SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 8-K


                                 CURRENT REPORT
                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934


                Date of Report (Date of earliest event reported):
                                DECEMBER 16, 2003


                              KANSAS CITY SOUTHERN
               (Exact name of company as specified in its charter)


             DELAWARE                    1-4717                  44-0663509
 (State or other jurisdiction    (Commission file number)      (IRS Employer
        of incorporation)                                 Identification Number)

                427 WEST 12TH STREET, KANSAS CITY, MISSOURI 64105
               (Address of principal executive offices) (Zip Code)


                COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                (816) 983 - 1303


                                 NOT APPLICABLE
          (Former name or former address if changed since last report)









ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(c)           Exhibits

        EXHIBIT NO. DOCUMENT

              (99)  Additional Exhibits

              99.1  Pro  Forma  Financial   Information,   including  Pro  Forma
                    Condensed  Consolidated  Balance  Sheet As of September  30,
                    2003, Pro Forma Condensed  Consolidated Income Statement for
                    the Six Months  Ended June 30, 2003 and Pro Forma  Condensed
                    Consolidated  Income  Statement for the Year Ended  December
                    31, 2002.

ITEM 9. REGULATION FD DISCLOSURE

Kansas City Southern  ("KCS" or  "Company")  is furnishing  under Item 9 of this
Current  Report on Form 8-K the  information  included  as Exhibit  99.1 to this
report.  Exhibit 99.1 is pro forma financial  information of the Company that is
included in the  Post-Effective  Amendment  No.3 to the  Company's  registration
statement on Form S-3 filed December 16, 2003 ("Post-Effective Amendment No. 3")
and includes Pro Forma Condensed  Consolidated Balance Sheet As of September 30,
2003, Pro Forma Condensed Consolidated Income Statement for the Six Months Ended
June 30, 2003 and Pro Forma Condensed Consolidated Income Statement for the Year
Ended December 31, 2002.

The Company is also  furnishing  under Item 9 of this Current Report on Form 8-K
information  included  in the  Post-Effective  Amendment  No. 3 relating  to the
Company's Computation of Ratio of Earnings to Fixed Charges. The Company's Ratio
of Earnings to Fixed Charges for the quarter ended September 30, 2003 is 1.31.

The information  included in this Current Report on Form 8-K,  including Exhibit
99.1, is furnished  pursuant to Item 9 and shall not be deemed to be "filed" for
the purposes of Section 18 of the  Securities  Exchange Act of 1934 or otherwise
subject to the liabilities of that Section.



SIGNATURE1

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  Report  to be signed  on its  behalf by the  undersigned
hereunto duly authorized.


                                       Kansas City Southern


Date: December 16, 2003              By:   /S/ LOUIS G. VAN HORN
                                           ---------------------------
                                           Louis G. Van Horn
                                           Vice President and Comptroller





                                                               EXHIBIT 99.1




                              KANSAS CITY SOUTHERN
                 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                            AS OF SEPTEMBER 30, 2003
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


                                                                                                             
                                                                                                   PRO FORMA
                                                              KCS          GRUPO TFM             ADJUSTMENTS                  PRO
                                                          HISTORICAL       HISTORICAL     DEBIT           CREDIT             FORMA

ASSETS:
Current Assets:
  Cash and cash equivalents                                  $ 230.2         $   8.4                      $200.0   (4)       $ 38.6

  Accounts receivable, net                                     113.0           190.2                         3.3   (11)       299.9

  Inventories                                                   36.2            16.2                                           52.4

  Other current assets                                          18.0             8.5                                           26.5
                                                          -----------    ------------    ----------      ---------        ----------
TOTAL CURRENT ASSETS                                           397.4           223.3             -          203.3             417.4
                                                          -----------    ------------    ----------      ---------        ----------

Investments                                                    433.8             7.0                        386.1  (1)         54.7

Concession rights and related assets                               -         1,185.1          43.0 (2,7,      6.2  2,3)     1,221.9
                                                                                                   10)
Properties, net                                              1,348.9           652.3                                        2,001.2

Goodwill                                                        10.6               -                                           10.6

Deferred income taxes and employees statutory profit
sharing                                                            -           200.0                                          200.0

Other assets                                                    27.3            32.2                                           59.5

                                                          -----------    ------------    ----------      =========        ==========
TOTAL ASSETS                                                $2,218.0        $2,299.9        $ 43.0         $595.6          $3,965.3
                                                          ===========    ============    ==========      =========        ==========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:

  Debt due within one year                                  $  10.0         $  131.9                                        $ 141.9

  Accounts and wages payable and accrued liabilities          186.3            134.8           3.3   (1,11)                   317.8
                                                          -----------    ------------    ----------      =========        ==========
TOTAL CURRENT LIABILITIES                                     196.3            266.7           3.3              -             459.7
                                                          -----------    ------------    ----------      =========        ==========


OTHER LIABILITIES:

  Long-term debt                                              568.7            846.0                                        1,414.7

  Deferred income taxes                                       393.9               -                          14.1  (10)       408.0

  Other deferred credits                                       92.9             36.3           6.2  (3)                       123.0
                                                          -----------    ------------    ----------      =========        ==========
TOTAL OTHER LIABILITIES                                     1,055.5            882.3           6.2           14.1           1,945.7
                                                          -----------    ------------    ----------      =========        ==========


MINORITY INTEREST                                                -             351.5            -            39.5  (16)       391.0


STOCKHOLDERS' EQUITY

  Preferred stock                                               6.1               -             -               -               6.1

  Redeemable cumulative convertible perpetual preferred
     stock                                                      0.4               -             -               -               0.4

  Common / capital stock                                        0.6            807.0         807.0  (5)         -               0.6

  New issue, non-voting common, $. 01 par                        -                -             -             0.2  (6)          0.2

  Treasury shares and effect on purchase of subsidiary
     shares                                                      -            (222.0)           -           222.0  (5)            -

  Retained earnings                                           851.4            214.4         214.4  (5)        -   (6)        851.4

  Capital Surplus                                             108.9               -             -           202.5  (6)        311.4

  Accumulated other compehensive loss                          (1.2)              -                                            (1.2)
                                                          -----------    ------------    ----------      =========        ==========
Total stockholders' equity                                    966.2            799.4       1,021.4          424.7           1,168.9
                                                          -----------    ------------    ----------      =========        ==========


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $2,218.0         $2,299.9      $1,030.9         $478.3          $3,965.3
                                                           =========     ============    ==========       =========       ==========


See notes to proforma condensed consolidated financial statements.



                              KANSAS CITY SOUTHERN
                PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
                     FOR THE SIX MONTHS ENDED JUNE 30, 2003
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


                                                                                                      

                                                                                                PRO FORMA
                                                                  KCS        GRUPO TFM         ADJUSTMENTS               PRO
                                                               HISTORICAL   HISTORICAL    DEBIT          CREDIT         FORMA

REVENUES                                                        $ 432.8       $523.4                                    $956.2

Costs and expenses                                                348.8        355.1          2.6  (14)                  706.5

Depreciation and amortization                                      48.1         65.1          0.9  (15)                  114.1

                                                              ----------    ---------     ---------                   ----------

OPERATING INCOME                                                   35.9        103.2          3.5              -         135.6


Equity in net earnings of unconsolidated affiliates:

    Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.         6.2            -          6.2  (8)                      -

    Other                                                          (1.0)           -                                     (1.0)

Interest expense                                                  (34.8)       (83.4)                                  (118.2)

Other income (expense)                                              4.8        (33.3)                                   (28.5)
                                                              ----------    ---------    ---------        -------    ----------
Income (loss) before income taxes, minority and accounting
   change                                                          11.1        (13.5)         9.7              -        (12.1)

Income tax provision (benefit)                                      2.6        (30.4)        (1.7) (10)        -        (29.5)

Minority interest                                                    -          (3.4)         0.7  (16)                  (4.1)
                                                              ----------    ---------    ---------        -------    ----------


INCOME BEFORE ACCOUNTING CHANGE                                     8.5         13.5          8.7              -          13.3

CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX                  8.9            -            -              -           8.9
                                                              ----------    ---------    ---------        -------    ----------


NET INCOME                                                         17.4         13.5          8.7              -          22.2

PREFERRED STOCK DIVIDENDS                                           4.7                       1.7  (12)                    6.4
                                                              ----------    ---------    ---------        -------    ----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS                      $ 12.7       $ 13.5       $ 10.4          $            $ 15.8
                                                              ----------    ---------    ---------        -------    ----------

BASIC EARNINGS PER COMMON SHARE:

  INCOME BEFORE ACCOUNTING CHANGE                                $ 0.06                                                 $ 0.09
                                                              ==========                                             ==========
  NET INCOME                                                     $ 0.15                                                 $ 0.20  (12)
                                                              ==========                                             ==========

Basic Weighted Average Common shares outstanding (IN THOUS)      61,607                                                 79,607  (13)
                                                              ----------                                             ----------

DILUTED EARNINGS PER COMMON SHARE:

  INCOME BEFORE ACCOUNTING CHANGE                                $ 0.06                                                 $ 0.09
                                                              ==========                                             ==========
  NET INCOME                                                     $ 0.14                                                 $ 0.20  (12)
                                                              ==========                                             ==========

Diluted Weighted Average Common shares outstanding (IN THOUS)                                                           80,998  (13)
                                                                 62,998
                                                              ----------


See notes to proforma condensed consolidated financial statements.


                              KANSAS CITY SOUTHERN
                PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
                      FOR THE YEAR ENDED DECEMBER 31, 2002
                  (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


                                                                                                     
                                                                                                 PRO FORMA
                                                                 KCS        GRUPO TFM           ADJUSTMENTS                PRO
                                                              HISTORICAL   HISTORICAL     DEBIT             CREDIT        FORMA

REVENUES                                                          $ 566.2     $712.1                                   $1,278.3

Costs and expenses                                                  456.8      457.6            3.4  (14)                 917.8

Depreciation and amortization                                        61.4       83.0            1.2  (15)                 145.6
                                                                ----------    -------     ----------        --------    ---------

OPERATING INCOME                                                     48.0      171.5            4.6
                                                                                                                -         214.9

Equity in net earnings of unconsolidated affiliates:

    Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V.          45.8         -            45.8  (8)

    Other                                                            (2.4)        -                                        (2.4)

Gain on sale of Mexrail, Inc.                                         4.4         -             4.4  (9)                     -

Interest expense                                                    (45.0)     (95.8)                                    (140.8)

Debt retirement costs                                                (4.3)        -                                        (4.3)

Other income (expense)                                               17.6      (29.8)                                     (12.2)
                                                                ----------    -------     ----------        --------   ---------
Income before income taxes                                           64.1       45.9           54.8             -          55.2

Income tax provision (benefit)                                        6.9      (91.5)          (3.0) (10)       -         (87.6)
                                                                ----------    -------     ----------        --------   ---------

INCOME BEFORE MINORITY INTEREST                                      57.2      137.4           51.8             -         142.8

MINORITY INTEREST                                                      -       (27.3)          17.0  (16)       -         (44.3)
                                                                ----------    -------     ----------        --------   ---------

NET INCOME                                                           57.2      110.1           68.8             -          98.5

PREFERRED STOCK DIVIDENDS                                             0.2                       8.5  (12)                   8.7
                                                                ----------    -------     ----------        --------   ---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS                        $ 57.0     $110.1         $ 77.3          $  -       $  89.8

                                                                ----------    -------     ----------        --------   ---------

BASIC EARNINGS PER COMMON SHARE                                    $ 0.94                                               $  1.15 (12)
                                                                ==========                                             =========

Basic Weighted Average Common shares outstanding (IN THOUS)        60,336                                                78,336 (13)
                                                                ----------                                             ---------

DILUTED EARNINGS PER COMMON SHARE                                  $ 0.91                                               $  1.05 (12)
                                                                ==========                                             =========

Diluted Weighted Average Common shares outstanding (IN THOUS)      62,138                                                93,527 (13)
                                                                ----------                                             ---------



See notes to proforma condensed consolidated financial statements.




                              KANSAS CITY SOUTHERN
         NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: REMOVAL OF THE EQUITY INVESTMENT IN GRUPO TFM & MEXRAIL

Pursuant to the  Acquisition  Agreement,  Kansas City Southern (the "Company" or
"KCS") would acquire a controlling interest in Grupo Transportacion  Ferroviaria
Mexicana,  S.A. de C.V.  ("Grupo TFM"),  resulting in the full  consolidation of
Grupo TFM's balance sheet into NAFTA Rail,  successor to KCS.  Accordingly,  the
equity investment as of September 30, 2003 reflected on the Company's  condensed
consolidated balance sheet would be eliminated.

On May 9, 2003,  the  Company  closed on its 51%  investment  in  Mexrail,  Inc.
("Mexrail") for a total of $32.7 million. The Mexrail shares have been placed in
a voting trust while awaiting the approval of the Surface  Transportation  Board
("STB").  Since the acquisition of the  controlling  interest in Mexrail has not
been approved and Grupo TFM holds a right of  repurchase,  the Company and Grupo
TFM consider this  investment in Mexrail as  temporary.  Accordingly,  Grupo TFM
continues to  consolidate  the balance  sheet and  operating  results of Mexrail
pending approval of the transaction.

NOTE 2: CREATION OF IDENTIFIABLE INTANGIBLE ASSETS

Additional  identifiable  intangibles  or goodwill may result from the Grupo TFM
acquisition.  The current  value of the  consideration  to obtain a  controlling
interest  in Grupo TFM  exceeds the  current  book value of the  underlying  net
assets of  approximately  $15.1  million,  which is reflected  on the  condensed
consolidated  pro forma balance sheet as an addition to concession  assets.  The
Company has not completed a fair value appraisal or any associated allocation of
excess  purchase price to the fair value of tangible  assets as of this date. At
the time those  processes are  completed,  the  allocation of the purchase price
could change and may include certain  identifiable  intangibles  assets, such as
customer  contracts,  customer  relationships  or similar items. For purposes of
these pro forma  financial  statements the Company has assumed the difference in
value will be assigned to concession assets.

NOTE 3: RECOGNITION OF THE DEFERRED GAIN ON THE SALE OF MEXRAIL

On April 1, 2002,  the Company sold its 49% interest in Mexrail to TFM for $31.4
million  resulting in a pre-tax gain of $4.4 million,  which was reported in the
Company's Consolidated Statement of Income for the year ended December 31, 2002.
In addition,  the transaction resulted in the recognition of a deferred gain, of
which $6.2 million remained  unamortized as of September 30, 2003.  Assuming the
transaction  contemplated  had occurred on September  30,  2003,  the  remaining
unamortized gain on the April 2002 Mexrail  transaction would be eliminated from
the Company's long-term  liabilities and reflected with an offsetting adjustment
to concession assets as part of the transaction. Also see notes 2 and 9.

NOTE 4: TRANSACTION FINANCING

As described above, part of the transaction  consideration includes a payment of
$200  million.  This  payment may be made by the  Company,  at its option,  in a
combination of additional common stock issuance to TMM and cash. For purposes of
these pro forma  financial  statements  the Company has assumed  that the entire
payment  of $200  million  will be made in cash  with a  combination  of the net
proceeds  of the  sale of  4.25%  Redeemable  Cumulative  Convertible  Perpetual
Preferred Stock ("Convertible Preferred Stock") of approximately $193.0 million,
completed in April 2003, and $7.0 million of the Company's  available  cash. The
pro forma  financial  statements  presented  herein  reflect the effect of these
transactions. Also see note 6.

The Convertible  Preferred Stock is redeemable at the option of a holder only in
the event of a  "fundamental  change",  which is defined as "any  transaction or
event  (whether  by means  of an  exchange  offer,  liquidation,  tender  offer,
consolidation,  merger,  combination,   reclassification,   recapitalization  or
otherwise) in connection  with which all or  substantially  all of the Company's
Common stock is  exchanged  for,  converted  into,  acquired for or  constitutes
solely the right to receive  common stock that is not listed on a United  States
national  securities  exchange or approved for quotation on the Nasdaq  National
Market or similar system. The practical effect of this provision is to limit the
Company's  ability to  eliminate a holder's  ability to convert the  Convertible
Preferred Stock into common shares of publicly traded security  through a merger
or  consolidation  transaction.   In  no  other  circumstances  is  the  Company
potentially  obligated  to  redeem  the  Convertible  Preferred  Stock for cash.
Accordingly,  since the  Company  is in a  position  to  control a  "fundamental
change" the  Convertible  Preferred  Stock is  classified  as  permanent  equity
capital.

NOTE 5: ELIMINATION OF GRUPO TFM STOCKHOLDERS' EQUITY

As a result of NAFTA Rail  obtaining a  controlling  interest in Grupo TFM,  its
assets and liabilities would be consolidated with NAFTA Rail. Accordingly, Grupo
TFM's  stockholders'  equity  amounts would be  eliminated in the  consolidation
process.

NOTE 6: ISSUANCE OF NEW SECURITIES

As noted above, TMM will receive as consideration for the transaction 18 million
shares of NAFTA  Rail.  This pro  forma  adjustment  reflects  the  addition  to
stockholders'  equity  of a total of $202.7  million  of  equity  based  upon 18
million  common  shares as part of the initial  agreement  and  assuming a stock
price of $11.26 per share.  The assumed stock price was derived by averaging the
closing price of the Company's common stock five days before and five days after
the  announcement of the transaction on April 21, 2003. The total  allocation of
the new capital is $0.2 million,  which is comprised of 18 million shares of new
non-voting  common stock with a par value of $.01 per share and $202.5  million,
which is reflected as capital surplus representing the value of the stock issued
in excess of par.

In April  2003,  the  Company  issued  400,000  shares of $1.00 par value  4.25%
Convertible  Preferred Stock resulting in net proceeds of  approximately  $193.0
million  (net  of fees of  approximately  $7.0  million).  This  transaction  is
reflected in the accompanying  Registrant historical  consolidated balance sheet
as of September  30, 2003 as new capital of $0.4 million and capital  surplus of
$192.6 million.

Holders of the Convertible Preferred Stock are entitled to receive any dividends
declared by the  Company's  board of  directors  at the rate of 4.25% per annum,
payable  quarterly in arrears on February 15, May 15,  August 15 and November 15
of each year,  commencing August 15, 2003. The dividends are cumulative from the
date of initial issuance and accumulated but unpaid dividends cumulate dividends
at the annual rate of 4.25%.  In  addition,  the Company  will also pay "special
dividends" if it fails to comply with certain  obligations  under a registration
rights  agreement.  A holder may convert its  Convertible  Preferred  Stock into
shares of the Company's Common Stock only under certain circumstances,  relating
to: (i) the trading  price of the Company's  Common Stock;  (ii) a credit rating
downgrade; (iii) the trading price per share of the Convertible Preferred Stock;
(iv) redemption of the Convertible  Preferred  Stock;  and (v) the occurrence of
certain corporate transactions.

The  conversion  rate may be adjusted  upon the  occurrence  of certain  events.
Subject to certain  conditions,  on or after May 20, 2008, the Company will have
the option to redeem some or all of the shares of Convertible Preferred Stock at
a redemption price of 100% of the liquidation  preference,  plus accumulated and
unpaid dividends, if any, to the redemption date. In the event of a "fundamental
change,"  the Company may be  required  to  purchase  shares of the  Convertible
Preferred  Stock at the  option of the  holder  at a price  equal to 100% of the
liquidation  preference  plus any accumulated  and unpaid  dividends,  including
special dividends, if any, to, but excluding, the purchase date.

The Company may elect to pay the  purchase  price in cash,  Common  Stock,  or a
combination  of cash and Common  Stock.  If the  Company  elects to pay all or a
portion of the purchase  price in shares of Common Stock,  the Common Stock will
be  valued  at a  specified  discount.  The  Company  agreed  to file  with  the
Securities and Exchange  Commission a shelf registration  statement with respect
to the resale of the  Convertible  Preferred Stock and the Common Stock issuable
upon  conversion  of the  Convertible  Preferred  Stock  and to keep  the  shelf
registration  statement  effective for a specified  period of time. In addition,
the  Company  will be required  to pay to holders of the  Convertible  Preferred
Stock liquidated  damages in the form of special dividends or liquidated damages
payments,  as  applicable,  if the  Company  fails to register  the  Convertible
Preferred Stock and the Common Stock issuable upon conversion of the Convertible
Preferred  Stock  within,  and to keep  such  registration  statement  effective
during, the specified time periods.

NOTE 7:  ELIMINATION OF EQUITY BASIS DIFFERENCE IN GRUPO TFM

The calculation of the Company's net equity in Grupo TFM's underlying net assets
utilizing the Company's current ownership  percentage of approximately  46.6% as
compared to the amount  recorded as an  investment  as of September  30, 2003 of
approximately  $386.1  million  results in a basis  difference of  approximately
$13.8  million.  This  difference  in basis results from a number of factors the
most significant of which is the changing  ownership interest in Grupo TFM which
produced a difference  in  investment  basis that occurred when TFM acquired the
Mexican  Government's  24.6%  interest  in Grupo TFM  during  2002.  This  basis
difference would have been amortized over time, however, due to the contemplated
transaction wherein the Company will obtain a controlling interest in Grupo TFM,
the  remaining  basis   difference  will  be  recognized  at  the  date  of  the
transaction.  The pro forma financial  statements as stated herein recognize the
elimination of this basis difference as an addition to concession  assets on the
condensed consolidated balance sheet. See Note 2.

NOTE 8: ELIMINATION OF EQUITY EARNINGS FROM GRUPO TFM

Assuming the contemplated  transaction would have been consummated on January 1,
2002 or January  1, 2003 as  applicable,  the  Company  would have  consolidated
earnings of Grupo TFM and accordingly, the equity in earnings of Grupo TFM would
be eliminated.

NOTE 9: ELIMINATION OF THE GAIN ON THE SALE OF MEXRAIL

In April  2002,  the Company  sold to Grupo TFM its 49%  interest in Mexrail for
$31.4 million.  Assuming the contemplated  transaction would have occurred as of
January 1, 2002,  the sale of Mexrail to Grupo TFM would not have  occurred  and
accordingly,  the  associated  gain  would not have been  recorded.  The  income
statement as of and for the year ended  December 31, 2002 for Grupo TFM has been
restated to reflect Mexrail as a consolidated  subsidiary  effective  January 1,
2002.

NOTE 10: PROVISION FOR INCOME TAXES / DEFERRED INCOME TAXES

The pro forma condensed  consolidated  income statement  reflects the income tax
impacts of the pro forma adjustments utilizing an income tax rate of 38.25%, but
excluding  any  consideration  of the equity  earnings  of Grupo TFM,  since the
Company has not previously provided a tax provision on these amounts.

In addition, the recognition of additional identifiable intangible assets in the
form  of  concession  assets  creates  an  additional   deferred  tax  liability
associated with those assets. The pro forma condensed consolidated balance sheet
as of September 30, 2003 recognizes the deferred tax liability of  approximately
$14.1 million using the tax rate noted above.

NOTE 11: CONSOLIDATION ELIMINATIONS

These pro forma  adjustments  reflect the  elimination of  intercompany  amounts
between the Company,  Grupo TFM and Mexrail,  assuming the three  entities  were
consolidated for financial reporting purposes.

NOTE 12: COMPUTATION OF EARNINGS PER SHARE

Basic  earnings  per  share  for  the  purposes  of  the  pro  forma   condensed
consolidated  income statement reflect pro forma  consolidated net income,  less
dividends on the  Company's $25 par preferred  stock of  approximately  $242,000
annually,  less  dividends  on the  Company's  $.01  par  redeemable  cumulative
convertible  perpetual  preferred stock of approximately  $8.5 million annually,
divided by the  weighted  average  outstanding  shares as  described  in note 13
below.

Diluted  earnings  per share  for the  purposes  of the pro  forma  consolidated
condensed  income  statement  reflect pro forma  consolidated  net income,  less
dividends on the  Company's $25 par preferred  stock of  approximately  $242,000
annually,  divided  by  the  weighted  average  diluted  outstanding  shares  as
described in note 13 below.

The assumed  conversion of the Company's $1.00 par  Convertible  Preferred Stock
(convertible  into 13,389,121 common shares).  would have been  anti-dilutive to
the pro forma diluted  earnings per share  computations  in each of the periods.
Accordingly,  conversion of preferred  shares into common shares was not assumed
and these shares were not included in the pro forma  diluted  earnings per share
computations.Total preferred dividends, however, were subtracted from net income
in the computation of the pro forma diluted earnings per share.

NOTE 13: WEIGHTED AVERAGE SHARES OUTSTANDING

The weighted  average basic shares  outstanding  are  calculated  beginning with
Company  historical  average  basic  shares of  (60,336,000  for the year  ended
December 31, 2002 and 61,607,000 for the nine months ended  September 30, 2003),
plus 18,000,000 assumed shares to be issued as described in the note 6 above.

The weighted  average diluted shares  outstanding are calculated  beginning with
Company  historical  average  diluted shares of  (62,138,000  for the year ended
December 31, 2002 and 62,998,000  for the nine months ended  September 30, 2003)
plus  18,000,000  assumed  shares to be issued as described in the note 6 above,
but excluding the 13,389,121  shares  assuming full conversion of the redeemable
cumulative  convertible  perpetual  preferred  stock  into  common  utilizing  a
conversion  rate of 33.4728 for each share of preferred to common.  As stated in
Note 12  above,  the  inclusion  of the  13,389,121  shares  would  have  had an
anti-dilutive  effect on the  computations  of pro forma  dilutive  earnings per
share.

NOTE 14: CONSULTING AGREEMENT

In  connection  with the  transaction,  the  Company  intends  to  enter  into a
consulting  agreement with a consulting firm  ("Consultant")  controlled by Jose
Serrano  Segovia  with an  initial  term of three  years.  In  consideration  of
services  provided,  Consultant  will  receive an annual fee of $0.6  million in
cash,  plus up to 2.1 million shares of restricted  common stock of the Company.
The  restricted  stock vests  based upon the  achievement  of certain  events as
defined  in the  consulting  agreement  and or  ratably  over  the  term  of the
agreement  in  certain  circumstances.  The  pro  forma  condensed  consolidated
financial statements herein reflect the effect of these transactions as follows.
The restricted  stock will be accounted for as  compensation  expense based upon
the assumed  fair market value at date of vesting and expensed in the period the
stock vests.

The annual fee is reflected as additional  operating  costs and expenses of $0.6
million  for the year ended  December  31,  2002 and $0.5  million  for the nine
months ended September 30, 2003. An initial  750,000 shares of restricted  stock
vest  ratably  over the term of the  agreement.  For  purposes  of the pro forma
statements  of income the Company has assumed a calculated  value of stock based
upon the stock price of $11.26 as noted above. The resulting amount is reflected
as compensation expense and amortized on a straight line basis over three years.
The additional  compensation  expense is approximately $2.8 million for the year
ended December 31, 2002 and approximately $2.1 million for the nine months ended
September 30, 2003. The Company  recognizes that the prospective  accounting for
these  shares will result in variable  accounting  treatment  and the  resulting
expense will be dependent upon the Company's  stock price at the actual time the
stock vests.  Since the Company cannot predict the future price of the Company's
stock, the pro forma adjustments assume the stock price as noted above.

The consulting  agreement  provides for additional  vesting of restricted  stock
totaling 1,350,000 shares, in increments of 525,000,  125,000 and 700,000 shares
depending on the  achievement of certain  events  ("contingent  shares").  These
events  include the  completion of an agreement with TFM labor unions and events
related to the VAT tax issue.  While the Company  cannot  predict  the  ultimate
timing of  achievement  of these  events and thus pro forma their  effect on the
adjusted financial  statements,  the Company would intend to record compensation
expense at the time and in the quarter or annual  period in which  these  shares
vest,  at then  fair  value as  determined  by the  Company's  stock  price.  No
adjustments for these contingent  shares has been made in the attached pro forma
financial statements due to the uncertainty of their realization and vesting.

The calculated  value of the  restricted  stock is  approximately  $15.2 million
based upon the stock price of $11.26 as noted  above.  The actual  impact to the
Company's financial statements related to the restricted stock is dependant upon
the price of the  Company's  stock at the time the  restricted  stock  vests and
which the Company  cannot  predict.  A $1.00 per share change,  either higher or
lower, in the Company's stock price at the time the restricted stock vests could
result in higher or lower  compensation  expense of approximately  $1.4 million,
assuming all 1.35 million shares vested at the same time.

NOTE 15: AMORTIZATION OF IDENTIFIABLE INTANGIBLES - CONCESSION ASSETS

The  transactions  as described  above  result in a net  addition to  concession
assets of approximately  $24.2 million plus $15.0 million of deferred income tax
impact  described  in Note 10  above.  For  purposes  of the  pro  forma  income
statements  presented  herein,  this  balance is  amortized  over the  remaining
amortizable  life  of  the  concession  assets  of 33  years.  This  results  in
additional amortization expense of approximately $1.2 million for the year ended
December  31, 2002 and  approximately  $0.9  million  for the nine months  ended
September 30, 2003.


NOTE 16: MINORITY INTEREST

As previously reported,  TFM repurchased the Mexican Government's 24.6% interest
in Grupo TFM in June 2002.  Since the purchase of the Mexican  Government  24.6%
interest  was  completed  by Grupo  TFM's  subsidiary  TFM and the fact that the
Mexican  Government  also continues to maintain a 20% minority  interest in TFM,
the Mexican  Government  retained an indirect 4.9448% minority interest in Grupo
TFM through its  ownership of TFM. The pro forma  adjusting  entries to minority
interest reflect the continuing  indirect minority ownership in Grupo TFM by the
Mexican  Government  for the  periods  indicated.  For the pro  forma  condensed
consolidated  balance sheet as of September 30, 2003 an additional $39.5 million
of minority interest was added to the pro forma balances representing 4.9448% of
Grupo  TFM's  net  assets.  For  the pro  forma  condensed  consolidated  income
statements,  the amount of  minority  interest in Grupo TFM's US GAAP net income
was computed for the periods presented  resulting in approximately $17.0 million
for the year ended  December 31, 2002 and $0.7 million for the nine months ended
September 30, 2003.

NOTE 17: VAT RELATED MATTERS

The impact of any  settlement  of the VAT  dispute  between  TFM and the Mexican
Government  on the  Company's  consolidated  financial  statements  of  will  be
dependent upon the timing and amount of any such settlement.

It is expected  that the value of any  consideration  received  from the Mexican
Government  from the settlement of the VAT dispute will be recorded as income by
TFM and Grupo TFM,  net of  related  income  taxes.  If a binding  agreement  is
reached before the consummation of the Acquisition, the Company would record its
proportionate  share of any such gain  through  its equity in  earnings of Grupo
TFM,  based  upon  its  existing  ownership  of  46.6%.  If the  Acquisition  is
subsequently consummated, the proceeds from any settlement received and retained
by TFM,  including  the impacts of any  additional  consideration  as may become
payable as  discussed  below,  would  impact  the  Company's  allocation  of the
purchase price to assets  acquired and  liabilities  assumed,  likely  impacting
amounts otherwise  allocable to long-lived  assets,  including  intangibles,  as
presented herein.

If the VAT dispute were settled  following the  consummation of the Acquisition,
the  Company  would  record in income its  proportionate  share of any such gain
through its  consolidation of the operating results of Grupo TFM, based upon its
pre-acquisition   ownership   interest  of  46.6%.   The  portion  of  any  gain
attributable  to  the  acquired  interest  of  TMM  would  likely  constitute  a
pre-acquisition  contingency and not impact the Company's operating results, but
rather would be  considered in the  allocation  of the purchase  price to assets
acquired and liabilities assumed, likely reducing amounts otherwise allocable to
long-lived assets, including intangibles, as presented herein.

Pursuant  to the terms of the  Acquisition,  if the  value of the  consideration
received by TFM in connection with the settlement of the VAT dispute exceeds the
amount  payable  pursuant  to the Put  Agreement  in place  between  the Mexican
Government,  Grupo TFM, TMM and the Company,  whereby the Mexican Government may
put its  ownership  in TFM to the  other  parties,  additional  amounts  will be
payable by the Company or TFM to TMM,  depending  on the amount of such  excess.
Such  payment  would range from $100 million to $180  million.  Any such payment
would constitute additional  consideration for the purchase of TMM's interest in
Grupo TFM and as such would likely  increase  amounts  allocable  to  long-lived
assets, including intangibles, as presented herein.

NOTE 18:  CONSIDERATION OF THE MEXICAN GOVERNMENT'S PUT RIGHTS REGARDING ITS 20%
MINORITY INTEREST IN TFM

The  provisions of the "Put  Agreement"  obligate Grupo TFM or the Registrant to
purchase the Mexican  Government's  20% minority  interest in TFM under  certain
conditions.  As  disclosed  in the  Registrant's  Form  10-K for the year  ended
December  31, 2002 and its most  recently  filed Form 10-Q for the period  ended
September  30,  2003,  the  total  estimated   purchase  price  of  the  Mexican
Government's  minority interest was approximately $485 million and $469 million,
respectively.   The   calculation  of  the  purchase  price  is  dependent  upon
inflationary  factors of the Mexican economy and foreign  exchange rate factors,
which the Registrant can not predict.  While the Registrant along with Grupo TFM
are currently  exploring  financing  alternatives,  the source and cost any such
financing for this  obligation is not reasonably  determinable at this time . In
addition,  the acquisition of the Mexican  Government's  interest and funding of
this  obligation  could be affected by the outcome and  settlement  of TFM's VAT
dispute with the Mexican Government.

Due to the  uncertainties  noted above,  the  accompanying  pro forma  financial
statements do not reflect the impact of the acquisition of additional  shares of
TFM which could arise under the Put Agreement. If, following the consummation of
the  acquisition  of Grupo TFM shares  from TMM,  the  Registrant  acquires  the
remaining  shares  of TFM held by the  Mexican  Government  pursuant  to the Put
Agreement,  the accompanying  pro forma financial  statements would be generally
impacted as follows. The excess of the purchase price over the carrying value of
minority  interest  would be  allocated to the assets and  liabilities  of GTFM,
based upon their  fair  values,  with the likely  impact  being an  increase  to
recorded  amounts for long-lived  assets,  including  intangibles,  as presented
herein.  Additionally,  the minority  interest in earnings of Grupo TFM would be
eliminated from the pro forma income statement,  offset by the costs of any debt
financing  incurred to finance the purchase and any increases in depreciation or
amortization expense relating the application of purchase accounting.

NOTE 19: SUBSEQUENT EVENTS

KCS and TMM are in dispute over TMM's attempt to terminate the agreement entered
into on April 20,  2003 by KCS and TMM and other  parties  under which KCS would
acquire  control of TFM.  On August 29,  2003,  KCS  received a demand by TFM to
repurchase  from KCS shares of Mexrail sold to KCS in May 2003. On September 23,
2003, the STB issued a decision  finding no need to rule on the transfer back to
TFM of the 51%  interest  in  Mexrail  that  KCS  acquired  on May 9,  2003.  On
September 30, 2003, TFM repurchased,  for $32.7 million, the Mexrail shares from
KCS at the price KCS paid TFM in May 2003.