<PAGE>
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 Quarterly Period Ended November 30, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-16111
---------
Global Payments Inc.
--------------------
(Exact name of registrant as specified in charter)
Georgia 58-2567903
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Four Corporate Square, Atlanta, Georgia 30329-2010
---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 404-728-2363
------------
NONE
-------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last year)
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 past 90 days. Yes [ ] No [x].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, No Par Value - 1,000 shares
--------------------------------------------------
Outstanding as of December 31, 2000
-------------------------------------
<PAGE>
UNAUDITED COMBINED STATEMENTS OF INCOME
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.--Note 1)
<TABLE>
<CAPTION>
Three Months
Ended
November 30,
----------------
2000 1999
------- -------
(In thousands,
except per
share data)
<S> <C> <C>
Revenues...................................................... $82,631 $84,174
------- -------
Operating expenses:
Cost of service.............................................. 43,250 45,891
Sales, general and administrative............................ 23,409 23,008
------- -------
66,659 68,899
------- -------
Operating income.............................................. 15,972 15,275
------- -------
Other income (expense):
Interest and other income.................................... 530 361
Interest and other expense................................... (1,599) (1,657)
Minority interest in earnings................................ (1,233) (923)
------- -------
(2,302) (2,219)
------- -------
Income before income taxes.................................... 13,670 13,056
Provision for income taxes.................................... 5,263 5,033
------- -------
Net income................................................... $ 8,407 $ 8,023
======= =======
Basic weighted average shares outstanding..................... 26,311 26,701
------- -------
Basic earnings per share...................................... $ 0.32 $ 0.30
======= =======
</TABLE>
The accompanying notes are an integral part of these Unaudited Combined
Financial Statements.
2
<PAGE>
UNAUDITED COMBINED STATEMENTS OF INCOME
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.--Note 1)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
------------------
2000 1999
-------- --------
(In thousands,
except per share
data)
<S> <C> <C>
Revenues.................................................... $169,822 $174,002
-------- --------
Operating expenses:
Cost of service............................................ 89,131 91,913
Sales, general and administrative.......................... 48,137 46,275
-------- --------
137,268 138,188
-------- --------
Operating income............................................ 32,554 35,814
-------- --------
Other income (expense):
Interest and other income.................................. 1,230 644
Interest and other expense................................. (3,390) (3,179)
Minority interest in earnings.............................. (2,660) (1,994)
-------- --------
(4,820) (4,529)
-------- --------
Income before income taxes.................................. 27,734 31,285
Provision for income taxes.................................. 10,678 12,058
-------- --------
Net income................................................. $ 17,056 $ 19,227
======== ========
Basic weighted average shares outstanding................... 26,260 26,902
-------- --------
Basic earnings per share.................................... $ 0.65 $ 0.71
-------- --------
</TABLE>
The accompanying notes are an integral part of these Unaudited Combined
Financial Statements.
3
<PAGE>
COMBINED BALANCE SHEETS
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.--Note 1)
<TABLE>
<CAPTION>
November 30, May 31,
2000 2000
------------ --------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 4,974 $ 2,766
Accounts receivable, net of allowance for doubtful
accounts of $1,277 and $1,231, respectively........... 33,476 33,945
Claims receivable, net of allowance for losses of
$3,637 and $3,679, respectively....................... 301 284
Merchant processing receivable......................... 30,698 32,213
Income tax receivable.................................. -- 980
Inventory.............................................. 3,522 3,694
Prepaid expenses and other current assets.............. 7,698 6,343
-------- --------
Total current assets.................................. 80,669 80,225
-------- --------
Property and equipment, net............................. 24,443 28,665
Intangible assets, net.................................. 168,954 173,726
Investments............................................. 5,000 5,000
Other................................................... 866 330
-------- --------
Total Assets.......................................... $279,932 $287,946
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to NDC............................................. $ 60,241 $ 96,125
Merchant processing payable............................ 14,034 11,880
Obligations under capital leases....................... 2,789 2,900
Accounts payable and accrued liabilities............... 24,796 26,338
Deferred income taxes.................................. 498 410
-------- --------
Total current liabilities............................. 102,358 137,653
-------- --------
Obligations under capital leases........................ 2,976 4,332
Deferred income taxes................................... 6,569 5,403
Other long-term liabilities............................. 4,678 2,291
-------- --------
Total liabilities..................................... 116,581 149,679
-------- --------
Commitments and contingencies
Minority interest in equity of subsidiaries............. 18,980 18,472
Shareholders' equity:
NDC equity investment.................................. 145,499 120,160
Cumulative translation adjustment...................... (1,128) (365)
-------- --------
Total shareholders' equity............................ 144,371 119,795
-------- --------
Total Liabilities and Shareholders' Equity.............. $279,932 $287,946
======== ========
</TABLE>
The accompanying notes are an integral part of these Unaudited Combined
Financial Statements.
4
<PAGE>
UNAUDITED COMBINED STATEMENTS OF CASH FLOW
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.--Note 1)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 17,056 $ 19,227
Adjustments to reconcile net income to cash provided by
operating activities before changes in assets and
liabilities:
Depreciation and amortization........................... 4,875 5,276
Amortization of acquired intangibles and goodwill....... 5,054 4,953
Deferred income taxes................................... 1,254 --
Minority interest in earnings........................... 2,660 1,994
Provision for bad debts................................. 333 139
Other, net.............................................. 779 1,228
Changes in assets and liabilities which provided (used)
cash, net of the effects of acquisitions:
Accounts receivable, net................................ 78 (88)
Merchant processing working capital..................... 3,652 (6,347)
Inventory............................................... 172 (1,648)
Prepaid expenses and other assets....................... (1,891) (2,463)
Accounts payable and accrued liabilities................ (1,020) 9,382
Deferred income......................................... 551 (89)
Income taxes............................................ 980 5,340
-------- --------
Net cash provided by operating activities................. 34,533 36,904
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (4,599) (2,983)
Business acquisitions, net of acquired cash............... (2,651) --
Proceeds from divested businesses......................... 3,502 --
-------- --------
Net cash used in investing activities..................... (3,748) (2,983)
-------- --------
Cash flows from financing activities:
Net borrowings from (repayments to) NDC................... (35,884) 16,500
Net increase (decrease) in NDC equity investment.......... 10,926 (33,862)
Principal payments under capital lease arrangements and
other long-term debt..................................... (1,467) (7,787)
Distributions to minority interests....................... (2,152) (2,219)
-------- --------
Net cash used in financing activities..................... (28,577) (27,368)
-------- --------
Increase in cash and cash equivalents...................... 2,208 6,553
Cash and cash equivalents, beginning of period............. 2,766 1,356
-------- --------
Cash and cash equivalents, end of period................... $ 4,974 $ 7,909
======== ========
</TABLE>
The accompanying notes are an integral part of these Unaudited Combined
Financial Statements.
5
<PAGE>
NOTES TO UNAUDITED COMBINED
---------------------------
FINANCIAL STATEMENTS
--------------------
NOTE 1 - SPIN OFF AND BASIS OF PRESENTATION:
In December 1999, National Data Corporation announced its intent to spin-off the
NDC eCommerce business segment into a separate publicly traded company with its
own management and Board of Directors. This distribution is expected to occur on
January 31, 2001 (the "Distribution Date") and will be accomplished by
transferring the stock of the companies which comprise the NDC eCommerce
business segment to Global Payments Inc. ("Global Payments") and then
distributing all of the shares of common stock of Global Payments to NDC's
stockholders. NDC stockholders will receive 0.8 share of Global Payments stock
for each NDC share held as of the record date. After the distribution, Global
Payments and NDC will be two separate public companies. Global Payments was
incorporated on September 1, 2000 a wholly-owned subsidiary of NDC and will not
have any operations, assets or liabilities until immediately prior to the
distribution.
These unaudited interim combined financial statements include the accounts of
the subsidiaries of NDC that comprise its eCommerce business segment
(collectively referred to as "the Company"). The Company is an integrated
provider of high volume electronic transaction processing and value-added end-
to-end information services and systems to merchants, multinational
corporations, financial institutions, and government agencies. These services
are marketed to customers within the merchant services and the funds transfer
business through various sales channels. The Company's operations are provided
in the United States, Canada, and Europe.
The Company adopted Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosure About Segments of an Enterprise and Related Information."
Accordingly, the Company's chief operating decision making group currently
operates as one reportable segment--electronic transaction processing--therefore
the majority of the disclosures required by SFAS 131 do not apply to the
Company. The Company's results of operations and its financial condition are
not significantly reliant upon any single customer or foreign operations.
Revenues from external customers from the Company's two service offerings are as
follows (in thousands):
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
November 30, November 30,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------- -------- --------
Merchant services $77,752 $78,834 $159,828 $163,035
Funds transfer 4,879 5,340 9,994 10,967
---------------------------------------------------------
$82,631 $84,174 $169,822 $174,002
=========================================================
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures are adequate to make
the information presented not misleading. It is suggested that these financial
statements be read in conjunction with the combined
6
<PAGE>
financial statements and notes thereto included in the Company's latest
Registration Statement on Form 10 filed on December 28, 2000.
In the opinion of management, the information furnished reflects all adjustments
necessary to present fairly the financial position, results of operations, and
cash flows for such interim periods.
NOTE 3 - EARNINGS PER SHARE:
Basic earnings per share is computed by dividing reported earnings available to
common shareholders by weighted average shares outstanding during the period.
Earnings available to common shareholders is the same as reported net income for
all periods presented. Weighted average shares outstanding is computed by
applying the distribution ratio of 0.8 of a share of the Company for each NDC
share held to the historical NDC weighted average shares outstanding for the
same periods presented.
Diluted earnings per share is computed by dividing reported earnings available
to common shareholders by weighted average shares outstanding during the period
and the impact of securities that, if exercised, would have a dilutive effect on
earnings per share. All options with an exercise price less than the average
market share price for the period generally are assumed to have a dilutive
effect on earnings per share. Diluted earnings per share is not presented in
these financial statements, as there are no historical market share prices for
the Company, as public trading will not commence until the distribution occurs.
Accordingly, the dilutive effect of stock options cannot be determined.
NOTE 4 - COMPREHENSIVE INCOME (LOSS):
The components of comprehensive income for the six months ended November 30,
2000 and November 30, 1999 are as follows:
<TABLE>
<S> <C> <C>
(in thousands) 2000 1999
-------------------------------------------------------------------------------
Net income $17,056 $19,227
Foreign exchange effect (469) (23)
----------- -----------
Total comprehensive income $16,587 $19,204
=========== ===========
</TABLE>
NOTE 5 - TRANSACTIONS WITH NDC:
There were no material intercompany purchase or sales transactions between NDC
and the Company. The Company was charged with incremental corporate costs in the
amount of $1.1 million and $1.0 million in second quarter ended November 30,
2000 and 1999, respectively and $3.6 million and $2.1 million in six months
ended November 30, 2000 and 1999, respectively. These allocations were based on
an estimate of the proportion of corporate expenses related to the Company,
utilizing such factors as revenues, number of employees, number of transactions
processed and other applicable factors.
The Company was also charged corporate interest expense based on the anticipated
corporate debt allocations of NDC to the Company at the Distribution Date. The
Company utilized a rollback approach to allocate the anticipated portion of the
NDC consolidated group's debt and interest expense for all historical periods
presented. This treatment records the current proposed debt allocation
percentage for all historical periods presented. The allocated portion of the
consolidated group's debt is
7
<PAGE>
presented as due to NDC on the accompanying combined balance sheets. Interest
expense recorded by the Company related to this debt was $1.1 million in each of
the second quarter periods ended November 30, 2000 and 1999, and $2.1 million in
each of the six month periods ended November 30, 2000 and 1999, and is included
in interest and other expense.
NOTE 6 - SUBSEQUENT EVENT:
Upon the recommendation of the compensation committee, the board of directors at
its regularly scheduled meeting on December 19, 2000 approved non-qualified
stock options to acquire 120,000 shares of NDC common stock for Paul Garcia,
Chief Executive Officer of the Company. Such stock options are subject to the
normal five year vesting and ten year exercise periods.
8
<PAGE>
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 combined financial statements of the Company and related notes appearing
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 and pro forma combined financial statements included in the
Company's latest Registration Statement on Form 10 filed on December 28, 2000.
General
We are one of the largest independent electronic transaction processing
service providers in the world. We provide a wide range of end-to-end electronic
commerce solutions to merchants, corporations, financial institutions and
government agencies. We market our products and services through a variety of
distinct sales channels including a sizable, dedicated direct sales force,
independent sales organizations, independent sales representatives, an internal
telesales group, alliance bank relationships and financial institutions. We have
a high percentage of recurring revenues and process over 1.6 billion
transactions per year servicing more than 775,000 merchant locations.
Components of Income Statement
We derive our revenues from three primary sources: (i) charges based on
volumes and fees for merchant services; (ii) charges based on transaction
quantity; and (iii) equipment sales, leases and service fees. Revenues generated
by these areas depend upon a number of factors, such as demand for and price of
our services, the technological competitiveness of our product line, our
reputation for providing timely and reliable service, competition within our
industry, and general economic conditions.
Cost of service consists primarily of the cost of network
telecommunications capability, transaction processing systems, personnel to
develop and maintain applications and operate computer networks and to provide
customer support, and depreciation and occupancy costs associated with the
facilities performing these functions. Sales, general and administrative
expenses consist primarily of salaries, wages and related expenses paid to
sales, non-revenue producing customer support functions and administrative
employees and management, commissions to independent contractors, advertising
costs, other selling expenses, employee training costs and occupancy of leased
space directly related to these functions.
Other income and expense consists of minority interest in earnings expense,
interest expense and other miscellaneous items of income and expense.
Our earnings before interest, taxes, depreciation and amortization, or
EBITDA, is defined as operating income plus depreciation and amortization. This
statistic and its results as a percentage of revenue may not be comparable to
similarly titled measures reported by other companies. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and is not presented as a substitute for net income or cash flow from
operating, investing or financing activities determined in accordance with
generally accepted accounting principles. However, we believe this statistic is
a relevant measurement and provides a comparable cash earnings measure,
excluding the impact of the amortization of acquired intangibles and potential
timing differences associated with capital expenditures and the related
depreciation charges.
9
<PAGE>
Impact of Impending Acquisition
On November 9, 2000, we entered into an asset purchase agreement with CIBC
to purchase substantially all of the assets of their merchant acquiring
business. The assets comprise the business of accepting, processing and
settling credit and debit card transaction records for merchants. The revenues
for the business are generated by the merchant locations, which are marketed
through a combination of a direct sales force, referrals from CIBC's approximate
1,200 bank branch locations comprising CIBC's branch network and an independent
sales organization.
We believe the cash flows from operations of the acquisition on a stand-
alone basis will be sufficient to meet the needs of our operations, except for
short-term borrowing needs under the CIBC credit facility explained in greater
detail below. There are no other material capital commitments expected with
respect to this acquisition.
The acquisition is expected to be consummated after the distribution is
completed, subject to regulatory approvals and other customary closing
conditions. We intend to operate the business in a manner consistent with CIBC's
historical operations. The expectations in the section below labeled Forward-
Looking Results of Operations, assumes the acquisition is consummated on
February 15, 2001.
10
<PAGE>
Results of Operations
----------------------
Second Quarter Ended November 30, 2000 Compared to Second Quarter Ended
November 30, 1999
The following table provides comparisons of our results of operations for
the second quarter ended November 30, 2000 and 1999, respectively:
Three Months Ended November 30,
-------------------------------------------
2000 1999
--------------------- --------------------- 2000 vs.
% of % of 1999
Actual Revenue Actual Revenue Change
------------- ------- ------------- ------- --------
(in millions) (in millions)
Revenue.................. $82.6 $84.2 (2)%
Operating expenses:
Cost of service......... 43.2 52 % 45.9 55 % (6)%
Sales, general and
administrative......... 23.4 28 % 23.0 27 % 2 %
----- --- ----- --- ---
Operating income......... 16.0 19 % 15.3 18 % 5 %
Other income (expense)... (2.3) (3)% (2.2) (3)% (4)%
----- --- ----- --- ---
Earnings before income
taxes................... $13.7 16 % $13.1 15 % 5 %
===== === ===== === ===
Depreciation and
Amortization............ $ 4.9 6 % $ 5.5 7 % (10)%
EBITDA................... $20.9 25 % $20.8 25 % 1 %
Our revenue decrease of $1.6 million or 2% in the second quarter ended
November 30, 2000 was primarily due to business divestures. Revenue associated
with the businesses divested in the first six months of fiscal 2001 was $0.9
million and $2.5 million in the quarter ended November 30, 2000 and 1999,
respectively. We expect this decline to continue for the remainder of the year
primarily due to these divestures. Excluding this item, our normalized revenue
would be $81.7 million in both second quarter periods ended November 30, 2000
and 1999. This revenue reflects strong volume growth in merchant acquiring card
processing services offset by declines in other merchant services product
offerings and funds transfer offerings compared to the prior year's comparable
period.
Cost of service decreased $2.7 million the second quarter ended November
30, 2000 from the prior year's second quarter. As a percentage of revenue, cost
of service decreased to 52% in the second quarter ended November 30, 2000
compared to 55% in the prior year's second quarter. These decreases are
primarily due to the recent divestitures, which had higher cost of service
ratios.
Sales, general and administrative expenses increased $0.4 million or 2% in
the second quarter ended November 30, 2000 from the prior year's second quarter.
As a percentage of revenue, these expenses increased to 28% for the second
quarter ended November 30, 2000 compared to 27% in the prior year's second
quarter. These increases were primarily due to approximately $1.0 million of
costs associated with management and related corporate costs incurred in
anticipation of becoming a separate public entity.
11
<PAGE>
Operating income increased $0.7 million or 5% to $16.0 million in the
second quarter ended November 30, 2000 from $15.3 million in the prior year's
second quarter. As a percentage of revenue, our operating income margin
increased to 19% in the second quarter ended November 30, 2000 from 18% in the
prior year's second quarter. This improvement is due primarily to the factors
described above. Assuming the additional management and related corporate costs
incurred in anticipation of becoming a separate public entity were incurred in
the prior year's second quarter, operating income would have increased $1.7
million or 12% for the second quarter ended November 30, 2000.
Basic earnings per share increased $0.02 or 7% to $0.32 in the second
quarter ended November 30, 2000 from $0.30 in the prior year's second quarter.
This improvement is primarily due to the increase in operating income. The
following information provides an analysis of basic earnings per share that we
believe is a more meaningful illustration of the historical basic earnings per
share for comparability purposes:
<TABLE>
<CAPTION>
Three Months Ended
November 30, 2000 November 30, 1999
-------------------------- --------------------------
<S> <C> <C>
Reported basic earnings per share $ 0.32 $ 0.30
Interest expense associated with a higher average cost of
funds that will be incurred as a separate independent
public company (1) (0.01) (0.02)
Additional sales, general and administrative expenses
that will be incurred as a separate independent public
company (1) -- (0.01)
Impact of losses from divested businesses and other, net -- 0.02
------------------------------------------------------
Normalized basic earnings per share $ 0.31 $ 0.29
------------------------------------------------------
</TABLE>
(1) - Adjustment and pro forma methodology included in our latest Registration
Statement on Form 10 filed on December 28, 2000 for the year ended May 31,
2000 and the three months ended August 31, 2000.
12
<PAGE>
Six Months Ended November 30, 2000 Compared to Six Months Ended November 30,
1999
The following table provides comparisons of our results of operations for
the six months ended November 30, 2000 and 1999, respectively:
Six Months Ended November 30,
-------------------------------------------
2000 1999
--------------------- --------------------- 2000 vs.
% of % of 1999
Actual Revenue Actual Revenue Change
------------- ------- ------------- ------- --------
(in millions) (in millions)
Revenue.................. $169.8 $174.0 (2)%
Operating expenses:
Cost of service......... 89.1 53 % 91.9 53 % (3)%
Sales, general and
administrative......... 48.2 28 % 46.3 27 % 4 %
----- --- ----- --- ---
Operating income......... 32.5 19 % 35.8 20 % (9)%
Other income (expense)... (4.8) (3)% (4.5) (3)% (6)%
------ --- ----- --- ---
Earnings before income
taxes................... $ 27.7 16 % $ 31.3 18 % (11)%
====== === ===== === ===
Depreciation and
Amortization............ $ 9.9 6 % $ 11.1 6 % (10)%
EBITDA................... $ 42.5 25 % $ 46.9 27 % (9)%
Our revenue decrease of $4.2 million or 2% in the six months ended
November 30, 2000 was primarily due to business divestures ($2.5 million) and a
non-recurring product and service mix change ($2.9 million) in the six months
ended November 30, 1999. Revenue associated with the businesses divested in the
first six months of fiscal 2001 was $2.9 million and $5.4 million in the six
month periods ended November 30, 2000 and 1999, respectively. We expect this
decline to continue for the remainder of the year primarily due to these
divestures. Excluding these items, our normalized revenue would be $166.9
million and $165.7 million in the six month periods ended November 30, 2000 and
1999, respectively. This modest revenue increase reflects strong volume growth
in merchant acquiring card processing services offset by declines in other
merchant services product offerings and funds transfer offerings compared to the
prior year's comparable period.
Cost of service decreased $2.8 million the six months ended November 30,
2000 from the prior year's comparable period. As a percentage of revenue, cost
of service was consistent at 53% in the six months ended November 30, 2000 and
1999. This cost decrease was primarily due to the recent divestitures, which had
higher cost of service ratios.
Sales, general and administrative expenses increased $1.9 million or 4% in
the six months ended November 30, 2000 from the prior year's comparable period.
As a percentage of revenue, these expenses increased to 28% for the six months
ended November 30, 2000 compared to 27% in the prior year's comparable period.
These increases were primarily due to approximately $2.0 million of costs
associated with management and related corporate costs incurred in anticipation
of becoming a separate public entity.
13
<PAGE>
Operating income decreased $3.3 million or 9% to $32.5 million in the six
months ended November 30, 2000 from $35.8 million in the prior year's comparable
period. As a percentage of revenue, our operating income margin decreased to 19%
in the six months ended November 30, 2000 from 20% in the prior year's
comparable period. These decreases are due primarily to the factors described
above.
Basic earnings per share decreased $0.06 or 8% to $0.65 for the six month
period ended November 30, 2000 from $0.71 in the prior year's second quarter.
This decrease is primarily due to the change in operating income. The following
information provides an analysis of basic earnings per share that we believe is
a more meaningful illustration of the historical basic earnings per share for
comparability purposes:
<TABLE>
<CAPTION>
Six Months Ended
November 30, 2000 November 30, 1999
------------------ ---------------------
<S> <C> <C>
Reported basic earnings per share $ 0.65 $ 0.71
Interest expense associated with a higher average cost of funds
that will be incurred as a separate independent public company (1) (0.02) (0.01)
Additional sales, general and administrative expenses that will be
incurred as a separate independent public company (1) (0.01) (0.04)
Losses from divested businesses and other, net -- (0.03)
-------------------------------------------------
Normalized basic earnings per share $ 0.62 $ 0.63
-------------------------------------------------
</TABLE>
(1) - Adjustment and pro forma methodology included in the our latest
Registration Statement on Form 10 filed on December 28, 2000 for the year
ended May 31, 2000 and the three months ended August 31, 2000.
14
<PAGE>
Forward-Looking Results of Operations
Revenue
In the year ended May 31, 2000, we reported revenue of $340 million. This
revenue included $12.8 million associated with businesses divested in the first
six months of fiscal 2001 and other non-recurring items. Excluding these
revenues from the reported fiscal 2000 amounts, our normalized revenue would
have been $327 million. Pro forma revenue adjustments associated with the Global
Payments spin-off were not required with respect to fiscal 2000 amounts
reported. On the normalized revenue, we anticipate essentially the same revenue
performance for the year ended May 31, 2001, which is consistent with our actual
results to date, due to continued strong volume growth in merchant acquiring
card processing services offset by declines in certain other merchant services
product offerings and funds transfer offerings. Subject to the timing of the
CIBC acquisition discussed above, normalized revenue for the year ended May 31,
2001 may increase to $340 to $345 million. Accordingly, we anticipate revenue
growth of approximately 5% for the year ended May 31, 2001 over the normalized
revenue of $327 million for 2000. For fiscal 2002, provided the CIBC acquisition
is completed according to the timeline outlined herein, we expect low- to mid-
double digit percentage revenue growth compared to our fiscal 2001 expectation
of $340 to 345 million. The Company is continuing to evaluate its strategic
alternatives for its secondary businesses; accordingly, these revenue
expectations do not consider the impact of potential future divestitures.
Earnings Per Share
In the year ended May 31, 2000, we reported basic earnings per share of
$1.24. Any adjustments resulting from the losses on business divestitures were
offset by the increase from other non-recurring items in fiscal 2000, as noted
above, and have no impact on basic earnings per share. In the year ended May
31, 2000, our basic earnings per share excludes the impact of the pro forma
adjustments associated with management and related corporate costs incurred in
anticipation of becoming a separate public entity and additional interest
expense as a result of the new line of credit totaling $0.10 per basic share.
If these items were included in the reported fiscal 2000 amounts, our normalized
earnings per basic share would have been $1.14. We anticipate reporting basic
earnings per share for the year ended May 31, 2001 of $1.01 to $1.06. In fiscal
2002, we anticipate a modest increase in basic earnings per share compared to
the fiscal 2001 expectation of $1.01 to $1.06. However, the timing of the
integration of the CIBC acquisition and base business consolidation efforts
underway may have a favorable impact upon our fiscal 2002 basic earnings per
share expectation, excluding the cost impact of integration and consolidation
efforts.
Liquidity and Capital Resources
-------------------------------
Cash flow generated from operations provides us with a significant source
of liquidity to meet our needs. At November 30, 2000, we had cash and cash
equivalents totaling $5.0 million. Net cash provided by operating activities
decreased 6% to $34.5 million for the six months ended November 30, 2000 from
$36.9 million for the prior year's comparable period driven primarily by the
decrease in earnings. Net cash used in investing activities was $3.7 million for
the six months ended November 30, 2000 compared to $3.0 million in the prior
year's comparable period primarily due to capital expenditure investments in
infrastructure. Net cash used in financing activities increased 4% to $28.6
million for the six months ended November 30, 2000 from $27.4 million in the
prior year's comparable period.
15
<PAGE>
We believe that our current level of cash and borrowing capacity under our
committed line of credit described below, along with future cash flows from
operations, are sufficient to meet the needs of our existing operations and
planned requirements for the foreseeable future. We currently do not have any
material capital commitments (other than commitments under capital and operating
leases discussed in Note 14 of our audited combined financial statements
included in the Form 10) or planned expansions. Over the next two to three
years, we may develop our own hardware and software facilities for the
transaction processing, cash management, file transfer and related
communications functions in an effort to improve productivity and reduce cost of
services. If undertaken, this development would increase our capital
expenditures above historical levels over the next two to three years. In
addition, if we close the acquisition of CIBC's merchant acquiring business, we
will begin the planning and development process which will allow us to assume
the processing services CIBC will initially provide to the Canadian merchants
under a transition arrangement. This development effort will also increase our
capital expenditures above historical levels over the next two years. We
regularly evaluate cash requirements for current operations, commitments,
development activities and acquisitions. We may elect to raise additional funds
for these purposes, either through the issuance of debt or equity or otherwise,
as appropriate.
Credit Facilities
Our short-term and long-term liquidity needs depend upon our level of net
income, accounts receivable, accounts payable and accrued expenses. We have a
commitment for a $110 million revolving line of credit. It will fund the cash
due to NDC to reflect our share of NDC's pre-distribution debt used to establish
our initial capitalization. This line of credit will also be used to meet our
working capital and acquisition needs after the distribution. This line has a
variable interest rate based on market rates and customary origination-related
fees and expenses. The credit agreement will contain certain financial and non-
financial covenants customary for financings of this nature. The facility will
have a three year term.
With our agreement to acquire certain assets of the CIBC merchant acquiring
business, we have entered into related agreements to operate the business,
including a credit facility. Canadian merchant acquiring businesses typically
advance payment to merchants for credit card transactions before receiving the
interchange reimbursement from the card issuing banks. This business model
differs sharply from the U.S. where merchant funding only occurs after we
receive the funds from the card issuing banks. CIBC has agreed to provide us
with a revolving credit facility which will be available to us to fund the
approximate two day interval between our payment of Canadian merchants and our
receipt of the interchange fee.
The credit facility will provide us with a line of credit of up to C$140
million with an additional overdraft facility available to cover larger advances
during periods of peak usage of credit and debit cards, and will carry an
interest rate based on Canadian Dollar LIBOR (C$LIBOR). It contains customary
covenants and events of default. The line of credit will be secured by a first
priority security interest in our accounts receivable from VISA
Canada/International, and will be guaranteed by us and our subsidiaries. This
guarantee will be subordinated to our primary credit facility discussed above.
The CIBC credit facility will have an initial term of 364 days from the date of
the closing of the acquisition and it is renewable annually at CIBC's option.
16
<PAGE>
Forward-Looking Information
When used in this Quarterly Report on Form 10-Q, in documents incorporated
herein and elsewhere by management of Global Payments Inc. ("Global Payments" or
the "Company"), from time to time, the words "believes," "anticipates,"
"expects," "intends," "plans" and similar expressions and statements that are
necessarily dependent on future events are intended to identify forward-looking
statements concerning the Company's business operations, economic performance
and financial condition, including in particular, the Company's business
strategy and means to implement the strategy, the Company's objectives, the
amount of future capital expenditures, the likelihood of the Company's success
in developing and introducing new products and expanding its business, and the
timing of the introduction of new and modified products or services. For such
statements, the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 is applicable
and invoked. Such statements are based on a number of assumptions, estimates,
projections or plans that are inherently subject to significant risks,
uncertainties and contingencies that are subject to change. Actual revenues,
revenue growth and margins will be dependent upon all such factors and their
results subject to risks related to the implementation of changes by the
Company, the failure to implement changes, and customer acceptance of such
changes or lack of change. Actual results of events could differ materially from
those anticipated in the Company's forward-looking statements, as a result of a
variety of factors, including: (a) those set forth in Risk Factors in the
Company's Information Statement included in the Registration Statement on Form
10 which are incorporated herein by this reference; those set forth elsewhere
herein; (c) those set forth from time to time in the Company's press releases
and reports and other filings made with the Securities and Exchange Commission;
and (d) those set forth from time to time in the Company's analyst calls and
discussions. The Company cautions that such factors are not exclusive.
Consequently, all of the forward-looking statements made herein are qualified by
these cautionary statements and readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to update forward looking or other
statements or to publicly release the results of any revisions of such forward-
looking statements that may be made to reflect events or circumstances after the
date hereof, or thereof, as the case may be, or to reflect the occurrence of
unanticipated events.
17
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Part II
ITEM 1 - PENDING LEGAL PROCEEDINGS
----------------------------------
The Company is party to a number of claims and lawsuits incidental to its
business. In the opinion of management, the ultimate outcome of such matters,
in the aggregate, will not have a material adverse impact on the Company's
financial position, liquidity or results of operations.
ITEM 2 - CHANGES IN SECURITIES
-------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None
ITEM 5 - OTHER INFORMATION
--------------------------
Exhibit 99.1 - Unaudited Combined Statements of Income, is presented for
information purposes for fiscal year 2000.
ITEM 6 - EXHIBITS AND REPORTS FILED ON FORM 8-K
-----------------------------------------------
(a) Exhibits:
None
<PAGE>
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.
Global Payments Inc.
--------------------
(Registrant)
Date: January 3, 2001 By: /s/ James G. Kelly
--------------- --------------------------------------
James G. Kelly
Chief Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)
