MBA Competititve Strategy Powerpoint


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  • MBA Competititve Strategy Powerpoint

    1. 1. Tobi Rubin Jamie Andes Shawn Wilkinson Mike Hobick
    2. 2. Company & Industry <ul><li>Tobi Rubin </li></ul>
    3. 3. Products & Services <ul><li>Kansas City Southern (KCS) principally operates in rail transportation industry. </li></ul><ul><li>Revenues and cash flows generated by providing customers w/freight delivery services. </li></ul><ul><li>Customers do business in electric-generating utilities, chemical and petroleum products, forest products and metals, agriculture and mineral products, automotive products, and intermodal traffic industries. </li></ul><ul><li>Kansas City Southern Railway (KCSR) , is chief subsidiary, owning and operating rail track in 10 state region in midwest & southern parts of U.S. </li></ul><ul><ul><li>Has the shortest north/south rail route b/w KCMO and key ports along Gulf of Mexico. </li></ul></ul><ul><li>KCS offers rail freight service in Mexico through its controlling stake in Transportación Ferroviaria Mexicana (TFM), one of Mexico's main railroads. </li></ul><ul><li>TFM serves three major ports in Mexico, as well as 15 Mexican states and Mexico City. </li></ul><ul><li>Also controls Texas Mexican Railway, which connects the KCSR and TFM systems. </li></ul>
    4. 4. Products & Services <ul><li>KCS rail network is further expanded through marketing agreements with other railroads. </li></ul><ul><ul><li>This extends KCS routes and enables arrangements to be made to have customer freight carried throughout Canada, Mexico, and the US. </li></ul></ul><ul><li>KCS also holds 50% interest in the Panama Canal Railway. </li></ul><ul><ul><li>Provides passenger and freight transport over a 47-mile line between the Atlantic and Pacific oceans. </li></ul></ul>
    5. 6. History of Company <ul><li>Arthur Edward Stilwell founded KCSR in 1887 to transport commodities for local meatpackers and granaries. </li></ul><ul><li>1939 - KCSR bought the Louisiana and Arkansas Railways to extend its lines to New Orleans and Dallas. </li></ul><ul><li>1944 - William Deramus is appointed president. With his leadership and a new operating strategy, KCSR focuses on expanding business into territories experiencing a post-WWII industrial boom. </li></ul><ul><li>1950s – KCSR develops a computerized data-processing system for its businesses. </li></ul>
    6. 7. History <ul><li>1961 - Kansas City Southern Industries (KCSI) was incorporated as a holding company in order to diversify due to growing competition from airlines and the trucking industry. </li></ul><ul><li>As data-processing and information management needs increased, KCSI capitalized on its early data-processing experience by forming DST Systems. </li></ul><ul><li>1980s - Growth occurs due to an increase in coal transport and freight traffic. </li></ul><ul><li>1983 - KCSI bought majority stake in Janus Capital, a Denver-based mutual funds company. </li></ul><ul><li>1997 - Kansas City Southern Lines formed as a holding company for the transportation segments. </li></ul><ul><ul><li>Streamlines the corporate structure and refocuses on core businesses. </li></ul></ul>
    7. 8. History <ul><li>1999 - KSCI announces they will expand financial services businesses to shareholders as a new company, Stilwell Financial. </li></ul><ul><li>KCSI completed reconstruction of the Panama Canal Railway in 2001 and reopened the railroad for freight and passenger transport. </li></ul><ul><li>2002 - KCSI shortened its name to Kansas City Southern (KCS) to reflect its renewed focus on transportation. </li></ul><ul><li>2005 - KCS completes its purchase of its stake in TFM (one of Mexico’s main railroads). </li></ul><ul><li>As a result of the transactions, KCS controls three railroads -- KCSR, Texas Mexican Railway, and TFM -- that directly connect the midwestern US with Mexico. </li></ul>
    8. 9. Industry & Competition <ul><li>Railroad Freight Industry: </li></ul><ul><li>U.S. railroad companies divided into 3 types: </li></ul><ul><li>Class I Class II (Regional) Class III (Local) </li></ul><ul><li>There are 7 Class I railroad currently. </li></ul><ul><li>Can be further divided by eastern or western classification. </li></ul><ul><li>KCSR is Class I, western. </li></ul><ul><li>Industry regulated by the STB, Surface Transportation Board. </li></ul><ul><li>Mission is to ensure competitive, efficient and safe transportation. </li></ul><ul><li>Adjudicates matters such as railroad rate and services issues, restructuring transactions and labor matters. </li></ul>
    9. 10. Industry & Competition <ul><li>Competition: </li></ul><ul><li>Competes against other freight railroads. </li></ul><ul><li>Railroad industry dominated by a few “mega-carriers.” </li></ul><ul><li>Larger western players are Burlington Northern Sante Fe and Union Pacific. </li></ul><ul><li>Also competes against motor carriers, barge lines, and other maritime shipping freight, which compete across certain routes in operating areas. </li></ul>
    10. 11. Stock Price History <ul><li>1 year: </li></ul><ul><li>1/1/05 began operating Mexrail (Tex Mex) </li></ul><ul><li>4/1/05 KCS gained control of TFM </li></ul><ul><li>Port of Balboa Expansion completed 11/04 </li></ul>
    11. 12. Stock Price History <ul><li>5 year: </li></ul><ul><li>1999 KCS announced plans to spin off Stillwell Financial Services. </li></ul><ul><li>2001 Completes reconstruction of Panama Canal Railway. </li></ul><ul><li>2002 KCS increases its stake in Grupo by buying shares of it from Mexican Gov. </li></ul><ul><li>April 2005 KCS gained control of TFM. </li></ul>
    12. 13. Organizational Structure <ul><li>KCS remains a U.S. corporation, headquartered in Kansas City </li></ul><ul><ul><li>With 3 separate railroad companies that connect end to end and operate under integrated management </li></ul></ul><ul><ul><ul><ul><li>KCSR and Tex Mex are U.S. corporations </li></ul></ul></ul></ul><ul><ul><ul><ul><li>TFM is a Mexican corporation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The Panama Canal acts as the resource to the Americas </li></ul></ul></ul></ul>Kansas City Southern (KCS) Kansas City Southern Railway (KCSR) Texas Mexican Railway (Tex Mex) Panama Canal Railway Company (PCRC) TFM
    13. 14. External Influences <ul><li>Materially adverse changes in economic and industry conditions , within the U.S. and globally. </li></ul><ul><li>The affects of adverse general economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities carried. </li></ul><ul><li>Industry competition, conditions, performance and consolidation . </li></ul><ul><li>General legislative and regulatory developments ; including possible initiatives to re-regulate the rail industry. </li></ul><ul><li>Legislative, regulatory or legal developments involving taxation . </li></ul><ul><li>Changes in securities and capital markets . </li></ul><ul><li>Natural events such as severe weather, fire, earthquakes, floods and any other events which may disrupt operating systems, structures and equipment. </li></ul><ul><li>Any adverse economic or operational impact from terrorist activity and governmental response. </li></ul><ul><li>War or risk of war . </li></ul><ul><li>Changes in fuel prices . </li></ul>
    14. 15. Size Statistics <ul><li>Freight carried by KCSR million % </li></ul><ul><li>Forest products & metals 169.627 27 </li></ul><ul><li>Chemical & petroleum 135.021 21 </li></ul><ul><li>Agricultural & mineral 125.220 20 </li></ul><ul><li>Coal 92.114 14 </li></ul><ul><li>Intermodal & automotive 66.810 10 </li></ul><ul><li>Other rail-related 47.07 7 </li></ul><ul><li>Other 3.81 1 </li></ul><ul><li>Total 639.5100 100 </li></ul>
    15. 16. Size Statistics
    16. 17. Size Statistics <ul><li>General Description: </li></ul><ul><li>A Class I railroad with operations in 10 central and southeastern states. </li></ul><ul><li>Employees: </li></ul><ul><li>2004 - 2,680 in the KCS' U.S. subsidiaries. </li></ul><ul><li>Route Miles: </li></ul><ul><li>Approximately 3,100 </li></ul><ul><li>Revenues: </li></ul><ul><li>2004 - $635.7 million </li></ul><ul><li>2003 - $575.3 million </li></ul><ul><li>Operating Ratio: </li></ul><ul><li>2004 - 84.1% </li></ul><ul><li>2003 - 92.3% </li></ul><ul><li>Ownership: </li></ul><ul><li>100% - KCS </li></ul>
    17. 18. Management and Organization <ul><li>Jamie Andes </li></ul>
    18. 19. Corporate Governance Board of Directors KSC CEO KSCR and TexMex CEO
    19. 20. Board of Directors Qualifications <ul><li>Highest level of ethics, integrity, and values </li></ul><ul><li>Independence per the NYSE </li></ul><ul><li>No current service on boards deemed as in competition with KCS </li></ul><ul><li>Below the age of 72 </li></ul><ul><li>No current service on more than three Boards </li></ul><ul><li>Desirable </li></ul><ul><ul><li>Significant experience at policy making levels in business, government, or education </li></ul></ul><ul><ul><li>Significant experience of relationship with KCS business </li></ul></ul>
    20. 21. Compensation of Board of Directors <ul><li>(Non-Management Directors) </li></ul><ul><li>Cash </li></ul><ul><li>Annual $10,000 retainer </li></ul><ul><li>$4,000/$2,000 for each Board meeting </li></ul><ul><li>(in person/telephone) </li></ul><ul><li>$2,000/$1,000 for each committee meeting </li></ul><ul><li>(in person/telephone) </li></ul><ul><li>$1,000 for Chairing a committee </li></ul><ul><li>Stock Options </li></ul><ul><li>5,000 shares of restricted stock annually </li></ul><ul><li>Optional 10,000 shares in 2004 </li></ul>
    21. 22. Board of Directors <ul><li>Chairman – Michael Haverty , Age 60 </li></ul><ul><ul><li>President and CEO of Kansas City Southern </li></ul></ul><ul><li>Director - A. Edward Allison , Age 70 </li></ul><ul><ul><li>Director at DST, Former CEO/Chairman of EquiServe, EVP of State Street Bank and Trust, Chairman Boston Financial Data Services </li></ul></ul><ul><li>Director – Robert J. Druten , Age 58 </li></ul><ul><ul><li>Director at Crown Media Holdings, Chairman at Entertainment Properties Trust, EVP and CFO at Hallmark </li></ul></ul><ul><li>Director – Michael G. Fitt , Age 73 </li></ul><ul><ul><li>Director of DST and Former Chairman and CEO of Employers Reinsurance Corp </li></ul></ul><ul><li>Director – James Robert Jones , Age 65 </li></ul><ul><ul><li>Director of Anheuser-Busch, Keyspan Corp, TFM, Groupo Transportacion, and Formerly Chairman of American Stock Exchange and Ambassador to Mexico </li></ul></ul><ul><li>Director – Thomas A McDonnell , Age 59 </li></ul><ul><ul><li>President/CEO of DST, Director of Blue Valley Ban, Commerce Banshares, and Euronet Worldwide, and Garmin Ltd. </li></ul></ul><ul><li>Director – Karen L Pletz , Age 57 </li></ul><ul><ul><li>President and CEO of Kansas City University of Medicine and Biosciences, Former Senior VP at Central Bank in Jefferson City </li></ul></ul><ul><li>Director – Rodney E. Slater , Age 50 </li></ul><ul><ul><li>Current partner in Patton Boggs LLP, Former US Secretary of Transportation and head of Federal Highway Administration </li></ul></ul>
    22. 23. Board of Directors *4.5 as Chairman, 5 as Director 4 Slater 1 Pletz 2 McDonnell 8 James 19 Fitt 1 Druten 5 Allison 4.5 (5)* Haverty Years on KCS Board  
    23. 24. BOD Committees <ul><li>Executive Committee </li></ul><ul><li>When Board not in session, has all powers over KCS </li></ul><ul><li>Audit Committee </li></ul><ul><li>Appointing and approving associated fees </li></ul><ul><li>Reviewing audited statements </li></ul><ul><li>Reviewing certain public disclosures </li></ul><ul><li>Oversight in internal audit function </li></ul><ul><li>Compensation and Organization Committee </li></ul><ul><li>Review and approval of guidelines for base and annual incentives of employees </li></ul><ul><li>Review and approval of corporate goals relevant to the compensation of the CEO </li></ul><ul><li>Review and approval of the CEO’s compensation recommendations for senior management of KCS </li></ul><ul><li>Nominating and Corporate Committee </li></ul><ul><li>Develop and implement criteria for selection of director nominees </li></ul><ul><li>Develop and implement evaluation procedure for management, committees and members of the Board </li></ul><ul><li>Establish and maintain orientation for new directors </li></ul>
    24. 25. BOD Committees <ul><li>Executive Committee </li></ul><ul><li>Michael Fitt (Chair) </li></ul><ul><li>Michael Haverty </li></ul><ul><li>Tom McDonnell </li></ul><ul><li>Comp and Org Committee </li></ul><ul><li>Edward Allison (Chair) </li></ul><ul><li>Michael Fitt </li></ul><ul><li>Rodney Slater </li></ul><ul><li>Audit Committee </li></ul><ul><li>Robert Druten (Chair) </li></ul><ul><li>Tom McDonnell </li></ul><ul><li>Karen Pletz </li></ul><ul><li>Nom and Corp Committee </li></ul><ul><li>Tom McDonnell (Chair) </li></ul><ul><li>Edward Allison </li></ul><ul><li>Rodney Slater </li></ul>
    25. 26. BoD KCS CEO General Counsel Int. CEO Comptroller … Organization Structure KCSR/TexMex CEO Senior VP Inter. Eng Senior VP Transportation VP Chief Mech. Officer Southeast Division Midwest Division Texas Division Super Super Super Super Super Super Support
    26. 27. Top Management Sen VP of Marketing for CNR 6 Former Exec VP and COO Assist General Counsel 13 Assoc. Gen Counsel VP of Int. Regulation for Aquila 1 VP and Comptroller Assist VP Finance for BNSF 4 VP and Treasurer Chief of Staff for Kit Bond 8 VP Corporate Affairs VP of Sales for Pacer Global 0.5 VP Sales VP of Eng KCSR, Consultant 3 Sen VP, Int. Eng CEO of Farmland Industries 1 Sen VP, Gen Counsel CFO of Wisconsin Central 2.5 Exec VP, CFO Exec VP of UP 0.5 Exec VP, COO Previous Position Yrs w/ KSCR Position
    27. 28. Executive Comp . & Incentives 153,000 2002 160,000 2003 $371,000 20,000 186,000 165,000 2004 Assoc. Gen Counsel       312,000 2002   320,000 2003 $455,000 50,000 75,000 330,000 2004 COO       177,000 2002   206,000 2003 $770,000 29,000 529,000 212,000 2004 International Eng       128,000 2002   265,000 2003 $1,339,000 30,000 1,036,000 273,000 2004 CFO       620,00 2002   630,000 2003 $3,162,000 101,000 2,411,000 650,000 2004 CEO     Comp (potential value)       Total Other Stock Options Salary
    28. 29. CEO and Chairman <ul><li>Mike Haverty </li></ul><ul><li>President and CEO since 2000 </li></ul><ul><li>4th generation railroader </li></ul><ul><li>2000 Railroader of the Year </li></ul><ul><li>Spent career building instead of cost cutting </li></ul>
    29. 31. Management Effectiveness Analysis Aggressive strategy that could pay off    B+ Overall Management 10 Required “house cleaning” C Human Resources 9 Implementing a new Mgt Control Sys B+ Management Information 8 Increasing rev. while increasing debt B Financial position 7 Good brand, disassociated brands  B- Market positioning 6 Exp. are decreasing, but must maint.  A  Expense/Cost Control 5 Improved operating efficiency in 2004 A- Operating Performance 4 Strong structure and process B+ Decision Making 3 Implementing of goals  B+ Strategic Planning 2 Realizing mission and vision A Mission—Objectives 1 Reason Evaluation Factor
    30. 32. Marketing & Operations <ul><li>Shawn Wilkinson </li></ul>
    31. 33. World Headquarters Pictures Borrowed from Berkebile Nelson Immenscuh Mcdowell Architects http://
    32. 34. <ul><li>Track </li></ul>Inventory
    33. 35. Inventory(Map) <ul><li>Norfolk Southern </li></ul><ul><li>Burlington Northern Santa Fe </li></ul><ul><li>The Iowa, Chicago & Eastern Railroad Corporation </li></ul><ul><li>Canadian National </li></ul>
    34. 36. Inventory Railroad Pictures borrowed from Road Unit Switcher Unit
    35. 37. Rolling Stock Inventory Box Car Hopper Car Flat Car Tank Car Auto-Rack Gondola
    36. 38. Facilities <ul><li>Service Buildings </li></ul><ul><li>Deramus Yard in Shreveport, Louisiana - general office building, locomotive repair shop, car repair shops, customer service center, material warehouses and fueling facilities. </li></ul><ul><li>Freight warehousing and office facilities in Dallas, Texas totaling approximately 150,000 square feet. </li></ul><ul><li>Freight car repair shops in Kansas City, Missouri </li></ul><ul><li>Leased facilities include an automobile </li></ul><ul><li>storage and loading facility at the IFG </li></ul><ul><li>in Kansas City, Missouri </li></ul><ul><li>Office space in Baton Rouge, Louisiana. </li></ul>
    37. 39. Facilities <ul><li>4 Intermodal Facilities </li></ul><ul><li>Located in Dallas, Kansas City, New Orleans, and Jackson, Mississippi </li></ul><ul><li>Recently Closed Shreveport </li></ul><ul><li>Third Party Operation </li></ul>
    38. 40. Facilities <ul><li>10 Transload Facilities </li></ul><ul><li>Lake Charles and Baton Rouge, Louisiana </li></ul><ul><li>Jackson and Vicksburg, Mississippi </li></ul><ul><li>Dallas and Port Arthur*, Texas </li></ul><ul><li>Kansas City </li></ul><ul><li>Spiro, Oklahoma </li></ul><ul><li>Sauget, Illinois </li></ul><ul><li>Pittsburg, Kansas </li></ul>
    39. 41. Holdings <ul><li>Kansas City Terminal Railway Company (16.6% ownership since mid 90’s) </li></ul><ul><li>80 miles of track in greater Kansas City </li></ul><ul><li>Union Station </li></ul>
    40. 42. <ul><li>Grupo TFM (76% interest since April ‘05) </li></ul><ul><li>Partnership began in 1996, KCS recently took over majority </li></ul><ul><li>Class I railroad by itself (if in the U.S.) </li></ul><ul><li>2,650 miles track </li></ul><ul><li>Right to operate the rail lines </li></ul><ul><li>but does not own the land, </li></ul><ul><li>roadway, or associated </li></ul><ul><li>structures. </li></ul>Holdings
    41. 43. <ul><li>Grupo TFM (76% interest since April ‘05) </li></ul><ul><li>467 locomotives owned </li></ul><ul><li>150 locomotives leased, all from non-affiliates </li></ul><ul><li>4,278 freight cars leased from affiliates </li></ul><ul><li>8,719 freight cars leased from non-affiliates </li></ul><ul><li>Primary facilities in Mexico City and Monterrey, Mexico. </li></ul><ul><li>Leases 94,915 sq ft offices in Mexico </li></ul><ul><li>City </li></ul><ul><li>115,157 sq ft facility in Monterrey </li></ul>Holdings
    42. 44. <ul><li>Mexrail/Texas Mexican Railway Company (51% Ownership since Jan ‘05 ) </li></ul><ul><li>Class II </li></ul><ul><li>157 miles of Track – Laredo to Corpus Christi </li></ul><ul><li>Northern half of the International Rail Bridge at Laredo </li></ul><ul><li>Connects KCS and TFM lines. </li></ul>Holdings
    43. 45. <ul><li>Panama Canal Railway Company (50% - Joint venture, 1998) </li></ul><ul><li>Leases 3 locomotives Owns 7 </li></ul><ul><li>Owns 22 double stack cars, 6 passenger cars and various other infrastructure / equipment </li></ul><ul><li>47.6 miles of track </li></ul><ul><li>Mainly for Intermodal </li></ul><ul><li>connection, Atlantic to Pacific </li></ul><ul><li>5,000 square foot equipment </li></ul><ul><li>maintenance facility </li></ul>Holdings
    44. 46. Operating Performance
    45. 47. Operating Performance
    46. 48. Operating Performance
    47. 49. Operating Performance
    48. 50. Operating Performance <ul><li>Operating Ratio </li></ul>
    49. 51. Marketing Alliances <ul><li>Norfolk Southern </li></ul><ul><li>Burlington Northern Santa Fe </li></ul><ul><li>The Iowa, Chicago & Eastern Railroad </li></ul><ul><li>Canadian National </li></ul>
    50. 52. Marketing Alliances (Map) <ul><li>Norfolk Southern </li></ul><ul><li>Burlington Northern Santa Fe </li></ul><ul><li>The Iowa, Chicago & Eastern Railroad Corporation </li></ul><ul><li>Canadian National </li></ul>
    51. 53. Promotion <ul><li>Gray Trains with Red Letters </li></ul><ul><li>Website: </li></ul><ul><li>Branding: The NAFTA Railroad </li></ul><ul><li>Branding: Niche Market </li></ul><ul><li>Branding: Innovative/Forward Thinking Organization </li></ul><ul><li>Community Image: Santa Clause Train </li></ul>                                                                  
    52. 54. Product Mix Kansas City Southern Line Union Pacific (Largest Class I)
    53. 55. Product Mix Kansas City Southern Line Union Pacific (Largest Class I)
    54. 56. Financial <ul><li>Mike Hobick </li></ul>
    55. 57. Stock Price
    56. 58. Stock Price Comparison
    57. 59. Stock Performance <ul><li>KANSAS CITY SOUTHERN price change in past 3 months: 12.5% . Difference from the average for the Railroads group: 6.60 pct. pts. Percentage of all stocks that KANSAS CITY SOUTHERN outperformed: 62% </li></ul><ul><li>KANSAS CITY SOUTHERN price change in past 6 months: 34.1% . Difference from the average for the Railroads group: 23.70 pct. pts. Percentage of all stocks that KANSAS CITY SOUTHERN outperformed: 89% </li></ul><ul><li>KANSAS CITY SOUTHERN price change in past 12 months: 52.5% . Difference from the average for the Railroads group: 15.00 pct. pts. Percentage of all stocks that KANSAS CITY SOUTHERN outperformed: 83% </li></ul>
    58. 60. Industry
    59. 61. Industry
    60. 62. Operating Financials
    61. 63. Growth Rates
    62. 64. Cash Flow & Capital Spending
    63. 65. Financial Position
    64. 66. Financial Health
    65. 67. Quick Ratio
    66. 68. Current Ratio
    67. 69. Debt/Equity Ratio
    68. 70. Profitability Analysis
    69. 71. Return on Assets
    70. 72. Return on Equity
    71. 73. Net Profit Margin
    72. 74. Valuation
    73. 75. Valuation Valuation using KANSAS CITY SOUTHERN 's current multiple (P/E): 69.0 Valuation using the industry's current multiple (P/E): 18.7
    74. 76. 2005 Outlook <ul><li>Gains in operating efficiencies from our transportation operating system, Management Control System (“MCS”). </li></ul><ul><li>Fuel prices will continue to be a significant dynamic in our operating expenses. </li></ul><ul><li>Completion of KCS / TMM Acquisition Agreement </li></ul><ul><li>Results of VAT Lawsuit </li></ul><ul><li>Mexican Government’s Put Rights </li></ul>
    75. 77. Strategy
    76. 78. Business (Economic) Model <ul><li>Mike Hobick </li></ul>
    77. 79. Revenues <ul><li>Commodities </li></ul><ul><ul><li>Chemical and Petroleum 21.2% </li></ul></ul><ul><ul><li>Forest Product and Metal 26.7% </li></ul></ul><ul><ul><li>Agriculture and Mineral 19.7% </li></ul></ul><ul><ul><li>Intermodal and Automotive 10.5% </li></ul></ul><ul><ul><li>Coal 14.5% </li></ul></ul><ul><ul><li>Other 7.4% </li></ul></ul>
    78. 80. Expenses <ul><li>Fixed </li></ul><ul><ul><li>Depreciation & Amortization </li></ul></ul><ul><ul><li>Purchased Services </li></ul></ul><ul><ul><li>Interest Expense </li></ul></ul><ul><li>Variable </li></ul><ul><ul><li>Compensation & Benefits </li></ul></ul><ul><ul><li>Fuel </li></ul></ul><ul><ul><li>Equipment Costs </li></ul></ul><ul><ul><li>Casualties & Insurance </li></ul></ul>
    79. 81. Expenses
    80. 82. Cars on Line, Average Train Speed & Dwell Time <ul><li>Foreign cars on KCSR lines create opportunity cost(s) for the company </li></ul><ul><ul><li>Approximately 17% of total </li></ul></ul><ul><li>Average train speeds remain consistent and in line with industry </li></ul><ul><li>Terminal dwell hours have improved </li></ul>
    81. 83. Strategic Alliances & Marketing Agreements <ul><li>Canadian National & Illinois Central </li></ul><ul><li>Burlington Northern Sante Fe </li></ul><ul><li>Norfolk Southern </li></ul><ul><li>Iowa, Chicago & Eastern Railroad Corp. </li></ul>
    82. 84. Competitive Strategies Problems & Issues <ul><li>Jamie Andes </li></ul>
    83. 85. Strategy: To be the NAFTA Railway
    84. 86. Strategy Matrix   6. Liquidation     5. Divestiture Growth 4. Joint Venture 4. Horizontal Integration Market 3. Conglomerate Diversification 3. Product Development Slow 2. Horizontal Diversification 2. Market Penetration   1. Concentric Diversification 1. Market Development   7. Concentric Diversification     6. Horizontal Integration 6. Liquidation   5. Backward Integration 5. Divestiture Growth 4. Forward Integration 4. Horizontal Integration Market 3. Product Development 3. Product Development Rapid 2. Market Penetration 2. Market Penetration   1. Market Development 1. Market Development   Strong Competitive Position Weak Competitive Position
    85. 87. Strategy Matrix   6. Liquidation     5. Divestiture Growth 4. Joint Venture 4. Horizontal Integration Market 3. Conglomerate Diversification 3. Product Development Slow 2. Horizontal Diversification 2. Market Penetration   1. Concentric Diversification 1. Market Development   7. Concentric Diversification     6. Horizontal Integration 6. Liquidation   5. Backward Integration 5. Divestiture Growth 4. Forward Integration 4. Horizontal Integration Market 3. Product Development 3. Product Development Rapid 2. Market Penetration 2. Market Penetration   1. Market Development 1. Market Development   Strong Competitive Position Weak Competitive Position
    86. 88. Problems and Issues <ul><li>Mexico and Panama political and economic risks </li></ul><ul><li>Possible additional investments in TFM </li></ul><ul><li>Mexican government’s tax audit of TFM </li></ul><ul><li>Possibility of not receiving VAT </li></ul>
    87. 89. Problems and Issues <ul><li>Level of debt </li></ul><ul><li>Government regulations </li></ul><ul><li>Environmental laws and regulations </li></ul><ul><li>Rising Fuel Costs </li></ul><ul><li>Labor union disputes </li></ul><ul><li>Single primary coal customer </li></ul><ul><li>Legal claims or lawsuits </li></ul><ul><li>Terrorism or acts of war </li></ul>
    88. 90. SWOT Analysis <ul><li>Shawn Wilkinson </li></ul>
    89. 91. SWOT Analysis <ul><li>Strengths </li></ul><ul><li>NAFTA Railway Connection made </li></ul><ul><li>Large overall operating capacity </li></ul><ul><li>Strong investment in infrastructure, Intermodal </li></ul><ul><li>IT Capabilities </li></ul><ul><li>Building Materials up 100% this year over last. </li></ul><ul><li>Motor Vehicles up 33% </li></ul><ul><li>Innovative </li></ul><ul><li>Panama Canal </li></ul><ul><li>Strong Mgmt </li></ul><ul><li>New Fuel Supply Channel </li></ul>
    90. 92. SWOT Analysis <ul><li>Weaknesses </li></ul><ul><li>Reliance on Marketing Partners </li></ul><ul><li>Lots of Product Names </li></ul><ul><li>2.8% drop in Intermodal Hauling in ‘05 </li></ul><ul><li>Closing of Shreveport Intermodal Facility </li></ul><ul><li>High credit risk (debt) </li></ul><ul><li>Duality </li></ul><ul><li>High P/E ratio </li></ul><ul><li>Slowed Track Speed this year </li></ul><ul><li>Small player in the industry </li></ul>
    91. 93. SWOT Analysis <ul><li>Opportunities </li></ul><ul><li>Railroad demand increasing </li></ul><ul><li>Strong revenues predicted for industry </li></ul><ul><li>Increasing train fuel efficiency </li></ul><ul><li>Intermodal demand rapidly increasing </li></ul><ul><li>Outstanding TFM acquisition issues </li></ul>
    92. 94. SWOT Analysis <ul><li>Threats </li></ul><ul><li>Buyout from bigger Class I railroad </li></ul><ul><li>More $ to TFM possibility </li></ul><ul><li>Mexican Gov’t tax audit of 1997 </li></ul><ul><li>Gov’t regulations – USA, Mexico, Canada, Panama </li></ul><ul><li>Weather, terrorism, chemical spills </li></ul><ul><li>Reliance on 1 mostly 1 customer for coal business </li></ul><ul><li>Labor Unions </li></ul>
    93. 95. Recommendations & Future Expectations <ul><li>Tobi Rubin </li></ul>
    94. 96. Recommendations <ul><li>Kansas City Southern is in a good position to serve the growing intermodal and automotive shippers. </li></ul><ul><ul><li>Current access to over 25,000 48 foot and 53 foot intermodal containers and chassis. </li></ul></ul><ul><ul><ul><li>These offer intermodal customers direct entry to intermodal ramps across North America. </li></ul></ul></ul><ul><ul><ul><li>This is a service that be expanded as needed and costs needed for this expansion should be planned. </li></ul></ul></ul><ul><ul><li>As NAFTA trade strengthens the automotive industry, KCS is well situated to assist automotive customers serving auto manufacturers in Mexico and the growing auto part industry in the southeastern U.S. </li></ul></ul><ul><ul><li>Continuing to exploit these segments will be beneficial to KCS’s bottom line and will put the company in a good position to continue to successfully compete with all carriers of freight. </li></ul></ul>
    95. 97. Recommendations <ul><li>Add manpower as needed to efficiently move cargo from rail cars to trucks. </li></ul><ul><li>Make preparations to hire, train and actually put new workers into service to fill positions opened as older workers retire. </li></ul><ul><li>Address issues of fatigue and overworked railroad employees, emphasize safety throughout operations. </li></ul><ul><li>Increase claims reserve for litigation expenses. </li></ul><ul><li>Increase locomotive fleet as necessary. </li></ul><ul><li>Hire and make annual infrastructure investments in response to increasing business. </li></ul><ul><li>Heightened control of operating expenses; implement efficiency improvements in areas where there is ability to impact cost savings through better budgeting and streamlined operations. </li></ul>
    96. 98. Future Expectations <ul><li>Management of KCS thinks the strategic position of their network will enable the company to reap continued benefits from the expanding north/south trade between U.S., Mexico and Canada supported by North American Free Trade Agreement. </li></ul><ul><li>Pros @ Wall Street say the outlook is promising </li></ul><ul><ul><li>Many factors drive railroad momentum! </li></ul></ul><ul><ul><li>The rebounding U.S. economy = more trains needed to move more goods! </li></ul></ul><ul><ul><li>+ shipping by train is roughly 10% to 20% cheaper than shipping by truck!!!! </li></ul></ul>