UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 April 30, 1999:
Common Stock $.01 par value - 63,168,041
1
<PAGE>
DST Systems, Inc.
Form 10-Q/A
March 31, 1999
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 3
Condensed Consolidated Balance Sheet -
March 31, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Income -
Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1999 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 11-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22-24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 25
The Company's service marks and trademarks include without limitation,
CUSTIMA(TM), DST(TM), TRAC-2000(R), Automated Work Distributor(TM), AWD(R),
FAST2000(TM) referred to in this Report.
2
<PAGE>
DST Systems, Inc.
Form 10-Q/A
March 31, 1999
Purpose of amendment
All information remains unchanged from the Form 10-Q filed with the Securities
and Exchange Commission on May 17, 1999 except that intersegment revenues for
the Investments and Other Segment for the three months ended December 31, 1998
were incorrectly presented under the Customer Management Segment column in the
quarterly segment financial information as provided under Part II Item 5 - Other
Information. This error is hereby corrected within this Form 10-Q/A.
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 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, 1998.
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/A.
The results of operations for the three months ended March 31, 1999, are not
necessarily indicative of the results to be expected for the full year 1999.
3
<TABLE>
<CAPTION>
DST Systems, Inc.
Condensed Consolidated Balance Sheet
(dollars in millions, except per share amounts)
(unaudited)
March 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 43.5 $ 28.1
Accounts receivable 288.8 282.4
Other current assets 70.3 65.3
--------------- ---------------
402.6 375.8
Investments 1,126.3 1,130.5
Properties 320.0 328.4
Intangibles and other assets 58.1 62.3
--------------- ---------------
Total assets $ 1,907.0 $ 1,897.0
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 15.8 $ 12.1
Accounts payable 59.5 85.3
Accrued compensation and benefits 34.9 53.4
Deferred revenues and gains 37.4 41.1
Other liabilities 83.7 76.7
--------------- ---------------
231.3 268.6
Long-term debt 67.6 49.7
Deferred income taxes 338.9 343.2
Other liabilities 71.1 68.5
--------------- ---------------
708.9 730.0
--------------- ---------------
Commitments and contingencies
--------------- ---------------
Minority interest 0.7 0.8
--------------- ---------------
Stockholders' equity
Common stock, $0.01 par; 125,000,000 shares authorized,
63,816,639 shares issued 0.6 0.6
Additional paid-in capital 458.5 462.3
Retained earnings 411.7 378.1
Treasury stock (731,641 and 945,114 shares,
respectively), at cost (27.7) (34.1)
Accumulated other comprehensive income 354.3 359.3
--------------- ---------------
Total stockholders' equity 1,197.4 1,166.2
--------------- ---------------
Total liabilities and stockholders' equity $ 1,907.0 $ 1,897.0
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<TABLE>
<CAPTION>
DST Systems, Inc.
Condensed Consolidated Statement of Income
(in millions, except per share amounts)
(unaudited)
For the Three Months
Ended March 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Revenues $ 292.8 $ 266.0
Costs and expenses 215.4 198.4
Depreciation and amortization 27.5 27.2
---------------- ----------------
Income from operations 49.9 40.4
Interest expense (1.5) (2.6)
Other income, net 1.7 1.0
Equity in earnings (losses) of unconsolidated
affiliates, net of income taxes 2.2 (0.4)
---------------- ----------------
Income before income taxes and minority interests 52.3 38.4
Income taxes 18.8 14.3
---------------- ----------------
Income before minority interests 33.5 24.1
Minority interests (0.1)
---------------- ----------------
Net income $ 33.6 $ 24.1
================ ================
Average common shares outstanding 63.0 62.6
Diluted shares outstanding 64.7 64.0
Basic earnings per share $ 0.53 $ 0.38
Diluted earnings per share $ 0.52 $ 0.38
</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 millions)
(unaudited)
For the Three Months
Ended March 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows -- operating activities:
Net income $ 33.6 $ 24.1
---------------- ----------------
Depreciation and amortization 27.5 27.2
Equity in (earnings) losses of unconsolidated affiliates (2.2) 0.4
Cash dividends received from unconsolidated affiliates 7.0
Deferred taxes 1.4 (1.1)
Changes in accounts receivable (6.3) (11.4)
Changes in other current assets (6.3) 3.6
Changes in accounts payable and accrued liabilities (29.0) 3.9
Other, net (2.5) 3.8
---------------- ----------------
Total adjustments to net income (17.4) 33.4
---------------- ----------------
Net 16.2 57.5
---------------- ----------------
Cash flows -- investing activities:
Proceeds from sale of investments 9.7
Investments and advances to unconsolidated affiliates (6.0) (9.3)
Capital expenditures (25.3) (34.8)
Other, net (0.5) 0.4
---------------- ----------------
Net (22.1) (43.7)
---------------- ----------------
Cash flows -- financing activities:
Proceeds from issuance of long-term debt 11.5 7.4
Principal payments on long-term debt (4.6) (4.3)
Net increase in revolving credit facilities and notes payable 14.8 25.7
Common stock repurchased (2.8) (11.6)
Other, net 2.4 (9.3)
---------------- ----------------
Net 21.3 7.9
---------------- ----------------
Net increase in cash and cash equivalents 15.4 21.7
Cash and cash equivalents at beginning of period 28.1 18.6
---------------- ----------------
Cash and cash equivalents at end of period $ 43.5 $ 40.3
================ ================
</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 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, 1998.
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/A.
Effective December 21, 1998, the Company acquired USCS International, Inc.
("USCS"), which was accounted for as a pooling of interests. Accordingly, the
Company's consolidated financial statements for periods prior to December 21,
1998 have been restated to include the financial position and results of
operations of USCS.
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 March 31, 1999 and December 31, 1998, and the
results of operations and cash flows for the three months ended March 31, 1999
and 1998.
The results of operations for the three months ended March 31, 1999, are not
necessarily indicative of the results to be expected for the full year 1999.
Software development and maintenance. Effective January 1, 1999, DST adopted, as
required, Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which requires that certain
costs incurred for the development of internal use software be capitalized.
Prior to the adoption of SOP 98-1, the Company expensed the costs of internally
developed proprietary software as incurred. For the quarter ended March 31,
1999, the Company capitalized $5.8 million of costs related to the development
of internal use software (including $0.8 of capitalized costs reflected in
equity in earnings of unconsolidated affiliates), $4.7 million and $1.1 million
for the Financial Services and Output Solutions Segments, respectively. If
internal use software development costs had been expensed rather than
capitalized, first quarter 1999 consolidated net income would have been $29.9
million ($0.47 per basic share, $0.46 per diluted share).
2. USCS Merger Integration Costs
In December 1998, DST's management approved plans which include initiatives to
integrate the operations of certain DST and USCS subsidiaries and consolidate
certain facilities. Total accrued integration costs of $16.9 million were
recorded in the fourth quarter of 1998, of which $0.7 million, $12.8 million and
$3.4 million related to the Financial Services, Output Solutions, and Customer
Management Segments, respectively. $8.0 million of these costs were utilized
during 1998.
The Company paid $0.2 million related to the accrued integration costs during
the three months ended March 31, 1999. Of the remaining accrued integration
costs of $8.7 million at March 31, 1999, $0.7 million, $6.3 million, and $1.7
million relate to the Financial Services, Output Solutions, and Customer
Management Segments, respectively.
7
The accrued costs relate primarily to employee severance benefits which are
expected to be paid in 1999 and facilities that will be closed. Lease payments
on closed facilities and abandoned equipment have terms which end in 1999
through 2003. Location closures are planned to occur through the year 2000 once
arrangements have been made to process continuing business at other facilities.
Three of the locations have been closed as of March 31, 1999. The costs of
transitioning the continuing business have not been accrued.
DST expects that other integration costs will be incurred in the future which
cannot be accrued under current accounting rules and are dependent on management
decisions. Such costs could include, among other things additional employee
costs, relocation and integration costs of moving to common internal systems.
Although precise estimates cannot be made, management does not believe such
costs will have a materially adverse effect on the Company's consolidated
results of operations, liquidity or financial position.
3. Investments
Investments are as follows (in millions):
<TABLE>
<CAPTION>
Carrying Value
March 31, 1999 -----------------------------------
Ownership March 31, December 31,
Percentage 1999 1998
-------------------- ---------------- ----------------
<S> <C> <C> <C>
Available-for-sale securities:
State Street Corporation 4% $ 493.5 $ 420.8
Computer Sciences Corporation 5% 476.4 554.6
Euronet Services, Inc. 11% 3.8 4.5
Other available-for-sale securities 30.8 38.7
---------------- ----------------
1,004.5 1,018.6
---------------- ----------------
Unconsolidated affiliates:
Boston Financial Data Services, Inc. 50% 42.1 39.4
European Financial Data Services Ltd. 50% 7.4 5.5
Argus Health Systems, Inc. 50% 4.7 3.8
Other unconsolidated affiliates 22.8 25.6
---------------- ----------------
77.0 74.3
---------------- ----------------
Other:
Net investment in leases 21.2 16.3
Other 23.6 21.3
---------------- ----------------
44.8 37.6
---------------- ----------------
Total investments $ 1,126.3 $ 1,130.5
================ ================
</TABLE>
Certain information related to the Company's available for sale securities is as
follows (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Cost $ 423.2 $ 427.9
Gross unrealized gains 582.6 591.2
Gross unrealized losses (1.3) (0.5)
================= =================
Market value $ 1,004.5 $ 1,018.6
================= =================
</TABLE>
8
The following table summarizes equity in earnings (losses) of unconsolidated
affiliates (in millions):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Boston Financial Data Services, Inc. $ 2.7 $ 1.6
European Financial Data Services Limited (1.4) (2.6)
Argus Health Systems, Inc. 0.9 0.6
================= =================
$ 2.2 $ (0.4)
================= =================
</TABLE>
4. Earnings Per Share and Comprehensive Income
Earnings per share. The computation of basic and diluted earnings per share is
as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
------------- ------------
<S> <C> <C>
Net income $ 33.6 $ 24.1
============= ============
Average common shares outstanding 63.0 62.6
Incremental shares from assumed conversions of stock options 1.7 1.4
------------- ------------
Dilutive potential common shares 64.7 64.0
============= ============
Basic earnings per share $ 0.53 $ 0.38
Diluted earnings per share $ 0.52 $ 0.38
</TABLE>
Comprehensive income. Components of comprehensive income consist of the
following (in millions):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
------------- --------------
<S> <C> <C>
Net income $ 33.6 $ 24.1
Other comprehensive income:
Unrealized gains (losses) on investments:
Unrealized holding gains (losses) arising during the period (6.1) 176.7
Less reclassification adjustment for gains included
in net income (3.3)
Foreign currency translation adjustments 0.7 0.5
Deferred income taxes 3.7 (69.0)
------------- --------------
Other comprehensive income (5.0) 108.2
------------- --------------
Comprehensive income $ 28.6 $ 132.3
============= ==============
</TABLE>
9
5. Segment Information
The Company evaluates the performance of its segments based on income before
taxes, non-recurring items and interest expense. Intersegment revenues are
reflected at rates prescribed by the Company and may not be reflective of market
rates. The segment information presented below differs from that previously
filed in the Company's Current Report on Form 8-K dated April 23, 1999 as a
result of a reclassification of reported intra-segment revenues and expenses.
The reclassification has no effect on segment income from operations,
consolidated revenues or consolidated income from operations. Summarized
financial information concerning the segments is shown in the following tables
(in millions):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 134.2 $ 107.6 $ 48.2 $ 2.8 $ $ 292.8
Intersegment revenues 0.4 13.5 5.4 (19.3)
------------- ------------- ------------- ------------- ------------- -------------
134.6 121.1 48.2 8.2 (19.3) 292.8
Costs and expenses 90.5 97.5 42.4 4.3 (19.3) 215.4
Depreciation and amortization 14.9 7.1 3.6 1.9 27.5
------------- ------------- ------------- ------------- ------------- -------------
Income from operations 29.2 16.5 2.2 2.0 49.9
Other income (loss), net 0.3 0.1 (0.1) 1.4 1.7
Equity in earnings (losses) of
unconsolidated affiliates 2.2 0.1 (0.1) 2.2
------------- ------------- ------------- ------------- ------------- -------------
Income before interest
and income taxes $ 31.7 $ 16.7 $ 2.1 $ 3.3 $ 53.8
============= ============= ============= ============= ============= =============
Three Months Ended March 31, 1998
-----------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- -------------
Revenues $ 120.6 $ 91.2 $ 51.4 $ 2.8 $ $ 266.0
Intersegment revenues 0.3 14.5 5.8 (20.6)
------------- ------------- ------------- ------------- ------------- -------------
120.9 105.7 51.4 8.6 (20.6) 266.0
Costs and expenses 86.2 86.1 42.0 4.7 (20.6) 198.4
Depreciation and amortization 16.4 6.5 2.5 1.8 27.2
------------- ------------- ------------- ------------- ------------- -------------
Income from operations 18.3 13.1 6.9 2.1 40.4
Other income (loss), net 0.1 0.2 (0.2) 0.8 0.1 1.0
Equity in losses of
unconsolidated affiliates (0.4) (0.4)
------------- ------------- ------------- ------------- ------------- -------------
Income before interest
and income taxes $ 18.0 $ 13.3 $ 6.7 $ 2.9 $ 0.1 $ 41.0
============= ============= ============= ============= ============= =============
</TABLE>
Income before interest and income taxes in the segment reporting information
above less interest expense of $1.5 million and $2.6 million for the quarters
ended March 31, 1999 and 1998, respectively, is equal to the Company's income
before income taxes and minority interests on a consolidated basis for the
corresponding quarter.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussions set forth in this Annual Report on Form 10-K 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 Annual
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 amended
Current Report on Form 8-K dated March 25, 1999, which is hereby incorporated by
reference. This report has been filed with the United States Securities and
Exchange Commission ("SEC") in Washington, D.C. and can be obtained by
contacting the SEC's Public Reference Branch. Readers are strongly encouraged to
obtain and consider the factors listed in the March 25, 1999 Current Report and
any amendments or modifications thereof when evaluating any forward-looking
statements concerning the Company. The Company will not update any
forward-looking statements in this Annual 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/A and the audited financial statements and notes thereto in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
INTRODUCTION
The Company has several operating business units that offer sophisticated
information processing and software services and products. These operating
business units have been aggregated into three operating segments (Financial
Services, Output Solutions and Customer Management). In addition, certain
investments in equity securities, financial interests and real estate holdings
have been aggregated into an Investments and Other Segment. A summary of each of
the Company's segments follows:
Financial Services
The Financial Services Segment provides sophisticated information processing and
computer software services and products primarily to mutual funds, investment
managers, insurance companies, banks and other financial services organizations.
Output Solutions
The Output Solutions Segment provides complete statement processing services and
solutions, including electronic presentment, which include generation of
customized statements that are produced in sophisticated automated facilities
designed to minimize turnaround time and mailing costs.
Customer Management
The Customer Management Segment provides sophisticated customer management
processing and computer software services and products to cable television,
direct broadcast satellite (DBS), wire-line telephony and multi-service
providers.
Investments and Other
The Investments and Other Segment holds certain investments in securities,
financial interests, the Company's real estate subsidiaries and the Company's
hardware leasing subsidiary.
11
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results (dollars in
millions, except per share amounts):
Three Months
Ended March 31,
------------------------
Operating results 1999 1998
----------- -----------
Revenues
Financial Services $ 134.6 $ 120.9
Output Solutions 121.1 105.7
Customer Management 48.2 51.4
Investments and Other 8.2 8.6
Eliminations (19.3) (20.6)
----------- -----------
$ 292.8 $ 266.0
=========== ===========
% change from prior year periods 10.1% 15.8%
Income from operations
Financial Services $ 29.2 $ 18.3
Output Solutions 16.5 13.1
Customer Management 2.2 6.9
Investments and Other 2.0 2.1
----------- -----------
49.9 40.4
Interest expense (1.5) (2.6)
Other income, net 1.7 1.0
Equity in earnings (losses) of unconsolidated
affiliates, net of income taxes 2.2 (0.4)
----------- -----------
Income before income taxes and minority interests 52.3 38.4
Income taxes 18.8 14.3
Minority interests (0.1)
=========== ===========
Net income $ 33.6 $ 24.1
=========== ===========
Basic earnings per share $ 0.53 $ 0.38
Diluted earnings per share $ 0.52 $ 0.38
Consolidated revenues
Consolidated revenues for the quarter ended March 31, 1999 increased $26.8
million or 10.1% over first quarter 1998. U.S. revenues were $251.7 million for
the 1999 quarter, an increase of 8.3% over 1998 first quarter revenues.
International revenues were $41.1 million for the 1999 quarter, an increase of
22.3% over 1998 first quarter revenues.
Financial Services Segment revenues for the quarter increased $13.7 million or
11.3% over first quarter 1998. U.S. Financial Services Segment revenues
increased $7.9 million, or 8.4%, primarily from an increase in mutual fund
shareowner accounts processed. U.S. mutual fund shareowner accounts service
totaled 51.6 million at March 31,1999, an increase of 3.6% from the 49.8 million
serviced at December 31, 1998 and an increase 12.4% from the 45.9 million
serviced at March 31, 1998.
Output Solutions Segment revenues for the quarter ended March 31, 1999 increased
$15.4 million or 14.6% over first quarter 1998. Revenue growth resulted from
increased volume of images and statements produced from U.S. mutual fund
shareowner account growth, new customers, and internal growth of existing
customers primarily in telecommunications and other industries. Output Solutions
Segment images produced in the first quarter 1999 increased 26.0% to 1,563.8
million and statements increased 5.2% to 416.1 million compared to the first
quarter of 1998.
12
Customer Management Segment revenues for the quarter ended March 31, 1999
decreased $3.2 million or 6.2% over first quarter 1998. Exclusive of
Tele-Communications, Inc. ("TCI") (discontinued customer), revenues increased
$3.6 million or 9.0% over the 1998 quarter, primarily from subscriber growth,
increased prices and migration of clients to higher value services.
Investments and Other Segment revenues decreased $0.4 million or 4.7% for the
quarter ended March 31, 1999 as compared to the 1998 quarter. Segment revenues
are primarily rental income for facilities leased to the Company's operating
segments and hardware leasing activities.
Income from operations
Consolidated income from operations for the quarter ended March 31, 1999
increased $9.5 million or 23.5% over first quarter 1998. The growth in the first
quarter 1999 was primarily a result of a $10.9 million or 59.6% increase in the
Financial Services Segment, which resulted in an operating margin of 21.7% for
the Financial Services Segment in the first quarter 1999 compared to 15.1% in
the first quarter 1998. The increase in 1999 Financial Services Segment
operating margin resulted from increased U.S. revenues, capitalization of
internal use software costs under SOP 98-1, and a significant improvement in
international operations.
Output Solutions Segment income from operations for the quarter ended March 31,
1999 increased $3.4 million or 26.0% over first quarter 1998. Output Solutions
Segment operating margin was 13.6% and 12.4% in 1999 and 1998, respectively. The
improvement in the 1999 operating margin results from increase U.S. revenue.
In the first quarter 1999, Customer Management Segment income from operations
decreased $4.7 million or 68.1% compared to the prior year quarter, resulting in
an operating margin of 4.6% as compared to 13.4% for the prior year. The
decrease was primarily attributable to costs incurred in transitioning new
customers onto the Company's products and services while transitioning TCI off
and the consolidation of Custima's operations.
Investments and Other Segment income from operations was $2.0 million and $2.1
million in the first quarter 1999 and 1998, respectively.
The Company experienced increases in costs 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 least through the Year 2000 at rates
above general inflation.
Interest expense
Interest expense totaled $1.5 million for the quarter ended March 31, 1999, down
from the $2.6 million recorded in the prior year quarter. Average debt balances
and interest rates were lower in 1999 as compared to 1998.
Other income, net
Other income was $1.7 million for the quarter ended March 31, 1999, an increase
of $0.7 over the first quarter of 1998, principally from higher levels of
interest income. Included in other income during the three months ended March
31, 1999 were gains from the sale of available-for-sale securities of $3.3
million offset by impairment charges related to other available-for-sale
securities of $3.4 million.
13
Equity in earnings (losses) of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates totaled $2.2 million for the
quarter ended March 31, 1999 as compared to equity in losses of unconsolidated
affiliates of $0.4 million for the prior year quarter. Increased earnings were
recorded at Boston Financial Data Services from higher levels of mutual fund
activity. Earnings from Argus were essentially unchanged. The Company recorded
losses from European Financial Data Services (EFDS) of $1.4 million in the first
quarter of 1999, a reduction from $2.6 million of losses recorded in the 1998
quarter. EFDS losses decreased from the prior year quarter as a result of
increased operating earnings as accounts serviced totaled 1.6 million at March
31, 1999, an increase of 0.2 million over year-end 1998 levels and an increase
of 0.4 million compared to March 31, 1998, which was partially offset by higher
system development and conversion costs for FAST2000. In addition, the Company's
share of internal use software development costs capitalized by EFDS in the
first quarter of 1999 was $0.8 million.
Income taxes
The Company's effective tax rate was 35.9% for the first quarter 1999, as
compared to 37.2% for the prior year quarter. The 1999 tax rate was affected by
tax benefits relating to certain international operations and recognition of
state tax benefits associated with income apportionment rules.
Quarter to Quarter Business Segment Comparisons
FINANCIAL SERVICES SEGMENT
Revenues
Financial Services Segment revenues for the quarter ended March 31, 1999
increased 11.3% over the same quarter in 1998 to $134.6 million. U.S. Financial
Services revenues increased 8.4% to $102.5 million in the first quarter 1999.
U.S. mutual fund processing revenues for the first quarter 1999 increased 16.1%
over the prior year quarter as shareowner accounts serviced increased 12.4% from
45.9 million at March 31, 1998 to 51.6 million at March 31, 1999. In the first
quarter 1998, the Company recognized a one-time $2.6 million contract
termination fee from Zurich Kemper Investments in the first quarter 1998 as a
result of its merged operations with Scudder. Exclusive of the termination fee,
U.S. Financial Services would have increased 5.6% to $99.9 million in the first
quarter of 1999. U.S. AWD product revenues for the first quarter 1999 increased
17.7% over the same quarter in the prior year primarily due to an increase in
the number of AWD workstations licensed.
Financial Services Segment revenues from international operations for the first
quarter ended March 31, 1999 increased 22.1% to $32.1 million. The revenue
increase resulted primarily from increased investment accounting software
maintenance and services and growth in Canadian mutual fund shareowner
processing and service revenues.
Costs and expenses
Segment costs and expenses for the quarter ended March 31, 1999 increased 5.0%
to $90.5 million over the first quarter 1998. Personnel costs for the first
quarter 1999 increased 3.6% over the comparable prior year period as a result of
increased staff levels to support volume growth, development costs for the
Company's new securities transfer system (Fairway) and increased wages for data
processing professionals offset by the capitalization of costs related to the
development of software for internal use. 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 as depreciation
expense.
14
Depreciation and amortization
Segment depreciation and amortization for the first quarter ended March 31, 1999
decreased 9.1% or $1.5 million. The decrease is primarily attributable to a
one-time write-off of intangible assets totaling $3.2 million in the first
quarter 1998 and by the renegotiation of certain third party software
agreements, effective March 31, 1998, resulting in certain amounts being
recorded as costs and expenses instead of as depreciation expense.
Income from operations
The Segment's income from operations for the first quarter ended March 31, 1999
increased 59.6% to $29.2 million over the comparable prior year period. The
Segment's operating margins were 21.7% and 15.1% in the first quarter 1999 and
1998. The increases in Financial Services Segment operating margins are a result
of increased U.S. revenues, capitalization of $3.8 million in costs of internal
use software, and a significant improvement in international operations.
OUTPUT SOLUTIONS SEGMENT
Revenues
Output Solutions Segment revenues for the first quarter ended March 31, 1999
increased 14.6% to $121.1 million as compared to the comparable prior quarter
1998. The growth in segment revenue was derived primarily from an increase in
the volume of statements and images produced because of the growth of existing
customers in the Financial Services Segment and the acquisition of new
customers, primarily in telecommunications and other high-volume markets.
Costs and expenses
Segment costs and expenses for the first quarter 1999 increased 13.5% to $97.7
million over the comparable prior year period. Personnel costs for the first
quarter 1999 increased 17.1% over the comparable prior year periods as a result
of increased staff levels to support volume growth and research and development
costs relating primarily to ongoing product development offset by the
capitalization of costs related to the development of software for internal use.
Depreciation and amortization
Depreciation and amortization for the first quarter ended March 31, 1999
increased 6.2% to $6.9 million as compared to the first quarter in 1998 related
to the expansion of certain bill processing lines and other equipment.
Income from operations
The Segment's income from operations and other expenses for the first quarter
ended March 31, 1999 increased $3.4 million or 26.0% primarily attributable
realizing processing efficiencies and economies of scale and the effect of
capitalizing $1.1 million of internal use software development costs. The
Segment's operating margins were 13.6% and 12.4% for the first quarter ended
March 31, 1999 and 1998, respectively.
CUSTOMER MANAGEMENT SEGMENT
Revenues
Customer Management Segment revenues for the first quarter ended March 31, 1999
decreased 6.2% to $48.2 million from $51.4 million in the first quarter of 1998.
Equipment sales and services revenue decreased to $2.8 million in the first
quarter 1999 from $5.1 in the first quarter of 1998.
15
During the first quarter ended March 31, 1999, TCI continued to remove
subscribers from the Company's systems. TCI related revenues and percent of
total Customer Management Segment revenues totaled $4.4 million and 9.1%,
respectively, in the first quarter of 1999 as compared to $11.2 million and
21.8% in the first quarter of 1998. Exclusive of revenues from TCI, the 1999
first quarter revenue increase was $3.6 million, or 9.0%, as compared to the
prior year. The growth in Customer Management Segment software and services
revenues, exclusive of revenue from TCI, came primarily from increases in the
number of subscribers of existing and new clients in the U.S. and international
markets, increases in prices allowed by existing contracts, migration of clients
to higher-priced services, and the inclusion of $1.7 million of revenues from
the acquisition of Custima in the third quarter of 1998. TCI subscribers
serviced by the Company totaled 2.1 million, 2.4 million and 8.5 million at
March 31, 1999, December 31, 1998 and March 31, 1998, respectively. The Company
expects the TCI subscriber count to decrease to 1.0 million by June 1999.
Costs and expenses
Segment costs and expenses for the first quarter 1999 increased $0.6 million or
1.4%, primarily attributable to the inclusion of Custima's operations and
increased product development expenses offset by a decrease in equipment costs
related to sales to customers.
The Company has experienced increases in costs 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 least through the Year 2000 at
rates above general inflation.
Depreciation and amortization
Depreciation and amortization increased $0.9 million, or 36.0%, of which $0.6
million is intangible amortization related to the Custima acquisition.
Income from operations
The Segment's income from operations for the first quarter 1999 decreased $4.7
million or 68.1% compared to the prior year quarter, resulting in an operating
margin of 4.6% as compared to 13.4% for the prior year.
INVESTMENTS AND OTHER SEGMENT
Revenues
Investments and Other Segment revenues totaled $8.2 million and $8.6 million for
the first quarter ended March 31, 1999 and 1998, respectively. Real estate
revenues of $5.8 million and $6.6 million for the first quarter of 1999 and
1998, respectively, were primarily derived from the lease of facilities to the
Company's other business segments. Revenues of $2.4 million and $2.0 million in
the first quarter of 1999 and 1998, respectively, were derived from the
Segment's hardware leasing activities.
Costs and expenses
Investments and Other Segment costs and expenses decreased in the first quarter
ended March 31, 1999 as compared to the first quarter of 1998 primarily as a
result of changes in real estate related costs.
Depreciation and amortization
Investments and Other Segment depreciation and amortization increased $0.1
million in the first quarter ended March 31, 1999 as a result of increased
depreciation related to additional real estate leasing activities and an
increase in depreciation related to equipment leased to customers.
Income from operations
The segment's income from operations totaled $2.0 million in the first quarter
ended 1999 as compared to $2.1 million in the prior year.
16
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities totaled $16.2 million for the
quarter ended March 31, 1999. Operating cash flows for the quarter were impacted
by net income of $33.6 million, depreciation and amortization of $27.5 million,
a decrease in accounts payable and accrued liabilities of $29.0 million and a
net increase in accounts receivable and other current assets of $12.6 million.
Cash flows used in investing activities totaled $22.1 million for the quarter
ended March 31, 1999. The Company expended $25.3 million during the quarter for
capital additions including $9.6 million for assets placed in service in 1998
but not paid for until 1999. Investments and advances to unconsolidated
affiliates totaled $6.0 million relating to funding the development of FAST2000
at EFDS and other investments. During the quarter, the Company received $9.7
million from the sale of investments in available-for-sale securities.
Cash flows provided by financing activities totaled $21.3 million for the
quarter ended March 31, 1999. Proceeds from debt to finance the Company's
equipment leasing activities totaled $11.5 million during the quarter. The
Company maintains $100 million in bank lines of credit for working capital
requirements and general corporate purposes, of which $50 million matures May
1999, $20 million matures December 1999 and $30 million matures December 2000.
The Company anticipates that the $50 million line of credit will be renewed for
at least another year. The Company also maintains a $125 million revolving
credit facility with a syndicate of U.S. and international banks which is
available through December 2001. Net borrowings under these facilities totaled
$13.8 million during the quarter, bringing total borrowings under these
facilities to $36.8 million.
In December 1998, the Board of Directors approved a plan to repurchase 600,000
shares of common stock at a rate of approximately 25,000 shares per month
beginning in February 1999 to provide additional shares for use under various
DST option and benefit programs needed as a result of the USCS Merger. Such
purchases may be made in private or market transactions and will be made in
compliance with SEC regulations. The Company repurchased 50,000 shares during
the three months ended March 31, 1999 for $2.8 million under this plan.
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 bank and revolving credit facilities, will suffice to meet the
Company's operating and debt service requirements and other current liabilities
for at least the next 12 months. Further, the Company believes that its longer
term liquidity and capital requirements will also be met through cash provided
by operating activities and bank credit facilities, as well as the Company's
$125 million revolving credit facility described above.
OTHER
Comprehensive income. The Company's comprehensive income totaled $28.6 million
and $132.3 million for the first quarter ended March 31, 1999 and 1998,
respectively. Comprehensive income consists of net income of $33.6 million and
$24.1 million and other comprehensive income (loss) of ($5.0) million and $108.2
million for the first quarters ended March 31, 1999 and 1998, respectively.
Other comprehensive income consists of unrealized gains (losses) net of deferred
taxes on available-for-sale securities and foreign currency translation
adjustments.
USCS Merger Integration Costs. In December 1998, DST's management approved plans
which include initiatives to integrate the operations of certain DST and USCS
subsidiaries and consolidate certain facilities. Total accrued integration costs
of $16.9 million were recorded in the fourth quarter of 1998, of which $0.7
million, $12.8 million and $3.4 million related to the Financial Services,
Output Solutions, and Customer Management Segments, respectively. $8.0 million
of these costs were utilized during 1998.
17
The Company paid $0.2 million related to the accrued integration costs during
the three months ended March 31, 1999. Of the remaining accrued integration
costs of $8.7 million at March 31, 1999, $0.7 million, $6.3 million, and $1.7
million relate to the Financial Services, Output Solutions, and Customer
Management Segments, respectively.
The accrued costs relate primarily to employee severance benefits which are
expected to be paid in 1999 and facilities that will be closed. Lease payments
on closed facilities and abandoned equipment have terms which end in 1999
through 2003. Location closures are planned to occur through the year 2000 once
arrangements have been made to process continuing business at other facilities.
Three of the locations have been closed as of March 31, 1999. The costs of
transitioning the continuing business have not been accrued.
DST expects that other integration costs will be incurred in the future which
cannot be accrued under current accounting rules and are dependent on management
decisions. Such costs could include, among other things additional employee
costs, relocation and integration costs of moving to common internal systems.
Although precise estimates cannot be made, management does not believe such
costs will have a materially adverse effect on the Company's consolidated
results of operations, liquidity or financial position.
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.
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 depend 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, or 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.
The Company has completed its review and evaluation of its mission critical U.S.
shareowner accounting and U.S. portfolio accounting related products, services
and internal systems and achieved material Year 2000 readiness in such products,
services and systems as of December 31, 1998. The Company anticipates readiness
for its other mission critical systems and products by September 30, 1999. The
Company will continue testing its systems with clients and other third parties
for Year 2000 related issues as needed throughout 1999, as well as assisting
clients with interrelated hardware and software upgrades, subject to the
cooperation of such third parties. The Company licenses certain of its software
products to third parties. The Company expects that customers which elect to
upgrade to current versions and customers with current maintenance contracts
will be provided with Year 2000 ready software by September 30, 1999. In certain
cases, the Company will be required under applicable maintenance contracts to
provide Year 2000 ready software free of charge. The Company believes that the
cost of such upgrades will be immaterial.
18
The Company believes it will not experience any material Year 2000 problems from
most of its major vendors and suppliers; however, the Company is unable to
determine whether certain suppliers, principally the Company's utilities
providers, will likely be Year 2000 ready in time. As part of addressing its
Year 2000 issues, the Company is developing contingency plans. The Company has
had for several years formal contingency plans, including an uninterruptable
power supply with permanent generator backup, for its Winchester and Poindexter
Data Centers in the event of a natural disaster. The contingency plans are being
revised to address, to the extent possible, failures that could be caused by
Year 2000 issues. The Company has formalized contingency plans for its U.S.
shareowner accounting and U.S. portfolio accounting business units, which would
incorporate Year 2000 related contingencies, and expects to complete testing of
the contingency plans by June 30, 1999. The Company expects to formalize
contingency plans for its other mission critical products, services and systems
by June 30, 1999 and to test the contingency plans by September 30, 1999. There
can be no assurances that an acceptable contingency plan can be developed for
certain suppliers, such as utilities, or that any such plan would successfully
protect the Company from any Year 2000 exposure. 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 assure 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.
19
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the operations of its businesses, the Company's financial results can be
affected by changes in interest rates, currency exchange rates and equity
pricing. Changes in interest rates and exchange rates have not materially
impacted the consolidated financial position, results of operations or cash
flows of the Company. Changes in equity values of the Company's investments have
had a material effect on the Company's comprehensive income and financial
position.
Interest rate risk
At March 31, 1999, the Company had $83.4 million of long-term debt, of which
$40.9 million was subject to variable interest rates (Federal Funds rates, LIBOR
rates, Prime rates). The Company estimates that a 10% increase in interest rates
would not be material to the Company's consolidated pretax earnings for 1999 or
to the fair value of its debt.
Foreign currency exchange rate risk
The operation of the Company's subsidiaries in international markets results in
exposure to movements in currency exchange rates. The principal currencies
involved are the Canadian dollar, the Australian dollar and the British pound.
As currency exchange rates change, translation of the financial results of
international operations into U.S. dollars does not now materially affect, and
has not historically materially affected, the consolidated financial results of
the Company.
The Company's international subsidiaries use the local currency as the
functional currency. The Company translates all assets and liabilities at
year-end exchange rates and income and expense accounts at average rates during
the year. While it is generally not the Company's practice to enter into
derivative contracts, from time to time the Company and its subsidiaries do
utilize forward foreign currency exchange contracts to minimize the impact of
currency movements.
Equity price risk
The Company's investments in available-for-sale equity securities are subject to
price risk. The fair value of such investments, as of March 31, 1999 was
approximately $1.0 billion. The potential change in the fair value of these
investments, assuming a 10% change in prices would be approximately $100.0
million on a pretax basis. As discussed under "Comprehensive Income" in Item 1
above, net unrealized gains on the Company's investments in available-for-sale
securities have had a material effect on the Company's comprehensive income and
financial position.
20
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
No matters were submitted by the Company to security holders during the quarter
ended March 31, 1999.
21
Item 5. Other Information
The Company evaluates the performance of its segments based on income before
taxes, non-recurring items and interest expense. Intersegment revenues are
reflected at rates prescribed by the Company and may not be reflective of market
rates. The segment information presented below differs from that previously
filed in the Company's Current Report on Form 8-K dated April 23, 1999 as a
result of a reclassification of reported intra-segment revenues and expenses.
The reclassification has no effect on segment income from operations,
consolidated revenues or consolidated income from operations. Summarized
financial information concerning the segments is shown in the following tables
(in millions):
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
-----------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 122.0 $ 89.2 $ 55.7 $ 2.9 $ $269.8
Intersegment revenues 0.4 14.2 6.0 (20.6)
------------- ------------- ------------- ------------- ------------- -------------
122.4 103.4 55.7 8.9 (20.6) 269.8
Costs and expenses 88.9 88.7 45.8 4.8 (20.6) 207.6
Depreciation and amortization 13.5 6.7 2.6 1.8 24.6
------------- ------------- ------------- ------------- ------------- -------------
Income from operations 20.0 8.0 7.3 2.3 37.6
Other income (loss), net 0.1 0.2 (0.2) 1.0 0.2 1.3
Equity in earnings (losses) of
unconsolidated affiliates 0.4 (0.3) 0.1
------------- ------------- ------------- ------------- ------------- -------------
Income before interest
and income taxes $ 20.5 $ 8.2 $ 7.1 $ 3.0 $ 0.2 $ 39.0
============= ============= ============= ============= ============= =============
22
Three Months Ended September 30, 1998
-----------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- -------------
Revenues $ 128.9 $ 86.4 $ 51.0 $ 2.5 $ $268.8
Intersegment revenues 0.2 13.6 5.9 (19.7)
------------- ------------- ------------- ------------- ------------- -------------
129.1 100.0 51.0 8.4 (19.7) 268.8
Costs and expenses 92.0 87.7 42.8 4.2 (19.7) 207.0
Depreciation and amortization 14.1 6.8 3.2 2.1 26.2
Merger charges and other costs 7.1 7.1
------------- ------------- ------------- ------------- ------------- -------------
Income from operations 23.0 5.5 5.0 2.1 (7.1) 28.5
Other income (loss), net 0.9 0.2 (0.2) 2.6 0.2 3.7
Equity in earnings (losses) of
unconsolidated affiliates (0.3) (0.9) (1.2)
------------- ------------- ------------- ------------- ------------- -------------
Income before interest
and income taxes $ 23.6 $ 5.7 $ 4.8 $ 3.8 $ (6.9) $ 31.0
============= ============= ============= ============= ============= =============
Three Months Ended December 31, 1998
-----------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- -------------
Revenues $ 134.9 $ 91.8 $ 62.1 $ 2.7 $ $291.5
Intersegment revenues 0.3 13.8 5.5 (19.6)
------------- ------------- ------------- ------------- ------------- -------------
135.2 105.6 62.1 8.2 (19.6) 291.5
Costs and expenses 93.4 88.4 55.7 3.8 (19.6) 221.7
Depreciation and amortization 17.7 7.7 3.3 2.1 30.8
Merger charges and other costs 26.0 26.0
------------- ------------- ------------- ------------- ------------- -------------
Income from operations 24.1 9.5 3.1 2.3 (26.0) 13.0
Other income (loss), net 0.4 (0.1) 1.0 0.1 1.4
Equity in earnings (losses) of
unconsolidated affiliates (1.1) (0.1) (1.2)
------------- ------------- ------------- ------------- ------------- -------------
Income before interest
and income taxes $ 23.4 $ 9.4 $ 3.1 $ 3.2 $ (25.9) $ 13.2
============= ============= ============= ============= ============= =============
</TABLE>
23
The following table presents operating data for the Company's operating business
segments:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Financial Services Operating Data
Mutual fund shareowner accounts processed (millions)
U.S. 51.6 49.8
Canada 1.8 1.6
United Kingdom (1) 1.6 1.4
TRAC-2000 mutual fund accounts (millions) (2) 2.7 2.5
TRAC-2000 participants (thousands) 1,041 905
IRA mutual fund accounts (millions) (2) 12.6 12.0
Portfolio Accounting System portfolios 2,070 1,962
Automated Work Distributor workstations 47,500 45,300
Customer Management Operating Data
Cable/satellite TV subscribers processed (millions)
Total before discontinued customer 35.9 35.6
Discontinued customer 2.1 2.4
Total cable/satellite TV subscribers processed 38.0 38.0
Output Solutions Operating Data
Images produced (millions) 1,564 5,087
Items mailed (millions) 416 1,490
</TABLE>
(1) Processed by EFDS, an unconsolidated affiliate of the Company
(2) Included in U.S. mutual fund shareowner accounts processed
24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated February 2, 1999, under Item 5 of such
form, reporting the announcement of financial results for the quarter and
year ended December 31, 1998.
The Company filed under Item 5 of Form 8-K, the Company's Form 8-K dated
February 17, 1999, reporting the announcement of quarterly financial data
for the years ended December 31, 1998 and 1997 and financial results for
the month ended January 31, 1999 all reflecting the December 21, 1998
merger with USCS which was accounted for as a pooling of interests.
The Company filed under Item 5 of Form 8-K, the Company's Form 8-K/A-2
dated March 25, 1999 amending and restating its Form 8-K dated March 15,
1996 (amended and restated April 13, 1998 and August 4, 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.
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 May 17, 1999.
DST Systems, Inc.
/s/ Kenneth V. Hager
Kenneth V. Hager
Vice President and Chief Financial Officer
(Principal Financial Officer)
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule, submitted as Exhibit 27.1 to Form 10-Q/A, contains summary
financial information extracted from the consolidated condensed balance sheet
and statement of income of DST Systems, Inc., Commission file no. 1-14036, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000714603
<NAME> DST Systems, Inc.
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 289
<ALLOWANCES> 0
<INVENTORY> 17
<CURRENT-ASSETS> 403
<PP&E> 836
<DEPRECIATION> 516
<TOTAL-ASSETS> 1,907
<CURRENT-LIABILITIES> 231
<BONDS> 68
0
0
<COMMON> 1
<OTHER-SE> 1,196
<TOTAL-LIABILITY-AND-EQUITY> 1,907
<SALES> 0
<TOTAL-REVENUES> 293
<CGS> 0
<TOTAL-COSTS> 243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 52
<INCOME-TAX> 19
<INCOME-CONTINUING> 34
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
</TABLE>
