Edgar Filing: KANSAS CITY SOUTHERN

KCS 10Q 06.30.2014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2014



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number 1-4717

KANSAS CITY SOUTHERN

(Exact name of registrant as specified in its charter)



Delaware				44-0663509
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
427 West 12th Street, Kansas City, Missouri				64105
(Address of principal executive offices)				(Zip Code)

816.983.1303

(Registrant’s telephone number, including area code)

No Change

(Former name, former address and former fiscal year, if changed since last report.)

____________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		July 11, 2014
Common Stock, $0.01 per share par value		110,337,348 Shares

Table of Contents

Kansas City Southern and Subsidiaries

Form 10-Q

June 30, 2014

Index



		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Introductory Comments	3
	Consolidated Statements of Income — Three and six months ended June 30, 2014 and 2013	4
	Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2014 and 2013	5
	Consolidated Balance Sheets — June 30, 2014 and December 31, 2013	6
	Consolidated Statements of Cash Flows — Six months ended June 30, 2014 and 2013	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	SIGNATURES	34

Table of Contents

Kansas City Southern and Subsidiaries

Form 10-Q

June 30, 2014

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

Introductory Comments

The unaudited consolidated financial statements included herein have been prepared by Kansas City Southern pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. The Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-Q should be read in conjunction with the consolidated financial statements and the related notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Results for the three and six months ended June 30, 2014, are not necessarily indicative of the results expected for the full year ending December 31, 2014.

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Kansas City Southern and Subsidiaries

Consolidated Statements of Income



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	(In millions, except share and per share amounts) (Unaudited)
Revenues	$	649.7		$	579.3		$	1,257.1		$	1,132.1
Operating expenses:
Compensation and benefits	115.5			110.1			226.1			217.0
Purchased services	63.8			50.9			119.0			103.2
Fuel	107.7			93.0			211.6			183.9
Equipment costs	29.5			38.6			61.2			80.5
Depreciation and amortization	63.9			54.7			125.8			107.8
Materials and other	55.1			52.7			109.3			97.5
Lease termination costs	8.4			—			38.3			—
Total operating expenses	443.9			400.0			891.3			789.9
Operating income	205.8			179.3			365.8			342.2
Equity in net earnings of unconsolidated affiliates	5.9			3.5			11.6			9.0
Interest expense	(17.9		)	(19.2		)	(36.6		)	(42.9		)
Debt retirement costs	—			(111.4		)	(6.6		)	(111.4		)
Foreign exchange gain (loss)	5.3			(22.2		)	8.4			(8.7		)
Other income (expense), net	(2.8		)	(0.1		)	(3.3		)	0.2
Income before income taxes	196.3			29.9			339.3			188.4
Income tax expense	66.1			14.2			115.1			68.5
Net income	130.2			15.7			224.2			119.9
Less: Net income attributable to noncontrolling interest	0.4			0.3			0.7			0.7
Net income attributable to Kansas City Southern and subsidiaries	129.8			15.4			223.5			119.2
Preferred stock dividends	—			—			0.1			0.1
Net income available to common stockholders	$	129.8		$	15.4		$	223.4		$	119.1

Earnings per share:
Basic earnings per share	$	1.18		$	0.14		$	2.03		$	1.08
Diluted earnings per share	$	1.18		$	0.14		$	2.02		$	1.08

Average shares outstanding (in thousands):
Basic	110,160			109,968			110,121			109,936
Potentially dilutive common shares	237			355			277			356
Diluted	110,397			110,323			110,398			110,292

See accompanying notes to consolidated financial statements.

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Kansas City Southern and Subsidiaries

Consolidated Statements of Comprehensive Income



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014		2013			2014		2013
	(In millions) (Unaudited)
Net income	$	130.2	$	15.7		$	224.2	$	119.9
Other comprehensive income (loss):
Unrealized loss on cash flow hedges arising during the period, net of tax of less than $(0.1) million	—		(0.1		)	—		(0.1		)
Reclassification adjustment from cash flow hedges included in net income, net of tax of $0.2 million	—		0.3			—		0.5
Amortization of prior service credit, net of tax of less than $(0.1) million	—		(0.1		)	—		(0.1		)
Foreign currency translation adjustments, net of tax of $(0.2) million	—		(0.4		)	—		—
Other comprehensive income (loss)	—		(0.3		)	—		0.3
Comprehensive income	130.2		15.4			224.2		120.2
Less: Comprehensive income attributable to noncontrolling interest	0.4		0.3			0.7		0.7
Comprehensive income attributable to Kansas City Southern and subsidiaries	$	129.8	$	15.1		$	223.5	$	119.5

See accompanying notes to consolidated financial statements.

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Kansas City Southern and Subsidiaries

Consolidated Balance Sheets



	June 30, 2014			December 31, 2013
	(In millions, except share and per share amounts)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	190.2		$	429.5
Accounts receivable, net	213.1			198.3
Materials and supplies	125.8			121.3
Deferred income taxes	123.3			131.6
Other current assets	55.8			61.7
Total current assets	708.2			942.4
Investments	38.9			41.1
Restricted funds	—			4.2
Property and equipment (including concession assets), net	6,825.8			6,356.3
Other assets	77.8			91.4
Total assets	$	7,650.7		$	7,435.4
LIABILITIES AND EQUITY
Current liabilities:
Debt due within one year	$	24.8		$	332.0
Commercial paper	321.0			—
Accounts payable and accrued liabilities	383.2			398.6
Total current liabilities	729.0			730.6
Long-term debt	1,852.4			1,856.9
Deferred income taxes	1,097.9			1,044.6
Other noncurrent liabilities and deferred credits	129.6			126.7
Total liabilities	3,808.9			3,758.8
Commitments and contingencies	—			—
Stockholders’ equity:
$25 par, 4% noncumulative, preferred stock, 840,000 shares authorized, 649,736 shares issued, 242,170 shares outstanding	6.1			6.1
$.01 par, common stock, 400,000,000 shares authorized; 123,352,185 shares issued; 110,323,832 and 110,229,229 shares outstanding at June 30, 2014 and December 31, 2013, respectively	1.1			1.1
Additional paid-in capital	945.4			942.5
Retained earnings	2,584.5			2,422.9
Accumulated other comprehensive loss	(2.0		)	(2.0		)
Total stockholders’ equity	3,535.1			3,370.6
Noncontrolling interest	306.7			306.0
Total equity	3,841.8			3,676.6
Total liabilities and equity	$	7,650.7		$	7,435.4

See accompanying notes to consolidated financial statements.

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Kansas City Southern and Subsidiaries

Consolidated Statements of Cash Flows



	Six Months Ended
	June 30,
	2014			2013
	(In millions) (Unaudited)
Operating activities:
Net income	$	224.2		$	119.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	125.8			107.8
Deferred income taxes	58.4			53.4
Equity in net earnings of unconsolidated affiliates	(11.6		)	(9.0		)
Share-based compensation	4.4			8.3
Excess tax benefit from share-based compensation	(2.5		)	(3.3		)
Distributions from unconsolidated affiliates	15.8			6.5
Debt retirement costs	6.6			111.4
Changes in working capital items:
Accounts receivable	(12.4		)	(14.0		)
Materials and supplies	(4.3		)	(12.0		)
Other current assets	3.2			(27.0		)
Accounts payable and accrued liabilities	(10.6		)	(26.9		)
Other, net	(0.7		)	11.3
Net cash provided by operating activities	396.3			326.4

Investing activities:
Capital expenditures	(268.0		)	(265.9		)
Purchase or replacement of equipment under operating leases	(294.3		)	(155.1		)
Property investments in MSLLC	(24.8		)	(22.6		)
Proceeds from disposal of property	3.6			4.3
Other, net	3.9			(4.9		)
Net cash used for investing activities	(579.6		)	(444.2		)

Financing activities:
Proceeds from commercial paper	5,081.5			—
Repayment of commercial paper	(4,761.1		)	—
Proceeds from issuance of long-term debt	175.0			1,403.7
Repayment of long-term debt	(495.4		)	(1,203.2		)
Dividends paid	(54.8		)	(23.8		)
Debt costs	(4.1		)	(105.7		)
Excess tax benefit from share-based compensation	2.5			3.3
Proceeds from employee stock plans	0.4			0.9
Net cash provided by (used for) financing activities	(56.0		)	75.2
Cash and cash equivalents:
Net decrease during each period	(239.3		)	(42.6		)
At beginning of year	429.5			72.6
At end of period	$	190.2		$	30.0

See accompanying notes to consolidated financial statements.

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements

1. Accounting Policies, Interim Financial Statements and Basis of Presentation

In the opinion of the management of KCS, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of the results for interim periods. All adjustments made were of a normal and recurring nature. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

Effective January 1, 2014, the Company adopted, on a prospective basis, ASU No. 2013-11, Income Taxes, issued by the Financial Accounting Standards Board (FASB), related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance requires, unless certain conditions exists, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled in exchange for those goods or services. The standard will be effective for the Company beginning in the first quarter of 2017 and early adoption is not permitted. The new standard permits the use of either the retrospective or cumulative effect transition method on adoption. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures, including which transition method it will adopt.

2. Earnings Per Share Data

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share adjusts basic earnings per common share for the effects of potentially dilutive common shares, if the effect is not anti-dilutive. Potentially dilutive common shares include the dilutive effects of shares issuable under the stock option and performance award plans.

The following table reconciles the basic earnings per share computation to the diluted earnings per share computation (in millions, except share and per share amounts):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Net income available to common stockholders for purposes of computing basic and diluted earnings per share	$	129.8	$	15.4	$	223.4	$	119.1
Weighted-average number of shares outstanding (in thousands):
Basic shares	110,160		109,968		110,121		109,936
Effect of dilution	237		355		277		356
Diluted shares	110,397		110,323		110,398		110,292
Earnings per share:
Basic earnings per share	$	1.18	$	0.14	$	2.03	$	1.08
Diluted earnings per share	$	1.18	$	0.14	$	2.02	$	1.08

Potentially dilutive shares excluded from the calculation (in thousands):
Stock options excluded as their inclusion would be anti-dilutive	67		—		52		57

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

3. Lease Termination Costs

In the first half of 2014, the Company purchased $297.3 million of equipment under existing operating leases and replacement equipment as certain operating leases expired. These purchases have been funded with a portion of the proceeds from the senior notes issued during the fourth quarter of 2013 and available cash. For the three and six months ended June 30, 2014, the Company recognized $8.4 million and $38.3 million, respectively, of lease termination costs (included in operating expenses) due to the early termination of certain operating leases and the related purchase of the equipment.

4. Property and Equipment (including Concession Assets)

Property and equipment, including concession assets, and related accumulated depreciation and amortization are summarized below (in millions):



	June 30, 2014		December 31, 2013
Land	$	216.4	$	216.4
Concession land rights	141.2		141.2
Road property	6,145.1		5,955.7
Equipment	1,832.8		1,436.2
Technology and other	154.8		152.8
Construction in progress	142.4		171.4
Total property	8,632.7		8,073.7
Accumulated depreciation and amortization	1,806.9		1,717.4
Property and equipment (including concession assets), net	$	6,825.8	$	6,356.3

Concession assets, net of accumulated amortization of $458.9 million and $444.1 million, totaled $1,969.2 million and $1,951.0 million at June 30, 2014 and December 31, 2013, respectively.

5. Fair Value Measurements

Assets and liabilities recognized at fair value are required to be classified into a three-level hierarchy. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability.

The Company’s derivative financial instruments are measured at fair value on a recurring basis and consist of foreign currency forward contracts, which are classified as Level 2 instruments. The Company determines the fair value of its derivative financial instrument positions based upon pricing models using inputs observed from actively quoted markets and also takes into consideration the contract terms as well as other inputs, including market currency exchange rates. The fair value of the foreign currency forward contract assets was $8.7 million as of June 30, 2014. There were no outstanding foreign currency forward contracts as of December 31, 2013.

The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable, accounts payable and commercial paper obligations. The carrying value of the short-term financial instruments approximates their fair value.

The fair value of the Company’s debt is estimated using quoted market prices when available. When quoted market prices are not available, fair value is estimated based on current market interest rates for debt with similar maturities and credit quality. The fair value of the Company’s debt was $1,832.4 million and $2,082.9 million at June 30, 2014 and December 31, 2013, respectively. The carrying value was $1,877.2 million and $2,188.9 million at June 30, 2014 and December 31, 2013, respectively. If the Company’s debt were measured at fair value, the fair value measurements of the individual debt instruments would have been classified as either Level 1 or Level 2 in the fair value hierarchy.

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

6. Derivative Instruments

The Company enters into derivative transactions in certain situations based on management’s assessment of current market conditions and perceived risks. Management intends to respond to evolving business and market conditions and in doing so, may enter into such transactions as deemed appropriate.

Credit Risk. As a result of the use of derivative instruments, the Company is exposed to counterparty credit risk. The Company manages this risk by limiting its counterparties to large financial institutions which meet the Company’s credit rating standards and have an established banking relationship with the Company. As of June 30, 2014, the Company did not expect any losses as a result of default of its counterparties.

Foreign Currency Forward Contracts. The Company’s Mexican subsidiaries have net U.S. dollar-denominated liabilities (primarily debt) 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 and the amount of income taxes paid in Mexico. The Company enters into foreign currency forward contracts to hedge its exposure to this risk. In the first quarter of 2014, the Company entered into foreign currency forward contracts with an aggregate notional amount of $345.0 million. These contracts mature on December 31, 2014, and obligate the Company to purchase a total of Ps.4,642.5 million at a weighted-average exchange rate of Ps.13.46 to each U.S. dollar. In the first half of 2013, the Company entered into foreign currency forward contracts with an aggregate notional amount of $325.0 million maturing on December 31, 2013. These contracts obligated the Company to purchase a total of Ps.4,202.3 million at a weighted-average exchange rate of Ps.12.93 to each U.S. dollar. The Company has not designated any of the foreign currency forward contracts as hedging instruments for accounting purposes. The Company measures the foreign currency forward contracts at fair value each period and recognizes any change in fair value in foreign exchange gain (loss) within the consolidated statements of income.

The following table presents the fair value of derivative instruments included in the consolidated balance sheets (in millions):



	Derivative Assets
	Balance Sheet Location	June 30, 2014		December 31, 2013
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other current assets	$	8.7	$	—
Total derivative assets		$	8.7	$	—

The following table presents the amounts included in the consolidated statements of income (in millions):



	Location of Gain/(Loss) Recognized in Income on Derivative	Amount of Gain/(Loss) Recognized in Income on Derivative
		Three months ended					Six months ended
		June 30,					June 30,
Derivatives not designated as hedging instruments:		2014		2013			2014		2013
Foreign currency forward contracts	Foreign exchange gain (loss)	$	5.5	$	(14.1	)	$	8.7	$	(5.0	)
Total		$	5.5	$	(14.1	)	$	8.7	$	(5.0	)

7. Long-Term Debt

KCSR Credit Agreement Amendment. On January 30, 2014, the Company and The Kansas City Southern Railway Company (“KCSR”), a wholly-owned subsidiary of KCS, entered into agreements to establish a $450.0 million commercial paper program for KCSR (the “KCSR Commercial Paper Program”). Also on January 30, 2014, the Company, KCSR and certain other subsidiaries of the Company that guaranty the 2012 KCSR Credit Agreement entered into an amendment to the 2012 KCSR Credit Agreement which eliminated certain representations as a condition to borrowing under the revolving credit facility (the “KCSR Revolving Facility”), provided for the prepayment of all outstanding term loans (the “Term Loan”) under the 2012 KCSR Credit Agreement on or before February 13, 2014, and increased the borrowing capacity under the KCSR Revolving Facility to $450.0 million. The KCSR Revolving Facility serves as a backstop for the KCSR Commercial Paper Program, which generally serves as KCSR’s primary means of short-term funding.

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

KCSM Credit Agreement Amendment. On January 30, 2014, Kansas City Southern de México, S.A. de C.V. (“KCSM”), a wholly-owned subsidiary of KCS, entered into agreements to establish a $200.0 million commercial paper program for KCSM (the “KCSM Commercial Paper Program”). Also on January 30, 2014, KCSM and certain subsidiaries of KCSM that guaranty the 2012 KCSM Credit Agreement entered into an amendment to the 2012 KCSM Credit Agreement which eliminated certain representations as a condition to borrowing under the KCSM revolving credit facility (the “KCSM Revolving Facility”) and provided for same-day availability of borrowed funds if desired by KCSM. The KCSM Revolving Facility serves as a backstop for the KCSM Commercial Paper Program, which generally serves as KCSM’s primary means of short-term funding.

KCSM 8.0% Senior Notes. On February 3, 2014, KCSM redeemed all of the remaining $62.8 million aggregate principal amount of the KCSM 8.0% senior unsecured notes due February 1, 2018, at a redemption price (expressed as a percentage of the principal amount) of 104.0%, using a portion of the proceeds from the KCSM floating rate senior unsecured notes due October 28, 2016, issued in the fourth quarter of 2013.

KCSR Revolving Credit Facility and Term Loan. On February 7, 2014, KCSR borrowed $175.0 million under the KCSR Revolving Facility and used the proceeds and cash on hand to repay the outstanding $245.3 million principal amount of the KCSR Term Loan. On February 14, 2014, KCSR repaid the outstanding $175.0 million principal amount of the KCSR Revolving Facility using proceeds received under the KCSR Commercial Paper Program.

8. Commercial Paper

KCSR and KCSM’s Commercial Paper Programs generally serve as the primary means of short-term funding. As of June 30, 2014, KCSR had $321.0 million of commercial paper outstanding at a weighted-average interest rate of 0.598% and KCSM had no commercial paper outstanding.

9. Equity

The following tables summarize the changes in equity (in millions):



	Three Months Ended June 30, 2014								Three Months Ended June 30, 2013
	Kansas City Southern Stockholders’ Equity			Noncontrolling Interest		Total Equity			Kansas City Southern Stockholders’ Equity			Noncontrolling Interest		Total Equity
Beginning balance	$	3,433.0		$	306.3	$	3,739.3		$	3,182.6		$	304.5	$	3,487.1
Net income	129.8			0.4		130.2			15.4			0.3		15.7
Other comprehensive loss	—			—		—			(0.3		)	—		(0.3		)
Dividends on common stock	(30.9		)	—		(30.9		)	(23.8		)	—		(23.8		)
Dividends on $25 par preferred stock	—			—		—			—			—		—
Options exercised and stock subscribed, net of shares withheld for employee taxes	0.2			—		0.2			0.5			—		0.5
Excess tax benefit from share-based compensation	0.1			—		0.1			0.4			—		0.4
Share-based compensation	2.9			—		2.9			3.7			—		3.7
Ending balance	$	3,535.1		$	306.7	$	3,841.8		$	3,178.5		$	304.8	$	3,483.3

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)



	Six Months Ended June 30, 2014								Six Months Ended June 30, 2013
	Kansas City Southern Stockholders’ Equity			Noncontrolling Interest		Total Equity			Kansas City Southern Stockholders’ Equity			Noncontrolling Interest		Total Equity
Beginning balance	$	3,370.6		$	306.0	$	3,676.6		$	3,096.6		$	304.1	$	3,400.7
Net income	223.5			0.7		224.2			119.2			0.7		119.9
Other comprehensive income	—			—		—			0.3			—		0.3
Dividends on common stock	(61.8		)	—		(61.8		)	(47.4		)	—		(47.4		)
Dividends on $25 par preferred stock	(0.1		)	—		(0.1		)	(0.1		)	—		(0.1		)
Options exercised and stock subscribed, net of shares withheld for employee taxes	(4.0		)	—		(4.0		)	(1.7		)	—		(1.7		)
Excess tax benefit from share-based compensation	2.5			—		2.5			3.3			—		3.3
Share-based compensation	4.4			—		4.4			8.3			—		8.3
Ending balance	$	3,535.1		$	306.7	$	3,841.8		$	3,178.5		$	304.8	$	3,483.3

Cash Dividends on Common Stock

On April 30, 2014, the Company’s Board of Directors declared a cash dividend of $0.280 per share payable on July 2, 2014, to common stockholders of record as of June 9, 2014. The aggregate amount of the dividends declared for the three and six months ended June 30, 2014 was $30.9 million and $61.8 million, respectively.

The following table presents the amount of cash dividends declared per common share by the Company’s Board of Directors:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Cash dividends declared per common share	$	0.280	$	0.215	$	0.560	$	0.430

10. Commitments and Contingencies

Concession Duty. Under KCSM’s 50-year railroad concession from the Mexican government (the “Concession”), which would expire in 2047 unless extended, KCSM pays concession duty expense of 1.25% of gross revenues. For the three and six months ended June 30, 2014, the concession duty expense, which is recorded within materials and other in operating expenses, was $4.0 million and $7.6 million, respectively, compared to $3.4 million and $6.8 million for the same periods in 2013.

Litigation. The Company is a party to various legal proceedings and administrative actions, all of which, except as set forth below, are of an ordinary, routine nature and 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, which management believes are adequate to cover expected costs. Although it is not possible to predict the outcome of any legal proceeding, in the opinion of management, other than those proceedings described in detail below, such proceedings and actions should not, individually, or in the aggregate, have a material adverse effect on the Company’s consolidated financial statements.

On April 15, 2014, a putative securities class action lawsuit was filed in the United States District Court for the Western District of Missouri against the Company and certain of its current and former officers and directors. The securities class action is styled as Gross v. Kansas City Southern, et al., 4:14-cv-00345-BCW. On April 16, 2014, the first of two shareholder derivative actions purportedly brought on behalf of the Company (which is named as a “nominal defendant”) was filed in the United States District Court for the Western District of Missouri against certain of the Company’s current and former directors and officers. The first derivative action is styled as Webster v. Starling, et al., 4:14-cv-00349-BCW. The second derivative action was filed on June 6, 2014, and is styled as Lerner v. Starling, et al., 4:14-cv-00509-BCW. The complaints allege, among other things, that the Company made misrepresentations or omitted to disclose certain facts in connection with its volume guidance for fiscal year 2013. The complaints seek unspecified damages and equitable relief. While the Company intends to defend this litigation vigorously, there can be no assurances as to its outcome. An adverse resolution could have a material effect on the Company’s consolidated financial statements.

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Environmental Liabilities. The Company’s U.S. operations are subject to extensive federal, state and local environmental laws and regulations. The major U.S. environmental laws to which the Company is subject include, among others, the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA,” also known as the Superfund law), the Toxic Substances Control Act, the Federal Water Pollution Control Act, and the Hazardous Materials Transportation Act. CERCLA can impose joint and several liabilities for cleanup and investigation costs, without regard to fault or legality of the original conduct, on current and predecessor owners and operators of a site, as well as those who generate, or arrange for the disposal of, hazardous substances. The Company does not believe that compliance with the requirements imposed by the environmental legislation will impair its competitive capability or result in any material additional capital expenditures, operating or maintenance costs. The Company is, however, subject to environmental remediation requirements as described in the following paragraphs.

The Company’s Mexico 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, impose economic sanctions against companies that violate environmental laws, and temporarily or even permanently close non-complying facilities.

The risk of incurring environmental liability is inherent in the railroad industry. As part of serving the petroleum and chemicals industry, the Company transports hazardous materials and has a professional team available to respond to and mitigate environmental issues that might occur in the transport of such materials.

The Company performs ongoing reviews and evaluations of the various environmental programs and issues within the Company’s operations, and, as necessary, takes actions intended to limit the Company’s exposure to potential liability. Although these costs cannot be predicted with certainty, management believes that the ultimate outcome of identified matters will not have a material adverse effect on the Company’s consolidated financial statements.

Personal Injury. The Company’s personal injury liability is based on semi-annual actuarial studies performed on an undiscounted basis by an independent third party actuarial firm and reviewed by management. This liability is based on personal injury claims filed and an estimate of claims incurred but not yet reported. Actual results may vary from estimates due to the number, type and severity of the injury, costs of medical treatments and uncertainties in litigation. Adjustments to the liability are reflected within operating expenses in the period in which changes to estimates are known. Personal injury claims in excess of self-insurance levels are insured up to certain coverage amounts, depending on the type of claim and year of occurrence. The personal injury liability as of June 30, 2014, was based on an updated actuarial study of personal injury claims through May 31, 2014, and review of June 2014 experience.

The personal injury liability activity was as follows (in millions):



	Six Months Ended June 30,
	2014			2013
Balance at beginning of year	$	31.2		$	34.4
Accruals	4.4			4.4
Change in estimate	(0.7		)	4.1
Payments	(3.8		)	(5.6		)
Balance at end of period	$	31.1		$	37.3

Certain Disputes with Ferromex. KCSM and Ferrocarril Mexicano, S.A. de C.V. (“Ferromex”) use certain trackage rights, haulage rights and interline services (the “Services”) provided by each other. The rates to be charged after January 1, 2009, were agreed to pursuant to the Trackage Rights Agreement, dated February 9, 2010 (the “Trackage Rights Agreement”), between KCSM and Ferromex. The rates payable for these Services for the period beginning in 1998 through December 31, 2008, are still not resolved. KCSM is currently involved in discussions with Ferromex regarding the amounts payable to each other for the Services for this period. If KCSM cannot reach an agreement with Ferromex for rates applicable for Services which were provided prior to January 1, 2009, which are not subject to the Trackage Rights Agreement, the Mexican Secretaría de Comunicaciones y Transportes (“Secretary of Communications and Transportation” or “SCT”) is entitled to set the rates in accordance with Mexican law and regulations. KCSM and Ferromex both initiated administrative proceedings seeking a determination by the SCT of the rates that KCSM and Ferromex should pay each other in connection with the Services. The SCT issued rulings in 2002 and 2008 setting the rates for the Services and both KCSM and Ferromex challenged these rulings. Although KCSM and Ferromex have challenged these matters based on different grounds and these cases continue to evolve, management believes the amounts recorded related to these

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

matters are adequate. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that, when resolved, these disputes will have a material effect on its consolidated financial statements.

Contractual Agreements. In the normal course of business, the Company enters into various contractual agreements related to commercial arrangements and the use of other railroads’ or governmental entities’ infrastructure needed for the operations of the business. The Company is involved or may become involved in certain disputes involving transportation rates, product loss or damage, charges, and interpretations related to these agreements. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that, when resolved, these disputes will have a material effect on its consolidated financial statements.

Credit Risk. The Company continually monitors risks related to economic changes and certain customer receivables concentrations. Significant changes in customer concentration or payment terms, deterioration of customer creditworthiness or further weakening in economic trends could have a significant impact on the collectability of the Company’s receivables and its operating results. If the financial condition of the Company’s customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required. The Company has recorded provisions for uncollectability based on its best estimate at June 30, 2014.

Income Tax. Tax returns filed in the U.S. for periods after 2009 and in Mexico for periods after 2007 remain open to examination by the taxing authorities. In 2014, the Internal Revenue Service (“IRS”) initiated an examination on the 2011 and 2012 U.S. federal tax returns and the Servicio de Administración Tributaria (the “SAT”), the Mexican equivalent of the IRS, initiated an examination on the 2012 tax return of KCSM Servicios, S.A. de C.V., a wholly-owned subsidiary of KCS. KCSM’s 2007 and 2010 tax returns are currently under examination by the SAT. The Company is litigating an audit assessment from the SAT for KCSM for the year ended December 31, 2005. The Company believes it is more likely than not that it will prevail in challenging the KCSM 2005 assessment. While the outcome of this matter cannot be predicted with certainty, the Company does not believe, when resolved, that this dispute will have a material effect on its consolidated financial statements. However, an unexpected adverse resolution could have a material effect on the consolidated financial statements in a particular quarter or fiscal year.

Tax Contingencies. KCSM has not historically assessed Value Added Tax (“VAT”) on international import transportation services provided to its customers based on a written ruling that KCSM obtained from the SAT in 2008 stating that such services were exempt from VAT (the “2008 Ruling”). Notwithstanding the 2008 Ruling, in December 2013, the SAT unofficially informed KCSM of an intended implementation of a new criteria effective as of January 1, 2014, pursuant to which VAT would be assessed on all international import transportation services on the portion of the services provided within Mexico. Additionally, in November 2013, the SAT filed an action to nullify the 2008 Ruling, potentially exposing the application of the new criteria to open tax years. In February 2014, KCSM filed an action opposing the SAT’s nullification action. While the SAT’s unofficial communication to KCSM is not enforceable and the 2008 Ruling continues to be in effect, KCSM notified its customers in December 2013 of the potential assessment of VAT on international import transportation services as of January 1, 2014, and is considering potential changes to the KCSM billing systems; however, implementation of any VAT assessment will depend on future developments and guidance expected to be published by the SAT. Due to the pass-through nature of VAT assessed on services provided to customers, the Company does not believe any ultimate requirement to assess VAT on international import transportation services will have a significant effect on its consolidated financial statements. However, unexpected adverse implementation criteria imposed by the SAT for open tax years could have a material effect on the consolidated financial statements of the Company in a particular quarter or fiscal year.

Mexican Legislation. In Mexico, proposed legislation was introduced in 2013 in the House of Deputies to amend certain provisions in the Mexican Regulatory Railroad Service Law. In February 2014, this proposed legislation was approved by the Mexican House of Deputies. The proposed legislation was not acted on by the Mexican Senate in the congressional period which ended on April 30, 2014 and is expected to be considered in the next congressional period, which begins September 1, 2014. Because any final legislation is still subject to discussion and revision in the Mexican Senate, and requires the signature of the President of Mexico, it is too early to determine what, if any, impact the proposed rail legislation could have on the Mexican railroad industry and its customers.

In May 2014, new Mexican antitrust legislation was approved, and became effective on July 7, 2014. This new law replaces antitrust law that had been effective since 1993. The Company will continue to evaluate the Mexican government’s implementation of this legislation.

Panama Canal Railway Company (“PCRC”) Guarantees and Indemnities. At June 30, 2014, the Company had issued and outstanding $5.3 million under a standby letter of credit to fulfill its obligation to fund fifty percent of the debt service reserve or liquidity reserve established by PCRC in connection with the issuance of the 7.0% Senior Secured Notes due November 1, 2026 (the “PCRC Notes”). Additionally, KCS has pledged its shares of PCRC as security for the PCRC Notes.

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Kansas City Southern and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

11. Geographic Information

The Company strategically manages its rail operations as one reportable business segment over a single coordinated rail network that extends from the Midwest and Southeast portions of the United States south into Mexico and connects with other Class I railroads. Financial information reported at this level, such as revenues, operating income and cash flows from operations, is used by corporate management, including the Company’s chief operating decision-maker, in evaluating overall financial and operational performance, market strategies, as well as the decisions to allocate capital resources.

The Company’s strategic initiatives, which drive its operational direction, are developed and managed at the Company’s headquarters and targets are communicated to its various activity centers. The activity centers are responsible for executing the overall corporate strategy and operating plan established by corporate management as a coordinated system. The role of each region is to manage the operational activities and monitor and control costs over the coordinated rail network.

The following tables provide information by geographic area (in millions):



	Three Months Ended				Six Months Ended
	June 30,				June 30,
Revenues	2014		2013		2014		2013
U.S.	$	344.0	$	312.6	$	669.1	$	610.1
Mexico	305.7		266.7		588.0		522.0
Total revenues	$	649.7	$	579.3	$	1,257.1	$	1,132.1

Property and equipment (including concession assets), net					June 30, 2014		December 31, 2013
U.S.					$	4,014.0	$	3,662.2
Mexico					2,811.8		2,694.1
Total property and equipment (including concession assets), net					$	6,825.8	$	6,356.3

12. Condensed Consolidating Financial Information

As of June 30, 2014, KCSR had outstanding $450.0 million principal amount of 4.30% Senior Notes due May 15, 2043, and $200.0 million principal amount of 3.85% Senior Notes due November 15, 2023, which are unsecured obligations of KCSR, and are also jointly and severally and fully and unconditionally guaranteed on an unsecured senior basis by KCS and certain wholly-owned domestic subsidiaries. KCSR filed a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) in connection with an exchange offer with respect to the 4.30% Senior Notes and the 3.85% Senior Notes, which was declared effective on May 28, 2014. As a result, The Company is providing the accompanying condensed consolidating financial information (in millions) pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and issuers of guaranteed securities registered or being registered.”

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Notes to Consolidated Financial Statements—(Continued)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



	Three Months Ended June 30, 2014
	Parent			KCSR			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated KCS
Revenues	$	—		$	302.3		$	12.3	$	345.4		$	(10.3	)	$	649.7
Operating expenses	4.2			219.3			10.1		221.1			(10.8		)	443.9
Operating income (loss)	(4.2		)	83.0			2.2		124.3			0.5			205.8
Equity in net earnings of unconsolidated affiliates	127.0			0.3			1.1		5.5			(128.0		)	5.9
Interest expense	—			(20.8		)	—		(9.7		)	12.6			(17.9		)
Debt retirement costs	—			—			—		—			—			—
Foreign exchange gain	—			—			—		5.3			—			5.3
Other income (expense), net	12.5			—			—		(2.3		)	(13.0		)	(2.8		)
Income before income taxes	135.3			62.5			3.3		123.1			(127.9		)	196.3
Income tax expense	5.5			23.9			1.3		35.4			—			66.1
Net income	129.8			38.6			2.0		87.7			(127.9		)	130.2
Less: Net income attributable to noncontrolling interest	—			—			0.4		—			—			0.4
Net income attributable to Kansas City Southern and subsidiaries	129.8			38.6			1.6		87.7			(127.9		)	129.8
Other comprehensive income	—			0.1			—		0.1			(0.2		)	—
Comprehensive income attributable to Kansas City Southern and subsidiaries	$	129.8		$	38.7		$	1.6	$	87.8		$	(128.1	)	$	129.8



	Three Months Ended June 30, 2013
	Parent			KCSR			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated KCS
Revenues	$	—		$	275.7		$	11.5		$	302.8		$	(10.7	)	$	579.3
Operating expenses	1.7			203.3			9.3			197.0			(11.3		)	400.0
Operating income (loss)	(1.7		)	72.4			2.2			105.8			0.6			179.3
Equity in net earnings of unconsolidated affiliates	8.1			0.8			0.9			2.9			(9.2		)	3.5
Interest expense	—			(16.9		)	—			(14.1		)	11.8			(19.2		)
Debt retirement costs	—			(1.5		)	—			(109.9		)	—			(111.4		)
Foreign exchange loss	—			(1.6		)	—			(20.6		)	—			(22.2		)
Other income (expense), net	11.1			1.5			(0.1		)	(0.2		)	(12.4		)	(0.1		)
Income (loss) before income taxes	17.5			54.7			3.0			(36.1		)	(9.2		)	29.9
Income tax expense (benefit)	2.1			20.8			1.1			(9.8		)	—			14.2
Net income (loss)	15.4			33.9			1.9			(26.3		)	(9.2		)	15.7
Less: Net income attributable to noncontrolling interest	—			—			0.3			—			—			0.3
Net income (loss) attributable to Kansas City Southern and subsidiaries	15.4			33.9			1.6			(26.3		)	(9.2		)	15.4
Other comprehensive income (loss)	(0.3		)	0.3			—			(0.7		)	0.4			(0.3		)
Comprehensive income (loss) attributable to Kansas City Southern and subsidiaries	$	15.1		$	34.2		$	1.6		$	(27.0	)	$	(8.8	)	$	15.1

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Notes to Consolidated Financial Statements—(Continued)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - (Continued)



	Six Months Ended June 30, 2014
	Parent			KCSR			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated KCS
Revenues	$	—		$	586.3		$	23.7	$	667.3		$	(20.2	)	$	1,257.1
Operating expenses	5.1			446.2			20.0		441.3			(21.3		)	891.3
Operating income (loss)	(5.1		)	140.1			3.7		226.0			1.1			365.8
Equity in net earnings of unconsolidated affiliates	215.5			0.6			2.1		10.5			(217.1		)	11.6
Interest expense	—			(42.3		)	—		(19.9		)	25.6			(36.6		)
Debt retirement costs	—			(2.7		)	—		(3.9		)	—			(6.6		)
Foreign exchange gain	—			—			—		8.4			—			8.4
Other income (expense), net	25.5			0.4			—		(2.5		)	(26.7		)	(3.3		)
Income before income taxes	235.9			96.1			5.8		218.6			(217.1		)	339.3
Income tax expense	12.4			36.9			2.2		63.6			—			115.1
Net income	223.5			59.2			3.6		155.0			(217.1		)	224.2
Less: Net income attributable to noncontrolling interest	—			—			0.7		—			—			0.7
Net income attributable to Kansas City Southern and subsidiaries	223.5			59.2			2.9		155.0			(217.1		)	223.5
Other comprehensive income	—			0.1			—		0.1			(0.2		)	—
Comprehensive income attributable to Kansas City Southern and subsidiaries	$	223.5		$	59.3		$	2.9	$	155.1		$	(217.3	)	$	223.5



	Six Months Ended June 30, 2013
	Parent			KCSR			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated KCS
Revenues	$	—		$	540.2		$	20.2		$	591.5		$	(19.8	)	$	1,132.1
Operating expenses	2.6			405.5			18.6			384.2			(21.0		)	789.9
Operating income (loss)	(2.6		)	134.7			1.6			207.3			1.2			342.2
Equity in net earnings of unconsolidated affiliates	107.9			1.2			2.2			6.9			(109.2		)	9.0
Interest expense	—			(31.6		)	—			(35.1		)	23.8			(42.9		)
Debt retirement costs	—			(1.5		)	—			(109.9		)	—			(111.4		)
Foreign exchange loss	—			(1.6		)	—			(7.1		)	—			(8.7		)
Other income (expense), net	22.4			3.2			(0.1		)	(0.2		)	(25.1		)	0.2
Income before income taxes	127.7			104.4			3.7			61.9			(109.3		)	188.4
Income tax expense	8.5			38.2			1.4			20.4			—			68.5
Net income	119.2			66.2			2.3			41.5			(109.3		)	119.9
Less: Net income attributable to noncontrolling interest	—			—			0.7			—			—			0.7
Net income attributable to Kansas City Southern and subsidiaries	119.2			66.2			1.6			41.5			(109.3		)	119.2
Other comprehensive income	0.3			0.4			—			—			(0.4		)	0.3
Comprehensive income attributable to Kansas City Southern and subsidiaries	$	119.5		$	66.6		$	1.6		$	41.5		$	(109.7	)	$	119.5

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Notes to Consolidated Financial Statements—(Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS



	June 30, 2014
	Parent			KCSR			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated KCS
Assets:
Current assets	$	3.8		$	218.8		$	5.9	$	493.0	$	(13.3	)	$	708.2
Investments	—			3.9			—		35.0		—			38.9
Investments in consolidated subsidiaries	2,365.1			(2.7		)	464.3		—		(2,826.7		)	—
Property and equipment (including concession assets), net	—			3,099.4			195.6		3,530.8		—			6,825.8
Other assets	1.6			39.1			—		37.1		—			77.8
Total assets	$	2,370.5		$	3,358.5		$	665.8	$	4,095.9	$	(2,840.0	)	$	7,650.7
Liabilities and equity:
Current liabilities	$	(1,180.6	)	$	1,605.9		$	121.6	$	195.4	$	(13.3	)	$	729.0
Long-term debt	0.2			702.7			0.2		1,149.3		—			1,852.4
Deferred income taxes	2.9			746.6			129.3		219.1		—			1,097.9
Other liabilities	3.3			98.8			0.6		26.9		—			129.6
Stockholders’ equity	3,544.7			204.5			107.4		2,505.2		(2,826.7		)	3,535.1
Noncontrolling interest	—			—			306.7		—		—			306.7
Total liabilities and equity	$	2,370.5		$	3,358.5		$	665.8	$	4,095.9	$	(2,840.0	)	$	7,650.7



	December 31, 2013
	Parent			KCSR			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated KCS
Assets:
Current assets	$	2.6		$	403.0		$	8.8	$	560.1	$	(32.1	)	$	942.4
Investments	—			9.6			—		31.5		—			41.1
Investments in consolidated subsidiaries	2,154.6			(2.1		)	461.8		—		(2,614.3		)	—
Restricted funds	—			—			—		4.2		—			4.2
Property and equipment (including concession assets), net	0.1			2,780.4			198.6		3,377.2		—			6,356.3
Other assets	1.5			50.9			—		39.0		—			91.4
Total assets	$	2,158.8		$	3,241.8		$	669.2	$	4,012.0	$	(2,646.4	)	$	7,435.4
Liabilities and equity:
Current liabilities	$	(1,216.5	)	$	1,580.6		$	130.7	$	267.9	$	(32.1	)	$	730.6
Long-term debt	0.2			704.3			0.2		1,152.2		—			1,856.9
Deferred income taxes	(11.7		)	719.8			127.6		208.9		—			1,044.6
Other liabilities	6.6			92.0			0.7		27.5		(0.1		)	126.7
Stockholders’ equity	3,380.2			145.1			104.0		2,355.5		(2,614.2		)	3,370.6
Noncontrolling interest	—			—			306.0		—		—			306.0
Total liabilities and equity	$	2,158.8		$	3,241.8		$	669.2	$	4,012.0	$	(2,646.4	)	$	7,435.4

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Notes to Consolidated Financial Statements—(Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



	Six Months Ended June 30, 2014
	Parent			KCSR			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated KCS
Operating activities:
Net cash provided	$	52.3		$	106.9		$	0.8		$	242.3		$	(6.0	)	$	396.3
Investing activities:
Capital expenditures	—			(180.3		)	(0.7		)	(88.5		)	1.5			(268.0		)
Purchase or replacement of equipment under operating leases	—			(196.1		)	—			(98.2		)	—			(294.3		)
Property investments in MSLLC	—			—			—			(24.8		)	—			(24.8		)
Other investing activities	(0.7		)	8.5			(0.5		)	0.5			(0.3		)	7.5
Net cash used	(0.7		)	(367.9		)	(1.2		)	(211.0		)	1.2			(579.6		)
Financing activities:
Proceeds from commercial paper	—			5,081.5			—			—			—			5,081.5
Repayment of commercial paper	—			(4,761.1		)	—			—			—			(4,761.1		)
Proceeds from issuance of long-term debt	—			175.0			—			—			—			175.0
Repayment of long-term debt	—			(421.9		)	(0.1		)	(73.4		)	—			(495.4		)
Dividends paid	(54.8		)	—			—			(6.0		)	6.0			(54.8		)
Other financing activities	2.9			(1.0		)	0.5			(2.4		)	(1.2		)	(1.2		)
Net cash provided (used)	(51.9		)	72.5			0.4			(81.8		)	4.8			(56.0