DST Systems Q1 profit up

Taking into account certain non-GAAP adjustments explained herein, consolidated net income was $55.2 million ($0.86 per diluted share) for first quarter 2008 compared to $62.6 million ($0.87 per diluted share) for first quarter 2007.

First quarter 2008 financial highlights were as follows:

• Consolidated operating revenues increased $4.6 million or 1.1% to $430.8 million as compared to $426.2 million for first quarter 2007. Taking into account a non-GAAP adjustment related to a $3.1 million Output Solutions customer termination fee recorded in first quarter 2007, consolidated operating revenues increased $7.7 million or 1.8% as compared to first quarter 2007. On this basis, increases in mutual fund shareowner processing revenues were partially offset by lower software license fee revenues and lower Output Solutions operating revenues.
• Consolidated income from operations increased $4.8 million or 6.0% to $84.4 million as compared to $79.6 million for first quarter 2007. Taking into account certain non-GAAP adjustments, income from operations increased $5.1 million or 6.4% as compared to first quarter 2007. On this basis, Financial Services income from operations increased $2.8 million compared to first quarter 2007 due to increased contributions from mutual fund shareowner processing, partially offset by lower software license fee revenues and lower international contributions. Output Solutions income from operations for first quarter 2008 increased $2.8 million from first quarter 2007 from cost efficiencies realized from the implementation of proprietary printing and inserting technologies.
• Equity in earnings of unconsolidated affiliates declined $16.1 million. No equity in earnings of Asurion were recorded in 2008 versus $11.4 million in first quarter 2007, and lower equity in earnings of BFDS, IFDS and Argus were recorded.
• Certain of the Company's joint ventures and, to a lesser extent, the Company, derive investment earnings related to cash balanances maintained on behalf of customers. Average daily balances invested by the joint ventures were $1.50 billion during the first quarter of 2008 and $1.44 billion during the first quarter of 2007. Average interest rates earned on the balances declined from 5.06% in first quarter 2007 to 3.35% in first quarter 2008. The net effect of these fluctuations resulted in an approximate $5.7 million decline in interest earnings by the joint ventures, which resulted in a decrease of DST's equity of earnings of unconsolidated affiliates of $1.7 million.

• During first quarter 2008, the Company repurchased 5,625,244 shares of DST common stock for $394.9 million or approximately $70.20 per share. At March 31, 2008, there were approximately 1.2 million shares remaining to be repurchased under the existing share repurchase authorization plan. Total debt at March 31, 2008 was $1.436 billion, which approximates debt levels prior to the sale of Asurion. Accordingly, DST anticipates that repurchases for the remainder of the year, subject to the existing share repurchase plan, will be at substantially reduced levels compared to first quarter 2008, and will be generally determined by the Company's free cash flow.
• The Company had approximately 55.2 million shares outstanding at March 31, 2008, a decrease of 10.0 million shares from March 31, 2007. Shares outstanding at March 31, 2008 include approximately 2.7 million unvested restricted shares which are excluded from the determination of average common shares outstanding used in the calculation of basic earnings per share. The net effect of share repurchases and shares issued from stock option exercises during first quarter 2008 resulted in a net decrease in shares outstanding of approximately 5.6 million shares from December 31, 2007.
• Diluted shares outstanding for first quarter 2008 were 64.3 million shares, a decrease of 7.5 million shares or 10.4% from first quarter 2007, and a decrease of 5.1 million shares or 7.3% from fourth quarter 2007. Diluted shares outstanding at March 31, 2008 include an aggregate 8.3 million shares comprised of the dilutive effects of 5.3 million shares from convertible debentures, 1.5 million shares from outstanding stock options and 1.5 million shares from restricted stock. The aggregate dilutive effect of these items decreased by approximately 2.3 million shares from fourth quarter 2007 from decreases in the Company's average share price, while the aggregate dilutive effect of these items decreased by approximately 400,000 shares from first quarter 2007 due primarily to lower stock options outstanding.
• Total stock options and restricted stock ("equity units") outstanding at March 31, 2008 were 8.7 million, an increase of 100,000 equity units or 1.2% from December 31, 2007 and a decrease of 2.0 million equity units or 18.7% from March 31, 2007.