20 Annual 17 Report CONNECTING NORTH AMERICA FOR PROSPERITY AND SECURITY KANSAS CITY SOUTHERN Kansas City Southern is a transportation holding company with two primary subsidiaries. The Kansas City Southern Railway Company is one of seven Class I railroads operating in the United States. Kansas City Southern de México, S.A. de C.V. is one of two large regional railroads in Mexico. KCS also owns 50% of the Panama Canal Railway Company in Panama. The combined North American rail network comprises approximately 6,700 route miles that link commercial and industrial markets in the United States and Mexico. 2017202 02017202 0 17 7FINANCIAL FINANCIALF INN ANA N CCIALA HIGHLIGHTSL HHIGHLIGHTSIGG HLH L IGG H TST In millions, except share and per share amounts. Years ended December 31. 2017 2016 2015 2014 OPERATIONS Revenues $ 2,582.9 $ 2,334.2 $ 2,418.8 $ 2,577.1 Operating income 921.6 818.5 803.8 809.1 Net income attributable to Kansas City Southern and subsidiaries 962.0 478.1 483.5 502.6 PER COMMON SHARE Earnings per diluted share $ 9.16 $ 4.43 $ 4.40 $ 4.55 CLOSING STOCK PRICE RANGES Common - High $ 113.44 $ 99.47 $ 120.42 $ 125.88 Common - Low 80.82 64.35 70.01 91.12 4% Non-Cumulative Preferred - High 29.50 28.99 28.85 29.00 4% Non-Cumulative Preferred - Low 26.75 25.40 25.25 24.15 FINANCIAL CONDITION Total assets $ 9,198.7 $ 8,817.5 $ 8,341.0 $ 7,976.4 Total debt, including short-term borrowings 2,619.4 2,478.2 2,401.1 2,301.4 Total stockholders’ equity 4,548.9 4,089.9 3,914.3 3,755.5 Total equity 4,865.4 4,404.5 4,224.7 4,064.1 COMMON STOCKHOLDER INFORMATION AT YEAR END Stockholders of record 2,141 2,233 2,289 2,512 Shares outstanding (in thousands) 103,037 106,607 108,461 110,392 Average diluted shares outstanding (in thousands) 105,040 107,761 109,915 110,433 LETTER TO OUR By almost any standard, 2017 was one of the best years in STOCKHOLDERS Kansas City Southern’s (“KCS”or“the Company”) 130-year history. Despite challenging conditions, our company’s resilience, focus and discipline resulted in record-setting financial performance in a number of key measures: • Revenues of $2.6 billion, up 11% over 2016, on strength from all business units; • Operating ratio of 64.3%, an improvement of 60 basis points from 2016; • Adjusted earnings per share* of $5.25, up 17% over 2016 (excluding impacts of changes in the U.S. tax law and foreign exchange fluctuations); and • Record free cash flow, resulting from strong top line growth, a focus on cost control and disciplined capital Patrick J. Ottensmeyer spending. 3UHVLGHQW &KLHI In addition to deliveri ([HFXWLYH2IILFHU QJVWURQJÀQDQFLDOSHUIRUPDQFHLQ.&6HIIHFWLYHO\ .DQVDV&LW\6RXWKHUQ QDYLJDWHGDUDSLGO\FKDQJLQJWUDGHHQYLURQPHQWFRQWLQXHGWRVWUDWHJLFDOO\ SRVLWLRQ RXUVHOYHV IRU IXWXUH JURZWK DQG RYHUFDPH PDMRU RSHUDWLRQDO FKDOOHQJHVIURP0RWKHU1DWXUH +XUULFDQH +DUYH\ PDGH ODQGIDOO LQ $XJXVW EULQJLQJ UHFRUG UDLQIDOO DQG KLVWRULFÁRRGLQJWRVRXWKHUQ7H[DVDQGVRXWKZHVWHUQ/RXLVLDQD+RZHYHUZLWK WKLV FKDOOHQJH IURP 0RWKHU 1DWXUH FDPH D UDUH RSSRUWXQLW\ WR DVVHVV WKH XQGHUO\LQJVWUHQJWKRIRXUQHWZRUN,DPSOHDVHGWKRXJKQRWVXUSULVHGWR UHSRUWWKDW.&6IDUHGZHOO,QYHVWPHQWVPDGHRYHUWKHODVWVHYHUDO\HDUVWR XSJUDGHRXUQHWZRUNDUHSD\LQJGLYLGHQGVDQGWKHXQGHUO\LQJVWUHQJWKRI RXUDVVHWVKHOSHGWRPLWLJDWHZLQGDQGÁRRGGDPDJH.&6·TXLFNUHFRYHU\ ZDVDOVRDWHVWDPHQWWRRXUHPSOR\HHVZKRZRUNHGWLUHOHVVO\EHIRUHGXULQJ DQG DIWHU WKH VWRUP WR PRYH HTXLSPHQW RXW RI KDUP·V ZD\ UHVWRUH RXU QHWZRUN DQG VHUYH RXU FXVWRPHUV )LQDOO\ VWURQJ FRRSHUDWLRQ DPRQJ RXU UDLO SDUWQHUVWKURXJKRXWWKHVWRUPDQGVXEVHTXHQWUHFRYHU\SOD\HGDNH\UROHLQ PLQLPL]LQJWKHLPSDFWRIWKHRXWDJH /RRNLQJ IRUZDUG ZH H[SHFW WR FRQWLQXH FDSLWDOL]LQJ RQ WKH XQLTXH RSSRUWXQLWLHVIRUJURZWKWKDWVHWRXUIUDQFKLVHDSDUWIURPWKHLQGXVWU\ Strategically Positioning KCS for Growth 0H[LFDQHQHUJ\UHIRUPSURYLGHVDQRSSRUWXQLW\IRUWKH86DQG0H[LFRWR SDUWQHULQSXUVXLQJDJRDORI1RUWK$PHULFDQHQHUJ\LQGHSHQGHQFHWKHUHE\ HQVXULQJ WKH SURVSHULW\ DQG VHFXULW\ RI WKH UHJLRQ IRU \HDUV WR FRPH PDUNHGWKHÀUVW\HDUWKDW0H[LFDQPDUNHWVZHUHRSHQWRWKHLPSRUWDWLRQRI HQHUJ\SURGXFWV7KLVGHYHORSPHQWLVWKHEHJLQQLQJRIDQH[FLWLQJDQGXQLTXH RSSRUWXQLW\ IRU .&6 DV RXU IUDQFKLVH LV VWUDWHJLFDOO\ SRVLWLRQHG WR IDFLOLWDWH HQHUJ\WUDGHEHWZHHQWKH86DQG0H[LFR,Q.&6PRYHGDOPRVW FDUORDGV DQG HDUQHG DSSUR[LPDWHO\ PLOOLRQ LQ UHYHQXH UHODWHG WR HQHUJ\ UHIRUP:KLOHWKHVHÀQDQFLDOUHVXOWVDUHPHDQLQJIXOZHEHOLHYHWKDW.&6LVRQO\ DWWKHEHJLQQLQJRIWKLVORQJODVWLQJRSSRUWXQLW\WRJURZRXUSHWUROHXPIUDQFKLVH .&6 LV DOVR DW WKH IRUHIURQW RI DQRWKHU RSSRUWXQLW\IRU Looking Forward JURZWK DV SHWURFKHPLFDO SURGXFWLRQ H[SDQGV $VZHWXUQRXUVLJKWVDKHDG,FRQWLQXHWREHOLHYH DORQJ WKH 86 *XOI &RDVW 7KLV SURGXFWLRQ WDNHV WKDW.&6LVLQDJRRGSODFHDQGKDVDQH[WUHPHO\ DGYDQWDJH RI DQ DEXQGDQW DQG FRVW DGYDQWDJHG EULJKW IXWXUH 2XU ÀQDQFLDO FRQGLWLRQ LV H[FHSWLRQDO VXSSO\ RI QDWXUDO JDV UHVRXUFHV *LYHQ .&6· 2XU SK\VLFDO QHWZRUN LV VWURQJ DQG UHVLOLHQW 2XU SUR[LPLW\ WR WKH *XOI &RDVW ZH H[SHFW WR SOD\ D RSSRUWXQLWLHV IRU VXVWDLQHG FDUORDG JURZWK OHDG NH\UROHLQWKHWUDQVSRUWDWLRQRISODVWLFVSURGXFHG WKHLQGXVWU\$QGSHUKDSVPRVWLPSRUWDQWO\RXU E\ WKHVH IDFLOLWLHV )XUWKHUPRUH VLQFH JOREDO HPSOR\HHVDUHWDOHQWHGDQGGHGLFDWHGWRDFKLHYLQJ GHPDQG LV GULYLQJ JURZWK LQ SURGXFWLRQ .&6 LV RXU YLVLRQ to consistently be the fastest-growing, SDUWLFXODUO\ ZHOOSRVLWLRQHG WR H[SRUW SODVWLFV best-performing, most customer-focused transportation JOREDOO\ XWLOL]LQJ RXU FURVVERUGHU IUDQFKLVH QHWZRUN provider in North America. DQGH[SRUWLQJWKURXJKWKH3RUWRI/D]DUR&DUGHQDV 7R DFKLHYH WKLV YLVLRQ ZH PXVW H[HFXWH RQ RXU 7R IDFLOLWDWH JURZWK LQ RXU SODVWLFV IUDQFKLVH LQ VWUDWHJ\WR .&6 FRPSOHWHG LWV PXOWL\HDU FDSLWDO LQYHVWPHQW LQ 0RVVYLOOH /RXLVLDQD 7KLV LQYHVWPHQW WRWDOLQJ &DSLWDOL]H RQ WKH VWUDWHJLF ORFDWLRQ RI WKH .&6 PLOOLRQUHSODFHVDQGH[SDQGV.&6·H[LVWLQJUDLOFDU FURVVERUGHU UDLO QHWZRUN DQGWKH GLYHUVH DQG FODVVLÀFDWLRQ \DUG DQG SURYLGHV RXU FXVWRPHU 6DVRO JURZLQJ1RUWK$PHULFDQPDUNHWVZKLOHPDLQWDLQLQJ &KHPLFDOV 86$ //& ´6DVROµ ZLWK D GHGLFDWHG DFRPPLWPHQWWRRSHUDWLRQDOH[FHOOHQFH VWRUDJHLQWUDQVLW ´6,7µ UDLO\DUGWRVXSSRUWLWVQHZ (PEUDFH QHZ DQG HPHUJLQJ WHFKQRORJLHV ZKLOH HWKDQH FUDFNHU DQG GHULYDWLYHV SURMHFW 7KH PDLQWDLQLQJDVWURQJFRVWGLVFLSOLQHZLWKLQDVDIH LQYHVWPHQWLQ0RVVYLOOHDOORZV.&6WRERWKSURYLGH DQGUHOLDEOHHQYLURQPHQW EHWWHUVHUYLFHWRUHJLRQDOUHÀQHULHVDQGLQWKHFDVH 3URYLGH VHUYLFH WKDW FRQVLVWHQWO\ H[FHHGV RXU RIWKH6DVRO6,7\DUGHVWDEOLVKWKHIRXQGDWLRQRI FXVWRPHUV· H[SHFWDWLRQV DORQJ ZLWK FKDOOHQJLQJ ZKDWZHEHOLHYHZLOOEHDORQJODVWLQJSDUWQHUVKLS FDUHHUV WR RXU HPSOR\HHV DQG LQGXVWU\OHDGLQJ EHWZHHQWKHWZRFRPSDQLHV VKDUHKROGHUUHWXUQV NAFTA $W.&6ZHIRFXVRQRXUYLVLRQDQGVWUDWHJ\DORQJ 7KH1RUWK$PHULFDQ)UHH7UDGH$JUHHPHQW ´1$)7$µ ZLWKWKHYDOXHVWKDWZHSURPRWHDQGUHZDUGLQWKH ZDV LQ IRFXV LQ DORQJZLWK WKH YLWDO UROH WKDW ZRUNSODFH7KLVYLVLRQVWUDWHJ\DQGVHWRIYDOXHV 1RUWK$PHULFDQWUDGHSOD\VLQRXUFRQWLQHQW·VJOREDO JRYHUQV WKH ZD\ ZH WUHDW RXU FROOHDJXHV FRPSHWLWLYHQHVV .&6· IUDQFKLVH FRQQHFWV 1RUWK FXVWRPHUVYHQGRUVFRPPXQLW\DQGVWRFNKROGHUV $PHULFDIRUSURVSHULW\DQGVHFXULW\E\SURYLGLQJ 2XU YLVLRQ LV EROG RXU VWUDWHJ\ LV DFKLHYDEOH DQG RXU FXVWRPHUVZLWK VHFXUH DQG HIILFLHQW UDLO RXUYDOXHVJRYHUQHYHU\WKLQJZHGR:HVKDUH WUDQVSRUWDWLRQ EHWZHHQ 0H[LFR DQG DOO RI WKH WKHP ZLWK \RX RXU VWRFNKROGHUV WR LPSDUW WKHLU PDMRU86DQG&DQDGLDQPDUNHWV*LYHQRXU LPSRUWDQFHWRRXU&RPSDQ\DQGIRVWHURXUVKDUHG FURVVERUGHUIRRWSULQWZHXQGHUVWDQGWKHEHQHÀWV FRPPLWPHQWWRDVXFFHVVIXODQGSURVSHURXVIXWXUH WKDW1$)7$SURYLGHVWRRXUFRQWLQHQW·VHFRQRPLHV DQGE\H[WHQVLRQWRWKHJOREDOVXSSO\FKDLQ 7KH$GMXVWHG(36UHFRQFLOLDWLRQWR*$$3LVRQSDJH UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 or 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 (I.R.S. Employer incorporation or organization) 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) None (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Preferred Stock, Par Value $25 Per Share, 4%, Noncumulative New York Stock Exchange Common Stock, $.01 Per Share Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No 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 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 No Indicate by check mark if disclosure