Exhibit A
DST/USCS Combined Quarterly Results
On December 21, 1998, DST Systems, Inc. ("DST" or the "Company") completed its
merger (the USCS Merger) with USCS International, Inc. (USCS) through the
issuance of 13.8 million shares of DST common stock. The USCS Merger was
accounted for under the pooling of interests accounting method. Accordingly, the
DST financial results have been restated to combine the historical results of
operations of DST and USCS, adjusted for conformity of accounting policies
relating primarily to USCS depreciation and amortization policies and accounting
for the costs of software developed for internal USCS use.
DST announced fourth quarter and full year 1998 combined results in a press
release and Form 8-K dated February 1, 1999. The following presents combined
quarterly financial data for the years ended December 31, 1997 and 1998 restated
for the USCS Merger.
DST SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Year Ended December 31, 1997
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First Second Third Fourth
Quarter Quarter Quarter Quarter Total
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Revenues $ 229.7 $ 228.1 $ 232.9 $ 259.3 $ 950.0
Costs and expenses 172.9 173.1 176.7 196.9 719.6
Depreciation and amortization 25.1 25.1 26.6 26.7 103.5
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Income from operations 31.7 29.9 29.6 35.7 126.9
Interest expense (2.5) (2.2) (1.9) (1.9) (8.5)
Other income 1.1 1.3 2.3 1.1 5.8
Equity in earnings (losses)
of unconsolidated affiliates 1.0 0.8 (0.4) (2.7) (1.3)
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Income before income taxes
and minority interest 31.3 29.8 29.6 32.2 122.9
Income taxes 11.4 10.4 10.6 10.5 42.9
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Income before minority interest 19.9 19.4 19.0 21.7 80.0
Minority interest in income (losses) 0.1 0.3 0.3 (0.1) 0.6
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Net Income $ 19.8 $ 19.1 $ 18.7 $ 21.8 $ 79.4
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Basic earnings per share $ 0.31 $ 0.30 $ 0.30 $ 0.35 $ 1.25
Diluted earnings per share $ 0.31 $ 0.29 $ 0.29 $ 0.34 $ 1.23
Average shares outstanding 63.8 63.7 63.7 63.0 63.6
Diluted shares outstanding 64.8 64.8 65.0 64.2 64.7
DST SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)
Year Ended December 31, 1998
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First Second Third Fourth
Quarter Quarter Quarter Quarter Total
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Revenues $ 266.0 $ 269.8 $ 268.8 $ 291.5 $ 1,096.1
Costs and expenses 198.4 207.6 207.0 221.7 834.7
Depreciation and amortization 27.2 24.6 26.2 30.8 108.8
Merger charges 7.1 26.0 33.1
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Income from operations 40.4 37.6 28.5 13.0 119.5
Interest expense (2.6) (2.3) (2.0) (1.7) (8.6)
Other income 1.0 1.3 3.7 1.4 7.4
Equity in earnings (losses)
of unconsolidated affiliates (0.4) 0.1 (1.2) (1.2) (2.7)
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Income before income taxes
and minority interest 38.4 36.7 29.0 11.5 115.6
Income taxes 14.3 13.6 11.3 5.1 44.3
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Income before minority interest 24.1 23.1 17.7 6.4 71.3
Minority interest in losses (0.2) (0.1) (0.3)
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Net Income $ 24.1 $ 23.3 $ 17.7 $ 6.5 $ 71.6
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Basic earnings per share $ 0.38 $ 0.37 $ 0.28 $ 0.10 $ 1.14
Diluted earnings per share $ 0.38 $ 0.36 $ 0.27 $ 0.10 $ 1.11
Average shares outstanding 62.6 62.8 62.8 62.8 62.7
Diluted shares outstanding 64.0 64.2 64.5 64.5 64.3
The above amounts reflect a reclassification of certain depreciation and
amortization that was previously classified as costs and expenses in the fourth
quarter and full year 1998 combined results contained in the February 1, 1999
press release and Form 8-K dated February 1, 1999. The reclassification did not
result in any changes to previously reported income from operations or net
income.
DST/USCS Combined January 1999 Results
DST is announcing January 1999 financial results to satisfy certain pooling of
interests accounting requirements. DST/USCS combined unaudited financial results
for the month ended January 31, 1999 included combined revenues of $99.6 million
and combined net income of $13.2 million or $.20 per diluted share.
The January 1999 financial results included herein have been prepared by DST,
without audit. These financial results should be read in conjunction with the
Unaudited Pro Forma Condensed Combined Financial Statements for the three years
ended December 31, 1997 and the nine months ended September 30, 1997 and 1998,
the DST Annual Report on Form 10-K for the year ended December 31, 1997, and the
USCS Annual Report on Form 10-K for the year ended December 31, 1997 included in
the Registration Statement on Form S-4 dated November 20, 1998 filed by DST with
the Securities and Exchange Commission.
In the opinion of management, the unaudited combined financial results referred
to above contain all adjustments (consisting of normal interim closing
procedures) necessary to present fairly the financial results of DST for the
month ended January 31, 1999.
Effective January 1, 1999, DST adopted, as required, Statement of Position (SOP)
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. Prior to the adoption of SOP 98-1, the Company expensed the costs
of internally developed proprietary software as it was incurred. SOP 98-1,
effective for fiscal periods beginning after December 15, 1998, requires that
certain costs for the development of internal use software should be
capitalized, including coding and software configuration costs, costs of
upgrades and enhancements. For the month ended January 31, 1999, the Company
capitalized $1.6 million of costs related to the development of internal use
software. Based on internal software development plans, the Company estimates
that $14 to $20 million of costs related to the development of internal use
software could be capitalized for the year ending December 31, 1999, net of
related amortization. These costs, which would have been previously expensed,
will be amortized under DST's current policy on a straight line basis, depending
on the nature of the project, generally over a three to five year period
beginning on the date such software is placed in service. The estimated range of
capitalizable development costs for internal use software reflects DST's views
as of today. There may be differences between these estimates and actual
development costs, and those differences may be material.
While DST generally does not have significant seasonal fluctuations in its
business operations, processing and output volumes for mutual fund customers are
usually higher in the month of January and during the quarter ended March 31 due
primarily to processing year-end transactions and printing and mailing of
year-end statements and tax forms. January 1999 results also included higher
than expected license revenues. The financial results for the month ended
January 31, 1999, are not necessarily indicative of the results to be expected
for the quarter ended March 31, 1999 or the full year 1999.
*****
The information and comments above may include forward-looking statements
respecting DST and its businesses. Such information and comments are based on
DST's views as of today, and actual results could differ. There could be a
number of factors affecting future results, including those set forth in Form
S-4 dated November 20, 1998 filed by DST with the Securities and Exchange
Commission. All such factors should be considered in evaluating any
forward-looking comments.