UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarter Ended September 30, 2002
Commission File Number 0-20312
FIDELITY NATIONAL INFORMATION SOLUTIONS, INC.
| Delaware | 41-1293754 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
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| 4050 CALLE REAL, SANTA BARBARA, CA | 93110 | |
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| (Address of principal executive offices) | (Zip Code) |
(805) 696-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of October 31, 2002, 39,313,127 shares of the Registrant’s Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 2002
INDEX
| Page | ||||
| Part I: | FINANCIAL INFORMATION | |||
| Item 1. | Consolidated Financial Statements | |||
| A. | Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 | 3 | ||
| B. | Consolidated Statements of Earnings for the three months and nine months ended September 30, 2002 and 2001 | 4 | ||
| C. | Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2002 | 5 | ||
| D. | Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 | 6 | ||
| E. | Notes to Consolidated Financial Statements | 7 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 18 | ||
| Item 4. | Controls and Procedures | 18 | ||
| Part II: | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 18 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 19 | ||
| Item 4. | Submission of Matters to Vote of Security Holders | 20 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 20 |
2
Part I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| September 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
Assets |
|||||||||||
Cash and cash equivalents |
$ | 4,015 | $ | 12,909 | |||||||
Short term investments |
35,817 | — | |||||||||
Trade accounts receivable, less allowance for doubtful accounts |
43,902 | 34,369 | |||||||||
Trade accounts receivable due from affiliates |
20,870 | 14,112 | |||||||||
Notes receivable |
132 | 1,552 | |||||||||
Prepaids and other current assets |
8,931 | 5,193 | |||||||||
Deferred tax assets |
7,713 | 12,040 | |||||||||
Total current assets |
121,380 | 80,175 | |||||||||
Property, equipment, and software, net |
53,088 | 50,920 | |||||||||
Cost in excess of net assets acquired, net |
224,704 | 101,962 | |||||||||
Other intangibles, and other assets, net |
40,792 | 22,450 | |||||||||
Deferred taxes, long term portion |
19,591 | 19,890 | |||||||||
Total assets |
$ | 459,555 | $ | 275,397 | |||||||
Liabilities and stockholders’ equity |
|||||||||||
Accounts payable and accrued expenses |
$ | 18,584 | $ | 15,776 | |||||||
Related party payables |
621 | 1,156 | |||||||||
Income taxes payable |
2,661 | 6,532 | |||||||||
Deferred revenue, current portion |
22,078 | 19,214 | |||||||||
Current portion of notes payable |
1,954 | 5,114 | |||||||||
Current portion of capital leases |
3,609 | 1,398 | |||||||||
Other current liabilities |
19,183 | 13,647 | |||||||||
Total current liabilities |
68,690 | 62,837 | |||||||||
Secured, revolving credit facility with parent |
— | 18,653 | |||||||||
Notes payable |
4,125 | 6,461 | |||||||||
Capital lease obligations, less current maturities |
3,865 | 1,212 | |||||||||
Deferred revenue, long term portion |
7,958 | 7,152 | |||||||||
Other liabilities |
3,188 | 3,436 | |||||||||
Total liabilities |
87,826 | 99,751 | |||||||||
Minority interests |
998 | 12,221 | |||||||||
Preferred stock of consolidated subsidiary, held by outside parties |
7,062 | 7,062 | |||||||||
Stockholders’ equity: |
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Common stock, par value $0.001; 200,000,000 shares authorized; issued 38,485,602 and
outstanding 38,431,802 as of September 30, 2002; and issued 30,840,828 and outstanding
30,787,028 as of December 31, 2001 |
38 | 31 | |||||||||
Treasury Stock, 53,800 shares as of September 30, 2002 and 65,842 as of December 31, 2001 |
(339 | ) | (552 | ) | |||||||
Additional paid-in capital |
349,656 | 183,736 | |||||||||
Retained earnings (accumulated deficit) |
16,894 | (26,834 | ) | ||||||||
Unearned compensation costs |
(2,120 | ) | — | ||||||||
Accumulated other comprehensive loss |
(460 | ) | (18 | ) | |||||||
Total stockholders’ equity |
363,669 | 156,363 | |||||||||
Total liabilities and stockholders’ equity |
$ | 459,555 | $ | 275,397 | |||||||
See Notes to Consolidated Financial Statements
3
FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Revenue: |
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Data |
$ | 40,495 | $ | 31,478 | $ | 113,724 | $ | 86,172 | ||||||||||||
Solutions |
14,715 | 7,667 | 44,212 | 11,284 | ||||||||||||||||
Solutions – related party |
30,875 | 27,569 | 85,883 | 77,759 | ||||||||||||||||
Services |
21,503 | 10,598 | 50,671 | 24,527 | ||||||||||||||||
Total revenue |
107,588 | 77,312 | 294,490 | 199,742 | ||||||||||||||||
Costs and expenses: |
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Cost of data revenue |
12,892 | 11,149 | 36,599 | 30,835 | ||||||||||||||||
Cost of solutions revenue |
10,733 | 9,622 | 29,227 | 23,163 | ||||||||||||||||
Cost of services revenue |
11,547 | 5,448 | 27,203 | 12,349 | ||||||||||||||||
Operating
expenses(1) |
54,770 | 41,501 | 158,735 | 105,810 | ||||||||||||||||
Merger related costs |
7,365 | — | 7,365 | — | ||||||||||||||||
Amortization of cost in excess of net assets acquired |
— | 1,052 | — | 3,111 | ||||||||||||||||
Total costs and expenses |
97,307 | 68,772 | 259,129 | 175,268 | ||||||||||||||||
Operating income |
10,281 | 8,540 | 35,361 | 24,474 | ||||||||||||||||
Interest expense |
319 | 460 | 1,254 | 789 | ||||||||||||||||
Other (income) expense, net |
(230 | ) | — | (836 | ) | — | ||||||||||||||
Earnings before income taxes and minority interests |
10,192 | 8,080 | 34,943 | 23,685 | ||||||||||||||||
Income taxes |
3,877 | 2,697 | 13,628 | 8,188 | ||||||||||||||||
Minority interests |
390 | 1,389 | 2,312 | 3,014 | ||||||||||||||||
Earnings from continuing operations |
5,925 | 3,994 | 19,003 | 12,483 | ||||||||||||||||
Discontinued operations: |
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Loss from discontinued operations, net of tax |
— | 894 | — | 2,926 | ||||||||||||||||
Net earnings |
$ | 5,925 | $ | 3,100 | $ | 19,003 | $ | 9,557 | ||||||||||||
Earnings from continuing operations per share |
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— basic |
$ | 0.16 | $ | 0.14 | $ | 0.57 | $ | 0.49 | ||||||||||||
— diluted |
$ | 0.15 | $ | 0.14 | $ | 0.54 | $ | 0.49 | ||||||||||||
Earnings per share |
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— basic |
$ | 0.16 | $ | 0.11 | $ | 0.57 | $ | 0.38 | ||||||||||||
— diluted |
$ | 0.15 | $ | 0.11 | $ | 0.54 | $ | 0.38 | ||||||||||||
Weighted average shares — basic |
37,615 | 28,456 | 33,372 | 25,412 | ||||||||||||||||
Weighted average shares — diluted |
39,721 | 28,529 | 35,372 | 25,441 | ||||||||||||||||
(1) Excludes $5.5 million of stock option compensation costs that are included in merger related costs.
See Notes to Consolidated Financial Statements
4
FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
| Retained | Accumulated | |||||||||||||||||||||||||||||||
| Common Stock | Additional | Earnings | Unearned | Other | Total | |||||||||||||||||||||||||||
| Treasury | Paid-in | (Accumulated | Compensation | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit) | Costs | Loss | Equity | |||||||||||||||||||||||||
Balance at December 31, 2001 |
30,787 | $ | 31 | $ | (552 | ) | $ | 183,736 | $ | (26,834 | ) | $ | — | $ | (18 | ) | $ | 156,363 | ||||||||||||||
Shares issued to acquire ISDI |
275 | — | — | 1,922 | — | — | — | 1,922 | ||||||||||||||||||||||||
Exercise of stock options and
warrants |
459 | 1 | — | 18,391 | — | — | — | 18,392 | ||||||||||||||||||||||||
Tax benefit associated with
exercise of stock options |
— | — | — | 13,137 | — | — | — | 13,137 | ||||||||||||||||||||||||
Shares issued for employee
benefit plan |
51 | — | — | 988 | — | — | — | 988 | ||||||||||||||||||||||||
Shares issued to acquire
Comstock |
214 | — | — | 5,500 | — | — | — | 5,500 | ||||||||||||||||||||||||
Shares issued to acquire
Micro General minority
interest |
6,243 | 6 | 213 | 120,718 | 24,725 | (2,120 | ) | — | 143,542 | |||||||||||||||||||||||
Shares issued for
convertible note |
403 | — | — | 5,264 | — | — | — | 5,264 | ||||||||||||||||||||||||
Translation adjustment |
— | — | — | — | — | — | (442 | ) | (442 | ) | ||||||||||||||||||||||
Net earnings |
— | — | — | — | 19,003 | — | — | 19,003 | ||||||||||||||||||||||||
Balance at September 30, 2002 |
38,432 | $ | 38 | $ | (339 | ) | $ | 349,656 | $ | 16,894 | $ | (2,120 | ) | $ | (460 | ) | $ | 363,669 | ||||||||||||||
See Notes to Consolidated Financial Statements
5
FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine months ended | ||||||||||