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 JUNE 30, 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 (I. R. S. Employer incorporation 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 ( ) As of July 16, 1999, there were 123,554,000 shares of common stock, $.01 par value, of the Registrant outstanding. 1

2 PART I. FINANCIAL INFORMATION FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ---------------------- ----------------------- 1999 1998 1999 1998 -------- -------- -------- --------- REVENUES $343,252 $311,220 $680,381 $585,049 -------- -------- -------- -------- Cost of revenues: Salaries, commissions and payroll related costs 163,619 144,302 323,165 272,485 Data processing expenses, rentals and telecommunication costs 26,904 28,561 57,524 55,957 Other operating expenses 69,510 68,908 133,483 121,281 Depreciation and amortization of property and equipment 14,891 14,613 29,659 28,811 Amortization of intangible assets 4,825 3,867 9,373 7,331 Amortization (capitalization) of internally generated computer software-net 989 (1,853) 4,040 (3,022) -------- -------- -------- -------- Total cost of revenues 280,738 258,398 557,244 482,843 -------- -------- -------- -------- OPERATING INCOME 62,514 52,822 123,137 102,206 Interest expense - net 4,315 4,228 8,300 7,595 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 58,199 48,594 114,837 94,611 Income tax provision 23,861 19,924 47,083 38,791 -------- -------- -------- -------- NET INCOME $34,338 $28,670 $67,754 $55,820 ======== ======== ======== ======== NET INCOME PER SHARE: Basic $0.28 $0.23 $0.55 $0.45 ======== ======== ======== ======== Diluted $0.27 $0.22 $0.53 $0.44 ======== ======== ======== ======== SHARES USED IN COMPUTING NET INCOME PER SHARE: Basic 123,498 124,686 123,364 122,772 ======== ======== ======== ======== Diluted 127,302 128,895 127,591 126,846 ======== ======== ======== ======== See notes to consolidated financial statements. 2

3 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, December 31, 1999 1998 ----------- ------------ ASSETS Cash and cash equivalents $ 62,439 $ 71,558 Accounts receivable 224,411 246,851 Securities processing receivables 2,381,622 1,402,650 Prepaid expenses and other assets 83,337 83,453 Trust account investments 1,246,310 1,098,773 Other investments 413,000 180,099 Deferred income taxes -- 14,545 Property and equipment-net 186,875 179,434 Internally generated computer software-net 83,159 85,821 Intangible assets-net 652,401 595,154 ----------- ----------- TOTAL $ 5,333,554 $ 3,958,338 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 54,614 $ 65,385 Securities processing payables 2,060,096 1,207,838 Short-term borrowings 156,189 38,350 Accrued expenses 156,868 150,519 Accrued income taxes 14,937 14,768 Deferred revenues 108,798 107,286 Trust account deposits 1,247,348 1,098,773 Deferred income taxes 69,648 -- Long-term debt 390,859 389,622 ----------- ----------- TOTAL LIABILITIES 4,259,357 3,072,541 ----------- ----------- SHAREHOLDERS' EQUITY: Common stock issued, 125,350,000 and 124,880,000 shares, respectively 1,253 1,249 Additional paid-in capital 457,569 448,461 Accumulated other comprehensive income 151,409 39,875 Accumulated earnings 506,396 438,642 Treasury stock, at cost; 1,800,000 shares in 1999 and 1998 (42,430) (42,430) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 1,074,197 885,797 ----------- ----------- TOTAL $ 5,333,554 $ 3,958,338 =========== =========== See notes to consolidated financial statements. 3

4 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Six Months Ended June 30, ---------------------- 1999 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 67,754 $ 55,820 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 6,111 5,170 Depreciation and amortization of property and equipment 29,659 28,811 Amortization of intangible assets 9,373 7,331 Amortization (capitalization) of internally generated computer software-net 4,040 (3,022) --------- --------- 116,937 94,110 Cash provided (used) by changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable 22,937 (563) Prepaid expenses and other assets 8,620 (1,227) Accounts payable and accrued expenses (11,499) (2,099) Deferred revenue 717 16,245 Income taxes payable 4,632 4,013 Securities processing receivables and payables - net (36,201) (29,255) --------- --------- Net cash provided by operating activities 106,143 81,224 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (35,808) (31,391) Other investments (39,312) (3,583) Payment for acquisition of businesses (87,250) (87,842) Trust account investments (149,499) 4,173 --------- --------- Net cash provided (used) by investing activities (311,869) (118,643) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term obligations - net 40,240 9,625 Increase in long-term obligations - net 2,679 49,577 Issuance (purchases) of common stock - net 5,113 (36,524) Trust account deposits 148,575 (8,959) --------- --------- Net cash provided (used) by financing activities 196,607 13,719 --------- --------- Change in cash (9,119) (23,700) Beginning balance 71,558 89,377 --------- --------- Ending balance $ 62,439 $ 65,677 ========= ========= See notes to consolidated financial statements. 4

5 FISERV, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. PRINCIPLES OF CONSOLIDATION The consolidated financial statements for the three and six-month periods ended June 30, 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 Six Months Ended June 30, June 30, ------------------ ----------------- 1999 1998 1999 1998 ------- ------- ------- ------- (In thousands) Weighted average number of common shares outstanding 123,498 124,686 123,364 122,772 Common stock equivalents 3,804 4,209 4,227 4,074 ------- ------- ------- ------- Shares used in computing diluted net income per share 127,302 128,895 127,591 126,846 ======= ======= ======= ======= 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. The Company declared a 3-for-2 common stock split to shareholders of record as of April 16, 1999, payable on April 30, 1999. The financial and share information presented herein for all periods has been adjusted to reflect the stock split. 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 June 30, 1999 and December 31, 1998 are as follows: June 30, December 31, 1999 1998 ---------- ------------ (In thousands) Purchased incomplete software technology $ 49,970 $ 52,276 Accrued expenses not currently deductible 27,716 25,329 Deferred revenues 16,294 14,558 Other (11,618) (5,512) Internally generated capitalized software (34,095) (35,188) Excess of tax over book depreciation and amortization (12,301) (9,167) Unrealized gain on investments (105,614) (27,751) --------- -------- Total deferred income taxes ($ 69,648) $ 14,545 ========= ======== 5

6 4. SUPPLEMENTAL CASH FLOW INFORMATION Six Months Ended June 30, ------------------------ 1999 1998 -------- -------- (In thousands) Income taxes paid $ 38,002 $31,003 Interest paid 11,828 11,215 Liabilities assumed in acquisitions of businesses 199,878 30,273 5. SHAREHOLDERS' EQUITY Total comprehensive income for the six months ended June 30, 1999 and 1998 was $179.3 million and $55.8 million, respectively. The increase in comprehensive income during the six months ended June 30, 1999 is primarily due to unrealized gains on investments since December 31, 1998. The Company owns 3,404,930 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. 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 is as follows: Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- (In thousands) REVENUES: Financial institution data processing and software services $262,423 $241,666 $522,809 $450,754 Securities processing and trust services 65,868 59,242 127,130 113,378 Other 14,961 10,312 30,442 20,917 -------- -------- -------- -------- TOTAL $343,252 $311,220 $680,381 $585,049 -------- -------- -------- -------- OPERATING INCOME: Financial institution data processing and software services $ 45,144 $ 37,371 $ 89,415 $ 72,662 Securities processing and trust services 18,624 19,385 36,000 36,126 Other (1,254) (3,934) (2,278) (6,582) -------- -------- -------- -------- TOTAL $ 62,514 $ 52,822 $123,137 $102,206 -------- -------- -------- -------- 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 relative percentage which certain items in the Company's consolidated statements of income bear to revenues and the percentage change in these items. Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1999 1998 1999 1998 ----- ----- ----- ----- (Percent of Revenues) Revenues 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- Salaries and related costs 47.7 46.4 47.5 46.6 Data processing costs 7.8 9.2 8.4 9.6 Other operating expenses 20.3 22.1 19.6 20.7 Depreciation and amortization 4.3 4.7 4.4 4.9 Amortization of intangible assets 1.4 1.2 1.4 1.2 Amortization (capitalization) of software-net 0.3 (0.6) 0.6 (0.5) ----- ----- ----- ----- Total cost of revenues 81.8 83.0 81.9 82.5 ----- ----- ----- ----- Operating income 18.2 17.0 18.1 17.5 ===== ===== ===== ===== REVENUES Revenues increased 10.3% from $311.2 million in the second quarter of 1998 to $343.3 million in the current second quarter and 16.3% from $585.0 million in the first six months of 1998 to $680.4 million in the comparable current period. Approximately 40% of the year to date growth resulted from the inclusion of revenues from the date of purchase of acquired companies and approximately 60% 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 8.6% from $258.4 million in the second quarter of 1998 to $280.7 million in the current second quarter, and 15.4% from $482.8 million in the first six months of 1998 to $557.2 million in the first six months of 1999. 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 and securities processing operations have enjoyed an increasing percentage of total revenues. OPERATING INCOME Operating income increased 18.3% from $52.8 million in the second quarter of 1998 to $62.5 million in the current second quarter, and increased 20.5% from $102.2 million in the first six months of 1998 to $123.1 million in the first six months of 1999. As a percentage of revenues, operating margins were slightly higher during both the second quarter and first six months of 1999 when compared to the comparable prior year periods. INCOME TAX PROVISION Income taxes were computed at 41% in both 1999 and 1998. The 41% rate is expected to apply throughout the current year. NET INCOME Net income for the second quarter increased 19.8% from $28.7 million in 1998 to $34.3 million in 1999. Net income for the first six months increased 21.4% from $55.8 million in 1998 to $67.8 million in 1999. Net income per share-diluted for the second quarter was $.27 in 1999 compared to $.22 in 1998. Net income per share-diluted for the first six months of 1999 was $.53 compared to $.44 in the comparable 1998 period. The increases in net income per share-diluted for the second quarter and first six months of 1999 over the comparable 1998 periods amounted to $.05 and $.09, respectively. 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 the end of September 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 has met and believes it 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 annually. Estimated costs for 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 six months ended June 30, 1999 and 1998: 1999 1998 --------- --------- (In thousands) Cash provided by operating activities before changes in securities processing receivables and payables - net $ 142,344 $ 110,479 Securities processing receivables and payables - net (36,201) (29,255) Cash provided by operating activities --------- --------- 106,143 81,224 Issuance (purchases) of common stock - net 5,113 (36,524) Increase in investments (40,236) (8,369) Increase in net borrowings 42,919 59,202 --------- --------- TOTAL $ 113,939 $ 95,533 ========= ========= Long-term obligations amounted to $390.9 million at June 30, 1999. The majority of this debt comprises $86.4 million of senior notes due 2000 to 2005 and $235.4 million advanced under an aggregate of $500.0 million in revolving credit facilities. The credit facilities which expire in May 2004 are comprised of a $250.0 million five year revolving credit facility and a $250.0 million 364-day revolving credit facility. A facility fee of .1% to .2% per annum is required on the entire credit facility regardless of usage. 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 (11) Statement regarding computation of per share earnings (included on page 5, Part 1). (27) Financial data schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1999. 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 July 20, 1999 by /s/ Kenneth R. Jensen -------------- --------------------------------------- KENNETH R. JENSEN Senior Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary 9

  

5 This schedule contains summary financial information extracted form the June 1999 10-Q and is qualified in its entirety by reference to such information. 1000 6-MOS DEC-31-1999 JUN-30-1999 62,439 1,246,310 224,411 0 0 3,998,119 186,875 0 5,333,554 3,889,599 0 0 0 1,253 1,072,944 5,333,554 0 680,381 0 543,831 13,413 0 8,300 114,837 47,083 67,754 0 0 0 67,754 0.55 0.53