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 September 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 September 30, 1997, 52,426,181 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 Nine-Month Periods Ended September 30,1997 and 1996
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues ............................. $ 238,255 $ 215,332 $ 704,960 $ 647,907
------------------------------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs ....................... 109,351 98,296 328,513 291,509
Data processing expenses, rentals
and telecommunication costs ......... 25,134 22,575 74,339 74,725
Other operating expenses ............. 46,619 41,156 135,067 119,655
Depreciation and amortization of
property and equipment .............. 12,264 11,177 36,014 32,648
Amortization of intangible assets .... 3,437 5,315 10,627 16,076
Capitalization of internally generated
computer software-net ............... (553) (285) (2,038) (1,768)
-----------------------------------------------
Total cost of revenues ............... 196,252 178,234 582,522 532,845
-----------------------------------------------
Operating income ..................... 42,003 37,098 122,438 115,062
Interest expense - net ............... 2,701 4,294 9,529 15,025
-----------------------------------------------
Income before income taxes ........... 39,302 32,804 112,909 100,037
Income tax provision ................. 16,114 13,335 46,293 40,737
-----------------------------------------------
Net income ........................... $ 23,188 $ 19,469 $ 66,616 $ 59,300
===============================================
Net income per common and
common equivalent share ............. $ 0.43 $ 0.37 $ 1.25 $ 1.14
===============================================
Shares used in computing
net income per share ................ 54,061 51,979 53,265 52,016
===============================================
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
-----------------------
(In thousands)
ASSETS
Cash and cash equivalents ................ $ 72,236 $ 101,282
Accounts receivable ...................... 169,036 160,747
Securities processing receivables ........ 1,062,610 729,354
Prepaid expenses and other assets ........ 70,318 64,410
Trust account investments ................ 973,659 970,553
Other investments ........................ 164,955 72,952
Deferred income taxes .................... 31,284 34,144
Property and equipment-net ............... 146,558 148,413
Internally generated computer software-net 73,339 70,487
Identifiable intangible assets relating
to acquisitions, etc.-net ............... 52,679 54,548
Goodwill-net ............................. 286,970 292,089
-----------------------
Total .................................... $3,103,644 $2,698,979
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ......................... $ 41,943 $ 43,486
Securities processing payables ........... 996,547 636,215
Short-term borrowings .................... 23,200 33,200
Accrued expenses ......................... 95,308 80,866
Accrued income taxes ..................... 11,215 9,808
Deferred revenues ........................ 56,353 46,089
Trust account deposits ................... 972,680 970,553
Long-term debt ........................... 221,301 272,864
-----------------------
Total liabilities ........................ 2,418,547 2,093,081
-----------------------
Stockholders' equity:
Common stock outstanding, 52,426,000 and
51,032,000 shares, respectively ........ 524 510
Additional paid-in capital ............... 366,011 352,916
Unrealized gain on investments ........... 18,506 18,621
Accumulated earnings ..................... 300,056 233,851
-----------------------
Total stockholders' equity ............... 685,097 605,898
-----------------------
Total ....................... $3,103,644 $2,698,979
=======================
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Nine-Month Periods Ended September 30, 1997 and 1996
<CAPTION>
Nine Months Ended
September 30,
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 66,616 $ 59,300
Adjustments to reconcile income to net cash provided
by operating activities:
Deferred income taxes ...................................... 2,465 5,816
Depreciation and amortization of property and equipment .... 36,014 32,648
Amortization of intangible assets .......................... 10,627 16,076
Capitalization of internally generated computer software-net (2,038) (1,768)
-----------------------
113,684 112,072
Cash provided (used) by changes in assets and liabilities,
net of effects from acquisitions of businesses:
Accounts receivable ........................................ 3,793 (5,117)
Prepaid expenses and other assets .......................... (2,486) 8,484
Accounts payable and accrued expenses ...................... 7,453 305
Deferred revenue ........................................... 7,462 8,009
Income taxes payable ....................................... 513 1,907
Securities processing receivables and payables-net ......... 27,075 (9,483)
----------------------
Cash provided by operating activities ....................... 157,494 116,177
----------------------
Cash flows from investing activities:
Capital expenditures ....................................... (29,712) (27,682)
Investments and other assets ............................... (80,627) 23,397
Payment for acquisition of businesses ...................... (22,106) (7,860)
Trust account investments .................................. (3,226) 20,464
----------------------
Net cash provided (used) by investing activities ............ (135,671) 8,319
----------------------
Cash flows from financing activities:
Increase (decrease) in short-term obligations-net .......... (10,000) (700)
Increase (decrease) in long-term obligations-net ........... (51,588) (92,459)
Issuance of common stock ................................... 8,592 4,834
Trust account deposits ..................................... 2,127 (24,701)
----------------------
Net cash provided (used) by financing activities ............ (50,869) (113,026)
----------------------
Change in cash .............................................. (29,046) 11,470
Beginning balance ........................................... 101,282 76,556
----------------------
Ending balance .............................................. $ 72,236 $ 88,026
======================
</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 September 30, 1997 and the related
consolidated statements of income and cash flows for the three and nine-month
periods ended September 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 results of operations for 1997 to results as
originally presented for 1996.
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------------------------------------------
(In thousands except per share amounts)
Revenues 238,255 196,585 704,960 587,759
------------------------------------------------
Income before taxes 39,302 26,658 112,909 77,284
------------------------------------------------
Net Income 23,188 15,729 66,616 45,598
================================================
Net Income per share 0.43 0.34 1.25 0.99
================================================
Shares used in computing net
income per share 54,061 46,265 53,265 46,094
================================================
3. Shares Used in Computing Net Income per Share
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------------------------------------
(In thousands)
Weighted average number of common
shares outstanding ..................... 52,400 50,911 51,859 50,687
Shares issuable upon exercise of options
reduced by the number of shares which
could have been purchased with the
proceeds of such exercise .............. 1,661 1,068 1,406 1,329
-------------------------------------
Shares used ......... 54,061 51,979 53,265 52,016
=====================================
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
<PAGE>
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
asset as of September 30, 1997 and December 31, 1996 are as follows:
September 30, December 31,
1997 1996
----------------------
(in thousands)
Allowance for doubtful accounts ........... $ 1,677 $ 1,529
Accrued expenses not currently deductible . 12,060 7,574
Deferred revenue .......................... 8,072 9,815
Other ..................................... 916 77
Net operating loss and credit carryforwards 3,382 3,871
Purchased incomplete software technology .. 58,041 61,500
Deferred costs ............................ (4,524) (4,963)
Internally generated capitalized software . (30,069) (28,900)
Excess of tax over book depreciation and
amortization ............................ (5,412) (3,419)
Unrealized gain on investments ............ (12,859) (12,940)
=====================
Total deferred income taxes ............... $ 31,284 $ 34,144
=====================
5. Supplemental Cash Flow Information
Nine Months Ended
September 30,
1997 1996
-------------------
(In thousands)
Income taxes paid .................... $42,950 $32,337
Interest paid ........................ 11,119 14,960
Liabilities assumed in acquisitions of
businesses ......................... 8,639 1,236
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------------------------------------
(Percent of Revenues)
Revenues ........................ 100.00% 100.00% 100.00% 100.00%
----------------------------------------
Salaries and related costs ...... 45.90 45.65 46.60 44.99
Data processing costs ........... 10.55 10.48 10.55 11.53
Other operating expenses ........ 19.57 19.11 19.16 18.47
Depreciation and amortization ... 5.15 5.19 5.11 5.04
Amortization of intangible assets 1.44 2.47 1.51 2.48
Capitalization of software-net .. (0.23) (0.13) (0.29) (0.27)
---------------------------------------
Total cost of revenues .......... 82.38 82.77 82.64 82.24
---------------------------------------
Operating income ................ 17.62 17.23 17.36 17.76
=======================================
6
<PAGE>
Revenues
- --------
Revenues increased 10.6% from $215.3 million in the third quarter of 1996 to
$238.3 million in the current third quarter and 8.8% from $647.9 million in the
first nine months of 1996 to $705.0 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. 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 September 30, 1997
would have increased by approximately $59 million or 27%. Revenues for the first
nine months of 1997 would have increased by $151 million or 23%.
Cost of Revenues
- ----------------
Cost of revenues increased 10.1% from $178.2 million in the third quarter of
1996 to $196.3 million in the current third quarter, and 9.3% from $532.8
million in the first nine months of 1996 to $582.5 million in the first nine
months of 1997. The increase in cost of revenues for the nine 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 increased 13.2% from $37.1 million in the third quarter of 1996
to $42.0 million in the current third quarter, and increased 6.4% from $115.1
million in the first nine months of 1996 to $122.4 million in the first nine
months of 1997. As a percentage of revenues, operating margins were lower during
the first nine months of 1997 when compared to the comparable prior year period.
This decrease resulted primarily from charges related to one-time merger
expenses and reduced impact of termination fees.
Interest Expense - Net
- ----------------------
As a result of substantial debt reductions and slightly lower effective rates,
interest expense decreased $1.6 million in the third quarter of 1997 and $5.5
million for the first nine 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 third quarter increased 19% from $19.5 million in 1996 to
$23.2 million in 1997. Net income for the first nine months, which was reduced
by $3.1 million for acquisition costs of BHC, increased 12% from $59.3 million
in 1996 to $66.6 million in 1997. Net income per share for the third quarter was
$.43 in 1997 compared to $.37 in 1996. Net income per share for the first nine
months, after merger related expenses of $.06, increased $.11 from $1.14 in 1996
to $1.25 in 1997. Net income per share increased $.09 and $.26, respectively, in
the third quarter and first nine 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.
7
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The following table summarizes the Company's primary sources of funds for the
nine months ended September 30, 1997 and 1996:
1997 1996
--------- ---------
(in thousands)
Cash provided by operating activities 157,494 116,177
Issuance of common stock-net 8,592 4,834
Decrease (increase) in investments (81,726) 19,160
Increase (decrease) in net borrowings (61,588) (93,159)
--------- ---------
TOTAL $22,772 $47,012
--------- ---------
Long-term obligations amounted to $221.3 million at September 30, 1997. The
majority of this debt comprises $112.8 million of senior notes due 1998 to 2001
and $82.0 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
None
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 October 21, 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
September 1997 10-Q and is qualified in its entirety by reference to such
information.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 72,236
<SECURITIES> 973,659
<RECEIVABLES> 169,036
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,336,912
<PP&E> 146,558
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,103,644
<CURRENT-LIABILITIES> 2,205,940
<BONDS> 0
0
0
<COMMON> 524
<OTHER-SE> 684,573
<TOTAL-LIABILITY-AND-EQUITY> 3,103,644
<SALES> 0
<TOTAL-REVENUES> 704,960
<CGS> 0
<TOTAL-COSTS> 573,933
<OTHER-EXPENSES> 8,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,529
<INCOME-PRETAX> 112,909
<INCOME-TAX> 46,293
<INCOME-CONTINUING> 66,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,616
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
