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:
The Kansas City Southern Railway Company Union 401(k) 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 for the Year Ended
December 31, 2002
Statement of Changes in Net Assets Available for Benefits for the Year
Ended December 31, 2002
Notes to Financial Statements
EXHIBIT:
Exhibit 23 - Consent of KPMG LLP
The Kansas City Southern Railway
Company Union 401(k) Plan
Financial Statements and Supplemental Schedule
December 31, 2002 and 2001
(With Independent Auditors' Report Thereon)
The Kansas City Southern Railway
Company Union 401(k) Plan
Table of Contents
Page
Independent Auditors' 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 the Year ended December 31, 2002 3
Notes to Financial Statements 4
Supplemental Schedule*
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) -
December 31, 2002 8
* 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
The Participants and Plan Administrator of
The Kansas City Southern Railway Company Union 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of the Kansas City Southern Railway Company Union 401(k) 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
THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
----------------- ---------------
Assets:
Cash and temporary investments $ 2,611
Investments, at fair value:
Common stock of Kansas City Southern 9,756 ---
Money markets 39,798 19,771
Mutual funds 351,625 416,933
Total investments 401,179 436,704
Participant contributions receivable --- 2,650
----------------- ---------------
Net assets available for benefits $ 403,790 439,354
================= ===============
See accompanying notes to financial statements.
THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2002
Investment income (loss):
Interest and dividends $ 8,568
Net depreciation in fair value of investments (94,136)
------------------
Total investment loss (85,568)
Participant contributions 62,520
Benefits paid (12,516)
Decrease in net assets available for benefits (35,564)
Net assets available for benefits:
Beginning of year 439,354
------------------
End of year $ 403,790
==================
See accompanying notes to financial statements.
THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(1) Description of the Plan
(a) General
The Kansas City Southern Railway Company Union 401(k) Plan (the Plan)
is a participant-directed, contributory, defined contribution plan
subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA).
The following description of the Plan provides only general
information. Participants should refer to the plan agreement for a
more complete description of the Plan's provisions.
(b) Eligibility
The Plan covers all full-time employees of The Kansas City Southern
Railway Company (the Company) who are members of one of the following
collective bargaining units: Brotherhood of Railway Carmen, Division
of Transportation Communications International Union, Brotherhood of
Railroad Signalmen, Transportation Communications International Union,
and The National Conference of Firemen & Oilers. Plan entry dates are
January 1, April 1, July 1 and October 1 of each year.
A plan participant that ends his or her membership in any of the above
collective bargaining units is no longer eligible to make elective
deferrals under the Plan but will continue to be vested under 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 does not
match participant contributions.
(d) Participant Accounts
Each participant's account is credited with the participant's
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 contributions plus actual
Plan earnings thereon.
(f) Investment Options
Upon enrollment in the Plan, a participant may direct their
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 or (b) 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) 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.
(d) Reclassifications
Certain prior year amounts have been reclassified to conform to
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 $ - 44,166
Invesco Stable Value Money Market 39,796 19,771
Janus Fund 90,427 185,747
Barclays Global Inv Equity Index Fund 26,826 -
Janus Strategic Value Fund - 52,338
MFS Value Fund 27,123 -
Franklin Balance Sheet Investment A 29,244
PIMCO Renaissance Fund 29,791 -
PIMCO Total Return Administrative Shares Fund 56,806 -
Washington Mutual Investors Fund 31,398 -
Vanguard Index Trust 500 Portfolio - 112,255
Fidelity Advisor Intermediate Bond Fund - 22,427
Other 69,768 -
--------- ---------
Total Investments $ 401,179 436,704
=========== ===========
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 $94,136 as follows:
Kansas City Southern common stock $ (1,502)
Mutual funds (92,634)
-------------
$ (94,136)
=============
(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. 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 from 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 August 9, 2002, 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 amendments
executed through December 20, 2001.
The Company is not aware of any activity or transactions that may adversely
affect the qualified status of the Plan.
Schedule l
THE KANSAS CITY SOUTHERN RAILWAY
COMPANY UNION 401(k) 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 813 shares, with a fair value of
$12.00 per share $ 9,756
Money Markets
Barclays Money Market 2 shares. with a fair value of
$1.00 per share 2
Invesco Stable Value 39,795.77 shares, with a fair value of
$1.00 per share 39,796
Mutual Funds
AIM Small Cap Growth Fund 740.441 shares, with a fair value of
$18.48 per share 13,683
Barclays Global Inv Equity Index Fund I 1,059.46 shares, with a fair value of
$25.32 per share 26,826
EuroPacific Growth 428.533 shares, with a fair value of
$22.97 per share 9,843
Franklin Balance Sheet Investment A 788.452 shares, with a fair value of
$37.09 per share 29,244
Growth Fund of America 780.379 shares, with a fair value of
$18.47 per share 14,414
ING International Value Fund 532.582 shares, with a fair value of
$10.29 per share 5,480
Janus Fund 5,074.441 shares, with a fair value of
$17.82 per share 90,427
Janus Twenty Fund 64.30 shares, with a fair value of
$29.01 per share 1,865
MFS Value Fund 1,641.852 shares, with a fair value of
$16.52 per share 27,123
Oppenheimer Quest Balanced Value 1,165.887 shares, with a fair value of
12.63 per share 14,725
PIMCO Renaissance 2,034.935 shares, with a fair value of
$14.64 per share 29,791
PIMCO Total Return Administrative Shares 5,323.858 shares, with a fair value of
$10.67 per share 56,806
Washington Mutual Investors Fund 1,335.50 shares, with a fair value of
$23.51 per share 31,398
---------------
Total investments $ 401,179
===============
*Party-in-interest.
See accompanying independent auditors' 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.
THE KANSAS CITY SOUTHERN RAILWAY COMPANY
UNION 401(K) PLAN
By /s/ Eric B. Freestone
------------------------------------------
Eric B. Freestone
Title: Vice President Human Resources
Dated June 30, 2003