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/
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