Global Payments Inc. Reports Operating Results (10-K/A)
Global Payments Inc has a market cap of $3.47 billion; its shares were traded at around $42.39 with a P/E ratio of 12.4 and P/S ratio of 1.6. The dividend yield of Global Payments Inc stocks is 0.2%. Global Payments Inc had an annual average earning growth of 13% over the past 10 years. GuruFocus rated Global Payments Inc the business predictability rank of 5-star.
Highlight of Business Operations:As an illustration, on a $100.00 credit card transaction, the card issuer may fund the Member $98.50 after retaining approximately $1.50 referred to as an interchange fee or interchange expense. The card issuer seeks reimbursement of $100.00 from the cardholder in the cardholder's monthly credit card bill. The Member would, in turn, pay the merchant $100.00. The net settlement after this transaction would require Global Payments to advance the Member $1.50. After the end of the month, we would bill the merchant a percentage of the transaction, or discount, to cover the full amount of the interchange fee and our net revenue from the transaction. If our net revenue from the merchant in the above example was 0.5%, we would bill the merchant $2.00 at the end of the month for the transaction, reimburse ourselves for approximately $1.50 in interchange fees and retain $0.50 as our revenue for the transaction. Our profit on the transaction reflects the revenue less operating expenses, including the network and systems cost to process the transaction (including assessments) and commissions paid to our sales force or ISO. Assessments are fees charged by Visa and MasterCard based on the dollar value of transactions processed through their networks.
Consolidated operating income was $307.3 million for fiscal 2012, compared to $331.6 million for fiscal 2011. Consolidated operating income for fiscal 2012 includes processing system intrusion costs of $84.4 million. Net income attributable to Global Payments decreased $21.0 million, or 10%, to $188.2 million in fiscal 2012 from $209.2 million in the prior year, resulting in a $0.23 decrease in diluted earnings per share to $2.37 in fiscal 2012 from $2.60 in fiscal 2011.
North America merchant services segment revenue increased $204.4 million or 15% to $1,567.3 million in fiscal 2012 from $1,362.9 million in fiscal 2011. North America merchant services segment operating income increased to $281.3 million in fiscal 2012 from $268.2 million in fiscal 2011, with operating margins of 17.9% and 19.7% for fiscal 2012 and 2011, respectively.
International merchant services segment revenue increased $139.7 million or 28% to $636.6 million in fiscal 2012 from $496.9 million in fiscal 2011. International merchant services operating income also increased to$196.1 million in fiscal 2012 from $143.9 million in fiscal 2011, with operating margins of 30.8% and 29.0% for fiscal 2012 and 2011, respectively.
or fraud. Estimated incurred losses are calculated at the merchant level based on chargebacks received to date, processed volume, and historical chargeback ratios. The estimate is reduced for any collateral that we hold. Accruals for estimated incurred losses are evaluated periodically and adjusted as appropriate based on actual loss experience. The projection of future losses component is based on an assumed percentage of our direct merchant credit card and signature debit card sales volumes processed, or processed volume. For the years ended May 31, 2012, 2011, and 2010, our processed volume was $180.7 billion, $167.3 billion, and $146.6 billion, respectively. For these same periods, we recorded provisions for merchant losses of $8.8 million, $6.0 million, and $9.6 million, respectively. As a percentage of processed volume, these charges were 0.0049%, 0.0036%, and 0.0065%, respectively, during the above periods. For these same years, we experienced actual losses of $9.7 million, $8.7 million, and $7.3 million, respectively. We believe that our estimation process has been materially accurate on a historical basis. A 10% increase or decrease in our provision for merchant losses as a percentage of processed volume for the year ended May 31, 2012 would have resulted in a decrease or increase in net income of $0.6 million. Further, if our provision for merchant losses as a percentage of processed volume for our fiscal 2012 had equaled our provision for merchant losses as a percentage of processed volume of 0.0036% for the same prior year period, our net income would have increased by $1.7 million. As of May 31, 2012 and 2011, $2.3 million and $3.1 million, respectively, have been recorded for guarantees associated with merchant card processing and are included in settlement processing obligations in the accompanying consolidated balance sheets.
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