Securities and Exchange Commission
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002 and 2001
Commission File Number: 333-91478
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
MidSouth Rail Union 401(k) Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Kansas City Southern
427 West 12th Street
Kansas City, Missouri 64105-1804
CONTENTS
FINANCIAL STATEMENTS:
Report of Independent Auditors
Statement of Net Assets Available for Benefits December 31, 2002 and
2001
Statement of Changes in Net Assets Available for Benefits Year Ended
December 31, 2002
Notes to Financial Statements
EXHIBIT:
Exhibit 23 - Consent of KPMG LLP
MidSouth Rail Union 401(k)
Retirement Savings Plan
Financial Statements and Supplemental Schedule
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
MidSouth Rail Union 401(k)
Retirement Savings Plan
Table of Contents
Page
Independent Auditor's Report 1
Financial Statements:
Statements of Net Assets Available for Benefits as of
December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Benefits
for Year ended December 31, 2002 3
Notes to Financial Statements 4
Supplemental Schedule*
1 Schedule H, Line 4i - Schedule of Assets (Held at End of Year) -
December 31, 2002 9
* Other schedules required by 29 CFR 2520.103-8 of the Department of Labor's
Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 have been omitted because they are
not applicable.
Independent Auditors' Report
To the Participants and Plan Administrator of the
MidSouth Rail Union 401(k) Retirement Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of the MidSouth Rail Union 401(k) Retirement Savings Plan (the Plan) as of
December 31, 2002 and 2001, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2002. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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 financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2002 and 2001, and the changes in net assets available for benefits
for the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes at year-end is presented for the purpose of additional
analysis and is not a required part of the basic financial statements, but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.
/s/ KPMG LLP
Kansas City, Missouri
May 30, 2003
MIDSOUTH RAIL UNION 401(k)
RETIREMENT SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
------------ -------------
Assets:
Cash $ 11,202 --
Investments, at fair value:
Common stock of Kansas City Southern 3,972 --
Money markets 1,046,922 1,303,078
Mutual funds 1,182,831 855,390
------------ -------------
Total investments 2,233,725 2,158,468
------------ -------------
Contributions receivable:
Participant -- 10,415
Company -- 307
------------ -------------
Total contributions receivable -- 10,722
------------ -------------
Total assets 2,244,927 2,169,190
Accrued liabilities-investment expenses payable -- 549
------------ -------------
Net assets available for benefits $ 2,244,927 2,168,641
============ =============
See accompanying notes to financial statements.
MIDSOUTH RAIL UNION 401(k)
RETIREMENT SAVINGS PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
Investment income (loss):
Interest and dividends $ 88,677
Net depreciation in fair value of investments (216,986)
-------------------
Total investment loss (128,309)
Contributions:
Participant contributions 259,366
Company contributions 68,732
-------------------
Total contributions 328,098
Benefits paid (123,503)
-------------------
Increase in net assets available for benefits 76,286
Net assets available for benefits:
Beginning of year 2,168,641
-------------------
End of year $ 2,244,927
===================
See accompanying notes to financial statements.
MidSouth Rail Union 401(k)
Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
(1) Description of the Plan
The following description of the MidSouth Rail Union 401(k) Retirement
Savings Plan (the Plan) provides only general information. Participants
should refer to the plan agreement for a more complete description of the
Plan's provisions.
(a) General
The Plan is a participant-directed, contributory, defined contribution
plan subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
During 1993, the MidSouth Corporation was acquired by Kansas City
Southern Industries, Inc. and was merged into The Kansas City Southern
Railway Company (the Company), a wholly owned subsidiary of Kansas
City Southern Industries, Inc., on January 1, 1994. Effective May 2,
2002, Kansas City Southern Industries, Inc. changed its name to Kansas
City Southern.
On January 1, 2001, the SouthRail Corporation Union Savings Plan was
merged into the Plan.
(b) Eligibility
The Plan covers all full-time employees of the Company who are members
of one of the following collective bargaining units with the former
MidSouth Rail Corporation: Brotherhood of Locomotive Engineers,
Brotherhood of Maintenance of Way Employees, Brotherhood of Railway
Carmen, Brotherhood of Railroad Signalmen, International Association
of Machinists and Aerospace Workers, International Brotherhood of
Electrical Workers, Transportation Communications International Union,
or United Transportation Union. Plan entry dates are the first day of
each quarter.
A participant that ends his or her membership in any of the above
collective bargaining units is no longer eligible to receive Company
contributions. However, such participant will continue to receive
credit for vesting under the provisions of the Plan and continues to
share fully in trust fund allocations, as set forth in the Plan. Upon
rejoining any of the above collective bargaining units, such
participant is then immediately eligible to participate in all future
Company contributions, as set forth in the Plan.
Participants in the former SouthRail Corporation Union Savings Plan
and the participants in the MidSouth Rail Union 401(k) Retirement
Savings Plan and Trust Agreement who were employees of the Company on
January 1, 2001, continue to be participants in the Plan.
(c) Contributions
Participants may contribute a portion of their annual eligible
compensation, as defined in the Plan, not to exceed an individual
annual maximum contribution of $11,000 in 2002. The Company matches
100% of the first $200 of participant salary deferral contributions
and 50% of the second $600 of participant salary deferral
contributions, with a maximum annual Company matching contribution of
$500 per participant.
(d) Participant Accounts
Each participant's account is credited with the participant's
contribution, the Company's matching contribution, and an allocation
of Plan earnings net of investment expenses. Allocations are based on
participant earnings or account balances, as set forth in the plan
agreement. The benefit to which a participant is entitled is that
which can be provided from the participant's account.
(e) Vesting
Participants are immediately vested in their salary deferral
contributions plus actual earnings thereon.
Company contributions vest according to the following schedule:
Years of Percent
service vested
-------------------------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
(f) Investment Options
Upon enrollment in the Plan, a participant may direct their
contributions and Company matching contributions into any of the
various funds offered by the Plan.
Effective July 1, 2002, the Plan added Kansas City Southern (NYSE:KCS)
common stock as an investment option.
Participants should refer to the respective prospectuses for a
description of the investment objective of each fund.
(g) Benefits
Distributions generally will be made in the event of retirement,
death, disability, resignation, or dismissal. A participant's normal
retirement age is 65. The Plan also provides for distribution at age
59-1/2.
Distribution after termination of employment will be made in a
lump-sum payment. Balances not exceeding $5,000 will be paid no later
than the 60th day following the close of the Plan year in which the
participant attains normal retirement age. Balances exceeding $5,000
will be paid upon the distribution date elected by the participant,
but no later than the 60th day following the close of the Plan year in
which the following occurs: (a) the participant attains normal
retirement age; (b) the participant attains age 62; or (c) the
participant's separation from service.
(h) Plan Termination
Although it has expressed no intention to do so, the Company has the
right to terminate the Plan at any time, subject to the provisions of
ERISA. Upon termination of the Plan, the participants shall receive
amounts equal to their respective account balances.
(i) Plan Expenses
Investment expenses are paid by the Plan as long as Plan assets are
sufficient to provide for such expenses. Administrative expenses are
principally paid by the Company.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The Plan's financial statements are presented on the accrual basis of
accounting and present the net assets available for benefits and
changes in those net assets. Benefit payments to participants are
recorded when paid.
(b) Investments
The fair value of marketable securities is based upon quotations from
national securities exchanges; where marketable securities are not
listed on an exchange, quotations are obtained from brokerage firms.
Securities transactions are accounted for on the trade date (the date
the order to buy or sell is executed).
(c) Forfeitures
Nonvested amounts forfeited by employees are allocated to the other
participants as a part of and in the same manner as the Company
contribution for the Plan year in which the forfeiture occurs.
Allocated forfeitures were $5,463 and $3,537 for the plan years ended
December 31, 2002 and 2001, respectively.
(d) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, and changes in net assets available
for benefits. Actual results could differ from those estimates.
(e) Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
(3) Investments
Investments, which exceeded 5% of the net assets available for benefits at
December 31, 2002 and 2001, were as follows:
2002 2001
----------- -----------
Dodge & Cox Balanced Fund $ - 260,829
Invesco Stable Value Fund 1,046,912 1,302,266
Franklin Balance Sheet Investment A 132,750 -
Janus Investment Fun - 187,784
Janus Strategic Value Investment Fund - 177,312
PIMCO Renaissance 114,339 -
PIMCO Total Return Administrative Shares 321,001 -
Vanguard Index Trust - 500 Portfolio - 153,348
Other 618,723 76,929
--------- ---------
Total Investments $ 2,233,725 2,158,468
=========== ===========
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) depreciated
in value by $216,986, as follows:
Kansas City Southern common stock $ (642)
Mutual funds (216,344)
-------------
$ (216,986)
=============
(4) Plan Amendment
Effective April 1, 2002, the Plan was amended and restated and a new
trustee, administrator and custodian of the Plan were appointed.
Accordingly, the Plan was renamed MidSouth Rail Union 401(k) Retirement
Savings Plan. Plan assets transferred to the new trustee were transferred
into funds comparable to those offered by the previous custodian or as
determined by a formal request by each participant. The conversion
initiated a "black out" period beginning March 15, 2002, and continued
through April 22, 2002. During this period, funds could not be withdrawn
from the Plan and investment elections could not be changed until the
trustee had time to accurately complete the conversion. During this period,
employee contributions continued to be made through payroll deductions and
the contributions were deposited.
(5) Portfolio Risk
The Plan provides for investments in various securities that, in general,
are exposed to various risks, such as interest rate, credit, and overall
market volatility risks. Due to the level of risk associated with certain
investment securities, it is reasonably possible that changes in the values
of investment securities will occur in the near term and that such changes
could materially affect the amounts reported in the statement of net assets
available for benefits.
(6) Income Tax Status
The Plan has received a favorable determination letter from the Internal
Revenue Service, dated March 7, 2003, indicating that it is qualified under
Section 401(a) of the Internal Revenue Code and, therefore, the related
trust is exempt from tax under Section 501(a) of the Internal Revenue Code.
The determination letter is applicable for the amendments executed through
December 20, 2001.
The Company is not aware of any activity or transaction that may adversely
affect the qualified status of the Plan.
Schedule 1
MIDSOUTH RAIL UNION 401(K)
RETIREMENT SAVINGS PLAN
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002
Identity Description Fair value
------------------------------------------------------- --------------------------------------------------- -------------------
Common Stock:
*Kansas City Southern common stock 331 shares, with a fair value of
$12.00 per share $ 3,972
Money Markets:
Barclays Money Market 10.00 shares, with a fair value of
$1.00 per share 10
Invesco Stable Value 1,046,912.28 shares, with a fair value of
$1.00 per share 1,046,912
Mutual Funds:
AIM Small Cap Growth Fund 1,329.187 shares, with a fair value of
$18.48 per share 24,563
Barclays Global Inv Equity Index Fund 1 1,977.64 shares, with a fair value of
$25.32 per share 50,074
EuroPacific Growth 2,586.451 shares, with a fair value of
$22.97 per share 59,411
Franklin Balance Sheet Investment A 3,579.14 shares, with a fair value of
$37.09 per share 132,750
Growth Fund of America 3,922.413 shares, with a fair value of
$18.47 per share 72,447
ING International Value Fund 3,989.66 shares, with a fair value of
$10.29 per share 41,054
Janus Fund 4,919.406 shares, with a fair value of
$17.82 per share 87,664
Janus Twenty Fund 652.59 shares, with a fair value of
$29.01 per share 18,932
MFS Value Fund 4,911.379 shares, with a fair value of
$16.52 per share 81,136
Oppenheimer Quest Balanced Value 7,705.293 shares, with a fair value of
12.63 per share 97,318
PIMCO Renaissance 7,810.014 shares, with a fair value of
$14.64 per share 114,338
PIMCO Total Return Administrative Shares 30,084.461 shares, with a fair value of
$10.67 per share 321,001
Washington Mutual Investors Fund 3,493.969 shares, with a fair value of
$23.51 per share 82,143
-------------------
Total investments $ 2,233,725
===================
*Party-in-interest.
See accompanying independent auditor's report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
MIDSOUTH RAIL UNION 401(K) RETIREMENT SAVINGS
PLAN
By
------------------------------------------
Eric B. Freestone
Title: Vice President Human Resources
Dated June 30, 2003