(Source: PRNewswire-FirstCall)KANSAS CITY, Mo., April 29 /PRNewswire-FirstCall/ -- Consolidated net income for DST Systems, Inc. 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.