10-QPeriod: Q1 FY2003

Fidelity National Information Services, Inc. Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 15, 2003For Securities:FIS

Summary

Certegy Inc. reported mixed financial results for the first quarter ended March 31, 2003. While revenues saw a modest increase of 2.3% year-over-year to $240.2 million, net income declined by 24.0% to $12.2 million, largely due to $12.6 million in "other charges." These charges were primarily related to early termination costs for a data processing contract ($9.6 million) and downsizing of its Brazilian card operations ($2.7 million). The company's Card Services segment revenue remained flat, impacted by the loss of a major client in Brazil and a decline in merchant processing revenue due to the departure of PayPal. However, North American card issuer revenue showed strength, growing by 13.7%. The Check Services segment demonstrated robust revenue growth of 6.9%, driven by both North American and international markets. Despite revenue growth, operating income across both segments saw a decline compared to the prior year, with the "other charges" significantly impacting profitability.

Key Highlights

  • 1Total revenues increased by 2.3% to $240.2 million in Q1 2003 compared to Q1 2002.
  • 2Net income decreased by 24.0% to $12.2 million, significantly impacted by $12.6 million in "other charges."
  • 3The "other charges" primarily consisted of $9.6 million for early termination of a data processing contract and $2.7 million related to downsizing the Brazilian card operation.
  • 4Card Services segment revenue was flat year-over-year, with North American card issuer revenue up 13.7% but offset by declines in merchant processing and international card issuer revenue.
  • 5Check Services segment revenue grew by 6.9% year-over-year, showing strength in both domestic and international markets.
  • 6Diluted earnings per share decreased to $0.18 from $0.23 in the prior year, with $0.12 of this decrease attributed to "other charges."
  • 7Total debt outstanding decreased to $207.0 million from $214.2 million at the end of 2002, and the company repurchased 500,000 shares of common stock in Q1 2003.

Frequently Asked Questions

Consolidated revenues increased by 2.3% to $240.2 million. This growth was primarily driven by a 6.9% increase in Check Services revenue and a 13.7% increase in North American card issuer revenue within the Card Services segment. These increases were partially offset by declines in merchant processing revenue and international card issuer revenue.

Net income decreased by 24.0% to $12.2 million and diluted EPS fell to $0.18. This decline was primarily due to $12.6 million in "other charges" recorded during the quarter, which included $9.6 million for early termination of a data processing contract and $2.7 million for downsizing the Brazilian card operation. These charges significantly impacted profitability, reducing diluted EPS by $0.12.

The "other charges" were allocated across segments. Card Services incurred $11.5 million of these charges, mainly from contract termination costs and the Brazilian operation downsizing. Check Services recorded $1.0 million in charges, and General Corporate expenses accounted for the remaining $0.1 million. These charges directly reduced operating income within each respective segment.

Certegy entered into a new ten-year agreement with IBM for data processing services, replacing an existing contract with EDS. This transition is expected to be completed by the end of the third quarter of 2003 and is anticipated to provide cost savings and operational flexibility. The company also downsized its Brazilian card operation due to the loss of a major customer, which led to associated charges.