DST Systems, Inc. Announces First Quarter 2009 Financial Results

KANSAS CITY, Mo., April 29 /PRNewswire-FirstCall/ -- Consolidated net income
for DST Systems, Inc. (NYSE: DST) was $73.2 million ($1.47 per diluted share)
for first quarter 2009 compared to $72.2 million ($1.10 per diluted share) for
first quarter 2008. Taking into account certain non-GAAP adjustments
explained herein, consolidated net income was $41.6 million ($0.83 per diluted
share) for first quarter 2009 compared to $55.2 million ($0.84 per diluted
share) for first quarter 2008.

First quarter 2009 financial and operational highlights were as follows:

-- Consolidated operating revenues decreased $35.2 million or 8.2% to
$395.6 million as compared to first quarter 2008 attributable to a
$19.1
million decline in Financial Services and a $15.7 million decline in
Output Solutions. The Financial Services decline resulted from lower
international professional service, software maintenance and license
revenues and from changes in foreign currency exchange rates
(principally changes between the U.S. Dollar and the British Pound),
lower data processing support revenues, and lower mutual fund
shareowner
processing service revenues. The Output Solutions decline reflects
lower items mailed and images produced.
-- Total mutual fund shareowner accounts serviced at March 31, 2009
decreased 2.7 million accounts or 2.2% from December 31, 2008 to 117.4
million accounts. The decrease in accounts serviced during first
quarter 2009 is comprised of net shareowner account closures of
approximately 2.1 million (1.8 million registered accounts and 300,000
subaccounts) and conversions of approximately 600,000 registered
accounts to non-DST subaccounting platforms.
-- Consolidated income from operations decreased $10.0 million or 11.8%
to
$74.4 million as compared to first quarter 2008, comprised of
decreases
of $6.6 million in Output Solutions and $3.4 million in Financial
Services. The decrease in Output Solutions is from lower operating
revenues. The decrease in Financial Services income from operations
is
attributable to reduced earnings from mutual fund shareowner
processing,
lower data processing support revenues and lower international
revenues.
-- Equity in earnings of unconsolidated affiliates decreased $3.0 million
or 34.5% to $5.7 million as compared to first quarter 2008
attributable
to lower equity in earnings of BFDS, IFDS and Argus, partially offset
by
improved results in other unconsolidated affiliates.
-- DST's dividend income from State Street Corporation ("State
Street") was approximately $2.5 million lower in first quarter 2009
as compared to first quarter 2008 from a previously announced
reduction
in State Street's quarterly dividend from $0.23 per share in first
quarter 2008 to $0.01 per share in first quarter 2009. The reduction
in
the State Street dividend contributed to an approximate $0.04
reduction
in DST's diluted earnings per share during first quarter 2009 and
increased DST's effective tax rate as dividends received are taxed
at a lower effective income tax rate.

-- Other income (expense), net reflected income of $16.2 million in first
quarter 2009 as compared to expense of $4.4 million in first quarter
2008, an increase of $20.6 million. Taking into account certain
non-GAAP adjustments affecting both first quarter 2009 and 2008
results,
other income reflected income of $1.6 million in first quarter 2009, a
decrease of $4.5 million as compared to first quarter 2008. On this
basis, the decrease in other income as compared to first quarter 2008
is
primarily from lower dividend income.

The components of other income (expense), net are as follows (in millions):

For the Three Months Ended
March 31,
--------------------------
2009 2008
--------- ---------

Adjusted non-GAAP other income, net $1.6 $6.1

Gain on equity interest in Argus Health Systems 41.7

Net losses on securities and other investments (30.8) (10.5)

Gain on extinguishment of senior convertible
debentures 3.7
--------- ---------
Reported GAAP other income (expense), net $16.2 $(4.4)
========= =========

As previously announced, DST purchased the remaining 50% interest of Argus
Health Systems, Inc. ("Argus") for $57.0 million in cash on March 31, 2009.
As a result, Argus will no longer be an unconsolidated affiliate of DST, but
rather will be a wholly-owned subsidiary and DST will no longer record equity
in earnings of Argus, but rather will consolidate Argus' results into the
Company's consolidated financial statements. As required by generally
accepted accounting principles, the Company adopted SFAS No. 141(R) Business
Combinations ("SFAS 141R") on January 1, 2009. In accordance with SFAS 141R,
the acquisition of the remaining 50% of Argus was treated as a step
acquisition. Accordingly, DST remeasured its previously held equity interest
in Argus to fair value and recorded a $41.7 million gain. DST recognized 100%
of the identifiable assets and goodwill resulting from the acquisition of the
remaining 50% Argus interest and the remeasurement of DST's previously held
equity interest. DST estimates that annual amortization expense from acquired
Argus intangible assets (proprietary software, customer relationships and
other assets) will be approximately $4.2 million. DST expects that the
inclusion of Argus on this basis will be dilutive to 2009 earnings per share.

The $30.8 million of net losses on securities and other investments for first
quarter 2009 is comprised of net realized losses from sales of
available-for-sale securities of $800,000, other than temporary impairments on
available-for-sale securities of $25.6 million and net unrealized losses on
private equity fund and other investments of $4.4 million. The unrealized
losses recorded on available-for-sale securities and other investments are
associated with other than temporary declines in securities share prices of
available-for-sale securities and lower of cost or market valuation
adjustments of other investments.

The Company recorded a $3.7 million gain during first quarter 2009 associated
with the repurchase of a portion of the Company's senior convertible
debentures at a discount to carrying value. The Company repurchased
approximately $51.5 million in principal amount of the original $540 million
4.125% Series A senior convertible debentures and approximately $2.0 million
in principal amount of the original $300 million 3.625% Series B senior
convertible debentures.

-- The Company's income tax rate was 14.6% for first quarter 2009 as
compared to 5.0% for first quarter 2008. Taking into account certain
non-GAAP adjustments affecting both first quarter 2009 and 2008
results,
the Company's income tax rate was 41.5% for first quarter 2009 as
compared to 36.2% for first quarter 2008. On this basis, the Company
expects its full year 2009 tax rate to be approximately 39.0%. The
increase in the Company's income tax rate in 2009 is attributable
to valuation allowances recorded against certain international
operating
losses during 2009 and lower dividend income in 2009 which is taxed at
a
lower effective tax rate.

Share-related activity during first quarter 2009 was as follows:

-- During first quarter 2009, the Company repurchased 100,000 shares of
DST
common stock for $2.8 million or approximately $28.00 per share. At
March 31, 2009, there were approximately 2.4 million shares remaining
under the existing share repurchase authorization plan.
-- The Company had approximately 49.7 million shares outstanding at March
31, 2009.
-- Diluted shares outstanding for first quarter 2009 were 49.9 million
shares, a decrease of 15.6 million shares or 23.8% from first quarter
2008, and a decrease of 200,000 shares or 0.4% from fourth quarter
2008.
The decrease from first quarter 2008 is primarily attributable to
shares
repurchased after March 31, 2008, the absence of dilutive effects of
the
convertible debentures in 2009 resulting from the Company's average
share price during first quarter 2009 being less than $49.08 per
share,
and lower dilutive effects of outstanding stock options. Diluted
shares
outstanding at March 31, 2009 include approximately 200,000 shares
from
outstanding stock options. The aggregate dilutive effect of
outstanding
stock options and convertible debentures decreased by approximately
200,000 shares from fourth quarter 2008 and decreased by approximately
6.7 million shares from first quarter 2008, primarily from decreases
in
the Company's average share price and lower outstanding stock
options.

-- Total stock options and restricted stock ("equity units")
outstanding at March 31, 2009 were 8.3 million, of which 5.7 million
were stock options and 2.6 million were restricted stock. Equity
units
decreased 200,000 or 2.4% from December 31, 2008 and decreased 400,000
or 4.6% from March 31, 2008.

Use of Non-GAAP Financial Information

In addition to reporting operating income, pretax income, net income and
earnings per share on a GAAP basis, DST has also made certain non-GAAP
adjustments which are described in the attached schedule titled "Description
of Non-GAAP Adjustments" and are reconciled to the corresponding GAAP measures
in the attached financial schedules titled "Reconciliation of Reported Results
to Income Adjusted for Certain Non-GAAP Items" that accompany this earnings
release. In making these nonGAAP adjustments, the Company takes into account
the impact of items that are not necessarily ongoing in nature, that do not
have a high level of predictability associated with them or that are
nonoperational in nature. Generally, these items include net gains on
dispositions of business units, net gains (losses) associated with securities
and other investments, restructuring and impairment costs and other similar
items. Management believes the exclusion of these items provides a useful
basis for evaluating underlying business unit performance, but should not be
considered in isolation and is not in accordance with, or a substitute for,
evaluating business unit performance utilizing GAAP financial information.
Management uses non-GAAP measures in its budgeting and forecasting processes
and to further analyze its financial trends and "operational run-rate," as
well as making financial comparisons to prior periods presented on a similar
basis. The Company believes that providing such adjusted results allows
investors and other users of DST's financial statements to better understand
DST's recurring comparative operating performance for the periods presented.

DST's management uses each of these non-GAAP financial measures in its own
evaluation of the Company's performance, particularly when comparing
performance to past periods. DST's non-GAAP measures may differ from similar
measures by other companies, even if similar terms are used to identify such
measures. Although DST's management believes non-GAAP measures are useful in
evaluating the performance of its business, DST acknowledges that items
excluded from such measures may have a material impact on the Company's income
from operations, pretax income, net income and earnings per share calculated
in accordance with GAAP. Therefore, management typically uses nonGAAP
measures in conjunction with GAAP results. Investors and users of our
financial information should also consider the above factors when evaluating
DST's results.

Detailed Review of Financial Results

The following discussion of financial results takes into account the non-GAAP
adjustments described in the section entitled "Use of Non-GAAP Financial
Information" and detailed in the attached schedule titled "Description of
Non-GAAP Adjustments."

Segment Results

Financial Services Segment

Operating revenues for the Financial Services segment excluding out-of-pocket
reimbursements ("OOP") for first quarter 2009 decreased $19.1 million or 6.7%
to $267.7 million as compared to first quarter 2008. The decrease in
Financial Services operating revenues is attributable to reductions in
international professional service, software maintenance and license revenues,
lower data processing support revenues and lower mutual fund shareowner
processing service revenues. The effect on international revenues from the
change in foreign currency exchange rates between the U.S. Dollar, the British
Pound and other foreign currencies was an approximate $9.7 million operating
revenue reduction as compared to first quarter 2008. Data processing support
revenues decreased by approximately $2.5 million due to a previously announced
expiration of a contract in June 2008. The net decrease in mutual fund
shareowner processing service revenues resulted from lower levels of
registered accounts serviced and lower TRAC participants processed
(principally from a client internalizing its participant accounting operations
during third quarter 2008), which were partially offset by higher levels of
subaccounts serviced.

The following table summarizes mutual fund shareowner accounts serviced
(in millions):

March 31, December 31, March 31,
2009 2008 2008
--------- ------------ ---------
Registered accounts:
Non tax-advantaged 62.8 65.4 68.1
Tax-advantaged 45.9 45.8 46.9
--------- ------------ ---------
108.7 111.2 115.0

Subaccounts 8.7 8.9 4.9
--------- ------------ ---------
Total 117.4 120.1 119.9
========= ============ =========

Total shareowner accounts serviced at March 31, 2009 were 117.4 million, a
decrease of 2.7 million accounts or 2.2% as compared to December 31, 2008 and
a decrease of 2.5 million accounts or 2.1% as compared to March 31, 2008.

Registered accounts serviced decreased 2.5 million accounts or 2.2% from the
comparable amount at December 31, 2008, comprised of net declines in existing
client accounts of 1.8 million, conversions to DST's subaccounting platform of
100,000 accounts, and conversions to non-DST subaccounting platforms of
600,000 accounts. Tax-advantaged accounts were 45.9 million at March 31,
2009, an increase of 100,000 accounts or 0.2% as compared to December 31,
2008. Tax-advantaged accounts represent 42.2% of total registered accounts
serviced at March 31, 2009 as compared to 40.8% at March 31, 2008. For the
period April 1 through April 15, 2009, total mutual fund shareowner accounts
serviced increased approximately 700,000 accounts of which 500,000 represent
registered mutual fund shareowner accounts converted to TA2000 and 100,000
were tax-advantaged accounts.

Subaccounts serviced were 8.7 million at March 31, 2009, a decrease of 200,000
subaccounts as compared to December 31, 2008. The net decrease of 200,000
subaccounts serviced during the three months ended March 31, 2009 is comprised
of net declines in existing client subaccounts of 300,000, partially offset by
conversions of 100,000 registered accounts from TA2000.

The Company anticipates that 1.7 million new registered accounts will be
converted to TA2000 in 2009 of which 500,000 represent six new client
commitments received in first quarter 2009. As mentioned above, DST converted
approximately 500,000 registered mutual fund shareowner accounts to TA2000 in
early April 2009. The Company also expects 700,000 registered accounts to
convert to non-DST platforms in second quarter 2009. DST's subaccounting
clients have indicated they plan to convert 1.4 million new subaccounts to
TA2000 Subaccounting from non-DST platforms during 2009. In addition, the
Company expects 3.4 million registered accounts will convert to subaccounting
platforms throughout the remainder of 2009 of which 900,000 will convert to
TA2000 Subaccounting.

In summary, based on accounts serviced at March 31, 2009 and the conversion
activity previously described (and without taking into account any other
changes in accounts serviced during 2009), total accounts serviced at December
31, 2009 are estimated to be 117.3 million, which are comprised of 106.3
million registered accounts and 11.0 million subaccounts. The actual number
of accounts estimated to convert to and from various DST systems, as well as
the timing of those events, is dependent upon a number of factors. Actual
results could differ from the Company's estimates.

Defined contribution ("DC") participants represent the number of active
participants processed on DST's TA2000/TRAC platform. DC participants were 3.8
million at March 31, 2009, an increase of 100,000 or 2.7% from December 31,
2008 and a decrease of 1.1 million or 22.4% from March 31, 2008. As previously
announced and mentioned above, an existing TRAC client internalized its
participant accounting during third quarter 2008 resulting in the loss of
approximately 1.0 million participants. During first quarter 2009, DST
received one new client commitment totaling approximately 1.2 million TRAC
participants, based on current levels. These new participants are expected to
convert in 2010 and 2011.

Financial Services segment software license fee revenues are derived
principally from DST International (investment management systems), DST Health
Solutions (medical claims processing systems) and AWD (workflow management and
CRM solutions). Operating revenues include approximately $10.7 million of
software license fee revenues for first quarter 2009, a decrease of $400,000
or 3.6% over the same period in 2008. The decrease is primarily due to lower
investment management license fee revenues, partially offset by higher AWD
software license fees. While license fee revenues are not a significant
percentage of DST's total operations, they can significantly impact earnings
in the period in which they are recognized. Revenues and operating results
from individual license sales depend heavily on the timing, size and nature of
the contract.

Financial Services segment income from operations for first quarter 2009
totaled $66.0 million as compared to $69.4 million in first quarter 2008, a
decrease of $3.4 million or 4.9%. The decrease in Financial Services income
from operations is attributable to reduced earnings from mutual fund
shareowner processing and lower data processing support revenues. Costs and
expenses for first quarter 2009 were $201.3 million, a decrease of $14.0
million or 6.5% from the same period in 2008. Excluding reimbursable
operating costs of $17.1 million in first quarter 2009 and $17.8 million in
first quarter 2008, costs and expenses decreased $13.3 million or 6.7% to
$184.2 million. Reductions were attributable to the foreign currency exchange
effects between the U.S. Dollar and other currencies, lower compensation
related costs at both international operations and DST Health Solutions due to
lower headcount and lower travel related costs, which were partially offset by
higher costs associated with the inclusion of BlueDoor Technologies Pty Ltd.
("BlueDoor," acquired on November 14, 2008). Depreciation and amortization
costs decreased $2.4 million in first quarter 2009 compared to the same period
in 2008 attributable to certain assets becoming fully depreciated in 2009,
which is partially offset by increased amortization expense from the
acquisition of BlueDoor. Operating margin for first quarter 2009 was 24.7% as
compared to 24.2% for first quarter 2008.

Output Solutions Segment

Output Solutions segment operating revenues (excluding OOP reimbursements) for
first quarter 2009 were $127.0 million, a decrease of $15.7 million or 11.0%
as compared to first quarter 2008, principally from lower items mailed and
images produced in the U.S. and foreign currency exchange effects of
approximately $5.0 million between the U.S. Dollar and both the British Pound
and Canadian Dollar. Out-of-pocket reimbursements increased $9.0 million or
6.5% in first quarter 2009 to $148.2 million attributable to an increase in
postage costs procured on behalf of clients from expanded postal processing
offerings.

Items mailed during first quarter 2009 were 581.5 million, a decrease of 6.0%
as compared to the same period in 2008. The decrease in items mailed is due
to lower volumes from existing customers and from a special privacy notice
completed in 2008 that did not recur in 2009. Images produced during first
quarter 2009 were 3.2 billion, a decrease of 15.8% as compared to first
quarter 2008. The decrease in images is due to certain telecommunications
clients reducing the amount of transaction information included on invoices
thereby lowering total images produced and lower volumes from other clients
and the absence of the privacy mailing previously mentioned.

Output Solutions segment income from operations for first quarter 2009 totaled
$7.2 million, a decrease of $6.6 million or 47.8% as compared to first quarter
2008. Costs and expenses for first quarter 2009 were $259.1 million, an
increase of $200,000 or 0.1% from the same period in 2008. Excluding
reimbursable operating costs of $148.2 million in first quarter 2009 and
$139.2 million in first quarter 2008, costs and expenses decreased $8.8
million or 7.4% to $110.9 million. Lower material costs from lower processing
volumes, lower compensation related costs and lower equipment costs from the
implementation of owned digital print technologies all contributed to the
decrease. Depreciation and amortization decreased $300,000 as compared to
first quarter 2008 attributable to lower depreciation from the Company's use
of accelerated depreciation methods, partially offset by increased
depreciation from equipment to support expanded postal processing offerings.
Operating margin for first quarter 2009 was 5.7% compared to 9.7% for first
quarter 2008.

Investments and Other Segment

Investments and Other segment operating revenues, primarily rental income,
were $15.2 million for first quarter 2009, an increase of $200,000 from first
quarter 2008 primarily due to higher rental activities. Income from
operations for first quarter 2009 was $3.1 million, an increase of $200,000
from first quarter 2008 attributable to higher revenues.

Other Financial Results

Equity in earnings (losses) of unconsolidated affiliates

The following table summarizes the Company's equity in earnings (losses) of
unconsolidated affiliates (in millions):

Three Months Ended
March 31,
------------------
2009 2008
------ ------
BFDS $3.7 $5.9
IFDS 2.4 3.5
Argus (1.5) 0.3
Other 1.1 (1.0)
------ ------
$5.7 $8.7
====== ======

Certain of the Company's joint ventures derive investment earnings related to
cash balances maintained on behalf of customers. Average daily balances
invested by the joint ventures were $1.1 billion during first quarter 2009
compared to $1.5 billion during first quarter 2008. Average interest rates
earned on the balances declined from 3.35% in first quarter 2008 to 0.45% in
first quarter 2009. The aggregate effect of these fluctuations resulted in an
approximate $11.2 million decline in interest earnings by the joint ventures,
which resulted in a decrease in DST's equity in earnings of unconsolidated
affiliates of $3.4 million.

DST's equity in BFDS earnings for first quarter 2009 decreased $2.2 million as
compared to first quarter 2008 primarily from lower investment earnings
resulting principally from lower interest rates on cash balances maintained by
BFDS on behalf of customers, and from lower operating revenues resulting from
lower shareowner accounts processed. These earnings decreases were partially
offset by lower operating costs. Compensation and benefit related costs were
lower during first quarter 2009 as compared to 2008 resulting from reductions
in staffing levels during 2008.

DST's equity in IFDS earnings for first quarter 2009 decreased $1.1 million as
compared to first quarter 2008. The decrease in equity in earnings is
attributable to the foreign currency exchange effects between the U.S. dollar
and both the British Pound and Canadian Dollar and higher operating costs to
support new clients, partially offset by higher revenues from new clients.
Shareowner accounts serviced by IFDS U.K. were 6.0 million at March 31, 2009,
an increase of 100,000 from December 31, 2008 and an increase of 200,000 from
March 31, 2008. Shareowner accounts serviced by IFDS Canada were 10.6 million
at March 31, 2009, unchanged from December 31, 2008 and a decrease of 300,000
accounts from March 31, 2008.

DST's equity in Argus losses for first quarter 2009 was $1.5 million as
compared to income of $300,000 first quarter 2008. Lower earnings at Argus
were attributable to lower investment earnings as a result of lower interest
rates on cash balances maintained by Argus on behalf of customers and from
lower revenues from lower pharmacy claims processed, specifically Medicare
Part D claims. As mentioned earlier, DST acquired the remaining 50% equity
interest in Argus on March 31, 2009 and will not record equity in earnings of
Argus after the quarter ended March 31, 2009, but rather will consolidate
Argus' results into DST's consolidated financial statements.

DST's equity in earnings of other unconsolidated affiliates was $1.1 million,
an increase of $2.1 million primarily from improved results at certain other
unconsolidated affiliates and, to a lesser extent, improved results at
real-estate joint ventures.

Other income (expense), net

Other income, net was $1.6 million in first quarter 2009, a decrease of $4.5
million as compared to $6.1 million in first quarter 2008. The decrease in
other income as compared to first quarter 2008 is primarily from lower
dividend income. As previously mentioned, State Street Corporation reduced
its quarterly dividend in 2009 to $0.01 per share as compared to $0.23 per
share in first quarter 2008, which resulted in $2.5 million of lower dividend
income from State Street Corporation. In addition, lower dividends of
approximately $2.0 million were received in first quarter 2009 from
Computershare Ltd. and other available-for-sale securities as compared to
first quarter 2008.

Interest expense
Interest expense was $10.6 million for first quarter 2009, a decrease of $2.1
million from first quarter 2008, primarily from lower average interest rates,
but partially offset by higher average debt balances during 2009.

Income taxes

The Company's tax rate was 41.5% for first quarter 2009 as compared to 36.2%
for first quarter 2008. The first quarter 2009 tax rate was negatively
impacted from valuation allowances against international deferred tax assets
and from lower dividend income, which is taxed at favorable rates. The
Company expects its tax rate to be approximately 39.0% for the full year 2009.
The 2009 expected tax rate assumes continued valuation allowances on certain
international deferred tax assets and lower dividend income.

Accounting Standards

Earnings Per Share - Participating Securities

DST adopted FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities" ("FSP EITF
03-6-1") on January 1, 2009. Under FSP EITF 03-6-1, certain share-based
payment awards that allow holders to receive dividends before they vest should
be treated as participating securities. Although unvested share-based payment
awards with nonforfeitable rights to dividends have typically been included in
the calculation of diluted EPS using the treasury stock method, these awards
are now included in the calculation of basic EPS using the two-class method.
Because DST's existing restricted stock awards allow holders the right to
receive cash dividends, if any, DST is required to treat these awards as
participating securities. Upon adoption of FSP EITF 03-6-1 in first quarter
2009, DST applied this standard retrospectively to all periods prior to 2009.
The adoption of FSP EITF 03-6-1 resulted in increases in previously reported
average common and diluted shares outstanding. The increase in average common
and diluted shares outstanding reduced previously reported basic and diluted
earnings per share in those prior periods. A comparison of diluted earnings
per share as previously reported and as retrospectively restated is presented
in the table below:

2008
------------------------------
As As
previously retrospectively
reported restated
---------- ---------------
First quarter $1.12 $1.10
Second quarter 0.86 0.85
Third quarter 0.91 0.90
Fourth quarter 1.43 1.41
Full year 4.28 4.21

Earnings Per Share Proposed Accounting Standard

In August 2008, the FASB issued a revised exposure draft on a proposed
accounting standard that would amend SFAS 128, Earnings per Share, to clarify
guidance for mandatorily convertible instruments, the treasury stock method,
contingently issuable shares, and contracts that may be settled in cash or
shares. The final statement has yet to be issued. DST is currently evaluating
the impact of this proposed accounting standard and currently believes that
this proposed amendment would impact the way the Company treats the
incremental shares to be issued from the assumed conversion of the convertible
debentures issued in August 2003 in calculating diluted earnings per share.
The proposed amendment would require the use of the "if-converted" method from
the date of issuance of the convertible debentures. The proposed amendment
would remove the ability of a company to support the presumption that the
convertible securities will be satisfied in cash and not converted into shares
of common stock. Under this "if converted" method, GAAP diluted earnings per
share would have been $1.21 and $1.00 (versus GAAP reported earnings of $1.47
and $1.10 for the three months ended March 31, 2009 and 2008, respectively.
The above information presents only the effect on diluted earnings per share
of the "if converted" method included in the exposure draft, but does not
include any other computational changes (e.g., treasury stock method
considerations) discussed in the exposure draft. DST is continuing to monitor
the FASB's progress towards finalizing this proposed accounting standard.

The proposed change in accounting principles would affect the calculation of
diluted earnings per share during the period the debentures are outstanding,
but would not affect DST's ability to ultimately settle the convertible
debentures in cash, shares or any combination thereof.

The information and comments in this press release 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 actions or results could
differ. There could be a number of factors, risks, uncertainties or
contingencies that could affect future actions or results, including but not
limited to those set forth in DST's periodic reports (Form 10-K or 10-Q) filed
from time to time with the Securities and Exchange Commission. All such
factors should be considered in evaluating any forward-looking statements. The
Company will not update any forward-looking statements in this press release
to reflect future events.

DST SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
(Unaudited)

For the Three Months
Ended March 31,
--------------------
2009 2008
------- -------
Operating revenues $395.6 $430.8
Out-of-pocket reimbursements 165.3 157.0
------- -------
Total revenues 560.9 587.8

Costs and expenses 458.2 472.8
Depreciation and amortization 28.3 30.6
------- -------
Income from operations 74.4 84.4

Interest expense (10.6) (12.7)
Other income (expense), net 16.2 (4.4)
Equity in earnings of unconsolidated
affiliates 5.7 8.7
------- -------
Income before income taxes 85.7 76.0
Income taxes 12.5 3.8
------- -------
Net income $73.2 $72.2
======= =======
Average common shares outstanding 49.7 58.6
Average diluted shares outstanding 49.9 65.5

Basic earnings per share $1.47 $1.23
Diluted earnings per share $1.47 $1.10

DST SYSTEMS, INC.
STATEMENT OF REVENUES BY SEGMENT
(In millions)
(Unaudited)

Three Months Ended
March 31,
------------------
2009 2008
------ ------
Revenues
Financial Services
Operating $267.7 $286.8
OOP reimbursements 17.1 17.8
------ ------
$284.8 $304.6
====== ======

Output Solutions
Operating $127.0 $142.7
OOP reimbursements 148.2 139.2
------ ------
$275.2 $281.9
====== ======

Investments and Other
Operating $15.2 $15.0
OOP reimbursements 0.1 0.1
------ ------
$15.3 $15.1
====== ======

Eliminations
Operating $(14.3) $(13.7)
OOP reimbursements (0.1) (0.1)
------ ------
$(14.4) $(13.8)
====== ======

Total Revenues
Operating $395.6 $430.8
OOP reimbursements 165.3 157.0
------ ------
$560.9 $587.8
====== ======

DST SYSTEMS, INC.
STATEMENT OF INCOME FROM OPERATIONS BY SEGMENT
(In millions)
(Unaudited)

Three Months Ended
March 31,
------------------
2009 2008
------ ------
Income from operations
Financial Services $66.0 $69.4
Output Solutions 7.2 13.8
Investments and Other 3.1 2.9
Elimination Adjustments (1.9) (1.7)
------ ------
$74.4 $84.4
====== ======

DST SYSTEMS, INC.
OTHER SELECTED FINANCIAL INFORMATION
(In millions)
(Unaudited)

March 31, December 31,
Selected Balance Sheet Information 2009 2008
--------- ------------
Cash and cash equivalents $49 $79
Debt 1,411 1,435

Three Months Ended
March 31,
------------------------------
Capital Expenditures, by Segment 2009 2008
--------- ------------
Financial Services $8 $13
Output Solutions 13 2
Investments and Other 1 2

DST Systems, Inc.
Description of Non-GAAP Adjustments

In addition to reporting operating income, pretax income, net income and
earnings per share on a GAAP basis, DST has also made certain non-GAAP
adjustments that are described below and are reconciled to the corresponding
GAAP measures in the attached financial schedules titled "Reconciliation of
Reported Results to Income Adjusted for Certain Non-GAAP Items" that accompany
this earnings release. DST's use of non-GAAP adjustments is further described
in the section entitled "Use of NonGAAP Financial Information."

The following items, which occurred during the quarter ended March 31, 2009,
have been treated as non-GAAP adjustments:

-- Gain on equity interest in Argus, in the amount of $41.7 million,
included in other income, net associated with DST's purchase of the
remaining 50% interest of Argus on March 31, 2009 for $57.0 million in
cash. As required by generally accepted accounting principles, the
Company adopted SFAS No. 141(R) Business Combinations ("SFAS
141R") on January 1, 2009. In accordance with SFAS 141R, the
acquisition of the remaining 50% of Argus will be treated as a step
acquisition. Accordingly, DST remeasured its previously held equity
interest in Argus to fair value and recorded a $41.7 million gain. In
addition, the Company recorded an income tax benefit associated with
this transaction of approximately $900,000 related to the elimination
of
deferred tax liabilities previously established for equity in earnings
of Argus. In accordance with SFAS No. 109, "Accounting for Income
Taxes," ("SFAS 109"), no income taxes were recorded on
the $41.7 million gain on equity interest in Argus.
-- Other net losses, in the amount of $30.8 million, associated with
realized and unrealized gains (losses) related to securities and other
investments, which are included in other income (expense), net. The
income tax benefit associated with these losses was approximately
$11.8
million. The $30.8 million of net losses on securities and other
investments for first quarter 2009 is comprised of net realized losses
from sales of available-for-sale securities of $800,000, other than
temporary impairments on available-for-sale securities of $25.6
million
and net unrealized losses on private equity funds and other
investments
of $4.4 million.
-- Gains in the amount of $3.7 million, associated with the repurchase
and
extinguishment of senior convertible debentures. The income tax
expense
associate with these gains was approximately $1.4 million.

-- An income tax benefit of approximately $5.7 million resulting from a
reduction in income tax related liabilities principally associated
with
the completion of an IRS examination in February 2009 for the tax
years
ended December 31, 2002 through 2005.

The following items, which occurred during the quarter ended March 31, 2008,
have been treated as non-GAAP adjustments:

-- Other net losses, in the amount of $10.5 million, associated with
realized and unrealized gains (losses) related to securities and other
investments, which are included in other income (expense), net. The
income tax benefit associated with these losses was approximately $4.0
million. The $10.5 million of net losses on securities and other
investments for first quarter 2008 is comprised of net realized losses
from sales of available-for-sale securities of $300,000 and other than
temporary impairments on available-for-sale securities of $10.2
million.

-- An income tax benefit of approximately $23.6 million resulting from a
reduction in the Company's liabilities for FIN 48, "Accounting
for Uncertainty in Income Taxes--an interpretation of FASB No. 109"
("FIN 48"). The decrease in income tax related liabilities is
principally related to the resolution of an IRS examination matter
that
was resolved in DST's favor.

DST SYSTEMS, INC.
RECONCILIATION OF REPORTED RESULTS TO INCOME ADJUSTED
FOR CERTAIN NON-GAAP ITEMS
For the Three Months Ended March 31,
(Unaudited - in millions, except per share amounts)

2009
------------------------------------
Operating Pretax Net Diluted
Income Income Income EPS
--------- ------- ------- -------
Reported GAAP income $74.4 $85.7 $73.2 $1.47

Adjusted to remove:

Included in non-operating income:

Gain on equity interest
in Argus Health Systems (41.7) (42.6) (0.85)
Net losses on securities and
other investments 30.8 19.0 0.38
Gain on extinguishment
of senior convertible
debentures (3.7) (2.3) (0.05)
Reduction in income tax related
liabilities (5.7) (0.12)
--------- ------- ------- -------
Adjusted Non-GAAP income $74.4 $71.1 $41.6 $0.83
========= ======= ======= =======

2008
------------------------------------
Operating Pretax Net Diluted
Income Income Income EPS
--------- ------- ------- -------

Reported GAAP income $84.4 $76.0 $72.2 $1.10

Adjusted to remove:

Included in non-operating income:

Net losses on securities and
other investments 10.5 6.6 0.10
Reduction in income tax related
liabilities (23.6) (0.36)
--------- ------- ------- -------
Adjusted Non-GAAP income $84.4 $86.5 $55.2 $0.84
========= ======= ======= =======

Note: See the Description of Non-GAAP Adjustments section for a
description of each of the above adjustments and see the Use of Non-GAAP
Financial Information section for management's reasons for providing
non-GAAP financial information.

SOURCE DST Systems, Inc.

Thomas A. McDonnell, President and Chief Executive Officer, +1-816-435-8684,
or Kenneth V. Hager, Vice President and Chief Financial Officer,
+1-816-435-8603, both of DST Systems, Inc.