UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from_______________________to_____________________
Commission file number 0-14948
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FISERV, INC.
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(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1506125
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
255 FISERV DRIVE, BROOKFIELD, WI 53045
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(Address of principal executive office) (Zip Code)
(262) 879 5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
As of April 16, 2001, there were 124,340,000 shares of common stock, $.01 par
value, of the Registrant outstanding.
1
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2001 2000
-----------------------------
Revenues $453,912 $396,402
-----------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 218,695 189,572
Data processing expenses, rentals
and telecommunication costs 29,605 28,112
Other operating expenses 92,392 75,227
Depreciation and amortization of
property and equipment 18,305 16,749
Amortization of intangible assets 8,792 7,176
Amortization (capitalization) of internally generated
computer software-net (482) 612
-----------------------------
Total cost of revenues 367,307 317,448
-----------------------------
Operating income 86,605 78,954
Interest expense - net (3,817) (5,806)
Realized gain from sale of investment 1,821 -
-----------------------------
Income before income taxes 84,609 73,148
Income tax provision 33,844 29,991
-----------------------------
Net income $ 50,765 $ 43,157
=============================
Net income per share:
Basic $ 0.41 $ 0.35
=============================
Diluted $ 0.40 $ 0.34
=============================
Shares used in computing net income per share:
Basic 124,108 122,622
=============================
Diluted 127,233 125,543
=============================
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2001 2000
---------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 82,146 $ 98,856
Accounts receivable - net 273,002 265,640
Securities processing receivables 2,068,965 2,193,291
Prepaid expenses and other assets 86,077 91,077
Investments 1,891,734 1,796,899
Property and equipment-net 218,134 205,555
Internally generated computer software-net 88,681 88,263
Intangible assets-net 928,360 846,739
---------------------------
Total $5,637,099 $5,586,320
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 72,813 $ 80,633
Securities processing payables 1,849,830 1,977,323
Short-term borrowings 13,000 19,725
Accrued expenses 163,094 182,090
Accrued income taxes 25,557 22,207
Deferred revenues 163,113 156,668
Customer retirement account deposits 1,622,884 1,525,652
Deferred income taxes 48,814 34,992
Long-term debt 362,562 334,958
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Total liabilities 4,321,667 4,334,248
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Shareholders' equity:
Common stock issued,125,387,700 shares 1,254 1,254
Additional paid-in capital 460,391 455,444
Accumulated other comprehensive income 73,749 78,869
Accumulated earnings 804,296 753,531
Treasury stock, at cost, 1,059,800 and
1,581,900 shares, respectively (24,258) (37,026)
---------------------------
Total shareholders' equity 1,315,432 1,252,072
---------------------------
Total $5,637,099 $5,586,320
===========================
See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2001 2000
-----------------------------
Cash flows from operating activities:
Net income $ 50,765 $ 43,157
Adjustments to reconcile net income to net cash provided
by operating activities:
Realized gain from sale of investment (1,821) -
Deferred income taxes 16,416 17,605
Depreciation and amortization of property and equipment 18,305 16,749
Amortization of intangible assets 8,792 7,176
Amortization of internally generated computer software 8,612 10,253
-----------------------------
101,069 94,940
Changes in assets and liabilities, net of effects from acquisitions of
businesses:
Accounts receivable 673 (8,802)
Prepaid expenses and other assets 8,307 (4,292)
Accounts payable and accrued expenses (46,776) (23,151)
Deferred revenues 2,314 8,118
Accrued income taxes 7,009 7,300
Securities processing receivables and payables - net (3,167) (223,273)
-----------------------------
Net cash provided by (used in) operating activities 69,429 (149,160)
-----------------------------
Cash flows from investing activities:
Capital expenditures (16,708) (22,094)
Capitalization of internally generated computer software (9,094) (9,641)
Payment for acquisitions of businesses, net of cash acquired (90,903) (6,515)
Investments (90,751) 15,808
-----------------------------
Net cash used in investing activities (207,456) (22,442)
-----------------------------
Cash flows from financing activities:
Proceeds from (repayment of) short-term borrowings - net (6,725) 214,671
Proceeds from (repayment of) long-term debt-net 27,604 (39,463)
Issuance of common stock 3,206 13,269
Purchases of treasury stock - (9,884)
Customer retirement account deposits 97,232 (12,890)
-----------------------------
Net cash provided by financing activities 121,317 165,703
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Change in cash and cash equivalents (16,710) (5,899)
Beginning balance 98,856 80,554
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Ending balance $ 82,146 $ 74,655
=============================
See notes to consolidated financial statements.
4
FISERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated financial statements for the three month periods ended March
31, 2001 and 2000 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such consolidated financial statements have
been included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year. The
consolidated financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the annual consolidated
financial statements and notes of Fiserv, Inc. and subsidiaries (the "Company").
2. Accounting Change and Derivative Instruments
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended, which requires that all derivative
instruments be reported on the balance sheet at fair value. If the derivative
instrument is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative instrument are either recognized in net income or in
other comprehensive income until the hedged item is recognized in net income.
The adoption of SFAS 133 on January 1, 2001, resulted in a cumulative after-tax
reduction to accumulated other comprehensive income included in Shareholders'
equity of $2.7 million.
3. Business Combinations
During the first three months of 2001, the Company completed four acquisitions
accounted for by the purchase method for total cash consideration of
approximately $90.9 million. In addition to cash consideration, the Company also
issued approximately 220,000 unregistered shares of its common stock in
conjunction with one of the acquisitions. The operations of these acquisitions
are included in the consolidated results of operations from the dates of
acquisition. Pro forma information for acquisitions is not presented as the
impact was not material.
4. Accounting for Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating and tax
credit carryforwards. Significant components of the Company's net deferred tax
(liability) asset consisted of the following:
March 31, December 31,
2001 2000
-----------------------------
(In thousands)
Purchased incomplete software technology $ 41,898 $ 43,051
Accrued expenses not currently deductible 32,968 27,380
Deferred revenues 14,081 15,494
Internally generated capitalized software (36,054) (35,306)
Excess of tax over book depreciation and
amortization (20,654) (20,480)
Unrealized gains on investments (54,940) (53,722)
Other (26,113) (11,409)
-----------------------------
Total ($48,814) ($34,992)
=============================
5. Supplemental Cash Flow Information
2001 2000
------------------------
(In thousands)
Interest paid $ 4,457 $5,663
Income taxes paid 10,624 5,959
Liabilities assumed in acquisitions
of businesses 13,600 1,549
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, the relative
percentage which certain items in the Company's consolidated statements of
income bear to revenues and the percentage change in these items.
Percentage
2001 2000 Increase
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(Percent of Revenues)
Revenues 100.0 100.0 14.5
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Salaries and related costs 48.2 47.8 15.4
Data processing costs 6.5 7.1 5.3
Other operating expenses 20.4 19.0 22.8
Depreciation and amortization 4.0 4.2 9.3
Amortization of intangible assets 1.9 1.8 N/A
Amortization (capitalization) of software-net (0.1) 0.2 N/A
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Total cost of revenues 80.9 80.1 15.7
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Operating income 19.1 19.9 9.7
=========================== ===============
Revenues
Revenues increased 14.5% from $396.4 million in the first quarter of 2000 to
$453.9 million in the current first quarter. Revenue growth was primarily
derived from sales to new clients, cross-sales to existing clients, price
increases and revenues from acquired businesses. Revenue growth was negatively
impacted by lower transaction volumes in the Securities processing and trust
services segment primarily due to overall weakness in the United States retail
financial markets in the first quarter of 2001. Revenues from acquired
businesses approximated 60% of total revenue growth in the first quarter of
2001.
Cost of Revenues
Cost of revenues increased 15.7% from $317.4 million in the first quarter of
2000 to $367.3 million in the current first quarter. The make up of cost of
revenues has been affected by business acquisitions, changes in the mix of the
Company's business and operational efficiencies. In 2001, the Company recorded a
litigation reserve of $7.8 million due to an unfavorable arbitration award
relating to actions that occurred at Hanifen, Imhoff Holdings, Inc. prior to
being acquired by the Company in 1997.
Operating Income
Operating income increased 9.7% from $79.0 million in the first quarter of 2000
to $86.6 million in the current first quarter.
Realized Gain from Sale of Investment
During the first quarter of 2001, the Company sold 100,000 shares of Knight
Trading Group, Inc. resulting in a pre-tax realized gain of $1.8 million.
Income Tax Provision
The effective income tax rate was 41% in 2000 and 40% in 2001. The effective
income tax rate is expected to remain at 40% for the remainder of the current
year.
Net Income
Net income for the first quarter increased 17.6% from $43.2 million in 2000 to
$50.8 million in 2001. Net income per share-diluted for the first quarter was
$0.39 in 2001, before recognizing a $0.01 per share realized gain from sale of
investment, compared to $0.34 in 2000.
6
Business Segment Information
The Company is a leading independent provider of data processing systems and
related information management services and products to financial institutions
and other financial intermediaries. The Company's operations have been
classified into three business segments: Financial institution outsourcing,
systems and services; Securities processing and trust services; and All other
and corporate. Summarized financial information by business segment is as
follows:
Three Months Ended
March 31,
2001 2000
-------------------------------
(In thousands)
Revenues:
Financial institution outsourcing, systems
and services $360,362 $293,088
Securities processing and trust services 76,022 86,447
All other and corporate 17,528 16,867
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Total $453,912 $396,402
========== ========
Operating income:
Financial institution outsourcing, systems
and services $ 79,596 $ 49,336
Securities processing and trust services 8,388 29,947
All other and corporate (1,379) (329)
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Total $ 86,605 $ 78,954
========== ========
Revenues in the Financial institution outsourcing, systems and services business
segment increased from $293.1 million in the first quarter of 2000 to $360.4
million in the current first quarter. Operating income in the Financial
institution outsourcing, systems and services business segment increased from
$49.3 million in the first quarter of 2000 to $79.6 million in the current first
quarter. Operating margin improvement in the first quarter of 2001 when compared
to 2000 was primarily due to continued revenue growth, operational efficiencies
and increased operating leverage of existing operations.
Revenues in the Securities processing and trust services business segment
decreased from $86.4 million in the first quarter of 2000 to $76.0 million in
the current first quarter. The overall revenue decrease in the first quarter of
2001 was directly related to significantly lower transaction volumes in the
Securities processing businesses due to overall weakness in the United States
retail financial markets, partially offset by an increase in revenues associated
with the acquisition of Resources Trust Company in May of 2000. Operating income
in this business segment decreased from $29.9 million in the first quarter of
2000 to $8.4 million in the current first quarter. The decrease in operating
income was primarily due to reduced transaction volumes for securities
processing services and a litigation reserve of $7.8 million. The litigation
reserve was recorded as a result of an unfavorable arbitration award relating to
actions that occurred at Hanifen, Imhoff Holdings, Inc. prior to being acquired
by the Company in 1997.
7
Liquidity and Capital Resources
The following table summarizes the Company's primary sources (uses) of funds for
the three months ended March 31, 2001 and 2000:
2001 2000
--------------------------------
(In thousands)
Cash provided by operating activities before changes
in securities processing receivables and payables - net $72,596 $ 74,113
Securities processing receivables and payables - net (3,167) (223,273)
--------------------------------
Cash provided by (used in) operating activities 69,429 (149,160)
(Decrease) increase in short-term borrowings (6,725) 214,671
Proceeds from (repayments) of long-term borrowings - net 27,604 (39,463)
--------------------------------
TOTAL $90,308 $ 26,048
================================
Long-term obligations amounted to $362.6 million at March 31, 2001 and included
$273.4 million advanced under an aggregate of $575.0 million in revolving credit
facilities. The Company has used a significant portion of its cash flow from
operations for acquisitions and capital expenditures with any remainder used to
reduce long-term debt. The Company believes that its cash flow from operations
together with other available sources of funds will be adequate to meet its
funding requirements. In the event that the Company makes significant future
acquisitions, however, it may raise funds through additional borrowings or
issuances of securities.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, services
and related products, prices and other factors discussed in the Company's prior
filings with the Securities and Exchange Commission. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate.
Therefore, there can be no assurance that the forward-looking statements
included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
8
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In connection with an acquisition consummated on January 2, 2001, the Company
issued approximately 220,000 unregistered shares of its common stock to two
individuals. The Company relied upon the exemption provided in Section 4(2) of
the Securities Act of 1933 and Rule 505 of Regulation D, based upon the number
of recipients of the shares, their positions and the aggregate value of the
transaction. No underwriter was involved in the transaction and no commission
was paid.
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
The Company's quantitative and qualitative disclosures about market risk are
incorporated by reference in Item 7A of the Company's Annual Report on Form 10-K
for the year ended December 31, 2000 and have not materially changed since that
report was filed.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders held on March 29, 2001, the
Company's Shareholders approved the following matters:
For Withheld
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1. ELECTION OF TWO DIRECTORS TO SERVE
FOR A THREE-YEAR TERM EXPIRING IN 2004:
Kenneth R. Jensen 110,864,351 568,592
Thekla R. Shackelford 111,836,432 396,511
The other directors of the Company whose terms in office continued after the
2001 Annual Meeting of Shareholders are as follows: terms expiring at the 2002
Annual Meeting - Donald F. Dillon, Gerald J. Levy and Leslie M. Muma; and terms
expiring at the 2003 Annual Meeting - George D. Dalton, Daniel P. Kearney and L.
William Seidman.
For Against Abstain Non-Vote
----------- ------------- ----------- --------------
2. APPROVAL OF THE FISERV, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN 108,750,138 2,293,040 389,765 -
3. REAPPOINTMENT OF DELOITTE & TOUCHE LLP
AS INDEPENDENT AUDITORS FOR 2001 107,725,462 3,640,674 66,807 -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
No exhibits are filed as part of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2001.
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fiserv, Inc.
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(Registrant)
Date April 23, 2001 by /s/ Kenneth R. Jensen
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KENNETH R. JENSEN
Senior Executive Vice President, Chief
Financial Officer, Treasurer and Assistant
Secretary
10