affiliates of DST)
reported sharply lower earnings in 1993 compared to 1992 from a continuing
trend of lower margins on loan securitizations and delays on receipt of
certain loan processing work for the RTC. Midland provides operation of an
Asset Management System and a Control Totals Module System for use by the
Resolution Trust Corporation as well as commercial loan servicing for
performing and non-performing commercial loans.
In the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992, the Registrant reported that Comerica Incorporated ("Comerica") and
First of Michigan Capital Corporation ("FOM") had signed a definitive merger
agreement in January 1993. According to the agreement, Comerica was to
acquire all of the outstanding stock of FOM in exchange for approximately $45
million in Comerica stock. In late March 1993, Comerica abandoned its efforts
to acquire FOM. Accordingly, FOM remains an unconsolidated affiliate of DST.
Corporate and Other
Debt Securities Registration and Offerings - 1993
On March 3, 1993, the Registrant issued the remaining $100 million of debt
securities under a $300 million debt securities Registration Statement on Form
S-3 filed in 1992. The Registrant issued the $100 million in debt securities
as 6 5/8% Notes due 2005. Proceeds of this debt offering, net of discount and
underwriting fees, of $98.5 million were delivered to the Registrant on March
10, 1993. In March 1993, $60 million of proceeds from this debt offering were
transferred to DST and Southern Credit Corporation for use in repayment of
debt and working capital needs. The Registrant used the remaining net
proceeds for general corporate purposes, including debt repayments, working
capital, capital expenditures, acquisitions of or investments in businesses
and assets and acquisitions of the Registrant's capital stock.
The Registrant filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission ("SEC") on March 29, 1993, (File No. 33-60192),
registering $200 million in debt securities to be offered in the form of
Medium Term Notes. The Registrant's Form S-3 was amended on May 3, 1993 and
declared effective on May 10, 1993. Proceeds from the sale of the debt
securities are expected to be added to the general funds of the Registrant and
used to principally repay debt and for other general corporate purposes,
including working capital, capital expenditures and acquisitions of or
investments in businesses or assets. On June 24, 1993, pursuant to an
Indenture and Purchase Agreement, the Registrant issued $100 million of debt
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securities under this Registration Statement. The transaction, which closed
on July 8, 1993, is comprised of Notes bearing interest at a rate of 5.75%
maturing in 1998. The net proceeds of this transaction of $99 million, along
with certain proceeds from the Registrant's $250 million credit agreement,
were used to refinance certain MidSouth debt in July 1993.
$500 Million "Universal Shelf" Registration
On September 29, 1993, the Registrant filed a Registration Statement on Form
S-3 with the SEC (File No. 33-69648), registering $500 million in securities.
The securities may be offered in the form of no par Common Stock, New Series
Preferred Stock $1 par value, Convertible Debt Securities, Debt Securities or
Equipment Trust Certificates (collectively, "the Securities"). Net proceeds
from the sale of the Securities are expected to be added to the general funds
of the Registrant and used principally for general corporate purposes,
including working capital, capital expenditures and acquisitions of or
investments in businesses and assets. The SEC has cleared the Registration
Statement without review, but the Registrant has not yet requested that it be
declared effective and no securities have been issued.
Series B Convertible Preferred Stock
On October 1, 1993, KCSI transferred one million shares of KCSI Series B
Convertible Preferred Stock (the "Series B Preferred Stock") to the Kansas
City Southern Industries, Inc. Employee Plan Funding Trust ("the Trust"), a
grantor trust established by KCSI. The purchase price of the stock, based
upon an independent valuation, was $200 million, which the Trust financed
through KCSI. The indebtedness of the Trust to KCSI is repayable over 27
years with interest at 6% per year, with no principal payments in the first
three years. The Trust, which is administered by an independent bank trustee,
and is consolidated into the Registrant's financial statements, will repay the
indebtedness to KCSI utilizing dividends and other income as well as other
cash obtained from KCSI. As the debt is reduced, shares of the Series B
Preferred Stock, or shares of common stock acquired on conversion, will be
released and available for distribution to various KCSI employee benefit
plans, including its ESOP, Stock Option Plan and Stock Purchase Plans. No
principal payments have been made and accordingly, no shares have been
released or are available for distribution to these plans.
The Series B Preferred stock, which has a $10 per share (5%) annual dividend
and a $200 per share liquidation preference, is convertible into common stock
at an initial ratio of 4 shares of common stock for each share of Series B
Preferred Stock. The Series B Preferred Stock is redeemable after 18 months
at a specified premium and under certain other circumstances.
The Series B Preferred Stock can be held only by the Trust or its
beneficiaries, the employee benefit plans of KCSI. The full terms of the
Series B Convertible Preferred Stock are set forth in a Certificate of
Designations approved by the Board of Directors and filed in Delaware.
Accounting Changes
Postretirement Benefits - The Registrant adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions", ("SFAS 106"), effective January 1, 1993. The
Registrant and its Transportation subsidiaries provide certain medical, life
and other postretirement benefits other than pensions to its retirees. The
medical and life plans are available to employees not covered under collective
bargaining arrangements, who have attained age 60 and rendered ten years of
service. Individuals employed as of December 31, 1992 were excluded from a
specific service requirement. The medical plan is contributory and provides
benefits for retirees, their covered dependents and beneficiaries. Benefit
expense begins to accrue at age 40. The medical plan was amended effective
8
January 1, 1993 to provide for annual adjustment of retiree contributions and
also contains, depending on the plan coverage selected, certain deductibles,
copayments, coinsurance and coordination with Medicare. The life insurance
plan is non-contributory and covers retirees only. The Registrants' policy,
in most cases, is to fund benefits payable under these plans as the
obligations become due. However, certain plan assets do exist with respect to
life insurance benefits. Prior to January 1, 1993, the Registrant recognized
the cost of these benefits on a "pay as you go" basis.
The entire accumulated postretirement benefit obligation was charged to
earnings in first quarter 1993 in the amount of $5.5 million, net of
applicable income taxes. The adoption of SFAS 106 is not expected to have a
material effect on future annual expenses of the Registrant.
Income Taxes - The Registrant also adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("SFAS 109"), effective
January 1, 1993. SFAS 109 was issued as an amendment to Statement of
Financial Accounting Standards No. 96, "Accounting for Income Taxes," ("SFAS
96"). The adoption of SFAS 109 resulted in a charge to earnings in first
quarter 1993 of $970,000. Under the liability method specified by SFAS 109,
the deferred tax liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in the liability for deferred
taxes. The principal difference between the Registrant's assets and
liabilities recorded for financial statement and tax return purposes is
accumulated depreciation.
As a result of the Registrant's previous adoption of SFAS 96, the adoption of
SFAS 109 did not have a material impact on the components of income tax
expense or the effective income tax rates applicable to continuing operations
versus the U.S. federal income tax statutory rate.
Stock Splits
On January 28, 1993, the Registrant's Board of Directors authorized a 2-for-1
stock split which was effected in the form of a stock dividend in the
Registrant's Common stock and paid March 17, 1993.
On January 30, 1992, the Registrant's Board of Directors authorized a 2-for-1
stock split which was effected in the form of a stock dividend in the
Registrant's Common stock and paid March 17, 1992.
All appropriate information in this report reflect the effects of both of
these 2-for-1 stock splits.
Employees Stock Purchase Plan
In the fourth quarter 1993, the Registrant filed a Form S-8 with the
Securities and Exchange Commission as the eighth offering under the Employees
Stock Purchase Plan. Approximately 221,000 shares of Registrant Common stock
were subscribed to under this offering, which will be funded through employee
payroll deductions, over a two year period, at a price of $38.20 per share.
(b) INDUSTRY SEGMENT FINANCIAL INFORMATION
Financial information by industry segment for the three years ended December
31, 1993, which appears on pages 65 through 67 of Registrant's 1993 Annual
Report to Stockholders, is hereby incorporated herein by reference (see
Exhibit 13.1).
9
(c) NARRATIVE DESCRIPTION OF THE BUSINESS
The Registrant is a Delaware corporation, organized in 1962, with executive
offices located at 114 West 11th Street, Kansas City, Missouri. The
Registrant is a holding company which supervises the operations of its
subsidiaries, supplying them with managerial, legal, tax, financial and
accounting services, and manages its portfolio of other "non-operating" and
more passive investments.
As of December 31, 1993, the Registrant and its majority owned subsidiaries
employed approximately 7,470 persons, with approximately 2,760 employed in the
Transportation Services; 3,960 at DST, 700 at Janus and 50 in Corporate and
Other. In addition, unconsolidated affiliates of the Registrant and its
subsidiaries employed approximately 5,630 persons, including 2,400 and 1,600
at The Continuum Company Inc. ("Continuum") and Boston Financial Data
Services, Inc., ("BFDS"), respectively, the largest employers of such
ventures.
The Registrant's business activities, by industry segment, with principal
subsidiary companies are:
Transportation Services - The Kansas City Southern Railway Company, their
affiliated trucking subsidiaries (collectively "KCSR"), MidSouth Corporation
("MidSouth") prior to its merger into KCSR effective January 1, 1994, Pabtex,
Inc. ("Pabtex") and Southern Leasing Corporation ("Southern Leasing"); along
with other subsidiaries supporting the transportation segment.
Information & Transaction Processing - DST Systems, Inc. ("DST") and its
subsidiaries.
Financial Asset Management - Janus Capital Corporation ("Janus") and its
subsidiaries.
Eliminations, Corporate & Other - Registrant's Corporate general and
administrative operations, and passive investments.
Unconsolidated Affiliates, (primarily DST related) - DST Joint Ventures, The
Continuum Company, Inc., Investors Fiduciary Trust Company, Boston Financial
Data Services, Inc., Argus Health Systems, Inc., First of Michigan Capital
Corporation, Midland Data Systems, Inc. and Midland Loan Services, L.P.
Transportation Services
General Description of the Business-Commodities
The Kansas City Southern Railway Company ("KCSR"), a wholly-owned subsidiary
of the Registrant, comprises the largest percentage of the Registrant's
revenue and assets employed. KCSR operates a rail system of 1,712 main and
branch line route miles and 2,552 total track miles in a six state region.
KCSR serves the states of Missouri, Kansas, Arkansas, Oklahoma, Louisiana, and
Texas, and in conjunction with the Union Pacific haulage rights, the two
additional states of Nebraska and Iowa. KCSR has the shortest rail route
between Kansas City and the Gulf of Mexico, serving the ports of Beaumont and
Port Arthur, Texas; and New Orleans, Baton Rouge, Reserve and West Lake
Charles, Louisiana. Through haulage rights, KCSR also serves the ports of
Houston and Galveston, Texas. Kansas City, Missouri, as the second largest
rail center in the United States, represents an important gateway for KCSR
where it interchanges freight with eight major rail carriers. KCSR also has
important interchange gateways in the cities of New Orleans and Shreveport,
Louisiana; and Dallas and Beaumont, Texas.
The Registrant completed the acquisition of MidSouth Corporation ("MidSouth")
in June 1993 at which time it became a wholly-owned subsidiary of the
10
Registrant. MidSouth is a regional railroad holding company, which operates
over 1,100 track miles. MidSouth, through four operating subsidiaries, serves
the states of Mississippi, Louisiana, Alabama and Tennessee. The MidSouth
acquisition provides an important East/West rail line, as a complement to
KCSR's predominantly North/South route, and adds interchange gateways in
Jackson and Meridian, Mississippi and Birmingham, Alabama. This East/West
rail line running from Dallas, Texas to Meridian, Mississippi will allow the
Registrant to be more competitive in the intermodal transportation market. In
addition, the acquisition adds a base of MidSouth customers in the South
Central U.S. to KCSR's already strong traffic base and presents opportunities
for the rerouting of certain commodity movements over less circuitous routes.
Through haulage rights, MidSouth also serves the city of Gulfport,
Mississippi.
Effective January 1, 1994, MidSouth was operationally and administratively
merged into KCSR. Future MidSouth results will be included with KCSR. The
combined KCSR/MidSouth operations will operate approximately 2,800 main and
branch line route miles and approximately 3,700 total track miles over a nine
state region.
Major commodities handled by KCSR include coal, grain and farm products,
petroleum, chemicals, paper and forest products as well as other general
commodities and intermodal traffic. Coal continues to be the largest single
commodity handled by KCSR since the advent of unit coal train shipments in the
mid-1970's from the Powder River Basin in Wyoming, via the Burlington Northern
and Union Pacific interchange at Kansas City, for movement south by KCSR.
KCSR delivers coal to six electric generating plants located at Amsterdam,
Missouri; Flint Creek, Arkansas; Welsh, Texas; Mossville (near Lake Charles),
Louisiana, Kansas City, Missouri and Pittsburg, Kansas. KCSR also delivers
lignite, originating on its line at Thermo, Texas, to an electric generating
plant at Monticello, Texas ("Tumco"), a distance of approximately 30 miles.
During 1993, the Tumco plant was shut down when one of its smoke stacks
collapsed. The plant is not scheduled to be back in service until 1995.
The MidSouth merger is strategically important in reducing KCSR's dependence
on coal traffic. MidSouth derives only minimal revenues from coal. On a
stand alone basis, KCSR coal revenues represented 30% of total revenues in
1993. However, when combined with MidSouth revenues since the June 1993
acquisition, the percentage of coal revenues to total combined revenues would
have reduced to 25% and even further reduced to 23% assuming the MidSouth
transaction had occurred at the beginning of 1993. Conversely, MidSouth's
primary commodity traffic is in the pulp/paper and forest products area, which
allows KCSR to complement its revenues in that industry.
Gross revenue from unit coal trains aggregated $106, $106 and $107 million, in
1993-1991, respectively. Certain coal transportation contracts contain "take
or pay" and volume discount clauses. Revenue from Southwestern Electric Power
Company ("SWEPCO"), operator of two electric generating facilities served
under long-term contracts by KCSR, continues to represent the greatest portion
of coal revenues. In 1993, SWEPCO revenues approximated $60 million or 13% of
Transportation Services revenues. (See Item 3. Legal Proceedings).
KCSR serves the petroleum and chemicals industry, via refineries located in
the Gulf states of Texas and Louisiana, through tank and hopper car service
primarily to markets in the Southeast and Northeast through interchange with
other rail carriers. Petroleum and chemical products represent the second
largest commodity to KCSR in terms of revenues, trailing only coal. MidSouth
provides rail transportation of chemical products, primarily vinyl chloride
used in the production of polyvinyl chloride ("PVC") materials, as well as
other chemical products, some used in paper production to customers primarily
in the Mississippi and Alabama areas. These products are shipped via rail
interchange to many destinations throughout the United States. As part of
serving the petroleum and chemicals industry, KCSR/MidSouth transport
11
hazardous materials and have a Shreveport, Louisiana based hazardous materials
emergency team available to handle environmental problems which might occur in
the transport of such materials.
KCSR/MidSouth serve eleven paper mills directly and seven others indirectly
through short-line connections. International Paper Co. at South Texarkana,
Texas and Georgia Pacific at Ashdown, Arkansas, both served by KCSR, have
completed plant expansions in recent years which increases their operating
capacity. Paper/pulp and primary forest products represent the largest
component of MidSouth revenue carloadings. MidSouth provides transportation
of pulpwood, woodchips, poles and raw fiber used in the production of paper,
pulp and paperboard. MidSouth also serves as the first leg of rail
transportation throughout the United States for finished paper products from
major manufacturers such as, International Paper, Riverwood International
Corporation, Stone Container and Packaging Corporation of America. MidSouth's
geographic location provides a stable market due to the abundance and fast
growth of timber in the area. The cost effective nature of the plants served
by MidSouth provide a competitive advantage over trucks for these bulk
commodities.
KCSR farm products carloadings increased 15% during 1993. Increased
carloadings were experienced in the shipment of corn, wheat, soybeans and
other farm products. Grain shipments are transported from the grain producing
states of Iowa and Nebraska southward to poultry feed mills served by KCSR in
the states of Missouri, Arkansas, Oklahoma, Louisiana and Texas. Consumer
demand for poultry consumption remains constant thereby generating demand for
feed grains delivered by KCSR. MidSouth also transports farm products,
principally corn and processed soybean to customers on its rail line, which
include poultry feed processing mills.
KCSR has continued to implement its roadway capital improvement program to
provide safer commodity movements. This long-term capital improvements
project is designed to improve the integrity and quality of service to KCSR
customers. Management expects this program to be completed in 1995. The
MidSouth acquisition will require the Registrant to complete a capital
improvement program for MidSouth roadbed, locomotives and facilities. This
program will upgrade and expand MidSouth's track to handle greater traffic
levels at higher train speeds and will be completed over the next five years
with a large majority of these upgrades completed during the next two years.
The Registrant currently anticipates the cost of this five year capital
program will be approximately $150 million, 50% of which was planned by
MidSouth management prior to the acquisition.
KCSR/MidSouth marketing departments have primary responsibility for developing
transportation services and are supported by field marketing offices at
various locations throughout the United States. Heavy emphasis is placed on
providing the highest quality of transportation service and on servicing the
current needs of customers and also on the promotion of additional growth
through efforts to locate industrial and manufacturing companies in the
KCSR/MidSouth service area. Addition of new traffic resulting from
combination of the two rail systems may affect this service.
Other wholly-owned subsidiaries comprising the Transportation Services
industry segment include Trans-Serve, Inc.; Carland, Inc.; Southern Leasing
Corporation; Pabtex, Inc.; Rice-Carden Corporation; Tolmak, Inc.; Southern
Development Company and Mid-South Microwave, Inc.
Trans-Serve, Inc. owns and operates a railroad wood tie treating facility in
Vivian, Louisiana and a vehicle fleet maintenance operation for the KCSR
Engineering, Mechanical and Transportation department vehicles, with locations
in Shreveport, Louisiana, Pittsburg, Kansas and Heavener, Oklahoma.
Carland, Inc., a subsidiary of Southern Credit Corporation, headquartered in
12
Kansas City, leases various types of equipment including railroad rolling
stock, roadway maintenance equipment and vehicles. KCSR is the principal
customer of Trans-Serve and Carland.
Southern Leasing Corporation, a subsidiary of Southern Credit Corporation, was
formed in late 1983 and is involved in finance leasing and other forms of
secured financing, generally for equipment acquisition by small to medium
sized businesses.
Pabtex, Inc. ("Pabtex") owns and operates a bulk handling facility which
stores and transfers coal and petroleum coke from trucks and rail cars to
ships and barges primarily for export. This facility, located in Port Arthur,
Texas, with deep water access to the Gulf of Mexico, is served on an inbound
basis by KCSR and independent truckers. In 1990, under the provision of a
twenty year capital lease commitment, which expired in that year, the
Registrant exercised its right to purchase the facility improvements of
Pabtex. This purchase was completed in the fourth quarter of 1991 at a
purchase price of $9.2 million and will allow KCSR opportunities for future
expansion of the petroleum coke and coal export business. In 1992, the
Registrant purchased 530 acres of land adjacent to the Registrant's Pabtex
coal and petroleum coke storage, barge and ship loading facility in Port
Arthur, Texas.
The 530 acres includes 4,000 linear feet of deep water frontage on the Sabine-
Neches Waterway, which has direct access to the Gulf of Mexico via the
Intercoastal Waterway. This acquisition increases the Transportation Services
deep water access in the Port Arthur, Texas area and will permit capacity
expansion of the Pabtex coal and coke facility and development of additional
port operations in KCSR's service area. The Registrant currently owns 1,025
acres of property located on the waterfront in the Port Arthur, Texas area,
which includes approximately 22,000 linear feet of deep water frontage and
three docks. Port Arthur is an uncongested port with direct access to the
Gulf of Mexico. Approximately 75% of this property is available for
development.
Mid-South Microwave, Inc. owns and leases a 1,600 mile industrial frequency
microwave transmission system, which is a primary communications facility used
by KCSR.
Rice-Carden Corporation and Tolmak, Inc. both wholly-owned subsidiaries of the
Registrant and both headquartered in Kansas City, own and operate various
industrial real estate and spur rail trackage contiguous to the KCSR right of
way. These properties are leased to various industrial businesses, many of
whom are serviced by KCSR.
Southern Development Company, a wholly-owned subsidiary of the Registrant,
owns and operates the headquarters building of the Registrant and KCSR located
in Downtown Kansas City. Southern Development leases a substantial portion of
the building to KCSR for its executive, financial, marketing, operating and
engineering departments.
Regulatory Influence
Transportation operations are subject to the regulatory jurisdiction of the
Interstate Commerce Commission ("ICC"), various state regulatory agencies, the
Department of Transportation ("DOT") and the Occupational Safety and Health
Administration ("OSHA"). The ICC has jurisdiction over interstate rates
charged, routes, service, issuance or guarantee of securities, extension or
abandonment of rail lines, and consolidation, merger or acquisition of control
of rail common carriers. State agencies regulate some aspects of rail
operations with respect to health and safety and in some instances intrastate
freight rates. The DOT and OSHA have jurisdiction over certain health and
safety features of railroad operations. In addition, railway operations are
13
subject to extensive regulation under environmental protection laws
concerning, among other things, discharges to waters and the generation,
handling, storage, transportation and disposal of waste and other materials,
where environmental risks are inherent. KCSR and some of the Registrant's
other subsidiaries land holdings have been used for industrial purposes or
leased to commercial and industrial companies whose activities may have
resulted in discharges onto the property. Accordingly, the Registrant and its
subsidiaries may become subject from time to time to environmental clean-up
and enforcement actions. In particular, the Registrant is subject to
regulatory legislation such as; the Federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), also known as the
"superfund law"; the Toxic Substances Control Act ("TSCA"); the Federal Water
Pollution Control Act, commonly known as the "Clean Water Act" and the
Hazardous Materials Transportation Act ("HAZMAT"). This legislation generally
imposes joint and several liability for clean up and enforcement costs,
without regard to fault or legality of the original conduct, on current and
predecessor owners and operators of a site. The discharge of hazardous
materials or contamination of property by hazardous materials may arise from
the transportation, production, storage, use and disposal of such materials by
rail operations. Normal rail transportation operations may result in hazards
and expose the Registrant to claims and potential liability for injuries to
employees, other persons, property and the environment. Registrant management
does not foresee that compliance with the requirements imposed by these
agencies' standards under present statutes will impair its competitive
capability or result in any material additional operating or maintenance
costs. KCSR continued to implement extensive safety programs during 1993
designed to reduce employee injuries through promotion of a safe work
environment. The Registrant expects these programs will exceed safety
requirements of the various regulatory agencies governing transportation
operations.
Railroad Industry Trends and Competition
KCSR is in direct competition with the Union Pacific Railroad ("UP") for
certain freight traffic moving between Kansas City and Gulf Ports served by
KCSR. KCSR, in conjunction with the Santa Fe Railroad, also competes with the
Southern Pacific Transportation Company ("SP") for certain transcontinental
freight traffic in the Dallas-New Orleans corridor. In 1992, KCSR signed an
agreement with the Santa Fe Railway to purchase portions of its rail line in
the Dallas, Texas area. The sale consists of approximately 90 miles of track
and an 80 acre piggyback intermodal facility. The agreement is being
implemented in phases over two years (Phase I of which was completed in 1993)
and will gain KCSR direct access to the Dallas/Ft. Worth markets for the first
time in the Registrant's history. Phase II is anticipated to be completed in
second quarter 1994 to acquire the Zacka Junction facility.
In 1988, the UP and KCSR signed a haulage and trackage rights agreement which
facilitated and supported the acquisition of control of the Missouri-Kansas-
Texas Railroad Company ("MKT") by the UP. This agreement gave KCSR haulage
rights between Omaha and Lincoln, Nebraska; Council Bluffs, Iowa; Topeka and
Atchison, Kansas and Kansas City, Missouri. KCSR also received haulage rights
over UP tracks between Beaumont, Houston and Galveston, Texas. Under this
haulage rights agreement, UP is required to move KCSR traffic in UP trains.
Under the trackage rights, KCSR is allowed to operate its own trains over UP
tracks. The "rights" between Beaumont, Houston and Galveston, Texas are
restricted to transporting grain and grain products. However, the "North end
rights" between Kansas City, Missouri and Omaha and Lincoln, Nebraska; Council
Bluffs, Iowa and Atchison and Topeka, Kansas are unrestricted. These "rights"
enable KCSR to be more competitive, particularly in feed grains, with the UP
and Burlington Northern railroads in both the Gulf port and domestic
transportation corridors. Beginning in 1990, KCSR made more extensive use of
these haulage rights with the UP in accessing the corn belt states of Nebraska
and Iowa.
14
During 1993, the ICC ruled that it had jurisdiction regarding the UP
acquisition of certain voting stock of CNW Holding Corp., ("CNW") a holding
company for the Chicago North Western Railroad. UP was required by the ICC to
submit evidence regarding marketing and operating coordination and related
public benefits which UP alleges will stem from the CNW transaction. The
Registrant filed a responsive application with the ICC supporting protective
conditions designed to upgrade current haulage rights to Omaha/Council Bluffs
and provide direct access, by way of additional haulage and local gathering
rights to CNW grain origins in Iowa, Nebraska and South Dakota. Hearings on
the matter are scheduled in second quarter 1994 with a final decision
anticipated in late third quarter 1994.
In addition to competition within the railroad industry, highway carriers
compete with KCSR and MidSouth throughout its territory. Since deregulation
of the railroad industry, competition has resulted in extensive downward
pressure on freight rates. Truck carriers have eroded the railroad industry's
share of total transportation revenues. However, rail carriers, including
KCSR/MidSouth have, in recent years, placed a greater effort towards competing
in the intermodal marketplace. Rail carriers are working together to provide
end-to-end transportation of products and forming working partnerships with
truck carriers in an effort to recapture market share. In some cases,
additions to box car fleets and upgrade of existing box car equipment are
underway to attract new business. KCSR/MidSouth are in the process of
upgrading current "on-off ramps" intermodal facilities in anticipation of
greater TOFC/COFC traffic.
Mississippi and Missouri River barge traffic also compete with KCSR in the
transportation of bulk commodities such as grains, steel, aluminum and
petroleum products.
Labor Relations
Collective bargaining agreements with KCSR union employees, representing
approximately 83% of KCSR's workforce were completed in 1992. Through a
process of national negotiation and arbitration, KCSR and contract employees
reached agreement on issues which will allow implementation of productivity
improvements and partially reduce the costs of escalating health care premiums
through a cost sharing arrangement with contract employees. In addition, the
terms and conditions of the agreements allow KCSR to improve its operating
income through savings to be realized by modification in the operation of its
trains with reduced crew sizes. KCSR is initially permitted to operate any
through freight train without limitation to the number of cars and train
length with two man crews. Additionally, via a "phased in" approach through
December 31, 1997, KCSR has the opportunity to operate one hundred percent of
its trains with two man crews as it both achieves and demonstrates the ability
to safely operate with reduced crews in a productive manner. These
productivity improvements are necessary to enable the railroad industry to
remain competitive with other modes of transportation. However railroads
remain restricted by antiquated operating rules and uncompetitive employee
benefit programs and they are prevented from achieving optimum productivity.
These national agreements, with the exception of the International Association
of Machinist and Aerospace Workers ("IAM"), discussed below, will be open for
renegotiation on December 31, 1994.
As a result of the arbitration process and a Registrant initiated voluntary
buy out program offered in January 1992, approximately 150 trainmen were
declared excess by the Registrant, of which 105 excess employees accepted the
$60,000 buy out. The remaining excess employees were placed on a Reserve
Board where they received 70% of their 1991 W-2 earnings (net of certain
adjustments). During 1992, through attrition and increased business levels,
all excess employees were removed from the Reserve Board. KCSR had fully
reserved the cost of the buy outs in 1991, accordingly no charges to earnings
were required in 1992 and none are anticipated in the future.
15
In 1992, KCSR operations experienced a two day operational shutdown as part of
an orderly shutdown of freight transportation operations by all Class I U.S.
Railroads. This two day shutdown was precipitated when members of the IAM
initiated a strike against the CSX Railway. The national rail shutdown ended
through Congressional intervention, which ordered all IAM workers back to
work. In ending the rail strike, Congress established a process intended to
result in settlement of disputes between the parties or recommendation by an
arbitrator on settlement terms. KCSR participated in the national bargaining
of issues with the IAM through the National Railway Labor Conference ("NRLC").
In early August 1992, the NRLC and the IAM were able to resolve virtually all
issues and the arbitrator's settlement recommendations on the remaining issues
were accepted by President Bush. The resulting labor agreements will be open
for renegotiation in 1995. The two day shutdown resulted in reduced KCSR
revenues but, in total, the effect of the shutdown was immaterial to the
Registrant.
Approximately 87% of MidSouth's employees are also covered under collective
bargaining agreements. MidSouth has numerous labor agreements with a variety
of unions. These labor agreements, which were in place at the date of
acquisition, will be open for renegotiation in varying periods beginning in
1994.
As a result of completion of these labor agreements, management believes the
Registrant has made progress in becoming able to compete with all railroads
contiguous to the KCSR/MidSouth lines as well as other forms of
transportation.
16
Information & Transaction Processing
DST Systems, Inc.
General Description of the Business
DST Systems, Inc., formed in 1968, together with its subsidiaries and joint
ventures (principally The Continuum Company, Inc., Boston Financial Data
Services, Inc., Investors Fiduciary Trust Company, Argus Health Systems, Inc.,
Midland Data Services, Inc. and Midland Loan Services L.P.), designs,
maintains and operates proprietary on-line shareowner accounting and record
keeping data processing systems, primarily for mutual funds and financial
services institutions and insurance companies. Historically, the majority of
DST's revenue has been derived from full-service and remote-service record
keeping for the mutual fund industry. The growth of the mutual fund industry
is a major contributor to the substantial increase in revenues of DST.
Currently, DST's growth results from an increase in both existing and new
mutual fund customers as well as acquisitions and expansion of existing
business lines and products.
Output Technologies, Inc. ("OTI"), a wholly-owned subsidiary of DST, was
formed in early 1991 as a holding company for DST's business involved in the
financial printing, mailing, output processing and related business lines.
During 1993, OTI completed the internal reorganization of its subsidiaries,
which included renaming of subsidiaries and merging of certain operations.
The overall objective of the internal reorganization was a consolidation of
output related activities, identification of businesses with the OTI name and
alignment into geographic operating regions. Included under OTI are its
wholly-owned subsidiaries; Output Technologies Central Region, Inc.; formerly
United Micrographics Systems, Inc. and Network Graphics, Inc., which process
computer output microfilm and microfiche, and printing and mailing of
specialized laser printing output and perform graphics design services; Output
Technologies SRI Group, Inc., formerly Support Resources, Inc. and Output
Technologies Eastern Region, Inc., formerly Mail Processing Systems, Inc.
provide laser printing and mailing of value-added customer information; Output
Technologies of Illinois, Inc., was formed in 1992 and performs telemarketing
and fulfillment services; Output Technologies Phoenix Litho Group, Inc.,
formerly Phoenix Litho, Inc. performs commercial printing services, and Output
Technologies Vital Records Storage Group, Inc., formerly Data Retrieval
Services, which performs vital records storage.
Effective September 30, 1993, DST completed the merger of Vantage Computer
Systems, Inc. ("Vantage") into a subsidiary of The Continuum Company, Inc.
("Continuum"). Vantage, a 90.5% owned subsidiary, along with its wholly-owned
subsidiary Vantage P&C Systems, Inc., provide record keeping services and
custom designed software packages to the life and property/casualty insurance
industries. Vantage, using DST's computer systems on a remote basis, focus on
the administration of universal life coverage and other non-traditional
insurance products. DST and the minority shareholder of Vantage received a
total of 4 million shares of Continuum stock -- 2,939,000 shares at closing
and the remainder after Continuum shareholder approval was obtained in late
1993. As a result of this transaction and additional Continuum stock
purchases made by DST, DST owned approximately 24% of the outstanding common
stock of Continuum at December 31, 1993. In January 1994, DST acquired
additional Continuum shares through privately negotiated transactions.
Accordingly, DST currently owns approximately 29% of Continuum's outstanding
common stock. DST accounted for the initial exchange transaction as a non-
cash, non-taxable exchange in investment basis of Vantage for an investment in
Continuum. Accordingly, no gain or loss recognition was associated with the
transaction. Vantage revenues for the nine months ended September 30, 1993,
were $32.6 million and $38.7 million for the year ended December 31, 1992.
Continuum is a publicly traded international consulting and computer services
17
firm based in Austin, Texas, which primarily serves the needs of life and
property and casualty insurance companies for computer software and services.
The Vantage/Continuum transaction will allow DST to expand its presence in the
information processing market for the insurance industry and combine the
strengths of both Vantage and Continuum. Prior to the merger, Vantage's
business was primarily centered in the U.S. domestic market while Continuum
has a significant international and domestic presence. Subsequent to this
transaction, DST assumed all of the North American operations data processing
functions for Continuum. DST and Continuum signed an agreement whereby DST
will make available the capabilities of the Winchester Data Center for
Continuum processing requirements. Concurrent with the Continuum/Vantage
merger, DST and Continuum reached a license agreement, whereby Continuum will
market AWD for use in insurance industry applications.
Other services offered by DST include securities transfer services for debt
securities and corporate stocks, portfolio accounting for investment fund
managers and health care pharmaceutical insurance claim processing. DST also
engages, directly and through its affiliates, in trust accounting, security
clearing services, asset management administration, commercial loan servicing,
broker-dealer services, pharmaceutical claim processing and processing for the
insurance industry through Investors Fiduciary Trust Company, Boston
Financial Data Services, Inc., Midland Data Systems, Inc., Midland Loan
Services, L.P., First of Michigan Capital Corporation, Argus Health Systems,
Inc. and The Continuum Company, Inc. in which DST is either a joint venture
partner or investor. These affiliates are further described below:
Investors Fiduciary Trust Company ("IFTC"), a 50% joint venture owned with
Kemper Financial Services, Inc., is incorporated under the banking laws of
Missouri and provides fiduciary and other custodial services to its
clients. IFTC serves as trustee for unit trusts, tax deferred retirement
and compensation plans, including IRAs, Keogh Plans and other deferred
compensation plans offered by DST's clients. IFTC also serves as transfer
agent and custodian for several mutual funds and sponsors a federally
insured money market deposit account.
Boston Financial Data Services, Inc. ("BFDS"), a Boston based 50% joint
venture between DST and State Street Boston Corporation, performs full
service transfer agency functions for open and closed end mutual funds and
corporations using DST's proprietary software on a remote basis through
telecommunication transmissions with DST's computer facility located in
Kansas City.
Midland Data Systems, Inc. and Midland Loan Services, L.P. (collectively
"Midland") 45-50% joint ventures, respectively, provide comprehensive
commercial loan servicing for assets, both performing and non-performing
loans and related asset management services for governmental and
institutional clients. Midland has been awarded contracts with the
Resolution Trust Corporation ("RTC") for the operation of an Asset
Management System and a Control Totals Module System for use by the RTC and
for servicing RTC loans. Midland intends to expand its market by
continuing to create innovative and responsive systems through technology
and expanding its loan processing and asset management capabilities to the
private sector.
First of Michigan Capital Corporation, ("FOM"), a publicly held company,
21% owned by DST, provides full service retail securities brokerage
services and maintains several offices throughout the State of Michigan.
Argus Health Systems, Inc., ("Argus"), a 50% joint venture owned with
Financial Holding Corporation provides pharmaceutical claim insurance
processing services for several health care providers through a data base
network.
18
The Continuum Company, Inc. ("Continuum"), a publicly held company,
approximately 29% owned by DST, is an international consulting and computer
services firm based in Austin, Texas, serving the needs of life insurance,
property and casualty insurance and other financial services companies for
computer software and services.
Product Base and Competitive Influence
DST's reputation is based largely on service, ability to handle volume
increases, commitment to software development and, to a lesser degree, price.
The advantages of DST include its experience in providing service to the
markets it serves, the number and size of its clients, its use of centralized
data processing facilities which enables it to achieve economies of scale, the
breadth of services it and its joint ventures offer, and the reputations of
its joint venture partners. In addition, DST's systems are complex, having
been enhanced over a number of years to provide a high quality service and to
meet changing regulatory and user requirements. The complex nature of the
business, the software systems and the significant resource base needed to
operate and/or duplicate such systems make it difficult for new firms to enter
these markets. Although market entry by new firms may be difficult, several
strong competitors in DST's marketplace do exist. In recent years, the
competitive environment for shareowners processing has changed as several
major bank competitors exited from direct participation in the shareowner
processing business. The balance of these accounts were absorbed by DST or
its competitors. A further review of competitive factors for DST's principal
product lines follows:
Mutual Fund Shareowners Accounting System: Certain competitors provide
remote processing services or engage in software sales. DST also considers
in-house systems as a competitive alternative. DST does not ordinarily
offer its software for sale; therefore, when customers purchase software,
they do so as an alternative to DST's remote processing or full-service
product offerings. The Shareholder Services Group ("TSSG"), a unit of
First Data Resources, Sungard Data Systems Inc., Oppenheimer Industries,
Provident National Bank and U.S. Trust are the primary competitors for
full-service and remote processing. Oppenheimer Industries is the primary
competitor for systems sales. DST currently processes approximately one-
third of all United States mutual fund shareowner accounts.
DST and its affiliates also provide a full-service product by acting in the
capacity of a transfer agent either through direct appointment or
subcontract. DST's main full service competitor is TSSG.
Securities Transfer and Portfolio Accounting Systems: DST's Securities
Transfer System competes with in-house systems and independent vendors,
some of whom supply clerical support in connection with their software sys-
tems. The Portfolio Accounting System competes primarily with in-house
systems and systems offered by certain banks in conjunction with their
custodial services. Banks and thrift institutions in competition with DST
may have an advantage by considering the value of their client's funds on
deposit when pricing their services. Moreover, such banks or thrift
institutions generally have much greater financial resources available to
them than DST. DST's 1993 acquisitions of Belvedere Financial Systems,
Inc. ("Belvedere") and Clarke & Tilley, both of which develop and market
portfolio accounting and investment management systems, expands DST's
portfolio accounting opportunities. Belvedere's system will provide a
common platform for DST future portfolio growth in both domestic and
international markets.
International Market Expansion: In 1991, DST began evaluating the
feasibility of marketing its products outside the United States and also
products that would serve foreign markets in DST's product lines. DST
acquired a 50% interest in Talisman Services during 1991. Talisman is a
19
European software company whose primary product is a multi-currency
financial accounting package. In 1992, DST formed DST Systems
International B.V. as a holding company for certain of its non-U.S.
operations and a marketing unit for DST's software. Also in 1992, DST,
together with State Street Bank and Clarke and Tilley, Ltd. (a United
Kingdom software firm), formed Clarke and Tilley Data Services ("CTDS").
CTDS is developing a unit trust accounting system for the U.K. and
Luxembourg markets, combining DST workflow management, image technology and
unit trust software. During 1993, DST completed the acquisition of Clarke
& Tilley Ltd., (96% owned), which markets investment management software
primarily for use in Europe and the Pacific Rim and Corfax Benefit Systems,
Ltd., (100% owned), a Canadian company, which processes shareowner
transactions for mutual funds and pension accounts in Canada.
This international expansion provides DST with a base of products which are
multi-currency, as well as multi-platform, and creates avenues for greater
market penetration of DST's U.S. products into international channels.
Through these subsidiaries, sales and development offices currently reside
in the United Kingdom, Switzerland, Netherlands, Belgium, Luxembourg,
Canada, Australia and South Africa. DST foresees opportunities for further
growth and expansion in international markets.
The financial institutions served by DST, both mutual fund and insurance,
will continue to evaluate whether to internalize or outsource their
technology needs. This process will have both positive and negative
effects on DST's results; however, on an overall basis, DST's customer base
is expected to grow.
During 1993, the financial markets as a whole experienced an increase in spite
of certain uncertainties in domestic and global economies. DST's mutual fund
shareowner accounts serviced also rose in 1993 to end the year at an all time
high of 28 million accounts. In 1993, Kemper Financial Services ("Kemper"), a
DST customer, mutual fund shareowner began conversion of its mutual fund
shareowner processing, which will result in the removal of its accounts from
the DST system. The total number of Kemper accounts, approximately 2.5
million, will be converted from the DST system in stages over the next few
years. In early July 1993, the first stage, which encompassed 500,000 Kemper
accounts were converted from the DST system. The remaining accounts will be
removed in 1994. The loss of 500,000 Kemper accounts in 1993 was offset by
account growth from other mutual fund customers and accordingly, did not have
a material financial impact. Mutual fund shareowner accounts had also risen
in 1992 even through weighted average monthly billable accounts lagged 1991
averages. In 1991, DST experienced an overall decline in the number of mutual
fund shareowner accounts serviced. This decline is in large part the result
of the Vanguard group of mutual funds, which exited the DST system in
September 1991 and the removal of 800,000 broker based accounts of Prudential
Bache in late 1991. Vanguard comprised approximately 2.7 million shareowner
accounts. Excluding the Vanguard and Prudential Bache accounts, DST
experienced growth in certain other fund groups serviced during 1991.
Financial Asset Management
Janus Capital Corporation
Janus Capital Corporation, headquartered in Denver, Colorado and 81% owned by
the Registrant, provides investment advisory and management services to the
Janus and IDEX equity mutual fund groups, investment management services for
individuals and institutions including large pension and profit sharing plans.
Janus experienced substantial growth during 1993 in terms of both shareholder
accounts and assets under management. Funds under management increased from
$15.5 billion at December 31, 1992 to $22.2 billion at December 31, 1993 while
total shareholder accounts increased 35% in 1993. This growth is largely
attributable to successful marketing programs, an overall favorable
20
performance of the Janus no-load and IDEX load funds compared to the market as
a whole and general growth in the mutual fund marketplace.
While Janus experienced significant growth during 1993, much of that growth
occurred in the first half of 1993. During the third and fourth quarters of
1993 growth in assets under management slowed. Total fund sales were $3.3
billion during the second half of 1993 versus $5.5 billion during the first
six months of 1993, while fund redemption increased to $2.2 billion versus
$1.6 billion, respectively.
Janus experiences competition in the form of alternative investment vehicles,
which offer competitive investment returns and different investment objectives
when compared to Janus. These alternatives have typically been other mutual
funds, certificates of deposit, money market accounts and individual stocks
and bonds. Janus management continues to strive in offering a variety of
investment products. While Janus has historically been a primarily equity
based fund group, management has sought to build a base of fixed income
products. During 1993, Janus introduced three new fund products; Janus
Mercury Fund, an equity fund; Janus Federal Tax Exempt Fund, a federal tax
exempt income fund; and the Janus Aspen Series, which are variable annuity
products. During 1992, Janus introduced three new mutual funds, Janus
Enterprise Fund, an equity fund; Janus Balanced Fund, a combination equity
/fixed income fund and Janus Short-Term Bond Fund, a fixed income fund. Janus
revenues and operating income increases are a direct result of increases in
assets under management. Assets under management have grown in recent years
from a combination of new money investments or fund sales and market
appreciation. Fund sales have risen in response to marketing efforts,
favorable fund performance and the current popularity of no-load mutual funds.
Market appreciation has resulted from increases in stock investment values.
However, a decline in stock and bond markets and/or an increase in the rate of
return of alternative investments could negatively impact Janus revenues and
operating income. In addition, the mutual fund market, in general, faces
increasing competition as the number of mutual funds continues to increase,
marketing and distribution channels become more creative and complex, and
investors place greater emphasis on published fund recommendations and
investment category rankings. These factors could also affect Janus and
negative impact revenues and operating income. Operating expenses are
expected to increase as assets and service requirements grow.
Janus, its subsidiaries and the funds it manages are subject to a variety of
regulatory requirements including, but not limited to, the Securities and
Exchange Commission, individual state Blue Sky laws, the National Association
of Securities Dealers and various other state regulatory agencies. Janus
management does not foresee that compliance with these various requirements
will have a material impact upon operations.
Eliminations, Corporate & Other
This industry segment is comprised of passive investments, and the general
administrative and corporate operations of the Registrant.
21
Item 2. Properties
Transportation Services
KCSR owns and operates approximately 1,633 miles of main and branch lines and
approximately 752 miles of other tracks. In addition, approximately 79 miles
of main and branch lines and 88 miles of other tracks are operated by KCSR
under trackage rights and leases. Through the acquisition of MidSouth, an
additional 1,100 track miles were added, primarily in the states of Louisiana,
Mississippi and Alabama. MidSouth has no material classification yards or
other building facilities.
Kansas City Terminal Railway Company, of which KCSR is a one-twelfth owner,
with other railroads, owns and operates approximately 80 miles of track, and
operates an additional 8 miles of track under trackage rights in greater
Kansas City, Missouri. KCSR also leases for operating purposes certain short
sections of trackage owned by various other railroad companies and jointly
owns certain other facilities with such railroads.
KCSR also owns and operates repair shops, depots and office buildings along
its right-of-way in support of its transportation operations. A major
facility, Deramus Yard, is located in Shreveport, Louisiana and includes a
general office building, locomotive repair shop, car repair shops, material
warehouses and fueling facilities totalling approximately 210,000 square feet.
KCSR and Registrant executive offices are located in an eight story office
building in Kansas City, Missouri and are leased from a subsidiary of the
Registrant.
At December 31, 1993, KCSR's fleet of rolling stock consisted of 255 diesel
locomotives, of which six were leased from non-affiliates; 7,179 freight cars,
of which 1,828 were leased from non-affiliates; and 1,982 tractors, trucks and
trailers, of which 1,961 were leased from non-affiliates. At December 31,
1993, MidSouth's fleet of rolling stock consisted of 110 diesel locomotives,
none of which were leased from non-affiliates; 7,734 freight cars, of which
6,776 were leased from non-affiliates. Some of this equipment is subject to
liens created under conditional sales agreements, equipment trust certificates
and capitalized leases in connection with the original purchase or lease of
such equipment.
Maintenance expenses for Way and Structure and Equipment (pursuant to ICC
accounting rules, which include depreciation) for the three years ended
December 31, 1993 and as a percent of KCSR revenues are as follows (dollars in
millions):
KCSR Maintenance
Way and Structure Equipment
Percent of Percent of
Amount Revenue Amount Revenue
1993 $64.4 18.6% $54.5 15.8%
1992 62.6 18.7 59.8 17.8
1991 62.2 19.3 52.7 16.4
Trans-Serve, Inc. operates a railroad wood tie treating plant in Vivian,
Louisiana under an industrial revenue bond lease arrangement with an option to
purchase. This facility contains buildings totaling approximately 12,000
square feet. Carland, Inc. leases approximately 1,400 square feet of office
facilities in downtown Kansas City, Missouri from DST Realty, Inc. a wholly-
owned subsidiary of DST. Pabtex, Inc. owns a 70 acre coal and petroleum coke
22
bulk handling facility at Port Arthur, Texas. Southern Leasing leases 2,800
square feet of office space in downtown Kansas City, Missouri, from DST
Realty, Inc., a wholly-owned subsidiary of DST.
Mid-South Microwave, Inc. owns and operates a microwave system, which extends
essentially along the right-of-way of KCSR from Kansas City, Missouri to
Dallas, Beaumont-Port Arthur, Texas and New Orleans, Louisiana. This system
is leased to KCSR.
Other subsidiaries of the Registrant own approximately 8,000 acres of land at
various points adjacent to the KCSR right-of-way. Other properties also
include a 354,000 square foot warehouse at Shreveport, Louisiana, a bulk
handling facility at Port Arthur, Texas, and several former railway buildings
now being rented to non-affiliated companies, primarily as warehouse space.
At December 31, 1993, the Registrant owns 1,025 acres of property located on
the waterfront in the Port Arthur, Texas area, which includes 22,000 linear
feet of deep water frontage and three docks. Port Arthur is an uncongested
port with direct access to the Gulf of Mexico. Approximately 75% of this
property is available for development.
Information & Transaction Processing
DST Systems, Inc.
DST owns an 82,000 square foot Data Center, located in Kansas City, commonly
known as its Winchester Data Center, which commenced operations in 1985. This
facility is located on 13 acres of land within an overall 25 acre tract of
land owned by DST.
DST master-leases three downtown Kansas City office buildings consisting of
approximately 353,000 square feet in which DST or its affiliates occupy
approximately 330,000 square feet and the balance is leased to non-affiliated
tenants. This space is utilized by DST for its shareholder operations,
systems development and other support functions.
DST and its wholly-owned subsidiary, DST Realty, Inc., own six buildings in
Kansas City, Missouri, with approximately 413,000 square feet. DST utilizes
117,000 square feet in these buildings for its portfolio, laser printing and
mailing operations, and leases 47,000 square feet to Argus Health Systems for
its systems development, administrative and other support operations, 81,000
square feet are leased to Midland Data Systems and Midland Loan Services. In
first quarter 1994, Argus purchased the building it had leased from DST. The
balance of 168,000 square feet is available for business expansion needs.
Output Technologies Central Region, Inc. (formerly United Micrographics
Systems, Inc.), a 100% owned DST subsidiary, leases 97,000 square feet in
several buildings representing its primary operating facilities in Kansas City
and St. Louis, Missouri, along with remote locations throughout the Midwestern
United States.
Output Technologies Eastern Region, Inc. (formerly Mail Processing Systems,
Inc.), a 100% owned DST subsidiary, leases 156,000 square feet of production,
warehouse and office space facilities in East Hartford, Connecticut and
Braintree, Massachusetts. Additionally, a 20,000 square foot facility in New
York, New York was leased in 1993.
In addition to the previously discussed office space, DST Realty, Inc. also
owns six parking facilities in downtown Kansas City, Missouri having 1,670
parking spaces which are rented by the Registrant's and affiliates' employees,
and the public. A 100% owned subsidiary of DST, Winchester Business Center,
Inc., owns and operates an underground storage and office facility
encompassing a total of 550,000 square feet. 191,000 square feet of this
23
facility is leased to another DST subsidiary with the remaining space occupied
by unaffiliated tenants or as yet unfinished space.
At December 31, 1993, DST owned or leased mainframe computers which are
capable of processing approximately 1.3 billion instructions per second. DST
presently uses a substantial portion of the capacity of these mainframes. In
addition, DST owns significant amounts of auxiliary computer support equipment
such as disk and tape drives, CRT terminals, etc., all of which are necessary
for its computer and communications operations.
Financial Asset Management
Janus Capital Corporation
Janus leases 140,000 square feet of office space in two facilities from non-
affiliated companies for its administrative and shareowner processing
departments. In addition, in October, 1993, Janus leased approximately 34,000
square feet from a non-affiliated entity for its mail processing and storage
requirements. Its corporate offices are located in Denver, Colorado.
Corporate & Other
The Registrant and DST are a combined 80% owner of Wyandotte Garage
Corporation, a parking facility in downtown Kansas City, Missouri. The
facility is located adjacent to the Registrant's and KCSR's headquarters
building, and consists of 1,147 parking spaces which are utilized by the
Registrant's and affiliates' employees and the public.
Unconsolidated Affiliates, primarily DST related
DST's 50% joint venture, Boston Financial Data Services, Inc., leases and
occupies a 186,000 square foot office building in Quincy, Massachusetts.
Additionally, DST's 50% joint venture, Investors Fiduciary Trust Co. leases
and occupies a total of 86,000 square feet in a downtown Kansas City office
building.
DST formed Winchester Ventures II, for the purpose of acquiring land and
subsurface areas near DST's Data Center. To date, twelve acres adjacent to
the Data Center have been purchased for resale or development. Additionally,
DST is a 50% joint venture partner of a 260,000 square foot downtown Kansas
City, Missouri office building which is both leased by DST, affiliates and
non-affiliates, and houses DST's corporate headquarters.
The Continuum Company, approximately 29% owned by DST, occupies and owns a
building of 186,000 square feet located in Austin, Texas, which is used for
product development and administration. Continuum leases an additional 35,000
square feet of office in Austin, approximately 100,000 at several locations in
Australia, and another approximately 100,000 square feet for various
administrative premises in Europe. The Continuum Company, through Vantage
(formerly 90.5% owned by DST) also leases 35,000 and 53,000 square feet of
office space in Weatherfield, Connecticut and Kansas City, Missouri,
respectively.
24
Item 3. Legal Proceedings
SWEPCO Litigation. The Registrant's wholly-owned subsidiary, The Kansas City
Southern Railway Company ("KCSR") is a defendant in a lawsuit filed in the
District Court of Bowie County, Texas by Southwestern Electric Power Company
("SWEPCO"). SWEPCO has alleged that KCSR is required to reduce SWEPCO's coal
transportation rate due to changed circumstances that allegedly create a
"gross inequity" under the provisions of the existing coal transportation
contract among SWEPCO, KCSR and the Burlington-Northern Railroad. SWEPCO is
the largest single customer of KCSR. Although the suit is pending, KCSR and
SWEPCO are negotiating an agreement to settle the major issues which are the
subject of this litigation. Management is confident that the matter will be
concluded without material adverse effect on the financial condition or future
results of operation of KCSR.
Environmental Matters. KCSR is a participant in certain federal and state
environmental matters as follows:
In the Ilada Superfund Site East Cape Girardeau, Ill., KCSR was cited for
furnishing one carload of used oil to this petroleum recycling facility.
Counsel advises that KCSR's liability, if any, should fall within the "de
minimus" provisions of the Superfund law, representing minimal exposure.
In Petroleum Products Corp. Hollywood, Fla., also a Superfund case, KCSR was
cited, as a transporter only, in hauling two carloads of material in
interchange from Princeton, Louisiana to New Orleans. KCSR was removed from
the list of Potentially Responsible Parties during 1993 and is no longer
involved in this proceeding.
Louisiana Department of Environmental Quality, Docket No. IE-0-91-0001, is a
proceeding involving the alleged contamination of Capitol Lake, Baton Rouge,
Louisiana. This proceeding also names KCSR as a party due to its ownership of
part of the lake bottom. Potentially Responsible Parties remain to be named
in this proceeding. Studies commissioned by KCSR indicate that contaminants
contained in the lake were not generated by KCSR. Management and counsel do
not believe this proceeding will have a material effect on the Registrant.
Louisiana Department of Environmental Quality, Docket No. IAS 88-0001-A, The
Louisiana Department of Environmental Quality named KCSR in a state
environmental proceeding involving contaminated land near Bossier City,
Louisiana, which was the site of a wood preservative treatment plant (Lincoln
Creosoting). KCSR is a former owner of part of the land in question. This
matter was the subject of a trial in the United States District Court in
Shreveport, Louisiana which was concluded in July of 1993. The Court found
that Joslyn Manufacturing Company, an operator of the plant, is required to
indemnify KCSR for damages arising out of plant operations. (KCSR's potential
liability is as a property owner rather than as a generator or transporter of
contaminants.) The case has been appealed to the United States Court of
Appeals for the Fifth Circuit.
On January 18, 1994, the Environmental Protection Agency ("EPA") published a
list of potential sites that may be placed on the CERCLA national priority
list. The Lincoln Creosoting site was included. Since major remedial work
has been performed at this site by Joslyn and KCSR has been held by the
Federal Court to be entitled to indemnity for such costs, it would appear that
KCSR should not incur significant remedial liability. In any event, it is not
possible to meaningfully evaluate the potential consequences of remediation at
the site, since the EPA has made no announcement other than listing of the
Lincoln Creosoting site for "potential" inclusion on the national list.
Litigation Reserves. In the opinion of the Registrant, claims or lawsuits
incidental to the business of the Registrant and its subsidiaries have been
adequately provided for in the consolidated financial statements.
25
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the three month
period ended December 31, 1993.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in KCSI's Definitive Proxy Statement which will be filed no later
than 120 days after December 31, 1993.
Directors/Officers
L.H. Rowland, age 56, has continuously served as President and Chief Executive
Officer since January 1987. He has been employed by the Registrant since
1983, serving in numerous management positions and has served as a director of
the Registrant continuously since 1983.
T.A. McDonnell, age 48, has continuously served as Executive Vice President
since February 1987. He has served as a director of the Registrant
continuously since 1983 and has been Chief Executive Officer of DST since
1984.
G.W. Edwards, Jr. age 54, has continuously served as Executive Vice President
since April 1991. He has served as a director of the Registrant continuously
since May 1991. He has also served as President and Chief Executive Officer
of KCSR since April 1991. Prior to this, he served as Chairman of the Board
and Chief Executive Officer of the United Illuminating Company, New Haven,
Connecticut from 1985 to 1991.
Vice Presidents and Other Corporate Officers (In alphabetical order)
R.H. Bornemann, age 38, has continuously served as Vice President -
Governmental Affairs since July 1992. From 1987 to July 1992 he was employed
by United Illuminating Company, New Haven, Connecticut, serving most recently
as Vice President - Corporate Affairs.
P.S. Brown, age 57, has continuously served as Vice President and Assistant
General Counsel since July 1992. From 1981 to July 1992, he served as Vice
President - Governmental Affairs.
R.L. Brown II, age 49, has continuously served as Vice President and Assistant
Comptroller since January 1992. From October 1986 to January 1992, he served
as Vice President and Comptroller. He also serves as Senior Vice President -
Finance of KCSR.
R.P. Bruening, age 55, has continuously served as Vice President and General
Counsel since May 1982. He also serves as Senior Vice President and General
Counsel of KCSR.
D.R. Carpenter, age 47, has continuously served as Vice President - Tax
Counsel since June 1993. From 1978 to June 1993, he was a partner in the law
firm of Watson, Ess, Marshall & Enggas, Kansas City, Missouri.
R.W. Comstock, age 63, has continuously served as Vice President -
Administration since April 1992. From 1986 to April 1992, he served as Senior
Vice President - Corporate Affairs with United Illuminating Company, New
Haven, Connecticut. He also serves as Senior Vice President - Administration
of KCSR.
J.B. Dehner, age 48, has continuously served as Vice President since December
1989. From November 1987 to December 1989, he served as Assistant to the
26
President. Prior to November 1987, he was Executive Vice President of
Southern Group, Inc. and a principal officer of several other KCSI
subsidiaries. He also serves as Executive Vice President and Chief Operating
Officer of KCSR.
A.P. McCarthy, age 47, has continuously served as Treasurer since December
1989. From 1984 to December 1989, he served as Assistant Treasurer.
A.P. Mauro, age 64, has continuously served as Vice President and Corporate
Secretary since August 1985.
J.D. Monello, age 49, has continuously served as Vice President-Finance since
October 1992. From January 1992 to October 1992, he served as Vice President
- - Finance and Comptroller. From May 1989 to January 1992 he served as Vice
President and Assistant Comptroller. From October 1986 to May 1989, he served
as Assistant Comptroller.
H.H. Salisbury, age 68, has continuously served as Vice President - Public
Affairs since May, 1986.
L.G. Van Horn, age 35, has continuously served as Comptroller since October
1992. From January 1992 to October 1992 he served as Assistant Comptroller.
From January 1989 to January 1992 he served as Manager - Financial Reporting.
From April 1988 to January 1989 he served as Supervisor - Internal Audit.
None of the above officers are related to one another by family.
27
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
See information on pages i and ii of this Form 10-K. Also, pages 68 and 69 of
KCSI's 1993 Annual Report to Stockholders (Exhibit 13.1 hereto) are hereby
incorporated herein by reference.*
The Registrant's Board of Directors authorized an 11% increase in its Common
stock dividend in January 1992. The dividend will be reviewed annually and
adjustments considered that are consistent with growth in real earnings and
prevailing business conditions. Unrestricted retained earnings of the
Registrant at December 31, 1993 were $97.2 million.
At December 31, 1993, there were 3,386 holders of the Registrant's Common
stock based upon an accumulation of the registered stockholder listing.
Item 6. Selected Financial Data
(In millions, except per share and ratio data)
1993 1992 1991 1990 1989
Operating Revenue $961.1 $741.4 $610.2 $528.0 $498.3
Income from continuing
operations $97.0 $63.8 $45.7 $41.4 $37.1
Income from continuing
operations per
Common share $2.16 $1.43 $1.08 $.99 $.89
Total assets $1,917.0 $1,248.4 $1,091.9 $1,034.0 $964.9
Long-term
obligations $776.2 $387.0 $317.1 $344.9 $282.8
Cash dividends per
Common share $.30 $.30 $.27 $.27 $.27
Ratio of earnings to fixed charges (Exhibit 12.1 hereto)
Excluding interest on
deposits of IFTC 3.68 3.40 2.88 2.58 2.55
Including interest on
deposits of IFTC 3.43 2.98 2.44 2.23 2.32
Above amounts reflect the 2-for-1 Common stock split to shareholders of record
on February 19, 1993, payable March 17, 1993 and the 2-for-1 Common stock
split to shareholders of record on February 14, 1992, payable March 17, 1992.
See information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 30 through 45 of
KCSI's 1993 Annual Report to Stockholders (Exhibit 13.1 hereto) which are
hereby incorporated herein by reference.*
____________________________
* Incorporated by reference pursuant to Rule 12b-23 and General Instruction
G(2) to Form 10-K
28
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 30 through 45 of
KCSI's 1993 Annual Report to Stockholders (Exhibit 13.1 hereto) which is
hereby incorporated herein by reference.*
A listing of explanations of graphics used in the Managements' Discussion and
Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1993, (Exhibit 99.2 hereto), which is hereby incorporated herein
by reference.*
Item 8. Financial Statements and Supplementary Data
The report of the independent accountants, the audited consolidated financial
statements and the unaudited quarterly financial data appear on pages 46
through 70 of KCSI's 1993 Annual Report to Stockholders (Exhibit 13.1 hereto)
and are hereby incorporated herein by reference.*
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
____________________________
* Incorporated by reference pursuant to Rule 12b-23 and General
Instruction G(2) to Form 10-K
29
Part III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors of the Registrant
See "Election of Directors" in the Registrant's Definitive Proxy Statement,
incorporated herein by reference.**
(b) Executive Officers of the Registrant
Included under Part I pages 26 and 27.
Item 11. Executive Compensation
See "Management Compensation" in the Registrant's Definitive Proxy Statement,
incorporated herein by reference.**
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) See "Principal Stockholders" in the Registrant's Definitive Proxy
Statement, incorporated herein by reference.**
(b) See "Election of Directors" in the Registrant's Definitive Proxy
Statement, incorporated herein by reference.**
Item 13. Certain Relationships and Related Transactions
See "Certain Transactions" in the Registrant's Definitive Proxy Statement,
incorporated herein by reference.**
_________ ___________________
**Incorporated by reference pursuant to Rule 12b-23 and General Instruction
G(3) to Form 10-K. KCSI's Definitive 1993 Proxy Statement will be filed no
later than 120 days after December 31, 1993
30
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of Documents filed as part of this Report
(1) Financial Statements
The financial statements and related notes, together with the report of Price
Waterhouse dated February 24, 1994, which appear on pages 46 through 70 of the
accompanying 1993 Annual Report to Stockholders (Exhibit 13.1), are hereby
incorporated herein by reference*. With the exception of the information
explicitly incorporated by reference in this Form 10-K, the 1993 Annual Report
to Stockholders is not to be deemed filed as a part of this Form 10-K.
The following additional financial statement schedules should be read in
conjunction with the financial statements in such 1993 Annual Report to
Stockholders. Schedules and exhibits for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission not
included with these additional financial statement schedules have been omitted
because they are not applicable, insignificant or the required information is
shown in the financial statements or notes thereto.
(2) Financial Statement Schedules
Supplementary Financial Information
Page
Report of independent accountants on financial statement F-1 thru
schedules and consents of independent accountants F-2
Schedule V
Property, plant and equipment - Years ended
December 31, 1993, 1992 and 1991 F-3
Schedule VI
Accumulated depreciation and amortization of
property, plant and equipment - Years ended
December 31, 1993, 1992 and 1991 F-4
Schedule X
Supplementary income statement information -
Years ended December 31, 1993, 1992 and 1991 F-5
The financial statements and related notes, together with the report of Ernst
& Young dated January 12, 1994, of Investors Fiduciary Trust Company (a 50%
owned affiliate of DST Systems, Inc., a 100% owned subsidiary of the
Registrant and accounted for using the equity method) for the year ended
December 31, 1993 (Exhibit 99.1) are hereby incorporated herein by reference*.
____________________________
* Incorporated by reference pursuant to Rule 12b-23 and General Instruction
G(2) to Form 10-K
31
(3) List of Exhibits
(3) Articles of Incorporation and Bylaws
Articles of Incorporation
- Exhibit 4*** to Registrant's Registration Statement on Form S-8,
Commission File No. 33-8880
- Certificate of Designation Establishing the New Series Preferred
Stock, Series A, of Registrant, dated May 16, 1986 which is detailed
as Exhibit A*** to Registrant's Report on Form 10-Q for the quarter
ended June 30, 1986, Commission File No. 1-4717
- Exhibit 4.1*** to Registrant's Current Report on Form 8-K dated
October 1, 1993 (Commission File No. 1-4717), Certificate of
Designation of Series B Convertible Preferred Stock
Bylaws
- Exhibit 3.1***, Registrant's By-Laws, as amended and restated
November 7, 1991, to Registrant's Form 10-K for the fiscal year ended
December 31, 1991, Commission File No. 1-4717
(4) Instruments Defining the Right of Security Holders, Including Indentures
- Exhibits incorporated by reference under Part IV Item 14 (a)(3)(3) of
this Form 10-K
- Item 5*** to Registrant's Current Report on Form 8-K dated December
8, 1992 (Commission File No. 1-4717), which is a brief description of
the $250 million Revolving Credit Agreement, dated December 8, 1992.
(9) Voting Trust Agreement
(Inapplicable)
(10) Material Contracts
- The Director Indemnification Agreement attached as Exhibit I*** to
Registrant's Form 10-K, for the fiscal year ended December 31, 1987,
Commission File No. 1-4717 and Exhibit B*** to Registrant's Proxy
Statement for 1987 Annual Stockholder Meeting, dated April 6, 1987
- The Deferred Directors Fee Plan attached as Exhibit 10*** to DST's
Form 10-K, for the fiscal year ended December 31, 1986, Commission
File No. 2-81678
- The Kansas City Southern Railway 1987 Restricted Stock Plan, attached
as Exhibit C*** to Registrant's Form 10-K, for the fiscal year ended
December 31, 1987, Commission File No. 1-4717
- The Indenture, dated July 1, 1992, to (i) a $300 million Shelf
Registration of Debt Securities attached as Exhibit 4*** to
Registrant's Form S-3 Commission File No. 33-47198, filed June 19,
____________________________
*** Incorporated by reference pursuant to Rule 12b-32
32
1992 (ii) a $200 million Medium Term Notes Registration of Debt
Securities, attached as Exhibit 4(a)*** to Registrant's Form S-3
Commission File No. 33-60192, filed March 29, 1993
- The Rights Agreement, dated May 16, 1986 attached as Exhibit 1*** to
Registrant's Registration Statement on Form 8-A , dated May 17, 1986,
Commission File No. 1-4717
- The 1978 Employee Stock Option Plan as amended attached as Exhibit
D*** to Registrant's Form 10-K, for the fiscal year ended December
31, 1987, Commission File No. 1-4717
- The 1983 Employee Stock Option Plan as amended attached as Exhibit
E*** to Registrant's Form 10-K, for the fiscal year ended December
31, 1987, Commission File No. 1-4717
- The 1987 Employee Stock Option Plan as amended attached as Exhibit
F*** to Registrant's Form 10-K, for the fiscal year ended December
31, 1987, Commission File No. 1-4717
- The Employment Continuation Agreements - KCSI and subsidiaries
attached as Exhibit G*** to Registrant's Form 10-K, for the fiscal
year ended December 31, 1987, Commission File No. 1-4717 extended to
February 19, 1993
- The Officer Indemnification Agreement attached as Exhibit H*** to
Registrant's Form 10-K, for the fiscal year ended December 31, 1987,
Commission File No. 1-4717
- The DST ESOP Loan Agreement, dated December 18, 1987, and Amendment
No. 1, dated February 3, 1988, attached as Exhibit J*** to
Registrant's Form 10-K, for the fiscal year ended December 31, 1987,
Commission File No. 1-4717
- The DST Guarantee Agreement, dated December 18, 1987, and
Ratification and Amendment of Guarantee, dated February 3, 1988,
attached as Exhibit K*** to Registrant's Form 10-K, for the fiscal
year ended December 31, 1987, Commission File No. 1-4717
- The KCSI ESOP Loan Agreement, dated February 3, 1988, attached as
Exhibit L*** to Registrant's Form 10-K, for the fiscal year ended
December 31, 1987, Commission File No. 1-4717
- The KCSI Guarantee Agreement, dated February 3, 1988, attached as
Exhibit M*** to Registrant's Form 10-K, for the fiscal year ended
December 31, 1987, Commission File No. 1-4717
- The KCSI Directors' Deferred Fee Plan and Amendment to KCSI
Directors' Fee Plan attached as Exhibit N*** to Registrant's Form 10-
K, for the fiscal year ended December 31, 1987, Commission File No.
1-4717
- The Kansas City Southern Railway Company Directors' Deferred Fee Plan
and Amendment to Kansas City Southern Railway Company Directors'
Deferred Fee Plan attached as Exhibit O*** to Registrant's Form 10-K,
for the fiscal year ended December 31, 1987, Commission File No. 1-
4717
_____________________________
*** Incorporated by reference pursuant to Rule 12b-32
33
- Exhibit 10.1*** Employee Stock Ownership Plan and Trust Note
Agreement dated December 1, 1989 to Registrant's Form 10-K, for the
fiscal year ended December 31, 1989, Commission File No. 1-4717
- Exhibit 10.3*** Employment Continuation Agreement, dated, May 5,
1987, between T.A. McDonnell and DST Systems, Inc. to Registrant's
Form 10-K, for the fiscal year ended December 31, 1990, Commission
File No. 1-4717
- Exhibit 10.4*** Description of the Registrant's 1991 incentive
compensation plan to Registrant's Form 10-K, for the fiscal year
ended December 31, 1990, Commission File No. 1-4717
- Exhibit 10.1*** The Registrant's 1991 Stock Option and Performance
Award Plan to Registrant's Form 10-K, for fiscal year ended December
31, 1991, Commission File No. 1-4717
- Exhibit 10.2*** The Registrant's Directors Deferred Fee Plan, adopted
August 20, 1982, amended and restated September 13, 1991, to
Registrant's Form 10-K, for fiscal year ended December 31, 1991,
Commission File No. 1-4717
- The Agreement and Plan of Merger dated September 19, 1992, among the
Registrant, K&M Newco, Inc. (a wholly-owned subsidiary of the
Registrant) and MidSouth Corporation as Exhibit 2*** to Registrant's
Form 8-K dated September 19, 1992, Commission File No. 1-4717; and
letter agreement dated August 4, 1992, between Registrant and
MidSouth Corporation setting forth confidentiality and standstill
agreements; letter dated September 24, 1992 modifying the Agreement
and Plan of Merger dated September 19, 1992 and letter agreement
dated August 4, 1992 as Exhibits 28.1*** and 28.2 *** respectively to
Registrant's Form 8, dated September 28, 1992, Commission File No. 1-
4717. Third Amendment dated March 30, 1993 to the confidentiality
letter dated August 4, 1992 as Exhibit 28.1*** to Registrant's Form
8-K, dated March 30, 1993, Commission File No. 1-4717.
- Exhibit 10.1*** Employment Agreement, dated January 1, 1992, as
amended and restated March 18, 1993, by and between Kansas City
Southern Industries, Inc., and Landon H. Rowland to the Registrant's
Form 10-K, for fiscal year ended December 31, 1992, Commission File
No. 1-4717.
- Exhibit 10.2*** Employment Agreement, dated January 1, 1992, as
amended and restated March 18, 1993, by and between Kansas City
Southern Industries, Inc., The Kansas City Southern Railway Company
and George W. Edwards, Jr. to the Registrant's Form 10-K, for fiscal
year ended December 31, 1992, Commission File No. 1-4717.
- Exhibit 10.3*** Employment Agreement, dated January 1, 1992, as
amended and restated March 18, 1993, by and between Kansas City
Southern Industries, DST Systems, Inc. and Thomas A. McDonnell to the
Registrant's Form 10-K, for fiscal year ended December 31, 1992,
Commission File No. 1-4717.
- Exhibit 10.4*** Employment Agreement, dated April 1, 1992, by and
between Kansas City Southern Industries, Inc. and Roland W. Comstock
to the Registrant's Form 10-K, for fiscal year ended December 31,
1992, Commission File No. 1-4717.
- Exhibit 10.1 attached to this Form 10-K
_____________________________
*** Incorporated by reference pursuant to Rule 12b-32#
34
(11) Statement Re Computation of Per Share Earnings
(Inapplicable)
(12) Statements Re Computation of Ratios
Exhibit 12.1 attached to this Form 10-K
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to
Security Holders
- Exhibit 13.1 attached to this Form 10-K
(16) Letter Re Change in Certifying Accountant
(Inapplicable)
(18) Letter Re Change in Accounting Principles
(Inapplicable)
(21) Subsidiaries of the Registrant
- Exhibit 21.1 attached to this Form 10-K
(22) Published Report Regarding Matters Submitted to Vote of Security Holders
(Inapplicable)
(23) Consents of Experts and Counsel
Page F-1 and F-2 to this Form 10-K
(24) Power of Attorney
(Inapplicable)
(27) Financial Data Schedules
(Inapplicable)
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities
(Inapplicable)
(99) Additional Exhibits
- The financial statements and related notes, together with the report
of Ernst & Young dated January 12, 1994, of Investors Fiduciary Trust
Company as listed under Item 14(a)2, for the year ended December 31,
1993 attached hereto as Exhibit 99.1
- A listing of explanations of graphics used in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 1993, attached hereto as
Exhibit 99.2
(b) Reports on Form 8-K
The Registrant filed a Form 8-K dated October 1, 1993 under Items 5 and 7,
reporting (a) the establishment of the KCSI Employee Plan Funding Trust and
transfer of KCSI Series B Convertible Preferred Stock and (b) completion of
the Vantage Computer Systems, Inc. merger into a wholly-owned subsidiary of
The Continuum Company, Inc.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Kansas City Southern Industries, Inc.
March 18, 1994 By: /s/L.H. Rowland
L.H. Rowland, President,
Chief Executive Officer
and Director
36
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 18, 1994.
Signature Capacity
/s/P.H. Henson Chairman and Director
P.H. Henson
/s/L.H. Rowland President, Chief Executive
L.H. Rowland Officer and Director
/s/G.W. Edwards Jr. Executive Vice President
G.W. Edwards Jr. and Director
/s/T.A. McDonnell Executive Vice President
T.A. McDonnell and Director
/s/J.D. Monello Vice President-Finance
J.D. Monello (Principal Financial Officer)
/s/L.G. Van Horn Comptroller
L.G. Van Horn (Principal Accounting Officer)
/s/A.E. Allinson Director
A.E. Allinson
/s/P.F. Balser Director
P.F. Balser
/s/J.E. Barnes Director
J.E. Barnes
/s/T.S. Carter Director
T.S. Carter
/s/M.G. Fitt Director
M.G. Fitt
/s/M.M. Levin Director
M.M. Levin
/s/M.I. Sosland Director
M.I. Sosland
37
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Kansas City Southern Industries, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 24, 1994, appearing on page 70 of the 1993 Annual Report to
Stockholders of Kansas City Southern Industries, Inc. (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement
Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ Price Waterhouse
PRICE WATERHOUSE
Kansas City, Missouri
February 24, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-69060, 33-50517, 33-50519), and in the
Prospectuses constituting part of the Registration Statements on Form S-3 (No.
33-60192, 33-69648) of Kansas City Southern Industries, Inc. of our report
dated February 24, 1994, appearing on page 70 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedules, which appears above.
/s/ Price Waterhouse
PRICE WATERHOUSE
Kansas City, Missouri
March 18, 1994
F-1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements on
Form S-8 and Form S-3 of Kansas City Southern Industries, Inc. and the related
Prospectuses of our report dated January 12, 1994, with respect to the
financial statements of Investors Fiduciary Trust Company included at page 1
of Exhibit 99.1 in this Annual Report on Form 10-K for the year ended
December 31, 1993.
/s/ Ernst & Young
ERNST & YOUNG
Kansas City, Missouri
March 18, 1994
F-2
KANSAS CITY SOUTHERN INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(Dollars in Millions)
Balance at Balance at
beginning Additions end of
of period at cost Retirements period
Year ended
December 31, 1993
DST $ 208.1 $ 69.0 $ 14.3 $ 262.8
Janus 12.8 9.2 .3 21.7
Corporate & Other 9.7 .4 .7 9.4
Transportation -
Road 684.0 411.6 20.3 1,075.3
Equipment 338.4 26.9 9.7 355.6
Land and Facilities 59.0 9.3 1.1 67.2
$1,312.0 $ 526.4 $ 46.4 $1,792.0
Year ended
December 31, 1992
DST $ 155.6 $ 56.5 $ 4.0 $ 208.1
Janus 2.8 10.0 -- 12.8
Corporate & Other 9.6 .1 -- 9.7
Transportation -
Road 650.1 52.7 18.8 684.0
Equipment 340.0 47.3 48.9 338.4
Land and Facilities 51.8 7.5 .3 59.0
$1,209.9 $ 174.1 $ 72.0 $1,312.0
Year ended
December 31, 1991
DST $ 127.7 $ 31.1 $ 3.2 $ 155.6
Janus 1.3 1.6 .1 2.8
Corporate & Other 9.5 .1 -- 9.6
Transportation -
Road 646.3 39.7 35.9 650.1
Equipment 309.4 41.2 10.6 340.0
Land and Facilities 51.6 10.6 10.4 51.8
$1,145.8 $ 124.3 $ 60.2 $1,209.9
F-3
KANSAS CITY SOUTHERN INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(Dollars in Millions)
Additions
Balance at charged to Balance
beginning costs and at end
of period expenses Retirements of period
Year ended
December 31, 1993
DST $ 98.9 $35.4 $ 5.8 $128.5
Janus 3.0 4.3 .1 7.2
Corporate & Other 3.9 .6 -- 4.5
Transportation -
Road 251.6 26.7 14.1 264.2
Equipment 168.0 14.5 7.7 174.8
Land and Facilities 18.4 2.4 .6 20.2
$543.8 $83.9 $ 28.3 $599.4
Year ended
December 31, 1992
DST $ 78.4 $23.9 $ 3.4 $ 98.9
Janus .9 2.1 -- 3.0
Corporate & Other 3.4 .5 -- 3.9
Transportation -
Road 244.0 21.7 14.1 251.6
Equipment 200.6 12.0 44.6 168.0
Land and Facilities 16.4 2.2 .2 18.4
$543.7 $62.4 $ 62.3 $543.8
Year ended
December 31, 1991
DST $ 60.4 $20.3 $ 2.3 $ 78.4
Janus .6 .4 .1 .9
Corporate & Other 2.8 .7 .1 3.4
Transportation -
Road 252.3 23.6 31.9 244.0
Equipment 195.4 10.8 5.6 200.6
Land and Facilities 24.9 1.7 10.2 16.4
$536.4 $57.5 $ 50.2 $543.7
F-4
KANSAS CITY SOUTHERN INDUSTRIES, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in Millions)
Charged to Costs and Expenses
Years Ended December 31,
1993 1992 1991
Property maintenance and
repair expenses:
DST and Corporate & Other $ 16.9 $ 8.4 $ 9.5
Transportation Services -
Road properties 42.7 41.9 38.6
Equipment 27.1 28.9 25.1
$ 86.7 $79.2 $73.2
Depreciation and amortization of
intangible assets, preoperating
costs and similar deferrals:
DST and Corporate & Other $ 8.8 $ 5.9 $ 4.3
Transportation Services 2.8 - -
$ 11.6 $ 5.9 $ 4.3
F-5
KANSAS CITY SOUTHERN INDUSTRIES, INC.
1993 FORM 10-K ANNUAL REPORT
INDEX TO EXHIBITS
Regulation SK
Exhibit Item 14(a)(3)
No. Document Exhibit No.
10.1 Employment Agreement, dated July 15, 1993, 10
by and between Kansas City Southern
Industries, Inc. and Mark M. Levin
12.1 Ratio of Earnings to Fixed Charges 12
13.1 1993 Annual Report to Stockholders 13
21.1 Subsidiaries of the Registrant 21
99.1 The financial statements and related notes, together99
with the report of Ernst & Young dated January 12,
1994 of Investors Fiduciary Trust Company for the year
ended December 31, 1993
99.2 Listing of explanations of graphics used in 99
Management's Discussion and Analysis of Financial
Condition and Results of Operations