Certegy (NYSE:CEY)
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ST. PETERSBURG, Fla., Jan. 27 /PRNewswire-FirstCall/ -- Certegy Inc. (NYSE:CEY) today reported fourth quarter 2005 diluted earnings per share of $0.57, including direct merger and acquisition costs of $2.9 million. On a non-GAAP basis, diluted earnings per share from continuing operations increased 15.1% to $0.61. Consolidated revenue increased 5.0% to $295.9 million.
During the fourth quarter of 2005, the company incurred legal, accounting and other direct costs of $1.649 million related to its pending merger with Fidelity National Information Services, Inc. and $1.211 million related to the possible formation and acquisition of a majority ownership in a card and merchant processing joint venture in Brazil, which is currently under exclusive negotiation with two leading Brazilian banks. The ultimate tax treatment of these costs cannot be determined with adequate certainty; therefore, no tax benefit has been recorded. Fourth quarter 2005 results prepared in accordance with generally accepted accounting principles ("GAAP") are reconciled with non-GAAP results excluding these merger and acquisition (M&A) costs, as follows:
(In thousands, except per share amounts)
M&A Non-
GAAP COSTS GAAP
Income from continuing operations
before income taxes and equity in
earnings of unconsolidated entity $59,376 $(2,860) $62,236
Provision for income taxes (22,958) - (22,958)
Equity in earnings of
unconsolidated entity (117) - (117)
Income from continuing operations 36,301 (2,860) 39,161
Income from discontinued operations 9 - 9
Net income $36,310 $ (2,860) $39,170
Diluted earnings per share:
Income from continuing operations $0.57 $0.61
Income from discontinued operations - -
Net income $0.57 $0.61
FOURTH QUARTER FINANCIAL HIGHLIGHTS
Summarized highlights of the 2005 fourth quarter results, as compared to the fourth quarter of 2004, are as follows:
* Revenue increased 5.0% to $295.9 million.
- Card Services increased 6.5%.
- Check Services increased 3.1%.
* Operating income of $61.5 million, which includes $2.9 million of
merger and acquisition costs, increased 9.0%. On a non-GAAP basis,
excluding the merger and acquisition costs, operating income increased
14.0% to $64.4 million.
- Card Services increased 5.9% (9.0% non-GAAP).
- Check Services increased 12.8%.
- Corporate expense increased 5.0% (decreased 19.9% non-GAAP).
* Income from continuing operations was $36.3 million, an increase of
8.0% over the prior year. On a non-GAAP basis, income from continuing
operations increased 16.5% to $39.2 million.
* Diluted earnings per share from continuing operations was $0.57. On a
non-GAAP basis, diluted earnings per share from continuing operations
increased 15.1% to $0.61.
* Capital expenditures totaled $20.7 million.
"We are pleased with the overall margin expansion and strong growth in earnings per share. All of our businesses are on solid ground going into 2006, and we remain very encouraged with our continued progress in developing new customer relationships and expanding our product offerings. We are especially pleased to announce a seven-year extension of our card processing agreement with the National Australia Bank," stated Lee A. Kennedy, chairman and chief executive officer of Certegy. "Looking to the future, we are extremely excited about the opportunity to further leverage our products across the Fidelity National customer base around the globe."
SEGMENT RESULTS
Card Services generated revenue of $167.4 million in the fourth quarter of 2005, an increase of 6.5% above the 2004 quarter. Revenue growth of 4.3% in the Company's North American card operation was the result of strong growth in e-payments (Internet banking and electronic bill payment) and institution merchant processing. The 1.9% increase in North American card issuing revenue is lower than prior 2005 quarterly growth rates due to $6.5 million of card activation fees in the 2004 fourth quarter. North American card transactions increased 4.7%, driven by 7.0% growth in the number of cards processed. Internet banking subscribers increased 17.5% and electronic bill payment users increased 28.1%. Institution merchant processing volumes increased 15.2%, driven by 12.9% growth in transactions and higher average ticket. International card revenue increased 16.3%, primarily due to growth within existing customers in Latin America and Asia-Pacific. The favorable net impact of currency rates was offset by lower revenue in the U.K. caused by the previously announced bankruptcy of a full-service customer.
Card Services operating income of $41.2 million increased 5.9%, compared to $38.9 million in the fourth quarter of 2004. During the fourth quarter of 2005, the Company incurred $1.2 million of legal, accounting and other direct costs in connection with the on-going exclusive negotiation with two leading Brazilian banks regarding the possible formation and acquisition of a majority ownership in a card and merchant processing joint venture. Excluding these costs from the fourth quarter results, Card Services operating income increased 9.0% to $42.5 million. Card Services operating margin of 24.6% in the fourth quarter of 2005 decreased by 20 basis points compared to an operating margin of 24.8% in the prior year quarter, primarily due to the joint venture formation costs described above. Excluding these costs, on a non-GAAP basis, Card Services operating margin was 25.4% in the fourth quarter of 2005, a 60 basis point increase over the prior year quarter.
The company also finalized a seven-year extension of its card processing contract with National Australia Bank.
Check Services generated revenue of $128.5 million in the fourth quarter of 2005, an increase of 3.1% over the 2004 quarter. Strong underlying growth in the company's cash access business was partially offset by the residual effects of the Gulf Coast storms on the company's gaming operation, a previously announced contract termination and unfavorable currency exchange rates.
Check Services operating income of $27.2 million increased 12.8% compared to $24.1 million in the fourth quarter of 2004. Check Services operating margin of 21.2% in the fourth quarter of 2005 increased by 180 basis points compared to an operating margin of 19.4% in the prior year quarter. Certegy's proprietary risk modeling technology, improved collection techniques and higher profitability in cash access services drove the margin expansion in Check Services.
Corporate expense of $6.9 million in the fourth quarter of 2005 included $1.6 million of legal, accounting and other direct costs related to the pending merger with Fidelity National Information Services, Inc. Excluding these costs from the fourth quarter results, corporate expense of $5.3 million was $1.3 million below the prior year quarter, due largely to lower stock option expense and other compensation costs, and lower Sarbanes-Oxley compliance related costs.
Interest expense was $3.2 million in the fourth quarter of 2005 compared to $3.5 million in the fourth quarter of 2004. Other income, which is primarily comprised of interest income, increased to $1.0 million in the fourth quarter of 2005 compared to $0.6 million in the fourth quarter of 2004 due to higher average cash balances and higher interest rates.
The effective tax rate of 38.7% in the fourth quarter of 2005 reflects the impact of not recognizing a tax benefit associated with the merger and acquisition costs of $2.9 million incurred during the quarter. Excluding these costs, the effective tax rate was 36.9% on a non-GAAP basis.
TELECONFERENCE
Management will host a teleconference to discuss fourth quarter earnings on Friday, January 27, 2006, at 9:00 a.m. Eastern Time. The live audio Webcast will be available at http://www.certegy.com/. Please be advised that Microsoft's Windows Media Player(TM) must be downloaded prior to accessing the presentation. It can be downloaded from http://www.microsoft.com/windows/mediaplayer. A replay of the Webcast will be available in the Investor Center section of the website after the call ends continuing through February 14, 2006.
About Certegy
Certegy Inc. (NYSE:CEY) provides credit and debit processing, check risk management and check cashing services, merchant processing and e-banking services to over 6,000 financial institutions, 100,000 retailers and 100 million consumers worldwide. Headquartered in St. Petersburg, Florida, Certegy maintains a strong global presence with operations in the United States, United Kingdom, Ireland, France, Chile, Brazil, Australia, New Zealand, Thailand and the Caribbean. As a leading payment services provider, Certegy offers a comprehensive range of transaction processing services, check risk management solutions and integrated customer support programs that facilitate the exchange of business and consumer payments. Certegy generated over $1.1 billion in revenue in 2005. For more information on Certegy, please visit http://www.certegy.com/.
Forward-Looking Statements
The statements in this release include forward-looking statements that are based on current expectations, assumptions, estimates, and projections about Certegy and our industry. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of Certegy's control that may cause actual results to differ significantly from what is expressed in those statements. Factors that could, either individually or in the aggregate, affect our performance include: our reliance on a small number of business segments and strategic relationships; our ability to comply with bankcard association rules and government regulations; the sensitivity of our business to the economy; declines in check writing; and other factors described in detail in the section entitled "Certain Factors Affecting Forward-Looking Statements" in our 2004 Annual Report on Form 10-K filed on March 11, 2005, with the SEC.
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended December 31,
2005 2004
Revenues $295,886 $281,842
Operating expenses:
Costs of services 202,826 193,038
Selling, general and
administrative 28,692 32,360
Merger and acquisition costs (1) 2,860 -
234,378 225,398
Operating income 61,508 56,444
Other income, net 1,023 608
Interest expense (3,155) (3,526)
Income from continuing operations
before income taxes and
equity in earnings of
unconsolidated entity 59,376 53,526
Provision for income taxes (22,958) (19,923)
Equity in earnings of unconsolidated
entity (117) -
Income from continuing operations 36,301 33,603
Income from discontinued operations,
net of taxes of $5 thousand and
$1.2 million, respectively 9 1,801
Net income $36,310 $35,404
Basic earnings per share:
Income from continuing operations $0.58 $0.54
Income from discontinued operations 0.00 0.03
Net income $0.58 $0.57
Average shares outstanding 62,326 61,935
Diluted earnings per share:
Income from continuing operations $0.57 $0.53
Income from discontinued operations 0.00 0.03
Net income $0.57 $0.56
Average shares outstanding 63,796 62,966
Revenues and operating income of the
Company's reportable segments for
the three months ended December 31,
2005 and 2004 are as follows:
Three Months Ended December 31,
Revenues: 2005 2004
Card Services $167,428 $157,258
Check Services 128,458 124,584
$295,886 $281,842
Operating income:
Card Services $41,249 $38,939
Check Services 27,203 24,117
68,452 63,056
General corporate expense (6,944) (6,612)
$61,508 $56,444
(1) Merger and acquisition costs include investment banking, legal,
accounting and other direct costs of $1.6 million related to our
pending merger with Fidelity National Information Services, Inc. and
$1.2 million related to the possible formation and acquisition of a
majority ownership in a card and merchant processing joint venture in
Brazil.
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2004
(In thousands, except per share amounts)
Twelve Months Ended December 31,
2005 2004
(Unaudited)
Revenues $1,117,141 $1,039,506
Operating expenses:
Costs of services 791,581 741,331
Selling, general and
administrative 129,443 129,679
Merger and acquisition costs (1) 11,162 -
932,186 871,010
Operating income 184,955 168,496
Other income, net 2,435 1,207
Interest expense (12,832) (12,914)
Income from continuing operations
before income taxes and
equity in earnings of
unconsolidated entity 174,558 156,789
Provision for income taxes (68,927) (59,111)
Equity in earnings of unconsolidated
entity (117) -
Income from continuing operations 105,514 97,678
Income from discontinued operations,
net of taxes of $16.4 million and
$3.6 million, respectively 24,805 5,934
Net income $130,319 $103,612
Basic earnings per share:
Income from continuing operations $1.70 $1.55
Income from discontinued operations 0.40 0.09
Net income $2.10 $1.65
Average shares outstanding 62,011 62,818
Diluted earnings per share:
Income from continuing operations $1.66 $1.53
Income from discontinued operations 0.39 0.09
Net income $2.06 $1.62
Average shares outstanding 63,391 63,966
Revenues and operating income of the Company's reportable segments for
the twelve months ended December 31, 2005 and 2004 are as follows:
Twelve Months Ended December 31,
2005 2004
(Unaudited)
Revenues:
Card Services $652,020 $590,382
Check Services 465,121 449,124
$1,117,141 $1,039,506
Operating income:
Card Services $144,236 $136,287
Check Services 76,029 58,787
220,265 195,074
General corporate expense (35,310) (26,578)
$184,955 $168,496
(1) Merger and acquisition costs include investment banking, legal,
accounting and other direct costs of $8.2 million related to our
pending merger with Fidelity National Information Services, Inc. and
$2.9 million related to the possible formation and acquisition of a
majority ownership in a card and merchant processing joint venture in
Brazil.
CERTEGY INC.
SUPPLEMENTAL INFORMATION
(Unaudited)
1. Revenues by product and service offering are as follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Issuer
Services $117,862 $123,410 $126,762 $134,562 $502,596
Check Services 100,686 110,736 113,118 124,584 449,124
Merchant Processing 19,294 20,225 21,232 21,023 81,774
Software and
Support 1,498 1,293 1,548 1,673 6,012
$239,340 $255,664 $262,660 $281,842 $1,039,506
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Issuer
Services $128,727 $135,559 $137,253 $141,182 $542,721
Check Services 108,502 111,923 116,238 128,458 465,121
Merchant Processing 22,756 26,008 27,072 24,509 100,345
Software and
Support 2,473 2,533 2,211 1,737 8,954
$262,458 $276,023 $282,774 $295,886 $1,117,141
2. Revenues by geographic area (based on location of customer) are as
follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Domestic $197,478 $215,295 $217,183 $231,947 $861,903
International 41,862 40,369 45,477 49,895 177,603
$239,340 $255,664 $262,660 $281,842 $1,039,506
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Domestic $215,372 $227,631 $233,019 $240,424 $916,446
International 47,086 48,392 49,755 55,462 200,695
$262,458 $276,023 $282,774 $295,886 $1,117,141
3. Revenues are comprised of the following (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Product and Service
Fees $204,509 $217,713 $225,440 $245,947 $893,609
Interchange Fees 16,054 16,917 17,978 18,054 69,003
Reimbursable
Expenses 18,777 21,034 19,242 17,841 76,894
$239,340 $255,664 $262,660 $281,842 $1,039,506
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Product and Service
Fees $221,290 $230,042 $236,519 $254,027 $941,878
Interchange Fees 19,678 22,787 23,470 21,134 87,069
Reimbursable
Expenses 21,490 23,194 22,785 20,725 88,194
$262,458 $276,023 $282,774 $295,886 $1,117,141
4. Currency translation increased (decreased) revenues and operating
income for the three months and twelve months ended December 31, 2005
as compared with the prior year as follows (in thousands):
Revenues
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Services $925 $2,215 $2,536 $1,565 $7,241
Check Services 557 504 (307) (1,580) (826)
$1,482 $2,719 $2,229 $(15) $6,415
Operating Income
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Services $(217) $(395) $(388) $(577) $(1,577)
Check Services 64 116 (64) (654) (538)
$(153) $(279) $(452) $(1,231) $(2,115)
5. Check volumes in dollars are as follows (in millions):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Domestic $8,206 $8,623 $8,719 $10,961 $36,509
International 925 904 917 1,065 3,811
$9,131 $9,527 $9,636 $12,026 $40,320
Guarantee $7,048 $7,248 $7,207 $8,548 $30,051
Verification 2,083 2,279 2,429 3,478 10,269
$9,131 $9,527 $9,636 $12,026 $40,320
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Domestic $10,702 $11,927 $12,250 $14,596 $49,475
International 840 870 853 974 3,537
$11,542 $12,797 $13,103 $15,570 $53,012
Guarantee $6,960 $7,159 $7,484 $9,297 $30,900
Verification 4,582 5,638 5,619 6,273 22,112
$11,542 $12,797 $13,103 $15,570 $53,012
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
6. Number of cards and accounts processed (end of period) are as follows
(in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Cards:
Domestic 23,466 23,843 23,846 23,846
International 23,359 24,244 23,763 25,026
46,825 48,087 47,609 48,872
Accounts:
Domestic 18,069 18,254 17,033 17,032
International 20,282 21,044 20,620 21,972
38,351 39,298 37,653 39,004
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Cards:
Domestic 24,239 24,692 25,052 25,517
International 26,076 26,422 27,344 28,453
50,315 51,114 52,396 53,970
Accounts:
Domestic 17,314 17,637 17,894 18,341
International 22,739 22,992 23,526 24,985
40,053 40,629 41,420 43,326
7. Merchant volumes in dollars and number of transactions are as follows:
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Dollars (in millions) $864 $931 $989 $937 $3,721
Number of Transactions
(in thousands) 9,291 10,385 10,777 10,278 40,731
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Dollars (in millions) $1,013 $1,151 $1,195 $1,079 $4,438
Number of Transactions
(in thousands) 10,500 12,072 12,287 11,609 46,468
8. Depreciation and amortization by segment is as follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Services $7,985 $8,067 $8,722 $9,280 $34,054
Check Services 2,784 2,953 3,175 3,202 12,114
Corporate 315 322 320 324 1,281
$11,084 $11,342 $12,217 $12,806 $47,449
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Services $9,025 $9,360 $9,390 $9,774 $37,549
Check Services 3,178 3,213 3,262 3,462 13,115
Corporate 326 311 287 270 1,194
$12,529 $12,884 $12,939 $13,506 $51,858
9. Capital expenditures and acquisitions are as follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Capital expenditures $7,026 $10,083 $11,373 $12,426 $40,908
Acquisitions, net of
cash acquired $33,391 $(433) $8,063 $(300) $40,721
In the third quarter of 2005, Certegy paid $1.0 million for a purchase
price adjustment related to a prior acquisition.
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Capital expenditures $12,037 $16,082 $14,764 $20,683 $63,566
Acquisitions, net of
cash acquired $- $- $1,000 $- $1,000
In the third quarter of 2005, Certegy paid $1.0 million for a purchase
price adjustment related to a prior acquisition.
10. Long-term debt at December 31, 2005 and 2004 consists of
(in thousands):
December 31,
2005 2004
Unsecured notes, 4.75%, due 2008,
net of unamortized discount $199,667 $199,543
Borrowings under revolving credit
facility - 48,600
Notes payable, variable rate, due
2009 22,364 22,364
Capital lease obligations 5,850 3,461
$227,881 $273,968
11. Adoption of Statement of Financial Accounting Standards No. 123
(revised 2004), "Share-Based Payment":
The Company adopted SFAS No. 123 (revised 2004) on January 1, 2005
using the modified retrospective method, restating all prior periods.
SFAS No. 123(R) requires the Company to expense stock options issued
to employees. Previously, the Company did not record compensation
expense for employee stock options. Prior year periods are restated
using the pro forma amounts previously disclosed in the Company's
consolidated financial statements under SFAS No. 123.
Stock option expense for 2005 and 2004 is as follows:
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Stock option expense $3,557 $2,769 $2,414 $2,418 $11,158
Income tax benefit (1,022) (651) (580) (707) (2,960)
$2,535 $2,118 $1,834 $1,711 $8,198
Diluted EPS $0.04 $0.03 $0.03 $0.03 $0.13
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Stock option expense $1,520 $1,524 $1,371 $1,434 $5,849
Income tax benefit (415) (430) (371) (850) (2,066)
$1,105 $1,094 $1,000 $584 $3,783
Diluted EPS $0.02 $0.02 $0.02 $0.01 $0.06
Stock option expense for 2005
and 2004, by segment, is as
follows:
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Services $1,351 $1,052 $917 $919 $4,239
Check Services 717 558 487 487 2,249
Corporate 1,489 1,159 1,010 1,012 4,670
$3,557 $2,769 $2,414 $2,418 $11,158
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Card Services $578 $554 $537 $528 $2,197
Check Services 306 331 272 297 1,206
Corporate 636 639 562 609 2,446
$1,520 $1,524 $1,371 $1,434 $5,849
12. Sale of Retail Merchant Acquiring Business:
On June 1, 2005, the Company sold a majority of its retail merchant
acquiring business. On September 1, 2005, the Company sold the
remainder of the business. The Company continues to provide transition
services to the acquirer of the portion of the business that was sold
in June 2005.
Income from discontinued operations for 2005 and 2004 is comprised of:
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Income from operations $2,019 $2,438 $2,103 $2,969 $9,529
Gain on sale - - - - -
Write-down of portfolio to
realizable value - - - - -
2,019 2,438 2,103 2,969 9,529
Income taxes (747) (902) (778) (1,168) (3,595)
$1,272 $1,536 $1,325 $1,801 $5,934
2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Income from operations $3,260 $2,721 $962 $14 $6,957
Gain on sale - 45,433 - - 45,433
Write-down of portfolio to
realizable value - (11,167) - - (11,167)
3,260 36,987 962 14 41,223
Income taxes (1,219) (14,834) (360) (5) (16,418)
$2,041 $22,153 $602 $9 $24,805
13. Merger and Acquisition Costs:
Merger and acquisition costs for the three months and twelve months
ended December 31, 2005 were comprised of the following:
4th Qtr Year
Merger Brazil Total Merger Brazil Total
Investment banking
fees $- $94 $94 $3,864 $406 $4,270
Legal fees 712 514 1,226 2,627 1,025 3,652
Accounting fees 155 47 202 715 440 1,155
Consulting and other
costs 782 556 1,338 1,033 1,052 2,085
First Call Analyst:
FCMN Contact:
DATASOURCE: Certegy Inc.
CONTACT: Mary Waggoner, SVP - Investor Relations of Certegy Inc.,
+1-678-867-8004
Web site: http://www.certegy.com/