Add
FISV to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FISV > SEC Filings for FISV > Form 10-Q on 6-Nov-2008 | All Recent SEC Filings |
6-Nov-2008
Quarterly Report
Forward-Looking Statements
This quarterly report contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that express a plan, belief, expectation, estimation, anticipation, intent, contingency, future development or similar expression, and can generally be identified as forward-looking because they include words such as "believes," "anticipates," "expects," "could," "should," or words of similar meaning. Statements that describe our objectives or goals are also forward-looking statements. The forward-looking statements included in this report involve significant risks and uncertainties, and a number of factors, both foreseen and unforeseen, could cause actual results to differ materially from our current expectations. The factors that may affect our results include, among others, our ability to complete, and the timing of and the proceeds from, the sale of the remainder of the Fiserv ISS business, including the risk that the conditions to the completion of the transaction may not be satisfied or the required regulatory approvals may not be obtained timely or at all, our ability to successfully integrate CheckFree's operations, changes in client demand for our products or services, pricing or other actions by competitors, the potential impact of our Fiserv 2.0 initiatives, the health and stability of the financial services industry, the impact on our business of the current general economic slowdown, our ability to comply with government regulations, including privacy regulations, and other factors identified in our Annual Report on Form 10-K for the year ended December 31, 2007 and in other documents that we file with the Securities and Exchange Commission. We urge you to consider these factors carefully in evaluating the forward-looking statements and caution you not to place undue reliance upon forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update forward-looking statements to reflect subsequent events or circumstances.
Recent Developments
On July 14, 2008, we completed the sale of a 51% interest in substantially all of the businesses in our Insurance Services segment ("Fiserv Insurance") and recognized a pre-tax gain of $19 million and a related income tax provision of $44 million. Upon closing, we received cash proceeds of $513 million, net of cash sold of $28 million and transaction expenses, and a $30 million note due in 2018. Our remaining 49% ownership interest in Fiserv Insurance is accounted for using the equity method of accounting whereby our investment was established based on our historical basis in the net assets and is adjusted for our share of undistributed net income or net loss. Our share of Fiserv Insurance's net income is reported as income from investment in unconsolidated affiliate and the revenues and expenses of Fiserv Insurance from July 15, 2008 and forward are no longer included in our consolidated statement of income. Our historical consolidated financial statements for the periods ended June 30, 2008 and all prior periods include the revenues, expenses, balance sheet and cash flows of Fiserv Insurance.
On February 4, 2008, we completed the first of two transactions to dispose of our Investment Support Services segment ("Fiserv ISS") by selling Fiserv Trust Company and the accounts of our institutional retirement plan and advisor services operations to TD AMERITRADE Online Holdings, Inc. for $273 million in cash at closing. In the second transaction, Robert Beriault Holdings, Inc. has agreed to acquire the remaining accounts and net capital of Fiserv ISS, including the investment administration services business which provides back office and custody services for individual retirement accounts, for net book value. Under the amended purchase agreement, we will not retain an interest in this business subsequent to the disposition. We are waiting for regulatory approval and expect that this portion of the Fiserv ISS disposition will close by the end of the first quarter of 2009.
On January 10, 2008, we completed the sale of a majority of our health businesses ("Fiserv Health") to UnitedHealthcare Services, Inc. for total cash proceeds of $735 million. The financial results of Fiserv Health and Fiserv ISS are reported as discontinued operations for all periods presented.
Overview
We provide integrated information management systems and services, including transaction processing, electronic commerce products and services, business process outsourcing, document distribution services, and software and systems solutions. We report our results in four business segments: Financial Institution Services ("Financial"); Payments and Industry Products ("Payments"); Insurance Services ("Insurance"); and Corporate and Other.
The Financial segment provides: core account processing solutions; item processing; deposit automation; loan origination and servicing products; cash management; and consulting services for financial institutions. The Payments segment provides: electronic transaction processing services, including electronic funds transfer and debit processing, internet banking, electronic bill payment and presentment services and biller services; card and print personalization services; risk and transaction management products; and investment account processing services. On July 14, 2008, we completed the sale of a 51% interest in substantially all of the businesses in our Insurance segment. The Corporate and Other segment primarily consists of unallocated corporate overhead expenses, amortization of acquisition-related intangible assets and intercompany eliminations.
Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying unaudited condensed consolidated financial statements and accompanying notes to help provide an understanding of our results of operations, our financial condition and the changes in our financial condition. Our discussion is organized as follows:
• Recent accounting pronouncements. This section provides a discussion of recent accounting pronouncements that may impact our results of operations and financial condition in the future.
• Non-GAAP financial measure. This section provides a discussion of internal revenue growth percentage, a non-GAAP financial measure that we use in this report.
• Results of operations. In this section, we provide an analysis of the results of operations presented in the accompanying unaudited condensed consolidated statements of income by comparing the results for the three-month and nine-month periods ended September 30, 2008 to the comparable periods in 2007.
• Liquidity and capital resources. In this section, we provide an analysis of our cash flows and outstanding debt as of September 30, 2008.
Recent Accounting Pronouncements
See Note 2 to the accompanying unaudited condensed consolidated financial statements, which is incorporated herein by reference, for a description of recent accounting pronouncements, including the anticipated adoption dates.
Non-GAAP Financial Measure
In this report, we refer to internal revenue growth percentage, which is a non-GAAP financial measure. We use internal revenue growth percentage to monitor and evaluate our performance, and it is presented in this report because we believe that it allows investors to understand the portion of our revenue growth that is attributed to acquired companies as compared to internal revenue growth. This non-GAAP financial measure should not be considered to be a substitute for our reported results prepared in accordance with GAAP. The method that we use to calculate internal revenue growth percentage is not necessarily comparable to similarly titled measures presented by other companies.
Internal revenue growth percentage is measured as the increase or decrease in total revenues for the current period less "acquired revenue from acquisitions" divided by total revenues from the prior period plus "acquired revenue from acquisitions." "Acquired revenue from acquisitions" represents pre-acquisition revenue of acquired companies, less dispositions, for the prior year. Internal revenue growth percentage is calculated as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2008 2007 2008 2007
Financial Segment
Total revenues $ 526 $ 503 $ 1,633 $ 1,528
Acquired revenue from acquisitions - 39 - 108
Total $ 526 $ 542 $ 1,633 $ 1,636
Internal revenue growth (decline) $ (16 ) $ (3 )
Internal revenue growth percentage (3 )% 0 %
Payments Segment
Total revenues $ 529 $ 245 $ 1,572 $ 728
Acquired revenue from acquisitions - 259 - 757
Total $ 529 $ 504 $ 1,572 $ 1,485
Internal revenue growth $ 25 $ 87
Internal revenue growth percentage 5 % 6 %
|
Results of Operations
The following table presents, for the periods indicated, certain amounts
included in our condensed consolidated statements of income, the relative
percentage that those amounts represent to revenues, and the change in those
amounts from year to year. This information should be read together with the
condensed consolidated financial statements and accompanying notes.
Three Months Ended September 30,
Percentage of
Revenue (1) Increase (Decrease)
(In millions) 2008 2007 2008 2007 $ %
Revenues:
Processing and services $ 874 $ 647 80.9 % 70.0 % $ 227 35 %
Product 206 277 19.1 % 30.0 % (71 ) (26 )%
Total revenues 1,080 924 100.0 % 100.0 % 156 17 %
Expenses:
Cost of processing and services 500 389 57.2 % 60.1 % 111 29 %
Cost of product 162 223 78.6 % 80.5 % (61 ) (27 )%
Sub-total 662 612 61.3 % 66.2 % 50 8 %
Selling, general and administrative 204 120 18.9 % 13.0 % 84 70 %
Total expenses 866 732 80.2 % 79.2 % 134 18 %
Operating income 214 192 19.8 % 20.8 % 22 11 %
Interest expense, net (57 ) (12 ) (5.3 )% (1.3 )% 45 375 %
Gain on sale of businesses 19 - 1.8 % - 19 -
Income from continuing operations before
income taxes and income from
unconsolidated affiliate $ 176 $ 180 16.3 % 19.5 % $ (4 ) (2 )%
Nine Months Ended September 30,
Percentage of
Revenue (1) Increase (Decrease)
(In millions) 2008 2007 2008 2007 $ %
Revenues:
Processing and services $ 2,764 $ 1,933 75.1 % 69.2 % $ 831 43 %
Product 914 859 24.9 % 30.8 % 55 6 %
Total revenues 3,678 2,792 100.0 % 100.0 % 886 32 %
Expenses:
Cost of processing and services 1,611 1,180 58.3 % 61.0 % 431 37 %
Cost of product 765 684 83.7 % 79.6 % 81 12 %
Sub-total 2,376 1,864 64.6 % 66.8 % 512 27 %
Selling, general and administrative 631 371 17.2 % 13.3 % 260 70 %
Total expenses 3,007 2,235 81.8 % 80.1 % 772 35 %
Operating income 671 557 18.2 % 19.9 % 114 20 %
Interest expense, net (187 ) (33 ) (5.1 )% (1.2 )% 154 467 %
Gain on sale of businesses 19 - 0.5 % - 19 -
Income from continuing operations before
income taxes and income from
unconsolidated affiliate $ 503 $ 524 13.7 % 18.8 % $ (21 ) (4 )%
|
(1) Each percentage of revenue is calculated as the relevant revenue, expense or income amount divided by total revenues, except for cost of processing and services and cost of product amounts which are divided by the related component of revenues.
Total Revenues
Three Months Ended September 30,
Corporate
(In millions) Financial Payments Insurance and Other Total
Total revenues:
2008 $ 526 $ 529 $ 33 $ (8 ) $ 1,080
2007 503 245 182 (6 ) 924
Revenue growth (decline) $ 23 $ 284 $ (149 ) $ (2 ) $ 156
Revenue growth (decline) percentage 5 % 116 % (82 )% 17 %
Nine Months Ended September 30,
Corporate
(In millions) Financial Payments Insurance and Other Total
Total revenues:
2008 $ 1,633 $ 1,572 $ 513 $ (40 ) $ 3,678
2007 1,528 728 554 (18 ) 2,792
Revenue growth (decline) $ 105 $ 844 $ (41 ) $ (22 ) $ 886
Revenue growth (decline) percentage 7 % 116 % (7 )% 32 %
|
Total revenues increased $156 million, or 17%, in the third quarter of 2008 and $886 million, or 32%, in the first nine months of 2008 compared to 2007. These increases in total revenues during 2008 were primarily the result of our acquisition of CheckFree Corporation ("CheckFree") on December 3, 2007 partially offset by decreased revenues in our Insurance segment as a result of our sale of a 51% interest in Fiserv Insurance on July 14, 2008. As a result of this transaction, the revenues of Fiserv Insurance are no longer included in our consolidated revenues beginning July 15, 2008 but are included for all historical periods.
Revenues in our Financial segment increased $23 million, or 5%, and $105 million, or 7%, in the third quarter and first nine months of 2008, respectively, compared to 2007. These increases were primarily due to incremental processing and services revenues from our acquisition of CheckFree. Internal revenue declined by 3 percentage points in our Financial segment during the third quarter and was flat during the first nine months of 2008 compared to prior year periods. Internal revenues were negatively impacted by a downturn in the U.S. mortgage markets resulting in a significant decline in home-equity processing revenues of $14 million and $42 million for the third quarter and first nine months of 2008, respectively. In addition, our growth rate in this segment was negatively impacted by slower discretionary spending by our financial institution clients resulting in reduced higher-margin revenue, such as license fees and associated professional services.
Revenues in our Payments segment increased $284 million, or 116%, and $844 million, or 116%, in the third quarter and first nine months of 2008, respectively, compared to 2007. These increases were primarily due to incremental processing and services revenue from our acquisition of CheckFree. Internal revenue growth percentage in our Payments segment of 5% and 6% during the third quarter and first nine months of 2008, respectively, was primarily driven by new clients and increased transaction volumes from existing clients in our electronic payments and output solutions businesses.
Revenues in our Insurance segment decreased $149 million, or 82%, and $41 million, or 7%, in the third quarter and first nine months of 2008, respectively, compared to 2007. These decreases were primarily in product revenues and resulted from our sale of a 51% interest in Fiserv Insurance on July 14, 2008, which resulted in only fourteen days of revenues being recorded in the third quarter of 2008.
Total Expenses
Total expenses increased $134 million, or 18%, in the third quarter of 2008 and $772 million, or 35%, in the first nine months of 2008 compared to 2007. These increases in total expenses during 2008 were due primarily to our acquisition of CheckFree partially offset by a decrease in expenses in our Insurance segment caused by the sale of a 51% interest in Fiserv Insurance on July 14, 2008 which resulted in only fourteen days of expenses in the third quarter of 2008.
Cost of processing and services as a percentage of processing and services revenue decreased to 57.2% and 58.3% in the third quarter and first nine months of 2008, respectively, from 60.1% and 61.0% in the comparable periods in 2007. These decreases were primarily due to higher-margin processing revenues associated with our acquisition of CheckFree and overall improvements in operating efficiencies.
Cost of product as a percentage of product revenue decreased to 78.6% in the third quarter of 2008 from 80.5% in the third quarter of 2007 and increased to 83.7% for the first nine months of 2008 from 79.6% in 2007. Cost of product as a percentage of product revenue declined during the third quarter of 2008 primarily due to our sale of a 51% interest in Fiserv Insurance, which generated historical operating margins of less than 10 percent due primarily to the inclusion of prescription product costs in both product revenues and cost of product. Prescription product costs decreased $79 million in the third quarter of 2008 compared to 2007. In addition, third quarter and year to date cost of product, as a percentage of product revenue, was negatively impacted by an increase in postage pass through revenue and expenses in our output solutions businesses and a slight decrease in higher-margin revenue, such as software license fees.
Selling, general and administrative expenses increased $84 million and $260 million in the third quarter and first nine months of 2008, respectively, compared to 2007 primarily due to our acquisition of CheckFree, partially offset by a decrease in expenses in our Insurance segment resulting from our sale of a 51% interest in that business. As a result of our acquisition of CheckFree, amortization expense for acquired intangible assets included in selling, general and administrative expenses increased by $21 million in the third quarter and $65 million in the first nine months of 2008, and incremental merger costs, including integration project management, retention bonuses and other expenses, were $12 million in the third quarter and $28 million in the first nine months of 2008.
Operating Income and Operating Margin
Three Months Ended September 30,
Corporate
(In millions) Financial Payments Insurance and Other Total
Operating income:
2008 $ 128 $ 148 $ 3 $ (65 ) $ 214
2007 133 56 19 (16 ) 192
Operating income growth (decline) $ (5 ) $ 92 $ (16 ) $ (49 ) $ 22
Operating income growth (decline)
percentage (4 )% 164 % (84 )% 11 %
Operating margin:
2008 24.2 % 28.1 % 8.6 % 19.8 %
2007 26.4 % 22.9 % 10.4 % 20.8 %
Operating margin growth (decline)
(1) (2.2 )% 5.2 % (1.8 )% (1.0 )%
Nine Months Ended September 30,
Corporate
(In millions) Financial Payments Insurance and Other Total
Operating income:
2008 $ 409 $ 422 $ 44 $ (204 ) $ 671
2007 389 162 58 (52 ) 557
Operating income growth (decline) $ 20 $ 260 $ (14 ) $ (152 ) $ 114
Operating income growth (decline)
percentage 5 % 160 % (24 )% 20 %
Operating margin:
2008 25.0 % 26.9 % 8.7 % 18.2 %
2007 25.5 % 22.3 % 10.5 % 19.9 %
Operating margin growth (decline)
(1) (0.5 )% 4.6 % (1.8 )% (1.7 )%
|
(1) Represents the percentage point improvement or decline in operating margin.
Total operating income increased $22 million, or 11%, and $114 million, or 20%, in the third quarter and first nine months of 2008, respectively, compared to 2007. Operating margin decreased 1.0 percentage point and 1.7 percentage points in the third quarter and first nine months of 2008 to 19.8% and 18.2%, respectively, from the comparable periods in 2007. Our operating margin was negatively impacted by an increase in amortization expense for acquired intangible assets and merger and integration costs associated with our acquisition of CheckFree. In addition, our Financial segment negatively impacted operating margins, which was offset by the significant positive impact of the operating results in our Payments segment.
Operating income in our Financial segment decreased $5 million, or 4%, in the third quarter of 2008 and increased $20 million, or 5%, in the first nine months of 2008 compared to 2007. Operating margin decreased 2.2 percentage points and 0.5 percentage points in the third quarter and first nine months of 2008 to 24.2% and 25.0%, respectively, from the comparable periods in 2007. Operating margin and operating income were negatively impacted by significantly lower volumes in our home-equity processing businesses and decreases in higher-margin revenues, including contract termination fees, software license fees and associated professional services revenue in the third quarter of 2008.
Operating income in our Payments segment increased $92 million, or 164%, and $260 million, or 160%, in the third quarter and first nine months of 2008, respectively, compared to 2007. Operating margin improved 5.2 percentage points to 28.1% in the third quarter and 4.6 percentage points to 26.9% in the first nine months of 2008 from the comparable periods in 2007. The increases in operating income and operating margin in our Payments segment resulted primarily from higher-margin revenues associated with our acquisition of CheckFree, growth in our other electronic payments businesses and overall operating efficiencies due to improved operating leverage in our payments businesses.
Operating income in our Insurance segment decreased $16 million in the third quarter and $14 million in the first nine months of 2008 compared to 2007 due primarily to our sale of a 51% interest in Fiserv Insurance on July 14, 2008. Operating margin decreased 1.8 percentage points in both the third quarter and first nine months of 2008 compared to 2007.
The operating loss in our Corporate and Other segment increased $49 million and $152 million in the third quarter and first nine months of 2008, respectively, compared to 2007. The year-to-date increase of $152 million was primarily due to $97 million of incremental amortization of acquisition-related intangible assets and $48 million related to the acquisition of CheckFree, primarily merger and integration costs.
Interest Expense, Net
Interest expense increased $45 million to $57 million in the third quarter of 2008 and $154 million to $187 million in the first nine months of 2008 compared to 2007. These increases were due primarily to our senior term loan and senior notes borrowings in the fourth quarter of 2007 to finance our $4.4 billion acquisition of CheckFree.
Gain on Sale of Businesses
In the third quarter of 2008, we recognized a $19 million pre-tax gain on our sale of a 51% interest in Fiserv Insurance.
Income Tax Provision
The income tax provision increased $37 million to $105 million in the third quarter of 2008 and $30 million to $231 million in the first nine months of 2008 compared to 2007. These increases were due primarily to a $44 million income tax provision related to our sale of a 51% interest in Fiserv . . .
|
|