UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 26, 2005
CERTEGY INC.
(Exact name of Registrant as Specified in its Charter)
| Florida | 001-16427 | 58-2606325 | ||
| (State or other Jurisdiction of Incorporation or Organization) |
(Commission File Number) | (IRS Employer Identification No.) |
| 100 Second Avenue South Suite 1100S St. Petersburg, FL |
33701 | |
| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (727) 277-8000
11720 Amber Park Drive
Suite 600
Alpharetta, Georgia 30004
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On January 26, 2005, Certegy Inc. (“Certegy”) issued a press release to announce its financial results for the fourth quarter of 2004 and full year of 2004. A copy of the press release is attached as Exhibit 99.1.
The information in the Report, including the Exhibit attached hereto, is furnished solely pursuant to Item 2.02 of this Form 8-K. Consequently, it is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Exchange Act or Securities Act of 1933 if such subsequent filing specifically references this Form 8-K.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
| Exhibit No. |
Description | |
| 99.1 | Certegy Inc. press release dated January 26, 2005, announcing the Company’s financial results for the fourth quarter of 2004 and full year 2004 (furnished pursuant to Item 2.02 of Form 8-K). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CERTEGY INC. | ||||
| By: | /s/ Michael T. Vollkommer | |||
| Michael T. Vollkommer | ||||
| Date: January 26, 2005 | Corporate Vice President and Chief Financial Officer | |||
Exhibit 99.1
| Press Release | Certegy Inc. | |||
| 100 Second Avenue South | ||||
| Suite 1100S | ||||
| St. Petersburg, FL 33701 | ||||
| Date: January 26, 2005 | Phone: 727-227-8000 | |||
| Fax: 727-227-8091 | ||||
| Contact: Mary Waggoner | ||||
| Certegy Inc. | ||||
| VP - Investor and Public Relations | ||||
| 678-867-8004 | ||||
FOR IMMEDIATE RELEASE
CERTEGY REPORTS FOURTH QUARTER 2004 DILUTED EPS OF $0.59
Diluted EPS from Continuing Operations of $0.56 With Revenue of
$281.8 Million and Operating Income of $58.9 Million
St. Petersburg, FL, January 26, 2005 – Certegy Inc. (NYSE:CEY) today reported fourth quarter 2004 diluted earnings per share of $0.59, compared to fourth quarter 2003 diluted earnings per share of $0.48. The fourth quarter of 2003 included a $0.02 per diluted share expense related to a cumulative effect of accounting change. Diluted earnings per share from continuing operations in the fourth quarter of 2004 was $0.56, compared to $0.48 in the fourth quarter of 2003. The following is a comparative summary of fourth quarter diluted earnings per share:
| Fourth Quarter |
|||||||
| 2004 |
2003 |
||||||
| Diluted Earnings per Share: |
|||||||
| Continuing operations |
$ | 0.56 | $ | 0.48 | |||
| Discontinued operations |
0.03 | 0.02 | |||||
| Before Cumulative Effect of Accounting Change |
0.59 | 0.50 | |||||
| Cumulative Effect of Accounting Change |
— | (0.02 | ) | ||||
| Net Income |
$ | 0.59 | $ | 0.48 | |||
FOURTH QUARTER FINANCIAL HIGHLIGHTS
Highlights of the 2004 fourth quarter results from continuing operations, as compared to the prior year quarter (before cumulative effect of accounting change in the 2003 quarter) are as follows:
| • | Revenue increased 13.3% to $281.8 million. |
| • | Operating income of $58.9 million increased 16.4%. |
| • | Income from continuing operations increased 13.8% to $35.3 million. |
| • | Diluted earnings per share from continuing operations increased 16.7% to $0.56 per share. |
| • | Approximately $8.7 million was used to repurchase 262,400 shares of common stock. |
| • | Capital expenditures totaled $12.4 million. |
Certegy previously reported that its Board of Directors had approved a plan to dispose of the Company’s merchant acquiring business. Diluted earnings per share from the discontinued operations was $0.03 and $0.02 in the fourth quarter of 2004 and 2003, respectively. The 2004 fourth quarter included a $0.5 million after-tax benefit from no amortization expense on long-lived assets held for sale as part of discontinued operations, in accordance with Financial Accounting Standards Board Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
“We achieved solid fourth quarter revenue and operating income growth across the company,” stated Lee Kennedy, Certegy’s chairman and chief executive officer. “Card Services revenue increased 12.7%, driven by strong growth in our North American and international card issuing businesses. We are also pleased with the performance of Check Services, where operating income grew 38.7% over prior year and the margin increased by 350 basis points to 19.7%, representing the highest quarterly margin in the past decade.”
SEGMENT RESULTS
Card Services generated revenue of $157.3 million in the fourth quarter of 2004, an increase of 12.7% above the 2003 quarter. Revenue growth of 13.1% in the company’s North American card operation resulted from new customer signings, growth in e-banking and card loyalty programs, and revenue from the acquisition of Crittson Financial, which closed in the first quarter. International card issuing revenue increased by 16.1%, primarily due to growth from existing customers and the third quarter 2004 acquisition of Caribbean CariCard Services. Merchant processing revenue increased 12.2% over the 2003 quarter. Card Services operating income of $39.9 million increased 5.1%, compared to $37.9 in the fourth quarter of 2003, and the operating margin was 25.3%, compared to 27.2% in the fourth quarter of 2003. The reduction in fourth quarter Card Services margin was due to lower software profits, higher international development costs and changes in mix of revenue.
Check Services generated revenue of $124.6 million in the fourth quarter of 2004, an increase of 14.1% over the 2003 quarter, driven by growth in the Company’s domestic and international customer base and growth in cash access services, including the first quarter 2004 acquisition of Game Financial Corporation. Check Services operating income of $24.6 million increased 38.7% compared to $17.7 million in the fourth quarter of 2003. Check Services operating margin increased by 350 basis points to 19.7%, compared to 16.2% in the fourth quarter of 2003. Certegy’s front-end proprietary risk modeling technology, improved collections and increased margins in cash access services drove higher profitability in the check segment.
Corporate expense of $5.6 million increased by $0.5 million over the prior year quarter. The increase is largely attributable to higher audit fees related to Sarbanes-Oxley Section 404. Interest expense of $3.5 million increased by $0.9 million compared to the fourth quarter of 2003. Higher average outstanding revolving credit borrowings and the impact of FIN 46 lease accounting, effective December 31, 2003, generated the increase in interest expense. Other income of $0.6 million declined by $0.3 million compared to the fourth quarter of 2003.
FULL YEAR FINANCIAL HIGHLIGHTS
For the year ended December 31, 2004, the Company reported diluted earnings per share of $1.75. Diluted earnings per share from continuing operations was $1.66 with revenue of $1.0 billion, operating income of $179.7 million and income from continuing operations of $105.9 million. Full year 2004 net income includes income from discontinued operations of $5.9 million after-tax, or $0.09 per diluted share. The following is a comparative summary of full year diluted earnings per share:
| Year ended December 31, |
|||||||
| 2004 |
2003(1) |
||||||
| Diluted Earnings per Share: |
|||||||
| Continuing operations |
$ | 1.66 | $ | 1.36 | |||
| Discontinued operations |
0.09 | 0.06 | |||||
| Before Cumulative Effect of Accounting Change |
1.75 | 1.42 | |||||
| Cumulative Effect of Accounting Change |
— | (0.02 | ) | ||||
| Net Income |
$ | 1.75 | $ | 1.40 | |||
| (1) | Continuing operations in 2003 includes other charges of $12.2 million ($7.7 million after tax) or $0.12 per diluted share. |
Highlights for the full year 2004 results from continuing operations, as compared to the full year 2003 (before the 2003 cumulative effect of accounting change) are as follows:
| • | Revenue increased 12.8% to $1.0 billion. |
| • | Operating income increased 21.2% to $179.7 million. |
| • | Income from continuing operations increased 17.8% to $105.9 million. |
| • | Diluted earnings per share from continuing operations increased 22.1% to $1.66 per share. |
| • | Approximately $96.5 million was used to repurchase 2.7 million shares of common stock. |
| • | Capital expenditures totaled $40.9 million. |
ACCOUNTING CHANGE
Certegy expects to adopt Financial Accounting Standards Board (“FASB”) No. 123(R), “Share-Based Payment,” in the first quarter of 2005 using the retrospective transition method, which requires restatement of prior periods presented. The following summarizes the restatement of 2004 results that will occur upon adoption of FASB No. 123(R):
| Reported |
FASB 123(R) |
Pro Forma |
||||||||||
| (In millions, except per share) | ||||||||||||
| Year Ended December 31, 2004 |
||||||||||||
| Operating income |
$ | 179.7 | $ | (11.0 | ) | $ | 168.6 | |||||
| Income from continuing operations before taxes |
$ | 168.0 | $ | (11.0 | ) | $ | 157.0 | |||||
| Provision for income taxes |
$ | (62.1 | ) | $ | 2.7 | $ | (59.4 | ) | ||||
| Income from continuing operations |
$ | 105.9 | $ | (8.4 | ) | $ | 97.5 | |||||
| Effective tax rate |
37.0 | % | 37.8 | % | ||||||||
The 2004 restated quarterly diluted earnings per share from continuing operations will be as follows:
| Reported |
FASB 123(R) |
Pro Forma | ||||||||
| First Quarter 2004 |
$ | 0.30 | $ | (0.04 | ) | $ | 0.26 | |||
| Second Quarter 2004 |
$ | 0.36 | $ | (0.03 | ) | $ | 0.33 | |||
| Third Quarter 2004 |
$ | 0.44 | $ | (0.03 | ) | $ | 0.41 | |||
| Fourth Quarter 2004 |
$ | 0.56 | $ | (0.03 | ) | $ | 0.53 | |||
| Year 2004 |
$ | 1.66 | $ | (0.13 | ) | $ | 1.53 | |||
Certegy expects the accounting required by FASB 123(R) to reduce 2005 diluted earnings per share by approximately $0.09 and will result in an effective tax rate of 37.5% for 2005.
2005 GUIDANCE
Certegy provided the following earnings guidance for 2005, including the 2004 and 2005 effects of adopting FASB 123(R). This guidance excludes any potential gain on the sale of the discontinued merchant acquiring business and its profitability prior to disposition:
| • | Revenue growth of 10% to 12%, driven by low-double digit revenue growth in both Card Services and Check Services. |
| • | Operating income growth of 12% to 14% over $168.6 million in 2004. |
| • | Diluted earnings per share from continuing operations of $1.79 to $1.83, representing growth of 17% to 20% over $1.53 in 2004. |
| • | Capital expenditures are expected to approximate $60 million to $65 million. |
| • | Operating cash flow (before capital expenditures) is expected to approximate $165 million to $170 million. |
In the first quarter of 2005, the Company expects to achieve revenue growth of approximately 10% and diluted earnings per share from continuing operations of $0.29 to $0.30.
TELECONFERENCE
Management will host a teleconference to discuss fourth quarter earnings on Wednesday, January 26, 2005, at 9:00 a.m. Eastern Time. The live audio Webcast will be available at www.certegy.com. Please be advised that Microsoft’s Windows Media PlayerTM must be downloaded prior to accessing the presentation. It can be downloaded from 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.
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, 117,000 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 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 “2005 Guidance” 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; the results of our acquisitions; and other factors described in detail in the section entitled “Certain Factors Affecting Forward-Looking Statements” in our 2003 Annual Report on Form 10-K filed on February 17, 2004, with the SEC.
###
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended December 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 281,842 | $ | 248,786 | ||||
| Operating expenses(1): |
||||||||
| Costs of services |
192,663 | 174,339 | ||||||
| Selling, general and administrative |
30,317 | 23,895 | ||||||
| 222,980 | 198,234 | |||||||
| Operating income |
58,862 | 50,552 | ||||||
| Other income, net |
608 | 882 | ||||||
| Interest expense |
(3,526 | ) | (2,596 | ) | ||||
| Income from continuing operations before income taxes and cumulative effect of a change in accounting principle |
55,944 | 48,838 | ||||||
| Provision for income taxes |
(20,630 | ) | (17,836 | ) | ||||
| Income from continuing operations |
35,314 | 31,002 | ||||||
| Income from discontinued operations, net of taxes of $1.2 million and $0.7 million, respectively(2) |
1,801 | 1,250 | ||||||
| Income before cumulative effect of a change in accounting principle |
37,115 | 32,252 | ||||||
| Cumulative effect of a change in accounting principle, net of $0.8 million income tax benefit(3) |
— | (1,335 | ) | |||||
| Net income |
$ | 37,115 | $ | 30,917 | ||||
| Basic earnings per share: |
||||||||
| Income from continuing operations before cumulative effect of a change in accounting principle |
$ | 0.57 | $ | 0.48 | ||||
| Income from discontinued operations |
0.03 | 0.02 | ||||||
| Cumulative effect of a change in accounting principle |
— | (0.02 | ) | |||||
| Net income |
$ | 0.60 | $ | 0.48 | ||||
| Average shares outstanding |
61,935 | 64,001 | ||||||
| Diluted earnings per share: |
||||||||
| Income from continuing operations before cumulative effect of a change in accounting principle |
$ | 0.56 | $ | 0.48 | ||||
| Income from discontinued operations |
0.03 | 0.02 | ||||||
| Cumulative effect of a change in accounting principle |
— | (0.02 | ) | |||||
| Net income |
$ | 0.59 | $ | 0.48 | ||||
| Average shares outstanding |
62,966 | 65,013 | ||||||
Revenues and operating income of the Company’s reportable segments for the three months ended December 31, 2004 and 2003 are as follows:
| Three Months Ended December 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues: |
||||||||
| Card Services |
$ | 157,258 | $ | 139,597 | ||||
| Check Services |
124,584 | 109,189 | ||||||
| $ | 281,842 | $ | 248,786 | |||||
| Operating income: |
||||||||
| Card Services |
$ | 39,858 | $ | 37,938 | ||||
| Check Services |
24,604 | 17,736 | ||||||
| 64,462 | 55,674 | |||||||
| General corporate expense |
(5,600 | ) | (5,122 | ) | ||||
| $ | 58,862 | $ | 50,552 | |||||
| (1) | Certain 2003 expenses have been reclassified between costs of services and selling, general and administrative to conform to the current period presentation. |
| (2) | Certegy’s Board of Directors approved a plan to dispose of the Company’s retail merchant acquiring business in the third quarter of 2004. |
| (3) | The cumulative effect of accounting change expense of $1.3 million in 2003 reflects the adoption of Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” on December 31, 2003 related to the synthetic lease on our St. Petersburg, Florida operations facility. |
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(In thousands, except per share amounts)
| Twelve Months Ended December 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| Revenues |
$ | 1,039,506 | $ | 921,734 | ||||
| Operating expenses(1): |
||||||||
| Costs of services |
739,600 | 654,099 | ||||||
| Selling, general and administrative |
120,252 | 107,217 | ||||||
| Other charges(2) |
— | 12,203 | ||||||
| 859,852 | 773,519 | |||||||
| Operating income |
179,654 | 148,215 | ||||||
| Other income, net |
1,207 | 2,339 | ||||||
| Interest expense |
(12,914 | ) | (7,950 | ) | ||||
| Income from continuing operations before income taxes and cumulative effect of a change in accounting principle |
167,947 | 142,604 | ||||||
| Provision for income taxes |
(62,071 | ) | (52,764 | ) | ||||
| Income from continuing operations |
105,876 | 89,840 | ||||||
| Income from discontinued operations, net of taxes of $3.6 million and $2.3 million, respectively(3) |
5,934 | 3,897 | ||||||
| Income before cumulative effect of a change in accounting principle |
111,810 | 93,737 | ||||||
| Cumulative effect of a change in accounting principle, net of $0.8 million income tax benefit(4) |
— | (1,335 | ) | |||||
| Net income |
$ | 111,810 | $ | 92,402 | ||||
| Basic earnings per share: |
||||||||
| Income from continuing operations before cumulative effect of a change in accounting principle |
$ | 1.69 | $ | 1.38 | ||||
| Income from discontinued operations |
0.09 | 0.06 | ||||||
| Cumulative effect of a change in accounting principle |
— | (0.02 | ) | |||||
| Net income |
$ | 1.78 | $ | 1.42 | ||||
| Average shares outstanding |
62,818 | 65,094 | ||||||
| Diluted earnings per share: |
||||||||
| Income from continuing operations before cumulative effect of a change in accounting principle |
$ | 1.66 | $ | 1.36 | ||||
| Income from discontinued operations |
0.09 | 0.06 | ||||||
| Cumulative effect of a change in accounting principle |
— | (0.02 | ) | |||||
| Net income |
$ | 1.75 | $ | 1.40 | ||||
| Average shares outstanding |
63,966 | 65,870 | ||||||
Revenues and operating income of the Company’s reportable segments for the twelve months ended December 31, 2004 and 2003 are as follows:
| Twelve Months Ended December 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| Revenues: |
||||||||
| Card Services |
$ | 590,382 | $ | 550,733 | ||||
| Check Services |
449,124 | 371,001 | ||||||
| $ | 1,039,506 | $ | 921,734 | |||||
| Operating income: |
||||||||
| Card Services |
$ | 140,526 | $ | 122,175 | ||||
| Check Services |
61,036 | 44,561 | ||||||
| 201,562 | 166,736 | |||||||
| General corporate expense |
(21,908 | ) | (18,521 | ) | ||||
| $ | 179,654 | $ | 148,215 | |||||
| (1) | Certain 2003 expenses have been reclassified between costs of services and selling, general and administrative to conform to the current period presentation. |
| (2) | Other charges of $12.2 million in 2003 ($7.7 million after-tax) represent $9.6 million of early termination costs associated with a data processing contract and $2.6 million of other net charges primarily related to the downsizing of the Company’s Brazilian card operation. |
| (3) | Certegy’s Board of Directors approved a plan to dispose of the Company’s retail merchant acquiring business in the third quarter of 2004. |
| (4) | The cumulative effect of accounting change expense of $1.3 million in 2003 reflects the adoption of Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” on December 31, 2003 related to the synthetic lease on our St. Petersburg, Florida operations facility. |
CERTEGY INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
(In thousands)
| December 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 41,801 | $ | 22,280 | ||||
| Settlement deposits |
44,855 | 26,128 | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $2,175 and $1,883, respectively |
118,482 | 103,285 | ||||||
| Settlement receivables |
49,861 | 59,196 | ||||||
| Claims recoverable |
44,245 | 46,478 | ||||||
| Other receivables |
48,053 | 26,907 | ||||||
| Other current assets |
21,116 | 22,995 | ||||||
| Assets held for sale |
41,828 | 35,826 | ||||||
| Total current assets |
410,241 | 343,095 | ||||||
| Property and equipment, net |
61,490 | 58,897 | ||||||
| Goodwill, net |
232,941 | 187,627 | ||||||
| Other intangible assets, net |
25,506 | 10,332 | ||||||
| Systems development and other deferred costs, net |
123,361 | 118,788 | ||||||
| Other assets, net |
69,321 | 66,308 | ||||||
| Total assets |
$ | 922,860 | $ | 785,047 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and other accrued expenses |
$ | 54,479 | $ | 40,237 | ||||
| Settlement payables |
94,716 | 85,324 | ||||||
| Claims payable |
36,204 | 38,270 | ||||||
| Compensation and benefit liabilities |
19,384 | 20,535 | ||||||
| Income taxes payable |
13,278 | 8,887 | ||||||
| Other payables |
22,882 | 10,855 | ||||||
| Other current liabilities |
31,946 | 29,496 | ||||||
| Liabilities related to assets held for sale |
17,719 | 11,536 | ||||||
| Total current liabilities |
290,608 | 245,140 | ||||||
| Long-term debt |
275,222 | 222,399 | ||||||
| Deferred income taxes |
40,295 | 42,892 | ||||||
| Other long-term liabilities |
16,672 | 13,477 | ||||||
| Total liabilities |
622,797 | 523,908 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock |
695 | 695 | ||||||
| Paid-in capital |
253,995 | 249,351 | ||||||
| Retained earnings |
325,681 | 226,495 | ||||||
| Deferred compensation |
(9,648 | ) | (10,187 | ) | ||||
| Accumulated other comprehensive loss |
(59,194 | ) | (75,854 | ) | ||||
| Treasury stock |
(211,466 | ) | (129,361 | ) | ||||
| Total shareholders’ equity |
300,063 | 261,139 | ||||||
| Total liabilities and shareholders’ equity |
$ | 922,860 | $ | 785,047 | ||||
CERTEGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2004 AND 2003
(In thousands)
| Twelve Months Ended December 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 111,810 | $ | 92,402 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: |
||||||||
| Income from discontinued operations |
(5,934 | ) | (3,897 | ) | ||||
| Depreciation and amortization |
47,449 | 42,030 | ||||||
| Amortization of deferred compensation and financing costs |
6,294 | 5,438 | ||||||
| Income tax benefit from exercise of stock options |
3,206 | 1,298 | ||||||
| Cumulative effect of a change in accounting principle |
— | 1,335 | ||||||
| Other non-cash items |
5,031 | 5,045 | ||||||
| Deferred income taxes |
(1,711 | ) | 12,884 | |||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
(19,231 | ) | (1,891 | ) | ||||
| Current liabilities, excluding settlement and claims payables |
(3,437 | ) | (3,850 | ) | ||||
| Claims accounts, net |
296 | (5,092 | ) | |||||
| Other current assets |
2,713 | (2,077 | ) | |||||
| Other long-term liabilities |
2,979 | (141 | ) | |||||
| Other assets |
(3,648 | ) | (11,665 | ) | ||||
| Net cash provided by operating activities |
145,817 | 131,819 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(40,908 | ) | (43,747 | ) | ||||
| Acquisitions, net of $25.1 million of cash acquired |
(40,721 | ) | — | |||||
| Net cash used in investing activities |
(81,629 | ) | (43,747 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net borrowings (repayments) on revolving credit facility |
48,600 | (214,200 | ) | |||||
| Proceeds from bond issuance, net of discount and payment of debt issue costs |
— | 196,130 | ||||||
| Treasury stock purchases |
(96,502 | ) | (73,550 | ) | ||||
| Dividends paid |
(12,633 | ) | (3,242 | ) | ||||
| Proceeds from exercise of stock options |
11,291 | 5,502 | ||||||
| Other |
(1,151 | ) | (32 | ) | ||||
| Net cash used in financing activities |
(50,395 | ) | (89,392 | ) | ||||
| Effect of foreign currency exchange rates on cash |
(390 | ) | 7,886 | |||||
| Cash provided by discontinued operations |
6,118 | 1,548 | ||||||
| Net cash provided |
19,521 | 8,114 | ||||||
| Cash and cash equivalents, beginning of period |
22,280 | 14,166 | ||||||
| Cash and cash equivalents, end of period |
$ | 41,801 | $ | 22,280 | ||||
CERTEGY INC.
SUPPLEMENTAL INFORMATION
(Unaudited)
1. Revenues by product and service offering are as follows (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Card Issuer Services |
$ | 113,470 | $ | 114,298 | $ | 116,408 | $ | 118,346 | $ | 462,522 | $ | 117,862 | $ | 123,410 | $ | 126,762 | $ | 134,562 | $ | 502,596 | ||||||||||
| Check Services |
82,993 | 87,076 | 91,743 | 109,189 | 371,001 | 100,686 | 110,736 | 113,118 | 124,584 | 449,124 | ||||||||||||||||||||
| Merchant Processing |
18,040 | 19,459 | 20,377 | 18,742 | 76,618 | 19,294 | 20,225 | 21,232 | 21,023 | 81,774 | ||||||||||||||||||||
| Software and Support |
3,321 | 2,339 | 3,424 | 2,509 | 11,593 | 1,498 | 1,293 | 1,548 | 1,673 | 6,012 | ||||||||||||||||||||
| $ | 217,824 | $ | 223,172 | $ | 231,952 | $ | 248,786 | $ | 921,734 | $ | 239,340 | $ | 255,664 | $ | 262,660 | $ | 281,842 | $ | 1,039,506 | |||||||||||
Revenues from discontinued operations not reflected above are as follows (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Discontinued Operations |
$ | 22,345 | $ | 24,220 | $ | 23,839 | $ | 23,326 | $ | 93,730 | $ | 24,069 | $ | 28,460 | $ | 27,667 | $ | 26,998 | $ | 107,194 | ||||||||||
2. Revenues by geographic area (based on location of customer) are as follows (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Domestic |
$ | 172,745 | $ | 183,949 | $ | 192,966 | $ | 204,463 | $ | 754,123 | $ | 197,478 | $ | 215,295 | $ | 217,183 | $ | 231,947 | $ | 861,903 | ||||||||||
| International |
45,079 | 39,223 | 38,986 | 44,323 | 167,611 | 41,862 | 40,369 | 45,477 | 49,895 | 177,603 | ||||||||||||||||||||
| $ | 217,824 | $ | 223,172 | $ | 231,952 | $ | 248,786 | $ | 921,734 | $ | 239,340 | $ | 255,664 | $ | 262,660 | $ | 281,842 | $ | 1,039,506 | |||||||||||
3. Revenues are comprised of the following (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Product and Service Fees |
$ | 185,958 | $ | 187,995 | $ | 197,957 | $ | 215,725 | $ | 787,635 | $ | 204,509 | $ | 217,713 | $ | 225,440 | $ | 245,947 | $ | 893,609 | ||||||||||
| Interchange Fees |
14,923 | 15,950 | 16,715 | 15,248 | 62,836 | 16,054 | 16,917 | 17,978 | 18,054 | 69,003 | ||||||||||||||||||||
| Reimbursable Expenses |
16,943 | 19,227 | 17,280 | 17,813 | 71,263 | 18,777 | 21,034 | 19,242 | 17,841 | 76,894 | ||||||||||||||||||||
| $ | 217,824 | $ | 223,172 | $ | 231,952 | $ | 248,786 | $ | 921,734 | $ | 239,340 | $ | 255,664 | $ | 262,660 | $ | 281,842 | $ | 1,039,506 | |||||||||||
Revenues from discontinued operations not reflected above are comprised of the following (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Product and Service Fees |
$ | 5,569 | $ | 5,662 | $ | 5,972 | $ | 6,363 | $ | 23,566 | $ | 6,475 | $ | 7,629 | $ | 7,249 | $ | 7,214 | $ | 28,567 | ||||||||||
| Interchange Fees |
16,776 | 18,558 | 17,867 | 16,963 | 70,164 | 17,594 | 20,831 | 20,418 | 19,784 | 78,627 | ||||||||||||||||||||
| Reimbursable Expenses |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| $ | 22,345 | $ | 24,220 | $ | 23,839 | $ | 23,326 | $ | 93,730 | $ | 24,069 | $ | 28,460 | $ | 27,667 | $ | 26,998 | $ | 107,194 | |||||||||||
4. Currency translation increased (decreased) revenues and operating income in 2004 as compared with the prior year as follows (in thousands):
| Revenues |
||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Full Year |
||||||||||||||
| Card Services |
$ | 3,298 | $ | 1,407 | $ | 1,685 | $ | 1,481 | $ | 7,871 | ||||||||
| Check Services |
2,211 | 1,810 | 2,066 | 1,890 | 7,977 | |||||||||||||
| $ | 5,509 | $ | 3,217 | $ | 3,751 | $ | 3,371 | $ | 15,848 | |||||||||
| Operating Income |
||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Full Year |
||||||||||||||
| Card Services |
$ | (329 | ) | $ | 158 | $ | 165 | $ | (44 | ) | $ | (50 | ) | |||||
| Check Services |
398 | 374 | 482 | 737 | 1,991 | |||||||||||||
| $ | 69 | $ | 532 | $ | 647 | $ | 693 | $ | 1,941 | |||||||||
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
5. Check volumes in dollars are as follows (in millions):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Domestic |
$ | 7,145 | $ | 7,499 | $ | 7,783 | $ | 9,368 | $ | 31,795 | $ | 8,206 | $ | 8,623 | $ | 8,719 | $ | 10,961 | $ | 36,509 | ||||||||||
| International |
761 | 811 | 830 | 995 | 3,397 | 925 | 904 | 917 | 1,065 | 3,811 | ||||||||||||||||||||
| $ | 7,906 | $ | 8,310 | $ | 8,613 | $ | 10,363 | $ | 35,192 | $ | 9,131 | $ | 9,527 | $ | 9,636 | $ | 12,026 | $ | 40,320 | |||||||||||
| Guarantee |
$ | 6,251 | $ | 6,606 | $ | 6,962 | $ | 8,220 | $ | 28,039 | $ | 7,048 | $ | 7,248 | $ | 7,207 | $ | 8,548 | $ | 30,051 | ||||||||||
| Verification |
1,655 | 1,704 | 1,651 | 2,143 | 7,153 | 2,083 | 2,279 | 2,429 | 3,478 | 10,269 | ||||||||||||||||||||
| $ | 7,906 | $ | 8,310 | $ | 8,613 | $ | 10,363 | $ | 35,192 | $ | 9,131 | $ | 9,527 | $ | 9,636 | $ | 12,026 | $ | 40,320 | |||||||||||
6. Number of cards and accounts processed (end of period) are as follows (in thousands):
| 2003 |
2004 | |||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr | |||||||||
| Cards: |
||||||||||||||||
| Domestic |
22,695 | 22,969 | 23,304 | 23,364 | 23,466 | 23,843 | 23,846 | 23,846 | ||||||||
| International |
23,148 | 22,095 | 21,914 | 23,083 | 23,359 | 24,244 | 23,763 | 25,026 | ||||||||
| 45,843 | 45,064 | 45,218 | 46,447 | 46,825 | 48,087 | 47,609 | 48,872 | |||||||||
| Accounts: |
||||||||||||||||
| Domestic |
17,372 | 17,601 | 17,860 | 17,957 | 18,069 | 18,254 | 17,033 | 17,032 | ||||||||
| International |
20,016 | 19,055 | 18,917 | 20,075 | 20,282 | 21,044 | 20,620 | 21,972 | ||||||||
| 37,388 | 36,656 | 36,777 | 38,032 | 38,351 | 39,298 | 37,653 | 39,004 | |||||||||
American Express cards and accounts processed in the Caribbean in 2003 have been reclassified from domestic to international.
7. Merchant volumes in dollars and number of transactions are as follows:
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Dollars (in millions) |
$ | 845 | $ | 886 | $ | 946 | $ | 841 | $ | 3,518 | $ | 864 | $ | 931 | $ | 989 | $ | 937 | $ | 3,721 | ||||||||||
| Number of Transactions (in thousands) |
8,709 | 9,448 | 10,510 | 9,691 | 38,358 | 9,291 | 10,385 | 10,777 | 10,278 | 40,731 | ||||||||||||||||||||
Merchant volumes and number of transactions from discontinued operations not reflected above are as follows:
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Dollars (in millions) |
$ | 918 | $ | 996 | $ | 1,014 | $ | 1,020 | $ | 3,948 | $ | 1,005 | $ | 1,158 | $ | 1,127 | $ | 1,091 | $ | 4,381 | ||||||||||
| Number of Transactions (in thousands) |
11,907 | 12,295 | 12,214 | 11,842 | 48,258 | 11,464 | 12,463 | 12,153 | 11,424 | 47,504 | ||||||||||||||||||||
8. Depreciation and amortization by segment is as follows (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Card Services |
$ | 7,715 | $ | 7,999 | $ | 8,400 | $ | 8,106 | $ | 32,220 | $ | 7,985 | $ | 8,067 | $ | 8,722 | $ | 9,280 | $ | 34,054 | ||||||||||
| Check Services |
1,801 | 2,001 | 2,384 | 2,502 | 8,688 | 2,784 | 2,953 | 3,175 | 3,202 | 12,114 | ||||||||||||||||||||
| Corporate |
296 | 250 | 272 | 304 | 1,122 | 315 | 322 | 320 | 324 | 1,281 | ||||||||||||||||||||
| $ | 9,812 | $ | 10,250 | $ | 11,056 | $ | 10,912 | $ | 42,030 | $ | 11,084 | $ | 11,342 | $ | 12,217 | $ | 12,806 | $ | 47,449 | |||||||||||
Amortization of acquired merchant portfolios from discontinued operations not reflected above is as follows (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Discontinued Operations |
$ | 562 | $ | 563 | $ | 563 | $ | 741 | $ | 2,429 | $ | 753 | $ | 789 | $ | 785 | $ | — | $ | 2,327 | ||||||||||
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
9. Capital expenditures and acquisitions are as follows (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||||
| Capital expenditures |
$ | 8,432 | $ | 15,138 | $ | 10,722 | $ | 9,455 | $ | 43,747 | $ | 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 fourth quarter of 2004, Certegy received $300 thousand for purchase price adjustments related to prior acquisitions. In the third quarter of 2004, Certegy paid $1.1 million for purchase price adjustments related to prior acquisitions and $7.0 million for the Caribbean CariCard Services acquisition, while in the second quarter of 2004, Certegy received $433 thousand for purchase price adjustments related to prior acquisitions.
Capital expenditures and acquisitions from discontinued operations not reflected above are as follows (in thousands):
| 2003 |
2004 | |||||||||||||||||||||||||||||
| 1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year |
1st Qtr |
2nd Qtr |
3rd Qtr |
4th Qtr |
Year | |||||||||||||||||||||
| Capital expenditures |
$ | — | $ | — | $ | — | $ | 208 | $ | 208 | $ | 85 | $ | 31 | $ | 40 | $ | 5 | $ | 161 | ||||||||||
| Acquisitions, net of cash acquired |
$ | — | $ | — | $ | 4,521 | $ | — | $ | 4,521 | $ | 5,800 | $ | — | $ | — | $ | — | $ | 5,800 | ||||||||||
10. Long-term debt at December 31, 2004 and 2003 consists of (in thousands):
| December 31, 2004 |
December 31, 2003 | |||||
| Unsecured notes, 4.75%, due 2008, net of unamortized discount |
$ | 199,543 | $ | 199,420 | ||
| Borrowings under revolving credit facility |
48,600 | — | ||||
| Notes payable, variable rate, due 2009 |
22,364 | 22,364 | ||||
| Capital lease obligations |
4,715 | 615 | ||||
| $ | 275,222 | $ | 222,399 | |||
11. Stock repurchase activity:
We repurchased 2.7 million shares of common stock during 2004 at a total cost of $96.5 million. In May 2004, the Board of Directors of Certegy Inc. approved a $100 million share repurchase program. As of December 31, 2004, the Company had $43.3 million remaining under this program.
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
12. Discontinued Operations:
These financial statements reflect the results of operations and cash flows of our retail merchant acquiring business as discontinued operations. The balance sheets reflect preliminary reclassifications of the assets and liabilities of our merchant acquiring business to be sold under the captions “Assets held for sale” and “Liabilities related to assets held for sale.” All historical statements have been reclassified to conform to this presentation.
Results of Operations:
Reconciliations of 2004 and 2003 results of operations, adjusted for discontinued operations, are as follows (in thousands):
| 1st Qtr 2004 |
1st Qtr 2003 |
|||||||||||||||||||||||
| Previously Reported |
Disc Opers |
Reclassified |
Previously Reported |
Disc Opers |
Reclassified |
|||||||||||||||||||
| Revenues |
$ | 263,409 | $ | (24,069 | ) | $ | 239,340 | $ | 240,169 | $ | (22,345 | ) | $ | 217,824 | ||||||||||
| Operating expenses |
227,863 | (22,050 | ) | 205,813 | 219,213 | (21,424 | ) | 197,789 | ||||||||||||||||
| Operating income |
35,546 | (2,019 | ) | 33,527 | 20,956 | (921 | ) | 20,035 | ||||||||||||||||
| Other income, net |
220 | — | 220 | 155 | — | 155 | ||||||||||||||||||
| Interest expense |
(2,976 | ) | — | (2,976 | ) | (1,681 | ) | — | (1,681 | ) | ||||||||||||||
| Income from continuing operations before taxes |
32,790 | (2,019 | ) | 30,771 | 19,430 | (921 | ) | 18,509 | ||||||||||||||||
| Provision for income taxes |
(12,132 | ) | 747 | (11,385 | ) | (7,238 | ) | 343 | (6,895 | ) | ||||||||||||||
| Income from continuing operations |
20,658 | (1,272 | ) | 19,386 | 12,192 | (578 | ) | 11,614 | ||||||||||||||||
| Discontinued operations |
— | 1,272 | 1,272 | — | 578 | 578 | ||||||||||||||||||
| Net income |
$ | 20,658 | $ | — | $ | 20,658 | $ | 12,192 | $ | — | $ | 12,192 | ||||||||||||
| Basic EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.32 | $ | (0.02 | ) | $ | 0.30 | $ | 0.19 | $ | (0.01 | ) | $ | 0.18 | ||||||||||
| Discontinued operations |
— | 0.02 | 0.02 | — | 0.01 | 0.01 | ||||||||||||||||||
| $ | 0.32 | $ | — | $ | 0.32 | $ | 0.19 | $ | — | $ | 0.19 | |||||||||||||
| Diluted EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.32 | $ | (0.02 | ) | $ | 0.30 | $ | 0.18 | $ | (0.01 | ) | $ | 0.18 | ||||||||||
| Discontinued operations |
— | 0.02 | 0.02 | — | 0.01 | 0.01 | ||||||||||||||||||
| $ | 0.32 | $ | — | $ | 0.32 | $ | 0.18 | $ | — | $ | 0.18 | |||||||||||||
| 2nd Qtr 2004 |
2nd Qtr 2003 |
|||||||||||||||||||||||
| Previously Reported |
Disc Opers |
Reclassified |
Previously Reported |
Disc Opers |
Reclassified |
|||||||||||||||||||
| Revenues |
$ | 284,124 | $ | (28,460 | ) | $ | 255,664 | $ | 247,392 | $ | (24,220 | ) | $ | 223,172 | ||||||||||
| Operating expenses |
241,474 | (26,022 | ) | 215,452 | 209,990 | (22,660 | ) | 187,330 | ||||||||||||||||
| Operating income |
42,650 | (2,438 | ) | 40,212 | 37,402 | (1,560 | ) | 35,842 | ||||||||||||||||
| Other income, net |
85 | — | 85 | 828 | — | 828 | ||||||||||||||||||
| Interest expense |
(3,153 | ) | — | (3,153 | ) | (1,628 | ) | — | (1,628 | ) | ||||||||||||||
| Income from continuing operations before taxes |
39,582 | (2,438 | ) | 37,144 | 36,602 | (1,560 | ) | 35,042 | ||||||||||||||||
| Provision for income taxes |
(14,645 | ) | 902 | (13,743 | ) | (13,634 | ) | 581 | (13,053 | ) | ||||||||||||||
| Income from continuing operations |
24,937 | (1,536 | ) | 23,401 | 22,968 | (979 | ) | 21,989 | ||||||||||||||||
| Discontinued operations |
— | 1,536 | 1,536 | — | 979 | 979 | ||||||||||||||||||
| Net income |
$ | 24,937 | $ | — | $ | 24,937 | $ | 22,968 | $ | — | $ | 22,968 | ||||||||||||
| Basic EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.40 | $ | (0.02 | ) | $ | 0.37 | $ | 0.35 | $ | (0.01 | ) | $ | 0.34 | ||||||||||
| Discontinued operations |
— | 0.02 | 0.02 | — | 0.01 | 0.01 | ||||||||||||||||||
| $ | 0.40 | $ | — | $ | 0.40 | $ | 0.35 | $ | — | $ | 0.35 | |||||||||||||
| Diluted EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.39 | $ | (0.02 | ) | $ | 0.36 | $ | 0.35 | $ | (0.01 | ) | $ | 0.33 | ||||||||||
| Discontinued operations |
— | 0.02 | 0.02 | — | 0.01 | 0.01 | ||||||||||||||||||
| $ | 0.39 | $ | — | $ | 0.39 | $ | 0.35 | $ | — | $ | 0.35 | |||||||||||||
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
12. Discontinued Operations, continued:
| 3rd Qtr 2004 |
3rd Qtr 2003 |
|||||||||||||||||||||||
| Total |
Disc Opers |
Reclassified |
Previously Reported |
Disc Opers |
Reclassified |
|||||||||||||||||||
| Revenues |
$ | 290,327 | $ | (27,667 | ) | $ | 262,660 | $ | 255,791 | $ | (23,839 | ) | $ | 231,952 | ||||||||||
| Operating expenses |
241,171 | (25,564 | ) | 215,607 | 212,268 | (22,102 | ) | 190,166 | ||||||||||||||||
| Operating income |
49,156 | (2,103 | ) | 47,053 | 43,523 | (1,737 | ) | 41,786 | ||||||||||||||||
| Other income, net |
294 | — | 294 | 474 | — | 474 | ||||||||||||||||||
| Interest expense |
(3,259 | ) | — | (3,259 | ) | (2,045 | ) | — | (2,045 | ) | ||||||||||||||
| Income from continuing operations before taxes |
46,191 | (2,103 | ) | 44,088 | 41,952 | (1,737 | ) | 40,215 | ||||||||||||||||
| Provision for income taxes |
(17,091 | ) | 778 | (16,313 | ) | (15,627 | ) | 647 | (14,980 | ) | ||||||||||||||
| Income from continuing operations |
29,100 | (1,325 | ) | 27,775 | 26,325 | (1,090 | ) | 25,235 | ||||||||||||||||
| Discontinued operations |
— | 1,325 | 1,325 | — | 1,090 | 1,090 | ||||||||||||||||||
| Net income |
$ | 29,100 | $ | — | $ | 29,100 | $ | 26,325 | $ | — | $ | 26,325 | ||||||||||||
| Basic EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.46 | $ | (0.02 | ) | $ | 0.44 | $ | 0.40 | $ | (0.02 | ) | $ | 0.39 | ||||||||||
| Discontinued operations |
— | 0.02 | 0.02 | — | 0.02 | 0.02 | ||||||||||||||||||
| $ | 0.46 | $ | — | $ | 0.46 | $ | 0.40 | $ | — | $ | 0.40 | |||||||||||||
| Diluted EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.46 | $ | (0.02 | ) | $ | 0.44 | $ | 0.40 | $ | (0.02 | ) | $ | 0.38 | ||||||||||
| Discontinued operations |
— | 0.02 | 0.02 | — | 0.02 | 0.02 | ||||||||||||||||||
| $ | 0.46 | $ | — | $ | 0.46 | $ | 0.40 | $ | — | $ | 0.40 | |||||||||||||
| 4th Qtr 2004 |
4th Qtr 2003 |
|||||||||||||||||||||||
| Total |
Disc Opers |
Reclassified |
Previously Reported |
Disc Opers |
Reclassified |
|||||||||||||||||||
| Revenues |
$ | 308,840 | $ | (26,998 | ) | $ | 281,842 | $ | 272,112 | $ | (23,326 | ) | $ | 248,786 | ||||||||||
| Operating expenses |
247,009 | (24,029 | ) | 222,980 | 219,593 | (21,359 | ) | 198,234 | ||||||||||||||||
| Operating income |
61,831 | (2,969 | ) | 58,862 | 52,519 | (1,967 | ) | 50,552 | ||||||||||||||||
| Other income, net |
608 | — | 608 | 882 | — | 882 | ||||||||||||||||||
| Interest expense |
(3,526 | ) | — | (3,526 | ) | (2,596 | ) | — | (2,596 | ) | ||||||||||||||
| Income from continuing operations before taxes |
58,913 | (2,969 | ) | 55,944 | 50,805 | (1,967 | ) | 48,838 | ||||||||||||||||
| Provision for income taxes |
(21,798 | ) | 1,168 | (20,630 | ) | (18,553 | ) | 717 | (17,836 | ) | ||||||||||||||
| Income from continuing operations |
37,115 | (1,801 | ) | 35,314 | 32,252 | (1,250 | ) | 31,002 | ||||||||||||||||
| Discontinued operations |
— | 1,801 | 1,801 | — | 1,250 | 1,250 | ||||||||||||||||||
| Cumulative change in accounting |
— | — | — | (1,335 | ) | — | (1,335 | ) | ||||||||||||||||
| Net income |
$ | 37,115 | $ | — | $ | 37,115 | $ | 30,917 | $ | — | $ | 30,917 | ||||||||||||
| Basic EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.60 | $ | (0.03 | ) | $ | 0.57 | $ | 0.50 | $ | (0.02 | ) | $ | 0.48 | ||||||||||
| Discontinued operations |
— | 0.03 | 0.03 | — | 0.02 | 0.02 | ||||||||||||||||||
| Cumulative change in accounting |
— | — | — | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||
| $ | 0.60 | $ | — | $ | 0.60 | $ | 0.48 | $ | — | $ | 0.48 | |||||||||||||
| Diluted EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 0.59 | $ | (0.03 | ) | $ | 0.56 | $ | 0.50 | $ | (0.02 | ) | $ | 0.48 | ||||||||||
| Discontinued operations |
— | 0.03 | 0.03 | — | 0.02 | 0.02 | ||||||||||||||||||
| Cumulative change in accounting |
— | — | — | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||
| $ | 0.59 | $ | — | $ | 0.59 | $ | 0.48 | $ | — | $ | 0.48 | |||||||||||||
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
12. Discontinued Operations, continued:
| Full Year 2004 |
Full Year 2003 |
|||||||||||||||||||||||
| Previously Reported |
Disc Opers |
Reclassified |
Previously Reported |
Disc Opers |
Reclassified |
|||||||||||||||||||
| Revenues |
$ | 1,146,700 | $ | (107,194 | ) | $ | 1,039,506 | $ | 1,015,464 | $ | (93,730 | ) | $ | 921,734 | ||||||||||
| Operating expenses |
957,517 | (97,665 | ) | 859,852 | 861,064 | (87,545 | ) | 773,519 | ||||||||||||||||
| Operating income |
189,183 | (9,529 | ) | 179,654 | 154,400 | (6,185 | ) | 148,215 | ||||||||||||||||
| Other income, net |
1,207 | — | 1,207 | 2,339 | — | 2,339 | ||||||||||||||||||
| Interest expense |
(12,914 | ) | — | (12,914 | ) | (7,950 | ) | — | (7,950 | ) | ||||||||||||||
| Income from continuing operations before taxes |
177,476 | (9,529 | ) | 167,947 | 148,789 | (6,185 | ) | 142,604 | ||||||||||||||||
| Provision for income taxes |
(65,666 | ) | 3,595 | (62,071 | ) | (55,052 | ) | 2,288 | (52,764 | ) | ||||||||||||||
| Income from continuing operations |
111,810 | (5,934 | ) | 105,876 | 93,737 | (3,897 | ) | 89,840 | ||||||||||||||||
| Discontinued operations |
— | 5,934 | 5,934 | — | 3,897 | 3,897 | ||||||||||||||||||
| Cumulative change in accounting |
— | — | — | (1,335 | ) | — | (1,335 | ) | ||||||||||||||||
| Net income |
$ | 111,810 | $ | — | $ | 111,810 | $ | 92,402 | $ | — | $ | 92,402 | ||||||||||||
| Basic EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 1.78 | $ | (0.09 | ) | $ | 1.69 | $ | 1.44 | $ | (0.06 | ) | $ | 1.38 | ||||||||||
| Discontinued operations |
— | 0.09 | 0.09 | — | 0.06 | 0.06 | ||||||||||||||||||
| Cumulative change in accounting |
— | — | — | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||
| $ | 1.78 | $ | — | $ | 1.78 | $ | 1.42 | $ | — | $ | 1.42 | |||||||||||||
| Diluted EPS: |
||||||||||||||||||||||||
| Continuing operations |
$ | 1.75 | $ | (0.09 | ) | $ | 1.66 | $ | 1.42 | $ | (0.06 | ) | $ | 1.36 | ||||||||||
| Discontinued operations |
— | 0.09 | 0.09 | — | 0.06 | 0.06 | ||||||||||||||||||
| Cumulative change in accounting |
— | — | — | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||
| $ | 1.75 | $ | — | $ | 1.75 | $ | 1.40 | $ | — | $ | 1.40 | |||||||||||||
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
12. Discontinued Operations, continued:
Balance Sheets:
Reconciliations of December 31, 2004 and 2003 balance sheets, adjusted for discontinued operations, are as follows (in thousands):
| December 31, 2004 |
December 31, 2003 |
|||||||||||||||||||||||
| Total |
Disc Opers |
Reclassified |
Previously Reported |
Disc Opers |
Reclassified |
|||||||||||||||||||
| ASSETS |
||||||||||||||||||||||||
| Current assets: |
||||||||||||||||||||||||
| Cash and cash equivalents |
$ | 41,801 | $ | 41,801 | $ | 22,280 | $ | 22,280 | ||||||||||||||||
| Settlement deposits |
46,571 | $ | (1,716 | ) | 44,855 | 29,638 | $ | (3,510 | ) | 26,128 | ||||||||||||||
| Trade accounts receivable, net of allowance for doubtful accounts |
124,906 | (6,424 | ) | 118,482 | 108,158 | (4,873 | ) | 103,285 | ||||||||||||||||
| Settlement receivables |
58,635 | (8,774 | ) | 49,861 | 65,172 | (5,976 | ) | 59,196 | ||||||||||||||||
| Claims recoverable |
44,245 | 44,245 | 46,478 | 46,478 | ||||||||||||||||||||
| Other receivables |
48,053 | 48,053 | 26,907 | 26,907 | ||||||||||||||||||||
| Other current assets |
21,488 | (372 | ) | 21,116 | 22,995 | 22,995 | ||||||||||||||||||
| Assets held for sale |
— | 41,828 | 41,828 | — | 35,826 | 35,826 | ||||||||||||||||||
| Total current assets |
385,699 | 24,542 | 410,241 | 321,628 | 21,467 | 343,095 | ||||||||||||||||||
| Property and equipment, net |
61,490 | 61,490 | 58,897 | 58,897 | ||||||||||||||||||||
| Goodwill, net |
236,946 | (4,005 | ) | 232,941 | 187,627 | 187,627 | ||||||||||||||||||
| Other intangible assets, net |
46,043 | (20,537 | ) | 25,506 | 31,799 | (21,467 | ) | 10,332 | ||||||||||||||||
| Systems development and other deferred costs, net |
123,361 | 123,361 | 118,788 | 118,788 | ||||||||||||||||||||
| Other assets, net |
69,321 | 69,321 | 66,308 | 66,308 | ||||||||||||||||||||
| Total assets |
$ | 922,860 | $ | — | $ | 922,860 | $ | 785,047 | $ | — | $ | 785,047 | ||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||||||||||||||
| Current liabilities: |
||||||||||||||||||||||||
| Accounts payable and other accrued expenses |
$ | 55,750 | $ | (1,271 | ) | $ | 54,479 | $ | 41,600 | $ | (1,363 | ) | $ | 40,237 | ||||||||||
| Settlement payables |
105,206 | (10,490 | ) | 94,716 | 94,810 | (9,486 | ) | 85,324 | ||||||||||||||||
| Claims payable |
36,204 | 36,204 | 38,270 | 38,270 | ||||||||||||||||||||
| Compensation and benefit liabilities |
19,384 | 19,384 | 20,535 | 20,535 | ||||||||||||||||||||
| Income taxes payable |
13,278 | 13,278 | 8,887 | 8,887 | ||||||||||||||||||||
| Other payables |
22,882 | 22,882 | 10,855 | 10,855 | ||||||||||||||||||||
| Other current liabilities |
31,946 | 31,946 | 29,136 | 360 | 29,496 | |||||||||||||||||||
| Liabilities related to assets held for sale |
— | 17,719 | 17,719 | — | 11,536 | 11,536 | ||||||||||||||||||
| Total current liabilities |
284,650 | 5,958 | 290,608 | 244,093 | 1,047 | 245,140 | ||||||||||||||||||
| Long-term debt |
275,222 | 275,222 | 222,399 | 222,399 | ||||||||||||||||||||
| Deferred income taxes |
46,253 | (5,958 | ) | 40,295 | 43,939 | (1,047 | ) | 42,892 | ||||||||||||||||
| Other long-term liabilities |
16,672 | 16,672 | 13,477 | 13,477 | ||||||||||||||||||||
| Total liabilities |
622,797 | — | 622,797 | 523,908 | — | 523,908 | ||||||||||||||||||
| Shareholders’ equity: |
||||||||||||||||||||||||
| Common stock |
695 | 695 | 695 | 695 | ||||||||||||||||||||
| Paid-in capital |
253,995 | 253,995 | 249,351 | 249,351 | ||||||||||||||||||||
| Retained earnings |
325,681 | 325,681 | 226,495 | 226,495 | ||||||||||||||||||||
| Deferred compensation |
(9,648 | ) | (9,648 | ) | (10,187 | ) | (10,187 | ) | ||||||||||||||||
| Accumulated other comprehensive loss |
(59,194 | ) | (59,194 | ) | (75,854 | ) | (75,854 | ) | ||||||||||||||||
| Treasury stock |
(211,466 | ) | (211,466 | ) | (129,361 | ) | (129,361 | ) | ||||||||||||||||
| Total shareholders’ equity |
300,063 | — | 300,063 | 261,139 | — | 261,139 | ||||||||||||||||||
| Total liabilities and shareholders’ equity |
$ | 922,860 | $ | — | $ | 922,860 | $ | 785,047 | $ | — | $ | 785,047 | ||||||||||||
CERTEGY INC.
SUPPLEMENTAL INFORMATION, CONTINUED
(Unaudited)
12. Discontinued Operations, continued:
Cash Flows:
Reconciliations of 2004 and 2003 cash flows, adjusted for discontinued operations, are as follows (in thousands):
| Twelve Months Ended December 31, 2004 |
Twelve Months Ended December 31, 2003 |
|||||||||||||||||||||||
| Total |
Disc Opers |
Reclassified |
Previously Reported |
Disc Opers |
Reclassified |
|||||||||||||||||||
| Cash flows from operating activities: |
||||||||||||||||||||||||
| Net income |
$ | 111,810 | $ | 111,810 | $ | 92,402 | $ | 92,402 | ||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: |
||||||||||||||||||||||||
| Income from discontinued operations |
— | $ | (5,934 | ) | (5,934 | ) | — | $ | (3,897 | ) | (3,897 | ) | ||||||||||||
| Depreciation and amortization |
47,449 | 47,449 | 42,030 | 42,030 | ||||||||||||||||||||
| Amortization of deferred compensation and financing costs |
6,294 | 6,294 | 5,438 | 5,438 | ||||||||||||||||||||
| Income tax benefit from exercise of stock options |
3,206 | 3,206 | 1,298 | 1,298 | ||||||||||||||||||||
| Cumulative effect of a change in accounting principle |
— | — | 1,335 | 1,335 | ||||||||||||||||||||
| Other non-cash items |
5,031 | 5,031 | 5,045 | 5,045 | ||||||||||||||||||||
| Deferred income taxes |
3,283 | (4,994 | ) | (1,711 | ) | 13,602 | (718 | ) | 12,884 | |||||||||||||||
| Changes in assets and liabilities: |
||||||||||||||||||||||||
| Accounts receivable, net |
(20,199 | ) | 968 | (19,231 | ) | (2,954 | ) | 1,063 | (1,891 | ) | ||||||||||||||
| Current liabilities, excluding settlement and claims payables |
(3,637 | ) | 200 | (3,437 | ) | (3,554 | ) | (296 | ) | (3,850 | ) | |||||||||||||
| Claims accounts, net |
296 | 296 | (5,092 | ) | (5,092 | ) | ||||||||||||||||||
| Other current assets |
2,705 | 8 | 2,713 | (2,077 | ) | (2,077 | ) | |||||||||||||||||
| Other long-term liabilities |
2,979 | 2,979 | (141 | ) | (141 | ) | ||||||||||||||||||
| Other assets |
(1,321 | ) | (2,327 | ) | (3,648 | ) | (9,236 | ) | (2,429 | ) | (11,665 | ) | ||||||||||||
| Net cash provided by operating activities |
157,896 | (12,079 | ) | 145,817 | 138,096 | (6,277 | ) | 131,819 | ||||||||||||||||
| Cash flows from investing activities: |
||||||||||||||||||||||||
| Capital expenditures |
(41,069 | ) | 161 | (40,908 | ) | (43,955 | ) | 208 | (43,747 | ) | ||||||||||||||
| Acquisitions, net of cash acquired |
(46,521 | ) | 5,800 | (40,721 | ) | (4,521 | ) | 4,521 | — | |||||||||||||||
| Net cash used in investing activities |
(87,590 | ) | 5,961 | (81,629 | ) | (48,476 | ) | 4,729 | (43,747 | ) | ||||||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||||||
| Net borrowings (repayments) on revolving credit facility |
48,600 | 48,600 | (214,200 | ) | (214,200 | ) | ||||||||||||||||||
| Proceeds from bond issuance, net of discount and payment of debt issue costs |
— | — | 196,130 | 196,130 | ||||||||||||||||||||
| Treasury stock purchases |
(96,502 | ) | (96,502 | ) | (73,550 | ) | (73,550 | ) | ||||||||||||||||
| Dividends paid |
(12,633 | ) | (12,633 | ) | (3,242 | ) | (3,242 | ) | ||||||||||||||||
| Proceeds from exercise of stock options |
11,291 | 11,291 | 5,502 | 5,502 | ||||||||||||||||||||
| Other |
(1,151 | ) | (1,151 | ) | (32 | ) | (32 | ) | ||||||||||||||||
| Net cash used in financing activities |
(50,395 | ) | — | (50,395 | ) | (89,392 | ) | — | (89,392 | ) | ||||||||||||||
| Effect of foreign currency exchange rates on cash |
(390 | ) | (390 | ) | 7,886 | 7,886 | ||||||||||||||||||
| Cash provided by discontinued operations |
— | 6,118 | 6,118 | — | 1,548 | 1,548 | ||||||||||||||||||
| Net cash provided |
19,521 | — | 19,521 | 8,114 | — | 8,114 | ||||||||||||||||||
| Cash and cash equivalents, beginning of period |
22,280 | 22,280 | 14,166 | 14,166 | ||||||||||||||||||||
| Cash and cash equivalents, end of period |
$ | 41,801 | $ | — | $ | 41,801 | $ | 22,280 | $ | — | $ | 22,280 | ||||||||||||