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) October 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.)
<PAGE>
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 October 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: October 22, 1999
October 21, 1999
DST SYSTEMS, INC. ANNOUNCES THIRD QUARTER AND YEAR-TO-DATE 1999
FINANCIAL RESULTS
For the quarter ended September 30, 1999, DST's consolidated net income was
$33.9 million or $.52 per diluted share compared to third quarter 1998 net
income of $17.7 million or $.27 per diluted share, a 91.5% increase in net
income and a 92.6% increase in diluted earnings per share. Year-to-date, DST's
consolidated net income was $100.9 million or $1.56 per diluted share compared
to $65.1 million or $1.01 per diluted share in 1998, a 55.0% increase in net
income and a 54.5% increase in diluted earnings per share.
The following table summarizes the Company's revenues and income from
operations by segment (dollars in millions):
Quarter ended Nine months ended
September 30, September 30,
Revenues 1999 1998 1999 1998
---- ---- ---- ----
Financial Services $140.0 $129.1 $412.9 $372.4
Output Solutions 122.6 100.0 362.6 309.1
Customer Management 47.0 51.0 147.5 158.1
Investments and Other 8.1 8.4 24.8 25.9
Intersegment eliminations (19.0) (19.7) (56.7) (60.9)
----- ----- ----- -----
$298.7 $268.8 $891.1 $804.6
====== ====== ====== ======
Income from operations
Financial Services $31.7 $23.0 $93.5 $61.3
Output Solutions 11.3 5.5 39.8 26.6
Customer Management 3.9 5.0 10.4 19.2
Investments and Other 1.4 2.1 5.9 6.5
Acquisition related charges (7.1) (7.1)
----- ----- ------ ------
$48.3 $28.5 $149.6 $106.5
===== ===== ====== ======
Consolidated revenues increased $29.9 million or 11.1% over the prior year
quarter and $86.5 million or 10.8% over the prior year nine month period from
higher financial services and output solutions revenues. Consolidated income
from operations totaled $48.3 million for the quarter and $149.6 million for the
nine months ended September 30, 1999, an increase of $19.8 million or 69.5% over
the 1998 third quarter and $43.1 million or 40.5% over 1998 year to date
results, primarily from increased operating earnings in financial services and
output solutions, from required capitalization of internal use software
development costs of $5.7 million for the quarter and $16.0 million for the nine
month period ended September 30, 1999, and from one-time merger charges of $7.1
million related to USCS' August 1998 acquisition of Custima International plc, a
provider of customer management software and services for the utility industry.
Financial Services Segment
Financial Services Segment revenues for the quarter were $140.0 million, an
increase of $10.9 million or 8.4% over third quarter 1998. U.S. revenues
increased $10.2 million, or 10.3%, primarily from increases in mutual fund
shareowner accounts processed. U.S. mutual fund shareowner accounts serviced
totaled 54.8 million at September 30, 1999, an increase of 10.0% from the 49.8
million serviced at December 31, 1998 and an increase of 2.8% from the 53.3
million serviced at June 30, 1999. Net new IRA accounts during the quarter were
350,000, of which approximately 37.6% were Roth or Educational IRA accounts.
Roth or Educational IRA's now comprise 18.6% of total IRA accounts serviced by
the Company. U.S. AWD(R) workstations licensed were 33,000 at September 30,
1999, an increase of 20.8% over year-end 1998 levels.
International revenues totaled $31.6 million for the third quarter 1999, an
increase of $.7 million or 2.4% over comparable prior year quarter revenues. The
increase was attributable to higher Canadian mutual fund processing and service
revenues and an increase in software maintenance and service revenues from the
Company's AWD product, partially offset by a decline in software license
revenues from investment accounting products. International AWD workstations
licensed were 20,000 at September 30, 1999, an increase of 11.4% over year-end
1998 levels.
Financial Services Segment income from operations for the third quarter 1999
increased $8.7 million or 37.8% over the prior year quarter to $31.7 million,
resulting in an operating margin of 22.6% compared to 17.8% for the prior year.
Costs and expenses increased 1.2%. Personnel costs necessary to support revenue
growth increased, which increase was partially offset by the effect of
capitalizing $5.3 million of internal use software development costs. Costs and
expenses also include a one-time $3.1 million charge related to the termination
of an international software development contract. Depreciation and amortization
costs increased $1.0 million or 7.4% as compared to the third quarter of 1998
from increased equipment to support revenue growth.
Financial Services Segment revenues for the nine months ended September 30, 1999
were $412.9 million, an increase of $40.5 million or 10.9% over the prior year
nine month period, principally from higher mutual fund and AWD revenues.
Financial Services Segment income from operations for the nine months ended
September 30, 1999 increased $32.2 million or 52.5% over the prior year period
to $93.5 million. Costs and expenses increased 2.9%, principally from increased
personnel costs to support revenue growth and the one-time charge discussed
above, which were partially offset by the effect of capitalizing $13.9 million
of internal use software costs. Depreciation and amortization increased 1.6% in
the nine months ended September 30, 1999 to $44.7 million.
Output Solutions Segment
Output Solutions Segment revenues for the quarter ended September 30, 1999 were
$122.6 million, an increase of $22.6 million or 22.6% over third quarter 1998.
Revenue growth resulted from increased volume of images and statements produced
from U.S. mutual fund shareowner growth, and internal growth of existing
customers primarily in telecommunications and other industries. Output Solutions
Segment images produced in the third quarter 1999 increased 24.4% to 1.57
billion and statements mailed increased 19.5% to 434 million compared to the
third quarter of 1998.
Output Solutions Segment income from operations for the third quarter increased
$5.8 million or 105.5% over the prior year quarter to $11.3 million, resulting
in an operating margin of 9.2% compared to 5.5% in the prior year quarter. Costs
and expenses increased 17.3%, principally due to increased personnel costs to
support revenue growth, increased product development costs and integration
costs to combine the output related businesses, which increase was partially
offset by the effect of capitalizing $.4 million of internal use software
development costs. Depreciation and amortization costs increased 22.1% in the
third quarter 1999 to $8.3 million, from increased capital costs to support
revenue growth.
Output Solutions Segment revenues for the nine months ended September 30, 1999
were $362.6 million, an increase of $53.5 million or 17.3% over the prior year
period. Output Solutions Segment income from operations for the nine months
ended September 30, 1999 increased $13.2 million or 49.6% over the prior year
period to $39.8 million, which includes $2.1 million of capitalized internal use
software development costs.
Customer Management Segment
Exclusive of TCI, segment revenues increased $1.9 million or 4.4% over the 1998
quarter as processing and software service revenues increased $3.2 million or
8.1% while equipment sales and services declined $1.3 million. Processing and
software service revenues increased primarily from subscriber growth and
increased services. Revenues from TCI, a discontinued customer, declined as
expected to $2.2 million in the third quarter of 1999 from $8.1 million in the
third quarter of 1998. Overall Customer Management Segment revenues for the
quarter ended September 30, 1999 were $47.0 million, a decrease of $4.0, million
or 7.8%, comprised of a $2.1 million decrease in processing and software service
revenues and a $1.9 million decrease in equipment sales.
Customer Management Segment income from operations for the third quarter 1999
decreased $1.1 million to $3.9 million, resulting in an operating margin of
8.3%. Costs and expenses declined $3.0 million or 7.1%, primarily attributable
to a decrease in costs related to equipment sales, partially offset by the
inclusion of Custima's operations and increased product development expenses.
Depreciation and amortization increased $.2 million, or 4.7%, including $.3
million related to the Custima acquisition.
Exclusive of TCI, revenues increased $8.7 million or 6.8% over the 1998 prior
year period from an overall increase in processing and software service revenues
of $13.9 million or 12.2% partially offset by a decline in equipment sales and
services of $5.2 million. Overall Customer Management Segment revenues for the
nine months ended September 30, 1999 were $147.5 million, a decrease of $10.6
million or 6.7% over the prior year period from a $3.9 million decrease in
processing and software services revenues and a $6.7 million decrease in
equipment sales. Customer Management Segment income from operations for the nine
months ended September 30, 1999 decreased 45.8% over the prior year period to
$10.4 million.
Investments and Other
Investments and Other Segment revenues decreased $.3 million for the quarter
ended September 30, 1999. Segment revenues are primarily rental income for
facilities leased to the Company's operating segments.
Acquisition Related Charges
Income from operations for the third quarter 1998 includes $7.1 million of
one-time merger charges related to USCS' acquisition of Custima International
plc. prior to the Company's acquisition of USCS. The one-time charges include
$6.0 million for an in process research and development charge and a $1.1
million integration charge.
Equity in earnings (losses) of unconsolidated affiliates
The following table summarizes the Company's equity in earnings (losses) of
unconsolidated affiliates (dollars in millions):
<PAGE>
Quarter ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
BFDS $2.3 $1.9 $7.3 $5.5
Argus .5 .6 2.1 1.8
EFDS (1.5) (2.7) (3.4) (7.5)
Other .2 (1.0) .3 (1.3)
------ ------ ------ ------
$1.5 $(1.2) $6.3 $(1.5)
====== ====== ====== ======
Increased earnings were recorded at BFDS from higher levels of mutual fund
activity. EFDS losses decreased from the prior year quarter, reflecting an
increase in accounts serviced to 1.9 million at September 30, 1999 which is 0.5
million or 35.7% above year-end 1998 and September 30, 1998 levels. EFDS losses
reflect system and conversion costs for FAST2000. DST's share of internal use
software development costs capitalized by EFDS was $.5 million in the third
quarter of 1999 and $2.1 million for the nine months ended September 30, 1999.
Other 1998 joint venture results reflect certain non-recurring real estate debt
refinancing costs.
Other income, net
Other income was $4.2 million for the quarter ended September 30, 1999, compared
to $3.7 million for the third quarter of 1998. The increase of $.5 million is a
result of higher levels of interest and dividend income. Year to date other
income decreased $1.0 million as a result of net losses on equipment
dispositions partially offset by higher levels of interest and dividend income.
Interest expense
Interest expense totaled $1.2 million for the quarter ended September 30, 1999
and $3.9 million for the nine months ended 1999, down from the $2.0 million in
the prior year quarter and the $6.9 million in the prior year nine month period.
Average debt balances were lower in 1999 compared to 1998.
Income taxes
DST's effective tax rate was 36.0% and 35.9% for the quarter and nine months
ended September 30, 1999, respectively, compared to 39.0% for the prior year
quarter and 37.7% for the prior year nine month period. 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.
The 1998 tax rate was also affected by the Custima research and development
charge which was recognized without any associated tax benefit and which was
partially offset by certain benefits relating to USCS' international operations
and state income taxes.
Other Actions
During the quarter ended September 30, 1999, DST purchased 237,000 shares of its
common stock under its current 4,175,000 share repurchase program. As of
September 30, 1999, DST has purchased 362,000 shares since the program
commenced. The shares purchased will be utilized for DST's stock award and stock
option programs.
* * * *
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-KA 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. The Company will not update any forward-looking
statements in this press release to reflect future events.
<PAGE>
<TABLE>
<CAPTION>
DST SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- -----------------------------
1999 1998 1999 1998
-------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues $ 298.7 $ 268.8 $ 891.1 $ 804.6
Costs and expenses 221.6 207.0 657.4 613.0
Depreciation and amortization 28.8 26.2 84.1 78.0
Acquisition related charges 7.1 7.1
-------- -------- -------- --------
Income from operations 48.3 28.5 149.6 106.5
Interest expense (1.2) (2.0) (3.9) (6.9)
Other income, net 4.2 3.7 5.0 6.0
Equity in earnings (losses) of
unconsolidated affiliates 1.5 (1.2) 6.3 (1.5)
-------- -------- -------- --------
Income before income taxes and
minority interests 52.8 29.0 157.0 104.1
Income taxes 19.0 11.3 56.4 39.2
-------- -------- -------- --------
Income before minority interests 33.8 17.7 100.6 64.9
Minority interests (0.1) (0.3) (0.2)
-------- -------- -------- --------
Net income $ 33.9 $ 17.7 $ 100.9 $ 65.1
======== ======== ========= ========
Average common shares outstanding 63.4 62.8 63.2 62.7
Diluted shares outstanding 65.1 64.5 64.8 64.2
Basic earnings per share $ 0.53 $ 0.28 $ 1.60 $ 1.04
Diluted earnings per share $ 0.52 $ 0.27 $ 1.56 $ 1.01
</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
