KANSAS CITY, Mo., April 27, 2017 /PRNewswire/ -- DST Systems,
Inc. (NYSE: DST) reported consolidated net income attributable to
DST of $246.4 million ($7.71 per diluted share) for the first quarter
2017 compared to $58.1 million
($1.70 per diluted share) for the
first quarter 2016. Income from continuing operations attributable
to DST Systems, Inc. ("DST Earnings"), which excludes discontinued
operations, was $243.5 million
($7.62 per diluted share) for the
first quarter 2017 compared to $39.6
million ($1.16 per diluted
share) for the first quarter 2016. Taking into account certain
non-GAAP adjustments, DST Earnings were $46.5 million ($1.45 per diluted share) for the first quarter
2017 compared to $38.7 million
($1.13 per diluted share) for the
first quarter 2016.
Steve Hooley, Chairman and CEO of
DST, said, "We are very pleased with the operating results for the
first quarter as well as the completion of our previously announced
acquisitions of State Street's ownership in both Boston Financial
Data Services, Inc. ("BFDS") and International Financial Data
Services Limited ("IFDS U.K."). We are confident that the
single-operator model for these businesses will allow us to
significantly enhance our clients' experience and improve the
execution of our long-term growth strategy."
Mr. Hooley continued, "BFDS currently services approximately
one-third of the U.S. Mutual Fund Industry assets utilizing DST's
recordkeeping software. The addition of BFDS' operations will allow
us to further engage our clients with additional business process
outsourcing service offerings, while driving enhanced quality and
leveraging our increased scale.
"Similar to DST in the United
States, IFDS U.K. services the U.K. and European collective
funds market, providing services to 13 of the top 20 asset managers
in the U.K. market. The business has a compelling upside for future
growth, including the opportunity to offer a more seamless
development and implementation of our wealth management platform in
the U.K. while continuing to also service the collectives market in
the U.K."
Mr. Hooley concluded, "Combined, the transactions are expected
to increase DST's annual operating revenues by approximately
$660.0 million and generate
incremental operating income of $40.0
million and diluted EPS accretion of $0.33 to $0.41 per
share within the first 12 months following the acquisition dates,
before synergies, restructuring costs and amortization. As we begin
to integrate the companies and carry out our key initiatives, we
expect to unlock meaningful synergies that will deliver both
strategic and financial gains. Looking ahead, we expect to achieve
synergies of $20.0 million within 18
months of closing, primarily resulting from the integration of
BFDS. Additionally, we expect to make key operational changes to
improve the future IFDS U.K. margins. The transactions better
position us to continue providing market leading services and
solutions to our clients while demonstrating DST's commitment to
maximizing value for both the Company and its shareholders."
Consolidated Financial Highlights
Operating Results
First quarter 2017 diluted earnings per share from continuing
operations (excludes discontinued operations), after non-GAAP
adjustments, was $1.45, an increase
of $0.32 or 28.3% from first quarter
2016. Significant items impacting the quarterly results include the
following:
- Consolidated operating revenues (excludes out-of-pocket
reimbursements) increased $18.5
million or 5.1% to $379.8
million as compared to first quarter 2016, primarily from
the businesses acquired during 2016 and 2017 as well as new and
existing client growth within our Healthcare Services
segment.
- Consolidated operating income increased $7.2 million or 12.1% to $66.6 million as compared to first quarter 2016.
The increase in operating income is primarily due to growth within
the Healthcare Services segment as well as reduced costs from
restructuring initiatives implemented in 2016.
- Equity in earnings of unconsolidated affiliates increased
$1.9 million to $8.6 million as compared to first quarter
2016.
- The tax rate for the first quarter 2017 was 34.0%, a decrease
as compared to 36.6% in the first quarter 2016, primarily due to
the adoption of the recently issued guidance for tax benefits on
employee share-based transactions in the first quarter
2017.
- Weighted average diluted shares outstanding for first quarter
2017 were 32.0 million, a decrease of 2.3 million shares or 6.7%
from first quarter 2016, primarily as a result of share repurchases
during 2016 and 2017.
First Quarter 2017 Financial Impacts of Recent
Acquisitions
As previously announced on March 27,
2017, we entered into a series of definitive agreements to
acquire State Street's equity interest in our BFDS joint venture,
which provides shareholder recordkeeping, intermediary and investor
services, and regulatory compliance solutions to financial services
clients in the United States. We
also acquired certain investments and real estate which were
previously held by our 50/50 joint venture with State Street,
International Financial Data Services L.P. ("IFDS L.P."). The
BFDS transaction, which closed on March 30,
2017, was structured as a non–taxable exchange under Section
355 of the Internal Revenue Code. At the closing, DST delivered to
State Street approximately 2.0 million shares of State Street
common stock with a fair value of $163.4
million, based on the stock price on the date of closing, in
exchange for their equity interest in BFDS. The number of shares
delivered at closing were calculated using the negotiated fair
value of $157.6 million and the
closing price of State Street's stock at signing.
Additionally, on March 27, 2017,
we acquired State Street's ownership of our IFDS U.K. joint
venture, an investor and policy holder administrative services and
technology provider to the collective funds, insurance, and
retirement industries, as well as certain real estate and the
equity interests in IFDS Percana Group Ltd. which were previously
held by our IFDS L.P. joint venture, for total cash consideration
of $175.0 million. The acquisition
was funded through cash on hand and our existing debt facilities.
We will continue to service offshore and cross-border markets in
Canada, Ireland and Luxembourg through IFDS L.P.
As a result of these transactions, we recorded a net pretax gain
of $43.8 million on the step-up of
our previous 50% ownership interests in BFDS and IFDS U.K. and a
realized gain of approximately $145.1
million from the exchange of State Street common stock, both
of which are included in Other income on the consolidated statement
of income. Additionally, prior to the acquisitions, our joint
ventures BFDS and IFDS L.P. recognized gains on the step-up of
certain investments and real estate assets that were distributed
out of the entities resulting in incremental equity in earnings
during the quarter of $10.6 million.
We recorded a net tax benefit on the transactions of $1.2 million primarily as a result of the
reversal of previously accrued deferred tax liabilities on the
unrealized gains in State Street stock and the basis differences in
our prior investments in BFDS and IFDS U.K. Additionally, due to
the non-taxable nature of the exchange transaction, there was no
tax expense recorded on the realized gain on the State Street
shares. The realized gains and related tax impacts associated with
the acquisitions were adjusted for in determining our non-GAAP
results for the first quarter 2017. We have consolidated the
operating results of the acquired companies from the applicable
closing dates of the respective transactions through March 31, 2017.
Revised Segment Presentation
Beginning in first quarter 2017, DST established a new
reportable segment structure which separates the previously
reported Financial Services segment into two new segments, Domestic
Financial Services and International Financial Services based upon
the geographical location of the revenue-generating business. The
activity within the previously reported Investments and Other
segment has now been included in either the Domestic or
International Financial Services segments based on the business
supported. The Healthcare Services segment remains unchanged. The
new segment presentation is reflective of how management is now
operating the business and making resource allocations following
the acquisitions of IFDS U.K. and BFDS in the first quarter 2017 as
well as the recent reductions in non-core investment assets
resulting from monetizations and the use of State Street stock in
the BFDS exchange transaction.
Prior periods presented have been revised to reflect the new
reportable operating segments. Quarterly revised segment
information for 2016 has been provided within the Supplemental
Historical Segment Information section at the end of this news
release.
Share Repurchase Activity
During the first quarter 2017, the Company spent $75.0 million to repurchase approximately 666,000
shares of DST common stock. During April
2017, an additional $75.0
million was spent to repurchase approximately 612,000 shares
of DST common stock, which exhausted the existing share repurchase
plan.
Detailed Review of Financial Results
The following discussion of financial results takes into account
the non-GAAP adjustments described in the section entitled "Use of
Non-GAAP Financial Information" and detailed in the attached
schedule titled "Reconciliation of Reported Results to Non-GAAP
Results."
Segment Results
Domestic Financial Services Segment
Operating revenues for the Domestic Financial Services segment
for first quarter 2017 increased $7.6
million or 3.1% to $254.0
million as compared to first quarter 2016. The operating
revenue increase is primarily driven from a full quarter of results
from KRFS which was acquired in late-February 2016 and two days of operating
revenues from BFDS in 2017, which combined contributed
approximately $6.6 million of
incremental revenues during the first quarter 2017. In addition,
operating revenues increased from organic growth and increased
market movement at ALPS as well as new client growth within our
Brokerage Solutions business from the previous conversion of
approximately 10 million subaccounts in third quarter 2016. These
increases were partly offset by lower revenue resulting
from exiting certain product offerings in 2016 and a decline
in mutual fund registered shareowner account processing revenue.
Software license revenues of $5.3
million in first quarter 2017 were also $0.1 million lower as compared to first quarter
2016.
Domestic Financial Services segment operating income increased
$5.2 million or 12.8% during first
quarter 2017 to $45.7 million as
compared to first quarter 2016. The increase in operating income is
primarily due to higher revenues and increased cost
savings from the previously implemented restructuring and
other cost containment initiatives which have resulted in lower
headcount, partially offset by a slight increase in information
technology transformation spend. Operating margin for first quarter
2017 was 18.0% as compared to 16.4% in 2016.
International Financial Services Segment
Operating revenues for the International Financial Services
segment for first quarter 2017 increased $8.5 million to $32.8
million as compared to first quarter 2016. The operating
revenue increase is primarily driven from the acquisition of IFDS
U.K. on March 27, 2017, which
contributed $6.0 million of
incremental operating revenues during the first quarter 2017,
partially offset by lower revenues as a result of the sale of DST
Billing Solutions in the fourth quarter of 2016. Software license
revenues of $2.1 million in first
quarter 2017 were $0.5 million lower
as compared to first quarter 2016.
International Financial Services segment operating income
decreased $0.3 million or 23.1%
during first quarter 2017 to $1.0
million as compared to first quarter 2016. The decrease in
operating income is primarily due to increased operating costs
associated with development and implementation efforts for wealth
management platform clients in Australia and the U.K. as well as lower
software license revenue. Operating margin for first quarter 2017
was 3.0% as compared to 5.3% in 2016.
Healthcare Services Segment
Healthcare Services segment operating revenues increased
$3.5 million or 3.4% during first
quarter 2017 to $107.7 million as
compared to first quarter 2016. The increase is primarily
attributable to organic growth and the expansion of the high-value
services we are offering to existing clients in both the medical
and pharmacy businesses, as well as a $0.6
million increase from higher software license revenue in
first quarter 2017 as compared to first quarter 2016. These
increases were partially offset by a reduction in claims processing
from the previously announced customer migrations.
Healthcare Services segment operating income increased
$2.3 million or 13.1% during first
quarter 2017 to $19.9 million,
primarily due to the previously mentioned revenue growth as well as
lower depreciation partially offset by increased costs to service
the new business. Operating margin for first quarter 2017 was 18.5%
as compared to 16.9% in the first quarter 2016.
Other Financial Results
Equity in earnings of unconsolidated affiliates
The following table summarizes the Company's equity in earnings
(losses) of unconsolidated affiliates (in millions):
|
|
Three Months
Ended
|
|
|
March
31,
|
|
|
2017
|
|
2016
|
IFDS L.P.
|
|
$
|
1.8
|
|
|
$
|
1.7
|
|
IFDS U.K.
|
|
1.0
|
|
|
(0.2)
|
|
BFDS
|
|
3.2
|
|
|
2.6
|
|
Other
|
|
2.6
|
|
|
2.6
|
|
|
|
$
|
8.6
|
|
|
$
|
6.7
|
|
|
|
|
|
|
DST's equity in earnings of unconsolidated affiliates increased
primarily from higher revenues from client conversion activities at
IFDS U.K. and from increased revenues at BFDS. We discontinued
recording equity in earnings of IFDS U.K. and BFDS on March 27, 2017 and March
30, 2017, respectively, as a result of the previously
discussed acquisitions.
Use of Non-GAAP Financial Information
In addition to reporting financial information on a GAAP basis,
DST has disclosed non-GAAP financial information which has been
reconciled to the corresponding GAAP measures in the following
financial schedules titled "Reconciliation of Reported Results to
Non-GAAP Results." In making these adjustments to determine
the non-GAAP results, the Company takes into account the impact of
items that are not necessarily ongoing in nature, that do not have
a high level of predictability associated with them or that are
non-operational in nature. Generally, these items include net
gains on dispositions of business units, net gains (losses)
associated with securities and other investments, acquired
intangible asset amortization, restructuring and impairment costs
and other similar items. Management believes the exclusion of these
items provides a useful basis for evaluating underlying business
unit performance, but should not be considered in isolation and is
not in accordance with, or a substitute for, evaluating business
unit performance utilizing GAAP financial information.
Management uses non-GAAP measures in its budgeting and forecasting
processes and to further analyze its financial trends and
"operational run-rate," as well as making financial comparisons to
prior periods presented on a similar basis. The Company
believes that providing such adjusted results allows investors and
other users of DST's financial statements to better understand
DST's comparative operating performance for the periods
presented.
DST's management uses each of these non-GAAP financial measures
in its own evaluation of the Company's performance, particularly
when comparing performance to past periods. DST's non-GAAP
measures may differ from similar measures by other companies, even
if similar terms are used to identify such measures. Although
DST's management believes non-GAAP measures are useful in
evaluating the performance of its business, DST acknowledges that
items excluded from such measures may have a material impact on the
Company's financial information calculated in accordance with
GAAP. Therefore, management typically uses non-GAAP measures
in conjunction with GAAP results. These factors should be
considered when evaluating DST's results.
Safe Harbor Statement
Certain material presented in the press release includes
forward-looking statements intended to qualify for the safe harbor
from liability established by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, but
are not limited to, (i) all statements, other than statements
of historical fact, included in this press release that address
activities, events or developments that we expect or anticipate
will or may occur in the future or that depend on future events, or
(ii) statements about our future business plans and strategy
and other statements that describe the Company's outlook,
objectives, plans, intentions or goals, and any discussion of
future operating or financial performance. Whenever used, words
such as "may," "will," "would," "should," "potential," "strategy,"
"anticipates," "estimates," "expects," "project," "predict,"
"intends," "plans," "believes," "targets" and other terms of
similar meaning are intended to identify such forward-looking
statements. Forward-looking statements are uncertain and to some
extent unpredictable, and involve known and unknown risks,
uncertainties and other important factors that could cause actual
results to differ materially from those expressed or implied in, or
reasonably inferred from, such forward-looking statements. Factors
that could cause results to differ materially from those
anticipated include, but are not limited to, the risk factors and
cautionary statements included in the Company's periodic and
current reports (Forms 10-K, 10-Q and 8-K) filed from time to time
with the Securities and Exchange Commission. All such factors
should be considered in evaluating any forward-looking statements.
The Company undertakes no obligation to update any forward-looking
statements in this press release to reflect new information, future
events or otherwise.
DST SYSTEMS,
INC.
CONDENSED
CONSOLIDATED STATEMENT OF INCOME
(In millions,
except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March 31,
|
|
2017
|
|
2016
|
|
|
|
|
Operating
revenues
|
$
|
379.8
|
|
|
$
|
361.3
|
|
Out-of-pocket
reimbursements
|
25.7
|
|
|
19.4
|
|
Total
revenues
|
405.5
|
|
|
380.7
|
|
|
|
|
|
Costs and
expenses
|
326.4
|
|
|
306.9
|
|
Depreciation and
amortization
|
23.2
|
|
|
22.1
|
|
Operating
income
|
55.9
|
|
|
51.7
|
|
|
|
|
|
Interest
expense
|
(5.9)
|
|
|
(6.1)
|
|
Other income,
net
|
193.0
|
|
|
6.3
|
|
Equity in earnings of
unconsolidated affiliates
|
19.2
|
|
|
6.7
|
|
Income from
continuing operations before income taxes and non-controlling
interest
|
262.2
|
|
|
58.6
|
|
|
|
|
|
Income
taxes
|
18.1
|
|
|
20.1
|
|
Income from
continuing operations before non-controlling interest
|
244.1
|
|
|
38.5
|
|
|
|
|
|
Income from
discontinued operations, net of tax
|
2.9
|
|
|
18.5
|
|
Net income
|
247.0
|
|
|
57.0
|
|
|
|
|
|
Net (income) loss
attributable to non-controlling interest
|
(0.6)
|
|
|
1.1
|
|
Net income
attributable to DST Systems, Inc.
|
$
|
246.4
|
|
|
$
|
58.1
|
|
|
|
|
|
Weighted average
common shares outstanding
|
31.5
|
|
|
33.8
|
|
Weighted average
diluted shares outstanding
|
32.0
|
|
|
34.3
|
|
|
|
|
|
Basic earnings per
share:
|
|
|
|
Continuing operations
attributable to DST Systems, Inc.
|
$
|
7.73
|
|
|
$
|
1.17
|
|
Discontinued
operations
|
0.09
|
|
|
0.55
|
|
Basic earnings per
share
|
$
|
7.82
|
|
|
$
|
1.72
|
|
|
|
|
|
Diluted earnings per
share:
|
|
|
|
Continuing operations
attributable to DST Systems, Inc.
|
$
|
7.62
|
|
|
$
|
1.16
|
|
Discontinued
operations
|
0.09
|
|
|
0.54
|
|
Diluted earnings per
share
|
$
|
7.71
|
|
|
$
|
1.70
|
|
|
|
|
|
Cash dividends per
share of common stock
|
$
|
0.35
|
|
|
$
|
0.33
|
|
DST SYSTEMS,
INC.
SEGMENT FINANCIAL
INFORMATION
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
Domestic Financial
Services
|
|
International
Financial Services
|
|
Healthcare
Services
|
|
Elimination
Adjustments
|
|
Consolidated
Total
|
Operating
revenues
|
$
|
239.4
|
|
|
$
|
32.7
|
|
|
$
|
107.7
|
|
|
$
|
—
|
|
|
$
|
379.8
|
|
Intersegment
operating revenues
|
14.6
|
|
|
0.1
|
|
|
—
|
|
|
(14.7)
|
|
|
—
|
|
Out-of-pocket
reimbursements
|
23.9
|
|
|
0.2
|
|
|
1.8
|
|
|
(0.2)
|
|
|
25.7
|
|
Total
revenues
|
277.9
|
|
|
33.0
|
|
|
109.5
|
|
|
(14.9)
|
|
|
405.5
|
|
Costs and
expenses
|
220.8
|
|
|
32.6
|
|
|
87.9
|
|
|
(14.9)
|
|
|
326.4
|
|
Depreciation and
amortization
|
18.9
|
|
|
1.0
|
|
|
3.3
|
|
|
—
|
|
|
23.2
|
|
Operating income
(loss)
|
$
|
38.2
|
|
|
$
|
(0.6)
|
|
|
$
|
18.3
|
|
|
$
|
—
|
|
|
$
|
55.9
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
$
|
14.2
|
|
|
$
|
0.2
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2016
|
|
Domestic Financial
Services
|
|
International
Financial Services
|
|
Healthcare
Services
|
|
Elimination
Adjustments
|
|
Consolidated
Total
|
Operating
revenues
|
$
|
232.9
|
|
|
$
|
24.2
|
|
|
$
|
104.2
|
|
|
$
|
—
|
|
|
$
|
361.3
|
|
Intersegment
operating revenues
|
13.5
|
|
|
0.1
|
|
|
—
|
|
|
(13.6)
|
|
|
—
|
|
Out-of-pocket
reimbursements
|
16.7
|
|
|
0.3
|
|
|
2.5
|
|
|
(0.1)
|
|
|
19.4
|
|
Total
revenues
|
263.1
|
|
|
24.6
|
|
|
106.7
|
|
|
(13.7)
|
|
|
380.7
|
|
Costs and
expenses
|
210.3
|
|
|
23.0
|
|
|
87.3
|
|
|
(13.7)
|
|
|
306.9
|
|
Depreciation and
amortization
|
17.5
|
|
|
0.3
|
|
|
4.3
|
|
|
—
|
|
|
22.1
|
|
Operating
income
|
$
|
35.3
|
|
|
$
|
1.3
|
|
|
$
|
15.1
|
|
|
$
|
—
|
|
|
$
|
51.7
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
$
|
9.3
|
|
|
$
|
0.8
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
10.4
|
|
DST SYSTEMS,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
(In
millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
Assets
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
260.4
|
|
|
$
|
195.5
|
|
Funds held on behalf
of clients
|
384.5
|
|
|
500.5
|
|
Client funding
receivable
|
46.3
|
|
|
64.1
|
|
Accounts
receivable
|
372.4
|
|
|
215.5
|
|
Other
assets
|
88.1
|
|
|
70.0
|
|
Current assets held
for sale
|
73.8
|
|
|
72.6
|
|
|
1,225.5
|
|
|
1,118.2
|
|
|
|
|
|
Investments
|
241.4
|
|
|
377.4
|
|
Unconsolidated
affiliates
|
70.9
|
|
|
331.2
|
|
Properties,
net
|
379.7
|
|
|
235.7
|
|
Intangible assets,
net
|
302.4
|
|
|
142.6
|
|
Goodwill
|
768.7
|
|
|
516.4
|
|
Other
assets
|
65.8
|
|
|
50.3
|
|
Total
assets
|
$
|
3,054.4
|
|
|
$
|
2,771.8
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Current portion of
debt
|
$
|
217.7
|
|
|
$
|
208.5
|
|
Client funds
obligations
|
430.8
|
|
|
564.6
|
|
Accounts
payable
|
79.8
|
|
|
62.9
|
|
Accrued compensation
and benefits
|
78.4
|
|
|
101.7
|
|
Deferred revenues and
gains
|
71.8
|
|
|
23.5
|
|
Income taxes
payable
|
11.5
|
|
|
22.0
|
|
Other
liabilities
|
141.3
|
|
|
78.1
|
|
Current liabilities
held for sale
|
28.4
|
|
|
30.1
|
|
|
1,059.7
|
|
|
1,091.4
|
|
|
|
|
|
Long-term
debt
|
513.0
|
|
|
299.7
|
|
Income taxes
payable
|
72.7
|
|
|
69.8
|
|
Deferred income
taxes
|
98.5
|
|
|
151.5
|
|
Other
liabilities
|
78.8
|
|
|
22.9
|
|
Total
liabilities
|
1,822.7
|
|
|
1,635.3
|
|
|
|
|
|
Redeemable
Non-controlling Interest
|
—
|
|
|
21.3
|
|
|
|
|
|
Stockholders'
equity
|
1,231.7
|
|
|
1,115.2
|
|
Total liabilities,
redeemable non-controlling interest and stockholders'
equity
|
$
|
3,054.4
|
|
|
$
|
2,771.8
|
|
|
|
|
|
|
|
|
|
Common shares
outstanding
|
31.5
|
|
|
32.0
|
|
DST SYSTEMS,
INC.
RECONCILIATION OF
REPORTED RESULTS TO NON-GAAP RESULTS - CONTINUING
OPERATIONS
Three Months
Ended March 31,
(Unaudited - in
millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
Operating
|
|
Operating
|
|
Pretax
|
|
Net
|
|
DST
|
|
Diluted
|
|
|
Revenue
|
|
Income
|
|
Income
(a)
|
|
Income
(b)
|
|
Earnings
(c)
|
|
EPS
|
Reported GAAP
results
|
$
|
379.8
|
|
|
$
|
55.9
|
|
|
$
|
262.2
|
|
|
$
|
244.1
|
|
|
$
|
243.5
|
|
|
$
|
7.62
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets (1)
|
—
|
|
|
5.8
|
|
|
5.8
|
|
|
3.7
|
|
|
3.7
|
|
|
0.11
|
|
|
Advisory expenses
(2)
|
—
|
|
|
3.5
|
|
|
3.5
|
|
|
2.4
|
|
|
2.4
|
|
|
0.08
|
|
|
Restructuring charges
(3)
|
—
|
|
|
1.4
|
|
|
1.4
|
|
|
1.2
|
|
|
1.2
|
|
|
0.04
|
|
|
Net gain on
securities and other investments (4)
|
—
|
|
|
—
|
|
|
(148.0)
|
|
|
(153.1)
|
|
|
(152.5)
|
|
|
(4.77)
|
|
|
Gain on previously
held equity interests (5)
|
—
|
|
|
—
|
|
|
(43.8)
|
|
|
(43.3)
|
|
|
(43.3)
|
|
|
(1.36)
|
|
|
Net gains from
unconsolidated affiliates (6)
|
—
|
|
|
—
|
|
|
(10.6)
|
|
|
(6.6)
|
|
|
(6.6)
|
|
|
(0.21)
|
|
|
Income tax items
(7)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.9)
|
|
|
(1.9)
|
|
|
(0.06)
|
|
Adjusted Non-GAAP
results
|
$
|
379.8
|
|
|
$
|
66.6
|
|
|
$
|
70.5
|
|
|
$
|
46.5
|
|
|
$
|
46.5
|
|
|
$
|
1.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
Operating
|
|
Operating
|
|
Pretax
|
|
Net
|
|
DST
|
|
Diluted
|
|
|
Revenue
|
|
Income
|
|
Income
(a)
|
|
Income
(b)
|
|
Earnings
(c)
|
|
EPS
|
Reported GAAP
results
|
$
|
361.3
|
|
|
$
|
51.7
|
|
|
$
|
58.6
|
|
|
$
|
38.5
|
|
|
$
|
39.6
|
|
|
$
|
1.16
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets (1)
|
—
|
|
|
5.4
|
|
|
5.4
|
|
|
3.4
|
|
|
3.4
|
|
|
0.10
|
|
|
Restructuring charges
(3)
|
—
|
|
|
2.3
|
|
|
2.3
|
|
|
1.5
|
|
|
1.5
|
|
|
0.04
|
|
|
Net gain on
securities and other investments (4)
|
—
|
|
|
—
|
|
|
(5.3)
|
|
|
(3.3)
|
|
|
(4.4)
|
|
|
(0.13)
|
|
|
Income tax items
(7)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.4)
|
|
|
(1.4)
|
|
|
(0.04)
|
|
Adjusted Non-GAAP
results
|
$
|
361.3
|
|
|
$
|
59.4
|
|
|
$
|
61.0
|
|
|
$
|
38.7
|
|
|
$
|
38.7
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
Domestic
Financial
Services
|
|
International
Financial
Services
|
|
Healthcare
Services
|
|
Consolidated
Total
|
Reported GAAP
Operating Income (Loss)
|
$
|
38.2
|
|
|
$
|
(0.6)
|
|
|
$
|
18.3
|
|
|
$
|
55.9
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets (1)
|
4.2
|
|
|
—
|
|
|
1.6
|
|
|
5.8
|
|
|
Restructuring charges
(3)
|
0.6
|
|
|
0.8
|
|
|
—
|
|
|
1.4
|
|
|
Advisory expenses
(2)
|
2.7
|
|
|
0.8
|
|
|
—
|
|
|
3.5
|
|
Adjusted Non-GAAP
Operating Income
|
$
|
45.7
|
|
|
$
|
1.0
|
|
|
$
|
19.9
|
|
|
$
|
66.6
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
Domestic
Financial
Services
|
|
International
Financial
Services
|
|
Healthcare
Services
|
|
Consolidated
Total
|
Reported GAAP
Operating Income
|
$
|
35.3
|
|
|
$
|
1.3
|
|
|
$
|
15.1
|
|
|
$
|
51.7
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets (1)
|
3.8
|
|
|
—
|
|
|
1.6
|
|
|
5.4
|
|
|
Restructuring charges
(3)
|
1.4
|
|
|
—
|
|
|
0.9
|
|
|
2.3
|
|
Adjusted Non-GAAP
Operating Income
|
$
|
40.5
|
|
|
$
|
1.3
|
|
|
$
|
17.6
|
|
|
$
|
59.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Pretax Income has
been defined as "Income from continuing operations before income
taxes and non-controlling interest."
|
(b)
|
Net Income has been
defined as "Income from continuing operations before
non-controlling interest."
|
(c)
|
DST Earnings has been
defined as "Income from continuing operations attributable to DST
Systems, Inc."
|
Note: See the "Use of Non-GAAP Financial Information"
section for management's reasons for providing non-GAAP financial
information.
Descriptions of Non-GAAP Adjustments
(1)
|
The amortization of
intangible assets is included in the Condensed Consolidated
Statement of Income within the Depreciation and amortization line
item. The adjustment comprises all non-cash amortization of
acquired intangible assets and acquired software.
|
|
|
(2)
|
Advisory and other
transaction costs incurred in connection with the integration of
business acquisitions and other significant transactions are
recorded in the Condensed Consolidated Statement of Income within
the Costs and expenses line item.
|
|
|
(3)
|
Restructuring charges
are comprised of severance and other costs incurred as a result of
organizational changes. These charges are recorded in the Condensed
Consolidated Statement of Income within the Costs and expenses line
item.
|
|
|
(4)
|
Net gain on
securities and other investments is comprised of net realized gains
from exchange or sales of available-for-sale securities, other than
temporary impairments on available-for-sale securities and net
gains on private equity funds, seed capital investments and other
investments. These net gains were recorded in the Condensed
Consolidated Statement of Income within the Other income, net line
item.
|
|
|
(5)
|
The gain represents
the step-up of the carrying value of our previously held equity
interests in BFDS and IFDS U.K. to fair value at the acquisition
date of each entity and is included in the Condensed Consolidated
Statement of Income within the Other income, net line
item.
|
|
|
(6)
|
The net gains from
unconsolidated affiliates represents the step-up of certain
investments and real estate assets that were distributed out of our
joint ventures BFDS and IFDS L.P. prior to the acquisitions of BFDS
and IFDS U.K. and are included in the Condensed Consolidated
Statement of Income within the Equity in earnings of unconsolidated
affiliates line item.
|
|
|
(7)
|
Income tax items
relate to benefits realized from the release of particular
uncertain tax positions settled, effectively settled or otherwise
remeasured during the period. These items are included in the
Condensed Consolidated Statement of Income within the Income taxes
line item.
|
DST SYSTEMS,
INC.
STATISTICAL
INFORMATION
(Unaudited - in
millions, except as noted)
|
|
DOMESTIC FINANCIAL
SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
March 31,
2016
|
Domestic mutual
fund shareowner accounts processed:
|
|
|
|
|
|
|
Registered accounts -
non tax-advantaged
|
|
25.0
|
|
|
25.3
|
|
|
26.9
|
|
IRA mutual fund
accounts
|
|
20.5
|
|
|
21.1
|
|
|
21.7
|
|
Other retirement
accounts
|
|
7.9
|
|
|
8.0
|
|
|
8.1
|
|
Section 529 and
Educational IRAs
|
|
7.5
|
|
|
7.5
|
|
|
8.2
|
|
Registered accounts -
tax-advantaged
|
|
35.9
|
|
|
36.6
|
|
|
38.0
|
|
Total registered
accounts
|
|
60.9
|
|
|
61.9
|
|
|
64.9
|
|
Subaccounts
|
|
42.6
|
|
|
42.1
|
|
|
30.4
|
|
Total U.S. mutual
fund shareowner accounts
|
|
103.5
|
|
|
104.0
|
|
|
95.3
|
|
|
|
|
|
|
|
|
Defined
contribution participant accounts
|
|
7.4
|
|
|
6.8
|
|
|
7.3
|
|
|
|
|
|
|
|
|
Automatic Work
Distributor workstations (in thousands):
|
|
|
|
|
|
|
Domestic
|
|
167.5
|
|
|
171.9
|
|
|
171.2
|
|
|
|
|
|
|
|
|
ALPS (in
billions of U.S. dollars):
|
|
|
|
|
|
|
Assets Under
Management
|
|
$
|
18.9
|
|
|
$
|
17.2
|
|
|
$
|
14.1
|
|
Assets Under
Administration
|
|
$
|
188.3
|
|
|
$
|
179.1
|
|
|
$
|
163.0
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
March
31,
|
|
|
2017
|
|
2016
|
Changes in
registered accounts:
|
|
|
|
|
Beginning
balance
|
|
61.9
|
|
|
65.4
|
|
Subaccounting
conversions to DST platforms
|
|
—
|
|
|
(0.1)
|
|
Subaccounting
conversions to non-DST platforms
|
|
(0.2)
|
|
|
—
|
|
Conversions to
non-DST platforms
|
|
—
|
|
|
(0.2)
|
|
Organic growth
(decline)
|
|
(0.8)
|
|
|
(0.2)
|
|
Ending
balance
|
|
60.9
|
|
|
64.9
|
|
|
|
|
|
|
Changes in
subaccounts:
|
|
|
|
|
Beginning
balance
|
|
42.1
|
|
|
31.3
|
|
Conversions from
non-DST registered platforms
|
|
0.3
|
|
|
—
|
|
Conversions from
DST's registered accounts
|
|
—
|
|
|
0.1
|
|
Conversions to
non-DST platforms
|
|
(0.4)
|
|
|
—
|
|
Organic growth
(decline)
|
|
0.6
|
|
|
(1.0)
|
|
Ending
balance
|
|
42.6
|
|
|
30.4
|
|
|
|
|
|
|
Defined
contribution participant accounts:
|
|
|
|
|
Beginning
balance
|
|
6.8
|
|
|
7.0
|
|
New client
conversions
|
|
0.3
|
|
|
—
|
|
Organic
growth
|
|
0.3
|
|
|
0.3
|
|
Ending
balance
|
|
7.4
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DST SYSTEMS,
INC.
STATISTICAL
INFORMATION
(Unaudited - in
millions, except as noted)
|
|
INTERNATIONAL
FINANCIAL SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
March 31,
2016
|
International
mutual fund shareowner accounts processed:
|
|
|
|
|
|
|
IFDS
U.K.
|
|
8.7
|
|
|
8.9
|
|
|
9.2
|
|
IFDS L.P.
(Canada)
|
|
13.7
|
|
|
13.7
|
|
|
13.4
|
|
|
|
|
|
|
|
|
Automatic Work
Distributor workstations (in thousands):
|
|
|
|
|
|
|
International
|
|
39.1
|
|
|
40.8
|
|
|
40.5
|
|
|
|
|
|
|
|
|
HEALTHCARE
SERVICES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
March 31,
2016
|
|
|
|
|
|
|
|
DST Health
Solutions covered lives
|
|
22.6
|
|
|
22.8
|
|
|
24.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
March
31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Argus pharmacy
paid claims
|
|
124.0
|
|
|
126.9
|
|
About DST Systems
DST Systems, Inc. (NYSE: DST) is a
leading provider of specialized technology, strategic advisory, and
business operations outsourcing to the financial and healthcare
industries. We enable clients to transform complexity into
strategic advantage by helping them continually stay ahead of and
capitalize on ever-changing customer, business and regulatory
requirements in the world's most demanding industries. For more
information, visit the DST website at www.dstsystems.com.
Contact:
Gregg Wm. Givens
Senior Vice
President, Chief Financial Officer and Treasurer
DST Systems, Inc.
333 West 11th Street
Kansas City, MO 64105-1594
(816) 435-5503
Supplemental Historical Segment
Information
DST SYSTEMS,
INC.
SEGMENT FINANCIAL
INFORMATION (REVISED)
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2016
|
|
Domestic Financial
Services
|
|
International
Financial Services
|
|
Healthcare
Services
|
|
Elimination
Adjustments
|
|
Consolidated
Total
|
Operating
revenues
|
$
|
233.4
|
|
|
$
|
28.4
|
|
|
$
|
111.9
|
|
|
$
|
—
|
|
|
$
|
373.7
|
|
Intersegment
operating revenues
|
14.8
|
|
|
0.1
|
|
|
—
|
|
|
(14.9)
|
|
|
—
|
|
Out-of-pocket
reimbursements
|
22.5
|
|
|
0.4
|
|
|
2.2
|
|
|
—
|
|
|
25.1
|
|
Total
revenues
|
270.7
|
|
|
28.9
|
|
|
114.1
|
|
|
(14.9)
|
|
|
398.8
|
|
Costs and
expenses
|
199.1
|
|
|
25.3
|
|
|
87.0
|
|
|
(14.9)
|
|
|
296.5
|
|
Depreciation and
amortization
|
22.4
|
|
|
0.9
|
|
|
3.6
|
|
|
—
|
|
|
26.9
|
|
Income from
operations
|
$
|
49.2
|
|
|
$
|
2.7
|
|
|
$
|
23.5
|
|
|
$
|
—
|
|
|
$
|
75.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016
|
|
Domestic Financial
Services
|
|
International
Financial Services
|
|
Healthcare
Services
|
|
Elimination
Adjustments
|
|
Consolidated
Total
|
Operating
revenues
|
$
|
232.6
|
|
|
$
|
26.8
|
|
|
$
|
106.1
|
|
|
$
|
—
|
|
|
$
|
365.5
|
|
Intersegment
operating revenues
|
14.8
|
|
|
0.1
|
|
|
—
|
|
|
(14.9)
|
|
|
—
|
|
Out-of-pocket
reimbursements
|
19.2
|
|
|
0.2
|
|
|
1.8
|
|
|
—
|
|
|
21.2
|
|
Total
revenues
|
266.6
|
|
|
27.1
|
|
|
107.9
|
|
|
(14.9)
|
|
|
386.7
|
|
Costs and
expenses
|
194.9
|
|
|
23.6
|
|
|
86.0
|
|
|
(14.9)
|
|
|
289.6
|
|
Depreciation and
amortization
|
18.0
|
|
|
1.0
|
|
|
3.8
|
|
|
—
|
|
|
22.8
|
|
Income from
operations
|
$
|
53.7
|
|
|
$
|
2.5
|
|
|
$
|
18.1
|
|
|
$
|
—
|
|
|
$
|
74.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2016
|
|
Domestic Financial
Services
|
|
International
Financial Services
|
|
Healthcare
Services
|
|
Elimination
Adjustments
|
|
Consolidated
Total
|
Operating
revenues
|
$
|
238.8
|
|
|
$
|
31.1
|
|
|
$
|
104.0
|
|
|
$
|
—
|
|
|
$
|
373.9
|
|
Intersegment
operating revenues
|
15.0
|
|
|
0.1
|
|
|
—
|
|
|
(15.1)
|
|
|
—
|
|
Out-of-pocket
reimbursements
|
14.6
|
|
|
0.3
|
|
|
2.0
|
|
|
(0.3)
|
|
|
16.6
|
|
Total
revenues
|
268.4
|
|
|
31.5
|
|
|
106.0
|
|
|
(15.4)
|
|
|
390.5
|
|
Costs and
expenses
|
224.7
|
|
|
26.3
|
|
|
84.8
|
|
|
(15.4)
|
|
|
320.4
|
|
Depreciation and
amortization
|
19.4
|
|
|
0.9
|
|
|
3.9
|
|
|
—
|
|
|
24.2
|
|
Income from
operations
|
$
|
24.3
|
|
|
$
|
4.3
|
|
|
$
|
17.3
|
|
|
$
|
—
|
|
|
$
|
45.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2016
|
|
Domestic Financial
Services
|
|
International
Financial Services
|
|
Healthcare
Services
|
|
Elimination
Adjustments
|
|
Consolidated
Total
|
Operating
revenues
|
$
|
232.9
|
|
|
$
|
24.2
|
|
|
$
|
104.2
|
|
|
$
|
—
|
|
|
$
|
361.3
|
|
Intersegment
operating revenues
|
13.5
|
|
|
0.1
|
|
|
—
|
|
|
(13.6)
|
|
|
—
|
|
Out-of-pocket
reimbursements
|
16.7
|
|
|
0.3
|
|
|
2.5
|
|
|
(0.1)
|
|
|
19.4
|
|
Total
revenues
|
263.1
|
|
|
24.6
|
|
|
106.7
|
|
|
(13.7)
|
|
|
380.7
|
|
Costs and
expenses
|
210.3
|
|
|
23.0
|
|
|
87.3
|
|
|
(13.7)
|
|
|
306.9
|
|
Depreciation and
amortization
|
17.5
|
|
|
0.3
|
|
|
4.3
|
|
|
—
|
|
|
22.1
|
|
Income from
operations
|
$
|
35.3
|
|
|
$
|
1.3
|
|
|
$
|
15.1
|
|
|
$
|
—
|
|
|
$
|
51.7
|
|
|
|
|
|
|
|
|
|
|
|
DST SYSTEMS,
INC.
SEGMENT FINANCIAL
INFORMATION (REVISED)
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2016
|
|
|
Domestic
Financial
Services
|
|
International
Financial
Services
|
|
Healthcare
Services
|
|
Consolidated
Total
|
Reported GAAP
Operating Income
|
$
|
49.2
|
|
|
$
|
2.7
|
|
|
$
|
23.5
|
|
|
$
|
75.4
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
Restructuring
charges
|
0.8
|
|
|
1.0
|
|
|
—
|
|
|
1.8
|
|
|
Amortization of
intangible assets
|
4.4
|
|
|
—
|
|
|
1.6
|
|
|
6.0
|
|
Adjusted Non-GAAP
Operating Income
|
$
|
54.4
|
|
|
$
|
3.7
|
|
|
$
|
25.1
|
|
|
$
|
83.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016
|
|
|
Domestic
Financial
Services
|
|
International
Financial
Services
|
|
Healthcare
Services
|
|
Consolidated
Total
|
Reported GAAP
Operating Income
|
$
|
53.7
|
|
|
$
|
2.5
|
|
|
$
|
18.1
|
|
|
$
|
74.3
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets
|
4.2
|
|
|
—
|
|
|
1.6
|
|
|
5.8
|
|
|
Reversal of accrued
contingent consideration
|
(6.5)
|
|
|
—
|
|
|
—
|
|
|
(6.5)
|
|
Adjusted Non-GAAP
Operating Income
|
$
|
51.4
|
|
|
$
|
2.5
|
|
|
$
|
19.7
|
|
|
$
|
73.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2016
|
|
|
Domestic
Financial
Services
|
|
International
Financial
Services
|
|
Healthcare
Services
|
|
Consolidated
Total
|
Reported GAAP
Operating Income
|
$
|
24.3
|
|
|
$
|
4.3
|
|
|
$
|
17.3
|
|
|
$
|
45.9
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
Restructuring
charges
|
10.4
|
|
|
—
|
|
|
0.7
|
|
|
11.1
|
|
|
Amortization of
intangible assets
|
4.4
|
|
|
—
|
|
|
1.5
|
|
|
5.9
|
|
|
Software
impairment
|
6.0
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
Adjusted Non-GAAP
Operating Income
|
$
|
45.1
|
|
|
$
|
4.3
|
|
|
$
|
19.5
|
|
|
$
|
68.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2016
|
|
|
Domestic
Financial
Services
|
|
International
Financial
Services
|
|
Healthcare
Services
|
|
Consolidated
Total
|
Reported GAAP
Operating Income
|
$
|
35.3
|
|
|
$
|
1.3
|
|
|
$
|
15.1
|
|
|
$
|
51.7
|
|
|
Adjusted to
remove:
|
|
|
|
|
|
|
|
|
Restructuring
charges
|
1.4
|
|
|
—
|
|
|
0.9
|
|
|
2.3
|
|
|
Amortization of
intangible assets
|
3.8
|
|
|
—
|
|
|
1.6
|
|
|
5.4
|
|
Adjusted Non-GAAP
Operating Income
|
$
|
40.5
|
|
|
$
|
1.3
|
|
|
$
|
17.6
|
|
|
$
|
59.4
|
|
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SOURCE DST Systems, Inc.