UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) April 22, 1999
(Exact name of registrant as specified in its charter)
DST Systems, Inc.
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
Delaware 1-14036 43-1581814
333 West 11th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (816) 435-6568
Not Applicable
(Former name or former address, if changed since last report.)
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FORM 8-K
DST SYSTEMS, INC.
ITEM 1 CHANGES IN CONTROL OF REGISTRANT
Not applicable.
ITEM 2 ACQUISITION OR DISPOSITION OF ASSETS
Not applicable.
ITEM 3 BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4 CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5 OTHER EVENTS
See attached as an Exhibit to this Form 8-K a News Release released April 22,
1999 concerning the announcement of financial results.
ITEM 6 RESIGNATIONS OF REGISTRANT'S DIRECTORS
Not applicable.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
Not applicable.
ITEM 8 CHANGE IN FISCAL YEAR
Not applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DST Systems, Inc.
/s/ Robert C. Canfield
Senior Vice President, General Counsel,
Secretary
Date: April 23, 1999
April 22, 1999
DST SYSTEMS, INC. ANNOUNCES FIRST QUARTER 1999 FINANCIAL RESULTS
For the quarter ended March 31, 1999, DST's consolidated net income was $33.6
million ($.52 per diluted share) compared to first quarter 1998 net income of
$24.1 million ($.38 per diluted share), a 39.4% increase in net income and a
36.8% increase in diluted earnings per share.
The following table summarizes the Company's revenues and income from operations
by segment (dollars in millions).
For the quarter ended March 31,
Revenues 1999 1998
---- ----
Financial Services $137.1 $120.9
Output Solutions 121.1 105.7
Customer Management 48.2 51.4
Investments and Other 8.2 8.6
Intersegment eliminations (21.8) (20.6)
-------- --------
$292.8 $266.0
====== ======
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
===== =====
Consolidated revenues for the quarter ended March 31, 1999 totaled $292.8
million, an increase of 10.1% over the prior year quarter. U.S. revenues were
$251.7 million for the quarter, an increase of 8.3% over 1998 first quarter
revenues. International revenues were $41.1 million for the quarter, an increase
of 22.3% over 1998 first quarter revenues.
Financial Services Segment
Financial Services Segment revenues for the quarter increased $16.2 million or
13.4% over first quarter 1998. U.S. revenues increased $10.3 million, or 10.9%,
primarily from an increase in mutual fund shareowner accounts processed. U.S.
mutual fund shareowner accounts serviced 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 of 12.4% from the 45.9 million serviced at March 31, 1998. Net new IRA
accounts during the quarter were 600,000, of which approximately 60% were Roth
or Educational IRA accounts. Roth or Educational IRA's now comprise 16% of total
IRA accounts serviced. U.S. AWD workstations licensed were 29,000 at March 31,
1999, an increase of 5.8% over year-end 1998 levels.
International revenues totaled $32.1 million for the first quarter 1999, an
increase of $5.9 million or 22.4% over comparable prior year quarter revenues.
The increase was attributable to higher software maintenance and service
revenues from the Company's investment accounting products and an increase in
Canadian mutual fund processing and service revenues.
Financial Services Segment income from operations for the 1999 first quarter
increased 59.6% over the prior year quarter to $29.2 million, resulting in an
operating margin of 21.3%, compared to 15.1% for the prior year. Costs and
expenses increased 7.9%, principally from increased personnel costs to support
revenue growth, which increase was partially offset by the effect of
capitalizing $3.8 million of internal use software development costs.
Depreciation and amortization costs decreased 9.1% in the first quarter of 1999
to $14.9 million. The 1998 amounts include a one time write-off of intangible
assets totaling $3.2 million, principally associated with a $2.6 million
contract termination fee received in the first quarter of 1998. Without the
non-recurring item, depreciation and amortization would have increased 12.9% for
the quarter. International businesses' operating income increased $3.2 million
for the current year quarter, primarily resulting from increased revenues.
Output Solutions Segment
Output Solutions Segment revenues for the quarter ended March 31, 1999 increased
$15.4 million or 14.6%. Revenue growth resulted from increased volume of images
and statements produced from U.S. mutual fund shareowner 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.
Output Solutions Segment income from operations for the first quarter increased
$3.4 million or 26.0% over the prior year quarter to $16.5 million, resulting in
an operating margin of 13.6% as compared to 12.4% in the prior year quarter.
Costs and expenses increased 13.5%, principally due to increased personnel costs
to support revenue growth and costs incurred in converting new customers and
developing new products, which increase was partially offset by the effect of
capitalizing $1.1 million of internal use software development costs.
Depreciation and amortization costs increased 6.2% in the first quarter 1999 to
$6.9 million.
Customer Management Segment
Customer Management Segment revenues for the quarter ended March 31, 1999
decreased $3.2 million or 6.2%. Revenues from TCI, a discontinued customer,
declined to $4.4 million in 1999 from $11.2 million in 1998, resulting in an
overall decline in processing and software service revenues of $1.5 million and
a decline in equipment sales and services of $1.7 million. Exclusive of TCI,
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. Segment international revenues totaled $5.1 million for the quarter,
an increase of $1.4 million or 37.2% over the first quarter of 1998, primarily
from revenues from Custima, which was acquired the third quarter of 1998.
Customer Management Segment 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. Costs and
expenses 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. Depreciation and
amortization increased $0.9 million, or 36.0%, of which $0.6 million is
intangible amortization related to the Custima acquisition.
Investments and Other
Investments and Other Segment revenues decreased $0.4 million for the quarter
ended March 31, 1999. Segment revenues are primarily rental income for
facilities leased to the Company's operating segments. Segment income from
operations decreased $0.1 million compared to the prior year quarter, primarily
as a result of the decrease in revenues.
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. DST 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 1998. 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 increase was partially offset by higher system
development and conversion costs for FAST2000. In addition, DST's share of
internal use software development costs capitalized by EFDS in the first quarter
of 1999 was $0.8 million.
Other income, net
Other income was $1.7 million for the quarter ended March 31, 1999, an increase
of $0.7 million over the first quarter of 1998, principally from higher levels
of interest income.
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.
Income taxes
DST'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.
Capitalization of internal use software development costs
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, $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 as in the past rather than capitalized, first quarter 1999 consolidated
net income would have been $29.5 million ($.46 per diluted share), a 22.4%
increase in net income and a 21.1% increase in diluted earnings per share over
first quarter 1998.
Other Actions
During the quarter ended March 31, 1999, DST purchased 50,000 shares of its
common stock under its previously announced 600,000 share repurchase program.
The shares purchased will be available to employees under DST's stock award
program and to provide to option holders who exercise options.
* * * *
The information and comments above may include forward-looking statements
respecting DST and its businesses. Such information and comments are based on
DST's views as of today, and actual results could differ. There could be a
number of factors affecting future results, including those set forth in Form
8-K dated March 25, 1999 filed by DST with the Securities and Exchange
Commission. All such factors should be considered in evaluating any
forward-looking comment.
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<CAPTION>
DST SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
For the Three Months Ended
March 31, 1999 March 31, 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 interest 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>
DST Systems, Inc.
333 West 11th Street
Kansas City, MO
64105-1594
NYSE Symbol: DST
CHX Symbol: DST
Contact:
Thomas A. McDonnell (816) 435-8684
President and Chief Executive Officer
Kenneth V. Hager (816) 435-8603
Vice President and Chief Financial Officer
