EX-99.1 2 c97390exv99w1.htm PRESS RELEASE exv99w1
 

Exhibit 99.1
         
Date:
  August 3, 2005    
 
       
Media Contact:
William H. Galligan   816/983-1551
 
  William.h.galligan@kcsr.com    
Kansas City Southern Reports Second Quarter 2005 Results;
Sets the Groundwork for the Integrated Operation of
KCSR, Tex Mex and TFM
Second Quarter Highlights
    Substantial progress made in integrating TFM, S.A. de C.V. (TFM) into Kansas City Southern (KCS) and creating a single rail network connecting the commercial and industrial heartlands of U.S. and Mexico.
 
    Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (GTFM) financial results consolidated under KCS as of April 1, 2005. GTFM is the holding company for TFM, the railroad operating company in Mexico.
 
    KCS consolidated second quarter revenues increased 12.5% to $381.1 million over the pro forma second quarter 2004 combined revenues of $338.8 million, principally from its three rail operating companies: The Kansas City Southern Railway (KCSR), The Texas Mexican Railway (Tex Mex) and TFM.
 
    KCSR revenues rose 16.8% to $178.6 million; ninth consecutive quarter of substantial quarter-over-quarter growth.
 
    KCSR operating income improved 12.1% to $25.9 million.
 
    GTFM revenues increased 8.7% to $184.1 million from $169.3 million, but the quarter’s financial result was adversely impacted by tax rulings, purchase accounting and other costs.
 
    TFM refinanced $443.5 million of 11.75% Senior Discount Debentures saving $10.5 million of interest annually going forward.
 
    Tex Mex was granted a $50 million, 25-year loan under the Federal Railroad Administration’s RRIF program. The loan will be used to enhance Tex Mex as a rail link between the U.S. and Mexico.
Second Quarter 2005
Kansas City, MO. Kansas City Southern (KCS or Company) (NYSE:KSU) today reported second quarter 2005 financial results, which included the consolidation of TFM’s results following the acquisition of control on April 1, 2005. For the second quarter 2005, KCS consolidated revenues were $381.1 million versus $153.9 million in 2004. On a same rail system

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comparative basis, KCS consolidated second quarter revenues grew 12.5% over the 2004 pro forma combined revenues of the Company.
In connection with the April 1, 2005 acquisition of an additional 48.5% interest in GTFM, KCS consolidated operating expenses for the second quarter of 2005 were adversely impacted by a non-cash, pre-tax charge of $35.6 million related to a series of Mexican Supreme Court rulings, which eliminated TFM’s ability to use net operating losses to offset future employer statutory profit sharing contributions. In addition, consolidated pre-tax operating expenses were adversely impacted by $4.1 million related to the reduction of the carrying values of certain GTFM assets to reflect KCS’ revised plans relating to future use; $3.6 million in depreciation relating to the preliminary allocation of the purchase price; $4.9 million associated with disputed withholding tax receivables with the Mexican government, and $3.2 million associated with the higher bad debt and claims costs experienced by GTFM. After factoring in the impact of these pre-tax charges, KCS consolidated operating expenses were $386.4 million for the second quarter of 2005 versus $134.4 million in 2004, which is not comparable due to the consolidation of GTFM commencing in the second quarter of 2005.
Primarily as a result of the above described charges related to GTFM, KCS recorded a net loss of $25.8 million, or $(0.32) diluted earnings per share, for the second quarter of 2005, compared with $7.0 million of net income available to common shareholders, $0.11 diluted earnings per share, for the second quarter of 2004.
Year-to-Date 2005 Highlights
    Consolidated revenues of $579.3 million, which excludes first quarter 2005 revenues of GTFM.
 
    KCSR revenues increased 19.4% to $357.9 million.
 
    KCSR operating income improved 19.1% to $55.6 million.
 
    GTFM revenues increased to $354.2 million, or 9.7% on a separate company basis.
 
    Cross border KCSR-TFM revenues increased 25.9%.
Comments from the Chairman
“During the second quarter KCS began the essential steps of consolidating its North American operations following the acquisition of the 48.5% additional interest in GTFM,” stated Chairman, President and Chief Executive Officer Michael R. Haverty. “The progress made in growing the franchise was encouraging, especially as a great deal of attention was directed toward re-organizing the operations and marketing functions of KCSR, Tex Mex, and TFM, and strengthening the balance sheet at TFM.
“KCSR streamlined its rail operations into three divisions in order to sharpen focus on strategic points along its system. Being able to focus on key traffic and interchange points will help KCSR

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structure its service to meet capacity issues as its traffic volumes steadily increase. The Tex Mex began a major upgrade of its track infrastructure funded by a 25-year, $50 million RRIF loan to expand capacity and ensure the efficient handling of growing traffic volumes between the U.S. and Mexico. TFM continued to make steady progress in reorganizing its marketing, operations, and finance and accounting functions to conform with and be integrated into the KCS system, including investing in the communications infrastructure required to ensure a timely installation of MCS in the first quarter of 2006.
“We were very pleased that Francisco Javier Rion elected to join TFM as chief executive officer. Highly respected within the Mexican and international business communities, he joins TFM with 30 years experience in the transportation industry, most recently serving as president of the Rail Control Solutions Division of Bombardier Transportation in the UK. Prior to that he served as Bombardier’s president and managing director in Mexico City. We are confident that Javier will help take TFM to a new level of service performance and profitability. We look forward to investors and the financial community having the opportunity to get to know Javier in the near future.
“He replaces Vicente Corta, who had served as interim chief executive officer since April 2005. Vicente remains a partner in the law firm of White & Case, S.C., and will continue to serve as counsel to TFM in Mexico. We are grateful to Vicente for his valuable leadership through this critical time of transition, and look forward to continuing our close association.
“The second quarter was a period of transition for TFM. Several major efforts were undertaken in the finance area such as the refinancing of high interest rate debt, re-evaluation of the balance sheet as required by purchase accounting, and a review of TFM’s accounting operations and procedures. In addition, the decision was made to invest in SAP R-5 to be installed for use in 2007, following its installation for use by KCS’ U.S. operations in 2006.
“Also of note during the quarter was the progress of the Panama Canal Railway Company (PCRC), which in June had its first $1 million freight revenue month. During the month, average weekly container volumes approached 1,900 compared with about 700 a year ago. The progress made in the second quarter is indicative of growth we expect to continue in the future.
“Favorable progress has been made in a short time period in transforming KCS into a significantly larger transportation company. With every passing day, we identify new opportunities which serve to confirm our long-held belief that putting this system together will be of great benefit to North American shippers, as well as to our shareholders. Given the complexities of the transition everyone should be encouraged by how rapidly and smoothly the process has gone and can look forward to KCS being uniquely positioned to take advantage of newly emerging international traffic patterns.”

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Headquartered in Kansas City, MO., KCS is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holdings include The Kansas City Southern Railway Company, founded in 1887, and The Texas Mexican Railway Company, founded in 1885, serving the central and south central U.S. Its international holdings include a controlling interest in TFM, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cardénas, Tampico and Veracruz, and a 50% interest in The Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS’ North American rail holdings and strategic alliances are primary components of a NAFTA Railway system, linking the commercial and industrial centers of the U.S., Canada and Mexico. Visit www.kcsi.com for more information.
This press release includes statements concerning potential future events involving the Company, which could materially differ from the events that actually occur. The differences could be caused by a number of factors including those factors identified in the “Risk Factors” and the “Cautionary Information” sections of the Company’s Form 10-K for the year ended December 31, 2004, filed by the Company with the Securities and Exchange Commission (SEC) (Commission file no. 1-4717). The Company will not update any forward-looking statements in this press release to reflect future events or developments.

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KANSAS CITY SOUTHERN
CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions, except share and per share data)
(Unaudited)
                                 
    Three Months     Six Months  
    Ended June 30,     Ended June 30,  
    2005     2004     2005     2004  
Revenues
  $ 381.1     $ 153.9     $ 579.3     $ 301.7  
Operating expenses
                               
Compensation and benefits
    93.4       52.2       154.7       103.0  
Fuel
    56.5       14.6       83.0       29.4  
Purchased services
    56.6       15.4       76.4       31.0  
Equipment costs
    41.0       11.6       58.2       24.6  
Depreciation and amortization
    40.4       13.1       54.7       25.9  
Deferred profit sharing
    35.7             35.7        
Casualties and insurance
    22.0       10.9       34.7       16.6  
Other
    40.8       16.6       62.4       34.3  
Total operating expenses
    386.4       134.4       559.8       264.8  
 
                       
Operating income
    (5.3 )     19.5       19.5       36.9  
Equity in net earnings (loss) of unconsolidated affiliates:
                               
Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.
          2.9       (1.0 )     4.2  
Other
    1.5       0.3       0.4       0.4  
Interest expense
    (38.7 )     (10.9 )     (51.0 )     (21.7 )
Debt retirement costs
    (3.9 )           (3.9 )     (4.2 )
Exchange gain (loss)
    4.3             4.3        
Other income
    3.8       1.7       7.1       3.2  
 
                       
Income before income taxes and minority interest
    (38.3 )     13.5       (24.6 )     18.8  
Income tax provision
    2.5       4.3       8.1       6.2  
 
                       
Income before minority interest
    (40.8 )     9.2       (32.7 )     12.6  
Minority interest
    (17.2 )             (17.2 )        
 
                       
Net income
    (23.6 )     9.2       (15.5 )     12.6  
Preferred stock dividends
    2.2       2.2       4.4       4.4  
 
                       
Net income available to common shareholders
  $ (25.8 )   $ 7.0     $ (19.9 )   $ 8.2  
 
                       
Per Share Data
                               
Earnings per Common share — basic
  $ (0.32 )   $ 0.11     $ (0.27 )   $ 0.13  
 
                       
Earnings per Common share — diluted
  $ (0.32 )   $ 0.11     $ (0.27 )   $ 0.13  
 
                       
Weighted average Common shares outstanding (in thousands) Basic
    81,707       62,655       72,604       62,570  
Potential dilutive Common shares
          1,175             1,242  
 
                       
Diluted
    81,707       63,830       72,604       63,812  
 
                       

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Kansas City Southern
Carloadings By Commodity — Second Quarter, 2005
Dollars in Thousands
(Preliminary)
                                             
Carloadings                 Revenue        
Second Quarter     %         Second Quarter     %  
2005   2004     Change         2005     2004     Change  
 
                  Coal                        
51,032
    47,128       8.3 %     Unit Coal   $ 26,651     $ 22,902       16.4 %
746
    556       34.2 %     Other Coal     348       344       1.2 %
 
                                     
51,778
    47,684       8.6 %   Total     26,999       23,246       16.1 %
 
                                     
 
                  Chemical & Petroleum Products                        
3,395
    1,520       123.4 %     Agri Chemicals     3,055       1,005       204.0 %
25,062
    16,834       48.9 %     Other     26,998       16,578       62.9 %
26,834
    14,561       84.3 %     Petroleum     21,422       10,808       98.3 %
12,519
    4,679       167.6 %     Plastics     17,519       5,404       224.2 %
 
                                     
67,810
    37,594       80.4 %   Total     68,994       33,795       104.2 %
 
                                     
 
                  Agriculture and Minerals                        
48,785
    17,942       171.9 %     Grain     51,984       15,489       235.6 %
17,109
    7,588       125.5 %     Food Products     20,216       6,882       193.8 %
16,496
    6,718       145.5 %     Ores and Minerals     11,415       4,091       178.9 %
21,321
    4,334       391.9 %     Stone, Clay & Glass     15,731       3,555       342.5 %
 
                                     
103,711
    36,582       183.5 %   Total     99,346       30,017       231.0 %
 
                                     
 
                  Paper & Forest Products                        
36,775
    23,915       53.8 %     Pulp/Paper     33,492       19,400       72.6 %
8,000
    1,931       314.3 %     Scrap Paper     7,322       1,355       440.4 %
8,384
    6,239       34.4 %     Pulpwood/Logs/Chips     5,478       2,993       83.0 %
8,846
    8,459       4.6 %     Lumber/Plywood     10,063       8,700       15.7 %
30,784
    4,377       603.3 %     Metal/Scrap     25,885       3,830       575.8 %
19,639
    1,547       1169.5 %     Military/Other Carloads     19,623       1,978       892.1 %
 
                                     
112,428
    46,468       141.9 %   Total     101,863       38,256       166.3 %
 
                                     
 
                  Intermodal & Automotive                        
33,488
    1,429       2243.5 %     Automotive     33,796       1,159       2816.0 %
146,481
    85,639       71.0 %     Intermodal     34,011       15,369       121.3 %
 
                                     
179,969
    87,068       106.7 %   Total     67,807       16,528       310.3 %
 
                                     
515,696
    255,396       101.9 %   TOTAL FOR BUSINESS UNITS     365,009       141,842       157.3 %
(138)
    4,202       (103.3 )%   Other Freight Revenue     4,212       2,653       58.8 %
 
                  Other Revenue     11,927       9,421       33.8 %
 
                                     
515,558
    259,598       98.6 %   TOTAL   $ 381,148     $ 153,916       147.6 %
 
                                     

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Kansas City Southern
Carloadings By Commodity — Year to date June 30, 2005
Dollars in Thousands
(Preliminary)
                                             
Carloadings                 Revenue        
Year to Date     %         Year to Date     %  
2005   2004     Change         2005     2004     Change  
 
                  Coal                        
110,747
    94,985       16.6 %      Unit Coal   $ 57,045     $ 44,459       28.3 %
1,465
    1,238       18.3 %      Other Coal     666       708       (5.9 )%
 
                                     
112,212
    96,223       16.6 %   Total     57,711       45,167       27.8 %
 
                                     
 
                  Chemical & Petroleum Products                        
5,135
    2,975       72.6 %      Agri Chemicals     4,339       1,916       126.5 %
42,717
    32,945       29.7 %      Other     45,522       32,341       40.8 %
42,904
    28,164       52.3 %      Petroleum     33,915       20,758       63.4 %
19,515
    9,190       112.4 %      Plastics     24,451       10,731       127.9 %
 
                                     
110,271
    73,274       50.5 %   Total     108,227       65,746       64.6 %
 
                                     
 
                  Agriculture and Minerals                        
78,037
    37,907       105.9 %      Grain     77,320       32,939       134.7 %
26,545
    14,687       80.7 %      Food Products     28,765       12,934       122.4 %
26,931
    13,627       97.6 %      Ores and Minerals     17,901       8,085       121.4 %
26,523
    8,363       217.1 %      Stone, Clay & Glass     20,875       6,786       207.6 %
 
                                     
158,036
    74,584       111.9 %   Total     144,861       60,744       138.5 %
 
                                     
 
                  Paper & Forest Products                        
66,272
    47,199       40.4 %      Pulp/Paper     58,862       38,191       54.1 %
10,452
    3,757       178.2 %      Scrap Paper     9,298       2,497       272.4 %
16,779
    12,781       31.3 %      Pulpwood/Logs/Chips     10,830       5,915       83.1 %
17,267
    16,564       4.2 %      Lumber/Plywood     19,552       16,639       17.5 %
38,271
    8,742       337.8 %      Metal/Scrap     32,807       7,418       342.3 %
21,165
    3,676       475.8 %      Military/Other Carloads     22,033       4,312       411.0 %
 
                                     
170,206
    92,719       83.6 %   Total     153,382       74,972       104.6 %
 
                                     
 
                  Intermodal & Automotive                        
35,369
    2,508       1310.2 %      Automotive     35,273       2,030       1637.6 %
227,503
    165,200       37.7 %      Intermodal     50,387       29,125       73.0 %
 
                                     
262,872
    167,708       56.7 %   Total     85,660       31,155       174.9 %
 
                                     
813,597
    504,508       61.3 %   TOTAL FOR BUSINESS UNITS     549,841       277,784       97.9 %
(534)
    7,964       (106.7 )%   Other Freight Revenue     4,582       5,298       (13.5 )%
 
                  Other Revenue     24,921       18,628       26.6 %
 
                                     
813,063
    512,472       58.7 %   TOTAL   $ 579,344     $ 301,710       92.0 %
 
                                     

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Kansas City Southern Railway
Operating Statements
Dollars in Millions
(Preliminary)
                                 
    Second     Second              
    Quarter     Quarter     Year to Date     Year to Date  
    2005     2004     2005     2004  
Revenues
                               
Chemical and Petroleum
  $ 36.0     $ 33.8     $ 72.3     $ 65.7  
Paper and Forest
    50.5       38.3       98.1       75.0  
Agricultural and Mineral
    36.4       30.0       74.5       60.7  
Intermodal and Automotive Revenue
    18.3       16.5       34.9       31.2  
Unit Coal Revenue
    26.9       22.9       57.5       44.5  
Haulage Revenue
    0.3       2.7       0.7       5.3  
Other Revenue
    10.2       8.7       19.9       17.5  
 
                       
Total Revenues
    178.6       152.9       357.9       299.9  
 
                       
 
                               
Operating Expenses
                               
Compensation and Benefits
    55.5       50.9       110.7       100.6  
Purchased Services
    14.8       14.4       28.1       28.3  
Fuel
    25.7       14.4       49.8       29.4  
Equipment Costs
    11.5       11.6       25.6       24.6  
Casualties & Insurance
    12.8       9.8       22.8       14.3  
Material and Supplies
    8.5       6.4       17.5       11.9  
Other
    4.0       2.8       7.6       5.5  
 
                       
Variable Operating Expenses
    132.8       110.3       262.1       214.6  
 
                       
 
                               
Fixed Expenses
                               
Other Lease
    2.6       2.9       5.6       5.7  
Depreciation
    13.5       12.9       27.1       25.5  
Taxes (Other Than Income)
    3.8       3.7       7.5       7.4  
 
                       
Fixed Operating Expenses
    19.9       19.5       40.2       38.6  
 
                       
Total Operating Expenses
    152.7       129.8       302.3       253.2  
 
                       
Operating Income
  $ 25.9     $ 23.1     $ 55.6     $ 46.7  
 
                       
Operating Ratio
    85.5 %     84.9 %     84.5 %     84.4 %

8


 

Kansas City Southern Railway
Carloadings By Commodity — Second Quarter, 2005
Dollars in Thousands
(Preliminary)
                                             
Carloadings                 Revenue        
Second Quarter     %         Second Quarter     %  
2005   2004     Change         2005     2004     Change  
 
                  Coal                        
51,032
    47,128       8.3 %        Unit Coal   $ 26,651     $ 22,902       16.4 %
587
    556       5.6 %        Other Coal     273       344       (20.6 )%
 
                                     
51,619
    47,684       8.3 %   Total     26,924       23,246       15.8 %
 
                                     
 
                  Chemical & Petroleum Products                        
1,691
    1,520       11.3 %        Agri Chemicals     1,296       1,005       29.0 %
17,567
    16,834       4.4 %        Other     17,363       16,578       4.7 %
14,472
    14,561       (0.6 )%        Petroleum     11,514       10,808       6.6 %
4,650
    4,679       (0.6 )%        Plastics     5,864       5,404       8.5 %
 
                                     
38,380
    37,594       2.1 %   Total     36,037       33,795       6.6 %
 
                                     
 
                  Agriculture and Minerals                        
16,346
    17,942       (8.9 )%        Grain     17,036       15,489       10.0 %
7,572
    7,588       (0.2 )%        Food Products     7,946       6,882       15.5 %
9,353
    6,718       39.2 %        Ores and Minerals     6,120       4,091       49.5 %
5,251
    4,334       21.2 %        Stone, Clay & Glass     5,295       3,555       48.9 %
 
                                     
38,522
    36,582       5.3 %   Total     36,397       30,017       21.3 %
 
                                     
 
                  Paper & Forest Products                        
26,154
    23,915       9.4 %        Pulp/Paper     23,151       19,400       19.3 %
1,845
    1,931       (4.5 )%        Scrap Paper     1,540       1,355       13.7 %
7,128
    6,239       14.2 %        Pulpwood/Logs/Chips     4,628       2,993       54.6 %
8,681
    8,459       2.6 %        Lumber/Plywood     9,910       8,700       13.9 %
5,336
    4,377       21.9 %        Metal/Scrap     5,529       3,830       44.4 %
4,008
    1,547       159.1 %        Military/Other Carloads     5,766       1,978       191.5 %
 
                                     
53,152
    46,468       14.4 %   Total     50,524       38,256       32.1 %
 
                                     
 
                  Intermodal & Automotive                        
1,650
    1,429       15.5 %        Automotive     1,371       1,159       18.3 %
83,640
    85,639       (2.3 )%        Intermodal     16,892       15,369       9.9 %
 
                                     
85,290
    87,068       (2.0 )%   Total     18,263       16,528       10.5 %
 
                                     
266,963
    255,396       4.5 %   TOTAL FOR BUSINESS UNITS     168,145       141,842       18.5 %
(12)
    4,202       (100.3 )%   Other Freight Revenue     336       2,653       (87.3 )%
 
                  Other Revenue     10,116       8,378       20.7 %
 
                                     
266,951
    259,598       2.8 %   TOTAL   $ 178,597     $ 152,873       16.8 %
 
                                     

9


 

Kansas City Southern Railway
Carloadings By Commodity — Year to date June 30, 2005
Dollars in Thousands
(Preliminary)
                                             
Carloadings                 Revenue        
Year to Date     %         Year to Date     %  
2005   2004     Change         2005     2004     Change  
 
                  Coal                        
110,747
    94,985       16.6 %     Unit Coal   $ 57,045     $ 44,459       28.3 %
1,115
    1,238       (9.9 )%     Other Coal     497       708       (29.8 )%
 
                                     
111,862
    96,223       16.3 %   Total     57,542       45,167       27.4 %
 
                                     
 
                  Chemical & Petroleum Products                        
3,387
    2,975       13.8 %     Agri Chemicals     2,548       1,916       33.0 %
34,809
    32,945       5.7 %     Other     35,586       32,341       10.0 %
28,572
    28,164       1.4 %     Petroleum     22,663       20,758       9.2 %
9,181
    9,190       (0.1 )%     Plastics     11,489       10,731       7.1 %
 
                                     
75,949
    73,274       3.7 %   Total     72,286       65,746       9.9 %
 
                                     
 
                  Agriculture and Minerals                        
35,182
    37,907       (7.2 )%     Grain     36,710       32,939       11.4 %
15,261
    14,687       3.9 %     Food Products     15,579       12,934       20.4 %
18,085
    13,627       32.7 %     Ores and Minerals     11,978       8,085       48.2 %
10,160
    8,363       21.5 %     Stone, Clay & Glass     10,213       6,786       50.5 %
 
                                     
78,688
    74,584       5.5 %   Total     74,480       60,744       22.6 %
 
                                     
 
                  Paper & Forest Products                        
52,653
    47,199       11.6 %     Pulp/Paper     46,125       38,191       20.8 %
3,836
    3,757       2.1 %     Scrap Paper     3,252       2,497       30.2 %
15,523
    12,781       21.5 %     Pulpwood/Logs/Chips     9,980       5,915       68.7 %
16,985
    16,564       2.5 %     Lumber/Plywood     19,296       16,639       16.0 %
11,391
    8,742       30.3 %     Metal/Scrap     11,451       7,418       54.4 %
5,312
    3,676       44.5 %     Military/Other Carloads     7,999       4,312       85.5 %
 
                                     
105,700
    92,719       14.0 %   Total     98,103       74,972       30.9 %
 
                                     
 
                  Intermodal & Automotive                        
3,146
    2,508       25.4 %     Automotive     2,608       2,030       28.5 %
161,501
    165,200       (2.2 )%     Intermodal     32,323       29,125       11.0 %
 
                                     
164,647
    167,708       (1.8 )%   Total     34,931       31,155       12.1 %
 
                                     
536,846
    504,508       6.4 %   TOTAL FOR BUSINESS UNITS     337,342       277,784       21.4 %
(408)
    7,964       (105.1 )%   Other Freight Revenue     706       5,298       (86.7 )%
 
                  Other Revenue     19,886       16,769       18.6 %
                                         
536,438
    512,472       4.7 %   TOTAL   $ 357,934     $ 299,851       19.4 %
 
                                     

10