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 September 30, 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 September 30, 1995, 44,858,000 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 and Nine-Month Periods Ended September 30, 1995 and 1994 Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (In thousands except per share amounts) Revenues $176,922 $143,661 $507,571 $423,314 ________ ________ ________ ________ Cost of revenues: Salaries, commissions and payroll related costs 84,069 69,277 240,144 205,278 Data processing expenses, rentals and telecommunication costs 22,829 19,360 69,506 61,096 Other operating expenses 28,731 27,573 89,379 78,494 Depreciation and amortization of property and equipment 9,731 7,975 28,525 22,893 Amortization of intangible assets 4,805 2,649 11,156 8,056 Capitalization of internally generated computer software-net (1,879) (2,140) (5,411) (7,093) ________ ________ ________ ________ Total cost of revenues 148,286 124,694 433,299 368,724 ________ ________ ________ ________ Operating income 28,636 18,967 74,272 54,590 Interest expense - net 6,413 1,813 12,687 5,019 ________ ________ ________ ________ Income before income taxes 22,223 17,154 61,585 49,571 Income tax provision 9,111 6,861 25,250 19,828 ________ ________ ________ ________ Net income $13,112 $10,293 $36,335 $29,743 ======== ======== ======== ======== Net income per common and common equivalent share $0.29 $0.25 $0.84 $0.73 ======== ======== ======== ======== Shares used in computing net income per share 45,864 40,640 43,395 40,564 ======== ======== ======== ======== See notes to consolidated financial statements. 2 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1995 1994 __________ __________ (In thousands) ASSETS Cash and cash equivalents $82,654 $29,683 Accounts receivable 142,790 122,984 Prepaid expenses and other assets 47,450 34,760 Trust account investments 1,020,825 1,041,474 Other investments 50,841 64,777 Property and equipment-net 131,623 114,966 Internally generated computer software-net 72,890 67,820 Identifiable intangible assets relating to acquisitions-net 35,705 36,487 Goodwill-net 515,789 148,394 __________ __________ Total $2,100,567 $1,661,345 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $33,539 $22,060 Accrued expenses 53,064 59,742 Accrued income taxes 2,879 1,952 Deferred revenues 33,661 10,836 Trust account deposits 1,045,469 1,035,217 Long-term debt 372,885 143,864 Other long-term obligations 2,265 6,152 Deferred income taxes 31,800 22,800 __________ __________ Total liabilities 1,575,562 1,302,623 __________ __________ Stockholders' equity: Common stock outstanding, 44,858,000 and 39,997,000 shares, respectively 449 400 Additional paid-in capital 313,847 184,748 Unrealized gain on investments 11,756 11,054 Accumulated earnings 198,953 162,520 __________ __________ Total stockholders' equity 525,005 358,722 __________ __________ Total $2,100,567 $1,661,345 ========== ========== See notes to consolidated financial statements. 3 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the Nine-Month Periods Ended September 30, 1995 and 1994 Nine Months Ended September 30, 1995 1994 _________ _________ (In thousands) Cash flows from operating activities: Net income $36,335 $29,743 Adjustments to reconcile income to net cash provided by operating activities: Deferred income taxes 13,638 10,456 Depreciation and amortization of property and equipment 28,525 22,893 Amortization of intangible assets 11,156 8,056 Capitalization of internally generated computer software-net (5,411) (7,093) _________ _________ 84,243 64,055 Cash provided (used) by changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (1,818) 317 Prepaid expenses and other assets (8,877) (7,413) Accounts payable and accrued expenses (14,045) (13,024) Deferred revenue 2,225 834 Income taxes payable 1,012 1,079 _________ _________ Net cash provided by operating activities 62,740 45,848 _________ _________ Cash flows from investing activities: Capital expenditures (33,563) (42,905) Investments and other assets 19,432 (10,849) Payment for acquisition of businesses (253,082) (6,699) Trust account investments 20,973 (154,016) _________ _________ Net cash used by investing activities (246,240) (214,469) _________ _________ Cash flows from financing activities: Borrowings and other long-term obligations-net 225,135 13,122 Issuance of common stock 1,083 2,448 Trust account deposits 10,253 155,102 _________ _________ Net cash provided by financing activities 236,471 170,672 _________ _________ Change in cash 52,971 2,051 Beginning balance 29,683 36,349 _________ _________ Ending balance $82,654 $38,400 ========= ========= 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 September 30, 1995 and the related consolidated statements of income and cash flows for the three and nine-month periods ended September 30, 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. lnterim 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. Acquisitions The Company completed the acquisition of Lincoln Holdings, Inc. on August 1, 1995 in a transaction accounted for as a pooling of interests. Accordingly, the accompanying financial statements include the accounts of LHI for all periods presented. The results of operations of Information Technology, Inc. are also included from the date of acquisition, May 17, 1995. The following summary compares restated results of operations for 1995 to results as originally presented for 1994. Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ______________________________________ (In thousands) Revenues $176,922 $139,431 $507,571 $411,120 ______________________________________ Income before taxes 22,223 15,903 61,585 45,998 ______________________________________ Net income $13,112 $9,542 $36,335 $27,599 ====================================== Net income per share $0.29 $0.24 $0.84 $0.70 ====================================== Shares used in computing net income per share 45,864 39,762 43,395 39,686 3. Shares Used in Computing Net Income per Share Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ______________________________________ (In thousands) Weighted average number of common shares outstanding 44,844 39,855 42,450 39,786 Shares issuable upon exercise of options reduced by the number of shares which could have been purchased with the proceeds of such exercise 1,020 785 945 778 ________ ________ ________ ________ Shares used 45,864 40,640 43,395 40,564 ======== ======== ======== ======== 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, after restatement for shares issued in the acquisition of Lincoln Holdings, Inc. accounted for as a pooling of interests. 4. 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 September 30, 1995 and December 31, 1994 are as follows: September 30, December 31, 1995 1994 _____________ _____________ Allowance for doubtful accounts $1,420,000 $1,571,000 Accrued expenses not currently deductible 6,816,000 11,392,000 Other 6,727,000 1,931,000 Net operating loss and credit carryforwards 6,339,000 5,901,000 Deferred costs (7,931,000) (4,911,000) Internally generated capitalized software (29,878,000) (27,120,000) Excess of tax over book depreciation and amortization (7,123,000) (4,069,000) Unrealized gain on investments (8,170,000) (7,495,000) _____________ _____________ Total ($31,800,000) ($22,800,000) ============= ============= 5. Supplemental Cash Flow Information Nine Months Ended September 30, 1995 1994 (In thousands) Income taxes paid $8,424 $7,840 Interest paid 10,914 6,027 Liabilities assumed in acquisitions of businesses - Trust account deposits 225,893 - Other 48,784 1,638 Value of common shares issued in acquisitions of businesses 135,947 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. This data has been restated for all periods commencing prior to April 1, 1995 to give effect to the acquisition of Lincoln Holdings, Inc., accounted for as a pooling of interests. Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ________ ________ ________ ________ (Percent of Revenues) Revenues 100.00% 100.00% 100.00% 100.00% ________ ________ ________ ________ Salaries and related costs 47.51 48.22 47.32 48.49 Data processing costs 12.90 13.48 13.69 14.43 Other operating expenses 16.24 19.19 17.61 18.54 Depreciation and amortization 5.50 5.55 5.62 5.41 Amortization of intangible assets 2.72 1.85 2.20 1.90 Capitalization of software-net (1.06) (1.49) (1.07) (1.67) ________ ________ ________ ________ Total cost of revenues 83.81 86.80 85.37 87.10 ________ ________ ________ ________ Operating income 16.19 13.20 14.63 12.90 ======== ======== ======== ======== Revenues Revenues increased 23.2% from $143.7 million in the third quarter of 1994 to $176.9 million in the current third quarter and 19.9% from $423.3 million in the first nine months of 1994 to $507.6 million in the comparable current period. Approximately 60% of the year-to-date growth in revenue resulted from the inclusion of revenues from the date of purchase of acquired companies and the remainder 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 18.9% from $124.7 million in the third quarter of 1994 to $148.3 million in the current third quarter, and 17.5% from $368.7 million in the first nine months of 1994 to $433.3 million in the first nine months of 1995. Operating Income Operating income increased 51.0% from $19.0 million in the third quarter of 1994 to $28.6 million in the current third quarter, and 36.1% from $54.6 million in the first nine months of 1994 to $74.3 million in the first nine months of 1995. As a percentage of revenues, operating margins improved during the third quarter and first nine months of 1995 when compared to the comparable prior year periods due primarily to changes in the mix of business, including the impact of acquisitions referred to in Note 2 above. Interest Expense - Net As a result of acquisitions in the last twelve months, which were only partially funded with common stock, net interest expense increased $4.6 million in the third quarter and $7.7 million in the first nine months of 1995 over amounts incurred for the comparable 1994 periods. 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 27% from $10.3 million in the third quarter of 1994 to $13.1 million in the comparable 1995 quarter and 22% from $29.7 million in the first nine months of 1994 to $36.3 million in the comparable current period. Net income per share increased $.04 from $.25 in the third quarter of 1994 to $.29 in the current third quarter and $.11 from $.73 in the first nine months of 1994 to $.84 in the first nine months of 1995. Net income per share increased $.05 and $.14, respectively, in the third quarter and first nine months of 1995 when compared with net income per share as originally presented for the comparable 1994 periods. The increase in net income per share over 1994 as originally presented was consistent with management expectations and historical growth rates. Liquidity and Capital Resources During the nine months ended September 30, 1995, cash increased $53.0 million comprising primarily $62.7 million net cash provided by operating activities, $225.1 million net borrowings, $50.7 million decrease in investments and $1.1 million from issuance of common stock, which was partially offset by $253.1 million for the acquisition of businesses and $33.5 million for capital expenditures. Long-term obligations amounted to $375.2 million at September 30, 1995. The majority of this debt comprises $126.4 million of senior notes due 1995 to 2001 and $240.5 million advanced under a $300 million unsecured line of credit and commercial paper facility which reduces $45 million in May 1997 and in May 1998, $60 million in May 1999 and expires in May 2000. A facility fee of 0.25% per annum is required on the line. 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. However, in the event that the Company makes significant future acquisitions, it may raise funds through additional borrowings or issuance of securities. 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 September 30, 1995, the Registrant filed a report on Form 8-K, dated August 11, 1995, relating to the acquisition of Lincoln Holdings, Inc. 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 October 24, 1995 by /S/EDWARD P. ALBERTS ____________________ EDWARD P. ALBERTS Senior Vice President, Finance and Controller