CERTEGY INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File No. 001-16427

Certegy Inc.

(Exact name of registrant as specified in its charter)

Georgia
(State or other jurisdiction of
incorporation or organization)

58-2606325
(I.R.S. Employer Identification No.)

11720 Amber Park Drive
Alpharetta, Georgia
(Address of principal executive offices)

30004
(Zip Code)

(678) 867-8000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of each class
Common stock, $0.01 par value

Number of shares
outstanding at April 30, 2003
65,942,892

CERTEGY INC.

INDEX

			Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Consolidated Statements of Income (Unaudited) — Three Months Ended March 31, 2003 and 2002	3

		Consolidated Balance Sheets — March 31, 2003 (Unaudited) and December 31, 2002	4

		Consolidated Statements of Cash Flows (Unaudited) — Three Months Ended March 31, 2003 and 2002	5

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

	Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	19

	Item 4.	Submission of Matters to a Vote of Security Holders	19

	Item 5.	Other Information	19

	Item 6.	Exhibits and Reports on Form 8-K	20


SIGNATURES	20

CERTIFICATIONS	21

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(In thousands, except per share amounts)

	Three Months Ended March 31,

	2003			2002

Revenues	$	240,169		$	234,842

Operating expenses:
Costs of services		176,057			179,108
Selling, general and administrative expenses		30,516			27,953
Other charges (Note 3)		12,640			—

		219,213			207,061

Operating income		20,956			27,781
Other income, net		155			184
Interest expense		(1,681	)		(1,978	)

Income before income taxes		19,430			25,987
Provision for income taxes		(7,238	)		(9,940	)

Net income	$	12,192		$	16,047

Basic (Note 4):
Earnings per share	$	0.19		$	0.23

Average shares outstanding		65,840			68,868

Diluted (Note 4):
Earnings per share	$	0.18		$	0.23

Average shares outstanding		66,202			69,963

The accompanying notes are an integral part of these Consolidated Financial Statements.

CERTEGY INC.
CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

	March 31, 2003			December 31, 2002

	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	34,597		$	14,166
Settlement deposits		23,208			27,104
Trade accounts receivable, net of allowance for doubtful accounts of $2,148 and $2,628, respectively		87,816			104,597
Settlement receivables		114,761			78,636
Claims recoverable		32,512			50,309
Other current assets		33,110			37,188

Total current assets		326,004			312,000
Property and equipment, net		37,484			38,637
Goodwill, net (Note 5)		172,601			168,956
Other intangible assets, net (Note 5)		30,268			31,342
Systems development and other deferred costs, net		98,757			96,706
Other assets, net (Note 6)		52,935			54,500

Total assets	$	718,049		$	702,141


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable	$	21,470		$	22,916
Settlement payables		137,969			105,740
Claims payable		25,555			48,306
Accrued salaries and bonuses		6,547			10,639
Income taxes payable		7,727			8,545
Other current liabilities		67,646			54,784

Total current liabilities		266,914			250,930
Long-term debt		207,000			214,200
Deferred income taxes		33,320			32,801
Other long-term liabilities		5,590			5,767

Total liabilities		512,824			503,698


Shareholders’ equity:
Preferred stock, $0.01 par value; 100,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.01 par value; 300,000 shares authorized; 69,507 shares issued in 2003 and 2002 and 65,937 and 66,396 shares outstanding in 2003 and 2002, respectively		695			695
Paid-in capital		248,299			249,115
Retained earnings		152,744			140,552
Deferred compensation		(8,565	)		(9,116	)
Accumulated other comprehensive loss		(109,707	)		(114,799	)
Treasury stock, at cost; 3,570 and 3,111 shares in 2003 and 2002, respectively		(78,241	)		(68,004	)

Total shareholders’ equity		205,225			198,443

Total liabilities and shareholders’ equity	$	718,049		$	702,141

The accompanying notes are an integral part of these Consolidated Financial Statements.

CERTEGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(In thousands)

	Three Months Ended March 31,

	2003		2002

Cash flows from operating activities:
Net income	$	12,192	$	16,047
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,812		10,006
Noncash portion of other charges		2,670		—
Other, net		803		932
Deferred income taxes		558		3,479
Changes in assets and liabilities:
Accounts receivable, net		17,121

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