FISERV INC 10-Q Summary: Period Ended June 30, 2002
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 services. The report covers the three and six-month periods ended June 30, 2002. The Company operates through three segments: Financial institution outsourcing, systems and services; Securities processing and trust services; and All other and corporate.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2002 | Six Months Ended June 30, 2002 |
|---|---|---|
| Total Revenues | $632.4 million | $1,264.4 million |
| Processing & Services Revenue | $563.0 million | $1,122.9 million |
| Operating Income | $110.9 million | $219.4 million |
| Net Income | $66.6 million | $131.8 million |
| Diluted EPS | $0.34 | $0.67 |
| Operating Cash Flow (6mo) | $201.1 million | |
| Cash and Equivalents | $188.3 million (as of June 30, 2002) | |
| Long-term Debt | $262.5 million | |
| Short-term Borrowings | $137.4 million |
Material Changes vs. Prior Period
- Revenue Growth: Processing and services revenues increased 17.0% ($81.7 million) for the quarter and 19.0% ($179.3 million) year-to-date compared to 2001. Growth was driven by the Financial institution outsourcing segment (+28.8% YTD), partially offset by a decline in the Securities processing segment due to weak retail financial markets.
- Profitability: Operating income rose 25.4% for both the quarter and the six-month period. Net income increased 28.2% for both periods.
- Accounting Changes: The Company adopted SFAS No. 142 (Goodwill) on Jan 1, 2002, eliminating goodwill amortization. This reduced expenses by approximately $12.0 million for the six months ended June 30, 2002. Additionally, customer reimbursements were reclassified as revenue per EITF 01-14, increasing reported revenue and cost of revenue by $141.5 million for the six-month period without impacting operating income.
- Segment Performance: The Securities processing segment recorded a $3.2 million charge for the write-down of WorldCom debt securities in Q2 2002.
Outlook, Risks, and Contingencies
- Liquidity: The Company generated $201.1 million in operating cash flow for the first six months of 2002. Management believes cash flow from operations and available credit facilities are adequate for funding requirements, though significant future acquisitions may require additional borrowings or securities issuance.
- Legal Proceedings: FISERV has initiated legal action against E*TRADE Securities, Inc., regarding a refusal to accept delivery of a $27 million bond. The Company expects to recover the carrying value of the bond.
- Market Risk: The Company uses derivatives primarily to manage interest rate exposure and does not engage in speculative trading. No off-balance sheet special purpose entities exist.
- Forward-Looking Statements: The filing includes standard safe harbor language regarding uncertainties in economic, competitive, and technological factors.
Investor Verification Checklist
- Verify the impact of the SFAS No. 142 adoption on future earnings, specifically the elimination of goodwill amortization.
- Monitor the resolution of the legal dispute with E*TRADE regarding the $27 million bond.
- Assess the sustainability of revenue growth in the Financial institution outsourcing segment versus the continued weakness in the Securities processing segment.
- Review the $3.2 million WorldCom debt write-down and the status of remaining held-to-maturity securities.
- Confirm the reclassification of customer reimbursements ($141.5 million YTD) to ensure accurate comparison with historical data.