July 23, 1998
DST SYSTEMS, INC. ANNOUNCES SECOND QUARTER AND YEAR-TO-DATE 1998
FINANCIAL RESULTS
KANSAS CITY, MO--DST Systems, Inc. (DST) announces financial results for the
second quarter and six months ended June 30, 1998.
Quarter ended June 30, 1998
For the quarter ended June 30, 1998, DST consolidated net income was $17.5
million compared to $13.8 million for the same quarter in 1997, an increase of
27%. Basic earnings per share were $.36 ($.35 on a diluted basis) for the
current year quarter, an increase in basic earnings per share of 28.6% and an
increase in diluted earnings per share of 25% over the 1997 second quarter basic
and diluted earnings per share of $.28.
Revenues for the quarter ended June 30, 1998 totaled $184.3 million, an increase
of 18.6% over the prior year quarter. U.S. revenues were $152.3 million for the
quarter, an increase of 15.3% over comparable period 1997 revenues. This revenue
increase resulted from growth in mutual fund, output processing, Automated Work
Distributor (AWD) and satellite TV subscriber management revenues.
U.S. mutual fund shareowner accounts serviced totaled 48.2 million at June 30,
1998, an increase of 7.1% from the 45.0 million serviced at December 31, 1997
and an increase of 13.7% from the 42.4 million serviced at June 30, 1997.
Increased IRA activity continued to contribute to account growth. For the
quarter ended June 30, 1998, new IRA accounts opened increased by 700,000
accounts over the 1997 quarter, with approximately 13% of the increase being new
Roth or Educational IRA accounts. U.S. output processing pages printed for the
quarter increased 20% over second quarter 1997 volumes to 395.7 million pages.
U.S. AWD workstations licensed increased 9.7 % over year end 1997 levels to
22,700 workstations.
International revenues totaled $32.0 million for the quarter, an increase of
37.4% over comparable prior year quarter revenues, primarily resulting from
higher investment accounting software and service revenues and increased
Canadian mutual fund processing revenues. The introduction of the European
Monetary Unit, which will be effective beginning January 1, 1999, contributed to
increased demand for the company's investment management products.
Consolidated income from operations increased 33.9% over the prior year quarter
to $28.1 million, with an operating margin of 15.2% compared to 13.5% for the
prior year quarter. U.S. operating income equaled $24.5 million for the quarter
ended June 30, 1998, an increase of 22.7% over prior year quarter results. U.S.
costs and expenses increased 17.5% to $110.9 million, primarily from increases
in personnel costs to support business growth and third party software usage
costs. The renegotiation of certain third party software agreements, effective
March 31, 1998, resulted in certain amounts being recorded in costs and expenses
instead of depreciation expense. U. S. depreciation and amortization costs
decreased 4.8% from the prior year quarter, primarily from the absence of
depreciation related to the third party software agreements. International
businesses posted an aggregate operating income of $3.6 million for the current
year quarter, an increase of $2.6 million from the $1 million operating income
recorded for the prior year quarter, primarily driven by higher investment
accounting revenues.
DST recorded equity in earnings of unconsolidated affiliates of $0.1 million for
the quarter ended June 30, 1998, compared to $0.8 million recorded in the second
quarter of 1997. Increased earnings at Boston Financial Data Services, Inc.
(BFDS) from increased levels of mutual fund activity were offset by lower
earnings at Argus Health Systems, Inc. (Argus). The amount of DST's share of
losses at European Financial Data Services (EFDS) was unchanged from the prior
year quarter.
Interest expense totaled $2.0 million for the quarter ended June 30, 1998, up
slightly from the $1.9 million recorded in the prior year quarter.
DST's effective tax rate was 36.1% for the second quarter 1998, compared to
33.5% for the prior year quarter, primarily caused by higher levels of taxable
earnings. The 1997 tax rate was affected by tax benefits relating to certain
international operations.
Six Months ended June 30, 1998
The same operating trends affecting the current quarter results were also
present in year-to-date results. For the six months ended June 30, 1998,
consolidated net income totaled $36.1 million compared to $28.9 million for
1997, an increase of 24.9%. Basic earnings per share were $.74 ($.72 per share
on a diluted basis) verses $.58 per share (both basic and diluted) for the six
months ended June 30, 1997, an increase of 27.6% in basic earnings per share and
24.1% in diluted earnings per share.
Consolidated revenues for the six months ended June 30, 1998 increased 18.4% to
$371.7 million. U.S. revenues increased 14.4% to $309.8 million and
international revenues grew 43% to $61.9 million. Consolidated operating income
increased 32.8% to $59.3 million over the comparable 1997 period. U.S. operating
income increased 14.3% to $52.6 million. International operating income totaled
$6.7 million as compared to a loss of $1.3 million for the prior year. DST
recorded $0.4 million in equity in losses of unconsolidated affiliates for the
1998 year to date period compared to $1.9 million in equity in earnings of
unconsolidated affiliates for the 1997 six month period due to lower earnings at
Argus and higher losses at EFDS. 1998 year-to-date interest expense increased
$0.2 million to $4.3 million. The year-to-date effective income tax rate
increased to 36.5% in 1998 from 34.4% in 1997 as the 1997 tax rate was reduced
by tax benefits from certain international operations.
DST SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------------- --------------------------------
1997 1998 1997 1998
-------------------------------- --------------------------------
Revenues $155,394 $184,292 $314,077 $ 371,715
Costs and expenses 114,983 137,219 230,337 271,640
Depreciation and amortization 19,468 19,022 39,097 40,802
------- ------- ------- -------
Income from operations 20,943 28,051 44,643 59,273
Interest expense (1,884) (1,957) (4,046) (4,258)
Other income, net 1,231 1,150 2,210 1,990
Equity in earnings (losses) of
unconsolidated affiliates 820 77 1,864 (367)
---- --- ------ -----
Income before income taxes and minority
interests 21,110 27,321 44,671 56,638
Income taxes 7,064 9,866 15,366 20,658
------ ------ ------- -------
Income before minority interests 14,046 17,455 29,305 35,980
Minority interests 229 (95) 385 (142)
---- ---- ---- -----
Net income $ 13,817 $ 17,550 $ 28,920 $ 36,122
========= ========= ========= =========
Average common shares outstanding 49,374 48,967 49,451 48,984
Basic earnings per share $ 0.28 $ 0.36 $ 0.58 $ 0.74
Diluted shares outstanding 49,762 49,966 49,891 49,935
Diluted earnings per share $ 0.28 $ 0.35 $ 0.58 $ 0.72
DST Systems, Inc.
333 West 11th Street
Kansas City, MO
64105-1594
NYSE 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