Kansas City Southern President and CEO David Starling reviews 2011 and plans the next year's progress for KCS.

Some excerpts:

On all fronts, 2011 was an exceptionally productive year for KCS with record-breaking revenues, volumes and operating ratio. Our efforts to work as one network and one team are paying off, and together, we are beginning to reap the true value of our coordinated cross border rail franchise.

As revenues rise, KCS is working to enhance service to customers by investing in infrastructure and equipment. System-wide track projects are contributing to greater safety and velocity and driving the operating ratio down.

This year in the U.S., production gangs installed more than 540,000 ties and more than 70 track miles of new rail. Projects completed include:

• 15 miles of new rail installed on the Laredo subdivision;
• 19 miles of new rail installed on the Pittsburg subdivision;
• 120,000 ties installed between Kansas City and Shreveport, La.;
• Major tie projects on the Greenville and Beaumont subdivisions and the Meridian Speedway;
• 63 miles of rail relayed on the Gulfport line;
• Siding capacity improvements at Asbury, Mo., Neame, La. and Kendleton, Texas;
• Installed ties and welded existing jointed rail in track on the Lake Charles branch for a new business opportunity;
• Yard expansions in Port Arthur, Texas, Artesia, Miss. and Zacha, Texas supporting new business opportunities;
• A new turntable installed at Knoche yard in Kansas City to support the distribution of locomotive power;
• Centralized Traffic Control (CTC) installed at High Oak Yard in Pearl, Miss. and Leesville, La., including 47 sets of new flashers and gates and
• The first phase of Positive Train Control (PTC) completed between Alexandria and Baton Rouge, La.

Next year, will be another big year for track, capacity and capital projects tied to new business development. Major projects will include:

• Replacement of 535,000 ties across the U.S. network;
• Installation of 180,000 ties on the Shreveport subdivision and 100,000 ties on the Laredo subdivision;
• Replacement of 20 miles of curved rail across the U.S. network;
• Replacement of eight miles of rail on the Port Neches line;
• Rat Hole interchange and other improvements south of Shreveport yard;
• Siding expansions at Spear, Texas and McElhaney, Mo. and
• Installation of CTC at DeRidder, La.

In Mexico, production gangs installed more than 294,000 ties and more than 166 track kilometers of new rail. Major projects completed included:

• Installation of 66 kilometers (103 miles) of new rail on the B line between Monterrey and Nuevo Laredo, Tamaulipas;
• Installation of 54,000 concrete ties between Monterrey and Nuevo Laredo;
• Undercutting of 30 kilometers (19 miles) of track;
• Expansion of intermodal facilities at Puerta Mexico and Salinas Victoria;
• Expansion of yards at Escobedo, Guanajuato and Lazaro Cardenas;
• Installation of phase one of double main line from Rojas to Ramos Arizpe, Coahuila;
• 500 meters (.31 miles) of new fueling and service track at Sanchez yard;
• Perimeter wall construction at Monterrey yard;
• Conversion of track from storage to loading at Terminal Automotriz Toluca (TAT);
• Conversion of track from storage to loading at the vehicle distribution center at Queretaro;
• Phase 2, 92 kilometers (57 miles) of signal technology conversion on the Juarez and Morelos lines and
• Rehabilitation of the Anahuac bridge.

In the year ahead, major projects will include:

• Replacement of 301,000 ties across the Mexico system;
• Installation of 63,300 concrete ties on the B line between Monterrey and Nuevo Laredo;
• Installation of 40,000 concrete ties on the Caltzontzin district to replace bi-block concrete ties;
• Replacement of 60 kilometers (37 miles) of rail for curves across the Mexico system;
• Replacement of 75 kilometers (47 miles) of 136-pound rail on the B line between Monterrey and Nuevo Laredo;
• Expansion of siding capacity at San Andres, Limoncito, Colombia and Benjamin Mendez;
• Double track construction from Rojas to Ramos Arizpe (phase 2) and from Sanchez to Nuevo Laredo (phase 1);
• New classification yard (phase 1 construction) at Sanchez;
• Parking expansion at TAT;
• Pad expansion at the Interpuerto intermodal terminal at San Luis Potosi;
• Terminal and bonded area expansion at the Salinas Victoria intermodal facility;
• Tunnel rehabilitation on the NE line on the Caltzontzin district in Michoacan;
• Construction of a locomotive fueling facility and
• Final phase, 90 kilometers (55 miles) of signal technology conversion on the Juarez and Morelos lines.

This completion rate would not have been possible without the close coordination of the engineering, transportation, mechanical and purchasing departments to ensure the time available for this work was as productive as possible.

In addition to fortifying the infrastructure for new business growth, KCS is creating asset efficiency.

This year, 30 new, next-generation locomotives were procured, contributing to KCS' status as having one of the youngest locomotive fleets in North America. A cross-functional fuel conservation initiative has reduced consumption by an estimated 380,000 gallons annually and forged a path toward integrating new technology into the locomotive fleet.

In 2011, KCS completed a covered hopper renewal program to enhance customer satisfaction with the fleet. A total of 820 cars that were 30 years or older were replaced with 765 cars that are an average age of nine years. KCS also replaced 300 low capacity gondolas with 220 high capacity ones, while increasing loadings. Box cars and automotive equipment are also being procured.

The most significant operational accomplishment, however, was working safely. In the U.S., KCS' safety efforts were recognized with a fifth consecutive Gold Harriman Award. Additional accomplishments include a reduction in total train accidents, mechanical caused derailments and engineering caused derailments.

The administration and corporate affairs group was busy pursuing a number of internal and external matters important to the company. In Washington, D.C., the year came and went without any harmful re-regulation of the U.S. rail industry being passed, although the Surface Transportation Board initiated a proceeding competition in the rail industry that KCS participated in and is watching closely. There are a number of regulatory matters pending that will require close attention in the year ahead.

The PTC implementation timeline and requirements continue to get a lot of attention and it appears that federal regulators and congress may now better understand the many challenges that the rail industry faces to meeting the current 2015 implementation deadline.

Work is well underway on the Gulfport subdivision rehabilitation thanks in part to U.S. Department of Transportation TIGER Grant funds. And a number of industrial development opportunities along the railroad have come to us as a result of cultivating stronger working relationships with local economic development officials.

Public safety improvements continue to occur through KCS' aggressive partnerships with various state departments of transportation and an unending effort to close redundant at-grade crossings. State corridor programs have progressed and a passive sign upgrade program brings new, highly-reflective crossbuck assemblies, yield or stop signs with Critical Incident Desk contact information to public and private grade crossings. KCS public safety and police and special services are committed to coordinating on trespasser abatement efforts and continuing special law enforcement involved projects that support grade crossing collision prevention and increasing public safety awareness.

In New Orleans, the review of the operations of the New Orleans Public Belt concluded with a recommendation to leave the NOPB operations under the existing governance with a smaller board of commissioners.

Thank you for your continued service to our company. On both sides of the border, we are one network and one team and your efforts will bring us continued success in the year ahead.

For a complete outline from Starling, visit http://www.kcsouthern.com/en-us/Employees/Pages/KCSNews.aspx?release=3715