CEY Certegy

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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