Global Payments Reports First Quarter Earnings

Investor contact:

investor.relations@globalpay.com    

     Media contact:

media.relations@globalpay.com

Jane Elliott

Amy Corn

770-829-8234

770-829-8755

SCHEDULE 1

GAAP CONSOLIDATED STATEMENTS OF INCOME 

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

Three Months Ended August 31,

2013

2012

% Change

(unaudited)

Revenues

$        629,685

$         590,287

6.7%

Operating expenses:

Cost of service

230,745

204,391

12.9%

Sales, general and administrative

291,556

281,419

3.6%

Processing system intrusion

-

23,989

(100.0%)

522,301

509,799

2.5%

Operating income

107,384

80,488

33.4%

Other income (expense):

Interest and other income

3,338

1,983

68.3%

Interest and other expense

(7,879)

(3,545)

122.3%

(4,541)

(1,562)

190.7%

Income before income taxes 

102,843

78,926

30.3%

Provision for income taxes

(31,135)

(24,764)

25.7%

Net income

71,708

54,162

32.4%

Less: Net income attributable to noncontrolling interests, net of tax

(7,065)

(7,487)

(5.6%)

Net income attributable to Global Payments

38.5%

Earnings per share attributable to Global Payments:

    Basic

$              0.88

$               0.59

49.2%

    Diluted

$              0.87

$               0.59

47.5%

Weighted average shares outstanding:

    Basic

73,765

78,604

    Diluted

74,289

79,043

SCHEDULE 2

CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

Three Months Ended August 31,

2013

2012

% Change

Revenues

$          629,685

$        590,287

6.7%

Operating expenses:

Cost of service

215,773

193,005

11.8%

Sales, general and administrative

290,060

280,619

3.4%

505,833

473,624

6.8%

Operating income

123,852

116,663

6.2%

Other income (expense):

Interest and other income

3,338

1,983

68.3%

Interest and other expense

(7,879)

(3,545)

122.3%

(4,541)

(1,562)

190.7%

Income before income taxes 

119,311

115,101

3.7%

Provision for income taxes

(36,686)

(36,553)

0.4%

Net income

82,625

78,548

5.2%

Less: Net income attributable to noncontrolling interests, net of tax

(8,436)

(9,752)

(13.5%)

Net income attributable to Global Payments

$            74,189

7.8%

Earnings per share attributable to Global Payments:

    Basic

$                1.01

$              0.88

14.8%

    Diluted

$                1.00

$              0.87

14.9%

Weighted average shares outstanding:

    Basic

73,765

78,604

    Diluted

74,289

79,043

See Schedule 6 for a reconciliation of cash earnings to GAAP.

SCHEDULE 3

SEGMENT INFORMATION 

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

 Three Months Ended August 31, 

2013

2012

 % Change 

 GAAP 

 Cash Earnings 

 GAAP 

 Cash Earnings 

 GAAP 

 Cash Earnings 

Revenues:

United States

$    363,833

$    363,833

$    345,898

$    345,898

5.2%

5.2%

Canada

86,672

86,672

80,897

80,897

7.1%

7.1%

North America merchant services

450,505

450,505

426,795

426,795

5.6%

5.6%

Europe

143,188

143,188

128,465

128,465

11.5%

11.5%

Asia-Pacific

35,992

35,992

35,027

35,027

2.8%

2.8%

International merchant services

179,180

179,180

163,492

163,492

9.6%

9.6%

Total revenues

$    629,685

$    629,685

$    590,287

$    590,287

6.7%

6.7%

Operating income (loss) for segments:

North America merchant services

$      69,699

$      79,404

$      67,217

$      71,443

3.7%

11.1%

International merchant services

61,541

68,757

57,140

65,044

7.7%

5.7%

Corporate¹

(23,856)

(24,309)

(43,869)

(19,824)

45.6%

(22.6%)

Operating income

$    107,384

$    123,852

$      80,488

$    116,663

33.4%

6.2%

¹GAAP and cash earnings include incremental security spend for the three months ended August 31, 2013. GAAP earnings for the three months ended August 31, 2012 include a data intrusion charge of $24.0 million.  

See Schedule 7 for reconciliation of cash earnings segment information to GAAP. 

SCHEDULE 4

CONSOLIDATED BALANCE SHEETS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except share data)

August 31, 2013

May 31, 2013

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$          725,887

$          680,470

Accounts receivable, net of allowances for doubtful accounts of $518 and $509, respectively

188,633

189,435

Claims receivable, net of allowance for losses of $4,248 and $3,144, respectively

1,100

1,156

Settlement processing assets

611,602

259,204

Inventory

6,677

11,057

Deferred income taxes

6,317

6,485

Prepaid expenses and other current assets

49,852

66,685

      Total current assets

1,590,068

1,214,492

Goodwill

1,047,578

1,044,222

Other intangible assets, net

387,234

400,848

Property and equipment, net

355,370

348,064

Deferred income taxes

96,646

95,178

Other

22,594

22,252

      Total assets

$       3,499,490

$       3,125,056

Liabilities and Equity

Current liabilities:

Lines of credit

$          328,487

$          187,461

Current portion of long-term debt

72,228

72,335

Accounts payable and accrued liabilities

224,100

262,890

Settlement processing obligations

400,887

162,558

Income taxes payable

19,118

18,870

        Total current liabilities

1,044,820

704,114

Long-term debt

1,000,383

891,134

Deferred income taxes

173,573

170,723

Other long-term liabilities

76,025

72,478

      Total liabilities

2,294,801

1,838,449

Equity:

Preferred stock, no par value; 5,000,000 shares authorized and none issued

-

-

Common stock, no par value; 200,000,000 shares authorized; 72,919,576 and 75,426,099 issued and outstanding at August 31, 2013 and May 31, 2013, respectively

-

-

Paid-in capital

166,848

202,396

Retained earnings

917,550

958,751

Accumulated other comprehensive loss

(17,376)

(15,062)

      Total Global Payments shareholders' equity

1,067,022

1,146,085

Noncontrolling interest

137,667

140,522

Total equity

1,204,689

1,286,607

      Total liabilities and equity

$       3,499,490

$       3,125,056

SCHEDULE 5

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

Three Months Ended August 31,

2013

2012

Cash flows from operating activities:

Net income

$        71,708

$         54,162

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization of property and equipment

13,981

12,670

Amortization of acquired intangibles

14,393

11,225

Share-based compensation expense

4,788

4,222

Provision for operating losses and bad debts

5,234

6,012

Deferred income taxes

5,784

10,273

Other, net

(1,891)

(941)

Changes in operating assets and liabilities, net of the effects of acquisitions:

Accounts receivable

802

3,087

Claims receivable

(3,864)

(3,272)

Settlement processing assets and obligations, net

(115,383)

(7,839)

Inventory

4,448

(2,992)

Prepaid expenses and other assets

16,772

(8,513)

Accounts payable and other accrued liabilities

(40,207)

(15,294)

Income taxes payable

248

5,827

Net cash (used in) provided by operating activities

(23,187)

68,627

Cash flows from investing activities:

Business, intangible and other asset acquisitions, net of cash acquired

-

(190)

Capital expenditures

(20,263)

(29,237)

Net decrease in financing receivables

665

740

Proceeds from sale of investment

990

-

Net cash used in investing activities

(18,608)

(28,687)

Cash flows from financing activities:

Net borrowings (payments) on short-term lines of credit

141,026

(6,137)

Proceeds from issuance of long-term debt

440,000

50,000

Principal payments under long-term debt

(331,515)

(30,080)

Proceeds from stock issued under employee stock plans

3,998

4,375

Common stock repurchased - share-based compensation plans

(4,604)

(6,348)

Repurchase of common stock

(143,700)

(3,249)

Tax benefit from employee share-based compensation 

1,213

1,733

Distribution to noncontrolling interests

(12,482)

(2,733)

Dividends paid

(1,456)

(1,578)

Net cash provided by financing activities

92,480

5,983

Effect of exchange rate changes on cash

(5,268)

14,133

Increase in cash and cash equivalents

45,417

60,056

Cash and cash equivalents, beginning of period

680,470

781,275

Cash and cash equivalents, end of period

$      725,887

$       841,331

SCHEDULE 6

RECONCILIATION OF CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS TO GAAP

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

Three Months Ended August 31, 2013

GAAP

Processing System Intrusion

Other¹

Cash Earnings Adjustments²

Cash Earnings

Revenues

$         629,685

$                   -

$                   -

$                   -

$         629,685

Operating expenses:

   Cost of service

230,745

-

(579)

(14,393)

215,773

   Sales, general and administrative

291,556

-

(1,496)

-

290,060

   Processing system intrusion

-

-

-

-

-

522,301

-

(2,075)

(14,393)

505,833

Operating income

107,384

-

2,075

14,393

123,852

Other income (expense):

   Interest and other income

3,338

-

-

-

3,338

   Interest and other expense

(7,879)

-

-

-

(7,879)

(4,541)

-

-

-

(4,541)

Income before income taxes 

102,843

-

2,075

14,393

119,311

Provision for income taxes

(31,135)

-

(789)

(4,762)

(36,686)

Net income

71,708

-

1,286

9,631

82,625

Less: Net income attributable to noncontrolling interests, net of tax

(7,065)

-

-

(1,371)

(8,436)

Net income attributable to Global Payments

$           64,643

$                   -

$             1,286

$             8,260

$           74,189

Diluted shares

74,289

74,289

Diluted earnings per share

$               0.87

$                   -

$               0.02

$               0.11

$               1.00

Three Months Ended August 31, 2012

GAAP

Processing System Intrusion

Other¹

Cash Earnings Adjustments²

Cash Earnings

Revenues

$         590,287

$                   -

$                   -

$                   -

$         590,287

Operating expenses:

   Cost of service

204,391

-

(161)

(11,225)

193,005

   Sales, general and administrative

281,419

-

(800)

-

280,619

   Processing system intrusion

23,989

(23,989)

-

-

-

509,799

(23,989)

(961)

(11,225)

473,624

Operating income

80,488

23,989

961

11,225

116,663

Other income (expense):

   Interest and other income

1,983

-

-

-

1,983

   Interest and other expense

(3,545)

-

-

-

(3,545)

(1,562)

-

-

-

(1,562)

Income before income taxes 

78,926

23,989

961

11,225

115,101

Provision for income taxes

(24,764)

(8,279)

(150)

(3,360)

(36,553)

Net income

54,162

15,710

811

7,865

78,548

Less: Net income attributable to noncontrolling interests, net of tax

(7,487)

-

(741)

(1,524)

(9,752)

Net income attributable to Global Payments

$           46,675

$           15,710

$                  70

$             6,341

$           68,796

Diluted shares

79,043

79,043

Diluted earnings per share

$               0.59

$               0.20

$               0.00

$               0.08

$               0.87

¹Represents one-time charges primarily related to employee termination benefits and resolution of a contract related contingency for the period ending August 31, 2013 and the prior year represents one-time charges primarily related to employee termination benefits and the net income attributable to our Asia-Pacific redeemable noncontrolling interest.

²Represents adjustments to cost of service to exclude acquisition intangible amortization expense from net income and the related income tax benefit.

We supplemented our reporting of income and the related earnings per share information determined in accordance with GAAP by reporting income and the related earnings per share for the three months ended August 31, 2013 and 2012 on a "cash earnings" basis in this earnings release as a measure to help evaluate performance. We calculated income and earnings per share on a cash basis by excluding costs related to the processing system intrusion, acquisition intangible amortization and one-time charges related to employee termination benefits and resolution of a contract related contingency. We exclude these charges in order to more clearly focus on the factors we believe are pertinent to the daily management of our operations. Our income and earnings per share reported on a cash earnings basis should be considered in addition to, and not as a substitute for, income and earnings per share determined in accordance with GAAP. Our measures of income and earnings per share on a cash earnings basis reflect management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.

SCHEDULE 7

RECONCILIATION OF CASH EARNINGS SEGMENT INFORMATION TO GAAP

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

 Three Months Ended August 31, 2013 

 GAAP 

Processing System Intrusion

Other¹

Cash
Earnings Adjustments²

 Cash Earnings 

Revenues:

United States

$      363,833

$                -

$                -

$                -

$      363,833

Canada

86,672

-

-

-

86,672

North America merchant services

450,505

-

-

-

450,505

Europe

143,188

-

-

-

143,188

Asia-Pacific

35,992

-

-

-

35,992

International merchant services

179,180

-

-

-

179,180

Total revenues

$      629,685

$                -

$                -

$                -

$      629,685

Operating income (loss) for segments:

North America merchant services

$        69,699

$                -

$          2,518

$          7,187

$        79,404

International merchant services

61,541

-

10

7,206

68,757

Corporate

(23,856)

-

(453)

-

(24,309)

Operating income

$      107,384

$                -

$          2,075

$        14,393

$      123,852

 Three Months Ended August 31, 2012 

 GAAP 

Processing System Intrusion

Other¹

Cash
Earnings Adjustments²

 Cash Earnings 

Revenues:

United States

$      345,898

$                -

$                -

$                -

$      345,898

Canada

80,897

-

-

-

80,897

North America merchant services

426,795

-

-

-

426,795

Europe

128,465

-

-

-

128,465

Asia-Pacific

35,027

-

-

-

35,027

International merchant services

163,492

-

-

-

163,492

Total revenues

$      590,287

$                -

$                -

$                -

$      590,287

Operating income (loss) for segments:

North America merchant services

$        67,217

$                -

$             905

$          3,321

$        71,443

International merchant services

57,140

-

-

7,904

65,044

Corporate

(43,869)

23,989

56

-

(19,824)

Operating income

$        80,488

$        23,989

$             961

$        11,225

$      116,663

¹Represents one-time charges primarily related to employee termination benefits and resolution of a contract related contingency for the period ending August 31, 2013 and the prior year represents one-time charges primarily related to employee termination benefits and the net income attributable to our Asia-Pacific redeemable noncontrolling interest.

² Represents acquisition intangible amortization expense.