SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1997 Commission file number 0-14948
FISERV, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1506125
--------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
255 FISERV DRIVE, BROOKFIELD, WI. 53045
-------------------------------- --------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (414) 879 5000
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 ( )
At June 30, 1997, 52,293,258 shares of common stock of the Registrant were
outstanding.
Exhibit Index appears at page 9.
1
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the Three and Six-Month Periods Ended June 30,1997 and 1996
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues ............................. $ 238,386 $ 217,516 $ 466,705 $ 432,575
-----------------------------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs ....................... 113,404 96,712 219,162 193,213
Data processing expenses, rentals
and telecommunication costs ......... 24,439 26,271 49,205 52,150
Other operating expenses ............. 47,137 39,904 88,448 78,499
Depreciation and amortization of
property and equipment .............. 12,187 10,743 23,750 21,471
Amortization of intangible assets .... 3,545 5,342 7,190 10,761
Capitalization of internally generated
computer software-net ............... (964) (687) (1,485) (1,483)
-----------------------------------------------
Total cost of revenues ............... 199,748 178,285 386,270 354,611
-----------------------------------------------
Operating income ..................... 38,638 39,231 80,435 77,964
Interest expense - net ............... 3,341 5,076 6,828 10,731
-----------------------------------------------
Income before income taxes ........... 35,297 34,155 73,607 67,233
Income tax provision ................. 14,472 13,957 30,179 27,402
===============================================
Net income ........................... $ 20,825 $ 20,198 $ 43,428 $ 39,831
===============================================
Net income per common and
common equivalent share ............. $ 0.39 $ 0.39 $ 0.82 $ 0.77
===============================================
Shares used in computing
net income per share ................ 53,363 51,937 52,867 51,934
===============================================
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
-----------------------
(In thousands)
ASSETS
Cash and cash equivalents ................ $ 71,763 $ 101,282
Accounts receivable ...................... 177,880 160,747
Securities processing receivables ........ 857,136 729,354
Prepaid expenses and other assets ........ 72,609 64,410
Trust account investments ................ 944,653 970,553
Other investments ........................ 143,891 72,952
Deferred income taxes .................... 31,784 34,144
Property and equipment-net ............... 148,611 148,413
Internally generated computer software-net 72,747 70,487
Identifiable intangible assets relating
to acquisitions, etc.-net ............... 51,251 54,548
Goodwill-net ............................. 288,975 292,089
-----------------------
Total .................................... $2,861,300 $2,698,979
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ......................... $ 51,772 $ 43,486
Securities processing payables ........... 788,457 636,215
Short-term borrowings .................... 20,000 33,200
Accrued expenses ......................... 85,363 80,866
Accrued income taxes ..................... 2,276 9,808
Deferred revenues ........................ 56,401 46,089
Trust account deposits ................... 943,504 970,553
Long-term debt ........................... 253,424 272,864
-----------------------
Total liabilities ........................ 2,201,197 2,093,081
-----------------------
Stockholders' equity:
Common stock outstanding, 52,293,000 and
51,032,000 shares, respectively ........ 523 510
Additional paid-in capital ............... 363,904 352,916
Unrealized gain on investments ........... 18,545 18,621
Accumulated earnings ..................... 277,131 233,851
-----------------------
Total stockholders' equity ............... 660,103 605,898
-----------------------
Total ....................... $2,861,300 $2,698,979
=======================
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six-Month Periods Ended June 30, 1997 and 1996
<CAPTION>
Six Months Ended
June 30,
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 43,428 $ 39,831
Adjustments to reconcile income to net cash provided by
operating activities:
Deferred income taxes ...................................... 2,183 3,214
Depreciation and amortization of property and equipment .... 23,750 21,471
Amortization of intangible assets .......................... 7,190 10,761
Capitalization of internally generated computer software-net (1,485) (1,483)
-----------------------
75,066 73,794
Cash provided (used) by changes in assets and liabilities,
net of effects from acquisitions of businesses:
Accounts receivable ........................................ (4,882) (4,120)
Securities processing receivables .......................... (127,783) (119,980)
Prepaid expenses and other assets .......................... (5,898) 9,098
Accounts payable and accrued expenses ...................... 6,639 (5,271)
Securities processing payables ............................. 152,242 95,533
Deferred revenue ........................................... 7,821 11,684
Income taxes payable ....................................... (7,532) 2,255
-----------------------
Net cash provided by operating activities ................... 95,673 62,993
-----------------------
Cash flows from investing activities:
Capital expenditures ....................................... (19,486) (18,124)
Investments and other assets ............................... (67,550) 16,343
Payment for acquisition of businesses ...................... (10,715) (7,683)
Trust account investments .................................. 25,848 (39,760)
-----------------------
Net cash provided (used) by investing activities ............ (71,903) (49,224)
-----------------------
Cash flows from financing activities:
Borrowings and other long-term obligations-net ............. (32,722) (51,619)
Issuance of common stock ................................... 6,483 3,788
Trust account deposits ..................................... (27,050) 38,765
-----------------------
Net cash provided (used) by financing activities ............ (53,289) (9,066)
-----------------------
Change in cash .............................................. (29,519) 4,703
Beginning balance ........................................... 101,282 76,556
-----------------------
Ending balance .............................................. $ 71,763 $ 81,259
=======================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FISERV, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated balance sheet as of June 30, 1997 and the related consolidated
statements of income and cash flows for the three and six-month periods ended
June 30, 1997 and 1996 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements have
been included. Such adjustments consisted only of normal recurring items.
lnterim results are not necessarily indicative of results for a full year. The
financial statements and notes are presented as permitted by Form 10-Q, and do
not contain certain information included in the annual financial statements and
notes of Fiserv, Inc. and subsidiaries (the Company).
2. Acquisitions
The Company completed the acquisition of BHC Financial, Inc. (BHC) on May 30,
1997. The Company acquired all of the outstanding common stock of BHC in
exchange for 5,683,769 shares of Common Stock of the Company. The transaction is
being accounted for as a pooling of interests and accordingly, the accompanying
financial statements include the accounts of BHC for all periods presented. The
following summary compares restated results of operations for 1997 to results as
originally presented for 1996.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------------------------------------
(In thousands)
Revenues 238,386 196,464 466,705 391,174
------------------------------------------------
Income before taxes 35,297 25,776 73,607 50,626
------------------------------------------------
Net Income 20,825 15,208 43,428 29,869
================================================
Net Income per share 0.39 0.33 0.82 0.65
================================================
Shares used in computing net
income per share 53,363 46,096 52,867 46,008
3. Revenue Recognition
The Company provides item processing services in the Canadian market through a
joint venture with Canadian Imperial Bank of Commerce. Revenues from this
business are recorded on a fee basis. If the gross revenues from this activity
were recognized, the Company's revenues for the second quarter would increase by
approximately $29 million or an additional 13%. Revenues for the first six
months of 1997 would have increased $58 million or an additional 13%.
5
<PAGE>
4. Shares Used in Computing Net Income per Share
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------------------------------
(In thousands)
Weighted average number of common
shares outstanding ..................... 51,854 50,965 51,467 50,961
Shares issuable upon exercise of options
reduced by the number of shares which
could have been purchased with the
proceeds of such exercise .............. 1,509 972 1,400 973
-------------------------------------
Shares used ......... 53,363 51,937 52,867 51,934
=====================================
Income per common and common equivalent share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the periods, after restatement for shares issued in the acquisition of
BHC Financial, Inc. accounted for as a pooling of interests.
5. 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
asset as of June 30, 1997 and December 31, 1996 are as follows:
June 30, December 31,
1997 1996
----------------------
(in thousands)
Allowance for doubtful accounts ........... $ 1,529 $ 1,529
Accrued expenses not currently deductible . 9,975 7,574
Deferred revenue .......................... 8,120 9,815
Other ..................................... 1,341 77
Net operating loss and credit carryforwards 3,408 3,871
Purchased incomplete software technology .. 59,154 61,500
Deferred costs ............................ (4,702) (4,963)
Internally generated capitalized software . (29,826) (28,900)
Excess of tax over book depreciation and
amortization ............................ (4,328) (3,419)
Unrealized gain on investments ............ (12,887) (12,940)
=====================
Total deferred income taxes ............... $ 31,784 $ 34,144
=====================
6. Supplemental Cash Flow Information
Six Months Ended
June 30,
1997 1996
-------------------
(In thousands)
Income taxes paid .................... $35,709 $18,954
Interest paid ........................ 9,531 12,394
Liabilities assumed in acquisitions of
businesses ......................... 8,639 1,236
6
<PAGE>
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. This data has been restated for all periods commencing
prior to April 1, 1997 to give effect to the acquisition of BHC Financial, Inc.
(BHC), accounted for as a pooling of interests.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------------------------------------
(Percent of Revenues)
Revenues ........................ 100.00% 100.00% 100.00% 100.00%
----------------------------------------
Salaries and related costs ...... 47.57 44.46 46.96 44.67
Data processing costs ........... 10.25 12.08 10.54 12.05
Other operating expenses ........ 19.77 18.34 18.95 18.15
Depreciation and amortization ... 5.11 4.94 5.09 4.96
Amortization of intangible assets 1.49 2.46 1.54 2.49
Capitalization of software-net .. (0.40) (0.32) (0.32) (0.34)
---------------------------------------
Total cost of revenues .......... 83.79 81.96 82.76 81.98
---------------------------------------
Operating income ................ 16.21 18.04 17.24 18.02
=======================================
Revenues
- --------
Revenues increased 9.6% from $217.5 million in the second quarter of 1996 to
$238.4 million in the current second quarter and 7.9% from $432.6 million in the
first six months of 1996 to $466.7 million in the comparable current period.
Approximately 30% of the year to date growth resulted from the inclusion of
revenues from the date of purchase of acquired companies and approximately 70%
from increases in revenue from the addition of new clients, growth in the
transaction volume experienced by existing clients and price increases. As
indicated in Note 3, the Company provides item processing services in the
Canadian market through a joint venture with Canadian Imperial Bank of Commerce,
the revenues from which are recorded on a fee basis. If the gross revenues from
this activity were recognized, the Company's revenues for the three months ended
June 30, 1997 would have increased by approximately $50 million or 23%. Revenues
for the first six months of 1997 would have increased by $92 million or 21%.
Cost of Revenues
- ----------------
Cost of revenues increased 12.0% from $178.3 million in the second quarter of
1996 to $199.7 million in the current second quarter, and 8.9% from $354.6
million in the first six months of 1996 to $386.3 million in the first six
months of 1997. The increase in cost of revenues for the six months was
disproportionate to the increase in revenues due to approximately $3.6 million
of severance payments in connection with restructuring of the item processing
contract with Chase Manhattan Bank and merger related expenses of $3.7 million
associated with the acquisition of BHC. Amortization of intangible assets
decreased due to reduced amortization of intangible assets recorded in the
acquisition of Information Technology, Inc.
Operating Income
- ----------------
Operating income decreased 1.5% from $39.2 million in the second quarter of 1996
to $38.6 million in the current second quarter, and increased 3.2% from $78.0
million in the first six months of 1996 to $80.4 million in the first six months
of 1997. As a percentage of revenues, operating margins were lower during the
current second quarter and the first six months of 1997 when compared to the
comparable prior year periods. This decrease resulted primarily from charges
related to one-time merger expenses and reduced impact of termination fees.
Without the merger charges, operating margins would have been 17.5% in the
second quarter and 18.0% for the first six months, approximating prior year
levels.
7
<PAGE>
Interest Expense - Net
- ----------------------
As a result of substantial debt reductions and slightly lower effective rates,
interest expense decreased $1.7 million in the second quarter of 1997 and $3.9
million for the first six months of 1997 when compared to amounts incurred for
the comparable 1996 periods.
Income Tax Provision
- --------------------
Income taxes were computed at 41% in both 1997 and 1996. The 41% rate is
expected to apply throughout the current year.
Net Income
- ----------
Net income for the second quarter, which was reduced by $2.5 million associated
with the acquisition costs of BHC, increased 3% from $20.2 million in 1996 to
$20.8 million in 1997. Net income for the first six months, which was reduced by
$3.1 million for acquisition costs of BHC, increased 9% from $39.8 million in
1996 to $43.4 million in 1997. Net income per share for the second quarter,
after merger related expenses of $.05, was $.39 in 1997 compared to $.39 in
1996. Net income per share for the first six months, after merger related
expenses of $.06, increased $.05 from $.77 in 1996 to $.82 in 1997. Net income
per share increased $.06 and $.17, respectively, in the second quarter and first
six months of 1997 after the charges associated with the acquisition of BHC,
when compared with net income per share as originally presented for the
comparable 1996 periods. The increase in net income per share over 1996 as
originally presented was consistent with management's expectations.
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 1997, cash decreased $29.5 million
comprising primarily $95.7 million net cash provided by operating activities and
$6.5 million from issuance of common stock, which was more than offset by $68.8
million increase in investments, $10.7 million for the acquisition of
businesses, $32.7 million net repayment of debt and $19.5 million for capital
expenditures. Long-term obligations amounted to $253.4 million at June 30, 1997.
The majority of this debt comprises $112.8 million of senior notes due 1997 to
2001 and $113.2 million advanced under a $225 million unsecured line of credit
and commercial paper facility expiring May 17, 2000. A facility fee of .1% to
.2% per annum is required on the entire bank line regardless of usage.
The Company has historically applied a significant portion of its cash flow from
operating activities and proceeds of its common stock offerings and long-term
borrowings to acquisitions. The Company believes that its cash flow from
operating activities together with other available sources of funds will be
adequate to meet its funding requirements. However, in the event that the
Company makes significant future acquisitions, it may raise funds through
additional borrowings or issuance of securities.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits
Index to exhibits
(11) Statement regarding computation of per share earnings (included on
page 6, Part 1).
(b) Reports on Form 8-K
During the quarter ended June 30, 1997, the Registrant filed reports on
Form 8-K and Form 8, dated June 13, 1997 and June 25, 1997,
respectively, regarding the completed acquisition of BHC Financial, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fiserv, Inc.
------------
(Registrant)
Date July 22, 1997 by /S/ EDWARD P. ALBERTS
------------------------
EDWARD P. ALBERTS
Senior Vice President, Finance
and Controller
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June
1997 10-Q and is qualified in its entirety by reference to such information.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 71,763
<SECURITIES> 944,653
<RECEIVABLES> 177,880
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,112,658
<PP&E> 148,611
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,861,300
<CURRENT-LIABILITIES> 1,957,098
<BONDS> 0
0
0
<COMMON> 523
<OTHER-SE> 659,580
<TOTAL-LIABILITY-AND-EQUITY> 2,861,300
<SALES> 0
<TOTAL-REVENUES> 466,705
<CGS> 0
<TOTAL-COSTS> 380,565
<OTHER-EXPENSES> 5,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,828
<INCOME-PRETAX> 73,607
<INCOME-TAX> 30,179
<INCOME-CONTINUING> 43,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,428
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
