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, 2002
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, 2002 and 2001
3. Audited Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 2002 and 2001
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)
8. Certification of Thomas A. McDonnell, Chief Executive Officer (Exhibit 99.1)
9. Certification of Kenneth V. Hager, Chief Financial Officer (Exhibit 99.2)
DST Systems, Inc.
401(k) Profit
Sharing Plan
Financial Statements and
Additional Information
December 31, 2002 and 2001
DST Systems, Inc. 401(k) Profit Sharing Plan
Index to Financial Statements and Additional Information
-------------------------------------------------------------------------------
Page
Report of Independent Auditors 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 Auditors
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,
2002 and 2001, and the changes in net assets available for benefits for the
years then ended 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 auditing standards generally accepted in the
United States of America, which 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 24, 2003
DST Systems, Inc. 401(k) Profit Sharing Plan
Statements of Net Assets Available for Benefits
-------------------------------------------------------------------------------
December 31,
-------------------------------------------
2002 2001
------------------- -------------------
Cash and cash equivalents $ 1,261,249 $ 950,242
Investments:
Mutual funds 87,317,078 70,720,600
DST Common Stock 7,729,215 6,704,505
Investment in Master Trust 213,467,393 218,679,257
Loans to participants 2,267,750 1,930,669
------------------- -------------------
Total investments 310,781,436 298,035,031
Employer contributions receivable 20,577,465 7,347,250
------------------- -------------------
Net assets available for benefits $ 332,620,150 $ 306,332,523
=================== ===================
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,
------------------------------------------------
2002 2001
--------------------- ---------------------
Investment income:
Dividends, interest and other distributions $ 1,211,238 $ 853,128
Net depreciation in fair value of investments (20,471,119) (16,396,449)
Net appreciation (depreciation) in fair value of
investment in Master Trust (1,472,323) 22,848,259
--------------------- ---------------------
(20,732,204) 7,304,938
--------------------- ---------------------
Contributions:
Employer 33,069,938 26,167,516
Participants 30,826,358 24,510,330
--------------------- ---------------------
63,896,296 50,677,846
--------------------- ---------------------
43,164,092 57,982,784
Benefits paid to participants (16,823,335) (16,197,662)
Administrative expenses (53,130) (43,000)
--------------------- ---------------------
(16,876,465) (16,240,662)
Net change in net assets available for benefits 26,287,627 41,742,122
Net assets available for benefits:
Beginning of year 306,332,523 264,590,401
--------------------- ---------------------
End of year $ 332,620,150 $ 306,332,523
===================== =====================
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.
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
The trustee of the Plan is UMB Bank, n.a. (the "Trustee"). 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, 2002 and 2001, the Sponsor paid Plan expenses of $372,335 and
$393,155, 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 31st 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, 2002:
American Century Value 1,286
American Century Growth 1,686
American Century Select 1,190
American Century Ultra 2,071
American Century International 883
DST Systems, Inc. Common Stock 2,370
Davis NY Venture 965
Fidelity Advisor Growth 992
Janus Investment 2,773
Janus Investment Enterprise 2,176
Janus Investment Mercury 3,246
Janus Investment Overseas 2,055
Lord Abbett Affiliated Class A 361
Lord Abbett Bond Debenture 235
Managers Fund Special Equity 970
Money Market Obligs Prime Value 888
PIMCO Total Return 1,597
T. Rowe Price Mid-cap Growth 2,097
Royce Total Return 1,555
Standish Ayer & Wood Fixed Income 906
Vanguard Bond Index 2,385
Vanguard Index 500 3,429
Vanguard Value 1,064
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 1st 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
The Plan does not record a liability relating to the obligations for benefit
payments. Distributions paid to participants in 2003 for withdrawals and
employees terminated during 2002 was $2,691,202. The amount paid in 2002 for
withdrawals and employees terminated during 2001 was $3,754,988.
The Plan's Form 5500 reflects the liability in the year of withdrawal or
termination.
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.
3. Plan Investments
The following investments represent 5% or more of net assets available for
benefits at year-end:
December 31, December 31,
2002 2001
----------------------- ----------------------
Investment in Master Trust $ 213,467,393 $ 218,679,257
The Investment in Master Trust is nonparticipant-directed.
During 2002 and 2001, the Plan's participant-directed investments (including
gains and losses on investments bought and sold, as well as held during the
year) depreciated in value as follows:
Year Ended December 31,
-------------------------------------------------
2002 2001
----------------------- ----------------------
Mutual funds $ (18,196,796) $ (15,386,840)
DST Common Stock (2,274,323) (1,009,609)
----------------------- ----------------------
$ (20,471,119) $ (16,396,449)
======================= ======================
8
4. Master Trust
The Plan's percentage ownership in the Master Trust is 75.9% and 75.1% at
December 31, 2002 and 2001, 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,
2002 2001
------------------------ ----------------------
Cash and cash equivalents $ 39,803 $ 33,071
Mutual funds 2,995,362 4,903,847
Common stocks 272,490,574 251,318,424
Corporate debt 5,823,997 7,844,038
Government securities 4,302 26,967,639
------------------------ ----------------------
$ 281,354,038 $ 291,067,019
======================== ======================
The Master Trust's total investment income (loss) by type for the years ended
December 31, 2002 and 2001 is as follows:
Year Ended December 31,
--------------------------------------------------
2002 2001
------------------------ ----------------------
Interest $ 990,853 $ 1,687,709
Dividends 1,228,842 1,071,510
Net appreciation (depreciation) (4,128,810) 28,108,457
------------------------ ----------------------
$ (1,909,115) $ 30,867,676
======================== ======================
The Master Trust's net appreciation (depreciation) of investments by type for
the years ended December 31, 2002 and 2001 is as follows:
Year Ended December 31,
--------------------------------------------------
2002 2001
------------------------ ----------------------
Mutual funds $ 33 $ 79
Common stocks (3,900,931) 26,363,377
Corporate debt (130,240) 1,729,075
Government securities (97,672) 15,926
------------------------ ----------------------
$ (4,128,810) $ 28,108,457
======================== ======================
9
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, 2002
(a) (b) Identity (c) Description (d) Cost (e) Current Value
------------ ----------------------------- ------------------------------- -------------------------- -------------------------
American Century Value (1) $ 2,679,807
American Century Growth (1) 3,863,479
American Century Select (1) 2,502,971
American Century Ultra (1) 6,328,515
American Century International (1) 1,071,485
* DST Systems, Inc. Common Stock (1) 7,704,044
Davis NY Venture (1) 2,142,401
Fidelity Advisor Growth (1) 1,650,423
Janus Investment Investment (1) 7,136,648
Janus Investment Enterprise (1) 5,302,594
Janus Investment Mercury (1) 10,496,959
Janus Investment Overseas (1) 4,927,962
Lord Abbett Affiliated Class A (1) 493,856
Lord Abbett Bond Debenture (1) 207,871
Managers Fund Special Equity (1) 1,580,609
Money Market Obligs Prime Value (1) 3,634,303
PIMCO Total Return (1) 4,120,712
T. Rowe Price Mid-cap Growth (1) 4,309,187
Royce Total Return (1) 3,998,881
Standish Ayer & Wood Fixed Income (1) 1,833,598
Vanguard Bond Index (1) 6,902,775
Vanguard Index 500 (1) 10,246,245
Vanguard Value (1) 1,910,968
* Participant Loans Interest rate - Prime + 1% 0 2,267,750
* 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 27, 2003 By: /s/ Kenneth V. Hager
-----------------------------------------
Kenneth V. Hager
Vice President, Chief Financial Officer
and Treasurer of DST Systems, Inc.,
Plan Administrator