UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
333-08322
KANSAS CITY SOUTHERN DE
MÉXICO, S.A. DE C.V.
(Exact Name of Registrant as
Specified in Its Charter)
Kansas City Southern of Mexico
(Translation of
Registrants name into English)
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México (State or other jurisdiction of incorporation or organization)
Montes Urales 625 Lomas de Chapultepec 11000 Mexico, D.F. Mexico (Address of Principal Executive Offices)
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N/A
(I.R.S. Employer
Identification No.)
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(5255) 9178-5686
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of Registrants
Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the
Act:
None
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 o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
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 o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
(Not applicable)
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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell
company. Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates: Not applicable
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date: 4,785,510,235.
Kansas City Southern de México, S.A. de C.V. is a
wholly-owned subsidiary of Kansas City Southern; as a result,
there is no market data with respect to registrant shares.
Kansas City Southern de México, S.A de C.V. meets the
conditions set forth in General Instruction I(1)(a) and
(b) of
form 10-K
and is therefore filing this form with the reduced disclosure
format.
DOCUMENTS INCORPORATED BY REFERENCE:
Not applicable.
KANSAS
CITY SOUTHERN DE MÉXICO, S.A. DE C.V. AND SUBSIDIARIES
2009
FORM 10-K
ANNUAL REPORT
Table of
Contents
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Unless otherwise indicated or the context otherwise requires,
all references in this Annual Report to KCSM or the
Company, or similar terms refer to Kansas City
Southern de México, S.A. de C.V., together with its
subsidiaries, and references to KCS refer to Kansas
City Southern, a Delaware corporation that, as of
September 12, 2005, became KCSMs ultimate parent.
References to Grupo KCSM refer to Grupo KCSM, S.A.
de C.V., and references herein to $,
U.S. dollars or dollar are to the
lawful currency of the United States of America. References
herein to peso, Ps. and Mexican
pesos are to the lawful currency of Mexico.
Cautionary
Statement Regarding Forward-Looking Statements
You should carefully review the information contained in this
Annual Report on
Form 10-K
and in other reports or documents that the Company files from
time to time with the Securities and Exchange Commission (the
SEC). In this Annual Report on
Form 10-K,
the Company states its beliefs of future events and future
financial performance. In some cases, you can identify those
so-called forward-looking statements by words such
as may, will, should,
expects, plans, anticipates,
believes, estimates,
predicts, potential, or
continue or the negative of those words and other
comparable words. You should be aware that those statements are
only the Companys predictions. Actual events or results
may differ materially. In evaluating those statements, you
should specifically consider various factors, including the
risks discussed in this Annual Report on
Form 10-K
and other reports or documents that the Company files from time
to time with the SEC. Those factors may cause actual results to
differ materially from any forward-looking statements. All
forward-looking statements attributable to the Company or a
person acting on its behalf are expressly qualified in their
entirety by this cautionary statement.
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Part I
COMPANY
HISTORY
KCSM commenced operations in June 1997 under a
50-year
Concession (the Concession) granted by the Mexican
government to provide freight transportation services over the
Northeast Rail Lines, the first rail lines to be privatized in
the Mexican railroad system. Prior to the privatization, KCS and
Grupo TMM, S.A. (Grupo TMM) jointly formed and
invested in KCSMs former parent, Grupo KCSM, with KCS
owning a 36.9% economic interest (49% of the shares entitled to
full voting rights) and Grupo TMM owning a 38.5% economic
interest (51% of the shares entitled to full voting rights). In
2002, KCSM purchased the remaining 24.6% of Grupo KCSM held by
the Mexican government. This transaction increased KCS
ownership in Grupo KCSM to a 46.6% economic interest and Grupo
TMMs ownership in Grupo KCSM to a 48.5% economic interest.
On April 1, 2005, KCS completed the acquisition from Grupo
TMM of all of Grupo TMMs shares of Grupo KCSM, giving KCS
ownership of 100% of the shares of Grupo KCSM entitled to full
voting rights. As of April 1, 2005, Grupo KCSM owned 80% of
the Companys share capital (which represented all of
KCSMs shares with full voting rights), while the remaining
20% of KCSM (with limited voting rights) was owned by the
Mexican government. Accordingly, KCS became KCSMs
controlling stockholder through its ownership of Grupo KCSM on
April 1, 2005.
On September 12, 2005, Grupo KCSM and KCS, along with Grupo
TMM, entered into a settlement agreement with the Mexican
government resolving certain disputes and controversies between
the companies and the Mexican government concerning the payment
of a refund of the value added taxes (VAT) paid when
the Concession Title and certain other assets were transferred
to KCSM and Grupo KCSMs obligation to purchase the
remaining shares of KCSM owned by the Mexican government. As a
result of this settlement, KCS and its subsidiaries obtained
ownership of 100% of both Grupo KCSM and KCSM and the Mexican
governments remaining 20% ownership interest in KCSM was
redeemed and cancelled; the potential obligation of KCS, Grupo
KCSM and Grupo TMM to acquire the Mexican governments
remaining 20% interest in KCSM was eliminated; and the legal
obligation of the Mexican government to issue the VAT refund to
KCSM was satisfied.
On December 20, 2006, after receiving shareholder approval,
KCSM amended its by-laws to transform KCSM into a sociedad de
responsabilidad limitada de capital variable (limited
liability corporation).
On April 2, 2007, KCSM adopted corporate resolutions
approving: (i) KCSMs conversion
(Re-transformation) from a sociedad de
responsabilidad limitada de capital variable (limited
liability corporation) to a sociedad anónima de capital
variable (variable capital corporation) and (ii) the
legal merger, (the 2007 Merger) of Grupo KCSM with
KCSM, with KCSM as the surviving corporation. The
Re-transformation and the 2007 Merger became effective on
May 8, 2007, the date on which the corresponding corporate
resolutions were filed for registry within the Mexican Public
Registry of Commerce (Registro Público de Comercio).
BUSINESS
OVERVIEW
KCSM operates the primary commercial corridor of the Mexican
railroad system, which allows it to participate significantly in
the growing freight traffic between Mexico, the U.S. and
Canada. KCSMs rail lines consist of approximately
2,600 miles of main track. In addition, KCSM has trackage
rights entitling it to run its trains over 700 miles of
track of other Mexican railroad operators. KCSM provides freight
transportation services under its
50-year
Concession, during the first 30 years of which the Company
is the exclusive provider, subject to certain trackage rights of
other freight carriers. KCSMs Concession is renewable for
an additional period of up to 50 years, subject to certain
conditions.
The Company believes its rail lines comprise the most
strategically significant and most actively traveled rail
corridor in Mexico. The Companys rail lines connect the
most populated and industrialized regions of Mexico with the
principal border gateway between Mexico and the U.S. at
Nuevo Laredo, Tamaulipas and
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Laredo, Texas. In addition, KCSM serves three of Mexicos
most important seaports at Lazaro Cardenas, Michoacan on the
Pacific Ocean and Tampico, Tamaulipas and Veracruz, Veracruz
(through trackage rights granted by Ferrosur, S.A. de
C.V. (Ferrosur), under its concession) on the
Gulf of Mexico. As a result, the Company believes its routes are
integral to Mexicos foreign trade.
KCSM seeks to establish its railroad as the primary inland
freight transporter linking Mexico with the U.S. and
Canadian markets. As the operator of the primary and most direct
rail corridor from Mexico City to the U.S. border, its
route structure enables KCSM to benefit from continuing growth
resulting from the North American Free Trade Agreement
(NAFTA). KCSM is the only Mexican railroad that
serves the Mexico-U.S. border crossing at Nuevo
Laredo-Laredo, which is the largest freight exchange point
between Mexico and the U.S. Through KCS
U.S. rail subsidiaries, as well as through interchanges
with other major U.S. railroads, KCSM provides customers
with access to an extensive network through which they may
distribute products throughout North America and overseas.
The Company provides exclusive rail access to the port of Lazaro
Cardenas on the Pacific Ocean. The Mexican government is
developing the port at Lazaro Cardenas principally to serve
Mexican markets and as an alternative to the congested
U.S. west coast ports of Long Beach and Los Angeles. KCSM
is the sole provider of rail service to this port, which
provides an alternate route for Asian traffic bound for the
eastern, southern and midwestern United States. Traffic at
Lazaro Cardenas is both domestic and import traffic, consisting
of intermodal containers, minerals, iron, steel slabs, wire rods
and fertilizers.
KCSMs revenues are derived from the movement of a
diversified mix of commodities and products mainly attributable
to cross-border traffic with the U.S. The Company
transports chemical and petroleum products, industrial and
consumer products, agricultural and mineral products, intermodal
and automotive products, and coal. KCSMs customers include
leading international and Mexican corporations.
Kansas
City Southern
KCSM is a wholly-owned subsidiary of KCS. KCS principal
U.S. subsidiary, The Kansas City Southern Railway Company
(KCSR), is a U.S. Class I railroad. The
rail network of KCSR, The Texas Mexican Railway Company
(Tex-Mex) and KCSM together comprise approximately
6,000 miles of main and branch lines extending from the
midwest and southeast portions of the United States into Mexico.
RAIL
SECURITY
KCS and its rail subsidiaries have made a concentrated,
multi-disciplinary effort since the terrorist attacks on the
United States on September 11, 2001, to continue securing
KCS assets and personnel against the risk of terrorism and
other security risks. Many of the specific measures KCS utilizes
for these efforts are required to be kept confidential through
arrangements with government agencies, such as the Department of
Homeland Security (DHS), or through
jointly-developed and implemented strategies and plans with
connecting carriers. To protect the confidentiality and
sensitivity of the efforts the Company has made to safeguard
against terrorism and other security incidents, the following
paragraphs will provide only a general overview of some of these
efforts. KCSM utilizes a security plan based on an industry wide
security plan developed by Association of American Railroads
(AAR) members which focuses on comprehensive risk
assessments in five areas hazardous materials; train
operations; critical physical assets; military traffic; and
information technology and communications. The security plan is
kept confidential, with access to the plan tightly limited to
members of management with direct security and anti-terrorism
implementation responsibilities. KCSM participates with other
AAR members in periodic drills under the industry plan to test
and refine its various provisions.
KCS security activities range from periodically mailing
each employee a security awareness brochure (which is also
posted under the Employees tab on KCS internet
website, www.kcsouthern.com) to its ongoing development and
implementation of security plans for rail facilities in areas
labeled by the DHS as
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High Threat Urban Areas (HTUAs). KCS other
activities to bolster security against terrorism include, but
are not limited to, the following:
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Conferring regularly with other railroads security
personnel and with industry experts on security issues;
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Analyzing routing alternatives and other strategies to reduce
the distances that certain chemicals, which might be toxic if
inhaled, are transported;
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Initiating a series of over 20 voluntary action items agreed to
between AAR and DHS as enhancing security in the rail
industry; and
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Including periodic security training as part of the scheduled
training for operating employees and managers.
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In addition, in 2008 KCS created a new leadership role titled
Director of Homeland Security to oversee the ongoing
and increasingly complex security efforts. KCS identified and
retained an individual to fill the position who has an extensive
law enforcement background, including being formerly employed as
an analyst with the Federal Bureau of Investigation
(FBI) for 12 years. This member of management
remains a member of the FBIs Joint Terrorism Task Force
and is a valuable asset to the Company in implementing and
developing anti-terrorism and other security initiatives.
While the risk of theft and vandalism is higher in Mexico, KCSM
remains among the safest transportation for freight shipments in
Mexico. KCSMs record in rail safety is due in large part
to the implementation of a multi-layered, safety and security
process throughout the KCSM network. In addition to having its
own internal system of checks and balances, the process is
connected to, and supported by a high level of federal, state
and local law enforcement. A primary focus of this effort
involves maintaining train velocity, which reduces the
likelihood for incidents to occur. By moving customers
shipments more efficiently, KCSM is keeping the cargo secure.
AVAILABLE
INFORMATION
KCS website (www.kcsouthern.com) provides, at no cost,
KCSMs Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
and Current Reports on
Form 8-K,
and amendments to those reports, as soon as reasonably
practicable after the electronic filing of these reports with
the Securities and Exchange Commission. Written requests for
copies of these reports may be made to the Corporate Secretary,
P.O. Box 219335, Kansas City, Missouri
64121-9335
(or if by express delivery to 427 West 12th Street,
Kansas City, Missouri 64105).
Risk
Factors Relating to KCSM Debt
The
Companys substantial indebtedness could adversely affect
its financial position and its ability to meet its obligations
under its debt instruments.
KCSM has a substantial amount of debt and significant debt
service obligations. As of December 31, 2009, KCSM had
total outstanding indebtedness of $1,136.1 million,
consisting of (i) $989.7 million of senior unsecured
indebtedness, (ii) $118.4 million of senior secured
indebtedness and capital lease obligations and
(iii) $28.0 million of unsecured debt with another
wholly-owned subsidiary of KCS and equipment debt. KCSMs
stockholders equity was $1,334.8 million as of
December 31, 2009, resulting in a debt ratio (total debt as
a percentage of total debt plus equity) of 46.0%.
KCSMs substantial indebtedness could make it more
difficult for it to borrow money in the future and may reduce
the amount of money available to finance its operations and
other business activities, including the following:
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KCSM will have to dedicate a substantial portion of its cash
flow from operations to the payment of principal, premium, if
any, and interest on its debt, which will reduce funds available
for other purposes;
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KCSM may not be able to fund capital expenditures, working
capital and other corporate requirements;
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KCSM may not be able to obtain additional financing, or obtain
it at acceptable rates;
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KCSMs ability to adjust to changing market conditions and
to withstand competitive pressures could be limited, and the
Company may be vulnerable to additional risk if there is a
downturn in general economic conditions or in its business,
including the availability of short-term and long-term debt;
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KCSM may be exposed to risks in exchange rate fluctuations
because any fluctuation of the Mexican peso relative to the
U.S. dollar could impact its ability to service debt. See
KCSMs operations are subject to economic and
political risk; and
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KCSM may be at a disadvantage compared to its competitors that
have less leverage and greater operating and financial
flexibility than the Company does.
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Failure
to comply with restrictive covenants in KCSMs existing
contractual arrangements could accelerate KCSMs repayment
obligations under its indentures relating to its
debt.
The indentures relating to KCSMs outstanding debt
securities contain a number of restrictive covenants, and any
additional financing arrangements KCSM enters into may contain
additional restrictive covenants. These covenants restrict or
prohibit many actions, including, but not limited to,
KCSMs ability to incur debt, create or suffer to exist
liens, make prepayments of particular debt, pay dividends, make
investments, engage in transactions with stockholders and
affiliates, issue capital stock, sell certain assets, and engage
in mergers and consolidations or in sale-leaseback transactions.
Failure to maintain compliance with the covenants contained in
the indentures could constitute a default which could accelerate
the payment of any amounts outstanding under these financial
agreements.
A
downturn in debt capital markets may increase the cost of
borrowing and make financing difficult to obtain, each of which
could have a material adverse effect on the Companys
results of operations and business.
Events in the financial markets may have an adverse impact on
the debt capital markets and, as a result, credit may become
more expensive and difficult to obtain. Lenders may impose more
stringent restrictions on the terms of credit and there may be a
general reduction in the amount of credit available in the
markets in which KCSM conducts business. The negative impact of
tightening credit markets, and adverse changes in the debt
capital markets generally, may have a material adverse effect on
KCSMs results of business and operations resulting from,
but not limited to, an inability to finance capital expansion on
favorable terms, if at all, increased financing cost or
financial terms with increasingly restrictive covenants.
Risk
Factors Relating to KCSMs Business
KCSMs
Concession is subject to revocation or termination in certain
circumstances which would prevent KCSM from operating its
railroad and would have a material adverse effect on its
business and financial condition.
KCSM operates under the Concession granted by the Mexican
government, which is renewable for up to 50 years, subject
to certain conditions. The Concession gives KCSM exclusive
rights to provide freight transportation services over its rail
lines for 30 years of the
50-year
Concession, subject to certain trackage and haulage rights
granted to other concessionaires. The Secretaría de
Comunicaciones y Transportes (Ministry of Communications)
(SCT), which is principally responsible for
regulating railroad services in Mexico, has broad powers to
monitor KCSMs compliance with the Concession and can
require KCSM to supply it with any technical, administrative and
financial information it requests. Among other obligations, KCSM
must comply with the investment commitments established in its
business plan, which forms an integral part of the Concession,
and must update the plan every five years. The SCT treats
KCSMs business plans confidentially. The SCT also monitors
KCSMs compliance with efficiency and safety standards
established in the Concession. The SCT reviews, and may amend,
these standards every five years.
The Mexican Railroad Services Law and regulations provide the
Mexican government certain rights in its relationship with KCSM
under the Concession, including the right to take over the
management of KCSM and
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its railroad in certain extraordinary cases, such as imminent
danger to national security. In the past, the Mexican government
has used such power with respect to other privatized industries,
including the telecommunications industry, to ensure continued
service during labor disputes. In addition, under
Article 47 of the Mexican Railroad Services Law and
regulations, the SCT, in consultation with The Comisión
Federal de Competencia (Mexican Antitrust Commission),
(COFECO) reserves the right to set service rates if
it determines that effective competition does not exist in the
Mexican railroad industry. COFECO, however, has not published
guidelines regarding the factors that constitute a lack of
competition. It is, therefore, unclear under what particular
circumstances COFECO would deem a lack of competition to exist.
If the SCT intervenes and sets services rates, the rates it sets
may be too low to allow KCSM to operate profitably.
Under the Concession, KCSM has the right to operate its rail
lines, but KCSM does not own the land, roadway or associated
structures. If the Mexican government legally terminates the
Concession, it would own, control and manage such public domain
assets used in the operation of its rail lines. All other
property not covered by the Concession, including all
locomotives and railcars otherwise acquired, will remain
KCSMs property. The Mexican government would have the
right to cause KCSM to lease all service-related assets to it
for a term of at least one year, automatically renewable for
additional one-year terms up to five years. The Mexican
government must exercise this right within four months after
revocation of the Concession. In addition, the Mexican
government will also have a right of first refusal with respect
to certain transfers by KCSM of railroad equipment within
90 days after revocation of the Concession.
The Mexican government may also temporarily seize control of
KCSMs rail lines and its assets in the event of a natural
disaster, war, significant public disturbance or imminent danger
to the domestic peace or economy. In such a case, the SCT may
restrict KCSMs ability to exploit the Concession in such
manner as the SCT deems necessary under the circumstances, but
only for the duration of any of the foregoing events. Mexican
law requires that the Mexican government pay compensation if it
effects a statutory appropriation for reasons of the public
interest. With respect to a temporary seizure due to any cause
other than international war, the Mexican Railroad Services Law
and regulations provide that the Mexican government will
indemnify an affected concessionaire for an amount equal to
damages caused and losses suffered. However, these payments may
not be sufficient to compensate KCSM for its losses and may not
be timely made.
The SCT may revoke the Concession if KCSM is sanctioned on three
distinct occasions for unjustly interrupting the operation of
its rail lines or for charging tariffs higher than the tariffs
it has registered with the SCT. In addition, the SCT may revoke
the Concession if, among other things, KCSM is sanctioned on
five distinct occasions because KCSM restricts the ability of
other Mexican rail operators to use its rail lines; KCSM fails
to make payments for damages caused during the performance of
services; KCSM fails to comply with any term or condition of the
Mexican Railroad Services Law and regulations or the Concession;
KCSM fails to make the capital investments required under its
five-year business plan filed with the SCT; or KCSM fails to
maintain an obligations compliance bond and insurance coverage
as specified in the Mexican Railroad Services Law and
regulations. In addition, the Concession would revoke
automatically if KCSM changes its nationality or assigns or
creates any lien on the Concession, or if there is a change in
control of KCSM, without the SCTs approval. The SCT may
also terminate the Concession as a result of KCSMs
surrender of its rights under the Concession, or for reasons of
public interest or upon KCSMs liquidation or bankruptcy.
Revocation or termination of the Concession would prevent KCSM
from operating its railroad and would materially adversely
affect KCSMs operations and the ability to make payments
on KCSMs debt. If the Concession is terminated or revoked
by the SCT for any reason, KCSM would receive no compensation
and its interest in its rail lines and all other fixtures
covered by the Concession, as well as all improvements made by
it, would revert to the Mexican government.
In April 2006, the SCT initiated proceedings against KCSM,
claiming that KCSM had failed to make certain minimum capital
investments projected for 2004 and 2005 under its five-year
business plan filed with the SCT prior to its April 2005
acquisition by KCS (collectively, the Capital Investment
Proceedings). KCSM believes it made capital expenditures
exceeding the required amounts. KCSM responded to the SCT by
providing evidence in support of its investments and explaining
why it believes sanctions are not appropriate. In May 2007, KCSM
was served with an SCT resolution regarding the Capital
Investment Proceeding for 2004, in which the SCT resolved to
impose no sanction. In June 2007, KCSM was served with an SCT
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resolution regarding the Capital Investment Proceeding for 2005,
in which the SCT determined that KCSM had indeed failed to make
the minimum capital investments required for such year, and
imposed a minimum fine. KCSM has filed an action in the Mexican
Administrative and Fiscal Federal Court challenging this ruling.
KCSM will have the right to challenge any adverse ruling.
KCSM believes that even if the sanction is ultimately imposed as
a consequence of the 2005 Capital Investment Proceeding, there
will be no material adverse effect on its results of operations
or financial condition. However, if a sanction were to be
imposed it would be considered a generic sanction
under Mexican law (i.e., sanctions applied to conduct not
specifically referred to in specific subsections of the Mexican
railway law). If KCSM is ultimately sanctioned by the SCT for
generic sanctions on five occasions over the term of
the Concession, KCSM could be subject to possible future SCT
action seeking revocation of the Concession. Such revocation
would materially adversely affect the results of operations and
financial condition of KCSM.
Failure
to make capital expenditures could result in the revocation of
KCSMs Concession and adversely affect its financial
condition.
KCSMs business is capital intensive and requires
substantial ongoing expenditures for, among other things,
additions and improvements to roadway, structures and
technology, acquisitions, and maintenance and repair of its
equipment and the rail system. KCSMs failure to make
necessary capital expenditures to maintain its operations could
impair its ability to serve existing customers or accommodate
increases in traffic volumes.
KCSMs Concession from the Mexican government requires KCSM
to make investments and undertake capital projects. If KCSM
fails to make such capital investments, KCSMs business
plan commitments with the Mexican government may be at risk,
requiring KCSM to seek waivers of its business plan. There is no
assurance that such waivers, if requested, would be granted by
the SCT. KCSM may defer capital expenditures under its business
plan with the permission of the SCT. However, the SCT might not
grant this permission, and any failure by KCSM to comply with
the capital investment commitments in its business plan could
result in sanctions imposed by the SCT, and could result in
revocation of the Concession if sanctions are imposed on five
occasions. KCSM cannot assure that the Mexican government would
grant any such permission or waiver. If such permission or
waiver is not obtained in any instance and KCSM is sanctioned,
its Concession might be at risk of revocation, which would
materially adversely affect KCSMs financial condition and
results of operations. See KCSMs Concession is
subject to revocation or termination in certain
circumstances.
KCSM has funded, and expects to continue to fund, capital
expenditures with funds from operating cash flows, equipment
leases, and debt financing. KCSM may not be able to generate
sufficient cash flows from its operations or obtain sufficient
funds from external sources to fund capital expenditure
requirements. Even if financing is available, it may not be
obtained on acceptable terms and within the limitations
contained in the indentures and other agreements relating to
KCSMs existing debt.
KCSM
competes against other railroads and other transportation
providers.
KCSMs operations are subject to competition from other
railroads, particularly Ferrocarril Méxicano, S.A. de
C.V (Ferromex) and Ferrosur in Mexico, as well
as from truck carriers, barge lines and other maritime shippers.
Certain rail competitors are much larger and have significantly
greater financial and other resources than KCSM, which may
enable KCSMs rail competitors to reduce rates and make
KCSMs freight services less competitive. KCSMs
ability to respond to competitive pressures by matching rate
reductions and decreasing rates without adversely affecting
gross margins and operating results will depend on, among other
things, the ability to reduce operating costs. KCSMs
failure to respond to competitive pressures, and particularly
rate competition, in a timely manner could have a material
adverse effect on the Companys results of operations and
financial condition.
In recent years, there has also been significant consolidation
among major North American rail carriers. The resulting merged
railroads could attempt to use their size and pricing power to
block other railroads access to efficient gateways and
routing options that are currently and have been historically
available. There
9
can be no assurance that further consolidation in the railroad
industry, whether in the United States or Mexico, will not have
an adverse effect on operations.
Trucking, maritime and barge competitors, while able to provide
rate and service competition to the railroad industry, are able
to use public
rights-of-way,
require substantially smaller capital investment and maintenance
expenditures than railroads and allow for more frequent and
flexible scheduling. Continuing competitive pressures, any
reduction in margins due to competitive pressures, future
improvements that increase the quality of alternative modes of
transportation in the locations in which KCSM operates, or
legislation or regulations that provide motor carriers with
additional advantages, such as increased size of vehicles and
reduced weight restrictions, could result in downward pressure
on freight rates, which in turn could have a material adverse
effect on results of operations, financial condition and
liquidity.
A central part of KCSMs growth strategy is based upon the
conversion of truck traffic to rail. There can be no assurance
the Company will have the ability to convert traffic from truck
to rail transport or that the customers already converted will
be retained. If the railroad industry in general is unable to
preserve its competitive advantages vis-à-vis the trucking
industry, projected revenue growth from KCSMs operations
could be adversely affected. Additionally, the revenue growth
attributable to KCSMs operations could be affected by,
among other factors, an expansion in the availability, or an
improvement in the quality, of the trucking services offered by
Mexican carriers resulting from regulatory and administrative
interpretations and implementation of certain provisions of the
North America Free Trade Agreement (NAFTA), and
KCSMs inability to grow its existing customer base and
capture additional cargo transport market share because of
competition from the shipping industry and other railroads.
KCSMs
business may be adversely affected by changes in general
economic conditions, including the automotive industry, which
has had difficulties in recent years.
KCSMs operations may be adversely affected by changes in
the economic conditions of the industries and geographic areas
that produce and consume the freight that KCSM transports. The
relative strength or weakness of the United States and Mexican
economies affect the businesses served by KCSM. Prolonged
negative changes in domestic and global economic conditions or
disruptions of either or both from the financial and credit
markets, including the availability of short-term and long-term
debt financing, may affect KCSM, as well as the producers and
consumers of the commodities that KCSM transports and may have a
material adverse effect on KCSMs results of operations,
financial condition and liquidity.
The transportation industry is highly cyclical, generally
tracking the cycles of the world economy. Although
transportation markets are affected by general economic
conditions, there are numerous specific factors within each
particular market that may influence operating results. Some of
KCSMs customers do business in industries that are highly
cyclical, including the oil and gas, automotive, housing and
agriculture industries. Any downturn in these industries could
have a material adverse effect on operating results. Also, some
of the products transported have had a historical pattern of
price cyclicality which has typically been influenced by the
general economic environment and by industry capacity and
demand. For example, global steel and petrochemical prices have
decreased in the past and reduced demand for automotive vehicles
and related shipments may result in decreased prices. KCSM
cannot assure that prices and demand for these products will not
decline in the future, adversely affecting those industries and,
in turn, the Companys financial condition or results.
KCSMs
business strategy, operations and growth rely significantly on
agreements with other railroads and third parties.
Operation of KCSMs rail network and its plans for growth
and expansion rely significantly on agreements with other
railroads and third parties, including joint ventures and other
strategic alliances. KCSMs operations are also dependent
on interchange, trackage rights, haulage rights and marketing
agreements with other railroads and third parties that enable
KCSM to exchange traffic and utilize trackage the Company does
not own. KCSMs ability to provide comprehensive rail
service to its customers depends in large part upon its ability
to maintain these agreements with other railroads and third
parties. The termination
10
of, or the failure to renew, these agreements could adversely
affect KCSMs business, financial condition and results of
operations. KSCM is also dependent in part upon the financial
health and efficient performance of other railroads with which
KCSM has agreements. There can be no assurance that KCSM will
not be materially adversely affected by operational or financial
difficulties of other railroads.
KCSMs
business may be affected by market and regulatory responses to
climate change.
KCSMs operations may be adversely affected by
restrictions, caps, taxes, or other controls on emissions of
greenhouse gases, including diesel exhaust. Restrictions on
emissions could also affect KCSMs customers that use
commodities that KCSM transports to produce energy, use
significant amounts of energy in producing or delivering the
commodities KCSM transports, or manufacture or produce goods
that consume significant amounts of energy or burn fossil fuels,
including coal-fired power plants, chemical producers, farmers
and food producers, and automakers and other manufacturers.
Significant cost increases, government regulation, or changes of
consumer preferences for goods or services relating to
alternative sources of energy or emissions reductions could
materially affect the markets for the commodities KCSM
transports, which in turn could have a material adverse effect
on KCSMs results of operations, financial condition and
liquidity. Government incentives encouraging the use of
alternative sources of energy could also affect certain
customers and their respective markets for certain commodities
KCSM transports in an unpredictable manner that could alter
traffic patterns, including, for example, the impacts of ethanol
incentives on farming and ethanol producers. Any of these
factors, individually or in conjunction with one or more of the
other factors, or other unforeseen impacts of climate change
could have a material adverse effect on KCSMs business,
results of operations, financial condition and liquidity.
KCSM
is exposed to the credit risk of its customers and
counterparties and their failure to meet their financial
obligations could adversely affect KCSMs
business.
KCSMs business is subject to credit risk. There is a risk
that a customer or counterparty will fail to meet its
obligations when due. Customers and counterparties that owe the
Company money may default on their obligations to the Company
due to bankruptcy, lack of liquidity, operational failure or
other reasons. Although the Company has procedures for reviewing
its receivables and credit exposures to specific customers and
counterparties to address present credit concerns, default risk
may arise from events or circumstances that are difficult to
detect or foresee. Some of the Companys risk management
methods depend upon the evaluation of information regarding
markets, clients or other matters that are publicly available or
otherwise accessible by the Company. That information may not,
in all cases, be accurate, complete,
up-to-date
or properly evaluated. In addition, concerns about, or a default
by, one customer or counterparty could lead to significant
liquidity problems, losses or defaults by other customers or
counterparties, which in turn could adversely affect the
Company. The Company may be materially and adversely affected in
the event of a significant default by its customers and
counterparties.
KCSMs
operations are subject to certain trackage rights, haulage
rights and interline service agreements with another Mexican
rail carrier, some of which are in dispute.
Through KCSMs Concession from the Mexican government, KCSM
is required to grant short and long distance trackage rights to
Ferromex. Applicable law stipulates that Ferromex similarly is
required to grant to KCSM rights to use portions of their
tracks. Although all of these trackage rights have been granted
under the Concession, KCSM and Ferromex have not actually
operated under the long distance trackage rights because, other
than the rates to be charged pursuant to the Trackage Rights
Agreement, dated February 9, 2010, between KCSM and
Ferromex, the rates that may be charged for the right to use the
tracks have not been agreed upon between KCSM and Ferromex for
the periods beginning in 1998 through December 31, 2008.
If KCSM cannot reach an agreement with Ferromex for rates
applicable for services prior to January 1, 2009 which are
not subject to the Trackage Rights Agreement, the SCT is
entitled to set the rates in accordance with Mexican law and
regulations, which rates may not adequately compensate KCSM.
KCSM is currently involved in judicial, civil and administrative
proceedings and negotiations with Ferromex regarding the rates
payable to each other for trackage rights, interline services
and haulage rights for periods prior to
11
January 1, 2009. Certain of these disputes continue under
litigation. Any resolution of such procedures adverse to KCSM
could have a negative impact on its results of operations in a
particular quarter of fiscal year.
Downturns
in the U.S. economy, Mexican economy,
U.S.-Mexico
trade, certain cyclical industries in which KCSMs
customers operate, the global economy or fluctuations in the
peso-dollar exchange rate could have adverse effects on
KCSMs financial condition.
The level and timing of KCSMs activity is heavily
dependent upon the level of
Mexican-United
States trade and the effects of NAFTA on such trade. KCSMs
operations depend on Mexican and United States markets for the
products KCSM transports, the relative position of Mexico and
the United States in these markets at any given time, and
tariffs or other barriers to trade. Downturns in the Mexican or
United States economies or in trade between Mexico and the
United States would likely have adverse effects on KCSMs
results of operations and its ability to meet debt service
obligations. In addition, KCSM has invested significant amounts
in developing its intermodal operations at the Port of Lazaro
Cardenas, in part to provide Asian importers with an alternative
to west coast ports of the United States, and the level of
intermodal traffic depends, to an extent, on the volume of Asian
shipments routed through Lazaro Cardenas. Reduction in trading
volumes which may be caused by factors beyond KCSMs
control, including increased government regulations in light of
recent concerns regarding the safety and quality of
Asian-manufactured products, may adversely affect KCSMs
business and results of operations.
Also, fluctuations in the peso-dollar exchange rate could lead
to shifts in the types and volumes of Mexican imports and
exports. Although a decrease in the level of exports of some of
the commodities that KCSM transports to the United States may be
offset by a subsequent increase in imports of other commodities
KCSM hauls into Mexico and vice versa, any offsetting increase
might not occur on a timely basis, if at all. Future
developments in
Mexican-United
States trade beyond KCSMs control may result in a
reduction of freight volumes or in an unfavorable shift in the
mix of products and commodities KCSM carries.
Any devaluation of the peso would cause the peso cost of
KCSMs dollar-denominated debt to increase, adversely
affecting its ability to make payments on its indebtedness.
Severe devaluation or depreciation of the peso may result in
disruption of the international foreign exchange markets and may
limit the ability to transfer pesos or to convert pesos into
U.S. dollars for the purpose of making timely payments of
interest and principal on the non-peso denominated indebtedness.
Although the Mexican government currently does not restrict, and
for many years has not restricted, the right or ability of
Mexican or foreign persons or entities to convert pesos into
U.S. dollars or to transfer foreign currencies out of
Mexico, the Mexican government could, as in the past, institute
restrictive exchange rate policies that could limit the ability
to transfer or convert pesos into U.S. dollars or other
currencies for the purpose of making timely payments of the
U.S. dollar-denominated debt and contractual commitments.
Currency fluctuations are likely to continue to have an effect
on KCSMs financial condition in future periods.
Traffic
congestion or similar problems experienced in the U.S. or
Mexican railroad system may adversely affect KCSMs
operations.
Traffic congestion experienced in the U.S. railroad system
may result in overall traffic congestion which would impact the
ability to move traffic to and from Mexico and adversely affect
KCSMs operations. This system congestion may also result
in certain equipment shortages. Any similar congestion
experienced by railroads in Mexico could have an adverse effect
on its business and results of operations. In addition, the
growth of cross-border traffic in recent years has contributed
to congestion on the international bridge at the Nuevo
Laredo-Laredo border gateway, which is expected to continue in
the near future. This may adversely affect KCSMs business
and results of operations.
If
KCSMs primary fuel supply contract is terminated, or if
fuel prices substantially increase, its financial condition
could be materially adversely affected.
KCSM incurs substantial fuel costs in its railroad operations
and these costs represent a significant portion of its
transportation expenses. Significant price increases for fuel
may have a material adverse effect
12
on operating results. During periods of rising fuel prices, KCSM
has been able to pass the majority of these fuel cost increases
on to customers in the form of fuel surcharges applied either in
the form of an increase in the freight rate or direct customer
billings. If KCSM is unable to recapture its costs of fuel from
its customers, operating results could be materially adversely
affected. In addition, a severe disruption of fuel supplies
resulting from supply shortages, political unrest, a disruption
of oil imports, weather events, war or otherwise, and the
resulting impact on fuel prices could materially adversely
affect KCSMs operating results, financial condition and
cash flows.
KCSM currently meets, and expects to continue to meet, fuel
requirements for KCSMs operations almost exclusively
through purchases at market prices from PEMEX Refinanción
(PEMEX), the national oil company of Mexico, a
government-owned entity exclusively responsible for the
distribution and sale of diesel fuel in Mexico. KCSM is party to
a fuel supply contract with PEMEX of indefinite duration. Either
party may terminate the contract upon 30 days written
notice to the other at any time. If the fuel contract is
terminated and KCSM is unable to acquire diesel fuel from
alternate sources on acceptable terms, its operations could be
materially adversely affected.
KCSM
faces possible catastrophic loss and liability, and its
insurance may not be sufficient to cover its damages or damages
to others.
The operation of any railroad carries with it an inherent risk
of catastrophe, mechanical failure, collision and property loss.
In the course of KCSMs operations, spills or other
environmental mishaps, cargo loss or damage, business
interruption due to political developments, as well as labor
disputes, strikes and adverse weather conditions, could result
in a loss of revenues or increased liabilities and costs.
Collisions, environmental mishaps or other accidents can cause
serious bodily injury, death and extensive property damage,
particularly when such accidents occur in heavily populated
areas. Additionally, KCSMs operations may be affected from
time to time by natural disasters such as earthquakes,
volcanoes, floods, hurricanes or other storms. The occurrence of
a major natural disaster, especially in the Mexico City area,
which is the site of FTVM and significant portions of
KCSMs customer base, could have a material adverse effect
on KCSMs operations and its financial condition. KCSM
maintains insurance that is consistent with industry practice in
compliance with the requirements of its Concession against the
accident-related risks involved in the conduct of its business
and business interruption due to natural disaster. However, this
insurance is subject to a number of limitations on coverage,
depending on the nature of the risk insured against. This
insurance may not be sufficient to cover KCSMs damages or
damages to others, and this insurance may not continue to be
available at commercially reasonable rates. In addition, KCSM is
subject to the risk that one or more of its insurers may become
insolvent and would be unable to pay a claim that may be made in
the future. Even with insurance, if any catastrophic
interruption of service occurs, KCSM may not be able to restore
service without a significant interruption to operations and an
adverse effect on KCSMs financial condition.
KCSM
depends on the stability and availability of its information
technology systems to operate its business.
KCSM relies on information technology in all aspects of its
business. A significant disruption or failure of its information
technology systems, including its computer hardware, software
and communications equipment, could result in service
interruptions, safety failures, security violations, regulatory
compliance failures and the inability to protect corporate
information assets against intruders or other operational
difficulties. Although KCSM has taken steps to mitigate these
risks, a significant disruption could adversely affect
KCSMs results of operations, financial condition,
liquidity and ability to compete effectively. Additionally, if
KCSM is unable to acquire or implement new technology, it may
suffer a competitive disadvantage, which could also have an
adverse effect on KCSMs results of operations, financial
condition or liquidity.
KCSM,
as a common carrier by rail, is required by Mexican law to
transport hazardous materials, which could expose KCSM to
significant costs and claims.
Under Mexican applicable laws, KCSMs common carrier
responsibility requires it to transport hazardous materials. Any
rail accident or other incident or accident on KCSMs
network, facilities, or at the facilities of
13
KCSMs customers involving the release of hazardous
materials, including toxic inhalation hazard (or TIH) materials,
could involve significant costs and claims for personal injury,
property damage, and environmental penalties and remediation,
which could have a material adverse effect on KCSMs
results of operations, financial condition and liquidity.
KCSMs
business is subject to tax, environmental, health, and safety
laws and regulations that could require KCSM to incur material
costs or liabilities relating to tax, environmental, health, or
safety compliance or remediation. KCSMs failure to comply
with these regulations could have a material adverse effect on
its operations.
KCSM is subject to income taxes and non-income-based taxes in
Mexico. Significant judgment is required in determining the
provision for income taxes and other tax liabilities. Changes in
tax rates, enactment of new tax laws, and revisions of tax
regulations could have a material adverse affect on the
Companys financial condition and operating results.
Although KCSM believes the tax estimates are reasonable, the
final determination of tax audits, claims, or litigation could
differ from what is reflected in KCSMs income tax
provisions and accruals.
In the operation of a railroad, it is possible that derailments,
explosions or other accidents may occur that could cause harm to
the environment or to human life or health. As a result, KCSM
may incur costs in the future, which may be material, to address
any such harm, including costs relating to the performance of
clean-ups,
natural resources damages and compensatory or punitive damages
for harm to property or individuals.
KCSMs operations are subject to Mexican federal and state
laws and regulations relating to the protection of the
environment, including standards for, among other things, water
discharge, water supply, emissions, noise pollution, hazardous
substances and transportation and handling of hazardous and
solid waste. Under applicable Mexican law and regulations,
administrative and criminal proceedings may be brought and
economic sanctions imposed against companies that violate
environmental laws and non-complying facilities may be
temporarily or permanently closed. KCSM is also subject to the
laws of various jurisdictions and international conferences with
respect to the discharge of materials into the environment and
to environmental laws and regulations issued by the governments
of each of the Mexican states in which KCSMs facilities
are located. The terms of KCSMs Concession from the
Mexican government also impose environmental compliance
obligations on KCSM. KCSM cannot predict the effect, if any,
that unidentified environmental matters or the adoption of
additional or more stringent environmental laws and regulations
would have on KCSMs results of operations, cash flows or
financial condition. Failure to comply with any environmental
laws or regulations may result in the termination of KCSMs
Concession or in fines or penalties that may affect
profitability.
KCSMs
business may be affected by future acts of terrorism, war or
other acts of violence or crime.
Terrorist attacks, such as an attack on the Companys
chemical transportation activities, any government response
thereto and war or risk of war may adversely affect KCSMs
results of operations, financial condition, and cash flows.
These acts may also impact the Companys ability to raise
capital or its future business opportunities. KCSMs rail
lines and facilities could be direct targets or indirect
casualties of acts of terror, which could cause significant
business interruption and damage to KCSMs property. In
recent years, there have been reported incidents of train cargo
robberies in Mexico. Other acts of violence or crime could also
adversely affect the Companys business.
As a result, acts of terrorism or war or acts of crime or
violence could result in increased costs and liabilities and
decreased revenues for KCSM. In addition, insurance premiums
charged for some or all of the applicable coverage currently
maintained by KCSM could increase dramatically or certain
coverage may not be adequate to cover losses or may not be
available in the future.
14
Renegotiation
of terms of the labor agreement and any potential labor
disruptions could adversely affect its financial
condition.
KCSM union employees are covered by one labor agreement, which
was signed on June 23, 1997 between KCSM and the
Sindicato de Trabajadores Ferrocarrileros de la
República Mexicana (Mexican Railroad Union), for a term
of 50 years, for the purpose of regulating the relationship
between the parties and improving conditions for the union
employees. Approximately 80% of KCSMs employees are
covered by this labor agreement. The compensation terms under
this labor agreement are subject to renegotiation on an annual
basis and all other terms are renegotiated every two years. In
June 2009, the negotiation of the compensation terms and all
other benefits was started with the Mexican Railroad Union. The
anticipated resolutions of these negotiations are not expected
to have a material impact to the consolidated financial
statements. The union labor negotiation with the Mexican
Railroad Union has not historically resulted in disruption in
our business operations.
KCSMs
controlling stockholders interests may be different from
KCSMs.
As of April 1, 2005, KCS became KCSMs controlling
stockholder with full power to direct its business. KCS on its
own can make decisions and determine corporate transactions,
mergers, consolidations, dividend payments, and other matters.
The interests of KCS may be different from KCSMs interests
and KCS may exercise influence over KCSM in a manner
inconsistent with KCSMs interests.
KCSMs
operations are subject to economic and political
risks.
The Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Accordingly,
Mexican governmental actions concerning the economy and
state-owned enterprises could have a significant impact on
Mexican private sector entities in general and on KCSMs
operations in particular. KCSM cannot predict the impact that
the political landscape, including the recently implemented
multiparty rule, will have on the Mexican economy. Furthermore,
KCSMs financial condition, results of operations and
prospects may be affected by currency fluctuations, inflation,
interest rates, regulation, taxation, social instability and
other political, social and economic developments in or
affecting Mexico.
Mexican national politicians are currently focused on certain
regional political and social tensions, and reforms regarding
fiscal and labor policies, gas, electricity, social security and
oil have not been and may not be approved. The social and
political situation in Mexico could adversely affect the Mexican
economy, which in turn could have a material adverse effect on
KCSMs business, financial condition and results of
operations.
The Mexican economy in the past has suffered balance of payment
deficits and shortages in foreign exchange reserves. Though
Mexico has imposed foreign exchange controls in the past, there
are currently no exchange controls in Mexico. Pursuant to the
provisions of NAFTA, if Mexico experiences serious balance of
payment difficulties or the threat of such difficulties in the
future, Mexico would have the right to impose foreign exchange
controls on investments made in Mexico, including those made by
United States and Canadian investors. Any restrictive exchange
control policy could adversely affect KCSMs ability to
obtain dollars or to convert pesos into dollars for purposes of
making interest and principal payments due on indebtedness, to
the extent KCSM may have to effect those conversions. This could
have a material adverse effect on KCSMs business and
financial condition.
Mexico
may experience high levels of inflation in the future which
could adversely affect KCSMs results of
operations.
Mexico has a history of high levels of inflation and may
experience high inflation in the future. During most of the
1980s and during the mid and late 1990s, Mexico experienced
periods of high levels of inflation. The annual rate of
inflation for the last three years, as measured by changes in
the National Consumer Price Index, as provided by Banco de
México, were 3.6% in 2009, 6.5% in 2008, and 3.8% in 2007.
A substantial increase in the Mexican inflation rate would have
the effect of increasing some of KCSMs costs, which could
adversely affect its results of operations and financial
condition. High levels of inflation may also affect the
15
balance of trade between Mexico and the United States, and other
countries, which could adversely affect KCSMs results of
operations.
Risk
Factors Relating to Ongoing Litigation
KCSM is a party to various legal proceedings and administrative
actions arising in the ordinary course of business including
those specifically mentioned below.
KCSM
was named as a defendant in a lawsuit, which if adversely
resolved, could result in KCS being ordered to return the stock
of KCSM to the Federal Government of Mexico, thus losing its
Concession to operate its Mexican railroad
On December 9, 2009, KCSM was notified of a lawsuit filed by
Minera México, S.A. de C.V. (Minera
México), a subsidiary of Grupo México, S.A.B. de
C.V. and an affiliate of Ferromex, against the Federal
Government of Mexico, the SCT, Ferrocarriles Nacionales de
México (FNM), KCSM, Nafta Rail, S.A. de C.V., a
subsidiary of KCS (Nafta Rail), and KCS. The lawsuit
claims that after the privatization bidding process for the
acquisition of a majority interest in Ferrocarril del Noreste,
S.A. de C.V. (FNE) (now KCSM) had concluded in 1997,
in which the bidding was awarded to Transportación
Ferroviaria Mexicana, S. de R.L. de C.V. (TFM) and
the relevant stock purchase agreement was signed, the defendants
improperly amended the stock purchase agreement and the
purchasers paid a price lower than the price offered. The
lawsuit alleges that the Mexican Federal Government, the SCT,
FNM, KCSM, Nafta Rail and KCS violated a variety of the rules
and regulations associated with the privatization bidding
process. As a result of these alleged improprieties, Minera
México claims the acquisition of FNE by KCS (through TFM)
should be declared null and void and, consequently, the capital
stock of FNE should be returned to the Federal Government of
Mexico and Minera México, as the second place bidder in the
bidding process, should be awarded the right to purchase the
capital stock of FNE. On February 9, 2010, Minera
México agreed to dismiss this lawsuit.
Disputes Relating to the Provision of Services to a
Mexican subsidiary of a Large U.S. Auto
Manufacturer. KCSM is involved in several disputes
related to providing service to a Mexican subsidiary of a large
U.S. Auto Manufacturer (the Auto
Manufacturer).
In March 2008, the Auto Manufacturer filed an arbitration suit
against KCSM under a contract for services to the Auto
Manufacturers plants in Mexico, which, as amended, had a
stated termination date of January 31, 2008. The Auto
Manufacturer claimed that the contract was implicitly extended
and continued in effect beyond its stated termination date. The
Auto Manufacturer is seeking a declaration by the arbitrator
that the rates being assessed by KCSM are discriminatory, even
though the rates being charged are within the legal rate limits
set by Mexican law for such freight transportation. KCSM claimed
that the contract did, in fact, expire on its stated termination
date, and that services rendered thereafter are thus subject to
the general terms and conditions (including rates) applicable in
the absence of a specific contract, pursuant to Mexican law.
Accordingly, KCSM filed a counterclaim against the Auto
Manufacturer to, among other things, recover the applicable rate
difference between the rates under the contract and KCSMs
rates. The arbitration was divided in two phases. On
May 18, 2009, the arbitrator issued an award on the first
phase of the arbitration proceeding, ruling that the contract
had terminated on May 8, 2008. As of the date of this
filing, the second phase of the arbitration proceeding,
regarding the claim that the rates assessed by KCSM are
discriminatory, is in the evidentiary stage and has not been
resolved. Management believes the final resolution of these
claims will not have any material impact on KCSMs results
of operations.
In May 2008, the SCT initiated a proceeding against KCSM, at the
request of a Mexican subsidiary of a large U.S. Auto
Manufacturer, alleging that KCSM impermissibly bundled
international rail services and engaged in discriminatory
pricing practices with respect to rail services provided by KCSM
to the Auto Manufacturer. In March 2009, the SCT issued a
decision determining that KCSM had engaged in the activities
alleged, but imposed no sanction since this was the first time
KCSM had engaged in such activities. On May 6, 2009, KCSM
challenged the SCTs decision and the appeal is currently
pending in the Administrative and Fiscal Federal Court.
16
On July 23, 2008, the SCT delivered notice to KCSM of new
proceedings against KCSM, claiming, among other things, that
KCSM refused to grant Ferromex access to certain trackage over
which Ferromex alleges it has trackage rights on six different
occasions and, thus denied Ferromex the ability to provide
service to the Auto Manufacturer at this location.
KCSM believes it has defenses to the imposition of sanctions for
the forgoing proceedings and intends to vigorously contest these
allegations. KCSM does not believe that these SCT proceedings
will have a material adverse effect on KCSMs results of
operations or financial condition. However, if KCSM is
ultimately sanctioned by the SCT for generic
sanctions on five occasions over the term of the Concession,
KCSM could be subject to possible future SCT action seeking
revocation of the Concession. Revocation of the Concession would
materially adversely affect KCSMs results of operations
and financial condition.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Under its Concession from the Mexican government, KCSM has the
right to operate approximately 2,600 miles of main and
branch lines, including 700 miles of trackage rights but
does not own the land, roadway or associated structures. The
Concession requires KCSM to make investments as described in a
business plan filed every five years with the Mexican
government. KCSM may defer capital expenditures with respect to
its five-year business plan with the permission of the SCT.
However, should the SCT not grant this permission, KCSMs
failure to comply with the commitments in its business plan
could result in fines and ultimately the Mexican government
revoking the Concession. See Item 1A, Risk
Factors KCSMs Concession is subject to
revocation or termination in certain circumstances which would
prevent KCSM from operating its railroad and would have a
material adverse effect on its business and financial
condition.
Equipment
Configuration
KCSM owned or leased the following units of equipment at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Leased
|
|
|
Owned
|
|
|
Leased
|
|
|
Owned
|
|
|
Locomotives
|
|
|
105
|
|
|
|
267
|
|
|
|
105
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolling Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Box cars
|
|
|
1,327
|
|
|
|
178
|
|
|
|
1,689
|
|
|
|
539
|
|
Gondolas
|
|
|
2,261
|
|
|
|
1,698
|
|
|
|
2,565
|
|
|
|
1,686
|
|
Hoppers
|
|
|
1,564
|
|
|
|
331
|
|
|
|
1,972
|
|
|
|
316
|
|
Flat cars (intermodal and other)
|
|
|
311
|
|
|
|
436
|
|
|
|
308
|
|
|
|
414
|
|
Auto racks
|
|
|
1,548
|
|
|
|
|
|
|
|
1,555
|
|
|
|
|
|
Tank cars
|
|
|
501
|
|
|
|
|
|
|
|
500
|
|
|
|
17
|
|
Other
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,512
|
|
|
|
2,691
|
|
|
|
8,589
|
|
|
|
3,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Age (in Years) of Leased and Owned Locomotives:
|
|
2009
|
|
2008
|
|
Road locomotives
|
|
|
11.9
|
|
|
|
12.7
|
|
All locomotives
|
|
|
16.9
|
|
|
|
16.4
|
|
The Company, at the date of this filing, has approximately 100
locomotives in storage, which primarily reflects the current
economic environment and some seasonality. Management believes
that this equipment will be needed in the foreseeable future as
the Company grows
and/or
economic conditions improve. The Company
17
has continued to depreciate all stored locomotives; older
locomotives will be retired in the normal course of business or
in some cases disposed of through re-sale.
|
|
Item 3.
|
Legal
Proceedings
|
The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business. For more
information on legal proceedings, see Item 1A, Risk
Factors Risks Factors Relating to Ongoing
Litigation and Item 8, Financial Statements and
Supplementary Data Note 11 Commitments and
Contingencies, and Item 9B, Other
Information.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Omitted pursuant to General Instruction I(2) to
Form 10-K.
Part II
|
|
Item 5.
|
Market
for the Companys Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Market
Information.
There is no public trading market for KCSMs equity
securities. All of its equity securities are indirectly owned by
KCS.
Dividend
Policy.
Pursuant to KCSMs outstanding indentures, the Company can
pay cash dividends permitted by applicable law, subject to
certain limitations.
On December 22, 2009 and September 22, 2008, the
Company declared a cash dividend on its common stock of
Ps.41.2 million or $3.2 million and
Ps.75.0 million or $7.1 million, respectively, to the
Companys shareholders, all subsidiaries of KCS. These
dividends do not relate to earnings from the operations of KCSM.
The dividends reflect pass-through of related company dividends
from the Companys equity investment in FTVM. The Company
had not declared or paid dividends on its common stock before
September 22, 2008.
|
|
Item 6.
|
Selected
Financial Data
|
Omitted pursuant to General Instruction I(2) to
Form 10-K.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis relates to KCSMs
consolidated financial condition and results of operations for
the relevant periods and is based on, and should be read in
conjunction with, KCSMs consolidated financial statements
included under Item 8 of this Annual Report,
Consolidated Financial Statements and Supplementary
Data. The following discussion and analysis contains
forward-looking statements that involve risks and uncertainties.
KCSMs actual results may differ materially from those
anticipated in these forward-looking statements as a result of a
number of factors, including those set forth under Item 1A
of this Annual Report, Risk Factors. See
Forward-Looking Statements for cautionary statements
concerning forward-looking statements.
Managements narrative analysis relates to the financial
condition and results of operations of KCSM and subsidiaries.
18
RESULTS
OF OPERATIONS
Year
Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
The following summarizes the consolidated income statement
components of KCSM (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Dollars
|
|
|
Percent
|
|
|
Revenues
|
|
$
|
616.0
|
|
|
$
|
818.5
|
|
|
$
|
(202.5
|
)
|
|
|
(25
|
)%
|
Operating expenses
|
|
|
506.3
|
|
|
|
602.9
|
|
|
|
(96.6
|
)
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
109.7
|
|
|
|
215.6
|
|
|
|
(105.9
|
)
|
|
|
(49
|
)%
|
Equity in net earnings of unconsolidated affiliates
|
|
|
2.9
|
|
|
|
7.4
|
|
|
|
(4.5
|
)
|
|
|
(61
|
)%
|
Interest expense
|
|
|
(110.1
|
)
|
|
|
(86.6
|
)
|
|
|
(23.5
|
)
|
|
|
27
|
%
|
Debt retirement costs
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
(100
|
)%
|
Foreign exchange gain (loss)
|
|
|
2.2
|
|
|
|
(21.3
|
)
|
|
|
23.5
|
|
|
|
(110
|
)%
|
Other income, net
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
0.2
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7.2
|
|
|
|
118.0
|
|
|
|
(110.8
|
)
|
|
|
(94
|
)%
|
Income tax expense
|
|
|
0.2
|
|
|
|
15.0
|
|
|
|
(14.8
|
)
|
|
|
(99
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.0
|
|
|
$
|
103.0
|
|
|
$
|
(96.0
|
)
|
|
|
(93
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The following table summarizes revenues (in millions),
carload/unit statistics (in thousands) and revenue
per carload/unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
Carloads and Units
|
|
|
Revenue per Carload/Unit
|
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
2009
|
|
|
2008
|
|
|
% Change
|
|
|
Chemical and petroleum
|
|
$
|
139.4
|
|
|
$
|
143.2
|
|
|
|
(3
|
)%
|
|
|
88.8
|
|
|
|
80.6
|
|
|
|
10
|
%
|
|
$
|
1,569.8
|
|
|
$
|
1,776.7
|
|
|
|
(12
|
)%
|
Industrial and consumer products
|
|
|
154.5
|
|
|
|
223.6
|
|
|
|
(31
|
)%
|
|
|
134.3
|
|
|
|
180.6
|
|
|
|
(26
|
)%
|
|
|
1,150.4
|
|
|
|
1,238.1
|
|
|
|
(7
|
)%
|
Agriculture and minerals
|
|
|
166.6
|
|
|
|
225.7
|
|
|
|
(26
|
)%
|
|
|
114.8
|
|
|
|
141.5
|
|
|
|
(19
|
)%
|
|
|
1,451.2
|
|
|
|
1,595.1
|
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general commodities
|
|
|
460.5
|
|
|
|
592.5
|
|
|
|
(22
|
)%
|
|
|
337.9
|
|
|
|
402.7
|
|
|
|
(16
|
)%
|
|
|
1,362.8
|
|
|
|
1,471.3
|
|
|
|
(7
|
)%
|
Coal
|
|
|
12.9
|
|
|
|
20.7
|
|
|
|
(38
|
)%
|
|
|
16.4
|
|
|
|
21.7
|
|
|
|
(24
|
)%
|
|
|
786.6
|
|
|
|
953.9
|
|
|
|
(18
|
)%
|
Intermodal
|
|
|
78.4
|
|
|
|
86.5
|
|
|
|
(9
|
)%
|
|
|
228.2
|
|
|
|
260.9
|
|
|
|
(13
|
)%
|
|
|
343.6
|
|
|
|
331.5
|
|
|
|
4
|
%
|
Automotive
|
|
|
50.4
|
|
|
|
101.1
|
|
|
|
(50
|
)%
|
|
|
47.7
|
|
|
|
96.2
|
|
|
|
(50
|
)%
|
|
|
1,056.6
|
|
|
|
1,050.9
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
602.2
|
|
|
|
800.8
|
|
|
|
(25
|
)%
|
|
|
630.2
|
|
|
|
781.5
|
|
|
|
(19
|
)%
|
|
$
|
955.6
|
|
|
$
|
1,024.7
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
|
13.8
|
|
|
|
17.7
|
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues(i)
|
|
$
|
616.0
|
|
|
$
|
818.5
|
|
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Included in revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge
|
|
$
|
49.8
|
|
|
$
|
62.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight revenues include both revenue for transportation
services and fuel surcharges. For the year ended
December 31, 2009, revenues decreased $202.5 million
compared to 2008, primarily due to the overall decrease in
carload/unit volumes due to the downturn in the economy and the
effect of unfavorable fluctuations in the value of the
U.S. dollar against the value of the Mexican peso for
revenues denominated in Mexican pesos, partially offset by an
increase in core pricing.
KCSMs fuel surcharge is a mechanism to adjust revenue
based upon changing fuel prices. Fuel surcharges are calculated
differently depending on the type of commodity transported. For
most commodities,
19
fuel surcharge is calculated using a fuel price from a prior
time period that can be as much as 60 days earlier. In a
period of volatile fuel prices or changing customer business
mix, changes in fuel expense and fuel surcharge may
significantly differ.
The following discussion provides an analysis of revenues by
commodity group:
|
|
|
|
|
Revenues by commodity
|
|
|
group for 2009
|
|
|
|
|
Chemical and petroleum. Revenues decreased
$3.8 million for the year ended December 31, 2009
compared to 2008, primarily due to unfavorable fluctuations in
the value of the U.S. dollar against the value of the Mexican
peso, an unfavorable change in product mix and reduced length of
haul. Revenues decreased in chemical products and plastic
products used to manufacture glass and paint as a result of the
downturn in the automotive and construction industries. This
decrease was partially offset by an increase in petroleum
volumes.
|
|
|
|
|
|
Industrial and consumer products. Revenues
decreased $69.1 million for the year ended
December 31, 2009 compared to 2008, due to a decrease in
volume and unfavorable fluctuations in the value of the U.S.
dollar against the value of the Mexican peso. Metals and scrap
volume decreased due to continued adverse steel market
conditions which began in late 2008. Cement exports decreased
due to the continued slowdown of the construction industry. Pulp
and scrap paper imports decreased due to the continued slowdown
in the economy and higher product prices. Additionally, beer
volume decreased as a result of a change in a customers
distribution network.
|
|
|
|
|
|
Agricultural and mineral. Revenues decreased
$59.1 million for the year ended December 31, 2009
compared to 2008, due to a decrease in volume and unfavorable
fluctuations in the value of the U.S. dollar against the value
of the Mexican peso. Grain traffic accounted for the majority of
the decrease as traffic patterns shifted due to a combination of
factors. There was an abundant supply of grain, primarily corn
that was grown in Mexico, as well as an abundant supply of
alternative grains which drove a change in origination and
traffic patterns. In addition, significantly lower vessel
freight rates from U.S. ports along the Gulf of Mexico drove a
substitution from rail to vessel for certain shipments to Mexico.
|
|
|
Coal. Revenues decreased $7.8 million for
the year ended December 31, 2009 compared to 2008,
primarily due to decreases in volume and length of haul.
Petroleum coke shipments within Mexico decreased due to a market
slowdown in the cement and steel industries.
Intermodal. Revenues decreased
$8.1 million for the year ended December 31, 2009
compared to 2008, primarily due to a decrease in volume due to
the loss of business driven by unfavorable fluctuation in the
value of U.S. dollar against the value of the Mexican peso.
Steamship volume decreases were driven by reduced demand in
consumer retail and continued aggressive truck competition. This
decrease was partially offset by a fourth quarter increase in
cross border automotive part shipments.
20
Automotive. Revenues decreased
$50.7 million for the year ended December 31, 2009
compared to 2008, due to a decline in volume and unfavorable
fluctuations in the value of the U.S. dollar against the
value of the Mexican peso. The volume decrease was driven by the
continued overall downturn in the automotive industry caused by
consumer uncertainty and tightening credit markets. In addition,
the bankruptcy of two U.S. automotive companies resulted in
several unscheduled plant shutdowns. The decline in volume was
partially offset by U.S. government incentive programs that
were established during the second and third quarters of 2009.
Operating
Expenses
Operating expenses, as shown below (in millions),
decreased $96.6 million for the year ended
December 31, 2009, when compared to 2008, primarily due to
decreased carload/unit volumes, the effect of favorable
fluctuations in the value of the U.S. dollar against the
value of the Mexican peso for operating expenses denominated in
Mexican pesos, and cost containment measures. Certain prior
period amounts have been reclassified to conform to the current
year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Dollars
|
|
|
Percent
|
|
|
Compensation and benefits
|
|
$
|
77.5
|
|
|
$
|
106.5
|
|
|
$
|
(29.0
|
)
|
|
|
(27
|
)%
|
Purchased services
|
|
|
109.3
|
|
|
|
136.8
|
|
|
|
(27.5
|
)
|
|
|
(20
|
)%
|
Fuel
|
|
|
86.9
|
|
|
|
112.6
|
|
|
|
(25.7
|
)
|
|
|
(23
|
)%
|
Equipment costs
|
|
|
87.3
|
|
|
|
100.2
|
|
|
|
(12.9
|
)
|
|
|
(13
|
)%
|
Depreciation and amortization
|
|
|
102.4
|
|
|
|
103.2
|
|
|
|
(0.8
|
)
|
|
|
(1
|
)%
|
Casualties and insurance
|
|
|
10.5
|
|
|
|
12.8
|
|
|
|
(2.3
|
)
|
|
|
(18
|
)%
|
Materials and other
|
|
|
32.4
|
|
|
|
30.8
|
|
|
|
1.6
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
506.3
|
|
|
$
|
602.9
|
|
|
$
|
(96.6
|
)
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits. Compensation and
benefits decreased $29.0 million for the year ended
December 31, 2009, compared to 2008, primarily due to labor
reductions in response to declining carload/unit volumes, with
further expense decreases due to favorable fluctuations in the
value of the U.S. dollar against the value of the Mexican
peso.
Purchased services. Purchased services expense
decreased $27.5 million for the year ended
December 31, 2009, compared to 2008. The decrease is
primarily due to lower locomotive maintenance expense as a
result of fewer locomotives in service, newer fleet and
renegotiated maintenance contracts. Corporate expenses,
switching and terminal services decreased as a result of cost
containment measures and lower volumes, respectively. In
addition, the Company recognized a deferred credit of
$6.1 million related to the partial cancellation of a
maintenance contract in 2009.
Fuel. Fuel expense decreased
$25.7 million for the year ended December 31, 2009,
compared to 2008. The decrease was driven by lower consumption
due to the decrease in traffic volume, favorable fluctuations in
the value of the U.S. dollar against the value of the
Mexican peso and increased fuel efficiency.
Equipment costs. Equipment costs decreased
$12.9 million for the year ended December 31, 2009,
compared to 2008, primarily due to a decrease in the use of
other railroads freight cars, partially offset by an
increase in certain car lease expenses.
Depreciation and amortization. Depreciation
and amortization expense decreased $0.8 million for the
year ended December 31, 2009, compared to 2008, primarily
due to the full year impact of lower rates based on the
scheduled depreciation study completed in 2009. In addition,
depreciation expense decreased due to a change in the estimated
useful lives of certain concession assets. These decreases were
partially offset by an increase in depreciation expense due to a
larger asset base.
21
Casualties and insurance. Casualty and
insurance expenses decreased $2.3 million for the year
ended December 31, 2009, compared to 2008, primarily due to
fewer derailments and lower average cost per derailment,
partially offset by an increase in freight loss and damage
expenses.
Materials and other. Materials and other
expenses increased $1.6 million for the year ended
December 31, 2009, compared to 2008, primarily due to legal
settlements in 2009. In addition, 2008 included a reduction in a
legal reserve. These increases were partially offset by a
decrease in other employee expenses and concession duty.
Non-Operating
Expenses
Equity in net earnings of unconsolidated
affiliates. Equity in earnings from
unconsolidated affiliates was $2.9 million and
$7.4 million for the years ended December 31, 2009 and
2008, respectively. Significant components of this change are as
follows:
|
|
|
|
|
KCSMs equity in earnings of FTVM was $1.3 million for
the year ended December 31, 2009, compared to
$4.7 million for 2008. The decrease is primarily due to a
decline in volume due to the downturn in the economy and a
favorable adjustment related to negotiation of a maintenance
agreement recorded in 2008.
|
|
|
|
KCSMs equity in earnings of Mexrail, Inc. was
$1.6 million for the year ended December 31, 2009,
compared to $2.7 million for 2008. This decrease was
primarily due to a reduction in carload/unit volumes
attributable to the overall economic downturn.
|
Interest expense. Interest expense increased
$23.5 million for the year ended December 31, 2009,
compared to 2008. The increase was attributable to higher debt
balances and average interest rates. In addition, in 2009, the
Company recognized interest expense from an unfavorable
litigation outcome.
Foreign exchange. For the year ended
December 31, 2009, the foreign exchange gain was
$2.2 million compared to a foreign exchange loss of
$21.3 million for 2008, primarily due to fluctuations in
the value of the U.S. dollar against the value of the
Mexican peso.
Other income, net. Other income, net consists
primarily of miscellaneous interest income. For the year ended
December 31, 2009, other income, net was $3.1 million,
compared to $2.9 million for 2008.
Income tax expense. For the year ended
December 31, 2009, the Companys income tax expense
was $0.2 million, a decrease of $14.8 million as
compared to $15.0 million for 2008. The effective income
tax rate was 2.8% for the year ended December 31, 2009, as
compared to 12.7% for 2008. The changes in income tax expense
and the effective income tax rate were due to lower pre-tax
income in 2009, foreign exchange rate fluctuations and a change
in Mexican tax rates for the years 2010 through 2013.
LIQUIDITY
AND CAPITAL RESOURCES
KCSMs primary uses of cash are to support operations;
maintain and improve its railroad; pay debt service; acquire new
and maintain existing locomotives, rolling stock and other
equipment; and meet other obligations. KCSMs cash flow
from operations has historically been sufficient to fund
operations, maintenance capital expenditures and debt service.
External sources of cash (principally bank debt, public and
private debt and leases) have been used to refinance existing
indebtedness and to fund acquisitions, new investments and
equipment additions. As of December 31, 2009, total
available liquidity was approximately $92.6 million.
The Company believes, based on current expectations, that cash
and other liquid assets, operating cash flows, access to debt
capital markets and other available financing resources will be
sufficient to fund anticipated operating, capital and debt
service requirements and other commitments in the foreseeable
future. KCSM has no significant debt maturities until 2012. On
January 28, 2009 and on September 29, 2009, KCSM
declared and paid capital reductions of $65.0 million and
$36.0 million, respectively, to the Companys
shareholders.
22
As of December 31, 2009, KCSM has a debt capitalization
ratio (total debt as a percentage of total debt plus total
equity) of 46.0 percent. Its primary sources of liquidity
are cash flows generated from operations and access to debt
capital markets. Although KCSM has had adequate access to the
debt capital markets, as a non-investment grade company, the
financial terms under which funding is obtained often contain
restrictive covenants. The covenants constrain financial
flexibility by restricting or prohibiting certain actions,
including the ability to incur additional debt for any purpose
other than refinancing existing debt, create or suffer to exist
additional liens, make prepayments of particular debt, pay
dividends on common stock, make investments, engage in
transactions with stockholders and affiliates, sell certain
assets, and engage in mergers and consolidations or in sale
leaseback transactions. These restrictions, however, are subject
to a number of qualifications and exceptions that provide the
Company with varying levels of additional borrowing capacity.
The Company was in compliance with all of its debt covenants as
of December 31, 2009.
KCSMs operating results and financing alternatives can be
unexpectedly impacted by various factors, some of which are
outside of its control. For example, if KCSM was to experience a
reduction in revenues or a substantial increase in operating
costs or other liabilities, its earnings could be significantly
reduced, increasing the risk of non-compliance with debt
covenants. Additionally, KCSM is subject to economic factors
surrounding debt and its ability to obtain financing under
reasonable terms is subject to market conditions. Volatility in
capital markets and the tightening of market liquidity could
impact KCSMs access to capital. Further, KCSMs cost
of debt can be impacted by independent rating agencies, which
assign debt ratings based on certain factors including credit
measurements such as interest coverage and leverage ratios,
liquidity and competitive position.
Standard & Poors Rating Services
(S&P) rates the Companys senior unsecured
debt as B+ and recently improved the outlook to stable.
Moodys Investors Service (Moodys) rates
the Companys senior unsecured debt as B2 and recently
improved the outlook to stable.
Long-Term
Debt
On March 30, 2009, KCSM issued $200.0 million of
121/2% senior
unsecured notes due April 1, 2016 (the
121/2% Senior
Notes), which bear interest semiannually at a fixed annual
rate of
121/2%.
The
121/2% Senior
Notes were issued at a discount to par value, resulting in an
$11.0 million discount and a yield to maturity of
133/4%.
The
121/2% Senior
Notes are unsecured, unsubordinated obligations and rank pari
passu in right of payment with KCSMs existing and future
unsecured, unsubordinated obligations. KCSM used a portion of
the net proceeds from the offering to repay all amounts
outstanding under the unsecured credit agreement dated
June 14, 2007 (the 2007 Credit Agreement). Upon
repayment of the outstanding amounts, KCSM terminated its 2007
Credit Agreement, effective March 30, 2009. The
121/2% Senior
Notes are redeemable at KCSMs option in whole or in part
on and after April 1, 2013, at the following redemption
prices (expressed as percentages of principal amount) plus any
accrued and unpaid interest: 2013 106.250%,
2014 103.125% and 2015 100.000%. In
addition, KCSM may redeem up to 35% of the notes any time prior
to April 1, 2012 from the proceeds of the sale of capital
stock in KCSM or KCS and the notes are redeemable, in whole but
not in part, at KCSMs option at their principal amount in
the event of certain changes in the Mexican withholding tax
rate. The
121/2% Senior
Notes include certain covenants that restrict or prohibit
certain actions.
On January 22, 2010, KCSM issued $300.0 million
principal amount of 8.0% senior unsecured notes due
February 1, 2018 (the 8.0% Senior Notes)
which bear interest semiannually at a fixed annual rate of 8.0%.
The 8.0% Senior Notes were issued at a discount to par
value, resulting in a $4.3 million discount and a yield to
maturity of
81/4%.
KCSM used the net proceeds from the issuance of the 8.0% Senior
Notes and cash on hand to purchase $290.0 million in
principal amount of the
93/8% senior
unsecured notes due May 1, 2012 (the
93/8%
Senior Notes) tendered under an offer to purchase and pay
all fees and expenses incurred in connection with the
8.0% Senior Notes offering and tender offer. The
8.0% Senior Notes are redeemable at KCSMs option, in
whole at any time or in part, on and after February 1,
2014, at the following redemption prices (expressed as
percentages of principal amount) plus any accrued and unpaid
interest: 2014 104.000%, 2015 102.000%
and 2016 100.000%. In addition, KCSM may redeem up
to 35% of the 8.0% Senior Notes any time prior to
February 1, 2013 from the proceeds of the sale of capital
stock in KCSM or KCS and
23
the notes are redeemable, in whole but not in part, at
KCSMs option at their principal amount in the event of
certain changes in the Mexican withholding tax rate. The 8.0%
Senior Notes include certain covenants that restrict or prohibit
certain actions.
On January 7, 2010, pursuant to an offer to purchase, KCSM
commenced a cash tender offer for a portion of its
93/8% Senior
Notes. On January 22, 2010, the Company purchased
$290.0 million of the tendered
93/8%
Senior Notes in accordance with the terms and conditions of the
tender offer set forth in the offer to purchase using the
proceeds received from the issuance of $300.0 million of
the 8.0% Senior Notes. Additionally, on February 1,
2010, the Company repurchased $6.3 million of the
93/8%
Senior Notes. The remaining
93/8%
Senior Notes mature on May 1, 2012 and are redeemable by
KCSM at its option. KCSM recorded debt retirement costs of
$14.9 million in the first quarter of 2010.
Cash
Flow Information
Summary cash flow data follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows provided by (used for):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
142.5
|
|
|
$
|
160.9
|
|
Investing activities
|
|
|
(150.4
|
)
|
|
|
(231.2
|
)
|
Financing activities
|
|
|
61.6
|
|
|
|
92.3
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
53.7
|
|
|
|
22.0
|
|
Cash and cash equivalents beginning of year
|
|
|
38.9
|
|
|
|
16.9
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
92.6
|
|
|
$
|
38.9
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flows for 2009 decreased $18.4 million
to $142.5 million. The decrease in operating cash flows was
primarily a result of lower net income from reduced carload/unit
volumes due to the downturn in the economy. Net investing cash
outflows were $150.4 million and $231.2 million during
2009 and 2008, respectively. This $80.8 million decrease
was primarily due to a reduced capital program in response to
decreased operating cash flows. Additional information regarding
capital expenditures is provided below. Financing cash inflows
decreased $30.7 million. During 2009 the Company declared
and paid capital reductions to the Companys shareholders
and repaid of borrowings under the 2007 Credit Agreement. In
addition the Company received proceeds of $189.0 million
from the issuance of the
121/2% Senior
Notes and proceeds of $21.6 million from a borrowing from a
wholly-owned subsidiary of KCS.
Capital
Expenditures
Capital improvements are generally funded with cash flows from
operations. KCSM has historically used external sources such as
loans or lease financing for equipment acquisition.
24
The following summarizes the capital expenditures by type (in
millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Roadway capital program
|
|
$
|
66.8
|
|
|
$
|
109.3
|
|
Equipment
|
|
|
8.8
|
|
|
|
36.6
|
|
Capacity
|
|
|
0.2
|
|
|
|
27.9
|
|
Locomotive acquisitions
|
|
|
1.0
|
|
|
|
79.2
|
|
Information technology
|
|
|
2.9
|
|
|
|
5.4
|
|
Other
|
|
|
12.7
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures accruals basis
|
|
|
92.4
|
|
|
|
266.0
|
|
Change in capital accruals
|
|
|
37.3
|
|
|
|
(34.7
|
)
|
|
|
|
|
|
|
|
|
|
Total cash capital expenditures
|
|
$
|
129.7
|
|
|
$
|
231.3
|
|
|
|
|
|
|
|
|
|
|
KCSMs
minimum investments obligation
The Concession requires KCSM to make investments and undertake
capital projects, including capital projects described in a
business plan filed every five years with the SCT. KCSMs
minimum investment obligations for the remaining three years of
the current business plan are as follows: $121.0 million,
$126.0 million and $132.0 million for 2010, 2011 and
2012, respectively.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risks
|
KCSM utilizes various financial instruments that have certain
inherent market risks, but these instruments have not been
entered into for trading purposes. The following information
describes the key aspects of certain financial instruments that
have market risk to KCSM.
The Companys short-term financial instruments include cash
and cash equivalents, accounts receivable, and accounts payable.
The carrying value of the short term financial instruments
approximates the fair value due to their short-term nature.
The fair value of the Companys 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 Companys debt was
$1,170.0 million and $830.1 million at
December 30, 2009 and December 31, 2008, respectively.
The financial statement carrying value was $1,136.1 million
and $958.4 million at December 30, 2009 and
December 31, 2008, respectively.
Foreign Exchange Sensitivity. KCSM uses the
dollar as its functional currency. The Companys results of
operations reflect revaluation gains and losses that KCSM
records in the process of remeasuring certain transactions from
pesos to dollars. Therefore, the Company has exposure to
fluctuations in the value of the peso. KCSM manages this risk by
monitoring its peso denominated cash inflows and outflows. For
example, a hypothetical 10% increase in the U.S. dollar to
the Mexican pesos exchange rate on net peso denominated monetary
assets of Ps.521.8 million would result in a loss of
approximately $3.6 million, and a 10% decrease in the
exchange rate would result in a gain of approximately
$4.4 million.
Inflation risk. U.S. generally accepted
accounting principles require the use of historical cost, which
does not reflect the effects of inflation on the replacement
cost of property. Due to the capital intensive nature of the
Companys business, the replacement cost of its assets
would be substantially greater than the amounts reported under
the historical cost basis.
25
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Index to
Consolidated Financial Statements
|
|
|
|
|
|
|
Page
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
33
|
|
26
Managements
Report on Internal Control over Financial Reporting
The management of Kansas City Southern de México, S.A. de
C.V., is responsible for establishing and maintaining adequate
internal control over financial reporting as such term is
defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
KCSMs internal control over financial reporting was
designed to provide reasonable assurance to the Companys
management and Board of Directors regarding the preparation and
fair presentation of published financial statements.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Under the supervision and participation of the Companys
President and Executive Representative and the Chief Financial
Officer, management conducted an evaluation of the effectiveness
of the Companys internal control over financial reporting
as of December 31, 2009, based on the framework established
by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control Integrated
Framework (commonly referred to as the COSO framework).
Based on its evaluation, management concluded that the
Companys internal control over financial reporting was
effective as of December 31, 2009, based on the criteria
outlined in the COSO framework.
This annual report does not include an attestation report of the
Companys independent registered public accounting firm
regarding internal control over financial reporting.
Managements report was not subject to attestation by the
Companys independent registered public accounting firm
pursuant to the temporary rules of the Securities and Exchange
Commission that permit the Company to provide only
managements report in this annual report.
27
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Kansas City Southern de México, S.A. de C.V.:
We have audited the accompanying consolidated balance sheets of
Kansas City Southern de México, S.A. de C.V. and
subsidiaries (the Company) as of December 31, 2009 and 2008
and the related consolidated statements of income, changes in
stockholders equity and comprehensive income, and cash
flows for each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Kansas City Southern de México, S.A. de C.V.
and subsidiaries as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2009, in
conformity with U.S. generally accepted accounting
principles.
Kansas City, Missouri
February 11, 2010
28
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Revenues
|
|
$
|
616.0
|
|
|
$
|
818.5
|
|
|
$
|
813.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
77.5
|
|
|
|
106.5
|
|
|
|
121.4
|
|
Purchased services
|
|
|
109.3
|
|
|
|
136.8
|
|
|
|
124.1
|
|
Fuel
|
|
|
86.9
|
|
|
|
112.6
|
|
|
|
119.1
|
|
Equipment costs
|
|
|
87.3
|
|
|
|
100.2
|
|
|
|
104.4
|
|
Depreciation and amortization
|
|
|
102.4
|
|
|
|
103.2
|
|
|
|
96.1
|
|
Casualties and insurance
|
|
|
10.5
|
|
|
|
12.8
|
|
|
|
11.1
|
|
Materials and other
|
|
|
32.4
|
|
|
|
30.8
|
|
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
506.3
|
|
|
|
602.9
|
|
|
|
597.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
109.7
|
|
|
|
215.6
|
|
|
|
215.6
|
|
Equity in net earnings of unconsolidated affiliates
|
|
|
2.9
|
|
|
|
7.4
|
|
|
|
5.7
|
|
Interest expense
|
|
|
(110.1
|
)
|
|
|
(86.6
|
)
|
|
|
(87.9
|
)
|
Debt retirement costs
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(6.9
|
)
|
Foreign exchange gain (loss)
|
|
|
2.2
|
|
|
|
(21.3
|
)
|
|
|
(0.9
|
)
|
Other income, net
|
|
|
3.1
|
|
|
|
2.9
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7.2
|
|
|
|
118.0
|
|
|
|
128.5
|
|
Income tax expense
|
|
|
0.2
|
|
|
|
15.0
|
|
|
|
30.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.0
|
|
|
$
|
103.0
|
|
|
$
|
97.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
29
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions,
|
|
|
|
except share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
92.6
|
|
|
$
|
38.9
|
|
Accounts receivable, net
|
|
|
61.6
|
|
|
|
60.2
|
|
Related company receivable
|
|
|
16.8
|
|
|
|
29.0
|
|
Materials and supplies
|
|
|
37.4
|
|
|
|
27.0
|
|
Deferred income tax asset
|
|
|
117.3
|
|
|
|
56.0
|
|
Other current assets
|
|
|
48.9
|
|
|
|
54.6
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
374.6
|
|
|
|
265.7
|
|
Investments
|
|
|
46.9
|
|
|
|
46.4
|
|
Property and equipment (including concession assets), net
|
|
|
2,246.0
|
|
|
|
2,256.3
|
|
Related company receivable
|
|
|
31.1
|
|
|
|
3.4
|
|
Deferred income tax asset
|
|
|
|
|
|
|
36.4
|
|
Other assets
|
|
|
25.3
|
|
|
|
32.1
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,723.9
|
|
|
$
|
2,640.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Debt due within one year
|
|
$
|
11.0
|
|
|
$
|
9.9
|
|
Accounts payable and accrued liabilities
|
|
|
112.7
|
|
|
|
162.5
|
|
Related company payable
|
|
|
27.1
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
150.8
|
|
|
|
183.2
|
|
Long-term debt
|
|
|
1,103.5
|
|
|
|
948.5
|
|
Related company debt
|
|
|
21.6
|
|
|
|
0.3
|
|
Deferred income tax liability
|
|
|
18.2
|
|
|
|
|
|
Other noncurrent liabilities and deferred credits
|
|
|
95.0
|
|
|
|
75.8
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,389.1
|
|
|
|
1,207.8
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, 4,785,510,235 shares authorized, issued
without par value
|
|
|
507.3
|
|
|
|
608.3
|
|
Additional paid-in capital
|
|
|
243.6
|
|
|
|
243.6
|
|
Retained earnings
|
|
|
587.3
|
|
|
|
583.5
|
|
Accumulated other comprehensive loss
|
|
|
(3.4
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,334.8
|
|
|
|
1,432.5
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,723.9
|
|
|
$
|
2,640.3
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
30
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.0
|
|
|
$
|
103.0
|
|
|
$
|
97.8
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
102.4
|
|
|
|
103.2
|
|
|
|
96.1
|
|
Deferred income taxes
|
|
|
0.2
|
|
|
|
15.0
|
|
|
|
30.7
|
|
Equity in undistributed earnings of unconsolidated affiliates
|
|
|
(2.9
|
)
|
|
|
(7.4
|
)
|
|
|
(5.7
|
)
|
Deferred compensation
|
|
|
3.3
|
|
|
|
(1.9
|
)
|
|
|
(2.1
|
)
|
Distributions from unconsolidated affiliates
|
|
|
3.0
|
|
|
|
7.2
|
|
|
|
|
|
Debt retirement cost
|
|
|
0.6
|
|
|
|
|
|
|
|
6.9
|
|
Changes in working capital items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1.4
|
)
|
|
|
39.0
|
|
|
|
32.0
|
|
Related companies
|
|
|
28.0
|
|
|
|
(60.8
|
)
|
|
|
40.7
|
|
Materials and supplies
|
|
|
(12.7
|
)
|
|
|
3.7
|
|
|
|
(7.9
|
)
|
Other current assets
|
|
|
12.6
|
|
|
|
(12.0
|
)
|
|
|
9.3
|
|
Accounts payable and accrued liabilities
|
|
|
(3.3
|
)
|
|
|
(22.2
|
)
|
|
|
(25.1
|
)
|
Other, net
|
|
|
5.7
|
|
|
|
(5.9
|
)
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
142.5
|
|
|
|
160.9
|
|
|
|
264.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(129.7
|
)
|
|
|
(231.3
|
)
|
|
|
(237.9
|
)
|
Proceeds from disposal of property
|
|
|
6.1
|
|
|
|
1.1
|
|
|
|
16.9
|
|
Proceeds and repayments from loan to related company
|
|
|
(27.5
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
0.7
|
|
|
|
(1.0
|
)
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(150.4
|
)
|
|
|
(231.2
|
)
|
|
|
(230.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
189.0
|
|
|
|
125.0
|
|
|
|
221.7
|
|
Proceeds from issuance of related company debt
|
|
|
21.6
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(40.6
|
)
|
|
|
(24.6
|
)
|
|
|
(237.7
|
)
|
Debt costs
|
|
|
(4.2
|
)
|
|
|
(1.0
|
)
|
|
|
(16.1
|
)
|
Dividends paid
|
|
|
(3.2
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
Capital reduction pro-rata distribution of common
stock
|
|
|
(101.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
61.6
|
|
|
|
92.3
|
|
|
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase during each year
|
|
|
53.7
|
|
|
|
22.0
|
|
|
|
2.5
|
|
At beginning of the year
|
|
|
38.9
|
|
|
|
16.9
|
|
|
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of the year
|
|
$
|
92.6
|
|
|
$
|
38.9
|
|
|
$
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures accrued but not yet paid at end of year
|
|
$
|
10.9
|
|
|
$
|
48.2
|
|
|
$
|
13.5
|
|
Capital lease obligations incurred
|
|
|
|
|
|
|
7.5
|
|
|
|
|
|
Cash payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
98.5
|
|
|
|
82.8
|
|
|
|
86.6
|
|
See accompanying notes to consolidated financial statements.
31
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Agreements
|
|
|
Treasury/
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
|
|
|
|
Common
|
|
|
with Parent
|
|
|
Parent
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Company
|
|
|
Shares
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Total
|
|
|
|
(In millions )
|
|
|
Balances at December 31, 2006
|
|
|
1,758.9
|
|
|
|
(593.6
|
)
|
|
|
(561.5
|
)
|
|
|
205.4
|
|
|
|
435.9
|
|
|
|
|
|
|
|
1,245.1
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.8
|
|
|
|
|
|
|
|
97.8
|
|
Prior services cost, net of tax of $0.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97.8
|
|
|
|
(0.8
|
)
|
|
|
97.0
|
|
Cancellation of the shares received from the Mexican government
related to the VAT/PUT settlement
|
|
|
(351.8
|
)
|
|
|
|
|
|
|
305.4
|
|
|
|
46.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KCSM Stockholders cancellation due to merger
|
|
|
(1,407.1
|
)
|
|
|
593.6
|
|
|
|
256.1
|
|
|
|
(251.8
|
)
|
|
|
(435.9
|
)
|
|
|
|
|
|
|
(1,245.1
|
)
|
Grupo KCSM Stockholders equity as of merger
|
|
|
807.0
|
|
|
|
|
|
|
|
(256.1
|
)
|
|
|
320.7
|
|
|
|
389.8
|
|
|
|
|
|
|
|
1,261.4
|
|
Grupo KCSM Treasury shares cancellation due to merger
|
|
|
(198.7
|
)
|
|
|
|
|
|
|
256.1
|
|
|
|
(57.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to purchase accounting assets reflecting push down
from KCS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(19.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
608.3
|
|
|
|
|
|
|
|
|
|
|
|
243.6
|
|
|
|
487.6
|
|
|
|
(0.8
|
)
|
|
|
1,338.7
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103.0
|
|
|
|
|
|
|
|
103.0
|
|
Adjustment to prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
0.8
|
|
Cumulative translation adjustment -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTVM, net of tax of $1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.9
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103.0
|
|
|
|
(2.1
|
)
|
|
|
100.9
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
608.3
|
|
|
|
|
|
|
|
|
|
|
|
243.6
|
|
|
|
583.5
|
|
|
|
(2.9
|
)
|
|
|
1,432.5
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
|
|
7.0
|
|
Cumulative translation adjustment -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTVM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0
|
|
|
|
(0.5
|
)
|
|
|
6.5
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
(3.2
|
)
|
Capital reduction pro-rata reduction of common stock
|
|
|
(101.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
$
|
507.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
243.6
|
|
|
$
|
587.3
|
|
|
$
|
(3.4
|
)
|
|
$
|
1,334.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
32
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
(Amounts in millions of US dollars ($) or millions of
Mexican pesos (Ps))
|
|
Note 1.
|
Description
of the Business
|
Kansas City Southern de México, S.A. de C.V.
(KCSM or the Company), was established
by the Mexican government in November 1996 in connection with
the privatization of the Mexican rail system, which had
previously been operated by Ferrocarriles Nacionales de
México (FNM). In December 1996, Grupo KCSM,
S.A. de C.V. (Grupo KCSM), (formerly known as Grupo
Transportacion Ferroviaria Mexicana, S.A. de C.V.) was awarded
the right to acquire an 80% interest in KCSM, pursuant to a
stock purchase agreement (the Acquisition).
KCSM rail lines form a strategically important rail link within
Mexico and to the North American Free Trade Agreement
(NAFTA) corridor. KCSM lines directly link Mexico
City and Monterrey (as well as Guadalajara through trackage
rights) with the ports of Lazaro Cardenas, Veracruz (through
trackage rights granted by Ferrosur, S.A. de C.V.
(Ferrosur) under the concession) and Tampico and the
Mexican/United States border crossings of Nuevo Laredo,
Tamaulipas and Laredo, Texas and Matamoros, Tamaulipas and
Brownsville, Texas.
Arrendadora KCSM, S. de R.L. de C.V. (Arrendadora
KCSM), a wholly-owned subsidiary, was incorporated on
September 27, 2002 as a sociedad anonima de capital
variable (variable capital corporation), under the Laws of
Mexico and its only operation is the leasing of railroad
equipment. On December 7, 2007 after the Company received
shareholder approval, Arrendadora KCSM amended its by-laws to
transform Arrendadora KCSM into a sociedad de responsabilidad
limitada de capital variable, or S. de R.L. de C.V. (limited
liability corporation).
KCSM Servicios, S.A. de C.V. (KCSM
Servicios), was incorporated on July 3, 2006, as a
sociedad anónima de capital variable (variable
capital corporation), under the laws of Mexico. Currently, KCSM
Servicios does not have any operations. Ninety-eight percent of
the capital stock of KCSM Servicios is owned by KCSM and the
remaining two percent is owned by Nafta Rail, S.A. de C.V.
(Nafta Rail).
KCSM Internacional, S.A. de C.V. (KCSM
Internacional), was incorporated on July 3, 2006, as
a sociedad anónima de capital variable (variable
capital corporation), under the laws of Mexico. Currently, KCSM
Internacional does not have any operations. Ninety-eight percent
of the capital stock of KCSM Internacional is owned by KCSM and
the remaining two percent is owned by Nafta Rail.
KCSM Holdings LLC (KCSM Holdings), was formed
on December 11, 2006 as a limited liability company under
the laws of the state of Delaware. Currently, KCSM Holdings owns
ten shares of KCSMs variable class II stock. KCSM
owns one hundred percent of the interest of KCSM Holdings.
Mexrail, Inc. (Mexrail), owns 100% of The
Texas Mexican Railway Company (Tex-Mex) which owns a
157-mile
rail line extending from Laredo to the port city of Corpus
Christi, Texas. Mexrail also owns the northern half of the rail
bridge at Laredo, Texas, which spans the Rio Grande River
between Mexico and the U.S. KCSM owns 49% of the
outstanding capital stock of Mexrail and Kansas City Southern
(KCS) owns the remaining 51% of Mexrails
outstanding capital stock. For the years ended December 31,
2009, 2008 and 2007, KCSM recognized its 49% interest under the
equity method of accounting and has included in its income
statement $1.6 million, $2.7 million and
$2.8 million of income, respectively.
Ferrocarril y Terminal del Valle de México, S.A. de C.V.
(Mexico Valley Railway and Terminal or
FTVM), was incorporated as a sociedad
anónima de capital variable (variable capital
corporation), under the laws of Mexico. FTVM provides railroad
services as well as ancillary services, including those related
to interconnection, switching and haulage services in the
greater Mexico City area. KCSM holds 25% of the capital stock of
FTVM. The other shareholders of FTVM, each holding a 25%
interest, are Ferrocarril Méxicano, S.A. de C.V. or
Ferromex, Ferrosur, S.A. de C.V. or
Ferrosur and the Mexican government.
33
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
For the years ended December 31, 2009, 2008 and 2007, KCSM
recognized its 25% interest under the equity method of
accounting and has included in its income statement
$1.3 million, $4.7 million and $2.9 million of
income, respectively, attributable to its interest in FTVM. In
2009 and 2008, KCSM received cash dividends of $3.0 million
and $7.2 million, respectively, from FTVM.
The Concession. KCSM holds a Concession
(the Concession) from the Mexican government until
June 2047 (exclusive through 2027, subject to certain trackage
and haulage rights granted to other concessionaires) which is
renewable under certain conditions for additional periods of up
to 50 years. The Concession is to provide freight
transportation services over rail lines which are a primary
commercial corridor of the Mexican railroad system. These lines
include the shortest, most direct rail passageway between Mexico
City and Laredo, Texas and serve most of Mexicos principal
industrial cities and three of its major shipping ports. KCSM
has the right to use, but does not own, all track and buildings
that are necessary for the rail lines operation. KCSM is
obligated to maintain the right of way, track structure,
buildings and related maintenance facilities to the operational
standards specified in the Concession agreement and to return
the assets in that condition at the end of the Concession
period. KCSM is required to pay the Mexican government a
concession duty equal to 0.5% of gross revenues during the first
15 years of the Concession period and 1.25% of such
revenues during the remainder of the period.
Under the Concession and Mexican law, the Company may freely set
rates unless the Mexican government determines that there is no
effective competition in Mexicos rail industry. KCSM is
required to register its rates with the Mexican government and
to provide railroad services to all users on a fair and
non-discriminatory basis and in accordance with efficiency and
safety standards approved periodically by the Mexican
government. In the event that rates charged are higher than the
registered rates, KCSM must reimburse customers with interest,
and risk revocation of the Concession.
Mexican railroad services law and regulations and the Concession
establish several circumstances under which the Concession will
terminate: revocation by the Mexican government, statutory
appropriation, or KCSMs voluntary surrender of its rights
or liquidation or bankruptcy. The Concession requires the
undertaking of capital projects, including those described in a
business plan filed every five years with the Mexican
government. KCSM filed its third business plan with the Mexican
government in December 2007 in which KCSM committed to certain
minimal investment and capital improvement goals, which may be
waived by the Mexican government upon application for relief for
good cause. The Mexican government could also revoke KCSMs
exclusivity after 2027 if it determines that there is
insufficient competition.
The Concession is subject to early termination or revocation
under certain circumstances. In the event that the Concession is
revoked by the Mexican government, KCSM will receive no
compensation. Rail lines and all other fixtures covered by the
Concession, as well as all improvements made by KCSM or third
parties, will revert to the Mexican government. All other
property not covered by the Concession, including all
locomotives and railcars otherwise acquired, will remain
KCSMs property. The Mexican government will have the right
to cause KCSM to lease all service-related assets to it for a
term of at least one year, automatically renewable for
additional one-year terms up to five years. The Mexican
government must exercise this right within four months after
revocation of the Concession. In addition, the Mexican
government will have a right of first refusal with respect to
certain transfers by KCSM of railroad equipment within
90 days after any revocation of the Concession. The Mexican
government may also temporarily seize the rail lines and assets
used in operating the rail lines in the event of a natural
disaster, war, significant public disturbances, or imminent
danger to the domestic peace or economy for the duration of any
of the foregoing events; provided, however, that Mexican law
requires that the Mexican government pay KCSM compensation equal
to damages caused and losses suffered if it effects a statutory
appropriation for reasons of the public interest. These payments
may not be sufficient to compensate the Company for its losses
and may not be made timely.
Employees and Labor Relations. KCSM union
employees are covered by one labor agreement, which was signed
on June 23, 1997 between KCSM and the Sindicato de
Trabajadores Ferrocarrileros de la
34
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
República Mexicana (Mexican Railroad Union), for a
term of 50 years, for the purpose of regulating the
relationship between the parties and improving conditions for
the union employees. Approximately 80% of KCSMs employees
are covered by this labor agreement. The compensation terms
under this labor agreement are subject to renegotiation on an
annual basis and all other terms are renegotiated every two
years. In June of 2009, the negotiation of the compensation
terms and all other benefits was started with the Mexican
Railroad Union. The anticipated resolutions of these
negotiations are not expected to have a material impact to the
consolidated financial statements. The union labor negotiation
with the Mexican Railroad Union has not historically resulted in
disruption in KCSMs business operations.
|
|
Note 2.
|
Significant
Accounting Policies and Basis of Presentation
|
Principles of Consolidation. The accompanying
consolidated financial statements are presented using the
accrual basis of accounting and include the Company and its
majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Certain prior
year amounts have been reclassified to conform to the current
year presentation.
The equity method of accounting is used for all entities in
which the Company or its subsidiaries have significant
influence, but not a controlling interest. The Company evaluates
less than majority owned investments for consolidation pursuant
to consolidation and variable interest entity guidance. The
Company does not have any less than majority owned investments
requiring consolidation.
Basis of presentation. During the third
quarter of 2009, the Company identified that changes in accounts
payable and accrued liabilities related to capital spending had
not been correctly presented in the Companys prior period
consolidated cash flow statements. Changes in these accruals had
previously been classified within cash flows from operating
activities and should have been classified as capital
expenditures within investing activities, in order to report
capital expenditures on a cash basis rather than on an accrual
basis. The accompanying consolidated cash flow statement has
been revised to present capital expenditures on a cash basis for
the year ended December 31, 2008. This revision did not
impact the change in cash and cash equivalents as previously
reported, however, net cash provided by operating activities
decreased by $34.7 million from $195.6 million to
$160.9 million and capital expenditures and cash used by
investing activities decreased by $34.7 million from
$265.9 million to $231.2 million for the year ended
December 31, 2008. The revision did not impact operating
income or net income and working capital as previously reported.
This revision was not material to net cash provided by operating
activities, capital expenditures and net cash used by investing
activities for the year ended December 31, 2007.
Use of Estimates. The accounting and financial
reporting policies of the Company conform to accounting
principles generally accepted in the United States of America
(U.S. GAAP). The preparation of financial
statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting period. Significant items subject to such estimates
and assumptions include those related to the recoverability and
useful lives of assets, environmental remediation, casualty
claims, and deferred taxes. Changes in facts and circumstances
may result in revised estimates. Actual results could differ
from those estimates.
Segments. KCSM is organized as one business
segment (railway) and currently operates in one geographical
segment (Mexico).
Revenue Recognition. The Company recognizes
freight revenue based upon the percentage of completion of a
commodity movement as a shipment moves from origin to
destination, with the related expense recognized as incurred.
Other revenues, in general, are recognized when the product is
shipped, as services are performed, or contractual obligations
are fulfilled.
35
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Foreign Exchange Gain (loss). For financial
reporting purposes, KCSM and its subsidiaries maintain records
in U.S. dollars, which is the functional currency. The
dollar is the currency that reflects the economic substance of
the underlying events and circumstances relevant to the entity.
Monetary assets and liabilities denominated in pesos are
remeasured into dollars using current exchange rates. The
difference between the exchange rate on the date of the
transaction and the exchange rate on the settlement date, or
balance sheet date if not settled, is included in the income
statement as foreign exchange gain or loss. Non-monetary assets
or liabilities and capital stock transactions originally
denominated in Mexican pesos are remeasured into
U.S. dollars using the historical exchange rate at the date
of the transaction. Depreciation and amortization of
non-monetary assets are recorded using the historical cost in
U.S. dollars. For tax purposes, KCSM and its subsidiaries
are required to maintain their books and records in Mexican
pesos.
Cash and Cash Equivalents. Short-term liquid
investments with an initial maturity of three months or less
when purchased are classified as cash and cash equivalents.
Accounts Receivable, net. Accounts receivable
are net of an allowance for uncollectible accounts as determined
by historical experience and adjusted for economic uncertainties
or known trends. Accounts are charged to the allowance when a
customer enters bankruptcy, when an account has been transferred
to a collection agent or submitted for legal action, or when a
customer is significantly past due and all available means of
collection have been exhausted. At December 31, 2009 and
2008, the allowance for doubtful accounts was $0.8 million
and $1.7 million, respectively.
Materials and Supplies. Materials and
supplies, consisting of diesel fuel, items to be used in the
maintenance of rolling stock and items to be used in the
maintenance or construction of road property, are valued at the
lower of average cost or market.
Derivative Instruments. Derivatives are
measured at fair value and recorded on the balance sheet as
either assets or liabilities value. Changes in the fair value of
derivatives are recorded either through current earnings or as
other comprehensive income, depending on hedge designation.
Gains and losses on derivative instruments classified as cash
flow hedges are reported in other comprehensive income and are
reclassified into earnings in the periods in which earnings are
impacted by the variability of the cash flow of the hedged item.
The ineffective portion of all hedge transactions is recognized
in current period earnings.
Property and Equipment (including Concession
Assets). KCSM capitalizes costs for
self-constructed additions and improvements to property
including direct labor and material, indirect overhead costs,
and interest during long-term construction projects. Property
and equipment is carried at cost and is depreciated on a
straight-line basis over their estimated service lives measured
in years. Expenditures that significantly increase asset values
or extend useful lives are capitalized. Repair and maintenance
costs are expensed as incurred.
Costs incurred by the Company to acquire the Concession rights
and related assets, as well as subsequent improvements to the
concession assets, are capitalized and amortized over the lesser
of the current expected Concession term, including probable
renewal, or the estimated useful lives of the assets and rights.
KCSM follows the group method of depreciation which applies a
composite rate to classes of similar assets rather than to
individual assets. Composite depreciation rates are based upon
estimates of the expected average service lives of assets as
well as expected salvage value at the end of their useful lives.
The estimated average service lives of assets and salvage values
are determined through periodic depreciation studies.
Depreciation rate studies are performed every three years for
equipment and every six years for road property (rail, ties,
ballast, etc.). The depreciation studies take into account
factors such as:
|
|
|
|
|
Statistical analysis of historical patterns of use and
retirements of each asset class;
|
36
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
Evaluation of any expected changes in current operations and the
outlook for the continued use of the assets;
|
|
|
|
Evaluation of technological advances and changes to maintenance
practices; and
|
|
|
|
Historical and expected salvage to be received upon retirement.
|
Also under the group method of depreciation, the cost of
railroad property and equipment (net of salvage) retired or
replaced in the normal course of business is charged to
accumulated depreciation with no gain or loss recognized. Gains
or losses on dispositions of land or non-railroad property and
abnormal retirements of railroad property are recognized through
income. A retirement of railroad property would be considered
abnormal if the cause of the retirement is unusual in nature and
its service life is significantly shorter than what would be
expected for that group based on the depreciation studies. An
abnormal retirement could cause the Company to revaluate the
estimated useful life of the impacted asset class.
During the year ended December 31, 2009, KCSM engaged an
engineering firm to assist management in performing a
depreciation study on equipment as well as to assess the
adequacy of the accumulated reserves for road property. The
results of the study determined that overall KCSMs
depreciation rates should be lowered to better reflect asset
usage and replacement patterns. This change in accounting
estimate was implemented effective January 1, 2009. The
full year reduction of depreciation expense in 2009 resulting
from the change in depreciation and amortization rates was
$1.9 million.
During the fourth quarter of 2009, KCSM changed its useful life
estimates for its concession assets. Previously the Company had
limited the remaining life estimates to the current Concession
term which ends in 2047. However, in consideration of
KCSMs experience in operating under the Concession, the
Company determined that it was probable that KCSM will be able
to extend the Concession rights for one
50-year
term. Based on this, the Company began amortizing the concession
assets over the lesser of the current expected Concession term,
including probable renewal, or the estimated useful lives of the
assets. This change in accounting estimate was implemented
prospectively effective October 1, 2009, reducing
amortization expense in the fourth quarter by $2.6 million.
The estimated remaining lives of KCSMs concession assets
will continue to be reviewed in relation to KCSMs
experience in operating under the Concession.
Long-lived assets are reviewed for impairment when events or
circumstances indicate that the carrying amount of an asset may
not be recoverable. If impairment indicators are present and the
estimated future undiscounted cash flows are less than the
carrying value of the long-lived assets, the carrying value is
reduced to the estimated fair value.
Fair Value of Financial Instruments. The
Companys short-term financial instruments include cash and
cash equivalents, accounts receivable, and accounts payable. The
carrying value of the short-term financial instruments
approximates the fair value due to their short-term nature.
The fair value of the Companys 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 Companys debt was
$1,170.0 million and $830.1 million at
December 31, 2009 and 2008, respectively. The financial
statement carrying value was $1,136.1 million and
$958.4 million at December 31, 2009 and 2008,
respectively.
Post-Employment Benefits. Mexican law requires
that the Company provide certain post-employment benefits to its
Mexican union and non-union employees. These plans provide
statutorily calculated benefits which are payable upon
retirement, death, disability, voluntary or involuntary
termination to employees who meet applicable service
requirements. In addition to these statutorily required
post-employment benefits, the Company and the union have been
engaged in negotiations regarding an incremental benefit that
would be paid to the Companys union employees upon
retirement. Actuaries assist the Company in measuring the
Companys benefit obligation and the cost based upon the
current plan provisions, employee demographics
37
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
and assumptions about financial and demographic factors
affecting the probability, timing and amount of expected future
benefit payments. Significant assumptions include the discount
rate, turnover, and rate of increase in compensation levels.
Actuarial gains and losses determined at the measurement date
(typically December 31) are recognized immediately in the
consolidated statement of income.
Employees Statutory Profit Sharing. KCSM
is subject to employee statutory profit sharing requirements
under Mexican law and calculates profit sharing liability as 10%
of KCSM net taxable income, adjusted as prescribed by the
Mexican income tax law. Deferred employee statutory profit
sharing is accounted for in a manner similar to income taxes
included as a component of compensation and benefits within the
consolidated statement of income.
Income Taxes. Deferred income tax effects of
transactions reported in different periods for financial
reporting and income tax purposes are recorded under the
liability method of accounting for income taxes. This method
gives consideration to the future tax consequences of the
deferred income tax items and immediately recognizes changes in
income tax laws upon enactment.
KCSM has recognized a deferred tax asset, net of a valuation
allowance for net operating loss carryovers. KCSM projects
sufficient future taxable income to realize the deferred tax
asset recorded less the valuation allowance. These projections
take into consideration assumptions about inflation rates,
currency fluctuations, future income and future capital
expenditures. If assumptions or actual conditions change, the
deferred tax asset net of the valuation allowance will be
adjusted to properly reflect the expected tax benefit.
|
|
Note 3.
|
New
accounting pronouncements
|
In June of 2009, the Financial Accounting Standards Board
(FASB) approved the FASB Accounting Standards
Codification (the FASB ASC) to become the
single source of authoritative U.S. GAAP (other than
guidance issued by the SEC) superseding all then-existing
non-SEC accounting and reporting standards. The FASB ASC does
not change current U.S. GAAP, but is intended to simplify
user access to all authoritative U.S. GAAP through the
introduction of a new structure providing all authoritative
literature by topic in one place.
In December of 2009, the FASB issued Accounting Standards Update
(ASU)
No. 2009-17,
Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities (ASU
2009-17).
ASU 2009-17
addresses the elimination of certain exceptions to consolidating
qualifying special-purpose entities which means more entities
will be subject to consolidation assessments and reassessments.
The statement requires ongoing reassessment of whether a company
is the primary beneficiary of a variable interest entity
(VIE) and clarifies characteristics that identify a
VIE. In addition, ASU
2009-17
requires additional disclosures about a companys
involvement with a VIE and any significant changes in risk
exposure due to that involvement. This standard is effective for
the Company beginning on January 1, 2010. The Company
expects the adoption of this standard will not have an impact on
the Companys results of operations and financial condition.
38
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 4.
|
Property
and Equipment (including concession assets)
|
Property and Equipment. Property and
equipment, including concession assets, and related accumulated
depreciation and amortization are summarized below at December
31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
2009
|
|
|
2008
|
|
|
Rate
|
|
|
Land
|
|
$
|
65.0
|
|
|
$
|
65.0
|
|
|
|
|
|
Concession land rights
|
|
|
137.6
|
|
|
|
138.0
|
|
|
|
1.0
|
%
|
Road property
|
|
|
1,907.0
|
|
|
|
1,875.4
|
|
|
|
3.1
|
%
|
Equipment
|
|
|
373.7
|
|
|
|
359.1
|
|
|
|
7.2
|
%
|
Technology and other
|
|
|
17.7
|
|
|
|
13.4
|
|
|
|
21.3
|
%
|
Construction in progress
|
|
|
95.4
|
|
|
|
116.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property
|
|
|
2,596.4
|
|
|
|
2,567.7
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
350.4
|
|
|
|
311.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property
|
|
$
|
2,246.0
|
|
|
$
|
2,256.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concession assets, net of accumulated amortization of
$259.8 million and $254.3 million, totaled
$1,774.2 million and $1,775.2 million for 2009 and
2008, respectively.
Depreciation and amortization of property and equipment totaled
$102.4 million, $103.2 million, and $96.1 million
for 2009, 2008, and 2007, respectively.
|
|
Note 5.
|
Other
Balance Sheet Captions
|
Other Current Assets. Other current assets
included the following items at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred employees statutory profit sharing asset
|
|
$
|
36.8
|
|
|
$
|
12.2
|
|
Refundable taxes
|
|
|
5.9
|
|
|
|
25.6
|
|
Purchase accounting for the fair value of certain contracts
|
|
|
|
|
|
|
11.3
|
|
Prepaid expenses
|
|
|
3.5
|
|
|
|
4.8
|
|
Other
|
|
|
2.7
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Other current assest
|
|
$
|
48.9
|
|
|
$
|
54.6
|
|
|
|
|
|
|
|
|
|
|
39
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Accounts Payable and Accrued
Liabilities. Accounts payable and accrued
liabilities included the following items at December 31 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Accounts payable
|
|
$
|
53.6
|
|
|
$
|
100.4
|
|
Interest payable
|
|
|
16.7
|
|
|
|
10.5
|
|
Accrued wages and vacation
|
|
|
13.1
|
|
|
|
17.0
|
|
Derailments, casualty and other claim reserve
|
|
|
6.8
|
|
|
|
6.6
|
|
Rents and leases
|
|
|
5.4
|
|
|
|
5.4
|
|
Income and other taxes
|
|
|
3.0
|
|
|
|
3.0
|
|
Purchase accounting for the fair value of certain contracts
|
|
|
2.8
|
|
|
|
6.4
|
|
Other
|
|
|
11.3
|
|
|
|
13.2
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
112.7
|
|
|
$
|
162.5
|
|
|
|
|
|
|
|
|
|
|
Long-term debt follows at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Term loan, variable interest rate due 2012
|
|
$
|
|
|
|
$
|
30.0
|
|
93/8% senior
notes, due 2012
|
|
|
460.0
|
|
|
|
460.0
|
|
75/8% senior
notes, due 2013
|
|
|
175.0
|
|
|
|
175.0
|
|
73/8% senior
notes, due 2014
|
|
|
165.0
|
|
|
|
165.0
|
|
121/2% senior
notes, due 2016
|
|
|
189.7
|
|
|
|
|
|
5.737% financing agreement
|
|
|
65.5
|
|
|
|
70.3
|
|
6.195% financing agreement
|
|
|
47.8
|
|
|
|
51.3
|
|
Capital lease obligations, due serially 2012
|
|
|
5.0
|
|
|
|
6.8
|
|
Other debt obligations
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,114.5
|
|
|
|
958.4
|
|
Less: Debt due within one year
|
|
|
11.0
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,103.5
|
|
|
$
|
948.5
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility and Term Loan. On
June 14, 2007, KCSM entered into a new unsecured credit
agreement (the 2007 Credit Agreement) in an
aggregate amount of up to $111.0 million, consisting of a
revolving credit facility of up to $81.0 million, and a
term loan facility of $30.0 million with Bank of America,
N.A., BBVA Bancomer, S.A., Institución de Banca
Múltiple, and the other lenders named in the 2007 Credit
Agreement. On March 30, 2009, KCSM used a portion of the
net proceeds from the $200.0 million
121/2% senior
unsecured notes due April 1, 2016 (the
121/2% Senior
Notes) offering to repay all amounts outstanding under the
2007 KCSM Credit Agreement. Upon repayment of the outstanding
amounts, KCSM terminated the 2007 Credit Agreement.
93/8% Senior
Notes. On April 19, 2005, KCSM issued
$460.0 million principal amount of
93/8% senior
unsecured notes due May 1, 2012 (the
93/8%
Senior Notes), which bear interest semiannually at a fixed
annual rate of
93/8%.
The
93/8%
Senior Notes are redeemable at KCSMs option in whole or in
part on or after May 1, 2009, subject to certain
limitations, at the following redemption prices (expressed in
percentages of principal amount), plus any accrued and unpaid
interest: 2009 104.688%, 2010 102.344%
and thereafter 100.000%.
40
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
In addition, the
93/8%
Senior Notes are redeemable, in whole but not in part, at
KCSMs option at their principal amount in the event of
certain changes in the Mexican withholding tax rate.
On January 7, 2010, pursuant to an offer to purchase, KCSM
commenced a cash tender offer for a portion of its
93/8% Senior
Notes. On January 22, 2010, the Company purchased
$290.0 million of the tendered
93/8%
Senior Notes in accordance with the terms and conditions of the
tender offer set forth in the offer to purchase using the
proceeds received from the issuance of $300.0 million of
8.0% senior unsecured notes due in February 1, 2018
(the 8.0% Senior Notes). Additionally, on
February 1, 2010, the Company repurchased $6.3 million
of the
93/8%
Senior Notes. KCSM recorded debt retirement costs of
$14.9 million in the first quarter of 2010. The remaining
93/8%
Senior Notes mature on May 1, 2012 and are redeemable by
KCSM at its option.
75/8% Senior
Notes. On November 21, 2006, KCSM issued
$175.0 million principal amount of
75/8% senior
unsecured notes due December 1, 2013 (The
75/8%
Senior Notes), which bear interest semiannually at a fixed
annual rate of
75/8%.
The
75/8%
Senior Notes are redeemable at KCSMs option in whole or in
part on or after December 1, 2010, subject to certain
limitations, at the following redemption prices (expressed in
percentages of principal amount), plus any accrued and unpaid
interest: 2010 103.813%, 2011 101.906%
and 2012 100.000%. In addition, the
75/8%
Senior Notes are redeemable, in whole but not in part, at
KCSMs option at their principal amount in the event of
certain changes in the Mexican withholding tax rate.
73/8% Senior
Notes. On May 16, 2007, KCSM issued
$165.0 million principal amount of
73/8% senior
unsecured notes due June 1, 2014 (the
73/8%
Senior Notes), which bear interest semiannually at a fixed
annual rate of
73/8%.
The
73/8%
Senior Notes are redeemable at KCSMs option, in whole but
not in part, at 100% of their principal amount, plus any accrued
and unpaid interest, at any time in the event of certain changes
in Mexican tax law, and in whole or in part, on or after
June 1, 2011, subject to certain limitations, at the
following redemption prices (expressed as percentages of
principal amount) plus any accrued and unpaid interest:
2011 103.688%, 2012 101.844% and
2013 100.000%.
121/2% Senior
Notes. On March 30, 2009, KCSM issued the
121/2% Senior
Notes, which bear interest semiannually at a fixed annual rate
of
121/2%.
The
121/2% Senior
Notes were issued at a discount to par value, resulting in an
$11.0 million discount and a yield to maturity of
133/4%.
The
121/2% Senior
Notes are redeemable at KCSMs option in whole or in part
on and after April 1, 2013, at the following redemption
prices (expressed as percentages of principal amount) plus any
accrued and unpaid interest: 2013 106.250%,
2014 103.125% and 2015 100.000%. In
addition, KCSM may redeem up to 35% of the notes any time prior
to April 1, 2012 from the proceeds of the sale of capital
stock in KCSM or KCS and the notes are redeemable, in whole but
not in part, at KCSMs option at their principal amount in
the event of certain changes in the Mexican withholding tax rate.
8.0% Senior Notes. On January 22, 2010,
KCSM issued the 8.0% Senior Notes due February 1,
2018, which bear interest semiannually at a fixed annual rate of
8.0%. The 8.0% Senior Notes were issued at a discount to
par value, resulting in a $4.3 million discount and a yield
to maturity of
81/4%.
KCSM used the net proceeds from the issuance of the
8.0% Senior Notes and cash on hand to purchase
$290.0 million in principal amount of the
93/8% Senior
Notes tendered under an offer to purchase and pay all fees and
expenses incurred in connection with the 8.0% Senior Notes
offering and the
93/8%
Senior Notes tender offer. The 8.0% Senior Notes are
redeemable at KCSMs option, in whole or in part, on and
after February 1, 2014, at the following redemption prices
(expressed as percentages of principal amount) plus any accrued
and unpaid interest: 2014 104.000%, 2015
102.000% and 2016 100.000%. In addition, KCSM may
redeem up to 35% of the 8.0% Senior Notes any time prior to
February 1, 2013 from the proceeds of the sale of capital
stock in KCSM or KCS and the notes are redeemable, in whole but
not in part, at KCSMs option at their principal amount in
the event of certain changes in the Mexican withholding tax rate.
41
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
All of KCSMs senior notes described above are denominated
in dollars and are unsecured, unsubordinated obligations, rank
pari passu in right of payment with KCSMs existing
and future unsecured, unsubordinated obligations, and are senior
in right of payment to KCSMs future subordinated
indebtedness. In addition, the senior notes include certain
covenants that restrict or prohibit certain actions.
5.737% Financing Agreement. On
February 26, 2008, KCSM entered into a financing agreement
with Export Development Canada (EDC) for an
aggregate amount of $72.8 million. KCSM used the proceeds
to finance 85% of the purchase price of forty new SD70ACe
locomotives delivered and purchased by KCSM in late 2007 and
early 2008. KCSM granted EDC a security interest in the
locomotives to secure the loan. The financing agreement requires
KCSM to make thirty equal semi-annual principal payments of
approximately $2.4 million plus interest at an annual rate
of 5.737%, with the final payment due and payable on
February 28, 2023.
6.195% Financing Agreement. On
September 24, 2008, KCSM entered into a financing agreement
with DVB Bank AG (DVB). KCSM received the loan
principal amount under the financing agreement of
$52.2 million on September 26, 2008. KCSM used the
proceeds to finance approximately 80% of the purchase price of
twenty-nine ES44AC locomotives delivered and purchased by KCSM
in June 2008. KCSM granted DVB a security interest in the
locomotives to secure the loan. The financing agreement requires
KCSM to make sixty equal quarterly principal payments plus
interest at an annual rate of 6.195%, with the final payment due
and payable on September 29, 2023.
Both locomotive financing agreements contain representations,
warranties and covenants typical of such equipment loan
agreements. Events of default in the financing agreements
include, but are not limited to, certain payment defaults,
certain bankruptcy and liquidation proceedings and the failure
to perform any covenants or agreements contained in the
financing agreements. Any event of default could trigger
acceleration of KCSMs payment obligations under the terms
of the financing agreements.
Leases
and Debt Maturities
The Company leases transportation equipment, as well as office
buildings and other operating facilities under operating and
capital leases. Rental expenses under operating leases were
$62.9 million, $63.5 million and $63.4 million
for the years ended December 31, 2009, 2008 and 2007,
respectively. Future minimum annual payments and present value
thereof under existing capital leases, other debt maturities and
minimum annual rental commitments under non-cancelable operating
leases are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimun
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
Lease
|
|
|
Less
|
|
|
Present
|
|
|
|
|
|
Operating
|
|
|
|
|
Years
|
|
Debt
|
|
|
Payments
|
|
|
Interest
|
|
|
Value
|
|
|
Total Debt
|
|
|
Leases
|
|
|
Total
|
|
|
2010
|
|
$
|
9.6
|
|
|
$
|
1.8
|
|
|
$
|
0.4
|
|
|
$
|
1.4
|
|
|
$
|
11.0
|
|
|
$
|
50.3
|
|
|
$
|
61.3
|
|
2011
|
|
|
9.6
|
|
|
|
1.9
|
|
|
|
0.2
|
|
|
|
1.7
|
|
|
|
11.3
|
|
|
|
50.8
|
|
|
|
62.1
|
|
2012
|
|
|
469.6
|
|
|
|
2.0
|
|
|
|
0.1
|
|
|
|
1.9
|
|
|
|
471.5
|
|
|
|
34.4
|
|
|
|
505.9
|
|
2013
|
|
|
184.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184.6
|
|
|
|
28.7
|
|
|
|
213.3
|
|
2014
|
|
|
174.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174.6
|
|
|
|
28.0
|
|
|
|
202.6
|
|
Thereafter
|
|
|
261.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261.5
|
|
|
|
152.4
|
|
|
|
413.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,109.5
|
|
|
$
|
5.7
|
|
|
$
|
0.7
|
|
|
$
|
5.0
|
|
|
$
|
1,114.5
|
|
|
$
|
344.6
|
|
|
$
|
1,459.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 7.
|
Related
Companies
|
Balances and transactions with related companies included the
following items at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Related company receivables:
|
|
|
|
|
|
|
|
|
Nafta Rail(1)
|
|
$
|
16.4
|
|
|
$
|
14.3
|
|
KCSR(2)
|
|
|
|
|
|
|
12.5
|
|
Mexrail
|
|
|
|
|
|
|
1.6
|
|
Panama Canal Railway Company(3)
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16.8
|
|
|
$
|
29.0
|
|
Long term receivables:
|
|
|
|
|
|
|
|
|
KCSR(4)
|
|
$
|
30.0
|
|
|
$
|
|
|
Panama Canal Railway Company(3)
|
|
|
1.1
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
Total related company receivables
|
|
$
|
47.9
|
|
|
$
|
32.4
|
|
|
|
|
|
|
|
|
|
|
Related company payables:
|
|
|
|
|
|
|
|
|
KCSR(5)
|
|
$
|
25.5
|
|
|
$
|
|
|
Terminal Ferroviaria del Valle de México, S. A. de C. V
|
|
|
1.0
|
|
|
|
1.3
|
|
Servicios Ferroviarios Europeos
|
|
|
0.4
|
|
|
|
|
|
Superior Tie & Timber(6)
|
|
|
0.2
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27.1
|
|
|
$
|
10.8
|
|
Related company debt:
|
|
|
|
|
|
|
|
|
KCS(7)
|
|
$
|
21.6
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Total related company payables
|
|
$
|
48.7
|
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2009 and 2008, this amount is comprised
primarily of a loan receivable with Nafta Rail, denominated in
Mexican pesos plus interest. |
|
(2) |
|
This balance is comprised primarily of receivables from KCSR. |
|
(3) |
|
This amount is comprised of a loan receivable with an affiliate,
PCRC, a joint venture company owned equally by KCS and Mi-Jack
Products, Inc. |
|
(4) |
|
This balance is comprised primarily of a revolving credit
agreement with the Kansas City Southern Railway Company
(KCSR) due 2013. |
|
(5) |
|
This balance is comprised primarily of prepayment of freight
services to be rendered during 2010. |
|
(6) |
|
This payable balance is comprised primarily of ties acquired by
KCSM. |
|
(7) |
|
As of December 31, 2009, this amount is comprised of an
unsecured loan agreement with a wholly-owned subsidiary of KCS. |
43
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The most significant transactions with related parties are
summarized as follows at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Corporate expenses
|
|
$
|
(26.6
|
)
|
|
$
|
(28.3
|
)
|
|
$
|
(16.9
|
)
|
Terminal expenses
|
|
|
(8.7
|
)
|
|
|
(14.2
|
)
|
|
|
(13.8
|
)
|
Software amortization
|
|
|
(2.6
|
)
|
|
|
(2.6
|
)
|
|
|
|
|
Interest income
|
|
|
1.9
|
|
|
|
1.7
|
|
|
|
1.6
|
|
Car equipment lease
|
|
|
|
|
|
|
4.1
|
|
|
|
2.3
|
|
Locomotive equipment lease
|
|
|
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Other
|
|
|
(1.2
|
)
|
|
|
6.0
|
|
|
|
6.7
|
|
Loan
Agreement between KCSM and PCRC
On December 28, 2007, KCSM and PCRC entered into a loan
agreement (the Loan), pursuant to which KCSM loaned
PCRC $4.2 million. The term of the Loan is eight years and
the Loan bears interest at rate per annum equal to four hundred
basis points over the British Bankers Association LIBOR Rate
applicable for the quarter. PCRC will pay the principal amount
in thirty-two equal quarterly payments together with any and all
corresponding interest, on the last day of March, June,
September and December of each year, with the final payment in
December 2015. This agreement may be extended at the end of the
term of the Loan with the prior written agreement of both
parties. In December 2009, PCRC paid $2.0 million in
advance of its scheduled payments.
Revolving
Credit Agreement
KCSM, as lender and KCSR, as borrower, entered into a Revolving
Credit Agreement effective as of April 1, 2008 (the
Revolving Agreement), pursuant to the terms of which
KCSM may make one or more loans from time to time during the
term of the Revolving Agreement. The Revolving Agreement is
secured by certain assets of KCSR and terminates on
December 31, 2013. As of December 31, 2009 and 2008,
KCSM loaned KCSR $30.0 million and zero, respectively,
under the terms of the Revolving Agreement.
Prepayment
Freight Services Agreement
On December 23, 2009, KCSM and KCSR entered into a
prepayment freight services agreement. KCSR paid KCSM
$25.0 million for the railroad services to be rendered by
KCSM to KCSR during 2010. On December 21, 2007, KCSM and
KCSR entered into a prepayment freight services agreement. KCSR
paid KCSM $41.3 million for the railroad services to be
rendered by KCSM to KCSR from 2008 through 2009.
Loan
Agreement between KCSM and a wholly-owned subsidiary of
KCS
On September 29, 2009, KCSM entered into an unsecured loan
agreement (the Loan Agreement) with a wholly-owned
subsidiary of KCS. Pursuant to the terms of the Loan Agreement,
KCSM received $21.6 million for general corporate purposes.
The Loan Agreement requires KCSM to make annual interest
payments at a rate of 7.5%, with the principal payment due on
September 29, 2012.
Management
Services Agreement
On December 30, 2005, KCSM and KCS entered into a
Management Services Agreement under which KCS provides to KCSM
general guidance, oversight, consultation and management
services in connection with the business and operations of KCSM.
The Management Services Agreement became effective as of
April 1, 2005 and will continue in full force and effect
until terminated by one party by providing written notice to the
other party. In January 2008, KCSM prepaid KCS
$20.0 million for shared services which were provided
during
44
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
2008 and KCSM received a 3 percent discount on services
provided as a result of the prepayment. During 2009 and 2008 KCS
charged $26.6 million and $28.3 million, respectively,
to KCSM under the agreement.
Software
Agreements
On December 22, 2007, KCSM and KCSR entered into a software
license agreement which granted KCSM a non-exclusive,
non-assignable and nontransferable license to access management
control software and revenue control software on the KCSR
computer system through a remote connection. KCSM paid KCSR a
license fee of $3.0 million for use of the software from
July 2006 through December 2007. On January 1, 2008, KCSM
and KCSR entered into a software license agreement which granted
KCSM the right to access and use the software on KCSRs
computer system. KCSM paid KCSR $16.4 million under the
terms of this agreement.
Locomotive
Purchase Agreements
In 2008, KCSM entered into an agreement to purchase 16
locomotives from KCSR which were planned to be repowered per an
agreement with Electro-Motive Diesel. Eleven of the locomotives
were purchased in 2008; the remaining 5 were purchased in the
first quarter of 2009. As of December 31, 2009, all 16
locomotives have been repowered.
|
|
Note 8.
|
Stockholders
Equity
|
The following table sets forth information with respect to the
ownership of the Companys outstanding shares of stock as
of December 31, 2009. Pursuant to the bylaws, KCSMs
capital stock is divided between a fixed and variable portion.
The fixed portion of the capital stock with no withdrawal rights
is represented by 600,000 shares. The variable portion of
the capital stock is unlimited. KCSMs capital stock is
divided into Class I Shares, representing the fixed portion
of the stated capital, and Class II Shares, representing
the variable portion of the capital, fully subscribed and paid
for, without a par value expression.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Class I
|
|
|
Class II
|
|
|
Total
|
|
|
%
|
|
|
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nafta Rail, S.A. de C.V.
|
|
|
600,000
|
|
|
|
3,227,033,430
|
|
|
|
3,227,633,430
|
|
|
|
67.44
|
%
|
Kara Sub, Inc.
|
|
|
|
|
|
|
1,195,368,147
|
|
|
|
1,195,368,147
|
|
|
|
24.97
|
%
|
KCS Investment I, Ltd.
|
|
|
|
|
|
|
312,634,746
|
|
|
|
312,634,746
|
|
|
|
6.53
|
%
|
Caymex Transportation, Inc.
|
|
|
|
|
|
|
49,873,902
|
|
|
|
49,873,902
|
|
|
|
1.04
|
%
|
KCSM Holdings LLC
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
0.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
600,000
|
|
|
|
4,784,910,235
|
|
|
|
4,785,510,235
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
Payment
On December 22, 2009 and September 22, 2008, the
Company declared a cash dividend on its common stock of
Ps.41.2 million or $3.2 million and
Ps.75.0 million or $7.1 million, respectively, to the
Companys shareholders, all subsidiaries of KCS. These
dividends do not relate to earnings from the operations of KCSM.
The dividends reflect pass-through of related company dividends
from the Companys equity investment in FTVM. The Company
had not declared or paid dividends on its common stock before
September 22, 2008.
Capital
Reduction Plan
On December 22, 2008, KCSM shareholders approved a capital
reduction plan of up to $250.0 million to be executed
during the year ended December 31, 2009. On
January 28, 2009 and on September 29, 2009,
45
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
KCSM declared and paid capital reductions of $65.0 million
and $36.0 million, respectively, to the Companys
shareholders.
|
|
Note 9.
|
Income
Tax and Statutory Profit Sharing
|
Current income tax expense represents the amounts expected to be
reported on the Companys income tax return, and deferred
tax expense or benefit represents the change in net deferred tax
assets and liabilities. Deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by
enacted tax rates expected to be in effect when these
differences reverse. Valuation allowances are recorded as
appropriate to reduce deferred tax assets to the amount
estimated to be realized.
Tax Expense. The deferred income tax expense
for the years then ended December 31, 2009, 2008 and 2007
was $0.2 million, $15.0 million and
$30.7 million, respectively. There were no current income
tax provisions for the years then ended December 31, 2009,
2008 and 2007.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities are as follows December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
40.0
|
|
|
$
|
30.1
|
|
Concession rights
|
|
|
154.6
|
|
|
|
152.5
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
194.6
|
|
|
|
182.6
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Loss carryovers
|
|
|
(229.8
|
)
|
|
|
(250.8
|
)
|
Inventories and provisions
|
|
|
(67.2
|
)
|
|
|
(34.2
|
)
|
Other
|
|
|
(8.6
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets before valuation allowance
|
|
|
(305.6
|
)
|
|
|
(286.5
|
)
|
Valuation allowance on loss carryovers
|
|
|
11.9
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
(293.7
|
)
|
|
|
(275.0
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
(99.1
|
)
|
|
$
|
(92.4
|
)
|
|
|
|
|
|
|
|
|
|
46
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Tax Rates. Differences between the
Companys effective income tax rates and the Mexican income
tax statutory rate of 28% are as follows December 31 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax expense using the statutory rate in effect
|
|
$
|
2.0
|
|
|
$
|
33.0
|
|
|
$
|
36.0
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
Equity earnings from unconsolidated affiliates
|
|
|
(0.8
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
Foreign exchange and inflation adjustments
|
|
|
9.6
|
|
|
|
(27.4
|
)
|
|
|
(5.6
|
)
|
Change in the Mexican federal tax rate
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
0.4
|
|
|
|
11.5
|
|
|
|
|
|
Other Net
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
0.2
|
|
|
$
|
15.0
|
|
|
$
|
30.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
2.8
|
%
|
|
|
12.7
|
%
|
|
|
23.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees Statutory Profit Sharing The
profit sharing effects of temporary differences that give rise
to significant portions of the deferred profit sharing assets
and deferred profit sharing liabilities are as follows at
December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
15.6
|
|
|
$
|
13.2
|
|
Concession rights
|
|
|
31.0
|
|
|
|
18.9
|
|
|
|
|
|
|
|
|
|
|
Gross deferred profit sharing liabilities
|
|
|
46.6
|
|
|
|
32.1
|
|
Assets:
|
|
|
|
|
|
|
|
|
Inventories and provisions
|
|
|
(24.5
|
)
|
|
|
(13.6
|
)
|
Other
|
|
|
(0.8
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
(25.3
|
)
|
|
|
(14.1
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred profit sharing liability
|
|
$
|
21.3
|
|
|
$
|
18.0
|
|
|
|
|
|
|
|
|
|
|
Changes in Tax Law. On October 1, 2007
the Entrepreneurial Tax of Unique Rate (referred to by its
Spanish acronym, IETU or Flat Tax) in Mexico was
enacted. The Flat Tax law became effective on January 1,
2008 and replaced the Asset Tax Law. The Flat Tax applies to a
different tax base than the regular income tax and will be paid
if the Flat Tax exceeds the ordinary income tax computed under
existing law.
On December 28, 2009, the final provisions of Mexicos
2010 tax reform were enacted. The income tax rate increased to
30% from 28% for the years 2010 to 2012, 29% for 2013 and then
returns to its current rate of 28% in 2014. The Companys
deferred income tax assets and liabilities were revalued using
the rates expected to be in effect when the underlying temporary
differences are expected to reverse. This revaluation resulted
in a $10.7 million benefit in the 2009 tax provision. A 1%
increase to the value added tax rate was also enacted, however,
this increase will not have a material impact on the
consolidated financial statements because, under Mexican law,
value added tax is fully transferred to the final customer.
Tax Carryovers. KCSM loss carryovers at
December 31, 2009 are $772.6 million, of which
$85.0 million will begin to expire in 2016 and the
remaining $687.6 million will expire in 2046. A deferred
47
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
tax asset was recorded in prior periods for the expected future
tax benefit of these losses which will be carried forward to
reduce only ordinary Mexican income tax payable in future years.
With the addition of the Flat Tax, the losses are not projected
to completely eliminate future tax liabilities. A deferred tax
asset is recorded for an asset tax credit carryover in the
amount of $8.1 million which began to expire at a rate of
10 percent per year beginning in 2008. A valuation
allowance of $11.9 million has been recorded to reflect the
reduced expected tax benefit to be derived from these carryovers.
KCSM believes it is more likely than not that the results of
future operations will generate sufficient taxable income to
realize the deferred tax assets, net of valuation allowances,
related to loss carryovers.
Uncertain Tax Positions. The accounting
guidance for uncertainty in income taxes prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
guidance requires the Company to recognize in the financial
statements the benefit of a tax position only if the impact is
more likely than not of being sustained on audit based on the
technical merits of the position. The guidance also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure. The
provisions were effective for the Company beginning
January 1, 2007. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1,
|
|
|
|
|
|
|
|
|
Additions based on tax positions related to the current year
|
|
$
|
0.4
|
|
|
$
|
|
|
Additions for tax positions of prior years
|
|
|
|
|
|
|
0.4
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
The remaining $0.4 million of unrecognized tax benefits
would affect the effective income tax rate if recognized and is
not expected to change in the next twelve months.
Interest and penalties related to uncertain tax positions are
included in income before taxes on the income statement. Accrued
interest and penalties on unrecognized tax benefits are
$0.2 million as of December 31, 2009 and
December 31, 2008.
Tax returns filed in Mexico through 2002 are closed to
examination by the taxing authorities in Mexico. The 2003
through 2005 Mexico tax returns are currently under examination.
The Company received a preliminary audit assessment for the year
ended December 31, 2003, from Servicio de
Administración Tributaria (the SAT), the
Mexican equivalent of the U.S. Internal Revenue Service.
The Company is currently in negotiations with the SAT, and if a
settlement is not reached, the matter will be litigated. The
Company believes that it has strong legal arguments in its favor
and will more likely than not ultimately prevail in any
challenge of this assessment. The Company believes that an
adequate provision has been made for any adjustment (taxes and
interest) that will be due for all open years.
|
|
Note 10.
|
Post
Employment Benefits
|
Post-Employment Benefits. Mexican law requires
that the Company provide certain post-employment benefits to its
Mexican union and non-union employees. These plans provide
statutorily calculated benefits which are payable upon
retirement, death, disability, voluntary or involuntary
termination to employees who meet applicable service
requirements. In addition to these statutorily required
post-employment benefits, the Company and the union have been
engaged in negotiations regarding an incremental benefit that
would be paid to the Companys union employees upon
retirement. The current calculated liability related to this
48
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
incremental benefit is based on various factors including
retirement eligibility based on a combination of age and years
of credited service and the employees salary at the time
of retirement. As of the date of this filing, the Company was
still negotiating with the union regarding this benefit and
details of this benefit continue to be discussed.
The Company uses December 31 as the measurement date for its
retirement benefit obligations.
Net
Periodic Benefit Cost, Plan Obligation, and Funded
Status
Components of the net cost for the plan were as follows for the
years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
2.5
|
|
|
$
|
1.9
|
|
|
$
|
2.0
|
|
Interest cost
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
1.2
|
|
Actuarial (gain) loss(i)
|
|
|
(3.6
|
)
|
|
|
1.0
|
|
|
|
(1.0
|
)
|
Foreign currency (gain) loss
|
|
|
0.7
|
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic cost (benefit) recognized
|
|
$
|
1.0
|
|
|
$
|
0.5
|
|
|
$
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Net benefit costs above do not include a component for the
amortization of actuarial gains or losses as the Companys
policy is to recognize such gains and losses immediately. |
The following table reconciles the change in the benefit
obligation for each of the years ended December 31 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Benefit obligation, beginning of year
|
|
$
|
16.0
|
|
|
$
|
18.2
|
|
Service cost
|
|
|
2.5
|
|
|
|
1.9
|
|
Interest cost
|
|
|
1.4
|
|
|
|
1.4
|
|
Actuarial (gain) loss
|
|
|
(3.6
|
)
|
|
|
1.0
|
|
Foreign currency (gain) loss
|
|
|
0.7
|
|
|
|
(3.8
|
)
|
Benefits paid, net of retiree contributions
|
|
|
(1.1
|
)
|
|
|
(1.5
|
)
|
Prior services cost
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
$
|
15.9
|
|
|
$
|
16.0
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(15.9
|
)
|
|
$
|
(16.0
|
)
|
|
|
|
|
|
|
|
|
|
Assumptions
Weighted average assumptions used to determine benefit
obligation and net benefit cost were as follows for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Discount rate
|
|
|
8.50
|
%
|
|
|
8.00
|
%
|
Rate of compensation increase
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
49
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Cash
Flows
The following table presents benefit payments expected to be
paid, which reflect expected future service, as appropriate, for
each of the next five years and the aggregate five years
thereafter (in millions):
|
|
|
|
|
|
|
Expected
|
|
Year
|
|
Payments
|
|
|
2010
|
|
$
|
0.6
|
|
2011
|
|
|
0.6
|
|
2012
|
|
|
0.6
|
|
2013
|
|
|
0.6
|
|
2014
|
|
|
0.6
|
|
2015-2019
|
|
|
3.6
|
|
|
|
Note 11.
|
Commitments
and Contingencies
|
Concession duty. Under the Concession, the
Mexican Government has the right to receive a payment from the
Company equivalent to 0.5% of the gross revenue during the first
15 years of the Concession period and 1.25% of the gross
revenue during the remaining years of the Concession period. For
the years ended December 31, 2009, 2008 and 2007, the
concession duty expense amounted to $3.2 million,
$4.3 million and $4.3 million, respectively, which was
recorded within operating expenses.
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. KCSM aggressively defends these
matters and has established liability reserves, 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 Companys financial condition and liquidity.
However, a material adverse outcome in one or more of these
proceedings could have a material adverse impact on the
operating results of a particular quarter or fiscal year.
Environmental liabilities. The Companys
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 and 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 and handle
environmental issues that might occur in the transport of such
materials.
Certain Disputes with Ferromex. KCSMs
operations are subject to certain trackage rights, haulage
rights, and interline services with Ferrocarril Mexicano, S.A.
de C.V. (Ferromex). Other than the rates to be
charged pursuant to the Trackage Rights Agreement, dated
February 9, 2010, between KCSM and Ferromex, the rates
payable for these services have not been agreed upon by KCSM and
Ferromex for the periods beginning in 1998 through
December 31, 2008. KCSM is currently involved in judicial,
civil and administrative proceedings and negotiations with
Ferromex regarding the rates payable under these arrangements,
as described below.
50
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
KCSM and Ferromex both initiated administrative proceedings
seeking a determination by the Mexican Secretaría de
Comunicaciones y Transportes (Ministry of
Communications and Transportation or SCT) of
the rates that KCSM and Ferromex should pay each other in
connection with the use of trackage rights. The SCT issued a
ruling setting the rates for trackage rights in March of 2002.
KCSM and Ferromex challenged the ruling.
Following the trial and appellate court decisions, in February
2006 the Mexican Supreme Court sustained KCSMs appeal of
the SCTs trackage rights ruling, in effect vacating the
ruling and ordering the SCT to issue a new ruling consistent
with the Courts decision. On June 27, 2008, KCSM was
served with the new ruling issued by the SCT. In this ruling,
the SCT established the consideration that KCSM and Ferromex
must pay each other in connection with the use of the trackage
rights granted in their respective concessions between 2002 and
2004, and further stated that in the event KCSM and Ferromex
failed to reach an agreement in connection with the rates for
the years after 2004, the SCT shall make a determination along
the same lines. In September 2008, KCSM and Ferromex appealed
this new ruling with the Mexican Tribunal Federal de Justicia
Fiscal y Administrativa (Administrative and Fiscal
Federal Court), which as of the date of this filing has
yet to issue a decision on the matter.
KCSM and Ferromex both initiated administrative proceedings
seeking a determination by the SCT of the rates that the
companies should pay each other in connection with the use of
interline and terminal services. The SCT issued a ruling setting
the rates for interline and terminal services in August of 2002.
Both KCSM and Ferromex challenged the ruling. In April 2005, the
Administrative and Fiscal Federal Court ruled in favor of KCSM
in the challenge to the SCT interline and terminal services
decision. Ferromex, however, challenged this court ruling before
the Fifteenth Collegiate Court, and the Court ruled in its
favor. Both Ferromex and KCSM appealed the ruling to the Mexican
Supreme Court. On June 30, 2009, the Mexican Supreme Court
sustained KCSMs appeal and ordered the SCT to issue a new
ruling consistent with the Courts decision. As of the date
of this filing, the SCT has not issued the new ruling on this
matter.
KCSM expects various proceedings and appeals related to the
matters described above. 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 matters are adequate and does not
believe there will be a future material impact to the results of
operations arising out of these disputes.
SCT Sanction Proceedings. In April 2006, the
SCT initiated proceedings against KCSM, claiming that KCSM had
failed to make certain minimum capital investments projected for
2004 and 2005 under its five-year business plan filed with the
SCT prior to its April 2005 acquisition by KCS (collectively,
the Capital Investment Proceedings). KCSM believes
it made capital expenditures exceeding the required amounts.
KCSM responded to the SCT by providing evidence in support of
its investments and explaining why it believes sanctions are not
appropriate. In May 2007, KCSM was served with an SCT resolution
regarding the Capital Investment Proceeding for 2004, in which
the SCT resolved to impose no sanction. In June 2007, KCSM was
served with an SCT resolution regarding the Capital Investment
Proceeding for 2005, in which the SCT determined that KCSM had
indeed failed to make the minimum capital investments required
for such year, and imposed a minimum fine. KCSM has filed an
action in the Mexican Administrative and Fiscal Federal Court
challenging this ruling. KCSM will have the right to challenge
any adverse ruling.
In May 2008, the SCT initiated a proceeding against KCSM, at the
request of a Mexican subsidiary of a large U.S. Auto
Manufacturer (the Auto Manufacturer), alleging that
KCSM impermissibly bundled international rail services and
engaged in discriminatory pricing practices with respect to rail
services provided by KCSM to the Auto Manufacturer. In March
2009, the SCT issued a decision determining that KCSM had
engaged in the activities alleged, but imposed no sanction since
this was the first time KCSM had engaged in such activities. On
May 6, 2009, KCSM challenged the SCTs decision and
the appeal is currently pending in the Administrative and Fiscal
Federal Court.
51
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
On July 23, 2008, the SCT delivered notice to KCSM of new
proceedings against KCSM, claiming, among other things, that
KCSM refused to grant Ferromex access to certain trackage over
which Ferromex alleges it has trackage rights on six different
occasions and, thus denied Ferromex the ability to provide
service to the Auto Manufacturer at this location.
KCSM believes it has defenses to the imposition of sanctions for
the forgoing proceedings and intends to vigorously contest these
allegations. KCSM does not believe that these SCT proceedings
will have a material adverse effect on KCSMs results of
operations or financial condition. However, if KCSM is
ultimately sanctioned by the SCT for generic
sanctions on five occasions over the term of the Concession,
KCSM could be subject to possible future SCT action seeking
revocation of the Concession.
Concession Dispute. On December 9, 2009,
KCSM was notified of a lawsuit filed by Minera México, S.A.
de C.V. (Minera México), a subsidiary of Grupo
México, S.A.B. de C.V. and an affiliate Ferromex, against
the Federal Government of Mexico, the SCT, Ferrocarriles
Nacionales de México (FNM), KCSM, Nafta Rail,
S.A. de C.V. (Nafta Rail), and KCS. The lawsuit
claims that after the privatization bidding process for the
acquisition of a majority interest in Ferrocarril del Noreste,
S.A. de C.V. (FNE) (now KCSM) had concluded in 1997,
in which the bidding was awarded to Transportación
Ferroviaria Mexicana, S. de R.L. de C.V. (TFM) and
the relevant stock purchase agreement was signed, the defendants
improperly amended the stock purchase agreement and the
purchasers paid a price lower than the price offered. The
lawsuit alleges that the Mexican Federal Government, the SCT,
FNM, KCSM, Nafta Rail and KCS violated a variety of the rules
and regulations associated with the privatization bidding
process. As a result of these alleged improprieties, Minera
México claims the acquisition of FNE by KCS (through TFM)
should be declared null and void and, consequently, the capital
stock of FNE should be returned to the Federal Government of
Mexico and Minera México, as the second place bidder in the
bidding process, should be awarded the right to purchase the
capital stock of FNE. On February 9, 2010, Minera México
agreed to dismiss this lawsuit.
Disputes Relating to the Provision of Services to a Mexican
subsidiary of a Large U.S. Auto
Manufacturer. KCSM is involved in several
disputes related to providing service to a Mexican subsidiary of
a large U.S. Auto Manufacturer (the Auto
Manufacturer).
In March 2008, the Auto Manufacturer filed an arbitration suit
against KCSM under a contract for services to the Auto
Manufacturers plants in Mexico, which, as amended, had a
stated termination date of January 31, 2008. The Auto
Manufacturer claimed that the contract was implicitly extended
and continued in effect beyond its stated termination date. The
Auto Manufacturer is seeking a declaration by the arbitrator
that the rates being assessed by KCSM are discriminatory, even
though the rates being charged are within the legal rate limits
set by Mexican law for such freight transportation. KCSM claimed
that the contract did in fact expire on its stated termination
date, and that services rendered thereafter are thus subject to
the general terms and conditions (including rates) applicable in
the absence of a specific contract, pursuant to Mexican law.
Accordingly, KCSM filed a counterclaim against the Auto
Manufacturer to, among other things, recover the applicable rate
difference between the rates under the contract and KCSMs
rates. The arbitration was divided in two phases. On
May 18, 2009, the arbitrator issued an award on the first
phase of the arbitration proceeding, ruling that the contract
had terminated on May 8, 2008. As of the date of this
filing, the second phase of the arbitration proceeding,
regarding the claim that the rates assessed by KCSM are
discriminatory, is in the evidentiary stage and has not been
resolved. Management believes the final resolution of these
claims will not have any material impact on KCSMs results
of operations.
Mancera Proceeding. In February 2006, Mancera
Ernst & Young, S.C., (Mancera) filed a
claim against KCSM seeking payment for an additional contingency
fee for costs and expenses related to Manceras
representation of KCSM in its value added tax or VAT
claim against the Mexican government. Following litigation, KCSM
was notified on May 29, 2009, that in a session held on
May 28, 2009, the magistrates of the Twelfth Civil Federal
Court of Appeals in Mexico decided by majority vote to deny
KCSMs most recent
52
Kansas
City Southern de México, S.A. de C.V. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
appeal. As a result of the decision, KCSM was required to pay
Mancera $7.8 million related to the principal claim. KCSM
previously made a good faith payment to the Mexico courts of
$2.6 million in December 2007 and paid the remaining
$5.2 million on September 4, 2009. On October 27,
2009, the Company paid the remaining obligation related to
interest and legal cost, which did not have an impact on the
Companys results of operations.
Credit Risk. The Company continually monitors
risks related to the downturn in the economy and certain
customer receivable concentrations. Significant changes in
customer concentration or payment terms, deterioration of
customer credit-worthiness or further weakening in economic
trends could have a significant impact on the collectability of
the Companys receivables and operating results. If the
financial condition of KCSMs customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional bad debt allowances may be required. The
Company has recorded reserves for uncollectability based on its
best estimate at December 31, 2009.
|
|
Note 12.
|
Subsequent
Event
|
Fuel Derivative Transactions. In anticipation
of future increases in diesel fuel prices, the Company entered
into fuel swap agreements in the first quarter of 2010 to hedge
6.6 million gallons of diesel fuel purchases during the
second half of 2010 at an average swap price per gallon of $2.15.
The Company has evaluated subsequent events through
February 11, 2010, the date that these financial statements
were issued and determined that no additional subsequent events
occurred that would require additional recognition or disclosure.
53
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None
|
|
Item 9A(T).
|
Controls
and Procedures
|
(a) Disclosure Controls and Procedures
The President and Executive Representative and the Chief
Financial Officer have reviewed and evaluated the effectiveness
of the Companys disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), as of the end of the fiscal year for
which this annual report on
Form 10-K
is filed. Based on that evaluation, the President and Executive
Representative and the Chief Financial Officer have concluded
that the Companys current disclosure controls and
procedures are effective to ensure that information required to
be disclosed in reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission
rules and forms, and include controls and procedures designed to
ensure that information required to be disclosed by the Company
in such reports is accumulated and communicated to the
Companys management, including the President and Executive
Representative and the Chief Financial Officer, as appropriate
to allow timely decisions regarding required disclosures.
(b) Change in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting that occurred during the last
fiscal quarter (the fourth quarter in the case of an annual
report) that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over
financial reporting.
(c) Internal Control over Financial Reporting
The report of management on the Companys internal control
over financial reporting (as defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act) is included as Managements
Report on Internal Control over Financial Reporting in
Item 8.
|
|
Item 9B.
|
Other
Information
|
We are providing the following disclosure in lieu of providing
this information in a current report on
Form 8-K
pursuant to Item 1.01, Entry into a Material
Definitive Agreement. All capitalized terms not defined
herein shall have the meanings as set forth in the applicable
agreements.
Trackage
Rights Agreement
KCSM and Ferromex have entered into a Trackage Rights, Switching
and Interline Settlement Agreement, dated February 9, 2010
(the Trackage Rights Agreement). Pursuant to the
Trackage Rights Agreement, the Parties terminated, in a
definitive and irrevocable manner, all actions and procedures
regarding: (a) rates applicable to trackage rights,
switching and interlinear services from January 1, 2009
onward but not regarding the applicable rates before
January 1, 2009 or the amounts owed by the parties to one
another prior to the execution of the Trackage Rights Agreement;
(b) the scope of certain trackage rights in Monterrey,
Nuevo León, Guadalajara, Jalisco and Altamira, Tamaulipas,
the Long Trackage Right, and Aguascalientes; and (c) court
costs, as well as any other directly-related issue or dispute
that arises from, is related in any manner directly or
indirectly with, the terms and conditions
and/or scope
of such mandatory trackage
and/or
switching rights or that arises by reason of the definition of
trackage rights (the Settlement Controversies). The
parties waived their rights to any future actions derived from
or related to the Settlement Controversies.
Further, KCSM and Ferromex set the rates applicable for
January 1, 2009 onward applicable to each party for the use
of that partys trackage rights of the other partys
trackage.
Explicitly excluded from the scope and purpose of the Trackage
Rights Agreement are all procedures, disputes, lawsuits,
remedies, appeals and disagreements that were not expressly
identified in the Trackage Rights Agreement, including without
limitation, the disputes, claims and lawsuits that relate to the
54
determination of rates for mandatory trackage
and/or
switching rights and for interconnection
and/or
terminal services, accrued prior to January 1, 2009, as
well as the disputes among the parties regarding amounts payable
to one another for trackage rights, interline services and
switching services, that are currently being disputed by both
parties at the Federal Court of Fiscal and Administrative
Justice. Furthermore, the parties did not settle or agree to
settle any other trackage and switching rights not specifically
mentioned in the Trackage Rights Agreement.
The Trackage Rights Agreement shall remain in effect until the
term of the concession title of Ferromex or the concession title
of KCSM expire, unless the Parties mutually agree to renew the
Trackage Rights Agreement beyond the expiration of either
partys concession title. The Trackage Rights Agreement may
be terminated, at KCSMs option, before its stipulated term
if Ferromex is sold or if it transfers, directly or indirectly,
its concession under its concession title. A change in control
of KCSM or its affiliates, however, shall not be a cause for
termination.
Settlement
Agreement
On February 9, 2010, (i) KCSM and (ii) Ferromex,
Ferrosur, Minera México, S.A. de C.V., Infraestructura y
Transportes Ferroviarios, S.A. de C.V., Infraestructura y
Transportes México, S.A. de C.V., Líneas Ferroviarias
de México, S.A. de C.V., Grupo Ferroviario Mexicano, S.A.
de C.V., and Grupo México, S.A.B. de C.V. (jointly, the
Ferromex Parties) entered into a Settlement
Agreement (the Settlement Agreement).
Pursuant to the Settlement Agreement, the parties agreed to
completely, definitively and irrevocably terminate (i) the
private disputes, procedures and controversies among KCSM and
the Ferromex Parties, in connection with the merger between
Ferromex and Ferrosur, including KCSMs involvement in such
procedures as an interested party; and (ii) the lawsuit
filed against KCSM and the Mexican Government in connection with
several disputes, procedures and controversies before judicial
authorities with respect to the acquisition of the shares of
Ferrocarril del Noreste, S.A. de C.V. (now KCSM) by Grupo
Transportación Ferroviaria Mexicana, S.A. de C.V., in 1997
(the Settlement Procedures). The parties waived
their rights to any future actions derived from or related to
the Settlement Procedures. Further, the parties did not settle
or agree to settle any disputes, controversies or procedures
other than the Settlement Procedures.
Under the Settlement Agreement, Ferrosur agreed to grant KCSM
certain trackage and switching rights within Veracruz,
México, and switching rights in the Puebla-Tlaxcala zone.
In a related agreement, the parties further agreed to amend the
FTVM by-laws to, among other changes, grant certain veto and
voting rights to KCSM at the shareholders and the board of
directors levels.
The Settlement Agreement shall remain in effect until the term
of the concession title of KCSM expires, unless the parties
mutually agree to renew the Settlement Agreement beyond the
expiration of KCSMs concession title. The Settlement
Agreement may be terminated earlier upon delivery by KCSM of a
notice to the Ferromex Parties indicating any breach by the
Ferromex Parties of any of their respective obligations under
the Settlement Agreement. Notwithstanding, the settlement and
termination of the Settlement Procedures shall not be subject to
rescission or termination.
The Settlement Agreement may be terminated, at KCSMs
option, before its stipulated term if Ferromex is sold or if it
transfers, directly or indirectly, its concession under its
concession title. A change in control of KCSM or its affiliates,
however, shall not be a cause for termination. Likewise, the
Settlement Agreement will terminate three years after Ferromex
and Ferrosur cease to be under the common control of one person
or group of persons acting jointly or in agreement to adopt
coordinated resolutions (Common Control).
Notwithstanding, if for any reason Ferromex and Ferrosur are
under Common Control within five years after the Settlement
Agreement is terminated due to Ferromex and Ferrosur ceasing to
be under the Common Control, the Settlement Agreement would
automatically be reinstated.
In November 2005, Ferromex acquired control of and merged with
Ferrosur creating Mexicos largest railway, though such
merger has been previously rejected by COFECO. If the COFECO
does not authorize the merger of Ferromex and Ferrosur, the
Settlement Agreement shall be terminated twelve months after the
55
relevant resolution of the Governmental Authority is issued or
when the unwinding is effective, whichever is later.
|
|
Items 10
|
,
11, 12 and 13. Directors, Executive Officers and
Corporate Governance; Executive Compensation; Security Ownership
of Certain Beneficial Owners and Management Related Stockholders
Matters; and Certain Relationships and Related Transactions, and
Director Independence
|
Omitted pursuant to General Instruction I(2) to
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The following table presents the total fees for KCS and KCSM for
professional audit services and other services rendered by KPMG
the independent registered public accountant firm, to KCS and
KCSM for the years ended December 31, 2009 and 2008 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Audit fees
|
|
$
|
2,160.0
|
|
|
$
|
3,000.0
|
|
Audit-related fees(1)
|
|
|
565.0
|
|
|
|
616.5
|
|
Tax fees
|
|
|
38.0
|
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,763.0
|
|
|
$
|
3,644.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Primarily reflects fees related to debt offering documents and
related SEC filings. |
Part IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) List of documents filed as part of this report:
The consolidated financial statements and related notes,
together with the report of KPMG LLP appears in Part II
Item 8, Financial Statements and Supplementary data, of
this
form 10-K.
|
|
(2)
|
Financial
Statement Schedules
|
None.
The Company has attached or incorporated by reference herein
certain exhibits as specified below pursuant to
Rule 12b-32
under the Exchange Act.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Registration Rights Agreement, dated as of April 19, 2005,
between KCSM and Morgan Stanley & Co. Incorporated and
Scotia Capital (USA) Inc. (the 2005 Registration Rights
Agreement), is incorporated herein by reference to
Exhibit 4.1 of the Companys Current Report on
Form 8-K,
filed on April 25, 2005 (File
No. 333-08322).
|
56
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.2
|
|
Registration Rights Agreement, dated as of November 21,
2006, between KCSM, Morgan Stanley & Co. Incorporated,
Banc of America Securities LLC, BBVA Securities Inc., BMO
Capital Markets Corp., and Scotia Capital (USA) Inc. (the
2006 Registration Rights Agreement), is incorporated
herein by reference to Exhibit 4.3 of the Companys
Current Report on
Form 8-K,
filed on November 28, 2006 (File
No. 333-08322).
|
|
2
|
.3
|
|
Registration Rights Agreement, dated as of May 16, 2007,
between KCSM and Morgan Stanley & Co. Incorporated,
Banc of America Securities LLC, BBVA Securities Inc., BMO
Capital Markets Corp. and Scotia Capital (USA) Inc. (the
2007 Registration Rights Agreement), is incorporated
herein by reference to Exhibit 4.2 of the Companys
Current Report on
Form 8-K,
filed on May 17, 2007 (File
No. 333-08322).
|
|
2
|
.4
|
|
Registration Rights Agreement, dated as of March 30, 2009,
between KCSM and Banc of America Securities LLC, SunTrust
Robinson Humphrey, Inc., Scotia Capital (USA) Inc. and DVB
Capital Markets LLC (the 2009 Registration Rights
Agreement), is incorporated herein by reference to
Exhibit 2.1 of the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009 (File
No. 333-08322).
|
|
2
|
.5
|
|
Registration Rights Agreement, dated as of January 22,
2010, between KCSM and Banc of America Securities LLC, as
representative of the placement agents listed therein (the
2010 Registration Rights Agreement), filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K,
filed on January 28, 2010 (File
No. 1-4717),
is incorporated by reference as Exhibit 2.7.
|
|
3
|
.1
|
|
Current Corporate By-laws (Estatutos Sociales) of KCSM, as
amended and restated on May 8, 2007, together with an
English translation, is incorporated herein by reference to
Exhibit 99.1 to the Companys Current Report on
Form 8-K,
filed on May 9, 2007 (File
No. 333-08322).
|
|
4
|
.1
|
|
Indenture, dated as of April 19, 2005, between TFM and The
Bank of Nova Scotia Trust Company of New York, as trustee
and paying agent, covering up to $460,000,000 of TFMs
93/8% Senior
Notes due 2012 (the 2005 Indenture), is incorporated
herein by reference to Exhibit 4.2 of the Companys
Current Report on
Form 8-K,
filed on April 25, 2005 (File
No. 333-08322).
|
|
4
|
.2
|
|
Specimen Global Note representing the
93/8% Senior
Notes due 2012, is incorporated herein by reference to
Exhibit 4.7 of the Companys Registration Statement on
Form S-4,
filed on November 8, 2005 (Registration
No. 333-129566).
|
|
4
|
.3
|
|
The 2005 Registration Rights Agreement. (See Exhibit 2.1)
|
|
4
|
.4
|
|
Indenture, dated as of November 21, 2006, between KCSM and
U.S. Bank National Association, as trustee and paying agent,
covering up to $175,000,000 of KCSMs
75/8% Senior
Notes due 2013 (the 2006 Indenture), is incorporated
herein by reference to Exhibit 4.2 of the Companys
Current Report on
Form 8-K,
filed on November 28, 2006 (File
No. 333-08322).
|
|
4
|
.5
|
|
Specimen Global Note representing the
75/8% Senior
Notes due 2013, is incorporated herein by reference to
Exhibit 4.4 of the Companys Registration Statement on
Form S-4,
filed on September 18, 2007 (Registration
No. 333-146153).
|
|
4
|
.6
|
|
The 2006 Registration Rights Agreement. (See Exhibit 2.2)
|
|
4
|
.7
|
|
Indenture, dated as of May 14, 2007, between KCSM and U.S.
Bank National Association, as trustee and paying agent, covering
up to $165,000,000 of KCSMs
73/8% Senior
Notes due 2014 (the 2007 Indenture), is incorporated
herein by reference to Exhibit 4.1 of the Companys
Current Report on
Form 8-K,
filed on May 17, 2007 (File
No. 333-08322).
|
|
4
|
.8
|
|
Specimen Global Note representing the
73/8% Senior
Notes due 2014, is incorporated herein by reference to
Exhibit 4.7 of the Companys Registration Statement on
Form S-4,
filed on October 4, 2007 (Registration
No. 333-146519).
|
|
4
|
.9
|
|
The 2007 Registration Rights Agreement. (See Exhibit 2.3)
|
|
4
|
.10
|
|
Indenture, dated as of March 30, 2009, between KCSM and
U.S. Bank National Association, as trustee and paying agent,
covering up to $200,000,000 of KCSMs
121/2% Senior
Notes due 2016 (the 2009 Indenture), is incorporated
herein by reference to Exhibit 4.1 of the Companys
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009 (File
No. 333-08322).
|
|
4
|
.11
|
|
Supplemental Indenture, dated as of November 12, 2009, to
the 2009 Indenture among KCSM, as issuer, and U.S. Bank National
Association, as trustee and paying agent (the 2009
Supplemental Indenture), is attached to this
Form 10-K
as Exhibit 4.11.
|
57
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
4
|
.12
|
|
Special Global Note representing the
121/2% Senior
Notes due 2016, is incorporated herein by reference to
Exhibit 4.10 of the Companys Registration Statement
on
Form S-4,
filed on October 5, 2009 (Registration
No. 333-161762).
|
|
4
|
.13
|
|
The 2009 Registration Rights Agreement. (See Exhibit 2.4)
|
|
4
|
.14
|
|
Indenture, dated as of January 22, 2010, between KCSM and
U.S. Bank National Association, as trustee and paying agent,
covering up to $300,000,000 of KCSMs 8% Senior Notes
due 2018 (the 2010 KCSM Indenture), filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K,
filed on January 28, 2010 (File
No. 1-4717),
is incorporated herein by reference as Exhibit 4.17.
|
|
4
|
.15
|
|
The 2010 Registration Rights Agreement. (See Exhibit 2.5)
|
|
10
|
.1
|
|
Concession title granted by the Secretaria de Comunicaciones y
Transportes (Ministry of transportation) (SCT) (the
Concession) in favor of Ferrocarril del Noreste,
S.A. de C.V., (FNE), dated as of December 2,
1996, together with an English translation, is incorporated
herein by reference to Exhibit 2.1 of the Companys
Registration Statement on
Form F-4
(Registration
No. 333-08322).
|
|
10
|
.2
|
|
Amendment of Concession, dated as of February 12, 2001,
together with an English translation, is incorporated herein by
reference to Exhibit 4.2 from KCSM and Grupo KCSMs
Annual Report on
Form 20-F
for year 2000 (File
No. 333-08322).
|
|
10
|
.3
|
|
Amendment No. 2 of Concession, dated as of
November 22, 2006, together with an English translation, is
incorporated herein by reference to Exhibit 10.3 of the
Companys Registration Statement on
Form S-4,
filed on September 18, 2007 (Registration
No. 333-146153).
|
|
10
|
.4
|
|
Sale Purchase Agreement respecting Capital Stock of FNE, among
the United Mexican States (through the Ministry of
Transportation), FNE and Ferrocarriles Nacionales de
México, S.A. de C.V. (FNM), dated
December 2, 1996, together with an English translation, is
incorporated herein by reference to Exhibit 2.2 of the
Companys Registration Statement on
Form F-4
(Registration
No. 333-08322).
|
|
10
|
.5
|
|
Sale Purchase Agreement respecting Property and Equipment, among
the United Mexican States (through the Ministry of
Transportation), FNE and FNM, dated December 2, 1996,
together with an English translation, is incorporated herein by
reference to Exhibit 2.3 of the Companys Registration
Statement on
Form F-4
(Registration
No. 333-08322).
|
|
10
|
.6
|
|
Omnibus Agreement, dated as of June 9, 1997, among Grupo
TFM, Caymex Transportation, Inc., TMM Multimodal, S.A. de C.V.
and FNM, together with an English translation, is incorporated
herein by reference to Exhibit 10.5 of the Companys
Registration Statement on
Form F-4
(Registration
No. 333-08322).
|
|
10
|
.7
|
|
English translation of the Purchase-Sale Agreement, dated
July 29, 2002, by and between KCSM, FNM and Nacional
Financiera, S.N.C., Institución de Banca de Desarrollo, is
incorporated herein by reference to Exhibit 10.16 of the
Companys Registration Statement on
Form F-4
(Registration
No. 333-08322).
|
|
10
|
.8
|
|
Compliance and Settlement Agreement, dated as of
September 12, 2005, among KCSM, Grupo KCSM, Kansas City
Southern, and the Federal Government of the United Mexican
States, is incorporated herein by reference to Exhibit 10.1
of the Companys Current Report on
Form 8-K,
filed on September 16, 2005 (File
No. 333-08322).
|
|
10
|
.9
|
|
English translation Employment Agreement, dated as of
April 20, 2006, between KCSM and José Guillermo Zozaya
Delano, is incorporated herein by reference to Exhibit 10.1
of the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2006 (File
No. 333-08322).
|
|
10
|
.10
|
|
English translation of Amendment to the Employment Agreement of
April 2, 2006, dated May 27, 2009, between KCSM and
José Guillermo Zozaya Delano, is incorporated herein by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K,
filed on June 2, 2009 (File
No. 333-08322).
|
|
10
|
.11
|
|
English translation of Employment Agreement, dated as of
September 11, 2003, between KCSM and Cesar Alfredo Polack
Belaunde, is incorporated herein by reference to
Exhibit 10.13 of the Companys Registration Statement
on
Form S-4,
filed on September 18, 2007 (Registration
No. 333-146153)
.
|
58
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.12
|
|
English translation of Employment Agreement, dated as of
May 22, 2006, between KCSM and Julio Quintero
Martínez, is incorporated herein by reference to
Exhibit 10.15 of the Amendment to the Companys
Registration Statement on
Form S-4/A,
filed on March 26, 2008 (Registration
No. 333-146519).
|
|
10
|
.13
|
|
English translation of Employment Agreement, dated as of
January 18, 1999, between KCSM and Gloria Minerva
Ballesteros Valdez, is incorporated herein by reference to
Exhibit 10.13 of the Companys Registration Statement
on
Form S-4,
filed on September 4, 2009 (Registration
No. 333-161762).
|
|
10
|
.13.1
|
|
English translation of Amendment to the Employment Agreement of
January 18, 1999, dated as of June 2, 2009, between
KCSM and Gloria Minerva Ballesteros Valdez, is incorporated
herein by reference to Exhibit 10.13.1 of the
Companys Registration Statement on
Form S-4,
filed on September 4, 2009 (Registration
No. 333-161762).
|
|
10
|
.14
|
|
English translation of Employment Agreement, dated as of
November 25, 2003, between KCSM and James Thomas Kniestedt
Bauman, is incorporated herein by reference to
Exhibit 10.14 of the Companys Registration Statement
on
Form S-4,
filed on September 4, 2009 (Registration
No. 333-161762).
|
|
10
|
.15
|
|
English translation of Employment Agreement, dated as of
January 18, 1999, between KCSM and Oscar Augusto Del Cueto
Cuevas, is incorporated herein by reference to
Exhibit 10.15 of the Companys Registration Statement
on
Form S-4,
filed on September 4, 2009 (Registration
No. 333-161762).
|
|
10
|
.16
|
|
Loan and Security Agreement, dated as of February 28, 2008,
between KCSM and Export Development Canada, is incorporated
herein by reference to Exhibit 10.16 of the Amendment to
the Companys Registration Statement on
Form S-4/A,
filed on March 26, 2008 (Registration
No. 333-146519).
|
|
10
|
.17
|
|
Loan Agreement, dated as of September 24, 2008, between
KCSM and DVB Bank AG, is incorporated herein by reference to
Exhibit 10.1 of the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2008 (File
No. 333-08322).
|
|
10
|
.18
|
|
The 2005 Indenture. (See Exhibit 4.1)
|
|
10
|
.19
|
|
The 2006 Indenture. (See Exhibit 4.4)
|
|
10
|
.20
|
|
The 2007 Indenture. (See Exhibit 4.7)
|
|
10
|
.21
|
|
The 2009 Indenture. (See Exhibit 4.10)
|
|
10
|
.22
|
|
The 2009 Supplemental Indenture. (See Exhibit 4.11)
|
|
10
|
.23
|
|
Placement Agreement, dated as of January 7, 2010, between
Banc of America Securities LLC, as representative of the
placement agents listed therein, filed as Exhibit 10.1 to
the Companys Current Report on
Form 8-K,
filed on January 13, 2010 (File
No. 333-08322).
|
|
12
|
.1
|
|
The Computation of Ratio of Earnings to Fixed Charges prepared
pursuant to item 601(b)(12) of
Regulation S-K
is attached to this
Form 10-K
as Exhibit 12.1.
|
|
31
|
.1
|
|
Certification of José Guillermo Zozaya Delano, President
and Executive Representative of the Company pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, is attached
to this
Form 10-K
as Exhibit 31.1.
|
|
31
|
.2
|
|
Certification of Michael W. Upchurch Chief Financial Officer of
the Company pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, is attached to this
Form 10-K
as Exhibit 31.2.
|
|
(32)
|
|
|
Section 1350 certifications.
|
|
32
|
.1
|
|
Certification of José Guillermo Zozaya Delano, President
and Executive Representative of the Company, furnished pursuant
to 18 U.S.C. Section 1350 is attached to this
Form 10-K
as Exhibit 32.1.
|
|
32
|
.2
|
|
Certification of Michael W. Upchurch, Chief Financial Officer of
the Company, furnished pursuant to 18 U.S.C.
Section 1350 is attached to this
Form 10-K
as Exhibit 32.2
|
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized as of February 10, 2010.
Kansas City Southern de México, S.A. de C.V.
|
|
|
|
By
|
/s/ José
Guillermo Zozaya Delano
|
José Guillermo Zozaya Delano
President and Executive Representative
POWER OF
ATTORNEY
Know all people by these presents, that each person whose
signature appears below constitutes and appoints José
Guillermo Zozaya Delano and Michael W. Upchurch, and each of
them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all
capacities, to sign any amendments to this annual report on
Form 10-K,
and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully and to all intents and purposes as he or she might or
could do in person, hereby confirming all that said
attorneys-in-fact and agents or either of them, or his or their
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Michael
R. Haverty
Michael
R. Haverty
|
|
President of the Board of Directors
|
|
February 10, 2010.
|
|
|
|
|
|
/s/ Michael
W. Upchurch
Michael
W. Upchurch
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
February 10, 2010.
|
|
|
|
|
|
/s/ Mary
K. Stadler
Mary
K. Stadler
|
|
Chief Accounting Officer
(Principal Accounting Officer)
|
|
February 10, 2010.
|
|
|
|
|
|
/s/ David
L. Starling
David
L. Starling
|
|
Vice President of the
Board of Directors
|
|
February 10, 2010.
|
|
|
|
|
|
/s/ Patrick
J. Ottensmeyer
Patrick
J. Ottensmeyer
|
|
Director
|
|
February 10, 2010.
|
|
|
|
|
|
/s/ Larry
M. Lawrence
Larry
M. Lawrence
|
|
Director
|
|
February 10, 2010.
|
|
|
|
|
|
/s/ David
R. Ebbrecht
David
R. Ebbrecht
|
|
Director
|
|
February 10, 2010.
|
60
Kansas
City Southern de México, S.A. de C.V.
2009
Form 10-K
Annual Report
Index to
Exhibits
|
|
|
|
|
|
|
|
|
|
|
Regulation S-K
|
|
|
|
|
Item 601(b)
|
Exhibit
|
|
Document
|
|
Exhibit
|
|
|
4
|
.11
|
|
Supplemental Indenture, dated as of November 12, 2009, to
the 2009 Indenture, among KCSM, as issuer, and U.S. Bank
National Association, as trustee and paying agent.
|
|
4 and 10
|
|
12
|
.1
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
12
|
|
31
|
.1
|
|
Certification of José Guillermo Zozaya Delano, President
and Executive Representative of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
|
31
|
.2
|
|
Certification of Michael W. Upchurch, Chief Financial Officer of
the Company, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
31
|
|
32
|
.1
|
|
Certification of José Guillermo Zozaya Delano, President
and Executive Representative of the Company, furnished pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
32
|
.2
|
|
Certification of Michael W. Upchurch, Chief Financial Officer of
the Company, furnished pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|