FISERV INC 10-Q Summary: Period Ended September 30, 2001
Business Context and Reporting Period
This is an unaudited quarterly report (Form 10-Q) for FISERV, INC., a leading independent provider of financial data processing systems and information management services. The report covers the three and nine-month periods ended September 30, 2001. All share and per-share data have been adjusted to reflect a 3-for-2 stock split effective August 31, 2001.
Key Financial Metrics
| Metric | 3 Months Ended Sep 30, 2001 | 9 Months Ended Sep 30, 2001 |
|---|---|---|
| Revenues | $467.2 million | $1,393.7 million |
| Operating Income | $89.2 million | $264.2 million |
| Net Income | $52.6 million | $155.4 million |
| Diluted EPS | $0.27 | $0.81 |
| Operating Margin | 19.1% | 19.0% |
| Cash from Operations (9mo) | $287.9 million | |
| Cash and Equivalents | $92.8 million (as of Sep 30, 2001) | |
| Long-Term Debt | $250.3 million | |
| Short-Term Borrowings | $129.5 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 15.0% in Q3 and 14.3% for the nine-month period compared to 2000. Growth was driven by new clients, cross-sales, price increases, and acquisitions, which accounted for approximately 50% of total revenue growth.
- Segment Performance:
- Financial Institution Outsourcing: Strong growth with revenues up to $393.6 million (Q3) and $1.13 billion (9mo). Operating income rose significantly to $83.6 million (Q3).
- Securities Processing: Revenues declined to $57.0 million (Q3) and $214.6 million (9mo) due to lower transaction volumes in weak retail financial markets. Operating income dropped to $7.5 million (Q3).
- Profitability: Net income increased 17.6% in Q3 and 16.9% for the nine-month period. The effective tax rate was 40% in 2001 compared to 41% in 2000.
- Restructuring: The company recorded $12.3 million in pre-tax restructuring charges in Q2 2001 related to consolidating securities processing operations. Remaining accruals were $10.0 million as of September 30, 2001.
- Acquisitions: Seven acquisitions were completed in the first nine months of 2001 for approximately $141.2 million in cash plus stock.
Guidance, Outlook, and Risks
- Outlook: Management expects the effective income tax rate to remain at 40% for the remainder of the year. The company believes cash flow from operations and available credit facilities ($547.0 million aggregate revolving credit) are adequate to meet funding requirements.
- Capital Allocation: Significant cash flow is being used for acquisitions and capital expenditures, with the remainder used to reduce long-term debt. Future significant acquisitions may require additional borrowings or securities issuances.
- Accounting Changes: The company adopted SFAS No. 133 (Derivatives) in 2001. It plans to adopt SFAS No. 142 (Goodwill and Intangible Assets) on January 1, 2002, which will stop the amortization of goodwill and require annual impairment testing instead.
- Risks: Forward-looking statements are subject to risks including economic conditions, competition, and technological factors. The Securities Processing segment remains sensitive to U.S. retail financial market volumes.
Key Facts for Investor Verification
- Verify the sustainability of revenue growth in the "Financial institution outsourcing" segment versus the decline in "Securities processing" due to market conditions.
- Confirm the impact of the $12.3 million restructuring charge on future operating costs and efficiency gains.
- Monitor the utilization of the $547.0 million revolving credit facility, as short-term borrowings increased significantly to $129.5 million.
- Assess the impact of the upcoming adoption of SFAS No. 142 on future earnings, specifically regarding the cessation of goodwill amortization.
- Review the $141.2 million in acquisition spending and the integration progress of the seven businesses acquired in the first nine months of 2001.