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