TMCnet News

Global Payments Reports Fiscal 2015 Earnings
[July 28, 2015]

Global Payments Reports Fiscal 2015 Earnings


Global Payments Inc. (NYSE: GPN) today announced results for its fiscal fourth quarter and year ended May 31, 2015.

"We are delighted with our strong fourth quarter performance, representing the culmination of a terrific year of execution worldwide. Revenue growth, operating margin and cash earnings per share all exceeded our expectations for fiscal 2015," said Jeff Sloan, Chief Executive Officer. "We expect continued positive momentum in fiscal 2016. Strategically, we have completed the pivot toward direct distribution across our businesses. Financially, we remain committed to continuing our track record of accelerating growth globally. The successful execution of our strategies enables us to raise our expectations for adjusted net revenue growth, operating margin and cash earnings per share growth for the next three to five years."

Full-Year Fiscal 2015 Summary

  • Reported revenues grew 9% to $2.78 billion, compared to $2.55 billion in fiscal 2014.
  • Cash diluted earnings per share grew 18% to $4.85, compared to $4.12 in the prior fiscal year.
  • GAAP diluted earnings per share were $4.12, compared to $3.37 in the prior fiscal year.

Fourth Quarter Fiscal 2015 Summary

  • Reported revenues grew 5% to $706.5 million, compared to $674.0 million in the fourth quarter of fiscal 2014.
  • Cash diluted earnings per share grew 12% to $1.22, compared to $1.09 in the fourth quarter of fiscal 2014.
  • GAAP diluted earnings per share were $0.99, compared to $0.72 in the fourth quarter of fiscal 2014.

Fiscal 2016 Outlook

"We are pleased to introduce a new adjusted net revenue disclosure that better aligns our reporting with how we manage and measure our performance internally," stated Cameron Bready, Executive Vice President and Chief Financial Officer. "We are also modifying our reporting convention for cash earnings to exclude expenses associated with share-based compensation. Going forward, we intend to guide and report based on these metrics, which we believe will provide for improved comparability with our peers."

For fiscal 2016, the company expects annual adjusted net revenue of $2.06 billion to $2.10 billion, or 6% to 8% growth over fiscal 2015 adjusted net revenue. The company also expects annual diluted cash earnings per share of $5.60 to $5.78, representing growth of 11% to 15% over fiscal 2015. Annual fiscal 2016 GAAP revenue is expected to be $2.87 billion to $2.95 billion or 4% to 6% growth over fiscal 2015.

Capital Allocation

Global Payments' Board of Directors expanded its share repurchase authorization by an incremental $300 million, bringing its total current authorization to $403 million. Under the company's new authorization, Global Payments may repurchase shares in the open market or as otherwise may be determined by the company, subject to market conditions, business opportunities and other factors. The company has no obligation to repurchase shares under this program. This authorization has no expiration date and may be suspended or terminated at any time. Repurchased shares will be retired but will be available for future issuance.

Global Payments' Board of Directors approved a quarterly dividend of $0.02 per share payable August 28, 2015 to shareholders of record as of August 14, 2015.

Conference Call

Global Payments' management will host a conference call today, July 28, 2015 at 8:00 a.m. ET 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; or callers in North America may dial 877-674-6428 and callers outside North America may dial 970-315-0457. A replay of the call will be archived on the company's website within two hours of the live call.

Non-GAAP Financial Measures

Global Payments supplemented revenues, income and earnings per share information determined in accordance with GAAP by providing income and related earnings per share on a "cash earnings" basis and adjusted net revenue in this earnings release to assist with evaluating performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the company believes are pertinent to the daily management of our operations.

Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the schedules to this release.

About Global Payments

Global Payments Inc. (NYSE: GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our partnerships, technologies and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world.

Headquartered in Atlanta, Georgia with more than 4,300 employees worldwide, Global Payments is a Fortune 1000 Company with merchants and partners in 29 countries throughout North America, Europe, the Asia-Pacific region and Brazil. For more information about Global Payments, our Service. Driven. Commerce brand and our technologies, please visit www.globalpaymentsinc.com.

_________________________

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 our potential failure to safeguard our data; our ability to maintain Visa and MasterCard registration and financial institution sponsorship; our reliance on financial institutions to provide clearing services in connection with our settlement activities; our potential failure to comply with card network requirements; increased merchant, referral partner or ISO attrition; our ability to increase our share of existing markets and expand into new markets; political, economic and regulatory changes in the foreign countries in which we operate; system interruptions in service; increases in credit card network fees; future performance, integration and conversion of acquired operations; and other risk factors presented in our most recent Annual Report on Form 10-K and any subsequent SEC filings, which we advise you to review. We undertake no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.



SCHEDULE 1
GAAP CONSOLIDATED STATEMENTS OF INCOME
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
                       
 
Three Months Ended May 31, Year Ended May 31,
% %
2015 2014 Change 2015 2014 Change
 
Revenues $ 706,549 $ 673,977 4.8 % $ 2,773,718 $ 2,554,236 8.6 %
 
Operating expenses:
Cost of service 254,217 253,373 0.3 % 1,022,107 952,225 7.3 %
Selling, general and administrative 348,732 331,687 5.1 % 1,295,014 1,203,512 7.6 %
Processing system intrusion   -     -   NM   -     (7,000 ) NM
  602,949     585,060   3.1 %   2,317,121     2,148,737   7.8 %
 
Operating income   103,600     88,917   16.5 %   456,597     405,499   12.6 %
 
 
Interest and other income 1,315 2,093 (37.2 )% 4,949 13,663 (63.8 )%
Interest and other expense   (9,647 )   (9,451 ) 2.1 %   (44,436 )   (41,812 ) 6.3 %
  (8,332 )   (7,358 ) 13.2 %   (39,487 )   (28,149 ) 40.3 %
 
Income before income taxes 95,268 81,559 16.8 % 417,110 377,350 10.5 %
Provision for income taxes   (25,158 )   (23,293 ) 8.0 %   (107,995 )   (107,398 ) 0.6 %
Net income 70,110 58,266 20.3 % 309,115 269,952 14.5 %
Less: Net income attributable to noncontrolling interests, net of income tax   (4,785 )   (6,641 ) (27.9 )%   (31,075 )   (24,666 ) 26.0 %
Net income attributable to Global Payments $ 65,325   $ 51,625   26.5 % $ 278,040   $ 245,286   13.4 %
 
Earnings per share attributable to Global Payments:
Basic $ 0.99 $ 0.73 35.6 % $ 4.15 $ 3.40 22.1 %
Diluted $ 0.99 $ 0.72 37.5 % $ 4.12 $ 3.37 22.3 %
 
Weighted average shares outstanding:
Basic 65,744 70,707 67,036 72,119
Diluted 66,196 71,322 67,461 72,688
 
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 May 31, Year Ended May 31,    
% %
2015 2014 Change 2015 2014 Change
 
Revenues $ 706,549 $ 673,977 4.8 % $ 2,775,594 $ 2,554,236 8.7 %
 
Operating expenses:
Cost of service 235,814 234,856 0.4 % 949,520 889,576 6.7 %
Selling, general and administrative   339,047     317,085   6.9 %   1,286,398     1,184,066   8.6 %
  574,861     551,941   4.2 %   2,235,918     2,073,642   7.8 %
 
Operating income   131,688     122,036   7.9 %   539,676     480,594   12.3 %
 
 
Interest and other income 1,315 2,093 (37.2 )% 4,949 11,540 (57.1 )%
Interest and other expense   (13,243 )   (8,110 ) 63.3 %   (48,032 )   (32,327 ) 48.6 %
  (11,928 )   (6,017 ) 98.2 %   (43,083 )   (20,787 ) 107.3 %
 
Income before income taxes 119,760 116,019 3.2 % 496,593 459,807 8.0 %
Provision for income taxes   (32,935 )   (30,249 ) 8.9 %   (133,683 )   (130,181 ) 2.7 %
Net income 86,825 85,770 1.2 % 362,910 329,626 10.1 %
Less: Net income attributable to noncontrolling interests, net of income tax   (5,828 )   (8,075 ) (27.8 )%   (35,604 )   (30,295 ) 17.5 %
Net income attributable to Global Payments $ 80,997   $ 77,695   4.2 % $ 327,306   $ 299,331   9.3 %
 
Earnings per share attributable to Global Payments:
Basic $ 1.23 $ 1.10 11.8 % $ 4.88 $ 4.15 17.6 %
Diluted $ 1.22 $ 1.09 11.9 % $ 4.85 $ 4.12 17.7 %
 
Weighted average shares outstanding:
Basic 65,744 70,707 67,036 72,119
Diluted 66,196 71,322 67,461 72,688
 
See Schedules 6 & 7 for a reconciliation of cash earnings to GAAP.
 
SCHEDULE 3
SEGMENT INFORMATION
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
                       
Three Months Ended May 31,
2015 2014 % Change
Cash Cash Cash
GAAP Earnings GAAP Earnings GAAP Earnings
Revenues:
United States $ 433,030 $ 433,030 $ 407,153 $ 407,153 6.4 % 6.4 %
Canada   70,014     70,014     74,954     74,954   (6.6 )% (6.6 )%
North America merchant services   503,044     503,044     482,107     482,107   4.3 % 4.3 %
 
Europe 154,827 154,827 153,577 153,577 0.8 % 0.8 %
Asia-Pacific   48,678     48,678     38,293     38,293   27.1 % 27.1 %
International merchant services   203,505     203,505     191,870     191,870   6.1 % 6.1 %
Total revenues $ 706,549   $ 706,549   $ 673,977   $ 673,977   4.8 % 4.8 %
 
Operating income (loss) for segments:
North America merchant services $ 74,233 $ 85,500 $ 70,420 $ 82,722 5.4 % 3.4 %
International merchant services 64,764 76,748 58,094 66,402 11.5 % 15.6 %
Corporate   (35,397 )   (30,560 )   (39,597 )   (27,088 ) (10.6 )% 12.8 %
Operating income $ 103,600   $ 131,688   $ 88,917   $ 122,036   16.5 % 7.9 %
 
Year Ended May 31,
2015 2014 % Change
Cash Cash Cash
GAAP Earnings GAAP Earnings GAAP Earnings
Revenues:
United States $ 1,655,872 $ 1,655,872 $ 1,488,659 $ 1,488,659 11.2 % 11.2 %
Canada   313,018     313,018     320,333     320,333   (2.3 )% (2.3 )%
North America merchant services   1,968,890     1,968,890     1,808,992     1,808,992   8.8 % 8.8 %
 
Europe 615,966 617,842 587,463 587,463 4.9 % 5.2 %
Asia-Pacific   188,862     188,862     157,781     157,781   19.7 % 19.7 %
International merchant services   804,828     806,704     745,244     745,244   8.0 % 8.2 %
Total revenues $ 2,773,718   $ 2,775,594   $ 2,554,236   $ 2,554,236   8.6 % 8.7 %
 
Operating income (loss) for segments:
North America merchant services $ 293,139 $ 337,980 $ 272,251 $ 308,570 7.7 % 9.5 %
International merchant services 279,711 311,240 240,179 270,551 16.5 % 15.0 %
Corporate1   (116,253 )   (109,544 )   (106,931 )   (98,527 ) 8.7 % 11.2 %
Operating income $ 456,597   $ 539,676   $ 405,499   $ 480,594   12.6 % 12.3 %

1

 

GAAP operating income for the year ended May 31, 2014 includes a credit for insurance proceeds of $7.0 million related to the fiscal 2012 processing system intrusion.

 
See Schedule 8 for a reconciliation of cash earnings segment information to GAAP.
 
SCHEDULE 4    
CONSOLIDATED BALANCE SHEETS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except share data)
 
May 31, 2015 May 31, 2014
ASSETS
Current assets:
Cash and cash equivalents $ 650,739 $ 581,872
Accounts receivable, net of allowances for doubtful accounts of $468 and $401, respectively 202,390 214,574
Claims receivable, net 548 809
Settlement processing assets 2,394,822 780,917
Inventory 5,228 6,636
Deferred income taxes 11,664 12,963
Prepaid expenses and other current assets   36,904     45,673  
Total current assets 3,302,295 1,643,444
Goodwill 1,491,833 1,337,285
Other intangible assets, net 560,136 535,173
Property and equipment, net 374,143 369,753
Deferred income taxes 30,578 101,928
Other   34,563     31,067  
Total assets $ 5,793,548   $ 4,018,650  
 
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit $ 592,629 $ 440,128
Current portion of long-term debt 62,500 17,677

Accounts payable and accrued liabilities

312,647 290,106
Settlement processing obligations 2,033,900 451,317
Income taxes payable   14,228     12,390  
Total current liabilities 3,015,904 1,211,618
Long-term debt 1,680,000 1,376,002
Deferred income taxes 214,669 209,099
Other noncurrent liabilities   19,422     89,132  
Total liabilities   4,929,995     2,885,851  
Commitments and contingencies
Equity:
Preferred stock, no par value; 5,000,000 shares authorized and none issued - -
Common stock, no par value; 200,000,000 shares authorized; 65,278,838 issued and outstanding at May 31, 2015 and 68,845,643 issued and outstanding at May 31, 2014 - -
Paid-in capital 148,742 183,023
Retained earnings 795,226 815,980
Accumulated other comprehensive loss   (185,992 )   (1,776 )
Total Global Payments shareholders' equity 757,976 997,227
Noncontrolling interests   105,577     135,572  
Total equity   863,553     1,132,799  
Total liabilities and equity $ 5,793,548   $ 4,018,650  
SCHEDULE 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
 
    Year Ended May 31,
2015     2014
Cash flows from operating activities:
Net income $ 309,115 $ 269,952
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 64,918 60,124
Amortization of acquired intangibles 72,587 61,945
Share-based compensation expense 21,056 29,793
Provision for operating losses and bad debts 14,506 20,574
Deferred income taxes 81,079 (1,799 )
Other, net 3,073 (1,484 )

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

Accounts receivable 1,248 (18,539 )
Claims receivable (9,317 ) (11,569 )
Settlement processing assets and obligations, net (78,794 ) (241,431 )
Inventory 127 4,793
Prepaid expenses and other assets 14,616 18,995
Accounts payable and other liabilities (72,802 ) 9,224
Income taxes payable   3,289     (6,480 )
Net cash provided by operating activities   424,701     194,098  
 
Cash flows from investing activities:
Business, intangible and other asset acquisitions, net of cash acquired (359,187 ) (426,524 )
Capital expenditures (92,550 ) (81,411 )
Principal collections on financing receivables 219 2,658
Net proceeds from sales of investments and business   10,597     3,607  
Net cash used in investing activities   (440,921 )   (501,670 )
 
Cash flows from financing activities:
Net borrowings on short-term lines of credit 198,884 252,667
Proceeds from issuance of long-term debt 2,496,842 2,690,000
Principal repayments of long-term debt (2,148,907 ) (2,260,597 )
Payment of debt issuance costs - (5,961 )
Repurchase of common stock (372,387 ) (447,307 )
Proceeds from stock issued under share-based compensation plans 22,550 31,727
Common stock repurchased - share-based compensation plans (15,690 ) (5,681 )
Tax benefit from share-based compensation 5,176 6,475
Distributions to noncontrolling interests (39,753 ) (36,670 )
Dividends paid   (5,340 )   (5,757 )
Net cash provided by financing activities   141,375     218,896  
Effect of exchange rate changes on cash   (56,288 )   (9,922 )
Increase (decrease) in cash and cash equivalents 68,867 (98,598 )
Cash and cash equivalents, beginning of the period   581,872     680,470  
Cash and cash equivalents, end of the period $ 650,739   $ 581,872  
 
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 May 31, 2015
Cash Earnings Cash
GAAP  

Adjustments1

 

Other2

  Earnings
Revenues $ 706,549 $ - $ - $ 706,549
Operating expenses:
Cost of service 254,217 (18,403 ) - 235,814
Selling, general and administrative   348,732       -       (9,685 )     339,047  
  602,949       (18,403 )     (9,685 )     574,861  
 
Operating income   103,600       18,403       9,685       131,688  
 
Interest and other income 1,315 - - 1,315
Interest and other expense   (9,647 )     -       (3,596 )     (13,243 )
  (8,332 )     -       (3,596 )     (11,928 )
 
Income before income taxes 95,268 18,403 6,089 119,760
Provision for income taxes   (25,158 )     (5,681 )     (2,096 )     (32,935 )
Net income 70,110 12,722 3,993 86,825
Less: Net income attributable to noncontrolling interests, net of income tax   (4,785 )     (1,043 )     -       (5,828 )
Net income attributable to Global Payments $ 65,325     $ 11,679     $ 3,993     $ 80,997  
 
Diluted shares 66,196 66,196
Diluted earnings per share $ 0.99     $ 0.18     $ 0.06     $ 1.22  
 
Three Months Ended May 31, 2014
Cash Earnings Cash
GAAP  

Adjustments1

 

Other2

  Earnings
Revenues $ 673,977 $ - $ - $ 673,977
Operating expenses:
Cost of service 253,373 (18,392 ) (125 ) 234,856
Selling, general and administrative   331,687       -       (14,602 )     317,085  
  585,060       (18,392 )     (14,727 )     551,941  
 
Operating income   88,917       18,392       14,727       122,036  
 
Interest and other income 2,093 - - 2,093
Interest and other expense   (9,451 )     -       1,341       (8,110 )
  (7,358 )     -       1,341       (6,017 )
 
Income before income taxes 81,559 18,392 16,068 116,019
Provision for income taxes   (23,293 )     (5,719 )     (1,237 )     (30,249 )
Net income 58,266 12,673 14,831 85,770
 
Less: Net income attributable to noncontrolling interests, net of income tax   (6,641 )   (1,434 )   -     (8,075 )
Net income attributable to Global Payments $ 51,625     $ 11,239     $ 14,831     $ 77,695  
 
Diluted shares 71,322 71,322
Diluted earnings per share $ 0.72     $ 0.16     $ 0.21     $ 1.09  
1 Represents adjustments to exclude acquisition intangible amortization expense and the related income tax benefit.
 
2 For the three months ended May 31, 2015, the adjustments represent charges related to employee termination benefits, non-cash losses from the retirement of property and equipment, a transaction-related tax associated with our acquisition of Realex, reversal of previously recorded interest expense associated with a previously uncertain tax position and the related income tax effects of each. For the three months ended May 31, 2014, the adjustments represent acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, a charge associated with our retained interest in Brazil, an adjustment to the costs associated with the debt refinancing we completed in February 2014, non-cash losses from the retirement of property and equipment, charges related to employee termination benefits and the related income tax effects of each.
 
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 May 31, 2015 and 2014 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 making the adjustments described above. We exclude these items 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 ANNUAL CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
           
 
Year Ended May 31, 2015
Processing
System Cash Earnings

 

GAAP   Intrusion  

Adjustments2

 

Other3

 

Cash Earnings

Revenues $ 2,773,718 $ - $ - $ 1,876 $   2,775,594
Operating expenses:
Cost of service 1,022,107 - (72,587 ) - 949,520
Selling, general and administrative 1,295,014 - - (8,616 ) 1,286,398
Processing system intrusion   -       -       -       -         -  
  2,317,121       -       (72,587 )     (8,616 )       2,235,918  
 
Operating income   456,597       -       72,587       10,492         539,676  
 
Interest and other income 4,949 - - - 4,949
Interest and other expense   (44,436 )     -       -       (3,596 )       (48,032 )
  (39,487 )     -       -       (3,596 )       (43,083 )
 
Income before income taxes 417,110 - 72,587 6,896 496,593

Provision for income taxes

  (107,995 )     -       (23,149 )     (2,539 )       (133,683 )
Net income 309,115 - 49,438 4,357 362,910
Less: Net income attributable to noncontrolling interests, net of income tax   (31,075 )         (4,529 )     -         (35,604 )
Net income attributable to Global Payments $ 278,040     $ -     $ 44,909     $ 4,357     $   327,306  
 
Diluted shares 67,461 67,461
Diluted earnings per share $ 4.12     $ -     $ 0.67     $ 0.06     $   4.85  
 
Year Ended May 31, 2014
Processing
System Cash Earnings
GAAP  

Intrusion1

 

Adjustments2

 

Other3

  Cash Earnings
Revenues $ 2,554,236 $ - $ - $ - $ 2,554,236
Operating expenses:
Cost of service 952,225 - (61,945 ) (704 ) 889,576
Selling, general and administrative 1,203,512 - - (19,446 ) 1,184,066
Processing system intrusion   (7,000 )     7,000       -       -         -  
  2,148,737       7,000       (61,945 )     (20,150 )       2,073,642  
 
Operating income (loss)   405,499       (7,000 )     61,945       20,150         480,594  
 
Interest and other income 13,663 - - (2,123 ) 11,540
Interest and other expense   (41,812 )     -       -       9,485         (32,327 )
  (28,149 )     -       -       7,362         (20,787 )
 
Income (loss) before income taxes 377,350 (7,000 ) 61,945 27,512 459,807
(Provision for) benefit from income taxes   (107,398 )     2,393       (19,825 )     (5,351 )       (130,181 )
Net income (loss) 269,952 (4,607 ) 42,120 22,161 329,626
Less: Net income attributable to noncontrolling interests, net of income tax   (24,666 )     -       (5,629 )     -         (30,295 )
Net income (loss) attributable to Global Payments $ 245,286     $ (4,607 )   $ 36,491     $ 22,161     $   299,331  
 
Diluted shares 72,688 72,688
Diluted earnings (loss) per share $ 3.37     $ (0.06 )   $ 0.50     $ 0.30     $   4.12  
1 Represents insurance proceeds associated with the fiscal 2012 processing system intrusion and the related income tax provision.
 
2 Represents adjustments to exclude acquisition intangible amortization expense and the related income tax benefit.
 
3 For the year ended May 31, 2015, the revenue adjustment represents select U.K. customer payments related to a vendor outage and the expense adjustments represent charges related to employee termination benefits, non-cash losses from the retirement of property and equipment, a transaction-related tax associated with the acquisition of Realex, certain business tax assessments in the U.S. for prior periods, a gain on the sale of our Russia ATM business, reversal of previously recorded interest expense associated with a previously uncertain tax position and the related income tax effects of each. For the year ended May 31, 2014, the adjustments represent acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, a credit related to the sale of an interest in our Brazil business and a subsequent charge associated with our retained interest, costs associated with the debt refinancing we completed in February 2014, non-cash losses from the retirement of property and equipment, charges related to employee termination benefits, HSBC's share of dividends declared and the related income tax effects of each.
 
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 years ended May 31, 2015 and 2014 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 making the adjustments described above. We exclude these items 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 8
RECONCILIATION OF CASH EARNINGS SEGMENT INFORMATION TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
    Three Months Ended May 31,
2015     2014
  Processing         Processing      
System Cash Earnings System Cash Earnings
GAAP   Intrusion  

Adjustments2

 

Other3

  Cash Earnings GAAP   Intrusion  

Adjustments2

 

Other3

  Cash Earnings
Revenues:
United States $ 433,030 $ - $ - $ - $ 433,030 $ 407,153 $ - $ - $ - $ 407,153
Canada   70,014       -     -     -     70,014     74,954       -       -     -     74,954  
North America merchant services   503,044           -     -     503,044     482,107       -       -     -     482,107  
 
Europe 154,827 - - - 154,827 153,577 - - - 153,577
Asia-Pacific   48,678       -     -     -     48,678     38,293       -       -     -     38,293  
International merchant services   203,505       -     -     -     203,505     191,870       -       -     -     191,870  
Total revenues $ 706,549     $ -   $ -   $ -   $ 706,549   $ 673,977     $ -     $ -   $ -   $ 673,977  
 
Operating income (loss) for segments:
North America merchant services $ 74,233 $ - $ 10,967 $ 300 $ 85,500 $ 70,420 $ - $ 10,874 $ 1,428 $ 82,722
International merchant services 64,764 - 7,436 4,548 76,748 58,094 - 7,518 790 66,402
Corporate   (35,397 )     -     -     4,837     (30,560 )   (39,597 )     -       -     12,509     (27,088 )
Operating income $ 103,600     $ -   $ 18,403   $ 9,685   $ 131,688   $ 88,917     $ -     $ 18,392   $ 14,727   $ 122,036  
 
Year Ended May 31,
2015 2014
Processing Processing
System Cash Earnings Cash System Cash Earnings
GAAP   Intrusion  

Adjustments2

 

Other3

  Earnings GAAP  

Intrusion1

 

Adjustments2

 

Other3

  Cash Earnings
Revenues:
United States $ 1,655,872 $ - $ - $ - $ 1,655,872 $ 1,488,659 $ - $ - $ - $ 1,488,659
Canada   313,018       -     -     -     313,018     320,333       -       -     -     320,333  
North America merchant services   1,968,890       -     -     -     1,968,890     1,808,992       -       -     -     1,808,992  
 
Europe 615,966 - - 1,876 617,842 587,463 - - - 587,463
Asia-Pacific   188,862       -     -     -     188,862     157,781       -       -     -     157,781  
International merchant services   804,828       -     -     1,876     806,704     745,244       -       -     -     745,244  
Total revenues $ 2,773,718     $ -   $ -   $ 1,876   $ 2,775,594   $ 2,554,236     $ -     $ -   $ -   $ 2,554,236  
 
Operating income (loss) for segments:
North America merchant services $ 293,139 $ - $ 44,541 $ 300 $ 337,980 $ 272,251 $ - $ 32,374 $ 3,945 $ 308,570
International merchant services 279,711 - 28,046 3,483 311,240 240,179 - 29,571 801 270,551
Corporate   (116,253 )     -     -     6,709     (109,544 )   (106,931 )     (7,000 )     -     15,404     (98,527 )
Operating income (loss) $ 456,597     $ -   $ 72,587   $ 10,492   $ 539,676   $ 405,499     $ (7,000 )   $ 61,945   $ 20,150   $ 480,594  
1 Represents insurance proceeds associated with the fiscal 2012 processing system intrusion.
 
2 Represents adjustments to exclude acquisition intangible amortization expense and the related income tax benefit.
 
3 For the three months ended May 31, 2015, the adjustments represent charges related to employee termination benefits, non-cash losses from the retirement of property and equipment and a transaction-related tax associated with our acquisition of Realex. For the three months ended May 31, 2014 the adjustments represent acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, non-cash losses from the retirement of property and equipment, and charges related to employee termination benefits and certain contract settlement and related costs. The adjustments for the year ended May 31, 2015, include the revenue and acquisition-related tax adjustments described for the three-month period, charges related to employee termination benefits, non-cash losses from the retirement of property and equipment and a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia. For the year ended May 31, 2014, the adjustments represent acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, non-cash losses from the retirement of property and equipment, and charges related to employee termination benefits and resolution of a contract related contingency.
 
We supplemented our reporting of operating income information determined in accordance with GAAP by reporting operating income for the three months and the years ended May 31, 2015 and 2014 on a "cash earnings" basis in this earnings release as a measure to help evaluate performance. We calculated operating income on a cash basis by making the adjustments described above. We exclude these items in order to more clearly focus on the factors we believe are pertinent to the daily management of our operations. Our operating income reported on a cash earnings basis should be considered in addition to, and not as a substitute for, operating income determined in accordance with GAAP. Our measure of operating income on a cash earnings basis reflects management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.
SCHEDULE 9
OUTLOOK SUMMARY
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In billions, except per share data)
           
Fiscal 2015 Fiscal 2016
Actual   Outlook   % Change
 

Revenues:

GAAP Revenues $ 2.77 $2.87 to $2.95 4% to 6%
Adjustments1 (0.82) (0.83)  
Adjusted Net Revenue $ 1.95 $2.06 to $2.10 6% to 8%
 

Earnings Per Share:

GAAP Diluted EPS $ 4.12 $4.53 to $4.71 10% to 14%
Acquisition-related intangibles assets, share-based compensation expense and non-recurring items2 0.92 1.07 16%

Cash EPS

$ 5.04 $5.60 to $5.78 11% to 15%
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the Company and, in fiscal 2015, a revenue adjustment for select U.K. customer payments related to a vendor outage.
 
2 Fiscal 2015 reflects acquisition intangible amortization of $0.67, share-based compensation expense of $0.19 and non-recurring items of $0.06, including a revenue adjustment for select U.K. customer payments related to a vendor outage and expense adjustments for charges related to employee termination benefits, non-cash losses from the retirement of property and equipment, a transaction-related tax associated with the acquisition of Realex, certain business tax assessments in the U.S. for prior periods, a gain on the sale of our Russia ATM business, reversal of previously recorded interest expense associated with a previously uncertain tax position and the related income tax effects of each.
 

NON-GAAP FINANCIAL MEASURES

 
Global Payments supplemented revenues, income and earnings per share information determined in accordance with GAAP by providing income and related earnings per share on a "cash earnings" basis and Adjusted Net Revenue in this earnings release to assist with evaluating performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors we believe are pertinent to the daily management of our operations. Management believes Adjusted Net Revenue more closely reflects the economic benefits to the Company's core business and allows for better comparisons with industry peers. Management uses these non-GAAP metrics, together with other metrics, to set goals for and measure the performance of its business and to determine incentive compensation. Our Adjusted Net Revenue and income and earnings per share reported on a cash earnings basis should be considered in addition to, and not as a substitute for, revenues, income and earnings per share determined in accordance with GAAP. Our measures of Adjusted Net Revenue, 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.
 
Adjusted Net Revenue excludes gross-up related payments associated with certain wholesale lines of business to reflect economic benefits to the Company. On a GAAP basis, these payments are presented gross in both revenues and operating expenses.
 
In fiscal 2015, income and the related earnings per share on a cash earnings basis exclude the amortization expense of acquired intangibles and certain other items specific to each reporting period as more fully described in the accompanying reconciliations. Beginning in fiscal 2016, we modified our cash earnings measures to also exclude share-based compensation. The accompanying reconciliations in Schedule 6, Schedule 7 and Schedule 8 show the cash earnings measures calculated without the impact of excluding share-based compensation. The reconciliations in this Schedule 9 and in the accompanying Schedule 10 and Schedule 11 show Adjusted Net Revenue and the modified cash earnings measures which exclude share-based compensation. We expect to discuss financial results using Adjusted Net Revenue and the modified cash earnings convention in future periods. The tax rate used in determining the net income impact of cash earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment.
 
SCHEDULE 10
RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS SEGMENT INFORMATION TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
           
For the Year Ended May 31, 2015
Adjusted Net
Net Revenue Cash Earnings Revenue and
GAAP

Adjustment1

Adjustments2

Other3

Cash Earnings
Revenues:
United States $ 1,655,872 $ (740,556 ) $ - $ - $ 915,316
Canada   313,018       -       -       -       313,018  
North America merchant services   1,968,890       (740,556 )     -       -       1,228,334  
 
Europe 615,966 (82,146 ) - 1,876 535,696
Asia-Pacific   188,862       -       -       -       188,862  
International merchant services   804,828       (82,146 )     -       1,876       724,558  

Total revenues

$ 2,773,718     $ (822,702 )   $ -     $ 1,876     $ 1,952,892  
 
Operating income (loss) for segments:
North America merchant services $ 293,139 $ - $ 44,541 $ 300 $ 337,980
International merchant services 279,711 - 28,046 3,483 311,240
Corporate   (116,253 )     -       20,331       6,709       (89,213 )
Operating income   456,597       -       92,918       10,492       560,007  
 
Interest and other income 4,949 - - - 4,949
Interest and other expense   (44,436 )     -       -       (3,596 )     (48,032 )
  (39,487 )     -       -       (3,596 )     (43,083 )
 
Income before income taxes 417,110 - 92,918 6,896 516,924
Provision for income taxes   (107,995 )     -       (30,729 )     (2,539 )     (141,263 )
Net income 309,115 - 62,189 4,357 375,661
Less: Net income attributable to noncontrolling interests, net of income tax   (31,075 )     -       (4,529 )     -       (35,604 )
Net income attributable to Global Payments $ 278,040     $ -     $ 57,660     $ 4,357     $ 340,057  
 
Diluted shares 67,461 67,461
Diluted earnings per share $ 4.12     $ -     $ 0.86     $ 0.06     $ 5.04  
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the Company.
 
2 Represents adjustments to exclude acquisition intangible amortization expense, stock compensation expense and the related income tax benefits of each.
 
3 For the year ended May 31, 2015, the revenue adjustment represents select U.K. customer payments related to a vendor outage and the expense adjustments represent charges related to employee termination benefits, non-cash losses from the retirement of property and equipment, a transaction-related tax associated with the acquisition of Realex, certain business tax assessments in the U.S. for prior periods, a gain on the sale of our Russia ATM business, reversal of previously recorded interest expense associated with a previously uncertain tax position and the related income tax effects of each.
 
See "Non-GAAP Financial Measures" discussion on Schedule 9.
 
SCHEDULE 11
RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS SEGMENT INFORMATION TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
                     
Three Months Ended  
August 31, 2014   November 30, 2014
Adjusted Net Adjusted Net
Net Revenue Cash Earnings Revenue and Net Revenue Cash Earnings Revenue and
GAAP  

Adjustment1

 

Adjustments2

 

Other3

    Cash Earnings   GAAP  

Adjustment1

 

Adjustments2

  Other   Cash Earnings
Revenues:
United States $ 414,042 $ (188,731 ) $ - $ - $ 225,311 $ 404,784 $ (183,217 ) $ - $ - $ 221,567
Canada   89,965       -       -       -       89,965       83,992       -       -       -       83,992  
North America merchant services   504,007       (188,731 )     -       -       315,276       488,776       (183,217 )     -       -       305,559  
 
Europe 162,787 (20,952 ) - - 141,835 159,974 (20,409 ) - - 139,565
Asia-Pacific   38,101       -       -       -       38,101       48,541       -       -       -       48,541  
International merchant services   200,888       (20,952 )     -       -       179,936       208,515       (20,409 )     -       -       188,106  
Total revenues $ 704,895     $ (209,683 )   $ -     $ -     $ 495,212     $ 697,291     $ (203,626 )   $ -     $ -     $ 493,665  
 
Operating income (loss) for segments:
North America merchant services $ 77,937 $ - $ 11,378 $ - $ 89,315 $ 74,246 $ - $ 11,173 $ - $ 85,419
International merchant services 73,602 - 6,476 (2,941 ) 77,137 76,443 - 7,090 - 83,533
Corporate   (27,141 )     -       4,066       -       (23,075 )     (26,705 )     -       5,079       -       (21,626 )
Operating income (loss)   124,398       -       21,920       (2,941 )     143,377       123,984       -       23,342       -       147,326  
 
Interest and other income 1,192 - - - 1,192 1,282 - - - 1,282
Interest and other expense   (11,010 )     -       -       -       (11,010 )     (10,350 )     -       -       -       (10,350 )
  (9,818 )     -       -       -       (9,818 )     (9,068 )     -       -       -       (9,068 )
 
Income (loss) before income taxes 114,580 - 21,920 (2,941 ) 133,559 114,916 - 23,342 - 138,258
(Provision) benefit for income taxes   (30,146 )     -       (7,336 )     588       (36,894 )     (29,660 )     -       (7,688 )     -       (37,348 )
Net income (loss) 84,434 - 14,584 (2,353 ) 96,665 85,256 - 15,654 - 100,910
Less: Net income attributable to noncontrolling interests, net of income tax   (9,068 )     -       (1,235 )     -       (10,303 )     (10,475 )     -       (1,173 )     -       (11,648 )
Net income (loss) attributable to Global Payments $ 75,366     $ -     $ 13,349     $ (2,353 )   $ 86,362     $ 74,781     $ -     $ 14,481     $ -     $ 89,262  
 
Diluted shares 68,617 68,617 67,737 67,737
Diluted earnings (loss) per share $ 1.10     $ -     $ 0.19     $ (0.03 )   $ 1.26     $ 1.10     $ -     $ 0.21     $ -     $ 1.32  
 
Three Months Ended  
February 28, 2015   May 31, 2015
Adjusted Net Adjusted Net
Net Revenue Cash Earnings Revenue and Net Revenue Cash Earnings Revenue and
GAAP  

Adjustment1

 

Adjustments2

 

Other4

    Cash Earnings   GAAP  

Adjustment1

 

Adjustments2

 

Other5

  Cash Earnings
Revenues:
United States $ 404,016 $ (179,678 ) $ - $ - $ 224,338 $ 433,030 $ (188,930 ) $ - $ - $ 244,100
Canada   69,047       -       -       -       69,047       70,014       -       -       -       70,014  
North America merchant services   473,063       (179,678 )     -       -       293,385       503,044       (188,930 )     -       -       314,114  
 
Europe 138,378 (19,424 ) - 1,876 120,830 154,827 (21,361 ) - - 133,466
Asia-Pacific   53,542       -       -       -       53,542       48,678       -       -       -       48,678  
International merchant services   191,920       (19,424 )     -       1,876       174,372       203,505       (21,361 )     -       -       182,144  
Total revenues $ 664,983     $ (199,102 )   $ -     $ 1,876     $ 467,757     $ 706,549     $ (210,291 )   $ -     $ -     $ 496,258  
 
Operating income (loss) for segments:
North America merchant services $ 66,723 $ - $ 11,023 $ - $ 77,746 $ 74,233 $ - $ 10,967 $ 300 $ 85,500
International merchant services 64,902 - 7,044 1,876 73,822 64,764 - 7,436 4,548 76,748
Corporate   (27,010 )     -       5,682       1,872       (19,456 )     (35,397 )     -       5,504       4,837       (25,056 )
Operating income $ 104,615     $ -     $ 23,749     $ 3,748     $ 132,112     $ 103,600     $ -     $ 23,907     $ 9,685     $ 137,192  
 
Interest and other income $ 1,160 $ - $ - $

-

 

 

$ 1,160 $ 1,315 $ - $ - $ - $ 1,315
Interest and other expense   (13,429 )     -      

-

 

 

-

      (13,429 )     (9,647 )     -       -       (3,596 )     (13,243 )
  (12,269 )     -       -      

-

      (12,269 )     (8,332 )     -       -       (3,596 )     (11,928 )
 
Income before income taxes 92,346 - 23,749 3,748 119,843 95,268 - 23,907 6,089 125,264
Provision for income taxes   (23,031 )     -       (7,782 )     (1,031 )     (31,844 )     (25,158 )     -       (7,923 )     (2,096 )     (35,177 )
Net income 69,315 - 15,967 2,717 87,999 70,110 - 15,984 3,993 90,087
Less: Net income attributable to noncontrolling interests, net of income tax   (6,747 )     -       (1,078 )     -       (7,825 )     (4,785 )     -       (1,043 )     -       (5,828 )
Net income attributable to Global Payments $ 62,568     $ -     $ 14,889     $ 2,717     $ 80,174     $ 65,325     $ -     $ 14,941     $ 3,993     $ 84,259  
 
Diluted shares 67,306 67,306 66,196 66,196
Diluted earnings per share $ 0.93     $ -     $ 0.22     $ 0.04     $ 1.19     $ 0.99     $ -     $ 0.23     $ 0.06     $ 1.27  

1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the Company.

 
2 Represents adjustments to exclude acquisition intangible amortization expense, stock compensation expense and the related income tax benefits of each.
 
3 Represents a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia.
 
4 The revenue adjustment represents select U.K. customer payments related to a vendor outage and the expense adjustment represents certain business tax assessments in the U.S. for prior periods.
 
5 The adjustments represent charges related to employee termination benefits, non-cash losses from the retirement of property and equipment, a transaction-related tax associated with our acquisition of Realex, reversal of previously recorded interest expense associated with a previously uncertain tax position and the related income tax effects of each.
 
See "Non-GAAP Financial Measures" discussion on Schedule 9.


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