<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C. 20549

                                     FORM 10-Q
(Mark one)
/X/                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

                        OF THE SECURITIES EXCHANGE ACT OF 1934.

                  For the quarterly period ended September 30, 1998

                                         OR

/ /               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

                         OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the transition period from ________ to ________

                            Commission file number: 0-28268

                                 USCS INTERNATIONAL, INC.
            --------------------------------------------------------------
                (Exact name of registrant as specified in its charter)

            DELAWARE                                            94-1727009
----------------------------------                          ------------------
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                                Identification)

2969 PROSPECT PARK DRIVE, 
RANCHO CORDOVA,  CALIFORNIA                                      95670-6148
----------------------------------------                     -----------------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code (916) 636-4500

------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                          Yes      X        No
                                  ---            ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

    Class                                    Outstanding at October 31, 1998
    -----------------------------            ---------------------------------
    Common Stock, $.05 par value             23,371,385 shares


                                       1

<PAGE>

                            USCS INTERNATIONAL, INC.
                              REPORT ON FORM 10-Q
                   FOR THE QUARTER ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                                                   Page No.
                                                                                ---------------
   <S>                                                                          <C>
   Part I.  Financial Information

      Item 1.  Financial Statements                                                    3

        Consolidated Condensed Balance Sheets
        September 30, 1998 (Unaudited) and December 31, 1997                           4

        Consolidated Condensed Statements of Operations (Unaudited)
        Three months and nine months ended September 30, 1998 and 1997                 5

        Consolidated Condensed Statements of Comprehensive Income (Unaudited)
        Three months and nine months ended September 30, 1998 and 1997                 6

        Consolidated Condensed Statements of Cash Flows (Unaudited)
        Nine months ended September 30, 1998 and 1997                                  7
        
        Notes to Consolidated Condensed Financial Statements                         8 - 9

      Item 2.  Management's Discussion and Analysis of Financial
               Condition, Results of Operations, and Certain Factors
               That May Affect Future Results.                                      10 - 22

      Item 3.  Quantitative and Qualitative Disclosures About Market Risk             22
    
   Part II. Other Information

      Item 1.  Legal Proceedings                                                      22

      Item 2.  Changes in Securities                                                  22

      Item 3.  Defaults Upon Senior Securities                                        22

      Item 4.  Submission of Matters to a Vote of Security Holders                    22

      Item 5.  Other Information                                                      22

      Item 6.  Exhibits and Reports on Form 8-K                                       22

                    Signature                                                         23

</TABLE>

                                       2

<PAGE>

                            USCS INTERNATIONAL, INC.

PART I.   FINANCIAL INFORMATION

Item 1.      Financial Statements

The following consolidated condensed financial statements, except for the 
balance sheet as of December 31, 1997, have been prepared by USCS 
International, Inc. (the "Company") without audit by independent public 
accountants, but in accordance with the rules and regulations of the 
Securities and Exchange Commission ("SEC") and, in the opinion of the 
Company, include all adjustments (consisting only of normal recurring 
adjustments) necessary for a fair statement of results for each period shown. 
Certain information and footnote disclosures normally included in financial 
statements prepared in accordance with generally accepted accounting 
principles have been condensed or omitted pursuant to such SEC rules and 
regulations. The Company believes that the disclosures made are adequate to 
make the information presented not misleading.  These financial statements 
should be read in conjunction with the financial statements and notes thereto 
included in the Company's Annual Report to Stockholders and the Company's 
Annual Report on Form 10-K for the year ended December 31, 1997. The results 
of operations for the quarter and nine months ended September 30, 1998 are 
not necessarily indicative of the results to be expected for the entire year 
ending December 31, 1998.





                                       3

<PAGE>

                            USCS INTERNATIONAL, INC.
                     CONSOLIDATED CONDENSED BALANCE SHEETS

               (In thousands except share and per share amounts)

<TABLE>
<CAPTION>
                                                  September 30,   December 31,
                                                      1998           1997
                                                  -------------   ------------
                                                   (unaudited)
<S>                                               <C>             <C>
                                     ASSETS
Current Assets:
    Cash                                            $ 16,630       $  2,787
    Accounts receivable, net                          67,867         71,970
    Postage receivable                                28,230         25,684
    Current portion of net investment in leases        4,789          5,892
    Paper products and other inventory                 6,957          4,573
    Other                                             10,160          9,853
                                                    --------       --------
       Total current assets                          134,633        120,759
Property and equipment, net                          105,321        101,631
Net investment in leases, net of current portion       4,591          4,686
Other                                                 28,234         11,543
                                                    --------       --------
Total assets                                        $272,779       $238,619
                                                    --------       --------
                                                    --------       --------

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
    Accounts payable and accrued expenses           $ 69,850       $ 62,656
    Current portion of long-term debt                  4,594          3,865
    Deferred revenue                                   7,473          4,529
                                                    --------       --------
        Total current liabilities                     81,917         71,050
Long-term debt, net of current portion                 2,451          5,453
Customer deposits and advances                        29,116         18,170
Other liabilities                                     10,333         12,585
                                                    --------       --------
          Total liabilities                          123,817        107,258
                                                    --------       --------

Stockholders' Equity:
    Preferred Stock, $.05 par value, 10,000,000 
       shares authorized; no shares issued and 
       outstanding                                        -              -  
    Common Stock, $.05 par value,
        40,000,000 shares authorized; 23,427,582 
        shares issued and 23,354,483 shares 
        outstanding at September 30, 1998 
        (unaudited) and 23,427,582 shares issued 
        and 22,947,233 shares outstanding
        at December 31, 1997                           1,171          1,171
    Additional paid-in capital                        52,893         56,504
    Retained earnings                                 96,015         82,897
    Treasury stock                                    (1,463)        (9,047)
    Foreign currency translation adjustment              346           (164)
                                                    --------       --------
       Total stockholders' equity                    148,962        131,361
                                                    --------       --------
Total liabilities and stockholders' equity          $272,779       $238,619
                                                    --------       --------
                                                    --------       --------

</TABLE>

                                       4

<PAGE>

                            USCS INTERNATIONAL, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (unaudited)
                    (In thousands except per share amounts)

<TABLE>
<CAPTION>

                                          Three months ended            Nine months ended
                                            September 30,                 September 30,
                                       ------------------------      ------------------------
                                         1998           1997           1998           1997
                                       ---------      ---------      ---------      ---------
<S>                                   <C>            <C>            <C>            <C>
Revenue:
  Software and services:
    Customer management                 $40,287        $39,646       $121,856       $115,080
    Bill processing                      37,114         28,998        105,787         86,917
                                        -------        -------       --------       --------
      Total                              77,401         68,644        227,643        201,997
  Equipment sales and services            5,102          4,479         18,922         14,794
                                        -------        -------       --------       --------
      Total revenue                      82,503         73,123        246,565        216,791
                                        -------        -------       --------       --------
Cost of revenue:
  Software and services:
    Customer management                  20,219         17,759         58,799         53,670
    Bill processing                      25,599         20,923         75,063         62,847
                                        -------        -------       --------       --------
      Total                              45,818         38,682        133,862        116,517
  Equipment sales and services            2,974          2,536         12,148          8,062
                                        -------        -------       --------       --------
      Total cost of revenue              48,792         41,218        146,010        124,579
                                        -------        -------       --------       --------
Gross profit                             33,711         31,905        100,555         92,212
                                        -------        -------       --------       --------
Operating expenses:
  Research and development                8,719          7,323         25,376         22,054
  Selling, general and administrative    14,385         14,799         42,873         42,261
  Non-recurring charges                   7,100              -          7,100              -
                                        -------        -------       --------       --------
      Total operating expenses           30,204         22,122         75,349         64,315
                                        -------        -------       --------       --------
Operating income                          3,507          9,783         25,206         27,897
Interest (income) expense, net              (39)           109            250            464
                                        -------        -------       --------       --------
Income before income taxes                3,546          9,674         24,956         27,433

Income tax provision                      3,488          3,883         11,838         10,987
                                        -------        -------       --------       --------
Net income                              $    58        $ 5,791       $ 13,118       $ 16,446
                                        -------        -------       --------       --------
                                        -------        -------       --------       --------
Earnings per share:
  Basic                                 $     -        $  0.25       $   0.56       $   0.71
  Diluted                               $     -        $  0.24       $   0.54       $   0.68

Weighted average common shares
      and equivalents:
  Basic                                  23,305         23,291         23,232         23,180
  Diluted                                24,325         24,438         24,084         24,293

</TABLE>

                                        5

<PAGE>

                             USCS INTERNATIONAL, INC.
                     CONSOLIDATED CONDENSED STATEMENTS OF 
                            COMPREHENSIVE INCOME

                                  (unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>

                                          Three months ended            Nine months ended
                                            September 30,                 September 30,
                                       ------------------------      ------------------------
                                         1998           1997           1998           1997
                                       ---------      ---------      ---------      ---------
<S>                                   <C>            <C>            <C>            <C>

Net income                               $   58         $5,791        $13,118        $16,446

Other comprehensive income:
  Foreign currency translation 
    adjustment                              519            (16)           510            (35)
                                        -------        -------       --------       --------
  Comprehensive income                   $  577         $5,775        $13,628        $16,411
                                        -------        -------       --------       --------
                                        -------        -------       --------       --------

</TABLE>






                                       6

<PAGE>

                            USCS INTERNATIONAL, INC.
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                  (unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>

                                                       Nine months ended
                                                         September 30,
                                                    ------------------------
                                                      1998            1997
                                                    ---------       --------
<S>                                                <C>             <C>
Cash flows from operating activities:
     Net income                                     $ 13,118       $ 16,446
     Depreciation and amortization                    21,015         18,882
     Net change in operating assets and liabilities   17,746         (3,764)
     Non-recurring charges                             7,100              -
                                                    --------       --------
Net cash provided by operating activities             58,979         31,564
                                                    --------       --------
Cash flows from investing activities:
     Capital expenditures, net                       (23,361)       (23,988)
     Purchase of subsidiary                          (13,951)        (2,046)
     Other                                            (2,950)             -
                                                    --------       --------
Net cash used in investing activities                (40,262)       (26,034)
                                                    --------       --------
Cash flows from financing activities:
     Net paydown under revolving credit agreement     (4,000)             -
     Payments on long-term debt                       (5,741)        (4,348)
     Proceeds from issuance of long-term debt          7,427              -
     Proceeds from issuance of common stock                -          2,338
     Purchases of treasury stock net of issuances     (2,560)        (3,157)
                                                    --------       --------
Net cash used in financing activities                 (4,874)        (5,167)
                                                    --------       --------
Net increase in cash                                  13,843            363

Cash at January 1                                      2,787          8,452
                                                    --------       --------
Cash at September 30                                $ 16,630       $  8,815
                                                    --------       --------
                                                    --------       --------

Supplemental Schedule of Noncash Financing Activities:

    Contribution of Company shares to 401(k)        $  6,533       $      -
                                                    --------       --------
                                                    --------       --------

</TABLE>

                                      7

<PAGE>

                              USCS INTERNATIONAL, INC.
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



1.   Long-term Debt
               
          The Company has a five-year unsecured revolving credit line, expiring
          September 2001, with two banks in the amount of $50 million. 
          Borrowings under the agreement bear interest at the Company's choice
          of LIBOR (plus a margin ranging from .55% to 1.25%), the bank's base
          rate or a quoted rate. Under the borrowing agreement, the Company is
          required to maintain certain financial ratios and meet a net worth
          test.


2.   Treasury Stock
          
          The Company, from time to time, at the authorization of the Board of
          Directors, repurchases shares of the Company's common stock to be held
          as treasury stock with reservation of such treasury stock for future
          issuance under various employee stock purchase and incentive stock
          option plans and for distributions to the Company's 401(k) Retirement
          Plan.    
                    
          In March 1998, the Company contributed approximately 312,000 shares of
          treasury stock to the Company's 401(k) Retirement Plan.  The fair
          market value on the date of contribution was $6,533,000.


3.    Earnings per Share
               
          The Company has presented earnings per share in accordance with
          Statement of Financial Accounting Standards No. 128, "Earnings Per
          Share" ("SFAS 128").  All previously reported amounts have been
          restated to conform to SFAS 128.  Under SFAS 128, basic earnings per
          share are computed using the weighted average number of outstanding
          registered shares.  Diluted earnings per share are computed using
          weighted average registered shares and common stock equivalents,
          including the net shares issuable upon exercise of stock options when
          dilutive. 


4.   Business Acquisition
          
          In August of 1998, the Company purchased 100% of the stock of Custima
          International Holdings, plc ("Custima") for cash.  The business
          acquired provides billing and customer care software for the utilities
          industry.  The cost of the acquisition was approximately $ 15,400,000.
          The acquisition is being accounted for as a purchase, and accordingly,
          the financial statements include the results of operations from the
          date of acquisition.  The purchase includes existing technology, 
          in-process research and development, trademarks and in-place workforce
          with an aggregate value of approximately $15,200,000.  Based on an
          independent appraisal, $6,000,000 was attributed to in-process
          research and development and, in accordance with applicable accounting
          principles, was charged to expense. Also, a reorganization charge for
          redundant facilities and workforce of $1,100,000 was taken in
          connection with the Company's purchase and consolidation of Custima. 
          Intangible assets are being amortized on a straight-line basis over
          periods ranging from 5 to 20 years.  The results of operations for
          periods prior to the acquisition were immaterial.       


                                       8

<PAGE>

                              USCS INTERNATIONAL, INC.
                NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


5.   Proposed Merger

          On September 2, 1998, the Company announced a proposed merger with 
          DST Systems, Inc. ("DST").  DST provides sophisticated information 
          processing and computer software services and products, primarily 
          to mutual funds, insurance companies, banks and other financial 
          services organizations.  The Board of Directors of each Company has 
          approved the merger. Under the terms of the merger agreement, upon 
          the closing, each share of the Company's common stock will be 
          converted into the right to receive .62 shares of DST common stock. 
          The merger is intended to be a tax-free reorganization and 
          accounted for as a pooling of interests.  The proposed merger is 
          subject to approval by the shareholders of both companies and is 
          intended to be completed before the end of the year.  









                                       9

<PAGE>

Item 2.   Management's Discussion and Analysis of Financial Condition, Results
          of Operations, and Certain Factors that May Affect Future Results

     This Quarterly Report contains forward-looking statements that involve 
risks and uncertainties.  The statements that are not historical facts or 
statements of current status are forward-looking statements as defined in the 
Private Securities Litigation Reform Act of 1995 and are subject to risks and 
uncertainties including, but not limited to, the risks and uncertainties set 
forth under the caption "Certain Factors That May Affect Future Results."  
The Company's future results may differ significantly from the results and 
forward-looking statements discussed in this Report. 

     Founded in 1969, the Company is a leading global provider of customer
management software and services to the communications and other service
industries.  The Company's revenues are derived primarily from providing
software to cable television and multi-service providers worldwide, as well as
bill processing services to cable television, telecommunications, financial
services, utilities and other service industries.  Software and bill processing
services are generally offered to North American cable television providers
under bundled service arrangements.  Outside of North America, software is
generally licensed to customers exclusive of the bill processing.  Most of the
Company's revenue is based on the number of subscribers or end-users of the
Company's clients, the number of billing statements mailed and/or the number of
images produced under contracts with terms ranging from three to seven years. 
Clients are billed monthly, generally based on the number of end-users they
serve.  As a result, a significant portion of the Company's revenue is recurring
and increases as the service provider's customer base grows.  In addition, the
Company sells computer hardware and provides associated maintenance.  Leasing is
provided as an alternative to equipment purchases for clients.  The Company,
since the acquisition of Custima, also provides customer care and billing
software for the utilities industry.  See note 4 to the financial statements. 

     The Company sells its software and services to cable television and 
multi-service providers in North America and the U.K. primarily through a 
direct sales force.  Outside of North America and the U.K., the Company 
markets its software primarily through strategic alliances with companies 
specializing in system integration or computer hardware manufacturing that 
are capable of providing local sales and support.  Building and maintaining 
relationships with its clients is an important part of the Company's strategy 
because selling cycles can extend a year or longer.  The Company has 
committed increased resources to the diversification of its customer base, 
focusing primarily on international, multi-service, telecommunications, 
utilities and other high-volume markets because it believes these represent 
opportunities to grow at rates greater than, and decrease its dependence 
upon, the U.S. cable television marketplace.

     On September 2, 1998, the Company announced a proposed merger with DST 
Systems, Inc. ("DST").  See note 5 to the financial statements.  The merger 
is intended to strengthen the operating, financial and competitive aspects of 
the combined company through combined economies of scale, coordinated 
production efficiencies and the elimination of duplicate costs.  The Company 
believes that the combined company will have a significant presence in terms 
of market share in the mutual fund shareowner processing, subscriber 
management services and output processing industries.  

                                       10

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the Company's
consolidated condensed statements of operations and the percentage of revenue
represented by each line item (dollars in thousands):

<TABLE>
<CAPTION>

                                                      Three months ended                         Nine months ended
                                                         September 30,                              September 30,
                                           ----------------------------------------   -----------------------------------------
                                                  1998                  1997                   1998                  1997
                                           ------------------    ------------------   -------------------   -------------------
                                                                                 (Unaudited)
<S>                                       <C>          <C>      <C>         <C>      <C>          <C>      <C>            <C> 
Revenue:
  Software and services:
    Customer management                    $40,287       48.8%   $39,646       54.2%  $121,856       49.4%  $115,080       53.1%
    Bill processing                         37,114       45.0     28,998       39.7    105,787       42.9     86,917       40.1
                                           -------      -----    -------      -----   --------      -----   --------      -----
      Total                                 77,401       93.8     68,644       93.9    227,643       92.3    201,997       93.2
  Equipment sales and services               5,102        6.2      4,479        6.1     18,922        7.7     14,794        6.8
                                           -------      -----    -------      -----   --------      -----   --------      -----
      Total revenue                         82,503      100.0     73,123      100.0    246,565      100.0    216,791      100.0
                                           -------      -----    -------      -----   --------      -----   --------      -----
Cost of revenue:
  Software and services:
    Customer management                     20,219       24.5     17,759       24.3     58,799       23.9     53,670       24.8
    Bill processing                         25,599       31.0     20,923       28.6     75,063       30.4     62,847       29.0
                                           -------      -----    -------      -----   --------      -----   --------      -----
      Total                                 45,818       55.5     38,682       52.9    133,862       54.3    116,517       53.8
  Equipment sales and services               2,974        3.6      2,536        3.5     12,148        4.9      8,062        3.7
                                           -------      -----    -------      -----   --------      -----   --------      -----
      Total cost of revenue                 48,792       59.1     41,218       56.4    146,010       59.2    124,579       57.5
                                           -------      -----    -------      -----   --------      -----   --------      -----
Gross profit                                33,711       40.9     31,905       43.6    100,555       40.8     92,212       42.5
                                           -------      -----    -------      -----   --------      -----   --------      -----
Operating expenses:
  Research and development                   8,719       10.6      7,323       10.0     25,376       10.3     22,054       10.2
  Selling, general and  administrative      14,385       17.4     14,799       20.3     42,873       17.4     42,261       19.4
  Non-recurring charges                      7,100        8.6        -          -        7,100        2.9        -          -  
                                           -------      -----    -------      -----   --------      -----   --------      -----
      Total operating expenses              30,204       36.6     22,122       30.3     75,349       30.6     64,315       29.6
                                           -------      -----    -------      -----   --------      -----   --------      -----
Operating income                             3,507        4.3      9,783       13.3     25,206       10.2     27,897       12.9
Interest (income) expense                      (39)       -          109         .1        250         .1        464         .2
                                           -------      -----    -------      -----   --------      -----   --------      -----
Income before income taxes                   3,546        4.3      9,674       13.2     24,956       10.1     27,433       12.7

Income tax provision                         3,488        4.2      3,883        5.3     11,838        4.8     10,987        5.1
                                           -------      -----    -------      -----   --------      -----   --------      -----
Net income                                  $   58        0.1%   $ 5,791        7.9%   $13,118        5.3%   $16,446        7.6%
                                           -------      -----    -------      -----   --------      -----   --------      -----
                                           -------      -----    -------      -----   --------      -----   --------      -----

</TABLE>

                                       11

<PAGE>

The following table sets forth revenue and percentage of revenue by line item 
exclusive of a discontinued customer, revenue of a discontinued customer and 
total revenue (dollars in thousands):

<TABLE>
<CAPTION>

                                                      Three months ended                         Nine months ended
                                                         September 30,                              September 30,
                                           ----------------------------------------   -----------------------------------------
                                                  1998                  1997                   1998                  1997
                                           ------------------    ------------------   -------------------   -------------------
                                                                                 (Unaudited)
<S>                                       <C>          <C>      <C>         <C>      <C>          <C>      <C>            <C> 
  Software and services:
    Customer management                    $32,875       39.9%   $29,256       40.0%  $ 94,691       38.4%  $ 82,956       38.3%
    Bill processing                         35,959       43.6     28,768       39.4    102,431       41.6     85,869       39.6
  Equipment sales and services               3,810        4.6      2,637        3.6     14,614        5.9      8,630        4.0
                                           -------      -----    -------      -----   --------      -----   --------      -----
     Total                                  72,644       88.1     60,661       83.0    211,736       85.9    177,455       81.9
  Discontinued customer                      9,859       11.9     12,462       17.0     34,829       14.1     39,336       18.1
                                           -------      -----    -------      -----   --------      -----   --------      -----
      Total                                $82,503     100.0%    $73,123      100.0%  $246,565     100.0%   $216,791     100.0%
                                           -------      -----    -------      -----   --------      -----   --------      -----
                                           -------      -----    -------      -----   --------      -----   --------      -----

</TABLE>




                                       12

<PAGE>

REVENUE

     Revenue is derived primarily from providing customer management software
and services to cable television and multi-service providers in more than 20
countries and from providing bill processing services primarily to
telecommunications companies in the U.S.  Software and bill processing services
to cable television and multi-service providers are provided generally under
bundled service arrangements.  In addition, the Company sells computer hardware
and associated maintenance and leasing services to cable television service
providers in connection with licensing the Company's software and provides
design, printing and graphics services in connection with its bill processing
services.  Most of the software and services revenue is based on the number of
end-users of the services of the Company's clients, the number of bills mailed
and/or the number of images produced under long-term contracts, which usually
have terms ranging from three to seven years. The Company generally recognizes
software and bill processing services revenue (collectively referred to as
"software and services revenue") as services are performed. Certain of the
Company's software licenses provide for fixed or minimum fees.  Fixed fees and
the present value of minimum fees under software licenses are recognized as
revenue upon installation.  Such amounts have not been material.  Most contracts
include provisions for inflation-based adjustments, including changes in paper
costs. 

     Total revenue increased 13% to $82.5 million in the third quarter of 1998
from $73.1 million in the comparable quarter in 1997.  The increase in the 1998
third quarter over the same period in 1997 was attributable to growth in revenue
from customer management software and services of $.6 million or 2%, growth in
bill processing of $8.1 million or 28%, and an increase in equipment sales and
services of $.6 million or 14%.

     Total revenue increased by 14% to $246.6 million for the nine months ended
September 30, 1998 from $216.8 million in the comparable period in 1997.  The
increase in the first nine months of 1998 over the same period in 1997 was
attributable to growth in revenue from customer management software and services
of $6.8 million or 6%, growth in bill processing of $18.9 million or 22%, and an
increase in equipment sales and services of $4.1 million or 28%.

     Tele-Communications, Inc. ("TCI") represented approximately 12% and 14% of
the Company's total revenue in the third quarter and nine months ended September
30, 1998, respectively, and 17% and 18% in the same periods in 1997.  TCI
represented approximately 18% and 22% of the Company's customer management
software and services revenue in the third quarter and nine months ended
September 30, 1998, respectively, and 26% and 28% in the same periods in 1997. 
More than two years ago, TCI announced and began development of an in-house
system to replace the Company's customer management software.  On August 11,
1997, TCI informed the Company that it had agreed to sell its partially
developed in-house system to a competitor of the Company and was going to enter
into an exclusive long-term contract for customer management software with that
competitor.  Under the contract between TCI and the Company, which expires on
December 31, 1999, TCI may remove subscribers after giving ninety days' notice,
without significant economic penalty.  Although TCI has not provided the Company
with a definitive schedule for conversion of the TCI subscribers to the
competitor's software, the conversions have begun, and it is believed that TCI
and the competitor wish to complete the transfer by the end of 1998. 
Additionally, the Company believes that TCI's contract with the competitor
provides financial incentives to TCI for converting subscribers of certain TCI
affiliates, some of whom are currently clients of the Company, to the
competitor's software.  Revenue from TCI has declined in absolute dollars from
$12.5 million in the third quarter 1997 to $9.9 million in the third quarter
1998 or 21% and from $39.3 million for the nine months ended September 30, 1997
to $34.8 million in the same period in 1998 or 11%.  The decrease was primarily
from a reduction in the number of subscribers serviced by TCI and services
purchased by TCI.  The total number of TCI subscribers on the Company's software
declined by approximately 5.6 million or 51% as of September 30, 1998 compared
to December 31, 1997.  The actual rate of decline in the number of TCI
subscribers served and revenue derived from TCI cannot be definitively estimated
on a quarter by quarter basis.  However, the Company believes the decline in
revenue from TCI will increase throughout the year.  The Company intends to
mitigate the impact of this by aggressively pursuing other domestic and
international opportunities and allocating the Company's resources to other
existing or new customers. 

                                       13

<PAGE>

If these efforts are not fully successful in mitigating the loss of TCI
business, the Company believes that it has sufficient financial resources and
borrowing ability to meet its obligations and fulfill its customer commitments
during and after the conversion period.  To the extent the Company is not
successful in generating additional revenue to offset the expected decline in
revenue from TCI, such decline in revenue could have a material adverse effect
on the Company's consolidated financial position, results of operations or cash
flows.   

     Customer management software and services revenue, exclusive of revenue
from TCI, increased 12% to $32.9 million in the third quarter of 1998 from
$29.3 million in the comparable 1997 quarter.  Bill processing revenue as a
stand-alone service increased 25% to $36.0 million in the third quarter of 1998
from $28.8 million in the comparable quarter of the prior year.  Equipment sales
and services revenue increased to $3.8 million in the third quarter of 1998 from
$2.6 in the third quarter of 1997. 

     Customer management software and services revenue, exclusive of revenue
from TCI, increased by 14% to $94.7 million for the nine months ended September
30, 1998 from $83.0 million for the same period in 1997.  Bill processing
revenue increased by 19% to $102.4 million for the nine months ended September
30, 1998 from $85.9 million for the same period in 1997.  Equipment sales and
services revenue increased to $14.6 million for the nine months ended September
30, 1998 from $8.6 million for the same period in 1997.  

     Growth in customer management software and services revenue for the 
third quarter and nine months ending September 30, 1998 compared to the same 
periods in 1997, exclusive of revenue from TCI, came primarily from increases 
in the number of subscribers of existing and new clients in the U.S. and 
international markets, increases in prices allowed by existing contracts, and 
migration of clients to higher-priced services.  Growth in bill processing 
revenue was derived from an increase in the volume of statements and images 
produced because of the internal growth of existing customers and the 
acquisition of new customers, primarily in telecommunications and other 
high-volume markets.  The increase in equipment sales and services revenue 
was primarily the result of large equipment sales in the first and second 
quarters of 1998 and increased leasing revenues related to new leasing 
transactions which occurred in the latter part of 1997.  Equipment sales 
volumes experienced in prior quarters should not be considered indicative of 
future equipment sales volumes.     

     Three significant clients, including TCI, accounted for $27.3 million and
$28.3 million or 33% and 39% of total revenue in the third quarter of 1998 and
1997, respectively, and $88.8 million and $87.8 million or 36% and 41% of total
revenue for the nine months ended September 30, 1998 and 1997, respectively. 
See "-Certain Factors That May Affect Future Results" regarding these clients
and other factors that may impact future revenue. 

COST OF REVENUE AND GROSS PROFIT 

     Cost of software and services revenue consists primarily of direct labor,
equipment-related expenses, cost of materials such as paper, and facilities
expense.  Cost of equipment sales and services revenue consists primarily of
computer hardware purchased for resale or lease and third-party maintenance. 

     The Company's gross profit margin of approximately 41% in the third 
quarter of 1998 was lower than the third quarter 1997 gross margin of 
approximately 44%. The gross profit margin for the nine months ending 
September 30, 1998 was 41% compared to 43% for the same period in 1997.  The 
software and services gross profit margin declined to approximately 41% in 
the third quarter of 1998 from approximately 44% for the same period in 1997. 
The software and services gross profit margin for the nine months ending 
September 30, 1998 was approximately 41% compared to 42% for the same period 
in 1997.  The customer management software and services gross profit margin 
was 50% in the third quarter of 1998 compared to 55% in the third quarter of 
1997.  The gross profit margin for customer management software and services 
for the nine months ending September 30, 1998 was 52% compared to 53% for the 
same period in 1997.  The bill processing services gross profit margin was 
31% in the third quarter of 1998 compared to 28% in 1997.  The bill 
processing gross profit margin was 29% for the first nine months ending 
September 30, 1998 compared to 28% for the same period in 1997.   The gross 
profit margin on equipment-related revenue decreased to 42% and 36% in the 
third quarter and nine months ending September 30, 1998 from 43% and 46% for 
the same periods in 1997, respectively. 

                                      14

<PAGE>

     The gross profit margin decrease in customer management software and
services in the third quarter of 1998 and nine months ended September 30, 1998,
compared to the same periods in 1997, is attributable to inefficiencies
associated with transitioning new customers on to the Company's products and
services while transitioning TCI off, and, to a lesser degree, the consolidation
of Custima's operations.  The increase in the bill processing gross margin for
the third quarter and nine months ended September 30, 1998 was attributed to
increased revenues while realizing processing efficiencies and economies of
scale.  The decline in the software and services gross profit margin, consisting
of customer management and bill processing, was due to the inefficiencies cited
above as well as a shift in revenue mix consisting of an increased percentage of
the gross profit contribution flowing from the lower margin bill processing
business.  Gross margins on equipment sales and services typically vary based on
the mix of equipment sales and services and underlying demand.  The decline in
the gross profit margin for equipment sales and services in the third quarter
and nine months ended September 30, 1998, in comparison to the same periods in
the prior year, is attributable to discounting on equipment sales and increased
depreciation expense on leased equipment. 

RESEARCH AND DEVELOPMENT

     Research and development costs relate primarily to ongoing product
development and consist of personnel costs, consulting, testing, supplies,
facilities and depreciation expenses.  Once the product under development
reaches technological feasibility, the development expenditures are capitalized
and amortized.  

     Research and development expense was $8.7 million, or 11% of revenue, in
the third quarter of 1998 compared to $7.3 million, or 10% of revenue, for the
same period in 1997.  For the nine months ended September 30, 1998, research and
development expense was $25.4 million, or 10% of revenue, compared to $22.1
million, also approximately 10% of revenue, for the same period in 1997.  The
increased expenditures are attributable to the Company's commitment to the
development of new products and enhancements to existing products.  

YEAR 2000 COMPLIANCE

     Many computer programs use only two digits to identify a year in a date
field within the program (e.g., "98" or "02").  If not corrected, computer
applications making calculations and comparisons in different centuries may
cause inaccurate results or fail by or at the Year 2000.  Because the Company
licenses software and provides services relating to such software and otherwise
makes extensive use of date-sensitive computer programs, the Company may have
exposure to Year 2000 issues.

     The Company has completed a review of its IT systems, such as internal
computer systems, financial and payroll systems and software development
systems, and its non-IT systems, such as HVAC, security and elevators, to
identify systems that could be affected by the "Year 2000 Issue."  The Company
has developed an enterprise-wide implementation plan to resolve any Year 2000
issues in its internal systems.  With modifications to existing systems, which
are expected to be completed by September 30, 1999, the Company believes the
Year 2000 Issue will not pose significant operational problems for its computer
systems.  The Company is in the process of quantifying internal staff costs as
well as consulting and other expenses related to enhancements necessary to
prepare the systems for the Year 2000.  The Company currently believes that such
costs will not be material; however, there can be no assurance of this.
     
     The Company has also completed an assessment of third-party Year 2000
dependencies, has determined risk levels associated with those dependencies and
is in the process of developing contingency plans, which are expected to be
completed by December 31, 1998, relative to those dependencies.  The Company
believes that it will not experience any Year 2000 problems from most of its key
vendors and suppliers; however, the Company is unable to determine whether
certain suppliers, principally utility providers, will be Year 2000 compliant in
time.  The Company is developing contingency plans in the event that a key
vendor or supplier causes or could potentially cause any Year 2000 problems, but
there can be no assurance that an acceptable contingency plan can be developed
for certain suppliers, such as utilities, or that any such plan would
successfully protect the Company from any Year 2000 exposure.   There can also
be no assurance that a vendor or supplier that appears to be Year 2000 compliant
will not experience problems that could adversely affect the Company.   The
Company is specifically dependent upon uninterrupted service from utilities
providers.  In the event that service is disrupted as a result of a utility
provider not being Year 2000 ready, the Company's results of operations could be
materially adversely affected.

                                      15

<PAGE>

     The Company believes that its current products do not require further 
modification for the Year 2000 Issue and does not anticipate any material 
exposures related to the Year 2000 Issue for its products and services.  The 
Company expects that the current installed base of its customer management 
software will be fully replaced with Year 2000-ready software by June 30, 
1999, through both the customers' regular upgrade program and the customers' 
maintenance contracts.  In certain cases, the Company will be required under 
the applicable maintenance contract to provide Year 2000-compliant software 
free of charge.  The Company believes that the cost of such upgrades will be 
immaterial. The Company has since 1995 been implementing an on-going program 
of upgrading or replacing its bill processing computer systems.  A part of 
such program includes providing Year 2000 capability.  The cost of including 
Year 2000 compliance as part of the upgrade program is immaterial.  The 
program is expected to be completed by September 30, 1999.

     Factors that could impact the Company's ability to make the necessary
modifications and deploy those modifications across the current computer systems
include, but are not limited to, the availability and cost of trained personnel
and the ability of such personnel to complete the current remediation plan on
schedule.  However, if such remediation is not completed on a timely basis or is
more costly to implement than currently anticipated, the Company's business,
financial condition or results of operations could be materially adversely
affected.  Further, the Company cannot anticipate the degree to which it may be
the subject of claims or complaints regarding the Year 2000 Issue.

SELLING, GENERAL AND ADMINISTRATIVE 

     Selling expenses consist of compensation for sales and marketing personnel
including commissions and related bonuses, travel, trade shows and promotional
expenses.  General and administrative expenses consist of compensation for
administration, finance and general management personnel, as well as legal and
accounting fees. 

     Total selling, general and administrative expenses did not significantly
vary in the third quarter and nine months ended September 30, 1998 in comparison
to the same periods in 1997.  Selling and marketing expenditures decreased by 2%
in the third quarter of 1998 compared to the third quarter of 1997.  As a
percentage of revenue, selling and marketing expenditures decreased by
approximately 1% in the third quarter and first nine months of 1998 compared to
the same periods in 1997. General and administrative expenses for the third
quarter decreased by approximately 4% and decreased by less than 1% in the nine
months ended September 30, 1998 compared to the same periods in 1997.  As a
percentage of revenue, general and administrative expense in the third quarter
declined by approximately 2 percentage points compared to the same period in
1997 and by approximately 1 percentage point for the first nine months of 1998
compared to the same period in 1997.  The decline in selling, general and
administrative expense as a percentage of revenue in the third quarter and nine
months ended September 30, 1998, when compared to the same periods in 1997, was
due to increased revenue coupled with cost containment efforts.      

ACQUISITION OF BUSINESS AND NON-RECURRING CHARGES

     In August of 1998, the Company purchased for cash 100% of the stock of
Custima International Holdings, plc (Custima).  Based in the United Kingdom,
Custima provides customer management and billing software to the utilities
industry and supports electric, gas, water and waste utilities on an
international basis.  The acquisition of Custima is expected to facilitate the
Company's efforts to expand and diversify its product offerings into the
utilities industry both domestically and internationally.    

     The aggregate cost of the acquisition was approximately $15.4 million.  The
acquisition is being accounted for as a purchase, and accordingly, the financial
statements include the results of operations from the date of acquisition.  The
purchase includes existing technology, in-process research and development,
trademarks and in-place workforce of approximately $15.2 million.     
     
     The Company incurred $7.1 million in non-recurring charges pertaining to
the acquisition of Custima.  The non-recurring charges consist of an in-process
research and development write-off of $6.0 million and a reorganization charge
for redundant facilities and workforce of $1.1 million.  See note 4 to the
financial statements.    

                                      16

<PAGE>

INTEREST EXPENSE 

     Interest expense consists of interest on borrowings under revolving credit
agreements, revenue bonds pertaining to certain of the Company's facilities and
notes and credit agreements related to the Company's leasing subsidiary. 
Interest expense for the three and nine months ended September 30, 1998 did not
materially change in comparison to the same periods in 1997.    

INCOME TAXES 

     The Company's provision for income taxes represents estimated federal, 
state and foreign income taxes.  The income tax rate was 36% and 38% for the 
quarter and nine months ended September 30, 1998, respectively, after 
adjustment for the non-deductible in-process research and development charge 
of $6.0 million and non-deductible amortization of goodwill related to the 
Custima acquisition.  The cumulative tax rate adjustment from 39% for the 
first six months of 1998 to 38% for the nine-month period ending September 
30, 1998 was effected in the third quarter of 1998.  This was approximately 
two percentage points lower than the 1997 comparable periods.  The rate 
decline is attributable to the mix of foreign and domestic income and the 
application of tax reduction strategies. 

NET INCOME 

     Adjusted information is provided to facilitate comparisons to prior
periods.

     Net income, as adjusted to exclude the effects of the non-recurring charges
of $7.1 million and Custima's operating loss of  $.7 million, would have
been $7.3 million for the third quarter of 1998, an increase of approximately
26% over the same period in 1997.  For the first nine months of 1998, net income
would have been $20.4 million or 24% higher than the same period in 1997. 
Diluted earnings per share would have been $.30 and $.85 for the third quarter
and nine months ending September 30, 1998 compared to $.24 and $.68 in the same
periods in 1997, respectively.         

     Net income as reported decreased by $5.7 million or 99% and by $3.3 million
or 20% in the third quarter and nine months ended September 30, 1998 compared to
the same periods in 1997, respectively. The decline in net income was primarily
the result of the $7.1 million in non-recurring charges explained above.  

LIQUIDITY AND CAPITAL RESOURCES

     The Company's liquidity position remained strong through the third quarter
of 1998.  Total long-term debt, including the current portion, was $7.0 million
as of September 30, 1998 compared to $9.3 million at December 31, 1997.  The
debt outstanding at September 30, 1998 pertains to the Company's leasing
subsidiary and is collateralized, without recourse, by rents receivable.  At
September 30, 1998, the Company had an available $50 million line of credit. 
There were no borrowings outstanding at September 30, 1998.  Total capital
expenditures through the third quarter of 1998 were $23.4 million compared to
$24.0 million in the same period in 1997.  The Company, in 1998, has expended
approximately $2.6 million, net of issuances, for the repurchase of stock.  In
addition, the Company has contributed approximately 312,000 shares of treasury
stock to fund its $6.5 million obligation to the 401(k) Retirement Plan.    

     The Company collects from its clients and remits to the U.S. Postal Service
a significant amount of postage.  Substantially all contracts allow the Company
to pre-bill and/or require deposits from its clients to mitigate the effect on
cash flow. 

     The Company continues to make significant investments in capital equipment,
facilities, and research and development as well as to expand into new domestic
and international markets.  The Company believes that net cash from operations
and the Company's borrowing availability will be sufficient to support
operations through the next twelve months. 

                                      17

<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

     A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, changes in the global
communications market, concentration in the cable television market, the
Company's ability to retain existing customers and attract new customers in the
global communications market as well as utilities and other high-volume service
industries, the Company's continuing ability to develop products that are
responsive to the evolving needs of its customers, increased competition,
changes in operating expenses, changes in government regulation of the Company's
customers and general economic factors in the U.S. as well as the international
marketplace.

CHANGING COMMUNICATIONS MARKET AND DEVELOPMENT OF SOFTWARE AND SERVICES

     The communications market is characterized by rapid technological
developments, changes in client requirements, evolving industry standards and
frequent new product introductions.  The Company's future success will depend,
in part, upon its ability to enhance its existing applications, develop and
introduce new products that take advantage of technological advances and respond
promptly to new client requirements and evolving industry standards.  The
Company has expended considerable funds to develop products to serve the 
changing communications market.  If the communications market grows or converges
more slowly than anticipated or the Company's products and services fail to
achieve market acceptance, there could be a material adverse effect on the
financial condition and results of operations of the Company.  

     The Company's development projects are subject to all of the risks
associated with the development of new software and other products based on
innovative technologies.  The failure of such development projects could have a
material adverse effect on the financial condition and results of operations of
the Company. 

DEPENDENCE ON THE CABLE TELEVISION MARKET 
     
     Although the Company's current strategy is to address the needs of the
global communications market and other high volume service providers, the
Company is highly dependent on the cable television market.  For the three and
nine months ended September 30, 1998, more than 55% of the Company's revenue was
derived from sales to cable television service providers.  Although the cable
television industry outside of North America is generally expanding, the number
of providers of cable television service in the U.S. has been declining, due to
industry consolidation, resulting in a reduction of the number of potential
cable television clients in the U.S.  As the number of companies serving the
available subscriber base decreases, the loss of a single client could have a
greater adverse impact on the Company than in the past.  Even if the number of
clients remains the same, a decrease in the number of subscribers served by the
Company's cable television clients would result in lower revenue for the
Company.  Furthermore, a decrease in the number of cable subscribers or any
adverse development in the cable television market could have a material adverse
effect on the financial condition and results of operations of the Company. 

CONCENTRATION OF CLIENT BASE

     Aggregate revenue from the Company's ten largest clients accounted for
approximately 65% of total revenue for the three and nine months ended September
30, 1998.  Loss of all or a significant part of the business of any of these
clients or a decrease in their respective customer bases would have a material
adverse effect on the financial condition and results of operations of the
Company.  Three of the Company's clients, including TCI, represented
approximately 33% and 39% of total revenue in the third quarter of 1998 and 1997
and 36% and 41% of total revenue for the nine months ended September 30, 1998
and 1997, respectively.  

     TCI represented approximately 12% and 14% of the Company's revenue in the
third quarter and nine months ended September 30, 1998, respectively, and 17%
and 18% in the same periods in 1997.

                                       18

<PAGE>

     The Company's largest bill processing client, Ameritech Corporation, 
accounted for 12% of total revenue in both the third quarter and nine months 
ended September 30, 1998 and for 13% and 14% of total revenue in the third 
quarter and nine months ended September 30, 1997, respectively.  Ameritech 
became a client early in 1994 and has contracts with the Company expiring in 
2000 and 2001.  Another bill processing client, Cincinnati Bell Information 
Systems, Inc. ("CBIS"), a client since 1990, accounted for 9% and 10% of total 
revenue in the third quarter and nine months ended September 30, 1998, 
respectively, and 9% of total revenue in both the third quarter and nine 
months ended September 30, 1997.  Early in 1997, the Company entered into a 
new contract with CBIS expiring in 2002. 

POTENTIAL LOSS OF REVENUE

     In addition to the loss of revenue from TCI as discussed in 
"Management's Discussion And Analysis Of Financial Condition And Results Of 
Operations -Revenue," another customer that accounted for approximately 6% of 
the Company's total revenue in both the third quarter and nine months ended 
September 30, 1998 and 5% in the same periods in 1997, and for approximately 
10% of the Company's customer management software and services revenue in 
both the third quarter and nine months ended September 30, 1998 and 8% in the 
same periods in 1997, has orally advised the Company that it may move to an 
alternative solution for its customer management software requirements.  The 
customer has informed the Company that it expects that a competitor of the 
Company may have this alternative available for pilot testing in mid-1999 
and, if that test is successful, the customer would begin migrating its 
subscribers to this alternative in the first or second quarter of 2000.  The 
migration would extend over twelve months or longer.  Under the contract 
between the customer and the Company, which expires in July 2003, the 
customer may remove subscribers after giving ninety days' notice, without 
significant economic penalty. 

VARIABILITY OF QUARTERLY OPERATING RESULTS 

     The Company's quarterly and annual operating results may fluctuate from 
quarter to quarter and year to year depending on various factors, including 
the impact of significant start-up costs associated with initiating the 
delivery of contracted services to new clients, the hiring of additional 
staff, new product development and other expenses, introduction of new 
products by competitors, pricing pressures, the effect of acquisitions, the 
evolving and unpredictable nature of the markets in which the Company's 
products and services are sold and general economic conditions.  See 
"Management's Discussion And Analysis Of Financial Condition And Results Of 
Operations - Acquisition of Business and Non-recurring Charges."

YEAR 2000 COMPLIANCE

     The Company has completed "Year 2000" related reviews of its internal
computer systems such as financial, payroll and software development systems as
well as its production systems and products.  The Company has also completed
Year 2000 assessments of external third-party software and services dependencies
that might have an impact on the operations of the Company.  The Company has
developed an enterprise-wide implementation plan to resolve any Year 2000
problems, and with current and future modifications of existing systems,
believes Year 2000-related issues will not pose significant operational problems
for its computer systems.  Also, the Company believes it will not experience any
Year 2000 problems related to most of its external third-party software and
services dependencies.  The Company, while still in the process of determining
costs related to Year 2000 preparation, does not believe that such costs will be
material.  However, there can be no assurance that the Company will not
experience some type of computer hardware, software or operational problem that
is related to the Year 2000 Issue, and there can be no assurance that such a
problem will not have a material adverse impact on the operations or financial
position of the Company or the Company's customers.  Although costs related to
Year 2000 preparedness are still being quantified, there also can be no
assurance that these costs will not have an adverse material impact to the
Company and its results of operations.  See "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations - Year 2000
Compliance."

                                       19

<PAGE>

NEW PRODUCTS, RAPID TECHNOLOGICAL CHANGES AND COMPETITION 

     The market for the Company's products and services is highly competitive,
and competition is increasing as additional market opportunities arise.  The
Company believes its most significant competitors for customer management
software and services are independent providers of such software and services
and in-house systems.

     Through the acquisition of Custima, the Company is entering into a new
market that is currently undergoing significant and rapid changes.  There can be
no assurance that the Company will be successful in this new market.  See note 4
to the financial statements.

     In addition, competitive factors could influence or alter the Company's
overall revenue mix between customer management software, services, including
bill processing services, and equipment sales and leasing.  Any of these factors
could have a material adverse effect on the financial condition and results of
operations, including gross profit margins, of the Company. 

ELECTRONIC BILL PRESENTMENT

     The Company's bill processing business is dependent on its ability to
design, handle, print and distribute via first class mail paper-based statements
and related materials.  A number of companies, many with resources greater than
the Company, are developing and introducing electronic bill presentment services
that could reduce, if not eliminate, the need for paper statements.

     The Company has introduced products, begun customer applications and
pilots, and has formed alliances with other companies for the introduction,
marketing and deployment of electronic bill presentment and other electronic
services.  The maintenance of the Company's paper statement expertise,
successful development and marketing of electronic services and rate of customer
acceptance of such services are all subject to the technological, competitive
and market condition risks discussed in various sections of this report.

CLIENT FAILURE TO RENEW OR UTILIZE CONTRACTS 

     Substantially all of the Company's revenue is derived from the sale of
services or products under long-term contracts with its clients.  The Company
does not have the unilateral option to extend the terms of such contracts upon
their expiration.  In addition, certain of the Company's contracts do not
require clients to make any minimum purchase.  Others require minimum purchases
that are substantially below the current level of business under such contracts,
and all such contracts are cancelable by clients under certain conditions.  The
failure of clients to renew contracts, a reduction in usage by clients under any
contracts or the cancellation of contracts could have a material adverse effect
on the Company's financial condition and results of operations.  See
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations - Revenue."

INTERNATIONAL BUSINESS ACTIVITIES 

     The Company's strategy to diversify its customer base includes the selling
of its products in a variety of international markets.  To date, the Company's
primary customer management software has been installed in more than 20
countries.  Generally, the Company operates in U.S. dollars, which reduces but
does not eliminate exposure to the adverse impact of currency fluctuations. 
Currently, less than 10% of the Company's customer management software and
services revenue comes from international sources, and the Company is expanding
its international presence, primarily through third-party marketing and
distribution alliances.  The Company's current and proposed international
business activities are subject to certain inherent risks, including, but not
limited to, specific country, regional or global economic conditions, exchange
rate fluctuation and its impact on liquidity, changes in the national priorities
of any given country and cultural differences.  There can be no assurance that
such risks will not have a material adverse effect on the Company's future
international sales and, consequently, the Company's business, operating results
and financial condition. 

                                      20

<PAGE>

DEPENDENCE ON PROPRIETARY TECHNOLOGY 

     The Company relies on a combination of patent, trade secret and copyright
laws, nondisclosure agreements, and other contractual and technical measures to
protect its proprietary technology.  There can be no assurance that these
provisions will be adequate to protect its proprietary rights. There can be no
assurance that third parties will not assert infringement claims against the
Company or the Company's clients. 

     The Company has been advised by a cable customer that a third party has
orally asserted that patents held by the third party may be infringed by the
customer's use of interactive computer telephony systems, and that, should it
become necessary, the customer would seek indemnification from the Company.  To
the best of the Company's knowledge, no legal proceedings with regard to this
matter have been instituted against the customer or the Company as of the date
of this Report. There can be no assurance, however, that such claims, if
brought, would not have a material adverse effect on the Company.

MANAGEMENT OF GROWTH AND ATTRACTION AND RETENTION OF KEY PERSONNEL 

     Management of the Company's growth, which may occur both internally and
through acquisitions, may place a considerable strain on the Company's
management, operations and systems.  The Company's ability to execute its
business strategy will depend in part upon its ability to manage the demands of
a growing business.  Any failure of the Company's management team to effectively
manage growth could have a material adverse effect on the Company's business,
financial condition or results of operations. 

     The Company's future success depends in large part on the continued service
of its key management, sales, product development and operational personnel. 
The Company believes that its future success also depends on its ability to
attract and retain skilled technical, managerial and marketing personnel,
including, in particular, additional personnel in the areas of research and
development and technical support.  Competition for qualified personnel is
intense.  The Company has from time to time experienced difficulties in
recruiting qualified skilled technical personnel.  Failure by the Company to
attract and retain the personnel it requires could have a material adverse
effect on the financial condition and results of operations of the Company. 

GOVERNMENT REGULATION 

     The Company's existing and potential clients are subject to extensive
regulation, and certain of the Company's revenue opportunities may depend on
continued deregulation in the world-wide communications industry.  In addition,
the Company's clients are subject to certain regulations governing the privacy
and use of the customer information that is collected and managed by the
Company's products and services.  Regulatory changes that adversely affect the
Company's existing and potential clients could have a material adverse effect on
the financial condition and results of operations of the Company. 

VOLATILITY OF STOCK PRICE AND PROPOSED MERGER WITH DST SYSTEMS, INC.

     Although the Company believes that it has the product offerings and 
resources needed for continuing success, future revenue and margin trends 
cannot be reliably predicted and may cause the Company to adjust its 
operations.  The Company's stock price, like that of other technology 
companies, is subject to significant volatility.  The announcement of new 
products, services or technologies by the Company or its competitors, 
proposed mergers or acquisitions, quarterly variations in the Company's 
results of operations, changes in revenue or earnings estimates by the 
investment community and speculation in the press or investment community are 
among the factors affecting the Company's stock price.  In addition, the 
stock price may be affected by general market conditions and domestic and 
international macroeconomic factors unrelated to the Company's performance.  
Because of the foregoing reasons, recent trends should not be considered 
reliable indicators of future stock prices or financial results.   

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<PAGE>

     Certain risks are inherent in the proposed merger with DST Systems, Inc,
(DST) including, but not limited to, failure of the proposed merger to occur, or
of the combined company to realize certain efficiencies and economies of scale,
as well as an adverse reaction by the investment community or the combined
company's customers.  Furthermore, the Company's pre-merger stock price is
significantly influenced by the stock price of DST.  Any fluctuations in the
stock price of DST may have an effect on the stock price of the Company prior to
the merger.  Failure of the proposed merger to occur could have an adverse
effect on the Company's stock price as well as the Company's future operating
results due to the write-off of pre-merger costs incurred and possible market
stigma.                      


Item 3.   Quantitative and Qualitative Disclosures about Market Risk  
     
          Not Applicable
     

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings:

          The Company does not have any material pending legal proceedings other
          than ordinary routine litigation incidental to its normal business 
          activities.
      
Item 2.   Changes in Securities:
    
          None
    
Item 3.   Defaults Upon Senior Securities:
    
          None

Item 4.   Submission of Matters to a Vote of Security Holders:

          None
     
Item 5.   Other information:

          None

Item 6.   Exhibits and Reports on Form 8-K:
    
    (a)   Exhibits.

          Exhibit 11     Computation of Per Share Earnings
    
          Exhibit 27     Financial Data Schedule  
                     
    (b)   Reports on Form 8-K:

          The Registrant filed the following reports Form 8-K:   

          Registrant's Press Release, dated as of  September 2, 1998, announcing
          an agreement to merge USCS International, Inc. with a wholly owned 
          subsidiary of DST Systems, Inc.

          Registrant's Press Release, dated as of August 13, 1998, announcing 
          the acquisition of Custima International Holdings, plc, by CableData
          International, Ltd., a wholly owned subsidiary of USCS International,
          Inc. 

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<PAGE>

    USCS INTERNATIONAL, INC.

    SIGNATURE

    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 thereunto duly authorized.

    USCS INTERNATIONAL, INC.
    (Registrant)

    Dated: November 13, 1998  

    By:  /s/ DOUGLAS L. SHURTLEFF
    ------------------------------------
    Douglas L. Shurtleff
    Senior Vice-President of Finance and
    Chief Financial Office
    (Principal Financial Officer)













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