Fiserv Inc (FISV) 2004 Q4 法說會逐字稿

Good morning, and welcome to the Fiserv earnings conference call for the fourth quarter of 2004. (Operator Instructions). At the request of Fiserv, today's call is being recorded and also is being broadcast live over the internet. The call is expected to last 30 to 45 minutes, and you may disconnect from the call at anytime.

Now I would like to introduce the Fiserv management team in attendance on this call. Les Muma, President and CEO; Norm Balthasar, Senior Executive Vice President and Chief Operating Officer; Ken Jensen, Senior Executive Vice President and Chief Financial Officer; and Tom Hirsch, Senior Vice President and Controller.

At this time, I would like to turn the call over to Les Muma. Sir?

Thank you. Good morning. And welcome to Fiserv's fourth-quarter earnings conference call. We appreciate your participation, and look forward to presenting our 2004 results and answering your questions.

Fiserv would like to state that the Company may make forward-looking statements regarding 2005 earnings and revenue targets, sales pipelines, and acquisition prospects during the course of this conference call. Such statements are covered by the Safe Harbor included in the Private Securities Litigation Reform Act of 1995. These statements may differ from actual results, and are subject to a number of factors. Please refer to our fourth-quarter earnings press release for a discussion of these factors and non-GAAP financial measures discussed in this conference call. The press release is accessible on our Web site, Fiserv.com.

Fiserv finished 2004 with diluted earnings per share of 49 cents for the fourth quarter and $1.91 for the year, which was within the range of our estimates in the last conference call. Our business model of high recurring revenue, disciplined and effective acquisition strategy, and exceptional operating efficiencies continue to drive strong earnings and cash flows.

Our year-to-date cash flow from continuing operations of $537 million increased 18 percent compared to the prior year. As a result of our strong financial position, our Board of Directors increased our existing stock buyback authorization by 8.3 million shares in the fourth quarter. We repurchased $64 million of our common stock in the fourth quarter, acquiring 1.7 million shares which completed the Board's 1999 authorization. At December 31, 2004, there were a total of 8.3 million shares remaining for purchase, and we will continue to opportunistically repurchase Fiserv stock in 2005. We also repaid 193 million in long-term debt in 2004.

On December 16, 2004 we announced a definitive agreement to sell our securities clearing businesses to the National Financial unit of Fidelity Investments for a price Of approximately $365 million. The transaction is expected to close in the first quarter of 2005, and remains subject to standard and customary closing conditions and corresponding regulatory approvals. We do not expect a material gain or loss as a result of this transaction. This sale will enable us to focus more capital and resources on our financial institution, health administration, insurance, and investment support businesses.

Throughout 2004, we have expanded our focus on internal revenue growth. Many of our initiatives and market opportunities were discussed at our November 4th analyst day in New York City, a video of which can still be viewed at our web site. Our 2004 10 percent internal revenue growth rate was primarily driven by our health segment, and our financial segment's internal revenue growth rate for the fourth quarter improved as we had forecasted. Later in the call, I will discuss the factors that led to our increased internal revenue growth in the financial segment for the fourth quarter and our estimates for 2005.

I will now turn to Ken Jensen, who will present our financial performance. I will follow with a business overview. And we'll then open the lines for questions. Ken?

Thanks, Les. As already stated, diluted earnings per share were 49 cents for the fourth quarter and $1.91 for the year. Current-year results include diluted earnings per share from continuing operations of 50 cents for the fourth quarter and $2 for the full year. Diluted loss per share in 2004 from our securities clearing businesses, which are reflected as discontinued operations, were 1 penny in the fourth quarter and 9 cents for the year.

The $2 in continuing earnings per share for 2004 was positively impacted by approximately 8 cents per share compared to 2003 due to an increase of $27 million in revenue associated with onetime early contract termination and assignment fees in our financial segment. Approximately 13 million of this increase was due to 1 large contract assignment fee, 1 contract terminated early in the contract term caused by a client being acquired by another financial institution.

Our fourth quarter earnings per share from continuing operations of 50 cents was down 3 cents from the third quarter. This decrease in the fourth quarter was primarily due to lower contract termination fees, higher expenses related to product consolidations as we completed our multiyear migration plan of clients from 2 of our older products to our remaining lead core (ph) processing systems.

Our 2005 estimated diluted earnings per share from continuing operations -- $2.16 to $2.23. And we anticipate our discontinued operations to be breakeven to a small loss in the first quarter. Earnings per share estimate from continuing operations for the first quarter of 2005 was 51 to 54 cents per share.

These earnings estimates do not include the adoption of financial accounting standard 123R, which requires companies to expenses stock options effective in the third quarter of 2005. If stock options had been expensed in 2004, diluted earnings per share from continuing operations would have been lower by approximately 5 percent.

Before I continue, I want to clarify 3 changes we made to our financial reporting here in the fourth quarter. First, we moved our printing and plastic card businesses to the financial segment from the other financial reporting segment. Second, we allocated corporate expenses across the segments, thereby removing the other reported segment. And third, we removed our securities clearing businesses, which are now included in discontinued operations, from the Investment Support Services segment. All comparable periods have been reclassified to conform to the 2004 presentation. The following discussion includes only continuing operations and the restated segments.

Our fourth-quarter processing and services revenues of 866 million increased 145 million, or 20 percent, over 2003, and for the year increased 758 million, or 29 percent. Revenue growth for the year was primarily impacted by growth of 263 million or 13 percent in our financial segment, 487 million or 122 percent from our health segment. The major contributor to the continued growth in the health segment was the revenue increase in our pharmacy services businesses, generating an average operating margin in the mid single digits. We're currently estimating 2005 first-quarter processing and services revenue to be approximately 870 to 890 million. 2004 cash flow provided by operating activities from continuing operations was 698 million, increasing 103 million, or 17 percent, over the prior year.

Fiserv's 2004 capital expenditures, including capitalized software, were 161 million, up 22 million compared to 2003. Capital expenditures increased in the fourth quarter as compared to the prior quarters run rate primarily due to upgrading computer hardware and software across the majority of our ITI service bureaus to more efficiently support an upgraded ITI core banking software release and position us better for continued long-term growth. Historically, we have made technology upgrades at the service bureaus in a phased approach. However, due to expected operating efficiencies and certain financial benefits, it was advantageous to perform the upgrades across all the ITI service bureaus simultaneously.

Our free cash flow for 2004 was $537 million, an increase of 18 percent over the prior year -- plus mention (ph), we utilized some of our free cash flow in the fourth quarter to repurchased $64 million of our common stock, acquiring 1.7 million shares. And we will continue to opportunistically repurchase stock in 2005.

We also closed one acquisition in the quarter, CheckAGAIN. CheckAGAIN is a company that converts paper and image checks that have been returned for insufficient funds into electronic ACH transactions for re-presentment to the checkwriter's account. This acquisition joined our item processing group and will contribute approximately 15 million annualized revenue.

Our current acquisition pipeline remains active across all lines of our business. We continue to follow our long-term disciplined acquisition strategy that has served our shareholders very well since our Company's inception.

I now will summarize our performance by business segment. In the fourth quarter, our financial segment continued its strong operating performance. The segment increased fourth-quarter processing and services revenues by 5 percent, and operating income by 16 percent over the prior-year period, and for the full year, increased revenue 13 percent and operating income 23 percent. Fueling these increases for the year were 2003 acquisitions; strong operating margins, as we continue to drive cost synergies in our existing operations -- the significant increase in customer contractual termination and assignment fees previously mentioned.

Our fast-growing health segment increased fourth-quarter revenue 90 percent, and operating income 47 percent over the prior-year period, and for the year, increased revenues 122 percent and operating income 59 percent. The overall lower operating margin in the health segment is primarily due to an increase in 2004 compared to 2003 of $384 million in prescription costs, which are reflected in both revenue and operating expenses.

In the fourth quarter of 2004, our investment services segment improved its operating performance. As a reminder, after removing the securities clearing businesses from this segment, the remaining businesses in this segment provide self-directed retirement plan administration and custody and trading for registered investment advisers and third-party administrators.

The segment increased fourth-quarter processing and services revenue by 9 percent, operating income by 29 percent over the prior year period, and for the full year, increased revenue 8 percent and operating income 24 percent. New client growth and increased assets under administration have approved improved trust administration fees, and a combination of increased investments and rising interest rates has improved investment income. Operating margins were also positively impacted by the completion of our trust operations consolidation to 1 technology platform and into 1 location.

Our discontinued securities clearing business that are reflected in discontinued operations reported a net loss of 17 million, or 9 cents per share, in 2004. This loss was primarily due to a $14 million charge net of tax or 7 cents per share related to inquiries with the Securities and Exchange Commission as part of its industrywide review of mutual fund trading practices, including market timing and late trading. While no settlement with the SEC has been reached, no assurance can be given that these matters will be settled consistent with the amounts reserved. We do not anticipate any further material liability rising out of the SEC investigation.

Now I'd like to turn the call back to Les, who will provide additional highlights from the fourth quarter and discuss our 2005 outlook.

Thanks, Ken. Our 2004 fourth-quarter internal revenue growth rate for the company was 11 percent, and on a year-to-date basis was 10 percent. The Company's overall internal revenue growth rate for 2004 was largely driven by our health segment's pharmacy services business.

The full-year internal revenue growth rate for the financial segment was 2 percent, and for the fourth quarter, the growth rate for this segment was 5 percent, which is an increase from recent quarters and in the upper end of the range that we discussed in our prior earnings conference call. This rate was positively impacted by our ITI license and service bureau businesses; our insurance business, led by our flood processing business, due to higher onetime claims processing activity; and our mortgaging processing and loan settlement businesses in our lending division.

The printing and plastic card businesses reclassified in this segment did not change reported internal revenue growth rate for the segment in the fourth quarter or for the full year 2004. We expect our financial segment's first-quarter 2005 internal revenue growth rate to be below the fourth quarter, probably in the low single digits, and to be in the mid single digits for the full year 2005.

The previously discussed 2004 unusually large early termination fees will negatively impact the financial segment's internal revenue growth rate in 2005, and negatively impact the first quarter by 1 to 2 percent. Overall, we believe our mid single digit internal revenue growth rate expectations for 2005 in the financial segment will be met. This confidence is based on anticipated signing of our larger item processing contract in Australia, improving market conditions in the lending area, and easier comparisons due to the annualization of the loss of a large item processing customer in 2003, and the further implementation of our internal revenue growth strategies.

Adding to our optimism in this segment's organic revenue growth are several market trends. First, in our payments businesses, rapidly expanding debit card, internet banking, and ATM transactions and the recent enactment of Check 21 legislation, continue to increase demand for our financial processing solutions. Our current pipeline for large financial institutions check processing deals continues to be strong, driven by the passage of Check 21 and the forecasted continued decline in the number of paper checks written in the United States. Together, these 2 phenomena are encouraging large financial institutions that currently process their checks in-house to evaluate the future of their internal operations. This continues to provide a fertile environment domestically for Fiserv's check processing outsourcing sales force.

A similar environment exists in Australia, which led National Australia Bank, Commonwealth Bank, and Westpac, 3 of the 4 largest financial institutions in Australia, to enter into a joint venture and to seek a proven outsourcing partner to drive efficiency and provide leading technologies for their combined check processing operations. The proposed transaction, expected to be signed in February, will be for a term of 12 years and will generate projected revenue of 400 to 500 million based on expected volumes over the contract term. This agreement is expected to be mildly dilutive to Fiserv's earnings in 2005 by 1 to 2 cents per share due to transition startup expenses, but is expected to contribute to earnings in 2006 and beyond.

The second positive market trend includes the continued strength of several Fiserv products and services. Our core credit union, ITI banking products, and certain of our mortgage servicing and loan settlement businesses ended 2004 with strong growth, and we anticipate this to continue into 2005.

Third, we are seeing an increase in home equity loan volumes, and expect that trend to continue in 2005. Our lending group offers a number of solutions for home equity loans, including credit inquiries, automated valuations, loan settlement services, and loan servicing.

Fourth, we are beginning to see some measurable benefits of our integration initiative that we began back in 2003. This initiative standardizes our technology to align our businesses, products, and services to meet the most frequently expressed need of our clients -- tightly integrated solutions that can handle all aspects of their technology and back-office requirements. Our clients and prospects will see significant benefits, including greater customer intimacy and increased efficiency. For Fiserv, this initiative enables faster new product development, greater functionality of products and increased flexibility in responding to market changes. While this is an ongoing initiative, we are making solid progress and expect to see more benefits of this integration initiative in 2005 and beyond.

Our health segment's internal revenue growth rate for the fourth quarter was 30 percent, and for 2004 was 37 percent. This high growth rate is due primarily to the strength of our pharmacy services business as we continue to actively sell these services to both existing and new clients. Excluding the prescription costs included in revenues in our pharmacy services business, the health segment's 2004 internal growth rate would have been approximately 10 percent. As we look into 2005 for the health segment, internal revenue growth rate is expected to slow to somewhere between 10 and 20 percent as the positive impact of our pharmacy services business will be reduced in 2005 from 2004.

Our investment services segment experienced 2004 internal revenue growth of 8 percent. As Ken mentioned earlier, new customer sales, increases in asset under administration, investments, and interest rates led to this segment's strong results compared to 2003. We expect internal revenue growth in this segment to be in the low to mid single digits for 2005.

As we have discussed in the past, all 3 of our reporting segments have historically experienced quarterly fluctuations in organic growth rates both positively and negatively, and we expect this to continue in the future. Overall, if our businesses progress within the range of our 2005 forecasts, our Company's organic growth rate for the full year of 2005 should be in the mid to upper single digits, in line with our historical results. As previously discussed, the year-over-year comparisons of our 2005 organic revenue growth rate and our financial segment will be negatively impacted by the unusually large onetime contractual termination and assignment fees we received in 2004.

Significant new relationships and client renewals signed in the fourth quarter include the following -- the Arizona Department of Administration selected Harrington Benefit Services unit of Fiserv Health to administer a portion of their new self-funded health program, Arizona Benefit Options. Millennium BCP, a bank headquartered in Portugal with offices in 11 countries, extended its long-standing relationship with Fiserv CBS Worldwide for an additional 3 years.

Countrywide Bank, a subsidiary of Countrywide Financial Corp, chose Fiserv CBS as its new core processing platform. United Bankshares, Inc., a $6.5 billion asset bank holding company in Parkersburg, West Virginia significantly expanded its relationship with Fiserv by adding outsourced image-based check processing services for its Fairfax, Virginia subsidiary, United Bank of Virginia. Driveitaway.com, a provider of remarketing services for commercial vehicle fleet operators, chose Fiserv's RSA Solution unit for lease maturity management. And Columbia Bank, a $1.9 billion bank in Tacoma, Washington chose Fiserv for a technology package including Fiserv's PC Vision system from Information Technology, Inc., and electronic funds transfer services from Fiserv EFT.

In closing, both our sales and acquisition pipelines are strong, and we anticipate solid growth in 2005, both organically and through acquisitions. Our management team is focused on generating profitable new customer relationships, expanding existing customer relationships, and increasing the internal revenue growth rate across our company while maintaining consistent increases in earnings and cash flow in every line of our business. Looking forward, we are confident that we'll be able to attain our 2005 earnings from continuing operations per share target, which is $2.16 to $2.23 per share. We will now open the lines for questions.

(Operator Instructions). David Togut, Morgan Stanley.

Could you talk a bit about the new business pipeline, Les? What's the composition of the pipeline? I know you've had a number of big deals in there for a while. Obviously, you closed the Australian one. But what do you see happening in '05, and what do sales cycles look like?

Well, the Australian deal we expect to close mid-February, by the way. It's been announced, but we expect the final closing to be in mid-February. The pipeline in that large area still remains very fertile. These large deals do take a lot longer to close. We have not had any material dropout of deals in that pipeline, and we would expect other large deals to close as the year unfolds.

As far as the normal pipeline for bank outsourcing and bank software, it is as healthy as it has ever been. It looks strong across the business lines. We also have good pipelines in our other operating groups in the insurance area, health area, as well as in our trust operations out in Denver. So I can't point to anything specific other than to say that large deal pipeline which we've been talking about for some time remains as it has in the past. And we feel confident that there will be additional closes.

And can you update us on your views of Check 21? It seems like this has been very gradual to drive decision-making by management. What will it take to catalyze more sales here?

I think it's just going to take time. We always kind of explained Check 21 as more of a marathon than a sprint. And it's going to be something that is going to pick up over time. And as it picks up, I think we'll see not only additional business coming in as we do the replacement documents and handle more electronic transactions, but more pressure on these financial institutions to look to whether they really want to move forward themselves or outsource.

Just finally, Les, on the acquisition front, we've seen a number of your competitors step up their activity. Can you talk about the pipeline a bit? What are you seeing in terms of pricing? And do you see acquisitions contributing to growth in '05?

I'm going to let Ken answer that.

Aw, shucks. (laughter) The pipeline, David, is still excellent. We've got a lot of good opportunities. Yes, pricing has increased relative to the past, and we would expect to see some nice acquisitions here in 2005.

Any particular areas you are targeting?

We're really targeting all the active areas. Obviously, we're not targeting securities any longer.

But I would say all the other operating groups, David, have a sizable pipeline of acquisitions that are all being worked right now, including the financial segment.

Carla Cooper, Robert W. Baird.

Could you talk little bit about what you will be doing to transition the Australia business and whether there will be a transfer of assets from those 3 banks to you guys? And maybe is there specifically an associated CapEx with that deal?

There will be a transfer of assets to Fiserv. So there will be CapEx. And I'm not sure at this point if we can release that number or talk about that number. There will be a CapEx related to it. We will be moving a senior item processing executive who has already been chosen and accepted by the bank joint venture over there, along with some additional people from here to affect all the changes that we've got to put in those large bank operations.

But one of the things I want to caution is even though we are acquiring assets, this is still not an acquired business. We're not acquiring any more assets than we would have to acquired if we signed those banks directly and had to add equipment to run the banks' processing. So all we're doing is buying equipment to run a new customer.

We're excited about that opportunity because it not only gives us these 3 large banks, we think it will attract other banks into that joint venture over time, and also gives us a footprint in the region to look at other opportunities in that region. I think Ken wanted to make a comment.

Carla, we're estimating that our 2005 capital expenditures will increase about 10 to 15 percent. That does include the capital that we would have to devote to the Australian operation.

Okay, that's helpful. And do you think that looking into 2006 when this deal will contribute to earnings -- can you give us a sense of whether this would be kind of a normal margin for an IT deal, or above or below?

I think you are going to find that like all these big deals, it will start out in the mid to upper single digits, and then ramp up over time as we drive efficiencies into it. One of the things we have to do here and one of the things we're being chartered to do by this joint venture is to bring these operations of these three large banks together into common operations. That takes time, and that's what causes the ramp up. But overall, we look at the life of that contract -- it's a very good contract for the company.

Greg Smith, Merrill Lynch.

Just a little more on the Australian check deals. How should we think about the revenue flow? Is it going to be much bigger in the earlier years and then decline as the number of checks potentially declined?

Well, that's possible, just like it does in this country. But on the same token, we would expect to add other banks to that operation over time, and would hope that net over time, the topline as well as the bottom line would grow. Now, all check processing in Fiserv will have the tendency, as checks go from paper to electronic, to lower revenue but increase profits -- now, not increase margins; increase real profits. And that will be the same in Australia. But there's still an awful lot of check processing out there, and we think we could grow those businesses topline as well.

Yes. And so where do you think the margins on kind of a few years out will be roughly on the deal? Low double digits?

Yes, low double digits. (multiple speakers) I might also add Greg that our unit pricing there increases as check volumes decline. (multiple speakers)

On that contract.

Excellent, okay. I assume that's how you are going to intend to structure other deals as well domestically, right?

We will do our best. Those are all negotiations with the banks you're working with. But certainly -- it's the logical way to do it.

Okay, and then you mentioned some sort of onetime flood processing, claims processing revenues in the quarter. I was just wondering if you could quantify that to some extent?

Greg, this is Tom. I think anywhere from 0.5 to 1 (ph) percent impact, roughly. But again, we have those claims -- it's additional claims processing when we have claims activity. And that comes in throughout the year. But it was just a little bit higher in the fourth quarter.

Driven largely by four hurricanes that marched across Florida, if you remember -- and we'll see some runover into the first quarter, but it's slowing down.

And then one last question, just -- the remaining investment support services business -- you know, the growth rates there look pretty good. But are those businesses at scale and can really stand alone as they are today? Or are you going to need to maybe do a little more acquisitions around them in some way to build out the business?

They are at scale and can stand alone and have been standing alone separate from the securities business all along. But if we could find additional volume that we could acquire to put into that, we would certainly do that. Bear in mind that that business is kind of transitioning away from being a straight processor of IRA accounts to being more of a service provider for the financial investment adviser and third-party administrators.

And we do have a couple of potential acquisitions in the pipeline in that area.

Bryan Keane, Prudential.

The EPS guidance of 2.16 to 2.23 -- if you look at the core operating EPS for '04 at $2, I guess that implies an 8 to 12 percent growth rate. It's a little lower than actually the historical norm. Can you just describe what might be happening there?

I think what you want to do is take out the excess -- or I should say, unusually large early termination fees and assignment fees from the previous year. That's almost equal to exactly the loss on the discontinued operations. So you can probably just take our actual total diluted earnings per share of $1.91 and compare that to what's the number going forward.

And those total termination fees -- that was an increase of 27 million over 2003. What's the total portion of that in 2004? In other words, what was the base here in 2003 that we are increasing 27 million over?

I will turn that Tom.

Yes, historically, Bryan, we've had maybe a base around anywhere from 8 to 10 million annually. But that goes up and down as the year goes. But that has been historically where we've been at.

So all in, we're thinking maybe about 37 million for '05 that termination fees that will affect --

No, no.

No, no. No, Brian, what Ken is indicating is in 2004, we had incremental termination fees of about 27 million. That's over -- and roughly, our base has been approximately anywhere from 8 to 10. So that was the impact in '04. In '05, we don't know what that impact is going to be. But we would likely be much reduced back to a more normalized level what we've experienced in the past. But we'll have to wait and see.

Right, right -- I just wanted to be clear then. So it's the 27 plus the base of 8 to 10?

Dropping back to arguably 8 to 10.

Yes, okay. And then the last question I just have is the disclosure there in the organic growth; it says -- or just the definition in the footnotes. It says there was a disposition of 10 million. What was that exactly in 2004?

We have a number of smaller dispositions in certain parts of our business, both in the health business and our financial segment. That was a cumulative total just of the disposed revenue related to those businesses. So it was a number of smaller businesses.

And in the insurance group, we had a claims adjustment business that we disposed of.

And that happened in the fourth quarter?

The impact was primarily in the fourth quarter -- that's correct -- for that particular one.

Julio Quinteros, Goldman Sachs.

Real quickly, can we just try and isolate a couple of the pieces that are now within the consolidated outsourcing business? So what I'm trying to do is just get a sense on what sort of the old, core outsourcing growth would have been in the quarter if you strip out the impact of the termination fees and the consolidation of the plastics business, basically, that is now in that number.

The plastics business had virtually no impact in the quarter, in fact (multiple speakers)

How fast did that business grow?

Pardon?

The plastics business -- how fast did it grow on a year-over-year basis organically?

I'm not sure (multiple speakers)

For the -- as we've disclosed in our 10-Q previously, Julio, we put in there -- I think it grew about $15 million (ph) through the third quarter. And that was disclosed in the other reporting segment. And as Ken indicated in the fourth quarter, we did not experience any growth. So for the full year, we reclassified each of the quarters to include that business historically. For the full year, it contributed maybe 0.5 percent, but would not have changed the reported rate of 2 percent for the full year.

I just want to be clear. It had grown 28, 25, 18 for the previous 3 quarters. And you're saying it was flat in the fourth quarter?

That's correct. We had a very strong Q4 of '03 in that particular business line last year. Therefore, we did not get -- it did not increase over the fourth quarter of '03.

Okay. And then the second part of my question was just related to the impact of termination fees -- or I guess, specifically, just what was termination fees booked in the fourth quarter?

We've disclosed -- I believe we put out there we had a couple of million dollars of incremental termination fees over the fourth quarter of '03.

So, it went up 2 million from a year ago. What was the base number a year ago in the fourth quarter?

We're not going to be disclosing that. We've given you the number as far as incremental goes. On the previous -- Brian's call, I said typically on a standard basis, it's 8 to 10 million on an annual basis.

Just on the -- sorry, the guidance for calendar year '05 -- can you give us a sense just in terms of what sort of the revenue assumptions are for calendar year '05, and then perhaps the percent of growth that you expect to come from acquisitions versus organic growth?

Organic revenue growth -- as we look forward, we are expected to come in in the mid to upper single digits -- let's say 7 percent, in that range -- from acquisitions.

Yes, I was just going to say -- from acquisitions, we haven't factored that in per se. So obviously, there are things that we have to accomplish this year in order to meet our numbers. If we get some acquisitions, it's going to make it easier for us to accomplish those and make it even better numbers potentially.

Kartik Mehta, FTN Midwest Research.

I wanted to talk -- Les, you had mentioned earlier in your prepared remarks about some of the strategies for internal growth improvement in 2005. And I was wondering if you could provide a little more detail as to what you're doing different maybe now or will do different in 2005 that will help internal growth?

One of the things is we really gained traction on this whole integration platform that we've been building, which ties our products together and makes them more efficient, easier to cross-sell, quicker to respond to market changes -- all the things that we think will add to our organic growth. Also, internally, we've done a lot with comp plans for management, tying them more and more to the topline growth -- not to the expense of eliminating how it's tied to bottom line growth, because that's also very important to us. But we are shading it towards more organic growth as a motivator.

This is Norm. I think I would add -- we've also focused on what we call specific growth initiatives, which would take products we have that are very conducive to cross-sell and focused on those probably more so than we have in the past across the organization -- things like our EFT business, our lending settlement services. And we're focused on trying to push those on a rapid basis.

And a question on Check 21 -- I know you said it's going to be more of a marathon than anything else. But I guess in terms of pipeline for your check processing customers, has it changed -- are you seeing a larger financial institutions wanting to outsource then you have seen previously? Or are there any dynamic changes happening in the pipeline because of Check 21?

There are no question that there are more larger financial institutions now than there were historically, driven by 2 things -- one is Check 21, and the other is by reducing volumes of checks domestically. And both of those are making a lot of these financial institutions, whether they are a 1 billion, a 5 billion, or a 50 billion, look at the wisdom of continuing to invest internally and look to outsource.

So yes, the pipelines have changed. Now, the pipelines for small banks, I think, are probably unchanged, and continue as they always have. They've always outsourced checks.

Is that maybe one of the reasons it's taking a little bit longer to sign a new customer -- because you're seeing larger institutions that may just take longer to make a decision?

No question, and we really separate those. Our major accounts group goes after the big ones. And they are longer sales. They are probably 180- to 360-day sales process, where the traditional bank, whether he goes in-house or service bureau for checks -- they are generally more like 90- to 120-day sales cycles.

Some of those longer ones are probably 720 days, too.

Yes, we've had some we've worked on for multiple years.

Pat Burton, Smith Barney.

A couple of questions on the '05 guidance. Les, does the guidance include the 1- to 2-cent dilution from the Australian contract?

Yes, it does.

I thought so. Second, is it fair to characterize a level of 8 to 10 million in termination fees as basically ongoing business -- that over a number of years, you can pretty much count on that base level?

You know, it's kind of a sad way to look at it, because we don't like termination fees. We like to keep clients. But the nature of the beast, with the acquisitions of banks and the consolidation of the industry -- that's pretty much an expected number.

So they are really not one-off, at least in the 8 to 10 base?

That's correct.

Third part would be -- within the health plan business, the 10 to 20 percent organic growth -- are you assuming a slowdown in the prescription pass-through fees within that number?

It is a relative slowdown.

Relative to this year, '04?

Yes.

Glenn Greene, ThinkEquity Partners.

First question is for Ken. Just first of all, congratulations on the pending sale of the clearing business. My question relates to sort of the use of proceeds of $365 million, and priorities, whether it's share repurchase, debt paydown or acquisitions -- sort of how you're thinking about that?

I would allocate it towards acquisitions first, paydowns second -- excuse me; not paydown, repurchasing securities.

Repurchase would be the second priority?

Yes.

Okay. And then just sort of -- I wonder if you can articulate sort of your margin expectations for '05, for both the FI outsourcing and health segments?

Just in aggregate, we would expect the margins to go up a little bit -- probably a percent.

For each of them?

We're just looking at it in aggregate.

And then finally, just some color on the Australian JV. I was wondering who you competed against and what you think sets you apart and why you are perhaps in position to win it?

At this stage, because of confidentiality agreements, we can't say who we were in it with as far as the competition. But I think the reason that we stood apart is we could take them to several very similar operations that we've already done. Probably the most visible one is Canada, where we've gone up there and taken over check operations, and have done a great job, not only for the bank that we did it for, but consolidating other customers into it. And that just showed very well our ability to go into another country and respond to their needs. And I think that helped us tremendously.

Jonathan Divoss (ph), SG Cowen.

Just one quick question on the tax rate for this quarter. It dropped a bit from historical levels around 39 percent to 37.5. And I was wondering if that's sustainable, or what are your thoughts on that?

I would say the tax rate in the fourth quarter was impacted by a onetime tax law change for federal purposes that allowed us to use some foreign tax credits. And going forward into 2005, we anticipate that our rate from continuing operations will be approximately 38.7 percent -- so slightly down from our historical 39, but around that rate going forward.

Scott Kessler, Standard & Poor's Equity.

There's no question that you have a lot of cash equivalents and investments on your balance sheet, and a lot of your competitors and peers pay dividends. What you think the chances are that we could see something along those lines from Fiserv this year or in the near future?

The safe way to answer that is to say it's something that we evaluate from time to time at the management level and with our directors. We've always felt that using our cash to buy businesses to grow the company is a better use of cash, although you've seen that we have modified that some, because we're doing more aggressive stock buybacks than we have.

So we'll look at dividends going forward. I wouldn't say that you could anticipate anything this year. I think that's a little aggressive.

Nik Fisken, Stephens Inc.

First question is, Les, can you just give us an update on the CEO search, and when we should expect an announcement?

Well, the search is continuing. It's still focusing on the inside at this juncture. The succession committee of the Board has engaged an outside individual to come in and evaluate -- add an additional evaluation to the senior people.

I would think -- optimistically, second half of the year, but there is no guarantee there. We'd like to obviously have some overlap between that individual and myself before my planned retirement date in '06. That's our goal. But I can -- at this stage, nobody's been selected, and I wouldn't even say at this stage there are any lead candidates. We're still in the process.

And then second question -- did the sales force as a whole meet quotas for '04? And then secondly, can you isolate what divisions are doing the best and which ones are being the laggards?

I would say -- we did the hit quota for the year, the unaudited sales numbers that I've seen so far were a little over 100 percent for the entire company. The strength would have been -- where, Norm, in --?

I think lending has been strong; banking.

The lending area has been strong in its recovery as it started picking up in the second half of the year. And then banking -- our bank business traditionally comes in. We also have --

Check processing. (multiple speakers)

In check processing. And in health, they had some good sales. So, overall, it was pretty good.

And that's predominantly the ITI for bank?

In number of contracts signed, there's no question that ITI had a great year. CBS also have a very strong year and some very large deals that they signed, both domestically and internationally.

Great -- and congrats on the quarter.

John Kraft, D. A. Davidson.

Congratulations on the nice improvement in the FIO organic growth. On that line, just to dig in a bit, would you say that the Sovereign issue hurt again by a full percentage point or so?

The Sovereign -- regarding the check processing, we did have a negative impact, again, a little bit in the fourth quarter -- not as dramatic as the previous. But that will be annualized out starting next year.

Starting in Q1, right?

Correct.

And then second question about the Australian deal. Any expectations of when you could start seeing some revenue? And I guess maybe what would you expect for '05 as far as revenue from that?

You know, I would say before you start seeing anything, you're probably talking late second quarter or third quarter. And at this stage, we'd rather wait until we have the agreement signed before we release any real numbers on when that is going to -- and how much that is going to start impacting us. But it will be a second half event.

Roger Freeman, Lehman Brothers.

Just to come back to the onetime items, so if you had 8 cents from contract terminations and 8 to 10 million as a normal run rate, then would be fair to maybe just back out something in the 5- to 6-cent range?

Roger, just to clarify that, the amount we've disclosed of 27 million or 8 cents was the increase over 2003. So we assume the standard baseline there of, like I indicated, 8 to 10. But this was the incremental amount that we are reflecting in the 8 cents.

So you have to back out the whole 27, which is 8 cents.

That's correct.

Got you, okay. Now I guess in the first 3 quarters, you had disclosed a total of about 19 million and now it's 27. I was just wondering if you could walk through where the other -- I guess you said there was a couple of million in the fourth quarter. But where are the additional one-timers coming from?

Let me explain that. There was -- disclosed 8 million in the first quarter that was from a single client. We disclosed 11 million in the third quarter. So in addition, there was another 2 to 3 million in that first quarter, second quarter, fourth quarter. So all that added up together was about 27 million.

Okay. And I guess just on a separate subject, there was an article in the Post this morning saying that Cendant might be selling its Wright Express unit instead of IPO-ing it, and you were listed as one of the potential buyers. I was wondering, Les, if you could maybe comment on what you think about that business, how it might fit into your overall?

We just can't comment on acquisitions, whether we're in them or not in them and what we think about them, just -- in this business, you just can't do that.

Sam, we have time for 1 more question.

Dris Upitis, Credit Suisse First Boston.

It's Tom Arsenkowski (ph) calling in for Dris. Just 2 quick questions. First, on the financial segment, I believe you mentioned that the reclassification of revenues didn't have an impact on internal growth there. I was just wondering if there was any impact from that reclassification in regards to sort of the margin improvement that we saw year to year?

No.

And then just on the EPS guidance for the full year, I was just wondering -- as you move through the larger deal pipeline, can we expect sort of a similar dilution on some of those deals, those numbers, or is that already built in?

No, it could happen. We've had other big deals that we've signed and had no dilution upfront. But there is likely going forward if we sign additional big deals to be some minor dilution.

Ma'am, are you turning it back over to me?

Yes, I am, Mr. Muma.

Thank you very much. I'd like to thank everybody on the call for their interest in Fiserv and their questions, and also point out for those that did not get a question answered, feel free to call Management. We appreciate your time and have a great day.