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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

OR

For the Quarter Ended September 30, 2002

Commission File Number 0-20312

FIDELITY NATIONAL INFORMATION SOLUTIONS, INC.

(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.

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FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 2002

INDEX

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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)

See Notes to Consolidated Financial Statements

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FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)

(1) Excludes $5.5 million of stock option compensation costs that are included in merger related costs.

See Notes to Consolidated Financial Statements

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FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

See Notes to Consolidated Financial Statements

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FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See Notes to Consolidated Financial Statements

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FIDELITY NATIONAL INFORMATION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A – Summary of Certain Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The financial information included in this report includes the accounts of Fidelity National Information Solutions, Inc. and its subsidiaries (collectively, the “Company” or “FNIS”) and has been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Annual Reports on Form 10-K of the Company and of Micro General Corporation, which was acquired by the Company on July 9, 2002, for the year ended December 31, 2001.

Certain reclassifications have been made in the 2001 Consolidated Financial Statements to conform to the classifications in 2002. These include those adjustments and reclassifications necessary to reflect the merger of Micro General in a manner similar to a pooling-of-interests. See Note B.

Investments

Short-term investments, which consist primarily of money market instruments, which have an original maturity of one year or less, are carried at amortized cost, which approximates fair value.

Software Development Costs

Costs incurred internally in creating computer software to be leased or sold or for internal use are charged to expense when incurred until technological feasibility has been established. Technological feasibility is established upon completion of a detailed program design or, in its absence, completion of a working model. Costs incurred in developing software intended for internal use are capitalized after the initial planning phase is completed. Thereafter, certain software production costs are capitalized and subsequently reported at the lower of unamortized costs or net realizable value. Capitalized costs are amortized based on their economic life, generally 3 to 10 years.

Costs in Excess of Net Assets Acquired and Other Intangible Assets

The Company has made certain acquisitions in the past that resulted in recording significant cost in excess of net assets acquired and other intangible assets. In 2001 cost in excess of net assets acquired was amortized on a straight-line basis over 15 years. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Intangible Assets”, effective 2002, these amounts are no longer amortized but are tested for impairment annually through a comparison of the assets’ fair value to their carrying value. Accordingly, the Company performed an analysis as of January 1, 2002 and determined that no impairment had occurred. Other intangible assets that meet certain criteria will continue to be amortized and are also subject to an impairment test based on estimated fair value. See Note E.

Revenue Recognition

The Company recognizes revenue from the sale of services or data when evidence of the arrangement exists, delivery has occurred, the sales price has been determined and collectibility is deemed probable, generally in the month in which the report is shipped or in which information is transmitted to the customer, in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition” (“SAB 101”). The flood and tax units of the Company provide various services including life of loan monitoring services. A portion of such revenues received are deferred and recognized ratably over the estimated average life of the loan portfolio from which the revenue is derived. The amount deferred is approximately 25% for flood and 50% for tax of the total life of loan monitoring revenue received and is based on the estimated value of the services to be provided over the life of the loan.

Revenue from the sale of software is recognized in the month in which the revenue recognition criteria of Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”) are met, generally the month in which the software is shipped to the customer.

Systems solutions sold to customers may involve a selection of the following elements: computer hardware (sold or leased), internally developed software, telecommunications services, information security, training and customer support. These systems solutions services have been accounted for under the provisions of SOP 97-2. Revenue recognition commences at the point at which the Company has delivered to the customer all elements essential to the functionality of the systems

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solution. Accordingly, the Company defers and recognize revenue associated with these arrangements ratably over the terms of the underlying agreements, commencing at contract “cutover.” Cutover is generally defined as the point at which the hardware is installed, software has been delivered, training is completed, and the service is accessible to and usable by the customer. Cash received prior to cutover are deferred and recognized as revenue ratably over the life of the contract. For certain sales, the Company provides 90 – 270 day initial maintenance and support to the customer. Costs relating to this initial support period are accrued at the time of the sale. The Company utilizes the percentage of completion method where significant customization is made to software products sold.

Certain other elements of the agreements, such as ongoing maintenance, involve separately stated fees. Revenues associated with such other elements are recognized over the periods during which the services are performed, generally on a monthly basis.

Hardware may be sold or leased to the Company’s systems solutions customers. Such hardware is standard, non-customized equipment that can be used for other information processing applications. Leases of hardware are generally classified as “sales-type leases” in accordance with the provisions of SOP 97-2 and SFAS No. 13, “Accounting for Leases,” and revenue is recognized upon delivery.

Revenues from providing management support and consulting services are recognized as services are performed.

Effects of Transactions with Related Parties

Included in other operating expenses for the three and nine months ended September 30, 2002 are $0.4 million and $1.1 million paid to Fidelity National Financial, Inc. (“Fidelity”). As discussed in Note C, Fidelity owns approximately 68% of the outstanding shares of the Company. These amounts paid to Fidelity are for executive and general management, accounting, legal and administrative services provided to the Company under an agreement effective August 1, 2001. Fees for the services provided are based on estimated time incurred to perform each of the functions and the estimated personnel costs for the function. Included in revenue for the three and nine months ended September 30, 2002 are $33.3 million ($30.9 million — Solutions segment; $2.4 million — Data segment) and $91.5 million ($85.9 million — Solution segment; $5.6 million — Data segment) for sales of products and services to Fidelity which is primarily related to our solutions segment.

As of September 30, 2002, the net amount owed to the Company by Fidelity for products and services was $20.2 million. The Company also has a $25.0 million secured revolving credit facility with Fidelity. As of September 30, 2002, there were no amounts outstanding under this facility. See Note F. Interest expense related to these transactions was $0.2 million for the nine months ended September 30, 2002. There was no interest expense for the three months ended September 30, 2002.

As of September  30, 2002, the Company had a $4.1 million note payable to a related party. See Note F.

Note B – Micro General Merger

On April 30, 2002, the Company announced a tender offer for all of the outstanding shares of Micro General Corporation (NASDAQ: MGEN – “MGEN” or “Micro General”), another majority owned subsidiary of Fidelity, whereby each share of MGEN common stock would be exchanged for shares of the Company’s common stock. On July 9, 2002, the Company also acquired the remaining outstanding stock of MGEN through a short-form merger. As a result of the tender offer and subsequent short-form merger MGEN became a wholly-owned subsidiary of the Company.

The tender offer and merger were based on a fixed exchange ratio of .696 shares of FNIS common stock for each share of MGEN common stock. As a result, the Company issued 12,895,721 new shares of its common stock to acquire MGEN. Prior to the merger, Fidelity held a controlling interest in both MGEN and FNIS. The acquisition of the non-controlling equity interest of MGEN (48.4%) was accounted for under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations. Under the purchase method of accounting, assets acquired and liabilities assumed are recorded at their fair values. Cost in excess of net assets acquired is created to the extent that the offer and merger consideration including certain acquisition and closing costs exceeds the fair value of the net assets acquired.

In the Company’s consolidated financial statements, this transaction is accounted for in accordance with SFAS No. 141, “Business Combinations” and FASB Technical Bulletin 85-5. Accordingly, the acquisition of the minority stockholders’ interest in MGEN (the “noncontrolled equity interest”) was recognized by the Company as the acquisition of shares from a minority interest, which is accounted for by the purchase method under SFAS No. 141. The acquisition of the equity interest controlled by Fidelity (51.6%) is not considered a business combination because FNIS and MGEN were entities under common control by Fidelity. Therefore, FNIS recorded the assets and liabilities transferred at the historical carrying value, or book value of MGEN, and the results of operations in a manner similar to a pooling-of-interests. Accordingly, all amounts contained herein have been prepared as if the transaction took place on the first day of the periods presented.

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The total purchase price of the minority interest was $153.2 million and the Company recorded cost in excess of net assets acquired of $120.0 million. The Company has recorded certain preliminary purchase accounting adjustments, which are based on estimates utilizing available information. Such purchase accounting adjustments may be revised as additional information becomes available.

Also, subsequent to the merger of MGEN into FNIS, Fidelity exercised its option to convert a $5.3 million convertible note from MGEN into 403,120 shares of FNIS common stock.

As a result of the above three transactions, Fidelity’s ownership of the outstanding stock of FNIS decreased from approximately 77% as of June 30, 2002 to approximately 68% as of September 30, 2002.

In connection with this transaction, the Company issued 1,008,896 options with an average exercise price of $14.67 and 449,790 warrants with an average exercise price of $6.68 in exchange for the outstanding MGEN options and warrants. This resulted in the Company recording stock compensation costs of $5.5 million in the third quarter. The Company also expensed transaction costs for legal, accounting, appraisal and financial advisory services of $1.9 million of which $1.2 million relates to the MGEN transaction.

Note C — Acquisitions and Dispositions

On March 20, 2000, Fidelity National Financial, Inc. (“Fidelity”) consummated a merger with Chicago Title Corporation, as a result of which Fidelity acquired Chicago Title and Trust Company (“Chicago Title”). Subsequent to the merger, Fidelity combined its flood services (“Fidelity Flood”) and credit services (“Fidelity Credit”) with the flood services (“Chicago Flood”) and credit services (“Chicago Credit”) of Chicago Title. The merged flood services business (“Fidelity National Flood, Inc.” or “Flood”) and the merged credit services business (“Fidelity National Credit Services, Inc.” or “Credit”) became wholly-owned subsidiaries of Chicago Title. Fidelity also acquired Market Intelligence, Inc. (“MI,” — together with Chicago Flood and Chicago Credit, the “Chicago Companies”). The acquisition was accounted for as a purchase, and, accordingly, the purchase price of $43.5 million was allocated to the tangible assets acquired, cost in excess of net assets acquired and liabilities assumed, at fair value, in the amounts of $26.9 million, $26.1 million, and $9.5 million, respectively.

Fidelity acquired 100% of the outstanding stock of IDM on January 3, 2001. The acquisition was accounted for as a purchase and, accordingly, the purchase price of $20.8 million was allocated to assets acquired, cost in excess of net assets acquired and liabilities assumed, at fair values, in the amounts of $1.9 million, $19.3 million, and $0.4 million, respectively.

On August 1, 2001, the Company, pursuant to an Agreement and Plan of Reorganization and Merger dated April 12, 2001, acquired IDM from Fidelity and MI, Credit, and Flood (collectively, the “Chicago Subsidiaries”) from Chicago Title, by merging the four subsidiaries with and into four previously-formed merger subsidiaries of the Company in simultaneous reverse triangular mergers (collectively, the “Mergers”). Concurrent with the Mergers, Fidelity transferred eighty percent (80%) of the issued and outstanding shares of capital stock of Fidelity National Tax Service, Inc. (“Tax” and together with IDM, the “Fidelity Subsidiaries”) to the Company (the “Share Exchange”). As a result of the Mergers and the Share Exchange, MI, Credit, Flood and IDM became wholly-owned subsidiaries of the Company, and Tax became a majority-owned subsidiary of the Company.

In consideration for the Mergers and the Share Exchange, the Company transferred to Chicago Title and Fidelity 11,703,801 shares and 5,507,671 shares of the Company’s common stock, respectively. Collectively, these shares of common stock then constituted approximately 77% of the outstanding capital stock of the Company. This transaction was a reverse merger, following which the Company became a majority-owned subsidiary of Fidelity. The Consolidated Statement of Earnings and the Consolidated Statement of Cash Flows of the Company for the nine-month period ended September 30, 2001 reflect only two months of operations and cash flows of the reorganized entity and seven months of operations and cash flows of the Fidelity Subsidiaries and the Chicago Subsidiaries. The financial statements reflect the Fidelity Subsidiaries and the Chicago Subsidiaries as the acquiror for accounting purposes.

The total purchase price of $34.8 million was allocated to the tangible assets acquired, cost in excess of net assets acquired, and liabilities assumed, at fair value, in the amounts of $43.3 million, $31.9 million, and $40.4 million, respectively.

The following selected unaudited pro forma results of operations for the nine months ended September 30, 2001 has been prepared to illustrate the effects of the purchase of the Company by the Fidelity Subsidiaries and Chicago Subsidiaries as the accounting acquiror, as if this transaction had been completed January 1, 2001. The information provided for the Fidelity Subsidiaries and Chicago Subsidiaries has been derived from the Fidelity Subsidiaries’ historical financial statements. The information provided for the Company has been derived from the historical financial statements of the Company.

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On August 2, 2001, the Company acquired 100% of the outstanding common shares of Risco, Inc. (“Risco”) from Fidelity. The results of Risco’s operations have been included in the Consolidated Financial Statements since that date. Risco was the third largest multiple listing service vendor in the United States. In connection with this acquisition, the Company issued 1,614,286 of its common stock at $7.34 per share. The total purchase price was $11.9 million and the Company recorded cost in excess of net assets acquired of $3.4 million.

On August 2, 2001, the Company purchased the assets and liabilities of Reez.com (“Reez”) from Fidelity. The results of Reez’s operations have been included in the Consolidated Financial Statements since that date. Reez’s software provides the realtor, consumer and settlement service provider with an on-line platform to schedule, track and close real estate transactions. As a result of this acquisition, the Company issued 135,971 of its common stock at $7.34 per share. The total purchase price was $1.0 million and the cost in excess of net assets acquired in connection with the acquisition was immaterial.

On October 10, 2001, the Company purchased the residual 20% minority interest in Tax for $5.4 million in cash that resulted in cost in excess of net assets acquired of $4.5 million.

On December 3, 2001, the Company purchased all the assets of HomeSeeker’s XMLSweb division in exchange for $2.0 million in cash. As a result of this acquisition, the Company recorded cost in excess of net assets acquired of $1.0 million.

On January 2, 2002, the Company acquired ISDI.NET, LLC (“ISDI”), a technology, systems integration and consulting firm, in exchange for 275,000 shares of the Company’s common stock and $1.1 million in cash. Prior to the acquisition, the Company advanced to ISDI $1.1 million, which was included in Other Assets as of December 31, 2001. As a result of this acquisition, the Company recorded cost in excess of net assets acquired of $1.3 million.

On March 25, 2002, the Company sold its Environmental Risk Management Solutions business for $15.5 million in cash, resulting in a gain of $0.3 million. Proceeds from the sale were used to pay down the $12.6 million balance then outstanding under our revolving credit agreement with Fidelity. The remaining proceeds of $2.9 million were added to general working capital.

On May 28, 2002 the Company acquired a 55% interest in Hansen Quality Loan Services, LLC, a provider of collateral risk assessment and valuation services for real estate mortgage financing, for $4.1 million in cash and a convertible note. The note is in the amount of $4.1 million, bears interest at 4.5%, matures in May 2005, and is convertible into shares of the Company’s stock at $28.00 per share. The total purchase price was $8.3 million and the Company recorded cost in excess of net assets acquired of $5.4 million.

On July 1, 2002 the Company acquired Comstock Net Services, Inc., a technology provider to real estate professionals, in exchange for $1.8 million in cash and 213,323 shares of the Company’s stock. As a result of this acquisition the Company recorded cost in excess of net assets acquired of $3.8 million.

On July 23, 2002 the Company entered into a merger agreement to acquire Factual Data Corp., (“FDCC” or “Factual Data”). The closing of the transaction was subject to several conditions, including the completion of due diligence by both parties, FDCC stockholder approval, certain third party consents and other customary closing conditions. In August, FNIS and FDCC jointly announced the cancellation of the merger.

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Note D — Recent Developments

On October 29, 2002 the Company acquired all of the common stock of Eastern Financial Systems (“Eastern”), an industry leading mortgage loan origination software system provider in exchange for $52.3 million in cash and stock. As a result of this acquisition the Company issued 880,726 shares of stock and recorded cost in excess of net assets acquired of $36.2 million.

Note E — Adoption of SFAS No. 142, “Goodwill and Intangible Assets”

SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount.

The Company has performed a goodwill impairment test, as of January 1, 2002, on its reporting units and has determined that each of its reporting units has a fair value in excess of its carrying value. Accordingly, no goodwill impairment has been recorded.

Beginning on January 1, 2002, the Company ceased recording goodwill amortization in accordance with SFAS No. 142. The following table reconciles reported and adjusted earnings per share as if goodwill was not being amortized in 2001:

Note F — Secured, Revolving Credit Facility and Convertible Note Payable

On September 24, 2001, the Company entered into a revolving credit agreement with Fidelity. The credit agreement provides for a maximum credit line of $25.0 million that expires and is due in September 2006. The credit facility bears interest at a rate of prime plus 2%. As of September 30, 2002, there were no amounts outstanding under the agreement.

In connection with the purchase of a 55% interest in Hansen Quality Loan Services, LLC on May 28, 2002, the Company issued a convertible note in the amount of $4.1 million. The Note bears interest at 4.5%, matures in May 2005 and is convertible at any time into shares of the Company’s common stock at $28.00 per share.

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Note G — Earnings Per Share

The Company presents “basic” earnings per share and earnings from continuing operations per share, representing net earnings and earnings from continuing operations divided by the weighted average shares outstanding (excluding all common stock equivalents), and “diluted” earnings per share and earnings from continuing operations per share, representing the dilutive effect of all common stock equivalents. The following table illustrates the computation of basic and diluted earnings per share and earnings from continuing operations per share: