Certegy (NYSE:CEY)
Historical Stock Chart
From Jul 2019 to Jul 2024
ST. PETERSBURG, Fla., Oct. 25 /PRNewswire-FirstCall/ -- Certegy Inc. (NYSE:CEY) today reported third quarter 2005 diluted earnings per share of $0.37, including income from discontinued operations of $0.01 per diluted share and direct merger and acquisition costs of $(0.11) per diluted share.
During the third quarter of 2005, the Company incurred investment banking, legal, accounting and other direct costs of $6.1 million related to its pending merger with Fidelity National Information Services, Inc. and $0.9 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. Third 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 M&A
share amounts) GAAP COSTS Non-GAAP
Income from continuing operations
before income taxes $40,567 $(7,010) $47,577
Provision for income taxes (17,900) - (17,900)
Income from continuing operations 22,667 (7,010) 29,677
Income from discontinued operations 602 - 602
Net income $23,269 $(7,010) $30,279
Diluted earnings per share:
Income from continuing operations $0.36 $(0.11) $0.47
Income from discontinued operations 0.01 - 0.01
Net income $0.37 $(0.11) $0.48
THIRD QUARTER FINANCIAL HIGHLIGHTS
Summarized highlights of the 2005 third quarter results from continuing operations, as compared to the third quarter of 2004, are as follows:
- Revenue increased 7.7% to $282.8 million.
- Card Services increased 11.4%.
- Check Services increased 2.8%.
- Operating income of $43.0 million includes $7.0 million of merger and
acquisition costs. On a non-GAAP basis, excluding the merger and
acquisition costs, operating income increased 12.1% to $50.0 million.
- Card Services increased 2.6% (5.1% non-GAAP).
- Check Services increased 22.6%.
- Corporate expense increased 97.0% (decreased 2.6% non-GAAP).
- Income from continuing operations was $22.7 million. On a non-GAAP
basis, income from continuing operations increased 14.4% to $29.7
million.
- Diluted earnings per share from continuing operations was $0.36. On a
non-GAAP basis, diluted earnings per share from continuing operations
increased 14.6% to $0.47.
- Capital expenditures totaled $14.8 million.
"The underlying fundamentals in each of our businesses remain strong, despite a challenging retail environment. We are particularly pleased with the new business signings and the growth prospects in our international card operation," said Lee A. Kennedy, chairman and chief executive officer of Certegy Inc. "In addition, the pending merger with Fidelity National Information Services, Inc., will provide additional growth opportunities for our company and further strengthen our competitive position."
SEGMENT RESULTS
Card Services generated revenue of $166.5 million in the third quarter of 2005, an increase of 11.4% above the 2004 quarter. Revenue growth of 10.9% in the Company's North American card operation was the result of growth in card processing services, e-payments (Internet banking and electronic bill payment), and institution merchant processing. North American card transactions increased 5.2%, driven by 5.1% growth in number of cards processed. Higher adoption of loyalty programs resulted in 14.1% growth in card enhancement revenue. Internet banking subscribers increased 18.2% and electronic bill payment users increased 31.9%. Institution merchant processing volumes increased 20.8%, driven by 14.0% growth in transactions and higher average ticket. International card revenue increased 13.2%, 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 $36.7 million increased 2.6%, compared to $35.8 million in the third quarter of 2004. During the third quarter of 2005, the Company incurred $0.9 million of investment banking, 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 third quarter results, Card Services' operating income increased 5.1% to $37.6 million. Card Services operating margin of 22.0% in the third quarter of 2005 decreased by 190 basis points compared to an operating margin of 23.9% in the prior year quarter, primarily due to joint venture formation costs and product mix shift driven by strongest revenue growth coming from products and services with margins lower than the overall Card Services average margin.
The Company announced that it has finalized a multi-year transaction processing agreement with Lafayette Services, S.A. ("LaSer"), a leading European retail specialist service group to provide card and loan transaction processing services to LaSer Subsidiaries in the U.K., Spain, Portugal, Belgium and Holland.
Check Services generated revenue of $116.2 million in the third quarter of 2005, an increase of 2.8% over the 2004 quarter. New customer additions and strong growth in cash access services were partially offset by unfavorable currency rates and lower than expected check guarantee volumes. Cash access transactions and check volumes were negatively impacted by the Gulf Coast storms and the resulting impact of rising energy prices on retail spending.
Check Services operating income of $18.4 million increased 22.6% compared to $15.0 million in the third quarter of 2004. Check Services operating margin of 15.8% in the third quarter of 2005 increased by 260 basis points compared to an operating margin of 13.2% in the prior year quarter. Certegy's proprietary risk modeling technology, improved collection techniques and higher cash access profitability drove the margin expansion in Check Services.
Corporate expense of $12.0 million increased by $5.9 million over the prior year quarter. The increase is attributable to $6.1 million of investment banking, legal, accounting and other direct costs related to the pending merger with Fidelity National Information Services, Inc. Excluding these costs from the third quarter results, Corporate expense of $6.0 million was $0.2 million below the prior year quarter, due largely to favorable annual insurance premium renewals, effective July 1, 2005, and lower stock option expense.
Interest expense of $3.1 million in the third quarter of 2005 compared to $3.3 million in the third quarter of 2004. Other income, which is primarily comprised of interest income, totaled $0.7 million in the third quarter of 2005 compared to $0.3 million in the third quarter of 2004. Interest income increased due to higher average cash balances and higher interest rates.
The effective tax rate of 44.1% in the third quarter of 2005 reflects the impact of not recognizing a tax benefit associated with the merger and acquisition costs of $7.0 million incurred during the quarter. Excluding these costs, the effective tax rate was 37.6% on a non-GAAP basis.
SALE OF MERCHANT ACQUIRING BUSINESS
In September 2005, Certegy completed the sale of its remaining discontinued merchant acquiring portfolio for $3.0 million of cash, which approximated net book value at date of sale.
OUTLOOK
Management provided its non-GAAP earnings outlook for the fourth quarter of 2005 as follows. This guidance is based on the Company's continuing operations only, and excludes merger and acquisition costs:
- Revenue growth of approximately 6% to 8%, driven by upper single-digit
revenue growth in Card Services and low to mid single-digit growth in
Check Services.
- Diluted earnings per share from continuing operations of $0.60 to
$0.62, representing growth of 13.2% to 17.0% over $0.53 in 2004.
TELECONFERENCE
Management will host a teleconference to discuss third quarter earnings on Tuesday, October 25, 2005, 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 November 8, 2005.
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 $1.0 billion in revenue in 2004. 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. Without limitation, Certegy's revenue, operating income and earnings per share projections for fiscal 2005 under the heading "Outlook" above are forward-looking statements. 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 SEPTEMBER 30, 2005 AND 2004
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,
2005 2004
Revenues $282,774 $262,660
Operating expenses:
Costs of services 201,997 186,516
Selling, general and
administrative 30,749 31,505
Merger and acquisition costs (1) 7,010 -
239,756 218,021
Operating income 43,018 44,639
Other income, net 671 294
Interest expense (3,122) (3,259)
Income from continuing operations
before income taxes 40,567 41,674
Provision for income taxes (17,900) (15,733)
Income from continuing operations 22,667 25,941
Income from discontinued operations,
net of taxes of $0.4 million and
$0.8 million, respectively 602 1,325
Net income $23,269 $27,266
Basic earnings per share:
Income from continuing operations $0.37 $0.41
Income from discontinued operations 0.01 0.02
Net income $0.38 $0.44
Average shares outstanding 62,017 62,588
Diluted earnings per share:
Income from continuing operations $0.36 $0.41
Income from discontinued operations 0.01 0.02
Net income $0.37 $0.43
Average shares outstanding 63,313 63,849
Revenues and operating income of the Company's reportable segments for the
three months ended September 30, 2005 and 2004 are as follows:
Three Months Ended September 30,
Revenues: 2005 2004
Card Services $166,536 $149,542
Check Services 116,238 113,118
$282,774 $262,660
Operating income:
Card Services $36,688 $35,767
Check Services 18,378 14,987
55,066 50,754
General corporate expense (12,048) (6,115)
$43,018 $44,639
(1) Merger and acquisition costs include investment banking, legal,
accounting and other direct costs of $6.1 million related to our
pending merger with Fidelity National Information Services, Inc. and
$0.9 million related to the possible formation and acquisition of a
majority ownership in a card and merchant processing joint venture in
Brazil.
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(In thousands, except per share amounts)
(Unaudited)
Nine Months Ended September 30,
2005 2004
Revenues $821,255 $757,664
Operating expenses:
Costs of services 588,755 548,293
Selling, general and
administrative 100,751 97,319
Merger and acquisition costs (1) 8,302 -
697,808 645,612
Operating income 123,447 112,052
Other income, net 1,412 599
Interest expense (9,677) (9,388)
Income from continuing operations
before income taxes 115,182 103,263
Provision for income taxes (45,969) (39,188)
Income from continuing operations 69,213 64,075
Income from discontinued operations,
net of taxes of $16.4 million and
$2.4 million, respectively 24,796 4,133
Net income $94,009 $68,208
Basic earnings per share:
Income from continuing operations $1.12 $1.02
Income from discontinued operations 0.40 0.07
Net income $1.52 $1.08
Average shares outstanding 61,904 63,114
Diluted earnings per share:
Income from continuing operations $1.10 $1.00
Income from discontinued operations 0.39 0.06
Net income $1.49 $1.06
Average shares outstanding 63,189 64,283
Revenues and operating income of the Company's reportable segments for the
nine months ended September 30, 2005 and 2004 are as follows:
Nine Months Ended September 30,
Revenues: 2005 2004
Card Services $484,592 $433,124
Check Services 336,663 324,540
$821,255 $757,664
Operating income:
Card Services $102,987 $97,348
Check Services 48,826 34,670
151,813 132,018
General corporate expense (28,366) (19,966)
$123,447 $112,052
(1) Merger and acquisition costs include investment banking, legal,
accounting and other direct costs of $6.6 million related to our
pending merger with Fidelity National Information Services, Inc. and
$1.7 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
Card Issuer Services $128,727 $135,559 $137,253
Check Services 108,502 111,923 116,238
Merchant Processing 22,756 26,008 27,072
Software and Support 2,473 2,533 2,211
$262,458 $276,023 $282,774
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
Domestic $215,372 $227,631 $233,019
International 47,086 48,392 49,755
$262,458 $276,023 $282,774
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
Product and Service Fees $221,290 $230,042 $236,519
Interchange Fees 19,678 22,787 23,470
Reimbursable Expenses 21,490 23,194 22,785
$262,458 $276,023 $282,774
4. Currency translation increased (decreased) revenues and operating
income for the three months and nine months ended September 30, 2005
as compared with the prior year as follows (in thousands):
Revenues
1st Qtr 2nd Qtr 3rd Qtr YTD
Card Services $925 $2,215 $2,536 $5,676
Check Services 557 504 (307) 754
$1,482 $2,719 $2,229 $6,430
Operating Income
1st Qtr 2nd Qtr 3rd Qtr YTD
Card Services $(217) $(395) $(388) $(1,000)
Check Services 64 116 (64) 116
$(153) $(279) $(452) $(884)
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
Domestic $10,702 $11,927 $12,250
International 840 870 853
$11,542 $12,797 $13,103
Guarantee $6,960 $7,159 $7,484
Verification 4,582 5,638 5,619
$11,542 $12,797 $13,103
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
Cards:
Domestic 24,239 24,692 25,052
International 26,076 26,422 27,344
50,315 51,114 52,396
Accounts:
Domestic 17,314 17,637 17,894
International 22,739 22,992 23,526
40,053 40,629 41,420
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
Dollars (in millions) $1,013 $1,151 $1,195
Number of Transactions
(in thousands) 10,500 12,072 12,287
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
Card Services $9,025 $9,360 $9,390
Check Services 3,178 3,213 3,262
Corporate 326 311 287
$12,529 $12,884 $12,939
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
2005
1st Qtr 2nd Qtr 3rd Qtr
Capital expenditures $12,037 $16,082 $14,764
Acquisitions,
net of cash acquired $- $- $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 September 30, 2005 and December 31, 2004
consists of (in thousands):
Sep 30, Dec 31,
2005 2004
Unsecured notes, 4.75%, due 2008,
net of unamortized discount $199,636 $199,543
Borrowings under revolving
credit facility - 48,600
Notes payable, variable rate,
due 2009 22,364 22,364
Capital lease obligations 3,864 3,461
$225,864 $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
Stock option expense $1,520 $1,524 $1,371
Income tax benefit (415) (430) (371)
$1,105 $1,094 $1,000
Diluted EPS $0.02 $0.02 $0.02
During 2005, the quarterly impact of SFAS No. 123(R) is expected to
be approximately $0.02 per diluted share, amounting to approximately
$0.08 per diluted share for the full year 2005.
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
Card Services $578 $554 $537
Check Services 306 $331 $272
Corporate 636 639 562
$1,520 $1,524 $1,371
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. 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
Income from operations $3,260 $2,721 $962
Gain on sale - 45,433 -
Write-down of portfolio to
realizable value - (11,167) -
3,260 36,987 962
Income taxes (1,219) (14,834) (360)
$2,041 $22,153 $602
13. Merger and Acquisition Costs:
Merger and acquisition costs in the third quarter of 2005 were
comprised of the following:
Merger with Joint Venture
Fidelity National Formation and
Information Acquisition in
Services Brazil
Investment banking fees $3,614 $60
Legal fees 1,833 354
Accounting fees 396 196
Consulting and other costs 250 307
$6,093 $917
The ultimate tax treatment of these costs cannot be determined with
adequate certainty; therefore, no tax benefit has been recorded.
In addition, the first and second quarters of 2005 included $0.3
million and $1.0 million, respectively, of costs directed toward
developing these strategic transactions.
DATASOURCE: Certegy Inc.
CONTACT: Mary Waggoner, SVP - Investor Relations of Certegy Inc.,
+1-678-867-8004
Web site: http://www.certegy.com/