☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		87-3883291
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

427 West 12th Street Kansas City, Missouri		64105
(Address of principal executive offices)		(Zip Code)

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Preferred Stock, Par Value $25 Per Share, 4%, Noncumulative		*		*
Common Stock, $.01 Per Share Par Value		*		*

*	See Explanatory Note

Large Accelerated Filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

Auditor Name: PricewaterhouseCoopers LLP		Auditor Location: Kansas City, Missouri		PCAOB ID Number: 238

Below is biographical information for each director who serves on the Company’s Board of Directors. Each director was elected to serve for a term.

: Thomas McDonnell (Chair); Lu Córdova; Mitchell Krebs

:

:

: Henry Maier (Chair); Lydia Beebe; David

:

:

: Robert Druten (Chair); Lydia Beebe; Antonio Garza, Jr.; Thomas McDonnell

:

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: Lu Córdova (Chair); Janet Kennedy; Mitchell Krebs; Henry Maier; Thomas McDonnell

:

:

: Robert Druten (Chair); Antonio Garza, Jr.; Patrick Ottensmeyer

:

:

In addition to the sustainability and responsibility information provided herein, KCS publishes sustainability information, prepared in accordance with the Global Reporting Initiative (GRI) Standards. The Company’s 2020 Sustainability Report is available under the “Corporate Responsibility” tab of our website at www.kcsouthern.com. A new 2021 Sustainability Data Update will be issued later this spring. The information provided on the Company’s website is referenced in this Form for informational purposes only. Neither the information on the Company’s website, nor the information in the Company’s 2020 Sustainability Report, shall be deemed to be a part of, or incorporated by reference into this Form or any other filings we make with the SEC.

Item 11.

Executive Compensation

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Capitalize on the strategic location of the KCS cross-border rail network and the diverse and growing North American markets, while maintaining a commitment to operational excellence.

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Embrace new and emerging technologies while maintaining a strong cost discipline within a safe and reliable environment.

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Provide service that consistently exceeds our customers’ expectations.

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Offer challenging careers to our employees.

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Produce industry-leading stockholder returns.

Current NEOs
Patrick J. Ottensmeyer		President and Chief Executive Officer
Michael W. Upchurch		Executive Vice President and Chief Financial Officer
Jeffrey M. Songer		Executive Vice President and Chief Operating Officer

Michael J. Naatz		Executive Vice President and Chief Marketing Officer
Adam J. Godderz		Senior Vice President - Chief Legal Officer and Corporate Secretary
Brian D. Hancock		Former Executive Vice President and Chief Innovation Officer*

*	Mr. Hancock retired from the Company on July 2, 2021.

Compensation Element		Purpose		Characteristic
Base Salary		To provide a fixed element of pay for an individual’s primary duties and responsibilities.		Base salaries are reviewed annually and are set based on performance, experience, competitiveness versus market and internal equity considerations.
Annual Incentive		To encourage and reward the achievement of specified financial and operational goals on an annual basis.		Performance-based cash award opportunity; amount earned is based on actual results relative to pre-determined goals.
Long-Term Incentives
Performance Share Awards		To motivate management for long-term financial success and value creation for stockholders.		Three-year performance-based share awards with pre-determined financial goals.
Restricted Share Awards		To align the executives’ interests with those of investors (via creation of stockholder value), to encourage stock ownership and to provide an incentive for retention.		Service-based long-term incentive opportunity; ultimate award value depends on share price.

Compensation Element		Purpose		Characteristic
Non-Qualified Stock Options		To incentivize and reward the creation of long-term stockholder value.		Service-based long-term incentive opportunity; amounts realized are dependent upon share price appreciation.

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0% for less than two years of service;

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20% upon two years of service;

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40% upon three years of service;

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60% upon four years of service; and

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100% upon five years of service.

As a result of entering into the Voting Trust, the Executive Plan was amended so that participants receive the annual benefit amount payments as cash payments within the first 2 ⁄ months of the calendar year following the calendar year for which the annual benefit is earned.

. In August 2018, the Company adopted the KCS NQDC Plan, which is a deferred compensation plan. Eligible employees may elect to defer up to 50% of their base salary and up to 75% of their annual short-term incentive compensation. Participants may direct the investment of their accounts in the KCS NQDC Plan by selecting from one or more of the diversified investment funds available in the KCS NQDC Plan. Participant deferrals are 100% vested at all times.

Although the KCS NQDC Plan allows for the Company to credit company contributions to any participant’s account in any amount determined by the Company (“Company Contributions”), the Company did not make any such contributions in 2021. Company Contributions may be made in the form of a matching contribution, a contribution or both and may be made in accordance with any formula selected by the Company, which formula may be different from year to year. Company Contributions may be subject to any vesting schedule determined by the Company at the time of the credit. The Committee may, in its sole discretion, fully vest the participants’ accounts on a change in control. No NEO participated in the KCS NQDC Plan in 2021.

. As noted in our Summary Compensation Table, we provide our NEOs with limited perquisites consistent with prevailing market practice. We do not view perquisites as a significant element of our comprehensive compensation structure for our NEOs.

We reimburse financial counseling expense for our NEOs up to a stated limit in accordance with the KCS Financial Planning Reimbursement Policy. The maximum amount of the annual reimbursement under this policy for our CEO and our other NEOs is $15,000. We also pay for three years of the administrative fees charged by the Greater Kansas City Community Foundation (“GKCCF”) related to donor advised funds established by our U.S. executives at the GKCCF. These fees are paid out of funds from the Company’s charitable foundation, which is administered by the GKCCF. We pay for an annual executive physical for our NEOs to help them maintain optimal health through preventative care. We also provide the CEO use of the Company’s aircraft up to a maximum of the lesser of (a) $100,000 of additional costs and expenses incurred as a result of such personal use or (b) 24 roundtrip flights. The Company provides certain other perquisites as described in the Summary Compensation Table below.

. We also pay a portion of premiums for medical coverage, pay premiums for short-term disability coverage, pay premiums for 60% coverage for long-term disability (up to a maximum of $15,000 per month) and pay premiums for AD&D coverage up to 2 / times the annual salary for each employee up to a maximum of $500,000. For executives, we provide a basic amount of group life insurance coverage. Additionally, we provided eligible employees with the opportunity to purchase KCS Common Stock at a discount under the Kansas City Southern 2009 Employee Stock Purchase Plan (“ESPP”), which such plan is intended to satisfy Section 423 of the Code. Pursuant to the Merger Agreement, the last purchase date under the ESPP occurred on June 30, 2020 and the ESPP was discontinued effective July 1, 2021.

The percentage of a NEO’s total compensation resulting from each of the compensation elements is not specifically determined, but instead is a result of the targeted competitive positioning for each element. By design, components (particularly long-term incentives) comprise a significant portion of each NEO’s total compensation. This is consistent with the Compensation Committee’s desire to reward long-term performance in a way that is aligned with stockholders’ interests. In 2021, the target pay mix for our Chief Executive Officer and all other NEOs serving on December 31, 2021 (as an average) was as follows:

. The Compensation Committee, which is responsible for establishing our executive compensation policies and overseeing our executive compensation practices, is composed of three directors. Each of these directors meet the independence requirements of the NYSE and are considered directors under Rule under the Exchange Act.

. For assistance in fulfilling its responsibilities, the Compensation Committee retained Meridian Compensation Partners, LLC as its compensation consultant to review and independently assess various aspects of our compensation programs and to advise the Compensation Committee in making its executive compensation decisions for 2021. Meridian is engaged by and reports directly to the Compensation Committee. The Compensation Committee has assessed the independence of Meridian pursuant to SEC rules, analyzed whether the work performed raised any conflict of interest, and concluded that Meridian is independent and that no conflict of interest exists. In assessing Meridian’s independence, the Compensation Committee also considers the nature and amount of work performed for the Compensation Committee during the year, the nature of any unrelated services performed by the consultant for the Company, and the fees paid for those services in relation to the firm’s total revenues. Every year, the consultant prepares for the Compensation Committee an independence letter providing assurances and confirmation of the consultant’s independent status under the noted standards.

: In 2021, the NEOs received performance share awards that can be earned based on the achievement of financial goals over a three-year performance period. The performance metrics used under the 2021 LTI Program are ROIC (weighted 75%) and OR (weighted 25%) with goals for each year of the three-year performance period. The average of the results for each year as measured against these performance goals at the end of the three-year performance period is then used to determine a preliminary payout percentage. Because a key part of the Company’s strategy is to have superior revenue growth in the industry, the preliminary payout percentage may be further adjusted based on the Company’s relative revenue growth compared to the other six Class I railroads as set forth in the following table:

The Compensation Committee determined to use the Company’s ROIC and OR as the performance metrics for the performance shares under the 2021 LTI Program, weighted 75% and 25%, respectively. The Compensation Committee believes that ROIC allows it to not only assess the NEO’s performance with respect to our earnings, but

For this purpose, ROIC is defined as the quotient of the Company’s net operating profit after taxes (“NOPAT”) for the applicable performance period divided by the Company’s invested capital where (i) NOPAT is the sum of the Company’s net income, interest expense and interest on the lease liabilities (all preceding items tax effected), with further adjustments to eliminate the effects of (a) adjustments included in Adjusted Diluted Earnings Per Share as reported by the Company, (b) fluctuations in the value of the Mexican peso against the U.S. dollar from the average exchange rates assumed in the Company’s 2021 long range plan, (c) impacts to fuel surcharge revenue and fuel expense for changes in fuel-related indices from the indices assumed in the Company’s 2021 long range plan, (d) changes in statutory income tax rates and other laws enacted after January 1, 2021 on the Company’s net income, (e) business combinations or acquisitions transaction impacts, (f) changes in accounting principles, and (g) as approved by the Compensation Committee, other transactions or events that were not contemplated at the time performance targets were established by the Compensation Committee; and (ii) invested capital is the sum of the Company’s average equity balance and average debt balance (reduced by the average cash balance), with further adjustments to eliminate the average invested capital impacts of (a) changes in accounting principles, (b) business combinations or acquisitions transaction impacts, and (c) as approved by the Compensation Committee, other transactions or events that were not contemplated at the time performance targets were established by the Compensation Committee and (d) changes in statutory income tax rates and other laws enacted after January 1, 2021.

: In addition to the performance share component of the 2021 LTI Program, the Compensation Committee determined it appropriate that 25% of the award be in the form of time-based, cliff-vesting, restricted stock of the Company for purposes of acting as a management retention tool during the three-year term of the program. Mr. Songer received a $500,000 increase in his restricted stock award value in recognition of his continuing role in leading the Company’s ongoing Precision Scheduled Railroading strategy and to ensure his retention during the negotiations and potential acquisition of the Company. The restricted stock awarded under the 2021 LTI Program vests on February 23, 2024. Pursuant to the Merger Agreement, the restricted stock vested immediately upon closing into Voting Trust. The amounts paid to each NEO are reflected in the Option Exercises and Stock Vested table below.

: The other 25% of the award is in the form of time-based, stock options under the 2021 LTI Program, which provides close alignment between management and stockholders. The options become vested and exercisable in equal installments on February 3, 2022, February 3, 2023 and February 3, 2024, respectively and expire ten years from the date of grant. The exercise price of the stock options is equal to the fair market value of the Company’s common stock on the date of grant. Pursuant to the Merger Agreement, the stock options were converted into a cash award equal to the Merger Consideration Value of $301.20 per share minus the option price and paid immediately following the closing into Voting Trust. The amounts paid to each NEO are reflected in the Option Exercises and Stock Vested table below.

On March 21, 2021, in recognition of the additional responsibilities and effort by Mr. Upchurch and Mr. Godderz in connection with the negotiation of the merger, the Company awarded Mr. Upchurch and Mr. Godderz a cash award in the amount of $150,000 and $130,000, respectively.

The Compensation Committee has reviewed and discussed with management the disclosures contained in the “Compensation Discussion and Analysis” in this Amendment No. 1 on Form Based on that review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis section be included in this Company’s annual report on Form for the fiscal year ended December 31, 2021.

David

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table and narrative disclose compensation earned in 2021 by the NEOs. The table shows amounts earned by such persons for all services rendered in all capacities to KCS and its subsidiaries during the past year.

 

 

 

 

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. Each of the NEOs are party to a severance agreement with the Company. Our Severance Agreements are meant to provide a reasonable and competitive level of financial transitional support to executives in connection with the termination of their employment.

In connection with the transactions contemplated by the Merger Agreement between the Company and CP, KCSR entered into an agreement (each, a “Letter Agreement”) with each of the NEOs (other than Mr. Hancock). The Letter Agreements revise certain terms of the existing severance agreements with these executives, including: (1) providing that the protection period for enhanced change in control severance (the “CIC Protection Period”) will run from the date that the merger occurs through the anniversary of the Control Date; (2) clarifying that for purposes of determining such executive’s bonus and target bonus component of cash severance, the “target award” will be the greater of the target award for the calendar year in which the executive’s employment is terminated and the target award for the calendar year in which the change in control occurs and (3) for Mr. Upchurch and Mr. Godderz, establishing the multiple applicable to the base salary and target bonus components of their severance during the CIC Protection Period at three times. In addition, in consideration of certain acknowledgements from the executives that the occurrence of the merger will not, in and of itself, constitute “Good Reason” under such executive’s severance agreements and that the period under the severance agreements for each of the executives (other than Mr. Songer) will be extended from one to two years, the Letter Agreements provide that in the event that such executive receives any payments or benefits that are subject to tax under Section 4999 of the Internal Revenue Code, as amended, the executive will receive a payment that puts the executive in the same position as though such tax did not apply.

. We have entered into indemnification agreements with our KCS officers and directors. Each of our NEOs is an officer of KCS. These agreements are intended to supplement our officer and director liability insurance and to provide the officers and directors with specific contractual assurance that the protection provided by our Bylaws will continue to be available regardless of, among other things, an amendment to the Bylaws or a change in management or control of KCS. The indemnification agreements provide for indemnification to the fullest extent permitted by the Delaware General Corporation Law and for the prompt advancement of expenses, including attorneys’ fees and all other costs and expenses incurred in connection with any action, suit or proceeding in which the director or officer was or is a party, is threatened to be made a party or is otherwise involved, or to which the director or officer was or is a party, is threatened to be made a party or is otherwise involved by reason of service in certain capacities. Under the indemnification agreements, if required by the Delaware General Corporation Law, an advancement of expenses incurred will be made upon delivery to us of an undertaking to repay all advanced amounts if it is ultimately determined by final adjudication that the officer or director is not entitled to be indemnified for such expenses. The indemnification agreements allow directors and officers to seek court relief if indemnification or expense advances are not received within specified periods, and obligate us to reimburse them for their expenses in pursuing such relief in good faith.