EXHIBIT 99.1
PRESS RELEASE Certegy Inc.
11720 Amber Park Drive
Suite 600
Alpharetta, Georgia 30004
Phone 678-867-8000
Date: September 20, 2002 Fax 678-867-8100
FOR IMMEDIATE RELEASE CONTACT: MARY WAGGONER
VP OF INVESTOR RELATIONS
678-867-8004
MARY.WAGGONER@CERTEGY.COM
CERTEGY LOWERS 2002 AND 2003 EARNINGS GUIDANCE
RECENT DEVELOPMENTS IMPACT OUTLOOK
ALPHARETTA, GA, SEPTEMBER 20, 2002 - Certegy Inc. (NYSE:CEY) announced today
that it expects to report third quarter 2002 diluted earnings per share of
$0.40, before restructuring charge, and has revised previous revenue and
earnings guidance for full year 2002 and 2003. Revenue in 2002 is expected to
increase by 8 to 9 percent over 2001. Full year 2002 diluted earnings per share
is expected to be $1.39 to $1.40, before restructuring charges.
The company anticipates a third quarter 2002 restructuring charge of
approximately $5 million, or $0.05 per diluted share, related to the write-off
of the remaining intangible purchase accounting value previously assigned to a
customer contract (Banco Real). The company also anticipates a fourth quarter
2002 restructuring charge of approximately $3 million to $4 million, or $0.03
to $0.04 per diluted share, to cover severance costs. In 2003, Certegy expects
revenue growth of 6 to 8 percent and diluted earnings per share of $1.52 to
$1.55.
The revised outlook is the result of the following recent developments:
- Check Cashing. The planned fourth quarter 2002 nationwide
roll-out of a check cashing program for a major discount
retail customer has been delayed until mid 2003. Separately,
the number of machines to be deployed by the end of 2002 in
conjunction with the company's kiosk-based check cashing
program will be less than previously anticipated.
- Brazilian Card Market. Banco Real, in Brazil, will deconvert
its card portfolio in late February 2003. This decision
coincides with its parent's agreement to outsource $1.5
billion of global wholesale banking data processing services.
In addition, ongoing political and economic uncertainty has
weakened the Brazilian currency, and has begun to unfavorably
impact new card issuance rates.
- Merchant Processing. In late August, a large merchant
processing customer moved its account to its new owner's
processor. A portion of this volume has subsequently been
replaced by new merchant signings.
The following table summarizes the estimated impact of these developments on
revenue and diluted earnings per share guidance for third and fourth quarters
of 2002 and full year 2003.
Reductions from
Previous Guidance
-------------------------------
2002 2003
------------------ ---------
Q3 Q4 Full Year
------ ------ ---------
Revenue (in millions):
Check Cashing $ (1.0) $ (5.5) $ (6.0)
Brazilian Card Market (1.9) (4.0) (40.0)
Merchant Processing (1.6) (4.7) (13.0)
------ ------ ------
$ (4.5) $(14.2) $(59.0)
====== ====== ======
Diluted earnings per share $(0.01) $(0.03) $(0.11)
====== ====== ======
"While we are disappointed by these recent developments and the impact on 2002
and 2003 guidance, we remain confident that our competitive positions and
capabilities are very strong," said Lee Kennedy, Certegy's Chairman and Chief
Executive Officer. "The international card services and domestic check cashing
markets remain very attractive growth opportunities for Certegy," he continued.
A conference call will be held on Friday, September 20, 2002 at 9:00 a.m. EDT
with Lee A. Kennedy, Chairman and CEO, Larry J. Towe, Chief Operating Officer,
and Michael T. Vollkommer, Chief Financial Officer. Access to the call will be
available via phone and the Internet. The conference call number is
800-230-1074 (Domestic), and 612-332-0530 (International). A replay of the call
will be available through October 4, 2002. To access the replay, dial
800-475-6701, access code 653046. To participate via the Internet, go to
www.certegy.com and click on the link "Webcast" up to 15 minutes in advance of
the call. A replay of the Webcast will be available through October 4, 2002.
Please be advised that Microsoft's Windows Media Player(TM) must be downloaded
prior to accessing the presentation. It can be downloaded from
www.microsoft.com/windows/mediaplayer.
###
The statements in this release include forward-looking statements that are
based on current expectations, assumptions, estimates, and projections about
Certegy and our industry. They are not guarantees of future performance and are
subject to risks and uncertainties, many of which are outside of Certegy's
control, 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 our performance include the following, which are
described in greater detail in the section entitled "Certain Factors Affecting
Forward-Looking Statements" in our 2001 Annual Report on Form 10-K filed with
the SEC: Our ability to maintain or improve our competitive positions against
current and potential competitors; the level of economic growth or other
factors affecting demand for our products and services; loss of key customer
contracts or strategic relationships; changes in regulation or industry
standards applicable to our businesses or those of our customers; risks
associated with investments and operations in foreign countries, including
exchange rate fluctuations and local political, social, and economic factors,
and those other risks listed in the above-referenced section of our Form 10-K.
###
Certegy (NYSE:CEY) provides credit and debit card processing, check risk
management and check cashing services, and merchant processing to over 6,000
financial institutions, 117,000 retailers and 100 million consumers worldwide.
Headquartered in Alpharetta, Georgia, Certegy maintains a strong global
presence with operations in the United States, Canada, United Kingdom, Ireland,
France, Chile, Brazil, Australia and New Zealand. As a leading payment services
provider, Certegy offers a comprehensive range of transaction processing
services, check risk management solutions and integrated customer support
programs that facilitate the exchange of business and consumer payments.
Certegy generated $936 million in revenue in 2001. For more information on
Certegy, please visit www.certegy.com.
CERTEGY INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
(In thousands, except per share amounts)
(Unaudited)
Pro Forma Adjustments
---------------------
Historical Spin(1) SFAS 142(2) Pro Forma
---------- -------- ----------- ---------
Revenues(3) ........................................... $ 935,971 $ -- $ -- $ 935,971
--------- -------- --------- ---------
Operating expenses:
Costs of services(3) .............................. 686,588 2,350 (8,560) 680,378
Selling, general and administrative ............... 97,964 900 -- 98,864
--------- -------- --------- ---------
784,552 3,250 (8,560) 779,242
--------- -------- --------- ---------
Operating income ...................................... 151,419 (3,250) 8,560 156,729
Other income, net ..................................... 78 -- -- 78
Interest expense ...................................... (7,200) (8,413) -- (15,613)
--------- -------- --------- ---------
Income before income taxes and
minority interests ................................ 144,297 (11,663) 8,560 141,194
Provision for income taxes ............................ (56,276) 4,549 (1,309) (53,036)
Minority interests in earnings, net of tax ............ (945) -- -- (945)
--------- -------- --------- ---------
Net income ............................................ $ 87,076 $ (7,114) $ 7,251 $ 87,213
========= ======== ========= =========
Basic earnings per share .............................. $ 1.27 $ 1.28
========= =========
Average shares outstanding ............................ 68,317 68,317
========= =========
Diluted earnings per share ............................ $ 1.26 $ 1.26
========= =========
Average shares outstanding ............................ 69,063 69,063
========= =========
Operating income of the Company's reportable segments for the year ended
December 31, 2001 on a pro forma basis is as follows:
Pro Forma Adjustments
---------------------
Historical Spin(1) SFAS 142(2) Pro Forma
---------- -------- ----------- ---------
Operating income:
Card Services ...................................... $ 119,767 $ -- $ 7,637 $ 127,404
Check Services ..................................... 43,502 -- 923 44,425
--------- -------- --------- ---------
163,269 -- 8,560 171,829
General Corporate Expense .......................... (11,850) (3,250) -- (15,100)
--------- --------- --------- ---------
$ 151,419 $ (3,250) $ 8,560 $ 156,729
========= ======== ========= =========
(1) Pro forma adjustments include a) additional operating expenses of $3.3
million, 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) interest
expense on the $275 million of debt used to fund a cash payment to Equifax
in conjunction with the spin-off, at an annual rate of LIBOR plus 100 basis
points (5.76% for the six months ended June 30, 2001), plus amortization of
financing costs over the three-year term of the debt; and c) the income tax
benefit resulting from the pro forma adjustments using the Company's
effective tax rate for the period.
(2) Pro forma adjustment to exclude goodwill amortization expense in accordance
with SFAS 142, "Goodwill and Other Intangible Assets," as if the standard
had been effective January 1, 2001.
(3) In January 2002, the Company adopted Emerging Issues Task Force Issue No.
01-14 ("EITF 01-14"), "Income Statement Characterization of Reimbursements
Received for 'Out-of-Pocket' Expenses Incurred," which requires that
reimbursements received for out-of-pocket expenses be reclassified as
revenues. Historically, the Company has netted such reimbursements against
its costs in the consolidated statement of income. As a result of this
required adoption and certain similar reclassifications, revenues reported
for the year ended December 31, 2001 have increased by $84.8 million for
reimbursed out-of-pocket expenses that include postage, delivery,
telecommunication, and other costs.
Attachment I
CERTEGY INC.
SUPPLEMENTAL INFORMATION
QUESTIONS AND ANSWERS
1) DO YOU CONTINUE TO VIEW BRAZIL AS AN ATTRACTIVE MARKET?
We believe that the long-term prospects offered by the Brazilian
market are attractive. The Brazilian card market is projected to
produce double-digit growth over the long term. This growth is
expected to be driven by a general expansion of credit led by the
large market leaders, deeper card issuance into the growing Brazilian
consumer base and migration of payment media from paper-based
solutions to card products. Also, the trend towards outsourcing is
expected to accelerate as issuers strive to reduce costs.
Despite these positive trends, the Brazilian market is also
characterized by political and economic uncertainty that causes
volatility in currency values, and historically has resulted in
severe inflationary pressures. Significant changes in bank ownership,
as large private banks acquire smaller regional banks and foreign
global banks acquire Brazilian banks, can generate both risk of
losing customers as well as opportunities for gaining customers.
Our Brazilian strategy is consistent with our global strategy to
offer card issuers a broad range of services and card products at
competitive prices. The conversion of accounts to our Base2000
platform and a continued focus on attaining other cost efficiencies
should provide us with a cost structure that can withstand short-term
declines in business driven by the uncertain market conditions.
2) HAS YOUR INTERNATIONAL CARD REVENUE GROWTH TARGET CHANGED?
In local currency, 2002 international card revenue is expected to
grow 14% compared to our 19% to 20% guidance at the beginning of the
year. The lower revenue growth is caused by the recent market
developments in Brazil, including slowing card issuance by certain
customers and the advent of pricing pressure during the second half
of 2002. The weakening currency in Brazil will lower this revenue
growth to 7% to 8% on a U.S. dollar basis. These factors, along with
the loss of Banco Real, will have a significant impact on 2003
international card issuer revenue, which is forecast to decline by 9%
to 10% on a U.S. dollar basis and by 5% to 6% on a local currency
basis, as compared with 2002.
Excluding the Banco Real revenue from our 2002 ($33 million) and 2003
($3.6 million) results, the 2003 international card issuer revenue
growth should be 11% to 16% in U.S. dollars and 15% to 20% on a local
currency basis, absent the signing of any new large customers.
Attachment II-1
3) HOW WILL THE EVENTS YOU HAVE REPORTED TODAY IMPACT THE COMPANY'S
ABILITY TO ACHIEVE A 15% MARGIN IN THE INTERNATIONAL CARD ISSUING
OPERATIONS BY YEAR-END 2003?
We now expect to achieve a 15% run rate margin in our international
card issuer operations by early 2005. International card issuer
revenue in 2003 is forecast to approximate 2002 revenue on a local
currency basis, as growth in Brazil and our other processing centers
is expected to offset the revenue decline from the Banco Real
departure. However, Banco Real was a full-service account, and the
loss of this revenue leverage will prevent us from achieving the 15%
margin target by year-end 2003.
Our revised 2003 forecast has full-year margins below 5%. We expect
to continue to achieve operational cost efficiencies and regain scale
through ongoing 15% to 20% local currency revenue growth.
4) CAN CHECK CASHING DRIVE LONG-TERM GROWTH FOR CERTEGY?
Based on our success in establishing relationships in the convenience
store, discount store, bank and grocery channels, we believe the
Company is well positioned to capture share in the $1.5 billion check
cashing market.
- The 7-Eleven Vcom(TM) test has proven successful in terms of
transaction volumes, consumer acceptance, and loss rates. In
July 2002, 7-Eleven announced plans to purchase an additional
1,000 units with installation of those units scheduled to begin
in September of 2002. The rollout has begun in Orlando and will
expand to Tampa, Miami, Denver and Colorado Springs prior to
year-end. We anticipate deploying a total of 200 to 300 kiosks
this year and expect between 1,000 and 1,200 kiosks to be in
place by the end of 2003.
- A major discount retailer implemented the in-lane check cashing
service in two locations in July and has been testing the
process for the last two months. Based on the successful
results, the service has been installed at two additional stores
within the last two weeks. We anticipate that service will be in
place at approximately 30 locations by year-end 2002. Service at
their remaining 3,000 locations is expected to be implemented in
mid-2003 as holiday system freezes are lifted, year-end
accounting and inventory work is finished and the training of
the store associates is completed.
- We are currently working with a major bank to offer in-lobby,
kiosk-based check cashing services, and are pursuing similar
opportunities in the discount store and supermarket industries.
5) WHAT ARE YOUR REVENUE EXPECTATIONS FOR CHECK CASHING?
We anticipate revenue from our current customer base to grow from
approximately $3 million in 2002 to $15 million in 2003 and reach
full run rate potential of $35 million by the end of 2004. The
initial revenue guidance of $15 million in 2002 was based primarily
on the installation of 2,000 kiosks by year-end. Certegy and 7-Eleven
management decided to extend the test period in order to perfect
operations,
Attachment II-2
continue refining marketing and implementation strategies and to
calibrate the risk systems. This decision was based on the desire to:
(1) maximize consumer approval rates, (2) drive higher transactions
volumes per machine, (3) minimize loss rates and (4) optimize capital
outlays. Extending the test and deferring the placement of machines
is considered to be a temporary event that will result in a higher
success rate. Current expectations are that 250 kiosks will be in
place by the end of 2002 with between 1,000 and 2,000 being
implemented by the end of 2003.
In the first quarter 2002, we were in the final stages of contract
negotiations with a major discount retailer to provide in-lane check
cashing services. The implementation of this service was expected to
occur in the third and fourth quarters of 2002. The revenues
associated with this program were expected to partially offset the
2002 Vcom revenue shortfall and a substantial portion of the Vcom
profit variance. Based on the signing of this major contract in May
2002, management determined that no change in guidance was necessary
at that time.
Certegy was notified in early September of the retailer's decision to
delay most of the 3,000 store implementation until after the
traditional holiday system freeze, due to the size of the conversion.
Based on this new information, management determined that revisions
to 2002 revenue and profit guidance for the check cashing business
would be appropriate.
6) WHAT ARE YOUR EXPECTATIONS FOR THE PROFITABILITY OF CHECK CASHING?
Start up costs will continue through the first half of 2003 as we
roll out the service to additional locations. We expect the check
cashing business to become profitable in the second half of 2003. We
anticipate check cashing to generate operating income of
approximately $2 million for full-year 2003.
7) HOW ARE THE CHECK SERVICES (EXCLUSIVE OF CHECK CASHING) AND CARD
ISSUER SERVICES (OUTSIDE OF BRAZIL) BUSINESSES PERFORMING?
Our core check business remains strong and is exceeding 2002 targeted
performance. The strength in these operations partially offset the
below target performance of the check cashing start-up during the
first half of 2002. The core business is expected to continue to
perform well in the second half of 2002.
Outside of Brazil, our international card operations are performing
at targeted levels. Our domestic card business is expected to achieve
prior guidance of 8% revenue growth in the fourth quarter. The strong
revenue growth momentum in the second half of 2002 will not be
entirely apparent due to non-recurring revenue in our domestic card
e-banking operations during the third quarter of 2001. E-banking
revenue will decline by approximately $5 million on a year-over-year
comparison in the second half of 2002, while the domestic card
issuing operations is expected to grow 6% for the entire second half.
The non-recurring nature of the prior year e-banking revenue was
factored into our previous domestic card growth rates for 2002.
Attachment II-3
8) HOW WILL FOREIGN CURRENCY IMPACT CERTEGY'S 2002 AND 2003 REVENUE AND
OPERATING INCOME GROWTH?
Currency translation is expected to increase (decrease) year over
year revenue and operating income growth as follows (in millions):
2002 2003
----------------------------------- ------
3RD QTR 4TH QTR YEAR YEAR
------- ------- ------ ------
Revenues:
Card Services $ (1.5) $ (2.6) $ (7.5) $ (4.6)
Check Services 0.9 1.1 1.9 2.0
------ ------ ------ ------
$ (0.6) $ (1.5) $ (5.6) $ (2.6)
====== ====== ====== ======
2002 2003
----------------------------------- ------
3RD QTR 4TH QTR YEAR YEAR
------- ------- ------ ------
Operating Income:
Card Services $ (0.5) $ (0.7) $ (1.1) $ (0.1)
Check Services 0.2 0.3 0.5 $ 0.4
------ ------ ------ ------
$ (0.3) $ (0.4) $ (0.6) $ 0.3
====== ====== ====== ======
9) WHAT ARE THE COMPONENTS OF THE ANTICIPATED RESTRUCTURING CHARGES?
A restructuring charge of approximately $5 million is anticipated in
the third quarter of 2002, related to the write-off of remaining
intangible purchase accounting value assigned to the Banco Real
contract. The anticipated fourth quarter 2002 charge of $3 million to
$4 million is primarily attributable to a reduction of workforce in
Brazil and other operations around the globe. The Brazilian actions
are directly related to the reduced level of business that will
result from the Banco Real departure. The other actions are within
each of our global operations to drive additional efficiencies. This
is expected to generate a cost reduction of $3 million in 2003, $2
million within Card Services and $1 million within Check Services,
which has been considered in our revised 2003 guidance.
10) DO YOU ANTICIPATE ANY OTHER NON-RECURRING EVENTS?
As previously disclosed, a class action lawsuit was filed in 1996
against the Company in the U.S. District Court for the Eastern
District of California. This action is based on a claim that the
Company's practice of assessing a service charge on unpaid checks
allegedly violated provisions of the Federal Fair Debt Collection
Practices Act and California's Unfair Business Practices Act during
the period from August 1992 through December 1996. The plaintiffs
seek, among other remedies, a refund of all service charges collected
from California Consumers during this period, pre-judgment interest,
statutory damages under the Fair Debt Collection Practices Act, and
attorneys' fees, which amounts in the aggregate could exceed $15
million. The Company has defended, and will continue to defend, this
action vigorously; however, litigation is inherently uncertain and
the Company many not prevail. In the opinion of management, the
ultimate resolution of this matter will not have a
Attachment II-4
materially adverse effect on the Company's financial position,
liquidity, or results of operations.
11) CAN YOU PROVIDE DETAIL BUSINESS LEVEL GUIDANCE FOR 2003?
During the fourth quarter we will complete our 2003 budget and
operating plan. We will communicate more detailed guidance during our
year-end earnings call; and if appropriate, sooner.