<PAGE> 1
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, 1998 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, 1998, 81,936,000 shares of common stock of the Registrant were
outstanding.
Exhibit Index appears at page 8.
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the Three and Six-Month Periods Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
REVENUES $ 311,220 $ 238,386 $ 585,049 $ 466,705
------------------------------------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 144,302 113,404 272,485 219,162
Data processing expenses, rentals
and telecommunication costs 28,561 24,439 55,957 49,205
Other operating expenses 68,908 47,137 121,281 88,448
Depreciation and amortization of
property and equipment 14,613 12,187 28,811 23,750
Amortization of intangible assets 3,867 3,545 7,331 7,190
Capitalization of internally generated
computer software-net (1,853) (964) (3,022) (1,485)
------------------------------------------------------
Total cost of revenues 258,398 199,748 482,843 386,270
------------------------------------------------------
OPERATING INCOME 52,822 38,638 102,206 80,435
Interest expense - net 4,228 3,341 7,595 6,828
------------------------------------------------------
INCOME BEFORE INCOME TAXES 48,594 35,297 94,611 73,607
Income tax provision 19,924 14,472 38,791 30,179
======================================================
NET INCOME $ 28,670 $ 20,825 $ 55,820 $ 43,428
======================================================
NET INCOME PER SHARE:
Basic $ 0.34 $ 0.27 $ 0.68 $ 0.56
======================================================
Diluted $ 0.33 $ 0.26 $ 0.66 $ 0.55
======================================================
Shares used in computing net income per share:
Basic 83,124 77,781 81,848 77,199
======================================================
Diluted 85,930 80,043 84,564 79,299
======================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
---------------------------------
(In thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents 65,677 $ 89,377
Accounts receivable 214,904 197,771
Securities processing receivables 1,594,884 1,386,169
Prepaid expenses and other assets 92,390 91,278
Trust account investments 1,072,415 1,082,740
Other investments 135,642 125,999
Deferred income taxes 29,006 35,233
Property and equipment-net 158,779 149,055
Internally generated computer software-net 81,826 73,163
Identifiable intangible assets relating
to acquisitions-net 48,392 50,426
Goodwill-net 436,806 355,280
-------------------------------
Total 3,930,721 $3,636,491
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable 56,673 $ 53,828
Securities processing payables 1,363,737 1,184,277
Short-term borrowings 104,600 94,975
Accrued expenses 125,568 123,380
Accrued income taxes 9,329 8,436
Deferred revenues 97,333 67,569
Trust account deposits 1,073,781 1,082,740
Long-term debt 302,156 252,031
-------------------------------
TOTAL LIABILITIES 3,133,177 2,867,236
-------------------------------
SHAREHOLDERS' EQUITY:
Common stock issued, 83,136,000 and
80,887,000 shares, respectively 831 809
Additional paid-in capital 442,493 427,515
Accumulated other comprehensive income:
Unrealized gain on investments 16,394 16,442
Foreign currency translation adjustment 68 121
Accumulated earnings 380,188 324,368
Treasury shares, at cost (1,200,000 shares in 1998) (42,430)
-------------------------------
TOTAL SHAREHOLDERS' EQUITY 797,544 769,255
-------------------------------
TOTAL 3,930,721 $3,636,491
===============================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six-Month Periods Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
-----------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 55,820 $ 43,428
Adjustments to reconcile income to net cash provided
by operating activities:
Deferred income taxes 5,170 2,183
Depreciation and amortization of property and equipment 28,811 23,750
Amortization of intangible assets 7,331 7,190
Capitalization of internally generated computer software-net (3,022) (1,485)
-----------------------------
94,110 75,066
Cash provided (used) by changes in assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable (563) (4,882)
Prepaid expenses and other assets (1,227) (5,898)
Accounts payable and accrued expenses (2,099) 6,639
Deferred revenue 16,245 7,821
Income taxes payable 4,013 (7,532)
Securities processing receivables and payables - net (29,255) 24,459
-----------------------------
Net cash provided by operating activities 81,224 95,673
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31,391) (19,486)
Investments and other assets (3,583) (67,550)
Payment for acquisition of businesses (87,842) (10,715)
Trust account investments 4,173 25,848
-----------------------------
Net cash provided (used) by investing activities (118,643) (71,903)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term obligations - net 9,625 (13,200)
Increase (decrease) in long-term obligations - net 49,577 (19,522)
Issuance of common stock 5,906 6,483
Purchases of treasury stock (42,430)
Trust account deposits (8,959) (27,050)
-----------------------------
Net cash provided (used) by financing activities 13,719 (53,289)
-----------------------------
Change in cash (23,700) (29,519)
Beginning balance 89,377 101,282
-----------------------------
Ending balance $ 65,677 $ 71,763
=============================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
FISERV, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The consolidated balance sheet as of June 30, 1998 and the related consolidated
statements of income and cash flows for the three and six-month periods ended
June 30, 1998 and 1997 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.
Interim 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
During the three months ended June 30, 1998, the Company completed three
acquisitions including CUSA Technologies, Inc. and Network Data Processing
Corporation which were accounted for as poolings of interests. Financial
statements for prior periods have not been restated to include the operations of
these two companies due to lack of materiality.
3. SHARES USED IN COMPUTING NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 83,124 77,781 81,848 77,199
Shares issuable upon exercise of options
reduced by the number of shares which
could have been purchased with the
proceeds of such exercise 2,806 2,262 2,716 2,100
-------------------------------------
Shares used in computing diluted
net income per share 85,930 80,043 84,564 79,299
=====================================
</TABLE>
Basic income per share is computed using the weighted average number of shares
outstanding during the periods. Diluted income per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the periods. 1997 shares outstanding have been restated to
give affect to a three for two stock split issued May 29, 1998.
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 June 30, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
---------------------------------
(in thousands)
<S> <C> <C>
Allowance for doubtful accounts $2,027 $2,027
Accrued expenses not currently deductible 17,274 16,835
Deferred revenue 8,059 8,688
Other 1,876 230
Net operating loss and credit carryforwards 2,420 2,295
Purchased incomplete software technology 54,582 56,888
Deferred costs (4,588) (4,314)
Internally generated capitalized software (33,549) (29,999)
Excess of tax over book depreciation and
amortization (7,702) (5,992)
Unrealized gain on investments (11,393) (11,425)
---------------------------------
Total deferred income taxes $29,006 $35,233
=================================
</TABLE>
5
<PAGE> 6
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
-------------------------------------
(In thousands)
<S> <C> <C>
Income taxes paid $31,003 $35,709
Interest paid 11,215 9,531
Liabilities assumed in acquisitions of
businesses 30,273 8,639
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
percentage which certain items in the Company's consolidated statements of
income bear to revenues and the percentage change in these items.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------------------------------------------------------------------
(Percent of Revenues)
<S> <C> <C> <C> <C>
Revenues 100.00% 100.00% 100.00% 100.00%
-----------------------------------------------------------------------
Salaries and related costs 46.37 47.57 46.58 46.96
Data processing costs 9.18 10.25 9.56 10.54
Other operating expenses 22.14 19.77 20.73 18.95
Depreciation and amortization 4.70 5.11 4.93 5.09
Amortization of intangible assets 1.24 1.49 1.25 1.54
Capitalization of software-net (0.60) (0.40) (0.52) (0.32)
------------------------------- ---------------------------------
Total cost of revenues 83.03 83.79 82.53 82.76
------------------------------- ---------------------------------
Operating income 16.97 16.21 17.47 17.24
=============================== =================================
</TABLE>
REVENUES
Revenues increased 30.6% from $238.4 million in the second quarter of 1997 to
$311.2 million in the current second quarter and 25.4% from $466.7 million in
the first six months of 1997 to $585.0 million in the comparable current period.
Approximately 65% of the year to date growth resulted from the inclusion of
revenues from the date of purchase of acquired companies and approximately 35%
from increases in revenue from the addition of new clients, growth in the
transaction volume experienced by existing clients and price increases.
COST OF REVENUES
Cost of revenues increased 29.4% from $199.7 million in the second quarter of
1997 to $258.4 million in the current second quarter, and 25.0% from $386.3
million in the first six months of 1997 to $482.8 million in the first six
months of 1998. These increases were in line with increases in revenues during
the periods.
OPERATING INCOME
Operating income increased 36.7% from $38.6 million in the second quarter of
1997 to $52.8 million in the current second quarter, and increased 27.1% from
$80.4 million in the first six months of 1997 to $102.2 million in the first six
months of 1998. As a percentage of revenues, operating margins were slightly
higher during both the second quarter and first six months of 1998 when compared
to the comparable prior year periods.
6
<PAGE> 7
INTEREST EXPENSE - NET
As a result of increased borrowings, interest expense increased $.9 million in
the second quarter of 1998 and $.8 million for the first six months of 1998 when
compared to amounts incurred for the comparable 1997 periods.
INCOME TAX PROVISION
Income taxes were computed at 41% in both 1998 and 1997. The 41% rate is
expected to apply throughout the current year.
NET INCOME
Net income for the second quarter increased 38% from $20.8 million in 1997 to
$28.7 million in 1998. Net income for the first six months increased 29% from
$43.4 million in 1997 to $55.8 million in 1998. Net income per share-diluted for
the second quarter was $.33 in 1998 compared to $.26 in 1997. Net income per
share-diluted for the first six months of 1998 was $.66 compared to $.55 in the
comparable 1997 period. The increases in net income per share-diluted for the
second quarter and first six months of 1998 over the comparable 1997 periods
amounted to $.07 and $.11, respectively.
YEAR 2000 ISSUES
The Company believes that its plan to address year 2000 issues is proceeding
satisfactorily and continues to expect to incur charges approximating $15
million a year in 1998 and 1999 related to this issue. It is not anticipated
that operating income as a percentage of revenues will be materially impacted by
these charges.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the Company's primary sources of funds for the
six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------------------------
(In thousands)
<S> <C> <C>
Cash provided by operating activities before changes
in securities processing receivables and payables - net 110,479 71,214
Securities processing receivables and payables - net (29,255) 24,459
---------------------------------
Cash provided by operating activities 81,224 95,673
Issuance (purchases) of common stock - net (36,524) 6,483
Decrease (increase) in investments (8,369) (68,752)
Increase (decrease) in net borrowings 59,202 (32,722)
---------------------------------
TOTAL 95,533 682
=================================
</TABLE>
Long-term obligations amounted to $302.2 million at June 30, 1998. The majority
of this debt comprises $106.1 million of senior notes due 1998 to 2005 and
$171.8 million advanced under a $280 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.
7
<PAGE> 8
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 5, Part 1).
(b) Reports on Form 8-K
During the quarter ended June 30, 1998, the Registrant filed a report on
Form 8-K dated May 8, 1998, regarding the exchange ratio applicable to
the acquisition of CUSA Technologies, Inc., as of April 30, 1998.
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 21, 1998 by /s/ Edward P. Alberts
-------------- -----------------------------------------
EDWARD P. ALBERTS
Senior Vice President, Finance
and Controller
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 65,677
<SECURITIES> 1,072,415
<RECEIVABLES> 214,904
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,040,270
<PP&E> 158,779
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,930,721
<CURRENT-LIABILITIES> 2,838,853
<BONDS> 0
0
0
<COMMON> 831
<OTHER-SE> 796,713
<TOTAL-LIABILITY-AND-EQUITY> 3,930,721
<SALES> 0
<TOTAL-REVENUES> 585,049
<CGS> 0
<TOTAL-COSTS> 478,534
<OTHER-EXPENSES> 4,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,595
<INCOME-PRETAX> 94,611
<INCOME-TAX> 38,791
<INCOME-CONTINUING> 55,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,820
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.66
</TABLE>
