FISERV INC 10-Q Summary: Quarter Ended March 31, 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-month period ended March 31, 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 | Q1 2002 | Q1 2001 |
|---|---|---|
| Total Revenues | $631.9 million | $527.7 million |
| Processing and Services Revenues | $559.8 million | $462.2 million |
| Operating Income | $108.5 million | $86.6 million |
| Net Income | $65.1 million | $50.8 million |
| Diluted EPS | $0.33 | $0.27 |
| Operating Margin (Processing & Services) | 19.4% | 18.7% |
| Cash from Operating Activities | $46.6 million | $69.4 million |
| Short-term Borrowings | $165.2 million | $112.8 million (Dec 2001) |
| Long-term Debt | $260.7 million | $343.1 million (Dec 2001) |
| Cash and Equivalents | $138.7 million | $136.1 million (Dec 2001) |
Material Changes vs. Prior Period
- Revenue Growth: Processing and services revenues increased 21.1% ($97.7 million) year-over-year. Approximately 25% of this growth came from organic sources (new clients, cross-sales, volume increases), with the remainder from acquisitions.
- Segment Performance: The Financial institution outsourcing segment grew 30.6% ($113.0 million). Conversely, the Securities processing segment declined 24.4% ($17.6 million) due to weak U.S. retail financial markets.
- Accounting Changes: The Company adopted SFAS No. 142 (Goodwill) and EITF Issue No. 01-14 (Reimbursements). SFAS No. 142 eliminated goodwill amortization, reducing expenses by approximately $6.0 million and increasing net income per share by roughly $0.02. EITF 01-14 reclassified customer reimbursements as revenue and expense, increasing reported revenue and cost of revenue by $72.1 million without impacting operating income.
- Profitability: Operating income rose 25.3% to $108.5 million. Net income increased 28.3% to $65.1 million.
- Liquidity: Net cash provided by operating activities decreased to $46.6 million from $69.4 million, primarily due to a $58.2 million increase in net securities processing receivables/payables. The Company reduced long-term debt by $82.6 million during the quarter.
Outlook, Risks, and Management Commentary
- Outlook: Management believes cash flow from operations and available credit facilities are adequate for funding requirements, including future acquisitions. No specific forward-looking financial guidance was provided in this text.
- Risks: The Securities processing segment remains vulnerable to volatility in U.S. retail financial markets. The Company notes standard risks regarding economic, competitive, and technological factors.
- Unusual Items: A pre-tax realized gain of $0.9 million was recorded from the sale of investments. In the prior year (Q1 2001), the Securities segment included a $7.8 million litigation reserve which is not present in the current period.
- Capital Allocation: The Company continues to use cash flow for acquisitions and capital expenditures. Capital expenditures were $30.3 million, and payments for acquisitions were $35.8 million.
Investor Verification Checklist
- Verify the sustainability of the 30.6% growth in the Financial institution outsourcing segment versus the decline in Securities processing.
- Confirm the impact of the $58.2 million increase in net securities processing receivables/payables on future working capital needs.
- Review the details of acquisitions closed in Q4 2001 that contributed to revenue but lowered operating margins in the current quarter.
- Monitor the completion of the goodwill impairment testing required under SFAS No. 142, which is due by the end of the calendar year.
- Assess the Company's leverage ratio given the increase in short-term borrowings to $165.2 million.