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 September 30, 2001
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 number 001-16427
---------
CERTEGY INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2606325
------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11720 Amberpark Drive
Alpharetta, Georgia 30004
------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (678) 867-8000
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 last 90 days. 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.
As of October 31, 2001, 68,758,518 shares of the Corporation's common
stock, $0.01 par value per share, were outstanding.
CERTEGY INC.
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Statements of Income (Unaudited) -
Three Months Ended September 30, 2001 and 2000........................................................... 3
Consolidated Statements of Income (Unaudited) -
Nine Months Ended September 30, 2001 and 2000............................................................ 4
Consolidated Balance Sheets -
September 30, 2001 (Unaudited) and December 31, 2000..................................................... 5
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2001 and 2000............................................................ 6
Notes to Consolidated Financial Statements................................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................. 17
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders........................................................ 18
Item 5. Other Information:
Pro Forma Consolidated Financial Statements (Unaudited)
presented for information purposes....................................................................... 18
Pro Forma Consolidated Statements of Income -
Nine Months Ended September 30, 2001..................................................................... 19
Pro Forma Consolidated Statements of Income -
Three Months and Nine Months Ended September 30, 2000.................................................... 20
Notes to Pro Forma Combined Financial Statements........................................................... 21
Supplemental Financial Information......................................................................... 22
Item 6. Exhibits and Reports on Form 8-K........................................................................... 23
Signatures.......................................................................................................... 24
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(In thousands, except per share amounts)
Three Months Ended
September 30,
---------------------------
2001 2000
-------- --------
Revenues...................................................................... $217,983 $194,676
-------- --------
Operating expenses:
Costs of services........................................................... 150,651 129,586
Selling, general and administrative expenses................................ 24,611 23,656
-------- --------
175,262 153,242
-------- --------
Operating income.............................................................. 42,721 41,434
Other income (expense), net................................................... 383 1,861
Interest expense.............................................................. (3,664) (357)
-------- --------
Income before income taxes and minority interests............................. 39,440 42,938
Provision for income taxes.................................................... (15,381) (16,808)
Minority interests in earnings, net of tax.................................... - (1,199)
-------- --------
Net income.................................................................... $ 24,059 $ 24,931
======== ========
Basic:
Earnings per share.......................................................... $ 0.35 $ 0.37
======== ========
Average shares outstanding.................................................. 68,618 67,178
======== ========
Pro forma earnings per share................................................ $ 0.31
========
Diluted:
Earnings per share.......................................................... $ 0.35
========
Average shares outstanding.................................................. 69,368
========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
Page 3
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(In thousands, except per share amounts)
Nine Months Ended
September 30,
----------------------------
2001 2000
-------- --------
Revenues...................................................................... $618,375 $565,345
-------- --------
Operating expenses:
Costs of services........................................................... 438,574 390,332
Selling, general and administrative expenses................................ 74,740 73,120
-------- --------
513,314 463,452
-------- --------
Operating income.............................................................. 105,061 101,893
Other income (expense), net................................................... (123) 1,325
Interest expense.............................................................. (4,099) (541)
-------- --------
Income before income taxes and minority interests............................. 100,839 102,677
Provision for income taxes.................................................... (39,327) (40,192)
Minority interests in earnings, net of tax.................................... (945) (214)
-------- --------
Net income.................................................................... $ 60,567 $ 62,271
======== ========
Basic:
Earnings per share.......................................................... $ 0.89 $ 0.93
======== ========
Average shares outstanding.................................................. 68,231 67,060
======== ========
Pro forma earnings per share................................................ $ 0.78 $ 0.74
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
Page 4
CERTEGY INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
2001 2000
---------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 43,175 $ 29,794
Settlement deposits....................................................... 20,209 -
Trade accounts receivable, net of allowance for doubtful
accounts of $2,141 and $2,148, respectively............................. 85,136 99,472
Settlement receivables.................................................... 58,389 48,173
Other receivables......................................................... 8,543 7,706
Deferred income taxes..................................................... 5,456 4,827
Other current assets...................................................... 13,937 9,235
-------- --------
Total current assets.................................................... 234,845 199,207
Property and equipment, net................................................ 32,849 32,806
Intangibles, net........................................................... 223,384 184,612
Other assets, net.......................................................... 127,995 85,820
-------- --------
Total Assets............................................................... $619,073 $502,445
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................................... $ 16,151 $ 18,465
Settlement payables....................................................... 78,598 77,213
Notes payable............................................................. 406 549
Accrued salaries and bonuses.............................................. 11,088 11,871
Income taxes payable...................................................... 24,263 8,992
Other current liabilities................................................. 46,220 43,161
-------- --------
Total current liabilities............................................... 176,726 160,251
Long-term debt............................................................. 260,000 -
Deferred income taxes...................................................... 15,363 11,390
Other long-term liabilities................................................ 7,339 1,280
-------- --------
Total liabilities....................................................... 459,428 172,921
-------- --------
Minority interests......................................................... - 5,906
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value, 100,000,000 shares authorized, none
issued and outstanding................................................... - -
Common stock, $.01 par value, 300,000,000 shares authorized, 68,819,766
shares issued and 68,738,366 shares outstanding.......................... 688 -
Paid-in capital........................................................... 232,887 -
Retained earnings......................................................... 24,059 -
Unearned compensation on restricted stock ................................ (3,712) -
Equifax equity investment................................................. - 380,906
Accumulated other comprehensive loss (Note 3)............................. (91,924) (57,288)
-------- --------
161,998 323,618
Treasury stock, at cost (81,400 shares at September 30, 2001)............. (2,353) -
-------- --------
Total shareholders' equity.............................................. 159,645 323,618
-------- --------
Total Liabilities and Shareholders' equity................................. $619,073 $502,445
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
Page 5
CERTEGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
Nine Months Ended
September 30,
-------------------------
2001 2000
------- -------
Cash flows from operating activities:
Net income..................................................................................... $60,567 $ 62,271
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization................................................................ 33,191 31,996
Gain from sale of investments................................................................ - (2,188)
Minority interests in earnings............................................................... 945 214
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable, net................................................................... 11,925 8,322
Current liabilities, excluding notes payable and settlement accounts....................... 11,872 (7,699)
Settlement accounts, net................................................................... (29,040) (9,020)
Other current assets....................................................................... (3,001) (1,110)
Deferred income taxes...................................................................... (1,402) (1,492)
Other long-term liabilities................................................................ 2,170 1,541
Other assets............................................................................... (4,149) 206
--------- --------
Net cash provided by operating activities...................................................... 83,078 83,041
--------- --------
Cash flows from investing activities:
Capital expenditures........................................................................... (40,703) (25,826)
Acquisitions, net of cash acquired............................................................. (79,038) (24,257)
Proceeds from sale of investments.............................................................. - 6,850
--------- --------
Net cash used in investing activities.......................................................... (119,741) (43,233)
--------- --------
Cash flows from financing activities:
Change in notes payable........................................................................ (90) 207
Net borrowings from (repayments to) Equifax.................................................... (206,646) (39,556)
Net borrowings (repayments) on revolver........................................................ 260,000 -
Treasury stock purchases....................................................................... (2,353) -
Proceeds from exercise of stock options........................................................ 2,172 -
--------- --------
Net cash provided by (used in) financing activities............................................ 53,083 (39,349)
--------- --------
Effect of foreign currency exchange rates on cash............................................... (3,039) (2,581)
--------- --------
Net cash provided (used)........................................................................ 13,381 (2,122)
Cash and cash equivalents, beginning of period.................................................. 29,794 33,617
--------- --------
Cash and cash equivalents, end of period........................................................ $ 43,175 $ 31,495
========= ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
Page 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Spin-off and Basis of Presentation
In October 2000, the Board of Directors of Equifax Inc. ("Equifax") announced
its intent to spin off its Payment Services division, subject to certain
conditions, into a separate publicly traded company with its own management and
Board of Directors (the "Distribution"). In April 2001, the IRS issued a
positive ruling related to the tax-free nature of the Distribution for U.S.
federal income tax purposes. On June 11, 2001, the Distribution was approved by
Equifax's Board of Directors, and on July 7, 2001, the spin-off was accomplished
by transferring the assets, liabilities, and stock of the businesses that
comprise the Payment Services division to Certegy Inc. ("Certegy" or the
"Company") and then distributing all of the shares of Certegy common stock to
Equifax's shareholders. (The term "Company" is also used to refer to the
Equifax Payment Services division prior to the distribution.) The Equifax
shareholders received one share of Certegy common stock for every two shares of
Equifax common stock held. In conjunction with the Distribution, Certegy made a
cash payment to Equifax of $275 million. This cash payment was funded through
the $400 million of unsecured credit facilities obtained by Certegy in July
2001. Certegy was incorporated on March 2, 2001, under the name Equifax PS,
Inc., as a wholly-owned subsidiary of Equifax. Certegy did not have any
operations, assets, or liabilities until the contribution by Equifax to Certegy
of the Payment Services division prior to the Distribution.
The Company provides credit and debit card processing and check risk management
services to financial institutions and merchants throughout the world, through
two segments, Card Services and Check Services. Card Services provides card
issuer services in the U.S., the U.K., Brazil, Chile, Australia, New Zealand,
Ireland, France, and Spain. Also, Card Services provides merchant processing
services in the U.S. and card processing software support and consulting
services in 27 countries. Check Services provides check risk management services
and related processing services in the U.S., the U.K., Canada, France, Ireland,
Australia, and New Zealand.
The Company has prepared these consolidated financial statements pursuant to the
rules and regulations of the Securities and Exchange Commission. This
information reflects all adjustments, which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations, and cash flows for the interim periods presented. All adjustments
made have been of a normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the U.S. have been condensed or
omitted, although the Company believes that the disclosures are adequate to make
the information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the combined
financial statements and the notes to those statements included in the Company's
Registration Statement on Form 10 filed on June 11, 2001.
2. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
3. Shareholders' Equity
Treasury Stock. In September 2001, the Company's Board of Directors authorized
the Company to repurchase up to $100 million of its common stock. The Company
intends to use this program primarily to balance the dilutive effects of new
stock issuances associated with its employee stock-based compensation. As of
September 30, 2001, the Company had repurchased 81,400 shares.
Comprehensive Income. The components of comprehensive income for the nine
months ended September 30, 2001 and 2000 are as follows:
2001 2000
------- ------
(in thousands)
Net income........................................................................................ $ 60,567 $62,271
Change in cumulative foreign currency translation adjustment...................................... (34,183) (4,884)
Change in cumulative loss from cash flow hedging activities....................................... (453) -
-------- -------
Comprehensive income.............................................................................. $ 25,931 $57,387
======== =======
Page 7
Accumulated other comprehensive loss at September 30, 2001 and December 31, 2000
consists of the following components:
September 30, December 31,
2001 2000
------------- ------------
(in thousands)
Cumulative foreign currency translation adjustment........................................ $(91,471) $(57,288)
Cumulative loss from cash flow hedging activities......................................... (453) --
-------- --------
Accumulated other comprehensive loss...................................................... $(91,924) $(57,288)
======== ========
Unearned Compensation on Restricted Stock. In August 2001, the Company granted
122,566 shares of time vested restricted stock to officers and other key
employees under the Certegy 2001 Stock Incentive Plan. The shares vest 100% at
the end of the 30-month vesting period. Interim vesting is permitted only in
certain circumstances; unvested shares are forfeited upon termination, unless
retirement, death, or disability criteria are met. During the vesting period,
the participants have rights to vote and receive any declared dividends, but the
shares may not be sold, assigned, transferred, pledged or otherwise encumbered.
The fair value of the restricted shares on the date of grant is amortized
ratably over the vesting period. Unearned compensation of $4.0 million was
initially recorded based on the market value of the shares on the date of grant
and is being amortized over 30 months. The unamortized balance of unearned
compensation on restricted stock is included as a separate component of
shareholders' equity.
4. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income by the
weighted average number of common shares. Prior to the commencement of public
trading on July 9, 2001, these amounts were computed by applying the
distribution ratio of 0.5 shares of Certegy common stock to the historical
Equifax weighted average shares outstanding for the same periods presented.
Diluted EPS reflects the potential dilution that would occur if stock options
were exercised and resulted in additional common shares outstanding. Diluted
EPS is not presented for periods prior to the third quarter of 2001, as there
are no historical market share prices for Certegy common stock prior to July 9,
2001. Accordingly, the dilutive effect of stock options for these periods could
not be determined.
Pro forma EPS is calculated by dividing pro forma net income by the weighted
average number of common shares. Pro forma net income includes adjustments
assuming that the Distribution had taken place at the beginning of 2000. The
full pro forma consolidated statements of income for the nine months ended
September 30, 2001 and the three months and nine months ended September 30,
2000, are included in Item 5, "Other Information," of Part II of this quarterly
report.
A reconciliation of the EPS calculations is as follows:
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2001 2000 2001 2000
------- ------- ------- -------
(in thousands)
Historical:
- -----------
Net Income.......................................................... $24,059 $24,931 $60,567 $62,271
Weighted average shares outstanding - basic......................... 68,618 67,178 68,231 67,060
Effect of dilutive securities:
Stock options...................................................... 733
Unvested restricted stock.......................................... 17
-------
Weighted average shares outstanding - diluted....................... 69,368
=======
Earnings per share - basic.......................................... $ 0.35 $ 0.37 $ 0.89 $ 0.93
======= ======= ======= =======
Earnings per share - diluted........................................ $ 0.35
=======
Pro forma:
- ----------
Net Income.......................................................... $20,568 $53,453 $49,450
Earnings per share - basic.......................................... $ 0.31 $ 0.78 $ 0.74
======= ======= =======
Page 8
5. Acquisitions
In May 2001, the Company increased its ownership in Unnisa Ltda. ("Unnisa"), a
card processing business in Brazil, from 59.3% to 100% by acquiring the
remaining interest for a purchase price of $55.5 million. This interest was
acquired with cash and accounted for as a purchase. In August 2001, the Company
acquired Accu Chek, Inc. ("Accu Chek") for $25.0 million in cash. Accu Chek is
the nation's leading provider of third-party check collection services. The
results of operations have been included in the consolidated statements of
income from the date of acquisition and were not material.
6. Transactions with Equifax
There were no material intercompany purchase or sale transactions between
Equifax and the Company through the Distribution date of July 7, 2001. Prior to
the Distribution, the Company sent excess cash to Equifax under Equifax's
centralized cash management system. This excess cash and short-term advances to
the Company from Equifax are included in the Equifax equity investment in the
accompanying consolidated balance sheet as of December 31, 2000.
Prior to the Distribution, the Company was charged with certain Equifax
corporate expenses that were allocated to the Company based on the Company's
proportionate amount of revenues, number of employees, and other relevant
factors as compared to related totals for Equifax. In the opinion of management,
those allocations were made on a reasonable basis. Management believes that, had
the Company been operating on a stand-alone basis, it would have incurred
additional expenses of approximately $3.3 million during the first six months of
2001, which specifically relate to incremental pension expense, insurance costs,
corporate headquarters rent, and stand-alone public company costs for audit,
director, and stock exchange fees. Management believes that all other costs
allocated to the Company are a reasonable representation of the costs that would
have been incurred if the Company had performed these functions as a stand-alone
company.
In conjunction with the separation of their businesses, the Company and Equifax
entered into various agreements that address the allocation of assets and
liabilities between them and that define their relationship after the
separation, including the provision of certain transition support services by
each party.
7. Segment Information
Operating revenues and operating income by segment for the three and nine months
ended September 30, 2001 and 2000 are as follows:
Three Months Nine Months
Ended September 30 Ended September 30
-------------------------- --------------------------
2001 2000 2001 2000
-------- -------- -------- --------
(In thousands)
Operating revenues:
Card Services.......................................... $146,572 $131,602 $416,419 $381,003
Check Services......................................... 71,411 63,074 201,956 184,342
-------- -------- -------- --------
$217,983 $194,676 $618,375 $565,345
======== ======== ======== ========
Operating income:
Card Services.......................................... $ 34,837 $ 32,487 $ 85,017 $ 77,679
Check Services......................................... 11,386 10,765 27,973 30,117
-------- -------- -------- --------
46,223 43,252 112,990 107,796
General Corporate Expense.............................. (3,502) (1,818) (7,929) (5,903)
-------- -------- -------- --------
$ 42,721 $ 41,434 $105,061 $101,893
======== ======== ======== ========
Pro forma operating income(1)........................... $ 39,809 $101,811 $ 97,018
======== ======== ========
(1) Includes pro forma stand-alone costs (Note 6).
Total assets by segment at September 30, 2001 and December 31, 2000 are as
follows:
September 30, December 31,
2001 2000
------------- ------------
(in thousands)
Card Services................................................................................. $445,869 $419,270
Check Services................................................................................ 116,542 83,175
-------- --------
562,411 502,445
Corporate..................................................................................... 56,662 --
-------- --------
$619,073 $502,445
======== ========
Page 9
8. Derivative Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires that a company recognize derivatives as assets or liabilities
on its balance sheet, and also requires that the gain or loss related to the
effective portion of derivatives designated as cash flow hedges be recorded as a
component of other comprehensive income.
At September 30, 2001, the Company held one interest rate swap arrangement that,
in effect, fixes the interest rate for a related variable rate synthetic lease
obligation. This derivative has been designated as a cash flow hedge, was
documented as fully effective, and at September 30, 2001 was valued as a
liability totaling $1.0 million. The liability is included in other current
liabilities in the accompanying consolidated balance sheet, and the related loss
is recorded, net of income tax, as a component of accumulated other
comprehensive loss.
9. Recent Accounting Pronouncements
In July 2001, the FASB issued Statement No. 141, "Business Combinations" ("SFAS
141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 eliminates pooling of interests accounting and requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. SFAS 142 eliminates the amortization of goodwill and
certain other intangible assets and requires that goodwill be evaluated for
impairment by applying a fair value-based test. The Company will adopt the
standard effective January 1, 2002 for acquisitions prior to June 30, 2001.
Amortization of goodwill was approximately $6.4 million for the nine months
ended September 30, 2001. Earnings per share for the nine months ended
September 30, 2001 would have increased by approximately $0.08 had SFAS 142 been
effective as of the beginning of 2001. The Company expects to complete its
first fair value-based impairment tests by June 30, 2002.
Page 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For an understanding of the significant factors that influenced the Company's
results, the following discussion should be read in conjunction with the
consolidated financial statements and pro forma consolidated financial
statements of the Company, including the notes to those statements, included
elsewhere in this report. It is also suggested that this management's discussion
and analysis be read in conjunction with the management's discussion and
analysis, combined financial statements, and pro forma combined financial
statements included in the Company's latest Registration Statement on Form 10
filed on June 11, 2001.
Overview
The Company provides credit and debit card processing and check risk management
services to financial institutions and merchants throughout the world, through
two segments, Card Services and Check Services. Card Services provides card
issuer services in the U.S., the U.K., Brazil, Chile, Australia, New Zealand,
Ireland, France, and Spain. Also, Card Services provides merchant processing
services in the U.S. and card processing software support and consulting
services in 27 countries. Check Services provides check risk management services
and related processing services in the U.S., the U.K., Canada, France, Ireland,
Australia, and New Zealand.
Components of Income Statement
The Company generates revenue from (i) charges based on transaction volume
(U.S.), accounts or cards processed (outside the U.S.), and fees for various
services and products (globally) within Card Services, and (ii) charges based on
transaction volume and fees for various services and products within Check
Services. Revenues depend upon a number of factors, such as demand for and price
of the Company's services, the technological competitiveness of the product
line, the Company's reputation for providing timely and reliable service,
competition within the industry, and general economic conditions.
Costs of services consist primarily of the costs of transaction processing
systems, personnel to develop and maintain applications and operate computer
networks and to provide customer support, losses on check guarantee services,
interchange and other fees on merchant processing, and depreciation and
occupancy costs associated with the facilities performing these functions.
Selling, general, and administrative expenses consist primarily of salaries,
wages, and related expenses paid to sales, non-revenue customer support
functions and administrative employees and management, and certain Equifax
corporate costs that have been allocated to the Company.
Results of Operations
The following table summarizes the Company's consolidated results for the three
months and nine months ended September 30, 2001 and 2000:
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ -----------------------
2001 2000 2001 2000
------ ------ ------ ------
(In millions, except per share amounts)
Revenue............................................................ $218.0 $194.7 $618.4 $565.3
Operating income................................................... $ 42.7 $ 41.4 $105.1 $101.9
Other income (expense), net........................................ $ 0.4 $ 1.9 $ (0.1) $ 1.3
Interest expense................................................... $ (3.7) $ (0.4) $ (4.1) $ (0.5)
Net income......................................................... $ 24.1 $ 24.9 $ 60.6 $ 62.3
Basic earnings per share........................................... $ 0.35 $ 0.37 $ 0.89 $ 0.93
Diluted earnings per share......................................... $ 0.35
Pro forma basic earnings per share................................. $ 0.31 $ 0.78 $ 0.74
As a result of the terrorist attacks on September 11, 2001, the Company
experienced a significant decline in volumes during the week following September
11, although volumes continued to improve throughout the remainder of the month.
Both the Check Services and Card Services businesses were negatively impacted by
these attacks; however, the Card Services business was impacted to a much lesser
degree. Management estimates that the terrorist attacks reduced third quarter
2001 revenue by $2.3 million, operating income by $1.1 million, net income by
$0.7 million, and diluted earnings per share by $0.01. Revenue and operating
income in the Card Services segment declined by an estimated $0.7 million and
$0.3 million, respectively. In the Check Services segment, volume declines
attributed to the terrorist attacks reduced third quarter 2001 revenue by
approximately $1.6 million and operating profit by $0.8 million.
Page 11
Revenue
Third Quarter 2001 compared with Third Quarter 2000
Revenue in the third quarter of 2001 of $218.0 million grew $23.3 million, or
12.0%, over the third quarter of 2000. Card Services experienced revenue growth
of 11.4% or $15.0 million, while Check Services revenue increased $8.3 million
or 13.2%.
The revenue growth was driven primarily by higher volumes, partially offset by
unfavorable changes in foreign exchange rates, volume declines associated with
the September 11, 2001 terrorist attacks, and a decrease in software licensing
revenue in order to focus on growing the global processing operations.
Additionally, the acquisition of Accu Chek, Inc. ("Accu Chek") in August 2001
contributed $1.7 million in revenue. The strengthening of the U.S. dollar
against foreign currencies, particularly the British pound and the Brazilian
real, reduced U.S. dollar equivalent revenue growth by $6.9 million, resulting
in U.S. dollar revenue growth being 350 basis points below local currency
revenue growth rates. The terrorist attacks negatively impacted revenue by an
estimated $2.3 million.
First Nine Months 2001 compared with First Nine Months 2000
Revenue in the first nine months of 2001 of $618.4 million increased by $53.0
million, or 9.4% compared to one year ago. Card Services and Check Services
generated revenue growth of $35.4 million, or 9.3%, and $17.6 million, or 9.6%,
respectively.
The increase in revenue was a result of increased volumes and the Accu Chek
acquisition and was partially offset by unfavorable fluctuations in foreign
exchange rates. The strengthening of the U.S. dollar against foreign
currencies, particularly the British pound and the Brazilian real, reduced U.S.
dollar equivalent revenue growth by $17.1 million, resulting in U.S. dollar
revenue growth being 300 basis points below local currency revenue growth rates.
Operating Expenses
Third Quarter 2001 compared with Third Quarter 2000
Total operating expenses in the third quarter of 2001 of $175.3 million
increased $22.0 million, or 14.4%, over the third quarter of 2000. Operating
expenses for Card Services and Check Services increased $12.6 million, or 12.7%,
and $7.7 million, or 14.8%, respectively, while Corporate operating expenses
rose $1.7 million, or 92.6%.
Costs of services in the third quarter of 2001 increased by $21.1 million, or
16.3%, over the third quarter of 2000, primarily driven by higher volumes in
both business segments and higher guarantee loss rates in Check Services. An
increase in card merchant and issuing volume added $12.2 million of cost, and
higher check volume and loss rates added $8.9 million of cost.
Selling, general, and administrative expense in the third quarter of 2001
increased $1.0 million, or 4.0%, over the third quarter of 2000 due to the
incremental costs the Company incurred as a stand-alone public entity.
First Nine Months 2001 compared with First Nine Months 2000
Total operating expenses in the first nine months of 2001 of $513.3 million
increased $49.9 million, or 10.8%, over the first nine months of 2000. Card
Services' operating expenses grew $28.1 million, or 9.3%, Check Services'
operating expenses grew $19.8 million, or 12.8%, and Corporate expense grew $2.0
million, or 34.3%.
Costs of services in the first nine months of 2001 increased by $48.2 million,
or 12.4%, over the first nine months of 2000, principally driven by increased
volumes in both business segments, including higher guarantee loss rates in
Check Services. An increase in card merchant and issuing volume added $27.7
million of cost, and higher check volume and loss rates added $20.5 million of
cost.
Selling, general, and administrative expense in the first nine months of 2001
increased $1.6 million, or 2.2%, over the first nine months of 2000 as a result
of the incremental costs incurred as a stand-alone company.
Page 12
Operating Income
Third Quarter 2001 compared with Third Quarter 2000
Operating income of $42.7 million in the third quarter of 2001 increased $1.3
million, or 3.1% compared to the third quarter of 2000. Combined operating
margins were 19.6% in 2001 versus 21.3% in 2000. The decline in operating
margin was driven principally by the higher levels of low-margin merchant
processing revenues of Card Services and decreased profits of Check Services
caused by higher comparative check guarantee loss rates.
First Nine Months 2001 compared with First Nine Months 2000
Operating income of $105.1 million in the first nine months of 2001 increased
$3.2 million, or 3.1%, over the first nine months of 2000. Combined operating
margins were 17.0% and 18.0% in the first nine months of 2001 and 2000,
respectively. Operating income was negatively impacted by lower profits in
Check Services, caused by higher comparative check guarantee loss rates, and
declines in software license sales, partially offset by revenue growth and
improved profits in the Card Services segment primarily in the first quarter of
2001.
Other Income (Expense), Net
Other income (expense) primarily consists of net foreign exchange losses. In
the third quarter and year-to-date 2001, other income (expense), net decreased
$1.5 million and $1.4 million, respectively, as the Company realized a gain on
the disposition of an investment in September 2000.
Interest Expense
Interest expense for the first six months of the year principally consists of
interest paid on a line of credit held by Unnisa, the Company's card processing
operation in Brazil, and interest charged by Equifax on overnight funds borrowed
on the Company's behalf. The Company was not allocated any Equifax corporate
debt or related interest expense as, historically, these amounts were not
allocated to the operating divisions by Equifax. Third quarter interest expense
is predominantly related to $275 million of debt used to fund the cash payment
to Equifax in conjunction with the Distribution on July 7, 2001.
Effective Tax Rate
The provision for income taxes in the Company's combined statements of income
reflects federal, state, and foreign taxes calculated using the separate return
basis. The effective tax rate in the first nine months of 2001 was 39.0%, which
is the expected rate for the entire year. The effective tax rate in 2000 was
39.1%.
Net Income and Earnings per Share
Third Quarter 2001 compared with Third Quarter 2000
Net income in the third quarter 2001 of $24.1 million decreased $0.9 million, or
3.5%, below the third quarter of 2000 and was primarily the result of an
increase in interest expense of $3.3 million and a decrease in other income
(expense), net of $1.5 million, offset in part by a decrease in the provision
for income taxes of $1.4 million, an increase in operating income of $1.3
million, and a decrease in minority interest in earnings, net of tax of $1.2
million.
In the third quarter 2000, minority interest in earnings, net of tax related to
minority ownerships in the net loss of Unnisa, the Company's Brazilian card
processing operation, and the U.K. card operations. The Company acquired full
ownership of the U.K. card operation in September 2000 and Unnisa in May 2001.
As a result, there was no minority interest in earnings, net of tax in the third
quarter 2001.
First Nine Months 2001 compared with First Nine Months 2000
Net income in the first nine months of 2001 of $60.6 million decreased $1.7
million, or 2.7% in relation to the first nine months of 2000. The decline is
primarily driven by an increase in interest expense of $3.6 million as a result
of the related debt incurred to finance the Distribution on July 7, 2001.
Additionally, other income (expense), net decreased $1.5 million due primarily
to the realization of a gain on the disposition of an investment in September
2000. These unfavorable variances were partially offset by an improvement in
operating income of $3.2 million.
Basic earnings per share ("EPS") is calculated by dividing net income by the
weighted average number of common shares. Prior
Page 13
to the commencement of public trading on July 9, 2001, these amounts were
computed by applying the distribution ratio of 0.5 shares of Certegy common
stock to the historical Equifax weighted average shares outstanding for the same
periods presented.
Diluted EPS reflects the potential dilution that would occur if stock options
were exercised and resulted in additional common shares outstanding. Diluted
EPS is not presented for periods prior to the third quarter of 2001, as there
are no historical market share prices for Certegy common stock prior to July 9,
2001. Accordingly, the dilutive effect of stock options for these periods could
not be determined.
Segment Results
The following table summarizes the segment results for the three months and nine
months ended September 30, 2001 and 2000:
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------------- -------------------------------------
Revenue Operating Income Revenue Operating Income
----------------- ----------------- ----------------- -----------------
2001 2000 2001 2000 2001 2000 2001 2000
------- ------- ------ ------ ------- ------- ------- ------
(In millions)
Card Services....................... $146.6 $131.6 $34.8 $32.4 $416.4 $381.0 $ 85.0 $ 77.7
Check Services...................... 71.4 63.1 11.4 10.8 202.0 184.3 28.0 30.1
------ ------ ------ ----- ------ ------ ------ ------
218.0 194.7 46.2 43.2 618.4 565.3 113.0 107.8
General Corporate Expense........... - - (3.5) (1.8) - - (7.9) (5.9)
------ ------ ----- ----- ------ ------ ------ ------
$218.0 $194.7 $42.7 $41.4 $618.4 $565.3 $105.1 $101.9
====== ====== ===== ===== ====== ====== ====== ======
Pro Forma........................... $39.8 $101.8 $ 97.0
===== ====== ======
Card Services
Third Quarter 2001 compared with Third Quarter 2000
In the third quarter of 2001, Card Services' revenue increased $15.0 million, an
increase of 11.4% over the third quarter of 2000. Revenue in the U.S. of $118.8
million in the 2001 quarter was an increase of $17.9 million, or 17.7%, over the
prior year quarter, Of this increase, the card issuing business contributed $8.2
million, while revenues in the merchant processing business rose $9.7 million,
both as a result of higher volumes.
International revenue of $27.8 million in the third quarter decreased $2.9
million, or 9.5%, compared to the third quarter of 2000. The decline in
international revenue is due primarily to the strengthening of the U.S. dollar.
Exchange rate fluctuations in the Brazilian real and the British pound have
negatively impacted revenues by approximately $6.6 million. On a local currency
basis, international revenue increased by 17.1%. In addition, revenues in the
third quarter of 2000 included price adjustments in the United Kingdom; similar
price increases did not occur in the third quarter of 2001. These decreases
were offset to some extent by the start-up of the Australian operations and
growth in the Brazilian account base.
Card Services' operating income increased $2.4 million, or 7.2%, above the prior
year quarter. Operating margins were 23.8% in the third quarter of 2001 versus
24.7% in the prior year. The slight decrease was due primarily to exchange rate
fluctuations and price adjustments in the prior year quarter, largely offset by
the start-up of the Australian operations and higher earnings in Brazil.
First Nine Months 2001 compared with First Nine Months 2000
During the first nine months of 2001, Card Services experienced revenue growth
of $35.4 million, representing an increase of 9.3% over the same period one year
ago. Domestic revenue of $333.4 million increased $35.7 million, or 12.1%, over
the prior year, driven by rising card issuing transactions and merchant volumes.
International revenue of $83.0 million in the first nine months of 2001
decreased $3.4 million, or 3.9%, year over year. International revenue includes
software licensing revenue, which has declined from $9.1 million in the first
nine months of 2000 to $6.1 million in the first nine months of 2001, as the
Company has de-emphasized software licensing revenues in order to grows its
global processing operations. Also contributing to the international revenue
decline was the strengthening of the U.S. dollar. Exchange rate changes of the
Brazilian real and the British pound reduced revenue growth by approximately
$14.7 million. On a local currency basis, international revenue increased by
approximately 20.7%. These decreases were partly offset by the growth in
account base in Brazil and the start-up of the Australian operations.
Card Services' operating income in the first nine months of 2001 increased $7.3
million, or 9.4%, over the first nine months of 2000. Operating margins
remained constant at 20.4% for the first six months 2001 and 2000 as revenue
growth was entirely
Page 14
offset by foreign currency fluctuations and the planned decrease in software
licensing activity.
Check Services
Third Quarter 2001 compared with Third Quarter 2000
Check Services' revenue in the third quarter of 2001 increased $8.3 million, a
13.2% growth over the same period one year ago. Revenue in the U.S. of $59.2
million rose $8.4 million, or 16.4%, over the third quarter of 2000, driven by
increased volume largely resulting from the addition of new customers as well as
the acquisition of Accu Chek in August 2001, which contributed $1.7 million in
revenue. The face amount of checks authorized in the U.S. totaled $7.0 billion
in the third quarter of 2001 compared to $6.0 billion in the third quarter of
2000. These gains were partially offset by volume declines immediately
following the September 11, 2001 terrorist attacks, which had an estimated $1.6
million impact on revenue.
Internationally, revenue maintained prior year levels with reported revenue of
$12.2 million. The strengthening of the U.S. dollar resulted in a $0.3 million
reduction in revenue. The face amount of checks authorized in the international
operations decreased slightly from $0.8 billion in the third quarter of 2000 to
$0.7 billion in 2001. On a local currency basis, international revenue
increased approximately 2.7%.
Check Services' third quarter operating income increased $0.6 million, or 5.8%
over the third quarter of 2000. Operating margins were 16.0% in the 2001
quarter and 17.1% in the 2000 quarter. The decline in profitability is
attributed to higher check guarantee loss rates.
First Nine Months 2001 compared with First Nine Months 2000
Check Services' revenue in the first nine months of 2001 increased $17.6
million, representing a 9.6% growth over the first nine months of 2000. Year-
to-date revenue in the U.S. of $165.5 million increased $18.3 million, or 12.5%
over the same period one year ago largely because of the addition of new
customers. The face amount of checks authorized in the U.S. totaled $19.9
billion and $17.8 billion in the first nine months of 2001 and 2000,
respectively.
International revenue of $36.5 million decreased $0.7 million, or 1.9% compared
to the first nine months of 2000. The strengthening of the U.S. dollar against
the British pound reduced international check revenue by $2.4 million. The face
amount of checks authorized in the international operations was $2.3 billion in
2001 versus $2.4 billion in 2000. On a local currency basis, international
revenue increased approximately 4.5%.
Check Services' operating income in the first nine months of 2001 decreased $2.1
million, or 7.1%, below the first nine months of 2000. Year-to-date operating
margins were 13.9% and 16.3% in 2001 and 2000, respectively, primarily because
of higher check guarantee loss rates in 2001.
Page 15
General Corporate
General corporate expense of $3.5 million for the third quarter of 2001
increased $1.7 million over the prior-year period. Corporate expenses recorded
prior to the distribution on July 7, 2001 represent certain Equifax corporate
expenses that were allocated to the Company based on the Company's proportionate
amount of revenues, number of employees, and other relevant factors as compared
to related totals for Equifax. In the opinion of management, those allocations
were made on a reasonable basis. The increase in general corporate expenses is
due to incremental costs incurred by the Company as a stand-alone public
company, including pension expense, insurance costs, corporate headquarters
rent, and stand-alone public company costs for audit, director, and stock
exchange fees. The increase in pension expense is a result of the Company no
longer benefiting from the over-funded status of the consolidated Equifax
pension plan. Management believes that all other costs allocated to the Company
are a reasonable representation of the costs that would have been incurred if
the Company had performed these functions as a stand-alone company.
Liquidity and Capital Resources
First Nine Months 2001 compared with First Nine Months 2000
Net cash provided by operating activities amounted to $83.1 million in the
first nine months of 2001 as compared with $83.0 million in the first nine
months of 2000. The 2001 amount was reduced by $29.0 million related to the
timing of settlements in the card and merchant processing clearing system.
Operating activities provided cash of $112.1 million and $92.1 million in the
first nine months of 2001 and 2000, respectively, before the effect of this
settlement activity. Operating cash flow has been sufficient to fund capital
expenditures.
Net cash used in investing activities amounted to $119.7 million in the first
nine months of 2001 and $43.2 million in the first nine months of 2000. Capital
expenditures, exclusive of acquisitions, amounted to $40.7 million and $25.8
million in the first nine months of 2001 and 2000, respectively. Acquisitions,
net of cash acquired, totaled $79.0 million and $24.3 million in the first nine
months of 2001 and 2000, respectively. The Company expects total capital
expenditures, exclusive of acquisitions, to approximate $48 million in 2001.
Net cash provided by (used in) financing activities amounted to $53.1 million in
the first nine months of 2001 and $(39.3) million in the first nine months of
2000. Net borrowings from (repayments to) Equifax amounted to ($206.6) million
and $(39.6) million in the first nine months of 2001 and 2000, respectively.
In July 2001, the Company obtained $400 million of unsecured credit facilities,
a portion of which was used to fund the cash payment to Equifax of $275 million
on July 7, 2001. Management believes that the current level of cash and cash
equivalents, $43.2 million as of June 30, 2001, future cash flows from
operations, and the amount of the credit facility in excess of the $275 million
payment described above, will be sufficient to meet the needs of existing
operations and planned requirements for the foreseeable future.
Management regularly evaluates cash requirements for current operations,
development activities, and acquisitions. The Company may elect to raise
additional funds for these purposes, either through further bank financing or
the public capital markets, as appropriate. Based on the Company's recent
financial results and current financial position, management believes that
additional funding will be available if required to meet the Company's capital
requirements.
Seasonality, Inflation, and Economic Downturns
The Company is subject to the impact of general economic conditions; however,
this has historically been mitigated by the continued demand for payment
transaction processing. The Company is also subject to certain seasonal
fluctuations such as peak activity during the holiday buying season.
Management does not believe that inflation has had a material effect on the
Company's operating results. However, inflation could adversely affect the
financial results were inflation to result in a substantial weakening in
economic conditions that adversely affect the level of consumer spending.
Page 16
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are
based on current expectations, estimates, forecasts, and projections about the
Company and its industry. They are not guarantees of future performance and are
subject to risks and uncertainties that may cause actual results to differ
significantly from what is expressed in those statements. The factors that
could, either individually or in the aggregate, affect the Company's performance
include matters such as a change in the growth rate of the overall U.S. economy,
or the international economies where the Company does business, such that
consumer spending and related consumer debt are impacted; a decline or change in
the marketing techniques of credit card issuers; a reversal of the trend toward
credit card use increasing as a percentage of total consumer expenditures;
unanticipated cancellation or termination of customer contracts; risks
associated with investments and operations in foreign countries, including
regulatory environments, exchange rate fluctuations, and local political,
social, and economic factors; the extent to which the Company can continue
successful development and marketing of new products and services; and generally
other risks listed in the "Risk Factors" and "Forward-Looking Statements"
sections of the Company's Registration Statement on Form 10 filed with the
Securities and Exchange Commission.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Approximately 18.9% of the Company's revenue for the nine months ended September
30, 2001 and 38% of the Company's assets at September 30, 2001 are associated
with operations outside of the U.S. The U.S. dollar balance sheets and
statements of income for these businesses are subject to currency fluctuations.
The Company is most vulnerable to fluctuations in the Brazilian real and the
British pound against the U.S. dollar. Historically, the Company has not entered
into derivative financial instruments to mitigate this risk, as it has not been
cost-effective. The impact of currency fluctuations on profitability has not
been significant since both revenue and costs of these businesses are
denominated in local currency. The Company may use derivative financial
instruments in the future if it is deemed to be useful in mitigating an exposure
to foreign currency exchange rates. The cumulative translation adjustment,
largely related to the Company's investment in Unnisa, the Brazilian card
processing operation, was a $91.9 million and $57.3 million reduction of
shareholder's equity at September 30, 2001 and December 31, 2000, respectively.
Page 17
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
The following pro forma consolidated financial statements have been prepared as
if the Distribution had taken place at the beginning of 2000 and are presented
for information purposes.
Page 18
CERTEGY INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(In thousands, except per share amounts)
Nine Months Ended
September 30, 2001
---------------------------------------------------------
Pro Forma Pro Forma
Historical Adjustments Consolidated
------------ ----------- ------------
Revenues $618,375 $618,375
Operating expenses:
Costs of services 438,574 $ 2,350 (a) 440,924
Selling, general and administrative expenses 74,740 900 (a) 75,640
-------- -------- --------
513,314 3,250 516,564
-------- -------- --------
Operating income 105,061 (3,250) 101,811
Other income (expense), net (123) (123)
Interest expense (4,099) (8,413) (b) (12,512)
-------- -------- --------
Income before income taxes and minority interests 100,839 (11,663) 89,176
Provision for income taxes (39,327) 4,549 (c) (34,778)
Minority interests in earnings, net of tax (945) (945)
-------- -------- --------
Net income $ 60,567 $ (7,114) $ 53,453
======== ======== ========
Basic earnings per share $ 0.89 $ 0.78
======== ========
Basic weighted average shares outstanding 68,231 68,231
======== ========
The accompanying notes are an integral part of these Pro Forma Consolidated
Financial Statements.
Page 19
CERTEGY INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(In thousands, except per share amounts)
Three Months Ended
September 30, 2000
--------------------------------------------------------
Pro Forma Pro Forma
Historical Adjustments Consolidated
---------- ----------- ------------
Revenues $194,676 $194,676
Operating expenses:
Costs of services 129,586 $ 1,175 (a) 130,761
Selling, general and administrative expenses 23,656 450 (a) 24,106
-------- ------- --------
153,242 1,625 154,867
-------- ------- --------
Operating income 41,434 (1,625) 39,809
Other income (expense), net 1,861 1,861
Interest expense (357) (5,544) (b) (5,901)
-------- ------- --------
Income before income taxes and minority interests 42,938 (7,169) 35,769
Provision for income taxes (16,808) 2,806 (c) (14,002)
Minority interests in earnings, net of tax (1,199) (1,199)
-------- ------- --------
Net income $ 24,931 $(4,363) $ 20,568
======== ======= ========
Basic earnings per share $ 0.37 $ 0.31
======== ========
Basic weighted average shares outstanding 67,178 67,178
======== ========
Nine Months Ended
September 30, 2000
--------------------------------------------------------
Pro Forma Pro Forma
Historical Adjustments Consolidated
---------- ----------- ------------
Revenues $565,345 $565,345
Operating expenses:
Costs of services 390,332 $ 3,525 (a) 393,857
Selling, general and administrative expenses 73,120 1,350 (a) 74,470
-------- -------- --------
463,452 4,875 468,327
-------- -------- --------
Operating income 101,893 (4,875) 97,018
Other income (expense), net 1,325 1,325
Interest expense (541) (16,192) (b) (16,733)
-------- -------- --------
Income before income taxes and minority interests 102,677 (21,067) 81,610
Provision for income taxes (40,192) 8,246 (c) (31,946)
Minority interests in earnings, net of tax (214) (214)
-------- -------- --------
Net income $ 62,271 $(12,821) $ 49,450
======== ======== ========
Basic earnings per share $ 0.93 $ 0.74
======== ========
Basic weighted average shares outstanding 67,060 67,060
======== ========
The accompanying notes are an integral part of these Pro Forma Consolidated
Financial Statements.
Page 20
CERTEGY INC.
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
Pro Forma Consolidated Statement of Income Adjustments
The following pro forma adjustments were made to the historical consolidated
statements of income of the Company for the nine months ended September 30, 2001
and the three months and nine months ended September 30, 2000 to reflect the
Distribution as if it had occurred on January 1, 2000. Since the distribution
occurred on July 7, 2001, there were no pro forma adjustments for the three
months ended September 30, 2001. Accordingly, a pro forma balance sheet at
September 30, 2001 and a pro forma income statement for the three months then
ended are not presented.
(a) To reflect additional expenses of approximately $3.3 million for the
six months ended June 30, 2001, which specifically relate to
incremental pension expense, insurance costs, corporate headquarters
rent, and stand-alone public company costs for audit, director, and
stock exchange fees.
(b) To reflect interest expense on the $275 million of debt to be used to
fund the cash payment to Equifax in conjunction with the Distribution,
at an annual rate of LIBOR plus 100 basis points (7.70% for the three
months ended September 30, 2000 and 5.76% and 7.49% for the first six
months of 2001 and the first nine months of 2000, respectively), plus
amortization of financing costs over the three-year term of the debt.
(c) To reflect the income tax benefit resulting from the pro forma
adjustments using the Company's effective tax rate for the period.
Page 21
CERTEGY INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
1. Revenues by product and service offerings are as follows (in millions):
2000 2001
---- ----
Q1 Q2 Q3 Q4 Q1 Q2 Q3
------- ------- ------- ------- ------- ------- -------
Card Issuer Services $ 81.6 $ 87.7 $ 92.3 $ 94.5 $ 86.0 $ 88.8 $ 98.6
Check Services 58.3 63.0 63.1 75.7 63.7 66.8 71.4
Merchant Processing Services 35.0 36.1 37.1 41.1 43.5 45.5 46.8
Other 2.7 6.3 2.2 1.9 1.8 4.3 1.2
------ ------ ------ ------ ------ ------ ------
$177.6 $193.1 $194.7 $213.2 $195.0 $205.4 $218.0
====== ====== ====== ====== ====== ====== ------
2. Revenues by geographic area (based on location of customer) are as follows
(in millions):
2000 2001
---- ----
Q1 Q2 Q3 Q4 Q1 Q2 Q3
------- ------- ------- ------- ------- ------- -------
Domestic $139.5 $150.7 $152.9 $172.1 $156.8 $166.1 $178.6
International 38.1 42.4 41.8 41.1 38.2 39.3 39.4
------ ------ ------ ------ ------ ------ ------
$177.6 $193.1 $194.7 $213.2 $195.0 $205.4 $218.0
====== ====== ====== ====== ====== ====== ------
3. Check volumes in dollars are as follows (in billions):
2000 2001
---- ----
Q1 Q2 Q3 Q4 Q1 Q2 Q3
------- ------- ------- ------- ------- ------- -------
Domestic $5.6 $6.2 $6.0 $7.8 $6.1 $6.8 $7.0
International 0.8 0.8 0.8 0.9 0.8 0.8 0.7
---- ---- ---- ---- ---- ---- ----
$6.4 $7.0 $6.8 $8.7 $6.9 $7.6 $7.7
==== ==== ==== ==== ==== ==== ====
Guarantee $4.8 $5.2 $5.0 $6.2 $5.0 $5.4 5.6
Verification 1.6 1.8 1.8 2.5 1.9 2.2 2.1
---- ---- ---- ---- ---- ---- ----
$6.4 $7.0 $6.8 $8.7 $6.9 $7.6 $7.7
==== ==== ==== ==== ==== ==== ====
4. Number of cards and accounts processed (end of period) is as follows (in
millions):
2000 2001
---- ----
Q1 Q2 Q3 Q4 Q1 Q2 Q3
------- ------- ------- ------- ------- ------- -------
Cards:
Domestic 22.5 22.5 22.2 21.8 20.9 21.4 21.7
International 8.5 9.4 11.0 13.3 14.0 16.0 19.3
---- ---- ---- ---- ---- ---- ----
31.0 31.9 33.2 35.1 34.9 37.4 41.0
==== ==== ==== ==== ==== ==== ====
Accounts:
Domestic 17.0 17.0 16.8 16.6 16.0 16.4 16.6
International 7.6 8.4 9.8 11.8 12.5 14.3 17.1
---- ---- ---- ---- ---- ---- ----
24.6 25.4 26.6 28.4 28.5 30.7 33.7
==== ==== ==== ==== ==== ==== ====
Page 22
5. Merchant volumes in dollars and number of transactions are as follows:
2000 2001
---- ----
Q1 Q2 Q3 Q4 Q1 Q2 Q3
------- ------- ------- ------- ------- ------- -------
Dollars (in billions) $ 1.6 $ 1.6 $ 1.7 $ 1.9 $ 1.9 $ 2.1 $ 2.1
===== ===== ===== ===== ===== ===== =====
Number of Transactions (in millions) 15.7 16.2 17.0 15.2 25.0 27.4 28.1
===== ===== ===== ===== ===== ===== =====
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
Page 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 14, 2001 CERTEGY INC.
/s/ Lee A. Kennedy
------------------------------------------
Its: President and Chief Executive Officer
(duly authorized officer)
/s/ Michael T. Vollkommer
------------------------------------------
Corporate Vice President and Chief
Financial Officer
Page 24