Certegy Reports Second Quarter Earnings Diluted EPS From Continuing
Operations Increases 21.2% to $0.40 ST. PETERSBURG, Fla., July 21
/PRNewswire-FirstCall/ -- Certegy Inc. (NYSE:CEY) today reported
second quarter 2005 diluted earnings per share of $0.75, including
an after-tax gain of $27.3 million on the sale of its merchant
acquiring business and a $6.8 million after-tax write-down of its
remaining merchant acquiring portfolio held for sale to estimated
net realizable value, as summarized below: Net Income Diluted EPS
Continuing Operations $25,391 $0.40 Discontinued Operations: Gain
on sale 27,276 $0.43 Write-down (6,823) (0.11) Income from
operations 1,700 0.03 22,153 0.35 Net Income $47,544 $0.75 Diluted
earnings per share from continuing operations was $0.40, a 21.2%
increase compared to $0.33 in the second quarter of 2004. Revenue
of $276.0 million increased 8.0%, and operating income of $43.4
million increased 15.8% over the prior year quarter. SECOND QUARTER
FINANCIAL HIGHLIGHTS Summarized highlights of the 2005 second
quarter results from continuing operations, as compared to the
second quarter of 2004, are as follows: - Revenue increased 8.0% to
$276.0 million. - Card Services increased 13.2%. - Check Services
increased 1.1%. - Operating income of $43.4 million increased
15.8%. - Card Services increased 8.2%. - Check Services increased
39.7%. - Corporate expense increased 20.2%. - Net income from
continuing operations increased 19.3% to $25.4 million. - Diluted
earnings per share from continuing operations increased 21.2% to
$0.40. - Capital expenditures totaled $16.1 million. "Strong
revenue and earnings momentum in Card Services, e-Payments and Cash
Access, along with another quarter of significant margin expansion
in Check Services, drove solid second quarter results," stated Lee
A. Kennedy, chairman and chief executive officer of Certegy. "While
Check Services revenue growth was weaker than expected, we remain
confident that strong new customer signings and new product
initiatives will generate increased revenue growth in the second
half of the year." SEGMENT RESULTS Card Services generated revenue
of $164.1 million in the second quarter of 2005, an increase of
13.2% above the 2004 quarter. Revenue growth of 10.0% in the
Company's North American card operation was driven by growth in
institution merchant processing, e-payments (e-banking and
electronic bill payment), card transactions, new customer signings
and increased adoption of card loyalty programs. International card
revenue increased 30.6%, primarily due to new customer signings,
growth within existing customers, higher software maintenance and
support, the prior year CariCard acquisition and favorable currency
rates versus the 2004 quarter. Card Services operating income of
$35.3 million increased 8.2%, compared to $32.6 million in the
second quarter of 2004. Card Services operating margin of 21.5% in
the second quarter of 2005 decreased by 100 basis points compared
to an operating margin of 22.5% in the prior year quarter,
primarily due to product mix and business development costs. Check
Services generated revenue of $111.9 million in the second quarter
of 2005, an increase of 1.1% over the 2004 quarter. New customer
additions, strong growth in cash access services and favorable
currency rates were partially offset by lower check guarantee
volumes. Check Services operating income of $16.2 million increased
39.7% compared to $11.6 million in the second quarter of 2004.
Check Services operating margin of 14.5% in the second quarter of
2005 increased by 400 basis points compared to an operating margin
of 10.5% in the prior year quarter. Certegy's proprietary risk
modeling technology, improved collections and increased margins in
cash access services drove the significantly improved profitability
in the check segment. Corporate expense of $8.1 million increased
by $1.4 million over the prior year quarter. The increase is
largely attributable to higher audit related fees and business
development costs. Interest expense of $3.3 million was comparable
to the prior year quarter. Other income of $576,000 increased by
$491,000, driven by higher cash balances and interest rates. SALE
OF MERCHANT ACQUIRING BUSINESS In June 2005, Certegy completed the
sale of a majority of its merchant acquiring business. The Company
realized an after-tax gain of $27.3 million ($0.43 per diluted
share) on the sale. Also during the quarter, the Company recorded a
$6.8 million after-tax write-down ($0.11 per diluted share) of its
remaining merchant acquiring portfolio to estimated net realizable
value. The Company expects to complete the sale of the remaining
portfolio in the third quarter of 2005. OUTLOOK Management provided
its earnings outlook for the full year 2005 as follows. This
guidance is based on the Company's continuing operations only, and
excludes results from the discontinued merchant acquiring business:
- Revenue growth of approximately 10%, driven by low double-digit
revenue growth in Card Services and mid single-digit growth in
Check Services. - Operating income growth of 15% to 17% over $168.5
million in 2004. - The effective tax rate is expected to
approximate 37.6%. - Diluted earnings per share from continuing
operations of $1.83 to $1.86, representing growth of 19.6% to 21.6%
over $1.53 in 2004. The Company expects to achieve revenue growth
of approximately 9% in the third quarter of 2005, driven by low
double-digit growth in Card Services and mid single-digit growth in
Check Services. Diluted earnings per share from continuing
operations in the third quarter of 2005 is expected to be $0.46 to
$0.47. TELECONFERENCE Management will host a teleconference to
discuss second quarter earnings on Thursday, July 21, 2005, at
10:00 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 August 4, 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 JUNE
30, 2005 AND 2004 (In thousands, except per share amounts)
(Unaudited) Three Months Ended June 30, 2005 2004 Revenues $276,023
$255,664 Operating expenses(1): Costs of services 196,466 184,537
Selling, general and administrative 36,180 33,684 232,646 218,221
Operating income 43,377 37,443 Other income, net 576 85 Interest
expense (3,250) (3,153) Income from continuing operations before
income taxes 40,703 34,375 Provision for income taxes (15,312)
(13,092) Income from continuing operations 25,391 21,283 Income
from discontinued operations, net of taxes of $14.8 million and
$0.9 million, respectively(2) 22,153 1,536 Net income $47,544
$22,819 Basic earnings per share: Income from continuing operations
$0.41 $0.34 Income from discontinued operations 0.36 0.02 Net
income $0.77 $0.36 Average shares outstanding 61,899 63,083 Diluted
earnings per share: Income from continuing operations $0.40 $0.33
Income from discontinued operations 0.35 0.02 Net income $0.75
$0.36 Average shares outstanding 63,029 64,272 Revenues and
operating income of the Company's reportable segments for the three
months ended June 30, 2005 and 2004 are as follows: Three Months
Ended June 30, Revenues: 2005 2004 Card Services $164,100 $144,928
Check Services 111,923 110,736 $276,023 $255,664 Operating
income(1): Card Services $35,253 $32,568 Check Services 16,246
11,633 51,499 44,201 General corporate expense (8,122) (6,758)
$43,377 $37,443 (1) The Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), "Share-Based Payment,"
on January 1, 2005, restating all prior periods. SFAS No. 123(R)
requires the Company to expense stock options issued to employees.
See Item 11 for further information. (2) During the third quarter
of 2004, Certegy's Board of Directors approved a plan to dispose of
the Company's retail merchant acquiring business. On June 1, 2005,
the Company sold a majority of its retail merchant acquiring
business. The remainder of the business is expected to be sold
during the third quarter of 2005. See Item 12 for further
information. CERTEGY INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (In thousands, except per
share amounts) (Unaudited) Six Months Ended June 30, 2005 2004
Revenues $538,481 $495,004 Operating expenses(1): Costs of services
386,758 361,777 Selling, general and administrative 71,294 65,814
458,052 427,591 Operating income 80,429 67,413 Other income, net
741 305 Interest expense (6,555) (6,129) Income from continuing
operations before income taxes 74,615 61,589 Provision for income
taxes (28,069) (23,455) Income from continuing operations 46,546
38,134 Income from discontinued operations, net of taxes of $16.1
million and $1.6 million, respectively(2) 24,194 2,808 Net income
$70,740 $40,942 Basic earnings per share: Income from continuing
operations $0.75 $0.60 Income from discontinued operations 0.39
0.04 Net income $1.14 $0.65 Average shares outstanding 61,847
63,380 Diluted earnings per share: Income from continuing
operations $0.74 $0.59 Income from discontinued operations 0.38
0.04 Net income $1.12 $0.63 Average shares outstanding 62,937
64,478 Revenues and operating income of the Company's reportable
segments for the six months ended June 30, 2005 and 2004 are as
follows: Six Months Ended June 30, Revenues: 2005 2004 Card
Services $318,056 $283,582 Check Services 220,425 211,422 $538,481
$495,004 Operating income(1): Card Services $66,299 $61,581 Check
Services 30,448 19,683 96,747 81,264 General corporate expense
(16,318) (13,851) $80,429 $67,413 (1) The Company adopted Statement
of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment," on January 1, 2005, restating all prior
periods. SFAS No. 123(R) requires the Company to expense stock
options issued to employees. See Item 11 for further information.
(2) During the third quarter of 2004, Certegy's Board of Directors
approved a plan to dispose of the Company's retail merchant
acquiring business. On June 1, 2005, the Company sold a majority of
its retail merchant acquiring business. The remainder of the
business is expected to be sold during the third quarter of 2005.
See Item 12 for further information. 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
Card Issuer Services $117,862 $123,410 $126,762 $134,562 Check
Services 100,686 110,736 113,118 124,584 Merchant Processing 19,294
20,225 21,232 21,023 Software and Support 1,498 1,293 1,548 1,673
$239,340 $255,664 $262,660 $281,842 2005 Year 1st Qtr 2nd Qtr Card
Issuer Services $502,596 $128,727 $135,559 Check Services 449,124
108,502 111,923 Merchant Processing 81,774 22,756 26,008 Software
and Support 6,012 2,473 2,533 $1,039,506 $262,458 $276,023 2.
Revenues by geographic area (based on location of customer) are as
follows (in thousands): 2004 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Domestic $197,478 $215,295 $217,183 $231,947 International 41,862
40,369 45,477 49,895 $239,340 $255,664 $262,660 $281,842 2005 Year
1st Qtr 2nd Qtr Domestic $861,903 $215,372 $227,631 International
177,603 47,086 48,392 $1,039,506 $262,458 $276,023 3. Revenues are
comprised of the following (in thousands): 2004 1st Qtr 2nd Qtr 3rd
Qtr 4th Qtr Product and Service Fees $204,509 $217,713 $225,440
$245,947 Interchange Fees 16,054 16,917 17,978 18,054 Reimbursable
Expenses 18,777 21,034 19,242 17,841 $239,340 $255,664 $262,660
$281,842 2005 Year 1st Qtr 2nd Qtr Product and Service Fees
$893,609 $221,290 $230,042 Interchange Fees 69,003 19,678 22,787
Reimbursable Expenses 76,894 21,490 23,194 $1,039,506 $262,458
$276,023 4. Currency translation increased (decreased) revenues and
operating income for the three months and six months ended June 30,
2005 as compared with the prior year as follows (in thousands):
Revenues 1st Qtr 2nd Qtr YTD Card Services $925 $2,215 $3,140 Check
Services 557 504 1,061 $1,482 $2,719 $4,201 Operating Income 1st
Qtr 2nd Qtr YTD Card Services $(217) $(395) $(612) Check Services
64 116 180 $(153) $(279) $(432) 5. Check volumes in dollars are as
follows (in millions): 2004 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Domestic $8,206 $8,623 $8,719 $10,961 International 925 904 917
1,065 $9,131 $9,527 $9,636 $12,026 Guarantee $7,048 $7,248 $7,207
$8,548 Verification 2,083 2,279 2,429 3,478 $9,131 $9,527 $9,636
$12,026 2005 Year 1st Qtr 2nd Qtr Domestic $36,509 $10,105 $11,927
International 3,811 840 870 $40,320 $10,945 $12,797 Guarantee
$30,051 $6,960 $7,159 Verification 10,269 3,985 5,638 $40,320
$10,945 $12,797 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
Cards: Domestic 24,239 24,692 International 26,076 26,422 50,315
51,114 Accounts: Domestic 17,314 17,637 International 22,739 22,992
40,053 40,629 7. Merchant volumes in dollars and number of
transactions are as follows: 2004 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Dollars (in millions) $864 $931 $989 $937 Number of Transactions
(in thousands) 9,291 10,385 10,777 10,278 2005 Year 1st Qtr 2nd Qtr
Dollars (in millions) $3,721 $1,013 $1,151 Number of Transactions
(in thousands) 40,731 10,500 12,072 8. Depreciation and
amortization by segment is as follows (in thousands): 2004 1st Qtr
2nd Qtr 3rd Qtr 4th Qtr Card Services $7,985 $8,067 $8,722 $9,280
Check Services 2,784 2,953 3,175 3,202 Corporate 315 322 320 324
$11,084 $11,342 $12,217 $12,806 2005 Year 1st Qtr 2nd Qtr Card
Services $34,054 $9,025 $9,360 Check Services 12,114 3,178 3,213
Corporate 1,281 326 311 $47,449 $12,529 $12,884 9. Capital
expenditures and acquisitions are as follows (in thousands): 2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Capital expenditures $7,026 $10,083
$11,373 $12,426 Acquisitions, net of cash acquired $33,391 $(433)
$8,063 $(300) 2005 Year 1st Qtr 2nd Qtr Capital expenditures
$40,908 $12,037 $16,082 Acquisitions, net of cash acquired $40,721
$- $- 10. Long-term debt at June 30, 2005 and December 31, 2004
consists of (in thousands): June 30, December 31, 2005 2004
Unsecured notes, 4.75%, due 2008, net of unamortized discount
$199,605 $199,543 Borrowings under revolving credit facility -
48,600 Notes payable, variable rate, due 2009 22,364 22,364 Capital
lease obligations 4,057 3,461 $226,026 $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
Stock option expense $3,557 $2,769 $2,414 $2,418 Income tax benefit
(1,022) (651) (580) (707) $2,535 $2,118 $1,834 $1,711 Diluted EPS
$0.04 $0.03 $0.03 $0.03 2005 Year 1st Qtr 2nd Qtr Stock option
expense $11,158 $1,520 $1,524 Income tax benefit (2,960) (415)
(430) $8,198 $1,105 $1,094 Diluted EPS $0.13 $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 Card Services $1,351 $1,052 $917 $919 Check
Services 717 558 487 487 Corporate 1,489 1,159 1,010 1,012 $3,557
$2,769 $2,414 $2,418 2005 Year 1st Qtr 2nd Qtr Card Services $4,239
$578 $554 Check Services 2,249 306 $331 Corporate 4,670 636 639
$11,158 $1,520 $1,524 12. Sale of Retail Merchant Acquiring
Business: On June 1, 2005, the Company sold a majority of its
retail merchant acquiring business. The remainder of the business
will be sold during the third quarter of 2005. Income from
discontinued operations in the second quarter of 2005 is comprised
of: Before- Income After- Tax Tax Tax Income from operations $2,721
$(1,021) $1,700 Gain on sale 45,433 (18,157) 27,276 Write-down of
remaining portfolio held for sale to estimated net realizable value
(11,167) 4,344 (6,823) $36,987 $(14,834) $22,153 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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