Fiserv, Inc. 2010 Form 10-K Summary
Business context and reporting period
Fiserv is a global provider of financial-services technology, including transaction processing, electronic bill payment, online banking, card services, account processing, software, and business-process outsourcing. The company serves approximately 16,000 clients, primarily in the financial-services industry, through its Payments and Financial segments. This filing covers the fiscal year ended December 31, 2010; fourth-quarter data is included but the filing is an annual report.
- Processing and services revenue represented 83% of consolidated revenue and was generally generated under recurring, account- and transaction-based contracts.
- Approximately 6% of 2010 revenue came from international operations.
- Fiserv had approximately 19,000 employees and processed more than 1.4 billion online bill payments and 8.8 billion ATM and debit transactions during 2010.
Financial performance and key metrics
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Total revenue | $4,133 million | $4,077 million | Up 1% |
| Processing and services revenue | $3,415 million | $3,329 million | Up 3% |
| Product revenue | $718 million | $748 million | Down 4% |
| Operating income | $1,007 million | $946 million | Up 6% |
| Operating margin | 24.4% | 23.2% | Up 120 basis points |
| Income from continuing operations | $506 million | $473 million | Up 7% |
| Diluted EPS from continuing operations | $3.34 | $3.04 | Up 10% |
| Net income | $496 million | $476 million | Up 4% |
| Operating cash flow from continuing operations | $958 million | $850 million | Up 13% |
| Capital expenditures | $175 million | $198 million | Down 12% |
Payments revenue increased 2% to $2.208 billion, while Financial revenue increased approximately 0.5% to $1.951 billion. Segment operating margins were 28.3% for Payments and 30.3% for Financial. The overall improvement in profitability reflected operating leverage, cost-management initiatives, and lower corporate expenses.
At December 31, 2010, cash and cash equivalents were $563 million, total assets were $8.281 billion, shareholders’ equity was $3.229 billion, and total debt including current maturities was $3.356 billion. Available borrowings under the revolving credit facility were $971 million. The company was in compliance with its financial debt covenants.
Material changes versus comparable periods
- Revenue grew modestly in 2010 after declining 11% in 2009, with growth concentrated in recurring processing and services revenue.
- Product revenue declined because of lower output-solutions revenue and lower software-license revenue.
- Processing and services cost declined to 54.3% of related revenue from 55.4%, supporting margin expansion.
- Interest expense fell 10% to $198 million as borrowings declined and prior interest-rate hedge contracts favorably affected results.
- Fiserv issued $750 million of senior notes in September 2010, used proceeds to repay debt and repurchase $250 million principal amount of 2012 notes. The transaction generated a $26 million pretax loss on early debt extinguishment.
- Debt declined $285 million from year-end 2009, while share repurchases increased to $413 million from $175 million.
- Operating cash flow included a $40 million return-on-investment dividend from StoneRiver that management did not expect to recur annually.
- The company acquired AdviceAmerica in 2010; total acquisition spending was $9 million, net of cash acquired.
- Goodwill and intangible assets totaled approximately $6.256 billion, or about 75% of total assets. No goodwill or acquired-intangible impairment was identified in the 2010 assessments.
Guidance, outlook, commentary, risks, and unusual items
Management’s stated 2011 priorities were to deliver higher-quality revenue growth and increase earnings per share compared with 2010, deepen client relationships, and expand innovative, differentiated solutions. The filing does not provide a specific numerical revenue or EPS forecast.
- Management expected continued long-term demand for electronic transactions and outsourcing, but noted that financial institutions remained cautious about technology spending.
- Management expected U.S. bank failures and government actions to decline slightly in 2011, while check-processing volume declines were expected to continue.
- Key risks include financial-industry consolidation and client failures, competitive pricing, contract-renewal risk, technology changes, cybersecurity breaches, service interruptions, software defects, regulatory changes related to Dodd-Frank, money-transmitter compliance, and intellectual-property claims.
- Formerly sold businesses may create indemnification obligations, including liabilities associated with litigation related to Fiserv ISS.
- Debt maturities were concentrated in 2012, including approximately $2.103 billion of principal payments scheduled that year.
- Contractual obligations totaled $4.490 billion, including $4.051 billion of debt principal and interest, $310 million of operating leases, $88 million of purchase obligations, and $41 million of income-tax obligations.
- Subscriber funds of approximately $1.4 billion were held in short-term U.S.-government-guaranteed investments and were not included on the consolidated balance sheet.
- Deloitte & Touche issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile fourth-quarter revenue of $1.078 billion, continuing-operations income of $119 million, and diluted continuing-operations EPS of $0.80 with the full-year results.
- Assess the sustainability of revenue growth excluding contract-termination fees and the nonrecurring $40 million StoneRiver dividend.
- Review the 2012 debt maturities, refinancing requirements, interest-rate exposure, and the $971 million revolving-credit availability.
- Evaluate the carrying value and impairment sensitivity of the $4.377 billion goodwill balance and $1.879 billion acquired-intangible balance.
- Monitor customer concentration, financial-institution failures, contract renewals, and the effect of declining check-processing volumes.
- Review potential indemnification, litigation, regulatory, cybersecurity, and money-transmitter exposures disclosed in the risk factors and commitments notes.