| KANSAS CITY SOUTHERN Item 1A Risk Factors We compete against other railroads and other transportation providers |
| Our domestic and international operations are subject to competition from other railroads, many of which are much larger and have significantly greater financial and other resources |
| In addition, we are subject to competition from truck carriers and from barge lines and other maritime shipping |
| Increased 11 _________________________________________________________________ [71]Table of Contents competition has resulted in downward pressure on freight rates |
| Competition with other railroads and other modes of transportation is generally based on the rates charged, the quality and reliability of the service provided and the quality of the carrier’s equipment for certain commodities |
| While we must build or acquire and maintain our infrastructure, truck carriers and maritime shippers and barges are able to use public rights-of-way |
| Continuing competitive pressures and declining margins, future improvements that increase the quality of alternative modes of transportation in the locations in which we operate, or legislation that provides motor carriers with additional advantages, such as increased size of vehicles and less weight restrictions, could have a material adverse effect on our results of operations, financial condition and liquidity |
| If the railroad industry in general, and our Mexican operations in particular, are unable to preserve their competitive advantages vis-à-vis the trucking industry, our projected revenues could be adversely affected |
| Additionally, the revenue growth attributable to our Mexican operations could be affected by, among other factors, its inability to grow its existing customer base, negative macroeconomic developments impacting the US and Mexican economies, and failure to capture additional cargo transport market share from the shipping industry and other railroads |
| NAFTA called for Mexican trucks to have unrestricted access to highways in US Border States by 1995 and full access to all US highways by January 2000 |
| However, the US has not followed the timetable because of concerns over Mexico’s trucking safety standards |
| In February 2001, a NAFTA tribunal ruled in arbitration between the US and Mexico that the US must allow Mexican trucks to cross the border and operate on US highways |
| On March 14, 2002, as part of its agreement under NAFTA, the US Department of Transportation issued safety rules that allow Mexican truckers to apply for operating authority to transport goods beyond the 20-mile commercial zones along the Unites States-Mexico border |
| These safety rules require Mexican carriers seeking to operate in the US to pass, among other things, safety inspections; to obtain valid insurance with a US registered insurance company, to conduct alcohol and drug testing for drivers and to obtain a US Department of Transportation identification number |
| Mexican commercial vehicles with authority to operate beyond the commercial zones will be permitted to enter the US only at commercial border crossings and only when a certified motor carrier safety inspector is on duty |
| Given these recent developments, there can be no assurance that truck transport between Mexico and the US will not increase substantially in the future |
| Such an increase could affect our ability to continue converting traffic to rail from truck transport because it may result in an expansion of the availability, or an improvement of the quality, of the trucking services offered in Mexico |
| Through the Concession with the Mexican government, KCSM has the right to control and operate the southern half of the rail-bridge at Nuevo Laredo, Mexico |
| Under the Concession, KCSM must grant to Ferromex the right to operate over a north-south portion of its rail lines between Ramos Arizpe near Monterrey and the city of Queretaro that constitutes over 600 kilometers of KCSM’s main track |
| Using these trackage rights, Ferromex may be able to compete with KCSM over its rail lines for traffic between Mexico City and the US The Concession also requires KCSM to grant rights to use certain portions of its tracks to Ferrosur and FTVM, thereby providing Ferrosur with more efficient access to certain Mexico City industries |
| As a result of having to grant trackage rights to other railroads, we incur additional maintenance costs and lose the flexibility of using a portion of our tracks at all times |
| In recent years, there has 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 can be no assurance that further consolidation will not have an adverse effect on our operations |
| Our business strategy, operations and growth rely significantly on joint ventures and other strategic alliances |
| Operation of our integrated rail network and our plans for growth and expansion rely significantly on joint ventures and other strategic alliances |
| Our operations are dependent on interchange, trackage rights, 12 _________________________________________________________________ [72]Table of Contents haulage rights and marketing agreements with other railroads and third parties that enable us to exchange traffic and utilize trackage we do not own |
| Our ability to provide comprehensive rail service to our customers depends in large part upon our ability to maintain these agreements with other railroads and third parties |
| The termination of, or the failure to renew, these agreements could adversely affect our business, financial condition and results of operations |
| We are also dependent in part upon the financial health and efficient performance of other railroads |
| For example, much of Tex-Mex’s traffic moves over the UP’s lines via trackage rights, a significant portion of our grain shipments originate with IC&E pursuant to our marketing agreement with it, and BNSF is our largest partner in the interchange of rail traffic |
| There can be no assurance that we will not be materially adversely affected by operational or financial difficulties of other railroads |
| Pursuant to the Concession, KCSM is required to grant rights to use portions of its tracks to Ferromex, Ferrosur and the FTVM Applicable law stipulates that Ferromex, Ferrosur and the FTVM are required to grant to KCSM rights to use portions of their tracks |
| Applicable law provides that the Ministry of Transportation is entitled to set the rates in the event that KCSM and the party to whom it is granting the rights cannot agree on a rate |
| KCSM and Ferromex have not been able to agree upon the rates each of them is required to pay the other for interline services and haulage and trackage rights |
| In February 2001, KCSM initiated an administrative proceeding requesting a determination of such rates by the Ministry of Transportation, which subsequently issued a ruling establishing rates using certain criteria |
| KCSM and Ferromex appealed the rulings before the Mexican Federal Courts due to, among other things, a disagreement with the methodology employed by the Ministry of Transportation in calculating the trackage rights and interline rates |
| KCSM and Ferromex also requested and obtained a suspension of the effectiveness of the ruling pending resolution of the litigation |
| In February 2006, the Mexican Supreme Court issued a favorable decision upholding KCSM’s position concerning the methodology for establishing rates for trackage rights |
| This decision is not subject to further appeal |
| The Ministry of Transportation now has the responsibility to establish rates for trackage rights consistent with the court decision |
| The litigation concerning the methodology for establishing rates for interline services is still pending |
| Our leverage could adversely affect our ability to fulfill obligations under various debt instruments and operate our business |
| Our level of debt could make it more difficult for us to borrow money in the future, will reduce the amount of money available to finance our operations and other business activities, including capital expenditures, exposes us to the risk of increased interest rates, makes us more vulnerable to general economic downturns and adverse industry conditions, could reduce our flexibility in planning for, or responding to, changing business and economic conditions, and may prevent us from raising the funds necessary to repurchase all of certain senior notes that could be tendered upon the occurrence of a change of control, which would constitute an event of default under the terms of the indentures for such senior notes |
| Our failure to comply with the financial and other restrictive covenants in our debt instruments, which, among other things, require us to maintain specified financial ratios and limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or prospects |
| If we do not have enough cash to service our debt, meet other obligations and fund other liquidity needs, we may be required to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing all or part of our existing debt, or seeking additional equity capital |
| We cannot assure that any of these remedies, including obtaining appropriate waivers from our lenders or new facilities, can be effected on commercially reasonable terms or at all |
| In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives |
| The indebtedness of KCSM exposes us to risks in exchange rate fluctuations, because any devaluation of the peso would cause the cost of KCSM’s dollar-denominated debt to increase; and place us at a competitive disadvantage in Mexico compared to our Mexican competitors that have less debt and greater operating and financing flexibility than KCSM does |
| 13 _________________________________________________________________ [73]Table of Contents Our business is capital intensive and requires substantial ongoing expenditures for, among other things, improvements to roadway, structures and technology, acquisitions, leases and repair of equipment, and maintenance of our rail system |
| Our failure to make necessary capital expenditures to maintain our operations could impair our ability to accommodate increases in traffic volumes or service existing customers |
| In addition, the Concession requires us to make investments and undertake capital projects, including capital projects described in a business plan filed by KCSM every five years with the Mexican government |
| We may defer capital expenditures with respect to KCSM’s five-year business plan with the permission of the Ministry of Transportation |
| However, the Ministry of Transportation may not grant this permission, and KCSM’s failure to comply with the commitments in its business plan could result in the Mexican government revoking the Concession |
| Our business may be adversely affected by changes in general economic, weather or other conditions |
| Our operations may be adversely affected by changes in the economic conditions of the industries and geographic areas that produce and consume the freight that we transport |
| PCRC and Panarail Tourism Company are directly affected by its local economy |
| Our investment in PCRC has risks associated with operating in Panama, including, among others, cultural differences, varying labor and operating practices, political risk and differences between the US and Panamanian economies |
| Historically, a stronger economy has resulted in improved results for our rail transportation operations |
| Conversely, when the economy has slowed, results have been less favorable |
| Our revenues may be affected by prevailing economic conditions and, if an economic slowdown or recession occurs in our key markets, the volume of rail shipments is likely to be reduced |
| Our operations also may be affected by adverse weather conditions |
| We operate in and along the Gulf Coast of the US, and our facilities may be adversely affected by hurricanes and other extreme weather conditions |
| For example, recent hurricanes have adversely affected some of our shippers located along the Gulf Coast and caused interruptions in the flow of traffic within the Southern US and between the US and Mexico |
| As another example, a weak harvest in the Midwest may substantially reduce the volume of business handled for agricultural products customers |
| Many of the goods and commodities we transport experience cyclical demand |
| Our results of operations can be expected to reflect this cyclical demand because of the significant fixed costs inherent in railroad operations |
| Our operations may also be affected by natural disasters or terrorist acts |
| Significant reductions in our volume of rail shipments due to economic, weather or other conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows |
| 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 segment that may influence operating results |
| Some of our customers do business in industries that are highly cyclical, including the oil and gas, automotive and agricultural sectors |
| Any downturn in these sectors could have a material adverse effect on our operating results |
| Also, some of the products we transport 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 |
| We cannot assure you that prices and demand for these products will not decline in the future, adversely affecting those industries and, in turn, our financial results |
| Our business is subject to regulation by international, federal, state and local regulatory agencies |
| Our failure to comply with various federal, state and local regulations could have a material adverse effect on our operations |
| We are subject to governmental regulation by international, federal, state and local regulatory agencies with respect to our railroad operations, as well as a variety of health, safety, labor, environmental, and other matters |
| Government regulation of the railroad industry is a significant determinant of the 14 _________________________________________________________________ [74]Table of Contents competitiveness and profitability of railroads |
| Our failure to comply with applicable laws and regulations could have a material adverse effect on our operations, including limitations on our operating activities until compliance with applicable requirements is completed |
| These government agencies may change the legislative or regulatory framework within which we operate without providing any recourse for any adverse effects on our business that occurs as a result of this change |
| Additionally, some of the regulations require us to obtain and maintain various licenses, permits and other authorizations, and we cannot assure you that we will continue to be able to do so |
| Our business is subject to environmental, health and safety laws and regulations that could require us to incur material costs or liabilities relating to environmental, health or safety compliance or remediation |
| Our operations are subject to extensive international, federal, state and local environmental, health and safety laws and regulations concerning, among other things, emissions to the air, discharges to waters, the handling, storage, transportation and disposal of waste and other materials, the cleanup of hazardous material or petroleum releases, decommissioning of underground storage tanks and noise pollution |
| Violations of these laws and regulations can result in substantial penalties, permit revocations, facility shutdowns and other civil and criminal sanctions |
| From time to time, our facilities have not been in compliance with environmental, health and safety laws and regulations and there can be no assurances that we will always be in compliance with such laws and regulations in the future |
| We incur, and expect to continue to incur, environmental compliance costs, including, in particular, costs necessary to maintain compliance with requirements governing chemical and hazardous material shipping operations, refueling operations and repair facilities |
| New laws and regulations, stricter enforcement of existing requirements, new spills, releases or violations or the discovery of previously unknown contamination could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, results of operations, financial condition and cash flows |
| 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 health |
| As a result, we 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 relating to harm to property or individuals |
| The US Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) and similar state laws (known as “Superfund laws”) impose liability for the cost of remedial or removal actions, natural resources damages and related costs at certain sites identified as posing a threat to the environment or public health |
| CERCLA imposes joint, strict and several liabilities on the owners and operators of facilities in which hazardous waste and other hazardous substances are deposited or from which they are released or are likely to be released into the environment |
| Liability may be imposed, without regard to fault or the legality of the activity, on certain classes of persons, including the current and certain prior owners or operators of a site where hazardous substances have been released and persons that arranged for the disposal or treatment of hazardous substances |
| In addition, other potentially responsible parties, adjacent landowners or other third parties may initiate cost recovery actions or toxic tort litigation against sites subject to CERCLA or similar state laws |
| Given the nature of our business, we presently have environmental investigation and remediation obligations at certain sites, including a former foundry site in Alexandria, Louisiana, and will likely incur such obligations at additional sites in the future |
| Although we have accrued for environmental liabilities, some of these accruals have been reduced for amounts we expect to recover from third party recoveries |
| We cannot assure you that the costs associated with these obligations will not be material or exceed the accruals we have established |
| Our Mexican operations are subject to Mexican federal and state laws and regulations relating to the protection of the environment |
| The primary environmental law in Mexico is the General Law of Ecological Balance and Environmental Protection (the “Ecological Law”) |
| The Mexican federal agency in charge of overseeing compliance with and enforcement of the federal environmental law is the Ministry of Environmental Protection and Natural Resources (“Semarnat”) |
| The regulations issued under the Mexican Ecological Law and technical environmental requirements issued by Semarnat have promulgated 15 _________________________________________________________________ [75]Table of Contents standards for, among other things, water discharge, water supply, emissions, noise pollution, hazardous substances and transportation and handling of hazardous and solid waste |
| As part of its enforcement powers, Semarnat is empowered to bring administrative and criminal proceedings and impose economic sanctions against companies that violate environmental laws, and temporarily or even permanently close non-complying facilities |
| Under the Ecological Law, the Mexican government has implemented a program to protect the environment by promulgating rules concerning water, land, air and noise pollution, and hazardous substances |
| We are also subject to the laws of various jurisdictions and international conferences with respect to the discharge of materials into the environment |
| We cannot predict the effect, if any, that the adoption of additional or more stringent environmental laws and regulations would have on KCSM’s results of operations, cash flows or financial condition |
| Our business is vulnerable to rising fuel costs and disruptions in fuel supplies |
| Any significant increase in the cost of fuel, or severe disruption of fuel supplies, would have a material adverse effect on our business, results of operations and financial condition |
| We incur substantial fuel costs in our railroad operations and these costs represent a significant portion of our transportation expenses |
| Fuel expense has increased from approximately 12prca of our consolidated operating costs for the full year 2004 to its current level representing approximately 16prca of our consolidated operating costs for 2005 |
| This increase has been, in part, offset by fuel surcharges applied to our customer billings |
| If we are unable to continue the existing fuel surcharge program at KCSR and expand the fuel surcharge program for KCSM, our operating results could be materially adversely affected |
| Fuel costs are affected by traffic levels, efficiency of operations and equipment, and petroleum market conditions |
| The supply and cost of fuel is subject to market conditions and is influenced by numerous factors beyond our control, including general economic conditions, world markets, government programs and regulations and competition |
| In addition, instability in the Middle East and interruptions in domestic production and refining due to hurricane damage may result in an increase in fuel prices |
| Significant price increases for fuel may have a material adverse effect on our operating results |
| Additionally, fuel prices and supplies could also be affected by any limitation in the fuel supply or by any imposition of mandatory allocation or rationing regulations |
| In the event of a severe disruption of fuel supplies resulting from supply shortages, political unrest, a disruption of oil imports, weather events, war or otherwise, the resulting impact on fuel prices and subsequent price increases could materially adversely affect our operating results, financial condition and cash flows |
| We currently meet, and expect to continue to meet, fuel requirements for our Mexican operations almost exclusively through purchases at market prices from Petroleos Mexicanos, the national oil company of Mexico (“PEMEX”), 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 |
| If the fuel contract is terminated and we are unable to acquire diesel fuel from alternate sources on acceptable terms, our Mexican operations could be materially adversely affected |
| A majority of our employees belong to labor unions |
| Strikes or work stoppages could adversely affect our operations |
| We are a party to collective bargaining agreements with various labor unions in the US Approximately 82prca of KCSR employees are covered under these agreements |
| Similarly, approximately 71prca of KCSM employees are subject to collective labor contracts |
| We may be subject to, among other things, strikes, work stoppages or work slowdowns as a result of disputes with regard to the terms of these collective bargaining agreements and labor contracts or our potential inability to negotiate acceptable contracts with these unions |
| In the US, because such agreements are generally negotiated on an industry-wide basis, determination of the terms and conditions of future labor agreements could be beyond our control and, as a result, we may be subject to terms and conditions in amended or future labor agreements that could have a material adverse affect on our results of operations, financial position and cash flows |
| If the unionized workers in the US or Mexico were to engage in a strike, work stoppage or 16 _________________________________________________________________ [76]Table of Contents other slowdown, or other employees were to become unionized or the terms and conditions in future labor agreements were renegotiated, we could experience a significant disruption of our operations and higher ongoing labor costs |
| The nature of the railroad business exposes us to the potential for various claims and litigation related to labor and employment, personal injury and property damage, environmental and other matters |
| We maintain insurance (including self-insurance) consistent with the industry practice against accident-related risks involved in the operation of the railroad |
| However, there can be no assurance that such insurance would be sufficient to cover the cost of damages suffered or that such insurance will continue to be available at commercially reasonable rates |
| Any material changes to current litigation trends could have a material adverse effect on our results of operations, financial condition and cash flows |
| Due to the nature of railroad operations, claims related to personal injuries and third party liabilities resulting from crossing collisions and derailments, as well as claims related to personal property damage and other casualties is a substantial expense to KCS Personal injury and casualty claims are subject to a significant degree of uncertainty, especially estimates related to personal injuries which have occurred but not yet been reported, therefore, the degree to which injuries have been incurred and the related costs have not yet been determined |
| Further, the cost of casualty claims is related to numerous factors, including the severity of the injury, the age of the claimant, and the legal jurisdiction |
| In determining the provision for casualty claims, management must make estimates regarding future costs related to substantially uncertain matters |
| Changes in these estimates could have a material effect on the results of operations in future periods |
| Our business may be affected by future acts of terrorism or war |
| Terrorist attacks, such as those that occurred on September 11, 2001, any government response thereto and war or risk of war may adversely affect our results of operations, financial condition, and cash flows |
| These acts may also impact our ability to raise capital or our future business opportunities |
| Our rail lines and facilities could be direct targets or indirect casualties of an act or acts of terror, which could cause significant business interruption and result in increased costs and liabilities and decreased revenues |
| These acts could have a material adverse effect on our results of operations, financial condition, and cash flows |
| In addition, insurance premiums charged for some or all of the coverage currently maintained by us could increase dramatically or certain coverage may not be available in the future |
| Additional Risk Factors Relating to Our Operations in Mexico The Concession is subject to revocation or termination in certain circumstances |
| The Mexican government may terminate the Concession granted to KCSM as a result of KCSM’s surrender of its rights under the Concession, or for reasons of public interest, by revocation or upon KCSM’s liquidation or bankruptcy |
| The Mexican government may also temporarily seize KCSM’s assets and its rights under the Concession |
| The Mexican railroad services law and regulations provide that the Ministry of Communications and Transports (“Ministry of Transportation”) may revoke the Concession upon the occurrence of specified events, some of which will trigger automatic revocation |
| Revocation or termination of the Concession would prevent KCSM from operating its railroad and would materially adversely affect our Mexican operations and ability to make payments on our debt |
| In the event that the Concession is revoked by the Ministry of Transportation, KCSM will 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, will revert to the Mexican government |
| Our ownership of KCSM and operations in Mexico subject us to political and economic 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 17 _________________________________________________________________ [77]Table of Contents enterprises could have a significant impact on Mexican private sector entities in general and on our Mexican operations in particular, as well as on market conditions, prices and returns on Mexican securities, including KCSM’s outstanding notes |
| The national elections held on July 2, 2000 ended 71 years of rule by the Institutional Revolutionary Party with the election of President Vicente Fox Quesada, a member of the National Action Party, and resulted in the increased representation of opposition parties in the Mexican Congress and in mayoral and gubernatorial positions |
| National elections will be held again on July 2, 2006 |
| Although there have not yet been any material adverse repercussions resulting from this political change, multiparty rule is still relatively new in Mexico and could result in economic or political conditions that could materially and adversely affect our Mexican operations |
| We cannot predict the impact that this new political landscape will have on the Mexican economy |
| Furthermore, our financial condition, results of operations and prospects and, consequently, the market price for KCSM’s outstanding notes, may be affected by currency fluctuations, inflation, interest rates, regulation, taxation, social instability and other political, social and economic developments in or affecting Mexico |
| The Mexican economy in the past has suffered balance of payment deficits and shortages in foreign exchange reserves |
| There are currently no exchange controls in Mexico |
| However, Mexico has imposed foreign exchange controls in the past |
| Pursuant to the provisions of NAFTA, if Mexico experiences serious balance of payment difficulties or the threat thereof in the future, Mexico would have the right to impose foreign exchange controls on investments made in Mexico, including those made by US and Canadian investors |
| Any restrictive exchange control policy could adversely affect our ability to obtain dollars or to convert pesos into dollars for purposes of making interest and principal payments due on indebtedness, to the extent that it may have to effect those conversions |
| This could have a material adverse effect on our business and financial condition |
| Securities of companies in emerging market countries tend to be influenced by economic and market conditions in other emerging market countries |
| Emerging market countries, including Argentina and Brazil, have recently been experiencing significant economic downturns and market volatility |
| These events have had an adverse effect on the economic conditions and securities markets of emerging market countries, including Mexico |
| Our Mexican operations may also be adversely affected by currency fluctuations, price instability, inflation, interest rates, regulations, taxation, cultural differences, social instability, labor disputes and other political, social and economic developments in or affecting Mexico |
| Downturns in the US economy or in trade between the US and Mexico and fluctuations in the peso-dollar exchange rate would likely have adverse effects on our business and results of operations |
| The level and timing of our Mexican business activity is heavily dependent upon the level of US-Mexican trade and the effects of NAFTA on such trade |
| Downturns in the US or Mexican economy or in trade between the US and Mexico would likely have adverse effects on our business and results of operations |
| Our Mexican operations depend on the US and Mexican markets for the products KCSM transports, the relative position of Mexico and the US in these markets at any given time, and tariffs or other barriers to trade |
| Any future downturn in the US economy could have a material adverse effect on KCSM’s results of operations and its ability to meet its debt service obligations as described above |
| 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 US 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 US-Mexican trade beyond our 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 KCSM’S dollar-denominated debt to increase, adversely affecting its ability to make payments on its indebtedness |
| Severe devaluation or 18 _________________________________________________________________ [78]Table of Contents depreciation of the peso may result in disruption of the international foreign exchange markets and may limit our ability to transfer or to convert pesos into US dollars for the purpose of making timely payments of interest and principal on our 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 US dollars or transfer foreign currencies out of Mexico, the Mexican government could, as in the past, institute restrictive exchange rate policies that could limit our ability to transfer or convert pesos into US dollars or other currencies for the purpose of making timely payments of our US dollar-denominated debt and contractual commitments |
| Devaluation or depreciation of the peso against the US dollar may also adversely affect US dollar prices for our securities |
| Currency fluctuations are likely to continue to have an effect on our financial condition in future periods |
| Mexico may experience high levels of inflation in the future which could adversely affect our 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 rates of inflation for the last five years, as measured by changes in the National Consumer Price Index, as provided by Banco de Mexico ranged from 4prca to 5dtta7prca |
| A substantial increase in the Mexican inflation rate would have the effect of increasing some of KCSM’s costs, which could adversely affect its results of operations and financial condition |
| High levels of inflation may also affect the balance of trade between Mexico and the US, and other countries, which could adversely affect KCSM’s results of operations |