EXHIBIT 13 2000 ANNUAL REPORT FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) Years ended December 31, 2000 1999 1998 ------------------------------------------- REVENUES $1,653,606 $1,407,545 $1,233,670 ------------------------------------------- COST OF REVENUES: Salaries, commissions and payroll related costs 792,799 677,226 573,187 Data processing expenses, rentals and telecommunication costs 115,029 111,163 119,205 Other operating expenses 316,638 272,616 259,126 Depreciation and amortization of property and equipment 70,147 63,713 60,697 Amortization of intangible assets 42,812 22,600 15,754 Amortization (capitalization) of internally generated computer software-net 1,875 7,142 (3,938) ------------------------------------------- TOTAL COST OF REVENUES 1,339,300 1,154,460 1,024,031 ------------------------------------------- OPERATING INCOME 314,306 253,085 209,639 Interest expense - net (22,089) (19,410) (15,955) Realized gain from sale of investment 7,818 - - ------------------------------------------- INCOME BEFORE INCOME TAXES 300,035 233,675 193,684 Income tax provision 123,014 95,807 79,410 ------------------------------------------- NET INCOME $ 177,021 $ 137,868 $ 114,274 =========================================== NET INCOME PER SHARE: Basic $ 1.44 $ 1.12 $ 0.93 =========================================== Diluted $ 1.40 $ 1.09 $ 0.90 =========================================== SHARES USED IN COMPUTING NET INCOME PER SHARE: Basic 123,192 123,143 122,873 =========================================== Diluted 126,536 126,679 127,154 ===========================================
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, 2000 1999 ---------- ---------- ASSETS Cash and cash equivalents $ 98,856 $ 80,554 Accounts receivable-net 265,640 235,350 Securities processing receivables 2,193,291 2,196,068 Prepaid expenses and other assets 91,077 89,378 Trust account investments 1,514,643 1,298,120 Other investments 282,256 335,573 Property and equipment-net 205,555 195,333 Internally generated computer software-net 88,263 90,138 Intangible assets-net 846,739 787,196 ---------- ---------- TOTAL $5,586,320 $5,307,710 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 80,633 $ 66,400 Securities processing payables 1,977,323 1,764,382 Short-term borrowings 19,725 234,350 Accrued expenses 182,090 176,443 Accrued income taxes 22,207 12,736 Deferred revenues 156,668 131,476 Trust account deposits 1,525,652 1,298,120 Deferred income taxes 34,992 59,963 Long-term debt 334,958 472,824 ---------- ---------- TOTAL LIABILITIES 4,334,248 4,216,694 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock issued, 125,387,700 shares 1,254 1,254 Additional paid-in capital 455,444 458,550 Accumulated other comprehensive income 78,869 125,026 Accumulated earnings 753,531 576,510 Treasury stock, at cost, 1,581,900 and 2,804,400 shares, respectively (37,026) (70,324) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 1,252,072 1,091,016 ---------- ---------- TOTAL $5,586,320 $5,307,710 ========== ========== See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands) Years ended December 31, 2000 1999 1998 --------------------- ----------------------- --------------------- SHARES ISSUED-300,000 AUTHORIZED: Balance at beginning of year 125,388 83,253 53,925 Shares issued under stock plans-net - 394 495 Shares issued for acquired companies - - 1,132 Three-for-two stock split - 41,741 27,701 ---------- ---------- -------- Balance at end of year 125,388 125,388 83,253 ========== ========== ======== COMMON STOCK-PAR VALUE $0.01 PER SHARE: Balance at beginning of year $ 1,254 $ 833 $ 539 Shares issued under stock plans-net - 4 5 Shares issued for acquired companies - - 11 Three-for-two stock split - 417 278 ---------- ---------- -------- Balance at end of year 1,254 1,254 833 ---------- ---------- -------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year 458,550 448,877 427,785 Shares issued under stock plans-net of income tax benefit (3,106) 10,090 13,036 Shares issued for acquired companies - - 8,334 Three-for-two stock split - (417) (278) ---------- ---------- -------- Balance at end of year 455,444 458,550 448,877 ---------- ---------- -------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of year 125,026 39,875 16,563 Unrealized (losses) gains on investments - net of tax (39,765) $(39,765) 85,496 $85,496 23,492 $23,492 Reclassification adjustment for realized gains included in net income (5,082) (5,082) - - - - Foreign currency translation adjustment (1,310) (1,310) (345) (345) (180) (180) ---------- ---------- -------- Balance at end of year 78,869 125,026 39,875 ---------- ---------- -------- ACCUMULATED EARNINGS: Balance at beginning of year 576,510 438,642 324,368 Net income 177,021 177,021 137,868 137,868 114,274 114,274 ---------- -------- ---------- -------- -------- -------- Balance at end of year 753,531 576,510 438,642 ---------- ---------- -------- TREASURY STOCK, AT COST: Balance at beginning of year (70,324) (42,430) - Purchase of treasury stock (9,884) (28,713) (42,430) Shares issued under stock plans-net 43,182 819 - ---------- ---------- -------- Balance at end of year (37,026) (70,324) (42,430) ---------- ---------- -------- TOTAL COMPREHENSIVE INCOME $130,864 $223,019 $137,586 ======== ======== ======== TOTAL SHAREHOLDERS' EQUITY $1,252,072 $1,091,016 $885,797 ========== ========== ========
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years ended December 31, 2000 1999 1998 --------- ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 177,021 $ 137,868 $ 114,274 Adjustments to reconcile net income to net cash provided by operating activities: Realized gain from sale of investment (7,818) - - Deferred income taxes 4,813 14,183 2,463 Depreciation and amortization of property and equipment 70,147 63,713 60,697 Amortization of intangible assets 42,812 22,600 15,754 Amortization of internally generated computer software 35,883 33,194 26,641 ------------------------------------------------ 322,858 271,558 219,829 Changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (21,153) 18,853 (22,860) Prepaid expenses and other assets (179) (3,299) 9,618 Accounts payable and accrued expenses 9,706 14,394 32,422 Deferred revenues 24,844 17,210 21,197 Accrued income taxes 32,674 (1) 13,109 Securities processing receivables and payables - net 215,718 (140,878) 7,080 ------------------------------------------------ Net cash provided by operating activities 584,468 177,837 280,395 ------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (72,979) (69,697) (77,542) Capitalization of internally generated computer software (34,008) (26,052) (30,579) Payment for acquisitions of businesses, net of cash acquired (88,764) (210,587) (217,792) Investments 136,726 (209,011) (30,779) ------------------------------------------------ Net cash used in investing activities (59,025) (515,347) (356,692) ------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayments of) short-term borrowings-net (214,625) 119,226 (56,625) Proceeds from borrowings on long-term debt 5,004 103,523 143,245 Repayment of long-term debt (143,899) (52,790) (6,785) Issuance of common stock 20,576 5,913 5,041 Purchases of treasury stock (9,884) (28,713) (42,430) Trust account deposits (164,313) 199,347 16,032 ------------------------------------------------ Net cash (used in) provided by financing activities (507,141) 346,506 58,478 ------------------------------------------------ Change in cash and cash equivalents 18,302 8,996 (17,819) Beginning balance 80,554 71,558 89,377 ------------------------------------------------ Ending balance $ 98,856 $ 80,554 $ 71,558 ================================================
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2000, 1999 and 1998 1. Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Fiserv, Inc. and all majority owned subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. Certain amounts reported in 1999 have been reclassified to conform to the 2000 presentation. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and investments with original maturities of 90 days or less. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUES The carrying amounts of cash and cash equivalents, accounts receivable and payable, securities processing receivables and payables, accrued expenses, trust account deposits, short- and long-term borrowings, and derivative instruments approximated fair value as of December 31, 2000 and 1999. DERIVATIVE INSTRUMENTS Interest rate hedge transactions are utilized to manage interest rate exposure. The interest differential on interest rate swap contracts used to hedge underlying debt obligations is reflected as an adjustment to interest expense over the life of the contracts. SECURITIES PROCESSING RECEIVABLES AND PAYABLES The Company's securities processing subsidiaries had receivables from and payables to brokers or dealers and clearing organizations related to the following at December 31: (In thousands) 2000 1999 -------------------------------- RECEIVABLES: Securities failed to deliver $ 17,974 $ 41,554 Securities borrowed 1,101,261 829,573 Receivables from customers 1,036,114 1,283,326 Other 37,942 41,615 -------------------------------- TOTAL $2,193,291 $2,196,068 ================================ PAYABLES: Securities failed to receive $ 19,558 $ 45,255 Securities loaned 1,405,107 1,076,235 Payables to customers 462,485 523,275 Other 90,173 119,617 -------------------------------- TOTAL $1,977,323 $1,764,382 ================================ Securities borrowed and loaned represent deposits made to or received from other broker-dealers. Receivables from and payables to customers represent amounts due on cash and margin transactions. SHORT-TERM BORROWINGS The Company's securities processing subsidiaries had short-term bank loans payable of $19,725,000 and $234,350,000 as of December 31, 2000 and 1999, respectively, which bear interest at the respective banks' call rate (6.0% as of December 31, 2000) and were collateralized by customers' margin account securities. INVESTMENTS The Company's trust administration subsidiaries accept money market deposits from trust customers and invest the funds in securities. Such amounts due trust depositors represent the primary source of funds for the Company's investment securities and amounted to $1,525,652,000 and $1,298,120,000 as of December 31, 2000 and 1999, respectively. Trust account investments in government agency and certain fixed income obligations have an average duration of approximately two years and six months at December 31, 2000. These investments are held to maturity and carried at amortized cost as the Company has the ability and intent to hold these investments to maturity. Available for sale equity investments are carried at market, based upon quoted market prices. Unrealized gains or losses on available for sale equity investments are accumulated in shareholders' equity as other comprehensive income, net of related deferred income taxes. Related gross unrealized gains were $134,270,000 and $212,476,000 as of December 31, 2000 and 1999, respectively. Realized gains or losses are computed based on specific identification of the equity investments sold. The following tables summarize the Company's investments in securities:
2000 1999 ------------------------ ------------------------ (In thousands) Carrying Fair Carrying Fair 2000 Value Value Value Value ------------------------ ------------------------ U.S. Government and government agency obligations $ 737,291 $ 741,699 $ 625,374 $ 616,823 Other fixed income obligations 760,824 766,278 562,560 550,931 ------------------------ ------------------------ Total held to maturity investments 1,498,115 1,507,977 1,187,934 1,167,754 Available for sale equity investments 137,100 137,100 215,352 215,352 Money market mutual funds 142,467 142,467 202,503 202,503 ------------------------ ------------------------ TOTAL $1,777,682 $1,787,544 $1,605,789 $1,585,609 ======================== ======================== These investments are included in the following captions on the balance sheets as of December 31: 2000 1999 ---------- ---------- Trust account investments $1,514,643 $1,298,120 Other investments 263,039 307,669 ---------- ---------- TOTAL $1,777,682 $1,605,789 ========== ==========
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are computed primarily using the straight-line method over the estimated useful lives of the assets, ranging from three to 40 years. Property and equipment consist of the following at December 31:
(In thousands) 2000 1999 ------------------------------- Data processing equipment $ 232,597 $ 227,292 Purchased software 98,033 81,239 Buildings and leasehold improvements 89,799 84,763 Furniture and equipment 111,615 99,637 ------------------------------- 532,044 492,931 Less accumulated depreciation and amortization 326,489 297,598 ------------------------------- TOTAL $ 205,555 $ 195,333 ===============================
INTERNALLY GENERATED COMPUTER SOFTWARE The Company capitalizes certain costs incurred to develop new software or enhance existing software which is marketed externally or utilized by the Company to process customer transactions. Costs are capitalized commencing when the technological feasibility of the software has been established. Amortization of capitalized costs is computed on a straight-line basis over the expected useful life of the product, generally three to five years. Routine maintenance of software products, design costs and development costs incurred prior to establishment of a product's technological feasibility are expensed as incurred. In addition, Year 2000 costs were expensed as incurred. INTANGIBLE ASSETS Intangible assets relating to acquisitions consist of the following at December 31: (In thousands) 2000 1999 ----------------------------- Goodwill $832,134 $793,908 Other 162,823 111,663 ----------------------------- 994,957 905,571 Less accumulated amortization 148,218 118,375 ----------------------------- TOTAL $846,739 $787,196 ============================= The excess of the purchase price over the estimated fair value of tangible and identifiable intangible assets acquired is recorded as goodwill and is generally amortized over 40 years using the straight-line method. Other intangible assets consist primarily of computer software, contract rights, customer bases and trademarks applicable to acquired businesses. These assets are generally amortized using the straight-line method over their estimated useful lives, ranging from three to 35 years. IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically assesses the likelihood of recovering the cost of long-lived assets based on current and projected operating results and cash flows of the related business operations using undiscounted cash flow analyses. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, equipment and intangible assets. Measurement of any impairment loss is based on discounted operating cash flows. During 2000, the Company recorded a charge of $11,000,000 for impairment of goodwill associated with the consolidation of certain ancillary product lines in the Company's software businesses. INCOME TAXES The consolidated financial statements are prepared on the accrual method of accounting. Deferred income taxes are provided for temporary differences between the Company's income for accounting and tax purposes. REVENUE RECOGNITION Revenues from the sale of data processing services are recognized as the related services are provided. Revenues from securities processing and trust services include net investment income of $124,338,000, $88,458,000 and $77,457,000, net of direct credits to customer accounts of $94,133,000, $63,519,000 and $50,180,000 in 2000, 1999 and 1998, respectively. Revenues from the sales of software are recognized in accordance with the AICPA's Statement of Position No. 97-2, "Software Revenue Recognition" and other authoritative literature. Maintenance fee revenue is recognized ratably over the term of the related support period, generally 12 months. Consulting revenue is recognized as the related services are provided. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the staff's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. The Company adopted SAB 101 in the fourth quarter of 2000. Adoption of this standard did not have a material impact on the Company's financial statements. NET INCOME PER SHARE 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. SUPPLEMENTAL CASH FLOW INFORMATION (In thousands) 2000 1999 1998 ------------------------------ Interest paid $29,346 $26,075 $21,111 Income taxes paid 87,633 81,499 66,066 Liabilities assumed in acquisitions of businesses 401,129 246,120 39,816 ACCOUNTING STANDARDS TO BE ADOPTED In 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, is required to be adopted on January 1, 2001. The Company evaluated the impact of this statement and has concluded that the adoption of this statement will not have a material impact on the consolidated financial statements. 2. Acquisitions During 2000, 1999 and 1998 the Company completed the following acquisitions:
Month Company Acquired Service Consideration - ------------------------------------------------------------------------------------------------------- 2000: Patterson Press, Inc. Jan Card services Cash for stock Resources Trust Company May Data processing for retirement Cash for assets planning National Flood Services, Inc. Sep Insurance data processing Cash for stock 1999: QuestPoint Jan Item processing Cash for assets Eldridge & Associates Feb PC-based financial systems Cash for assets RF/Spectrum Decision Science Corp. Feb Software and services Cash for stock FIPSCO, Inc. Mar Insurance marketing systems Cash for stock Progressive Data Solutions, Inc./ Apr Insurance software systems Cash for stock Infinity Software Systems, Inc. JWGenesis Clearing Corporation Jun Securities services Cash for stock Alliance ADS Jun Imaging technology Cash for assets Envision Financial Technologies, Inc. Aug Data processing software and Cash for stock services Pinehurst Analytics, Inc. Oct PC-based financial systems Cash for assets Humanic Design Corporation Dec Software and services Cash for stock 1998: Automated Financial Technology, Inc. Jan Data processing Stock for stock PSI Group (laser printing and Feb Laser printing Cash for assets custom packing operations) The LeMans Group Feb Automobile leasing software Cash for stock Network Data Processing Corporation Apr Insurance data processing Stock for stock CUSA Technologies, Inc. Apr Software and services Stock for stock Specialty Insurance Service May Insurance data processing Cash for stock Deluxe Card Services, a division of Aug Automated card services Cash for assets Deluxe Corporation Federal Home Loan Bank of Topeka Oct Item processing Cash for assets (item processing contracts) Life Instructors, Inc. Oct Insurance and securities training Cash for stock FiCATS Oct Item processing Cash for assets ASI Financial Services, Inc. Nov PC-based financial systems Cash for stock The FREEDOM Group, Inc. Dec Insurance data processing Cash for stock
Generally, the acquisitions were accounted for as purchases and, accordingly, the operations of the acquired companies were included in the consolidated financial statements since their respective dates of acquisition as set forth above. Net cash paid in connection with these acquisitions was $88,764,000, $210,587,000, and $217,792,000 in 2000, 1999 and 1998, respectively, subject to certain adjustments. The Company does not anticipate any significant adjustments to the purchase price allocations. Pro forma information for acquisitions accounted for as purchases is not presented as the impact was not material. 3. Long-term debt The Company has available a $500,000,000 unsecured line of credit and commercial paper facility with a group of banks, of which $229,000,000 was in use at December 31, 2000, at an average rate of 7.0%. The credit facilities, which expire in May 2004, are comprised of a $250,000,000 five-year revolving credit facility and a $250,000,000 364-day revolving credit facility which is renewable annually through 2004. The loan agreements covering the Company's long-term borrowings contain certain restrictive covenants with which the Company was in compliance at December 31, 2000. As of December 31, 2000, the Company had interest rate swap agreements to fix the interest rates on certain floating rate debt at an average rate approximating 6.75% (based on current bank fees and spreads) for a principal amount of $200,000,000 until 2005. Long-term debt consisted of the following at December 31: (In thousands) 2000 1999 ------------------------ 9.75% senior notes payable, due 2001 $ 2,500 $ 5,000 8.00% senior notes payable, due 2001-2005 64,286 77,143 Bank notes and commercial paper, at short-term rates 268,172 390,681 ------------------------ TOTAL $334,958 $472,824 ======================== Annual principal payments required under the terms of the long-term agreements were as follows at December 31, 2000: (In thousands) Year 2001 $ 37,959 2002 14,714 2003 14,714 2004 253,857 2005 13,714 -------- TOTAL $334,958 ======== Interest expense with respect to long-term debt amounted to $28,823,000, $25,111,000 and $21,330,000 in 2000, 1999 and 1998, respectively. 4. Income taxes A reconciliation of recorded income tax expense with income tax computed at the statutory federal tax rates for the three years ended December 31, 2000, is as follows: (In thousands) 2000 1999 1998 -------------------------------- Statutory federal tax rate 35% 35% 35% Tax computed at statutory rate $105,012 $81,786 $67,789 State income taxes-net of federal effect 11,156 9,375 7,601 Non-deductible amortization 3,887 3,161 2,737 Other 2,959 1,485 1,283 -------------------------------- TOTAL $123,014 $95,807 $79,410 ================================ The provision for income taxes consisted of the following: (In thousands) 2000 1999 1998 -------------------------------- Current: Federal $101,906 $69,250 $64,992 State 16,295 12,374 11,955 -------------------------------- 118,201 81,624 76,947 -------------------------------- Deferred: Federal 4,425 11,833 2,364 State 388 2,350 99 -------------------------------- 4,813 14,183 2,463 -------------------------------- TOTAL $123,014 $95,807 $79,410 ================================ Significant components of the Company's net deferred tax (liability) asset consisted of the following at December 31: (In thousands) 2000 1999 ------------------------ Purchased incomplete software technology $43,051 $47,663 Accrued expenses not currently deductible 27,380 25,407 Deferred revenues 15,494 13,693 Internally generated capitalized software (35,306) (30,858) Excess of tax over book depreciation and amortization (20,480) (19,438) Unrealized gains on investments (53,722) (87,162) Other (11,409) (9,268) ------------------------ TOTAL $(34,992) $(59,963) ======================== Tax benefits associated with the exercise of non-qualified employee stock options were credited directly to additional paid-in capital and amounted to $19,500,000, $5,000,000 and $8,000,000 in 2000, 1999 and 1998, respectively. 5. Employee Benefit Plans STOCK OPTION PLAN The Company's Stock Option Plan (the "Plan") provides for the granting to its employees and directors of either incentive or non-qualified options to purchase shares of the Company's common stock for a price not less than 100% of the fair value of the shares at the date of grant. In general, 20% of the shares awarded under the Plan may be purchased annually and expire 10 years from the date of the award. Changes in stock options outstanding are as follows: Number of Weighted Average Shares Price Range Exercise Price ---------------------------------------------- Outstanding, December 31, 1997 7,113,821 $ 2.76 - $21.78 $10.38 Granted 2,677,205 21.83 - 31.59 24.15 Forfeited (147,030) 4.51 - 24.00 19.48 Exercised (1,187,123) 2.76 - 24.00 8.43 ---------------------------------------------- Outstanding, December 31, 1998 8,456,873 2.76 - 31.59 14.57 Granted 1,535,269 28.81 - 39.50 30.94 Forfeited (350,093) 16.00 - 34.29 27.42 Exercised (579,098) 3.25 - 33.02 12.48 ---------------------------------------------- Outstanding, December 31, 1999 9,062,951 2.76 - 39.50 16.89 Granted 1,194,654 32.00 - 59.88 32.22 Forfeited (416,824) 13.98 - 34.29 28.77 Exercised (1,535,744) 3.25 - 34.29 13.27 ---------------------------------------------- Outstanding, December 31, 2000 8,305,037 $ 2.76 - $59.88 $19.14 ============================================== The following summarizes information about the Company's stock options outstanding and exercisable at December 31, 2000:
Options Outstanding Options Outstanding and Exercisable ---------------------------------------------------------- ------------------------------------- Weighted Weighted Average Weighted Range of Number of Average Remaining Number of Average Exercise Prices Shares Exercise Price Contractual Life Shares Exercise Price - ----------------------------------------------------------------------------------------------------------------- $2.76-$10.00 2,574,473 $8.14 2.7 2,574,473 $8.14 10.01-22.00 2,147,016 16.34 6.0 1,547,273 15.46 22.01-59.88 3,583,548 28.73 8.0 1,353,854 27.10 - ----------------------------------------------------------------------------------------------------------------- $2.76-$59.88 8,305,037 $19.14 5.9 5,475,600 $14.90 =================================================================================================================
At December 31, 2000, options to purchase 7,889,925 shares were available for grant under the Plan. The Company has accounted for its stock-based compensation plans in accordance with the provisions of Accounting Principles Board Opinion 25. Accordingly, the Company did not record any compensation expense in the accompanying consolidated financial statements for its stock-based compensation plans. Had compensation expense been recognized consistent with SFAS No.123, "Accounting for Stock-Based Compensation," the Company's net income and net income per share - diluted would have been changed to the pro forma amounts indicated below: (In thousands, except per share data) 2000 1999 1998 -------- -------- -------- Net income: As reported $177,021 $137,868 $114,274 Pro forma 167,321 131,868 110,574 Net income per share-diluted: As reported $1.40 $1.09 $0.90 Pro forma 1.32 1.04 0.87 The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions for grants in 2000: 1) expected dividend yield of 0%, 2) risk-free interest rate of 5.0%, 3) expected volatility of 48.6% and 4) expected option life of five years. The weighted-average estimated fair value of stock options granted during 2000 was $16.08 per share. EMPLOYEE STOCK PURCHASE PLAN Effective January 1, 2000, the Company adopted an employee stock purchase plan under which eligible employees may purchase a limited number of shares of common stock each quarter through payroll deductions, at a purchase price equal to 85% of the closing price of the Company's common stock on the last business day of each calendar quarter. As of January 1, 2001, there were 576,669 shares available for grant under this plan. EMPLOYEE SAVINGS PLAN The Company and its subsidiaries have contributory savings plans covering substantially all employees, under which eligible participants may elect to contribute a specified percentage of their salaries, subject to certain limitations. The Company makes matching contributions, subject to certain limitations, and makes discretionary contributions based upon the attainment of certain profit goals. Company contributions vest ratably at 20% for each year of service. Contributions charged to operations under these plans approximated $30,400,000, $24,000,000 and $16,900,000 in 2000, 1999 and 1998, respectively. 6. Shareholders' Equity SHAREHOLDER RIGHTS PLAN The Company has a shareholder rights plan. Under this plan, the shareholders of record as of March 9, 1998, were granted a dividend of one preferred stock purchase right for each outstanding share of Company common stock. The stock purchase rights are not exercisable until certain events occur. STOCK BUYBACK PLAN During 1999, the Company's Board of Directors authorized the repurchase of up to 3,250,000 shares of the Company's common stock. Shares purchased under the authorization will be made through open market transactions that may occur from time to time as market conditions warrant. Shares acquired will be held for issuance in connection with acquisitions and employee stock option and purchase plans. As of December 31, 2000, approximately 1,850,000 shares remained available under the repurchase authorization. 7. Leases, other commitments and contingencies LEASES Future minimum rental payments on various operating leases for office facilities and equipment were due as follows as of December 31, 2000: (In thousands) Year 2001 $ 69,300 2002 59,400 2003 48,500 2004 38,000 2005 26,800 Thereafter 32,200 -------- TOTAL $274,200 -------- Rent expense applicable to all operating leases was approximately $83,100,000, $78,600,000 and $72,200,000 in 2000, 1999 and 1998, respectively. OTHER COMMITMENTS AND CONTINGENCIES The Company's trust administration subsidiaries had fiduciary responsibility for the administration of approximately $32 billion in trust funds as of December 31, 2000. With the exception of the trust account investments discussed in Note 1, such amounts are not included in the accompanying consolidated balance sheets. The Company's securities processing subsidiaries are subject to the Uniform Net Capital Rule of the Securities and Exchange Commission. At December 31, 2000, the aggregate net capital of such subsidiaries was $198,947,000, exceeding the net capital requirement by $176,251,000. In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits in which claims are asserted against the Company. In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits are not expected to have a material adverse effect on the consolidated financial statements of the Company. 8. 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 has three business segments: Financial institution outsourcing, systems and services; Securities processing and trust services; and All other and corporate. The Financial institution outsourcing, systems and services segment provides account and transaction processing solutions and services to financial institutions and other financial intermediaries. The Securities processing and trust services segment provides securities processing solutions and retirement plan administration services to brokerage firms, financial planners and financial institutions. The All other and corporate segment provides plastic card services and document solutions, and includes general corporate expenses. Summarized financial information by business segment for each of the three years ended December 31, 2000, is as follows:
(In thousands) 2000 1999 1998 -------------------------------------------------- Revenues: Financial institution outsourcing, systems and services $1,243,509 $1,066,514 $ 951,010 Securities processing and trust services 341,155 276,215 234,699 All other and corporate 68,942 64,816 47,961 -------------------------------------------------- Total $1,653,606 $1,407,545 $1,233,670 -------------------------------------------------- Operating income: Financial institution outsourcing, systems and services $ 218,935 $ 175,194 $ 148,774 Securities processing and trust services 97,125 80,125 70,074 All other and corporate (1,754) (2,234) (9,209) -------------------------------------------------- Total $ 314,306 $ 253,085 $ 209,639 -------------------------------------------------- Identifiable assets: Financial institution outsourcing, systems and services $1,185,819 $1,169,666 $1,018,541 Securities processing and trust services 4,160,939 3,832,868 2,783,818 All other and corporate 239,562 305,176 155,979 -------------------------------------------------- Total $5,586,320 $5,307,710 $3,958,338 -------------------------------------------------- Depreciation expense: Financial institution outsourcing, systems and services $ 52,191 $ 48,407 $ 46,880 Securities processing and trust services 11,395 9,510 8,631 All other and corporate 6,561 5,796 5,186 -------------------------------------------------- Total $ 70,147 $ 63,713 $ 60,697 -------------------------------------------------- Amortization of intangible assets: Financial institution outsourcing, systems and services $ 32,847 $ 18,843 $ 12,577 Securities processing and trust services 9,104 3,040 2,651 All other and corporate 861 717 526 -------------------------------------------------- Total $ 42,812 $ 22,600 $ 15,754 -------------------------------------------------- Capital expenditures: Financial institution outsourcing, systems and services $ 54,750 $ 52,724 $ 60,075 Securities processing and trust services 12,836 12,119 11,255 All other and corporate 5,393 4,854 6,212 -------------------------------------------------- Total $ 72,979 $ 69,697 $ 77,542 --------------------------------------------------
The revenues of each segment are principally domestic, and no single customer accounted for 10% or more of consolidated revenues during the years ended December 31, 2000, 1999 and 1998. 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 those items from period to period.
Percentage of Revenues Period to Period Percentage Years Ended December 31, Increase (Decrease) 2000 vs. 1999 vs. 2000 1999 1998 1999 1998 --------------------------------- ---------------------------- Revenues 100.0% 100.0% 100.0% 17% 14% --------------------------------- Cost of revenues: Salaries, commissions and payroll related costs 48.0 48.1 46.4 17 18 Data processing expenses, rentals and telecommunication costs 7.0 7.9 9.7 3 (7) Other operating expenses 19.1 19.4 21.0 16 5 Depreciation and amortization of property and equipment 4.2 4.5 4.9 10 5 Amortization of intangible assets 2.6 1.6 1.3 89 43 Amortization (capitalization) of internally generated computer software-net 0.1 0.5 (0.3) --------------------------------- Total cost of revenues 81.0 82.0 83.0 16 13 --------------------------------- Operating income 19.0% 18.0% 17.0% 24% 21% ================================= Income before income taxes 18.1% 16.6% 15.7% 28% 21% ================================= Net income 10.7% 9.8% 9.3% 28% 21% =================================
Revenues increased $246,061,000 in 2000 and $173,875,000 in 1999. Revenue growth in 2000 and 1999 was derived from sales to new clients, cross-sales to existing clients, growth in the transaction volume experienced by existing clients, price increases and revenues from acquired businesses. Revenues from acquired businesses approximated 40% and 45% of total revenue growth in 2000 and 1999, respectively. Cost of revenues increased $184,840,000 in 2000 and $130,429,000 in 1999. The make up of cost of revenues has been affected in all years by business acquisitions, changes in the mix of the Company's business and operational efficiencies. Amortization of intangible assets increased $20,212,000 in 2000 and $6,846,000 in 1999. The increase in 2000 over 1999 was due to amortization associated with acquisitions and a goodwill impairment charge. Amortization of internally generated computer software is stated net of capitalization and decreased $5,267,000 in 2000 and increased $11,080,000 in 1999. The increase in 1999 was due to reduced capitalization resulting from Year 2000 activities and accelerated amortization of certain ancillary software products. Operating income increased $61,221,000 in 2000 and $43,446,000 in 1999. The Company's operating margins increased by 1% in 2000 and 1999 over prior periods primarily due to continued revenue growth, operational efficiencies and increased operating leverage of existing operations. The effective income tax rate was 41% in all three years, and the effective income tax rate for 2001 is expected to be 40%. Net income per share - diluted in 2000 was $1.36, before recognizing a $0.04 per share realized gain from sale of investment, compared to $1.09 in 1999. The Company's growth has been accomplished, to a significant degree, through the acquisition of businesses which are complementary to its operations. Management believes that a number of acquisition candidates are available which would further enhance its competitive position and plans to pursue them vigorously. Management is engaged in an ongoing program to reduce expenses related to acquisitions by eliminating operating redundancies. The Company's approach has been to move slowly in achieving this goal in order to minimize the amount of disruption experienced by its clients and the potential loss of clients due to this program. SEGMENT INFORMATION The following table sets forth revenue and operating income by business segment for the years ended December 31:
(In thousands) 2000 1999 1998 ----------- ---------- ---------- Revenues: Financial institution outsourcing, systems and services $1,243,509 $1,066,514 $ 951,010 Securities processing and trust services 341,155 276,215 234,699 All other and corporate 68,942 64,816 47,961 ---------- ---------- ---------- Total $1,653,606 $1,407,545 $1,233,670 ---------- ---------- ---------- Operating income: Financial institution outsourcing, systems and services $ 218,935 $ 175,194 $ 148,774 Securities processing and trust services 97,125 80,125 70,074 All other and corporate (1,754) (2,234) (9,209) ---------- ---------- ---------- Total $ 314,306 $ 253,085 $ 209,639 ---------- ---------- ----------
Revenues in the Financial institution outsourcing, systems and services business segment increased $176,995,000 in 2000 and $115,504,000 in 1999. Revenue growth in 2000 and 1999 was derived from sales to new clients, cross-sales to existing clients, growth in the transaction volume experienced by existing clients, price increases and revenues from acquired businesses. Operating income in the Financial institution outsourcing, systems and services business segment increased $43,741,000 and $26,420,000 in 2000 and 1999, respectively. Operating income and margin increases in 2000 and 1999 over prior periods were primarily due to continued revenue growth, operational efficiencies, increased operating leverage of existing operations and the impact of certain acquisitions. Revenues in the Securities processing and trust services business segment increased $64,940,000 in 2000 and $41,516,000 in 1999. Revenue growth in 2000 and 1999 was derived primarily from increased transaction volumes from existing clients, sales to new clients and revenues from acquired businesses. Operating income in the Securities processing and trust services business segment increased $17,000,000 and $10,051,000 in 2000 and 1999, respectively. Operating margins in 2000 and 1999 decreased slightly when compared to prior years primarily due to changes in the mix of revenues in this business segment. Revenues in the All other and corporate business segment increased $4,126,000 in 2000 and $16,855,000 in 1999. Operating income in this business segment increased $480,000 and $6,975,000 in 2000 and 1999, respectively. The increase in operating income in 1999 over 1998 was due to an acquisition and increased profitability in the Company's plastic card operations. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company's primary sources (uses) of funds during the years ended December 31:
(In thousands) 2000 1999 1998 ---------- ---------- ---------- Cash provided by operating activities before changes in securities processing receivables and payables-net $ 368,750 $ 318,715 $ 273,315 Securities processing receivables and payables-net 215,718 (140,878) 7,080 ---------- ---------- ---------- Cash provided by operating activities 584,468 177,837 280,395 Increase (decrease) in net borrowings (353,520) 169,959 79,835 ---------- ---------- ---------- TOTAL $ 230,948 $ 347,796 $ 360,230 ---------- ---------- ----------
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. MARKET RISK FACTORS Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, correlations or other market factors, such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. The Company is exposed primarily to interest rate risk on investments and borrowings. The Company actively monitors these risks through a variety of control procedures involving senior management. The Company's trust administration subsidiaries accept money market account deposits from trust customers and invest those funds in marketable securities. Substantially all of the investments are rated within the highest investment grade categories for securities. The Company's trust administration subsidiaries utilize simulation models for measuring and monitoring interest rate risk and market value of portfolio equities. A formal Asset Liability Committee of the Company meets quarterly to review interest rate risks, capital ratios, liquidity levels, portfolio diversification, credit risk ratings and adherence to investment policies and guidelines. The Company manages its debt structure and interest rate risk through the use of fixed- and floating-rate debt and through the use of derivatives. The Company uses interest rate swaps to hedge its exposure to interest rate changes, and to lower its financing costs. Generally, under these swaps, the Company agrees with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed principal amount. As of December 31, 2000, the carrying amount of interest rate swap agreements approximated fair value. Based on the controls in place, management believes the risk associated with these instruments at December 31, 2000, will not have a material effect on the Company's consolidated financial position or results of operations. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, the matters discussed in this Annual Report are forward-looking statements which 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 Annual Report 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. Selected Financial Data The following data, which has been affected by acquisitions, should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report.
(In thousands, except per share data) Years ended December 31, 2000 1999 1998 1997 1996 --------------------------------------------------------------------------------- Revenues $1,653,606 $1,407,545 $1,233,670 $ 974,432 $ 879,449 Income before income taxes 300,035 233,675 193,684 153,899 134,462 Income tax provision 123,014 95,807 79,410 63,099 54,754 Net income 177,021 137,868 114,274 90,800 79,708 Net income per share: Basic $ 1.44 $ 1.12 $ 0.93 $ 0.78 $ 0.69 ---------------------------------------------------------------------------------- Diluted $ 1.40 $ 1.09 $ 0.90 $ 0.75 $ 0.68 ---------------------------------------------------------------------------------- As originally reported-diluted $ 1.36 $ 1.09 $ 0.90 $ 0.75 $ 0.59 ---------------------------------------------------------------------------------- Total assets $5,586,320 $5,307,710 $3,958,338 $3,636,491 $2,698,979 Long-term debt 334,958 472,824 389,622 252,031 272,864 Shareholders' equity 1,252,072 1,091,016 885,797 769,255 605,898
Note: The above information has been restated to recognize (1) three-for-two stock splits effective in April 1999 and May 1998 and (2) the acquisition of BHC Financial, Inc. ("BHC") in 1997, accounted for as a pooling of interests. The net income per share as originally reported-diluted is before the realized gain from sale of investment in 2000 and the restatement in 1996 due to the BHC pooling of interests. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(In thousands, except per share data) Quarters ----------------------------------------------- 2000 First Second Third Fourth Total ------------------------------------------------------------- Revenues $396,402 $ 416,434 $ 406,189 $434,581 $1,653,606 Cost of revenues 317,448 337,046 327,966 356,840 1,339,300 ------------------------------------------------------------- Operating income 78,954 79,388 78,223 77,741 314,306 Interest expense - net (5,806) (6,000) (5,295) (4,988) (22,089) Realized gain from sale of investment - 2,928 2,907 1,983 7,818 ------------------------------------------------------------- Income before income taxes 73,148 76,316 75,835 74,736 300,035 Income tax provision 29,991 31,289 31,093 30,641 123,014 ------------------------------------------------------------- Net income $ 43,157 $ 45,027 $ 44,742 $ 44,095 $ 177,021 ------------------------------------------------------------- Net income per share: Basic $ 0.35 $ 0.37 $ 0.36 $ 0.36 $ 1.44 ============================================================= Diluted $ 0.34 $ 0.36 $ 0.35 $ 0.35 $ 1.40 ============================================================= Diluted (before realized gain from sale of investment) $ 0.34 $ 0.34 $ 0.34 $ 0.34 $ 1.36 ============================================================= 1999 Revenues $337,129 $ 343,252 $ 352,663 $374,501 $1,407,545 Cost of revenues 276,506 280,738 288,094 309,122 1,154,460 ------------------------------------------------------------- Operating income 60,623 62,514 64,569 65,379 253,085 Interest expense - net (3,985) (4,315) (4,913) (6,197) (19,410) ------------------------------------------------------------- Income before income taxes 56,638 58,199 59,656 59,182 233,675 Income tax provision 23,222 23,861 24,459 24,265 95,807 ------------------------------------------------------------- Net income $ 33,416 $ 34,338 $ 35,197 $ 34,917 $ 137,868 ------------------------------------------------------------- Net income per share: Basic $ 0.27 $ 0.28 $ 0.29 $ 0.28 $ 1.12 ============================================================= Diluted $ 0.26 $ 0.27 $ 0.28 $ 0.28 $ 1.09 =============================================================
Market Price Information The following information relates to the closing price of the Company's $0.01 par value common stock, which is traded on the NASDAQ Stock Market under the symbol FISV. Information has been adjusted (to the nearest 1/32) to recognize the three-for-two stock split effective April 1999.
2000 1999 - ----------------------------------------------------------------------------------------------------- Quarter Ended High Low High Low - ----------------------------------------------------------------------------------------------------- March 31 38 1/2 24 5/16 37 19/32 30 June 30 50 3/8 33 11/16 40 31 5/16 September 30 64 1/8 42 11/16 34 1/8 27 1/4 December 31 62 5/8 43 7/16 39 3/16 24 3/4
At December 31, 2000, the Company's common stock was held by 2,859 shareholders of record. It is estimated that an additional 38,000 shareholders own the Company's stock through nominee or street name accounts with brokers. The closing sale price for the Company's stock on January 23, 2001, was $52.19 per share. The Company's present policy is to retain earnings to support future business opportunities, rather than to pay dividends. MANAGEMENT'S STATEMENT OF RESPONSIBILITY The management of Fiserv, Inc. assumes responsibility for the integrity and objectivity of the information appearing in the 2000 Annual Report. This information was prepared in conformity with accounting principles generally accepted in the United States of America and necessarily reflects the best estimates and judgment of management. To provide reasonable assurance that transactions authorized by management are recorded and reported properly and that assets are safeguarded, the Company maintains a system of internal controls. The concept of reasonable assurance implies that the cost of such a system is weighed against the benefits to be derived therefrom. The control environment is complemented by the Company's internal audit function, which evaluates the adequacy of the controls, policies and procedures in place, as well as adherence to them, and recommends improvements for implementation when applicable. In addition, Deloitte & Touche LLP, certified public accountants, audits the financial statements of the Company in accordance with auditing standards generally accepted in the United States of America. Their audit includes a review of the internal control system, and improvements are made to the system based upon their recommendations. The Audit Committee ensures that management and the independent auditors are properly discharging their financial reporting responsibilities. In performing this function, the Committee meets with management and the independent auditors throughout the year. Additional access to the Committee is provided to Deloitte & Touche LLP on an unrestricted basis, allowing discussion of audit results and opinions on the adequacy of internal accounting controls and the quality of financial reporting. /s/ Leslie M. Muma LESLIE M. MUMA President and Chief Executive Officer INDEPENDENT AUDITORS' REPORT SHAREHOLDERS AND DIRECTORS OF FISERV, INC. We have audited the accompanying consolidated balance sheets of Fiserv, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Fiserv, Inc. and subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Milwaukee, Wisconsin January 26, 2001