EXHIBIT 13 2001 ANNUAL REPORT FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) Years ended December 31, 2001 2000 1999 ------------------------------------- REVENUES $1,890,467 $1,653,606 $1,407,545 ------------------------------------- COST OF REVENUES: Salaries, commissions and payroll related costs 921,779 792,799 677,226 Data processing expenses, rentals and telecommunication costs 126,360 115,029 111,163 Other operating expenses 377,570 316,638 272,616 Depreciation and amortization of property and equipment 76,701 70,147 63,713 Amortization of intangible assets 35,532 42,812 22,600 Amortization (capitalization) of internally generated computer software-net (1,172) 1,875 7,142 ------------------------------------- TOTAL COST OF REVENUES 1,536,770 1,339,300 1,154,460 ------------------------------------- OPERATING INCOME 353,697 314,306 253,085 Interest expense - net (12,073) (22,089) (19,410) Realized gain from sale of investment 5,404 7,818 - ------------------------------------- INCOME BEFORE INCOME TAXES 347,028 300,035 233,675 Income tax provision 138,811 123,014 95,807 ------------------------------------- NET INCOME $ 208,217 $ 177,021 $ 137,868 ===================================== NET INCOME PER SHARE: Basic $ 1.11 $ 0.96 $ 0.75 ===================================== Diluted $ 1.09 $ 0.93 $ 0.73 ===================================== SHARES USED IN COMPUTING NET INCOME PER SHARE: Basic 186,929 184,788 184,714 ===================================== Diluted 191,584 189,804 190,018 =====================================
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, 2001 2000 ------------- ----------- ASSETS Cash and cash equivalents $136,088 $98,856 Accounts receivable-net 311,217 265,640 Securities processing receivables 1,427,051 2,193,291 Prepaid expenses and other assets 108,003 91,077 Investments 1,885,063 1,796,899 Property and equipment-net 247,748 205,555 Internally generated computer software-net 97,250 88,263 Intangible assets-net 1,109,822 846,739 ------------- ----------- TOTAL $5,322,242 $5,586,320 ============= =========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $83,303 $80,633 Securities processing payables 1,289,479 1,977,323 Short-term borrowings 112,800 19,725 Accrued expenses 241,904 182,090 Accrued income taxes 15,373 22,207 Deferred revenues 171,101 156,668 Customer retirement account deposits 1,420,956 1,525,652 Deferred income taxes 39,407 34,992 Long-term debt 343,093 334,958 ------------- ----------- TOTAL LIABILITIES 3,717,416 4,334,248 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock issued, 190,281,000 and 188,078,000 shares, respectively 1,903 1,881 Additional paid-in capital 564,959 454,817 Accumulated other comprehensive income 76,216 78,869 Accumulated earnings 961,748 753,531 Treasury stock, at cost, 2,372,900 shares in 2000 - (37,026) ------------- ----------- TOTAL SHAREHOLDERS' EQUITY 1,604,826 1,252,072 ------------- ----------- TOTAL $5,322,242 $5,586,320 ============= =========== See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Years ended December 31,
2001 2000 ------------------ -------------- SHARES ISSUED-300,000 AUTHORIZED: Balance at beginning of year 125,388 125,388 Shares issued under stock plans-net 248 - Shares issued for acquired companies 1,955 - Three-for-two stock split 62,690 - ----------------- -------------- Balance at end of year 190,281 125,388 ================= ============== COMMON STOCK-PAR VALUE $0.01 PER SHARE: Balance at beginning of year $1,254 $1,254 Shares issued under stock plans-net 2 - Shares issued for acquired companies 20 - Three-for-two stock split 627 - ----------------- -------------- Balance at end of year 1,903 1,254 ----------------- -------------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year 455,444 458,550 Shares issued under stock plans-net of income tax benefit 9,442 (3,106) Shares issued for acquired companies 100,700 - Three-for-two stock split (627) - ----------------- -------------- Balance at end of year 564,959 455,444 ----------------- -------------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of year 78,869 125,026 Unrealized gains (losses) on investments-net of tax 9,710 $ 9,710 (39,765) $(39,765) Reclassification adjustment for realized gains included in net income (3,513) (3,513) (5,082) (5,082) Fair market value adjustment on derivatives-net of tax (5,272) (5,272) - - Foreign currency translation adjustment (881) (881) (1,310) (1,310) Other (2,697) - ----------------- -------------- 76,216 78,869 ----------------- -------------- ACCUMULATED EARNINGS: Balance at beginning of year 753,531 576,510 Net income 208,217 208,217 177,021 177,021 ---------------- ------------- -------------- --------------- 961,748 753,531 Balance at end of year ---------------- -------------- TREASURY STOCK, AT COST: Balance at beginning of year (37,026) (70,324) Purchase of treasury stock - (9,884) Shares issued under stock plans-net 20,655 43,182 Shares issued for acquired companies 16,371 - ----------------- -------------- Balance at end of year - (37,026) ----------------- -------------- TOTAL COMPREHENSIVE INCOME $208,261 $130,864 ============== =============== TOTAL SHAREHOLDERS' EQUITY $1,604,826 $1,252,072 ================= ============== (In thousands) Years ended December 31, 1999 ---------- SHARES ISSUED-300,000 AUTHORIZED: Balance at beginning of year 83,253 Shares issued under stock plans-net 394 Shares issued for acquired companies - Three-for-two stock split 41,741 -------------- Balance at end of year 125,388 ============== COMMON STOCK-PAR VALUE $0.01 PER SHARE: Balance at beginning of year $833 Shares issued under stock plans-net 4 Shares issued for acquired companies - Three-for-two stock split 417 -------------- Balance at end of year 1,254 -------------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year 448,877 Shares issued under stock plans-net of income tax benefit 10,090 Shares issued for acquired companies - Three-for-two stock split (417) -------------- Balance at end of year 458,550 -------------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of year 39,875 Unrealized gains (losses) on investments-net of tax 85,496 $85,496 Reclassification adjustment for realized gains included in net income - - Fair market value adjustment on derivatives-net of tax - - Foreign currency translation adjustment (345) (345) Other - -------------- Balance at end of year 125,026 -------------- ACCUMULATED EARNINGS: Balance at beginning of year 438,642 Net income 137,868 137,868 --------------- ----------- Balance at end of year 576,510 -------------- TREASURY STOCK, AT COST: Balance at beginning of year (42,430) Purchase of treasury stock (28,713) Shares issued under stock plans-net 819 Shares issued for acquired companies - -------------- Balance at end of year (70,324) -------------- TOTAL COMPREHENSIVE INCOME $223,019 ============ TOTAL SHAREHOLDERS' EQUITY $1,091,016 ==============
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years ended December 31, 2001 2000 1999 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 208,217 $ 177,021 $ 137,868 Adjustments to reconcile net income to net cash provided by operating activities: Realized gain from sale of investment (5,404) (7,818) - Deferred income taxes 11,700 4,813 14,183 Depreciation and amortization of property and equipment 76,701 70,147 63,713 Amortization of intangible assets 35,532 42,812 22,600 Amortization of internally generated computer software 35,463 35,883 33,194 ----------------------------------- 362,209 322,858 271,558 Changes in assets and liabilities-net of effects from acquisitions of businesses: Accounts receivable (1,656) (21,153) 18,853 Prepaid expenses and other assets (10,694) (179) (3,299) Accounts payable and accrued expenses (7,669) 9,706 14,394 Deferred revenues 6,422 24,844 17,210 Accrued income taxes 15,127 32,674 (1) Securities processing receivables and payables - net 78,396 215,718 (140,878) ----------------------------------- Net cash provided by operating activities 442,135 584,468 177,837 ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (67,974) (72,979) (69,697) Capitalization of internally generated computer software (36,635) (34,008) (26,052) Payment for acquisitions of businesses- net of cash acquired (224,842) (88,764) (210,587) Investments (72,571) 136,726 (209,011) ----------------------------------- Net cash used in investing activities (402,022) (59,025) (515,347) ----------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayments of) short-term borrowings-net 93,075 (214,625) 119,226 Proceeds from long-term debt 1,800 5,004 103,523 Repayments of long-term debt (8,113) (143,899) (52,790) Issuance of common stock 15,053 20,576 5,913 Purchases of treasury stock - (9,884) (28,713) Customer retirement account deposits (104,696) (164,313) 199,347 ----------------------------------- Net cash (used in) provided by financing activities (2,881) (507,141) 346,506 ----------------------------------- Change in cash and cash equivalents 37,232 18,302 8,996 Beginning balance 98,856 80,554 71,558 ----------------------------------- Ending balance $ 136,088 $ 98,856 $ 80,554 ===================================
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2001, 2000 and 1999 NOTE 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 prior periods have been reclassified to conform to the 2001 presentation. 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 fair values of cash equivalents, accounts receivable, accounts payable, securities processing receivables and payables, customer retirement account deposits, short-term borrowings and accrued expenses approximate the carrying value due to the short period of time to maturity. The fair value of investments is determined based on quoted market prices. The fair value of long-term borrowings is estimated using discounted cash flows based on the Company's current incremental borrowing rates and the fair value of derivative instruments is determined based on dealer quotes (see Note 3). DERIVATIVE INSTRUMENTS The Company uses interest rate swaps to hedge its exposure to interest rate changes. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," 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 No. 133 on January 1, 2001, did not have a significant effect on the consolidated financial statements. The Company's accounting method for derivative financial instruments is based upon the designation of such instruments as hedges under accounting principles generally accepted in the United States of America. It is the policy of the Company to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes. REVENUE RECOGNITION Revenues from the sale of data processing services, plastic card services, document solutions and administration fees on trust accounts are recognized as the related services are provided or when the product is shipped. Revenues from the sale of securities processing services are recognized as securities transactions are processed on a trade-date basis. Revenues from securities processing and trust services include net investment income of $101,610,000, $124,338,000 and $88,458,000, net of direct credits to customer accounts of $45,154,000, $94,133,000 and $63,519,000 in 2001, 2000 and 1999, respectively. Revenues from software license fees are recognized when written contracts are signed, delivery of the product has occurred, the fee is fixed or determinable and collection is probable. Maintenance fee revenues are recognized ratably over the term of the related support period, generally 12 months. Consulting revenues are recognized as the related services are provided. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and investments with original maturities of 90 days or less. 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) 2001 2000 ----------------------- RECEIVABLES: Securities failed to deliver $ 39,611 $ 17,974 Securities borrowed 706,918 1,101,261 Receivables from customers 649,252 1,036,114 Other 31,270 37,942 ----------------------- TOTAL $1,427,051 $2,193,291 ======================= PAYABLES: Securities failed to receive $ 50,563 $ 19,558 Securities loaned 797,619 1,405,107 Payables to customers 354,515 462,485 Other 86,782 90,173 ----------------------- TOTAL $1,289,479 $1,977,323 ======================== Securities failed to deliver and failed to receive represent the contract value of securities that have not been delivered or received as of the settlement date. 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. 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 $1,420,956,000 and $1,525,652,000 as of December 31, 2001 and 2000, respectively. Trust account investments in government agency and certain fixed income obligations have an average duration of approximately two years and three months at December 31, 2001. 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 $142,224,000 and $134,270,000 as of December 31, 2001 and 2000, respectively. Realized gains or losses are computed based on specific identification of the equity investments sold. The following summarizes the Company's investments at December 31:
2001 2000 ------------------------------ ------------------------ Carrying Estimated Carrying Estimated (In thousands) Value Fair Value Value Fair Value ------------------------------ ------------------------ U.S. Government and government agency obligations $ 986,531 $ 998,026 $ 737,291 $ 741,699 Other fixed income obligations 600,156 613,621 760,824 766,278 ------------------------------ ------------------------ Total held to maturity investments 1,586,687 1,611,647 1,498,115 1,507,977 Available for sale equity investments 145,417 145,417 137,100 137,100 Money market mutual funds 115,901 115,901 142,467 142,467 Other investments 37,058 37,058 19,217 19,217 ------------------------------ ------------------------ TOTAL $1,885,063 $1,910,023 $1,796,899 $1,806,761 ============================== ========================
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) 2001 2000 ------------------------------- Data processing equipment $279,714 $232,597 Purchased software 113,205 98,033 Buildings and leasehold improvements 105,416 89,799 Furniture and equipment 134,494 111,615 ------------------------------- 632,829 532,044 Less accumulated depreciation and amortization 385,081 326,489 ------------------------------- TOTAL $247,748 $205,555 =============================== 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. INTANGIBLE ASSETS Intangible assets consist of the following at December 31: (In thousands) 2001 2000 --------------------------------------- Goodwill $1,146,112 $843,658 Other 156,825 151,299 --------------------------------------- 1,302,937 994,957 Less accumulated amortization 193,115 148,218 --------------------------------------- TOTAL $1,109,822 $846,739 ======================================= 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 prior to the adoption of recent accounting pronouncements. 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. This charge was recorded in the Financial institution outsourcing, systems and services segment as additional amortization of intangible assets. SHORT-TERM BORROWINGS The Company's securities and trust processing subsidiaries had short-term loans payable of $112,800,000 and $19,725,000 as of December 31, 2001 and 2000, respectively, which bear interest at an average rate of 1.8% as of December 31, 2001, and were collateralized by investments and customers' margin account securities. 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. 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. Net income per share for prior years has been restated to reflect a three-for-two stock split effective in August 2001. SHAREHOLDER RIGHTS PLAN The Company has a shareholder rights plan. Under this plan, each shareholder holds one preferred stock purchase right for each outstanding share of the Company common stock held. The stock purchase rights are not exercisable until certain events occur. SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) 2001 2000 1999 ------------------------------------------------- Interest paid $ 19,469 $ 29,346 $ 26,075 Income taxes paid 117,443 87,633 81,499 Liabilities assumed in acquisitions of businesses 68,833 401,129 246,120
RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. The Company will adopt SFAS No. 142 on January 1, 2002. The Company anticipates that the effect of adopting SFAS No. 142 will increase diluted net income per share by approximately $0.09 in 2002, due to eliminating the annual amortization expense and related tax effects associated with existing goodwill and intangible assets with indefinite lives. The Company has not yet completed its assessment of the additional effects of adopting SFAS No. 142, but anticipates that there will not be a material impact on the consolidated financial statements, other than the elimination of amortization expense and related tax effects discussed above. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The Company will adopt SFAS No. 144 on January 1, 2002. The Company anticipates that the adoption of this statement will not have a material impact on the consolidated financial statements. NOTE 2. Acquisitions During 2001, 2000 and 1999 the Company completed the following acquisitions:
Month Company Acquired Service Consideration - ----------------------------------------------------------------------------------------------------------- 2001: Benefit Planners Jan. Insurance data processing Cash and stock for stock Marshall & Ilsley IP services Feb. Item processing Cash for assets Facilities and Services Corp. Mar. Insurance software systems Cash for stock Remarketing Services of America, Inc. Mar. Automobile leasing services Cash for stock EPSIIA Corporation July Data processing Cash for stock Catapult Technology Limited July Software and services Cash for stock FHLB of Pittsburgh IP services Sept. Item processing Cash for assets NCR bank processing operations Nov. Data and item processing Cash for assets NCSI Nov. Insurance data processing Cash for stock Integrated Loan Services Nov. Loan services Cash for assets Trewit Inc. Nov. Insurance data processing Cash and stock for stock FACT 400 credit card solution Nov. Software and services Cash for assets 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. Sept. 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 June Securities services Cash for stock Alliance ADS June Imaging technology Cash for assets Envision Financial Technologies, Inc. Aug. Data processing Cash for stock Pinehurst Analytics, Inc. Oct. PC-based financial systems Cash for assets Humanic Design Corporation Dec. Software and services Cash for stock
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 $224,842,000, $88,764,000 and $210,587,000 in 2001, 2000 and 1999, respectively, subject to certain adjustments and contingent payments. The Company may be required to pay additional cash and common stock consideration for the 2001 acquisitions, if certain of the acquired entities achieve specific escalating operating income targets during the next four years, up to a maximum cumulative payment of $190,000,000. Any additional consideration will be treated as additional purchase price. In addition to cash consideration, the Company also issued in conjunction with two of the acquisitions in 2001 approximately 3,050,000 unregistered shares of its common stock, valued at approximately $117,000,000. The Company has made preliminary purchase price allocations for its 2001 acquisitions resulting in the recording of goodwill of approximately $300,000,000, however, these initial estimates need to be refined. The Company anticipates finalizing the purchase price allocations within one year of each acquisition. If the acquisitions completed in 2001 had been completed on January 1, 2000, the Company's unaudited pro forma revenues would have approximated $2,177,000,000 and $1,973,000,000 in 2001 and 2000, respectively. The Company's unaudited pro forma net income and net income per share - diluted would not have been significantly different from the amounts originally reported. NOTE 3. Long-term debt The Company has available a $497,500,000 unsecured line of credit and commercial paper facility with a group of banks, of which $214,000,000 was in use at December 31, 2001. The credit facilities, which expire in May 2004, are comprised of a $250,000,000 five-year revolving credit facility and a $247,500,000 364-day revolving credit facility which is renewable annually through 2004. There were no significant commitment fees or compensating balance requirements under these facilities. The loan agreements covering the Company's long-term borrowings contain certain restrictive covenants with which the Company was in compliance at December 31, 2001. As of December 31, 2001, 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. As of December 31, 2001, the Company has available $100,000,000 in additional unsecured lines of credit, of which $52,000,000 was in use at an average variable rate of 2.3%. The carrying value and estimated fair values of the Company's long-term debt and interest rate swap agreements at December 31, 2001 and 2000, are as follows:
2001 2000 ----------------------------------------------------------------------- Carrying Estimated Carrying Estimated (In thousands) Value Fair Value Value Fair Value 8.00% senior notes payable, due 2002-2005 $ 51,428 $ 56,871 $ 64,286 $ 65,692 Bank notes and commercial paper, at short-term rates 291,665 291,665 270,672 270,672 ----------------------------------------------------------------------- Long-term debt $343,093 $348,536 $334,958 $336,364 ======================================================================= Interest rate swap agreements $ 13,062 $ 13,062 - $ 4,493 =======================================================================
Annual principal payments required under the terms of the long-term debt agreements were as follows at December 31, 2001: (In thousands) Years ending December 31, 2002 $ 48,409 2003 15,660 2004 265,169 2005 13,855 ----------- TOTAL $343,093 =========== Interest expense with respect to long-term debt was approximately $20,159,000, $28,823,000 and $25,111,000 in 2001, 2000 and 1999, respectively. NOTE 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, 2001, is as follows:
(In thousands) 2001 2000 1999 ------------------------------------------------------------- Statutory federal tax rate 35% 35% 35% Tax computed at statutory rate $121,460 $105,012 $81,786 State income taxes net of federal effect 12,033 11,156 9,375 Non-deductible amortization 4,219 3,887 3,161 Other 1,099 2,959 1,485 ------------------------------------------------------------- TOTAL $138,811 $123,014 $95,807 ============================================================= The provision for income taxes consisted of the following: (In thousands) 2001 2000 1999 ------------------------------------------------------------- Current: Federal $108,993 $101,906 $69,250 State 18,118 16,295 12,374 ------------------------------------------------------------- 127,111 118,201 81,624 ------------------------------------------------------------- Deferred: Federal 10,752 4,425 11,833 State 948 388 2,350 ------------------------------------------------------------- 11,700 4,813 14,183 ------------------------------------------------------------- TOTAL $138,811 $123,014 $95,807 =============================================================
Significant components of the Company's net deferred tax (liability) asset consisted of the following at December 31:
(In thousands) 2001 2000 -------------------------------------- Purchased incomplete software technology $ 37,477 $ 43,051 Accrued expenses not currently deductible 33,671 27,380 Deferred revenues 11,916 15,494 Internally generated capitalized software (31,641) (30,373) Excess of tax over book depreciation and amortization (29,739) (25,413) Unrealized gains on investments (55,467) (53,722) Other (5,624) (11,409) -------------------------------------- TOTAL $(39,407) ($34,992) ======================================
Tax benefits associated with the exercise of non-qualified employee stock options were credited directly to additional paid-in capital and amounted to $15,000,000, $19,500,000 and $5,000,000 in 2001, 2000 and 1999, respectively. NOTE 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:
Weighted Number of Average Shares Exercise Price ------------------------------------ Outstanding, December 31, 1998 12,685,310 $ 9.71 Granted 2,302,904 20.63 Forfeited (525,140) 18.28 Exercised (868,647) 8.32 ------------------------------------ Outstanding, December 31, 1999 13,594,427 11.26 Granted 1,791,981 21.48 Forfeited (625,236) 19.18 Exercised (2,303,616) 8.85 ------------------------------------ Outstanding, December 31, 2000 12,457,556 12.76 Granted 2,277,308 36.99 Forfeited (386,366) 18.18 Exercised (1,345,341) 8.68 ------------------------------------ Outstanding, December 31, 2001 13,003,157 $17.18 ====================================
The following summarizes information about the Company's stock options outstanding and exercisable at December 31, 2001:
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 - --------------------------------------------------------------------------------------------------------------------------------- $1.84 - $ 9.04 3,965,650 $ 6.48 2.6 3,965,650 $ 6.48 9.32 - 19.67 3,862,265 14.16 5.7 3,150,325 13.82 20.14 - 40.34 5,175,242 27.63 8.3 1,912,961 24.22 - --------------------------------------------------------------------------------------------------------------------------------- $ 1.84 - $40.34 13,003,157 $17.18 5.8 9,028,936 $12.80 =================================================================================================================================
At December 31, 2001, options to purchase 9,943,900 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, "Accounting for Stock Issued to Employees." 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)
2001 2000 1999 ---------- ----------- ---------- Net income: As reported $208,217 $177,021 $137,868 Pro forma 194,817 167,321 131,868 Net income per share-diluted: As reported $ 1.09 $ 0.93 $ 0.73 Pro forma 1.02 0.88 0.69
The fair value of each stock option granted in 2001, 2000 and 1999 was estimated on the date of grant using the Black-Scholes pricing model with the following weighted average assumptions:
2001 2000 1999 --------- --------- ---------- Expected life (in years) 5.0 5.0 5.0 Risk-free interest rate 4.6% 5.0% 6.0% Volatility 49.8% 48.6% 41.8% Dividend yield 0.0% 0.0% 0.0%
The weighted-average estimated fair value of stock options granted during 2001, 2000 and 1999 was $18.02, $10.72 and $8.79 per share, respectively. 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, 2002, there were 999,600 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 $35,300,000, $30,400,000 and $24,000,000 in 2001, 2000 and 1999, respectively. NOTE 6. Restructuring and Other Charges In the second quarter of 2001, the Company recorded $12,300,000 of pre-tax charges consisting of severance and related termination benefits ($3,800,000), future lease and other contractual obligations ($6,200,000), and the disposal and write-down of assets ($2,300,000). These charges relate to management's plan to improve overall business efficiencies by consolidating the Company's securities processing operations and eliminating duplicate operational functions. As of December 31, 2001, the remaining accrued expenses related to these charges were $6,200,000. NOTE 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, 2001: (In thousands) Years Ending December 31, 2002 $ 77,087 2003 66,838 2004 55,208 2005 41,763 2006 30,323 Thereafter 68,135 -------------- TOTAL $339,354 ============== Rent expense applicable to all operating leases was approximately $87,100,000, $83,100,000 and $78,600,000 in 2001, 2000 and 1999, respectively. OTHER COMMITMENTS AND CONTINGENCIES The Company's trust administration subsidiaries had fiduciary responsibility for the administration of approximately $29 billion in trust funds as of December 31, 2001. 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, 2001, the aggregate net capital of such subsidiaries was $143,825,000, exceeding the net capital requirement by $128,944,000. 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. NOTE 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. The plastic card and document solutions businesses provide plastic card issuance services, card design, personalization and mailing, along with electronic document delivery and print-related solutions. Summarized financial information by business segment for each of the three years in the period ended December 31, 2001, is as follows:
(In thousands) 2001 2000 1999 -------------------------------------- Revenues: Financial institution outsourcing, systems and services $ 1,544,721 $ 1,243,509 $ 1,066,514 Securities processing and trust services 273,504 341,155 276,215 All other and corporate 72,242 68,942 64,816 -------------------------------------- Total $ 1,890,467 $ 1,653,606 $ 1,407,545 -------------------------------------- Operating income: Financial institution outsourcing, systems and services $ 321,193 $ 218,935 $ 175,194 Securities processing and trust services 35,673 97,125 80,125 All other and corporate (3,169) (1,754) (2,234) -------------------------------------- Total $ 353,697 $ 314,306 $ 253,085 -------------------------------------- Identifiable assets: Financial institution outsourcing, systems and services $ 1,648,196 $ 1,185,819 $ 1,169,666 Securities processing and trust services 3,417,789 4,160,939 3,832,868 All other and corporate 256,257 239,562 305,176 -------------------------------------- Total $ 5,322,242 $ 5,586,320 $ 5,307,710 -------------------------------------- Depreciation expense: Financial institution outsourcing, systems and services $ 58,046 $ 52,191 $ 48,407 Securities processing and trust services 12,659 11,395 9,510 All other and corporate 5,996 6,561 5,796 -------------------------------------- Total $ 76,701 $ 70,147 $ 63,713 -------------------------------------- Amortization of intangible assets: Financial institution outsourcing, systems and services $ 23,127 $ 32,847 $ 18,843 Securities processing and trust services 11,538 9,104 3,040 All other and corporate 867 861 717 -------------------------------------- Total $ 35,532 $ 42,812 $ 22,600 -------------------------------------- Capital expenditures: Financial institution outsourcing, systems and services $ 55,648 $ 54,750 $ 52,724 Securities processing and trust services 8,234 12,836 12,119 All other and corporate 4,092 5,393 4,854 -------------------------------------- Total $67,974 $ 72,979 $ 69,697 ======================================
The revenues of each segment were principally domestic, and no single customer accounted for 10% or more of consolidated revenues during the years ended December 31, 2001, 2000 and 1999. 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) 2001 vs. 2000 vs. 2001 2000 1999 2000 1999 ----------------------------------- --------------------------- Revenues 100.0% 100.0% 100.0% 14% 17% ----------------------------------- Cost of revenues: Salaries, commissions and payroll related costs 48.8 48.0 48.1 16 17 Data processing expenses, rentals and telecommunication costs 6.7 7.0 7.9 10 3 Other operating expenses 20.0 19.1 19.4 19 16 Depreciation and amortization of property and equipment 4.0 4.2 4.5 9 10 Amortization of intangible assets 1.9 2.6 1.6 (17) 89 Amortization (capitalization) of internally generated computer software-net (0.1) 0.1 0.5 ----------------------------------- Total cost of revenues 81.3 81.0 82.0 15 16 ----------------------------------- Operating income 18.7% 19.0% 18.0% 13% 24% =================================== Income before income taxes 18.4% 18.1% 16.6% 16% 28% =================================== Net income 11.0% 10.7% 9.8% 18% 28% ===================================
Revenues increased $236,861,000 in 2001 and $246,061,000 in 2000. In 2001 and 2000, approximately 50% and 60% of the revenue growth, respectively, was derived from sales to new clients, cross-sales to existing clients, increases in transaction volumes from existing clients and price increases, with the remaining revenue growth from acquired businesses. Revenue growth in 2001 was positively impacted by strong growth of $301,212,000 compared to 2000 in the Financial institution outsourcing, systems and services segment, which is the Company's main operating segment. In addition, revenue growth was negatively impacted by the Securities processing and trust services segment, primarily due to significantly lower transaction volumes due to overall weakness in the United States retail financial markets in 2001. Revenues for the Securities processing and trust services segment decreased $79,651,000 in 2001 compared to 2000, excluding a $12,000,000 termination fee received in 2001 from a broker-dealer customer acquired by a third party. Cost of revenues increased $197,470,000 in 2001 and $184,840,000 in 2000. 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. In 2001, the Company recorded charges of $12,300,000, as explained in Note 6 of the accompanying consolidated financial statements. Amortization of intangible assets decreased $7,280,000 in 2001 and increased $20,212,000 in 2000. The decrease in amortization in 2001 compared to 2000 was due primarily to an impairment charge recorded in the second quarter of 2000, offset by amortization associated with acquisitions completed prior to June 30, 2001. The increase in amortization in 2000 compared to 1999 was due to amortization associated with acquisitions and the goodwill impairment charge. Operating income increased $39,391,000 in 2001 and $61,221,000 in 2000. The Company's operating income and margins were negatively impacted in 2001 primarily due to reduced operating income and margins in the Company's Securities processing and trust services segment. The effective income tax rate was 40% in 2001 and 41% in 2000 and 1999. The effective income tax rate for 2002 is expected to decline from 40% to 39% due to the impact of adopting SFAS No. 142. Net income per share - diluted (excluding realized gain from sale of investment) was $1.07 in 2001 compared to $0.91 in 2000. 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) 2001 2000 1999 -------------- -------------- --------------- Revenues: Financial institution outsourcing, systems and services $1,544,721 $1,243,509 $1,066,514 Securities processing and trust services 273,504 341,155 276,215 All other and corporate 72,242 68,942 64,816 -------------- -------------- --------------- Total $1,890,467 $1,653,606 $1,407,545 -------------- -------------- --------------- Operating income: Financial institution outsourcing, systems and services $321,193 $218,935 $175,194 Securities processing and trust services 35,673 97,125 80,125 All other and corporate (3,169) (1,754) (2,234) -------------- -------------- --------------- Total $353,697 $314,306 $253,085 -------------- -------------- ---------------
Revenues in the Financial institution outsourcing, systems and services business segment increased $301,212,000 in 2001 and $176,995,000 in 2000. Revenue growth in 2001 and 2000 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 $102,258,000 and $43,741,000 in 2001 and 2000, respectively. Operating income and margin increases in 2001 and 2000 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 decreased $67,651,000 in 2001 and increased $64,940,000 in 2000. The revenue decrease in 2001 compared to 2000 was primarily related to significantly lower transaction volumes in the Securities processing and trust services segment due to overall weakness in the United States retail financial markets in 2001, partially offset by a termination fee of $12,000,000 received in the second quarter of 2001 from a broker-dealer customer acquired by a third party. Revenue growth in 2000 compared to 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 decreased $61,452,000 in 2001 and increased $17,000,000 in 2000. In the second quarter of 2001, the segment recorded charges of $12,300,000, as previously explained. Operating income and margins were lower in 2001 when compared to 2000 due primarily to reduced transaction volumes for securities processing services due to overall weakness in the United States retail financial markets in 2001. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company's primary sources (uses) of funds during the years ended December 31:
(In thousands) 2001 2000 1999 --------------- ------------- ------------ Cash provided by operating activities before changes in securities processing receivables and payables-net $ 363,739 $ 368,750 $ 318,715 Securities processing receivables and payables-net 78,396 215,718 (140,878) --------------- ------------- ------------ Cash provided by operating activities 442,135 584,468 177,837 Increase (decrease) in net borrowings 86,762 (353,520) 169,959 --------------- ------------- ------------ TOTAL $ 528,897 $ 230,948 $ 347,796 =============== ============= ============
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's strategy includes the acquisition of complementary businesses financed by a combination of internally generated funds and borrowings from the Company's credit facilities. 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 the issuances of securities. The Company's policy is to retain earnings to support future business opportunities, rather than to pay dividends. During 1999, the Company's Board of Directors authorized the repurchase of up to 4,875,000 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, 2001, approximately 2,771,000 shares remained available under the repurchase authorization. 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 and market price 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. Substantially all of the investments at December 31, 2001, have contractual maturities of one year or less except for government agency and certain fixed income mortgage backed obligations, which have an average duration of approximately two years and three months. The Company manages its debt structure and interest rate risk through the use of fixed and floating-rate debt and through the use of interest rate swaps. The Company uses interest rate swaps to partially hedge its exposure to interest rate changes, and to control 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. Based on the controls in place, management believes the risks associated with these financial instruments at December 31, 2001, 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, 2001 2000 1999 1998 1997 ------------------------------------------------------------ Revenues $1,890,467 $1,653,606 $1,407,545 $1,233,670 $974,432 Income before income taxes 347,028 300,035 233,675 193,684 153,899 Income tax provision 138,811 123,014 95,807 79,410 63,099 Net income 208,217 177,021 137,868 114,274 90,800 Net income per share: Basic $1.11 $0.96 $0.75 $0.62 $0.52 ------------------------------------------------------------ Diluted $1.09 $0.93 $0.73 $0.60 $0.50 ------------------------------------------------------------ Diluted (excluding realized gain from sale of investment) $1.07 $0.91 $0.73 $0.60 $0.50 ------------------------------------------------------------ Total assets $5,322,242 $5,586,320 $5,307,710 $3,958,338 $3,636,491 Long-term debt 343,093 334,958 472,824 389,622 252,031 Shareholders' equity 1,604,826 1,252,072 1,091,016 885,797 769,255
The above information has been restated to recognize three-for-two stock splits effective in August 2001, April 1999 and May 1998. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(In thousands, except per share data) Quarters ------------------------------------------ 2001 First Second Third Fourth Total ----------------------------------------------------- Revenues $453,912 $472,646 $467,173 $496,736 $1,890,467 Cost of revenues 367,307 384,267 377,958 407,238 1,536,770 ----------------------------------------------------- Operating income 86,605 88,379 89,215 89,498 353,697 Interest expense - net (3,817) (3,237) (2,501) (2,518) (12,073) Realized gain from sale of investment 1,821 1,506 1,000 1,077 5,404 ----------------------------------------------------- Income before income taxes 84,609 86,648 87,714 88,057 347,028 Income tax provision 33,844 34,659 35,085 35,223 138,811 ----------------------------------------------------- Net income $ 50,765 $51,989 $52,629 $52,834 $208,217 ----------------------------------------------------- Net income per share: Basic $0.27 $0.28 $0.28 $0.28 $1.11 ===================================================== Diluted $0.27 $0.27 $0.27 $0.27 $1.09 ===================================================== Diluted (excluding realized gain from sale of investment) $0.26 $0.27 $0.27 $0.27 $1.07 ===================================================== 2000 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 $0.23 $0.24 $0.24 $0.24 $0.96 ====================================================== Diluted $0.23 $0.24 $0.23 $0.23 $0.93 ====================================================== Diluted (excluding realized gain from sale of investment) $0.23 $0.23 $0.22 $0.22 $0.91 ======================================================
MARKET PRICE INFORMATION The following information relates to the closing price of the Company's $.01 par value common stock, which is traded on the Nasdaq Stock Market under the symbol FISV. Information has been adjusted to recognize the three-for-two stock split effective August 2001. 2001 2000 - ------------------------------------------------------------------ Quarter Ended High Low High Low - ------------------------------------------------------------------ March 31 $38.00 $29.58 $25.67 $16.21 June 30 42.65 30.29 33.58 22.46 September 30 42.12 32.72 42.75 28.46 December 31 44.39 31.93 41.75 28.96 At December 31, 2001, the Company's common stock was held by 2,842 shareholders of record. It is estimated that an additional 40,000 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, 2002, was $43.30 per share. MANAGEMENT'S STATEMENT OF RESPONSIBILITY The management of Fiserv, Inc. assumes responsibility for the integrity and objectivity of the information appearing in the 2001 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, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP - ------------------------- Deloitte & Touche LLP Milwaukee, Wisconsin January 25, 2002