Full-Year 2008

• Record annual revenues of $1.85 billion, a 6.3% increase
• Record operating income of $390.2 million, a 7.7% increase
• Operating ratio of 78.9%, compares favorably with 79.2% in 2007
• Record diluted EPS of $1.86, an 18.5% improvement

Fourth Quarter 2008 Results

·         Revenues of $423.8 million, a 7.9% decrease from prior year

·         Operating income of $91.2 million, a 16.1% decrease

·         Operating ratio of 78.5%, compared with 76.4% in 2007

·         Diluted EPS of $0.40, compared with $0.56 in 2007

Kansas City, MO.  Kansas City Southern (KCS) (NYSE:KSU) reported fourth quarter 2008 revenues of $423.8 million, a 7.9% decrease over the corresponding 2007 period.  The revenue decline was primarily the result of volume decreases in the quarter resulting from weakening economies in the U.S. and Mexico which was illustrated by the most significant downturn in the more economically sensitive commodities.

Operating expenses for the fourth quarter 2008 were $332.6 million, a decrease of 5.4% quarter over quarter.  Fuel expense for the quarter was down 13.7% as the price of fuel dropped during the quarter.  Compensation and benefits were also down 14.3% due to lower incentive compensation expense as well as operations being scaled back due to volume declines.  Operating income for the fourth quarter was $91.2 million compared with $108.7 million last year, a 16.1% decrease.   The fourth quarter 2008 operating ratio was 78.5% compared with 76.4% a year ago.

Net income available to common shareholders in the fourth quarter totaled $36.4 million, or $0.40 per diluted share, compared with $49.9 million, or $0.56 per diluted share in fourth quarter 2007, a 28.6% decrease in diluted earnings per share.   During the fourth quarter, the company recorded a $21.7 million pre-tax foreign exchange loss as a result of the strengthening U.S. dollar against the Mexican peso.  Also included in the fourth quarter is a $2.7 million income tax benefit resulting from economic conditions in Mexico.

Revenues for full year 2008 were $1.85 billion, a 6.3% increase over 2007.  Revenues were led by agriculture & minerals, up 12.7%, spurred by a combination of long haul traffic from the upper Midwest to Mexico and strong pricing.  Chemical & petroleum experienced a revenue increase of 8.6% for the year on strong pricing and substantial volume gains through three quarters.  Coal revenues were up 5.5% and industrial & consumer revenues were up 1.5% both on strong pricing.  Intermodal & automotive had mixed results with intermodal revenues up 12.2% year over year while automotive was down 4.8%.

For the year, operating expenses increased 5.9% as fuel expense was up nearly 20%.  The operating ratio for the year was 78.9%, a slight improvement over the 79.2% recorded in 2007.  Earnings per diluted share were $1.86, an 18.5% improvement over the prior year in spite of recording the foreign exchange loss for the fourth quarter.

Comments from the Chairman

“KCS reported record revenues, operating income, and diluted earnings per share for full year 2008 despite depressed fourth quarter revenues resulting from the most severe economic conditions in recent history,” stated KCS Chairman and Chief Executive Officer Michael R. Haverty.  “As soon as traffic volumes began to fall in the wake of two September hurricanes, KCS management reshaped its transportation service plan and took out costs throughout the entire company. As a result, despite volumes that weakened throughout the quarter, KCS achieved a fourth quarter operating ratio of 78.5%.  For the full-year 2008, KCS’ operating ratio was 78.9%, a 0.3 point improvement over 2007, and despite declining in the fourth quarter, 2008 annual revenues increased 6.3%.

“Because of the unsettled states of the U.S. and global economies, it would not be constructive to attempt to provide 2009 volume or revenue guidance at this time. However, through maintaining stringent control of operating and capital expenditures, KCS management is committed to operating the company in a manner which will allow it to be free cash flow positive in 2009.

“Looking beyond the present economic challenges, KCS remains a growth company. All the ingredients for the company’s long-term success are still in place. We have the management and employees, infrastructure and business opportunities in both the U.S. and Mexico to deliver exceptional value to all our stakeholders.”

Headquartered in Kansas City, Mo., Kansas City Southern is a transportation holding company that has railroad investments in the U.S., Mexico and Panama.  Its primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south central U.S.  Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal.  Kansas City Southern's North American rail holdings and strategic alliances are primary components of a NAFTA Railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada.

This press release may include statements concerning potential future events involving KCS and its subsidiaries, 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 KCS' Form 10-K for the most recently ended fiscal year, filed by KCS with the Securities and Exchange Commission (SEC) (Commission file no. 1-04717). KCS will not update any forward-looking statements in this press release to reflect future events or developments.

Kansas City Southern

Income Statement

(In millions, except share and per share amounts)

(Unaudited)

Three Months

Twelve Months

Ended December 31,

Ended December 31,

2008

2007

2008

2007

Revenues

$    423.8

$    460.3

$ 1,852.1

$ 1,742.8

Operating expenses:

Compensation and benefits

        78.0

        91.0

     374.6

    394.1

Purchased services

        53.3

        47.0

     198.9

    184.7

Fuel

        65.6

        76.0

     324.8

    270.8

Equipment costs

        43.7

        45.3

     182.5

    182.4

Depreciation and amortization

        45.6

        42.4

     170.1

    160.2

Casualties and insurance

        12.7

        18.2

       74.7

      71.0

Materials and other

        33.7

        31.7

     136.3

    117.2

Total operating expenses

      332.6

      351.6

  1,461.9

1,380.4

Operating income

        91.2

      108.7

     390.2

    362.4

Equity in net earnings of unconsolidated affiliates

          4.2

          4.2

       18.0

      11.4

Interest expense

      (36.2)

      (38.4)

    (138.9)

   (156.7)

Debt retirement costs

           

           

        (5.6)

       (6.9)

Foreign exchange gain (loss)

      (21.7)

          0.7

      (21.0)

       (0.9)

Other income (expense)

        (1.0)

          6.1

         6.0

      12.0

Income before income taxes and minority interest

        36.5

        81.3

     248.7

    221.3

Income tax expense (benefit)

        (2.7)

        26.5

       64.5

      67.1

Income before minority interest

        39.2

        54.8

     184.2

    154.2

Minority interest

           

          0.1

         0.3

        0.4

Net income

        39.2

        54.7

     183.9

    153.8

Preferred stock dividends

          2.8

          4.8

       15.2

      19.8

Net income available to common shareholders

$      36.4

$     49.9

$   168.7

$  134.0

Earnings per share:

Basic earnings per share

$        0.40

$       0.66

$       2.02

$      1.77

Diluted earnings per share

$        0.40

$       0.56

$       1.86

$      1.57

Average shares outstanding (in thousands):

Basic

90,506

75,948

83,674

75,832

Potential dilutive common shares

7,634

21,785

14,928

21,784

Diluted

98,140

97,733

98,602

97,616

Kansas City Southern

Revenue & Carloadings By Commodity – Fourth Quarter 2008

(Dollars in Millions)

Carloadings

Revenue

Fourth Quarter

%

Fourth Quarter

%

2008

2007

Change

2008

2007

Change

Coal

67,431

66,395

       1.6%

Unit Coal

$       42.1

$       40.0

     5.3%

12,072

15,271

   (20.9%)

Other Coal

9.2

11.8

  (22.0%)

79,503

81,666

     (2.6%)

Total

51.3

51.8

    (1.0%)

Industrial & Consumer Products

33,696

43,980

   (23.4%)

Forest Products

51.0

59.8

  (14.7%)

20,406

26,879

   (24.1%)

Metal/Scrap

31.1

42.3

  (26.5%)

22,870

25,859

   (11.6%)

Other

24.1

28.3

  (14.8%)

76,972

96,718

   (20.4%)

Total

106.2

130.4

  (18.6%)

Chemical & Petroleum Products

4,615

3,690

     25.1%

Agri Chemicals

5.7

5.0

   14.0%

22,802

26,611

   (14.3%)

Other Chemicals

33.5

37.4

  (10.4%)

13,744

16,229

   (15.3%)

Petroleum

19.3

23.1

  (16.5%)

13,084

11,923

       9.7%

Plastics

16.4

17.5

    (6.3%)

54,245

58,453

     (7.2%)

Total

74.9

83.0

    (9.8%)

Agriculture &  Minerals

38,499

43,413

   (11.3%)

Grain

65.9

67.2

    (1.9%)

15,099

14,151

       6.7%

Food Products

26.7

22.0

   21.4%

15,740

13,233

     18.9%

Ores & Minerals

14.2

12.2

   16.4%

3,766

4,377

   (14.0%)

Stone, Clay & Glass

5.9

6.0

    (1.7%)

73,104

75,174

     (2.8%)

Total

112.7

107.4

     4.9%

Intermodal & Automotive

132,542

141,036

     (6.0%)

Intermodal

41.2

39.4

     4.6%

25,275

28,951

   (12.7%)

Automotive

20.1

29.1

  (30.9%)

157,817

169,987

     (7.2%)

Total

61.3

68.5

  (10.5%)

441,641

481,998

     (8.4%)

TOTAL FOR BUSINESS UNITS

406.4

441.1

    (7.9%)

Other Revenue

17.4

19.2

    (9.4%)

441,641

481,998

     (8.4%)

TOTAL

$     423.8

$     460.3

    (7.9%)

Kansas City Southern

Revenue & Carloadings By Commodity – Year to Date December 31, 2008

(Dollars in Millions)

Carloadings

Revenue

Year to Date

%

Year to Date

%

2008

2007

Change

2008

2007

Change

Coal

249,599

259,366

     (3.8%)

Unit Coal

$     163.4

$     152.1

       7.4%

51,686

54,807

     (5.7%)

Other Coal

40.3

40.9

     (1.5%)

301,285

314,173

     (4.1%)

Total

203.7

193.0

       5.5%

Industrial & Consumer Products

157,950

182,659

   (13.5%)

Forest Products

234.0

240.5

     (2.7%)

108,390

101,758

      6.5%

Metal/Scrap

166.3

140.7

     18.2%

101,246

109,385

     (7.4%)

Other

108.3

119.9

     (9.7%)

367,586

393,802

     (6.7%)

Total

508.6

501.1

       1.5%