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, 1997 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, 1997, 45,445,000 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 Month Periods Ended March 31, 1997 and 1996 Three Months Ended March 31, 1997 1996 ---------------------------- (In thousands except per share amounts) Revenues ..................................... $ 206,450 $ 194,710 ---------- ---------- Cost of revenues: Salaries, commissions and payroll related costs ....................... 99,483 90,692 Data processing expenses, rentals and telecommunication costs ................. 22,813 24,274 Other operating expenses ..................... 35,813 34,409 Depreciation and amortization of property and equipment ................... 11,083 10,309 Amortization of intangible assets ............ 3,543 5,317 Capitalization of internally generated computer software ................. (521) (796) ----------- ---------- Total cost of revenues .......... 172,214 164,205 ----------- ---------- Operating income ............................. 34,236 30,505 Interest expense-net ......................... 3,487 5,655 ----------- ---------- Income before income taxes ................... 30,749 24,850 Income tax provision ......................... 12,607 10,189 ----------- --------- Net income ................................... $ 18,142 $ 14,661 =========== ========== Net income per common and common equivalent share ..................... $ 0.39 $ 0.32 =========== ========== Shares used in computing net income per share ........................ 46,544 45,919 =========== ========== See notes to consolidated financial statements. 2 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1997 1996 -------------------------- (In thousands) ASSETS Cash and cash equivalents ........................ $ 41,762 $ 80,833 Accounts receivable .............................. 180,236 160,747 Prepaid expenses and other assets ................ 57,510 54,354 Trust account investments ........................ 1,135,577 970,553 Other investments ................................ 108,462 53,556 Deferred income taxes ............................ 30,391 32,083 Property and equipment-net ....................... 146,843 143,661 Internally generated computer software-net ....... 71,438 70,487 Identifiable intangible assets relating to acquisitions-net ............................. 48,145 50,156 Goodwill-net ..................................... 290,195 292,089 ---------- ---------- Total ............................................ $2,110,559 $1,908,519 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable ................................. $ 46,591 $ 43,486 Accrued expenses ................................. 61,246 60,747 Accrued income taxes ............................. 7,531 7,510 Deferred revenues ................................ 53,587 46,089 Trust account deposits ........................... 1,133,690 970,553 Long-term debt ................................... 278,598 271,502 Other long-term obligations ...................... 2,252 1,362 ---------- ---------- Total liabilities ................................ 1,583,495 1,401,249 ---------- ---------- Stockholders' equity: Common stock outstanding, 45,445,000 and 45,348,000 shares, respectively ................ 454 453 Additional paid-in capital ....................... 325,194 323,268 Unrealized gain on investments ................... 18,576 18,621 Accumulated earnings ............................. 182,840 164,928 ---------- ---------- Total stockholders' equity ....................... 527,064 507,270 ---------- ---------- Total ............................... $2,110,559 $1,908,519 ========== ========== See notes to consolidated financial statements. 3 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the Three-Month Periods Ended March 31, 1997 and 1996
Three Months Ended March 31, 1997 1996 ---------------------- (In thousands) Cash flows from operating activities: Net income .................................................. $ 18,142 $ 14,661 Adjustments to reconcile income to net cash provided by operating activities: Deferred income taxes ...................................... 1,835 4,581 Depreciation and amortization of property and equipment .... 11,083 10,309 Amortization of intangible assets .......................... 3,543 5,317 Capitalization of internally generated computer software-net (521) (796) ---------- ---------- 34,082 34,072 Cash provided (used) by changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable ........................................ (9,137) (2,116) Prepaid expenses and other assets .......................... (572) (3,114) Accounts payable and accrued expenses ...................... (3,096) (12,841) Deferred revenue ........................................... 7,552 3,559 Income taxes payable ....................................... 53 (1,338) ---------- ---------- Net cash provided by operating activities ................... 28,882 18,222 ---------- ---------- Cash flows from investing activities: Capital expenditures ....................................... (10,210) (9,525) Investments and other assets ............................... (54,907) 1,175 Payment for acquisition of businesses ...................... (10,717) (484) Trust account investments .................................. (165,011) (135,107) --------- ---------- Net cash provided (used) by investing activities ............ (240,845) (143,941) --------- ---------- Cash flows from financing activities: Borrowings and other long-term obligations-net ............. 7,840 (19,275) Issuance of common stock ................................... 1,915 423 Trust account deposits ..................................... 163,137 133,721 --------- ---------- Net cash provided (used) by financing activities ............ 172,892 114,869 --------- ---------- Change in cash .............................................. (39,071) (10,850) Beginning balance ........................................... 80,833 59,743 ---------- ---------- Ending balance .............................................. $ 41,762 $ 48,893 ========== ==========
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, 1997, and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 1997 and 1996 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the annual financial statements and notes of Fiserv, Inc. and subsidiaries (the Company). 2. Shares Used in Computing Net Income per Share Three Months Ended March 31, 1997 1996 --------------------------- (in thousands) Weighted average number of common shares outstanding 45,397 44,944 Shares issuable upon exercise of options reduced by the number of shares which could have been purchased with the proceeds of such exercise 1,147 975 --------------------------- Shares used 46,544 45,919 --------------------------- 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. Revenue Recognition The Company provides item processing services in the Canadian market through a joint venture with Canadian Imperial Bank of Commerce. Revenues from this business are recorded on a fee basis. If the gross revenues from this activity were recognized, the Company's revenues for the period would increase by approximately $29 million or an additional 15%. 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 asset as of March 31, 1997 and December 31, 1996 are as follows: March 31, December 31, 1997 1996 ------------------------- (in thousands) Allowance for doubtful accounts ........... $ 1,529 $ 1,529 Accrued expenses not currently deductible . 6,919 5,588 Deferred revenue .......................... 8,576 9,815 Other ..................................... 569 (232) Net operating loss and credit carryforwards 3,608 3,871 Purchased incomplete software technology .. 60,347 61,500 Deferred costs ............................ (4,931) (4,963) Internally generated capitalized software . (29,289) (28,900) Excess of tax over book depreciation and amortization ............................ (4,029) (3,185) Unrealized gain on investments ............ (12,908) (12,940) --------- --------- Total ................................. $ 30,391 $ 32,083 ========= ========= 5 5. Supplemental Cash Flow Information Quarter Ended March 31, 1997 1996 ----------------------- (In thousands) Income taxes paid ............................... $10,647 $ 6,729 Interest paid .................................. 2,183 4,012 Liabilities assumed in acquisitions of businesses 5,724 1,236 6. Acquisitions On March 14, 1997, the Company filed a registration statement with the Securities and Exchange Commission relating to its proposed acquisition of all the outstanding common stock of BHC Financial, Inc. (BHC) in exchange for approximately 6,500,000 shares of Fiserv common stock. The transaction is subject to approval by the shareholders of BHC which is expected to be forthcoming during the second quarter of 1997. It is anticipated that the merger will be accounted for as a pooling of interests and historical financial statements of the combined companies for periods prior to the merger will be presented as though the companies had been combined as of the beginning of all periods presented. On April 1, 1997, the Company announced the acquisition of AdminaStar Communications in a cash transaction which will be accounted for on the purchase method of accounting. 6 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 1997 1996 Increase --------------------- (Decrease) Percent of Revenues ---------- Revenues ........................ 100.00% 100.00% 6.03% --------------------- Salaries and related costs ...... 48.19 46.58 9.69 Data processing costs ........... 11.05 12.47 (6.02) Other operating expenses ........ 17.35 17.67 4.08 Depreciation and amortization ... 5.37 5.29 7.51 Amortization of intangible assets 1.72 2.73 (33.36) Capitalization of software-net .. (0.25) (0.41) (34.55) -------------------- Total cost of revenues .......... 83.43 84.33 4.88 -------------------- Operating income ................ 16.57 15.67 12.23 ==================== Revenues Revenues increased 6.0% from $194.7 million in the first quarter of 1996 to $206.5 million in the current first quarter. Less than 10% of this growth resulted from the inclusion of revenues from the date of purchase of acquired companies and more than 90% from increases in revenue from the addition of new clients, growth in the transaction volume experienced by existing clients and price increases. As indicated in Note 3, the Company provides item processing services in the Canadian market through a joint venture with Canadian Imperial Bank of Commerce, the revenues from which are recorded on a fee basis. If the gross revenues from this activity were recognized, the Company's revenues for the three months ended March 31, 1997 would have increased by approximately $41 million or 21%. Cost of Revenues Cost of revenues increased 4.9% from $164.2 million in the first quarter of 1996 to $172.2 million in the current first quarter. The increase in compensation expenses was disproportionate to the increase in revenues due, primarily, to severance payments arising in connection with restructuring of the item processing contract with The Chase Manhattan Bank. Amortization of intangible assets decreased due to reduced amortization of intangible assets recorded in the acquisition of Information Technology, Inc. Operating Income Operating income increased 12% from $30.5 million in the first quarter of 1996 to $34.2 million in the current first quarter. Net Interest Expense As a result of declining debt levels, net interest expense decreased from $5.7 million in the first quarter of 1996 to $3.5 million in the current first quarter. Income Tax Provision Income taxes were computed at 41% in both 1997 and 1996, which rate is expected to apply throughout the current year. Net Income Net income grew 24% from $14.7 million in the first quarter of 1996 to $18.1 million in the first quarter of 1997, and net income per share increased 22% from $.32 per share in the first quarter of 1996 to $.39 in the corresponding period of 1997. Liquidity and Capital Resources During the three months ended March 31, 1997, cash and cash equivalents decreased $39.1 million comprising primarily $28.9 million net cash provided from operating activities, $7.8 million of net borrowings and $1.9 million from the sale of common stock offset by $10.2 million capital expenditures, $10.7 million for acquisition of businesses and $56.8 million net increase in investments. Long-term obligations amounted to $280.9 million at March 31, 1997. The majority of this debt comprises $119.6 million senior notes due 1997 to 2005 and $133.2 million advanced under a $225 million unsecured line of credit and commercial paper facility expiring May 17, 2000. A facility fee ranging from .1% to .2% 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 together with proceeds of its common stock offerings 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. 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, 1997, the Registrant filed a report on Form 8-K, dated March 3, 1997 announcing the proposed acquisition of BHC Financial, 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: April 22, 1997 by /S/ EDWARD P. ALBERTS ------------------------ EDWARD P. ALBERTS Senior Vice President, Finance and Controller 8