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, 1999 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 incorporation (I.R.S. Employer
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, 1999, 82,239,000 shares of common stock of the Registrant were
outstanding.
Exhibit Index appears at page 9.
1
PART I. FINANCIAL INFORMATION
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the Three-Month Periods Ended March 31, 1999 and 1998
Three-Months Ended
March 31,
1999 1998
-----------------------------------
(In thousands except
per share amounts)
REVENUES $337,129 $273,829
-----------------------------------
COST OF REVENUES:
Salaries, commissions and
payroll related costs 159,546 128,183
Data processing expenses, rentals
and telecommunication costs 30,620 27,396
Other operating expenses 63,973 52,373
Depreciation and amortization
of property and equipment 14,768 14,198
Amortization of intangible assets 4,548 3,464
Amortization (capitalization) of internally
generated computer software - net 3,051 (1,169)
-----------------------------------
Total cost of revenues 276,506 224,445
-----------------------------------
OPERATING INCOME 60,623 49,384
Interest expense-net 3,985 3,367
-----------------------------------
INCOME BEFORE INCOME TAXES 56,638 46,017
Income tax provision 23,222 18,867
-----------------------------------
NET INCOME $33,416 $27,150
===================================
NET INCOME PER SHARE:
Basic $0.41 $0.34
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Diluted $0.39 $0.33
===================================
SHARES USED IN COMPUTING NET INCOME PER SHARE:
Basic 82,153 80,573
===================================
Diluted 85,253 83,198
===================================
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
------------------------------------
(In thousands)
ASSETS
Cash and cash equivalents $81,476 $71,558
Accounts receivable 248,771 246,851
Securities processing receivables 1,690,231 1,402,650
Prepaid expenses and other assets 86,540 83,453
Trust account investments 1,189,078 1,098,773
Other investments 273,461 180,099
Deferred income taxes - 14,545
Property and equipment-net 184,915 179,434
Internally generated computer software-net 82,794 85,821
Intangible assets-net 608,723 595,154
------------------------------------
TOTAL $4,445,989 $3,958,338
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $59,453 $65,385
Securities processing payables 1,452,322 1,207,838
Short-term borrowings 139,657 38,350
Accrued expenses 159,446 150,519
Accrued income taxes 19,611 14,768
Deferred revenues 119,902 107,286
Trust account deposits 1,184,523 1,098,773
Deferred income taxes 9,483 -
Long-term debt 355,132 389,622
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TOTAL LIABILITIES 3,499,529 3,072,541
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SHAREHOLDERS' EQUITY:
Common stock issued, 83,439,000 and
83,253,000 shares, respectively 834 833
Additional paid-in capital 452,130 448,877
Accumulated other comprehensive income 63,868 39,875
Accumulated earnings 472,058 438,642
Treasury stock, at cost (1,200,000 shares) (42,430) (42,430)
------------------------------------
TOTAL SHAREHOLDERS' EQUITY 946,460 885,797
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TOTAL $4,445,989 $3,958,338
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See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three-Month Periods Ended March 31, 1999 and 1998
Three-Months Ended
March 31,
1999 1998
---------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $33,416 $27,150
Adjustments to reconcile net income to net cash provided by operating
activities:
Deferred income taxes 7,138 1,252
Depreciation and amortization of property and equipment 14,768 14,198
Amortization of intangible assets 4,548 3,464
Amortization (capitalization) of internally generated
computer software-net 3,051 (1,169)
---------------------------------
62,921 44,895
Cash provided (used) by changes in assets and liabilities,
net of effects from acquisitions of businesses:
Accounts receivable (1,964) (16,123)
Prepaid expenses and other assets (200) 2,180
Accounts payable and accrued expenses 2,521 (5,788)
Deferred revenue 11,736 14,471
Income taxes payable 4,974 10,009
Securities processing receivables and payables-net (43,097) 33,169
---------------------------------
Net cash provided by operating activities 36,891 82,813
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,736) (14,822)
Other investments (50,569) 2,723
Payment for acquisition of businesses (19,888) (86,227)
Trust account investments (92,244) 45,263
---------------------------------
Net cash provided (used) by investing activities (182,437) (53,063)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term obligations-net 100,450 (41,275)
Increase (decrease) in long-term obligations-net (33,990) 91,520
Issuance (purchases) of common stock-net 3,254 (36,518)
Trust account deposits 85,750 (49,722)
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Net cash provided (used) by financing activities 155,464 (35,995)
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Change in cash 9,918 (6,245)
Beginning balance 71,558 89,377
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Ending balance $81,476 $83,132
=================================
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, 1999, and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1999 and 1998 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,
1999 1998
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(In thousands)
Weighted average number of common
shares outstanding 82,153 80,573
Shares issuable upon exercise of options
reduced by the number of shares which
could have been purchased with the
proceeds of such exercise 3,100 2,625
----------------------------------
Shares used in computing diluted-
net income per share 85,253 83,198
==================================
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
(liability) asset as of March 31, 1999 and December 31, 1998 are as follows:
MARCH 31, December 31,
1999 1998
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(In thousands)
Purchased incomplete software technology $51,122 $52,276
Accrued expenses not currently deductible 26,948 25,329
Deferred revenues 14,391 14,558
Other (12,609) (5,512)
Internally generated capitalized software (33,946) (35,188)
Excess of tax over book depreciation
and amortization (10,803) (9,167)
Unrealized gain on investments (44,586) (27,751)
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TOTAL ($9,483) $14,545
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5
4. SUPPLEMENTAL CASH FLOW INFORMATION
Quarter Ended March 31,
1999 1998
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(In thousands)
Income taxes paid $12,344 $8,793
Interest paid 3,968 2,433
Liabilities assumed in acquisitions
of businesses 1,455 9,682
5. SHAREHOLDERS' EQUITY
The Company declared a 3-for-2 common stock split to shareholders of record as
of April 16, 1999, payable on April 30, 1999. No effect has been given to this
action in the accompanying financial statements.
Total comprehensive income for the three months ended March 31, 1999 and 1998
was $57.4 million and $27.2 million, respectively. The increase in comprehensive
income during the quarter ended March 31, 1999 is primarily due to unrealized
gains on investments since December 31, 1998. The Company owns 1,702,465 shares
of common stock of Knight/Trimark Group, Inc. and 900,000 shares of common stock
of The BISYS Group, Inc. Common stock of both companies trade on the NASDAQ
National Market System. The Company has valued its investment in Knight/Trimark
Group, Inc. at a discount from market value as a result of sale restrictions.
6. BUSINESS SEGMENT INFORMATION
The Company is a leading independent provider of financial data processing
systems and related information management services and products to financial
institutions and other financial intermediaries. The Company's operations have
been classified into three business segments: financial institution data
processing and software services, securities processing and trust services and
other (including corporate). Summarized financial information by business
segment for the three-months ended March 31, 1999 and 1998 is as follows:
1999 1998
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(In thousands)
REVENUES:
Financial institution data processing and
software services $260,386 $209,088
Securities processing and trust services 61,262 54,136
Other 15,481 10,605
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Total $337,129 $273,829
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OPERATING INCOME:
Financial institution data processing and
software services $44,271 $35,291
Securities processing and trust services 17,376 16,741
Other (1,024) (2,648)
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Total $60,623 $49,384
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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 Percentage
March 31, Increase
1999 1998 (Decrease)
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Revenues 100.0 100.0 23.1
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Salaries and related costs 47.3 46.8 24.5
Data processing costs 9.1 10.0 11.8
Other operating expenses 19.0 19.1 22.1
Depreciation and amortization 4.4 5.2 4.0
Amortization of intangible assets 1.3 1.3 31.3
Amortization (capitalization) of software-net 0.9 (0.4) -
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Total cost of revenues 82.0 82.0 23.2
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Operating income 18.0 18.0 22.8
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REVENUES
Revenues increased 23.1% from $273.8 million in the first quarter of 1998 to
$337.1 million in the current first quarter. Approximately 45% of this growth
resulted from the inclusion of revenues from the date of purchase of acquired
companies and approximately 55% 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 23.2% from $224.4 million in the first quarter of
1998 to $276.5 million in the current first quarter. The make up of cost of
revenues has been affected by changes in the mix of the Company's business as
sales of software and related support activities have enjoyed an increasing
percentage of total revenues. In addition, amortization of internally generated
computer software increased as a percentage of revenues due to the write down of
certain ancillary software products to net realizable value.
OPERATING INCOME
Operating income increased 22.8% from $49.4 million in the first quarter of 1998
to $60.6 million in the current first quarter.
INCOME TAX PROVISION
Income taxes were computed at 41% in both 1999 and 1998, which rate is expected
to apply throughout the current year.
NET INCOME
Net income grew 23.1% from $27.2 million in the first quarter of 1998 to $33.4
million in the current first quarter. Net income per share-diluted increased
$.06 from $0.33 in the first quarter of 1998 to $0.39 in the current first
quarter. The increase in net income per share-diluted over 1998 was consistent
with management expectations and historical growth rates.
7
YEAR 2000 SYSTEMS EVALUATION
The Company provides data processing and other related services to financial
institutions of all kinds. The Company has substantially completed the Year 2000
renovation, testing and implementation of its mission critical proprietary
systems used in providing service to its clients. Testing and implementation of
the remaining non-mission critical systems, which are not material to the
Company's business, are expected to be completed by mid-1999.
The Company has received Year 2000 disclosures prepared by its principal vendors
indicating that they will be Year 2000 compliant in all material respects. The
Company's contingency plans include actions required should any vendor
experience Year 2000-related problems. In addition, the Company has no reason to
believe that its clients will not be Year 2000 compliant in all material
respects, and in many cases has assisted its clients in their Year 2000 efforts.
The Company believes that it has and will continue to meet its Year 2000
compliance commitments using existing resources, without incurring significant
incremental expenses. Although the Company does not maintain accounting records
that separately identify all of the costs associated with its Year 2000
activities, it has estimated that commencing with 1996 such costs have
approximated $15 million a year. Estimated cost for the year 1999 when the
entire project is scheduled for completion is approximately $10 to $12 million.
The disclosure set forth above contains forward-looking statements.
Specifically, such statements are contained in sentences including the words
"will" or "expect" or "anticipate" or "could" or "should". Such forward-looking
statements are subject to inherent risks and uncertainties that may cause actual
results to differ materially from those contemplated by such forward-looking
statements. The factors that may cause actual results to differ materially from
those contemplated by the forward-looking statements include the failure by
third parties to adequately remediate Year 2000 issues and the inability of the
Company to test and implement remaining non-mission critical systems. Failure by
the Company in making its proprietary systems Year 2000 compliant would have a
material adverse effect on its business. However, the Company expects that its
Year 2000 compliance efforts will be successful without any material adverse
effects on its business.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's primary sources of funds for the
three months ended March 31, 1999 and 1998:
1999 1998
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(In thousands)
Cash provided by operating activities before
changes in securities processing receivables
and payables-net $79,988 $49,644
Securities processing receivables and
payables-net (43,097) 33,169
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Cash provided by operating activities 36,891 82,813
Issuance (purchases) of common stock-net 3,254 (36,518)
(Increase) decrease in investments (57,063) (1,736)
Increase (decrease) in net borrowings 66,460 50,245
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TOTAL $49,542 $94,804
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Long-term obligations amounted to $355.1 million at March 31, 1999. The majority
of this debt comprises $106.1 million of senior notes due 1999 to 2005 and
$184.7 million advanced under a $330.0 million unsecured line of credit and
commercial paper facility which is reduced to $150.0 million on May 17, 1999 and
expires on May 17, 2000. A facility fee of .1% to .2% per annum is payable on
the $330.0 million committed amount. The Company plans to refinance the entire
facility on or before May 17, 1999.
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.
8
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, 1999, the Registrant filed one report on Form
8-K dated March 25, 1999. The Form 8-K disclosed an increase in the number of
authorized shares of common stock from 150.0 million to 300.0 million, a
3-for-2 stock split and the appointment of Leslie M. Muma as Chief Executive
Officer, succeeding George D. Dalton who remains Chairman of the Company's Board
of Directors.
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.
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(Registrant)
Date April 20, 1999 by: \s\ Charles W. Sprague
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CHARLES W. SPRAGUE
Executive Vice President,
General Counsel and
Secretary
9