October 22, 1998
DST SYSTEMS, INC.ANNOUNCES THIRD QUARTER AND YEAR-TO-DATE 1998 FINANCIAL RESULTS
KANSAS CITY, MO--DST Systems, Inc. (DST) announces financial results for the
third quarter and nine months ended September 30, 1998.
Quarter Ended September 30, 1998
For the quarter ended September 30, 1998, DST consolidated net income was $18.5
million compared to $14.1 million for the same quarter in 1997, an increase of
31.9%. Basic earnings per share were $.38 ($.37 on a diluted basis) for the
current year quarter compared to $.29 basic earnings per share ($.28 on a
diluted basis) for the prior year quarter, an increase in basic earnings per
share of 31.0% and an increase in diluted earnings per share of 32.1%.
Consolidated revenues for the quarter ended September 30, 1998 totaled $186.3
million, an increase of 16.5% over the prior year quarter. U.S. revenues were
$152.3 million for the quarter, an increase of 13.5% over comparable period 1997
revenues. This revenue increase resulted principally from growth in mutual fund
shareowner processing revenues. Output services, Automated Work Distributor
(AWD) and satellite TV subscriber management revenues also increased.
U.S. mutual fund shareowner accounts serviced totaled 48.9 million at September
30, 1998 (excluding approximately 650,000 accounts of GT Global which terminated
its services with DST as a result of its acquisition by the AIM Management
Group), an increase of 1.5% from the 48.2 million serviced at June 30, 1998, and
an increase of 8.7% from the 45.0 million serviced at December 31, 1997.
Excluding the
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impact of GT Global, new accounts during the quarter were 1.4 million, of which
approximately 500,000 were IRA accounts. New Roth or Educational IRA accounts
represented approximately 43% of the IRA account growth. Pages printed by OTI in
the U.S. increased 18.2% over third quarter 1997 volumes to 373 million pages.
AWD workstations licensed in the U.S. increased 23.4 % over year end 1997 levels
to 25,500 workstations.
International revenues totaled $34.0 million for the quarter, an increase of
32.2% over comparable prior year quarter revenues, primarily resulting from
revenues attributable to increased investment accounting software licenses and
services, Canadian mutual fund processing, and AWD software and services. The
planned introduction of the European Monetary Unit contributed to increased
demand for the Company's international investment management products.
Consolidated income from operations increased 22.3% over the prior year quarter
to $26.4 million, with an operating margin of 14.2% compared to 13.5% for the
prior year quarter. U.S. operating income equaled $22.0 million for the quarter
ended September 30, 1998, an increase of 5.8% over prior year quarter results.
U.S. costs and expenses increased 17.6% to $112.4 million, primarily from
increases in personnel costs to support business growth, third party software
usage costs and increases in development costs for DST's new securities transfer
system (Fairway). U. S. depreciation and amortization costs were unchanged from
the prior year quarter. International businesses posted an aggregate operating
income of $4.4 million for the current year quarter, an increase of $3.7 million
from the $0.7 million operating income recorded for the prior year quarter,
primarily driven by higher revenues previously described.
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Other income for the quarter ended September 30, 1998 increased as a result of
gains on the sale of certain marketable equity securities.
DST recorded equity in losses of unconsolidated affiliates of $1.2 million for
the quarter ended September 30, 1998, compared to $0.5 million recorded in the
third quarter of 1997. This was caused primarily by non-recurring debt
refinancing costs incurred by real estate related affiliates to take advantage
of lower interest rates. Increased earnings were recorded at Boston Financial
Data Services, Inc. from higher levels of mutual fund activity. Lower earnings
were recorded at Argus Health Systems, Inc. (Argus). The amount of DST's share
of losses at European Financial Data Services decreased from the prior year
quarter, but were higher than second quarter 1998 as a result of increased costs
associated with FAST2000 development and conversion activity.
DST's effective tax rate was 31.6% for the third quarter 1998, compared to 33.2%
for the prior year quarter, primarily caused by lower marginal tax rates for
international earnings, principally in the U.K., and recognition of the benefits
associated with new Missouri income apportionment rules designed to attract and
retain mutual fund service companies.
Nine Months Ended September 30, 1998
For the nine months ended September 30, 1998, consolidated net income totaled
$54.7 million compared to $43.0 million for 1997, an increase of 27.2%. Basic
earnings per share were $1.12 ($1.09 per share on a diluted basis) compared to
basic earnings per share of $.87 ($.86 per share on a diluted basis) for the
nine months ended September 30, 1997, an increase of 28.7% in basic earnings per
share and 26.7% in diluted earnings per share.
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Consolidated revenues for the nine months ended September 30, 1998 increased
17.7% to $558.0 million. U.S. revenues increased 14.1% to $462.1 million,
primarily from higher mutual fund and output services revenues, and
international revenues grew 39% to $95.9 million. Consolidated operating income
increased 29.4% over the comparable 1997 period to $85.7 million, aided by
improved international operations. U.S. operating income increased 11.7% to
$74.6 million. International operating income totaled $11.1 million compared to
a loss of $0.6 million for the prior year.
DST recorded $1.5 million in equity in losses of unconsolidated affiliates for
the 1998 year to date period compared to $1.4 million in equity in earnings of
unconsolidated affiliates for the comparable 1997 period, primarily due to lower
earnings at Argus and non-recurring real estate debt refinancing costs. The
year-to-date effective income tax rate increased slightly to 34.9% in 1998 from
34% in 1997.
USCS International, Inc. Merger
The proposed DST/USCS merger has received notice of early termination of the
waiting period under the Hart/Scott/Rodino Act. DST and USCS have filed proxy
materials with the Securities and Exchange Commission and anticipate a closing
of the merger in the fourth quarter 1998.
* * * * *
The information and comments above may include forward-looking statements
respecting DST and its businesses. Such information and comments are based on
DST's views as of today, and actual results could differ. There could be a
number of factors affecting actual future results, including those set forth in
Form 8-K/A dated April 13, 1998 filed by DST with the Securities and Exchange
Commission. All such factors should be considered in evaluating any
forward-looking comments.
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DST SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------- -------------------------------
1997 1998 1997 1998
------------------------------- -------------------------------
Revenues $ 159,863 $ 186,256 $ 473,941 $ 557,972
Costs and expenses 118,811 139,932 349,148 411,573
Depreciation and amortization 19,453 19,910 58,551 60,711
------- ------- ------- -------
Income from operations 21,599 26,414 66,242 85,688
Interest expense (1,960) (1,829) (6,006) (6,087)
Other income, net 2,241 3,501 4,451 5,491
Equity in earnings (losses) of
unconsolidated affiliates (507) (1,162) 1,357 (1,529)
----- ------- ------ -------
Income before income taxes and minority
interests 21,373 26,924 66,044 83,563
Income taxes 7,097 8,495 22,463 29,153
------ ------ ------- ------
Income before minority interests 14,276 18,429 43,581 54,410
Minority interests 222 (102) 607 (244)
---- ----- ---- -----
Net income $ 14,054 $ 18,531 $ 42,974 $ 54,654
========= ========= ========= =========
Average common shares outstanding 49,236 48,994 49,378 48,988
Basic earnings per share $ 0.29 $ 0.38 $ 0.87 $ 1.12
Diluted shares outstanding 49,804 50,102 49,862 49,991
Diluted earnings per share $ 0.28 $ 0.37 $ 0.86 $ 1.09
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