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, 1998 COMMISSION FILE NUMBER 0-14948
FISERV, INC.
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(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1506125
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
255 FISERV DRIVE, BROOKFIELD, WI. 53045
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(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, 1998, 53,750,850 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, 1998 and 1997
Three Months Ended
March 31,
1998 1997
-----------------------------------
(In thousands except
per share amounts)
REVENUES $273,829 $228,319
-----------------------------------
COST OF REVENUES:
Salaries, commissions and
payroll related costs 128,183 105,758
Data processing expenses, rentals
and telecommunication costs 27,396 24,766
Other operating expenses 52,373 41,311
Depreciation and amortization
of property and equipment 14,198 11,563
Amortization of intangible assets 3,464 3,645
Capitalization of internally
generated computer software (1,169) (521)
-----------------------------------
Total cost of revenues 224,445 186,522
-----------------------------------
OPERATING INCOME 49,384 41,797
Interest expense-net 3,367 3,487
-----------------------------------
INCOME BEFORE INCOME TAXES 46,017 38,310
Income tax provision 18,867 15,707
-----------------------------------
NET INCOME $27,150 $22,603
===================================
NET INCOME PER SHARE:
Basic $0.51 $0.44
===================================
Diluted $0.49 $0.43
===================================
Shares used in computing net income per share:
Basic 53,715 51,081
===================================
Diluted 55,465 52,372
===================================
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, December 31,
1998 1997
------------------------------------
(In thousands)
ASSETS
Cash and cash equivalents $83,132 $89,377
Accounts receivable 218,766 197,771
Securities processing receivables 1,226,651 1,386,169
Prepaid expenses and other assets 86,531 91,278
Trust account investments 1,031,989 1,082,740
Other investments 129,618 125,999
Deferred income taxes 34,703 35,233
Property and equipment-net 153,011 149,055
Internally generated computer software-net 73,998 73,163
Identifiable intangible assets relating
to acquisitions-net 49,490 50,426
Goodwill-net 432,977 355,280
====================================
Total $3,520,866 $3,636,491
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $58,533 $53,828
Securities processing payables 1,057,928 1,184,277
Short-term borrowings 53,700 94,975
Accrued expenses 109,128 123,380
Accrued income taxes 17,160 8,436
Deferred revenues 85,783 67,569
Trust account deposits 1,033,019 1,082,740
Long-term debt 343,556 252,031
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TOTAL LIABILITIES 2,758,807 2,867,236
------------------------------------
SHAREHOLDERS' EQUITY:
Common stock issued, 54,550,850 and
53,925,000 shares, respectively 546 539
Additional paid-in capital 435,803 427,785
Accumulated other comprehensive income:
Unrealized gain on investments 16,426 16,442
Foreign currency translation adjustment 196 121
Retained earnings 351,518 324,368
Treasury shares, at cost (800,000 shares in 1998) (42,430) 0
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TOTAL SHAREHOLDERS' EQUITY 762,059 769,255
====================================
TOTAL $3,520,866 $3,636,491
====================================
See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three-Month Periods Ended March 31, 1998 and 1997
Three Months Ended
March 31,
1998 1997
-----------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $27,150 $22,603
Adjustments to reconcile income to net cash provided
by operating activities:
Deferred income taxes 1,252 1,622
Depreciation and amortization of property and equipment 14,198 11,563
Amortization of intangible assets 3,464 3,645
Capitalization of internally generated computer software-net (1,169) (521)
-----------------------------------
44,895 38,912
Cash provided (used) by changes in assets and liabilities,
net of effects from
acquisitions of businesses:
Accounts receivable (16,123) (9,137)
Prepaid expenses and other assets 2,180 (1,313)
Accounts payable and accrued expenses (5,788) (3,450)
Deferred revenue 14,471 7,552
Income taxes payable 10,009 107
Securities processing receivables and payables-net 33,169 (11,735)
-----------------------------------
Net cash provided by operating activities 82,813 20,936
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,822) (10,369)
Other investments 2,723 (62,221)
Payment for acquisition of businesses (86,227) (10,717)
Trust account investments 45,263 (165,011)
-----------------------------------
Net cash provided (used) by investing activities (53,063) (248,318)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term obligations-net (41,275) 22,200
Increase (decrease) in long-term obligations-net 91,520 7,840
Issuance (purchases) of common stock-net (36,518) 1,915
Trust account deposits (49,722) 163,137
-----------------------------------
Net cash provided (used) by financing activities (35,995) 195,092
-----------------------------------
Change in cash (6,245) (32,290)
Beginning balance 89,377 101,282
-----------------------------------
Ending balance $83,132 $68,992
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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, 1998, and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1998 and 1997 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,
1998 1997
---------------------------------------
(in thousands)
Weighted average number of common
shares outstanding 53,715 51,081
Shares issuable upon exercise of options
reduced by the number of shares which
could have been purchased with the
proceeds of such exercise 1,750 1,291
---------------------------------------
Shares used in computing diluted-
net income per share 55,465 52,372
=======================================
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.
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
asset as of March 31, 1998 and December 31,1997 are as follows:
March 31, December 31,
1998 1997
---------------------------------------
(in thousands)
Allowance for doubtful accounts $2,027 $2,027
Accrued expenses not currently deductible 17,716 16,835
Deferred revenue 8,340 8,688
Other 580 230
Net operating loss and credit carryforwards 2,420 2,295
Purchased incomplete software technology 55,735 56,888
Deferred costs (4,415) (4,314)
Internally generated capitalized software (30,339) (29,999)
Excess of tax over book depreciation and
amortization (5,946) (5,992)
Unrealized gain on investments (11,415) (11,425)
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Total $34,703 $35,233
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4. SUPPLEMENTAL CASH FLOW INFORMATION
Quarter Ended March 31,
1998 1997
---------------------------------
(in thousands)
Income taxes paid $8,793 $11,820
Interest paid 2,433 2,183
Liabilities assumed in acquisitions
of businesses 9,682 5,724
5. SHAREHOLDERS' EQUITY
On February 23, 1998 the Company adopted a Shareholder Rights Plan (Plan). Under
the Plan, the shareholders of record as of March 9, 1998 will be granted a
dividend of one preferred stock purchase right for each outstanding share of
Company common stock. The stock purchase rights are not excercisable until
certain events occur. The Company filed a Form 8-K with the Securities and
Exchange Commission on February 24, 1998 which provides a full description of
the Plan.
The Company declared a 3 for 2 common stock split which will be effective as of
May 15, 1998. No effect has been given to this action in the accompanying
financial statements.
In December of 1997, the Board of Directors authorized the purchase of up to
1,000,000 shares of Company common stock in the open market in order to replace
the shares issued on December 31, 1997 for the completed acquisition of Hanifen,
Imhoff Holdings, Inc. accounted for on the purchase method of accounting. During
the first quarter of 1998, the Company completed the purchase of 800,000 shares
of Company common stock.
Effective January 1, 1998 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Adoption of this standard did not have a material impact on the accompanying
financial statements.
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
1998 1997 Increase
----------------------------------------- (Decrease)
---------------
Revenues 100.0 100.0 19.9
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Salaries and related costs 46.8 46.3 21.2
Data processing costs 10.0 10.8 10.6
Other operating expenses 19.1 18.1 26.8
Depreciation and amortization 5.2 5.1 22.8
Amortization of intangible assets 1.3 1.6 (5.0)
Capitalization of software-net (0.4) (0.2) 124.4
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Total cost of revenues 82.0 81.7 20.3
----------------------------------------
Operating income 18.0 18.3 18.2
========================================
REVENUES
Revenues increased 19.9% from $228.3 million in the first quarter of 1997 to
$273.8 million in the current first quarter. Approximately 70% of this growth
resulted from the inclusion of revenues from the date of purchase of acquired
companies and approximately 30% from increases in revenue from the addition of
new clients, growth in the transaction volume experienced by existing clients
and price increases.
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COST OF REVENUES
Cost of revenues increased 20.3% from $186.5 million in the first quarter of
1997 to $224.4 million in the current first quarter.
OPERATING INCOME
Operating income increased 18.2% from $41.8 million in the first quarter of 1997
to $49.4 million in the current first quarter. As a percentage of revenues,
operating margins for the first quarter of 1998 were slightly lower than the
comparable prior period due primarily to charges related to the planned
consolidation of certain product lines and the reduced impact of termination
fees.
INCOME TAX PROVISION
Income taxes were computed at 41% in both 1998 and 1997, which rate is expected
to apply throughout the current year.
NET INCOME
Net income grew 20.1% from $22.6 million in the first quarter of 1997 to $27.2
million in the first quarter of 1998, and net income per share-diluted for the
first quarter was $0.49 compared to $0.43 in 1997. Net income per share-diluted
increased $0.10 in the first quarter of 1998 when compared to net income per
share of $0.39 as originally reported in 1997 (before the restatement of BHC
Financial, Inc., an acquisition completed in the second quarter of 1997,
accounted for on a pooling of interests basis). The increase in net income per
share-diluted over 1997 as originally presented was consistent with management's
expectations.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's primary sources of funds for the
three months ended March 31, 1998 and 1997:
1998 1997
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(In thousands)
Cash provided by operating activities before
changes in securities processing receivables
and payables-net 49,644 32,671
Securities processing receivables and
payables-net 33,169 (11,735)
---------------------------------------
Cash provided by operating activities 82,813 20,936
Issuance (purchases) of common stock-net (36,518) 1,915
Decrease (increase) in investments (1,736) (64,095)
Increase (decrease) in net borrowings 50,245 30,040
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TOTAL 94,804 (11,204)
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Long-term obligations amounted to $343.6 million at March 31, 1998. The majority
of this debt comprises $112.9 million of senior notes due 1998 to 2005 and
$201.6 million advanced under a $225 million unsecured line of credit and
commercial paper facility expiring May 17, 2000, which facility can be increased
to a maximum of $375 million. A facility fee of .1% to .2% per annum is payable
on the $225 million committed amount.
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.
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, 1998, the Registrant filed three reports
on Form 8-K as follows:
1) 1997 year end earnings release filed on January 20, 1998.
2) Shareholders' Rights Plan filed on February 24, 1998.
3) 3 for 2 stock split announcement filed on March 24, 1998.
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 21, 1998 by: /s/Charles W. Sprague
_________________________
CHARLES W. SPARGUE
Secretary
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