The discussions set forth in this Quarterly Report on Form 10-Q contain statements concerning potential future events. Such forward-looking statements are based upon assumptions by the Company's management, as of the date of this Quarterly Report, including assumptions about risks and uncertainties faced by the Company. In addition, management may make forward-looking statements orally or in other writings, including, but not limited to, in press releases, in the annual report to shareholders and in the Company's other filings with the Securities and Exchange Commission ("SEC"). Readers can identify these forward-looking statements by the use of such verbs as expects, anticipates, believes or similar verbs or conjugations of such verbs. If any of management's assumptions prove incorrect or should unanticipated circumstances arise, the Company's actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to, those factors referred to below in Part II, Item 1A, "Risk Factors." Readers are strongly encouraged to consider the factors referred to in such section and any amendments or modifications thereof when evaluating any forward-looking statements concerning the Company. The Company's reports filed with or furnished to the SEC on Form 8-K, Form 10-K, Form 10-Q and other forms and any amendments to those reports, may be obtained by contacting the SEC's Public Reference Branch at 1-800-SEC-0330 or by accessing the forms electronically, free of charge, through the SEC's Internet website at http://www.sec.gov or through the Company's Internet website, as soon as reasonably practicable after filing with the SEC, at http://www.dstsystems.com. The Company will not update any forward-looking statements in this Quarterly Report to reflect future events or developments.

The information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in this Form 10-Q and the audited consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

INTRODUCTION

The business units of DST Systems, Inc. ("DST" or "the Company") offer sophisticated information processing and software services and products. These business units are reported as two operating Segments (Financial Services and Output Solutions). In addition, investments in the Company's real estate subsidiaries and affiliates, equity securities, private equity funds, and certain financial interests have been aggregated into the Investments and Other Segment.

Financial Services

The Company's Financial Services Segment provides sophisticated information processing and computer software services and products using proprietary software systems primarily to mutual funds, investment managers, insurance companies, real estate partnerships, banks, brokers, financial planners, healthcare payers, healthcare providers, third party administrators and medical practice groups. The Company's proprietary software systems include mutual fund shareowner, subaccount and unit trust recordkeeping systems for U.S. and international mutual fund companies; a defined-contribution participant recordkeeping system for the U.S. retirement plan market; a Real Estate Investment Trust ("REIT") participant recordkeeping system for REITs; investment management systems offered to U.S. and international investment managers and fund accountants; a business process management and customer contact system offered to mutual funds, insurance companies, brokerage firms, banks, healthcare payers, healthcare providers, cable television operators and mortgage servicing organizations; and healthcare claims administration processing systems and services, including consumer directed healthcare administration solutions, offered to providers of healthcare plans, third party administrators and medical practice groups.

Prior to March 31, 2009, DST owned a 50% interest in Argus Health Systems, Inc. ("Argus"). Using its proprietary claims processing system, Argus provides pharmacy claims processing and other related services to help clients manage pharmacy benefit programs. On March 31, 2009, DST purchased the remaining 50% interest of Argus for $57.0 million in cash. As a result, Argus is no longer an unconsolidated affiliate of DST, but rather is a wholly-owned subsidiary and DST will not record equity in earnings of Argus after March 31, 2009, but

rather will consolidate the Argus results into the Company's consolidated financial statements. Argus has been included in the Financial Services Segment.

The Financial Services Segment distributes its services and products on a direct basis and through subsidiaries and joint venture affiliates in the U.S., United Kingdom ("U.K."), Canada, Europe, Australia, India, South Africa and Asia-Pacific and, to a lesser degree, distributes such services and products through various strategic alliances.

Output Solutions

The Company's Output Solutions Segment provides single source, integrated print and electronic statement and billing output solutions. The Output Solutions Segment also provides customized statement and bill production, marketing and personalization services, postal optimization, and electronic presentment, payment and distribution solutions.

The Output Solutions Segment conducts its operations from five operating centers located throughout North America and the U.K. DST Output is among the largest First-Class mailers in the U.S and is one of the largest users of continuous, high-speed, full-color inkjet printing systems.

DST Output's research and development initiatives have resulted in a Digital Press Technology ("DPT") high-speed color printing and inserting platform. The new platform enables the Output Solutions Segment to produce high-speed transactional printing combined with dynamic color printing. DST Output believes DPT is a technologically-differentiated service offering that enables them to provide better and more efficient products and services to clients.

The Output Solutions Segment distributes its product directly to customers and through relationships in which its services are combined with or offered concurrently through providers of data processing services. The Output Solutions Segment's products are also distributed or bundled with product offerings to customers of the Financial Services Segment.

Investments and Other

The Investments and Other Segment is comprised of the Company's real estate subsidiaries and affiliates, investments in equity securities, private equity funds and other financial interests. The assets held by the Investments and Other Segment are primarily passive in nature. The Company owns and operates real estate mostly in the U.S. and U.K., which is held primarily for lease to the Company's other business segments. The Company is a partner in certain real estate joint ventures that lease office space to the Company, certain of its unconsolidated affiliates and unrelated third parties. The Company is a 50% partner in a limited purpose real estate joint venture leasing approximately 1.1 million square feet of office space to the U.S. government. The Investments and Other Segment holds investments in equity securities with a market value of approximately $618.3 million at March 31, 2009, including approximately 10.6 million shares of State Street Corporation ("State Street"), 29.6 million shares of Computershare Ltd. ("Computershare") and 1.9 million shares of Euronet Worldwide, Inc., with a market value of $325.7 million, $180.6 million and $24.6 million, respectively, based on closing exchange values at March 31, 2009.

RESULTS OF OPERATIONS



The following table summarizes the Company's operating results (in millions,
except per share amounts):



                                                    For the Three Months
                                                      Ended March 31,
                                                     2009           2008
Revenues
Operating revenues
Financial Services                                $     267.7     $  286.8
Output Solutions                                        127.0        142.7
Investments and Other                                    15.2         15.0
Elimination Adjustments                                 (14.3 )      (13.7 )
                                                        395.6        430.8
% change from prior year period                          (8.2 )%

Out-of-pocket reimbursements
Financial Services                                       17.1         17.8
Output Solutions                                        148.2        139.2
Investments and Other                                     0.1          0.1
Elimination Adjustments                                  (0.1 )       (0.1 )
                                                        165.3        157.0
% change from prior year period                           5.3 %

Total revenues                                    $     560.9     $  587.8
% change from prior year period                          (4.6 )%

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

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

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

Consolidated revenues

Consolidated total revenues (including out-of-pocket ("OOP") reimbursements) for the three months ended March 31, 2009 decreased $26.9 million or 4.6% to $560.9 million as compared to the same period in 2008 attributable to a $19.8 million decline in Financial Services and a $6.7 million decline in Output Solutions. Consolidated operating revenues for the three months ended March 31, 2009 decreased $35.2 million or 8.2% to $395.6 million as compared to the same period in 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 and the effects of changes in foreign currency exchange rates.

Consolidated OOP reimbursements during the three months ended March 31, 2009 increased $8.3 million or 5.3% as compared to the same period in 2008. OOP reimbursements for Output Solutions increased $9.0 million or 6.5% during the three months ended March 31, 2009 attributable to an increase in postage costs procured on behalf of clients from expanded postal offerings.

Income from operations

Consolidated income from operations for the three months ended March 31, 2009 was $74.4 million, a decrease of $10.0 million or 11.8% as compared to the same period in 2008. Output Solutions income from operations decreased $6.6 million from lower operating revenues. Financial Services income from operations decreased $3.4 million attributable to reduced earnings from mutual fund shareowner processing, lower data processing support revenues and lower international revenues.

Interest expense

Interest expense for the three months ended March 31, 2009 was $10.6 million, a decrease of $2.1 million or 16.5%, as compared to the same period in 2008 primarily from lower average interest rates, but partially offset by higher average debt balances during 2009.

Other income (expense), net

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

                                                        For the Three Months
                                                           Ended March 31,
                                                     2009                 2008

Gain on equity interest in Argus Health
Systems                                         $         41.7     $
Other than temporary impairments /
unrealized losses on available-for-sale
securities                                               (25.6 )                (10.2 )
Net unrealized losses on private equity
funds and other investments                               (4.4 )
Net realized losses from sale of
available-for-sale securities                             (0.8 )                 (0.3 )
Gain on extinguishment of senior convertible
debentures                                                 3.7
Dividend income                                            3.4                    7.9
Interest income                                            1.3                    1.7
Miscellaneous items                                       (3.1 )                 (3.5 )

$ 16.2 $ (4.4 )

Other income (expense), net was a gain of $16.2 million during the three months ended March 31, 2009, but was a loss of $4.4 million for the three months ended March 31, 2008. Several factors included in the table above and explained below contributed to the changes in other income during 2009 and 2008.

The Company recorded a gain of $41.7 million during the three months ended March 31, 2009 related to its purchase of the remaining 50% interest of Argus for $57.0 million. 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 on March 31, 2009 was treated as a step acquisition. Accordingly, DST remeasured its previously held equity interest in Argus to fair value, in the amount of $57.0 million, and recorded a gain of $41.7 million. DST has preliminarily recognized identifiable assets (proprietary software of $26.0 million, customer relationships of $14.0 million and other intangible assets of $1.0 million) and goodwill resulting from the acquisition of the remaining 50% Argus interest and the remeasurement of DST's previously held equity interest. Based on the preliminary purchase price allocation, DST estimates that annual amortization expense from acquired Argus intangible assets will be approximately $4.2 million. DST expects that the inclusion of Argus on this basis will be dilutive to 2009 diluted earnings per share.

The Company records an investment impairment charge for an available-for-sale security with a gross unrealized holding loss resulting from a decline in value that is other than temporary. During the three months ended March 31, 2009 and 2008, the Company recorded other than temporary impairment charges of $25.6 million and $10.2 million, respectively. The increase in impairments during 2009 is from significant declines in securities share prices related to adverse economic conditions in the financial and other markets. The Company records lower of cost or market valuation adjustments on private equity fund investments and other cost method investments when impairment conditions are present. During the three months ended March 31, 2009, the Company recorded $4.4 million of impairments on private equity fund and other investments related to adverse market conditions and from poor performance of the underlying investment. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future, which could have a material effect on the Company's financial position.

Net realized losses from sale of available-for-sale securities were $0.8 million and $0.3 million during the three months ended March 31, 2009 and 2008, respectively.

The Company recorded a $3.7 million gain during the three months ended March 31, 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 receives dividend income from certain investments held, including its investments in State Street Corporation ("State Street") and Computershare, Ltd. common stock. Dividend income decreased $4.5 million during the three months ended March 31, 2009 to $3.4 million. As previously mentioned, State Street reduced its quarterly dividend in 2009 to $0.01 per share as compared to $0.23 per share during the three months ended March 31, 2008, which resulted in $2.5 million of lower dividend income for DST during first quarter 2009. In addition, approximately $2.0 million of lower dividend income was recorded in first quarter 2009 reflecting a decline in the Australian dollar and the reduction of dividends in other available-for-sale securities held.

Interest income was $1.3 million during the three months ended March 31, 2009, a $0.4 million decrease as compared to the three months ended March 31, 2008. The decrease in interest income in 2009 is attributable to lower amounts of short-term investments and lower interest rates.

Miscellaneous items include unrealized gains and losses on marketable securities designated as trading securities, program fees related to the Company's accounts receivable securitization program, realized foreign currency gains and losses, amortization of deferred non-operating gains and other non-operating items.

Equity in earnings (losses) of unconsolidated affiliates

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

                For the Three Months
                   Ended March 31,
                2009            2008

BFDS         $       3.7     $       5.9
IFDS, U.K.           1.5             3.0
IFDS, L.P.           0.9             0.5
Argus               (1.5 )           0.3
Other                1.1            (1.0 )
             $       5.7     $       8.7

For the three months ended March 31, 2009, DST's equity in earnings of unconsolidated affiliates decreased $3.0 million or 34.5% as compared to the same period in 2008 attributable to lower equity in earnings of BFDS, IFDS U.K. and Argus, partially offset by improved results in other unconsolidated affiliates.

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 and $1.5 billion during the three months ended March 31, 2009 and 2008, respectively. Average interest rates earned on the balances declined from 3.35% in 2008 to 0.45% in 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 of DST's equity in earnings of unconsolidated affiliates of approximately $3.4 million during the three months ended March 31, 2009.

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 earnings of IFDS U.K. decreased $1.5 million during the three months ended March 31, 2009 as compared to the same period in 2008. The decrease in equity in earnings is attributable to the foreign currency exchange effects between the U.S. Dollar and British Pound and higher operating costs to support new clients, partially offset by higher revenues from new clients. Accounts serviced by IFDS U.K. were 6.0 million at March 31, 2009, an increase of 0.1 million accounts from December 31, 2008 and an increase of 0.2 million accounts from March 31, 2008.

DST's equity in earnings of IFDS L.P. (includes IFDS Canada, Ireland and Luxembourg) increased $0.4 million during the three months ended March 31, 2009 as compared to the same period in 2008. The improved results were primarily attributable to lower operating

costs, which were partially offset by lower operating revenues and the foreign currency exchange effects between the U.S. Dollar and the Canadian Dollar. Accounts serviced by IFDS Canada were 10.6 million at March 31, 2009, unchanged from December 31, 2008 and a decrease of 0.3 million accounts or 2.8% from March 31, 2008.

DST's equity in Argus losses for first quarter 2009 was $1.5 million as compared to income of $0.3 million in 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 previously mentioned, DST acquired the remaining 50% equity interest in Argus on March 31, 2009 and will not record equity in earnings of Argus after 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, improvements at real-estate joint ventures.

Income taxes

The Company records income tax expense during interim periods based on its best estimate of the full year's effective tax rate. Certain items are given discrete period treatment and, as a result, the tax effects of such items are reported in full in the relevant interim period. The Company's effective tax rate was 14.6% and 5.0% for the three months ended March 31, 2009 and 2008, respectively. During 2009, DST recorded a $41.7 million gain on equity interest in Argus with no related income tax expense, reversed approximately $0.9 million of deferred tax liabilities related to the elimination of deferred tax liabilities previously established for equity in earnings of Argus, and recorded 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 above items contributed to the Company's effective tax rate being less than the statutory federal income tax rate of 35%, which was partially offset by valuation allowances recorded in 2009 against certain international operating losses and lower dividend income in 2009, which is taxed at a lower effective income tax rate. The lower effective tax rate for 2008 was primarily due to an income tax benefit of approximately $23.9 million, resulting from a net reduction in the Company's liabilities for FIN 48 (including approximately $10.4 million of interest and penalties) during first quarter 2008. The net decrease in FIN 48 liabilities in 2008 was principally related to the resolution of an IRS examination matter (associated with a transaction that the Company consummated in the 2000 tax year) that was resolved in DST's favor. Excluding the effects of discrete period items, the Company expects its tax rate to be approximately 39% for the remainder of 2009. The full year 2009 effective tax rate can be affected as a result of variances among the estimates and amounts of full year sources of taxable income (e.g., domestic consolidated, joint venture and/or international), the realization of tax credits (e.g., historic rehabilitation, research and experimentation and state incentive), adjustments which may arise from the resolution of tax matters under review and the Company's assessment of its liability for unrecognized tax benefits.

FINANCIAL SERVICES SEGMENT

Revenues

Financial Services Segment total revenues for the three months ended March 31, 2009 were $284.8 million, a decrease of $19.8 million or 6.5% compared to the same period in 2008. Financial Services Segment operating revenues for the three months ended March 31, 2009 were $267.7 million, a decrease of $19.1 million or 6.7% as compared to the same period in 2008, primarily from lower 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.

U.S. operating revenues for the three months ended March 31, 2009 were $243.5 million, a decrease of $5.4 million or 2.2% as compared to the same period in 2008. As mentioned above, the decrease during the three months ended March 31, 2009 is attributable to decreases in mutual fund shareowner processing services and lower data processing support revenues. U.S. mutual fund servicing revenues . . .