UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2000 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from_______________________to________________ 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 offices) (Zip Code) (262) 879 5000 -------------- (Registrant's telephone number, including area code) 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 ( ) As of April 14, 2000, there were 122,830,000 shares of common stock, $.01 par value, of the Registrant outstanding. 1 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, 2000 1999 ----------------------------- Revenues $396,402 $337,129 ----------------------------- Cost of revenues: Salaries, commissions and payroll related costs 189,572 159,546 Data processing expenses, rentals and telecommunication costs 28,112 30,620 Other operating expenses 75,227 63,973 Depreciation and amortization of property and equipment 16,749 14,768 Amortization of intangible assets 7,176 4,548 Amortization of internally generated computer software-net 612 3,051 ----------------------------- Total cost of revenues 317,448 276,506 ----------------------------- Operating income 78,954 60,623 Interest expense - net 5,806 3,985 ----------------------------- Income before income taxes 73,148 56,638 Income tax provision 29,991 23,222 ----------------------------- Net income $ 43,157 $ 33,416 ============================= Net income per share: Basic $ 0.35 $ 0.27 ============================= Diluted $ 0.34 $ 0.26 ============================= Shares used in computing net income per share: Basic 122,622 123,230 ============================= Diluted 125,543 127,880 =============================
See notes to consolidated financial statements. 2 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
March 31, December 31, 2000 1999 ------------------------------------ (Unaudited) ASSETS Cash and cash equivalents $ 74,655 $ 80,554 Accounts receivable - net 244,991 235,350 Securities processing receivables 3,131,694 2,196,068 Prepaid expenses and other assets 94,136 89,378 Trust account investments 1,286,458 1,298,120 Other investments 349,577 335,573 Property and equipment-net 203,863 195,333 Internally generated computer software-net 74,651 75,263 Intangible assets-net 798,900 802,071 ------------------------------------ Total $6,258,925 $5,307,710 ==================================== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 68,680 $ 66,400 Securities processing payables 2,476,735 1,764,382 Short-term borrowings 449,025 234,350 Accrued expenses 151,917 176,443 Accrued income taxes 17,036 12,736 Deferred revenues 139,912 131,476 Trust account deposits 1,285,232 1,298,120 Deferred income taxes 85,006 59,963 Long-term debt 434,376 472,824 ------------------------------------ Total liabilities 5,107,919 4,216,694 ------------------------------------ Shareholders' equity: Common stock issued, 125,387,700 and 125,387,700 shares, respectively 1,254 1,254 Additional paid-in capital 459,306 458,550 Accumulated other comprehensive income 135,474 125,026 Accumulated earnings 619,667 576,510 Treasury stock, at cost, 2,594,300 and 2,804,400 shares, respectively (64,695) (70,324) ------------------------------------ Total shareholders' equity 1,151,006 1,091,016 ------------------------------------ Total $6,258,925 $5,307,710 ====================================
See notes to consolidated financial statements. 3 FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Three Months Ended March 31, 2000 1999 ------------------------------ Cash flows from operating activities: Net income $ 43,157 $ 33,416 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 17,605 7,138 Depreciation and amortization of property and equipment 16,749 14,768 Amortization of intangible assets 7,176 4,548 Amortization of internally generated computer software 10,253 10,936 ------------------------------ 94,940 70,806 Changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (8,802) (1,964) Prepaid expenses and other assets (4,292) (200) Accounts payable and accrued expenses (23,151) 2,521 Deferred revenues 8,118 11,736 Accrued income taxes 7,300 4,974 Securities processing receivables and payables - net (223,273) (43,097) ------------------------------ Net cash (used in) provided by operating activities (149,160) 44,776 ------------------------------ Cash flows from investing activities: Capital expenditures (22,094) (19,736) Capitalization of internally generated computer software (9,641) (7,885) Payment for acquisitions of businesses, net of cash acquired (6,515) (19,888) Investments 15,808 (142,813) ------------------------------ Net cash used in investing activities (22,442) (190,322) ------------------------------ Cash flows from financing activities: Proceeds from short-term obligations - net 214,671 100,450 Repayments of long-term obligations - net (39,463) (33,990) Issuance of common stock 13,269 3,254 Purchases of treasury stock (9,884) - Trust account deposits (12,890) 85,750 ------------------------------ Net cash provided by financing activities 165,703 155,464 ------------------------------ Change in cash and cash equivalents (5,899) 9,918 Beginning balance 80,554 71,558 ------------------------------ Ending balance $ 74,655 $ 81,476 ==============================
See notes to consolidated financial statements. 4 FISERV, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Principles of Consolidation The consolidated financial statements for the three month periods ended March 31, 2000 and 1999 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, 2000 1999 ---------------------------------- (In thousands) Weighted average number of common shares outstanding - basic 122,622 123,230 Assumed conversion of common shares issuable under stock option plan 2,921 4,650 ---------------------------------- Weighted average number of common and common equivalent shares outstanding - diluted 125,543 127,880 ==================================
Basic net income per share is computed using the weighted average number of common shares outstanding during the periods. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options and are computed using the treasury stock method. 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 consisted of the following:
March 31, December 31, 2000 1999 --------------------------------- (In thousands) Unrealized gains on investments $ 94,601 $ 87,162 Internally generated capitalized software 31,342 30,858 Excess of tax over book depreciation and amortization 21,072 19,438 Other 23,854 9,268 Purchased incomplete software technology (46,510) (47,663) Accrued expenses not currently deductible (25,046) (25,407) Deferred revenues (14,307) (13,693) ---------------------------------- Total $ 85,006 $ 59,963 =================================
4. Supplemental Cash Flow Information Three Months Ended March 31, 2000 1999 ------------------------ (In thousands) Interest paid $5,663 $ 3,968 Income taxes paid 5,959 12,344 Liabilities assumed in acquisitions of businesses 1,549 1,455 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth, for the periods indicated, the relative percentage which certain items in the Company's consolidated statements of income bear to revenues and the percentage change in these items.
Three Months Ended Percentage March 31, Increase 2000 1999 (Decrease) --------------------------------- -------------- (Percent of Revenues) Revenues 100.0 100.0 17.6 --------------------------------- Salaries and related costs 47.8 47.3 18.8 Data processing costs 7.1 9.1 -8.2 Other operating expenses 19.0 19.0 17.6 Depreciation and amortization 4.2 4.4 13.4 Amortization of intangible assets 1.8 1.3 N/A Amortization of software-net 0.2 0.9 N/A --------------------------------- ------------- Total cost of revenues 80.1 82.0 14.8 --------------------------------- ------------- Operating income 19.9 18.0 30.2 ================================= =============
Revenues Revenues increased 17.6% from $337.1 million in the first quarter of 1999 to $396.4 million in the current first quarter. Revenue growth was derived from sales to new clients, cross-sales to existing clients, growth in transaction volume experienced by existing clients, price increases and revenues from acquired businesses. Revenues from acquired businesses approximated 45% of total revenue growth in the first quarter of 2000. Cost of Revenues Cost of revenues increased 14.8% from $276.5 million in the first quarter of 1999 to $317.4 million in the current first quarter. The make up of cost of revenues has been affected by business acquisitions and changes in the mix of the Company's business. Operating Income Operating income increased 30.2% from $60.6 million in the first quarter of 1999 to $79.0 million in the current first quarter. The Company's operating margin increased from 18.0% in the first quarter of 1999 to 19.9% in the first quarter of 2000. The increase in operating margin was driven primarily by strong operating results in the Company's securities processing and trust services business segment. Income Tax Provision The effective income tax rate was 41% in both years and the effective income tax rate is expected to remain at 41% for the remainder of the current year. Net Income Net income for the first quarter increased 29.2% from $33.4 million in 1999 to $43.2 million in 2000. Net income per share-diluted increased $0.08 from $0.26 in the first quarter of 1999 to $0.34 in the first quarter of 2000. 6 Business Segment Information The Company is a leading independent provider of 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 outsourcing, systems and services; Securities processing and trust services; and "All other and corporate." Summarized financial information by business segment is as follows:
Three Months Ended March 31, 2000 1999 --------------------------- (In thousands) Revenues: Financial institution outsourcing, systems and services $293,088 $260,386 Securities processing and trust services 86,447 61,262 All other and corporate 16,867 15,481 ------------ --------- Total $396,402 $337,129 ------------ --------- Operating income: Financial institution outsourcing, systems and services $ 49,336 $44,271 Securities processing and trust services 29,947 17,376 All other and corporate (329) (1,024) ------------ --------- Total $ 78,954 $ 60,623 ------------ ---------
Revenues in the financial institution outsourcing, systems and services business segment increased from $260.4 million in the first quarter of 1999 to $293.1 million in the current first quarter. Operating income in the financial institution outsourcing, systems and services business segment increased from $44.3 million in the first quarter of 1999 to $49.3 million in the current first quarter, while operating margins were consistent in the first quarter of 1999 and 2000. Revenues in the securities processing and trust services business segment increased from $61.3 million in the first quarter of 1999 to $86.4 million in the current first quarter. Revenue growth was primarily derived from increased transaction volumes from existing clients and from JW Genesis Clearing Corporation, which was acquired in June of 1999. Overall growth in transaction volumes in the securities processing and trust services business segment during the first quarter of 2000 reflected the high level of trading volumes in the United States financial markets. Operating income in this business segment increased from $17.4 million in the first quarter of 1999 to $29.9 million in the current first quarter. The increases in operating income and margin were the result of strong transaction-based revenues and the associated economies of scale. 7 Liquidity and Capital Resources The following table summarizes the Company's primary sources (uses) of funds for the three months ended March 31:
2000 1999 ---------------------------------- (In thousands) Cash provided by operating activities before changes in securities processing receivables and payables - net $ 74,113 $ 87,873 Securities processing receivables and payables - net (223,273) (43,097) ---------------------------------- Cash (used in) provided by operating activities (149,160) 44,776 Increase in short-term borrowings 214,671 100,450 Repayments of long-term borrowings (39,463) (33,990) Decrease (increase) in investments 2,918 (57,063) ---------------------------------- TOTAL $ 28,966 $ 54,173 ==================================
The increase in securities processing receivables and payables-net of $223.3 million in the first quarter of 2000 was funded primarily by the increase in short-term borrowings of $214.7 million. Long-term obligations amounted to $434.4 million at March 31, 2000 and included $290.6 million advanced under an aggregate of $500.0 million in revolving credit facilities. The Company has used a significant portion of its cash flow from operations for acquisitions and capital expenditures with any remainder used to reduce long-term debt. 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 issuances of securities. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Except for the historical information contained herein, the matters discussed in this Form 10-Q are forward-looking statements that involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, services and related products, prices and other factors discussed in the Company's prior filings with the Securities and Exchange Commission. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. At the Company's Annual Meeting of Shareholders held on March 30, 2000, the Company's Shareholders approved the following matters: For Withheld ----------- -------- 1. ELECTION OF THREE DIRECTORS TO SERVE FOR A THREE-YEAR TERM EXPIRING IN 2003: George D. Dalton 109,843,403 903,255 Daniel P. Kearney 109,781,049 965,609 L. William Seidman 110,088,801 657,857 The other directors of the Company whose terms in office continued after the 2000 Annual Meeting of Shareholders are as follows: terms expiring at the 2001 Annual Meeting - Kenneth R. Jensen and Thekla R. Shackelford; and terms expiring at the 2002 Annual Meeting - Donald F. Dillon, Gerald J. Levy and Leslie M. Muma.
For Against Abstain Non-Vote ---------------- --------------- ------------ ------------ 2. APPROVAL OF AN AMENDMENT TO THE FISERV, INC. STOCK OPTION PLAN 73,859,625 19,660,822 453,737 16,772,474 3. APPROVAL OF THE FISERV, INC. EMPLOYEE STOCK PURCHASE PLAN 91,617,007 1,967,182 389,995 16,772,474 4. REAPPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR 2000 110,476,815 132,488 137,355 0
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The exhibits listed in the accompanying exhibit index are filed as part of this Quarterly Report on Form 10-Q. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2000. SIGNATURE 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 24, 2000 by /s/ Kenneth R. Jensen -------------- -------------------------------------- KENNETH R. JENSEN Senior Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary 9 FISERV, INC. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q For the Quarterly Period ended March 31, 2000 (4) First Amendment to the Rights Agreement, dated December 1, 1999, appointing EquiServe as successor Rights Agent [Incorporated by reference to Exhibit 4.3 to the Company's Form S-8 Registration Statement (Registration No. 333-34310)] (10) Fiserv, Inc. Stock Option Plan, as amended [Incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement (Registration No. 333-34310)] (11) Statement regarding computation of per share earnings (included in Part 1, page 5). (27) Financial data schedule. 10