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