FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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.)
1055 Broadway, 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 [ ]
As of July 26, 1996, there were 49,900,000 shares of the Company's $.01 par
value Common Stock outstanding.
page 1
DST SYSTEMS, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
Page
PART I. FINANCIAL INFORMATION
______________________________
Item 1. Financial Statements
Introductory Comments 3
Condensed Consolidated Balance Sheet -
December 31, 1995 and June 30, 1996 4
Condensed Consolidated Statement of Income -
Three and Six Months Ended June 30, 1995 and 1996 5
Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1995 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8-13
and Results of Operations
PART II. OTHER INFORMATION
___________________________
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14-15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
page 2
DST SYSTEMS, INC.
FORM 10-Q
JUNE 30, 1996
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 Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
enable a reasonable understanding of the information presented. These
Condensed Consolidated Financial Statements should be read in conjunction with
the audited financial statements and the notes thereto for the year ended
December 31, 1995. 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 six months ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full year
1996.
page 3
DST SYSTEMS, INC.
Condensed Consolidated Balance Sheet
(In thousands)
(unaudited)
December 31, June 30,
1995 1996
ASSETS
Current assets
Cash and cash equivalents $ 13,057 $ 6,697
Accounts receivable 136,314 145,591
Inventories 10,647 9,518
Other assets 28,500 26,143
_______ _______
Total current assets 188,518 187,949
Investments 251,677 267,183
Properties 247,014 245,571
Intangibles and other assets 62,311 65,502
_______ _______
Total assets $ 749,520 $ 766,205
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Debt due within one year $ 31,822 $ 35,470
Accounts payable 47,208 28,340
Deferred revenues and gains 12,219 14,559
Accrued compensation and benefits 30,017 19,849
Other liabilities 11,937 17,407
_______ _______
Total current liabilities 133,203 115,625
Long-term debt 52,477 61,100
Deferred income taxes 50,734 55,664
Other liabilities 46,272 42,274
_______ _______
282,686 274,663
Commitments and contingencies
Minority interest 476 519
_______ _______
Stockholders' equity
Common stock 500 500
Additional paid-in capital 408,807 408,807
Retained earnings 34,988 52,103
Treasury stock, at cost (3,375)
Net unrealized gain on investments 22,063 32,988
_______ _______
Total stockholders' equity 466,358 491,023
_______ _______
Total liabilities and stockholders' equity $ 749,520 $ 766,205
======= =======
The accompanying notes are an integral part of these financial statements.
page 4
DST SYSTEMS, INC.
Condensed Consolidated Statement of Income
(In thousands, except earnings per share)
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
____________________ __________________
1995 1996 1995 1996
____ ____ ____ ____
Revenues $ 117,673 $ 143,216 $ 229,939 $ 287,478
Costs and expenses 92,256 106,565 177,474 212,954
Depreciation and amortization 16,690 19,192 30,772 37,880
_______ _______ _______ _______
Income from operations 8,727 17,459 21,693 36,644
Interest expense (6,103) (1,653) (10,641) (3,754)
Other income 1,093 981 1,579 1,912
Gain on sale of equity investment 43,610
Equity in earnings (losses) of
unconsolidated affiliates 4,338 3,140 7,751 (4,502)
_______ _______ _______ _______
Income before income taxes and
minority interest 8,055 19,927 63,992 30,300
Income taxes 2,478 7,549 41,212 13,512
_______ _______ _______ _______
Income before minority interest 5,577 12,378 22,780 16,788
Minority interest (88) 51 (139) 44
_______ _______ _______ _______
Net income $ 5,665 $ 12,327 $ 22,919 $ 16,744
======= ======= ======= =======
Weighted average common shares outstanding 49,965 49,982
Earnings per share $ .25 $ .34
The accompanying notes are an integral part of these financial statements.
page 5
DST SYSTEMS, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(unaudited)
For the Six Months
Ended June 30,
__________________
1995 1996
Cash flows -- operating activities:
Net income $ 22,919 $ 16,744
_______ _______
Depreciation and amortization 31,955 37,880
(Undistributed earnings) losses of unconsolidated affiliates (8,237) 4,502
Gain on sale of equity investment (43,610)
Deferred taxes on gain on sale of equity investment 35,028
Changes in accounts receivable (9,973) (7,392)
Changes in inventories (3,780) 697
Changes in other current assets (3,173) 595
Changes in accounts payable and accrued liabilities 4,920 (19,763)
Other, net 5,475 (3,483)
_______ _______
Total adjustments to net income 8,605 13,036
_______ _______
Net 31,524 29,780
_______ _______
Cash flows -- investing activities:
Investment in and advances to unconsolidated affiliates (1,108) (5,147)
Capital expenditures (36,921) (30,202)
Payment for purchases of subsidiaries, net of cash acquired (49,979) (3,183)
Other, net 509 3,305
_______ _______
Net (87,499) (35,227)
_______ _______
Cash flows -- financing activities:
Proceeds from issuance of long-term debt 24,000
Principal payments on long-term debt (15,377) (10,788)
Net increase in credit facilities and notes payable 205,529 21,661
Dividends to KCSI (150,000)
Stock repurchased (3,375)
Other, net (5,658) (8,411)
_______ _______
Net 58,494 (913)
_______ _______
Net increase (decrease) in cash and cash equivalents 2,519 (6,360)
Cash and cash equivalents at beginning of period 3,971 13,057
_______ _______
Cash and cash equivalents at end of period $ 6,490 $ 6,697
======= =======
The accompanying notes are an integral part of these financial statements.
page 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 footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
enable a reasonable understanding of the information presented. These
Condensed Consolidated Financial Statements should be read in conjunction with
the audited financial statements and the notes thereto for the year ended
December 31, 1995. 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 DST
Systems, Inc. and its subsidiaries at December 31, 1995 and June 30, 1996, the
results of operations for the three and six months ended June 30, 1995 and 1996
and cash flows for the six months ended June 30, 1995 and 1996.
The results of operations for the three and six months ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full year
1996.
Certain reclassifications have been made to the prior year's consolidated
financial statements to conform with the current year's presentation.
2. Earnings per share and stock repurchases
Earnings per share for the three and six months ended June 30, 1996 is based on
the weighted average number of common shares outstanding during the period.
Because the initial public offering of the Company's common stock on October
31, 1995 and use of proceeds therefrom have substantially changed the Company's
capital structure, earnings per share data for the three and six months ended
June 30, 1995 have not been presented.
As discussed under "Recent Events" in Management's Discussion and Analysis of
Financial Condition and Results of Operations, in May 1996, the Board of
Directors authorized the purchase of up to 1.2 million shares during a twenty-
four month period in approximately equal monthly amounts subject to such
variations as management deems appropriate. A total of 100,000 shares have
been repurchased at June 30, 1996.
3. Acquisitions and Dispositions
As discussed under "Recent Events" in Management's Discussion and Analysis of
Financial Condition and Results of Operations, The Continuum Company, Inc.
("Continuum"), an approximately 23%-owned affiliate of DST, merged with
Computer Sciences Corporation ("CSC") on August 1, 1996 in a share exchange
accounted for as a pooling-of-interests.
page 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The discussions set forth in this Form 10-Q may contain forward-looking
comments. Such comments are based upon the information currently available to
management of the Company and management's perception thereof as of the date of
this report. Actual results of the Company's operations could materially differ
from those indicated in the forward-looking comments. The difference could be
caused by a number of factors including, but not limited to, those discussed in
a Current Report on Form 8-K dated March 22, 1996, which has been filed with
the United States Securities and Exchange Commission (the "Commission"). That
Current Report may be obtained by contacting the Commission's public reference
operations. Readers are strongly encouraged to obtain and consider the factors
listed in the March 22, 1996 Current Report and any amendments or modifications
thereof when evaluating any forward-looking comments concerning the Company.
The information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction
with the Notes to Condensed Consolidated Financial Statements included in this
Form 10-Q and the audited financial statements and notes thereto incorporated
by reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
INTRODUCTION
The Company provides sophisticated information processing and computer software
services and products, primarily to mutual funds, insurance providers, banks
and other financial services organizations.
The following table presents the sources of the Company's revenues:
Sources of Revenue
Six Months Ended June 30,
(dollars in thousands)
1995 1996
___________________ ___________________
U.S. Mutual Fund
Processing $ 104,496 45.5% $ 127,861 44.5%
Output Services 31,060 13.5% 38,561 13.4%
_______ _______ _______ _______
Total U.S. Mutual Fund 135,556 59.0% 166,422 57.9%
_______ _______ _______ _______
Insurance
Processing 13,543 5.9% 14,541 5.1%
Output services 3,767 1.6% 5,698 2.0%
_______ _______ _______ _______
Total Insurance 17,310 7.5% 20,239 7.1%
_______ _______ _______ _______
International 23,546 10.2% 41,430 14.4%
Other output services 36,391 15.8% 43,470 15.1%
Other 17,136 7.5% 15,917 5.5%
_______ _______ _______ _______
Total revenues $ 229,939 100.0% $ 287,478 100.0%
======= ======= ======= =======
page 8
RECENT EVENTS
On August 1, 1996, The Continuum Company, Inc. ("Continuum") merged with
Computer Sciences Corporation ("CSC") in a tax-free share exchange accounted
for as a pooling-of-interests. Under the merger, CSC common stock was
exchanged for the common stock of Continuum at an exchange rate of 0.79 shares
for each share of Continuum stock. DST, which prior to the merger owned
approximately 23% of Continuum, received approximately 4.3 million shares of
CSC common stock with an approximate market value of $295 million in the
exchange based upon the closing price of CSC common stock on the New York Stock
Exchange on August 1, 1996. DST anticipates recognizing a one-time gain after
deferred taxes and other charges associated with the transaction of
approximately $130 million in the third quarter 1996. DST has agreed to certain
limitations on the disposition of the CSC stock it received. DST's shares of
CSC represent an approximate 6% interest in the combined company. As a result,
Continuum will cease to be an unconsolidated equity affiliate of DST. DST
recognized equity in earnings of Continuum of $0.5 million and $5.0 million in
1993 and 1994, respectively and equity in losses of Continuum of $1.1 million
in 1995 and $4.9 million for the first six months of 1996. The Company's
investment in CSC will be accounted for as available-for-sale securities in
accordance with Statement of Financial Accounting Standards No. 115. Although
CSC does not currently pay cash dividends, DST will recognize dividend income
on any cash dividends received from CSC.
DST currently provides all of the North American and United Kingdom data
processing operations for Continuum through DST's Winchester Data Center. The
Company has agreed with CSC to negotiate an agreement to transfer, over a
period of time, Continuum data processing operations from the Winchester Data
Center to facilities of CSC. The Company does not currently believe that any
such transfer of data processing will have a material impact on the Company's
results of operations or financial position. The merger is not expected to
affect Continuum's existing agreements with DST for distribution of DST's
Automated Work DistributorT (AWDr) work flow management software to the
insurance and banking industries.
In May 1996, the Board of Directors determined it was necessary for the Company
to have common stock available to it to provide to employees under its stock
award program and to provide to option holders who exercise options. The Board
of Directors authorized the purchase of up to 1.2 million shares during a
twenty-four month period in approximately equal monthly amounts subject to such
variations as management deems appropriate. All such purchases will be made in
compliance with applicable SEC regulations.
page 9
RESULTS OF OPERATIONS
Second Quarter and Year-to-Date 1995 versus Second Quarter
and Year-to-Date 1996
The Company's earnings were $0.25 per share for the second quarter 1996.
Because the initial public offering of the Company's common stock on October
31, 1995 and use of proceeds therefrom have substantially changed the Company's
capital structure, earnings per share data for second quarter 1995 have not
been presented. Second quarter net income increased $6.6 million, or 118%,
from $5.7 million in 1995 to $12.3 million in 1996. Year-to-date, net income
has decreased $6.2 million, or 27%, from $22.9 million in 1995 to $16.7 million
in 1996. First quarter 1995 and 1996 net income were affected by certain non-
recurring items. First quarter 1995 net income reflects an $8.6 million after-
tax gain on the sale of Investors Fiduciary Trust Company. First quarter 1996
net income includes the Company's $9.4 million share of a non-recurring charge
by Continuum related to Continuum's March 1996 acquisition of Hogan Systems,
Inc. (the "Hogan Merger"). Adjusted for these non-recurring items, the
Company's 1996 year-to-date net income increased $11.9 million, or 83%, from
$14.3 million in 1995 to $26.2 million in 1996. This increase in net income on
an adjusted basis is primarily a result of increased revenues and income from
operations due to the growth of the Company's mutual fund processing business
and decreased interest expense resulting from the retirement of debt with
proceeds from the Company's initial public offering in the fourth quarter of
1995.
For the Three Months For the Six Months
Geographic information Ended June 30, Ended June 30,
(in thousands) 1995 1996 1995 1996
____________________ __________________
Domestic revenues $ 104,020 $ 121,738 $ 206,393 $ 246,047
Domestic income from operations 10,133 17,660 23,153 37,075
International revenues 13,653 21,478 23,546 41,431
International losses from operations (1,406) (201) (1,460) (431)
Revenues
Consolidated revenues increased 22% to $143.2 million in the second quarter
1996 and 25% to $287.5 million year-to-date 1996 primarily due to increased
mutual fund processing, higher volumes at Output Technologies and growth in
international businesses.
Domestic revenues increased 17% to $121.7 million for the quarter and 19% to
246.0 million year-to-date primarily due to increased mutual fund processing
and higher volumes at Output Technologies. United States mutual fund processing
revenues increased 13% for the quarter and 17% year-to-date as shareowner
accounts serviced increased from 34.1 million at June 30, 1995 to 39.0 million
at June 30, 1996. The growth is due to increases in the number of shareowner
accounts at existing clients and the addition of approximately one million
accounts from the addition of a new client in September 1995. Domestic Output
Technologies revenues increased 24% for the quarter and 23% year-to-date due
primarily to a 34% increase in domestic pages printed, due in part to an
increase in services provided for Boston Financial Data Services ("BFDS") and
its affiliate, Boston Equiserv.
International revenues for the second quarter increased 57% to $21.5 million
from increased license and development revenues at DST International and $3.5
million from Xebec Imaging Services ("Xebec") , a Canadian acquisition by
page 10
Output Technologies in January 1996. Year-to-date, international revenues have
increased 76% to $41.4 million, including $7.1 million from Xebec.
Costs and expenses
Consolidated costs and expenses increased 16% to $106.6 million for the second
quarter and 20% to $213.0 million year-to-date, primarily as a result of higher
operating volumes and increased growth of international operations.
Domestic costs and expenses increased 11% to $86.6 million for the second
quarter and 13% to $174.6 million year-to-date. Domestic compensation and
benefit expenses increased 15%, or $6.5 million for the first quarter and 17%,
or $14.4 million year-to-date primarily due to increased staffing levels to
support mutual fund and Output Technologies operations.
Costs and expenses from international business increased $6.0 million, or 42%,
for the quarter and $15.1 million, or 65%, year-to-date due to the continued
development of product offerings and the addition of $2.9 million and $5.9
million of expenses from the operations of Xebec for the second quarter and
year-to-date, respectively.
Depreciation and amortization
Depreciation and amortization increased 15% to $19.2 million for the quarter
and 23% to $37.9 million year-to-date primarily due to increased operating
capacities at the Winchester Data Center and Output Technologies and increased
amortization expense related to the April 1995 purchases of substantially all
of the assets and business operations of Supervised Service Company, Inc. and
mutual fund shareowner servicing system software both owned by Kemper Services
Company.
Interest expense
Interest expense decreased $4.5 million, or 73%, for the quarter, and $6.9
million, or 65%, year-to-date, resulting primarily from the retirement of debt
with proceeds from the Company's initial public offering in the fourth quarter
of 1995.
Other income
Other income consists primarily of dividend income on shares of State Street
Boston Corporation common stock held by DST and amortization of deferred gains.
Other income increased $0.3 million year-to-date primarily as a result of
increased dividends from State Street.
Equity in earnings (losses) of unconsolidated affiliates
Equity in earnings (losses) of unconsolidated affiliates decreased $1.2 million
for the quarter. Excluding the effect of the Company recording its estimated
$10.2 million share of a non-recurring charge ($9.4 million after providing
deferred tax benefit) recorded by Continuum in conjunction with the Hogan
Merger in March 1996, equity in earnings (losses) of unconsolidated affiliates
on a year-to-date basis decreased $2.0 million. For both the quarter and year-
to-date periods, higher operating earnings of Continuum before non-recurring
charges were offset by lower earnings from Argus Health Systems as a result of
increased development costs for a new claims processing system and a slight
decline in claims processed. Increased costs were also incurred at the
Company's international transfer agent joint ventures resulting from increased
business development costs and an acceleration of the delivery timetable for
the FAST2000 unit trust product. 1995 also included $0.5 million for the
second quarter and $0.9 million year-to-date of equity in earnings of Midland
joint ventures which were sold in August 1995.
page 11
Income taxes
Income tax expense increased $5.1 million, or 204%, for the quarter due
primarily to increased operating income and decreased interest expense over the
prior year quarter. Year-to-date, income tax expense decreased $27.7 million,
or 67% , primarily as a result of the 1995 IFTC transaction. The Company
recorded $35.0 million of deferred income tax expense in the first quarter 1995
as a result of the IFTC transaction to recognize the deferred tax liability on
the difference between the value of State Street stock received and the
Company's tax basis in IFTC less previous deferred taxes provided.
The Company's effective tax rate for the second quarter 1996 was approximately
38%. Excluding the effect of the one-time charge taken by Continuum in
connection with the merger with Hogan , the Company's year-to-date effective
tax rate was approximately 35%. The primary difference between the Company's
effective tax rate and the combined federal and state statutory rates is the
result of deferred taxes being provided for unremitted earnings of domestic
unconsolidated affiliates net of the 80% dividends received deduction provided
under current tax law.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses internally generated funds and borrowings from third parties
to fund operating and investing activities. The Company's net cash flows from
operating activities totaled $29.8 million during the first six months of 1996.
Cash flows from operating activities for the first six months of 1996 were
significantly impacted by payments related to incentive compensation programs,
including a $10.1 million payment for a multi-year performance based incentive
compensation program at an Output Technologies subsidiary that concluded at
December 31, 1995, and an increase in accounts receivable of approximately $7.4
million related to revenue growth.
The Company's net cash flow used in investing activities totaled $35.2 million
for the first six months of 1996. The Company has expended $3.2 million in
1996 for purchase of Xebec and $30.2 million for capital additions. During the
six months ended June 30, 1996, the Company received proceeds of approximately
$3.3 million from the sale of assets. The Company anticipates that future
investing activities will be funded primarily by cash flows from operating
activities, secured term notes, or bank lines of credit as required.
Net cash used in financing activities totaled $0.9 million for the first six
months of 1996. Net short and long-term borrowings in 1996 totaled $21.7
million, which were necessary to finance payments for purchases of
subsidiaries, capital additions and payments related to incentive compensation
programs as described above. Other financing activities includes $5.9 million
in payments to vendors relating to software capitalized in prior years, $2.5
million in payments relating to the acquisiton of HiPortfolio by DST
International, and $3.4 million for the repurchase of 100,000 shares of common
stock.
The Company maintains $45.0 million of bank line of credit facilities to
finance short-term working capital requirements, of which total borrowings of
$18.1 million are outstanding at June 30, 1996. Additionally, the Company
maintains a revolving credit facility of $150.0 million available through May
1998 with a syndicate of U.S. and international banks. Total borrowings of
$15.0 million are outstanding on this facility at June 30, 1996.
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 credit facilities, will be sufficient to meet the Company's operating
and debt service requirements and other current liabilities for at least the
next twelve months. Further, the Company believes that its longer-term
liquidity and capital requirements will be met through cash from operations and
page 12
short-term bank lines of credit, as well as the Company's $150.0 million
revolving credit facility described above.
OTHER INFORMATION
The following summarizes certain key operating and financial data for the
periods indicated:
December 31, June 30,
1995 1996
___________ ___________
Investment Market Values (1) (in thousands)
The Continuum Company (2) $ 219,010 $ 321,850
State Street Boston Corporation 134,375 152,292
First of Michigan Capital Corporation 4,803 5,066
Other Operating Data
U.S. mutual fund shareowner accounts serviced
by TA2000 (millions) 36.5 39.0
U.S. defined contribution retirement plans
serviced by TRAC2000:
Number of plans 42,372 49,493
Number of participants 588,078 718,100
U.S. securities transfer accounts serviced
by STS (millions) 6.2 5.9
U.S. mutual fund portfolios serviced by PAS 1,785 1,933
Automated work distributor workstations
licensed worldwide 10,700 14,000
Six Months Ended June 30,
1995 1996
_________________________
Output Technologies pages printed (millions) 445.0 597.6
Pharmaceutical claims processed (millions) 66.0 63.1
1) Represents the market value of the Company's common stock interest based
upon the closing price on the last trading day of the applicable period
at the exchange where principally traded.
2) As discussed under "Recent Events" in Management's Discussion and
Analysis of Financial Condition and Results of Operations, The Continuum
Company merged with Computer Sciences Corporation on August 1, 1996 in a
share exchange accounted for as a pooling-of-interests.
page 13
2) 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 claims outstanding
that 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
The Company held its Annual Meeting of Stockholders on May 14, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14A; there was
no solicitation in opposition to management's nominees for directors as
listed in such Proxy Statement and all such nominees were elected. Listed
below is each matter voted on at the Company's Annual Meeting. Each of
these matters is fully described in the Company's Definitive Proxy
Statement. A total of 44,609,901 shares of Common Stock, or 89.2% of the
shares of Common Stock outstanding on the record date, were represented at
the annual meeting. These shares were voted on the following matters as
follows:
1) Election of two directors for terms ending in 1999
a) Thomas A. McDonnell
For 43,232,544
Withheld 1,377,257
Broker non-votes 100
__________
Total 44,609,901
__________
b) M. Jeannine Strandjord
For 43,329,674
Withheld 1,280,127
Broker non-votes 100
__________
Total 44,609,901
__________
The terms of office of Directors Thomas A. McCullough and William C. Nelson
will continue until the Annual Meeting of Stockholders in 1997. The terms
of office of Directors A. Edward Allinson and Michael G. Fitt will continue
until the Annual Meeting of Stockholders in 1998.
page 14
2) Approval of the 1995 Stock Option and Performance Award Plan
For 34,020,892
Against 8,573,741
Abstentions 255,684
Broker non-votes 1,759,584
__________
Total 44,609,901
__________
3) Ratification of the selection of Price Waterhouse LLP as DST's independent
accountants
For 44,270,193
Against 146,695
Abstentions 192,913
Broker non-votes 100
__________
Total 44,609,901
__________
Based upon votes required for approval, each of these matters passed.
If a holder of DST common stock wishes to present a proposal, other than the
election of a director, for inclusion in DST's Proxy Statement for next
year's annual meeting of stockholders, such proposal must be received by DST
on or before December 4, 1996.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated April 23, 1996 under Item 5 of such form,
reporting the announcement of financial results for the quarter ended March
31, 1996.
The Company filed a Form 8-K dated April 30, 1996 under Item 5 of such form,
regarding the impact to the Company of the announced merger of The Continuum
Company, Inc. and Computer Sciences Corporation.
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
________________.
DST Systems, Inc.
/s/ Kenneth V. Hager____________
Kenneth V. Hager
Vice President and Chief Financial Officer
(Principal Financial Officer)
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