Fiserv, Inc. 2009 Form 10-K Summary
Business context and reporting period
Fiserv provides transaction processing, electronic bill payment, electronic funds transfer, account processing, software, business process outsourcing, document distribution, and related technology services. Its principal segments are Financial and Payments, with Corporate and Other primarily comprising corporate costs and acquisition-related amortization. The company serves approximately 16,000 clients, primarily in the financial services industry, and operates principally in the United States.
This filing covers the fiscal year ended December 31, 2009. The request references 2009 Q4; the filing also provides unaudited fourth-quarter data.
Key financial metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Total revenue | $4.077 billion | $4.587 billion | Down 11% |
| Processing and services revenue | $3.329 billion | $3.464 billion | Down 4% |
| Product revenue | $748 million | $1.123 billion | Down 33% |
| Operating income | $946 million | $908 million | Up 4% |
| Operating margin | 23.2% | 19.8% | Up 340 basis points |
| Income from continuing operations | $473 million | $358 million | Up 32% |
| Net income | $476 million | $569 million | Down 16% |
| Diluted EPS from continuing operations | $3.04 | $2.20 | Up 38% |
| Diluted total EPS | $3.06 | $3.49 | Down 12% |
| Operating cash flow from continuing operations | $850 million | $766 million | Up 11% |
| Capital expenditures | $198 million | $198 million | Unchanged |
Processing and services represented approximately 80% of 2009 revenue. Product revenue represented approximately 20%, including approximately 15% from integrated print and card production and 5% from software licenses. The effective tax rate on continuing operations was 37.2%, compared with 44.9% in 2008, partly reflecting a $7 million tax benefit from a CheckFree purchase-accounting tax settlement.
At December 31, 2009, cash and cash equivalents were $363 million, total assets were $8.378 billion, shareholders’ equity was $3.026 billion, and total debt including current maturities was $3.641 billion. Available borrowings under the revolving credit facility were $870 million after $30 million of letters of credit.
Material changes versus the prior comparable period
- Revenue declined primarily because the 2008 sale of a 51% interest in Fiserv Insurance removed $513 million of revenue from the 2009 comparison. Excluding that effect, Financial revenue declined 3% and Payments revenue increased 1%.
- Financial revenue was pressured by lower discretionary client spending, lower item-processing revenue, and a $35 million decline in contract termination fees, which fell from $42 million to $7 million.
- Payments revenue benefited from new clients and higher transaction volumes in bill payment and electronic funds transfer, partly offset by lower investment-services account volumes and lower software-license revenue.
- Operating profitability improved through cost reductions, operating efficiencies, improved mix, scale benefits, lower CheckFree merger and integration costs, and the exit from the lower-margin Insurance operations.
- Financial segment operating income increased to $569 million from $545 million, with margin increasing to 29.3% from 27.4%. Payments operating income increased to $617 million from $579 million, with margin increasing to 28.6% from 27.2%.
- Debt declined by $464 million after $475 million of debt repayments. Share repurchases totaled $175 million, compared with $441 million in 2008. Fiserv did not complete an acquisition in 2009.
- Goodwill and intangible assets totaled approximately $6.377 billion, or about 75% of total assets. The fourth-quarter 2009 impairment assessment identified no goodwill or acquired-intangible impairment.
Fourth-quarter 2009 information
| Metric | Q4 2009 | Q4 2008 |
|---|---|---|
| Total revenue | $1.062 billion | $1.040 billion |
| Operating income | $256 million | $230 million |
| Income from continuing operations | $128 million | $80 million |
| Net income | $118 million | $62 million |
| Diluted EPS from continuing operations | $0.83 | $0.50 |
Liquidity, debt, outlook, and risks
Management stated that operating cash flow, $363 million of cash, and $870 million of available revolver capacity were expected to fund normal operations, debt service, capital expenditures, and lease payments. Debt consisted primarily of a $1.880 billion senior term loan and $1.748 billion of senior notes. The term loan requires principal payments of $255 million in 2010, $375 million in 2011, and approximately $1.25 billion in 2012. The company was in compliance with all financial covenants.
Fiserv’s strategy, referred to as “Fiserv 2.0,” emphasizes client relationship expansion, integrated solutions, innovation, operational efficiency, disciplined capital allocation, acquisitions when strategically justified, debt repayment, and share repurchases. The filing does not provide formal numerical revenue or earnings guidance.
Key risks include exposure to financial-industry consolidation and failures, reduced client spending, contract-renewal pressure, intense competition and in-house alternatives, technology changes, cybersecurity incidents, service interruptions, software defects, regulatory compliance, acquisition integration, and potential impairment of goodwill and intangible assets. The company also retains indemnification and litigation-related obligations associated with divested businesses, including certain Fiserv ISS claims.
Subscriber funds held in connection with electronic payments totaled approximately $1.4 billion at year-end and were not included on the consolidated balance sheet. A 1% increase in applicable interest rates was estimated to increase annual continuing-operations income by approximately $15 million, while a 1% increase in borrowing rates was estimated to increase 2010 interest expense by less than $10 million.
Contractual obligations totaled $4.760 billion, including $4.292 billion of long-term debt and interest, $346 million of operating leases, $75 million of purchase obligations, and $47 million of income-tax obligations. Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether revenue trends in the Financial and Payments segments remain positive after the Insurance divestiture comparison effect.
- The company’s ability to refinance or repay the substantial 2012 debt maturities, particularly the approximately $1.25 billion term-loan maturity and $1.25 billion senior notes maturity.
- Progress in reducing leverage while continuing share repurchases, acquisitions, capital expenditures, and other capital-allocation initiatives.
- Renewal rates, pricing, and termination activity under the company’s generally three- to five-year client contracts.
- The carrying value and impairment sensitivity of approximately $6.377 billion of goodwill and intangible assets.
- Exposure from cybersecurity, operational outages, regulatory requirements, money-transmission licensing, and indemnification obligations related to divested businesses.
- The sustainability of 2009 margin expansion, given the contribution from cost reductions, discontinued lower-margin operations, lower merger costs, and favorable tax items.