10-QPeriod: Q2 FY2002

Fidelity National Information Services, Inc. Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 14, 2002For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS), operating as Certegy Inc. in this filing, reported solid revenue growth for the second quarter and the first six months of 2002 compared to the prior year. Revenues increased by 12.2% and 10.6% respectively, driven by strong performance in both the Card Services and Check Services segments. The company's strategic shift away from selling software in Card Services, coupled with growth in international card issuing and merchant processing, contributed to these gains. Check Services also saw significant revenue expansion, bolstered by outsourcing trends, market share gains, and the acquisition of Accu Chek, Inc. Despite revenue growth, operating margins experienced a slight compression due to incremental expenses associated with operating as a standalone public company, investments in new business initiatives (like the check cashing business), and a higher proportion of lower-margin merchant processing revenues. However, net income saw an increase of 7.9% for the quarter and 6.8% for the six-month period, partly benefiting from the adoption of SFAS 142 which ceased goodwill amortization. The company also demonstrated strong cash flow from operations and a continued focus on debt reduction, with outstanding long-term debt decreasing significantly.

Key Highlights

  • 1Total revenues increased by 12.2% to $255.4 million for Q2 2002 and 9.7% in Card Services, while Check Services grew 17.6%.
  • 2For the first six months of 2002, total revenues grew 10.6% to $490.2 million, with Card Services up 7.7% and Check Services up 17.0%.
  • 3Net income for Q2 2002 rose by 7.9% to $22.9 million, and for the six-month period by 6.8% to $39.0 million.
  • 4Diluted earnings per share (EPS) were $0.33 for Q2 2002 and $0.56 for the six-month period, showing growth from the prior year.
  • 5The company reduced its long-term debt by $48.0 million in the first six months of 2002, ending with $182.0 million outstanding.
  • 6Adoption of SFAS 142, ceasing goodwill amortization, positively impacted net income and EPS compared to historical reporting.
  • 7Card Services expanded its total card base to 44.0 million, with international card issuing revenues increasing by 21.4% in Q2 2002.

Frequently Asked Questions

Revenue growth was driven by increases in both the Card Services and Check Services segments. Card Services benefited from growth in international card issuing and merchant processing, while Check Services saw increased volumes from new customers, market share gains, and the acquisition of Accu Chek, Inc.

The adoption of SFAS 142 in 2002 eliminated goodwill amortization, which would have increased net income by approximately $1.8 million for the second quarter and $3.5 million for the first six months of 2001, if it had been effective retrospectively. This change positively impacted reported net income and earnings per share compared to historical figures.

Certegy Inc. has been actively reducing its long-term debt, with net repayments of $48.0 million in the first six months of 2002, bringing the total outstanding debt to $182.0 million. As of June 30, 2002, the company had $21.4 million in cash and cash equivalents and $118 million available under its revolving credit facility, indicating sufficient liquidity for its current operations.

While revenues grew, operating margins saw a slight compression. This was attributed to incremental corporate expenses as a standalone company, increased investment in the check cashing business, and a higher mix of lower-margin merchant processing revenues. However, costs of services and selling, general, and administrative expenses generally grew in line with revenue increases.