UNITED STATES
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, 2004
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, 2004 | |
| Common stock, $0.01 par value |
63,386,869 |
INDEX
2
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 284,124 | $ | 247,392 | ||||
| Operating expenses: |
||||||||
| Costs of services |
209,564 | 182,836 | ||||||
| Selling, general and administrative expenses |
31,910 | 27,591 | ||||||
| Other (Note 4) |
— | (437 | ) | |||||
| 241,474 | 209,990 | |||||||
| Operating income |
42,650 | 37,402 | ||||||
| Other income, net |
85 | 828 | ||||||
| Interest expense |
(3,153 | ) | (1,628 | ) | ||||
| Income before income taxes |
39,582 | 36,602 | ||||||
| Provision for income taxes |
(14,645 | ) | (13,634 | ) | ||||
| Net income |
$ | 24,937 | $ | 22,968 | ||||
| Earnings per share of Common Stock |
||||||||
| Basic |
$ | 0.40 | $ | 0.35 | ||||
| Diluted |
$ | 0.39 | $ | 0.35 | ||||
| Average shares outstanding (Note 5) |
||||||||
| Basic |
63,083 | 65,536 | ||||||
| Diluted |
64,272 | 66,077 | ||||||
| Dividends per share of Common Stock (Note 12) |
$ | 0.05 | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 547,533 | $ | 487,561 | ||||
| Operating expenses: |
||||||||
| Costs of services |
407,857 | 360,729 | ||||||
| Selling, general and administrative expenses |
61,480 | 56,271 | ||||||
| Other (Note 4) |
— | 12,203 | ||||||
| 469,337 | 429,203 | |||||||
| Operating income |
78,196 | 58,358 | ||||||
| Other income, net |
305 | 983 | ||||||
| Interest expense |
(6,129 | ) | (3,309 | ) | ||||
| Income before income taxes |
72,372 | 56,032 | ||||||
| Provision for income taxes |
(26,778 | ) | (20,872 | ) | ||||
| Net income |
$ | 45,594 | $ | 35,160 | ||||
| Earnings per share of Common Stock |
||||||||
| Basic |
$ | 0.72 | $ | 0.54 | ||||
| Diluted |
$ | 0.71 | $ | 0.53 | ||||
| Average shares outstanding (Note 5) |
||||||||
| Basic |
63,380 | 65,687 | ||||||
| Diluted |
64,478 | 66,170 | ||||||
| Dividends per share of Common Stock (Note 12) |
$ | 0.10 | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
| June 30, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 57,331 | $ | 22,280 | ||||
| Settlement deposits |
40,869 | 29,638 | ||||||
| Trade accounts receivable, net of allowance for doubtful accounts of $2,760 and $1,883 in 2004 and 2003, respectively |
96,929 | 108,158 | ||||||
| Settlement receivables |
63,003 | 65,172 | ||||||
| Claims recoverable |
29,382 | 46,478 | ||||||
| Other receivables (Note 16) |
33,727 | 26,907 | ||||||
| Other current assets (Notes 6 and 16) |
24,209 | 22,995 | ||||||
| Total current assets |
345,450 | 321,628 | ||||||
| Property and equipment, net (Note 7) |
61,187 | 58,897 | ||||||
| Goodwill, net (Note 8) |
218,900 | 187,627 | ||||||
| Other intangible assets, net (Note 8) |
45,069 | 31,799 | ||||||
| Systems development and other deferred costs, net |
116,729 | 118,788 | ||||||
| Other assets, net (Note 9) |
72,495 | 66,308 | ||||||
| Total assets |
$ | 859,830 | $ | 785,047 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued expenses (Note 16) |
$ | 59,497 | $ | 41,600 | ||||
| Settlement payables |
103,872 | 94,810 | ||||||
| Claims payable |
22,377 | 38,270 | ||||||
| Compensation and benefit liabilities (Note 16) |
20,452 | 20,535 | ||||||
| Income taxes payable |
8,616 | 8,887 | ||||||
| Other payables (Note 16) |
18,963 | 10,855 | ||||||
| Other current liabilities (Notes 10 and 16) |
37,462 | 29,136 | ||||||
| Total current liabilities |
271,239 | 244,093 | ||||||
| Long-term debt (Note 11) |
259,808 | 222,399 | ||||||
| Deferred income taxes |
51,190 | 43,939 | ||||||
| Other long-term liabilities |
16,526 | 13,477 | ||||||
| Total liabilities |
598,763 | 523,908 | ||||||
| Commitments and contingencies (Note 14) |
||||||||
| 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 and 63,682 and 64,352 shares outstanding in 2004 and 2003, respectively |
695 | 695 | ||||||
| Paid-in capital |
251,060 | 249,351 | ||||||
| Retained earnings |
265,709 | 226,495 | ||||||
| Deferred compensation |
(12,312 | ) | (10,187 | ) | ||||
| Accumulated other comprehensive loss (Note 12) |
(84,904 | ) | (75,854 | ) | ||||
| Treasury stock, at cost; 5,825 and 5,155 shares in 2004 and 2003, respectively |
(159,181 | ) | (129,361 | ) | ||||
| Total shareholders’ equity |
261,067 | 261,139 | ||||||
| Total liabilities and shareholders’ equity |
$ | 859,830 | $ | 785,047 | ||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 45,594 | $ | 35,160 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
22,426 | 20,062 | ||||||
| Amortization of deferred compensation and financing costs |
3,105 | 2,573 | ||||||
| Other non-cash items |
— | 2,233 | ||||||
| Deferred income taxes |
7,301 | 748 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
17,394 | 17,447 | ||||||
| Current liabilities, excluding settlement and claims payables |
266 | 12,598 | ||||||
| Claims accounts, net |
1,331 | (2,865 | ) | |||||
| Other current assets |
(555 | ) | 176 | |||||
| Other long-term liabilities |
2,838 | 1,607 | ||||||
| Other assets |
(2,276 | ) | (4,793 | ) | ||||
| Net cash provided by operating activities |
97,424 | 84,946 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(17,225 | ) | (23,570 | ) | ||||
| Acquisitions, net of $25,071 of cash acquired |
(38,758 | ) | — | |||||
| Net cash used in investing activities |
(55,983 | ) | (23,570 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net borrowings (repayments) on revolving credit facility |
35,000 | (29,200 | ) | |||||
| Treasury stock purchases |
(40,005 | ) | (11,796 | ) | ||||
| Dividends paid |
(6,414 | ) | ||||||