Kansas City Southern (KSU) 8-K Strong Pre-Hurricane U.S. Operations Growth and Positive Mexican Developments Highlight Kansas City Southern’s 2005 Third Quarter Results

Date:	November 2, 2005
Media Contact:	William H. Galligan	Phone: 816/983-1551
	william.h.galligan@kcsr.com

Strong Pre-Hurricane U.S. Operations Growth and Positive Mexican Developments Highlight Kansas City Southern’s 2005 Third Quarter Results

Third Quarter Highlights

• Kansas City Southern (KCS) now includes U.S. rail operations (The Kansas City Southern Railway Company and Texas Mexican Railway Company) and Mexican rail operations (TFM, S.A. de C.V.).

• VAT/Put settlement in Mexico results in KCS 100% ownership of Mexican operations.

• Consolidated revenues reach record $384.6 million as a result of the 2005 acquisitions.

• Consolidated net income of $110.5 million, primarily a result of VAT/Put settlement.

• Strong July and August business levels at U.S. operations.

• July rail operations in Mexico were negatively impacted by hurricane Emily; September’s U.S. and Mexican rail operations were negatively impacted by hurricanes Katrina and Rita. The combined impact of the three hurricanes resulted in an estimated $12 million reduction in operating income in the third quarter.

Third Quarter 2005

Kansas City, MO. Kansas City Southern (NYSE: KSU) today announced consolidated quarterly earnings of $110.5 million, or $1.14 per fully diluted share, compared with $8.9 million, or $0.14 per fully diluted share in 2004.

KCS reported record consolidated revenues for third quarter 2005 of $384.6 million. On a historical basis, this represents an increase of $221.4 million, substantially as a result of the acquisition of the Texas Mexican Railway Company and TFM.

Consolidated operating expenses for the third quarter of 2005 were $386.5 million versus $144.0 million in the third quarter of 2004, primarily due to the previously referenced acquisitions, and increased claims reserves. In July, hurricane Emily reduced operating income from Mexican operations by $1.8 million. In September, hurricanes Katrina and Rita negatively impacted U.S. operations by approximately $7.8 million and Mexican operations by $2.4 million.

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Third quarter 2005 consolidated net income was positively impacted by the Vat/Put settlement. The Company recorded a one-time non-cash gain of $134.7 million (including tax benefits of $2.8 million and related legal and consulting fees) as a result of the VAT/Put settlement reached with the Mexican Government on September 12, 2005. The settlement resolved all outstanding disputes between the Company and the Mexican Government concerning the VAT claim and Put obligation, and achieved KCS’s goal of becoming the 100% owner of TFM.

Finally, an actuarial study of U.S. operations’ casualty reserves was completed that indicated significant adverse developments in claims. Based on this study, increased reserves for employee injuries, third-party claims, as well as occupational illness claims, resulted in a charge to U.S. operations third quarter operating income of $37.8 million.

Year-to-Date 2005

KCS also achieved record consolidated revenues for the nine months ended September 30, 2005 of $963.9 million, which on a historical basis represents an increase of $499.0 million, primarily due to the completion of the acquisition of control the Texas Mexican Railway Company on January 1, 2005, and TFM on April 1, 2005.

Operating income for the 2005 nine-month period was $14.5 million compared to $56.1 for 2004, reflecting the negative impact of the third quarter 2005 increase in claims reserve and the second quarter 2005 non-cash, pre-tax charge of $35.6 million related to the reversal of deferred profit sharing NOL benefits in Mexican operations. Net income available to common shareholders was $89.1 million, $1.04 per share on a fully diluted basis, compared with 2004 net income of $17.1 million, or $0.27 per fully diluted share.

Comments from the Chairman

“U.S. rail operations had strong momentum going into the third quarter that would have generated significantly different results absent the impact of the hurricanes. The good news is that our employees made it through a very dangerous period without any serious injuries, and that the damage to the rail infrastructure was minimal. The cost impacts were primarily the result of clean-up, the interruption of service, the repositioning of equipment away from the path of the two September storms, and the storage of that equipment while waiting for embargoes to be lifted.

“The third quarter revenues from U.S. operations were also affected by the storms, especially in the chemicals & petroleum products area. Fortunately, the plants and refineries are ramping up production. While full production is not expected to be restored until December, chemical & petroleum product revenues have already returned to near pre-hurricane levels.

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“The hurricanes’ aftermath has highlighted the growing importance of the Meridian Speedway, the Company’s east-west rail corridor linking Dallas with Meridian, Mississippi, located far north of the Gulf Coast and the most direct route between the Southeast and Southwest, West, and Mexico. The impact of the hurricanes will only hasten the continued development of this valuable rail corridor into a strategically integral part of KCS’s NAFTA Rail system.

“Also notable in the third quarter was the resolution of the longstanding issue with the Mexican Government involving the VAT credit. On September 12^th, we reached a settlement by which KCS was able to achieve 100% ownership of TFM in exchange for the VAT certificate. With these issues behind us, the full integration of TFM into the KCS rail network can be completed, as management focuses fully on realizing the strategic and economic value of the NAFTA Rail network. We continue to believe that this settlement was in the best interest of both KCS and the Mexican Government.

“During the third quarter, a new management team took over at TFM led by Javier Rión, who was named chief executive officer. Significant progress is also being made in developing long-term strategies to grow Mexican-based revenues and dramatically improve TFM’s profitability. One of those strategies involves working with the port developers of Lazaro Cardenas, Mexican officials, and ocean shipping carriers to structure expanded service options that will provide greater market reach into both Mexican and U.S. markets. An integrated transload and intermodal infrastructure is being designed to support growth at the port as well as facilitate TFM’s efforts to promote a faster rate of truck-to-rail conversion. In addition, an in-depth analysis of TFM’s current commodity pricing mechanism has been undertaken that will result in much more market-based rates going forward. In an effort to maximize cost savings opportunities, we have created an international purchasing group headquartered in Kansas City that will have authority over all KCS purchasing, materials management, fuel purchases, and asset utilization. Finally, we are in the final phase of our preparations to implement MCS at TFM in the first quarter of 2006. We continue to be encouraged by the wealth of opportunities for both business growth and cost savings that full ownership of TFM provides us, while recognizing that it will take some time for management to implement the many changes required to maximize the value of the combined systems.

“The same determination and commitment that KCS demonstrated in resolving issues in Mexico and dealing with the effects of hurricanes Emily, Katrina and Rita will be directed toward developing the enormous potential of KCS’s unique NAFTA franchise. We are more encouraged now than ever before that we have created a competitive cross border rail system that will deliver significant future value for our shareholders.”

Headquartered in Kansas City, MO, KCS is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holdings include The Kansas City Southern Railway Company and The Texas-Mexican Railway Company, serving the central and south central U.S. Its international holdings include TFM, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50% interest in The Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS’ North American rail holdings and strategic alliances are primary components of a

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NAFTA Railway system, linking the commercial and industrial centers of the U.S., Canada and Mexico.

This press release includes statements concerning potential future events involving the Company, which could materially differ from the events that actually occur. The differences could be caused by a number of factors including those factors identified in the “Risk Factors” and the “Cautionary Information” sections of the Company’s Form 10-K for the year ended December 31, 2004, filed by the Company with the Securities and Exchange Commission (SEC) (Commission file no. 1-4717). The Company will not update any forward-looking statements in this press release to reflect future events or developments.

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KANSAS CITY SOUTHERN
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except share and per share data)
(Unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2005			2004			2005			2004
Revenues	$	384.6		$	163.2		$	963.9		$	464.9
Operating expenses
Compensation and benefits		94.0			52.9			248.7			155.9
Fuel		59.6			16.4			142.6			45.8
Purchased services		57.0			16.1			133.3			47.1
Equipment costs		46.6			13.3			105.2			37.9
Depreciation and amortization		40.5			13.4			95.3			39.3
Deferred profit sharing		2.2			—			41.0			—
Casualties and insurance		55.3			13.9			90.0			30.5
Other		31.3			18.0			93.3			52.3
Total operating expenses		386.5			144.0			949.4			408.8
Operating income (loss)		(1.9	)		19.2			14.5			56.1
Equity in net earnings (loss) of unconsolidated affiliates:
Grupo TFM, S.A. de C.V.		—			1.9			(1.0	)		6.1
Other		1.3			(0.8	)		1.7			(0.4	)
Interest expense		(39.5	)		(11.3	)		(90.5	)		(33.0	)
Debt retirement costs		—			—			(3.9	)		(4.2	)
Foreign exchange gains (losses)		(1.5	)		—			2.8			—
VAT settlement gain, net		131.9			—			131.9			—
Other income		2.6			8.6			9.7			11.8
Income before income taxes and minority interest		92.9			17.6			65.2			36.4
Income tax provision (benefit)		(19.8	)		6.5			(12.7	)		12.7
Income before minority interest		112.7			11.1			77.9			23.7
Minority interest		—			—			(17.8	)		—
Net income		112.7			11.1			95.7			23.7
Preferred stock dividends		2.2			2.2			6.6			6.6
Net income available to common shareholders	$	110.5		$	8.9		$	89.1		$	17.1
Per Share Data
Earnings per Common share — basic	$	1.35		$	0.14		$	1.18		$	0.27
Earnings per Common share — diluted	$	1.14		$	0.14		$	1.04		$	0.27
Weighted average Common shares outstanding (in thousands)
Basic		81,795			62,683			75,664			62,605
Potential dilutive Common shares		17,848			1,272			16,527			1,251
Diluted		99,643			63,955			92,191			63,856

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Kansas City Southern
Carloadings By Commodity — THIRD Quarter, 2005
Dollars in Thousands
(Preliminary)

Carloadings								Revenue
Third Quarter				%				Third Quarter				%
2005		2004		Change				2005		2004		Change
							Coal
	60,131		47,376		26.9	%	Unit Coal	$	32,472	$	22,202		46.3	%
	987		642		53.7	%	Other Coal		518		472		9.7	%
	61,118		48,018		27.3	%	Total		32,990		22,674		45.5	%
							Chemical & Petroleum Products
	3,022		1,360		122.2	%	Agri Chemicals		2,853		907		214.6	%
	22,997		17,524		31.2	%	Other		27,081		17,161		57.8	%
	26,248		14,116		85.9	%	Petroleum		23,294		10,525		121.3	%
	12,500		4,846		157.9	%	Plastics		19,386		5,766		236.2	%
	64,767		37,846		71.1	%	Total		72,614		34,359		111.3	%
							Agriculture and Minerals
	38,798		14,862		161.1	%	Grain		43,547		12,741		241.8	%
	22,887		8,042		184.6	%	Food Products		29,599		7,001		322.8	%
	15,372		7,795		97.2	%	Ores and Minerals		11,255		4,751		136.9	%
	19,987		5,187		285.3	%	Stone, Clay & Glass		15,491		4,558		239.9	%
	97,044		35,886		170.4	%	Total		99,892		29,051		243.9	%
							Paper & Forest Products
	37,594		26,084		44.1	%	Pulp/Paper		37,368		21,606		73.0	%
	7,719		2,065		273.8	%	Scrap Paper		7,314		1,555		370.4	%
	7,253		7,801		(7.0	)%	Pulpwood/Logs/Chips		4,621		4,101		12.7	%
	7,877		8,722		(9.7	)%	Lumber/Plywood		9,709		9,010		7.8	%
	26,385		4,968		431.1	%	Metal/Scrap		26,779		4,345		516.3	%
	15,796		3,299		378.8	%	Military/Other Carloads		16,931		5,752		194.4	%
	102,624		52,939		93.9	%	Total		102,722		46,369		121.5	%
		��					Intermodal & Automotive
	29,215		2,193		1232.2	%	Automotive		29,164		1,676		1640.1	%
	133,441		86,066		55.0	%	Intermodal		29,997		15,715		90.9	%
	162,656		88,259		84.3	%	Total		59,161		17,391		240.2	%
	488,209		262,948		85.7	%	TOTAL FOR BUSINESS UNITS		367,379		149,844		145.2	%
	1,484		3,271		(54.6	)%	Other Freight Revenue		173		2,669		(93.5	)%
							Other Revenue		17,013		10,695		59.1	%
	489,693		266,219		83.9	%	TOTAL	$	384,565	$	163,208		135.6	%

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Kansas City Southern
Carloadings By Commodity — Year to date SEPTEMBER 30, 2005
Dollars in Thousands
(Preliminary)

Carloadings								Revenue
Year to Date				%				Year to Date				%
2005		2004		Change				2005		2004		Change
							Coal
	170,878		142,361		20.0	%	Unit Coal	$	89,517	$	66,661		34.3	%
	2,452		1,880		30.4	%	Other Coal		1,184		1,180		0.3	%
	173,330		144,241		20.2	%	Total		90,701		67,841		33.7	%
							Chemical & Petroleum Products
	8,157		4,335		88.2	%	Agri Chemicals		7,192		2,823		154.8	%
	65,720		50,469		30.2	%	Other		72,061		49,502		45.6	%
	69,152		42,280		63.6	%	Petroleum		57,341		31,283		83.3	%
	32,015		14,036		128.1	%	Plastics		43,968		16,497		166.5	%
	175,044		111,120		57.5	%	Total		180,562		100,105		80.4	%
							Agriculture and Minerals
	110,475		52,769		109.4	%	Grain		112,888		45,680		147.1	%
	55,853		22,729		145.7	%	Food Products		66,636		19,935		234.3	%
	42,303		21,422		97.5	%	Ores and Minerals		29,156		12,836		127.1	%
	46,510		13,550		243.2	%	Stone, Clay & Glass		36,366		11,344		220.6	%
	255,141		110,470		131.0	%	Total		245,046		89,795		172.9	%
							Paper & Forest Products
	103,866		73,283		41.7	%	Pulp/Paper		96,231		59,797		60.9	%
	18,171		5,822		212.1	%	Scrap Paper		16,612		4,052		310.0	%
	24,032		20,582		16.8	%	Pulpwood/Logs/Chips		15,451		10,016		54.3	%
	25,144		25,286		(0.6	)%	Lumber/Plywood		29,261		25,649		14.1	%
	65,074		13,710		374.6	%	Metal/Scrap		61,391		11,763		421.9	%
	36,476		6,975		423.0	%	Military/Other Carloads		37,144		10,064		269.1	%
	272,763		145,658		87.3	%	Total		256,090		121,341		111.1	%
							Intermodal & Automotive
	64,584		4,701		1273.8	%	Automotive		64,437		3,706		1638.7	%
	360,944		251,266		43.7	%	Intermodal		80,384		44,840		79.3	%
	425,528		255,967		66.2	%	Total		144,821		48,546		198.3	%
	1,301,806		767,456		69.6	%	TOTAL FOR BUSINESS UNITS		917,220		427,628		114.5	%
	1,484		11,235		(86.8	)%	Other Freight Revenue		879		7,967		(89.0	)%
							Other Revenue		45,810		29,323		56.2	%
	1,303,290		778,691		67.4	%	TOTAL	$	963,909	$	464,918		107.3	%

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