Fiserv, Inc. 2007 Annual Report (10-K) Summary
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2007. Fiserv, Inc. provides integrated information management systems and services, including transaction processing, electronic commerce, and business process outsourcing to financial institutions, insurance companies, and merchants. The company operates three primary segments: Financial, Insurance, and CheckFree (acquired December 3, 2007). International operations contributed approximately 5% of total revenues.
Key Financial Metrics
| Metric | 2007 | 2006 |
|---|---|---|
| Total Revenues | $3,922 million | $3,566 million |
| Operating Income | $730 million | $665 million |
| Net Income | $439 million | $450 million |
| Diluted EPS (Total) | $2.60 | $2.53 |
| Operating Margin | 18.6% | 18.6% |
| Operating Cash Flow | $564 million | $542 million |
| Long-Term Debt (incl. current) | $5,405 million | $745 million |
| Total Assets | $11,846 million | $6,252 million |
Material Changes vs. Prior Period
- Acquisition of CheckFree: The most significant event was the acquisition of CheckFree Corporation for approximately $4.4 billion in cash. This transaction drove a substantial increase in total assets and long-term debt. CheckFree contributed $87 million in revenue and $14 million in operating income for the 28 days it was owned in 2007.
- Revenue Growth: Total revenues increased 10% to $3.922 billion. Internal revenue growth was 3%, with the remainder attributed to acquisitions. Processing and services revenue grew 8%, while product revenue grew 14% (driven largely by workers' compensation prescription product costs).
- Debt Structure: Long-term debt increased from $745 million to $5.405 billion to finance the CheckFree acquisition. This included a $2.5 billion senior term loan and $1.75 billion in senior notes.
- Discontinued Operations: The company classified Fiserv Health, Fiserv Investment Support Services (ISS), and certain lending businesses as discontinued operations. Income from discontinued operations dropped to $31 million in 2007 from $62 million in 2006 due to disposition charges.
Guidance, Outlook, and Risks
- Strategic Initiatives (Fiserv 2.0): Management expects to achieve annual cost savings of over $100 million and revenue synergies of over $125 million from integrating CheckFree over the next several years.
- Dispositions: In early 2008, the company sold Fiserv Health for $721 million and the majority of Fiserv ISS for $225 million, with additional contingent consideration possible.
- Outlook: The company expects interest expense to be significantly higher in 2008 due to new borrowings. The effective income tax rate is expected to be approximately 38.5% in 2008.
- Risks: Key risks include the successful integration of CheckFree, potential impairment of goodwill (which represents ~60% of total assets), increased leverage, and the impact of economic downturns on the financial services industry (specifically mortgage markets).
Investor Verification Checklist
- Integration Progress: Verify the realization of the projected $100 million+ cost savings and $125 million+ revenue synergies from the CheckFree acquisition.
- Debt Servicing: Monitor cash flow sufficiency to service the $5.4 billion debt load, particularly the $500 million in debt maturing in 2008.
- Goodwill Impairment: Assess the annual goodwill impairment testing given that goodwill and intangibles comprise a significant portion of the balance sheet.
- Discontinued Operations: Confirm the final net gains on the sales of Fiserv Health and Fiserv ISS in the 2008 financial results.
- Segment Realignment: Watch for the realignment of business segments expected in the first quarter of 2008 following the CheckFree integration.