10-QPeriod: Q3 FY2002

Fidelity National Information Services, Inc. Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS), operating as Certegy Inc. during this period, reported revenues of $254.5 million for the third quarter of 2002, an increase of 6.9% compared to the prior year's pro forma results. Despite revenue growth, net income for the quarter decreased by 15.3% to $22.0 million, primarily due to $9.4 million in asset impairment and other charges, including a $4.2 million write-off of an acquired customer contract in Brazil and a $4.0 million charge for a class action lawsuit settlement. Excluding these charges, net income would have increased by 7.5% to $27.9 million. For the first nine months of 2002, revenues grew by 9.3% to $744.7 million, while net income increased by 3.6% to $61.0 million. Excluding the aforementioned charges, net income for the nine-month period rose by 13.6% to $66.9 million. The company experienced strong revenue growth in both its Card Services and Check Services segments, with Check Services showing a notable 15.6% increase in the third quarter. However, operating margins have been impacted by a shift towards lower-margin merchant processing revenues and investments in new initiatives.

Key Highlights

  • 1Revenue for Q3 2002 increased by 6.9% to $254.5 million, driven by growth in both Card Services and Check Services segments.
  • 2Net income for Q3 2002 decreased by 15.3% to $22.0 million due to $9.4 million in asset impairment and other charges.
  • 3Excluding special charges, Q3 2002 net income increased by 7.5% to $27.9 million, and diluted EPS rose by 8.1% to $0.40 (pro forma comparison).
  • 4The company adopted SFAS 142, ceasing goodwill amortization from January 1, 2002, which impacted prior period pro forma comparisons.
  • 5A $4.2 million asset impairment charge was recognized for a customer contract loss in Brazil, and a $4.0 million charge was recorded for a class action lawsuit settlement.
  • 6Long-term debt was reduced to $166.7 million as of September 30, 2002, from $230.0 million at year-end 2001.
  • 7Subsequent to the quarter end, the company repurchased an additional 2.5 million shares for $53.6 million.

Frequently Asked Questions

Revenue growth in the third quarter of 2002 was primarily driven by an increase in transaction volumes and new contract signings. Card Services saw a 12.7% increase in merchant processing revenue and a 5.0% increase in North American card issuing revenue. Check Services revenue increased by 15.6%, largely due to an 11.7% increase in check volumes from new customer acquisitions.

The company recorded $9.4 million in asset impairment and other charges. This included a $4.2 million write-off of an acquired customer contract in Brazil due to customer loss, a $1.0 million write-down of a collateral assignment in life insurance policies, a $4.0 million charge for the settlement of a class action lawsuit, and a $0.2 million severance charge related to cost reduction plans.

Effective January 1, 2002, Certegy adopted SFAS 142, which eliminated the amortization of goodwill. This change means that goodwill is now tested annually for impairment rather than amortized over time. For comparative reporting, pro forma adjustments were made to the prior year's results to reflect this change, excluding goodwill amortization expense as if the standard had been effective earlier.

As of September 30, 2002, Certegy had $17.8 million in cash and cash equivalents. Total debt outstanding was $166.7 million, a decrease from $230.0 million at December 31, 2001. The company had $90.0 million available under its three-year revolving credit facility, which, combined with operational cash flows, was deemed sufficient to meet its needs.