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8-K - FORM 8-K - TOTAL SYSTEM SERVICES INCg26964e8vk.htm
EX-99.2 - EX-99.2 - TOTAL SYSTEM SERVICES INCg26964exv99w2.htm
Exhibit 99.1
     
(TSYS LOGO)   PRESS RELEASE
(TSYS LOGO)    
     
Total System Services, Inc.
   
One TSYS Way
  +1.706.649.2307
Post Office Box 2567
  +1.706.649.5740
Columbus GA 31902-2567
  www.tsys.com
For immediate release:
Contact:
Shawn Roberts
TSYS Investor Relations
+1.706.644.6081
shawnroberts@tsys.com
TSYS Reports First Quarter 2011 Results
Columbus, Ga., April 26, 2011 — TSYS (NYSE: TSS) today reported results for the first quarter 2011 with total revenues of $429.4 million, an increase of 3.9% over 2010. Excluding termination fees in 2010, total revenues increased 10.0%. Basic EPS from continuing operations was $0.25. Excluding termination fees in 2010, basic EPS from continuing operations increased 35.1%.
“The economic momentum generated during the last two quarters continues to move us forward, and has reinforced our enthusiasm for 2011. Our same-client cardholder transaction volumes increased 9.6%, marking the sixth consecutive quarter of growth. Organic revenue growth continues to improve with the first quarter at 3.9%. We believe we are in-line to achieve our financial guidance for 2011,” said Philip W. Tomlinson, chairman of the board and chief executive officer of TSYS.
“We continue to enhance shareholder value through our deployment of capital through acquisitions and share repurchases. We completed the purchase of the remaining 49% interest in TSYS Merchant Solutions in January for a net purchase price of $169.5 million. In addition, we purchased 2 million shares of stock during the quarter under our share repurchase plan, bringing the total purchased over the past three quarters to 5 million shares,” said Tomlinson.
Conference Call
TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, April 26. The conference call can be accessed via simultaneous Internet broadcast at tsys.com by clicking on the link under “Webcasts” on the main homepage. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call. A slide presentation to accompany the call will be available by clicking on the link under “Webcasts” on the main homepage of tsys.com.
Non-GAAP Measures
This press release and the financial highlights section of this release contain the non-GAAP financial measures of revenues and basic EPS excluding revenues from termination fees and the impact of revenues and operating results on a constant currency basis, respectively, to describe TSYS’ performance. Management uses these non-GAAP financial measures to better understand and assess TSYS’ operating results and financial performance. TSYS believes these non-GAAP

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(TSYS LOGO)
financial measures provide meaningful additional information about TSYS to assist investors in understanding and evaluating its operating results.
Additional information about non-GAAP financial measures and a reconciliation of those measures to the most directly comparable GAAP measures are included on pages 10 and 11 of this release.
About TSYS
TSYS (NYSE: TSS) is reshaping a new era in digital commerce, connecting consumers, merchants, financial institutions, businesses and governments. Through unmatched customer service and industry insight, TSYS creates a better experience for buyers and sellers, supporting cross-border payments in more than 85 countries. Offering merchant payment-acceptance solutions as well as services in credit, debit, prepaid, mobile, chip, healthcare, installments, money transfer and more, TSYS makes it possible for those in the global marketplace to conduct safe and secure electronic transactions with trust and convenience.
TSYS’ headquarters are located in Columbus, Georgia, with local offices spread across the Americas, EMEA and Asia-Pacific. TSYS provides services to more than half of the top 20 international banks. For more information, please visit us at www.tsys.com.
Forward-Looking Statements
This press release contains statements that are not historical facts and constitute “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements regarding TSYS’ belief that it will achieve its financial guidance for 2011, and the assumptions underlying such statements including, with respect to TSYS’ earnings guidance for 2011: (1) the economy will not worsen during 2011; (2) there will be no deconversions of large clients during the year; (3) there will be no significant movement in foreign currency exchange rates related to TSYS’ business during 2011; (4) TSYS will not incur significant expenses associated with the conversion of new large clients or acquisitions, or any significant impairment of goodwill or other intangibles; and (5) there will be no significant movements in LIBOR, and no significant draws on the remaining balance of TSYS’ revolving credit facility. These statements are based on the current beliefs and expectations of TSYS’ management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by our forward-looking statements in this press release. Many of these factors are beyond TSYS’ ability to control or predict. These factors include, but are not limited to: (1) one or more of the assumptions set forth above upon which TSYS’ 2011 earnings guidance is based is inaccurate; (2) adverse developments with respect to entering into contracts with new clients and retaining current clients; (3) continued consolidation and turmoil in the financial services and other industries during 2011, including the merger of TSYS clients with entities that are not TSYS processing clients, the sale of portfolios by TSYS clients to entities that are not TSYS processing clients and the nationalization or seizure by banking regulators of TSYS clients; (4) TSYS is unable to control expenses and increase market share both domestically and internationally; (5) TSYS is unable to manage the impact of slowing economic conditions and consumer spending; (6) the material breach of security of any of TSYS’ systems; (7) the impact of potential and completed acquisitions, including

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(TSYS LOGO)
the costs associated therewith and their being more difficult to integrate than anticipated; (8) the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on TSYS and on our clients; (9) changes occur in laws, rules, regulations, credit card association rules or other industry standards affecting TSYS and our clients that may result in costly new compliance burdens on TSYS and our clients and lead to a decrease in the volume and/or number of transactions processed; (10) the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto; (11) adverse developments with respect to the credit card industry in general, including a decline in the use of credit cards as a payment mechanism; and (12) internal growth rates of TSYS’ existing clients are lower than anticipated whether as a result of unemployment rates, card delinquencies and charge-off rates or otherwise. Additional risks and other factors that could cause actual results to differ materially from those contemplated in this release can be found in TSYS’ filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise.
— more —

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TSYS Announces First Quarter 2011 Earnings
Page 4 of 11
TSYS
Financial Highlights
(unaudited)
(in thousands, except per share data)
                         
    Three Months Ended  
    March 31,  
                    Percent  
    2011     2010     Change  
Total revenues
  $ 429,430       413,464       3.9 %
Cost of services
    301,492       290,538       3.8  
Selling, general and administrative expenses
    54,910       43,214       27.1  
 
                   
Operating income
    73,028       79,712       (8.4 )
Nonoperating income (expenses)
    (728 )     (261 )   nm 
 
                   
Income from continuing operations before income taxes, noncontrolling interests and equity in income of equity investments
    72,300       79,451       (9.0 )
Income taxes
    25,158       28,097       (10.5 )
 
                   
Income from continuing operations before noncontrolling interests and equity in income of equity investments
    47,142       51,354       (8.2 )
Equity in income of equity investments
    2,270       893     nm 
 
                   
Income from continuing operations, net of tax
    49,412       52,247       (5.4 )
Loss from discontinued operations, net of tax
          (428 )   nm   
 
                   
Net income
    49,412       51,819       (4.6 )
Net income attributable to noncontrolling interests
    (622 )     (492 )   nm 
 
                   
Net income attributable to TSYS common shareholders
  $ 48,790       51,327       (4.9 )%
 
                   
 
                       
Basic earnings per share:
                       
Income from continuing operations to TSYS common shareholders
  $ 0.25       0.26       (4.0 )%
 
                   
Loss from discontinued operations to TSYS common shareholders
    0.00       (0.00 )   nm 
 
                   
Net income attributable to TSYS common shareholders
  $ 0.25       0.26       (3.2 )%
 
                   
 
                       
Diluted earnings per share:
                       
Income from continuing operations to TSYS common shareholders
  $ 0.25       0.26       (4.1) %
 
                   
Loss from discontinued operations to TSYS common shareholders
    0.00       (0.00 )   nm 
 
                   
Net income attributable to TSYS common shareholders
  $ 0.25       0.26     (3.3) %
 
                   
Dividends declared per share
  $ 0.07       0.07          
 
                   
Amounts attributable to TSYS common shareholders:
                       
Income from continuing operations, net of tax
  $ 48,790       51,755       (5.7) %
(Loss) income from discontinued operations, net of tax
          (428 )   nm 
 
                   
Net income
  $ 48,790       51,327       (4.9) %
 
                   
 
nm = not meaningful

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TSYS Announces First Quarter 2011 Earnings
Page 5 of 11
TSYS
Earnings Per Share
(unaudited)
(in thousands, except per share data)
                                 
    Three Months Ended     Three Months Ended  
    March 31, 2011     March 31, 2010  
    Common     Participating     Common     Participating  
    Stock     Securities     Stock     Securities  
Basic Earnings per share:
                               
Net income
  $ 48,790               51,327          
Less income allocated to nonvested awards
    (191 )     191       (264 )     264  
 
                       
Net income allocated to common stock for EPS calculation ( a )
  $ 48,599       191       51,063       264  
 
                       
Average common shares outstanding ( b )
    192,851       765       196,160       1,016  
 
                       
Average common shares and participating securities
    193,616               197,176          
 
                           
Basic Earnings per share ( a )/( b )
  $ 0.25       0.25       0.26       0.26  
 
                       
Diluted Earnings per share:
                               
Net income
  $ 48,790               51,327          
Less income allocated to nonvested awards
    (191 )     191       (263 )     263  
 
                       
Net income allocated to common stock for EPS calculation ( c )
  $ 48,599       191       51,064       263  
 
                       
Average common shares outstanding
    192,851       765       196,160       1,016  
Increase due to assumed issuance of shares related to common equivalent shares outstanding
    305               86          
 
                           
Average common and common equivalent shares outstanding ( d )
    193,156       765       196,246       1,016  
 
                       
Average common and common equivalent shares and participating securities
    193,921               197,262          
 
                           
Diluted Earnings per share ( c )/( d )
  $ 0.25       0.25       0.26       0.26  
 
                       
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TSYS Announces First Quarter 2011 Earnings
Page 6 of 11
TSYS
Segment Breakdown
(unaudited)
(in thousands)
                                 
    Three Months Ended March 31,  
                    Change  
    2011     2010     $     %  
     
Revenues before reimbursable items
                               
North America Services
  $ 194,590       215,309       (20,719 )     (9.6 )%
International Services
    87,419       76,281       11,138       14.6 %
Merchant Services
    86,519       56,773       29,746       52.4 %
Intersegment revenues
    (5,885 )     (5,702 )     (183 )     3.2 %
             
Revenues before reimbursable items from external customers
  $ 362,643       342,661       19,982       5.8 %
             
 
                               
Total revenues
                               
North America Services
  $ 230,559       254,228       (23,669 )     (9.3 )%
International Services
    90,710       79,392       11,318       14.3 %
Merchant Services
    115,756       87,318       28,438       32.6 %
Intersegment revenues
    (7,595 )     (7,474 )     (121 )     1.6 %
             
Revenues from external customers
  $ 429,430       413,464       15,966       3.9 %
             
 
                               
Depreciation and amortization
                               
North America Services
  $ 19,467       20,403       (936 )     (4.6 )%
International Services
    11,708       8,595       3,113       36.2 %
Merchant Services
    9,146       8,537       609       7.1 %
Corporate Admin
    747       981       (234 )     (23.9 )%
             
Total depreciation and amortization
  $ 41,068       38,516       2,552       6.6 %
             
 
                               
Segment operating income
                               
North America Services
  $ 55,200       69,788       (14,588 )     (20.9 )%
International Services
    11,024       11,283       (259 )     (2.3 )%
Merchant Services
    26,923       17,856       9,067       50.8 %
Corporate Admin
    (20,119 )     (19,215 )     (904 )     4.7 %
             
Operating income
  $ 73,028       79,712       (6,684 )     (8.4 )%
             
 
                               
Other:
                               
Reimbursable items:
                               
North America Services
  $ 35,969       38,918       (2,949 )     (7.6 )%
International Services
    3,291       3,111       180       5.8 %
Merchant Services
    29,237       30,546       (1,309 )     (4.3 )%
Intersegment revenues
    (1,709 )     (1,772 )     63       (3.6 )%
             
Reimbursable items
  $ 66,788       70,803       (4,015 )     (5.7 )%
             
 
                               
Volumes:
                               
FTEs (continuing operations)
                               
North America Services
    4,299       4,519       (220 )     (4.9 )%
International Services
    2,118       1,895       223       11.8 %
Merchant Services
    1,134       673       461       68.5 %
Corporate Admin
    373       311       62       19.9 %
             
FTEs
    7,924       7,398       526       7.1 %
             
                                 
    At     Change  
Total assets (in thousands)   3/31/2011     12/31/2010     $     %  
     
North America Services
    1,580,240       1,632,882       (52,642 )     (3.2 )%
International Services
    427,518       408,880       18,638       4.6 %
Merchant Services
    444,219       460,750       (16,531 )     (3.6 )%
Intersegment assets
    (666,952 )     (550,251 )     (116,701 )     21.2 %
             
Total assets
    1,785,025       1,952,261       (167,236 )     (8.6 )%
             
                                 
    Three Months Ended March 31,  
                    Change  
    2011     2010     Inc(Dec)     %  
North America Segment:    
Accounts on File (AOF) (in millions)
    309.6       283.1       26.5       9.3 %
Transactions (in millions)
    1,626.8       1,458.2       168.6       11.6 %
 
                               
International Segment:
                               
AOF (in millions)
    47.2       40.2       6.9       17.3 %
Transactions (in millions)
    326.0       281.3       44.7       15.9 %
 
                               
Merchant Segment:
                               
Point-of-sale Transactions (in millions)
    1,205.7       1,314.3       (108.6 )     (8.3 )%
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TSYS Announces First Quarter 2011 Earnings
Page 7 of 11
TSYS
Balance Sheet
(in thousands)
                 
    Mar 31, 2011     Dec 31, 2010  
    (unaudited)     (unaudited)  
     
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 252,488       394,795  
Restricted cash
    92       434  
Accounts receivable, net
    236,952       238,283  
Deferred income tax assets
    9,552       11,090  
Prepaid expenses and other current assets
    72,927       77,211  
     
Total current assets
    572,011       721,813  
Property and equipment, net
    297,463       300,102  
Computer software, net
    236,587       246,424  
Contract acquisition costs, net
    167,534       166,251  
Goodwill
    321,990       320,399  
Equity investments, net
    80,379       77,127  
Other intangible assets, net
    77,316       83,118  
Other assets
    31,745       37,027  
     
Total assets
  $ 1,785,025       1,952,261  
     
 
               
Liabilities
               
Current liabilities:
               
Current portion of notes payable
  $ 38,478       39,557  
Accrued salaries and employee benefits
    14,091       27,414  
Accounts payable
    32,069       36,068  
Current portion of obligations under capital leases
    12,898       13,191  
Other current liabilities
    120,880       111,040  
     
Total current liabilities
    218,416       227,270  
Notes payable, excluding current portion
    191,409       194,703  
Deferred income tax liabilities
    44,773       42,547  
Obligations under capital leases, excluding current portion
    27,705       30,573  
Other long-term liabilities
    57,305       53,363  
     
Total liabilities
    539,608       548,456  
     
Redeemable noncontrolling interest
          146,000  
     
Equity
               
Shareholders’ equity:
               
Common stock
    20,140       20,133  
Additional paid-in capital
    95,346       119,722  
Accumulated other comprehensive income, net
    7,405       (2,585 )
Treasury stock
    (149,430 )     (115,449 )
Retained earnings
    1,254,554       1,219,303  
     
Total shareholders’ equity
    1,228,015       1,241,124  
     
Noncontrolling interests in consolidated subsidiaries
    17,402       16,681  
     
Total equity
    1,245,417       1,257,805  
     
Total liabilities and equity
  $ 1,785,025       1,952,261  
     
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TSYS Announces First Quarter 2011 Earnings
Page 8 of 11
TSYS
Cash Flow
(unaudited)
(in thousands)
                 
    Three Months Ended March 31,  
    2011     2010  
     
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 49,412       51,819  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Equity in income of equity investments
    (2,270 )     (893 )
Dividends received from equity investments
    13        
Net loss (gain) on currency translation adjustments
    352       (247 )
Depreciation and amortization
    41,068       38,564  
Amortization of debt issuance costs
    26       38  
Share-based compensation
    4,332       2,913  
Excess tax benefit from share-based payment arrangements
    (103 )     (111 )
Asset impairments
    773        
Provisions for (recoveries of) bad debt expense and billing adjustments
    204       (658 )
Charges for transaction processing provisions
    1,296       849  
Deferred income tax benefit
    5,827       3,665  
(Gain) loss on disposal of equipment, net
    (1,497 )     30  
Changes in operating assets and liabilities:
               
Accounts receivable
    2,971       9,874  
Prepaid expenses, other current assets and other long-term assets
    12,093       2,892  
Accounts payable
    (4,635 )     8,319  
Accrued salaries and employee benefits
    (13,800 )     (32,707 )
Other current liabilities and other long-term liabilities
    6,109       49,188  
     
Net cash provided by operating activities
    102,171       133,535  
     
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property and equipment, net
    (5,960 )     (9,170 )
Additions to licensed computer software from vendors
    (1,280 )     (3,769 )
Additions to internally developed computer software
    (4,478 )     (5,760 )
Proceeds from sale of tradename
    4,500        
Additions to contract acquisition costs
    (7,202 )     (9,914 )
     
Net cash used in investing activities
    (14,420 )     (28,613 )
     
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Principal payments on long-term debt borrowings and capital lease obligations
    (8,551 )     (3,731 )
Proceeds from exercise of stock options
    1,119       109  
Excess tax benefit from share-based payment arrangements
    103       111  
Repurchase of common stock
    (35,700 )     (1,075 )
Purchase of noncontrolling interests
    (174,050 )      
Dividends paid on common stock
    (13,556 )     (13,797 )
     
Net cash used in financing activities
    (230,635 )     (18,383 )
     
 
               
CASH AND CASH EQUIVALENTS:
               
Effect of exchange rate changes on cash and cash equivalents
    577       (2,007 )
     
Net increase (decrease) in cash and cash equivalents
    (142,307 )     84,532  
Cash and cash equivalents at beginning of period
    394,795       449,955  
     
Cash and cash equivalents at end of period
  $ 252,488       534,487  
     
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TSYS Announces First Quarter 2011 Earnings
Page 9 of 11
Supplemental Information:
                           
    Accounts on File at March 31,  
                        Percent  
(in millions)   2011   %   2010   %     Change  
       
Consumer
  183.4   51.4 %   182.2   56.3 %   0.6 %
Stored Value
  62.3   17.5     40.9   12.7     52.3  
Commercial
  51.1   14.3     44.1   13.6     16.0  
Government services
  29.0   8.1     26.3   8.1     10.1  
Other
  30.9   8.7     29.8   9.3     3.9  
           
 
  356.7   100.0 %   323.3   100.0 %   10.3 %
           
Growth in Accounts on File (in millions):
         
    March 2010 to   March 2009 to
    March 2011   March 2010
Beginning balance
  323.3   340.4
Change in accounts on file due to:
       
Internal growth of existing clients
  23.1   24.4
New clients
  32.4   29.1
Purges/Sales
  (18.4)   (43.4)
Deconversions
  (3.7)   (27.2)
 
       
Ending balance
  356.7   323.3
 
       
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TSYS Announces First Quarter 2011 Earnings
Page 10 of 11
Reconciliation of GAAP to Non-GAAP
Non-GAAP Measures
The schedule below provides a reconciliation of revenues and operating results on a constant currency basis to reported revenues and operating income. This non-GAAP measure presents year-to-date 2011 financial results using the previous year’s foreign currency exchange rates. On a year-to-date constant currency basis, TSYS’ total revenues grew 3.0% as compared to a reported GAAP increase of 3.9%, and operating income decreased 9.4% versus a GAAP-reported decrease of 8.4%. The schedule below also provides a reconciliation of revenues and basic EPS excluding revenues from termination fees.
The non-GAAP financial measures of constant currency and revenues and basic EPS excluding revenues from termination fees, with respect to year to date revenues and basic EPS presented by TSYS, are utilized by management to better understand and assess TSYS’ operating results and financial performance. TSYS also uses the non-GAAP financial measures to evaluate and assess TSYS’ financial performance against budget, as well as to evaluate financial performance for executive and management compensation purposes.
TSYS believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, TSYS includes non-GAAP financial measures when reporting its financial results to shareholders and investors in order to provide them with an additional tool to evaluate TSYS’ ongoing business operations. TSYS believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of TSYS’ current and ongoing business operations.
Although non-GAAP financial measures are often used to measure TSYS’ operating results and assess its financial performance, they are not necessarily comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation.
TSYS believes that its use of non-GAAP financial measures provides investors with the same key financial performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. TSYS believes that the presentation of GAAP financial measures alone would not provide its shareholders and potential investors with the ability to appropriately analyze its ongoing operational results, and therefore expected future results. TSYS therefore believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.
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TSYS Announces First Quarter 2011 Earnings
Page 11 of 11
Reconciliation of GAAP to Non-GAAP
Constant Currency Comparison
(unaudited)
(in thousands)
                         
    Three Months Ended March 31,  
                    Percent  
    2011     2010     Change  
     
Consolidated
                       
Constant currency (1)
  $ 425,994       413,464       3.0 %
Foreign currency (2)
    3,436             0.9  
             
Total revenues
  $ 429,430       413,464       3.9 %
             
 
                       
Constant currency (1)
  $ 72,236       79,712       (9.4 )%
Foreign currency (2)
    792             1.0  
             
Operating income
  $ 73,028       79,712       (8.4 )%
             
 
(1)   Reflects current period results on a non-GAAP basis as if foreign currency rates did not change from the comparable prior year period.
 
(2)   Reflects the impact of calculated changes in foreign currency rates from the comparable period.
Revenue and BASIC EPS Excluding Termination Fees
(unaudited)
(in thousands except per share data)
                         
    Three Months Ended March 31,  
                    Percent  
    2011     2010     Change  
     
Consolidated
                       
Total Revenues
  $ 429,430       413,464       3.9 %
Less:
                       
Termination Fees
          23,139          
             
Total revenues excluding termination fees
  $ 429,430       390,325       10.0 %
             
 
                       
Income from continuing operations, net of tax, available to TSYS common shareholders
  $ 48,790       51,755       (5.7 )%
Less:
                       
Termination Fees, net of tax
          14,987          
 
                       
             
Income from continuing operations, net of tax, available to TSYS common shareholders, excluding termination fees
  $ 48,790       36,768       32.7 %
             
 
                       
Average common shares and participating securities
    193,616       197,176          
             
 
                       
BASIC EPS — Income from continuing operations, net of tax, available to TSYS common shareholders
  $ 0.25       0.26       (4.0 )%
Less:
                       
Termination Fees, net of tax
          0.08          
             
BASIC EPS — Income from continuing operations, net of tax, excuding termination fees available to TSYS common shareholders
  $ 0.25       0.19       35.1 %
             
Note: Earnings per share may not foot due to rounding.
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