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) January 27, 2000
(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 January 27,
2000 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: January 28, 2000
January 27, 2000
DST SYSTEMS, INC. ANNOUNCES FOURTH QUARTER AND FULL YEAR 1999 FINANCIAL RESULTS
For the quarter ended December 31, 1999, DST's consolidated net income was $37.1
million or $.57 per diluted share compared to fourth quarter 1998 net income of
$6.5 million or $.10 per diluted share. Year-to-date, DST's consolidated net
income was $138.1 million or $2.13 per diluted share compared to $71.6 million
or $1.11 per diluted share in 1998. 1998 quarter and full year results were
negatively affected by acquisition related charges of $19.4 million and $26.1
million after tax, respectively. Adjusting 1998 results for the effect of
acquisition related charges, net income and diluted earnings per share for the
fourth quarter increased 43.2% and 42.5%, respectively, and net income and
diluted earnings per share for the full year increased 41.4% and 40.1%,
respectively.
The following table summarizes the Company's revenues and income from operations
by segment (dollars in millions):
Quarter ended Year ended
December 31, December 31,
Revenues 1999 1998 1999 1998
---- ---- ---- ----
Financial Services $141.9 $135.2 $554.9 $507.6
Output Solutions 126.0 104.9 488.0 412.4
Customer Management 55.5 62.0 203.0 220.1
Investments and Other 8.1 8.3 32.9 34.1
Intersegment eliminations (19.3) (18.9) (75.5) (78.1)
------ ------ ------ ------
$312.2 $291.5 $1,203.3 $1,096.1
====== ====== ======== ========
Income from operations
Financial Services $29.2 $24.0 $122.8 $85.4
Output Solutions 9.8 8.8 49.0 33.9
Customer Management 10.3 3.9 21.3 24.5
Investments and Other .8 2.3 6.6 8.8
Acquisition related charges (26.0) (33.1)
------ ------ ----- ------
$50.1 $13.0 $199.7 $119.5
===== ===== ====== ======
Consolidated revenues increased $20.7 million or 7.1% over the prior year
quarter and $107.2 million or 9.8% over the prior year reflecting higher
financial services and output solutions revenues, which were partially offset by
a decline in customer management revenues, as result of lower revenues from TCI,
a discontinued customer, and a decline in equipment sales. Removing the effects
of TCI and equipment sales, consolidated revenues increased 12.3% over the prior
year quarter and 13.9% over the prior year.
Consolidated income from operations totaled $50.1 million for the quarter and
$199.7 million for the year ended December 31, 1999, an increase of $37.1
million over the 1998 fourth quarter and $80.2 million over 1998 year to date
results, primarily from increased operating earnings, and required
capitalization of internal use software development costs of $4.9 million for
the quarter and $20.9 million for the year ended December 31, 1999. 1998 fourth
quarter results also included acquisition related charges of $26.0 million
related to DST's merger with USCS International, Inc. (the USCS Merger) in
December 1998. Total 1998 one-time acquisition related charges were $33.1
million. Excluding the effects of merger costs on 1998 results, operating income
increased 28.5% and 30.9% over 1998 quarter and full year results, respectively.
Financial Services Segment
Financial Services Segment revenues for the quarter were $141.9 million, an
increase of $6.7 million or 5.0% over fourth quarter 1998. U.S. revenues
increased $7.2 million, or 7.0%, primarily from increases in mutual fund
shareowner accounts processed. 1998 fourth quarter revenues included a one-time
$3.9 million termination fee from a mutual fund client. Adjusting 1998 results
for the termination fee, U.S. revenues increased 11.2% for the quarter. U.S.
mutual fund shareowner accounts serviced totaled 56.4 million at December 31,
1999, an increase of 13.3% from the 49.8 million serviced at December 31, 1998
and an increase of 2.9% from the 54.8 million serviced at September 30, 1999.
Total retirement plan accounts increased 2.9 million or 20.3% to 17.4 million at
December 31, 1999. Net new IRA accounts for 1999 were 2.0 million, of which
approximately 53% were Roth or Educational IRA accounts. Roth or Educational
IRA's now comprise 19.4% of total IRA accounts serviced by the Company. 401(K)
accounts serviced increased approximately $0.9 million or 39% to 3.4 million
accounts at December 31, 1999. U.S. AWD(R) workstations licensed were 35,800 at
December 31, 1999, an increase of 30.7% over year-end 1998 levels.
International revenues totaled $31.2 million for the fourth quarter 1999, a
decrease of $0.6 million or 1.9% over comparable prior year quarter revenues.
The decrease was attributable to a decline in software license and related
professional service revenues from investment accounting products, as certain
customers implemented Year 2000 software installation freezes in the fourth
quarter of 1999. This decrease was partially offset by higher Canadian mutual
fund processing and service revenues and an increase in AWD software maintenance
and service revenues. International AWD workstations licensed were 21,900 at
December 31, 1999, an increase of 21.7% over year-end 1998 levels.
Financial Services Segment income from operations for the fourth quarter 1999
increased $5.2 million or 21.7% over the prior year quarter to $29.2 million,
resulting in an operating margin of 20.6% compared to 17.8% for the prior year.
Costs and expenses decreased 2.8%, as increased personnel costs necessary to
support revenue growth were more than offset by the effect of capitalizing $4.1
million of internal use software development costs. Depreciation and
amortization costs increased $4.0 million or 22.5% compared to the fourth
quarter of 1998, primarily related to a one-time $3.7 million asset impairment
charge for certain international securities processing systems.
Financial Services Segment revenues for the year ended December 31, 1999 were
$554.9 million, an increase of $47.3 million or 9.3% over the prior year period,
principally from higher mutual fund and AWD revenues. Financial Services Segment
income from operations for the year ended December 31, 1999 increased $37.4
million or 43.8% over the prior year period to $122.8 million. Costs and
expenses increased 1.4%, principally from increased personnel costs to support
revenue growth and a one-time $3.1 million third quarter 1999 charge related to
the termination of an international software development contract, which were
partially offset by the effect of capitalizing $18.1 million of internal use
software costs. Depreciation and amortization increased $4.7 million or 7.6% in
the year ended December 31, 1999 to $66.5 million, primarily from the one-time
charge discussed above.
Output Solutions Segment
Output Solutions Segment revenues for the quarter ended December 31, 1999 were
$126.0 million, an increase of $21.1 million or 20.1% over fourth 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 the telecommunications and package delivery industries.
Output Solutions Segment images produced in the fourth quarter 1999 increased
14.6% to 1.6 billion and statements mailed increased 11.9% to 421 million
compared to the fourth quarter of 1998.
Output Solutions Segment income from operations for the fourth quarter increased
$1.0 million or 11.4% over the prior year quarter to $9.8 million, resulting in
an operating margin of 7.8% compared to 8.4% in the prior year quarter. Costs
and expenses increased 20.5%, principally due to increased personnel costs to
support revenue growth, increased product development costs and integration
costs to combine the output related businesses, partially offset by the effect
of capitalizing $0.8 million of internal use software development costs.
Depreciation and amortization increased 27.6% in the fourth quarter 1999 to $9.7
million from increased print/mail equipment capital to support revenue growth.
Output Solutions Segment revenues for the year ended December 31, 1999 were
$488.0 million, an increase of $75.6 million or 18.3% over the prior year
period. Output Solutions Segment income from operations for the year ended
December 31, 1999 increased $15.1 million or 44.5% over the prior year period to
$49.0 million, principally from increased revenues and the effect of $2.8
million of capitalized internal use software development costs.
Customer Management Segment
Customer Management Segment revenues for the quarter ended December 31, 1999
were $55.5 million, a decrease of $6.5 million or 10.5% from the 1998 quarter.
Processing and software service revenues increased $2.1 million or 4.3% from a
$6.6 million or 15.0% increase in non-TCI revenues which was partially offset by
a $4.5 million decrease in TCI revenues. Equipment sales declined $8.6 million.
Customer Management Segment income from operations for the fourth quarter 1999
increased $6.4 million to $10.3 million, resulting in an operating margin of
18.6%. Costs and expenses declined $13.7 million or 25.0%, primarily
attributable to a decrease in costs related to equipment sales, and reduced
costs associated with processing and software services. Depreciation and
amortization increased $0.8 million, primarily attributable to amortization of
capitalized software development costs.
Customer Management Segment revenues for the year ended December 31, 1999 were
$203.0 million, a decrease of $17.1 million or 7.8% over the prior year, from a
$2.1 million decrease in processing and software services revenues and a $15.0
million decrease in equipment sales. Exclusive of TCI, processing and service
revenues increased $20.1 million or 12.7% over the 1998 prior year. Customer
Management Segment income from operations for the year ended December 31, 1999
decreased 13.1% over the prior year period to $21.3 million.
Investments and Other
Investments and Other Segment revenues decreased $0.2 million for the quarter
ended December 31, 1999 to $8.1 million. Segment revenues are primarily rental
income for facilities leased to the Company's operating segments. Investments
and Other Segment income from operations declined $1.5 million for the quarter
ended December 31, 1999, primarily attributable to a one-time charge related to
certain equipment leased to third parties.
Acquisition Related Charges
Income from operations for the fourth quarter 1998 includes $26.0 million of
one-time merger charges related to the USCS Merger. The $26.0 million of
one-time charges included $9.1 million of transaction related expenses
(recognized without any associated tax benefit) and $16.9 million of integration
costs. The integration costs consist primarily of asset impairment charges and
costs of leased excess capacity, terminating certain contractual obligations,
and employee severances. Income from operations for the year ended 1998 included
the USCS Merger charges and $7.1 million of one-time merger charges related to
USCS' acquisition of Custima International plc in the third quarter of 1998.
Equity in earnings (losses) of unconsolidated affiliates
The following table summarizes the Company's equity in earnings (losses) of
unconsolidated affiliates (dollars in millions):
Quarter ended Year ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
BFDS $1.6 $1.6 $8.9 $7.2
Argus .5 .9 2.6 2.7
EFDS (1.9) (3.6) (5.3) (11.1)
Other .1 (.1) .4 (1.5)
----- ----- ----- -----
$.3 $(1.2) $6.6 $(2.7)
===== ====== ===== ======
EFDS losses decreased from the prior year quarter, reflecting an increase in
accounts serviced to 2.0 million at December 31, 1999, which is 0.6 million or
42.9% above year-end 1998 and 0.1 million or 5.3% over September 30, 1999
levels. EFDS losses reflect continued system development and conversion costs
for FAST2000. DST's share of internal use software development costs capitalized
by EFDS was $0.3 million in the fourth quarter of 1999 and $2.4 million for the
year ended December 31, 1999. Argus' earnings decreased from the prior year
quarter primarily from costs associated with converting two new customers to
Argus' system. 1998 results of other unconsolidated affiliates reflect certain
non-recurring real estate debt refinancing costs.
Other income, net
Other income was $8.1 million for the quarter ended December 31, 1999, compared
to $1.4 million for the fourth quarter of 1998. 1999 year-to-date Other income
totaled $13.2 million compared to $7.4 million in 1998. The increase in Other
income resulted from gains on sales of equity investments and higher levels of
interest and dividend income.
Interest expense
Interest expense totaled $1.2 million for the quarter ended December 31, 1999
and $5.2 million for the year ended 1999, down from $1.7 million in the prior
year quarter and $8.6 million in the prior year. Average debt balances were
lower in 1999 compared to 1998.
Income taxes
DST's effective tax rate was 35.9% for the quarter and year ended December 31,
1999 compared to 44.3% for the prior year quarter and 38.3% for the prior year.
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 affected by certain acquisition
related costs which were recognized without any associated tax benefit, and was
partially offset by certain benefits relating to USCS' international operations
and state income taxes.
Other Actions
During the quarter ended December 31, 1999, DST purchased 478,000 shares of its
common stock under its previously announced 4,175,000 share repurchase program.
As of December 31, 1999, DST has purchased 840,000 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 Year
Ended December 31, Ended December 31,
------------------------------- --------------------------------
1999 1998 1999 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Revenues $ 312.2 $ 291.5 $1,203.3 $1,096.1
Costs and expenses 223.4 222.2 880.8 837.8
Depreciation and amortization 38.7 30.3 122.8 105.7
Acquisition related charges 26.0 33.1
--------------- -------------- --------------- ---------------
Income from operations 50.1 13.0 199.7 119.5
Interest expense (1.2) (1.7) (5.2) (8.6)
Other income, net 8.1 1.4 13.2 7.4
Equity in earnings (losses) of
unconsolidated affiliates 0.3 (1.2) 6.6 (2.7)
--------------- -------------- --------------- ---------------
Income before income taxes and
minority interests 57.3 11.5 214.3 115.6
Income taxes 20.6 5.1 76.9 44.3
--------------- -------------- --------------- ---------------
Income before minority interests 36.7 6.4 137.4 71.3
Minority interests (0.4) (0.1) (0.7) (0.3)
--------------- -------------- --------------- ---------------
Net income $ 37.1 $ 6.5 $ 138.1 $ 71.6
=============== ============== =============== ===============
Average common shares outstanding 63.2 62.8 63.2 62.7
Diluted shares outstanding 64.8 64.5 64.8 64.3
Basic earnings per share $ 0.59 $0.10 $ 2.19 $ 1.14
Diluted earnings per share $ 0.57 $0.10 $ 2.13 $ 1.11
</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
