FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year ended December 31, 1996 1995 1994
REVENUES $798,268 $703,380 $579,839
---------------------------------
COST OF REVENUES:
Salaries, commissions and payroll
related costs ........................... 371,526 330,845 281,651
Data processing expenses, rentals and
telecommunication costs ................. 90,919 95,798 81,320
Other operating expenses .................. 145,230 125,498 109,975
Depreciation and amortization of
property and equipment .................. 42,241 38,480 31,350
Purchased incomplete software
technology Note 2 ....................... 172,970
Amortization of intangible assets ......... 20,983 25,880 10,846
Amortization (capitalization) of internally
generated computer software-net ......... 3,732 (6,382) (9,599)
---------------------------------
TOTAL ..................................... 674,631 783,089 505,543
---------------------------------
OPERATING INCOME (LOSS) ................... 123,637 (79,709) 74,296
Interest expense - net .................... 19,088 18,822 6,951
---------------------------------
INCOME (LOSS) BEFORE INCOME TAXES ......... 104,549 (98,531) 67,345
Income tax provision (credit) Note 4 ...... 42,865 (38,668) 26,938
---------------------------------
NET INCOME (LOSS) ......................... $ 61,684 $ (59,863) $ 40,407
=================================
Net income (loss) per common and
common equivalent share ................. $ 1.34 $ (1.36) $ 0.99
=================================
Shares used in computing net
income per share ........................ 46,198 44,008 40,735
=================================
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, 1996 1995
ASSETS
Cash and cash equivalents Note 1 .............. $ 80,833 $ 59,743
Accounts receivable ........................... 160,747 154,628
Prepaid expenses and other assets Note 1 ...... 54,354 63,893
Due on sale of investments .................... 97,446
Trust account investments Note 1 .............. 970,553 834,286
Other investments Note 1 ...................... 53,556 55,748
Deferred income taxes Note 4 .................. 32,083 39,527
Property and equipment-Net Note 1 ............. 143,661 148,343
Internally generated computer software-Net .... 70,487 73,863
Identifiable intangible assets relating
to acquisitions-Net Note 1 ................... 50,156 57,270
Goodwill-Net Note 1 ........................... 292,089 300,552
-----------------------
TOTAL.......................................... $1,908,519 $1,885,299
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable .............................. $ 43,486 $ 43,948
Accrued expenses .............................. 60,747 59,614
Accrued income taxes .......................... 7,510 6,116
Deferred revenues ............................. 46,089 40,754
Trust account deposits ........................ 970,553 917,189
Long-term debt Note 3 ......................... 271,502 381,361
Other obligations Note 3 ...................... 1,362 2,055
-----------------------
TOTAL LIABILITIES ............................. 1,401,249 1,451,037
COMMITMENTS AND CONTINGENCIES NOTE 6
SHAREHOLDERS' EQUITY:
Common stock outstanding, 45,348,000 and
44,887,000 shares, respectively .............. 453 449
Additional paid-in capital .................... 323,268 315,800
Unrealized gain on investments ................ 18,621 15,268
Accumulated earnings .......................... 164,928 102,745
-----------------------
TOTAL SHAREHOLDERS' EQUITY .................... 507,270 434,262
=======================
TOTAL ......................................... $1,908,519 $1,885,299
=======================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Year ended December 31, 1996 1995 1994
SHARES ISSUED-150,000,000 AUTHORIZED:
Balance at beginning of year .......... 44,887 40,038 39,661
Shares issued under stock plans-net ... 327 274 239
Shares issued for acquired companies .. 134 4,575 138
---------------------------------
Balance at end of year ................ 45,348 44,887 40,038
=================================
COMMON STOCK-PAR VALUE $.01 PER SHARE:
Balance at beginning of year .......... $ 449 $ 400 $ 397
Shares issued under stock plans-net ... 3 3 2
Shares issued for acquired companies .. 1 46 1
---------------------------------
Balance at end of year ................ 453 449 400
---------------------------------
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year .......... 315,800 184,748 181,223
Shares issued under stock plans-net ... 4,893 670 2,660
Income tax reduction arising from the
exercise of employee stock options .. 2,000 2,400 800
Shares issued for acquired companies .. 575 127,982 65
---------------------------------
Balance at end of year ................ 323,268 315,800 184,748
---------------------------------
UNREALIZED GAIN ON INVESTMENTS .......... 18,621 15,268 11,054
---------------------------------
ACCUMULATED EARNINGS:
Balance at beginning of year .......... 102,745 162,520 122,023
Net income (loss) ..................... 61,684 (59,863) 40,407
Foreign currency translation adjustment 499 88 90
---------------------------------
Balance at end of year ................ 164,928 102,745 162,520
---------------------------------
TOTAL SHAREHOLDERS' EQUITY .............. $ 507,270 $ 434,262 $ 358,722
=================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31, 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................. $ 61,684 $ (59,863) $ 40,407
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred income taxes ......................... 3,456 (58,952) 12,375
Depreciation and amortization of
property and equipment ....................... 42,241 38,480 31,401
Amortization of intangible assets ............. 20,983 25,880 10,846
Charge for incomplete software technology ..... 172,970
Amortization (capitalization) of internally
generated computer software - net ............ 3,732 (6,382) (9,599)
-----------------------------------
132,096 112,133 85,430
Cash provided (used) by changes in assets
and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable .......................... (4,881) (10,014) (12,194)
Prepaid expenses and other assets ............ 10,080 (23,709) (3,935)
Accounts payable and accrued expenses ........ 2,288 (4,843) (3,954)
Deferred revenues ............................ 5,232 9,283 (123)
Accrued income taxes ......................... 4,085 5,756 2,059
-----------------------------------
Net cash provided by operating activities ...... 148,900 88,606 67,283
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................... (36,157) (45,039) (53,193)
Payment for acquisition of businesses,
net of cash acquired ......................... (8,025) (258,237) (20,545)
Investments ................................... (128,394) 227,739 (203,142)
Due on sale of investments .................... 97,446 (97,446)
-----------------------------------
Net cash used by investing activities .......... (75,130) (172,983) (276,880)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings and other long-term obligations .... 6,000 252,977 39,165
Repayment of borrowings and other long-
term obligations ............................. (116,940) (21,150) (12,720)
Issuance of common stock ...................... 4,896 638 1,918
Trust account deposits ........................ 53,364 (118,028) 174,567
-----------------------------------
Net cash (used) provided by financing activities (52,680) 114,437 202,930
-----------------------------------
Change in cash and cash equivalents ............ 21,090 30,060 (6,667)
Beginning balance .............................. 59,743 29,683 36,350
-----------------------------------
Ending balance ................................. $ 80,833 $ 59,743 $ 29,683
===================================
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31,1996, 1995 and 1994
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash and investments with original maturities
of 90 days or less.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets at December 31, 1996 and 1995 include
$12,013,000 and $17,817,000,respectively, relating to long-term contracts, the
profit from which is being recognized ratably over the periods to be benefited.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUES
The carrying amounts of cash and cash equivalents, accounts receivable and
payable, and long-term borrowings approximated fair value as of December 31,
1996 and 1995.
TRUST ACCOUNT DEPOSITS AND INVESTMENT SECURITIES
The Company's trust administration subsidiaries accept money market deposits
from trust customers and invest the funds in securities. Such amounts due trust
depositors represent the primary source of funds for the Company's investment
securities and amounted to $970,553,000 and $917,189,000 in 1996 and 1995,
respectively. The related investment securities, including amounts representing
Company funds, comprised the following at December 31, 1996 and 1995:
(In thousands) PRINCIPAL CARRYING MARKET
1996 AMOUNT VALUE VALUE
-----------------------------------
U. S. Government and government
agency obligations ...................... $ 684,963 $ 695,955 $ 695,048
Corporate bonds ......................... 31,172 31,337 31,374
Repurchase agreements ................... 41,888 41,888 41,888
Other fixed income obligations .......... 263,878 262,293 261,939
-----------------------------------
TOTAL ................................... $1,021,901 $1,031,473 $1,030,249
-----------------------------------
Less amounts representing Company funds:
Included in cash and cash equivalents 41,888
Included in other investments 19,032
-----------------------------------
Trust account investments ............... $ 970,553
===================================
1995
U. S. Government and government
agency obligations .................... $ 553,384 $ 558,893 $ 559,000
Corporate bonds ........................ 119,100 118,891 118,716
Repurchase agreements .................. 96,671 96,671 96,671
Other fixed income obligations ......... 59,877 59,831 59,831
------------------------------------
TOTAL .................................. $ 829,032 834,286 $ 834,218
====================================
Substantially all of the investments have contractual maturities of one year or
less except for government agency obligations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using primarily the straight-line method over the estimated useful
lives of the assets, ranging from three to 40 years:
(In thousands)
December 31, 1996 1995
------------------
Data processing equipment .................... $155,147 $149,143
Purchased software ........................... 47,833 39,810
Buildings and leasehold improvements ......... 52,329 51,195
Furniture and equipment ...................... 49,526 38,940
------------------
304,835 279,088
Less accumulated depreciation and amortization 161,174 130,745
------------------
TOTAL ........................................ $143,661 $148,343
==================
INTERNALLY GENERATED COMPUTER SOFTWARE
Certain costs incurred to develop new software and enhance existing software are
capitalized and amortized over the expected useful life of the product,
generally five years. At December 31, 1996 and 1995, the unamortized portion of
internally generated computer software costs amounted to $70,487,000 and
$73,863,000, respectively; amortization of such costs charged to expense
amounted to $30,098,000, $19,998,000, and $16,655,000 in 1996, 1995 and 1994,
respectively. During the fourth quarter of 1996, the Company recorded a charge
of $5,443,000 relating to the accelerated amortization of software resulting
from the planned consolidation of certain product lines. Routine maintenance of
software products, design costs and development costs incurred prior to
establishment of a product's technological feasibility are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets relate to acquisitions and consist of the following at
December 31:
(In thousands) 1996 1995
------------------
Computer software acquired ................... $ 29,326 $30,949
Non-competition agreements ................... 9,139 10,744
Contract rights and other .................... 55,952 48,012
------------------
94,417 89,705
Less accumulated amortization ................ 44,261 32,435
------------------
TOTAL......................................... $ 50,156 $ 57,270
==================
Goodwill ..................................... $317,077 $318,410
Less accumulated amortization ................ 24,988 17,858
------------------
TOTAL......................................... $292,089 $300,552
==================
Except as noted below, the cost allocated to computer software acquired in
corporate acquisitions is being amortized on a straight-line basis over its
expected useful life (generally five years or less). In connection with certain
acquisitions, the Company has entered into non-compete agreements with the
sellers. The values assigned are being amortized on the straight-line method
over the periods covered by the agreements (generally five years or less). Costs
allocated to various customer data processing contracts at the dates of
acquisition are being amortized on a straight-line basis over the remaining
terms of the contracts (generally six years or less). The excess of the purchase
price over the estimated fair value of tangible and identifiable intangible
assets acquired has been recorded as goodwill and is being amortized over 40
years. The Company periodically reviews goodwill and other long-lived assets to
assess recoverability, and impairments would be recognized in operating results
if a permanent diminution in value were to occur. In connection with the
acquisition in 1995 of Information Technology, Inc. (ITI) referred to in Note 2
below, the allocation of the purchase price to the various classes of assets was
determined on the basis of an opinion expressed by a nationally recognized
independent appraisal firm. Values determined for incomplete software have been
expensed and values for completed software are being amortized utilizing
accelerated methods.
INCOME TAXES
The consolidated financial statements are prepared on the accrual method of
accounting. Deferred income taxes are provided for temporary differences between
the Company's income for accounting and tax purposes.
REVENUE RECOGNITION
Revenues result primarily from the sale of data processing services to financial
institutions, software sales, and administration of self-directed retirement
plans. Such revenues are recognized as the related services are provided.
Revenues include investment income of $37,572,000, $35,695,000, and $29,695,000,
net of direct credits to depositors accounts of $24,050,000, $27,561,000, and
$23,217,000 in 1996, 1995 and 1994, respectively. Deferred revenues consist
primarily of advance billings for services and are recognized as revenue when
the services are provided.
INCOME PER SHARE
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.
SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) 1996 1995 1994
-------------------------------
Interest paid............................... $22,942 $21,184 $8,871
Income taxes paid........................... 34,865 11,488 11,417
Liabilities assumed in acquisitions
of businesses.............................. 1,596 49,279 3,416
NOTE 2 ACQUISITIONS AND CAPITAL TRANSACTIONS
ACQUISITIONS
During 1996, 1995 and 1994 the Company completed the following acquisitions:
MONTH
COMPANY ACQUIRED TYPE OF BUSINESS CONSIDERATION
- ------------------------------------------------------------------------------------------------------------------------------------
1996:
UniFi, Inc. Jan Software and services Cash for stock
Bankers Pension Services, Inc. Nov Retirement plan administrators Stock for stock
1995:
Integrated Business Systems Jan Forms Cash for stock
BankLink, Inc. Feb Cash management Cash for stock
Information Technology, Inc. May Financial processing systems Cash and stock
for stock
Lincoln Holdings, Inc. Aug Retirement plan administrators Stock for stock
SRS, Inc. Sep Data processing Cash for stock
Document Management Services Sep Item processing Cash for assets
Division of ALLTEL Financial Information
Services, Inc.
Financial Information Trust Nov Data processing Cash for stock
Outsource Technology L. C. Nov Data processing Cash for stock
1994:
National Embossing Company, Inc. Apr Automated card services Cash for stock
Boatmen's Information Systems May Data processing Cash for assets
data processing business
Federal Home Loan Bank of Atlanta Aug Item processing Cash for assets
item processing contracts
Cincinnati Bell Information Systems Nov Image and document Cash for assets
banking business management services
RECOM Associates, Inc. Dec Network integration services Stock for stock
Generally, the acquisitions were accounted for as purchases and, accordingly,
the operations of the acquired companies are included in the consolidated
financial statements since their respective dates of acquisition as set forth
above. Certain of the acquisitions were accounted for as poolings of interests.
However, except for the acquisition of Lincoln Holdings, Inc. (LHI), prior year
financial statements were not restated due to immateriality. Results of
operations of LHI have been included with those of the Company for all periods
presented. Certain of the acquisition agreements provide for additional cash
payments contingent upon the attainment of specified revenue goals.
In connection with the acquisition of Bankers Pension Services, Inc. (BPS), the
Company issued approximately 112,000 unregistered shares of its common stock.
The Company relied upon the exemption provided in Section 4(2) of the Securities
Act of 1933 and Rule 505 of Regulation D, based upon the number of shareholders
of BPS and the aggregate value of the transaction. No underwriter was involved
in the transaction and no commission was paid.
The acquisition of ITI was consummated for a consideration of approximately $377
million comprising approximately 4,574,000 shares of common stock of the Company
and $249 million cash, including acquisition costs. Approximately 903,000 shares
of common stock of the Company were issued in the acquisition of LHI. Net income
of the Company for 1995 was determined after a pretax charge of $182.9 million
relating to the writeoff of incomplete software technology and accelerated
amortization of completed software relating to the acquisition of ITI.
Accordingly, net income was reduced in 1995 by $109.6 million, or $2.49 a share,
relating to such charges.
STOCK OPTION PLAN
The Company's 1996 Stock Option Plan provides for the granting to its employees
and directors of either incentive or non-qualified options to purchase shares of
the Company's common stock for a price not less than 100% of the fair value of
the shares at the date of grant. In general, 20% of the shares awarded under the
Plan may be purchased annually and expire, generally, five to 10 years from the
date of the award. Activity under the current and prior plans during 1994, 1995
and 1996 is summarized as follows:
SHARES
-----------------------------
NON- PRICE
INCENTIVE QUALIFIED RANGE
------------------------------------------
Outstanding, December 31, 1993 53,305 2,226,804 $1.63-20.17
Granted 559,497 20.00-22.50
Forfeited (3,380) (102,945)
Exercised (19,505) (211,529) 1.63-18.50
-----------------------------
Outstanding, December 31, 1994 30,420 2,471,827 1.63-22.50
Granted 440,434 21.50-27.50
Forfeited (115,493)
Exercised (10,140) (413,588) 1.63-21.81
-----------------------------
Outstanding, December 31, 1995 20,280 2,383,180 1.63-27.50
Granted 617,354 26.50-36.75
Forfeited (89,147)
Exercised (18,590) (309,977) 1.63-30.50
-----------------------------
Outstanding, December 31, 1996 1,690 2,601,410 5.77-36.75
=============================
Shares exercisable,
December 31, 1996 1,690 1,757,795
===========================================
Options outstanding include 51,525 and 132,529 shares granted in 1995 and 1996
at $22.00 and $29.88 a share, respectively, under a stock purchase plan
requiring exercise within 30 days after a two-year period beginning on the date
of grant.
At December 31, 1996, options to purchase 4,035,000 shares were available for
grant under the Plan. The Company has accounted for its stock-based compensation
plans in accordance with the provisions of APB Opinion 25. Accordingly, the
Company did not record any compensation expense in the accompanying financial
statements for its stock-based compensation plans. Had compensation expense been
recognized consistent with FASB Statement 123 ("Accounting for Stock-Based
Compensation"), the Company's net income would have been reduced by
approximately $981,000 and $301,000 in 1996 and 1995, respectively. The related
impact on earnings per share was immaterial. The assumptions used to estimate
compensation expense were: expected volatility of 17.8%, risk-free interest rate
of 6.5% and expected option lives of five years.
NOTE 3 LONG-TERM DEBT AND OTHER OBLIGATIONS
The Company has available a $225,000,000 unsecured line of credit and commercial
paper facility with a group of banks, maturing in 2000, of which $141,669,000
was in use at December 31, 1996 at an average rate of 5.86%. The loan agreements
covering the Company's long-term borrowings contain certain restrictive
covenants including, among other things, the maintenance of minimum net worth
and various operating ratios with which the Company was in compliance at
December 31, 1996. A facility fee ranging from .1% to .2% per annum is required
on the entire bank line regardless of usage. The facility is reduced to
$210,000,000 and $150,000,000, respectively, on May 17, 1998 and 1999 and
expires on May 17, 2000.
Long-term debt and other obligations outstanding at the respective year-ends
comprised the following:
(in thousands)
December 31, 1996 1995
----------------------------
9.45% senior notes payable, due 1997-2000 $17,143 $21,429
9.75% senior notes payable, due 1997-2001 12,500 15,000
8.00% senior notes payable, due 1999-2005 90,000 90,000
Bank notes and commercial paper 151,859 254,932
Other obligations 1,362 2,055
-----------------------------
TOTAL $272,864 $383,416
=============================
Annual principal payments required under the terms of the long-term agreements
were as follows at December 31, 1996:
(In thousands)
Year
- ----------------------------------------------------------------------
1997 $10,075
1998 8,074
1999 21,211
2000 162,424
2001 16,220
Thereafter 54,860
- ----------------------------------------------------------------------
TOTAL $272,864
======================================================================
Interest expense with respect to long-term debt and other obligations amounted
to $22,431,000, $22,006,000 and $9,228,000 in 1996, 1995 and 1994, respectively.
NOTE 4 INCOME TAXES
A reconciliation of recorded income tax expense with income tax computed at the
statutory federal tax rates follows:
(In thousands) 1996 1995 1994
-----------------------------------
Statutory federal tax rate 35% 35% 35%
Tax computed at statutory rate $36,592 $(34,486) $23,571
State income taxes net of federal effect 4,473 (5,113) 2,792
Non-deductible amortization 1,504 1,239 1,157
Other 296 (308) (582)
------------------------------------
TOTAL $42,865 $(38,668) $26,938
====================================
The provision for income taxes consisted of the following:
(In thousands) 1996 1995 1994
----------------------------------
Currently payable $37,409 $17,884 $13,763
Tax reduction credited to capital
in excess of par value 2,000 2,400 800
Deferred 3,456 (58,952) 12,375
----------------------------------
Total $42,865 $(38,668) $26,938
==================================
The approximate tax effects of temporary differences at December 31, 1996 and
1995 were as follows:
(In thousands) 1996 1995
------------------------
Allowance for doubtful acounts $1,529 $2,319
Accrued expenses not currently deductible 5,588 7,769
Deferred revenues 9,815 9,122
Other (232) 1,728
Net operating loss and credit carryforwards 3,871 6,739
Deferred costs (4,963) (9,143)
Internally generated capitalized software (28,900) (30,283)
Excess of tax over book depreciation
and amortization (3,185) (4,419)
Purchased incomplete software technology 61,500 66,305
Unrealized gain on investments (12,940) (10,610)
------------------------
TOTAL $32,083 $39,527
========================
The net operating loss and tax credit carryforwards have expiration dates
ranging from 1997 through 2010.
NOTE 5 EMPLOYEE BENEFIT PROGRAMS
The Company and its subsidiaries have contributory savings plans covering
substantially all employees, under which eligible participants may elect to
contribute a specified percentage of their salaries, subject to certain
limitations. The Company makes matching contributions, subject to certain
limitations, and also makes discretionary contributions based upon the
attainment of certain profit goals. Company contributions vest at the rate of
20% for each year of service. Contributions charged to operations under these
plans approximated $10,074,000, $8,144,000 and $8,900,000 in 1996, 1995 and
1994, respectively.
NOTE 6 LEASES, OTHER COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum rental payments, as of December 31, 1996, on various operating
leases for office facilities and equipment were due as follows:
(In thousands)
Year
- ----------------------------------------------------------------------
1997 $35,030
1998 29,115
1999 19,794
2000 15,581
2001 9,472
Thereafter 18,538
======================================================================
TOTAL $127,530
======================================================================
Rent expense applicable to all operating leases was approximately $48,752,000,
$48,038,000 and $43,065,000 in 1996, 1995 and 1994, respectively.
OTHER COMMITMENTS AND CONTINGENCIES
The Company's trust administration subsidiaries had fiduciary responsibility for
the administration of approximately $18 billion in trust funds as of December
31, 1996. With the exception of the trust account investments discussed in Note
1, such amounts are not included in the accompanying balance sheets.
In the normal course of business, the Company and its subsidiaries are named as
defendants in various lawsuits in which claims are asserted against the Company.
In the opinion of management, the liabilities, if any, which may ultimately
result from such lawsuits are not expected to have a material adverse effect on
the financial statements of the Company.
MANAGEMENT'S DISCUSSION & 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 those items from period to
period. The table is based upon the accompanying supplemental schedule which
excludes certain charges to 1995 operations associated with the acquisition of
Information Technology, Inc.
PERCENTAGE OF REVENUES PERIOD TO PERIOD PERCENTAGE
YEAR ENDED DECEMBER 31, INCREASE (DECREASE)
----------------------------------------------------------------------
1996 vs. 1995 vs.
1996 1995 1994 1995 1994
----------------------------------- -----------------------------
Revenues 100.0% 100.0% 100.0% 13.4% 21.3%
-----------------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 46.5 47.0 48.6 12.3 17.5
Data processing expenses, rentals
and telecommunication costs 11.4 13.6 14.0 (5.1) 17.8
Other operating costs 18.2 17.8 19.0 15.7 14.1
Depreciation and amortization of
equipment and improvements 5.3 5.5 5.4 9.8 22.7
Amortization of intangible assets 2.6 2.3 1.9 31.5 47.2
Amortization (capitalization) of internally
generated software - net 0.5 (0.9) (1.7) (158.5) (33.5)
----------------------------------- ----------------------------
Total cost of revenues 84.5 85.3 87.2 12.4 18.7
====================================
Operating income 15.5% 14.7% 12.8% 19.8 38.9
====================================
Income before income taxes 13.1% 12.0% 11.6% 23.9 25.2
====================================
Net income 7.7% 7.1% 7.0% 23.9 23.2
====================================
The following discussion is based upon the accompanying supplemental schedule
which excludes certain charges to 1995 operations associated with the
acquisition of Information Technology, Inc. aggregating $182.9 million.
Revenues increased $94,888,000 in 1996 and $123,541,000 in 1995. In both years,
approximately 55% of the growth resulted from the inclusion of revenues from the
date of purchase of acquired businesses as set forth in Note 2 to the financial
statements and the balance in each year from the net addition of new clients,
growth in the transaction volume experienced by existing clients and price
increases.
Cost of revenues increased $74,430,000 in 1996 and $94,658,000 in 1995. As a
percentage of revenues, cost of revenues decreased .8% from 1995 to 1996 and
1.9% from 1994 to 1995. The make up of cost of revenues has been significantly
affected in both years by business acquisitions and by changes in the mix of the
Company's business as sales of software and related support activities and item
processing and electronic funds transfer operations have enjoyed an increasing
percentage of total revenues.
A significant portion of the purchase price of the Company's acquisitions has
been allocated to intangible assets, such as client contracts, computer
software, non-competition agreements and goodwill, which are being amortized
over time, generally three to 40 years. Amortization of these costs increased
$5,021,000 from 1995 to 1996 and $5,116,000 from 1994 to 1995. As a percentage
of revenues, these costs also increased in both years.
Capitalization of internally generated computer software is stated net of
amortization and decreased $3,217,000 in 1995 and $10,114,000 in 1996. Net
software capitalized was more than offset by amortization in 1996 due to the
accelerated amortization of software resulting from the planned consolidation of
certain product lines.
Operating income increased $20,458,000 in 1996 and $28,883,000 in 1995. As a
percentage of revenues, operating income increased .8% in 1996 and 1.9% in 1995.
The effective income tax rate was 41% in 1996 and 1995 and 40% in 1994. The
trend to higher income tax rates results from net increases in non-deductible
permanent differences. The effective income tax rate for 1997 is expected to
remain at 41%.
The Company's growth has been largely accomplished through the acquisition of
entities engaged in businesses which are complementary to its operations.
Management believes that a number of acquisition candidates are available which
would further enhance its competitive position and plans to pursue them
vigorously. Management is engaged in an ongoing program to reduce expenses
related to acquisitions by eliminating operating redundancies. The Company's
approach has been to move slowly in achieving this goal in order to minimize the
amount of disruption experienced by its clients and the potential loss of
clients due to this program.
CONSOLIDATED STATEMENTS OF INCOME SUPPLEMENTAL SCHEDULE
(Unaudited)
(In thousands, except per share data)
Year ended December 31, 1996 1995 1994
REVENUES $798,268 $703,380 $579,839
------------------------------------
COST OF REVENUES:
Salaries, commissions and payroll
related costs 371,526 330,845 281,651
Data processing expenses, rentals and
telecommunication costs 90,919 95,798 81,320
Other operating expenses 145,230 125,498 109,975
Depreciation and amortization of
property and equipment 42,241 38,480 31,350
Amortization of intangible assets 20,983 15,962 10,846
Amortization (capitalization) of internally
generated computer software - net 3,732 (6,382) (9,599)
------------------------------------
TOTAL 674,631 600,201 505,543
------------------------------------
OPERATING INCOME 123,637 103,179 74,296
Interest expense - net 19,088 18,822 6,951
-----------------------------------
INCOME BEFORE INCOME TAXES 104,549 84,357 67,345
Income tax provision 42,865 34,586 26,938
-----------------------------------
NET INCOME $61,684 $49,771 $40,407
===================================
Net income per common and
common equivalent share $1.34 $1.13 $0.99
===================================
Shares used in computing net
income per share 46,198 44,008 40,735
===================================
Note: Supplemental information provided for comparative purposes. 1995
excludes certain charges associated with the acquisition of Information
Technology, Inc.
The following table sets forth certain financial highlights and pro forma
information for 1996, 1995 and 1994.
(In thousands, except per share data)
Year Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
Revenues $798,268 $703,380 $579,839
Net income (loss) 61,684 (59,863) 40,407
- ----------------------------------------------------------------------------------------------------
Net income (loss) per share $1.34 $(1.36) $0.99
- ----------------------------------------------------------------------------------------------------
Net income as originally reported and before certain charges
related to acquisition of Information Technology, Inc. 61,684 49,771 37,664
- ----------------------------------------------------------------------------------------------------
Net income per share as originally reported and before certain
charges related to acquisition of Information Technology, Inc. $1.34 $1.13 $0.95
- ----------------------------------------------------------------------------------------------------
The charges related to the acquisition of Information Technology, Inc. (ITI) in
1995 are a pre-tax special, one-time, non-cash charge of $173 million to expense
the purchased ITI Premier II research and development and a pre-tax charge of
$9.9 million for the accelerated amortization of the completed ITI Premier I
software. The combined after-tax charge was $109.6 million ($2.49 per share).
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's primary sources of funds:
(In thousands)
Year Ended December 31, 1996 1995 1994
--------------------------------------
Cash provided by operating activities $148,900 $88,606 $67,283
Issuance of common stock-net 4,896 638 1,918
Decrease (increase) in investments 22,416 12,265 (28,575)
Increase (decrease) in net borrowings (110,940) 231,827 26,445
--------------------------------------
TOTAL $65,272 $333,336 $67,071
--------------------------------------
The Company has applied a significant portion of its cash flow from operations
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 operations together with other
available sources of funds will be adequate to meet its funding requirements. In
the event that the Company makes significant future acquisitions, however, it
may raise funds through additional borrowings or issuance of securities.
SELECTED FINANCIAL DATA
The following data, which has been materially affected by acquisitions, should
be read in conjunction with the financial statements and related notes thereto
included elsewhere in this Annual Report.
(In thousands, except per share data)
Year Ended December 31, 1996 1995 1994 1993 1992
------------------------------------------------------------------------------
Revenues $798,268 $703,380 $579,839 $467,863 $341,448
Income (loss) before income taxes 104,549 (98,531) 67,345 53,177 39,291
Income taxes (credit) 42,865 (38,668) 26,938 20,464 14,925
Net income (loss) 61,684 (59,863) 40,407 32,713 24,366
Net income (loss) per share $1.34 $(1.36) $0.99 $0.83 $0.69
------------------------------------------------------------------------------
Total assets $1,908,519 $1,885,299 $1,661,345 $1,395,403 $1,097,339
Long-term debt and other long-term obligations 272,864 383,416 150,016 122,417 59,472
Shareholders' equity 507,270 434,262 358,722 312,873 195,630
--------------------------------------------------------------------------------
Note: The above information has been restated to recognize (1) 3-for-2 stock
splits effective in May 1993 and June 1992 and (2) the acquisition in 1995 of
Lincoln Holdings, Inc. accounted for as a pooling of interests.
QUARTERLY FINANCIAL INFORMATION
(Unaudited)
(In thousands, except per share data) QUARTERS
1996 FIRST SECOND THIRD FOURTH TOTAL
---------------------------------------------------------------------
Revenues $194,710 $196,464 $196,585 $210,509 $798,268
---------------------------------------------------------------------
Cost of revenues 164,205 165,612 165,633 179,181 674,631
---------------------------------------------------------------------
Operating income 30,505 30,852 30,952 31,328 123,637
---------------------------------------------------------------------
Income before income taxes 24,850 25,776 26,658 27,265 104,549
---------------------------------------------------------------------
Income taxes 10,189 10,568 10,929 11,179 42,865
---------------------------------------------------------------------
Net income $14,661 $15,208 $15,729 $16,086 $61,684
---------------------------------------------------------------------
Net income per share $0.32 $0.33 $0.34 $0.35 $1.34
=====================================================================
1995
---------------------------------------------------------------------
Revenues $157,179 $173,470 $176,922 $195,809 $703,380
---------------------------------------------------------------------
Cost of revenues 136,288 148,725 148,286 349,790 783,089
---------------------------------------------------------------------
Operating income 20,891 24,745 28,636 (153,981) (79,709)
---------------------------------------------------------------------
Income (loss) before income taxes 19,054 20,308 22,223 (160,116) (98,531)
---------------------------------------------------------------------
Income taxes (credit) 7,813 8,326 9,111 (63,918) (38,668)
---------------------------------------------------------------------
Net income (loss) $11,241 $11,982 $13,112 $(96,198) $(59,863)
---------------------------------------------------------------------
Net income (loss) per share $0.27 $0.28 $0.29 $(2.10) $(1.36)
=====================================================================
MARKET PRICE INFORMATION
The following information relates to the closing price of the Company's $.01 par
value common stock, which is traded on the over-the-counter market and is quoted
on the NASDAQ National Market System under the symbol FISV.
1996 1995
- --------------------------------------------------------------------------------
QUARTER ENDED HIGH LOW HIGH LOW
- --------------------------------------------------------------------------------
March 31 32 25 3/8 27 3/4 21
June 30 33 3/8 28 1/16 28 3/8 25 3/4
September 30 38 11/16 28 5/8 31 25 1/2
December 31 39 5/8 34 30 1/8 25 1/2
At December 31, 1996, the Company's common stock was held by approximately
30,000 shareholders of record or through nominee or street name accounts with
brokers. The closing sale price for the Company's stock on January 17, 1997 was
$37.00 per share.
The Company's present policy is to retain earnings to support future business
opportunities, rather than to pay dividends.
INDEPENDENT AUDITORS' REPORT
Shareholders and Directors of Fiserv, Inc.:
We have audited the accompanying consolidated balance sheets of Fiserv, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fiserv, Inc. and subsidiaries at
December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
January 31,1997
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of Fiserv, Inc. assumes responsibility for the integrity and
objectivity of the information appearing in the 1996 Annual Report. This
information was prepared in conformity with generally accepted accounting
principles and necessarily reflects the best estimates and judgment of
management.
To provide reasonable assurance that transactions authorized by management are
recorded and reported properly and that assets are safeguarded, the Company
maintains a system of internal controls. The concept of reasonable assurance
implies that the cost of such a system is weighed against the benefits to be
derived therefrom.
Deloitte & Touche LLP, certified public accountants, audit the financial
statements of the Company in accordance with generally accepted auditing
standards. Their audit includes a review of the internal control system, and
improvements are made to the system based upon their recommendations.
The Audit Committee ensures that management and the independent auditors are
properly discharging their financial reporting responsibilities. In performing
this function, the Committee meets with management and the independent auditors
throughout the year. Additional access to the Committee is provided to Deloitte
& Touche LLP on an unrestricted basis, allowing discussion of audit results and
opinions on the adequacy of internal accounting controls and the quality of
financial reporting.
/S/ GEORGE D. DALTON
GEORGE D. DALTON
Chairman and Chief Executive Officer