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 September 30, 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
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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)
(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 October 12, 2000, there were 123,712,000 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------------
Revenues $406,189 $352,663 $1,219,025 $1,033,044
Cost of revenues: ------------------------------------------------------------
Salaries, commissions and payroll
related costs 198,617 171,174 586,218 494,339
Data processing expenses, rentals
and telecommunication costs 27,405 27,346 83,974 84,870
Other operating expenses 74,290 67,014 227,888 200,497
Depreciation and amortization of
property and equipment 18,249 16,132 52,417 45,791
Amortization of intangible assets 8,357 5,359 31,159 14,732
Amortization of internally generated
computer software-net 1,048 1,069 804 5,109
------------------------------------------------------------
Total cost of revenues 327,966 288,094 982,460 845,338
------------------------------------------------------------
Operating income 78,223 64,569 236,565 187,706
Interest expense - net (5,295) (4,913) (17,101) (13,213)
Realized gain from sale of investment 2,907 0 5,835 0
------------------------------------------------------------
Income before income taxes 75,835 59,656 225,299 174,493
Income tax provision 31,093 24,459 92,373 71,542
------------------------------------------------------------
Net income $ 44,742 $ 35,197 $ 132,926 $ 102,951
============================================================
Net income per share:
Basic $ 0.36 $ 0.29 $ 1.08 $ 0.83
============================================================
Diluted $ 0.35 $ 0.28 $ 1.05 $ 0.81
============================================================
Shares used in computing net income per share:
Basic 123,434 123,226 123,016 123,318
============================================================
Diluted 127,045 125,974 126,330 127,052
============================================================
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2000 1999
-------------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 93,927 $ 80,554
Accounts receivable - net 263,924 235,350
Securities processing receivables 2,804,710 2,196,068
Prepaid expenses and other assets 92,949 89,378
Trust account investments 1,361,012 1,298,120
Other investments 329,160 335,573
Property and equipment-net 207,877 195,333
Internally generated computer software - net 89,488 90,292
Intangible assets - net 857,955 787,042
--------------------------------------
Total $6,101,002 $5,307,710
======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 79,093 $ 66,400
Securities processing payables 2,388,260 1,764,382
Short-term borrowings 181,600 234,350
Accrued expenses 183,219 176,443
Accrued income taxes 10,332 12,736
Deferred revenues 129,605 131,476
Trust account deposits 1,373,175 1,298,120
Deferred income taxes 58,940 59,963
Long-term debt 466,223 472,824
--------------------------------------
Total liabilities 4,870,447 4,216,694
--------------------------------------
Shareholders' equity:
Common stock issued, 125,387,700 shares 1,254 1,254
Additional paid-in capital 454,136 458,550
Accumulated other comprehensive income 105,360 125,026
Accumulated earnings 709,436 576,510
Treasury stock, at cost, 1,688,200 and
2,804,400 shares, respectively (39,631) (70,324)
--------------------------------------
Total shareholders' equity 1,230,555 1,091,016
--------------------------------------
Total $6,101,002 $5,307,710
======================================
See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
-----------------------------
Cash flows from operating activities:
Net income $ 132,926 $ 102,951
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes 10,588 7,132
Depreciation and amortization of property and equipment 52,417 45,791
Amortization of intangible assets 31,159 14,732
Amortization of internally generated computer software 26,537 26,221
-----------------------------
253,627 196,827
Changes in assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable (19,409) 20,141
Prepaid expenses and other assets (2,063) 7,809
Accounts payable and accrued expenses 9,876 6,043
Deferred revenues (2,159) (6,304)
Accrued income taxes 16,597 5,675
Securities processing receivables and payables - net 15,236 (54,873)
-----------------------------
Net cash provided by operating activities 271,705 175,318
-----------------------------
Cash flows from investing activities:
Capital expenditures (58,266) (52,663)
Capitalization of internally generated computer software (25,733) (21,112)
Payment for acquisitions of businesses, net of cash acquired (88,440) (200,428)
Investments 283,999 (287,503)
-----------------------------
Net cash provided by (used in) investing activities 111,560 (561,706)
-----------------------------
Cash flows from financing activities:
Proceeds from (repayments of) short-term obligations - net (52,750) 30,662
Proceeds from (repayments of) long-term obligations - net (7,629) 113,153
Purchases of treasury stock (9,884) (20,103)
Issuance of common stock 17,161 5,601
Trust account deposits (316,790) 261,420
-----------------------------
Net cash provided by (used in) financing activities (369,892) 390,733
-----------------------------
Change in cash and cash equivalents 13,373 4,345
Beginning balance 80,554 71,558
-----------------------------
Ending balance $ 93,927 $ 75,903
=============================
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 and nine month periods ended
September 30, 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.
Certain amounts reported in 1999 have been reclassified to conform to the 2000
presentation. 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------
Weighted average number of common (In thousands)
shares outstanding-basic 123,434 123,226 123,016 123,318
Common stock equivalents 3,611 2,748 3,314 3,734
----------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding-diluted 127,045 125,974 126,330 127,052
==========================================================
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. 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:
September 30, December 31,
2000 1999
-------------------------------
(in thousands)
Unrealized gain on investments $ 74,684 $ 87,162
Internally generated capitalized software 36,690 36,858
Excess of tax over book depreciation and
amortization 16,775 13,438
Other 15,153 9,268
Purchased incomplete software technology (44,204) (47,663)
Accrued expenses not currently deductible (28,173) (25,407)
Deferred revenues (11,985) (13,693)
-------------------------------
Total $ 58,940 $ 59,963
===============================
4. Supplemental Cash Flow Information
Nine Months Ended
September 30,
---------------------
2000 1999
(in thousands)
Interest paid $ 20,941 $ 16,630
Income taxes paid 66,255 55,627
Liabilities assumed in acquisitions of
businesses 401,520 250,391
5
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.
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------------------------------------------------------------
(Percent of Revenues)
Revenues 100.0% 100.0% 100.0% 100.0%
---------------------------------------------------------------------
Salaries and related costs 48.9 48.5 48.1 47.9
Data processing costs 6.7 7.8 6.9 8.2
Other operating expenses 18.3 19.0 18.7 19.4
Depreciation and amortization 4.5 4.6 4.3 4.4
Amortization of intangible assets 2.0 1.5 2.5 1.4
Amortization of software-net 0.3 0.3 0.1 0.5
---------------------------------- ------------------------------
Total cost of revenues 80.7 81.7 80.6 81.8
---------------------------------- ------------------------------
Operating income 19.3 18.3 19.4 18.2
================================== ==============================
Revenues
Revenues increased 15.2% from $352.7 million in the third quarter of 1999 to
$406.2 million in the current third quarter and 18.0% from $1,033.0 million in
the first nine months of 1999 to $1,219.0 million in the comparable current
period. 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 nine months of
2000.
Cost of Revenues
Cost of revenues increased 13.8% from $288.1 million in the third quarter of
1999 to $328.0 million in the current third quarter, and 16.2% from $845.3
million in the first nine months of 1999 to $982.5 million in the first nine
months of 2000. The make up of cost of revenues has been affected by business
acquisitions, changes in the mix of the Company's business and operational
efficiencies.
Operating Income
Operating income increased 21.1% from $64.6 million in the third quarter of 1999
to $78.2 million in the current third quarter, and increased 26.0% from $187.7
million in the first nine months of 1999 to $236.6 million in the first nine
months of 2000. As a percentage of revenues, operating margins were higher
during both the third quarter and first nine months of 2000 when compared to the
prior year periods due primarily to increased transaction volume and increased
operating leverage of existing operations.
Realized Gain from Sale of Investment
During the first nine months of 2000, the Company sold 200,000 shares of Knight
Trading Group, Inc. resulting in a realized gain of $5.8 million. As of
September 30, 2000, the Company owns 3,204,930 shares of Knight Trading Group,
Inc.
Income Tax Provision
Income taxes were computed at 41% in both 2000 and 1999. The 41% rate is
expected to apply throughout the current year.
Net Income
Net income for the third quarter increased 27.1% from $35.2 million in 1999 to
$44.7 million in 2000. Net income for the first nine months increased 29.1% from
$103.0 million in 1999 to $132.9 million in 2000. Net income per share-diluted
for the third quarter was $0.34 in 2000, before recognizing a $0.01 per share
realized gain from sale of investment, compared to $0.28 in 1999. Net income per
share-diluted for the first nine months of 2000 was $1.02, before recognizing a
$0.03 per share realized gain from sale of investment, compared to $0.81 in the
comparable 1999 period.
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 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------------------- ---------------------------
(In thousands)
Revenues:
Financial institution outsourcing, systems
and services $307,135 $270,264 $ 913,315 $ 793,073
Securities processing and trust services 82,672 66,428 256,846 193,558
All other and corporate 16,382 15,971 48,864 46,413
----------- ----------- ------------- -------------
Total $406,189 $352,663 $1,219,025 $1,033,044
----------- ----------- ------------- -------------
Operating income:
Financial institution outsourcing, systems
and services $ 56,893 $ 48,203 $ 166,748 $ 137,618
Securities processing and trust services 22,383 16,980 72,779 52,980
All other and corporate (1,053) (614) (2,962) (2,892)
----------- ----------- ------------- -------------
Total $ 78,223 $ 64,569 $ 236,565 $ 187,706
----------- ----------- ------------- -------------
Revenues in the financial institution outsourcing, systems and services business
segment increased from $270.3 million in the third quarter of 1999 to $307.1
million in the current third quarter, and increased from $793.1 million in the
first nine months of 1999 to $913.3 million in the comparable current period.
Operating income in the financial institution outsourcing, systems and services
business segment increased from $48.2 million in the third quarter of 1999 to
$56.9 million in the current third quarter, and increased from $137.6 million in
the first nine months of 1999 to $166.7 million in the first nine months of
2000.
Revenues in the securities processing and trust services business segment
increased from $66.4 million in the third quarter of 1999 to $82.7 million in
the current third quarter, and increased from $193.6 million in the first nine
months of 1999 to $256.8 million in the comparable current period. Year-to-date
revenue growth was derived from sales to new clients, increased transaction
volumes from existing clients and the acquisitions of JWGenesis Clearing
Corporation in June 1999 and Resources Trust Company in May 2000. Operating
income in this business segment increased from $17.0 million in the third
quarter of 1999 to $22.4 million in the current third quarter, and increased
from $53.0 million in the first nine months of 1999 to $72.8 million in the
first nine months of 2000.
Liquidity and Capital Resources
The following table summarizes the Company's primary sources (uses) of funds
during the nine months ended September 30, 2000 and 1999:
2000 1999
-------------- --------------
(In thousands)
Cash provided by operating activities before changes
in securities processing receivables and payables - net $256,469 $ 230,191
Securities processing receivables and payables - net 15,236 (54,873)
------------ ------------
Cash provided by operating activities 271,705 175,318
Proceeds from (repayments of) short-term obligations-net (52,750) 30,662
Proceeds from (repayments of) long-term obligations-net (7,629) 113,153
Increase in investments (32,791) (26,083)
------------ ------------
Total $178,535 $ 293,050
============ ============
7
Long-term obligations amounted to $466.2 million at September 30, 2000 and
included $369.2 million advanced under an aggregate of $575.0 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 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 September
30, 2000.
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 October 23, 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 September 30, 2000
(11) Statement regarding computation of per share earnings (included in Part
1, page 5).
(27) Financial data schedule.
10