10-QPeriod: Q3 FY2007

FISERV INC Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 8, 2007For Securities:FISV

Summary

Fiserv Inc. reported solid financial results for the third quarter and the first nine months of 2007, driven by growth in both its Financial and Insurance segments. Total revenues increased by 5% and 9% respectively for the periods, with internal revenue growth rates of 4% and 6%, indicating successful organic expansion alongside strategic acquisitions. The company is undergoing significant strategic transitions, notably the pending acquisition of CheckFree Corporation for approximately $4.4 billion, expected to close by year-end 2007. Concurrently, Fiserv is divesting its Investment Support Services (ISS) segment and has entered into an agreement to sell its health businesses (Fiserv Health). These divestitures and the substantial CheckFree acquisition highlight a strategic shift towards core financial transaction processing and electronic commerce services, while shedding non-core assets. Despite investments in growth and integration, Fiserv maintained strong operational performance, with operating income up 14% in the quarter. The company also demonstrated robust free cash flow generation, increasing by 16% year-over-year, providing flexibility for debt repayment and future opportunities. Investors should monitor the successful integration of CheckFree and the financial implications of these large-scale strategic moves.

Key Highlights

  • 1Total revenues increased by 5% for the third quarter and 9% for the first nine months of 2007, reaching $1,173.7 million and $3,538.9 million, respectively.
  • 2Operating income grew by 14% to $206.0 million in Q3 2007 and by 6% to $574.9 million for the nine-month period, demonstrating strong operational performance.
  • 3The company is actively pursuing a major strategic acquisition of CheckFree Corporation for approximately $4.4 billion, expected to close by the end of Q4 2007.
  • 4Fiserv is divesting its Investment Support Services (ISS) segment, with transactions expected to close in Q4 2007 and Q1 2008, and has agreed to sell its health businesses (Fiserv Health) for $775 million.
  • 5Free cash flow increased by 16% to $340.0 million for the nine months ended September 30, 2007, indicating healthy cash generation.
  • 6The Financial segment showed strong revenue growth of 5% and operating income growth of 17% for Q3 2007, driven by core processing and electronic payments businesses.
  • 7The Insurance segment experienced revenue growth of 5% in Q3 2007, but operating income declined year-over-year due to a decrease in flood claims processing revenues and integration charges.

Frequently Asked Questions

Fiserv is primarily focused on two major strategic initiatives: the acquisition of CheckFree Corporation, a significant move into financial electronic commerce, and the divestiture of non-core assets, including its Investment Support Services (ISS) and Fiserv Health businesses. These actions indicate a strategy to streamline operations and focus on core financial transaction processing and related services.

Fiserv plans to finance the CheckFree acquisition through a combination of senior unsecured notes and a new unsecured term loan, totaling approximately $4.5 billion. They also have a commitment for a $5.0 billion bridge loan as a backup. The company anticipates these financing arrangements will be guaranteed by certain subsidiaries and will have a weighted-average annual interest rate of 6.2% to 6.6%.

Fiserv's Financial segment is performing well, with revenue up 5% and operating income up 17% in Q3 2007, driven by core processing and electronic payments. The Insurance segment also saw revenue growth of 5% in Q3 2007, but its operating income was impacted by lower flood claims processing revenues and integration costs, leading to a decline for the nine-month period.

Fiserv is involved in two main legal matters: a class-action lawsuit against Fiserv Trust Company concerning alleged Ponzi scheme involvement, which is currently being appealed after class certification, and a class-action lawsuit related to the proposed CheckFree acquisition, alleging insufficient disclosure and inadequate consideration. Fiserv believes both suits are without merit and intends to contest them vigorously, but the outcomes are currently unpredictable and could potentially have a material adverse impact.