UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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
September 30, 2000:
Common Stock $.01 par value - 124,862,590
1
DST Systems, Inc.
Form 10-Q
September 30, 2000
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments 3
Condensed Consolidated Balance Sheet -
September 30, 2000 and December 31, 1999 4
Condensed Consolidated Statement of Income -
Three and Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-19
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
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 23
The Company's service marks and trademarks include without limitation DST(R),
Automated Work Distributor(TM), AWD(R), FAST(TM) referred to in this Report.
2
DST Systems, Inc.
Form 10-Q
September 30, 2000
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 accounting principles
generally accepted in the United States of America 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, 1999. Additionally, the Condensed
Consolidated Financial Statements should be read in conjunction with Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this Form 10-Q.
The results of operations for the three and nine months ended September 30,
2000, are not necessarily indicative of the results to be expected for the full
year 2000.
3
DST Systems, Inc.
Condensed Consolidated Balance Sheet
(dollars in millions, except per share amounts)
(unaudited)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 67.8 $ 89.0
Accounts receivable 321.0 320.6
Other current assets 48.8 54.9
----------- ----------
437.6 464.5
Investments 1,730.9 1,477.7
Properties 363.6 338.7
Intangibles and other assets 51.3 45.4
----------- ----------
Total assets $ 2,583.4 $ 2,326.3
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 16.2 $ 18.4
Accounts payable 76.5 93.7
Accrued compensation and benefits 62.6 57.9
Deferred revenues and gains 33.2 44.1
Other liabilities 64.9 71.7
----------- ----------
253.4 285.8
Long-term debt 70.3 44.4
Deferred income taxes 528.3 452.2
Other liabilities 82.4 80.3
----------- ----------
934.4 862.7
----------- ----------
Commitments and contingencies
----------- ----------
Stockholders' equity
Common stock, $0.01 par; 300,000,000 shares authorized,
127,633,278 shares issued 1.3 1.3
Additional paid-in capital 440.1 453.5
Retained earnings 664.4 516.2
Treasury stock (2,770,688 and 1,380,538 shares,
respectively), at cost (94.6) (40.1)
Accumulated other comprehensive income 637.8 532.7
----------- ----------
Total stockholders' equity 1,649.0 1,463.6
----------- ----------
Total liabilities and stockholders' equity $ 2,583.4 $ 2,326.3
=========== ==========
The accompanying notes are an integral part of these financial statements.
4
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,
2000 1999 2000 1999
-------------- --------------- --------------- ---------------
Revenues $ 335.5 $ 304.6 $ 1,012.9 $ 908.3
Costs and expenses 238.0 227.5 724.3 674.6
Depreciation and amortization 31.6 28.8 94.9 84.1
-------------- --------------- --------------- ---------------
Income from operations 65.9 48.3 193.7 149.6
Interest expense (1.6) (1.2) (4.5) (3.9)
Other income, net 3.4 4.2 32.2 5.0
Equity in earnings of unconsolidated affiliates 2.2 1.5 9.8 6.3
-------------- --------------- --------------- ---------------
Income before income taxes and minority interests 69.9 52.8 231.2 157.0
Income taxes 25.1 19.0 83.0 56.4
-------------- --------------- --------------- ---------------
Income before minority interests 44.8 33.8 148.2 100.6
Minority interests (0.1) (0.3)
-------------- --------------- --------------- ---------------
Net income $ 44.8 $ 33.9 $ 148.2 $ 100.9
============== =============== =============== ===============
Average common shares outstanding 125.0 126.8 125.4 126.3
Diluted shares outstanding 129.5 130.3 129.2 129.7
Basic earnings per share $ 0.36 $ 0.27 $ 1.18 $ 0.80
Diluted earnings per share $ 0.35 $ 0.26 $ 1.15 $ 0.78
The accompanying notes are an integral part of these financial statements.
5
DST Systems, Inc.
Condensed Consolidated Statement of Cash Flows
(in millions)
(unaudited)
For the Nine Months
Ended September 30,
2000 1999
---------------- ----------------
Cash flows -- operating activities:
Net income $ 148.2 $ 100.9
---------------- ----------------
Depreciation and amortization 94.9 84.1
Equity in earnings of unconsolidated affiliates (9.8) (6.3)
Net realized gain from sale of investments (11.6) (5.7)
Deferred taxes 3.3 (2.9)
Changes in accounts receivable 0.1 (8.7)
Changes in other current assets 8.8 4.4
Changes in accounts payable and accrued liabilities (6.0) 4.4
Other, net 0.4 2.9
---------------- ----------------
Total adjustments to net income 80.1 72.2
---------------- ----------------
Net 228.3 173.1
---------------- ----------------
Cash flows -- investing activities:
Proceeds from sale of investments 30.0 14.8
Investments and advances to unconsolidated affiliates (82.2) (31.1)
Capital expenditures (121.2) (98.4)
Other, net (1.1) 10.5
---------------- ----------------
Net (174.5) (104.2)
---------------- ----------------
Cash flows -- financing activities:
Proceeds from issuance of common stock 30.0 20.6
Proceeds from issuance of long-term debt 11.5
Principal payments on long-term debt (7.6) (11.0)
Net increase in revolving credit facilities and notes payable 29.4 1.1
Common stock repurchased (126.9) (22.4)
Other, net 0.1 (1.2)
---------------- ----------------
Net (75.0) (1.4)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (21.2) 67.5
Cash and cash equivalents at beginning of period 89.0 28.1
---------------- ----------------
Cash and cash equivalents at end of period $ 67.8 $ 95.6
================ ================
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 accounting principles generally accepted
in the United States of America 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, 1999. Additionally, the Condensed Consolidated Financial Statements
should be read in conjunction with Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this Form 10-Q.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal interim
closing procedures) necessary to present fairly the financial position of the
Company and its subsidiaries at September 30, 2000 and December 31, 1999, and
the results of operations for the three and nine months ended September 30, 2000
and 1999, and cash flows for the nine months ended September 30, 2000 and 1999.
The results of operations for the three and nine months ended September 30,
2000, are not necessarily indicative of the results to be expected for the full
year 2000.
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
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.
The Company utilized $0.5 million and $4.0 million in the three and nine months
ended September 30, 2000, respectively, related to the accrued integration
costs. At September 30, 2000, the remaining accrued integration costs of $0.9
million relate primarily to the Output Solutions Segment.
The accrued costs relate primarily to employee severance benefits which are
expected to be paid in 2000 and to facilities that will be closed. Lease
payments on closed facilities and abandoned equipment have terms which end in
2000 through 2003. Five locations have been closed as of September 30, 2000. The
remainder will be closed once arrangements have been made to process continuing
business at other facilities. 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 costs and integration costs of moving to common internal
systems. Although precise estimates cannot be made, management does not believe
such costs will have a material adverse effect on the Company's consolidated
results of operations, liquidity or financial position.
7
3. Investments
Investments are as follows (in millions):
Carrying Value
-----------------------------------
Ownership September 30, December 31,
Percentage 2000 1999
-------------------- ---------------- ----------------
Available-for-sale securities:
State Street Corporation 4% $ 780.6 $ 438.4
Computer Sciences Corporation 5% 641.0 816.8
Euronet Worldwide Inc. 11% 13.2 14.4
Other available-for-sale securities 112.4 63.3
---------------- ----------------
1,547.2 1,332.9
---------------- ----------------
Unconsolidated affiliates:
Boston Financial Data Services, Inc. 50% 58.4 48.3
European Financial Data Services Limited 50% 9.5 8.0
Argus Health Systems, Inc. 50% 6.9 6.4
Other unconsolidated affiliates 58.4 34.8
---------------- ----------------
133.2 97.5
---------------- ----------------
Other:
Net investment in leases 18.5 16.0
Other 32.0 31.3
---------------- ----------------
50.5 47.3
---------------- ----------------
Total investments $ 1,730.9 $ 1,477.7
================ ================
Certain information related to the Company's available-for-sale securities is as
follows (in millions):
September 30, December 31,
2000 1999
----------------- -----------------
Cost $ 490.8 $ 456.5
Gross unrealized gains 1,058.6 877.9
Gross unrealized losses (2.2) (1.5)
----------------- -----------------
Market value $ 1,547.2 $ 1,332.9
================= =================
The following table summarizes equity in earnings (losses) of unconsolidated
affiliates (in millions):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-------------- --------------- -------------- --------------
Boston Financial Data Services, Inc. $ 2.4 $ 2.3 $ 10.1 $ 7.3
European Financial Data Services Limited (1.0) (1.5) (0.9) (3.4)
Argus Health Systems, Inc. 0.1 0.5 0.5 2.1
Other 0.7 0.2 0.1 0.3
-------------- --------------- -------------- --------------
$ 2.2 $ 1.5 $ 9.8 $ 6.3
============== =============== ============== ==============
8
4. Stockholders' Equity
Stock split. On September 26, 2000, the Company's Board of Directors approved a
2-for-1 split of the Company's common stock, in the form of a dividend of one
share for each share held of record at the close of business on October 6, 2000.
The distribution occurred on October 19, 2000. All references to stockholders'
equity, shares outstanding and earnings per share amounts have been restated to
reflect this stock split.
Earnings per share. The computation of basic and diluted earnings per share is
as follows (in millions, except per share amounts):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
--------------- --------------- --------------- --------------
Net income $ 44.8 $ 33.9 $ 148.2 $ 100.9
=============== =============== =============== ==============
Average common shares outstanding 125.0 126.8 125.4 126.3
Incremental shares from assumed
conversions of stock options 4.5 3.5 3.8 3.4
--------------- --------------- --------------- --------------
Diluted potential common shares 129.5 130.3 129.2 129.7
=============== =============== =============== ==============
Basic earnings per share $ 0.36 $ 0.27 $ 1.18 $ 0.80
Diluted earnings per share $ 0.35 $ 0.26 $ 1.15 $ 0.78
Comprehensive income. Components of comprehensive income consist of the
following (in millions):
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-------------- ------------- -------------- --------------
Net income $ 44.8 $ 33.9 $ 148.2 $ 100.9
-------------- ------------- -------------- --------------
Other comprehensive income:
Unrealized gains (losses) on investments:
Unrealized holding gains (losses) arising
during the period 148.6 (115.4) 191.6 18.9
Less reclassification adjustments for gains
included in net income (1.8) (11.6) (5.7)
Foreign currency translation adjustments (1.7) 1.4 (4.6) (0.3)
Deferred income taxes (58.0) 45.8 (70.3) (5.1)
-------------- ------------- -------------- --------------
Other comprehensive income 88.9 (70.0) 105.1 7.8
-------------- ------------- -------------- --------------
Comprehensive income $ 133.7 $ (36.1) $ 253.3 $ 108.7
============== ============= ============== ==============
5. Segment Information
The Company has several operating business units that offer sophisticated
information processing and software services and products. These business units
are reported as three operating segments (Financial Services, Output Solutions
and Customer Management). In addition, certain investments in equity securities,
financial interests and real estate holdings are reflected in an Investments and
Other Segment. The Company evaluates the performance of its segments based on
income before income taxes, non-recurring items and interest expense.
9
Summarized financial information concerning the segments is shown in the
following tables (in millions):
Three Months Ended September 30, 2000
------------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- --------------
Revenues $ 155.5 $ 130.2 $ 47.7 $ 2.1 $ $ 335.5
Intersegment revenues 0.4 13.7 5.9 (20.0)
------------- ------------- ------------- ------------- ------------- --------------
155.9 143.9 47.7 8.0 (20.0) 335.5
Costs and expenses 89.3 122.4 41.4 4.9 (20.0) 238.0
Depreciation and amortization 16.8 9.1 3.9 1.8 31.6
------------- ------------- ------------- ------------- ------------- --------------
Income from operations 49.8 12.4 2.4 1.3 65.9
Other income, net 1.3 2.1 3.4
Equity in earnings of
unconsolidated affiliates 1.6 0.2 0.4 2.2
------------- ------------- ------------- ------------- ------------- --------------
Income before interest
and income taxes $ 52.7 $ 12.6 $ 2.4 $ 3.8 $ $ 71.5
============= ============= ============= ============= ============= ==============
Three Months Ended September 30, 1999
------------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- --------------
Revenues $ 139.6 $ 115.2 $ 47.0 $ 2.8 $ $ 304.6
Intersegment revenues 0.4 13.2 5.3 (18.9)
------------- ------------- ------------- ------------- ------------- --------------
140.0 128.4 47.0 8.1 (18.9) 304.6
Costs and expenses 93.1 108.8 39.7 4.8 (18.9) 227.5
Depreciation and amortization 15.2 8.3 3.4 1.9 28.8
------------- ------------- ------------- ------------- ------------- --------------
Income from operations 31.7 11.3 3.9 1.4 48.3
Other income, net 0.9 0.2 (0.1) 3.2 4.2
Equity in earnings of
unconsolidated affiliates 1.2 0.3 1.5
------------- ------------- ------------- ------------- ------------- --------------
Income before interest
and income taxes $ 33.8 $ 11.5 $ 3.8 $ 4.9 $ $ 54.0
============= ============= ============= ============= ============= ==============
10
Nine Months Ended September 30, 2000
------------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- --------------
Revenues $ 458.0 $ 400.1 $ 147.7 $ 7.1 $ $ 1,012.9
Intersegment revenues 1.3 40.6 17.3 (59.2)
------------- ------------- ------------- ------------- ------------- --------------
459.3 440.7 147.7 24.4 (59.2) 1,012.9
Costs and expenses 278.5 364.1 125.9 15.0 (59.2) 724.3
Depreciation and amortization 51.5 25.6 11.9 5.9 94.9
------------- ------------- ------------- ------------- ------------- --------------
Income from operations 129.3 51.0 9.9 3.5 193.7
Other income, net 3.4 28.8 32.2
Equity in earnings (losses) of
unconsolidated affiliates 9.7 0.2 (0.1) 9.8
------------- ------------- ------------- ------------- ------------- --------------
Income before interest
and income taxes $ 142.4 $ 51.2 $ 9.9 $ 32.2 $ $ 235.7
============= ============= ============= ============= ============= ==============
Nine Months Ended September 30, 1999
------------------------------------------------------------------------------------------
Financial Output Customer Investments/ Consolidated
Services Solutions Management Other Eliminations Total
------------- ------------- ------------- ------------- ------------- --------------
Revenues $ 411.8 $ 340.2 $ 147.5 $ 8.8 $ $ 908.3
Intersegment revenues 1.1 39.0 16.0 (56.1)
------------- ------------- ------------- ------------- ------------- --------------
412.9 379.2 147.5 24.8 (56.1) 908.3
Costs and expenses 274.7 316.6 126.2 13.2 (56.1) 674.6
Depreciation and amortization 44.7 23.3 10.4 5.7 84.1
------------- ------------- ------------- ------------- ------------- --------------
Income from operations 93.5 39.3 10.9 5.9 149.6
Other income, net (1.5) 0.5 (0.3) 6.3 5.0
Equity in earnings of
unconsolidated affiliates 6.0 0.1 0.2 6.3
------------- ------------- ------------- ------------- ------------- --------------
Income before interest
and income taxes $ 98.0 $ 39.9 $ 10.6 $ 12.4 $ $ 160.9
============= ============= ============= ============= ============= ==============
The consolidated total income before interest and income taxes as shown in the
segment reporting information above less interest expense of $1.6 million and
$4.5 million for the three and nine months ended September 30, 2000,
respectively, and $1.2 million and $3.9 million for the three and nine months
ended September 30, 1999, respectively, is equal to the Company's income before
income taxes and minority interests on a consolidated basis for the
corresponding periods.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussions set forth in this Quarterly Report on Form 10-Q contain
statements concerning potential future events. Such forward-looking statements
are based upon assumptions by the Company's management, as of the date of this
Quarterly Report, including assumptions about risks and uncertainties faced by
the Company. Readers can identify these forward-looking statements by the 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/A 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 Quarterly Report to reflect future events or
developments.
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto included in
this Form 10-Q and the audited financial statements and notes thereto in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
INTRODUCTION
The Company has several operating business units that offer sophisticated
information processing and software services and products. These business units
are reported as three operating segments (Financial Services, Output Solutions
and Customer Management). In addition, certain investments in equity securities,
financial interests and real estate holdings are reflected in 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, brokers and financial planners.
Output Solutions
The Output Solutions Segment provides complete bill and 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 and
open billing solutions to the video/broadband, direct broadcast satellite
("DBS"), wireless, wire-line and Internet-protocol telephony, Internet and
utility markets worldwide.
Investments and Other
The Investments and Other Segment holds investments in equity securities,
certain financial interests, the Company's real estate subsidiaries and the
Company's computer hardware leasing subsidiary.
12
RESULTS OF OPERATIONS
The following table summarizes the Company's operating results (dollars in
millions, except per share amounts):
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- -----------------------------
Operating results 2000 1999 2000 1999
------------- ------------- ------------- --------------
Revenues
Financial Services $ 155.9 $ 140.0 $ 459.3 $ 412.9
Output Solutions 143.9 128.4 440.7 379.2
Customer Management 47.7 47.0 147.7 147.5
Investments and Other 8.0 8.1 24.4 24.8
Eliminations (20.0) (18.9) (59.2) (56.1)
------------- ------------- ------------- --------------
$ 335.5 $ 304.6 $1,012.9 $ 908.3
============= ============= ============= ==============
% change from prior year periods 10.1% 13.3% 11.5% 12.9%
Income from operations
Financial Services $ 49.8 $ 31.7 $ 129.3 $ 93.5
Output Solutions 12.4 11.3 51.0 39.3
Customer Management 2.4 3.9 9.9 10.9
Investments and Other 1.3 1.4 3.5 5.9
------------- ------------- ------------- --------------
65.9 48.3 193.7 149.6
Interest expense (1.6) (1.2) (4.5) (3.9)
Other income, net 3.4 4.2 32.2 5.0
Equity in earnings of unconsolidated
affiliates, net of income taxes 2.2 1.5 9.8 6.3
------------- ------------- ------------- --------------
Income before income taxes and
minority interests 69.9 52.8 231.2 157.0
Income taxes 25.1 19.0 83.0 56.4
Minority interests (0.1) (0.3)
------------- ------------- ------------- --------------
Net income $ 44.8 $ 33.9 $ 148.2 $ 100.9
============= ============= ============= ==============
Basic earnings per share $ 0.36 $ 0.27 $ 1.18 $ 0.80
Diluted earnings per share $ 0.35 $ 0.26 $ 1.15 $ 0.78
Consolidated revenues
Consolidated revenues for the three and nine months ended September 30, 2000
increased $30.9 million and $104.6 million, respectively, which represent an
increase of 10.1% and 11.5%, respectively, over the comparable periods in 1999.
U.S. revenues for the three and nine months ended September 30, 2000 were $297.7
million and $897.1 million, respectively, an increase of 12.3% and 14.2%,
respectively, over the same periods in 1999. International revenues for the
three and nine months ended September 30, 2000 were $37.8 million and $115.8
million, respectively, a decrease of 4.3% and 5.7%, respectively, over the same
periods in 1999.
Financial Services Segment revenues for the three and nine months ended
September 30, 2000 increased $15.9 million and $46.4 million, respectively, or
11.4% and 11.2%, respectively, over the same periods in 1999. U.S. Financial
Services Segment revenues for the three and nine months ended September 30, 2000
increased $18.2 million and $53.9 million, respectively, or 16.8% and 17.0%,
respectively, over the same periods in 1999, primarily from an increase in
mutual fund shareowner accounts processed. U.S. mutual fund shareowner accounts
serviced totaled 65.1 million at September 30, 2000, an increase of 15.4% from
the 56.4 million serviced at December 31, 1999 and an increase of 18.8% from the
54.8 million serviced at September 30, 1999.
13
Output Solutions Segment revenues for the three and nine months ended September
30, 2000 increased $15.5 million and $61.5 million, respectively, or 12.1% and
16.2%, respectively, over the same periods in 1999. Revenue growth resulted from
increased volume of images and statements produced from financial services,
telecommunications and satellite TV and increased Internet-based electronic bill
and statement revenues. Output Solutions Segment images produced for the three
and nine months ended September 30, 2000 increased 18.0% and 17.5%,
respectively, to 1.8 billion and 5.5 billion, respectively, and statements
mailed increased 6.1% and 13.1%, respectively, to 446 million and 1,381 million,
respectively, compared to the same periods in 1999.
Customer Management Segment revenues for the three and nine months ended
September 30, 2000 increased $0.7 million or 1.5% and $0.2 million or 0.1%,
respectively, over the same periods in 1999, as equipment sales increased
partially offset by a decrease in processing and software service revenues.
Investments and Other Segment revenues decreased $0.1 million and $0.4 million
for the three and nine months ended September 30, 2000 compared to the same
periods in 1999. 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 three and nine months ended
September 30, 2000 increased $17.6 million and $44.1 million, respectively, or
36.4% and 29.5%, respectively, over the same periods in 1999. U.S. income from
operations for the three and nine months ended September 30, 2000 was $57.2
million and $171.8 million, respectively, an increase of 22.7% and 28.8%,
respectively, over the same periods in 1999. International income from
operations for the three and nine months ended September 30, 2000 was $8.7
million and $21.9 million, respectively, an increase of $7.0 million and $5.7
million, respectively, compared to the same periods in 1999.
Financial Services Segment income from operations for the three and nine months
ended September 30, 2000 increased 57.1% or $18.1 million and 38.3% or $35.8
million, respectively, over the comparable prior year periods to $49.8 million
and $129.3 million, respectively. This resulted in operating margins of 31.9%
and 28.2%, respectively, for the three and nine months ended September 30, 2000,
compared to 22.6% for both the three and nine months ended September 30, 1999.
The increase in operating margin resulted primarily from increases in U.S.
revenues related to mutual fund shareowner processing and the $3.9 million
recovery of costs previously expensed in 1999 associated with a terminated
international software development contract.
Output Solutions Segment income from operations for the three and nine months
ended September 30, 2000 increased $1.1 million and $11.7 million, respectively,
or 9.7% and 29.8%, respectively, over the same periods in 1999. Output Solutions
Segment operating margin was 8.6% and 11.6%, respectively, for the three and
nine months ended September 30, 2000 compared to 8.8% and 10.4%, respectively,
for the same periods in 1999. Segment operating margin for the three months
ended September 30, 2000 was affected by higher Internet-based electronic bill
and statement product development costs and selling costs. Excluding e-commerce
activities, operating margin improved over the prior year quarter. The
improvement in the year to date 2000 operating margin results are primarily from
increased volume of images and statements produced, which were partially offset
by the increased spending in Internet-based product development costs.
Customer Management Segment income from operations totaled $2.4 million and $9.9
million for the three and nine months ended September 30, 2000, respectively, a
decrease of 38.5% and 9.2% over the comparable prior year periods. Operating
margins were 5.0% and 6.7% for the three and nine months ended September 30,
2000, respectively, compared to 8.3% and 7.4% for the comparable prior year
periods.
Investments and Other Segment income from operations totaled $1.3 million and
$3.5 million for the three and nine months ended September 30, 2000,
respectively, as compared to $1.4 million and $5.9 million for the three and
nine months ended September 30, 1999, respectively.
14
Interest expense
Interest expense totaled $1.6 million and $4.5 million, respectively, for the
three and nine months ended September 30, 2000, an increase from $1.2 million
and $3.9 million recorded in the comparable periods in 1999. Average interest
rates and borrowings were higher in 2000 compared to 1999.
Other income, net
Other income was $3.4 million and $32.2 million for the three and nine months
ended September 30, 2000, respectively, a decrease of $0.8 million and an
increase of $27.2 million over the comparable periods in 1999. The decrease in
third quarter 2000 other income is a result of a decrease of $1.8 million in
pre-tax gains on sales of available-for-sale securities partially offset by
higher dividend and interest income. The year to date increase is principally
from $12.2 million in pre-tax gains on sales of available-for-sale securities
during the nine months ended September 30, 2000, an increase of $9.1 million
over pre-tax gains from 1999, $9.3 in interest and dividend income, an increase
of $4.4 million over 1999 year to date levels, and a $10.8 million pretax
settlement of a legal dispute related to a former equity investment that was
received during the first quarter of 2000. The settlement agreement resolves all
outstanding issues related to this former equity investment. Included in the
1999 results were $2.9 million of losses on equipment dispositions.
Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates totaled $2.2 million and $9.8
million for the three and nine months ended September 30, 2000, respectively, as
compared to $1.5 million and $6.3 million for the three and nine months ended
September 30, 1999. Increased earnings were recorded at Boston Financial Data
Services from higher levels of mutual fund activity. The Company recorded losses
from European Financial Data Services (EFDS) of $1.0 million and $0.9 million
for the three and nine months ended September 30, 2000, a reduction from $1.5
million and $3.4 million of losses, respectively, for the three and nine months
ended September 30, 1999. EFDS earnings were positively affected by higher
levels of accounts serviced, offset by continued system development and
conversion costs for FAST(TM), both of which will continue throughout the
remainder of 2000. Earnings from Argus Health Systems for the three and nine
months ended September 30, 2000 decreased from the prior year periods as a
result of lower revenues from changes in the claims mix, increased data
processing costs and depreciation charges.
Income taxes
The Company's effective tax rates were essentially unchanged from prior year
rates. The 2000 and 1999 tax rates were affected by tax benefits relating to
certain international operations and recognition of state tax benefits
associated with income apportionment rules.
Business Segment Comparisons
FINANCIAL SERVICES SEGMENT
Revenues
Financial Services Segment revenues for the three and nine months ended
September 30, 2000 increased 11.4% and 11.2%, respectively, over the same
periods in 1999 to $155.9 million and $459.3 million, respectively. U.S.
Financial Services revenue increased 16.8% to $126.6 million and 17.0% to $370.1
million for the three and nine months ended September 30, 2000, respectively.
U.S. mutual fund processing revenues for the three and nine months ended
September 30, 2000 increased 17.6% and 17.7%, respectively, over the prior year
periods as shareowner accounts serviced increased 18.8% from 54.8 million at
September 30, 1999 to 65.1 million at September 30, 2000. The Company has
contracts with new clients to convert approximately 5.5 million new accounts to
its system during the fourth quarter. U.S. Automated Work Distributor ("AWD")
product revenues for the three and nine months ended September 30, 2000
increased 30.6% and 21.9%, respectively, over the same periods in the prior year
primarily due to an increase in the number of AWD workstations licensed.
15
Financial Services Segment revenues from international operations for the three
and nine months ended September 30, 2000 decreased 7.3% to $29.3 million and
7.8% to $89.2 million, respectively. The revenue decrease resulted primarily
from lower professional service revenues partially offset by increased software
license revenues, Canadian mutual fund shareowner processing revenues and
international AWD software maintenance revenues.
Costs and expenses
Segment costs and expenses for the three months ended September 30, 2000
decreased 4.1% to $89.3 million over the comparable quarter in 1999, primarily
from a $3.9 million recovery of costs previously expensed in 1999 associated
with a terminated international software development contract. Segment costs and
expenses for the nine months ended September 30, 2000 increased 1.4% to $278.5
million over the comparable period in 1999. Personnel costs for the three and
nine months ended September 30, 2000, increased 3.4% and 4.5%, respectively,
over the comparable prior year periods as a result of increased staff levels to
support volume growth.
Depreciation and amortization
Segment depreciation and amortization increased 10.5% or $1.6 million and 15.2%
or $6.8 million for the three and nine months ended September 30, 2000,
respectively, over the comparable periods in 1999. The increase is primarily
attributable to amortization of capitalized software development costs.
Income from operations
Segment income from operations for the three and nine months ended September 30,
2000 increased 57.1% to $49.8 million and 38.3% to $129.3 million, respectively,
over the comparable prior year periods. The Segment's operating margins were
31.9% and 28.2% for the three and nine months ended September 30, 2000,
respectively, as compared to 22.6% for the three and nine months ended September
30, 1999, respectively. The increases in Financial Services Segment operating
margins are primarily a result of increased U.S. revenues.
OUTPUT SOLUTIONS SEGMENT
Revenues
Output Solutions Segment revenues for the three and nine months ended September
30, 2000 increased 12.1% to $143.9 million and 16.2% to $440.7 million,
respectively, as compared to the same periods in 1999. The growth in segment
revenue was derived primarily from an increase in the volume of statements and
images produced from financial services, internal growth of existing customers,
primarily in telecommunications and satellite TV, and increased Internet-based
electronic bill and statements revenues.
Costs and expenses
Segment costs and expenses for the three and nine months ended September 30,
2000 increased 12.5% to $122.4 million and 15.0% to $364.1 million,
respectively, over the comparable prior year periods. Personnel costs for the
three and nine months ended September 30, 2000 increased 22.5% and 18.2%,
respectively, over the comparable prior year periods as a result of increased
staff levels to support volume growth, integration costs to standardize
facilities and systems and higher Internet-based electronic bill and statement
product development and selling costs.
Depreciation and amortization
Segment depreciation and amortization for the three and nine months ended
September 30, 2000 increased 9.6% to $9.1 million and 9.9% to $25.6 million,
respectively, as compared to the same periods in 1999 related to increased
capital costs to support revenue growth.
16
Income from operations
The increase in the Segment's income from operations for the three and nine
months ended September 30, 2000 of $1.1 million or 9.7% and $11.7 million or
29.8%, respectively, over the same periods in 1999 is primarily attributable to
increased volumes for images and statements. The Segment's operating margins
were 8.6% and 11.6% for the three and nine months ended September 30, 2000,
respectively, as compared to 8.8% and 10.4% for the three and nine months ended
September 30, 1999, respectively. Excluding e-commerce activities, operating
margin improved over the prior year quarter.
CUSTOMER MANAGEMENT SEGMENT
Revenues
Customer Management Segment revenues for the three and nine months ended
September 30, 2000 increased 1.5% to $47.7 million and 0.1% to $147.7 million,
respectively, as compared to the three and nine months ended September 30, 1999.
Processing and software service revenues decreased to $43.0 million and to
$136.3 million for the three and nine months ended September 30, 2000,
respectively, from $45.0 million and $137.4 million for the three and nine
months ended September 30, 1999, respectively. Equipment sales increased to $4.7
million and $11.4 million for the three and nine months ended September 30,
2000, respectively, from $2.0 million and $10.1 million for the three and nine
months ended September 30, 1999, respectively.
The Company recently announced that it has signed an agreement with Comcast
Cable Communications, Inc. to provide its customer relationship management and
workflow business solution, AWD. This is the first customer management client to
contract for AWD. No software license revenues were recorded during the quarter
ended September 30, 2000.
The Company has been advised that a customer, MediaOne Group Inc. (MediaOne),
plans to discontinue its processing agreement as a result of MediaOne's
acquisition by AT&T. It is expected that a substantial portion of MediaOne's
subscribers will be removed during 2001. At September 30, 2000, the Company
serviced 3.6 million MediaOne subscribers.
Costs and expenses
Segment costs and expenses for the three months ended September 30, 2000
increased $1.7 million or 4.3% as a result of increased costs of equipment
sales. Segment costs and expenses for the nine months ended September 30, 2000
decreased $0.3 million or 0.2% primarily attributable to management of personnel
costs.
Depreciation and amortization
Segment depreciation and amortization for the three and nine months ended
September 30, 2000 increased 14.7% and 14.4%, respectively, compared to the same
period in 1999. The increase is related primarily to the amortization of
capitalized software development costs.
Income from operations
Segment income from operations for the three and nine months ended September 30,
2000 decreased $1.5 million and $1.0 million, respectively, or 38.5% and 9.2%,
respectively, compared to the prior year periods, resulting in an operating
margin of 5.0% and 6.7% for the three and nine months ended September 30, 2000,
respectively, as compared to 8.3% and 7.4% for the three and nine months ended
September 30, 1999, respectively. The decrease in operating margins is primarily
attributable to lower processing and software revenues and higher depreciation
and amortization costs related to capitalized software development costs.
INVESTMENTS AND OTHER SEGMENT
Revenues
Investments and Other Segment revenues totaled $8.0 million and $24.4 million
for the three and nine months ended September 30, 2000, respectively, a decline
of $0.1 million and $0.4 million, respectively, compared to the three and nine
months ended September 30, 1999. The decrease is primarily attributable to a
decline in the Company's hardware leasing activities partially offset by an
increase in real estate revenues.
17
Costs and expenses
Investments and Other Segment costs and expenses increased in the three and nine
months ended September 30, 2000, respectively, as compared to the three and nine
months ended September 30, 1999, respectively, primarily as a result of
additional real estate activities.
Depreciation and amortization
Depreciation and amortization decreased $0.1 million and increased $0.1 million
for the three and nine months ended September 30, 2000, respectively, over the
same periods in 1999.
Income from operations
The segment's income from operations totaled $1.3 million and $3.5 million for
the three and nine months ended September 30, 2000, respectively, as compared to
$1.4 million and $5.9 million for the three and nine months ended September 30,
1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities totaled $228.3 million for the
nine months ended September 30, 2000. Operating cash flows for the nine months
ended September 30, 2000 were primarily impacted by net income of $148.2 million
and depreciation and amortization of $94.9 million.
Cash flows used in investing activities totaled $174.5 million for the nine
months ended September 30, 2000. The Company expended $121.2 million during the
nine months ended September 30, 2000 for capital additions. Investments and
advances to unconsolidated affiliates totaled $82.2 million. During the nine
months ended September 30, 2000, the Company received $30.0 million from the
sale of investments in available-for-sale securities.
Cash flows used in financing activities totaled $75.0 million for the nine
months ended September 30, 2000. The Company also received proceeds from the
exercise of stock options of $30.0 million for the nine months ended September
30, 2000. The Company maintains $110 million in bank lines of credit for working
capital requirements and general corporate purposes, of which $50 million
matures March 2001 and $60 million matures May 2001. 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 $29.3 million for the nine months ended September
30, 2000, bringing total borrowings under these facilities to $50.0 million.
On September 26, 2000, the Company's Board of Directors approved a 2-for-1 split
of the Company's common stock, in the form of a dividend of one share for each
share held of record at the close of business on October 6, 2000. The
distribution occurred on October 19, 2000. All references to shares outstanding
and earnings per share amounts have been restated to reflect this stock split.
During the nine months ended September 30, 2000, the Company purchased 3,750,000
shares of its common stock under previously announced share repurchase programs
for $126.9 million. The shares purchased will be utilized for DST's stock award,
employee stock purchase and stock option programs and for general corporate
purposes. As of September 30, 2000, DST has purchased 5,430,000 shares since the
programs commenced.
During the fourth quarter 1999 and the first quarter 2000, the Company entered
into forward stock purchase agreements for the repurchase of up to 8.0 million
shares of its common stock as a means of securing potentially favorable prices
for future purchases of its stock. During the nine months ended September 30,
2000, and included in the numbers set forth in the preceding paragraph, the
Company purchased 1,865,000 shares under these agreements for $57.9 million. As
of September 30, 2000, the cost to settle the agreements would be approximately
$198.1 million for approximately 6.1 million shares of common stock. The
agreements, which expire in January 2001 and September 2002, allow the Company
to elect net cash or net share settlement in lieu of physical settlement of the
shares.
18
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 $133.7 million
and $253.3 million for the three and nine months ended September 30, 2000,
respectively, as compared to comprehensive losses of $36.1 million and
comprehensive income of $108.7 million, respectively, for the three and nine
months ended September 30, 1999. Comprehensive income consists of net income of
$44.8 million and $148.2 million, respectively, and other comprehensive income
of $88.9 million and $105.1 million, respectively, for the three and nine months
ended September 30, 2000, and net income of $33.9 million and $100.9 million,
respectively, and other comprehensive losses of $70.0 million and other
comprehensive income of $7.8 million, respectively, for the three and nine
months ended September 30, 1999. Other comprehensive income consists of
unrealized gains (losses) on available-for-sale securities, net of deferred
taxes, reclassifications for gains included in net income 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 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.
The Company utilized $0.5 million and $4.0 million in the three and nine months
ended September 30, 2000, respectively, related to the accrued integration
costs. At September 30, 2000, the remaining accrued integration costs of $0.9
million relate primarily to the Output Solutions Segment.
The accrued costs relate primarily to employee severance benefits which are
expected to be paid in 2000 and to facilities that will be closed. Lease
payments on closed facilities and abandoned equipment have terms which end in
2000 through 2003. Five locations have been closed as of September 30, 2000. The
remainder will be closed once arrangements have been made to process continuing
business at other facilities. 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 costs and integration costs of moving to common internal
systems. Although precise estimates cannot be made, management does not believe
such costs will have a material 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.
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 equity pricing, interest rates and currency exchange
rates. 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.
Available-for-sale equity price risk
The Company's investments in available-for-sale equity securities are subject to
price risk. The fair value of the Company's available-for-sale investments as of
September 30, 2000 was approximately $1.5 billion. The impact of a 10% change in
fair value of these investments would be approximately $99.2 million to
comprehensive income. As discussed under "Comprehensive Income" 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.
Interest rate risk
At September 30, 2000, the Company had $86.5 million of long-term debt, of which
$58.6 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 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 British pound, Canadian dollar, and Australian dollar. Currency
exchange rate fluctuations have 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.
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
None.
If a stockholder desires to have a proposal included in DST's Proxy Statement
for next year's annual meeting of stockholders, the Corporate Secretary of DST
must receive such proposal on or before November 30, 2000, and the proposal must
comply with the applicable SEC regulations and with the procedures set forth in
DST's by-laws.
21
Item 5. Other Information
The following table presents operating data for the Company's operating business
segments:
September 30, December 31,
2000 1999
--------------- ---------------
Financial Services Operating Data
Mutual fund shareowner accounts processed (millions)
U.S. 65.1 56.4
Canada 3.1 2.4
United Kingdom (1) 2.6 2.0
TRAC-2000 mutual fund accounts (millions) (2) 4.9 3.4
TRAC-2000 participants (millions) 1.5 1.3
IRA mutual fund accounts (millions) (2) 16.3 14.0
Portfolio Accounting System portfolios 2,004 1,988
Automated Work Distributor workstations 69,000 57,700
Customer Management Operating Data
Video/broadband/satellite TV subscribers processed (millions) 42.9 39.1
For the Nine Months
Ended September 30,
2000 1999
--------------- ---------------
Output Solutions Operating Data
Images produced (millions) 5,453 4,642
Items mailed (millions) 1,381 1,221
(1) Processed by EFDS, an unconsolidated affiliate of the Company
(2) Included in U.S. mutual fund shareowner accounts processed
22
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Document
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed under Item 5 of Form 8-K, the Company's Form 8-K dated
July 20, 2000, reporting the announcement of financial results for the
quarter ended June 30, 2000.
The Company filed under Item 5 of Form 8-K, the Company's Form 8-K dated
September 27, 2000, reporting the announcement of a two-for-one stock split
to be effected in the form of a stock dividend.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, and in the capacities indicated, on November 14,
2000.
DST Systems, Inc.
/s/ Kenneth V. Hager
Kenneth V. Hager
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)