UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-14036
DST SYSTEMS, INC.
(Exact name of Company as specified in its charter)
Delaware 43-1581814
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
(816) 435-1000
(Company's telephone number, including area code)
No Changes
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of the Company's common
stock as of October 30, 1998:
Common Stock $.01 par value - 49,006,082
<PAGE>
DST Systems, Inc.
Form 10-Q
September 30, 1998
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 3
Condensed Consolidated Balance Sheet -
December 31, 1997 and September 30, 1998 4
Condensed Consolidated Statement of Income -
Three and Nine Months Ended September 30, 1997 and 1998 5
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1997 and 1998 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18-20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
The Company's service marks and trademarks include without limitation DST(TM),
Securities Transfer System(TM), TA2000(R), Portfolio Accounting System(TM),
Automated Work Distributor(TM), AWD(R), TRAC-2000(R), Fairway(TM), and
FAST2000(TM) which are referred to in this Report. AIM Family of Funds(R)
referred to in this Report is a trademark of AIM Management Group, Inc.
2
<PAGE>
DST Systems, Inc.
Form 10-Q
September 30, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments
The Condensed Consolidated Financial Statements of DST Systems, Inc. ("DST" or
the "Company") included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures herein are
adequate to enable a reasonable understanding of the information presented.
These Condensed Consolidated Financial Statements should be read in conjunction
with the audited financial statements and the notes thereto for the year ended
December 31, 1997. Additionally, the Condensed Consolidated Financial Statements
should be read in conjunction with Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this Form 10-Q.
The results of operations for the three and nine months ended September 30,
1998, are not necessarily indicative of the results to be expected for the full
year 1998.
3
<TABLE>
<CAPTION>
DST Systems, Inc.
Condensed Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
December 31, September 30,
1997 1998
--------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 15,833 $ 35,388
Accounts receivable 170,699 177,884
Other assets 44,792 42,503
--------------- ---------------
231,324 255,775
Investments 820,577 936,259
Properties 242,153 235,402
Intangibles and other assets 61,350 52,710
--------------- ---------------
Total assets $ 1,355,404 $ 1,480,146
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt due within one year $ 13,898 $ 10,584
Accounts payable 49,763 28,405
Accrued compensation and benefits 28,319 32,195
Deferred revenues and gains 22,679 29,908
Other liabilities 26,334 37,251
--------------- ---------------
140,993 138,343
Long-term debt 92,005 88,254
Deferred income taxes 241,782 280,424
Other liabilities 43,534 27,555
--------------- ---------------
518,314 534,576
--------------- ---------------
Minority interest 1,380 845
--------------- ---------------
Stockholders' equity
Common stock, $0.01 par; 125,000,000
shares authorized, 50,000,000 shares issued 500 500
Additional paid-in capital 408,610 409,351
Retained earnings 261,589 316,243
Accumulated other comprehensive income 196,415 254,617
Treasury stock, (956,942 and 997,596 shares,
respectively), at cost (31,404) (35,986)
--------------- ---------------
Total stockholders' equity 835,710 944,725
--------------- ---------------
Total liabilities and stockholders' equity $ 1,355,404 $ 1,480,146
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<TABLE>
<CAPTION>
DST Systems, Inc.
Condensed Consolidated Statement of Income
(in thousands, except per share amounts)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1998 1997 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 159,863 $ 186,256 $ 473,941 $ 557,972
Costs and expenses 118,811 139,932 349,148 411,573
Depreciation and amortization 19,453 19,910 58,551 60,711
---------------- ---------------- ---------------- ----------------
Income from operations 21,599 26,414 66,242 85,688
Interest expense (1,960) (1,829) (6,006) (6,087)
Other income, net 2,241 3,501 4,451 5,491
Equity in earnings (losses) of
unconsolidated affiliates,
net of income taxes (507) (1,162) 1,357 (1,529)
---------------- ---------------- ---------------- ----------------
Income before income taxes
and minority interest 21,373 26,924 66,044 83,563
Income taxes 7,097 8,495 22,463 29,153
---------------- ---------------- ---------------- ----------------
Income before minority interest 14,276 18,429 43,581 54,410
Minoirty interests in income (losses) 222 (102) 607 (244)
---------------- ---------------- ---------------- ----------------
Net Income $ 14,054 $ 18,531 $ 42,974 $ 54,654
================ ================ ================ ================
Average common shares outstanding 49,236 48,994 49,378 48,988
Basic earnings per share $ 0.29 $ 0.38 $ 0.87 $ 1.12
Diluted shares outstanding 49,804 50,102 49,862 49,991
Diluted earnings per share $ 0.28 $ 0.37 $ 0.86 $ 1.09
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<TABLE>
<CAPTION>
DST Systems, Inc.
Condensed Consolidated Statement of Cash Flows
(dollars in thousands)
(unaudited)
For the Nine Months
Ended September 30,
1997 1998
---------------- ----------------
<S> <C> <C>
Cash flows -- operating activities:
Net income $ 42,974 $ 54,654
---------------- ----------------
Depreciation and amortization 58,551 60,711
Undistributed (earnings) losses of unconsolidated affiliates (1,357) 1,529
Gains on sale of investments (1,464) (1,885)
Cash dividends received from unconsolidated affiliates 8,363
Changes in accounts receivable (3,323) (7,185)
Changes in other current assets (2,878) 1,974
Changes in accounts payable and accrued liabilities (13,996) 5,153
Other, net (859) 1,782
---------------- ----------------
Total adjustments to net income 34,674 70,442
---------------- ----------------
Net 77,648 125,096
---------------- ----------------
Cash flows -- investing activities:
Investments and advances to unconsolidated affiliates (15,368) (29,306)
Proceeds from sale of investments 12,359 2,669
Capital expenditures (41,134) (54,225)
Other, net (277) 656
---------------- ----------------
Net (44,420) (80,206)
---------------- ----------------
Cash flows -- financing activities:
Principal payments on long-term debt (10,825) (8,148)
Net increase in credit facilities and notes payable 6,004 1,016
Common stock repurchased (14,503) (10,009)
Other, net (6,387) (8,194)
---------------- ----------------
Net (25,711) (25,335)
---------------- ----------------
Net increase in cash 7,517 19,555
Cash at beginning of period 8,279 15,833
---------------- ----------------
Cash at end of period $ 15,796 $ 35,388
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
DST Systems, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Summary of Accounting Policies
The Condensed Consolidated Financial Statements of DST Systems, Inc. ("DST" or
the "Company") included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures herein are adequate to enable a
reasonable understanding of the information presented. These Condensed
Consolidated Financial Statements should be read in conjunction with the audited
financial statements and the notes thereto for the year ended December 31, 1997.
Additionally, the Condensed Consolidated Financial Statements should be read in
conjunction with Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this Form 10-Q.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal interim
closing procedures) necessary to present fairly the financial position of the
Company and its subsidiaries at December 31, 1997 and September 30, 1998, the
results of operations for the three and nine months ended September 30, 1997 and
1998, and cash flows for the nine months ended September 30, 1997 and 1998.
The results of operations for the three and nine months ended September 30,
1998, are not necessarily indicative of the results to be expected for the full
year 1998.
EARNINGS PER SHARE. The computation of basic and diluted earnings per share is
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 14,054 $ 18,531 $ 42,974 $ 54,654
============= ============== ============= ==============
Average common shares outstanding 49,236 48,994 49,378 48,988
Incremental shares from assumed
conversions of stock options 568 1,108 484 1,003
------------- -------------- ------------- --------------
Dilutive potential common shares 49,804 50,102 49,862 49,991
============= ============== ============= ==============
Basic earnings per share $ 0.29 $ 0.38 $ 0.87 $ 1.12
Diluted earnings per share $ 0.28 $ 0.37 $ 0.86 $ 1.09
</TABLE>
7
New Accounting Pronouncements
COMPREHENSIVE INCOME. As of January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." The new statement requires that all changes in equity during a
period except those resulting from investments by and distributions to
owners be reported as "comprehensive income" in the financial statements.
Upon implementation, the Company included the net unrealized gain or loss
on available-for-sale securities and foreign currency translation
adjustments together with net income in the computation of comprehensive
income. For the three months ended September 30, 1998, comprehensive
losses were $83.3 million as compared to comprehensive income of $64.1
million for the three months ended September 30, 1997. For the nine months
ended September 30, 1998, comprehensive income was $112.9 million as
compared to $123.6 million for the nine months ended September 30, 1997.
SOFTWARE REVENUE RECOGNITION. As of January 1, 1998, the Company adopted
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition"
which was effective for software licensing transactions entered into
beginning in 1998. Certain of the Company's products are licensed, but
revenues from licensed software products are not material to the Company
as a whole. Implementation of the SOP 97-2 did not have a material effect
on the three and nine months ended September 30, 1998 and the Company does
not expect SOP 97-2 to have a material effect on the future consolidated
results of operations of the Company.
SEGMENT INFORMATION. The Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" in June 1997. This statement requires that publicly
traded companies report certain information about their operating
segments, products and services, geographic areas in which they operate,
and major customers beginning with the 1998 annual report. The Company is
currently evaluating the effect that implementation of this new standard
will have on the information disclosed in its financial statements.
INTERNAL USE SOFTWARE. The Accounting Standards Executive Committee
recently issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The new
statement is effective for fiscal periods beginning after December 15,
1998 and requires that certain costs for the development of internal use
software be recorded as an asset. Accordingly, certain primary types of
development activities will be required to be capitalized, including
coding and software configuration costs, costs of testing and installing
the software, and when clearly distinguishable from maintenance, costs of
upgrades and enhancements. The Company currently expenses costs of
internally developed proprietary software as incurred. The Company
believes the effect of this SOP will result in the capitalization and
amortization of certain software development costs which were previously
expensed. The Company is currently evaluating the new standard and is
unable to determine the effects on the Company's results of operations at
this time.
8
2. Investments
The Company's investments consist of the following (ownership percentage as of
September 30, 1998):
<TABLE>
<CAPTION>
Carrying Value
---------------------------
Ownership December 31, September 30,
(in thousands) Percentage 1997 1998
---------------- ------------ -----------
Available for sale securities:
<S> <C> <C> <C>
Computer Sciences Corporation 5.5% $ 360,400 $ 470,463
State Street Corporation 3.7% 347,509 325,859
USCS International, Inc. 4.7% 18,700 35,338
Euronet Services, Inc. 10.9% 9,136 5,261
Other 20,901 37,280
------------ -----------
756,646 874,201
------------ -----------
Equity investees:
Boston Financial Data Services, Inc. 50.0% 32,262 37,807
European Financial Data Services Limited 50.0% 6,196 5,483
Argus Health Systems, Inc. 50.0% 10,649 4,402
Other 14,824 14,366
------------ -----------
63,931 62,058
------------ -----------
$ 820,577 $ 936,259
============ ===========
</TABLE>
Certain information related to the Company's available for sale securities is as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
(in thousands) 1997 1998
------------ -----------
<S> <C> <C>
Cost $ 433,440 $ 455,535
Gross unrealized gains 326,199 420,958
Gross unrealized losses (2,993) (2,292)
------------ -----------
Market value $ 756,646 $ 874,201
============ ===========
</TABLE>
9
Equity in earnings (losses) of unconsolidated affiliates, net of income taxes
provided by the unconsolidated affiliates and related goodwill amortization is
as follows for the periods presented:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(in thousands) 1997 1998 1997 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Boston Financial Data Services, Inc. $ 1,829 $ 1,919 $ 4,989 $ 5,546
Argus Health Systems, Inc. 722 585 3,435 1,754
European Financial Data Services Limited (3,278) (2,744) (7,073) (7,532)
Other 220 (922) 6 (1,297)
--------------- --------------- --------------- ---------------
$ (507) $ (1,162) $ 1,357 $ (1,529)
=============== =============== =============== ===============
</TABLE>
3. USCS Merger
On September 2, 1998, the Company and USCS International, Inc. ("USCS"), a
publicly traded company (NASDAQ: USCS), signed an agreement to merge USCS with a
wholly owned subsidiary of the Company. Under the terms of the agreement, each
USCS shareowner (other than the Company, USCS or their subsidiaries) will
receive 0.62 of a share of DST common stock for each share of USCS common stock.
The Board of Directors of each company has approved the transaction, which is
intended to be a tax free reorganization and accounted for as a pooling of
interests.
The transaction is subject to a number of conditions including approval by the
shareowners of both companies. The proposed merger has received notice of early
termination of the waiting period under the Hart-Scott-Rodino Act. The largest
shareowner of the company (Kansas City Southern Industries, Inc., which now
owns approximately 41% of the Company's common stock), and of USCS (George L.
Argyros, a USCS director who now owns approximately 33% of USCS) have each
agreed to vote for the merger. The merger is expected to be completed in the
fourth quarter of 1998. At the completion of the transaction, Mr. Argyros and
James C. Castle, Chairman and Chief Executive Officer of USCS, will be appointed
to the DST Board of Directors.
The Company and USCS expect to incur approximately $6.5 to $10.5 million for
investment banking and other transaction-related expenses as a result of the
merger. The Company and USCS will defer recognition of these costs until the
merger is completed. Management believes there are significant efficiencies,
economies of scale, and productivity enhancements that could result from the
integration of the Company and USCS. Such integration activities could result in
nonrecurring expenses and restructuring charges being incurred to achieve the
benefits. Such costs cannot be estimated at this time.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussions set forth in this Quarterly Report on Form 10-Q contain
statements concerning potential future events. Such forward-looking statements
are based upon assumptions by the Company's management, as of the date of this
Quarterly Report, including assumptions about risks and uncertainties faced by
the Company. Readers can identify these forward-looking statements by their use
of such verbs as expects, anticipates, believes or similar verbs or conjugations
of such verbs. If any of management's assumptions prove incorrect or should
unanticipated circumstances arise, the Company's actual results could materially
differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in the Company's Current
Report on Form 8-K/A dated August 4, 1998 ("Form 8-K/A"), which is hereby
incorporated by reference. The Form 8-K/A has been filed with the United States
Securities and Exchange Commission (the "SEC" or the "Commission") in
Washington, D.C. and can be obtained by contacting the SEC's Public Reference
Branch or in the SEC's EDGAR database accessible through the SEC's web site on
the World Wide Web at www.sec.gov. Readers are strongly encouraged to consider
the factors listed in the Form 8-K/A and any amendments or modifications thereof
when evaluating any forward-looking statements concerning the Company. The
Company does not currently intend to update any forward-looking statements in
this Quarterly Report to reflect future events or developments.
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto included in
this Form 10-Q and the audited financial statements and notes thereto in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
INTRODUCTION
The Company provides sophisticated information processing and computer software
services and products, primarily to mutual funds, insurance companies, banks and
other financial services organizations.
RECENT EVENTS
USCS Merger
On September 2, 1998, the Company and USCS International, Inc. ("USCS"), a
publicly traded company (NASDAQ: USCS), signed an agreement to merge USCS with a
wholly owned subsidiary of the Company. Under the terms of the agreement, each
USCS shareowner (other than the Company, USCS or their subsidiaries) will
receive 0.62 of a share of DST common stock for each share of USCS common stock.
The Board of Directors of each company has approved the transaction, which is
intended to be a tax free reorganization and accounted for as a pooling of
interests.
The transaction is subject to a number of conditions including approval by the
shareowners of both companies. The proposed merger has received notice of early
termination of the waiting period under the Hart-Scott-Rodino Act. The largest
shareholder of the company (Kansas City Southern Industries, Inc., which now
owns approximately 41% of the Company's common stock), and of USCS (George L.
Argyros, a USCS director who now owns approximately 33% of USCS) have each
agreed to vote for the merger. The merger is expected to be completed in the
fourth quarter of 1998. At the completion of the transaction, Mr. Argyros and
James C. Castle, Chairman and Chief Executive Officer of USCS, will be appointed
to the DST Board of Directors.
11
This merger, which is expected to be accretive to DST's earnings per share in
1999, represents a significant expansion of DST's presence in the output
processing and customer management software and services industries. USCS,
through its CableData, Inc. subsidiary, is the largest provider of customer
management software to the cable television and convergence industries,
currently servicing approximately 40 million subscribers worldwide. DST, through
its DBS Systems Corporation subsidiary, provides subscriber management services
to DirecTV. USCS' subsidiary, International Billing Services, Inc., provides
bill presentation services to a variety of communications and other industries.
DST's subsidiary, Output Technologies, Inc., provides a variety of output
related services to a diversified group of industries, primarily in the
financial services sector. The combination of these businesses is expected to
generate synergy savings through combined economies of scale and coordinated
production efficiencies. Additional savings will be realized through the
elimination of duplicate costs associated with having two public companies.
The Company and USCS expect to incur approximately $6.5 to $10.5 million for
investment banking and other transaction-related expenses as a result of the
merger. The Company and USCS will defer recognition of these costs until the
merger is completed. Management believes there are significant efficiencies,
economies of scale, and productivity enhancements that could result from the
integration of the Company and USCS. Such integration activities could result in
nonrecurring expenses and restructuring charges being incurred to achieve the
benefits. Such costs cannot be estimated at this time.
EquiServe
On February 10, 1998, Boston EquiServe, LP ("Boston EquiServe"), a 50% owned
joint venture between Boston Financial Data Services, Inc. ("BFDS") (a 50% owned
joint venture of the Company and State Street Corporation) and BankBoston
Corporation, announced an agreement to combine with First Chicago Trust Company
of New York ("First Chicago") by issuance of a 50% partnership interest to First
Chicago in exchange for its shareowner services business. The transaction would
create the largest corporate securities transfer agent in the United States,
processing approximately 25 million accounts. The combination of the two
businesses, to be named EquiServe, LP ("EquiServe"), is awaiting approval by the
Federal Reserve Bank.
DST is currently developing a new securities transfer system ("Fairway") to be
used by Boston EquiServe to process all of its accounts. In conjunction with the
merger, DST entered into a memorandum of understanding with Boston EquiServe and
First Chicago to complete development of Fairway for the exclusive use by
EquiServe to process all of its accounts. The Company has also agreed with
EquiServe to provide data processing services for EquiServe to use Fairway. The
terms and conditions of this memorandum of understanding will be set forth in a
definitive agreement, the completion of which is a condition to the closing of
the merger agreement between Boston EquiServe and First Chicago. Upon acceptance
of defined components of Fairway, DST will contribute Fairway and its
non-EquiServe securities transfer processing business (approximately 2 million
accounts) to EquiServe for a direct ownership interest in EquiServe. DST will
also continue to hold an indirect ownership interest in EquiServe through BFDS.
RESULTS OF OPERATIONS
Third Quarter and Year to Date 1997 versus Third Quarter and Year to Date 1998
For the quarter ended September 30, 1998, DST's consolidated net income was
$18.5 million, or $0.38 basic and $0.37 diluted earnings per share, as compared
to $14.1 million, or $0.29 basic and $0.28 diluted earnings per share, for the
quarter ended September 30, 1997.
12
For the nine months ended September 30, 1998, DST's consolidated net income was
$54.7 million, or $1.12 basic and $1.09 diluted earnings per share, as compared
to $43.0 million, or $0.87 basic and $0.86 diluted earnings per share, for the
nine months ended September 30, 1997.
Revenues
Consolidated revenues for the three and nine months ended September 30, 1998
were $186.3 million and $558.0 million, respectively, which represent increases
of 16.5% and 17.7%, respectively, over the comparable 1997 periods.
U.S. revenues for the three and nine months ended September 30, 1998 were $152.3
million and $462.1 million, respectively, which represent increases of 13.5% and
14.1%, respectively, over the comparable 1997 periods. This revenue increase
resulted from growth in mutual fund shareowner processing, output services,
automated work distributor (AWD) fees and satellite television subscriber
management fees. U.S. mutual fund processing revenues for the three and nine
months ended September 30, 1998 have increased approximately 14.2% and 15.2%,
respectively, over the prior year as shareowner accounts serviced increased to
48.9 million at September 30, 1998, an increase of 8.7% from 45.0 million at
December 31, 1997 and 13.5% from 43.1 million at September 30, 1997. Increased
Individual Retirement Account ("IRA") activity continued to contribute to
account growth. For the quarter ended September 30, 1998, new IRA accounts
totaled approximately 500,000 accounts, with approximately 27% of the new
accounts consisting of new Roth or Educational IRA accounts. U.S. mutual fund
output processing revenues for the three and nine months ended September 30,
1998 increased 15.9% and 13.7%, respectively, primarily related to the 18.2% and
18.9% increase in total pages printed for the three and nine months ended
September 30, 1998, respectively. U.S. AWD workstations licensed increased 23.4%
over year-end 1997 levels. Satellite television subscriber management revenues
have increased 10% over the prior year quarter due to an increased number of
subscribers and continuing systems development activities. Additionally, the
Company received a one-time $2.6 million contract termination fee from a
portfolio accounting client during the first quarter 1998.
The Company expects approximately 1.6 million mutual fund accounts from a new
client to be converted onto its system during the fourth quarter of 1998. As
expected and earlier reported, Prudential Financial Management Services
internalized the processing for approximately 1,100,000 mutual fund shareowner
accounts primarily during the first quarter of 1998. Also, approximately 650,000
accounts of GT Global Funds were converted off of the Company's system during
the quarter as a result of GT Global's acquisition by the parent company of the
AIM Family of Funds. The Company also expects that approximately 850,000
accounts from a remote client whose accounts were derived from a broker-dealer
will be converted to the broker-dealer's system in the fourth quarter of 1998.
International revenues for the three and nine months ended September 30, 1998
were $34.0 million and $95.8 million, respectively, which represent increases of
32.2% and 39.0%, respectively, over the comparable 1997 periods. The increase in
international revenues was attributable to higher investment accounting software
and services revenues, increased Canadian mutual fund processing revenues and
higher AWD software and services revenues. The planned introduction of the
European Monetary Unit, which is expected to be effective beginning January 1,
1999, contributed to increased demand for the Company's international investment
management products and services.
13
Costs and expenses
Consolidated costs and expenses for the three and nine months ended September
30, 1998 increased 17.8% and 17.9%, respectively, over the comparable 1997
periods to $139.9 million and $411.6 million, respectively, primarily as a
result of increases in personnel costs to support business growth and increases
in development costs for DST's new securities transfer system (Fairway). In
addition, the renegotiation of certain third party software agreements,
effective March 31, 1998, resulted in certain amounts being recorded as costs
and expenses instead of depreciation expense. U.S. costs and expenses for the
three and nine months ended September 30, 1998 increased 17.6% and 17.0%,
respectively. International costs and expenses for the three and nine months
ended September 30, 1998 increased 18.4% and 22.0%, respectively.
The Company continues to experience increases in compensation necessary to hire
and retain computer programmers and other systems professionals. While these
cost increases have not materially affected the Company's overall cost structure
to date, the Company believes that the costs associated with computer
programmers and other systems professionals may continue to increase at rates
above general inflation at least through 2000.
Depreciation and amortization
Consolidated depreciation and amortization for the three months ended September
30, 1998 increased 2.3% to $19.9 million. Consolidated depreciation and
amortization for the nine months ended September 30, 1998 increased 3.7% to
$60.7 million. The increase in depreciation for the nine months ended September
30, 1998 is primarily attributable to a one-time write-off of intangible assets
totaling $3.2 million in the first quarter 1998, primarily associated with the
$2.6 million contract termination fee referred to above, partially offset by a
decrease in depreciation attributable to the renegotiation of certain third
party software agreements noted above.
Interest expense
Interest expense for the three months ended September 30, 1998 decreased 6.7%
over the prior year due to lower average debt balances. On a year to date basis,
interest expense for 1998 has increased 1.3% over the prior year.
Other income
Other income increased $1.3 million and $1.0 million for the three and nine
months ended September 30, 1998, respectively, primarily as a result of gains on
sales of investment securities.
Equity in earnings (losses) of unconsolidated affiliates
Equity in losses of unconsolidated affiliates totaled $1.2 million for the
quarter ended September 30, 1998 as compared to $0.5 million for the quarter
ended September 30, 1997. Year-to-date, equity in losses of unconsolidated
affiliates totaled $1.5 million in 1998 as compared to equity in income of $1.4
million in 1997. The Company's share of losses recorded at European Financial
Data Services Limited ("EFDS") of $2.7 million during the third quarter 1998 was
reduced from losses of $3.3 million for the respective 1997 quarter, but
reflected increased losses as compared to the quarter ended June 30, 1998 as a
result of increased costs associated with FAST2000 development and conversion
activity. Year-to-date, losses recorded from EFDS totaled $7.5 million in 1998
as compared to $7.1 million in 1997 due to continuing development costs of
FAST2000, which costs are being expensed as incurred and costs of conversions of
new and existing client accounts to the new system. Lower earnings were recorded
by Argus Health Systems due to the contract termination of a large client in
late 1997. Higher operating earnings were recorded at Boston Financial Data
Services, Inc. from increased levels of mutual fund activity.
Income taxes
DST's effective income tax rate was 31.6% for the three months ended September
30, 1998, as compared to 33.2% for the three months ended September 30, 1997,
primarily caused by the recognition of benefits associated with new Missouri
income apportionment rules designed to attract and retain mutual fund service
companies. DST's effective income tax rate was 34.9% for the nine months ended
September 30, 1998, as compared to 34.0% for the nine months ended September 30,
1997, primarily caused by changes in the components of taxable income and the
effect of certain tax benefits recognized in 1997 relating to certain
international operations. The increase in the effective tax rate for the nine
months ended September 30, 1998 was partially offset by the Missouri
apportionment rules previously discussed.
14
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its cash available from operating activities, borrowings from
banks and financing from third-party vendors and others to fund operating,
investing and financing activities.
Cash flows from operating activities totaled $125.1 million for the nine months
ended September 30, 1998. Operating cash flows were affected by an $8.0 million
dividend from Argus Health Systems.
Cash flows used in investing activities totaled $80.2 million for the nine
months ended September 30, 1998. The Company has expended $54.2 million
year-to-date for capital additions. Investments and advances to unconsolidated
affiliates totaled $29.3 million, primarily for funding the development of
FAST2000 at EFDS and for investments in available for sale securities.
Cash flows used in financing activities totaled $25.3 million for the nine
months ended September 30, 1998. During the first quarter 1998, the Company
repurchased 200,000 shares of common stock for $10.0 million, completing its 1.2
million share repurchase program. Financing activities also include $10.8
million in payments relating to accrued settlements of prior years' sales and
use tax matters.
The Company maintains a $50 million bank line of credit facility to finance
short-term working capital requirements available through May 1999, of which
total borrowings were $27.2 million as of September 30, 1998. Additionally, the
Company maintains a five-year revolving credit facility of $125 million with a
syndicate of U.S. and international banks. Total borrowings of $30.0 million
were outstanding on this facility at September 30, 1998.
The Company believes that its existing cash balances and other current assets,
together with cash provided by operating activities and, as necessary, the
Company's credit facilities, will be sufficient to meet the Company's operating
and debt service requirements and other current liabilities for at least the
next twelve months. Further, the Company believes that its longer-term liquidity
and capital requirements will be met through cash flows from operations and
existing bank credit facilities, as well as the Company's $125 million revolving
credit facility described above.
Other
UNREALIZED GAINS ON SECURITIES. The Company holds, among other investments,
approximately 8.6 million shares of Computer Sciences Corporation common stock
and approximately 6.0 million shares of State Street Corporation common stock.
At December 31, 1997 and September 30, 1998, the market value of the Company's
investments in available-for-sale securities reflected aggregate unrealized
gains (net of deferred taxes) of $197.0 million and $255.1 million,
respectively, which are included in Accumulated Other Comprehensive Income on
the Condensed Consolidated Balance Sheet. Included in the computation of
comprehensive income in accordance with Statement on Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" are the $51.6 million net
unrealized gain and $102.2 million net unrealized loss for the third quarter
1997 and 1998 respectively. For the nine months ended September 30, 1997 and
1998, net unrealized gains of $83.0 million and $58.1 million, respectively were
included.
15
SOFTWARE USAGE AGREEMENT. On March 31, 1998, the Company entered into a software
usage and maintenance agreement for certain computer software to be utilized at
the Winchester Data Center. The new software agreement replaces an existing
agreement with the same vendor, extending the term from 2000 until 2003 and
provides for an increase in software usage capacity. Under the previous
agreement, the Company capitalized the total fixed costs to be incurred under
the agreement and recorded a corresponding liability. Capitalized costs under
the previous agreement were depreciated over the period of the contract while
variable payments for incremental usage were recorded as costs and expenses when
incurred. Based on the terms of the new agreement, annual payments will be
recorded as costs and expenses over the period which they benefit. As a result
of replacing the previous agreement, approximately $9.0 million of computer
software previously capitalized by the Company and related short-term and
long-term liabilities were removed from the Company's balance sheet on March 31,
1998. Although the new agreement will result in certain future costs being
recorded as costs and expenses instead of depreciation expense, the Company does
not believe that the new agreement will have a material adverse affect on the
Company's operating expenses.
SEGMENT INFORMATION. The Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
in June 1997. This statement requires that publicly traded companies report
certain information about their operating segments, products and services,
geographic areas in which they operate, and major customers beginning with the
1998 annual report. The Company is currently evaluating the effect that
implementation of this new standard will have on the information disclosed in
its financial statements.
INTERNAL USE SOFTWARE. The Accounting Standards Executive Committee recently
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The new statement is effective
for fiscal periods beginning after December 15, 1998 and requires that certain
costs for the development of internal use software be recorded as an asset.
Accordingly, certain primary types of development activities will be required to
be capitalized, including coding and software configuration costs, costs of
testing and installing the software, and when clearly distinguishable from
maintenance, costs of upgrades and enhancements. The Company currently expenses
costs of internally developed proprietary software as incurred. The Company
believes the effect of this SOP will result in the capitalization and
amortization of certain software development costs which were previously
expensed. The Company is currently evaluating the new standard and is unable to
determine the effects on the Company's results of operations at this time.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Financial Accounting
Standards Board recently issued Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new
statement is effective for fiscal quarters of fiscal years beginning after June
15, 1999 and requires that a company recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The Company has historically not used derivative
instruments and believes that implementation of this new standard will not have
a material impact on the Company's results of operations.
SEASONALITY. Generally, the Company does not have significant seasonal
fluctuations in its business operations. Processing and output volumes for
mutual fund customers are usually highest during the quarter ended March 31 due
primarily to processing year-end transactions and printing and mailing of year
end statements and tax forms during January. The Company has historically added
operating equipment in the last half of the year in preparation for processing
year-end transactions which has the effect of increasing costs for the second
half of the year. Software license revenues and operating results are dependent
upon the timing, size, and terms of the license.
16
YEAR 2000. Many computer programs use only two digits to identify a year in a
date field within the program (e.g., "98" or "02"). If not corrected, computer
applications making calculations and comparisons in different centuries may
cause inaccurate results, or fail by or at the Year 2000. These Year 2000
related issues are of particular importance to the Company. The Company depends
upon its computer and other systems and the computer and other systems of
third-parties to conduct and manage the Company's business. Additionally, the
Company's products and services are dependent upon using accurate dates in order
to function properly. These Year 2000-related issues may also adversely affect
the operations and financial performance of one or more of the Company's
customers or suppliers. As a result, the failure of the Company's computer and
other systems, products or services, the computer systems and other systems upon
which the Company depends, or of the Company's customers or suppliers to be Year
2000 ready could have a material adverse effect on the Company's results of
operations, financial position and cash flows.
The Company has completed its review and evaluation of its mission critical
products, services and internal systems and is maintaining its schedule to
achieve material Year 2000 readiness in such products, services and systems
which are material by December 31, 1998. The Company anticipates internal
readiness for all of its other material systems by June 30, 1999. The Company
will continue testing its systems with clients and other third parties for Year
2000 related issues as needed throughout 1999, subject to the cooperation of
such third parties.
As part of resolving its Year 2000 issues, the Company is developing contingency
plans. The Company has had for several years formal contingency plans for its
Winchester Data Center in the event of a natural disaster or a processing
failure such as those that could be caused by Year 2000 issues. The Company
expects to formalize contingency plans for its other material business units,
which would incorporate Year 2000 related contingencies, by March 31, 1999. The
costs to address the Year 2000 related issues to date have not been material,
and the Company does not anticipate such costs to become material in the future.
Although the Company is not aware of any material operational or financial Year
2000-related issues not being addressed, the Company cannot ensure that its
computer systems, products, services or other systems or the computers and other
systems of others upon which the Company depends will be Year 2000 ready on
schedule, that the costs of its Year 2000 program will not become material or
that the Company's alternative plans will be adequate. The Company is currently
unable to anticipate accurately the magnitude, if any, of the Year 2000-related
issues arising from the Company's customers or suppliers. If any such risks
(either with respect to the Company or its customers or suppliers) materialize,
the Company could experience material adverse consequences to its business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time a party to litigation arising in the ordinary
course of its business. Currently, there are no legal proceedings that
management believes would have a material adverse effect upon the consolidated
results of operations or financial condition of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
A. The following table presents the sources of the Company's revenues:
<TABLE>
<CAPTION>
Sources of Revenue
Nine Months Ended September 30,
1997 1998
------------------------------------ -----------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. revenues
Mutual fund and
Investment management
Data processing services $ 211,420 44.6% $ 243,490 43.6%
Output processing 63,919 13.5% 72,663 13.0%
------------------ ---------------- ----------------- ----------------
275,339 58.1% 316,153 56.6%
Other output processing 72,666 15.3% 81,247 14.6%
Other 56,977 12.0% 64,729 11.6%
------------------ ---------------- ----------------- ----------------
Total U.S. revenues 404,982 85.4% 462,129 82.8%
International revenues 68,959 14.6% 95,843 17.2%
------------------ ---------------- ----------------- ----------------
Total revenues $ 473,941 100.0% $ 557,972 100.0%
================== ================ ================= ================
</TABLE>
18
B. The following table identifies geographic operating results:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Geographic information Ended September 30, Ended September 30,
(in thousands) 1997 1998 1997 1998
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
U.S. revenues $ 134,157 $ 152,270 $ 404,982 $ 462,129
U.S. income from operations 20,854 22,057 66,824 74,619
International revenues 25,706 33,986 68,959 95,843
International income (losses) from operations 745 4,357 (582) 11,069
</TABLE>
C. The following table summarizes certain key operating and financial data for
the periods indicated:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
--------------------- ---------------------
Investment Market Values (in thousands) (1)
<S> <C> <C>
Computer Sciences Corporation $ 360,400 $ 470,463
State Street Corporation 347,509 325,859
Euronet Services, Inc. $ 9,136 $ 5,261
Other Operating Data
Mutual fund shareowner accounts processed (millions)
U.S. 45.0 48.9
Canada 0.9 1.5
United Kingdom 1.0 1.5
TRAC-2000 mutual fund accounts (millions) (2) 1.9 2.4
TRAC-2000 participants (thousands) 696 836
Portfolio Accounting System portfolios 1,925 1,956
Automated Work Distributor workstations 35,100 42,000
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1998
--------------------- ---------------------
<S> <C> <C>
Output Technologies pages printed (millions) 1,067.0 1,277.9
Argus pharmaceutical claims processed (millions) 109.8 98.2
</TABLE>
(1) Based upon the closing price on the last trading day of the applicable
period at the exchange where principally traded.
(2) Included in TA2000 mutual fund shareowner accounts processed.
19
The SEC recently amended its proxy rules to require a registrant, such as the
Company, to disclose the date after which stockholder proposals that are not
included in the Company's proxy statement are considered "untimely" for proxy
solicitation purposes. Under the Company's By-laws, in order for such a
stockholder proposal to be timely and otherwise validly brought before the
Company's 1999 Annual Meeting of Stockholders, a stockholder must notify the
Company's Corporate Secretary no earlier than February 11, 1999 and no later
than March 13, 1999. The calculation of this notice period and By-law
requirements for the contents of such notice are set forth in the Company's 1998
Proxy Statement, which can be obtained by contacting the SEC's Public Reference
Branch or in the SEC's EDGAR database accessible through the SEC's web site on
the World Wide Web at www.sec.gov.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Document
10.6.2 Second Amendment to the Employee Stock Ownership Plan and
Trust Agreement of DST Systems, Inc.
10.6.3 Third Amendment to the Employee Stock Ownership Plan and
Trust Agreement of DST Systems, Inc.
10.7.2 Second Amendment to the 1996 Profit Sharing Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed under Item 5 of Form 8-K, the Company's Form 8-K dated
July 23, 1998, reporting the announcement of financial results for the
quarter ended June 30, 1998. The Company filed under Item 5 of Form 8-K,
the Company's Form 8-K/A-2 dated August 4, 1998 amending and restating its
Form 8-K dated March 15, 1996 (amended and restated April 13, 1998) setting
forth certain cautionary statements identifying important factors that
either individually or in combination with other factors could cause the
Company's actual operating results to differ materially from those
projected in forward-looking statements, whether oral or written,
concerning the Company and made by, or on behalf of, the Company.
The Company filed under Item 5 of Form 8-K, the Company's News Release
dated September 2, 1998 concerning the announcement of the merger of USCS
International, Inc. with a wholly-owned subsidiary of the Registrant.
SIGNATURES
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,
thereunto duly authorized, and in the capacities indicated on November 16, 1998.
DST Systems, Inc.
/s/ Kenneth V. Hager
Kenneth V. Hager
Vice President and Chief Financial Officer
(Principal Financial Officer)
20
SECOND AMENDMENT TO
THE EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
(1998 Restatement)
WHEREAS, by written instrument dated as of January 1, 1998,
DST Systems, Inc. amended and restated The Employee Stock Ownership Plan and
Trust Agreement (1998 Restatement); and
WHEREAS, DST Systems, Inc., in Section 13.02 of said Plan, reserved the
right to amend the Plan;
WHEREAS, DST Systems, Inc., finds it desirable to amend the Plan to
provide for the holding in the ESOP of common stock of FAM Holdings, Inc.
distributed with respect to common stock of Kansas City Southern Industries,
Inc. held in the ESOP; and to make conforming and clarifying changes related to
the above; and UMB Bank, N.A. agrees to such amendment.
NOW, THEREFORE, DST Systems, Inc. and UMB Bank, N.A. agree that The
Employee Stock Ownership Plan and Trust Agreement (1998 Restatement) be amended
as follows:
1. The third paragraph of the recitals to the Plan following
"Witnesseth" is amended to read as follows:
KCSI Shares transferred to this Plan from the Former Plan are
held in a KCSI Shares Fund. Following the Effective Date KCSI is
distributing (the "Spinoff") to its shareowners, including the Plan,
substantially all of the shares ("FAM Shares") owned by it of FAM
Holdings, Inc. ("FAM"). Effective as of the Spinoff FAM Shares
distributed to this Plan are held in a FAM Shares Fund. The KCSI Shares
Fund and FAM Shares Fund are provided solely to permit the continued
holding of KCSI Shares allocated to Participants' Accounts following
the transfer and FAM Shares allocated to Participants' Accounts
following the Spinoff. No future contributions or investments may be
made in the KCSI Shares Fund or the FAM Shares Fund.
2. A new Section 1.28(C) is added to read as follows:
(C) Special Rule for FAM Group Service. For purposes of determining
service with an affiliate, an affiliate shall also include FAM
Holdings, Inc. ("FAM"), and any corporation, partnership, joint
venture, or other business entity that would be an affiliate of FAM
under the foregoing definitions of "affiliate" if FAM were substituted
for DST therein (a "KCSI Affiliate"); but only for periods (after the
Effective Date) during which DST is also a FAM affiliate under the
foregoing definitions.
3. The second paragraph of Section 1.33 is amended to read as follows:
For purposes of Sections 3.08, 5.09, 6.05, 8.10(A), 10.03(o),
10.17 and 11.01 only, in order to comply with Code ss.ss.401(a)(28),
409 and 411(d)(6), the term "Employer Securities" shall include voting
common stock of Kansas City Southern Industries, Inc., and of FAM
Holdings, Inc., which is readily tradable on an established securities
market.
4. The first paragraph of Section 9.04 is amended to read as follows:
The Trustee shall maintain a separate Account, or multiple
separate Accounts, in the name of each Participant in the Plan to
reflect the Participant's Accrued Benefit under the Plan. The Trustee
must maintain for purposes of the Plan one Account designated as the
Employer Securities Account to reflect a Participant's interest in
Employer Securities held by the Plan, another Account designated as the
General Investment Account to reflect the Participant's interest in the
Plan attributable to assets other than Employer Securities and other
than KCSI Shares and FAM Shares, another Account designated as the KCSI
Shares Account to reflect a Participant's interest in the KCSI Shares
held by the Plan, and another Account designated as the FAM Shares
Account to reflect a Participant's interest in the FAM Shares held by
the Plan. If a Participant reenters the Plan subsequent to his having a
Forfeiture Break in Service (as defined in Section 5.08), the Trustee
must maintain separate Accounts for the Participant's pre-Forfeiture
Break in Service Accrued Benefit and separate Accounts for his
post-Forfeiture Break in Service Accrued Benefit unless the
Participant's entire Accrued Benefit under the Plan is 100%
Nonforfeitable.
5. A new Section 9.06(D) is added to read as follows:
(D) FAM Shares Account. As of each valuation date of each Plan Year,
the Trustee first will reduce FAM Shares Accounts in the Plan for any
forfeitures arising under Section 5.09 and then will credit the FAM
Shares Account maintained for each Participant in the Plan with any
forfeitures of FAM Shares and with any stock dividends on FAM Shares
allocated to his FAM Shares Account. The Trustee will base allocations
to the Participants' Accounts on dollar values of FAM Shares or on the
basis of actual shares where there is a single class of FAM Shares. In
making a forfeiture reduction under this Section 9.06(D), the Trustee,
to the extent possible, first must forfeit from a Participant's General
Investment Account before making a forfeiture from his FAM Shares
Account.
6. The first paragraph of Section 10.15 is amended to read as follows:
2
Each Participant (or the Beneficiary thereof) acting as a
named fiduciary shall have the right, with respect to Employer
Securities, to direct the Trustee as to the manner in which (a) to vote
any stock allocated to his Employer Securities Account as of the
applicable record date of any shareowner meeting in any matter put to
a shareholder vote; and (b) to respond to a tender offer, exchange
offer or any other offer to purchase Employer Securities allocated to
the Participant's Employer Securities Account.
7. The fourth paragraph of Section 10.15 is amended to read as follows:
With regard to any tender offer, exchange offer or any other
offer to purchase Employer Securities, the Trustee or its designee will
solicit such instructions from Participants by distributing to each
Participant such information as is distributed to shareowners of the
Employer generally in connection with any such offer, and any
additional information the Trustee deems appropriate in order for each
Participant to give instructions. A reasonable deadline for the return
of such materials may be specified.
8. The seventh paragraph of Section 10.15 is amended to read as
follows:
In the event a Participant eligible to receive a distribution
of that Participant's Employer Securities Account does not elect in
accordance with Section 10.08 to receive the distribution in the form
of Employer Securities, a sale of the Employer Securities in such
Account in order to fund the resulting cash distribution shall be
deemed to satisfy the requirements of this Section 10.15.
9. Section 10.19 is amended to read as follows:
10.19 KCSI SHARE RESTRICTIONS. Any KCSI Shares acquired under the
Former Plan with the proceeds of an exempt loan and FAM Shares
distributed with respect to such KCSI Shares shall continue to be
subject to the provisions of Treas. Reg. ss.ss.54-4975-7(b)(4), (10),
(11) and (12) relating to put, call or other options and to buy-sell or
similar arrangements, except to the extent these regulations are
inconsistent with Code ss.409(h).
10. These amendments shall be effective as of the date of distribution
by Kansas City Southern Industries, Inc., of substantially all of the shares
owned by it of FAM Holdings, Inc.
11. Except as herein amended, the Plan is hereby ratified and
confirmed.
3
IN WITNESS WHEREOF, DST Systems, Inc. and UMB Bank, N.A., have
executed this Second Amendment as of this 17th day of August, 1998.
DST SYSTEMS, INC.
By: /s/Kenneth V. Hager
Kenneth V. Hager
Vice President, Chief Financial
Officer and Treasurer
UMB BANK, N.A.
By: /s/Mark P. Herman
Mark P. Herman
Senior Vice President
4
THIRD AMENDMENT TO
THE EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
(1998 Restatement)
WHEREAS, by written instrument dated as of January 1, 1998, DST
Systems, Inc. amended and restated The Employee Stock Ownership Plan and Trust
Agreement (1998 Restatement); and
WHEREAS, DST Systems, Inc., in Section 13.02 of said Plan, reserved the
right to amend the Plan;
WHEREAS, DST Systems, Inc., finds it desirable to amend the Plan to
establish uniform quarterly distribution dates for certain distributions of
certain participants' accounts; to clarify the treatment of Qualified Domestic
Relations Orders ("QDROs"); and to make conforming and clarifying changes
related to the above; and UMB Bank, N.A. agrees to such amendment.
NOW, THEREFORE, DST Systems, Inc. and UMB Bank, N.A. agree that
The Employee Stock Ownership Plan and Trust Agreement (1998 Restatement) be
amended as follows:
1. The first paragraph of Section 6.01 is amended to read as follows:
Unless, pursuant to Section 6.03, the Participant or the
Beneficiary elects in writing to a different time or method of payment,
the Advisory Committee will direct the Trustee to commence distribution
of a Participant's Nonforfeitable Accrued Benefit in accordance with
this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of
the Participant's Nonforfeitable Accrued Benefit, at the time of the
distribution to the Participant, exceeds $5,000 and the Participant has
not attained the later of Normal Retirement Age or age 62. For all
purposes of this Article VI, the term "annuity starting date" means the
first day of the first period for which the Plan pays an amount as an
annuity or in any other form. For all purposes of this Plan, the
"distribution date" is the 90th day after the end of the Plan Year or
as soon as administratively practicable thereafter (a "distribution
date" or "annual distribution date") unless the Plan specifies that
distribution may also be made on the 30th day after the end of any of
the first three calendar quarters of a Plan Year or as soon as
administratively practicable thereafter (a "quarterly distribution
date"). For purposes of the consent requirements under this Article VI,
if the present value of the Participant's Nonforfeitable Accrued
Benefit, at the time of any distribution, exceeds $5,000, the Advisory
Committee must treat that present value as exceeding $5,000 for
purposes of all subsequent Plan distributions to the Participant.
2. Subsection 6.01(C)(1) is amended to read as follows:
(1) Deceased Participant's Nonforfeitable Accrued
Benefit Does Not Exceed $5,000. The Advisory Committee must
direct the Trustee to pay the deceased Participant's
Nonforfeitable Accrued Benefit in a single cash sum, on the
annual or quarterly distribution date following the calendar
quarter in which the Participant's death occurs, or, if later,
in which the Advisory Committee receives notification of or
otherwise confirms the Participant's death, or as soon as
administratively practicable thereafter.
3. Subsection 6.03(A) is amended to read as follows:
(A) Participant Elections After Termination of Employment. If the
present value of a Participant's Nonforfeitable Accrued Benefit exceeds
$5,000, he may elect to have the Trustee commence distribution as of
any distribution date, but not earlier than the first annual
distribution date after the close of the Plan Year in which the
Participant's Separation from Service occurs. The Participant may
reconsider an election at any time prior to the annuity starting date
and elect to commence distribution as of any later annual or quarterly
distribution date after the last day of the Plan Year in which his
Separation from Service occurred, or as soon as administratively
practicable thereafter. In the case of (i) a Participant who has
attained age 55 on or before the date of his Separation from Service,
or (ii) a Participant whose Separation from Service occurs because of
his disability, the Participant, in addition to the benefit payment
elections provided for in the first two sentences of this Section
6.03(A), shall have the right to elect to have the Trustee commence
distribution as of any annual or quarterly distribution date after the
end of the calendar quarter in which his Separation from Service
occurs, or as soon as administratively practicable thereafter. A
Participant who has separated from Service may elect distribution as of
any annual or quarterly distribution date after the last day of the
Plan Year in which his Separation from Service occurred, or as soon as
administratively practicable thereafter, irrespective of the
restrictions otherwise applicable under this Section 6.03(A). If the
Participant is partially vested in his Accrued Benefit, an election
under this Section 6.03(A) to distribute prior to the Participant's
incurring a Forfeiture Break in Service (as defined in Section 5.08),
must be in the form of a cash-out distribution (as defined in Article
V). A Participant may not receive a cash-out distribution if, prior to
the time the Trustee actually makes the cash-out distribution, the
Participant returns to employment with an Employer.
2
4. Section 6.03(B) is amended to read as follows:
(B) Participant Elections Prior to Termination of Employment. After a
Participant (1) attains Normal Retirement Age or (2) attains 59-1/2 and
has at least five years of Participation in the Plan (including the
Former Plan), the Participant, until he retires, has a continuing
election to receive all or any portion of his Nonforfeitable Accrued
Benefit. A Participant must make an election under this Section 6.03(B)
on a form prescribed by the Advisory Committee at any time during the
Plan Year for which his election is to be effective. In his written
election, the Participant must specify the percentage or dollar amount
he wishes the Trustee to distribute to him. The Participant's election
relates solely to the percentage or dollar amount specified in his
election form and his right to elect to receive an amount, if any, for
a particular Plan Year greater than the dollar amount or percentage
specified in his election form terminates on the Accounting Date. The
Trustee must make a distribution to a Participant in accordance with
his election under this Section 6.03(B) on the annual or quarterly
distribution date after the end of the calendar quarter within which
the Participant files his written election with the Trustee, or as soon
as administratively practicable thereafter. The Trustee will distribute
the balance of the Participant's Nonforfeitable Accrued Benefit not
distributed pursuant to this election(s) in accordance with the other
distribution provisions of this Plan.
5. The first paragraph of Section 6.07 is amended to read as follows:
Nothing contained in this Plan prevents the Trustee, in
accordance with the direction of the Advisory Committee, from complying
with the provisions of a qualified domestic relations order (as defined
in Code ss.414(p)). This Plan specifically permits distribution to an
alternate payee under a qualified domestic relations order on any
annual or quarterly distribution date or as soon as administratively
practicable thereafter, irrespective of whether the Participant has
attained his earliest retirement age (as defined under Code ss.414(p))
under the Plan. A distribution to an alternate payee prior to the
Participant's attainment of earliest retirement age is available only
if the order specifies distribution at that time or permits an
alternate payee to elect such earlier distribution. Nothing in this
Section 6.07 allows an alternate payee to receive distribution at a
time otherwise not permitted under the Plan nor in a form of payment
not permitted under the Plan, nor does it allow a Participant to
receive distribution at a time or in a form not authorized by Plan
terms other than this Section 6.07.
6. Section 9.05 is amended to read as follows:
9.05 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each
Participant's Accrued Benefit consists of that portion of the net worth
(at fair market value) of the Plan which the net credit balance in his
Accounts bears to the total net credit balance in the Accounts of all
Participants in the Plan. For purposes of a distribution under the
Plan, the value of a Participant's Accrued Benefit is its value as of
the valuation date immediately preceding the applicable distribution
date. A Participant's Accrued Benefit shall not include or be deemed to
include, any Employer Security held in a suspense account, as provided
in Section 10.03(B).
3
7. Section 10.14 is amended to read as follows:
10.14 VALUATION OF TRUST. The Trustee must value the Trust
Fund as of each Accounting Date to determine the fair market value of
each Participant's Accrued Benefit in the Trust. The Trustee also must
value the Trust Fund on the last day of each calendar quarter and such
other dates as directed in writing by the Advisory Committee.
8. The foregoing amendments shall be effective September 30, 1998.
9. Except as herein amended, the Plan is hereby ratified and confirmed.
IN WITNESS WHEREOF, DST Systems, Inc. and UMB Bank, N.A., have executed
this Third Amendment as of this first day of October, 1998.
DST SYSTEMS, INC.
By: /s/Kenneth V. Hager
Kenneth V. Hager
Vice President, Chief
Financial Officer and Treasurer
UMB BANK, N.A.
By: /s/Mark P. Herman
Mark P. Herman
Senior Vice President
4
SECOND AMENDMENT TO
THE DST SYSTEMS, INC. PROFIT SHARING PLAN
AND TRUST AGREEMENT
(1996 Restatement)
WHEREAS, by written instrument dated December 30, 1996, DST Systems,
Inc. amended and restated The DST Systems, Inc. Profit Sharing Plan and Trust
Agreement (1996 Restatement); and
WHEREAS, DST Systems, Inc., in Section 11.02 of said Plan, reserved the
right to amend the Plan;
WHEREAS, DST Systems, Inc., finds it desirable to amend the Plan to
establish uniform quarterly distribution dates for certain distributions of
certain participants' accounts; to clarify the treatment of Qualified Domestic
Relations Orders ("QDROs"); and to make conforming and clarifying changes
related to the above; and UMB Bank, N.A. agrees to such amendment.
NOW, THEREFORE, DST Systems, Inc. and UMB Bank, N.A. agree that The
DST Systems, Inc. Profit Sharing Plan and Trust Agreement (1996 Restatement) be
amended as follows:
1. The first paragraph of Section 6.01 is amended to read as follows:
Unless, pursuant to Section 6.03, the Participant or the
Beneficiary elects in writing to a different time or method of payment,
the Advisory Committee will direct the Trustee to commence distribution
of a Participant's Nonforfeitable Accrued Benefit in accordance with
this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of
the Participant's Nonforfeitable Accrued Benefit, at the time of the
distribution to the Participant, exceeds $5,000 and the Participant has
not attained the later of Normal Retirement Age or age 62. Furthermore,
the Participant's spouse also must consent, in writing, to any
distribution, for which Section 6.04 requires the spouse's consent. For
all purposes of this Article VI, the term "annuity starting date" means
the first day of the first period for which the Plan pays an amount as
an annuity or in any other form. For all purposes of this Plan, the
"distribution date" is the 90th day after the end of the Plan Year or
as soon as administratively practicable thereafter (a "distribution
date" or "annual distribution date") unless the Plan specifies that
distribution may also be made on the 30th day after the end of any of
the first three calendar quarters of a Plan Year or as soon as
administratively practicable thereafter (a "quarterly distribution
date"). For purposes of the consent requirements under this Article VI,
if the present value of the Participant's Nonforfeitable Accrued
Benefit, at the time of any distribution, exceeds $5,000, the Advisory
Committee must treat that present value as exceeding $5,000 for
purposes of all subsequent Plan distributions to the Participant.
2. Subsection 6.01(C)(1) is amended to read as follows:
(1) Deceased Participant's Nonforfeitable Accrued
Benefit Does Not Exceed $5,000. The Advisory Committee,
subject to the requirements of Section 6.04, must direct the
Trustee to pay the deceased Participant's Nonforfeitable
Accrued Benefit in a single cash sum, on the annual or
quarterly distribution date following the end of the calendar
quarter in which the Participant's death occurs, or, if later,
in which the Advisory Committee receives notification of or
otherwise confirms the Participant's death, or as soon as
administratively practicable thereafter.
3. Subsection 6.03(A) is amended to read as follows:
(A) Participant Elections After Termination of Employment. If the
present value of a Participant's Nonforfeitable Accrued Benefit exceeds
$5,000, he may elect to have the Trustee commence distribution as of
any annual or quarterly distribution date, but not earlier than the
first annual distribution date after the close of the Plan Year in
which the Participant's Separation from Service occurs. The Participant
may reconsider an election at any time prior to the annuity starting
date and elect to commence distribution as of any later annual or
quarterly distribution date after the end of any subsequent calendar
quarter after the last day of the Plan Year in which his Separation
from Service occurred, or as soon as administratively practicable
thereafter. In the case of (i) a Participant who has attained age 55 on
or before the date of his Separation from Service, or (ii) a
Participant whose Separation from Service occurs because of his
disability, the Participant, in addition to the benefit payment
elections provided for in the first two sentences of this Section
6.03(A), shall have the right to elect to have the Trustee commence
distribution as of any annual or quarterly distribution date after the
end of the calendar quarter in which his Separation from Service
occurs, or as soon as administratively practicable thereafter. A
Participant who has separated from Service may elect distribution as of
any annual or quarterly distribution date after the last day of the
Plan Year in which his Separation from Service occurred, or as soon as
administratively practicable thereafter, irrespective of the
restrictions otherwise applicable under this Section 6.03(A). If the
Participant is partially vested in his Accrued Benefit, an election
under this paragraph (A) to distribute prior to the Participant's
incurring a Forfeiture Break in Service (as defined in Section 5.08),
must be in the form of a cash-out distribution (as defined in Article
V). A Participant may not receive a cash-out distribution if, prior to
the time the Trustee actually makes the cash-out distribution, the
Participant returns to employment with an Employer.
2
4. Section 6.03(B) is amended to read as follows:
(B) Participant Elections Prior to Termination of Employment.
(1) At Normal Retirement Age. After a Participant attains
Normal Retirement Age, the Participant, until he retires, has a
continuing election to receive all or any portion of his Accrued
Benefit. A Participant must make an election under this paragraph on a
form prescribed by the Advisory Committee at any time during the Plan
Year for which his election is to be effective. In his written
election, the Participant must specify the percentage or dollar amount
he wishes the Trustee to distribute to him. The Participant's election
relates solely to the percentage or dollar amount specified in his
election form and his right to elect to receive an amount, if any, for
a particular Plan Year greater than the dollar amount or percentage
specified in his election form terminates on the Accounting Date. The
Trustee must make a distribution to a Participant in accordance with
his election under this paragraph on the annual or quarterly
distribution date after the end of the calendar quarter within which
the Participant files his written election with the Trustee, or as soon
as administratively practicable thereafter. The Trustee will distribute
the balance of the Participant's Accrued Benefit not distributed
pursuant to his election(s) in accordance with the other distribution
provisions of this Plan.
(2) Prior to Normal Retirement Age. For purposes of this
paragraph, the terms "eligible retirement plan," "direct rollover" and
"eligible rollover distribution" shall have the meanings ascribed to
them in Section 6.08. Any Participant who has attained 59 1/2 and has
at least five Years of Service, until he retires, has a continuing
election to direct the Trustee to pay directly to an eligible
retirement plan specified by the Participant in a direct rollover all
or any portion, with a minimum portion of 20%, of his Nonforfeitable
Accrued Benefit, provided that the payment is an eligible rollover
distribution. A Participant may make an election under this paragraph
on a form prescribed by the Advisory Committee at any time during the
Plan Year for which his election is to be effective. In his written
election, the Participant must specify the percentage or dollar amount
he wishes the Trustee to distribute. The Participant's election relates
solely to the percentage or dollar amount specified in his election
form and his right to elect to have directly rolled over an amount, if
any, for a particular Plan Year greater than the dollar amount or
percentage specified in his election form terminates on the Accounting
Date. The Trustee must pay the amount specified by the Participant in a
direct rollover in accordance with the Participant's election under
this paragraph on the annual or quarterly distribution date after the
end of the calendar quarter within which the Participant files his
written election with the Trustee, or as soon as administratively
practicable thereafter. The Trustee will distribute the balance of the
Participant's Nonforfeitable Accrued Benefit not distributed pursuant
to this election(s) under this Section 6.03(B) in accordance with the
other distribution provisions of this Plan.
3
If the Trustee makes a distribution (other than a cash-out
distribution described in Section 5.04) to a partially-vested
Participant pursuant to this Section 6.03(B), the Advisory Committee
will establish a separate Account for the Participant's Accrued
Benefit. At any relevant time following the distribution, the Advisory
Committee will determined the Participant's Nonforfeitable Accrued
Benefit derived from Employer contributions in accordance with the
following formula: (P(AB+(RxD)) - (RxD).
To apply this formula, "P" is the Participant's current
vesting percentage at the relevant time, "AB" is the Participant's
Employer-derived Accrued Benefit at the relevant time, "R" is the ratio
of the Accrued Benefit at the relevant time to the Accrued Benefit
after the earlier distribution, and "D" is the amount of the earlier
distribution.
5. The second paragraph of Section 6.03(E) is amended to read as
follows:
A Participant must make a written election under this Section
6.03(E) on a form prescribed by the Advisory Committee not more than 90
nor less than 60 days before the end of the calendar quarter preceding
the distribution. The distribution in accordance with the Participant's
timely-filed election will be made on the annual or quarterly
distribution date following the end of such calendar quarter or as soon
as administratively practicable thereafter.
6. The first paragraph of Section 6.07 is amended to read as follows:
Nothing contained in this Plan prevents the Trustee, in
accordance with the direction of the Advisory Committee, from complying
with the provisions of a qualified domestic relations order (as defined
in Code ss.414(p)). This Plan specifically permits distribution to an
alternate payee under a qualified domestic relations order on any
annual or quarterly distribution date or as soon as administratively
practicable thereafter, irrespective of whether the Participant has
attained his earliest retirement age (as defined under Code ss.414(p))
under the Plan. A distribution to an alternate payee prior to the
Participant's attainment of earliest retirement age is available only
if the order specifies distribution at that time or permits an
alternate payee to elect such earlier distribution. Nothing in this
Section 6.07 allows an alternate payee to receive distribution at a
time otherwise not permitted under the Plan nor in a form of payment
not permitted under the Plan, nor does it allow a Participant to
receive distribution at a time or in a form not authorized by Plan
terms other than this Section 6.07.
4
7. Section 10.14 is amended to read as follows:
10.14 VALUATION OF TRUST. The Trustee must value the Trust
Fund as of each Accounting Date to determine the fair market value of
each Participant's Accrued Benefit in the Trust. The Trustee also must
value the Trust Fund on the last day of each calendar quarter and such
other dates as directed in writing by the Advisory Committee.
8. Section 14.01 is amended to read as follows:
14.01 REQUEST FOR WITHDRAWAL DUE TO FINANCIAL HARDSHIP. Every
Participant who has completed four (4) Years of Service for vesting
purposes, as defined in Sections 5.06 and 5.08, may request to withdraw
all or any portion, at his option, but not to exceed the value of such
Participant's vested interest which would be available under Section
5.03, of the balance of his Accrued Benefit as the same shall stand on
the last day of the calendar quarter in which such request is made
(after completion of all adjustments to be made thereto as of the end
of the calendar quarter in which such request is made). Effective for
Plan Years beginning after December 31, 1989, a Participant may make
such a withdrawal request if he has either completed four (4) Years of
Service for vesting purposes or been a Participant in the Plan for all
or part of at least four (4) Plan Years. Such request for withdrawal
shall be made in writing on a form satisfactory to the Advisory
Committee and such request shall be delivered to the Advisory Committee
not more than 90 nor less than 60 days before the end of the calendar
quarter preceding the distribution. The Advisory Committee shall have
complete discretion in approving a request for withdrawal due to
financial hardship and the amount thereof, PROVIDED; the Advisory
Committee shall grant its consent if satisfied from positive evidence
presented by the Participant, that the purpose of the request for
withdrawal due to financial hardship is:
(a) financing of the purchase, major repair or
improvement of the Participant's home;
(b) major illness or disability of the Participant, a
member of his immediate family or one dependent upon him;
5
(c) college or other post-high school education of
the Participant or one dependent upon him; a withdrawal
pursuant to this subparagraph (c) shall be distributed in
approximately equal annual installments over the scheduled
course of the schooling. Installments after the initial
distribution will be paid only if the Participant delivers to
the Advisory Committee a copy of grades for the most recent
quarter or semester for which grades are available as well as
a bill or other appropriate written evidence sufficient to
demonstrate to the Advisory Committee the continuation by the
Participant or dependent of his course of schooling;
(d) financial hardship to the Participant caused by
sickness, accident or death in the Participant's immediate
family; or
(e) such other condition or purpose which the
Advisory Committee shall determine, in accordance with uniform
principles consistently applied, is of sufficiently similar
seriousness or worthiness to the enumerated conditions and
purposes as to constitute a financial hardship;
and further provided, that in no event shall the Advisory Committee
grant such request from a Participant who has previously made a
withdrawal pursuant to this Section 14.01 unless, subsequent to the
Plan Year in which the Participant's most recent such request was made
and granted, the Participant has either completed four (4) additional
Years of Service of vesting purposes or has been a Participant in the
Plan for all or part of at least four (4) additional Plan Years. If the
Advisory Committee would otherwise grant a request for withdrawal for
the financing of the purchase of the Participant's home but for the
fact that the Participant has not obtained a signed contract for the
purchase of the home, the Advisory Committee shall approve the request
subject to the condition that Participant obtain a signed contract for
purchase of a home.
9. Section 14.03 is amended to read as follows:
14.03 TIME OF PAYMENT. Except as provided in Section 14.06,
following the close of the calendar quarter when any such request for
withdrawal shall be made and approved by the Advisory Committee, the
Advisory Committee shall direct the Trustee to pay and distribute to
the Participant the amount so specified. Payment shall be made on the
annual or quarterly distribution date following the end of the calendar
quarter or as soon as administratively practicable thereafter, or in
the case of a request made and approved in the last quarter of a Plan
Year, as soon as administratively practicable after the year-end
adjustments to be made for such Plan Year shall be completed; and the
amount so distributed shall be charged to the Participant's Account.
6
10. Section 14.05 is amended to read as follows:
14.05 REQUEST FOR WITHDRAWAL DUE TO FINANCIAL HARDSHIP FOR
PARTICIPANTS IN THE POLICYHOLDER SERVICE CORPORATION RETIREMENT PLAN. A
Participant in the Policyholder Service Corporation Retirement Plan
which was merged with this Plan on December 31, 1991, may request a
withdrawal due to financial hardship of all or any portion, at his
option, but not to exceed the value of such Participant's vested
interest which would be available under Section 5.03, of the balance of
his Accrued Benefit attributable to contributions (including any
rollover contributions) made for Plan Years beginning on or after
January 1, 1988 and to any rollover contributions made prior to January
1, 1988, to the Policyholder Service Corporation Retirement Plan prior
to merger with this Plan, as the same shall stand on the last day of
the calendar quarter in which such request is made (after completion of
all adjustments to be made thereto as of the end of the calendar
quarter in which such request is made); PROVIDED, the distribution
provisions of Section 6.03(E) shall govern any request by a Participant
for a withdrawal from the Participant's Deferral Contributions Account.
Such request for withdrawal shall be made in writing on a form
satisfactory to the Advisory Committee and such request shall be
delivered to the Advisory Committee not more than 90 nor less than 60
days before the end of the calendar quarter preceding the distribution.
The Advisory Committee shall have complete discretion in approving a
request for withdrawal due to financial hardship and the amount
thereof; PROVIDED, the Advisory Committee shall grant its consent if
satisfied from positive evidence presented by the Participant, that the
purpose of the request for withdrawal due to financial hardship is:
(a) financing of the purchase, major repair or
improvement of the Participant's home;
(b) major illness or disability of the Participant, a
member of his immediate family or one dependent upon him;
(c) college or other post-high school education of
the Participant or one dependent upon him; (a withdrawal
pursuant to this subparagraph (c) shall be distributed in
approximately equal annual installments over the scheduled
course of the schooling. Installments after the initial
distribution will be paid only if the Participant delivers to
the Advisory Committee a copy of grades for the most recent
quarter or semester for which grades are available as well as
a bill or other appropriate written evidence sufficient to
demonstrate to the Advisory Committee the continuation by the
Participant or dependent of his course of schooling);
7
(d) financial hardship to the Participant caused by
sickness, accident or death in the Participant's immediate
family; or
(e) such other condition or purpose which the
Advisory Committee shall determine, in accordance with uniform
principles consistently applied, is of sufficiently similar
seriousness or worthiness to the enumerated conditions and
purposes as to constitute a financial hardship.
If the Advisory Committee would otherwise grant a
request for withdrawal for the financing of the purchase of
the Participant's home but for the fact that the Participant
has not obtained a signed contract for the purchase of the
home, the Advisory Committee shall approve the request subject
to the condition that Participant obtain a signed contract for
purchase of a home.
The provisions of Sections 14.02, 14.03, 14.04 and
14.06 shall apply to any withdrawals under this Section 14.05.
11. Section 14.06 is amended to read as follows:
14.06 SPECIAL RULES FOR WITHDRAWAL DUE TO PURCHASE OF HOME.
This Section 14.06 shall apply to a Participant whose request or
withdrawal for the financing of the purchase of a home has been
conditionally approved pursuant to Section 14.01. If the Participant
has not obtained a signed contract for the purchase by the distribution
date, the Trustee shall continue to hold such approved amount and
distribute it to the Participant when he obtains a signed contract,
provided that the Participant obtains a signed contract within six (6)
months of the originally applicable distribution date. If the
Participant does not obtain a signed contract within six (6) months of
the originally applicable distribution date, the Participant's request
shall be cancelled, and the Participant shall be permitted to make a
new request pursuant to Section 14.01 and 14.05 notwithstanding any
requirement that the Participant otherwise wait four (4) years.
12. Section 15.02 is amended to read as follows:
15.02 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of
each Participant's Accrued Benefit shall consist of that portion of the
net worth (at fair market value) of the Trust Fund which the net credit
balance in his Account therein bears to the total net credit balance in
the Accounts of all Participants plus the value of any segregated
accounts hereunder. For purposes of a distribution under the Plan, the
value of a Participant's Accrued Benefit shall be its value as of the
valuation date immediately preceding the applicable distribution date.
Any distribution (other than a distribution from a segregated Account)
made to a Participant (or to his Beneficiary) more than 90 days after
the most recent valuation date shall include interest on the amount of
the distribution as an expense of the Trust fund. The interest accrues
from such valuation date to the date of the distribution at a rate of
five percent (5%) per annum.
8
13. The foregoing amendments shall be effective September 30, 1998.
14. Except as herein amended, the Plan is hereby ratified and
confirmed.
IN WITNESS WHEREOF, DST Systems, Inc. and UMB Bank, N.A., have executed
this Second Amendment as of this first day of October, 1998.
DST SYSTEMS, INC.
By: /s/Kenneth V. Hager
Kenneth V. Hager
Vice President, Chief Financial
Officer and Treasurer
UMB BANK, N.A.
By: /s/Mark P. Herman
Mark P. Herman
Senior Vice President
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule, submitted as exhibit 27.1 to form 10-Q, contains summary
financial information extracted from the consolidated condensed balance sheet
and statement of income of DST Systems, Inc. commission file number 1-14036, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000714603
<NAME> DST Systems, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 35,388
<SECURITIES> 0
<RECEIVABLES> 177,884
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 255,775
<PP&E> 621,482
<DEPRECIATION> 386,080
<TOTAL-ASSETS> 1,480,146
<CURRENT-LIABILITIES> 138,343
<BONDS> 88,254
0
0
<COMMON> 500
<OTHER-SE> 944,225
<TOTAL-LIABILITY-AND-EQUITY> 1,480,146
<SALES> 0
<TOTAL-REVENUES> 557,972
<CGS> 0
<TOTAL-COSTS> 472,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,087
<INCOME-PRETAX> 83,563
<INCOME-TAX> 29,153
<INCOME-CONTINUING> 54,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,654
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.09
</TABLE>
