Equity

On May 9, 2017, our Board of Directors declared a two-for-one stock split of DST’s outstanding common stock effected in the form of a stock dividend, which was paid on June 8, 2017 to shareholders of record at the close of business on May 26, 2017. In connection with the stock split, 16.5 million treasury shares were used to settle a portion of the distribution. The distribution of treasury shares during the year ended December 31, 2017 reduced Additional paid in capital by $40.5 million, Retained earnings by $1,297.2 million and Treasury stock by $1,337.9 million. All share and per share data, excluding treasury shares, have been retroactively adjusted for all periods presented to reflect the stock split as if the stock split had occurred at the beginning of the earliest period presented.

Earnings per share

The computation of basic and diluted earnings per share is as follows (in millions, except per share amounts):



	Year Ended December 31,
	2017		2016		2015
Income from continuing operations attributable to DST Systems, Inc.	$	447.0	$	179.0	$	309.7
Income from discontinued operations, net of tax	4.5		248.3		48.5
Net income attributable to DST Systems, Inc.	$	451.5	$	427.3	$	358.2

Weighted average common shares outstanding	61.4		66.0		72.0
Incremental shares from restricted stock units and stock options	0.7		0.6		0.9
Weighted average diluted shares outstanding	62.1		66.6		72.9

Basic earnings per share
Continuing operations attributable to DST Systems, Inc.	$	7.28	$	2.71	$	4.30
Discontinued operations	0.07		3.76		0.67
Basic earnings per share	$	7.35	$	6.47	$	4.97

Diluted earnings per share
Continuing operations attributable to DST Systems, Inc.	$	7.20	$	2.68	$	4.25
Discontinued operations	0.07		3.73		0.67
Diluted earnings per share	$	7.27	$	6.41	$	4.92

We had approximately 59.3 million and 64.0 million shares outstanding at December 31, 2017 and 2016, respectively. There were no shares from options to purchase common stock excluded from the diluted earnings per share calculation because they were anti-dilutive for the years ended December 31, 2017 and 2016.

We have authorized 10.0 million shares of preferred stock, of which no shares are currently issued or outstanding.

Other comprehensive income (loss)

AOCI balances, net of tax, consist of the following (in millions):



	Available-for-Sale Securities			Cash Flow Hedges			Defined Benefit Pension		Foreign Currency Translation			Accumulated Other Comprehensive Income
Balance, December 31, 2015	$	84.0		$	(0.1	)	$	—	$	(42.0	)	$	41.9
Net current period other comprehensive income (loss)	10.1			—			—		(35.4		)	(25.3		)
Balance, December 31, 2016	94.1			(0.1		)	—		(77.4		)	16.6
Net current period other comprehensive income (loss)	(93.2		)	0.2			4.1		73.7			(15.2		)
Balance, December 31, 2017	$	0.9		$	0.1		$	4.1	$	(3.7	)	$	1.4

Additions to and reclassifications out of AOCI (in millions):



	Year Ended December 31,
	2017						2016						2015
	Pretax			Net of Tax			Pretax			Net of Tax			Pretax			Net of Tax
Available-for-sale securities:
Unrealized gains (losses) on available-for-sale securities	$	7.0		$	4.5		$	18.1		$	11.4		$	(35.6	)	$	(21.8	)
Reclassification of (gains) losses into net earnings on available-for-sale securities (1)	(155.9		)	(97.7		)	(2.1		)	(1.3		)	(163.5		)	(101.4		)
Net change in available-for-sale securities	(148.9		)	(93.2		)	16.0			10.1			(199.1		)	(123.2		)
Cash flow hedges:
Unrealized gains (losses) on cash flow hedges	(0.2		)	(0.1		)	0.1			—			0.4			0.4
Reclassification of losses (gains) into net earnings on foreign currency cash flow hedges (2)	0.6			0.3			—			—			(0.5		)	(0.3		)
Reclassification of losses (gains) into net earnings on interest rate cash flow hedges (3)	—			—			—			—			0.2			0.1
Net change in cash flow hedges	0.4			0.2			0.1			—			0.1			0.2
Defined benefit pension:
Unrealized net gains (losses) on defined benefit pension plan	5.2			4.1			—			—			—			—
Net change in defined benefit pension	5.2			4.1			—			—			—			—
Foreign currency translation (4):
Current period translation adjustments	36.0			36.0			(34.9		)	(34.9		)	(22.0		)	(22.0		)
Reclassification into net earnings upon liquidation of foreign entities (5)	(3.3		)	(3.3		)	(0.5		)	(0.5		)	—			—
Reclassification into net earnings upon step-up acquisition of foreign entities (6)	41.0			41.0			—			—			—			—
Net change in foreign currency translation	73.7			73.7			(35.4		)	(35.4		)	(22.0		)	(22.0		)
Total other comprehensive loss	$	(69.6	)	$	(15.2	)	$	(19.3	)	$	(25.3	)	$	(221.0	)	$	(145.0	)

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(1)	Realized (gains)/losses on available-for-sale securities are recognized in Other income, net in the Consolidated Statement of Income. See Note 5, “Investments,” for additional information.


(2)	Reclassification to net earnings of derivatives qualifying as effective foreign currency cash flow hedges are recognized in Costs and expenses in the Consolidated Statement of Income.


(3)	Reclassification to net earnings of derivatives qualifying as effective interest rate cash flow hedges are recognized in Interest expense in the Consolidated Statement of Income.


(4)	Cumulative translation adjustments are inclusive of amounts derived from assets and liabilities held for sale.


(5)	Reclassification to net earnings upon disposition of net assets classified as held for sale are recognized in Income from discontinued operations, net of tax in the Consolidated Statement of Income. See Note 4, “Discontinued Operations,” for additional information.


(6)	Reclassification to net earnings upon step-acquisition of previously-held equity interests in foreign entities are recognized in Other income, net in the Consolidated Statement of Income. See Note 3, “Significant Business Transactions,” for additional information.

One of our unconsolidated affiliates has an interest rate swap liability with a fair market value of $25.5 million, $33.1 million and $44.7 million at December 31, 2017, 2016 and 2015, respectively. The unconsolidated affiliate used inputs from quoted prices for similar assets and liabilities in active markets that are directly or indirectly observable relating to the measurement of the interest rate swap. Our 50% proportionate share of this interest rate swap liability was $12.8 million, $16.5 million and $22.4 million at December 31, 2017, 2016 and 2015, respectively. We record in investments and AOCI our proportionate share of this liability in an amount not to exceed the carrying value of our investment in this unconsolidated affiliate. Because the carrying value of this unconsolidated affiliate investment balance was zero at December 31, 2017, 2016, and 2015, no interest rate swap liability or change in AOCI was recorded for these periods.

Stock repurchases and retirements

As of December 31, 2016, we had $150.0 million of capacity remaining under our share repurchase plan authorized in 2016. On May 9, 2017, our Board of Directors authorized a new $300.0 million share repurchase plan, which allows, but does not require, the repurchase of common stock in open market and private transactions. We repurchased the equivalent of 5.0 million shares of our common stock on a post stock split basis for $300.0 million during the year ended December 31, 2017, which left approximately $150.0 million remaining under our share repurchase plan authorized in 2017. The 2017 share repurchase plan does not have an expiration date, however we are currently precluded from executing additional stock repurchases pursuant to the Merger Agreement with SS&C, as further described in Note 1, “Description of Business.” Under previous share repurchase plans, we expended $300.0 million for approximately 5.4 million shares on a post stock split basis and $400.0 million for approximately 7.2 million shares on a post stock split basis during the years ended December 31, 2016 and 2015, respectively.

Shares received in exchange for tax withholding obligations and payment of the exercise price arising from the exercise of options to purchase our stock or from the vesting of equity awards are included in common stock repurchased in the Consolidated Statement of Cash Flows. The amounts of such share withholdings and exchanges were $10.6 million, $15.8 million and $5.3 million during the years ended December 31, 2017, 2016 and 2015, respectively. In addition, in connection with the non-cash acquisition of the remaining interest in BFDS, DST acquired $3.7 million of DST common stock that was held by BFDS.

We had 5.1 million and 18.0 million shares of common stock held in treasury at December 31, 2017 and 2016, respectively.

Dividends

In 2017, 2016 and 2015, we paid cash dividends per common share of $0.72, $0.66 and $0.60, respectively. The total dividends paid for the years ended December 31, 2017, 2016 and 2015 were $44.7 million, $44.7 million and $44.5 million, respectively. The cash paid for dividends in 2017, 2016 and 2015 was $43.7 million, $43.4 million, and $43.1 million, respectively. The remaining amount of the dividends represent dividend equivalent shares of restricted stock units (“RSUs”) in lieu of the cash dividend. We are currently precluded from declaring dividends pursuant to the Merger Agreement with SS&C, as further described in Note 1, “Description of Business.”

Share-based compensation

The DST Systems, Inc. 2015 Equity and Incentive Plan (the “Employee Plan”) became effective on May 12, 2015. The Employee Plan amends, restates, and renames the DST Systems, Inc. 2005 Equity Incentive Plan in order to, among other things, combine (for all future grants) the DST Systems, Inc. 2005 Non-Employee Directors’ Award Plan (the “Directors’ Plan”) with the Employee Plan. The term of the Employee Plan, subject to the right of the Board of Directors to amend or terminate the Employee Plan at any time, is from May 12, 2015 until the earlier of May 11, 2025 or the date on which all shares subject to the Employee Plan have been delivered and the restrictions on all awards granted under the plan have lapsed, according to the Employee Plan’s provisions. All awards granted pursuant to the Directors’ Plan before May 9, 2015 remain subject to the terms and conditions of the Directors’ Plan. We have outstanding share awards (primarily in the form of stock options and non-vested restricted stock awards) under each of the plans. The Employee Plan has been approved by our Board of Directors and shareholders.

The number of shares of common stock reserved for delivery under the Employee Plan, subject to certain limitations and adjustments, is the sum of (a) 5.2 million shares, on a post stock-split basis, plus (b) any shares required to satisfy substitute awards, as defined by the Employee Plan. If any shares subject to an award granted after May 12, 2015 are forfeited or such awards terminate or lapse without the delivery of such shares, those shares shall become available for grant under the Employee Plan. As of December 31, 2017, approximately 3.5 million shares were available under the Employee Plan. The Employee Plan provides for the availability of shares of our common stock for the grant of awards to employees, consultants and non-employee directors, its consolidated subsidiaries, and its unconsolidated affiliates and joint ventures. Awards under the Employee Plan may take the form of shares, dividend equivalents, options, stock appreciation rights, performance units, restricted stock, restricted stock units, annual incentive awards, service awards and substitute awards (each as defined in the plan).

Stock Options

Options under the Employee Plan vest and generally become fully exercisable over three years of continued employment, depending upon the grant type. Options generally have a 10-year contractual term. The fair value of each option grant is estimated on the date of grant using a Black-Scholes option pricing model. There were no stock options granted or canceled during 2017, 2016 or 2015. All outstanding options were fully vested at December 31, 2017 and 2016. The total aggregate intrinsic values of stock options exercised for all plans during the years ended December 31, 2017, 2016 and 2015 were $3.3 million, $5.8 million and $15.4 million, respectively.

A summary of stock option activity is presented in the table below (shares in millions):



Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2016	0.7		$	22.71
Exercised	(0.1	)	22.72			$	3.3
Outstanding at December 31, 2017	0.6		22.71		2.8	23.4
Exercisable at December 31, 2017	0.6		$	22.71	2.8	$	23.4

Non-vested Restricted Stock Unit Awards

Non-vested restricted stock awards, consisting of RSUs and performance-based stock units (“PSUs”), are valued based on the value of DST’s common stock at the date of grant. RSUs contain service features and convert to DST shares on a one to one basis upon vesting. RSUs do not confer full stockholder rights such as voting rights and cash dividends, but provide for additional dividend equivalent RSU awards in lieu of cash dividends.

PSUs contain service and performance features in which the number of restricted shares to be awarded depends on the attainment of defined company-wide performance goals. PSUs are granted at a target number of shares and generally vest at the end of a 3-year requisite service and performance period. The number of shares ultimately earned will range from zero to 200% of the target award based on actual attainment.

Non-vested shares of restricted stock awards may be forfeited upon termination of employment from DST depending on the circumstances of the termination, or become forfeited upon failure to achieve the required performance condition, if applicable. Forfeitures are recognized as they occur rather than using an estimated forfeiture rate.

A summary of non-vested restricted stock award activity is presented in the table below (units in millions):



Non-vested Restricted Stock Unit Awards	RSUs		Weighted Average Grant Date Fair Value		Weighted Average Conversion Ratio	PSUs		Weighted Average Grant Date Fair Value		Weighted Average Conversion Ratio
Non-vested at December 31, 2016	0.5		$	52.79	1.0	0.7		$	51.11	0.6
Granted	0.3		59.27			0.3		58.90
Vested	(0.3	)	52.39			(0.2	)	46.54
Forfeited	—		56.45			(0.3	)	54.13
Non-vested at December 31, 2017	0.5		$	56.76	1.0	0.5		$	54.79	1.6

Forfeitures during the year ended December 31, 2017 include all remaining PSUs granted in 2015 as the performance criteria was not achieved as of December 31, 2017.

The weighted-average grant-date fair value of non-vested restricted stock awards units granted during the years ended December 31, 2017, 2016 and 2015 was $59.10, $53.75, and $54.42. The fair value of restricted stock which vested during the years ended December 31, 2017, 2016 and 2015 was $22.6 million, $30.2 million and $9.6 million, respectively.

At December 31, 2017, we had $22.7 million of total unrecognized compensation expense (included in Additional paid-in capital on the Consolidated Balance Sheet) related to share-based compensation arrangements. Based on awards currently outstanding, we estimate that compensation expense attributable to the restricted stock grants will be approximately $15.7 million for 2018, $6.0 million for 2019, and $1.0 million for 2020.

The Consolidated Statement of Income for the years ended December 31, 2017, 2016 and 2015 reflects share-based compensation expense of $44.2 million, $16.3 million and $27.9 million, respectively, within Costs and expenses and Discontinued operations. The total tax benefit recognized in earnings from share-based compensation arrangements for the years ended December 31, 2017, 2016 and 2015, were approximately $17.2 million, $6.4 million and $10.9 million, respectively. Excess tax benefits of $3.0 million were classified as operating cash inflows during the year ended December 31, 2017. Excess tax benefits of $4.7 million and $5.6 million were classified as financing cash inflows during the years ended December 31, 2016 and 2015, respectively. Cash proceeds from options exercised for the years ended December 31, 2017, 2016 and 2015 were $2.8 million, $5.3 million and $11.8 million, respectively, and were classified as financing cash inflows. We generally issue shares out of treasury to satisfy stock option exercises.

Stock purchase plan

The 2000 DST Systems, Inc. Employee Stock Purchase Plan (“ESPP”), which provided employees the right to purchase DST shares at a discount, was suspended effective January 1, 2006.

Redeemable non-controlling interest

As a result of our seed capital investment during 2015, there is a non-controlling investor group which owned approximately 47% of a consolidated open-end fund as of December 31, 2016. The amount included on the Consolidated Balance Sheet at December 31, 2016 associated with the redeemable non-controlling interest was $21.3 million. In March 2017, we reduced our ownership interest in a substantial portion of our seed capital investments, resulting in the deconsolidation of the respective fund. The net income attributable to the non-controlling interest was $0.6 million during the year ended December 31, 2017 and the net loss attributable to the non-controlling interest was $0.9 million and $0.1 million during the years ended December 31, 2016 and 2015, respectively.