UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-14036
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
DST Systems, Inc. 401(k) Profit Sharing Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
DST Systems, Inc.
333 West 11th Street
Kansas City, Missouri 64105
REQUIRED INFORMATION
1. Report of PricewaterhouseCoopers LLP
2. Audited Statements of Net Assets Available for Benefits as of
December 31, 2003 and 2002
3. Audited Statements of Changes in Net Assets Available for
Benefits for the Years Ended December 31, 2003 and 2002
4. Notes to Financial Statements
5. Schedule of Assets Held at End of Year
6. Signature Page
7. Consent of PricewaterhouseCoopers LLP (Exhibit 23.1)
DST Systems, Inc. 401(k) Profit Sharing Plan
Financial Statements and Additional Information
December 31, 2003 and 2002
DST Systems, Inc. 401(k) Profit Sharing Plan
Index to Financial Statements and Additional Information
-------------------------------------------------------------
Page
Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-9
Additional information* Schedule
Schedule H, line 4i - Schedule of Assets (Held At End of Year) I
* Other schedules required by Section 2520.103-10 of the
Department of Labor Rules and Regulations for Reporting and Disclosure under
ERISA have been omitted because they are not applicable.
Report of Independent Registered Public Accounting Firm
To the Participants and the Advisory Committee of the
DST Systems, Inc. 401(k) Profit Sharing Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the DST Systems, Inc. 401(k) Profit Sharing Plan (the "Plan") at December 31,
2003 and 2002, and the changes in net assets available for benefits for the year
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets (Held
At End of Year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. This
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
June 25, 2004
DST Systems, Inc. 401(k) Profit Sharing Plan
Statements of Net Assets Available for Benefits
-------------------------------------------------------------
December 31,
-------------------------------------------
2003 2002
------------------- -------------------
Cash and cash equivalents $ 66,039 $ 1,261,249
Investments:
Mutual funds 201,643,169 87,317,078
DST Common Stock 25,281,379 7,729,215
Investment in Master Trust 282,084,683 213,467,393
Loans to participants 5,713,094 2,267,750
------------------- -------------------
Total investments 514,722,325 310,781,436
Employer contributions receivable 21,457,459 20,577,465
------------------- -------------------
Net assets available for benefits $ 536,245,823 $ 332,620,150
=================== ===================
The accompanying notes are an integral part of these financial
statements.
2
DST Systems, Inc. 401(k) Profit Sharing Plan
Statements of Changes in Net Assets Available for Benefits
-------------------------------------------------------------
Year Ended December 31,
------------------------------------------------
2003 2002
--------------------- ---------------------
Investment income:
Dividends, interest and other distributions $ 1,620,007 $ 1,211,238
Net appreciation (depreciation) in fair value of
investments 28,142,419 (20,471,119)
Net appreciation (depreciation) in fair value of
investment in Master Trust 57,020,861 (1,472,323)
--------------------- ---------------------
86,783,287 (20,732,204)
--------------------- ---------------------
Contributions:
Employer 33,277,635 33,069,938
Participants 29,223,552 30,826,358
--------------------- ---------------------
62,501,187 63,896,296
--------------------- ---------------------
149,284,474 43,164,092
Transfer from DST Systems of California, Inc. 401(k)
Retirement Plan 72,448,666
Benefits paid to participants (18,040,015) (16,823,335)
Administrative expenses (67,452) (53,130)
--------------------- ---------------------
54,341,199 (16,876,465)
Net change in net assets available for benefits 203,625,673 26,287,627
Net assets available for benefits:
Beginning of year 332,620,150 306,332,523
--------------------- ---------------------
End of year $ 536,245,823 $ 332,620,150
===================== =====================
The accompanying notes are an integral part of these financial
statements.
3
DST Systems, Inc. 401(k) Profit Sharing Plan
Notes to Financial Statements
-------------------------------------------------------------
1. Description of the Plan
The DST Systems, Inc. 401(k) Profit Sharing Plan (the "Plan") is a contributory,
defined contribution plan subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA). The following brief description of the Plan
is provided for general information purposes only. Participants should refer to
the Plan agreement for more complete information.
Effective December 31, 2003, the DST Systems of California, Inc. 401(k)
Retirement Plan was merged into the DST Systems, Inc. 401(k) Profit Sharing
Plan.
Sponsor
The Plan Sponsor is DST Systems, Inc. ("DST" or the "Sponsor"). Certain of its
subsidiaries and affiliates participate in the Plan.
Trustee and Investment Manager
As of December 31, 2003, the trustee of the Plan was UMB Bank, n.a. (the
"Trustee"). Subsequently, the assets have been transferred to Marshall & Ilsley
Trust Company N.A., the current trustee of the plan. The Trustee holds and
administers all assets of the Plan in accordance with the provisions of the Plan
agreement.
The investment manager of the DST Systems, Inc. Master Trust ("Master Trust")
is Ruane, Cunniff & Co., Inc. (the "Investment Manager").
Administration of the Plan
An advisory committee (the "Advisory Committee"), which consists of members who
are selected by the Board of Directors of DST, has full power, authority and
responsibility to control and manage the operations and administration of the
Plan. All expenses of operating the Plan may be paid out of Plan assets, except
to the extent the Sponsor decides to pay these expenses. For the years ended
December 31, 2003 and 2002, the Sponsor paid Plan expenses of $446,663 and
$372,335, respectively.
Eligibility
All employees of the Sponsor who are not members of a collective bargaining unit
or nonresident aliens are eligible to participate in the Plan on the Plan entry
date. The Plan entry date is the first day of the calendar month following the
date an employee, other than seasonal or temporary, completes one hour of
service. Seasonal and temporary employees must complete 1,000 hours of service,
as defined in the Plan agreement, prior to entering the Plan.
Contributions
Contributions are made through participant salary reductions and rollovers from
other qualified plans. Participants can contribute from 1% to 25% of their
annual gross salary to the Plan (subject to Internal Revenue Service
limitations). Beginning in 2002, participants aged 50 or older who have met the
annual contribution maximum as set by law may make additional contributions or
"catch-up" contributions (subject to Internal Revenue Service limitations).
Sponsor 401(k) contributions consist of a dollar-for-dollar match of the first
3% of participant contributions ("highly compensated employees" are subject to
Internal Revenue Service limitations).
In addition, the Sponsor may make discretionary profit sharing contributions.
Generally, an employee must complete 1,000 hours of service during the Plan year
and be employed on December 31 to be eligible.
4
Participant accounts
Each participant's account is credited with the participant's contributions,
matching contributions, profit sharing contributions, rollover contributions,
forfeitures of terminated participants' non-vested accounts and an allocation of
Plan earnings or losses. Allocations of earnings or losses are based on account
balances. Discretionary contributions and forfeitures are allocated to
participant accounts based on the proportion which the participant's eligible
compensation bears to the aggregate eligible compensation of all participants
for the year. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's account.
Vesting
Participants are always 100% vested in their own contributions, rollover
contributions and catch-up contributions (as adjusted to reflect investment
earnings and losses).
Generally, participants originally employed by the Sponsor prior to January 1,
2000, will become vested in Sponsor matching contributions and Sponsor profit
sharing contributions (as adjusted to reflect investment earnings and losses) in
accordance with the following schedule:
Years of Service Percentage Vested
----------------- -----------------
less than 1 0%
1 but less than 2 10%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
Participants not within the above categories will be vested in Sponsor matching
contributions and Sponsor profit sharing contributions (as adjusted to reflect
investment earnings and losses) according to the following schedule:
Years of Service Percentage Vested
----------------- -----------------
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
Investment options
Participants may direct their contributions into DST Common Stock ($0.01 par
value) or any number of the mutual fund investment options as selected by the
Advisory Committee. The investment options contain different degrees of risks.
Participants should refer to the respective fund prospectus for a more complete
description of the investment objectives of each fund. The Advisory Committee
reserves the right to change the available investment options from time to time.
Participants may change their investment options daily.
5
Forfeitures
Forfeitures of unvested accounts are first used for the restoration of
reemployed participants' forfeited amounts and then added to the profit sharing
contribution.
All profit sharing contributions are invested by the Trustee as advised by the
Investment Manager.
Plan participants
The following summarizes the number of participants by investment option as of
December 31, 2003:
American Century Value 1,584
American Century Growth 1,792
American Century Select 1,328
American Century Ultra 2,204
American Century International 1,083
DST Systems, Inc. Common Stock 3,588
Davis NY Venture 1,247
Fidelity Advisor Growth 1,190
Janus Investment 2,759
Janus Investment Enterprise 2,178
Janus Investment Mercury 3,147
Janus Investment Overseas 2,110
Lord Abbett Affiliated Class A 689
Lord Abbett Bond Debenture 484
Managers Fund Special Equity 1,360
Money Market Obligs Prime Value 1,042
PIMCO Total Return 2,049
T. Rowe Price Mid-cap Growth 2,771
Royce Total Return 1,996
Standish Ayer & Wood Fixed Income 1,180
Vanguard Bond Index 3,529
Vanguard Index 500 4,508
Vanguard Value 1,277
Distribution of benefits
Benefit distributions generally will be made in the event of retirement, death,
disability, resignation or dismissal. A participant's normal retirement age is
59 1/2.
Balances not exceeding $5,000 will be automatically distributed as a lump sum as
soon as administratively practicable following termination of employment.
Balances exceeding $5,000 (excluding rollover contributions and related earnings
or losses) will be distributed upon participant election as soon as
administratively practicable but no later than April 1 of the Plan year
following the Plan year in which age 70 1/2 is attained. Such distributions may
be elected as a lump sum or paid in monthly, quarterly or annual installments.
Distributions shall be made in cash or, at the option of the Participant, in
cash plus the number of whole shares of DST Common Stock allocated to the
Participant's account.
6
Unless the participant otherwise elects, distributions begin no later than the
60th day after the close of the Plan year in which a participant reaches normal
retirement age or celebrates their 10th anniversary as a Plan member (whichever
is later). Participants under the age of 62 with balances exceeding $5,000
(excluding rollover contributions and related earnings or losses) must consent
to any distribution.
Upon death, all sums credited to the participant's account will be paid to the
beneficiary or beneficiaries designated by the participant.
Distributions may also be made in the event of financial hardship of the
participant. Certain restrictions apply.
Participant loans
Participants may borrow the lesser of $50,000 or 50% of their vested
participant-directed accounts (subject to certain Plan and Internal Revenue
Service limitations). Generally, loans must be repaid within five years. Loans
bear a fixed rate of interest, which is set at loan origination using the Prime
rate as published in the Wall Street Journal plus 1%.
Plan termination
The Sponsor believes the Plan will continue without interruption; however, it
reserves the right to terminate the Plan at any time subject to the provisions
of ERISA. In the event of Plan termination, participants will become fully
vested in any unvested balances from Sponsor contributions and their respective
account balances will be distributed in accordance with the Plan.
2. Significant Accounting Policies
Basis of accounting
The accompanying financial statements are presented on the accrual basis of
accounting.
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and changes in net assets available for plan benefits. Actual
results could differ from those estimates.
Cash and cash equivalents
Short-term liquid investments with a maturity of three months or less are
considered cash equivalents. Due to the short-term nature of these investments,
carrying value approximates market value.
Investment valuation and security transactions
Investments are recorded at fair value. Unrealized gains and losses are
recognized in the year in which they occur. Investments in mutual funds and DST
Common Stock are valued at net asset value representing the value at which
shares of the fund may be purchased or redeemed. The investments of the Master
Trust are recorded at fair value as determined by quoted prices in active
markets. Investment income of the Master Trust is allocated quarterly to
participating plans based upon the fair value of participating plan interests
in the Master Trust at the end of each quarter. Net assets of the Master Trust
are allocated to participating plans based upon the value of the participating
plan interests in the Master Trust at the beginning of the quarter plus actual
contributions to the Master Trust and allocated
7
investment income less actual distributions from the Master Trust. Loans are
valued at the current amount due from participants.
Contributions
Contributions are recognized in the year to which they relate.
Accounting for obligations for benefit payments
he Plan does not record a liability relating to the obligations for benefit
payments. The following is a reconciliation of net assets available for benefits
per the financial statements at December 31, 2003 and 2002 to Form 5500:
2003 2002
-------------------- ----------------------
Net assets available for benefits per the financial statements
$ 536,245,823 $ 332,620,150
Amounts allocated to withdrawing participants (2,691,202)
-------------------- ----------------------
Net Assets available for benefits per the Form 5500 $ 536,245,823 $ 329,928,948
==================== ======================
The following is a reconciliation of benefits paid to participants per the
financial statements for the year ended December 31, 2003, to Form 5500:
2003
----------------------
Benefits paid to participants per the financial statements $ 18,040,015
Add: Amounts allocated to withdrawing participants at December 31, 2003
Less: Amounts allocated to withdrawing participants at December 31, 2002 (2,691,202)
----------------------
Benefits paid to participants per Form 5500 $ 15,348,813
======================
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31, 2003, but not yet paid as of that date.
Income tax status of the Plan
The Internal Revenue Service has determined and informed the Sponsor by a letter
dated August 12, 2002, that the Plan is designed in accordance with applicable
sections of the Internal Revenue Code (the "IRC"). The Plan has been amended
since receiving the determination. The Advisory Committee and the Plan's tax
counsel believe that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the IRC. Therefore, no provision
for income taxes has been included in the Plan's financial statements.
8
3. Plan Investments
The following investments represent 5% or more of net assets available for
benefits at year-end:
December 31, December 31,
2003 2002
----------------------- ----------------------
Investment in Master Trust $ 282,084,683 $ 213,467,393
The Investment in Master Trust is nonparticipant-directed.
During 2003 and 2002, the Plan's participant-directed investments (including
gains and losses on investments bought and sold, as well as held during the
year) appreciated (depreciated) in value as follows:
Year Ended December 31,
-------------------------------------------------
2003 2002
----------------------- ----------------------
Mutual funds $ 26,208,105 $ (18,196,796)
DST Common Stock 1,934,314 (2,274,323)
----------------------- ----------------------
$ 28,142,419 $ (20,471,119)
======================= ======================
9
4. Master Trust
The Plan's percentage ownership in the Master Trust is 79.0% and 75.9% at
December 31, 2003 and 2002, respectively. The following Master Trust disclosures
represent 100% of the balances in the Master Trust.
The Master Trust's assets by general type at year-end is as follows:
December 31, December 31,
2003 2002
------------------------ ----------------------
Cash and cash equivalents $ $ 39,803
Mutual funds 870,009 2,995,362
Common stocks 348,566,340 272,490,574
Corporate debt 7,747,025 5,823,997
Government securities 2,977 4,302
------------------------ ----------------------
$ 357,186,351 $ 281,354,038
======================== ======================
The Master Trust's total investment income (loss) by type for the years ended
December 31, 2003 and 2002 is as follows:
Year Ended December 31,
--------------------------------------------------
2003 2002
------------------------ ----------------------
Interest $ 341,918 $ 990,853
Dividends 1,285,360 1,228,842
Net appreciation (depreciation) 70,944,800 (4,128,810)
------------------------ ----------------------
$ 72,572,078 $ (1,909,115)
======================== ======================
The Master Trust's net appreciation (depreciation) of investments by type for
the years ended December 31, 2003 and 2002 is as follows:
Year Ended December 31,
--------------------------------------------------
2003 2002
------------------------ ----------------------
Mutual funds $ 35,046 $ 33
Common stocks 68,853,739 (3,900,931)
Corporate debt 2,056,105 (130,240)
Government securities (90) (97,672)
------------------------ ----------------------
$ 70,944,800 $ (4,128,810)
======================== ======================
10
Schedule I
DST Systems, Inc. 401(k) Profit Sharing Plan
EIN 43-1581814 / PIN 004
Schedule H, line 4i -- Schedule of Assets (Held At End of Year)
December 31, 2003
(a) (b) Identity (c) Description (d) Cost (e) Current Value
------------ ----------------------------- ------------------------------- -------------------------- -------------------------
American Century Value (1) $ 4,903,685
American Century Growth (1) 5,951,237
American Century Select (1) 3,962,017
American Century Ultra (1) 9,460,297
American Century International (1) 2,198,410
* DST Systems, Inc. Common Stock (1) 11,421,611
Davis NY Venture (1) 4,201,525
Fidelity Advisor Growth (1) 2,994,983
Janus Investment Investment (1) 10,922,208
Janus Investment Enterprise (1) 8,565,211
Janus Investment Mercury (1) 16,420,287
Janus Investment Overseas (1) 7,768,924
Lord Abbett Affiliated Class A (1) 1,642,056
Lord Abbett Bond Debenture (1) 793,621
Managers Fund Special Equity (1) 4,214,968
Money Market Obligs Prime Value (1) 4,785,941
PIMCO Total Return (1) 5,991,391
T. Rowe Price Mid-cap Growth (1) 9,929,582
Royce Total Return (1) 7,290,250
Standish Ayer & Wood Fixed Income (1) 2,910,763
Vanguard Bond Index (1) 9,073,720
Vanguard Index 500 (1) 17,901,233
Vanguard Value (1) 3,674,370
* Participant Loans Interest rate - Prime + 1% 0 3,273,274
* Indicates a party-in-interest
(1) In accordance with instructions to the Form 5500, the Plan is not required
to disclose the cost component of participant-directed investments
Schedule I
DST Systems of California, Inc. 401(k) Retirement Plan
EIN 94-1727009 / PIN 003
Schedule H, line 4i -- Schedule of Assets (Held At End of Year)
December 31, 2003
(a) (b) Identity (c) Description (d) Cost (e) Current Value
------------ ----------------------------- ------------------------------- -------------------------- -------------------------
American Century Value (1) $ 1,732,556
American Century Growth (1) 394,487
American Century Select (1) 348,935
American Century Ultra (1) 662,806
American Century International (1) 488,973
* DST Systems, Inc. Common Stock (1) 13,859,768
Davis NY Venture (1) 1,947,063
Fidelity Advisor Growth (1) 500,761
Janus Investment Investment (1) 900,966
Janus Investment Enterprise (1) 748,545
Janus Investment Mercury (1) 837,733
Janus Investment Overseas (1) 1,157,060
Lord Abbett Affiliated Class A (1) 274,153
Lord Abbett Bond Debenture (1) 153,031
Managers Fund Special Equity (1) 1,242,634
Money Market Obligs Prime Value (1) 3,540,649
PIMCO Total Return (1) 3,134,508
T. Rowe Price Mid-cap Growth (1) 2,605,460
Royce Total Return (1) 2,527,926
Standish Ayer & Wood Fixed Income (1) 2,413,628
Vanguard Bond Index (1) 16,285,813
Vanguard Index 500 (1) 13,260,328
Vanguard Value (1) 985,376
* Participant Loans Interest rate - Prime + 1% 0 2,429,820
* Indicates a party-in-interest
(1) In accordance with instructions to the Form 5500, the Plan is not required
to disclose the cost component of participant-directed investments
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
DST Systems, Inc. 401(k) Profit Sharing Plan
Date: June 28, 2004 By: /s/ Kenneth V. Hager
----------------------------------------------
Kenneth V. Hager
Vice President, Chief Financial Officer and
Treasurer