Consolidated net income for DST Systems (NYSE: DST) was $672.8 million ($9.62 per diluted share) for the third quarter 2007 compared to $54.7 million ($0.76 per diluted share) for the third quarter 2006.
Consolidated net income for the nine months ended September 30, 2007 was $811.0 million ($11.37 per diluted share) compared to $191.9 million ($2.63 per diluted share) for the nine months ended September 30, 2006. Taking into account certain non-GAAP adjustments explained herein, consolidated net income was $61.5 million ($0.88 per diluted share) for the third quarter 2007 compared to $50.1 million ($0.70 per diluted share) for the third quarter 2006, and $182.8 million ($2.55 per diluted share) for the nine months ended September 30, 2007 compared to $152.9 million ($2.09 per diluted share) for the nine months ended September 30, 2006.
- As previously reported, on July 3, 2007, DST sold a significant portion of its ownership in Asurion Corporation ("Asurion") for $980 million of cash and estimated receivables of $43.9 million to be collected within one year from the closing of the transaction. The transaction resulted in DST recording a $996.3 million pretax gain and $617.0 million of net income ($8.82 per diluted share) during the three months ended September 30, 2007. The effects of the transaction have been taken into account in the determination of non-GAAP net income and non-GAAP diluted earnings per share, which is described in the section titled "Use of Non-GAAP Financial Information" and the attached schedule titled "Description of Non-GAAP Adjustments". The majority of the proceeds from the transaction was used to pay down debt. The remainder of the proceeds was invested in cash and short-term investments and will be used in fourth quarter 2007 to satisfy tax obligations associated with the sale. Additional information on this transaction is contained in the section titled "Other Financial Results - Equity in earnings (losses) of unconsolidated affiliates".
Third quarter 2007 operating highlights were as follows:
- Consolidated operating revenues increased $45.8 million or 12.3% compared to the third quarter 2006 primarily from inclusion of approximately $22.0 million of operating revenues from Amisys Synertech, Inc. ("ASI"), and increases in mutual fund shareowner accounts serviced, international professional service revenues, and higher Output Solutions volumes.
- Consolidated income from operations decreased $1.1 million or 1.4% to $75.3 million as compared to $76.4 million for third quarter 2006. Taking into account certain non-GAAP adjustments, income from operations increased $8.4 million or 11.8% as compared to third quarter 2006 primarily resulting from increased contributions from Output Solutions and higher contributions from mutual fund shareowner processing.
- Output Solutions income from operations for third quarter 2007 increased $6.0 million from third quarter 2006. Taking into account certain non-GAAP adjustments, Output Solutions income from operations increased $6.8 million compared to third quarter 2006. Contributing to the increase were higher U.S. volumes and cost efficiencies realized from the implementation of new proprietary printing and inserting technologies.
- DST successfully converted approximately 7.6 million mutual fund shareowner accounts and approximately 200,000 mutual fund shareowner subaccounts during third quarter 2007.
Share related activity during third quarter 2007 was as follows:
- During third quarter 2007, the Company repurchased 2,625,000 shares of DST common stock for $205.9 million or approximately $78.44 per share. At September 30, 2007, approximately 3.0 million shares remained under the existing share repurchase authorization.
- The Company had approximately 61.5 million shares outstanding at September 30, 2007, including approximately 2.6 million unvested restricted shares. The net effect of share repurchases and shares issued from stock option exercises during the three months ended September 30, 2007 resulted in a net decrease in shares outstanding of approximately 1.9 million shares.
- Diluted shares outstanding for third quarter 2007 were 69.9 million shares, a decrease of 2.1 million shares or 2.9% from third quarter 2006, and a decrease of 1.9 million shares or 2.6% from second quarter 2007. Diluted shares outstanding include an aggregate 10.0 million shares comprised of the dilutive effects of 6.5 million shares from convertible debentures, 2.1 million shares from outstanding stock options and 1.4 million shares from restricted stock. The aggregate dilutive effect of these items decreased by approximately 200,000 shares from second quarter 2007 due to options exercised during the quarter, and increased 4.3 million shares from the prior year quarter primarily from an increase in the Company's average share price.
- Total stock options and restricted stock ("equity units") outstanding at September 30, 2007 were 9.2 million, a decrease of 600,000 equity units or 6.1% from June 30, 2007 and a decrease of 2.2 million equity units or 19.3% from December 31, 2006.
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