ksu-20221231

Kansas City Southern, a Delaware corporation, is a holding company with domestic and international rail operations in North America that are strategically focused on the growing north/south freight corridor connecting key commercial and industrial markets in the central United States (“U.S.”) with major industrial cities in Mexico. As used herein, “KCS” or the “Company” may refer to Kansas City Southern or, as the context requires, to one or more subsidiaries of Kansas City Southern.

On September 15, 2021, KCS and Canadian Pacific Railway Limited (“CP”) entered into a merger agreement (the “Merger Agreement”), and on December 14, 2021, CP acquired the outstanding common and preferred stock of KCS. Each share of common stock, par value $0.01 per share, of KCS that was outstanding immediately prior to the merger was converted into the right to receive (1) 2.884 common shares of CP and (2) $90 in cash (together, the “Merger Consideration”), and each share of preferred stock, par value $25 per share, that was outstanding immediately prior to the merger was converted into the right to receive $37.50 in cash. The Merger Consideration value received by KCS stockholders was $301.20 per KCS common share.

The merger transaction was completed through a series of mergers as outlined in the Merger Agreement. These mergers ultimately resulted in KCS being merged with and into Cygnus Merger Sub 1 Corporation (“Surviving Merger Sub”), a wholly owned subsidiary of CP, with Surviving Merger Sub continuing as the surviving entity. Pursuant to the Merger Agreement, Surviving Merger Sub was renamed “Kansas City Southern” and as successor company of KCS, continued to own the assets of KCS. Immediately following the consummation of the mergers, CP caused the contribution, directly and indirectly, of all of the outstanding shares of capital stock of Surviving Merger Sub, as successor to KCS, to be deposited into an independent, irrevocable voting trust (the “Voting Trust”) under a voting trust agreement (the “Voting Trust Agreement”) approved by the U.S. Surface Transportation Board (“STB”), pending receipt of the final and non-appealable approval or exemption by the STB pursuant to 49 U.S.C. § 11323 et seq., of the transactions contemplated by the Merger Agreement (“STB Final Approval”). The Voting Trust prevents CP, or any affiliate of CP, from controlling or having the power to control KCS prior to STB Final Approval. Following receipt of STB Final Approval, the Voting Trust will be terminated and CP will acquire control over KCS’s railroad operations. STB Final Approval is expected to be granted in the first quarter of 2023. The merger is further discussed within Item 7, Management’s Discussion and Analysis of Financial Information and Results of Operations — Merger Agreement.

KCS controls and owns all of the stock of Kansas City Southern de México, S.A. de C.V. (“KCSM”). Through its 50-year concession from the Mexican government (the “Concession”), which could expire in 2047 unless extended, KCSM operates a key commercial corridor of the Mexican railroad system and has as its core route the most strategic portion of the shortest, most direct rail passageway between Mexico City and Laredo, Texas. Laredo is a principal international gateway through which a substantial portion of rail and truck traffic between the United States and Mexico crosses the border. KCSM serves most of Mexico’s principal industrial cities and three of its major seaports. KCSM’s rail lines provide exclusive rail access to the United States and Mexico border crossing at Nuevo Laredo, Tamaulipas. Under the Concession, KCSM has the right to use and operate the southern half of the rail bridge at Laredo, Texas, which spans the Rio Grande River between the United States and Mexico. The Company owns the northern half of this bridge through its ownership of Mexrail, Inc. (“Mexrail”).

Panama Canal Railway Company (“PCRC”), an unconsolidated joint venture company owned equally by KCS and Mi-Jack Products, Inc. (“Mi-Jack”), was awarded a concession from the Republic of Panama to reconstruct and operate the Panama Canal Railway, a 47-mile railroad located adjacent to the Panama Canal that provides international container shipping companies with a railway transportation alternative to the Panama Canal. The concession was awarded in 1998 for an initial term of 25 years with an automatic renewal for an additional 25-year term. The Panama Canal Railway is a north-south railroad traversing the isthmus of Panama between the Atlantic and Pacific oceans.


			2022 Revenues Business Mix
Chemical and petroleum. This commodity group includes products such as chemicals, plastics, petroleum, liquefied petroleum gas, and petroleum refined products, such as gasoline and diesel. KCS transports these products across its network and through interchanges with other rail carriers. Refined fuels and liquefied petroleum gas groups of commodities primarily supply Mexican demand. The chemical and plastic products are used in the automotive, housing and packaging industries as well as in general manufacturing. KCS hauls petroleum products across its network and as U.S. petroleum refineries have continued to increase their refining capacity, they have coordinated with KCS to develop additional long-term storage opportunities that complement a fluid freight railroad operation.

Industrial and consumer products. This commodity group includes forest products as well as metals and scrap. Forest products consist of shipments to and from paper and lumber mills in the southeast United States timber-producing region that KCS serves directly and indirectly through its various short-line connections. The United States is an important source of pulp paper and scrap paper for Mexico that ships by rail through KCS’s network. Metals and scrap consist of shipments of flat steel and long product as well as other minor moves of ores such as iron, zinc and copper. The majority of steel produced and metallic ore mined in Mexico are consumed within Mexico. Steel slab is used to make steel coils and plate-products that usually

ship via rail. Higher-end finished products such as steel coils are used by Mexican manufacturers in automobiles, household appliances, the oil and gas industry, and other consumer goods that are imported from the United States through land borders and the seaports served by KCS’s rail network. KCS also transports steel coils, plates and pipe from U.S. and Mexican-based mini-mills to locations in the U.S. and Mexico for oil drilling, appliance and automotive applications. This commodity group also includes U.S. military transports, Mexico and U.S. domestic cement shipments and appliances manufactured in Mexico that are imported into the United States.

Agriculture and minerals. The agriculture and minerals commodity group consists primarily of grain and food products. Shipper demand for agriculture products is affected by competition among sources of grain and grain products, as well as price fluctuations in international markets for key commodities. In the United States, KCS’s rail lines receive and originate shipments of grain and grain products for delivery to feed mills and food and industrial consumers in the U.S. and Mexico. United States export grain shipments and Mexico import grain shipments include primarily corn, wheat, and soybeans. Food products consist mainly of soybean meal, grain meal, oils, distillers dried grains, corn syrup and sugar. Other shipments consist of a variety of products including ores, minerals, clay and glass used across North America.

Energy. The energy commodity group includes coal, frac sand, petroleum coke and crude oil. KCS hauls unit trains (trains transporting a single commodity from one source to one destination) of coal for electric generating plants in the central United States. The coal originates from the Powder River Basin in Wyoming and is interchanged to KCS at Kansas City, Missouri. Coal mined in the midwest United States is transported in non-unit trains to industrial consumers such as paper mills, steel mills, and cement companies. Frac sand originating primarily in Wisconsin, Illinois or Iowa is delivered to transloads located in northeast Texas, northern Louisiana and south Texas for distribution to gas and oil wells in the region. Frac sand business in Mexico is primarily for industrial purposes such as auto glass and bottle manufacturing. KCS’s shipments of frac sand to support the drilling industry have diminished over time as the use of in-basin frac sand has largely replaced frac sand originating in the upper Midwest. KCS transports petroleum coke from refineries in the United States to various industries in the U.S. and Mexico including export through the Pabtex terminal located in Port Arthur, TX. The majority of crude by rail business originates in Canada, with spot shipments coming from Texas, and is delivered to U.S. Gulf Coast refineries and tank farms in Texas, Louisiana, and Alabama.

Intermodal. The intermodal freight sector consists primarily of hauling freight containers or truck trailers on behalf of steamship lines, motor carriers, and intermodal marketing companies with rail carriers serving as long-distance haulers. KCS serves and supports the U.S. and Mexican markets, as well as cross-border traffic between the U.S. and Mexico. In light of the importance of trade between Asia and North America, the Company believes the Port of Lazaro Cardenas continues to be a strategically beneficial location for ocean carriers, manufacturers and retailers. Equally important, foreign direct investment in Mexico has caused the KCS Mexico/U.S. cross border corridor to emerge as an increasingly important tool for freight flow. The Company also provides premium service to customers over its line from Dallas through the Meridian Speedway— a critical link in creating the most direct route between the southwest and southeast/northeast U.S.

The Company’s United States operations are subject to federal, state and local laws and regulations generally applicable to all businesses, subject to federal preemption under certain circumstances. Rail operations are also subject to the regulatory jurisdiction of the STB, the Federal Railroad Administration (“FRA”) and the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) of the U.S. Department of Transportation (“DOT”), the Occupational Safety and Health Administration (“OSHA”), as well as other federal and state regulatory agencies. The STB has jurisdiction over disputes and complaints involving certain rates and charges, routes and services, the sale or abandonment of rail lines, applications for line extensions and construction, and consolidation or merger with, or acquisition of control of, rail common carriers, including the Company’s merger with CP. DOT and OSHA each has jurisdiction under several federal statutes over a number of safety and health aspects of rail operations, including the transportation of hazardous materials.

collisions, overspeed derailments, incursions into rail work zones, and entry to main line track if a switch is misaligned at certain locations, including main line track where toxic inhalation hazard or poison inhalation hazard movements occur or where passenger operations occur. The implementation of PTC from 2008 through 2020 has increased operating costs and the number of Company employees, and required a significant investment in new safety technology. The Company will continue to leverage PTC technology and make investments in new safety technology to improve operations and safety of the rail network.

KCS’s U.S. subsidiaries are subject to extensive federal, state and local environmental regulations. These laws cover discharges to water, air emissions, toxic substances, and the generation, handling, storage, transportation and disposal of waste and hazardous materials. These regulations have the effect of increasing the costs, risks and liabilities associated with rail operations. Environmental risks are also inherent in rail operations, which frequently involve transporting chemicals and other hazardous materials.

Primary regulatory oversight of the Company’s Mexican operations is provided by the Mexican Agencia Reguladora del Transporte Ferroviario (“Regulatory Agency of Rail Transportation” or “ARTF”). The ARTF establishes regulations concerning railway safety and operations, and is responsible for resolving disputes between railways and customers. KCSM must register its maximum rates with the ARTF and make regular reports to the ARTF and the Secretaría de Infraestructura, Comunicaciones y Transportes (“Ministry of Infrastructure, Communications and Transportation” or “SICT”). KCSM must provide reports on investments, traffic volumes, causes and cost of accidents, theft and vandalism on the general right of way, customer complaints, fuel consumption, number of locomotives, railcars and employees, and activities around the maintenance of way, sidings and spurs, among other financial information and reports. The Company may freely set rates on a non-discriminatory basis up to the maximum rates registered with the ARTF. At any time, the ARTF may request additional information regarding the determination of such rates and may issue recommendations with respect to proposed rate increases. If the ARTF or another party considers there to be no effective competition, they may request an opinion from the Comisión Federal de Competencia Económica (“Mexican Antitrust Commission” or “COFECE”) regarding market conditions. If the COFECE determines that there is no effective competition for particular movements, the ARTF could set rates for those movements or grant limited trackage rights to another railroad while the condition of no effective competition remains.

KCSM holds a Concession from the Mexican government until June 2047, subject to certain trackage and haulage rights granted to other concessionaires), which is renewable under certain conditions for additional periods of up to 50 years. The Concession authorizes KCSM to provide freight transportation services over north-east rail lines, which are a primary commercial corridor of the Mexican railroad system. KCSM is required to provide freight railroad services to all users on a fair and non-discriminatory basis and in accordance with efficiency and safety standards approved periodically by the Mexican government. KCSM has the right to use, but does not own, all tracks and buildings that are necessary for the rail lines’ operation. KCSM is obligated to maintain the right of way, track structure, buildings and related maintenance facilities to the operational standards specified in the Concession agreement and to return the assets in that condition at the end of the Concession period. During the remainder of the Concession period, KCSM is required to pay the Mexican government an annual concession duty equal to 1.25% of gross revenues. The ARTF may request information to verify KCSM´s compliance with the Concession and any applicable regulatory framework. On July 14, 2022, KCSM reached an agreement with the SICT to fund a new investment in the Celaya-NBA Line Railway Bypass and related infrastructure in an amount not to exceed Ps.4.0 billion (approximately $200.0 million USD). In exchange for the investment, the SICT agreed to amend KCSM’s Concession Title effective July 14, 2022, to extend the exclusivity rights granted to KCSM (subject to certain trackage and haulage rights granted to other concessionaires) for an additional period of 10 years. Under this amendment, KCSM’s exclusivity will now expire in 2037.

The Company’s Mexican operations are subject to Mexican federal and state laws and regulations relating to the protection of the environment through the establishment of standards for water discharge, water supply, emissions, noise pollution, hazardous substances and transportation and handling of hazardous and solid waste. The Mexican government may bring administrative and criminal proceedings and impose economic sanctions against companies that violate environmental laws, and temporarily or even permanently close non-complying facilities.

In Mexico, KCSM’s operations are subject to competition from other railroads, particularly Ferrocarril Mexicano, S.A. de C.V. (“Ferromex”) and Ferrosur, S.A. de C.V. (“Ferrosur”), both controlled by Grupo Mexico S.A.B. de C.V. Ferromex and Ferrosur together are much larger and have significantly greater financial and other resources than KCSM, serving most of the major ports and cities in Mexico and together owning fifty percent of FTVM, which serves industries located in the Mexico City area.

The Company is subject to competition from motor carriers, barge lines and other maritime shipping, which compete across certain routes in KCS’s operating areas. In the past, truck carriers have generally eroded the railroad industry’s share of total transportation revenues. Intermodal traffic and certain other traffic face highly price sensitive competition, particularly from motor carriers. However, moving freight by train instead of truck reduces greenhouse gas emissions by up to 75%. Rail carriers, including KCS, have placed an emphasis on improving fuel efficiency and competing in the intermodal marketplace to regain market share and provide end-to-end transportation of products.

While deregulation of U.S. freight rates has enhanced the ability of railroads to compete with each other and with alternative modes of transportation, this increased competition has generally resulted in downward pressure on freight rates since deregulation. Competition with other railroads and other modes of transportation is generally based on the rates charged, the quality and reliability of the service provided and the quality of the carrier’s equipment for certain commodities.

The Company and its rail subsidiaries have continued to research, develop and implement multidisciplinary approaches to secure the Company’s assets and personnel against transnational criminal organizations that actively target transportation networks. In addition, the Company has developed a variety of vertically integrated strategies to mitigate the risk terrorist attacks could pose to the Company, its personnel and assets. Many of the specific measures the Company utilizes for these efforts are required to be kept confidential through arrangements with government agencies, such as the Department of Homeland Security (“DHS”), or through jointly-developed and implemented strategies and plans with connecting carriers.

KCSR and KCSM developed a proprietary security plan based on an industry-wide plan developed by the Association of American Railroads (“AAR”) members which focuses on comprehensive risk assessments in five areas — hazardous materials; train operations; critical physical assets; military traffic; and information technology and communications. The security model is kept confidential, with access to the plan tightly limited to members of management with direct security and anti-terrorism implementation responsibilities. The Company participates with other AAR members in periodic drills under the industry plan to test and refine its various provisions.

The Company’s security activities range from constant due diligence to providing security awareness updates to KCS employees and including safety and security information on the Company’s internet website (which can be found under the “Corporate Responsibility” tab at www.kcsouthern.com) to its ongoing implementation of security plans for rail facilities in areas labeled by the DHS as High Threat Urban Areas (“HTUAs”). The Company’s other activities to bolster security against terrorism include, but are not limited to, the following:

In addition, the Company utilizes dedicated security personnel with extensive special operations forces, intelligence, and law enforcement backgrounds to oversee the ongoing and increasingly complex security efforts of the Company in both the United States and Mexico. While the risk of theft and vandalism is higher in Mexico, KCSM remains among the safest methods of transportation for freight shipments in Mexico. KCSM’s record in rail safety is due in large part to the implementation of a multi-layered safety and security process throughout the KCSM network. In addition to having its own internal system, the process is connected to, and supported by a high level of federal, state and local law enforcement. A primary focus of this effort involves maintaining constant diligence, intelligence and counterintelligence operations, technology-reporting applications and active vigilance while enhancing overall system velocity, which reduces the residual risk for incidents to occur.

Labor relations in the U.S. railroad industry are subject to extensive governmental regulation under the Railway Labor Act (“RLA”). Under the RLA, national labor agreements are renegotiated on an industry-wide scale when they become open for modification, but their terms remain in effect until new agreements are reached or the RLA’s procedures (which include mediation, cooling-off periods, and the possibility of presidential intervention) are exhausted. Contract negotiations with the various unions generally take place over an extended period of time and the Company rarely experiences work stoppages during negotiations. Wages, health and welfare benefits, work rules and other issues have traditionally been addressed during these negotiations.

Approximately 71% of KCSR employees are covered by collective bargaining agreements. These agreements do not have expiration dates, but rather remain in place until modified by subsequent agreements. KCSR participates in industry-wide multi-employer bargaining as a member of the National Carriers’ Conference Committee (the “NCCC”), as well as local bargaining for agreements that are limited to KCSR's property. For the 2016 bargaining round, 5-year agreements were reached voluntarily or through the arbitration process during 2017 and 2018 covering all of the participating unions. The terms of these agreements remained in effect until new agreements were reached in the 2020 national bargaining round. In November 2019, KCSR and its unions commenced negotiations in connection with the 2020 collective bargaining round. During 2022, 5-year agreements were reached voluntarily or through the legislation process covering all of the participating U.S. unions for the 2020 national bargaining round.

labor agreement remains in effect during the period of the Concession for the purpose of regulating the relationship between the parties. Approximately 76% of KCSM employees are covered by this labor agreement. The compensation terms under this labor agreement are subject to renegotiation on an annual basis and all other benefits are subject to negotiation every two years. The parties finalized negotiations over compensation terms and benefits that applied until June 30, 2021, along with other terms, and remain in effect until new terms have been negotiated.

Warren K. Erdman — Executive Vice President — Administration and Corporate Affairs — 64 — Served in this capacity since April 2010. Mr. Erdman served as Executive Vice President — Corporate Affairs from October 2007 until April 2010. He served as Senior Vice President — Corporate Affairs of KCS and KCSR from January 2006 to September 2007. Mr. Erdman served as Vice President — Corporate Affairs of KCS from April 15, 1997 to December 31, 2005 and as Vice President — Corporate Affairs of KCSR from May 1997 to December 31, 2005. Prior to joining KCS, Mr. Erdman served as Chief of Staff to United States Senator Kit Bond of Missouri from 1987 to 1997.

Jeffrey M. Songer — Executive Vice President — Strategic Merger Planning — 53 — Served in this capacity since April 16, 2021. Mr. Songer served as Executive Vice President and Chief Operating Officer of the Company from March 2016 to April 2021, Senior Vice President Engineering and Chief Transportation Officer of the Company from August 2014 to February 2016 and as Vice President and Chief Engineer for KCSR from June 2012 to July 2014. Prior to serving as KCSR’s Vice President and Chief Engineer, Mr. Songer served as Assistant Vice President — Engineering and Planning from March 2011 to June 2012, and as its General Director — Planning, Scheduling & Administration from January 2007 to March 2011.

John F. Orr - Executive Vice President — Operations — 59 — Served in this capacity since April 16, 2021. Mr. Orr began his railroading career in 1984 as a conductor with Canadian National in London, Ontario. Progressively taking on positions of increasing executive responsibilities across Canada and the United States, Mr. Orr ultimately completed his career at Canadian National as Senior Vice President and Chief Transportation Officer after 34 years of service. Since 2019, he has worked as a top-level operations executive in railroading and transportation ecosystems across Europe, Asia, and North America.

Michael W. Upchurch — Executive Vice President and Chief Financial Officer — 62 — Served in this capacity since October 16, 2008. Mr. Upchurch joined KCS in March 2008 as Senior Vice President Purchasing and Financial Management. Since 2019, Mr. Upchurch has also served as a board member for WillScot Mobile Mini. From 1990 through September 2006, Mr. Upchurch served in various senior financial leadership positions at Sprint Corporation, a telecommunications company, including Senior Vice President Financial Operations, Senior Vice President Finance Sprint Business Solutions and Senior Vice President Finance Long Distance Division.

Oscar Augusto Del Cueto Cuevas — President, General Manager and Executive Representative — KCSM — 56 — Served in this capacity since August 1, 2020. Mr. Del Cueto previously served as KCSM Servicios Vice President and General Director from November 2018 to July 2020 and as KCSM Servicios Vice President-Operations from January 2009 to October 2018. Mr. Del Cueto joined KCSM in 2006 and held various leadership positions prior to 2009. He has over 32 years of railway industry experience, working in institutional relations, communication, operations, planning and logistics.

Lora S. Cheatum — Senior Vice President — Human Resources — 66 — Served in this capacity since joining KCS in October 2014. Ms. Cheatum previously served as Senior Vice President Global Human Resources of Layne Christensen Company, a global water management, construction, and drilling company, from 2012 to October 2014. From 2010 to 2012, she served as Director — Field Operations at Fitness Together Holdings, Inc. Ms. Cheatum spent nine years with Kansas City Power & Light, from 2001 to 2010, where she was Vice President of Procurement and previously as Vice President Human Resources.

Michael J. Naatz — Executive Vice President and Chief Marketing Officer — 57 — Served in this capacity since October 1, 2018. Mr. Naatz served as Senior Vice President Operations Support and Chief Information Officer from August 2014 until September 2018 and as Senior Vice President and Chief Information Officer of the Company from May 2012 to July 2014. Prior to joining KCS, Mr. Naatz served as President of USF Holland, a YRC Worldwide, Inc. (“YRCW”) company, a leading provider of transportation and global logistics services, from 2011 to May 2012. From 2010 to 2011, Mr. Naatz served as President and Chief Customer Officer - Customer Care Division at YRCW. From 2008 to 2010, he served as Executive Vice President and Chief Information & Service Officer at YRCW. From 2005 to 2007, he served as President — Enterprise Services Division at YRCW. From 1994 to 2005, he held various leadership positions with USF Corporation.

Adam J. Godderz — Senior Vice President — Chief Legal Officer and Corporate Secretary — 48 — Served in this capacity since February 1, 2020. Mr. Godderz served as General Counsel and Corporate Secretary from January 2019 to January 2020 and as Associate General Counsel and Corporate Secretary of the Company from June 2018 to December 2018. From November 2015 to May 2018, he served as Vice President of Labor Relations and Corporate Secretary. From January 2013 to November 2015, Mr. Godderz served as Associate General Counsel and Corporate Secretary. From September 2007 to January 2013, Mr. Godderz served as Associate General Counsel at KCS.

In managing the Company’s business, management focuses on a number of human capital measures and objectives rooted in the KCS Vision, Values and Culture (“KCS Culture”). The KCS Culture is critically important to KCS’s success and is a set of guidelines, beliefs and behaviors that help define KCS and create a foundation for growth and success. The KCS Culture helps guide how employees make decisions, treat each other and serve customers. All employees are responsible for upholding the KCS Culture and conformance with the KCS Culture statement is 25% of the annual performance appraisal process for all management employees. Management uses performance evaluations as a tool to help strengthen relationships with employees and KCS’s Culture.

•Employee Health & Safety - KCS is committed to operating in a safe, secure and responsible manner for the benefit of its employees, customers and the communities KCS serves in the U.S. and Mexico. See below for further discussion of employee health and safety as well as noted in the Company’s sustainability report at https://www.kcsouthern.com/pdf/community/kcs-sustainability-data-2021.pdf (the sustainability report is not incorporated into this Form 10-K).

•Compensation and Benefits - KCS strives to offer competitive compensation, benefits and services that meet the needs of its employees, including short and long-term incentive packages, a defined contribution plan, healthcare benefits, and wellness and employee assistance programs. Management monitors market compensation and benefits to be able to attract, retain, and promote employees and reduce turnover and its associated costs. In addition, KCS’s short and long-term incentive programs are aligned with the Company’s vision and key business objectives and are intended to motivate strong performance. KCS engages a nationally recognized outside consulting firm to objectively evaluate its compensation and benefits and benchmark them against industry peers and other similarly situated organizations.

Management strives to instill a culture of safety, providing on-the-job training and classroom instruction to employees. Many positions, such as locomotive engineers and conductors, have extensive requirements for certification and licensing, as required by federal regulation. Certification-eligibility is based on a variety of factors, including prior safety conduct of the applicant, compliance with applicable regulations, knowledge of operating rules and performance testing. The Company offers certification and training programs to operations groups as business needs require. These training programs focus on operating rules, safety rules, and procedures required for specific tasks.

KCS’s operational testing program provides processes for ongoing validation and understanding of, and adherence to operating rules and procedures by employees, and allows management to identify, monitor and manage potential safety risks in the business. This training is designed to gauge employees’ knowledge of and compliance with KCS rules and procedures and determine the need for remedial training or guidance. Testing plans are developed based upon, among other things, a particular location’s risks, recent trends, injuries or accidents and prior operational test performance.

KCS’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to those reports, are available for download at no cost on KCS’s website (www.investors.kcsouthern.com) as soon as reasonably practicable after the electronic filing of these reports is made with the Securities and Exchange Commission. In addition, KCS’s corporate governance guidelines, ethics and legal compliance policy, and the charters of the Audit Committee, the Finance and Strategic Investments Committee, the Nominating and Corporate Governance Committee and the Compensation and Organization Committee of the Board of Directors are available on KCS’s website.

The Company may face risks related to public health threats or outbreaks of communicable diseases. A widespread healthcare crisis, such as an outbreak of a communicable disease, could adversely affect the global economy and the Company’s and its business partners’ ability to conduct business in the U.S. and Mexico for an indefinite period of time. The novel coronavirus and its variants (“COVID-19”) negatively impacted the global economy and disrupted financial markets and international trade, which resulted in increased unemployment levels and significantly negatively impacted global supply chains, the rail transportation industry, and the Company’s business. In both the U.S. and Mexico, local, state, and federal governments implemented various measures in an effort to halt the further spread of COVID-19, including, but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, border closings, limitations on gatherings of people, and extended closures of nonessential businesses.

The future impacts of COVID-19, other public health threats or outbreaks of communicable disease depend on the severity, magnitude and duration of the outbreak, as well as the U.S., Mexico, local, state and federal governments and the business community’s response. The ultimate impact of COVID-19, other public health threats or outbreaks of communicable diseases on the Company’s business or operating and financial results are difficult to predict with any degree of certainty.

KCS may experience capacity constraints due to increased demand for rail services, unavailability of equipment, crew shortages, or extreme weather. Also, due to the interconnectivity between all railroads, especially in the U.S., congestion on other railroads could result in operational inefficiencies for KCS. Traffic congestion experienced in the U.S. or Mexican railroad system may result in overall traffic congestion which would impact the ability to move traffic to and from Mexico, which could result in operational inefficiencies for KCS and could have a material adverse effect on KCS’s operations.

The Company’s domestic and international operations are subject to competition from other railroads, as well as from truck carriers, barge lines, and other maritime shippers. Many of KCS’s rail competitors are much larger and have significantly greater financial and other resources than KCS, which may enable rail competitors to reduce rates and make KCS’s freight services less competitive. KCS’s ability to respond to competitive pressures by matching rate reductions and decreasing rates without adversely affecting gross margins and operating results will depend on, among other things, the ability to reduce operating costs. KCS’s failure to respond to competitive pressures, and particularly rate competition, in a timely manner could have a material adverse effect on the Company’s consolidated financial statements.

The railroad industry is dominated by a few large carriers. These larger railroads could attempt to use their size and pricing power to block other railroads’ access to gateways and routing options that are currently and have historically been available. In addition, if there is future consolidation in the railroad industry in the United States or Mexico, there can be no assurance that it will not have a material adverse effect on the Company’s consolidated financial statements.

Trucking, maritime, and barge competitors provide rate and service competition to the railroad industry. These competitors are able to use public rights-of-way, require substantially smaller capital investment and maintenance expenditures than railroads and allow for more frequent and flexible scheduling. Continuing competitive pressures, any reduction in margins due to competitive pressures, developments that increase the quality or decrease the cost of alternative modes of transportation

in the locations in which the Company operates, or legislation or regulations that provide motor carriers with additional advantages, such as increased size of vehicles and reduced weight restrictions, could result in downward pressure on freight rates, which in turn could have a material adverse effect on the Company’s consolidated financial statements. KCS may also experience operational or service difficulties related to network capacity, fluctuations in customers’ demand for rail service, or other events that could have a material adverse effect on KCS’s consolidated financial statements.

A key part of KCS’s growth strategy is based upon the conversion of truck traffic to rail. There can be no assurance the Company will succeed in its efforts to convert traffic from truck to rail transport or that the customers already converted will be retained. If the railroad industry in general is unable to preserve its competitive advantages vis-à-vis the trucking industry, revenue growth could be adversely affected. Additionally, revenue growth could be affected by, among other factors, an expansion in the availability, or an improvement in the quality, of the trucking services offered by carriers resulting from regulatory and administrative interpretations and implementation of certain provisions of current or future multinational trade agreements that are favorable to the trucking industry or unfavorable to the rail industry or KCS. Such actions may negatively impact KCS’s ability to grow its existing customer base and capture additional cargo transport market share because of competition from the shipping industry and other railroads.

Operation of KCS’s rail network and its plans for growth and expansion rely significantly on agreements with other railroads and third parties, including joint ventures and other strategic alliances, as well as interchange, trackage rights, haulage rights and marketing agreements with other railroads and third parties that enable KCS to exchange traffic and utilize trackage the Company does not own. KCS’s ability to provide comprehensive rail service to its customers depends in large part upon its ability to maintain these agreements with other railroads and third parties, and upon the performance of the obligations under the agreements by the other railroads and third parties. The termination of, or the failure to renew, these agreements could have a material adverse effect on KCS’s consolidated financial statements. KCS is also dependent in part upon the financial strength and efficient performance of other railroads. There can be no assurance that KCS would not be materially adversely affected by operational or financial difficulties of other railroads.

KCS relies on information technology in all aspects of its business, including operating PTC, dispatching trains, and the revenue waybill system. A significant disruption or failure of its IT systems, including its computer hardware, software, communications equipment, wayside equipment or locomotive onboard equipment could result in service interruptions, safety failures, security failures, regulatory compliance failures or other operational difficulties. Moreover, if KCS is not able to acquire new technology or to develop or implement new technology, KCS may suffer a competitive disadvantage, which could have a material adverse effect on KCS’s consolidated financial statements.

The security risks associated with IT systems have increased in recent years because of the increased sophistication, activities and evolving techniques of perpetrators of cyber attacks from state actor or others abroad. A failure in, or breach of, KCS’s IT security systems, or those of its third party service providers, as a result of cyber attacks or unauthorized access to its network could disrupt KCS’s business, result in the disclosure or misuse of confidential or proprietary information, increase its costs and/or cause losses and reputational damage. KCS also confronts the risk that a terrorist or nation-state sponsored group may seek to use its property, including KCS’s information technology systems, to inflict major harm.

Although KCS has a comprehensive cyber security program designed to protect and preserve the integrity of its information technology systems, KCS has experienced and expects to continue to experience cyber attacks of its IT systems or networks. However, none of these cyber attacks to date has had a material impact on KCS’s operations or financial condition. While KCS devotes significant resources to network security, data encryption and other security measures to protect its systems and data, including its own proprietary information and the confidential and personally identifiable information of its customers, employees, and business partners, these measures cannot provide absolute security. The costs to eliminate or alleviate network security problems, bugs, viruses, ransomware, worms, malicious software programs and security vulnerabilities could be significant, and KCS’s efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information that KCS stores electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to KCS’s business operations. Moreover, if a computer security

The Company’s railroad operations may be affected by severe weather or other natural disasters. The Company operates in and along the Gulf of Mexico, and its facilities, equipment, and railroad infrastructure may be materially adversely affected by hurricanes, floods, fires, earthquakes and other extreme weather conditions in the regions where the Company operates, and this could also adversely affect the Company’s shipping, agricultural, chemical and other customers. Severe weather or other natural disasters could result in significant business interruption due to an increase in events such as train derailments or wash outs of track structure that could have a material adverse effect on KCS’s consolidated financial statements. The Company's revenues can also be adversely affected by severe weather that causes damage and disruptions to the Company's customers. Insurance to protect against loss of business and other related consequences resulting from these natural occurrences is subject to coverage limitations and may not be sufficient to cover all of KCS’s damages or damages to others. This insurance may not continue to be available at commercially reasonable rates. Even with insurance, if any natural occurrence leads to a catastrophic interruption of services, this could have a material adverse effect on KCS’s consolidated financial statements.

KCS’s operations may be materially adversely affected by changes in the economic conditions of the industries and geographic areas that produce and consume the freight that KCS transports. The relative strength or weakness of the United States and Mexican economies affects the businesses served by KCS. Prolonged negative changes in domestic and global economic conditions, such as those caused by increasing inflation and inflationary factors, such as interest rates, supply chain constraints, consequences associated with COVID-19, the ongoing invasion of Ukraine by Russia, and employee availability, may affect KCS, as well as the producers and consumers of the commodities that KCS transports and may have a material adverse effect on KCS’s consolidated financial statements.

The transportation industry is highly cyclical, generally tracking the cycles of the world economy. Although transportation markets are affected by general economic conditions, there are numerous specific factors within each particular market that may influence operating results. Some of KCS’s customers do business in industries that are highly cyclical, including the energy, automotive, housing and agriculture industries. Any downturn or change in government policy in these industries could have a material adverse effect on operating results. Also, some of the products transported have had a historical pattern of price cyclicality which has typically been influenced by the general economic environment and by industry capacity and demand. KCS cannot assure that prices and demand for these products will not decline in the future, adversely affecting those industries and, in turn, this could have a material adverse effect on the Company’s consolidated financial statements.

The Company is exposed to the potential of various claims and litigation related to labor and employment, personal injury, environmental, climate change, commercial disputes, freight loss and other property damage, and other matters that arise in the normal course of business. The Company may experience material judgments or incur significant costs to defend existing and future lawsuits. Although the Company maintains insurance to cover some of these types of claims and establishes reserves when appropriate, final amounts determined to be due on any outstanding matters may exceed the Company’s insurance coverage or differ materially from the recorded reserves. Additionally, the Company could be impacted by adverse developments not currently reflected in the Company’s reserve estimates. The Company is also subject to job-related personal injury and occupational claims associated with the Federal Employer’s Liability Act (“FELA”), which is applicable only to railroads. FELA’s fault-based tort system produces results that are unpredictable and inconsistent as compared with a no-fault worker’s compensation system. The variability inherent in this system could result in actual costs being different from the

The Company is a party to collective bargaining agreements with various labor unions in the United States and Mexico. As of December 31, 2022, approximately 71% and 76% of KCSR and KCSM employees, respectively, were covered by labor contracts subject to collective bargaining. The Company may be subject to, among other things, strikes, work stoppages or work slowdowns as a result of disputes under these collective bargaining agreements and labor contracts or KCS’s potential inability to negotiate acceptable contracts with these unions. In the United States, because such agreements are generally negotiated on an industry-wide basis, determination of the terms and conditions of labor agreements have been and could continue to be beyond KCS’s control. KCS is, therefore, subject to terms and conditions in industry-wide labor agreements that could have a material adverse effect on its consolidated financial statements. In the United States and Mexico, KCS is seeking to modernize its collective bargaining agreements and benefit from technological advancements in the industry. If the unionized workers in the United States or Mexico were to engage in a strike, work stoppage or other slowdown; if other employees were to become unionized or if KCS and its unions were unable to agree on the terms and conditions in future labor agreements, KCS could experience a significant disruption of its operations and higher ongoing labor costs. Although the U.S. Railway Labor Act imposes restrictions on the right of United States railway workers to strike, there is no law in Mexico imposing similar restrictions on the right of railway workers in that country to strike. Additionally, labor law reform adopted by Mexico introduces uncertainty into the existing union structure in Mexico, which may affect the risk of disruption in KCSM’s operations.

KCS relies on a limited number of suppliers of core rail equipment (including locomotives, rolling stock equipment, rail and ties). The capital intensive nature and complexity of such equipment creates high barriers of entry for any potential new suppliers. If any of KCS’s suppliers discontinue production or experience capacity or supply shortages, this could result in increased costs or difficulty in obtaining rail equipment and materials, which could have a material adverse effect on KCS’s consolidated financial statements.

KCS incurs substantial fuel costs in its railroad operations and these costs represent a significant portion of its transportation expenses. Significant price increases for fuel may have a material adverse effect on operating results. If KCS is unable to recapture its costs of fuel from its customers, operating results could be materially adversely affected. In addition, a severe disruption of fuel supplies resulting from supply shortages, political unrest, a disruption of oil imports, weather events, war, or otherwise, and the resulting impact on fuel prices could have a material adverse effect on KCS’s consolidated financial statements.

Terrorist attacks and any government response thereto, and war or risk of war could have a material adverse effect on KCS’s consolidated financial statements. KCS is involved in the transport of hazardous materials, which could result in KCS’s rail lines, facilities, or equipment being direct targets or indirect casualties of acts of terror, which could cause significant business interruption and damage to KCS’s property. As a result, acts of terrorism or war or acts of crime or violence could result in increased costs and liabilities and decreased revenues for KCS. In addition, insurance premiums charged for some or all of the applicable coverage currently maintained by KCS could increase dramatically or certain coverage may not be adequate to cover losses or may not be available in the future.

Under United States federal statutes and applicable Mexican laws, KCS’s common carrier responsibility requires it to transport hazardous materials. Any rail accident or other incident or accident on KCS’s network, facilities, or at the facilities of KCS’s customers involving the release of hazardous materials, including toxic inhalation hazard materials, could involve significant costs and claims for personal injury, property or natural resource damage, and environmental penalties and remediation in excess of the Company’s insurance coverage for these risks, which could have a material adverse effect on KCS’s consolidated financial statements. KCS is also required to comply with rules and regulations regarding the handling of hazardous materials. Noncompliance with these rules and regulations could subject KCS to significant penalties or other costs and exposure to litigation. Changes to these rules and regulations could also increase operating costs and negatively impact KCS’s consolidated financial statements.

KCS rail subsidiaries are subject to legislation and regulation enacted by federal, state and local legislatures and agencies in the U.S. and Mexico with respect to commercial terms with its customers and railroad operations, including with respect to health, safety, labor, environmental and other areas. Government regulation of the railroad industry is a significant determinant of the competitiveness and profitability of railroads. Changes in legislation or regulation could have a negative impact on KCS’s ability to negotiate prices for rail services, could negatively affect competition among rail carriers, or could negatively impact operating practices, resulting in reduced efficiency, increased operating costs or increased capital investment, all of which could result in a material adverse effect on KCS’s consolidated financial statements.

New economic regulation in the U.S. or Mexico in current or future proceedings could change the regulatory framework within which the Company operates which could materially change the Company's business and have a material adverse effect on the Company's consolidated financial statements. For example, in Mexico, the Company implemented changes to several processes and systems to ensure compliance with new regulations and enforcement of existing regulations, including labor reform, the hydrocarbons law, inspections related to imports and terminals, value-added tax law changes, and bill of lading requirements (referred to in Mexico as Carta Porte). Ensuring compliance with these requirements resulted in increased operating expense and reduced revenue. See Mexico Regulatory and Legal Updates in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

KCS’s failure or inability to comply with applicable laws and regulations could have a material adverse effect on the Company’s consolidated financial statements and operations, including fines, penalties, or limitations on operating activities until compliance with applicable requirements is achieved. Congress and government agencies may change the legislative or regulatory framework within which the Company operates without providing any recourse for any adverse effects on the Company’s business that occur as a result of such change. Additionally, some of the regulations require KCS to obtain and maintain various licenses, permits and other authorizations. Any failure to obtain or maintain these licenses, permits, and other authorizations could have a material adverse effect on KCS’s business operations.

KCS subsidiaries’ operations are subject to environmental regulation enacted by federal, state and local legislatures in the U.S. and Mexico. Environmental liability under federal and state law in the United States can also extend to previously owned or operated properties, leased properties and properties owned by third parties, as well as to properties currently owned and used by the Company. Environmental liabilities may also arise from claims asserted by adjacent landowners or other third parties. Given the nature of its business, the Company incurs, and expects to continue to incur, environmental compliance costs, including, in particular, costs necessary to maintain compliance with requirements governing chemical and hazardous material shipping operations, refueling operations and repair facilities. KCS presently has environmental investigation and remediation obligations at certain sites, and will likely incur such obligations at additional sites in the future.

and regulations, administrative and criminal proceedings may be brought and economic sanctions imposed against companies that violate environmental laws, and non-complying facilities may be temporarily or permanently closed. KCSM is also subject to the laws of various jurisdictions with respect to the discharge of materials into the environment and to environmental laws and regulations issued by the governments of each of the Mexican states in which KCSM’s facilities are located. The terms of KCSM’s Concession from the Mexican government also impose environmental compliance obligations on KCSM. Failure to comply with any environmental laws or regulations may result in the termination of KCSM’s Concession or in fines or penalties that may affect profitability.

Liabilities accrued for environmental costs represent the Company’s best estimate of the probable future obligation for the remediation and settlement of matters related to these sites. However, remediation costs may exceed such estimates, due to various factors such as evolving environmental laws and regulations, changes in technology, the extent of other parties’ participation, discovery of unidentified environmental conditions and matters, developments in environmental surveys and studies, and the extent of corrective action that may ultimately be required. The Company cannot predict the effect, if any, that unidentified environmental matters or the adoption of unknown additional or more stringent environmental laws and regulations would have on KCS’s consolidated financial statements.

KCS’s failure or inability to comply with applicable environmental laws and regulations could have a material adverse effect on the Company’s consolidated financial statements and operations, including fines, penalties, or limitations on operating activities until compliance with applicable requirements is achieved. Government entities may change the legislative or regulatory framework within which the Company operates that could result in adverse effects on the Company’s business that occur as a result of such change. Additionally, some of the regulations require KCS to obtain and maintain various licenses, permits and other authorizations. Any failure to obtain or maintain these licenses, permits, and other authorizations could have a material adverse effect on KCS’s business operations.

Climate change could have a material adverse effect on KCS’s operations and KCS’s consolidated financial statements. Restrictions, caps, taxes, or other controls on emissions of greenhouse gases, including diesel exhaust, could significantly impact operations and increase operating costs. Restrictions on emissions could also affect KCS’s customers that use commodities that KCS transports to produce energy, use significant amounts of energy in producing or delivering the commodities KCS transports, or manufacture or produce goods that consume significant amounts of energy or burn fossil fuels, including coal-fired power plants, chemical producers, farmers and food producers, and automakers and other manufacturers. Significant cost increases, government regulation, or changes of consumer preferences for goods or services relating to alternative sources of energy or emissions reductions could materially affect the markets for the commodities KCS transports, which in turn could have a material adverse effect on KCS’s consolidated financial statements. Government incentives encouraging the use of alternative sources of energy could also affect certain customers and their respective markets for certain commodities KCS transports in an unpredictable manner that could alter traffic patterns, including, for example, the impacts of ethanol incentives on farming and ethanol producers. Moreover, increasing frequency, intensity and duration of extreme weather events such as flooding, storms and fires may result in substantial costs, including costs associated with KCS’s response during the event, KCS’s recovery from the event and preventive measures. Any of these factors, individually or in conjunction with one or more of the other aforementioned factors, or other unforeseen impacts of climate change could have a material adverse effect on KCS’s consolidated financial statements.

The Company has established greenhouse gas (GHG) emission reduction targets. KCS's inability to achieve GHG emissions reduction targets could negatively impact both the Company’s reputation and financial results. KCS has established science-based GHG emissions reduction targets to address a substantial portion of the Company's Scope 1 and Scope 2 emissions by 2034. The primary risks associated with achieving these commitments include, but are not limited to, not achieving targets set for fuel efficiency improvements, future investments in and the availability of GHG emissions-reduction tools and technologies, KCS's ability to work with governments and third parties to mitigate the impacts of climate change, domestic and international economic conditions, the effects of competition and regulation, capital spending, the willingness of customers to acquire the Company’s services, cost of network expansion, maintenance and retrofits. The Company’s targets are subject to the accuracy of the assumptions in the science-based methodology used to calculate these targets. The Company cannot assure that KCS's plans to reduce GHG emissions will be viable or successful. Inability to meet GHG emissions reduction targets could have a material adverse effect on KCS’s results of operations or financial position.

The Merger Agreement generally requires KCS to use commercially reasonable efforts to conduct its business in all material respects in the ordinary course prior to the date CP is permitted to assume control over KCS’s railroad operations following receipt of STB Final Approval and exit from the Voting Trust. In addition, the Merger Agreement includes a variety of specified restrictions on the conduct of KCS’s business during the pendency of the Voting Trust. These contractual restrictions in the Merger Agreement may delay or prevent KCS from making certain changes, or limit its ability to make certain changes during such period, even if KCS’s management believes that making certain changes may be advisable. The pendency of the Voting Trust may also divert management’s attention and KCS’s resources from ongoing business operations.

KCS’s employees, suppliers, vendors or customers may experience uncertainties about the effects of the transaction. It is possible that some employees, suppliers, vendors, or customers and other parties with whom KCS has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with KCS as a result of the proposed acquisition. Similarly, current and prospective employees may experience uncertainty about their future roles with KCS following completion of the transaction, which may materially and adversely affect KCS’s ability to attract and retain key employees. If any of these effects were to occur, it could materially and adversely impact KCS’s operating results, financial position, and cash flows.

Uncertainty about the effect of the transaction on KCS and CP employees may have an adverse effect on KCS and consequently the combined company. This uncertainty may impair KCS’s ability to attract, retain and motivate key personnel. Employee retention may be particularly challenging during the pendency of the Voting Trust, as employees of KCS may experience uncertainty about their future roles in the combined company. No assurance can be given that the combined company will be able to attract or retain key employees to the same extent that KCS has been able to attract or retain employees in the past.

As a result of the combination of KCS and CP following receipt of STB Final Approval, significant demands will be placed on the managerial, operational and financial personnel and systems of KCS. KCS cannot provide assurance that its systems, procedures and controls will be adequate to support the expansion of operations following and resulting from the combination of the two companies. The future operating results of the combined company will be affected by the ability of its officers and key employees to manage changing business conditions and to implement and expand the Company’s operational and financial controls and reporting systems in response to the transaction.

KCSM operates under the Concession granted by the Mexican government until June 2047, which is renewable for an additional period of up to 50 years, subject to certain conditions. The Concession gives KCSM exclusive rights to provide freight transportation services over its rail lines through 2037 (the first 40 years of the 50-year Concession), subject to certain trackage and haulage rights granted to other concessionaires. The SICT and ARTF, which are principally responsible for regulating railroad services in Mexico, have broad powers to monitor KCSM’s compliance with the Concession, and they can require KCSM to supply them with any technical, administrative, operative, and financial information they request. Among other obligations, KCSM must comply with the investment commitments established in its business plan, which forms an integral part of the Concession, and must update the plan every three years. The SICT treats KCSM’s business plans confidentially. The SICT and ARTF also monitor KCSM’s compliance with efficiency and safety standards established in the Concession. The SICT and ARTF review, and may amend, these standards from time to time.

Under the Concession, KCSM has the right to operate its rail lines, but it does not own the land, roadway, or associated structures. If the Mexican government legally terminates the Concession, it would own, control, and manage such public domain assets used in the operation of KCSM’s rail lines. All other property not covered by the Concession, including all locomotives and railcars, otherwise acquired, would remain KCSM’s property. In the event of early termination, or total or partial revocation of the Concession, the Mexican government would have the right to cause the Company to lease all service-related assets to it for a term of at least one year, automatically renewable for additional one-year terms for up to five years. The amount of rent would be determined by experts appointed by KCSM and the Mexican government. The Mexican government must exercise this right within four months after early termination or revocation of the Concession. In addition, the Mexican government would also have a right of first refusal with respect to certain transfers by KCSM of railroad equipment within 90 days after revocation of the Concession.

The Mexican government may also temporarily seize control of KCSM’s rail lines and its assets in the event of a natural disaster, war, significant public disturbance, or imminent danger to the domestic peace or economy. In such a case, the SICT may restrict KCSM’s ability to operate under the Concession in such manner as the SICT deems necessary under the circumstances, but only for the duration of any of the foregoing events. Mexican law requires that the Mexican government pay compensation if it effects a statutory appropriation for reasons of the public interest. With respect to a temporary seizure due to any cause other than international war, the Mexican Regulatory Railroad Service Law and regulations provide that the Mexican government will indemnify an affected concessionaire for an amount equal to damages caused and losses suffered. However, these payments may not be sufficient to compensate KCSM for its losses and may not be made timely.

The SICT may revoke the Concession if KCSM is sanctioned for the same cause at least three times within a period of five years for any of the following: unjustly interrupting the operation of its rail lines or for charging rates higher than those it has registered with the ARTF; unlawfully restricting the ability of other Mexican rail operators to use its rail lines; failing to make payments for damages caused during the performance of services; failing to comply with any term or condition of the Mexican Regulatory Railroad Service Law and regulations or the Concession; failing to make the capital investments required under its three-year business plan filed with the SICT; or failing to maintain an obligations compliance bond and insurance coverage as specified in the Mexican Regulatory Railroad Service Law and regulations. In addition, the Concession would terminate automatically if KCSM changes its nationality or assigns or creates any lien on the Concession, or if there is a change in control of KCSM without the SICT’s approval. The SICT may also terminate the Concession as a result of KCSM’s surrender of its rights under the Concession, for reasons of public interest, or upon KCSM’s liquidation or bankruptcy. If the Concession is terminated or revoked by the SICT for any reason, KCSM would receive no compensation and its interest in its rail lines, and all other fixtures covered by the Concession, as well as all improvements made by it, would revert to the Mexican government. Revocation or termination of the Concession could have a material adverse effect on the Company’s consolidated financial statements.

could be impacted by the introduction of new legislation or policies to regulate the railway industry, the energy market, or labor and tax conditions. KCS cannot predict the impact that the political landscape, including multiparty rule, social unrest and civil disobedience, will have on the Mexican economy or KCSM’s operations. For example, from time to time, social unrest in Mexico has resulted in service interruptions on KCSM’s right of ways due to blockages from teachers’ protests. KCS’s consolidated financial statements and prospects may be adversely affected by currency fluctuations, inflation, interest rates, regulation, taxation and other political, social and economic developments in or affecting Mexico. For example, the Company has several tax contingencies including, multiple tax periods subject to current examination, audit assessments for the KCSM 2009, 2010, 2013, and 2014 Mexico tax returns, and a receivable for refundable value added tax (“VAT”). Tax contingencies are further discussed with Item 8, Financial Statements and Supplemental Data.

The Mexican economy in the past has suffered a balance of payment deficits and shortages in foreign exchange reserves. Although Mexico has imposed foreign exchange controls in the past, there are currently no exchange controls in Mexico. Any restrictive exchange control policy could adversely affect KCS’s ability to obtain U.S. dollars or convert Mexican pesos into dollars for purposes of making payments. This could have a material adverse effect on KCS’s consolidated financial statements.

The level and timing of KCS’s Mexican business activity are heavily dependent upon the level of United States-Mexican trade and the effects of current or future multinational trade agreements on such trade. The Mexican operations depend on the United States and Mexican markets for the products KCSM transports, the relative position of Mexico and the United States in these markets at any given time, and tariffs or other barriers to trade. Failure to preserve trade provisions conducive to trade, or any other action imposing import duties or border taxes, could negatively impact KCS customers and the volume of rail shipments, and could have a material adverse effect on KCS’s consolidated financial statements.

Downturns in the United States or Mexican economies or in trade between the United States and Mexico could have material adverse effects on KCS’s consolidated financial statements and the Company’s ability to meet debt service obligations. In addition, KCS has invested significant amounts in developing its intermodal operations, including the Port of Lazaro Cardenas, in part to provide Asian importers with an alternative to the west coast ports of the United States, and the level of intermodal traffic depends, to an extent, on the volume of Asian shipments routed through Lazaro Cardenas. Reductions in trading volumes, which may be caused by factors beyond KCS’s control, including increased government regulations regarding the safety and quality of Asian-manufactured products, could have a material adverse effect on KCS’s consolidated financial statements.

Additionally, fluctuations in the peso-dollar exchange rates could lead to shifts in the types and volumes of Mexican imports and exports. Although a decrease in the level of exports of some of the commodities that KCSM transports to the United States may be offset by a subsequent increase in imports of other commodities KCSM hauls into Mexico and vice versa, any offsetting increase might not occur on a timely basis, if at all. Future developments in United States-Mexican trade beyond the Company’s control may result in a reduction of freight volumes or in an unfavorable shift in the mix of products and commodities KCSM carries.

Extreme volatility in the peso-dollar exchange rate may result in disruption of the international foreign exchange markets and may limit the ability to transfer or convert Mexican pesos into U.S. dollars. Although the Mexican government currently does not restrict, and for many years has not restricted, the right or ability of Mexican or foreign persons or entities to convert pesos into U.S. dollars or to transfer foreign currencies out of Mexico, the Mexican government could, as in the past, institute restrictive exchange rate policies that could limit the ability to transfer or convert pesos into U.S. dollars or other currencies for the purpose of making timely payments and meeting contractual commitments.

Due to the significant capital expenditures required to operate and maintain a safe and efficient railroad, the Company regularly obtains financing through the issuance of long-term debt instruments and commercial paper from time-to-time, as well as credit facilities provided by financial institutions. Significant, sustained instability or disruptions of the capital markets, including credit markets, or the deterioration of the Company’s financial condition due to internal or external factors, could restrict or prohibit access and could increase the cost of financing sources. A significant deterioration of the Company’s financial condition could also reduce credit ratings to below investment grade, limiting its access to external sources of capital, and increasing the costs of short and long-term debt financing, and could have a material adverse effect on KCS’s consolidated financial statements.

Kansas City Southern de México, S.A. de C.V. (“KCSM”) operates over a railroad system consisting of approximately 3,800 route miles. This includes approximately 3,300 route miles operated under its concession from the Mexican government (the “Concession”), and approximately 550 miles of trackage rights. Under the Concession, KCSM does not own the land, roadway, or associated structures, but is provided the exclusive right to operate across these routes, while also requiring KCSM to make investments as described in a business plan filed every three years with the Mexican government. See Item 1A, Risk Factors — “KCSM’s Mexican Concession is subject to revocation or termination in certain circumstances, which would prevent KCSM from conducting rail operations under the Concession and would have a material adverse effect on the Company’s consolidated financial statements.”


	2022				2021
	Owned	Leased	Total	Avg Age (in Years)	Owned	Leased	Total	Avg Age (in Years)
Freight Cars:
Box cars	2,044	755	2,799	28.0	2,072	691	2,763	27.3
Hoppers (covered and open top)	4,785	1,161	5,946	16.9	4,809	1,164	5,973	15.9
Gondolas	2,409	1,331	3,740	24.4	2,418	1,180	3,598	24.9
Automotive	3,281	321	3,602	9.2	3,304	323	3,627	8.2
Flat cars (intermodal and other)	852	53	905	29.4	793	53	846	27.5
Tank cars	—	347	347	28.0	—	332	332	27.1
Total	13,371	3,968	17,339	19.6	13,396	3,743	17,139	18.8

Locomotives:
Freight	816	—	816	19.3	815	—	815	17.9
Switching	190	—	190	49.4	192	—	192	46.7
Total	1,006	—	1,006	25	1,007	—	1,007	23.4

KCS operates numerous facilities, including terminals for intermodal and other freight, rail yards for train-building, switching, storage-in-transit (the temporary storage of customer goods in rail cars prior to shipment) and other activities; offices to administer and manage operations; dispatch centers to direct traffic on the rail network; crew quarters to house train crews along the rail line; and shops and other facilities for fueling and maintenance and repair of locomotives, freight cars and other equipment.

The Company’s cash capital expenditures for the two years ended December 31, 2022 and 2021, are included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Expenditures. See also Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Capitalization, Depreciation and Amortization of Property and Equipment (including Concession Assets) regarding the Company’s policies and guidelines related to capital expenditures.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. For more information on legal proceedings, see Item 1A, Risk Factors — “KCS may be subject to various claims and litigation that could have a material adverse effect on KCS’s consolidated financial statements,” Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters — Litigation, and Item 8, Financial Statements and Supplementary Data — Note 16, Commitments and Contingencies.

The discussions set forth in this Annual Report on Form 10-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. In addition, management may make forward-looking statements orally or in other writings, including, but not limited to, in press releases, executive presentations, in annual reports, and other filings with the Securities and Exchange Commission. Readers can usually identify these forward-looking statements by the use of such verbs as “may,” “will,” “should,” “likely,” “plans,” “projects,” “expects,” “anticipates,” “believes” or similar verbs or conjugations of such verbs. The Company has based these forward-looking statements on management’s current expectations, assumptions, estimates, beliefs, and projections. While the Company believes these expectations, assumptions, estimates, and projections are reasonable, forward-looking statements involve known and unknown risks and uncertainties, many of which involve factors or circumstances that are beyond the Company’s control, including but not limited to, the factors identified below and those discussed under Item 1A, Risk Factors, of this Form 10-K. Readers are strongly encouraged to consider these factors and the following factors when evaluating any forward-looking statements concerning the Company:

Forward-looking statements reflect the information only as of the date on which they are made. Forward-looking statements are not, and should not be relied upon as, a guarantee of future events or performance, nor will they necessarily prove to be accurate indications of the times at or by which any such events or performance will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. The Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, the occurrence of certain events or otherwise, unless required by law.

Kansas City Southern, a Delaware corporation, is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. In the U.S., the Company serves the midwest and southeast regions of the U.S. Its international holdings serve northeastern and central Mexico and the port cities of Lazaro Cardenas, Tampico and Veracruz, and a fifty percent interest in Panama Canal Railway Company provides ocean-to-ocean freight and passenger service along the Panama Canal. KCS’s North American rail holdings and strategic alliances are primary components of a railway system, linking the commercial and industrial centers of the U.S., Canada and Mexico. KCS’s principal subsidiaries and affiliates include the following:

On September 15, 2021, KCS and CP entered into a merger agreement (the “Merger Agreement”) and on December 14, 2021, CP acquired the outstanding common and preferred stock of KCS. Each share of common stock, par value $0.01 per share, of KCS that was outstanding immediately prior to the merger was converted into the right to receive (1) 2.884 common shares of CP and (2) $90 in cash (together, the “Merger Consideration”), and each share of preferred stock, par value $25 per share, that was outstanding immediately prior to the merger was converted into the right to receive $37.50 in cash. The Merger Consideration value received by KCS stockholders was $301.20 per KCS common share.

The invasion of Ukraine by Russia in February 2022 has led to disruption, instability, and volatility in global markets and industries. The U.S. government and other foreign governments have imposed severe economic sanctions and export controls against Russia, certain regions of Ukraine and particular entities and individuals, removed Russia from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) system, and may impose additional sanctions and controls. The full impact of these sanctions and controls, as well as responses to them by Russia has and could in the future result in, among other things, severe or complete restrictions on exports to and other commerce and business dealings involving Russia, certain regions of Ukraine, and/or particular entities and individuals. In addition, this ongoing invasion has caused energy prices to rise, leading to increased inflationary impacts. To date, the Company has not experienced a material impact to operations or the consolidated financial statements as a result of the invasion of Ukraine; however, KCS will continue to monitor for events that could materially impact the Company.

Consumer price annual inflation rates as of December 31, 2022 were 6.5% and 7.8% in the U.S. and Mexico, respectively. KCS continues to closely monitor the impact of rapidly increasing inflation on the Company’s financial results and procurement supply chain. As of December 31, 2022, higher inflation has not had a material impact on the Company’s financial results. Additionally, supply chain disruptions have not materially impacted the Company’s ability to procure essential materials and services on a timely basis.

Inflation is expected to remain elevated for the near future. Inflationary factors, such as increases in interest rates, overhead costs and transportation costs may adversely affect the Company’s financial results. Although the Company does not believe that inflation has had a material impact on KCS’s financial results to date, the Company may experience some effect in the near future due to supply chain constraints, consequences associated with the novel coronavirus and its variants (“COVID-19”), the ongoing invasion of Ukraine by Russia, employee availability, and wage increases.

Revenues increased 14% for the year ended December 31, 2022, as compared to 2021, due to a 9% increase in revenue per carload/unit and a 5% increase in carload/unit volumes. Revenue per carload/unit increased due to higher fuel surcharge, positive pricing impacts, and longer average length of haul, partially offset by mix. Carload/unit volumes increased due to strong demand, new business, a partial recovery of the global microchip shortage, service interruptions at Lazaro Cardenas port in Mexico in 2021, and improved cycle times. These increases were partially offset by decreased volumes in chemicals and petroleum refined fuel products due to regulatory impacts.


	2022		2021		Change
Revenues	$	3,370.4	$	2,947.3	$	423.1
Operating expenses	2,143.3		2,063.5		79.8
Operating income	1,227.1		883.8		343.3
Equity in net earnings of affiliates	8.7		16.7		(8.0)
Interest expense	(156.6)		(156.0)		(0.6)
Foreign exchange loss	(33.2)		(9.0)		(24.2)
Gain on settlement of treasury lock agreements	259.3		—		259.3
Other income, net	4.4		2.6		1.8
Income before income taxes	1,309.7		738.1		571.6
Income tax expense	325.9		211.1		114.8
Net income	983.8		527.0		456.8
Less: Net income attributable to noncontrolling interest	1.6		1.8		(0.2)
Net income attributable to Kansas City Southern and subsidiaries	$	982.2	$	525.2	$	457.0

(i) Gross velocity is the average train speed between origin and destination in miles per hour calculated as the sum of the miles traveled divided by the sum of total transit hours. Transit hours are measured as the difference between a train’s origin departure and destination arrival date and times broken down by segment across the train route (includes all time spent including crew changes, terminal dwell, delays, and incidents).

(ii) Terminal dwell is the average amount of time in hours between car arrival to and departure from the yard (excludes cars that move through a terminal on a run-through train, stored, bad ordered, and maintenance-of-way cars). Calculated by dividing the total number of hours cars spent in terminals by the total count of car dwell events.

(iii) Train length is the average length of a train across its reporting stations, including the origin and intermediate stations. Length of a train is the sum of car and locomotive lengths measured in feet.

(iv) Fuel efficiency is calculated by taking locomotive fuel consumed in gallons divided by thousand gross ton miles (“GTM’s”) net of detours with no associated fuel gallons. GTM’s are the movement of one ton of train weight over one mile calculated by multiplying total train weight by distance the train moved. GTM’s exclude locomotive gross ton miles.


	Revenues						Carloads and Units				Revenue per Carload/Unit
	2022		2021		% Change		2022	2021	% Change		2022		2021		% Change
Chemical and petroleum	$	783.5	$	851.8	(8	%)	323.3	371.5	(13	%)	$	2,423	$	2,293	6	%
Industrial and consumer products	710.6		589.6		21	%	335.0	304.3	10	%	2,121		1,938		9	%
Agriculture and minerals	682.0		571.7		19	%	288.5	269.9	7	%	2,364		2,118		12	%
Energy	305.2		254.8		20	%	271.1	263.1	3	%	1,126		968		16	%
Intermodal	449.7		346.3		30	%	1,034.1	952.8	9	%	435		363		20	%
Automotive	258.4		183.2		41	%	130.6	104.6	25	%	1,979		1,751		13	%
Carload revenues, carloads and units	3,189.4		2,797.4		14	%	2,382.6	2,266.2	5	%	$	1,339	$	1,234	9	%
Other revenue	181.0		149.9		21	%
Total revenues (i)	$	3,370.4	$	2,947.3	14	%

(i) Included in revenues:
Fuel surcharge	$	501.6	$	274.5


			Revenues by commodity group for 2022
Chemical and petroleum. Revenues decreased $68.3 million for the year ended December 31, 2022, compared to 2021, due to a 13% decrease in carload/unit volumes, partially offset by a 6% increase in revenue per carload/unit. Volumes decreased due to refined fuel product shipments into Mexico being negatively impacted by supply chain disruptions as a result of increased regulation. Refer to Mexico Regulatory and Legal Updates for further discussion. Revenue per carload/unit increased due to higher fuel surcharge and positive pricing impacts, partially offset by mix and shorter average length of haul.


Industrial and consumer products. Revenues increased $121.0 million for the year ended December 31, 2022, compared to 2021, due to a 10% increase in carload/unit volumes and 9% increase in revenue per carload/unit. Metal volumes increased due to new steel plants that opened on the KCSM network in 2021 and higher demand. Revenue per carload/unit increased due to higher fuel surcharge, positive pricing impacts, and longer average length of haul, partially offset by mix.


			Revenues by commodity group for 2022
Agriculture and minerals. Revenues increased $110.3 million for the year ended December 31, 2022, compared to 2021, due to 12% increase in revenue per carload/unit and a 7% increase in carload/unit volumes. Revenue per carload/unit increased due to higher fuel surcharge, positive pricing impacts, and longer average length of haul, partially offset by mix. Volumes increased due to higher demand for cross-border grain and improved cycle times.


Energy. Revenues increased $50.4 million for the year ended December 31, 2022, compared to 2021, due to a 16% increase in revenue per carload/unit and a 3% increase in carload/unit volumes. Revenue per carload/unit increased due to higher fuel surcharge, positive pricing impacts, and longer average length of haul, partially offset by mix. Volumes increased due to new crude oil business, partially offset by a decline in utility coal as a result of deteriorated interchange cycle times and utility plant maintenance outages.

Intermodal. Revenues increased $103.4 million for the year ended December 31, 2022, compared to 2021, due to a 20% increase in revenue per carload/unit and a 9% increase in carload/unit volumes. Revenue per carload/unit increased due to higher fuel surcharge, mix, and positive pricing impacts. Volumes increased due to service interruptions at the Port of Lazaro Cardenas in Mexico in 2021, stronger demand, new business, and a partial recovery of the global microchip shortage affecting auto parts shipments.

Compensation and benefits. Compensation and benefits increased $45.0 million for the year ended December 31, 2022, compared to 2021, due to wage and benefit inflation of approximately $31.0 million, increase in headcount and hours worked of approximately $15.0 million primarily due to operational inefficiencies, and incremental retroactive wage and bonus expense resulting from agreements with U.S. unions of approximately $5.0 million, partially offset by decreased incentive compensation of approximately $14.0 million.

Purchased services. Purchased services expense increased $14.1 million for the year ended December 31, 2022, compared to 2021, due to an increase in repairs and maintenance expense of approximately $12.0 million, increased software and programming expense of approximately $8.0 million, an increase in intermodal lift services of approximately $4.0 million, increases in security costs of approximately $3.0 million and increases in corporate services of approximately $2.0 million, partially offset by cost reductions of approximately $19.0 million as a result of Mexico outsourcing reform, which prohibited the subcontracting and outsourcing of personnel.

Fuel. Fuel expense increased $148.1 million for the year ended December 31, 2022, compared to 2021, due to higher diesel fuel prices in the U.S. and Mexico of approximately $93.0 million and $34.0 million, respectively, increased consumption of approximately $13.0 million, decreased efficiency of approximately $7.0 million and the strengthening of the Mexican peso against the U.S. dollar of approximately $1.0 million. The average price per gallon was $3.48 in 2022, compared to $2.50 in 2021.

Equity in net earnings of affiliates. Equity in net earnings of affiliates decreased $8.0 million for the year ended December 31, 2022, compared to 2021, primarily due to a decrease in net earnings from the operations of TFCM, S. de R.L de C.V. (“TCM”) due to higher interest and tax expense, a decrease in net earnings from the operations of Panama Canal Railway Company (“PCRC”) resulting from a gain on insurance recoveries recognized in 2021, and decreased net earnings from unrealized depreciation of investments held in a fifteen percent-owned equity investment.

Gain on settlement of treasury lock agreements. During 2020, KCS entered into treasury lock agreements to hedge the U.S. Treasury benchmark interest rate associated with the anticipated refinancing of its aggregate $644.7 million of senior notes due in 2023. During the fourth quarter of 2022, KCS determined the forecasted refinancing was no longer considered probable to occur as financing costs have risen and the Company plans to extinguish the maturing debt with cash on hand and cash generated from operations. Accordingly, the Company removed the cash flow hedge designation of all tranches and derecognized the related unrealized gain in accumulated other comprehensive income (loss). The treasury lock instruments were settled and the Company recognized the gain on settlement of the interest rate derivative instruments of $259.3 million. Refer to Item 8, Financial Statements and Supplementary Data — Note 10, Derivative Instruments for more information.


	2022				2021				Change
	Dollars		Percent		Dollars		Percent		Dollars		Percent
Income tax expense using the statutory rate in effect	$	275.0	21.0	%	$	155.0	21.0	%	$	120.0	—
Tax effect of:
Difference between U.S. and foreign tax rate	57.4		4.4	%	51.9		7.0	%	5.5		(2.6	%)
Inflation	(25.8)		(2.0	%)	(10.4)		(1.4	%)	(15.4)		(0.6	%)
Tax credits	(11.9)		(0.9	%)	(11.7)		(1.6	%)	(0.2)		0.7	%
Foreign exchange (i)	9.4		0.7	%	5.9		0.8	%	3.5		(0.1	%)
State and local income tax provision, net	9.1		0.7	%	0.2		—		8.9		0.7	%
Withholding tax	8.5		0.6	%	8.5		1.2	%	—		(0.6	%)
Non-deductible executive compensation	3.6		0.3	%	14.7		2.0	%	(11.1)		(1.7	%)
Non-deductible transaction costs	0.6		—		14.0		1.9	%	(13.4)		(1.9	%)
Global intangible low-taxed income tax, net	0.1		—		0.4		0.1	%	(0.3)		(0.1	%)
Share-based compensation	—		—		(25.2)		(3.4	%)	25.2		3.4	%
Other, net	(0.1)		0.1	%	7.8		1.0	%	(7.9)		(0.9	%)
Income tax expense	$	325.9	24.9	%	$	211.1	28.6	%	$	114.8	(3.7	%)

(i)The Company’s Mexican subsidiaries have net U.S. dollar-denominated monetary assets which, for Mexican income tax purposes, are subject to periodic revaluation based on changes in the value of the Mexican peso against the U.S. dollar. This revaluation creates fluctuations in the Company’s Mexican income tax expense in the consolidated statements of income and the amount of income taxes paid in Mexico. The Company also has net monetary assets denominated in Mexican pesos, that are subject to periodic re-measurement and settlement that creates fluctuations in foreign currency gains and losses in the consolidated statements of income. The Company hedges its net exposure to variations in earnings by entering into foreign currency forward contracts. The foreign currency forward contracts involve the Company’s agreement to buy or sell pesos at an agreed-upon exchange rate on a future date. Refer to to Item 8, Financial Statements and Supplementary Data — Note 10, Derivative Instruments for further information.

Hydrocarbons Law. On May 5, 2021, new legislation pertaining to the transport and handling of hydrocarbons in Mexico became effective. This legislation addresses a wide array of issues related to the storage, transportation and handling of petroleum products, as well as the illegal import of hydrocarbons. The legislation is being challenged in the court system by a number of stakeholders and is currently subject to a court-ordered injunction, resulting in a suspension of the implementation and enforcement of this new law. To date, this law has not had a material effect on the Company or its operations. However, the Company is continuing to monitor this law and is evaluating the effect on the Company and its business operations.

Inspections Related to Imports and Terminals. During 2021, the Ministry of Infrastructure, Communications, and Transportation (“SICT”) and other relevant Mexican authorities increased inspections of imports and enforcement of various regulations and permit requirements related to terminal operations, with specific focus on imports of refined products and refined fuel transloading terminals and freight terminals, in order to prevent the illegal importation of refined fuel products. These inspections resulted in delays related to the import of shipments into Mexico as well as the shutdown of several refined fuel terminals in the second half of 2021. The SICT has instructed KCSM to provide railway service only to those terminals that have the applicable permits. If KCSM were to fail to comply with the SICT requirements, the Company could be subject to fines and potential revocation of the Concession. As a result, KCS’s freight revenue from refined products decreased significantly in the second half of 2021 and continued to decrease in 2022. See further discussion in the Revenues section.

Value-Added Tax Law. KCSM is not required to charge its customers value added tax (“VAT”) on international import or export transportation services, which prior to 2022 resulted in KCSM paying more VAT on its expenses than it collected from customers. These excess VAT payments are refundable by the Mexican government. Prior to 2019, Mexican companies could offset their monthly refundable VAT balance with other tax obligations. In January 2019, Mexico tax reform eliminated the ability to offset other tax obligations with refundable VAT. From 2019 through 2021, KCSM generated a refundable balance and filed refund claims with the Servicio de Administración Tributaria (“SAT”), which have not been refunded.

In November 2021, changes in the VAT law were enacted and became effective beginning January 1, 2022. These changes reduced the recoverability of VAT paid by KCSM on its expenditures that support international import transportation service revenues that are not subject to a VAT charge. VAT that is unrecoverable from the Mexican government results in incremental VAT expense for KCSM. Beginning in 2022, KCSM changed certain service offerings to either require VAT to be charged to customers on revenue, or impose a rate increase to offset the incremental VAT expense. These measures implemented by KCSM increased the VAT to be collected from customers and payable to the Mexican government.

As of December 31, 2022 and 2021, the KCSM refundable VAT balance was $78.9 million and $152.2 million, respectively. KCSM recovers the refundable VAT balance as VAT billed to customers exceed creditable VAT charged by vendors. KCSM has prior favorable Mexican court decisions and a legal opinion supporting its right under Mexican law to recover the refundable VAT balance from the Mexican government and believes the VAT to be fully recoverable. As of December 31, 2022 and 2021, $78.9 million and $78.0 million, respectively, of the refundable VAT balance was classified as a short-term asset.

Carta Porte. In the second quarter of 2021, KCSM was notified by the SAT that shipping companies (cargo airlines, trucks, maritime, railroads, etc.) must include additional bill of lading information (referred to in Mexico as “Carta Porte”) with the invoice for all merchandise shipped in Mexico, including cross-border, international and Mexico domestic shipments. The Carta Porte requirements and deadline were modified several times throughout 2021 and 2022, with the most recent grace period extension to July 31, 2023. KCSM adapted its systems to comply with Carte Porte requirements, which delayed KCSM’s invoicing and cash collections by an average of approximately 40 days during 2022.

On January 1, 2022, KCSM complied with Carta Porte requirements, providing customers with additional bill of lading information with the invoice for all merchandise shipped in Mexico. KCSM adapted its systems to comply with the Carta Porte requirements, which delayed KCSM’s invoicing and cash collections by an average of approximately 40 days during 2022, resulting in the accounts receivable as of December 31, 2022 to be elevated compared to historical balances. The Company is targeting its accounts receivable balance to decrease and return to historical balance levels during the first half of 2023.


	Payments Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 years		Other
Long-term debt and short-term borrowings (including interest and finance lease obligations) (i)	$	6,894.7	$	797.1	$	271.2	$	504.5	$	5,321.9	$	—
Operating leases	104.2		29.7		44.5		26.5		3.5		—
Obligations due to uncertainty in income taxes (ii)	1.3		—		—		—		—		1.3
Capital expenditure obligations (iii)	313.1		121.5		127.0		64.6		—		—
Other contractual obligations (iv)	450.8		130.9		149.0		152.9		18.0		—
Total	$	7,764.1	$	1,079.2	$	591.7	$	748.5	$	5,343.4	$	1.3

As of December 31, 2022, KCS had outstanding $3,736.2 million principal amount of senior notes due through 2069. The Kansas City Southern Railway Company (“KCSR”) had outstanding $2.7 million principal amount of senior notes due through 2045 (together, the “Senior Notes”). The senior notes for which KCS is the issuer are unconditionally guaranteed, jointly and severally, on an unsecured senior basis, by each of KCS’s current and future domestic consolidated subsidiaries that from time to time guarantees certain of KCS’s credit agreements, or any other debt of KCS, or any of KCS’s significant subsidiaries that is a guarantor (each, a “Guarantor Subsidiary,” and collectively, the “Guarantor Subsidiaries”). In addition, the senior notes for which KCSR is the issuer are unconditionally guaranteed, jointly and severally, on an unsecured senior basis, by KCS and each of its current and future domestic consolidated subsidiaries that from time to time guarantees KCSR’s credit agreement, or any other debt of KCSR or any of KCSR’s significant subsidiaries that is a Guarantor Subsidiary. The obligations of each Guarantor Subsidiary under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. A guarantee of the Senior Notes by KCS or a Guarantor Subsidiary is subject to release in the following circumstances: (i) the sale, disposition, exchange or other transfer (including through merger, consolidation, amalgamation or otherwise) of the capital stock of the Guarantor Subsidiary made in a manner not in violation of the indenture; (ii) the designation of the subsidiary as an “Unrestricted Subsidiary” under the indenture; (iii) the legal defeasance or covenant defeasance of the Senior Notes in accordance with the terms of the indenture; or (iv) the Guarantor Subsidiary ceasing to be KCS’s subsidiary as a result of any foreclosure of any pledge or security interest securing KCS’s Revolving Credit Facility or other exercise of remedies in respect thereof. There were no changes to the guarantor structure as a result of the merger with CP. The merger is further discussed within Item 7, Management’s Discussion and Analysis of Financial Information and Results of Operations — Merger Agreement.

Excluded from current assets in the table above are $276.0 million and $199.8 million of current intercompany receivables due to KCS and the Guarantor Subsidiaries from the Non-Guarantor Subsidiaries as of December 31, 2022 and December 31, 2021, respectively. Excluded from current liabilities in the table above are $207.4 million and $267.5 million of current intercompany payables due to the Non-Guarantor Subsidiaries from KCS and the Guarantor Subsidiaries as of December 31, 2022 and December 31, 2021, respectively.

The Senior Notes are structurally subordinated to the indebtedness and other liabilities of the Non-Guarantor Subsidiaries. The Non-Guarantor Subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Senior Notes or the indentures, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that KCS or the Guarantor Subsidiaries have to receive any assets of any of the Non-Guarantor Subsidiaries upon the liquidation or reorganization of any Non-Guarantor Subsidiary, and the consequent rights of holders of Senior Notes to realize proceeds from the sale of any of a Non-Guarantor Subsidiary’s assets, would be effectively subordinated to the claims of such Non-Guarantor Subsidiary’s creditors, including trade creditors and holders of preferred equity interests, if any, of such Non-Guarantor Subsidiary. Accordingly, in the event of a bankruptcy, liquidation or reorganization of any of the Non-Guarantor Subsidiaries, the Non-Guarantor Subsidiaries will pay the holders of their debts, holders of preferred equity interests, if any, and their trade creditors before they will be able to distribute any of their assets to KCS or any Guarantor Subsidiary.

If a Guarantor Subsidiary were to become a debtor in a case under the U.S. Bankruptcy Code or encounter other financial difficulty, under federal or state fraudulent transfer or conveyance law, a court may avoid, subordinate or otherwise decline to enforce its guarantee of the Senior Notes. A court might do so if it is found that when such Guarantor Subsidiary entered into its guarantee of the Senior Notes, or in some states when payments became due under the Senior Notes, such Guarantor Subsidiary received less than reasonably equivalent value or fair consideration and either:

A court would likely find that a Guarantor Subsidiary did not receive reasonably equivalent value or fair consideration for its guarantee of the Senior Notes, if such Guarantor Subsidiary did not substantially benefit directly or indirectly from the funding made available by the issuance of the Senior Notes. If a court were to avoid a guarantee of the Senior Notes provided by a Guarantor Subsidiary, holders of the Senior Notes would no longer have any claim against such Guarantor Subsidiary. The measures of insolvency for purposes of these fraudulent transfer or conveyance laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer or conveyance has occurred, such that the Company cannot predict what standards a court would use to determine whether or not a Guarantor Subsidiary was solvent at the relevant time or, regardless of the standard that a court uses, that the guarantee of a Guarantor Subsidiary would not be subordinated to such Guarantor Subsidiary’s other debt. As noted above, each guarantee provided by a Guarantor Subsidiary includes a provision intended to limit the Guarantor Subsidiary’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer or conveyance. This provision may not be effective to protect those guarantees from being avoided under fraudulent transfer or conveyance law, or it may reduce that Guarantor Subsidiary’s obligation to an amount that effectively makes its guarantee worthless, and the Company cannot predict whether a court will ultimately find it to be effective.

On the basis of historical financial information, operating history and other factors, the Company believes that each of the Guarantor Subsidiaries, after giving effect to the issuance of its guarantee of the Senior Notes when such guarantee was issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. The Company cannot predict, however, as to what standard a court would apply in making these determinations or that a court would agree with the Company’s conclusions in this regard.

KCS’s accounting and financial reporting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management believes that the following accounting policies and estimates are critical to an understanding of KCS’s historical and future performance. Management has discussed the development and selection of the following critical accounting estimates with the Audit Committee of KCS’s Board of Directors and the Audit Committee has reviewed the selection, application and disclosure of the Company’s critical accounting policies and estimates.

Due to the highly capital intensive nature of the railroad industry, capitalization and depreciation of property and equipment are a substantial portion of the Company’s consolidated financial statements. Net property and equipment, including concession assets, comprised approximately 88% of the Company’s total assets as of December 31, 2022, and related depreciation and amortization comprised approximately 18% of total operating expenses for the year ended December 31, 2022.

KCS capitalizes costs for self-constructed additions and improvements to property including direct labor and material, indirect costs, and interest during long-term construction projects. The Company has a process in place to determine which costs qualify for capitalization, which requires judgment. Direct costs are charged to capital projects based on the work performed and the material used. Indirect costs are allocated to capital projects as a standard percentage, which is evaluated annually, and applied to direct labor and material costs. Asset removal activities are performed in conjunction with replacement activities; therefore, removal costs are estimated based on a standard percentage of direct labor and indirect costs related to capital replacement projects. For purchased assets, all costs necessary to make the asset ready for its intended use are capitalized. Expenditures that significantly increase asset values, productive capacity, efficiency, safety or extend useful lives are capitalized. Repair and maintenance costs are expensed as incurred.

Property and equipment are carried at cost and are depreciated primarily on the group method of depreciation, which the Company believes closely approximates a straight line basis over the estimated useful lives of the assets measured in years. The group method of depreciation applies a composite rate to classes of similar assets rather than to individual assets. Composite depreciation rates are based upon the Company’s estimates of the expected average useful lives of assets as well as expected net salvage value at the end of their useful lives. In developing these estimates, the Company utilizes periodic depreciation studies performed by an independent engineering firm. Depreciation rate studies are performed at least every three years for equipment and at least six years for road property (rail, ties, ballast, etc.). The depreciation studies take into account factors such as:

The depreciation studies may also indicate that the recorded amount of accumulated depreciation is deficient or in excess of the amount indicated by the study. Any such deficiency or excess is amortized as a component of depreciation expense over the remaining useful lives of the affected asset class, as determined by the study. The Company also monitors these factors in non-study years to determine if adjustments should be made to depreciation rates. The Company completed depreciation studies for KCSR in 2021 and KCSM in 2020. The impact of the KCSR study resulted in approximately $12.0 million in additional depreciation expense in 2022. The impact of the KCSM study was immaterial to the consolidated financial results for all periods presented.

Also under the group method of depreciation, the cost of railroad property and equipment (net of salvage or sales proceeds) retired or replaced in the normal course of business is charged to accumulated depreciation with no gain or loss recognized. Actual historical costs are retired when available, such as with equipment costs. The use of estimates in recognizing the retirement of roadway assets is necessary as it is impractical to track individual, homogeneous network-type assets. Certain types of roadway assets are retired using statistical curves derived from the depreciation studies that indicate the relative distribution of the age of the assets retired. For other roadway assets, historical costs are estimated by deflating current costs using inflation indices and the estimated useful life of the assets as determined by the depreciation studies. The indices applied to the replacement value are selected because they closely correlate with the major costs of the items comprising the roadway assets. Because of the number of estimates inherent in the depreciation and retirement processes and because it is impossible to precisely estimate each of these variables until a group of assets is completely retired, the Company continually monitors the estimated useful lives of its assets and the accumulated depreciation associated with each asset group to ensure the depreciation rates are appropriate.

Estimation of the average useful lives of assets and net salvage values requires management judgment. Estimated average useful lives may vary over time due to changes in physical use, technology, asset strategies and other factors that could have an impact on the retirement experience of the asset classes. Accordingly, changes in the assets’ estimated useful lives could significantly impact future periods’ depreciation expense. Depreciation and amortization expense for the year ended December 31, 2022 was $390.9 million. If the weighted average useful lives of assets were changed by one year, annual depreciation and amortization expense would change approximately $13.0 million.

Gains or losses on dispositions of land or non-group property and abnormal retirements of railroad property are recognized through income. A retirement of railroad property would be considered abnormal if the retirement meets each of the following conditions: (i) is unusual in nature, (ii) is significant in amount, and (iii) varies significantly from the retirement profile identified through the depreciation studies. There were no significant gains or losses from abnormal retirements of property or equipment for the year ended December 31, 2022 or 2021.

Costs incurred by the Company to acquire the Concession rights and related assets, as well as subsequent improvements to the Concession assets, are capitalized and amortized using the group method of depreciation over the lesser of the current expected Concession term, including probable renewal of an additional 50-year term, or the estimated useful lives of the assets and rights. The Company’s ongoing evaluation of the useful lives of Concession assets and rights considers the aggregation of the following facts and circumstances:

Long-lived assets, including property, plant and equipment, operating lease right-of-use assets and intangible assets with finite lives are reviewed for impairment and written down to fair value when events or circumstances indicate that the carrying amount of a long-lived asset or asset group may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the long-lived assets, the carrying value would be reduced to the estimated fair value. Future cash flow estimates for an impairment review would be based on the lowest level of identifiable cash flows, which are the Company’s U.S. and Mexican operations. Management did not identify any indicators of impairment for the years ended December 31, 2022 and 2021.

Deferred income taxes represent a net asset or liability of the Company. For financial reporting purposes, management determines the current tax liability, as well as deferred tax assets and liabilities, in accordance with the asset and liability method of accounting for income taxes. The provision for income taxes is the sum of income taxes both currently payable and deferred into the future. Currently payable income taxes represent the liability related to the Company’s U.S., state and foreign income tax returns for the current year and anticipated tax payments resulting from income tax audits, while the net deferred tax expense or benefit represents the change in the balance of net deferred tax assets or liabilities as reported on the balance sheet. The changes in deferred tax assets and liabilities are determined based upon the estimated timing of reversal of differences between the carrying amount of assets and liabilities for financial reporting purposes and the basis of assets and liabilities for tax purposes as measured using the currently enacted tax rates that will be in effect at the time these differences are expected to reverse. Additionally, management estimates whether taxable operating income in future periods will be sufficient to fully recognize any deferred tax assets. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.

Management believes that the assumptions and estimates related to the provision for income taxes are critical to the Company’s results of operations. For the year ended December 31, 2022, income tax expense totaled $325.9 million. For every 1% change in the 2022 effective rate, income tax expense would have changed by approximately $13.1 million. For further information on the impact of foreign exchange fluctuation on income taxes, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk — Foreign Exchange Sensitivity.

Litigation. Occasionally, the Company is a party to various legal proceedings, regulatory examinations, investigations, administrative actions, and other legal matters, arising for the most part in the ordinary course of business, incidental to its operations. Included in these proceedings are various tort claims brought by current and former employees for job-related injuries and by third parties for injuries related to railroad operations. KCS aggressively defends these matters and has established liability provisions that management believes are adequate to cover expected costs. The outcome of litigation and other legal matters is always uncertain. KCS believes it has valid defenses to the legal matters currently pending against it, is defending itself vigorously, and has recorded accruals determined in accordance with U.S. GAAP, where appropriate. In making a determination regarding accruals, using available information, KCS evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings to which it is a party to and records a loss contingency when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. These subjective determinations are based on the status of such legal or regulatory proceedings, the merits of KCS’s defenses and consultation with legal counsel. Actual outcomes of these legal and regulatory proceedings may materially differ from the current estimates. It is possible that resolution of one or more of the legal matters currently pending or threatened could result in losses material to KCS’s consolidated results of operations, liquidity or financial condition.

The analysis presented below for each of the Company's market risks uses a sensitivity model based on hypothetical changes (increases or decreases) to market risks using defined parameters and assumptions to quantify the potential impacts to the consolidated statements of income. The hypothetical changes to market risks do not represent KCS's view of future market changes. The effect of a change in a particular assumption was calculated without adjusting any other assumptions. These market risks and the potential impacts to the consolidated statements of income for the current year, have not materially fluctuated, individually or in the aggregate from the preceding year; thus only current year information is presented below.

Interest Rate Sensitivity. The Company is subject to interest rate risk associated with its debt. Changes in interest rates impact the fair value of outstanding fixed-rate debt, but there is no impact to current earnings or cash flow. Based upon the borrowing rates available to KCS and its subsidiaries for indebtedness with similar terms and average maturities, the fair value of long-term debt was approximately $3,308.3 million and $4,311.1 million at December 31, 2022 and 2021, respectively, compared with a carrying value of $3,779.6 million and $3,777.6 million at December 31, 2022 and 2021, respectively.

Commodity Price Sensitivity. KCS periodically participates in diesel fuel purchase commitments and derivative financial instruments. At December 31, 2022 and 2021, KCS did not have any outstanding fuel derivative financial instruments. The Company also holds fuel inventories for use in operations. These inventories are not material to KCS’s overall financial position. Fuel costs are expected to reflect 2023 market conditions; however, fuel costs are unpredictable and subject to a variety of factors outside the Company’s control. Assuming annual consumption of 133 million gallons, a hypothetical 10 cent change in the price per gallon of fuel would cause a $13.3 million change in operating expenses. KCS mitigates the impact of increased fuel costs through fuel surcharge revenues from customers; however, in a period of volatile fuel prices or changing customer business mix, changes in fuel expense and fuel surcharge revenue may differ.

The Company has exposure to fluctuations in the value of the Mexican peso against the U.S. dollar due to its monetary assets and liabilities that are denominated in Mexican pesos. Monetary assets and liabilities include cash, accounts receivable and payable and other items that will convert to cash in the future and are remeasured into dollars using the current exchange rate. The remeasurement and settlement of monetary assets and liabilities is recognized in the consolidated statements of income as foreign exchange gains and losses. At December 31, 2022, the Company had Ps.4,431.4 million of net monetary assets denominated in Mexican pesos, as monetary assets exceeded monetary liabilities.

The Company’s Mexican subsidiaries have net U.S. dollar-denominated monetary assets which, for Mexican income tax purposes, are subject to periodic revaluation based on changes in the value of the Mexican peso against the U.S. dollar. This revaluation creates fluctuations in the Company’s Mexican income tax expense in the consolidated statements of income and the amount of income taxes paid in Mexico. The Company also has net monetary assets denominated in Mexican pesos, that are

At December 31, 2022, the Company had outstanding foreign currency forward contracts with an aggregate notional amount of $535.0 million, which matured during January 2023 and obligated the Company to sell a total of Ps.11,235.2 million at a weighted-average rate of Ps.21.0 to each U.S. dollar. During January 2023, the Company entered into offsetting contracts with an aggregate notional amount of $581.4 million, which matured during January 2023 and obligated the Company to purchase a total of Ps.11,235.2 million at a weighted-average exchange rate of Ps.19.3 to each U.S. dollar, resulting in cash paid of $46.4 million. Given the settlement during January 2023, the Company believes there was minimal market risk associated with these contracts at December 31, 2022.

The management of Kansas City Southern is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. KCS’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013) (commonly referred to as the COSO Framework). Based on its evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022, based on the criteria outlined in the COSO Framework.

We have audited the accompanying consolidated balance sheets of Kansas City Southern and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

As described in Note 2 to the consolidated financial statements, the Company capitalizes costs for self-constructed additions and improvements to property, including direct labor and material, indirect costs, and interest during long-term construction projects. Expenditures that significantly increase asset values, productive capacity, efficiency, safety, or extend useful lives are capitalized. As disclosed by management, direct costs are charged to capital projects based on the work performed and the material used. Management has a process in place to determine which costs qualify for capitalization, which requires judgment. For the year-ended December 31, 2022, the Company capitalized costs of $505.3 million.

The principal considerations for our determination that performing procedures relating to direct costs that are capitalized to self-constructed property and equipment (including concession assets) is a critical audit matter are (i) the significance of direct costs and complexities in self-constructed property and equipment (including concession assets); (ii) the significant judgment by management in determining whether direct costs qualify for capitalization; and (iii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence related to the capitalization of direct costs.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the capitalization of direct costs to self-constructed property and equipment (including concession assets). These procedures also included, among others, selecting a sample of direct costs and (i) obtaining evidence to support the accuracy of capitalized additions to self-constructed properties based on the work performed and the material used and (ii) evaluating whether these costs qualify for capitalization.


	2022		2021		2020
	(In millions)
Revenues	$	3,370.4	$	2,947.3	$	2,632.6
Operating expenses:
Compensation and benefits	567.0		522.0		476.5
Purchased services	225.9		211.8		198.1
Fuel	461.7		313.6		219.8
Equipment costs	91.4		82.2		85.8
Depreciation and amortization	390.9		365.8		357.9
Materials and other	359.8		304.1		260.9
Merger costs, net	46.6		264.0		—
Write-off of software development costs	—		—		13.6
Restructuring charges	—		—		17.0
Total operating expenses	2,143.3		2,063.5		1,629.6
Operating income	1,227.1		883.8		1,003.0
Equity in net earnings (losses) of affiliates	8.7		16.7		(1.4)
Interest expense	(156.6)		(156.0)		(150.9)

Foreign exchange loss	(33.2)		(9.0)		(29.6)
Gain on settlement of treasury lock agreements	259.3		—		—
Other income, net	4.4		2.6		2.1
Income before income taxes	1,309.7		738.1		823.2
Income tax expense	325.9		211.1		204.1
Net income	983.8		527.0		619.1
Less: Net income attributable to noncontrolling interest	1.6		1.8		2.1
Net income attributable to Kansas City Southern and subsidiaries	982.2		525.2		617.0
Preferred stock dividends	—		0.2		0.2
Net income available to common stockholder(s)	$	982.2	$	525.0	$	616.8


	2022		2021		2020
	(In millions)
Net income	$	983.8	$	527.0	$	619.1
Other comprehensive income (loss):
Unrealized gain on interest rate derivative instruments, net of tax of $42.4 million, $4.6 million and $7.5 million	159.5		17.2		28.1
Reclassification of interest rate derivative instruments gain, net of tax of $(54.5) million	(204.8)		—		—
Reclassification adjustment from cash flow hedges included in net income, net of tax of $0.5 million for each year presented	1.9		2.0		1.9
Foreign currency translation adjustments	0.6		(0.2)		(0.5)
Other comprehensive income (loss)	(42.8)		19.0		29.5
Comprehensive income	941.0		546.0		648.6
Less: comprehensive income attributable to noncontrolling interest	1.6		1.8		2.1
Comprehensive income attributable to Kansas City Southern and subsidiaries	$	939.4	$	544.2	$	646.5


	2022		2021
	(In millions, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	207.6	$	339.3
Accounts receivable, net	543.6		271.0
Materials and supplies	174.2		131.0
Other current assets	138.8		142.1
Total current assets	1,064.2		883.4
Operating lease right-of-use assets	100.9		69.6
Investments	55.8		48.3
Property and equipment (including concession assets), net	9,362.4		9,209.3
Other assets	94.1		217.5
Total assets	$	10,677.4	$	10,428.1
LIABILITIES AND EQUITY
Current liabilities:
Long-term debt due within one year	$	655.0	$	8.8
Accounts payable and accrued liabilities	635.7		479.7
Total current liabilities	1,290.7		488.5
Long-term operating lease liabilities	71.5		46.4
Long-term debt	3,124.6		3,768.8
Deferred income taxes	1,237.1		1,213.7
Other noncurrent liabilities and deferred credits	158.7		178.1
Total liabilities	5,882.6		5,695.5
Stockholder’s equity:

$0.01 par, common stock, 100 shares authorized, 100 shares issued; 100 shares outstanding at December 31, 2022 and 2021	—		—
Additional paid-in capital	860.6		860.6
Retained earnings	3,626.6		3,524.4
Accumulated other comprehensive income (loss)	(23.4)		19.4
Total stockholder’s equity	4,463.8		4,404.4
Noncontrolling interest	331.0		328.2
Total equity	4,794.8		4,732.6
Total liabilities and equity	$	10,677.4	$	10,428.1


	2022		2021		2020
	(In millions)
Operating activities:
Net income	$	983.8	$	527.0	$	619.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	390.9		365.8		357.9
Deferred income taxes	35.0		23.2		49.4
Equity in net (earnings) losses of affiliates	(8.7)		(16.7)		1.4
Share-based compensation	—		24.5		22.9
Loss on foreign currency derivative instruments	44.3		3.7		22.5
Foreign exchange (gain) loss	(11.1)		5.3		7.1
Merger costs, net	46.6		264.0		—
Restructuring charges	—		—		17.0
Gain on settlement of treasury lock agreements	(259.3)		—		—
Write-off of software development costs	—		—		13.6
Distributions from affiliates	6.5		12.0		4.5
Settlement of foreign currency derivative instruments	(5.1)		(1.9)		(20.0)
Cash payments for merger costs	(34.1)		(2,287.2)		—
Reimbursement of merger termination fees	—		2,100.0		—
Changes in working capital items:
Accounts receivable	(269.1)		(30.6)		25.5
Materials and supplies	(42.1)		1.9		21.7
Other current assets	89.3		(54.7)		(66.0)
Accounts payable and accrued liabilities	98.8		(9.9)		6.0
Other, net	7.4		9.4		(2.6)
Net cash provided by operating activities	1,073.1		935.8		1,080.0
Investing activities:
Capital expenditures	(529.0)		(496.8)		(411.9)
Settlement of treasury lock agreements	259.3		—		—
Purchase or replacement of assets under operating leases	—		—		(78.2)
Property investments in MSLLC	(27.1)		(24.2)		(24.8)
Investments in and advances to affiliates	(8.5)		(7.8)		(7.4)
Proceeds from disposal of property	6.5		6.4		12.9
Other, net	(13.7)		(8.8)		(16.6)
Net cash used for investing activities	(312.5)		(531.2)		(526.0)
Financing activities:

Proceeds from issuance of long-term debt	—		—		545.6
Repayment of long-term debt	(10.5)		(7.9)		(18.0)
Dividends paid	(880.0)		(188.0)		(152.3)
Shares repurchased	—		—		(888.9)
Debt issuance and retirement costs paid	—		—		(6.6)
Cash settlement of stock options	—		(75.2)		—
Proceeds from employee stock plans	—		19.9		9.9
Net cash used for financing activities	(890.5)		(251.2)		(510.3)

Effect of exchange rate changes on cash	(1.8)		(2.3)		(4.3)

Cash and cash equivalents:
Net increase (decrease) during each year	(131.7)		151.1		39.4
At beginning of year	339.3		188.2		148.8
At end of year	$	207.6	$	339.3	$	188.2
Supplemental information continued on next page.


Continued from previous page.
	2022		2021		2020
	(In millions)
Supplemental cash flow information
Non-cash investing and financing activities:
Capital expenditures accrued but not yet paid at end of year	$	0.6	$	14.1	$	21.5
Other investing activities accrued but not yet paid at the end of the year	32.4		35.6		31.9
Finance lease obligations incurred	9.1		11.5		0.8
Non-cash asset acquisitions	0.4		4.2		2.8
Dividends accrued but not yet paid at end of year	—		—		40.6
Cash payments:
Interest paid, net of amounts capitalized	$	152.2	$	152.7	$	144.5
Income tax payments, net of refunds	275.8		173.0		182.3


	$25 Par Preferred Stock		$.01 Par Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non- controlling Interest		Total


Balance at December 31, 2019	$	5.6	$	1.0	$	843.7	$	3,601.3	$	(29.1)	$	323.4	$	4,745.9

Net income							617.0				2.1		619.1
Other comprehensive income									29.5				29.5
Contributions from noncontrolling interest											0.9		0.9
Dividends on common stock ($1.64/share)					—		(153.7)						(153.7)
Dividends on $25 par preferred stock ($1.00/share)							(0.2)						(0.2)
Share repurchases	(0.2)		(0.1)		(51.3)		(844.8)						(896.4)
Forward contract for accelerated share repurchases					(75.0)								(75.0)
Settlement of forward contract for accelerated share repurchases					82.5								82.5
Options exercised and stock subscribed, net of shares withheld for employee taxes			—		6.2								6.2
Share-based compensation					24.8								24.8
Balance at December 31, 2020	5.4		0.9		830.9		3,219.6		0.4		326.4		4,383.6
Net income							525.2				1.8		527.0
Other comprehensive income									19.0				19.0

Dividends on common stock ($1.62/share)					—		(147.3)						(147.3)
Dividends on $25 par preferred stock ($0.75/share)							(0.2)						(0.2)
Share repurchases	—		—		(2.1)		(72.9)						(75.0)

Settlement of forward contract for accelerated share repurchases					75.0								75.0
Options exercised and stock subscribed, net of shares withheld for employee taxes			—		(0.2)								(0.2)
Share-based compensation					80.4								80.4
Replacement of equity share awards with liability awards					(54.5)								(54.5)
Cash settlement of stock options					(75.2)								(75.2)
Recapitalization of stock	(5.4)		(0.9)		6.3								—
Balance at December 31, 2021	—		—		860.6		3,524.4		19.4		328.2		4,732.6
Net income							982.2				1.6		983.8
Other comprehensive loss									(42.8)				(42.8)
Contributions from noncontrolling interest											1.2		1.2
Dividends to Canadian Pacific							(880.0)						(880.0)









Balance at December 31, 2022	—		—		$	860.6	$	3,626.6	$	(23.4)	$	331.0	$	4,794.8


Leases	Classification	December 31, 2022		December 31, 2021
Assets		(in millions)
Operating	Operating lease right-of-use assets	$	100.9	$	69.6
Finance	Property and equipment (including Concession assets), net	17.8		13.9
Total leased assets		$	118.7	$	83.5

Liabilities
Current
Operating	Accounts payable and accrued liabilities	$	28.8	$	22.3
Finance	Long-term debt due within one year	6.3		4.5
Noncurrent
Operating	Long-term operating lease liabilities	71.5		46.4
Finance	Long-term debt	12.4		10.9
Total lease liabilities		$	119.0	$	84.1

(iii) During the first, second, third and fourth quarters of 2021, the Company recognized pre-tax net merger costs (income) of $19.3 million, $720.8 million, $36.5 million, and $(512.6) million, respectively, related to the Company’s various merger activities. The large fluctuations between the quarters are driven by the recognition and reversal of merger termination fees. For the year ended December 31, 2021, KCS incurred $1,400.0 million of merger termination fees, completely offset by the recovery of $1,400.0 million of merger termination fees recognized in merger costs, net within the consolidated statements of income. See more details in Note 3, Merger Agreement.

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2022. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at a reasonable assurance level.

The Company has adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to directors, officers (including, among others, the principal executive officer, principal financial officer and principal accounting officer) and employees. The Company has posted its Code of Ethics on its website (www.kcsouthern.com) and will post on its website any amendments to, or waivers from, a provision of its Code of Ethics that apply to the Company’s principal executive officer, principal financial officer or principal accounting officer as required by applicable SEC and NYSE rules and regulations.

Know all people by these presents, that each person whose signature appears below constitutes and appoints Patrick J. Ottensmeyer and Michael W. Upchurch, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he or she might or could do in person, hereby confirming all that said attorneys-in-fact and agents or either of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.


Signature						Title

/S/ PATRICK J. OTTENSMEYER						President, Chief Executive Officer and Director (Principal Executive Officer).
Patrick J. Ottensmeyer

/S/ MICHAEL W. UPCHURCH						Executive Vice President and Chief Financial Officer (Principal Financial Officer).
Michael W. Upchurch

/s/ SUZANNE M. GRAFTON						Vice President and Chief Accounting Officer (Principal Accounting Officer).
Suzanne M. Grafton

/S/ ROBERT J. DRUTEN						Chairman of the Board and Director.
Robert J. Druten

/s/ LYDIA I. BEEBE						Director.
Lydia I. Beebe

/S/ LU M. CÓRDOVA						Director.
Lu M. Córdova


		Page

PART I

Item 1.	Business	3
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	21
Item 2.	Properties	21
Item 3.	Legal Proceedings	23
Item 4.	Mine Safety Disclosures	23

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	85
Item 9A.	Controls and Procedures	85
Item 9B.	Other Information	85
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	85

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	86
Item 11.	Executive Compensation	86
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	87
Item 13.	Certain Relationships and Related Transactions, and Director Independence	87
Item 14.	Principal Accountant Fees and Services	87

PART IV

Item 15.	Exhibits and Financial Statement Schedules	88
Item 16.	Form 10-K Summary	95
Signatures		95


	Years ended		Improvement/ (Deterioration)
	December 31,
	2022	2021
Gross velocity (mph) (i)	14.1	14.0	1%
Terminal dwell (hours) (ii)	22.2	23.5	6%
Train length (feet) (iii)	6,479	6,635	(2)%

Fuel efficiency (gallons per 1,000 GTM's) (iv)	1.26	1.23	(2)%


	2022		2021
Roadway capital program	$	296.2	$	258.8
Locomotives and freight cars	45.3		68.0
Capacity	112.6		101.1
Information technology	41.4		41.2
Positive train control	6.2		14.3
Other	3.6		6.0
Total capital expenditures (accrual basis)	505.3		489.4
Change in capital accruals	23.7		7.4
Total cash capital expenditures	$	529.0	$	496.8


Income Statements	KCS and Guarantor Subsidiaries
	Years ended December 31,
	2022		2021
Revenues	$	1,796.9	$	1,561.3
Operating expenses	1,158.6		1,200.8
Operating income	638.3		360.5
Income before income taxes	748.4		207.7
Net income	610.1		182.7


Balance Sheets	KCS and Guarantor Subsidiaries
	December 31, 2022		December 31, 2021
Assets:
Current assets	$	351.6	$	524.6
Property and equipment (including concession assets), net	4,938.4		4,876.5
Other non-current assets	95.7		125.8

Liabilities and equity:
Current liabilities	$	1,035.7	$	316.5
Non-current liabilities	4,321.4		4,942.7
Noncontrolling interest	331.0		328.2


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	2022		2021
Cash flows provided by (used for):
Operating activities	$	1,073.1	$	935.8
Investing activities	(312.5)		(531.2)
Financing activities	(890.5)		(251.2)
Effect of exchange rate changes on cash	(1.8)		(2.3)
Net increase (decrease) in cash and cash equivalents	(131.7)		151.1
Cash and cash equivalents beginning of year	339.3		188.2
Cash and cash equivalents end of year	$	207.6	$	339.3


	2022	2021
Track miles of rail installed	74	76
Cross ties installed (thousands)	561	494


			Page
Management’s Report on Internal Control Over Financial Reporting			46
Report of Independent Registered Public Accounting Firm on the Company’s Consolidated Financial Statements and Internal Control over Financial Reporting as of and for the three years ended December 31, 2022, 2021 and 2020 (PCAOB ID 238)			47
Consolidated Statements of Income for each of the Three Years in the period ended December 31, 2022			49
Consolidated Statements of Comprehensive Income for each of the Three Years in the period ended December 31, 2022			50
Consolidated Balance Sheets at December 31, 2022 and 2021			51
Consolidated Statements of Cash Flows for each of the Three Years in the period ended December 31, 2022			52
Consolidated Statements of Changes in Equity for each of the Three Years in the period ended December 31, 2022			54
Notes to Consolidated Financial Statements			55
Financial Statement Schedules:


		Years ended
Lease Cost	Classification	December 31, 2022		December 31, 2021		December 31, 2020
Operating lease cost:		(in millions)
	Equipment costs	$	20.8	$	19.6	$	23.3
	Materials and other	5.7		5.8		5.0
Finance lease cost:
Amortization of finance lease assets	Depreciation and amortization	2.8		1.7		1.6
Interest on lease liabilities	Interest expense	0.6		0.6		0.9
Total lease cost		$	29.9	$	27.7	$	30.8


	Years ended
Cash Flow Information	December 31, 2022		December 31, 2021		December 31, 2020
	(in millions)
Cash paid for operating leases included in operating activities	$	32.5	$	29.4	$	45.6
Cash paid for finance leases included in operating activities	0.7		0.8		0.9
Cash paid for finance leases included in financing activities	5.9		3.5		2.0
Right-of-use assets obtained in exchange for operating lease liabilities	58.9		32.9		18.4
Right-of-use assets obtained in exchange for financing lease liabilities	9.2		11.5		0.8


Lease Term and Discount Rate	December 31, 2022		December 31, 2021
Weighted-average remaining lease term (years)
Operating leases	4.2		4.2
Finance leases	3.6		3.8
Weighted-average discount rate
Operating leases	2.9	%	2.2	%
Finance leases	3.5	%	5.1	%


Remaining Maturities of Lease Liabilities Year Ending December 31 (in millions),	Operating Leases		Finance Leases
2023	$	29.7	$	6.8
2024	25.6		4.5
2025	18.9		4.2
2026	17.0		3.6
2027	9.5		0.4
Thereafter	3.5		—
Total lease payments	104.2		19.5
Less imputed interest	3.9		0.8
Total	$	100.3	$	18.7


Contract liabilities	Years ended December 31,
	2022		2021
Beginning balance	$	68.4	$	29.9
Revenue recognized that was included in the contract liability balance at the beginning of the period	(34.1)		(29.7)
Increases due to consideration received, excluding amounts recognized as revenue during the period	29.8		68.2
Ending balance	$	64.1	$	68.4


As of December 31, 2022	Cost		Accumulated Depreciation		Net Book Value		Depreciation Rates for 2022
Land	$	244.7	$	—	$	244.7	N/A
Concession land rights	141.1		(33.6)		107.5		1.0	%
Rail and other track material	2,394.8		(454.3)		1,940.5		1.9-3.6%
Ties	1,868.0		(475.8)		1,392.2		1.4-5.4%
Grading	1,013.1		(210.8)		802.3		1.0	%
Bridges and tunnels	940.8		(192.3)		748.5		1.3	%
Ballast	940.2		(277.8)		662.4		2.2-4.4%
Other (a)	1,652.5		(567.7)		1,084.8		3.0	%
Total road property	8,809.4		(2,178.7)		6,630.7		2.7	%
Locomotives	1,826.2		(637.0)		1,189.2		5.0	%
Freight cars	995.0		(266.4)		728.6		2.9	%
Other equipment	83.0		(41.1)		41.9		5.2	%
Total equipment	2,904.2		(944.5)		1,959.7		4.3	%
Technology and other	453.7		(335.6)		118.1		10.9	%
Construction in progress	301.7		—		301.7		N/A
Total property and equipment (including Concession assets)	$	12,854.8	$	(3,492.4)	$	9,362.4	N/A


As of December 31, 2021	Cost		Accumulated Depreciation		Net Book Value		Depreciation Rates for 2021
Land	$	243.0	$	—	$	243.0	N/A
Concession land rights	141.1		(32.2)		108.9		1.0	%
Rail and other track material	2,240.6		(417.7)		1,822.9		1.8-3.6%
Ties	1,790.0		(435.6)		1,354.4		1.4-5.4%
Grading	1,006.8		(200.3)		806.5		1.0	%
Bridges and tunnels	884.1		(181.0)		703.1		1.3	%
Ballast	898.6		(258.2)		640.4		2.2-4.4%
Other (a)	1,610.5		(519.6)		1,090.9		2.7	%
Total road property	8,430.6		(2,012.4)		6,418.2		2.6	%
Locomotives	1,777.2		(546.6)		1,230.6		4.5	%
Freight cars	974.2		(234.4)		739.8		2.2	%
Other equipment	91.0		(39.9)		51.1		5.0	%
Total equipment	2,842.4		(820.9)		2,021.5		3.7	%
Technology and other	372.6		(290.7)		81.9		15.6	%
Construction in progress	335.8		—		335.8		N/A
Total property and equipment (including Concession assets)	$	12,365.5	$	(3,156.2)	$	9,209.3	N/A


	2022		2021
Prepaid expenses	$	28.4	$	25.8
Refundable Mexican value added tax	78.9		78.0
Prepaid income taxes	14.3		19.0
Advances to affiliates	8.8		9.0

Other	8.4		10.3
Other current assets	$	138.8	$	142.1


	2022		2021
Accounts payable	$	207.2	$	169.7
Accrued wages and vacation	128.4		103.7
Accrued merger costs	55.8		37.3
Income and other taxes	41.9		37.0
Foreign currency forward contracts	41.0		1.8
Contract liabilities	31.3		30.0
Short-term operating lease liability	28.8		22.3
Interest payable	26.2		26.2
Derailments, personal injury and other claim provisions	25.1		27.5
Accrued rents and leases	13.3		7.7
Other	36.7		16.5
Accounts payable and accrued liabilities	$	635.7	$	479.7


	December 31, 2022		December 31, 2021
	Level 2		Level 2
Assets

Treasury lock agreements	$	—	$	57.4
Liabilities
Debt instruments	3,308.3		4,311.1

Foreign currency derivative instruments	41.0		1.8


Foreign currency forward contracts
	Contracts to sell Ps./receive USD						Offsetting contracts to purchase Ps./pay USD
	Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Cash received/(paid) on settlement
Contracts executed in 2022 and outstanding	$	535.0	Ps.	11,235.2	Ps.	21.0	—		—		—		—
Contracts executed in 2022 and settled in 2022	$	110.0	Ps.	2,348.4	Ps.	21.3	$	113.4	Ps.	2,348.4	Ps.	20.7	$	(3.4)
Contracts executed in 2021 and settled in 2022	$	270.0	Ps.	5,583.3	Ps.	20.7	$	271.7	Ps.	5,583.3	Ps.	20.6	$	(1.7)
Contracts executed in 2020 and settled in 2020	$	75.0	Ps.	1,555.5	Ps.	20.7	$	78.0	Ps.	1,555.5	Ps.	20.0	$	(2.9)

	Contracts to purchase Ps./pay USD						Offsetting contracts to sell Ps./receive USD
	Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Notional amount		Notional amount		Weighted-average exchange rate (in Ps./USD)		Cash received/(paid) on settlement
Contracts executed in 2021 and settled in 2021	$	100.0	Ps.	1,993.5	Ps.	19.9	$	98.1	Ps.	1,993.5	Ps.	20.3	$	(1.9)
Contracts executed in 2020 and settled in 2020	$	555.0	Ps.	11,254.3	Ps.	20.3	$	534.3	Ps.	11,254.3	Ps.	21.1	$	(20.7)
Contracts executed in 2019 and settled in 2020	$	105.0	Ps.	2,041.2	Ps.	19.4	$	108.6	Ps.	2,041.2	Ps.	18.8	$	3.6


	Derivative Assets
	Balance Sheet Location	2022	2021
Derivatives designated as hedging instruments:
Treasury lock agreements	Other assets	—	$	57.4
Total derivatives designated as hedging instruments		—	57.4




Total derivative assets		—	$	57.4


	Derivative Liabilities
	Balance Sheet Location	2022		2021



Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Accounts payable and accrued liabilities	$	41.0	$	1.8

Total derivatives not designated as hedging instruments		41.0		1.8
Total derivative liabilities		$	41.0	$	1.8



As of December 31, 2022	Gross Liabilities		Gross Assets		Net Amounts Presented in the Consolidated Balance Sheets
Derivatives subject to a master netting arrangement or similar agreement	$	41.0	—		$	41.0
As of December 31, 2021
Derivatives subject to a master netting arrangement or similar agreement	$	2.8	$	(1.0)	$	1.8


Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivative						Location of Gain/(Loss) Reclassified from AOCI into Income	Amount of Gain/(Loss) Reclassified from AOCI into Income
	2022		2021		2020			2022		2021		2020
Treasury lock agreements	$	201.9	$	21.8	$	35.6	Interest expense	$	(2.4)	$	(2.5)	$	(2.4)
							Gain on settlement of treasury lock agreements	259.3		—		—
Total	$	201.9	$	21.8	$	35.6		$	256.9	$	(2.5)	$	(2.4)


Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative
		2022		2021		2020
Foreign currency forward contracts	Foreign exchange loss	$	(44.3)	$	(3.7)	$	(22.5)
Total		$	(44.3)	$	(3.7)	$	(22.5)



	2022						2021
	Principal		Unamortized Discount and Debt Issuance Costs		Net		Principal		Unamortized Discount and Debt Issuance Costs		Net
Revolving credit facilities, variable interest rate, due 2024	$	—	$	—	$	—	$	—	$	—	$	—
KCS 3.00% senior notes, due 2023	439.1		0.3		438.8		439.1		1.0		438.1
KCS 3.85% senior notes, due 2023	199.2		0.2		199.0		199.2		0.5		198.7
KCS 3.125% senior notes, due 2026	250.0		1.3		248.7		250.0		1.7		248.3
KCS 2.875% senior notes, due 2029	425.0		3.0		422.0		425.0		3.4		421.6
KCS 4.30% senior notes, due 2043	448.7		7.8		440.9		448.7		8.1		440.6
KCS 4.95% senior notes, due 2045	499.2		6.4		492.8		499.2		6.7		492.5
KCS 4.70% senior notes, due 2048	500.0		5.4		494.6		500.0		5.6		494.4
KCS 3.50% senior notes, due 2050	550.0		10.1		539.9		550.0		10.4		539.6
KCS 4.20% senior notes, due 2069	425.0		6.7		418.3		425.0		6.8		418.2
KCSR 3.85% to 4.95% senior notes, due through 2045	2.7		—		2.7		2.7		—		2.7
KCSM 3.00% senior notes, due 2023	5.6		—		5.6		5.6		—		5.6
RRIF loans 2.96% to 4.29%, due serially through 2037	57.7		0.3		57.4		62.0		0.3		61.7
Finance lease obligations, due serially to 2027	18.7		—		18.7		15.4		—		15.4
Other debt obligations	0.2		—		0.2		0.2		—		0.2
Total	3,821.1		41.5		3,779.6		3,822.1		44.5		3,777.6
Less: Debt due within one year	655.5		0.5		655.0		8.8		—		8.8
Long-term debt	$	3,165.6	$	41.0	$	3,124.6	$	3,813.3	$	44.5	$	3,768.8


Years	Long-Term Debt		Net Present Value Finance Leases		Total
2023	$	649.2	$	6.3	$	655.5
2024	4.6		4.3		8.9
2025	5.0		4.1		9.1
2026	255.0		3.6		258.6
2027	5.2		0.4		5.6
Thereafter	2,883.4		—		2,883.4
Total	$	3,802.4	$	18.7	$	3,821.1


	2022		2021
Balance at January 1,	$	2.2	$	2.2
Additions for tax positions of prior years	1.3		—

Reductions for settlement with taxing authorities	(2.2)		—
Balance at December 31,	$	1.3	$	2.2


	2021	2020
Balance at beginning of year	32,305,078	27,236,516
Shares repurchased	233,402	5,350,976
Shares issued to fund stock option exercises	(189,775)	(133,951)
Employee stock purchase plan shares issued	(41,338)	(51,658)
Nonvested shares issued	(50,127)	(111,003)
Nonvested shares forfeited	16,808	14,198
Conversion of restricted shares to cash	25,049	—
Recapitalization of equity	(32,299,097)	—
Balance at end of year	—	32,305,078


	2021			2020
Expected dividend yield	0.83		%	1.04		%
Expected volatility	30.86		%	26.07		%
Risk-free interest rate	0.74		%	1.27		%
Expected term (years)	6.0			5.7
Weighted-average grant date fair value of stock options granted	$	58.74		$	37.79


	2021		2020
Aggregate grant-date fair value of stock options vested	$	8.5	$	3.7
Intrinsic value of stock options exercised	34.9		13.9
Cash received from option exercises	19.9		9.9
Tax benefit from options exercised during the annual period	7.8		3.5


	Exercise Date				Received from Employees(i) In millions
	Date Issued	Purchase Price		Shares Issued



January 2021 offering	July 1, 2021	$	170.83	18,046	$	3.1
July 2020 offering	January 5, 2021	$	122.91	23,292	$	2.9
January 2020 offering	July 2, 2020	$	126.90	23,709	$	3.0


	Fourth		Third		Second		First
	(In millions, except per share amounts)
2022
Revenues	$	864.5	$	882.2	$	845.5	$	778.2
Operating income (i)	298.2		325.0		312.8		291.1
Net income (ii)	400.0		201.7		194.1		188.0
Net income attributable to Kansas City Southern and subsidiaries	399.4		201.3		194.1		187.4




2021
Revenues	$	747.8	$	744.0	$	749.5	$	706.0
Operating income (loss) (iii)	810.6		251.9		(431.7)		253.0
Net income (loss)	595.1		156.5		(378.0)		153.4
Net income (loss) attributable to Kansas City Southern and subsidiaries	594.5		156.2		(378.5)		153.0


Exhibit			Description
2.1			Agreement and Plan of Merger, dated as of September 15, 2021, by and among Kansas City Southern, Canadian Pacific Railroad Limited, Cygnus Merger Sub 1 Corporation and Cygnus Merger Sub 2 Corporation, filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 15, 2021 (File No. 1-4717), is incorporated herein by reference as Exhibit 2.1.

3.1			Amended and Restated Certificate of Incorporation of Kansas City Southern, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on December 14, 2021 (File No. 1-4717), is incorporated herein by reference as Exhibit 3.1.

3.2			Kansas City Southern Bylaws, amended and restated as of December 14, 2021, filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 14, 2021 (File No. 1-4717), is incorporated herein by reference as Exhibit 3.2.

4.1			As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries because the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.

4.2			2043 Notes Indenture, dated April 29, 2013, among KCSR, the Guarantors and U.S. Bank National Association, as trustee and paying agent, filed as exhibit 4.1 to the Company’s Current Report on Form 8-K filed on April 29, 2013 (File No. 1-4717), is incorporated herein by reference as Exhibit 4.2.

4.2.1			First Supplemental Indenture, dated November 23, 2015, among KCSR, the Guarantors and the U.S. Bank National Association, as trustee and paying agent, filed as exhibit 4.2 to the Company’s Current Report on Form 8-K filed on November 24, 2015 (File No. 1-4717), is incorporated herein by reference as Exhibit 4.2.1.

4.2.2			Second Supplemental Indenture, dated December 14, 2021, among KCSR, the Company, Cygnus Merger Sub 1 Corporation, the Guarantors and the U.S. Bank National Association, as trustee and paying agent, attached as Exhibit 4.2.2 to the Company's Form 10-K for the year ended December 31, 2021, filed on February 1, 2022 (File No. 1-4717), is incorporated herein by reference as Exhibit 4.2.2.