SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended June 30, 2003 |
OR
| ¨ | 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 | 58-2606325 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 11720 Amber Park Drive Alpharetta, Georgia |
30004 | |
| (Address of principal executive offices) | (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
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 |
Number of shares outstanding at July 31, 2003 | |
| Common stock, $0.01 par value | 66,216,221 |
CERTEGY INC.
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements: |
|||
| Consolidated Statements of Income (Unaudited)—Three Months Ended June 30, 2003 and 2002 |
3 | |||
| Consolidated Statements of Income (Unaudited)—Six Months Ended June 30, 2003 and 2002 |
4 | |||
| Consolidated Balance Sheets—June 30, 2003 (Unaudited) and December 31, 2002 |
5 | |||
| Consolidated Statements of Cash Flows (Unaudited)—Six Months Ended June 30, 2003 and 2002 |
6 | |||
| 7 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||
| Item 4. | 23 | |||
| PART II. OTHER INFORMATION | ||||
| Item 1. | 24 | |||
| Item 4. | 24 | |||
| Item 6. | 25 | |||
| SIGNATURES | 25 | |||
2
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
| Three Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues |
$ | 247,392 | $ | 255,369 | ||||
| Operating expenses: |
||||||||
| Costs of services |
180,977 | 189,131 | ||||||
| Selling, general and administrative expenses |
29,450 | 27,920 | ||||||
| Other (Note 3) |
(437 | ) | — | |||||
| 209,990 | 217,051 | |||||||
| Operating income |
37,402 | 38,318 | ||||||
| Other income, net |
828 | 587 | ||||||
| Interest expense |
(1,628 | ) | (1,748 | ) | ||||
| Income before income taxes |
36,602 | 37,157 | ||||||
| Provision for income taxes |
(13,634 | ) | (14,213 | ) | ||||
| Net income |
$ | 22,968 | $ | 22,944 | ||||
| Basic (Note 4): |
||||||||
| Earnings per share |
$ | 0.35 | $ | 0.33 | ||||
| Average shares outstanding |
65,536 | 69,052 | ||||||
| Diluted (Note 4): |
||||||||
| Earnings per share |
$ | 0.35 | $ | 0.33 | ||||
| Average shares outstanding |
66,077 | 70,404 | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
| Six Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues |
$ | 487,561 | $ | 490,211 | ||||
| Operating expenses: |
||||||||
| Costs of services |
357,034 | 368,239 | ||||||
| Selling, general and administrative expenses |
59,966 | 55,873 | ||||||
| Other (Note 3) |
12,203 | — | ||||||
| 429,203 | 424,112 | |||||||
| Operating income |
58,358 | 66,099 | ||||||
| Other income, net |
983 | 771 | ||||||
| Interest expense |
(3,309 | ) | (3,726 | ) | ||||
| Income before income taxes |
56,032 | 63,144 | ||||||
| Provision for income taxes |
(20,872 | ) | (24,153 | ) | ||||
| Net income |
$ | 35,160 | $ | 38,991 | ||||
| Basic (Note 4): |
||||||||
| Earnings per share |
$ | 0.54 | $ | 0.57 | ||||
| Average shares outstanding |
65,687 | 68,968 | ||||||
| Diluted (Note 4): |
||||||||
| Earnings per share |
$ | 0.53 | $ | 0.56 | ||||
| Average shares outstanding |
66,170 | 70,200 | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
CERTEGY INC.
(In thousands, except par values)
| June 30, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 39,819 | $ | 14,166 | ||||
| Settlement deposits |
28,284 | 27,104 | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $1,756 and $2,628, respectively |
90,675 | 104,597 | ||||||
| Settlement receivables |
120,061 | 78,636 | ||||||
| Claims recoverable |
34,618 | 50,309 | ||||||
| Other current assets |
34,355 | 37,188 | ||||||
| Total current assets |
347,812 | 312,000 | ||||||
| Property and equipment, net |
37,929 | 38,637 | ||||||
| Goodwill, net (Note 5) |
186,080 | 168,956 | ||||||
| Other intangible assets, net (Note 5) |
29,221 | 31,342 | ||||||
| Systems development and other deferred costs, net |
110,655 | 96,706 | ||||||
| Other assets, net (Note 6) |
57,372 | 54,500 | ||||||
| Total assets |
$ | 769,069 | $ | 702,141 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Trade accounts payable |
$ | 23,632 | $ | 22,916 | ||||
| Settlement payables |
148,345 | 105,740 | ||||||
| Claims payable |
27,650 | 48,306 | ||||||
| Accrued salaries and bonuses |
9,918 | 10,639 | ||||||
| Income taxes payable |
14,347 | 8,545 | ||||||
| Other current liabilities |
65,808 | 54,784 | ||||||
| Total current liabilities |
289,700 | 250,930 | ||||||
| Long-term debt (Note 7) |
185,000 | 214,200 | ||||||
| Deferred income taxes |
33,327 | 32,801 | ||||||
| Other long-term liabilities |
7,377 | 5,767 | ||||||
| Total liabilities |
515,404 | 503,698 | ||||||
| Commitments and contingencies (Note 9) |
||||||||
| 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 66,168 and 66,396 shares outstanding in 2003 and 2002, respectively |
695 | 695 | ||||||
| Paid-in capital |
248,362 | 249,115 | ||||||
| Retained earnings |
175,712 | 140,552 | ||||||
| Deferred compensation |
(12,690 | ) | (9,116 | ) | ||||
| Accumulated other comprehensive loss |
(85,884 | ) | (114,799 | ) | ||||
| Treasury stock, at cost; 3,339 and 3,111 shares in 2003 and 2002, respectively |
(72,530 | ) | (68,004 | ) | ||||
| Total shareholders’ equity |
253,665 | 198,443 | ||||||
| Total liabilities and shareholders’ equity |
$ | 769,069 | $ | 702,141 | ||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
CERTEGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Six Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 35,160 | $ | 38,991 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
20,062 | 19,637 | ||||||
| Noncash portion of other charges |
2,233 | — | ||||||
| Other, net |
1,893 | 2,076 | ||||||
| Deferred income taxes |
748 | 6,679 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
17,447 | 16,539 | ||||||
| Current liabilities, excluding settlement and claims payables |
12,598 | (7,759 | ) | |||||
| Claims accounts, net |
(2,865 | ) | (7,408 | ) | ||||
| Other current assets |
176 | (1,640 | ) | |||||
| Other long-term liabilities |
1,607 | 444 | ||||||
| Other assets |
(4,113 | ) | 1,690 | |||||
| Net cash provided by operating activities |
84,946 | 69,249 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(23,570 | ) | (26,850 | |||||