Heartland Payment Systems (NYSE: HPY) today announced that it has repurchased a merchant portfolio consisting of approximately 2,400 accounts from Certegy, Inc. The purchase price for the portfolio was $3.0 million.
This portfolio was originally transferred by Heartland to Certegy in November 2000, and Heartland retained the responsibility for servicing the transferred accounts.
The original transaction was recorded on the Company's financial statements as a financing arrangement. The buyback of this portfolio and corresponding extinguishment of the associated unamortized liability will generate a $5.1 million one-time pre-tax gain during the third quarter. There will be no material impact to the Company's revenues or operating income as a result of the transaction.
Robert H.B. Baldwin, Jr., Heartland's Chief Financial Officer, commented, "We believe the Certegy buyback strengthens our balance sheet going forward, eliminating approximately $8.1 million of liabilities and increasing our equity base by approximately $3.0 million. However, outside of the reduction in the imputed interest expense associated with this financing arrangement, ongoing operations will not be affected by this transaction as we continued to recognize the economics of this portfolio while it was being serviced by us."
In addition, Heartland announced that it will record a one-time charge of $2.6 million in its fiscal third quarter ending September 30, 2005 as a result of an increase in the fair value of outstanding warrants issued in conjunction with a July 2001 loan from BHC Interim Funding L.P. These warrants were marked to their fair value when the Company's initial public offering closed on August 16, 2005. The warrants were converted to equity upon the closing of the IPO.