1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR QUARTER ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 0-14948 FISERV, INC. ------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) WISCONSIN 39-1506125 - --------------------------------------------- ------------------------------ (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 255 FISERV DRIVE, BROOKFIELD, WI. 53045 - -------------------------------------------- ----------------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (414) 879 5000 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 ( ) At March 31, 1999, 82,239,000 shares of common stock of the Registrant were outstanding. Exhibit Index appears at page 9. 1

2 PART I. FINANCIAL INFORMATION FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME for the Three-Month Periods Ended March 31, 1999 and 1998 Three-Months Ended March 31, 1999 1998 ----------------------------------- (In thousands except per share amounts) REVENUES $337,129 $273,829 ----------------------------------- COST OF REVENUES: Salaries, commissions and payroll related costs 159,546 128,183 Data processing expenses, rentals and telecommunication costs 30,620 27,396 Other operating expenses 63,973 52,373 Depreciation and amortization of property and equipment 14,768 14,198 Amortization of intangible assets 4,548 3,464 Amortization (capitalization) of internally generated computer software - net 3,051 (1,169) ----------------------------------- Total cost of revenues 276,506 224,445 ----------------------------------- OPERATING INCOME 60,623 49,384 Interest expense-net 3,985 3,367 ----------------------------------- INCOME BEFORE INCOME TAXES 56,638 46,017 Income tax provision 23,222 18,867 ----------------------------------- NET INCOME $33,416 $27,150 =================================== NET INCOME PER SHARE: Basic $0.41 $0.34 =================================== Diluted $0.39 $0.33 =================================== SHARES USED IN COMPUTING NET INCOME PER SHARE: Basic 82,153 80,573 =================================== Diluted 85,253 83,198 =================================== See notes to consolidated financial statements. 2

3 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1999 1998 ------------------------------------ (In thousands) ASSETS Cash and cash equivalents $81,476 $71,558 Accounts receivable 248,771 246,851 Securities processing receivables 1,690,231 1,402,650 Prepaid expenses and other assets 86,540 83,453 Trust account investments 1,189,078 1,098,773 Other investments 273,461 180,099 Deferred income taxes - 14,545 Property and equipment-net 184,915 179,434 Internally generated computer software-net 82,794 85,821 Intangible assets-net 608,723 595,154 ------------------------------------ TOTAL $4,445,989 $3,958,338 ==================================== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $59,453 $65,385 Securities processing payables 1,452,322 1,207,838 Short-term borrowings 139,657 38,350 Accrued expenses 159,446 150,519 Accrued income taxes 19,611 14,768 Deferred revenues 119,902 107,286 Trust account deposits 1,184,523 1,098,773 Deferred income taxes 9,483 - Long-term debt 355,132 389,622 ------------------------------------ TOTAL LIABILITIES 3,499,529 3,072,541 ------------------------------------ SHAREHOLDERS' EQUITY: Common stock issued, 83,439,000 and 83,253,000 shares, respectively 834 833 Additional paid-in capital 452,130 448,877 Accumulated other comprehensive income 63,868 39,875 Accumulated earnings 472,058 438,642 Treasury stock, at cost (1,200,000 shares) (42,430) (42,430) ------------------------------------ TOTAL SHAREHOLDERS' EQUITY 946,460 885,797 ------------------------------------ TOTAL $4,445,989 $3,958,338 ==================================== See notes to consolidated financial statements. 3

4 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the Three-Month Periods Ended March 31, 1999 and 1998 Three-Months Ended March 31, 1999 1998 --------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $33,416 $27,150 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 7,138 1,252 Depreciation and amortization of property and equipment 14,768 14,198 Amortization of intangible assets 4,548 3,464 Amortization (capitalization) of internally generated computer software-net 3,051 (1,169) --------------------------------- 62,921 44,895 Cash provided (used) by changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (1,964) (16,123) Prepaid expenses and other assets (200) 2,180 Accounts payable and accrued expenses 2,521 (5,788) Deferred revenue 11,736 14,471 Income taxes payable 4,974 10,009 Securities processing receivables and payables-net (43,097) 33,169 --------------------------------- Net cash provided by operating activities 36,891 82,813 --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (19,736) (14,822) Other investments (50,569) 2,723 Payment for acquisition of businesses (19,888) (86,227) Trust account investments (92,244) 45,263 --------------------------------- Net cash provided (used) by investing activities (182,437) (53,063) --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term obligations-net 100,450 (41,275) Increase (decrease) in long-term obligations-net (33,990) 91,520 Issuance (purchases) of common stock-net 3,254 (36,518) Trust account deposits 85,750 (49,722) --------------------------------- Net cash provided (used) by financing activities 155,464 (35,995) --------------------------------- Change in cash 9,918 (6,245) Beginning balance 71,558 89,377 --------------------------------- Ending balance $81,476 $83,132 ================================= See notes to consolidated financial statements. 4

5 FISERV, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. PRINCIPLES OF CONSOLIDATION The consolidated balance sheet as of March 31, 1999, and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 1999 and 1998 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the annual financial statements and notes of Fiserv, Inc. and subsidiaries (the Company). 2. SHARES USED IN COMPUTING NET INCOME PER SHARE Three Months Ended March 31, 1999 1998 ---------------------------------- (In thousands) Weighted average number of common shares outstanding 82,153 80,573 Shares issuable upon exercise of options reduced by the number of shares which could have been purchased with the proceeds of such exercise 3,100 2,625 ---------------------------------- Shares used in computing diluted- net income per share 85,253 83,198 ================================== Basic income per share is computed using the weighted average number of common shares outstanding during the periods. Diluted income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. 3. ACCOUNTING FOR INCOME TAXES Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating and tax credit carryforwards. Significant components of the Company's net deferred tax (liability) asset as of March 31, 1999 and December 31, 1998 are as follows: MARCH 31, December 31, 1999 1998 ---------------------------------------- (In thousands) Purchased incomplete software technology $51,122 $52,276 Accrued expenses not currently deductible 26,948 25,329 Deferred revenues 14,391 14,558 Other (12,609) (5,512) Internally generated capitalized software (33,946) (35,188) Excess of tax over book depreciation and amortization (10,803) (9,167) Unrealized gain on investments (44,586) (27,751) ---------------------------------------- TOTAL ($9,483) $14,545 ======================================== 5

6 4. SUPPLEMENTAL CASH FLOW INFORMATION Quarter Ended March 31, 1999 1998 -------------------------------- (In thousands) Income taxes paid $12,344 $8,793 Interest paid 3,968 2,433 Liabilities assumed in acquisitions of businesses 1,455 9,682 5. SHAREHOLDERS' EQUITY The Company declared a 3-for-2 common stock split to shareholders of record as of April 16, 1999, payable on April 30, 1999. No effect has been given to this action in the accompanying financial statements. Total comprehensive income for the three months ended March 31, 1999 and 1998 was $57.4 million and $27.2 million, respectively. The increase in comprehensive income during the quarter ended March 31, 1999 is primarily due to unrealized gains on investments since December 31, 1998. The Company owns 1,702,465 shares of common stock of Knight/Trimark Group, Inc. and 900,000 shares of common stock of The BISYS Group, Inc. Common stock of both companies trade on the NASDAQ National Market System. The Company has valued its investment in Knight/Trimark Group, Inc. at a discount from market value as a result of sale restrictions. 6. BUSINESS SEGMENT INFORMATION The Company is a leading independent provider of financial data processing systems and related information management services and products to financial institutions and other financial intermediaries. The Company's operations have been classified into three business segments: financial institution data processing and software services, securities processing and trust services and other (including corporate). Summarized financial information by business segment for the three-months ended March 31, 1999 and 1998 is as follows: 1999 1998 ---------------------------------------- (In thousands) REVENUES: Financial institution data processing and software services $260,386 $209,088 Securities processing and trust services 61,262 54,136 Other 15,481 10,605 ---------------- ----------------- Total $337,129 $273,829 ---------------- ----------------- OPERATING INCOME: Financial institution data processing and software services $44,271 $35,291 Securities processing and trust services 17,376 16,741 Other (1,024) (2,648) ---------------- ----------------- Total $60,623 $49,384 ---------------- ----------------- 6

7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the results of operations as a percentage of revenues represented by certain income and expense items and the percentage change in those items. Three-Months Ended Percentage March 31, Increase 1999 1998 (Decrease) ------------------------------------------------------ Revenues 100.0 100.0 23.1 ---------------------------------------- Salaries and related costs 47.3 46.8 24.5 Data processing costs 9.1 10.0 11.8 Other operating expenses 19.0 19.1 22.1 Depreciation and amortization 4.4 5.2 4.0 Amortization of intangible assets 1.3 1.3 31.3 Amortization (capitalization) of software-net 0.9 (0.4) - ---------------------------------------- Total cost of revenues 82.0 82.0 23.2 ---------------------------------------- Operating income 18.0 18.0 22.8 ======================================== REVENUES Revenues increased 23.1% from $273.8 million in the first quarter of 1998 to $337.1 million in the current first quarter. Approximately 45% of this growth resulted from the inclusion of revenues from the date of purchase of acquired companies and approximately 55% from increases in revenue from the addition of new clients, growth in the transaction volume experienced by existing clients and price increases. COST OF REVENUES Cost of revenues increased 23.2% from $224.4 million in the first quarter of 1998 to $276.5 million in the current first quarter. The make up of cost of revenues has been affected by changes in the mix of the Company's business as sales of software and related support activities have enjoyed an increasing percentage of total revenues. In addition, amortization of internally generated computer software increased as a percentage of revenues due to the write down of certain ancillary software products to net realizable value. OPERATING INCOME Operating income increased 22.8% from $49.4 million in the first quarter of 1998 to $60.6 million in the current first quarter. INCOME TAX PROVISION Income taxes were computed at 41% in both 1999 and 1998, which rate is expected to apply throughout the current year. NET INCOME Net income grew 23.1% from $27.2 million in the first quarter of 1998 to $33.4 million in the current first quarter. Net income per share-diluted increased $.06 from $0.33 in the first quarter of 1998 to $0.39 in the current first quarter. The increase in net income per share-diluted over 1998 was consistent with management expectations and historical growth rates. 7

8 YEAR 2000 SYSTEMS EVALUATION The Company provides data processing and other related services to financial institutions of all kinds. The Company has substantially completed the Year 2000 renovation, testing and implementation of its mission critical proprietary systems used in providing service to its clients. Testing and implementation of the remaining non-mission critical systems, which are not material to the Company's business, are expected to be completed by mid-1999. The Company has received Year 2000 disclosures prepared by its principal vendors indicating that they will be Year 2000 compliant in all material respects. The Company's contingency plans include actions required should any vendor experience Year 2000-related problems. In addition, the Company has no reason to believe that its clients will not be Year 2000 compliant in all material respects, and in many cases has assisted its clients in their Year 2000 efforts. The Company believes that it has and will continue to meet its Year 2000 compliance commitments using existing resources, without incurring significant incremental expenses. Although the Company does not maintain accounting records that separately identify all of the costs associated with its Year 2000 activities, it has estimated that commencing with 1996 such costs have approximated $15 million a year. Estimated cost for the year 1999 when the entire project is scheduled for completion is approximately $10 to $12 million. The disclosure set forth above contains forward-looking statements. Specifically, such statements are contained in sentences including the words "will" or "expect" or "anticipate" or "could" or "should". Such forward-looking statements are subject to inherent risks and uncertainties that may cause actual results to differ materially from those contemplated by such forward-looking statements. The factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include the failure by third parties to adequately remediate Year 2000 issues and the inability of the Company to test and implement remaining non-mission critical systems. Failure by the Company in making its proprietary systems Year 2000 compliant would have a material adverse effect on its business. However, the Company expects that its Year 2000 compliance efforts will be successful without any material adverse effects on its business. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company's primary sources of funds for the three months ended March 31, 1999 and 1998: 1999 1998 ---------------------------------------- (In thousands) Cash provided by operating activities before changes in securities processing receivables and payables-net $79,988 $49,644 Securities processing receivables and payables-net (43,097) 33,169 ---------------------------------------- Cash provided by operating activities 36,891 82,813 Issuance (purchases) of common stock-net 3,254 (36,518) (Increase) decrease in investments (57,063) (1,736) Increase (decrease) in net borrowings 66,460 50,245 ---------------------------------------- TOTAL $49,542 $94,804 ---------------------------------------- Long-term obligations amounted to $355.1 million at March 31, 1999. The majority of this debt comprises $106.1 million of senior notes due 1999 to 2005 and $184.7 million advanced under a $330.0 million unsecured line of credit and commercial paper facility which is reduced to $150.0 million on May 17, 1999 and expires on May 17, 2000. A facility fee of .1% to .2% per annum is payable on the $330.0 million committed amount. The Company plans to refinance the entire facility on or before May 17, 1999. The Company has historically applied a significant portion of its cash flow from operating activities and long-term borrowings to acquisitions. The Company believes that its cash flow from operating activities together with other available sources of funds will be adequate to meet its funding requirements. However, in the event that the Company makes significant future acquisitions, it may raise funds through additional borrowings or issuance of securities. 8

9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Index to exhibits (11) Statement regarding computation of per share earnings (included on page 5, Part 1). (b) Reports on Form 8-K During the quarter ended March 31, 1999, the Registrant filed one report on Form 8-K dated March 25, 1999. The Form 8-K disclosed an increase in the number of authorized shares of common stock from 150.0 million to 300.0 million, a 3-for-2 stock split and the appointment of Leslie M. Muma as Chief Executive Officer, succeeding George D. Dalton who remains Chairman of the Company's Board of Directors. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FISERV, INC. ----------------------- (Registrant) Date April 20, 1999 by: \s\ Charles W. Sprague -------------- -------------------------------------- CHARLES W. SPRAGUE Executive Vice President, General Counsel and Secretary 9

  

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 1999 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH INFORMATION. 3-MOS DEC-31-1999 MAR-31-1999 81,476 1,189,078 248,771 0 0 3,296,096 184,915 0 4,445,989 3,165,675 0 0 0 834 945,626 4,445,989 0 337,129 0 268,907 7,599 0 3,985 56,638 23,222 33,416 0 0 0 33,146 0.41 0.39