GLOBAL PAYMENTS INC - FORM 8-K - EX-99.1

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8-K - 8-K - GLOBAL PAYMENTS INC	d416573d8k.htm

Exhibit 99.1

LOGO

Global Payments Reports First Quarter Earnings for Fiscal 2013

Obtains Commitments for New Financing

Reaffirms Fiscal 2013 Outlook

ATLANTA, September 27, 2012 — Global Payments Inc. (NYSE: GPN), a leading, worldwide provider of electronic transaction processing solutions, today announced results for its fiscal first quarter ended August 31, 2012.

First Quarter 2013 Summary

•

Revenue grew 9% to $590.3 million compared to $542.8 million in the first quarter of 2012.

•

Cash diluted earnings per share¹ were $0.87 compared to $0.88 in the first quarter of 2012.

•

GAAP diluted earnings per share were $0.59, compared to $0.79 in the first quarter of 2012, and included processing system intrusion charges of $0.20.

•

On a constant currency basis, revenue and cash diluted earnings per share grew 12% and 3%, respectively.

Chairman and CEO Paul R. Garcia said, “We are executing on our fiscal 2013 goals and initiatives while we make steady progress on the data intrusion remediation. We anticipate closing our two previously announced acquisitions, the remaining 44 percent ownership interest in our Asia-Pacific joint venture and the U.S. based Accelerated Payment Technologies business, in the second quarter. These transactions support our strategy of driving long-term growth and shareholder value.

“Also, in keeping with the company’s strategy to provide comprehensive payment options to our customers, we are pleased to announce the recent signing of an agreement with Discover Financial Services to offer PayPal acceptance to our extensive U.S. merchant base,” continued Mr. Garcia.

¹	See Schedule 2 for Cash Earnings and Schedules 6 and 7 for Reconciliations of Cash Earnings to GAAP.

Acquisition Closings and Funding

Global Payments anticipates closing the Accelerated Payment Technologies (APT) acquisition for $413 million in October. APT is an innovative provider of fully-integrated payment technology solutions for small to medium sized merchants. APT markets its products and services primarily through a network of 700 value-added resellers (VARs) covering over 30 different vertical markets. In addition, the company anticipates closing the previously announced acquisition of the remaining 44% ownership interest in the Asia-Pacific joint venture for $242 million during the second quarter.

In the coming days, the company expects to close a new five-year senior unsecured term loan facility of as much as $700 million, and an increase in its existing senior unsecured revolving credit facility of as much as $150 million. The company has received commitments from a syndicate of lenders and this new financing has been arranged by Bank of America Merrill Lynch, PNC Capital Markets and Regions Capital Markets.

David Mangum, Senior Executive Vice President, Chief Financial Officer, stated, “I am particularly pleased with our new financing arrangements which provide for capital flexibility to pursue our growth strategies. This will allow us to deploy substantial capital for further organic growth, future acquisitions and on-going share repurchases.”

Share Repurchase Update

Through September 26, 2012, the company repurchased 280,000 shares at an average price of $42.12 per share for a total of $11.8 million. Under the current $150 million share repurchase authorization, $138.2 million remains available.

2013 Outlook

The company’s full-year financial expectations have been updated to incorporate the anticipated closings of the two acquisitions and the new financing.

For the full-year of fiscal 2013, the company continues to expect annual revenue of $2,360 million to $2,400 million, or 7% to 9% growth over fiscal 2012. On a partial year basis, the company expects the APT transaction to add approximately 50 basis points of incremental cash operating margin to the total company for fiscal 2013. Annual expectations for fiscal 2013 diluted earnings per share on a cash basis remain unchanged at $3.59 to $3.66, or growth of 2% to 4% over fiscal 2012. On a constant currency basis, the company continues to expect revenue to grow 8% to 10% and diluted earnings per share on a cash basis to grow 4% to 6%.

Annual fiscal 2013 GAAP diluted earnings per share has been updated to include purchase price amortization related to the APT acquisition; we now anticipate the range for annual GAAP diluted earnings per share to be $2.99 to $3.06 (See Schedule 8 for more detail).

Both cash and GAAP diluted earnings per share expectations exclude the impact of any potential future share repurchases and the full-year impact of all remediation costs.

Conference Call

Global Payments will hold a conference call today, September 27, 2012 at 5:00 p.m. EDT to discuss financial results and business highlights. Callers may access the conference call via the investor relations page of the company’s website at www.globalpaymentsinc.com by clicking the “Webcast” button; or callers in North America may dial 1-888-895-3550 and callers outside North America may dial 1-706-758-8809. The pass code is “GPN.” A replay of the call may be accessed through the Global Payments’ website through October 10, 2012.

About Global Payments

Global Payments Inc. (NYSE:GPN) is a leading provider of electronic transaction processing services for merchants, Independent Sales Organizations (ISOs), financial institutions, government agencies and multi-national corporations located throughout the United States, Canada, Europe and the Asia-Pacific region. Global Payments, a Fortune 1000 company, offers a comprehensive line of processing solutions for credit and debit cards, business-to-business purchasing cards, gift cards, electronic check conversion and check guarantee, verification and recovery including electronic check services, as well as terminal management. Visit www.globalpaymentsinc.com for more information about the company and its services.

This announcement and comments made by Global Payments’ management during the conference call may contain certain forward-looking statements within the meaning of the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including revenue and earnings estimates and management’s expectations regarding future events and developments, are forward-looking statements and are subject to significant risks and uncertainties. Important factors that may cause actual events or results to differ materially from those anticipated by such forward-looking statements include the following: the effect on our results of operations of the remediation efforts resulting from the unauthorized access to our processing system announced in March 2012, and the impact on our results of operations; foreign currency risks which become increasingly relevant as we expand internationally, the effect of current domestic and worldwide economic conditions, including sovereign insolvency situations and a decline in the value of the U.S. dollar, and future performance and integration of acquisitions including APT, and other risks detailed in the company’s SEC filings, including the most recently filed Form Form 10-K, as applicable. The company undertakes no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.

Investor contact: investor.relations@globalpay.com

Media contact: media.relations@globalpay.com

Jane Elliott

770-829-8234

Kay Sharpton

770-829-8870

Amy Corn

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,
	2012			2011			% Change
	(unaudited)

Revenues	$	590,287		$	542,771			9	%

Operating expenses:
Cost of service		204,391			191,536			7	%
Sales, general and administrative		281,419			242,625			16	%
Processing system intrusion		23,989			—			NM

		509,799			434,161			17	%


Operating income		80,488			108,610			(26	%)

Other income (expense):
Interest and other income		1,983			2,501			(21	%)
Interest and other expense		(3,545	)		(4,087	)		(13	%)

		(1,562	)		(1,586	)		(2	%)


Income before income taxes		78,926			107,024			(26	%)
Provision for income taxes		(24,764	)		(34,943	)		(29	%)

Net income		54,162			72,081			(25	%)
Less: Net income attributable to noncontrolling interests, net of tax		(7,487	)		(8,107	)		(8	%)

Net income attributable to Global Payments	$	46,675		$	63,974			(27	%)


Earnings per share attributable to Global Payments:
Basic	$	0.59		$	0.80			(26	%)
Diluted	$	0.59		$	0.79			(25	%)

Weighted average shares outstanding:
Basic		78,604			80,076
Diluted		79,043			80,831

NM - Not Meaningful

SCHEDULE 2

CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)


	Three Months Ended August 31,
	2012			2011			% Change

Revenues	$	590,287		$	542,771			9	%

Operating expenses:
Cost of service		193,005			178,893			8	%
Sales, general and administrative		280,619			242,625			16	%

		473,624			421,518			12	%


Operating income		116,663			121,253			(4	%)

Other income (expense):
Interest and other income		1,983			2,501			(21	%)
Interest and other expense		(3,545	)		(4,087	)		(13	%)

		(1,562	)		(1,586	)		(2	%)


Income before income taxes		115,101			119,667			(4	%)
Provision for income taxes		(36,553	)		(38,682	)		(6	%)

Net income		78,548			80,985			(3	%)
Less: Net income attributable to noncontrolling interests, net of tax		(9,752	)		(10,172	)		(4	%)

Net income attributable to Global Payments	$	68,796		$	70,813			(3	%)


Basic earnings per share	$	0.88		$	0.88			0	%


Diluted earnings per share	$	0.87		$	0.88			(1	%)


Weighted average shares outstanding:
Basic		78,604			80,076
Diluted		79,043			80,831

NM - Not Meaningful

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

SCHEDULE 3

SEGMENT INFORMATION

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)


	Three Months Ended August 31,
	2012						2011						% Change
	GAAP			Cash Earnings			GAAP			Cash Earnings			GAAP			Cash Earnings

Revenues:
United States	$	345,898		$	345,898		$	287,425		$	287,425			20	%		20	%
Canada		80,897			80,897			91,221			91,221			(11	%)		(11	%)

North America merchant services		426,795			426,795			378,646			378,646			13	%		13	%

Europe		128,465			128,465			129,414			129,414			(1	%)		(1	%)
Asia-Pacific		35,027			35,027			34,711			34,711			1	%		1	%

International merchant services		163,492			163,492			164,125			164,125			(0	%)		(0	%)

Total revenues	$	590,287		$	590,287		$	542,771		$	542,771			9	%		9	%


Operating income:
North America merchant services	$	67,217		$	71,443		$	71,758		$	74,616			(6	%)		(4	%)
International merchant services		57,140			65,044			55,658			65,443			3	%		(1	%)
Corporate¹		(43,869	)		(19,824	)		(18,806	)		(18,806	)		(133	%)		(5	%)

Operating income	$	80,488		$	116,663		$	108,610		$	121,253			(26	%)		(4	%)

¹	August 31, 2012 GAAP amounts include processing system intrusion costs 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)


	August 31, 2012		May 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	841,331	$	781,275
Accounts receivable, net of allowances for doubtful accounts of $1,032 and $532, respectively		179,875		182,962
Claims receivable, net of allowance for losses of $3,784 and $3,435, respectively		1,082		1,029
Settlement processing assets		236,384		217,994
Inventory		12,839		9,864
Deferred income taxes		25,691		21,969
Prepaid expenses and other current assets		39,679		33,646

Total current assets		1,336,881		1,248,739


Goodwill		740,891		724,687
Other intangible assets, net of accumulated amortization of $251,829 and $235,296, respectively		284,625		290,188
Property and equipment, net of accumulated depreciation of $177,228 and $161,911, respectively		324,005		305,848
Deferred income taxes		96,558		97,235
Other		22,532		21,446


Total assets	$	2,805,492	$	2,688,143


LIABILITIES AND EQUITY
Current liabilities:
Lines of credit	$	209,254	$	215,391
Current portion of long-term debt		47,541		76,420
Accounts payable and accrued liabilities		300,270		316,313
Commitment to purchase redeemable noncontrolling interest		242,000		—
Settlement processing obligations		228,771		216,878
Income taxes payable		18,110		12,283

Total current liabilities		1,045,946		837,285


Long-term debt		285,464		236,565
Deferred income taxes		124,096		106,644
Other long-term liabilities		66,966		62,306

Total liabilities		1,522,472		1,242,800


Commitments and contingencies

Redeemable noncontrolling interest		—		144,422

Equity:
Preferred stock, no par value; 5,000,000 shares authorized and none issued		—		—
Common stock, no par value; 200,000,000 shares authorized; 78,819,988 and 78,551,297 issued and outstanding at August 31, 2012 and May 31, 2012, respectively.
Paid-in capital		258,084		358,728
Retained earnings		889,370		843,456
Accumulated other comprehensive income (loss)		1,498		(30,000	)

Total Global Payments shareholders’ equity		1,148,952		1,172,184

Noncontrolling interest		134,068		128,737

Total equity		1,283,020		1,300,921


Total liabilities and equity	$	2,805,492	$	2,688,143

SCHEDULE 5

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)


	Three Months Ended August 31,
	2012			2011

Cash flows from operating activities:
Net income	$	54,162		$	72,081
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of property and equipment		12,670			11,573
Amortization of acquired intangibles		11,225			12,643
Provision for operating losses and bad debts		6,012			6,812
Share-based compensation expense		4,222			3,978
Deferred income taxes		10,273			7,831
Other, net		(941	)		441
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable		3,087			(10,812	)
Claims receivable		(3,272	)		(4,591	)
Settlement processing assets and obligations, net		(7,839	)		(687,180	)
Inventory		(2,992	)		(2,861	)
Prepaid expenses and other assets		(8,513	)		2,153
Accounts payable and other accrued liabilities		(15,294	)		(27,589	)
Income taxes payable		5,827			9,643

Net cash provided by (used in) operating activities		68,627			(605,878	)


Cash flows from investing activities:
Business, intangible and other asset acquisitions, net of cash acquired		(190	)		—
Capital expenditures		(29,237	)		(12,151	)
Net decrease in financing receivables		740			583

Net cash used in investing activities		(28,687	)		(11,568	)


Cash flows from financing activities:
Net (payments) borrowings on short-term lines of credit		(6,137	)		40,327
Proceeds from issuance of long-term debt		50,000			71,029
Principal payments under long-term debt		(30,080	)		(44,295	)
Proceeds from stock issued under employee stock plans		4,375			(2,836	)
Common stock repurchased - share-based compensation plans		(6,348	)		—
Tax benefit from employee share-based compensation		1,733			1,420
Repurchase of common stock		(3,249	)		(73,222	)
Distribution to noncontrolling interests		(2,733	)		(2,471	)
Dividends paid		(1,578	)		(1,613	)

Net cash provided by (used in) financing activities		5,983			(11,661	)


Effect of exchange rate changes on cash		14,133			(1,226	)


Increase (decrease) in cash and cash equivalents		60,056			(630,333	)
Cash and cash equivalents, beginning of period		781,275			1,354,285

Cash and cash equivalents, end of period	$	841,331		$	723,952

SCHEDULE 6

RECONCILIATION OF QUARTERLY CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS TO GAAP

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)


	Three Months Ended August 31, 2012
	GAAP			Processing System Intrusion			Other²			Cash Earnings Adjustments¹			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		$	—		$	0.08		$	0.87


	Three Months Ended August 31, 2011
	GAAP									Cash Earnings Adjustments¹			Cash Earnings

Revenues	$	542,771								$	—		$	542,771

Operating expenses:
Cost of service		191,536									(12,643	)		178,893
Sales, general and administrative		242,625									—			242,625

		434,161									(12,643	)		421,518


Operating income		108,610									12,643			121,253

Other income (expense):
Interest and other income		2,501									—			2,501
Interest and other expense		(4,087	)								—			(4,087	)

		(1,586	)								—			(1,586	)


Income before income taxes		107,024									12,643			119,667
Provision for income taxes		(34,943	)								(3,739	)		(38,682	)

Net income		72,081									8,904			80,985
Less: Net income attributable to noncontrolling interests, net of tax		(8,107	)								(2,065	)		(10,172	)

Net income attributable to Global Payments	$	63,974								$	6,839		$	70,813


Diluted shares		80,831												80,831
Diluted earnings per share	$	0.79		$	—		$	—		$	0.09		$	0.88

¹	Represents adjustments to cost of service to exclude acquisition intangible amortization expense from continuing operations and the related income tax benefit.

²	Represents one-time charges primarily related to employee termination benefits and the August 2012 net income attributable to our Asia-Pacific redeemable noncontrolling interest.

We supplemented our reporting of net income and the related earnings per share information determined in accordance with GAAP by reporting net income and the related earnings per share for the three months ended August 31, 2012 and 2011 on a “cash earnings” basis in this earnings release as a measure to help evaluate performance. We calculated August 31,2012 net 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. We also adjusted the net income attributable to noncontrolling interests to include the August 2012 net income attributable to our Asia-Pacific redeemable noncontrolling interest. We calculated August 31, 2011 net income and earnings per share on a cash basis by excluding acquisition intangible amortization from our results. 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 net income and earnings per share reported on a cash earnings basis should be considered in addition to, and not as a substitute for, net income and earnings per share determined in accordance with GAAP. Our measures of net 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, 2012
	GAAP			Processing System Intrusion		Other²		Cash Earnings Adjustments¹		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:
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


	Three Months Ended August 31, 2011
	GAAP							Cash Earnings Adjustments¹		Cash Earnings

Revenues:
United States	$	287,425						$	—	$	287,425
Canada		91,221							—		91,221

North America merchant services		378,646							—		378,646

Europe		129,414							—		129,414
Asia-Pacific		34,711							—		34,711

International merchant services		164,125							—		164,125

Total revenues	$	542,771						$	—	$	542,771


Operating income:
North America merchant services	$	71,758						$	2,858	$	74,616
International merchant services		55,658							9,785		65,443
Corporate		(18,806	)						—		(18,806	)

Operating income	$	108,610						$	12,643	$	121,253

¹	Represents acquisition intangible amortization expense.

²	Represents one-time charges primarily related to employee termination benefits.

SCHEDULE 8

OUTLOOK SUMMARY

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In millions, except per share data)


	Fiscal 2012 Actual			Fiscal 2013 Outlook	% Change FY12

Revenue Outlook
Constant currency¹	$	2,204		$2,385 to $2,425	8% to 10%
Foreign currency impact²		NA		($25)

Total Revenues	$	2,204		$2,360 to $2,400	7% to 9%

EPS Outlook
Constant currency¹	$	3.53		$3.67 to $3.74	4% to 6%
Foreign currency impact²		NA		($0.08)

Cash EPS	$	3.53		$3.59 to $3.66	2% to 4%
Acquisition-related intangibles and non-recurring items ³		(0.48	)	($0.60)	25%
Processing system intrusion		(0.68	)	TBD*	NM

GAAP Diluted EPS	$	2.37		$2.99 to $3.06	26% to 29%

We supplement our fiscal 2013 outlook of total revenues and earnings per share information determined in accordance with GAAP by reporting revenues and earnings per share on a “constant currency” basis in this earnings release as a measure to help evaluate performance. We calculated revenues and earnings per share on a constant currency basis by converting our fiscal 2013 expected revenues and expenses at fiscal 2012 exchange rates. We exclude the impact of exchange rate fluctuations in order to more clearly focus on the factors we believe are pertinent to the daily management of our operations, and our management uses constant currency measures to evaluate the impact of operational business decisions. Our revenues and earnings per share reported on a constant currency basis should be considered in addition to, and not as a substitute for, revenues and earnings per share determined in accordance with GAAP. Our measures of revenues and earnings per share on a constant currency basis reflect management’s judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.

¹	Reflects current period and forecasted results on a pro forma basis as if foreign currency rates did not change from the comparable prior year period.

²	Reflects the impact of actual and forecasted changes in foreign currency rates from the comparable prior year period.

³	Fiscal 2013 reflects $0.56 of acquisition-related intangibles and $0.04 of non-recurring items. Acquisition-related intangibles accounted for $0.35 in fiscal 2012 and non-recurring items $0.13.

Not able to accurately estimate 2013 charges for processing system intrusion, remediation, true-ups, etc. We currently anticipate that such additional costs may be $55 to $65 million in fiscal 2013 and includes $24 million recorded in first quarter fiscal 2013. We anticipate that we may receive additional insurance recoveries of up to $28 million.

NA=Not Applicable

NM=Not Meaningful

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