Kansas City Southern Railway Experiences Record Fourth Quarter and Yea

Kansas City Southern Railway Experiences Record Fourth Quarter and Year-End 2004 Performance; Reduction in Future Mexican Tax Rates

    Business Editors/Transportation Writers

    KANSAS CITY, Mo.--(BUSINESS WIRE)--Jan. 31, 2005--Kansas City Southern (KCS or Company) (NYSE:KSU) today reported record fourth quarter and year-end 2004 revenues and operating income led by its primary domestic subsidiary, the Kansas City Southern Railway Company (KCSR), reflecting ongoing operational efficiency and its importance in an expanding North American economy.

    Fourth Quarter 2004
    Highlights

--	KCS reached record consolidated revenues in the fourth quarter 2004 of $174.6 million, an increase of $26.1 million, or 17.6%, over fourth quarter 2003.
--	KCSR revenues for fourth quarter 2004 were a record $173.7 million, increasing $26.7 million, or 18.2%, over fourth quarter 2003.
--	KCS and KCSR have reported 7 consecutive quarter-over-quarter gains in revenues.
--	KCSR's operating income for the fourth quarter 2004 was a record $31.7 million.

    Driven by KCSR's record fourth quarter revenues of $173.7 million, KCS reported substantial quarter-over-quarter gains in revenues and operating income. Consolidated KCS revenues increased to $174.6 million, a $26.1 million increase over the 2003 period. KCS operating income for fourth quarter 2004 was $27.4 million, compared to an operating loss of $6.8 million in 2003 which was impacted by a $21.1 million pre-tax increase in claims reserves.
    All of KCSR's commodity groups posted quarter-over-quarter revenue gains led by Paper & Forest Products, which increased 33.1%. Paper, wood pulp and military shipments were the primary drivers of the substantial gain. Intermodal & Automotive continued to rebound, recording a 19.2% quarter-over-quarter gain based on strong intermodal growth. Agriculture & Minerals increased 16.4%, led by growth in minerals, stone and export grain. Chemicals & Petroleum increased 11.5%, driven by the good performance of its petroleum segment. Finally, unit coal train revenues increased 7.0% with all plants served by KCSR returning to more normalized activity levels.
    KCSR's fourth quarter 2004 expenses of $142.0 million were $14.2 million, or 11.1%, higher than the comparable period in 2003, excluding last year's $21.1 million adjustment to increase reserves. Fuel costs were responsible for $8.3 million of that increase, and the increase in all other costs was 4.6%. KCSR's fourth quarter operating income reached a record $31.7 million. KCSR's enhanced profitability resulted in a fourth quarter 2004 operating ratio of 81.8%, a significant improvement over 86.9% for the fourth quarter 2003.
    Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.'s (Grupo TFM) fourth quarter 2004 carload volumes increased 13.7% quarter-over-quarter, led by a 20% gain in intermodal business. Grupo TFM's revenues were $173.5 million in the fourth quarter 2004 compared to $175.2 million in 2003, which included $15.2 million in revenues from its Mexrail, Inc. (Mexrail) subsidiary. Mexrail, which came under KCS control on January 1, 2005, was operated under a voting trust from August 2004, while the U.S. Surface Transportation Board reviewed KCS' control application.
    Grupo TFM operating income was $32.1 million for the fourth quarter 2004 compared to $36.9 million in 2003, which included a $0.8 million operating loss from Mexrail. The primary driver responsible for the lower 2004 operating income was TFM, S.A. de C.V. (TFM) locomotive fuel expense, which was $8.4 million higher than in fourth quarter 2003.
    In the fourth quarter, Mexico enacted legislation that lowered future corporate income tax rates. In 2004, the corporate income tax rate in Mexico was 33%, but that will drop to 30% in 2005, 29% in 2006 and 28% in 2007. The lowering of corporate tax rates in Mexico will benefit Mexican business and Grupo TFM going forward. Under U.S. GAAP FAS 109 treatment, Grupo TFM was required to record a non-cash charge that impacted KCS fourth quarter 2004 equity earnings from Grupo TFM by $8.8 million, or $0.14 per KCS share. This charge was necessary because Grupo TFM carries nearly $690 million net deferred tax deductions as an asset on its balance sheet. The new lower future tax rates resulted in a reduction in the carrying value of those future tax deductions.
    KCS recorded net income for fourth quarter 2004 of $0.7 million, including the impact on equity earnings of this non-cash tax provision. This compares with a fourth quarter 2003 net loss of $6.2 million, which was impacted by the $21.1 million pre-tax increase in claims reserves.

    2004 Year-End
    Highlights

    -- KCS reached record consolidated revenues in 2004 of $639.5
    million, an increase of $58.2 million, or 10.0%, over 2003.

    -- KCSR revenues for 2004 were a record $635.7 million, an
    increase of $60.4 million, or 10.5%, over 2003.

    -- KCSR's operating income for 2004 was $101.0 million.

    KCS 2004 consolidated net income available to common shareholders was $15.7 million, or $0.25 per diluted share in 2004 compared with $6.3 million, or $0.10 per diluted share in 2003. Year-end 2003 results were affected by a $21.1 million adjustment in claims reserves made in the fourth quarter of 2003, which was partially offset by a $8.9 million increase in net income related to the cumulative effect of a required change in accounting. The improvement in KCS earnings year-over-year was attributable to the performance of KCSR, which posted record revenues during 2004.
    KCSR's year-end 2004 revenues of $635.7 million increased $60.4 million, or 10.5%, over the 2003 total of $575.3 million. Traffic volumes increased approximately 5.4% in 2004 compared with the prior year.
    KCSR 2004 expenses were $534.7 million, an increase of $25.0 million compared with $509.7 million for the prior year excluding the $21.1 million adjustment to increase claims reserves in 2003. Fuel costs accounted for $18.6 million of that increase. The net increase in all other costs was held to only $6.4 million or 1.3%. Most of the increase in fuel costs was recovered through fuel surcharges.
    KCSR operating income increased to $101.0 million from $44.5 million in 2003. For 2004, KCSR's operating ratio was 84.1%, an improvement from 88.6% in 2003, excluding the impact of a $21.1 million increase in claims reserves the prior year.
    For the year ended December 31, 2004, Grupo TFM carloads were up 7% led by strong year-over-year business growth in chemicals, metals, minerals and industrial products. Grupo TFM revenues totaled $700.4 million compared with $698.5 million for the prior year. Excluding the impact of revenues for Mexrail in both years, 2004 revenues for TFM were $665.5 million, or 3.7% higher than the $641.4 million reported in 2003.
    Operating income for Grupo TFM was $132.1 million for 2004 which compares to $140.0 million for 2003. Eliminating the impact of Mexrail for both years, Grupo TFM's operating income declined 6.3% to $135.1 million in 2004 down from $144.1 million. A $20.6 million increase in locomotive fuel expense was the principal cost variance lowering operating profits in 2004.
    Equity earnings from Grupo TFM in 2004 were $14.7 million lower due primarily to the non-cash charge to deferred taxes and higher fuel expense.

    Comments From the Chairman

    KCS' Chairman, President and Chief Executive Officer, Michael R. Haverty, commented, "After a number of years of improving infrastructure, strengthening operations, and re-energizing marketing and sales efforts, KCSR made good progress toward achieving its principal financial and operational goals in 2004. Not only did it achieve year-over-year revenue growth, the pace of growth escalated as the year progressed, which bodes well as we move into the first half of 2005. In addition, KCSR's service remained at a high level throughout 2004. The combination of stronger revenues and good operations resulted in an improvement of 4.5 percentage points in KCSR's operating ratio in 2004. KCSR's steady improvement is evidenced by its 81.8% operating ratio in the fourth quarter.
    "The good news from TFM was the 14% increase in carloads and an 7 % growth in revenues in the fourth quarter of 2004, with good across-the-board traffic growth led by intermodal, chemicals, agro-business, metals and minerals. TFM markets continue to display exceptional potential for future growth that KCS intends to realize.
    "On December 15, 2004, KCS and Grupo TMM, S.A. (Grupo TMM) announced the signing of an amended acquisition agreement which, upon completion, will result in KCS being the majority shareholder of TFM. Grupo TMM shareholders approved the acquisition on January 11, 2004. The transaction will be completed upon an affirmative vote of KCS shareholders. The Company has recently received review comments from the U.S. S.E.C. on its preliminary proxy statement. The Company will be responding to these comments in due course and we anticipate the shareholder vote to take place late in the first quarter of 2005.
    "Combining KCSR, TFM, and the Tex Mex under the common control of KCS will provide North American shippers with a strong, viable competitive option. KCS has already begun putting a transition team on the ground in Mexico under the direction of our former chief operating officer, Gerald Davies. While TFM will continue to be a separate company operating under KCS, the improved integration between TFM and KCSR will greatly enhance service as well as provide significantly greater growth potential, both within Mexico and for cross-border business. The combination will make KCS a larger, more competitive company, which will provide expanded opportunities for us to grow our franchise and provide enhanced value for our shareholders.
    "Finally, KCS was fortunate in the hiring of Arthur Shoener as President and Chief Executive Officer of KCSR, as well as Executive Vice President and Chief Operating Officer of KCS. Art has been in the railroad industry for over 35 years, and is considered one of the premier operations executives in the business. His experience and talents, which include considerable knowledge of the North American rail system, will be invaluable in growing this company."

    Kansas City Southern is a transportation holding company that has railroad investments in the United States, Mexico and Panama. Its primary domestic holdings include The Kansas City Southern Railway Company, founded in 1887, and The Texas Mexican Railway Company, founded in 1885. Headquartered in Kansas City, Missouri, KCS serves customers in the central and south central regions of the United States. KCS' rail holdings and investments, including TFM, S.A. de C.V., are primary components of a NAFTA Railway system that links the commercial and industrial centers of the United States, Canada and Mexico. Visit www.kcsi.com for more information.

    This press release includes statements concerning potential future events involving the Company, which could materially differ from the events that actually occur. The differences could be caused by a number of factors including those factors identified in the "Risk Factors" and the "Cautionary Information" sections of the Company's Form 10-K for the year ended December 31, 2003, 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.

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

Three Months Ended Year Ended December 31, December 31, ---------------- ---------------- 2004 2003 2004 2003 ------- ------- ------- -------

Revenues $174.6 $148.5 $639.5 $581.3

Operating expenses Compensation and benefits 57.1 51.4 213.0 197.8 Purchased services 15.2 17.4 62.3 63.5 Fuel 20.6 12.1 66.4 47.4 Equipment costs 12.5 12.8 50.4 57.4 Depreciation and amortization 14.2 16.2 53.5 64.3 Casualties and insurance 11.9 30.2 42.4 56.4 Other leases 2.9 2.5 11.8 9.8 Other 12.8 12.7 56.2 55.6 ------- ------- ------- ------- Total operating expenses 147.2 155.3 556.0 552.2 ------- ------- ------- -------

Operating income (loss) 27.4 (6.8) 83.5 29.1

Equity in net earnings (losses) of unconsolidated affiliates: Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (8.3) 6.1 (2.4) 12.3 Other (1.9) (0.3) (2.1) (1.3) Interest expense (11.4) (11.6) (44.4) (46.4) Debt retirement costs - - (4.2) - Other income 5.8 2.0 17.6 6.8 ------- ------- ------- ------- Income before income taxes and cumulative effect of accounting change 11.6 (10.6) 48.0 0.5 Income tax provision 10.9 (5.4) 23.6 (2.8) ------- ------- ------- -------

Income (loss) before cumulative effect of accounting change 0.7 (5.2) 24.4 3.3 Cumulative effect of accounting change, net of income taxes - - - 8.9 ------- ------- ------- ------- Net income (loss) $0.7 $(5.2) $24.4 $12.2 Preferred stock dividends 2.1 1.2 8.7 5.9 ------- ------- ------- ------- Net income (loss) available to Common shareholders $(1.4) $(6.4) $15.7 $6.3 ======= ======= ======= =======

Per Share Data ---------------------------------------------------------------------- Basic earnings per Common share Income (loss) before cumulative effect of accounting change $(0.02) $(0.10) $0.25 $(0.04) Cumulative effect of accounting change, net of income taxes - - - 0.14 ------- ------- ------- ------- Total basic earnings (loss) per Common share $(0.02) $(0.10) $0.25 $0.10 ======= ======= ======= =======

Diluted earnings per Common share Income (loss) before cumulative effect of accounting change $(0.02) $(0.10) $0.25 $(0.04) Cumulative effect of accounting change, net of income taxes - - - 0.14 ------- ------- ------- ------- Total diluted earnings (loss) per Common share $(0.02) $(0.10) $0.25 $0.10 ======= ======= ======= =======

Weighted average Common shares outstanding (in thousands) Basic 62,986 62,053 62,715 61,725 Potential dilutive Common shares - - 1,268 - ------- ------- ------- ------- Diluted 62,986 62,053 63,983 61,725 ======= ======= ======= =======

Kansas City Southern Railway Operating Statements Dollars in Millions

Fourth Fourth Year to Year to Quarter Quarter Date Date 2004 2003 2004 2003 --------- --------- -------- --------- Revenues Chemical and Petroleum $34.9 $31.2 $135.0 $123.8 Paper and Forest 48.2 36.2 169.6 146.1 Agricultural and Mineral 35.4 30.4 125.2 108.5 Intermodal and Automotive Revenue 18.3 15.4 66.8 59.1 Unit Coal Revenue 23.9 22.3 90.6 90.9 Haulage Revenue 2.6 2.6 10.6 10.5 Other Revenue 10.4 8.9 37.9 36.4 --------- --------- -------- --------- Total Revenues 173.7 147.0 635.7 575.3 --------- --------- -------- ---------

Operating Expenses Compensation and Benefits 55.6 50.3 208.1 193.7 Purchased Services 13.8 15.5 56.6 57.4 Fuel 20.6 12.3 66.4 47.8 Equipment Costs 12.5 12.8 50.4 57.4 Casualties & Insurance 10.6 28.9 37.7 51.9 Material and Supplies 6.2 5.7 25.2 27.1 Other 2.2 1.2 11.3 7.6 --------- --------- -------- --------- Variable Operating Expenses 121.5 126.7 455.7 442.9 --------- --------- -------- ---------

Fixed Expenses Other Lease 3.0 2.4 11.8 9.7 Depreciation 14.0 16.1 52.7 63.6 Taxes (Other Than Income) 3.5 3.7 14.5 14.6

--------- --------- -------- --------- Fixed Operating Expenses 20.5 22.2 79.0 87.9 --------- --------- -------- --------- Total Operating Expenses 142.0 148.9 534.7 530.8 --------- --------- -------- ---------

Operating Income(Loss) $31.7 $(1.9) $101.0 $44.5 ========= ========= ======== =========

Operating Ratio 81.8% 101.3% 84.1% 92.3% Operating Ratio (3) 81.8% 86.9% 84.1% 88.6%

Note: (1) Certain prior year amounts have been reclassified to conform to the current year presentation. (2) Casualties expense includes impact of amounts recorded by the Company's captive insurance subsidiary. (3) Operating ratio (excluding $21.1 million claims reserve adjustment.)

KANSAS CITY SOUTHERN RAILWAY ---------------------------------------------------------------------- CARLOADINGS BY COMMODITY - FOURTH QUARTER 2004 ---------------------------------------------------------------------- Dollars in Thousands

Carloadings Revenue

Fourth Quarter Fourth Quarter ------------------ % ------------------- % 2004 2003 Change 2004 2003 Change --------- -------- ------ --------- --------- -------

Coal 49,859 49,110 1.5% Unit Coal $23,925 $22,368 7.0% 620 766 (19.1)% Other Coal 360 435 (17.2)% --------- -------- --------- --------- 50,479 49,876 1.2% Total 24,285 22,803 6.5% --------- -------- --------- ---------

Chemical & Petroleum Products Agri 1,542 1,643 (6.1)% Chemicals 1,143 1,053 8.5% 4,117 3,936 4.6% Gases 4,532 4,014 12.9% 6,922 7,029 (1.5)% Organic 6,282 6,268 0.2% 5,362 5,354 0.1% Inorganic 6,335 5,866 8.0% 14,235 13,334 6.8% Petroleum 10,897 9,172 18.9% 4,617 4,283 7.8% Plastics 5,686 4,919 15.6% --------- -------- --------- --------- 36,795 35,579 3.4% Total 34,875 31,292 11.5% --------- -------- --------- ---------

Agriculture and Minerals Domestic 11,010 12,130 (9.2)% Grain 10,710 9,983 7.3% Export 7,499 8,059 (6.9)% Grain 8,094 7,143 13.2% Food 7,505 7,036 6.7% Products 6,889 6,138 12.2% Ores and 7,977 6,641 20.1% Minerals 4,962 3,810 30.2% Stone, Clay 4,919 4,211 16.8% & Glass 4,722 3,328 41.9% --------- -------- --------- --------- 38,910 38,077 2.2% Total 35,377 30,402 16.4% --------- -------- --------- ---------

Paper & Forest Products 26,796 23,985 11.7% Pulp/Paper 23,191 19,541 18.7% 2,354 2,040 15.4% Scrap Paper 1,872 1,226 52.7% Pulpwood/ 7,795 7,258 7.4% Logs/Chips 4,478 3,380 32.5% Lumber/ 7,914 7,380 7.2% Plywood 8,801 7,148 23.1% 4,016 4,405 (8.8)% Metal/Scrap 3,778 3,536 6.8% Military/ Other 2,798 1,249 124.0% Carloads 6,126 1,411 334.2% --------- -------- --------- --------- 51,673 46,317 11.6% Total 48,246 36,242 33.1% --------- -------- --------- ---------

Intermodal & Automotive 2,112 1,755 20.3% Automotive 1,819 1,450 25.5% 84,757 79,200 7.0% Intermodal 16,456 13,885 18.5% --------- -------- --------- --------- 86,869 80,955 7.3% Total 18,275 15,335 19.2% --------- -------- --------- ---------

TOTAL FOR BUSINESS 264,726 250,804 5.6% UNITS 161,058 136,074 18.4% 3,485 6,542 (46.7)% Haulage 2,593 2,574 0.7% (534) (735) 27.3% Adjustments - - 0.0% Other KCSR Revenue 10,063 8,352 --------- -------- --------- ---------

267,677 256,611 4.3% TOTAL $173,714 $147,000 18.2% ========= ======== ========= ========= Note: Certain prior year amounts have been reclassified to conform to the current year presentation.

KANSAS CITY SOUTHERN RAILWAY -------------------------------------------------------------- CARLOADINGS BY COMMODITY - YEAR ENDED DECEMBER 31, 2004 --------------------------------------------------------------- Dollars in Thousands

Carloadings Revenue

Year to Date Year to Date ------------------- % ------------------- % 2004 2003 Change 2004 2003 Change ---------- -------- ------ --------- --------- -------

Coal 192,220 188,227 2.1% Unit Coal $90,586 $90,918 (0.4)% 2,500 3,141 (20.4)% Other Coal 1,540 1,756 (12.3)% ---------- -------- --------- --------- 194,720 191,368 1.8% Total 92,126 92,674 (0.6)% ---------- -------- --------- ---------

Chemical & Petroleum Products Agri 5,877 5,931 (0.9)% Chemicals 3,966 3,911 1.4% 16,718 15,052 11.1% Gases 17,248 15,031 14.7% 28,415 23,589 20.5% Organic 25,426 23,800 6.8% 21,737 21,845 (0.5)% Inorganic 23,977 23,048 4.0% 56,515 54,610 3.5% Petroleum 42,180 37,169 13.5% 18,653 18,955 (1.6)% Plastics 22,183 20,883 6.2% ---------- -------- --------- --------- 147,915 139,982 5.7% Total 134,980 123,842 9.0% ---------- -------- --------- ---------

Agriculture and Minerals Domestic 45,884 45,002 2.0% Grain 40,583 36,742 10.5% Export 25,394 21,279 19.3% Grain 23,901 17,682 35.2% Food 30,234 31,979 (5.5)% Products 26,823 26,387 1.7% Ores and 29,399 25,755 14.1% Minerals 17,799 14,764 20.6% Stone, Clay & 18,469 16,571 11.5% Glass 16,066 12,916 24.4% ---------- -------- --------- --------- 149,380 140,586 6.3% Total 125,172 108,491 15.4% ---------- -------- --------- ---------

Paper & Forest Products 100,079 94,824 5.5% Pulp/Paper 82,988 75,784 9.5% Scrap 8,176 7,224 13.2% Paper 5,924 4,445 33.3% Pulpwood/ Logs/ 28,377 30,009 (5.4)% Chips 14,494 13,816 4.9% Lumber/ 33,200 30,241 9.8% Plywood 34,450 29,330 17.5% Metal/ 17,726 17,987 (1.5)% Scrap 15,540 15,192 2.3% Military/ Other 9,773 5,974 63.6% Carloads 16,190 7,570 113.9% ---------- -------- --------- --------- 197,331 186,259 5.9% Total 169,586 146,137 16.0% ---------- -------- --------- ---------

Intermodal & Automotive 6,813 6,980 (2.4)% Automotive 5,526 5,595 (1.2)% 336,023 303,507 10.7% Intermodal 61,296 53,474 14.6% ---------- -------- --------- --------- 342,836 310,487 10.4% Total 66,822 59,069 13.1% ---------- -------- --------- ---------

TOTAL FOR BUSINESS 1,032,182 968,682 6.6% UNITS 588,686 530,213 11.0% 16,523 27,561 (40.0)% Haulage 10,560 10,518 0.4% (2,337) (3,544) 34.1% Adjustments - (1,025) 100.0% Other KCSR Revenue 36,432 35,604 ---------- -------- --------- --------- 1,046,368 992,699 5.4% TOTAL $635,678 $575,310 10.5% ========== ======== ========= ========= Note: Certain prior year amounts have been reclassified to conform to the current year presentation.

--30--AM/sf*

CONTACT: Kansas City Southern William H. Galligan, 816-983-1551 william.h.galligan@kcsr.com

KEYWORD: MISSOURI MEXICO INTERNATIONAL LATIN AMERICA INDUSTRY KEYWORD: AIRLINES TRANSPORTATION EARNINGS SOURCE: Kansas City Southern

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