UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 29, 2004
(OCTOBER 29, 2004)
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DST SYSTEMS, INC.
(Exact Name of registrant as specified in its charter)
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DELAWARE
(State or other jurisdiction of incorporation)
1-14036 43-1581814
(Commission File Number) (IRS Employer Identification No.)
333 WEST 11TH STREET, KANSAS CITY, MISSOURI 64105
(Address of principal executive offices) (Zip Code)
(816) 435-1000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report).
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2.):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On October 29, 2004, the Compensation Committee of the Board of Directors
of DST Systems, Inc. ("DST") voted, as part of the compensation strategy
summarized in Item 7.01 hereof, to grant as of November 10, 2004 shares of
restricted stock to certain participants in the Plan, including certain of the
named executive officers of DST. The following description is a brief summary of
the material terms and conditions of the restricted share grants to those named
executive officers listed below, each of whom were listed in the Summary
Compensation Table in DST's most recent proxy statement dated March 31, 2004 and
who are currently executive officers of DST or a wholly-owned subsidiary of DST.
The grant of restricted shares is subject to the grantee's execution of the
Restricted Shares Award Agreement. This summary is not intended to be complete,
and is qualified in its entirety by reference to the form of Restricted Shares
Award Agreement included as Exhibit 10.1 to this report and incorporated herein
by reference.
Subject to early lapsing and forfeiture provisions, the restrictions on the
shares received by such executive officers will lapse on January 31, 2010,
provided that an earnings per share goal to be set by the Compensation Committee
within 90 days of the date of the grant (the "EPS Goal") is met for a fiscal
year from and including 2005 through 2009.
If the grantee reaches age 60 and retires or is terminated without cause as
part of a reduction in force, the restrictions will lapse for a pro-rata number
of shares. The restrictions will lapse upon the grantee's death or disability or
upon a termination without cause of the grantee's employment on the date of and
in connection with a business unit divestiture. The restrictions will lapse upon
a change in control; provided, however, that the Compensation Committee may, in
certain circumstances set forth in the Restricted Shares Award Agreement,
unilaterally amend the agreement so that restrictions shall lapse on only a
pro-rated number of shares upon a change in control. If such an amendment
occurs, the Compensation Committee may set the conditions for the lapsing of
restriction subsequent to the change in control on the remaining shares.
Except as provided in the immediately preceding paragraph, if a change in
control has not occurred, the shares will be forfeited to DST without the
payment of consideration upon termination of employment or if DST does not meet
the EPS Goal. The shares must also be forfeited if the employee violates any of
the non-compete, non-use or non-disclosure provisions of the Restricted Shares
Award Agreement. Prior to the release of restrictions, the grantee may not
dispose of the shares of restricted stock except under certain limited
circumstances.
Each of the following named executive officers received the following
number of restricted shares:
SHARES OF
RESTRICTED
NAMED EXECUTIVE OFFICER STOCK
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Thomas A. McDonnell, President and Chief Executive Officer 200,500
Thomas A. McCullough, Executive Vice President and Chief
Operating Officer 137,800
J. Michael Winn, Managing Director of DST International Limited 75,000
ITEM 7.01 REGULATION FD DISCLOSURE
The grants of shares of restricted common stock of DST discussed in Item
1.01 were the result of a determination by the Compensation Committee to make an
overall grant of 2,836,600 shares of restricted common stock of DST as of
November 10, 2004 to officers and certain other participants in the DST Systems,
Inc. 1995 Stock Option and Performance Award Plan. The grant is subject to the
grantee's execution of an award agreement containing certain non-compete,
non-disclosure and non-solicitation provisions. For ten senior executive
officers, the restricted shares are subject to the EPS Goal that must be met as
an additional condition to the lapse of restrictions on January 31, 2010.
Subject to early lapsing and forfeiture provisions, the restrictions on the
shares granted to all other officers and participants lapse on November 10,
2009.
The restricted stock grants cover the five-year period of 2005 through 2009
and are intended to be the only restricted stock grants for such periods other
than for new hires or promotions, for special employee recognition purposes,
and, in accordance with past practice, for the portion of each annual incentive
bonus the executive officers are required to take in the form of equity
compensation. The Compensation Committee made the grant after evaluating DST's
equity compensation practices, particularly in light of pending changes in the
accounting rules applicable to stock options.
The following corporate objectives were established as part of the
evaluation:
o Establish a program that provided for a fixed and reasonable level of
expense over an extended period of time
o Provide a mechanism for long-term retention of officers and key
management
o Fix the maximum amount of dilution associated with equity compensation
grants
o Provide grants only to those who have the effective ability to enhance
earnings performance
o Use a vehicle that would be easily understood, have a greater
perceived value by the grantees and would more likely result in
long-term holding of DST stock by management
o Comply with rules on full tax deductibility of equity compensation
expense
o Continue to align the interests of management and shareholders in
creating long-term sustained earnings growth.
To achieve these corporate objectives, the Compensation Committee
restructured the approach to equity compensation by:
o Establishing a benchmark that equity compensation expense should
approximate 6-7% of pre-tax income on an annual basis
o Changing the primary form of equity compensation from stock options to
restricted stock
o Making 5 year upfront cliff vested restricted stock grants to key
management
o Incorporating a performance feature for certain members of senior
executive management to link pay to performance and comply with tax
deductibility rules.
The 2,836,600 shares granted will be considered for purposes of diluted
earnings per share calculations in accordance with GAAP.
The use of a long term, cliff-vested restricted stock grant allows for the
cost of the grant to be spread evenly over the vesting period. The level of
grants made in 2004 represent approximately 7% of pre-tax profit for 2004. If
DST's earnings change over the vesting period, the amount of equity compensation
expense as a percentage of pre-tax profits will change. Set forth below is the
estimated amount of amortized compensation expense (in thousands) attributable
to the grant for each year covered by the grant based upon the average of the
high and low trading prices for the Company's shares on October 28, 2004:
2004 2005 2006 2007 2008 2009
---- ---- ---- ---- ---- ----
$4,250 $25,501 $25,501 $25,501 $25,501 $21,251
The information in this Item 7.01, shall not be deemed "filed" for the
purposes of or otherwise subject to the liabilities under Section 18 of the
Securities Exchange Act of 1934 as amended (the "Exchange Act"). Unless
expressly incorporated into a filing of DST under the Securities Act of 1933, as
amended or the Exchange Act made after the date hereof, the information
contained in this Item 7.01 shall not be incorporated by reference into any
filing of DST, whether made before or after the date hereof, regardless of any
general incorporation language in such filing. The furnishing of information
under this Item 7.01 is not an indication that this Item 7.01 contains material
information that is not otherwise publicly available.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(c). Exhibits
EXHIBIT
NUMBER DESCRIPTION
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10.1 Form of Restricted Shares Award Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on this 29th day of October, 2004.
DST SYSTEMS, INC.
By: /s/ Randall D. Young
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Randall D. Young
Vice President, General Counsel and Secretary