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[February 22, 2013]
FISERV INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge) Management's discussion and analysis of financial condition and results of operations is provided as a supplement to our consolidated financial statements and accompanying notes to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations.
Our discussion is organized as follows: • Overview. This section contains background information on our company and the services and products that we provide, our enterprise priorities and the trends and business developments affecting our industry in order to provide context for management's discussion and analysis of our financial condition and results of operations.
• Critical accounting policies. This section contains a discussion of the accounting policies that we believe are important to our financial condition and results of operations and that require judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including critical accounting policies, are summarized in Note 1 to the accompanying consolidated financial statements.
• Results of operations. This section contains an analysis of our results of operations presented in the accompanying consolidated statements of income by comparing the results for the year ended December 31, 2012 to the results for the year ended December 31, 2011 and by comparing the results for the year ended December 31, 2011 to the results for the year ended December 31, 2010.
• Liquidity and capital resources. This section provides an analysis of our cash flows and a discussion of our outstanding debt and commitments at December 31, 2012.
20 -------------------------------------------------------------------------------- Overview Company Background We are a leading global provider of financial services technology. We provide account processing systems, electronic payments processing products and services, internet and mobile banking systems, and related services. We serve approximately 16,000 clients worldwide, including banks, thrifts, credit unions, investment management firms, leasing and finance companies, retailers, merchants and government agencies. The majority of our revenue is generated from recurring account- and transaction-based fees under contracts that generally have terms of three to five years. We also have had high contract renewal rates with our clients. The majority of the services we provide are necessary for our clients to operate their business and are, therefore, non-discretionary in nature.
Our operations are primarily in the United States and are comprised of the Payments and Industry Products ("Payments") segment and the Financial Institution Services ("Financial") segment. The Payments segment primarily provides electronic bill payment and presentment services, debit and other card-based payment products and services, internet and mobile banking software and services, and other electronic payments software and services including account-to-account transfers and person-to-person payments. Our businesses in this segment also provide investment account processing services for separately managed accounts, card and print personalization services, and fraud and risk management products and services. The Financial segment provides banks, thrifts and credit unions with account processing services, item processing and source capture services, loan origination and servicing products, cash management and consulting services, and other products and services that support numerous types of financial transactions. The Corporate and Other segment primarily consists of unallocated corporate expenses, amortization of acquisition-related intangible assets and intercompany eliminations.
On January 14, 2013, we acquired Open Solutions Inc. ("Open Solutions"), a provider of account processing technology for financial institutions for a cash purchase price of $55 million. We also assumed approximately $960 million of Open Solutions' debt in connection with the acquisition. This acquisition advances Fiserv's go-to-market strategies by adding a number of products and services and by expanding the number of account processing clients to which we can provide a broad array of our add-on solutions.
In September 2011, we acquired CashEdge Inc. ("CashEdge"), a leading provider of consumer and business payments solutions such as account-to-account transfer, account opening and funding, data aggregation, small business invoicing and payments, and person-to-person payments, for approximately $460 million, net of cash acquired. The acquisition of CashEdge has advanced our digital payments strategy. In the first quarter of 2011, we acquired Mobile Commerce Ltd.
("M-Com"), an international mobile banking and payments provider, and two other companies for an aggregate purchase price of approximately $50 million, net of cash acquired. M-Com has enhanced our mobile and payments capabilities, and the other acquired companies have added to or enhanced specific products or services that we already provide.
Enterprise Priorities We continue to implement a series of strategic initiatives to help accomplish our mission of providing integrated technology and services solutions that enable best-in-class results for our clients. These strategic initiatives include active portfolio management of our various businesses, enhancing the overall value of our existing client relationships, improving operational effectiveness, being disciplined in our allocation of capital, and differentiating our products and services through innovation. Our key enterprise priorities for 2013 are: (i) to continue to build high-quality revenue growth and meet our earnings commitments; (ii) to extend market momentum into deeper client relationships and a larger share of our strategic solutions; and (iii) to deliver innovation and integration to enhance results for our clients.
21-------------------------------------------------------------------------------- Industry Trends Market and regulatory conditions have continued to create a difficult operating environment for financial institutions and other businesses in the United States and internationally. In addition, legislation such as the Dodd-Frank Wall Street Reform and Consumer Protection Act has generated, and will continue to generate, numerous new regulations that will impact the financial industry. Financial institutions have generally remained cautious in their information technology spending as a result. These conditions have, however, created interest in solutions that help financial institutions win and retain customers, generate incremental revenue and enhance operating efficiency. Examples of these solutions include our digital channels and electronic payments solutions, including mobile banking and person-to-person payments. Despite the difficult environment over the past several years, our revenue increased 3% to $4.5 billion in 2012 as compared to 2011, our net income per share from continuing operations increased to $4.34 as compared to $3.40 in 2011, which included a loss from early debt extinguishment in 2011 of $0.37 per share, and net cash provided by operating activities from continuing operations was $835 million. We believe these financial results demonstrate the resilience of our recurring, fee-based revenue model, the largely non-discretionary nature of our products and services, and mild improvement in the general condition of the financial industry. We anticipate that we will benefit over the long term from the trend of financial institutions moving from in-house technology solutions to outsourced solutions.
During the past 25 years, the number of financial institutions in the United States has declined at a relatively steady rate of approximately 3% per year.
This decline is primarily a result of voluntary mergers and acquisitions, although in the past several years was also due to government actions. In 2012, the number of government actions continued to decline as compared to 2011 and 2010. Although these reductions in the number of financial institutions resulted in the loss of a small number of our clients, bank failures and forced consolidations have been, to some extent, offset by a general decline in the number of mergers and acquisitions among financial institutions. A consolidation benefits us when a newly combined institution is processed on our platform, or elects to move to one of our platforms, and negatively impacts us when a competing platform is selected. Consolidations and acquisitions also impact our financial results due to early contract termination fees in our multi-year client contracts. Contract termination fees are primarily generated when an existing client with a multi-year contract is acquired by another financial institution. These fees can vary from period to period based on the number and size of clients that are acquired and how early in the contract term the contract is terminated. We generally do not receive contract termination fees when a financial institution is subject to a government action.
Business Developments We continue to invest in the development of new and strategic products in categories such as payments, including Popmoney for person-to-person payments; Mobiliti for mobile banking and payments services; and others that we believe will increase value to our clients and enhance the capabilities of our existing solutions. We believe our wide range of market-leading solutions along with the investments we are making in new and differentiated products will favorably position us and our clients to capitalize on opportunities in the marketplace.
Critical Accounting Policies General Our consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires our management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue and expenses. We continually evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. We base our estimates on historical experience and assumptions that we believe are reasonable in light of current circumstances.
Actual amounts and results could differ materially from these estimates.
22-------------------------------------------------------------------------------- Acquisitions We allocate the purchase price of acquired businesses to the assets acquired and liabilities assumed in the transaction at their estimated fair values. The estimates used to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments. We use information available to us to make fair value determinations and engage independent valuation specialists, when necessary, to assist in the fair value determination of significant acquired long-lived assets. We are also required to estimate the useful lives of intangible assets to determine the amount of acquisition-related intangible asset amortization expense to record in future periods. We periodically review the estimated useful lives assigned to our intangible assets to determine whether such estimated useful lives continue to be appropriate.
Goodwill and Acquired Intangible Assets We review the carrying value of goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is tested for impairment at a reporting unit level, determined to be at an operating segment level or one level below. We have not aggregated any operating segments into reporting units for purposes of conducting goodwill impairment testing. When reviewing goodwill for impairment, we first assess numerous qualitative factors to determine whether it is more likely than not that the fair value of our reporting units are less than their respective carrying values. Examples of qualitative factors that we assess include our share price, our financial performance, market and competitive factors in our industry and other events specific to our reporting units. If it is concluded that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or to the extent a reorganization or disposition changes the composition of one or more of our reporting units, then we perform a quantitative two-step goodwill impairment test. The first step in this test is to compare the fair value of the reporting unit to its carrying value. We determine the fair value of a reporting unit based on the present value of estimated future cash flows. If the fair value of the reporting unit exceeds the carrying value of the unit's net assets, goodwill of that reporting unit is not impaired and further testing is not required. If the carrying value of the reporting unit's net assets exceeds the fair value of the unit, then we perform the second step of the impairment test to determine the implied fair value of the reporting unit's goodwill and any impairment charge. Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include assumptions regarding the revenue growth rates and operating margins used to calculate estimated future cash flows, risk-adjusted discount rates and future economic and market conditions.
Our most recent impairment assessment in the fourth quarter of 2012 determined that our goodwill was not impaired. Based on the most recent fair value estimates, the fair value of each of our reporting units exceeded its carrying value by a substantial margin.
We review acquired intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Recoverability is assessed by comparing the carrying amount of the asset to the undiscounted future cash flows expected to be generated by the asset. Measurement of any impairment loss is based on estimated fair value.
Given the significance of our goodwill and intangible asset balances, an adverse change in fair value could result in an impairment charge, which could be material to our consolidated financial statements. Based on our impairment assessments in 2012, we determined that our acquired intangible assets were not impaired.
Revenue Recognition The majority of our revenue is generated from monthly account- and transaction-based fees. Deferred revenue consists primarily of advance billings for services. Revenue is recognized as services are provided and is primarily recognized under service agreements that are long-term in nature, generally three to five years, and that do not require management to make significant judgments or assumptions. Additionally, given the nature of our business and the rules governing revenue recognition, our revenue recognition practices generally do not involve significant estimates that materially affect our results of operations. Additional information about our revenue recognition policies is included in Note 1 to the consolidated financial statements.
23-------------------------------------------------------------------------------- Results of Operations Components of Revenue and Expenses The following summary describes the components of revenue and expenses as presented in our consolidated statements of income. A description of our revenue recognition policies is included in Note 1 to the consolidated financial statements.
Processing and Services Processing and services revenue, which in 2012 represented 83% of our consolidated revenue, is primarily generated from account- and transaction-based fees under contracts that generally have terms of three to five years. Revenue is recognized when the related transactions are processed and services have been performed. Processing and services revenue is most reflective of our business performance because a significant amount of our total operating profit is generated by these services. Cost of processing and services includes costs directly associated with providing services to clients and includes the following: personnel; equipment and data communication; infrastructure costs, including costs to maintain software applications; client support; depreciation and amortization; and other operating expenses.
Product Product revenue, which in 2012 represented 17% of our consolidated revenue, is derived from integrated print and card production (13%) and software licenses (4%). Cost of product includes costs directly associated with the products sold and includes the following: costs of materials and software development; personnel; infrastructure costs; depreciation and amortization; and other costs directly associated with product revenue.
Selling, General and Administrative Expenses Selling, general and administrative expenses primarily consist of: salaries, wages and related expenses paid to sales personnel, administrative employees, and management; advertising and promotional costs; depreciation and amortization; and other selling and administrative expenses.
24-------------------------------------------------------------------------------- Financial Results The following table presents certain amounts included in our consolidated statements of income, the relative percentage that those amounts represent to revenue and the change in those amounts from year to year. This information should be read together with the consolidated financial statements and accompanying notes.
Year ended December 31, Percentage of Revenue (1) Increase (Decrease) (In millions) 2012 2011 2010 2012 2011 2010 2012 vs. 2011 2011 vs. 2010 Revenue: Processing and services $ 3,709 $ 3,543 $ 3,415 82.8 % 81.7 % 82.6 % $ 166 5 % $ 128 4 % Product 773 794 718 17.2 % 18.3 % 17.4 % (21 ) (3 %) 76 11 % Total revenue 4,482 4,337 4,133 100 % 100 % 100 % 145 3 % 204 5 % Expenses:Cost of processing and services 1,969 1,941 1,853 53.1 % 54.8 % 54.3 % 28 1 % 88 5 % Cost of product 628 601 533 81.2 % 75.7 % 74.2 % 27 4 % 68 13 % Sub-total 2,597 2,542 2,386 57.9 % 58.6 % 57.7 % 55 2 % 156 7 % Selling, general and administrative 829 799 740 18.5 % 18.4 % 17.9 % 30 4 % 59 8 % Total expenses 3,426 3,341 3,126 76.4 % 77.0 % 75.6 % 85 3 % 215 7 % Operating income 1,056 996 1,007 23.6 % 23.0 % 24.4 % 60 6 % (11 ) (1 %) Interest expense (174 ) (188 ) (198 ) (3.9 %) (4.3 %) (4.8 %) (14 ) (7 %) (10 ) (5 %) Interest and investment income 7 6 10 0.2 % 0.1 % 0.2 % 1 17 % (4 ) (40 %) Loss on early debt extinguishment - (85 ) (26 ) - (2.0 %) (0.6 %) (85 ) (100 %) 59 227 % Income from continuing operations before income taxes and income from investment in unconsolidated affiliate $ 889 $ 729 $ 793 19.8 % 16.8 % 19.2 % $ 160 22 % $ (64 ) (8 %) (1) Percentage of revenue is calculated as the relevant revenue, expense, income or loss amount divided by total revenue, except for cost of processing and services and cost of product amounts which are divided by the related component of revenue.
25 --------------------------------------------------------------------------------Year ended December 31, Corporate (In millions) Payments Financial and Other Total Total revenue: 2012 $ 2,489 $ 2,040 $ (47 ) $ 4,482 2011 2,381 2,004 (48 ) 4,337 2010 2,208 1,951 (26 ) 4,133 2012 Revenue growth $ 108 $ 36 $ 1 $ 145 2012 Revenue growth percentage 5 % 2 % 3 % 2011 Revenue growth $ 173 $ 53 $ (22 ) $ 204 2011 Revenue growth percentage 8 % 3 % 5 % Operating income: 2012 $ 668 $ 652 $ (264 ) $ 1,056 2011 656 613 (273 ) 996 2010 625 591 (209 ) 1,007 Operating income growth: 2012 $ 12 $ 39 $ 9 $ 60 2012 percentage 2 % 6 % 6 % 2011 $ 31 $ 22 $ (64 ) $ (11 ) 2011 percentage 5 % 4 % (1 %) Operating margin: 2012 26.8 % 32.0 % 23.6 % 2011 27.5 % 30.6 % 23.0 % 2010 28.3 % 30.3 % 24.4 % Operating margin growth: (1) 2012 (0.7 %) 1.4 % 0.6 % 2011 (0.8 %) 0.3 % (1.4 %) (1) Represents the percentage point growth or decline in operating margin.
Total Revenue Total revenue increased $145 million, or 3%, in 2012 and increased $204 million, or 5%, in 2011 compared to the prior years. The increase in total revenue during 2012 was primarily due to 5% revenue growth in our Payments segment and 2% revenue growth in our Financial segment, in each case, as compared to 2011. The increase in total revenue during 2011 was primarily due to 8% revenue growth in our Payments segment and 3% revenue growth in our Financial segment, in each case, as compared to 2010. Revenue from acquired companies contributed $43 million and $30 million to revenue in 2012 and 2011, respectively.
Revenue in our Payments segment increased $108 million, or 5%, in 2012 and increased $173 million, or 8%, in 2011 compared to the prior years. Revenue growth in our Payments segment during 2012 and 2011 was primarily driven by our recurring revenue businesses as processing and services revenue increased $98 million and $99 million in 2012 and 2011, respectively, or 6% each year. The growth in both years was primarily due to new clients and increased transaction volumes from existing clients in our card services business as well as our digital channels business, which includes our mobile banking solution. Revenue from acquired companies totaled $40 million and $26 million in 2012 and 2011, respectively, and positively impacted revenue growth by approximately two percentage points and one percentage point in the respective periods. In addition, higher postage pass-through revenue, which is included in both product revenue and cost of product in our output solutions business, contributed to growth in this segment by approximately one percentage point in 2012 and three percentage points in 2011. The positive growth in 2012 was partially offset by lower revenue in our electronic bill payment business, driven primarily by the loss of a client that was acquired by another financial institution.
26 -------------------------------------------------------------------------------- Revenue in our Financial segment increased $36 million, or 2%, in 2012 and increased $53 million, or 3%, in 2011 compared to the prior years. Revenue growth in our Financial segment was favorably impacted by increases of $67 million, or 4%, and $42 million, or 2%, in 2012 and 2011, respectively, in processing and services revenue due primarily to increased revenue in our account processing and lending businesses, partially offset by volume declines in our check processing business. In addition, Financial segment growth was negatively impacted by approximately two percentage points in 2012 primarily due to lower software license revenue.
Total Expenses Total expenses increased $85 million, or 3%, in 2012 compared to 2011 and increased $215 million, or 7%, in 2011 compared to 2010. Total expenses as a percentage of total revenue were 76.4%, 77.0% and 75.6% in 2012, 2011 and 2010, respectively.
Cost of processing and services as a percentage of processing and services revenue decreased to 53.1% in 2012 and increased to 54.8% in 2011 from 54.3% in 2010. In 2012 and 2011, cost of processing and services as a percentage of processing and services revenue was favorably impacted by increased operating leverage in our recurring revenue businesses and operating efficiency initiatives across the company that lowered our overall cost structure. In 2011, this positive impact was offset by increased expenses associated with the development and support of new and existing products and services.
Cost of product as a percentage of product revenue was 81.2% in 2012 compared to 75.7% in 2011 and 74.2% in 2010. The increase in cost of product as a percentage of product revenue in 2012 was primarily due to a decrease in high-margin software license sales as compared to 2011. The cost of product as a percentage of product revenue in both 2012 and 2011 was also impacted by an increase in postage pass-through revenue and expenses in our output solutions business.
Selling, general and administrative expenses increased $30 million, or 4%, and $59 million, or 8%, in 2012 and 2011, respectively, compared to the prior years; however, selling, general and administrative expense as a percentage of total revenue was relatively consistent in 2012 at 18.5% compared to 18.4% in 2011.
The increase in selling, general and administrative expenses in 2011 was primarily in the Corporate and Other segment and was due to employee severance and merger and integration expenses.
Operating Income and Operating Margin Total operating income increased $60 million, or 6%, in 2012 and decreased $11 million, or 1%, in 2011 compared to the prior years. Operating margin increased to 23.6% in 2012 from 23.0% in 2011 and decreased in 2011 from 24.4% in 2010.
The operating margin improvement of 60 basis points in 2012 was due in part to increased operating leverage in our recurring revenue businesses and operational effectiveness activities that lowered our overall cost structure. The operating margin decline of 140 basis points in 2011 was primarily due to increased operating losses in the Corporate and Other segment primarily attributable to higher employee severance, merger and integration costs and amortization of acquisition-related intangible assets.
Operating income in our Payments segment increased $12 million, or 2%, and $31 million, or 5%, in 2012 and 2011, respectively, compared to the prior years, primarily due to growth and operating leverage in our card services business.
Operating margins were 26.8%, 27.5% and 28.3% in 2012, 2011 and 2010, respectively, and decreased 70 basis points in 2012 and 80 basis points in 2011.
Payments segment operating margins in 2012 and 2011 were negatively impacted by increased expenses associated with the development, support and integration of new products and services, including Popmoney for person-to-person payments and Mobiliti for mobile banking and payment services. Operating margin was also negatively impacted in 2012 by a decrease in higher-margin software license revenue and by lower revenue in our electronic bill payment business driven primarily by the loss of a client that was acquired by another financial institution. In addition, operating margins in the Payments segment in 2012 and 2011 were negatively impacted by increased postage pass-through costs, which are included in both revenue and expenses.
27 -------------------------------------------------------------------------------- Operating income in our Financial segment increased $39 million, or 6%, and $22 million, or 4%, in 2012 and 2011, respectively, compared to the prior years.
Operating margins improved in both years and were 32.0%, 30.6% and 30.3% in 2012, 2011 and 2010, respectively. These improvements in operating income and operating margin in 2012 were primarily due to improved revenue growth and scale efficiencies in our account processing and lending businesses and operating efficiencies in our item processing businesses, partially offset by a decrease in higher-margin software license revenue. Operating margin in 2011 was consistent with 2010.
The operating loss in the Corporate and Other segment decreased $9 million in 2012 and increased $64 million in 2011 compared to the prior years. The changes in operating loss were primarily due to employee severance and merger and integration costs which, in total, decreased $10 million in 2012 and increased $35 million in 2011 as compared to the respective prior year periods. In addition, the remaining increase in 2011 was also attributable to higher amortization of acquisition-related intangible assets.
Interest Expense Interest expense decreased $14 million, or 7%, and $10 million, or 5%, in 2012 and 2011, respectively, compared to the prior years. These decreases were primarily due to lower average interest rates in 2012 and 2011 as compared to the prior years as a result of our debt refinancing activities. In 2012, interest expense was negatively impacted by $4 million of expense associated with hedge ineffectiveness recognized upon the settlement of our forward-starting interest rate swap agreements ("Forward-Starting Swaps") in September of 2012.
Loss on Early Debt Extinguishment In 2011 and 2010, we issued $1.0 billion and $750 million principal amount of senior notes, respectively, in public debt offerings and used proceeds from the offerings to repay our senior notes which matured in November 2012. The premium paid on the early retirement of debt and other costs associated with the transactions resulted in pre-tax charges of $85 million in 2011 and $26 million in 2010.
Income Tax Provision Our effective income tax rate for continuing operations was 34.0% in 2012, 35.1% in 2011 and 38.0% in 2010. The lower effective tax rate in 2012 compared to 2011 was primarily due to increased deductions resulting from federal tax planning initiatives, including the associated discrete tax benefits. The lower effective tax rate in 2011 compared to 2010 was primarily due to the resolution of tax audits and changes in state tax laws.
Income from Investment in Unconsolidated Affiliate Our 49% share of the income of StoneRiver Group, L.P. ("StoneRiver") was $11 million, $18 million and $14 million in 2012, 2011 and 2010, respectively. In 2011, the increase in income was primarily due to a $3 million gain, representing our share, on the sale of a business by StoneRiver.
Income (Loss) from Discontinued Operations Income (loss) from discontinued operations related to prior dispositions totaled $14 million, $(19) million and $(10) million in 2012, 2011 and 2010, respectively, and included income tax (expense) benefits of $(10) million, $13 million and $14 million, respectively.
Net Income Per Share - Diluted from Continuing Operations Net income per share-diluted from continuing operations was $4.34 in 2012 compared to $3.40 in 2011 and $3.34 in 2010. Net income per share-diluted from continuing operations was negatively impacted by a loss on early debt extinguishment of $0.37 per share in 2011. The amortization of acquisition-related intangible assets also reduced net income per share-diluted from continuing operations by $0.76, $0.69 and $0.60 in 2012, 2011 and 2010, respectively.
28 -------------------------------------------------------------------------------- Liquidity and Capital Resources Our primary liquidity needs are: (i) to fund normal operating expenses; (ii) to meet the interest and principal requirements of our outstanding indebtedness; and (iii) to fund capital expenditures and operating lease payments. We believe these needs will be satisfied using cash flow generated by our operations, our cash and cash equivalents of $358 million at December 31, 2012 and available borrowings under our revolving credit facility.
Year Ended December 31, Increase (Decrease) (In millions) 2012 2011 $ % Income from continuing operations $ 597 $ 491 $ 106 Depreciation and amortization 354 349 5 Share-based compensation 44 39 5 Deferred income taxes 5 29 (24 ) Settlement of interest rate hedge contracts (88 ) (6 ) (82 ) Dividends from unconsolidated affiliate 23 12 11 Loss on early debt extinguishment - 85 (85 ) Net changes in working capital and other (100 ) (46 ) (54 ) Operating cash flow $ 835 $ 953 $ (118 ) (12 %) Capital expenditures $ 195 $ 192 $ 3 2 % Our net cash provided by operating activities, or operating cash flow, was $835 million in 2012, a decrease of 12% compared with $953 million in 2011 primarily due to a payment of $88 million for the settlement of Forward-Starting Swaps in the third quarter of 2012 and due to working capital changes. In 2012, our working capital was negatively impacted by an increase in payments for discretionary and incentive-based employee compensation, including company 401k profit sharing contributions, and higher income tax payments in 2012 compared to 2011, partially offset by improved accounts receivable collections in 2012. Our current policy is to use our operating cash flow primarily to repay debt and to fund capital expenditures, acquisitions and share repurchases, rather than to pay dividends. Our capital expenditures of $195 million in 2012 remained relatively consistent with 2011 expenditures and were less than 5% of our total revenue in each year.
In 2012 and 2011, we received cash dividends of $55 million and $54 million, respectively, from StoneRiver. The portions of these dividends that represented returns on our investment, $23 million in 2012 and $12 million in 2011, are reported in cash flows from operating activities. In 2011, we acquired CashEdge, M-Com and two other companies for an aggregate purchase price of $511 million, net of cash acquired.
Share Repurchases We purchased $634 million, $533 million and $413 million of our common stock in 2012, 2011 and 2010, respectively. On February 22, 2012, our board of directors authorized the purchase of up to ten million shares of our common stock. As of December 31, 2012, we had approximately 5.6 million shares remaining under this authorization. Shares repurchased are generally held for issuance in connection with our equity plans.
29 -------------------------------------------------------------------------------- Indebtedness December 31, (In millions) 2012 2011 Revolving credit facility $ 280 $ - 3.125% senior notes due 2015 300 299 3.125% senior notes due 2016 600 599 6.8% senior notes due 2017 500 500 4.625% senior notes due 2020 449 449 4.75% senior notes due 2021 399 399 3.5% senior notes due 2022 697 - Senior term loan - 1,100 Other borrowings 5 49 Long-term debt (including current maturities) $ 3,230 $ 3,395 In September 2012, we issued $700 million aggregate principal amount of senior notes due in 2022 and used the net proceeds from this offering primarily to repay a portion of our senior term loan that was due in November 2012. The remaining outstanding amount of the term loan was repaid upon maturity using available borrowings under our revolving credit facility and available cash. At December 31, 2012, our long-term debt consisted primarily of $2.95 billion of senior notes and $280 million in borrowings outstanding under the revolving credit facility. We were in compliance with all financial debt covenants in 2012.
The acquisition of Open Solutions on January 14, 2013 for a cash purchase price of $55 million and repayment of assumed debt of $960 million was funded in 2013 utilizing a combination of available cash and existing availability under our revolving credit facility.
Revolving Credit Facility In August 2012, we entered into a $2.0 billion Amended and Restated Credit Agreement with a syndicate of banks, replacing our existing $1.0 billion revolving credit facility, which was scheduled to expire in September 2014.
Borrowings under the amended revolving credit facility bear interest at a variable rate based on LIBOR plus a specified margin or the bank's base rate (1.3% at December 31, 2012). There are no significant commitment fees and no compensating balance requirements. The facility expires on August 1, 2017 and contains various restrictions and covenants that require us, among other things, to (i) limit our consolidated indebtedness as of the end of each fiscal quarter to no more than three and one-half times consolidated net earnings before interest, taxes, depreciation and amortization and certain other adjustments during the period of four fiscal quarters then ended, and (ii) maintain consolidated net earnings before interest, taxes, depreciation and amortization and certain other adjustments of at least three times consolidated interest expense as of the end of each fiscal quarter for the period of four fiscal quarters then ended.
Senior Notes In September 2012, we issued $700 million aggregate principal amount of 3.5% senior notes due in October 2022, which pay interest semi-annually on April 1 and October 1 of each year, commencing on April 1, 2013. In June 2011, we issued $1.0 billion of senior notes comprised of $600 million of 3.125% senior notes due in June 2016 and $400 million of 4.75% senior notes due in June 2021, which pay interest semi-annually on June 15 and December 15 of each year. Our 3.125% senior notes due in October 2015 and our 4.625% senior notes due in October 2020 pay interest at the stated rate on April 1 and October 1 of each year. Our 6.8% senior notes due in November 2017 pay interest at the stated rate on May 20 and November 20 of each year. The interest rates 30 -------------------------------------------------------------------------------- applicable to the senior notes are subject to an increase of up to two percent in the event that our credit rating is downgraded below investment grade. The indenture governing the senior notes contains covenants that, among other matters, limit (i) our ability to consolidate or merge into, or convey, transfer or lease all or substantially all of our properties and assets to, another person, (ii) our and certain of our subsidiaries' ability to create or assume liens, and (iii) our and certain of our subsidiaries' ability to engage in sale and leaseback transactions.
In June 2011, we purchased $700 million aggregate principal amount of our 6.125% senior notes due in November 2012 in a tender offer for $754 million, and in July 2011, we redeemed the remaining $300 million aggregate principal amount of these notes for $322 million.
Senior Term Loan Our senior term loan matured in November 2012 and was repaid using a combination of proceeds from the September 2012 issuance of senior notes, our revolving credit facility and available cash. Term loan borrowings under this facility bore interest at a variable rate based on LIBOR plus a specified margin or the bank's base rate.
Interest Rate Hedge Contracts To manage exposure to fluctuations in interest rates, we maintained Forward-Starting Swaps, designated as cash flow hedges, with a total notional value of $550 million to hedge against changes in interest rates applicable to forecasted five-year and ten-year fixed rate borrowings. Upon the issuance of senior notes in September 2012, we paid $88 million, included in cash flows from operating activities, to settle the Forward-Starting Swaps and recognized approximately $4 million of interest expense due to hedge ineffectiveness. The remaining $84 million is recorded in accumulated other comprehensive loss, net of income taxes of $33 million, and will be recognized as interest expense over the terms of the originally forecasted interest payments. In addition, we maintained interest rate swap agreements ("Swaps"), designated as cash flow hedges, with a total notional value of $1.0 billion to hedge against changes in interest rates on floating rate term loan borrowings. The Swaps, which expired in September 2012, effectively fixed the interest rate on floating rate term loan borrowings at a weighted-average rate of approximately 5.0% prior to financing spreads and related fees. There were no Swaps outstanding as of December 31, 2012.
Shelf Registration Statement In 2010, we filed a "shelf" registration statement with the Securities and Exchange Commission. Under the registration statement, we may sell common stock, preferred stock and debt securities, or a combination thereof. Each time we sell securities pursuant to the shelf registration statement, we will provide a prospectus supplement that will contain specific information about the terms of the securities being offered and of the offering. We may offer and sell the securities pursuant to this prospectus from time to time in one or more of the following ways: through underwriters or dealers, through agents, directly to purchasers or through a combination of any of these methods of sales. Proceeds from the sale of these securities may be used to repay debt or for working capital, acquisitions or general corporate purposes.
Other Access to capital markets impacts our cost of capital, our ability to refinance maturing debt and our ability to fund future acquisitions. Our ability to access capital on favorable terms depends on a number of factors, including general market conditions, interest rates, credit ratings on our debt securities, perception of our potential future earnings and the market price of our common stock. As of December 31, 2012, we had a credit rating of Baa2 with a stable outlook from Moody's Investors Service, Inc. ("Moody's") and BBB- with a stable outlook from Standard & Poor's Ratings Services ("S&P") on our senior unsecured debt securities.
31 -------------------------------------------------------------------------------- The interest rate payable on our senior notes is subject to adjustment from time to time if Moody's or S&P downgrades (or subsequently upgrades) the debt rating applicable to the notes. If the ratings from Moody's or S&P decrease below investment grade, the per annum interest rate on the notes is subject to increase by up to two percent. In no event will the per annum interest rate be reduced below the original interest rate applicable to the senior notes nor will the total increase in the per annum interest rate exceed two percent above the original interest rate.
Off-Balance Sheet Arrangements and Contractual Obligations We do not participate in, nor have we created, any off-balance sheet variable interest entities or other off-balance sheet financing, other than letters of credit. The following table details our contractual cash obligations at December 31, 2012: (In millions) Less than More than Total 1 year 1-3 years 3-5 years 5 years Long-term debt including interest (1) $ 4,064 $ 132 $ 560 $ 1,588 $ 1,784 Minimum operating lease payments (1) 274 73 109 60 32 Purchase obligations (1) 280 129 127 11 13 Income tax obligations 56 8 31 10 7 Total $ 4,674 $ 342 $ 827 $ 1,669 $ 1,836 (1) Interest, operating lease and purchase obligations are reported on a pre-tax basis.
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