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, 1995 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 ( ) At March 31, 1995, 39,325,842 shares of common stock of the Registrant were outstanding. Exhibit Index appears at page 8. 1 PART I. FINANCIAL INFORMATION FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME for the Three Month Periods Ended March 31, 1995 and 1994 Three Months Ended March 31, 1995 1994 --------- --------- (In thousands except per share amounts) REVENUES $152,605 $135,896 --------- --------- COST OF REVENUES: Salaries, commissions and payroll related costs 73,430 66,777 Data processing expenses, rentals and telecommunication costs 22,388 21,048 Other operating expenses 27,287 25,146 Depreciation and amortization of property and equipment 8,961 6,446 Amortization of intangible assets 2,746 2,665 Capitalization of internally generated computer software (1,649) (2,112) --------- --------- Total cost of revenues 133,163 119,970 --------- --------- OPERATING INCOME 19,442 15,926 Interest expense-net 1,731 1,446 --------- --------- INCOME BEFORE INCOME TAXES 17,711 14,480 --------- --------- Income tax provision 7,262 5,792 --------- --------- NET INCOME $10,449 $8,688 ========= ========= Net income per common and common equivalent share $0.26 $0.22 ========= ========= Shares used in computing net income per share 40,065 39,605 ========= ========= See notes to consolidated financial statements. 2 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, December 31, 1995 1994 ---------- ---------- (In thousands) ASSETS Cash and cash equivalents $30,626 $28,294 Accounts receivable 117,837 120,033 Prepaid expenses and other assets 35,851 34,391 Trust account investments 714,641 807,819 Other investments 62,965 64,777 Property and equipment-net 121,004 113,448 Internally generated computer software-net 69,388 67,820 Identifiable intangible assets relating to acquisitions-net 32,401 34,090 Goodwill-net 152,532 147,686 ---------- ---------- TOTAL $1,337,245 $1,418,358 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $22,054 $21,440 Accrued expenses 45,807 59,126 Accrued income taxes 3,075 1,851 Deferred revenues 22,881 10,836 Trust account deposits 714,796 809,324 Long-term debt 136,458 139,864 Other long-term obligations 2,578 2,314 Deferred income taxes 27,266 22,800 ---------- ---------- TOTAL LIABILITIES 974,915 1,067,555 ---------- ---------- STOCKHOLDERS' EQUITY: Common stock outstanding, 39,326,000 and 39,157,000 shares, respectively 393 392 Additional paid-in capital 184,811 184,574 Unrealized gain on investments 11,623 11,054 Accumulated earnings 165,503 154,783 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 362,330 350,803 ---------- ---------- TOTAL $1,337,245 $1,418,358 ========== ========== See notes to consolidated financial statements. 3 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the Three-Month Periods Ended March 31, 1995 and 1994 Three Months Ended March 31, 1995 1994 -------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $10,449 $8,688 Adjustments to reconcile income to net cash provided by operating activities: Deferred income taxes 4,073 4,500 Depreciation and amortization of property and equipment 8,961 6,446 Amortization of intangible assets 2,746 2,665 Capitalization of internally generated computer software-net (1,649) (2,112) --------- -------- 24,580 20,187 Cash provided (used) by changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable 2,521 7,884 Prepaid expenses and other assets (1,047) 726 Accounts payable and accrued expenses (13,424) (10,936) Deferred revenue 10,484 3,565 Income taxes payable 1,224 711 --------- -------- Net cash provided by operating activities 24,338 22,137 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (15,589) (16,642) Investments and other assets 2,674 (2,252) Payment for acquisition of businesses (4,934) 2,677 Trust account investments 93,278 (182,682) --------- -------- Net cash provided (used) by investing activities 75,429 (198,899) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings and other long-term obligations-net (3,140) 4,573 Issuance of common stock 233 (5) Trust account deposits (94,528) 180,655 --------- -------- Net cash provided (used) by financing activities (97,435) 185,223 --------- -------- Change in cash 2,332 8,461 Beginning balance 28,294 35,934 --------- -------- Ending balance $30,626 $44,395 ========= ======== See notes to consolidated financial statements. 4 FISERV, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. PRINCIPLES OF CONSOLIDATION The consolidated balance sheet as of March 31, 1995, and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 1995 and 1994 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 or the Registrant). 2. SHARES USED IN COMPUTING NET INCOME PER SHARE Three Months Ended March 31, 1995 1994 ----------------- (In thousands) Weighted average number of common shares outstanding 39,251 38,834 Shares issuable upon exercise of options reduced by the number of shares which could have been purchased with the proceeds of such exercise 814 771 ------ ------ Shares used 40,065 39,605 ------ ------ Income per common and common equivalent 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 as of March 31, 1995 and December 31,1994 are as follows: MARCH, 31 December 31, 1995 1994 ------------ ---------------- Allowance for doubtful accounts $1,610,000 $1,571,000 Accrued expenses not currently deductible 8,995,000 11,392,000 Other 2,134,000 1,931,000 Net operating loss and credit carryforwards 6,850,000 5,901,000 Deferred costs (5,638,000) (4,911,000) Internally generated capitalized software (28,443,000) (27,120,000) Excess of tax over book depreciation and amortization (4,697,000) (4,069,000) Unrealized gain on investments (8,077,000) (7,495,000) ------------ -------------- Total ($27,266,000) ($22,800,000) ============ ============== 4. SUPPLEMENTAL CASH FLOW INFORMATION Quarter Ended March 31, 1995 1994 ---------------- (In thousands) Income taxes paid $1,379 $745 Interest paid 1,690 619 Liabilities assumed in acquisitions of businesses 2,639 ---------------- 5 5. SUBSEQUENT EVENT Subsequent to March 31, 1995, the Company announced an agreement to acquire Information Technology, Inc., a privately held company, in a transaction to be accounted for as a purchase. The purchase price of $373 million will be paid two-thirds in cash and one-third in shares of FIserv stock. The transaction is expected to close in the second quarter of 1995. 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 March 31, Percentage 1995 1994 Increase ----------------- (Decrease) Percent of Revenues Revenues 100.00% 100.00% 12.30% Salaries and related costs 48.12 49.14 9.96 Data processing costs 14.67 15.49 6.37 Other operating expenses 17.88 18.50 8.51 Depreciation and amortization 5.87 4.74 39.02 Amortization of intangible assets 1.80 1.96 3.04 Capitalization of software-net (1.08) (1.55) (21.92) ------- ------- Total cost of revenues 87.26 88.28 11.00 ------- ------- Operating income 12.74 11.72 22.08 ======= ======= REVENUES Revenues increased 12.3% from $135.9 million in the first quarter of 1994 to $152.6 in the current first quarter. Approximately 30% of this growth resulted from the inclusion of revenues from the date of purchase of acquired companies and approximately 70% 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 11.0% from $120.0 million in the first quarter of 1994 to $133.2 million in the current first quarter. Salaries, data processing and other operating expenses all increased at a rate that was lower than the rate of increase for revenues. Depreciation and amortization increased at a higher rate than revenues due to substantial capital expenditures incurred in 1994. Capitalization of software decreased as a percentage of revenue, a trend which is expected to continue. OPERATING INCOME Operating income increased 22.1% from $15.9 million in the first quarter of 1994 to $19.4 million in the current first quarter. As a percentage of revenues, operating income improved 1.0% in the first quarter of 1995 as compared to the prior year period. 6 NET INTEREST EXPENSE As a result of acquisitions since the first quarter of 1994, which were funded through borrowing, net interest expense increased from $1.4 million in the first quarter of 1994 to $1.7 million in the current first quarter. INCOME TAX PROVISION Income taxes were computed at 41% in 1995 and 40% in 1994. The 41% rate is expected to apply throughout the current year. NET INCOME Net income grew 20% from $8.7 million in the first quarter of 1994 to $10.4 million in the first quarter of 1995, and net income per share increased 18% from $.22 per share in the first quarter of 1994 to $.26 in the corresponding period of 1995. LIQUIDITY AND CAPITAL RESOURCES During the three months ended March 31, 1995, cash and cash equivalents increased $2.3 million comprising primarily $24.3 million net cash provided from operating activities, $.2 million sale of common stock and $1.4 million net decrease in investments, offset by $15.6 million capital expenditures, $4.9 million for acquisition of businesses and $3.1 million net decrease in long-term debt. Long-term obligations amounted to $139.0 million at March 31, 1995. The majority of this debt comprises $43.2 million senior notes due 1994 to 2001 and $86.2 million advanced under a $125 million unsecured line of credit and commercial paper facility expiring March 31, 1997. A facility fee ranging from .175% to .325% per annum is required on the entire bank line regardless of usage. The Company has historically applied a significant portion of its cash flow from operating activities and proceeds of its common stock offerings to acquisitions and the reduction of long-term debt and invests the remainder in short-term obligations until it is needed for further acquisitions or operating purposes. 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. In connection with the pending acquisition referred to in Note 5 above, the Company proposes to borrow additional funds and issue shares of its common stock as stated therein. 7 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, 1995, the Registrant did not file any reports on Form 8-K. 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 25, 1995 by K.R. JENSEN ---------------- ------------------------------- KENNETH R. JENSEN Senior Executive Vice President and Chief Financial Officer 8