FISERV INC 10-Q Summary: Quarter Ended March 31, 2001
Business Context and Reporting Period
This is an unaudited quarterly report (Form 10-Q) for FISERV, Inc., a leading independent provider of data processing systems and information management services to financial institutions. The report covers the three-month period ended March 31, 2001. As of April 16, 2001, 124,340,000 shares of common stock were outstanding.
Key Financial Metrics
| Metric | Q1 2001 | Q1 2000 |
|---|---|---|
| Revenues | $453.9 million | $396.4 million |
| Operating Income | $86.6 million | $79.0 million |
| Net Income | $50.8 million | $43.2 million |
| Diluted EPS | $0.40 | $0.34 |
| Operating Margin | 19.1% | 19.9% |
| Effective Tax Rate | 40% | 41% |
| Cash from Operations | $69.4 million | ($149.2 million) |
| Long-Term Debt | $362.6 million | $335.0 million |
| Cash and Equivalents | $82.1 million | $98.9 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 14.5% year-over-year, driven by new client sales, cross-selling, price increases, and acquisitions. Approximately 60% of total revenue growth was attributed to acquired businesses.
- Segment Performance:
- Financial Institution Outsourcing: Revenues rose 23% to $360.4 million; operating income jumped 61% to $79.6 million due to operational efficiencies and leverage.
- Securities Processing: Revenues declined 12% to $76.0 million due to weak U.S. retail financial markets. Operating income fell 72% to $8.4 million, impacted by lower transaction volumes and a $7.8 million litigation reserve.
- Acquisitions: The company completed four acquisitions for approximately $90.9 million in cash and issued 220,000 shares of common stock.
- Investment Gain: A one-time pre-tax realized gain of $1.8 million was recorded from the sale of Knight Trading Group, Inc. shares.
- Cash Flow Volatility: Operating cash flow turned positive ($69.4 million) compared to a significant outflow ($149.2 million) in Q1 2000, primarily due to a reduction in the net use of funds for securities processing receivables and payables.
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 funding sources are adequate for current requirements.
- Capital Strategy: Significant portions of cash flow are being used for acquisitions and capital expenditures. Future significant acquisitions may require additional borrowings or securities issuances.
- Risks and Contingencies:
- Market Conditions: Continued weakness in U.S. retail financial markets negatively impacts transaction volumes in the securities processing segment.
- Legal: A $7.8 million litigation reserve was recorded regarding an arbitration award related to a pre-acquisition entity (Hanifen, Imhoff Holdings, Inc.).
- Accounting Changes: Adoption of SFAS 133 (Derivative Instruments) resulted in a $2.7 million after-tax reduction to accumulated other comprehensive income.
Investor Verification Checklist
- Verify the sustainability of revenue growth in the Financial Institution Outsourcing segment versus the volatility in Securities Processing due to market conditions.
- Confirm the status and potential additional exposure of the $7.8 million litigation reserve related to Hanifen, Imhoff Holdings, Inc.
- Assess the impact of the $90.9 million acquisition spend on future cash flow and debt levels.
- Review the composition of "Securities processing receivables and payables" to understand the volatility in operating cash flows.
- Monitor the company's ability to maintain the 40% effective tax rate as projected.