<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission file no. 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, WISCONSIN 53045
- --------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (414) 879-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
----
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 Par Value
----------------------------
(Title of Class)
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 ( )
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 29, 1999: $4,015,748,072
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of January 29, 1999: 82,058,709
DOCUMENTS INCORPORATED BY REFERENCE: List the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) Any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
1998 Annual Report to Shareholders - Parts II, IV
Proxy Statement for March 25, 1999, Meeting - Part III
<PAGE>
Fiserv, Inc. and Subsidiaries
Form 10-K
December 31, 1998
PART I Page
- ------ ----
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
- -------
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 9
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners and Management 9
Item 13. Certain Relationships and Related Transactions 9
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 9
<PAGE>
===============================================================================
PART I
===============================================================================
Item 1. Business
Fiserv, Inc. is a leading, independent provider of financial data
processing systems and related information management services and products to
the financial industry. The Company was formed on July 31, 1984, through the
combination of two major regional data processing firms located in Milwaukee,
Wisconsin, and Tampa, Florida. These firms--First Data Processing of Milwaukee
and Sunshine State Systems of Tampa--began their operations in 1964 and 1971,
respectively, as the data processing operations of their parent financial
institutions. Historically, operations were expanded by developing a range of
services for these parent organizations as well as other financial institutions.
Since its organization in 1984, Fiserv has grown through the continuing
development of highly specialized services and product enhancements, the
addition of new clients and the acquisition of firms complementing the Fiserv
organization.
Headquartered in Brookfield, Wisconsin, Fiserv operates centers nationwide
for full-service financial data processing, software system development, item
processing and check imaging, technology support and related product businesses.
In addition, the Company has business support centers in Australia, Canada,
England, Indonesia, Philippines, Poland and Singapore.
Business Strategy
- -----------------
The market for products and services offered by financial institutions
continues to undergo change. New alternative lending and investment products
are being introduced and implemented by the financial industry with great
frequency; the distinctions among financial services traditionally offered by
banking and thrift organizations as well as by securities and insurance firms
continue to narrow; and financial institutions diversify and consolidate on an
ongoing basis in response to market pressures, as well as under the auspices of
regulatory agencies.
Although such market changes have led to consolidations which have reduced
the number of financial institutions in the United States, such consolidations
have not resulted in a material reduction of the number of customers or
financial accounts serviced by the financial industry as a whole. New
organizations entering the once limited financial services industry have opened
new markets for Fiserv services.
To stay competitive in this changing marketplace, financial institutions
are finding they must aggressively meet the growing needs of their customers for
a broad variety of new products and services that are typically transaction-
oriented and fee-based. The growing volume and types of transactions and
accounts have increased the data processing requirements of these institutions.
As a consequence, Fiserv management believes that the financial services
industry is one of the largest users of data processing products and services.
Moreover, Fiserv expects that the industry will continue to require
significant commitments of capital and human resources to the information
systems requirements, to require
1
<PAGE>
application of more specialized systems, and to require development, maintenance
and enhancement of applications software. Fiserv believes that economies of
scale in data processing operations are essential to justify the required level
of expenditures and commitment of human resources.
In response to these market dynamics, the means by which financial
institutions obtain data processing services has changed. Many smaller, local
and regional third-party data processors are leaving the business or
consolidating with larger providers. A number of large financial institutions
previously providing third-party processing services for other institutions have
withdrawn from the business to concentrate on their primary, core businesses.
Similarly, an increasing number of financial institutions that previously
developed their own software systems and maintained their own data processing
operations have outsourced their data processing requirements by licensing their
software from a third party or by contracting with third-party processors to
reduce costs and enhance their products and services. Outsourcing can involve
simply the licensing of software, thereby eliminating the costly technical
expertise within the financial institution, or the utilization of service
bureaus, facilities management or resource management capabilities. Fiserv
provides all of these options to the financial industry.
To capitalize on these industry trends and to become the premier provider
of data processing products and related services, Fiserv has implemented a
strategy of continuing to develop new products, improving the cost effectiveness
of services provided to clients, aggressively soliciting new clients and making
both opportunistic and strategic acquisitions.
Acquisition History
- -------------------
<TABLE>
<CAPTION>
Formed Acquired Company Service
===========================================================================================================
<C> <C> <S> <C>
1964 July 1984 First Data Processing, Milwaukee, WI Data processing
1971 July 1984 Sunshine State Systems, Tampa, FL Data processing
1966 Nov. 1984 San Antonio, Inc., San Antonio, TX Data processing
1982 Oct. 1985 Sendero Corporation, Scottsdale, AZ Asset/liability management
1962 Oct. 1985 First Trust Corporation, Denver, CO DP for retirement planning
1962 Oct. 1985 First Retirement Marketing, Denver, CO Retirement planning services
1973 Jan. 1986 On-Line, Inc., Seattle, WA Data processing, forms
1966 May 1986 First City Financial Systems, Inc., Beaumont, TX Data processing
1962 Feb. 1987 Pamico, Inc., Milwaukee, WI Specialized forms
1975 Apr. 1987 Midwest Commerce Data Corp., Elkhart, IN Data processing
1969 Apr. 1987 Fidelity Financial Services, Inc., Spokane, WA Data processing
1965 Oct. 1987 Capbanc Computer Corp., Baton Rouge, LA (sold 1991) Data processing
1971 Feb. 1988 Minnesota On-Line Inc., Minneapolis, MN Data processing
1965 May 1988 Citizens Financial Corporation, Cleveland, OH Data processing
1980 May 1988 ZFC Electronic Data Services, Inc., Bowling Green, KY Data processing
1969 June 1988 GESCO Corporation, Fresno, CA Data processing
1967 Nov. 1988 Valley Federal Data Services, Los Angeles, CA Data processing
1984 Dec. 1988 Northeast Savings Data Services, Hartford, CT Data processing
1982 May 1989 Triad Software Network, Ltd., Chicago, IL (sold 1996) Data processing
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Formed Acquired Company Service
=========================================================================================================
<C> <C> <S> <C>
1969 Aug. 1989 Northeast Datacom, Inc., New Haven, CT Data processing
1978 Feb. 1990 Financial Accounting Services Inc., Pittsburgh, PA Data processing
1974 June 1990 Accurate Data On Line, Inc., Titusville, FL Data processing
1982 June 1990 GTE EFT Services Money Network, Fresno, CA EFT networks
1968 July 1990 First Interstate Management, Milwaukee, WI Data processing
1982 Oct. 1990 GTE ATM Networks, Fresno, CA EFT networks
1867 Nov. 1990 Boston Safe Deposit & Trust Co. IP Services, MA Item processing
1968 Dec. 1990 First Bank, N.A. IP Services, Milwaukee, WI Item processing
1979 Apr. 1991 Citicorp Information Resources, Inc., Stamford, CT Data processing
1980 Apr. 1991 BMS Processing, Inc., Randolph, MA Item processing
1979 May 1991 FHLB of Dallas IP Services, Dallas, TX Item processing
1980 Nov. 1991 FHLB of Chicago IP Services, Chicago, IL Item processing
1977 Feb. 1992 Data Holdings, Inc., Indianapolis, IN Automated card services
1980 Feb. 1992 BMS On-Line Services, Inc. (assets), Randolph, MA Data processing
1982 Mar. 1992 First American Information Services, St. Paul, MN Data processing
1981 July 1992 Cadre, Inc., Avon, CT (sold 1996) Disaster recovery
1992 July 1992 Performance Analysis, Inc., Cincinnati, OH Asset/liability management
1986 Oct. 1992 Chase Manhattan Bank, REALM Software, NY Asset/liability management
1984 Dec. 1992 Dakota Data Processing, Inc., Fargo, ND Data processing
1983 Dec. 1992 Banking Group Services, Inc., Somerville, MA Item processing
1968 Feb. 1993 Basis Information Technologies, Atlanta, GA Data processing, EFT
1986 Mar. 1993 IPC Service Corporation (assets), Denver, CO Item processing
1973 May 1993 EDS' FHLB Seattle (assets), Seattle, WA Item processing
1982 June 1993 Datatronix Financial Services, San Diego, CA Item processing
1966 July 1993 Data Line Service, Covina, CA Data processing
1978 Nov. 1993 Financial Processors, Inc., Miami, FL Data processing
1974 Nov. 1993 Financial Data Systems, Jacksonville, FL Item processing
1961 Nov. 1993 Financial Institutions Outsourcing, Pittsburgh, PA Data processing
1972 Nov. 1993 Data-Link Systems, South Bend, IN Mortgage banking services
1985 Apr. 1994 National Embossing Company, Inc., Houston, TX Automated card services
1962 May 1994 Boatmen's Information Systems of Iowa, Des Moines Data processing
1981 Aug. 1994 FHLB of Atlanta IP Services, Atlanta, GA Item processing
1989 Nov. 1994 CBIS Imaging Technology Banking Unit, Maitland, FL Imaging technology
1987 Dec. 1994 RECOM Associates, Inc., Tampa, FL (sold 1998) Network integration
1970 Jan. 1995 Integrated Business Systems, Glendale, CA Specialized forms
1977 Feb. 1995 BankLink, Inc., New York, NY Cash management
1976 May 1995 Information Technology, Inc., Lincoln, NE Software & services
1957 Aug. 1995 Lincoln Holdings, Inc., Denver, CO DP for retirement planning
1993 Sept. 1995 SRS, Inc., Austin, TX Data processing
1992 Sept. 1995 ALLTEL's Document Management Services, CA, NJ Item processing
1978 Nov. 1995 Financial Information Trust, Des Moines, IA Data processing
1983 Jan. 1996 UniFi, Inc., Fort Lauderdale, FL Software & services
1982 Nov. 1996 Bankers Pension Services, Inc., Tustin, CA DP for retirement planning
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Formed Acquired Company Service
=============================================================================================================
<C> <C> <S> <C>
1992 Apr. 1997 AdminaStar Communications, Indianapolis, IN Laser print/mailing services
1982 May 1997 Interactive Planning Systems, Atlanta, GA PC-based financial systems
1983 May 1997 BHC Financial, Inc., Philadelphia, PA Securities processing services
1968 Sept. 1997 FIS, Inc., Orlando, FL, and Baton Rouge, LA Data processing
n/a Sept. 1997 Stephens Inc. clearing business, Little Rock, AR Securities processing services
1986 Oct. 1997 Emerald Publications, San Diego, CA Financial seminars & training
1968 Oct. 1997 Central Service Corp., Greensboro, NC Data & item processing
1993 Oct. 1997 Savoy Discount Brokerage, Seattle WA Securities processing services
1990 Dec. 1997 Hanifen, Imhoff Holdings, Inc., Denver,CO Securities processing services
1980 Jan. 1998 Automated Financial Technology, Inc., Malvern, PA Data processing
1981 Feb. 1998 The LeMans Group, King of Prussia, PA Automobile leasing software
n/a Feb. 1998 PSI Group, Seattle, WA Laser printing
1956 Apr. 1998 Network Data Processing Corporation, Cedar Rapids, IA Insurance data processing
1977 Apr. 1998 CUSA Technologies, Inc., Salt Lake City, UT Software & services
1982 May 1998 Specialty Insurance Service, Orange, CA Insurance data processing
1985 Aug. 1998 Deluxe Card Services, St. Paul, MN Automated card services
1981 Oct. 1998 FHLB of Topeka IP Services, Topeka, KS Item processing
n/a Oct. 1998 FiCATS, Norristown, PA Item processing
1984 Oct. 1998 Life Instructors, Inc., New Providence, NJ Insurance/securities training
1994 Nov. 1998 ASI Financial, Inc., New Jersey and New York PC-based financial systems
1986 Dec. 1998 The FREEDOM Group, Inc., Cedar Rapids, IA Insurance data processing
</TABLE>
Technology Resources
- --------------------
Fiserv is a technology company focused on serving the financial data
processing and related information management needs of financial intermediaries
and service providers throughout the financial industry. No matter what a client
requires for automation, Fiserv offers a business-specific technology solution
to satisfy its needs. Fiserv products and services are designed to help clients
meet their ultimate goal of giving their customers the best possible service
quickly, accurately and completely.
Account & Transaction Processing. The key point of contact between money
and technology lies within the financial transaction. Since the Company's
formation nearly 15 years ago, Fiserv has focused its technology on providing
account and transaction processing services for the financial industry. This
dedication hasn't changed. Processing financial transactions continues to be the
main business of Fiserv, with banks, credit unions, thrifts and mortgage banks
comprising its largest category of clients.
Fiserv account and transaction processing solutions run as service bureau,
resource management (operating a client's systems at a Fiserv data center),
facilities management (onsite management of a client's operations by Fiserv
personnel) or through licensed software for in-house systems. Comprehensive
automation systems from Fiserv are designed for banks, credit unions, thrifts,
mortgage banks, securities brokers, financial planners / investment advisers,
insurance companies and leasing organizations. Fiserv provides a complete line
of account and transaction processing systems and related information management
products and services.
Fiserv offers a comprehensive portfolio of securities processing and trust
services, providing integrated brokerage processing and outsourcing services to
securities brokerage affiliates of banks, mutual fund companies, insurance
companies and independent broker-dealers.
4
<PAGE>
Fiserv also provides comprehensive retirement plan and custodial account
processing services designed to help individuals and businesses focus on saving
for the future.
Electronic Commerce Transactions. Fiserv is a leading provider of the
technology solutions that support electronic commerce. The Company offers the
more traditional services, including electronic funds transfer, transaction
authorization, Automated Teller Machine (ATM) and debit card processing. Fiserv
also provides automated voice response systems, remote banking services and
comprehensive Internet solutions.
Item / Back Office Processing. Fiserv currently has regional item
processing centers in more than 60 cities throughout North America. As a
leading provider of specialized check processing services to financial
institutions, Fiserv has refined the outsourcing relationship to create the most
beneficial partnership possible. This allows the Company's clients to maintain
the high quality service and investment in technology that their customers
expect, while maximizing their own efficiency through the expertise and
resources of Fiserv.
Operations Support. Operations support encompasses a number of different
systems and services that are either made possible through or enhanced by
technology. Fiserv provides financial institutions with advanced call center
systems; financial investment and trading services; card-issuance and business
communications solutions; industry-specific forms and related printed products;
high-quality, technologically advanced imaging software and integration
services; mortgage origination and tracking; financial seminar programs and
related marketing and training systems; Internet-based online training programs
for insurance and securities; and advanced terminal and platform systems.
Management Information Systems. Fiserv provides a number of systems
specifically designed to gather, analyze and disseminate information throughout
an organization, including: cash and investment management services;
enterprisewide data warehouse and data mining solutions; PC-based tools for
strategic balance sheet management, profitability measurement, and financial
accounting management and planning; and outsourcing for human resources and
related personnel management tasks.
Servicing the Market
- --------------------
The market for Fiserv account and transaction processing services and
products has specific needs and requirements, with strong emphasis placed by
clients on software flexibility, product quality, reliability of service,
comprehensiveness and integration of product line, timely introduction of new
products and features, and cost effectiveness. Through its multiple product
offerings, the Company successfully services these market needs for clients
ranging in size from start-ups to some of the largest institutions worldwide.
Fiserv believes that the position it holds as an independent, growth-
oriented company dedicated to its business is an advantage to its clients. The
Company differs from many of the account and transaction processing resources
currently available since it isn't a regional or local cooperatively owned
organization, nor a data processing subsidiary, an affiliate of a financial
institution or a hardware vendor. Due to the economies of scale gained through
its broad market presence, Fiserv offers clients a selection of data processing
solutions designed to meet the specific needs of the ever-changing financial
industry.
The Company believes this independence and primary focus on the financial
industry helps its business development and related client service and product
support teams remain responsive to the technology needs of its market, now and
for the future.
"The Client Comes First" is one of the Company's founding principles. It's
a belief
5
<PAGE>
backed by a dedication to providing ongoing client service and support--no
matter the client size.
The Company's commitment of substantial resources to training and technical
support helps keep Fiserv clients first. Fiserv conducts the majority of its new
and ongoing client training in its technology centers, where the Company
maintains fully equipped demonstration and training facilities containing
equipment used in the delivery of Fiserv services. Fiserv also provides local
and on-site training services.
Product Development
- -------------------
In order to meet the changing technology needs of the clients served by
Fiserv, the Company continually develops, maintains and enhances its systems.
Resources applied to product development and maintenance are believed to be
approximately 8% to 10% of Company revenues, about half of which is dedicated to
software development.
Unique to Fiserv, its network of development and financial information
technology centers applies the shared expertise of multiple Fiserv teams to
design, develop and maintain specialized processing systems around the leading
technology platforms. The applications of its account processing systems meet
the preferences and diverse requirements of the various international, national,
regional or local market-specific financial service environments of the
Company's many clients.
Though all Fiserv centers rely on the Company's nationally developed and
supported software, each center has specialized capabilities that enable them to
offer system application features and functions unique to their client base.
Where the client's requirements warrant, Fiserv purchases software programs from
third parties which are interfaced with existing Fiserv systems. In developing
its products, Fiserv stresses interaction with and responsiveness to the needs
of its clients.
Fiserv provides a dedicated system designed, developed, maintained and
enhanced according to each client's goals for service quality, business
development, asset/liability mix, local-market positioning and other user-
defined parameters.
Competition
- -----------
The market for information technology products and services within the
financial industry is highly competitive. The Company's principal competitors
include internal data processing departments, data processing affiliates of
large companies or large computer hardware manufacturers, independent computer
service firms and processing centers owned and operated as user cooperatives.
Certain competitors possess substantially greater financial, sales and marketing
resources than the Company. Competition for in-house data processing and
software departments is intensified by the efforts of computer hardware vendors
who encourage the growth of internal data centers.
Competitive factors for processing services include product quality,
reliability of service, comprehensiveness and integration of product line,
timely introduction of new products and features, and price. The Company
believes that it competes favorably in each of these categories. In addition,
the Company believes that its position as an independent vendor, rather than as
a cooperative, an affiliate of a larger corporation or a hardware vendor, is a
competitive advantage.
6
<PAGE>
Government Regulation
- ---------------------
The Company's data processing subsidiaries are not themselves directly
subject to federal or state regulations specifically applicable to financial
institutions such as banks, thrifts and credit unions. As a provider of services
to these entities, however, the data processing operations are observed from
time to time by the Federal Deposit Insurance Corporation, the National Credit
Union Association, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and various state regulatory authorities. In
addition, the Company's operations are reviewed annually by an independent
auditor to provide required internal control evaluations for its clients'
auditors and regulators.
As trust companies under Colorado law, First Trust and Lincoln Trust are
subject to the regulations of the Colorado Division of Banking. First Trust and
Lincoln Trust historically have complied with such regulations and although no
assurance can be given, the Company believes First Trust and Lincoln Trust will
continue to be able to comply with such regulations. Commencing in 1991, First
Trust received approval of its application for Federal Deposit Insurance
Corporation coverage of its customer deposits.
The Company's clearing businesses, BHC Securities and affiliates and Fiserv
Correspondent Services (formerly Hanifen, Imhoff Clearing Corp.), are subject to
the broker-dealer rules of the Securities and Exchange Commission and the New
York Stock Exchange, as well as the National Association of Securities Dealers
and other stock exchanges of which they are members.
Employees
- ---------
Fiserv employs approximately 12,500 specialists throughout the United
States and worldwide in its information management centers and related product
and service companies. This service support network includes employees with
backgrounds in computer science and the financial industry, often complemented
by management and other direct experience in banks, credit unions, mortgage
firms, savings and other financial services business environments.
Fiserv employees provide expertise in sales and marketing; account
management and client services; computer operations, network control and
technical support; programming, software development, modification and
maintenance; conversions and client training; financial planning; and related
support services.
Fiserv employees are not represented by a union, and there have been no
work stoppages, strikes or organizational attempts. The service nature of the
Fiserv business makes its employees an important corporate asset, and while the
market for qualified personnel is competitive, the Company does not experience
significant difficulty with hiring or retaining its staff of top industry
professionals. In assessing companies to acquire, the quality and stability of
the prospective company's staff are emphasized.
Management attributes its ability to attract and keep quality employees to,
among other things, the Company's growth and dedication to state-of-the-art
software development tools and hardware technologies.
Item 2. Properties
Fiserv currently operates full-service data centers, software system
development centers and item processing and back-office support centers in 94
cities (78 in the United States):
7
<PAGE>
Birmingham, Alabama; Little Rock, Arkansas; Phoenix and Scottsdale, Arizona;
Covina, Fresno, Fullerton, Irvine, Orange, Sacramento, San Diego, San Leandro,
Van Nuys and Walnut, California; Denver and Englewood, Colorado; New Haven,
Connecticut; Jacksonville, Maitland, Miami, Orlando, Plantation, Tampa and
Titusville, Florida; Atlanta, Macon and Norcross, Georgia; Cedar Rapids and Des
Moines, Iowa; Arlington Heights, Chicago and Marion, Illinois; Indianapolis and
South Bend, Indiana; Topeka, Kansas; Bowling Green, Kentucky; Baton Rouge and
New Orleans, Louisiana; Braintree, Mansfield, Somerville and West Springfield,
Massachusetts; Flint and Troy, Michigan; Mendota Heights and St. Paul,
Minnesota; Lincoln and Omaha, Nebraska; New Providence and Piscataway, New
Jersey; Brooklyn, Lake Success, Melville, New York, Syracuse and Utica, New
York; Greensboro, North Carolina; Fargo, North Dakota; Cleveland, Ohio; Oklahoma
City, Oklahoma; Corvallis and Portland, Oregon; Malvern, King of Prussia,
Philadelphia, Pittsburgh, Valley Forge and Williamsport, Pennsylvania; Newberry,
South Carolina; Amarillo (FM), Beaumont, Dallas, Houston and San Antonio, Texas;
Salt Lake City, Utah; Seattle, Washington; and Brookfield and Milwaukee,
Wisconsin. International business centers are located in Sydney, Australia;
Calgary, Edmonton, Halifax, London, Montreal, Regina, Toronto, Vancouver,
Victoria and Winnipeg, Canada; London, England; Jakarta, Indonesia; Manila,
Philippines; Warsaw, Poland; and Singapore.
The Company owns facilities in Brookfield, Corvallis, Fresno, Lincoln,
Marion, Miami and South Bend; all other buildings in which centers are located
are subject to leases expiring through 1999 and beyond. The Company owns or
leases 140 mainframe computers (Data General, Hewlett Packard, IBM, NCR, Tandem
and Unisys). In addition, the Company maintains its own national data
communication network consisting of communications processors and leased lines.
Fiserv believes its facilities and equipment are generally well maintained
and are in good operating condition. The Company believes that the computer
equipment it owns and its various facilities are adequate for its present and
foreseeable business. Fiserv periodically upgrades its mainframe capability as
needed. Fiserv contracts with multiple sites to provide processing backup in the
event of a disaster and maintains duplicate tapes of data collected and software
used in its business in locations away from the Company's facilities.
Fiserv regards its software as proprietary and utilizes a combination of
trade secrecy law, internal security practices and employee non-disclosure
agreements for protection. The Company believes that legal protection of its
software, while important, is less significant than the knowledge and experience
of the Company's management and personnel and their ability to develop, enhance
and market new products and services. The Company believes that it holds all
proprietary rights necessary for the conduct of its business.
Item 3. Legal Proceedings
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 financial statements of the Company.
8
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
===============================================================================
PART II
===============================================================================
Pursuant to Instruction G(2) for Form 10-K, the information required in
Items 5 through 8 is incorporated by reference from the Company's annual report
to shareholders included in this Form 10-K Annual Report as Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
===============================================================================
PART III
===============================================================================
Pursuant to Instruction G(3) for Form 10-K, the information required in
Items 10 through 13 is incorporated by reference from the Company's definitive
proxy statement which is expected to be filed pursuant to Regulation 14A on or
before February 23, 1999.
===============================================================================
PART IV
===============================================================================
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements:
The consolidated financial statements of the companies as of December 31,
1998 and 1997 and for each of the three years in the period ending December 31,
1998, together with the report thereon of Deloitte & Touche LLP, dated January
29, 1999, appear on pages 23 through 42 of the Company's annual report to
shareholders, Exhibit 13 to this Form 10-K Annual Report, and are incorporated
herein by reference. Deloitte & Touche LLP relied upon the report of other
9
<PAGE>
auditors (Exhibit 99.1) for 1996 as to BHC Financial, Inc. and subsidiaries
(BHC), due to the acquisition of BHC by the Company in 1997 accounted for on a
pooling of interests basis.
(a) (2) Financial Statement Schedule:
The following financial statement schedule of the Company and related
documents are included in this Report on Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 13
Schedule II--Valuation and Qualifying Accounts 13
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(b) Reports on Form 8-K:
During 1998, the Company filed four reports on Form 8-K, as follows:
1. 1997 year-end earnings release filed on January 20, 1998.
2. Shareholders' Rights Plan filed on February 24, 1998.
3. 3-for-2 stock split announcement filed on March 24, 1998.
4. Exchange ratio applicable to CUSA Technologies, Inc. merger filed
on May 8, 1998.
(c) Exhibits:
2.1 Stock Purchase Agreement, dated as of April 6, 1995, by and between Fiserv,
Inc. and Information Technology, Inc. (filed as Exhibit 2.1 to the
Company's Registration Statement on Form S-3, File No. 33-58709, and
incorporated herein by reference).
3.1 Articles of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-4, File No. 333-23349, and
incorporated herein by reference).
3.2 By-laws, as amended (filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-4, File No. 333-47199, and incorporated herein by
reference).
3.3 Shareholder Rights Plan (filed as Exhibit 4 to the Company's Current Report
on Form 8-K dated February 24, 1998 and incorporated herein by reference).
4.1 Credit Agreement dated as of May 17, 1995, as amended, by and among Fiserv,
Inc., the Lenders Party Hereto, First Bank National Association, as Co-
Agent and The Bank of New York, as Agent. (Not being filed herewith, but
will be provided to the Commission upon its request, pursuant to Item
601(b) (4) (iii) (A) of Regulation S-K.)
4.2 Note Purchase Agreement dated as of March 15, 1991, as amended, among
Fiserv, Inc., Aid Association for Lutherans, Northwestern National Life
Insurance Company, Northern Life Insurance Company and The North Atlantic
Life Insurance Company of America. (Not being filed herewith, but will be
provided to the Commission upon its request, pursuant to Item 601(b) (4)
(iii) (A) of Regulation S-K.)
4.3 Note Purchase Agreement dated as of April 30, 1990, as amended, among
Fiserv, Inc. and Teachers Insurance and Annuity Association of America.
(Not being filed herewith,
10
<PAGE>
but will be provided to the Commission upon its request, pursuant to Item
601(b) (4) (iii) (A) of Regulation S-K.)
4.4 Note Purchase Agreement dated as of May 17, 1995, as amended, among Fiserv,
Inc., Teachers Insurance and Annuity Association of America, Massachusetts
Mutual Life Insurance Company, Aid Association for Lutherans, Northern Life
Insurance Company and Northwestern National Life Insurance Company. (Not
being filed herewith, but will be provided to the Commission upon its
request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.)
11. Computation of Shares Used in Computing Diluted Earnings per Share.
13. The 1998 Annual Report to Shareholders.
21. List of Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
99.1 Report of Independent Accountants.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: February 23, 1999
FISERV, INC.
/s/ George D. Dalton
By ________________________________
George D. Dalton
(Chairman of the Board)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following person on behalf of the registrant
and in the capacities indicated on February 23, 1999.
Signature Capacity
/s/ George D. Dalton
_______________________________________
George D. Dalton Chairman of the Board,
Chief Executive Officer
/s/ Leslie M. Muma
_______________________________________
Leslie M. Muma Vice Chairman of the Board,
President, Chief Operating Officer
/s/ Donald F. Dillon
_______________________________________
Donald F. Dillon Vice Chairman of the Board,
Chairman - Information
Technology, Inc.
/s/ Kenneth R. Jensen
_______________________________________
Kenneth R. Jensen Senior Executive Vice President,
Chief Financial Officer,
Treasurer, Director
/s/ Thomas P. Gerrity
_______________________________________
Thomas P. Gerrity Director
/s/ Gerald J. Levy
_______________________________________
Gerald J. Levy Director
/s/ L. William Seidman
_______________________________________
L. William Seidman Director
/s/ Thekla R. Shackelford
_______________________________________
Thekla R. Shackelford Director
12
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Directors of Fiserv, Inc.:
We have audited the consolidated financial statements of Fiserv, Inc. and
subsidiaries as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
January 29, 1999. Such consolidated financial statements and report are included
in your 1998 Annual Report to Shareholders and are incorporated herein by
reference. Our report on the consolidated financial statements indicates that
our opinion as to the amounts included for BHC Financial, Inc. and subsidiaries
for the year ended December 31, 1996, is based solely on the report of other
auditors. Our audits also included the consolidated financial statement schedule
of Fiserv, Inc., listed in Item 14. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 29, 1999
SCHEDULE II
Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Year Ended Beginning Charged
December 31, Balance to Expense Write-offs Balance
------------ ---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
1998 $6,903,000 $4,762,000 ($5,124,000) $6,541,000
1997 3,796,000 3,483,000 (376,000) 6,903,000
1996 5,026,000 (630,000) (600,000) 3,796,000
</TABLE>
13
<PAGE>
EXHIBIT 11
COMPUTATION OF SHARES
USED IN COMPUTING
DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Diluted:
Weighted Average Shares Outstanding 81,915,000 78,014,000 76,490,000
Common Stock Equivalents 2,854,000 2,278,000 1,579,000
------------------------------------------------
Shares Used 84,769,000 80,292,000 78,069,000
================================================
</TABLE>
Note: Above information has been restated to recognize a 3-for-2 stock split
effective May 29, 1998.
14
<PAGE>
EXHIBIT 13
1998 ANNUAL REPORT
FISERV, INC. AND SUBSIDIARIES
15
<PAGE>
[1998]
Consolidated Statements of Income................................. 24
Consolidated Balance Sheets....................................... 25
Consolidated Statements of Changes in Shareholders' Equity........ 26
Consolidated Statements of Cash Flows............................. 27
Notes to Consolidated Financial Statements........................ 28
Management's Discussion and Analysis.............................. 36
Quarterly Financial Information................................... 40
Management's Statement of Responsibility.......................... 41
Independent Auditors' Report...................................... 42
Fiserv, Inc. and Subsidiaries 23
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended December 31, 1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Revenues $ 1,233,670 $ 974,432 $ 879,449
----------- --------- ---------
Cost of Revenues:
Salaries, commissions and payroll
related costs 573,187 454,850 394,932
Data processing expenses, rentals and
telecommunication costs 119,205 100,601 97,721
Other operating expenses 259,126 189,982 164,003
Depreciation and amortization of
property and equipment 60,697 49,119 44,120
Amortization of intangible assets 15,754 14,067 21,391
(Capitalization) amortization of internally
generated computer software--net (3,938) 36 3,732
----------- --------- ---------
Total 1,024,031 808,655 725,899
----------- --------- ---------
Operating Income 209,639 165,777 153,550
Interest expense--net 15,955 11,878 19,088
----------- --------- ---------
Income Before Income Taxes 193,684 153,899 134,462
Income tax provision 79,410 63,099 54,754
----------- --------- ---------
Net Income $ 114,274 $ 90,800 $ 79,708
----------- --------- ---------
Net Income Per Share:
Basic $1.40 $1.16 $1.04
=========== ========= =========
Diluted $1.35 $1.13 $1.02
=========== ========= =========
Shares Used in Computing Net Income
Per Share:
Basic 81,915 78,014 76,490
=========== ========= =========
Diluted 84,769 80,292 78,069
=========== ========= =========
</TABLE>
See notes to consolidated financial statements.
24 Fiserv, Inc. and Subsidiaries
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands)
December 31, 1998 1997
---------- ----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 71,558 $ 89,377
Accounts receivable 246,851 197,771
Securities processing receivables 1,402,650 1,386,169
Prepaid expenses and other assets 83,453 91,278
Trust account investments 1,098,773 1,082,740
Other investments 180,099 125,999
Deferred income taxes 14,545 35,233
Property and equipment--net 179,434 149,055
Internally generated computer software--net 85,821 73,163
Intangible assets--net 595,154 405,706
---------- ----------
Total $3,958,338 $3,636,491
---------- ----------
Liabilities and Shareholders' Equity
Accounts payable $ 65,385 $ 53,828
Securities processing payables 1,207,838 1,184,277
Short-term borrowings 38,350 94,975
Accrued expenses 150,519 123,380
Accrued income taxes 14,768 8,436
Deferred revenues 107,286 67,569
Trust account deposits 1,098,773 1,082,740
Long-term debt 389,622 252,031
---------- ----------
Total Liabilities 3,072,541 2,867,236
Commitments and Contingencies
Shareholders' Equity:
Common stock issued, 83,253,000 and
80,887,000 shares, respectively 833 809
Additional paid-in capital 448,877 427,515
Accumulated other comprehensive income 39,875 16,563
Accumulated earnings 438,642 324,368
Treasury stock, at cost (1,200,000 shares) (42,430)
========== ==========
Total Shareholders' Equity 885,797 769,255
========== ==========
Total $3,958,338 $3,636,491
========== ==========
</TABLE>
See notes to consolidated financial statements.
Fiserv, Inc. and Subsidiaries 25
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1998 1997 1996
-------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Shares Issued--150,000,000 Authorized:
Balance at beginning of year 53,925 51,032 50,571
Shares issued under stock plans--net 495 585 327
Shares issued for acquired companies 1,132 2,308 134
Three-for-two stock split 27,701
-------- -------- --------
Balance at end of year 83,253 53,925 51,032
-------- -------- --------
Common Stock--Par Value $.01 Per Share:
Balance at beginning of year $ 539 $ 510 $ 506
Shares issued under stock plans--net 5 6 3
Shares issued for acquired companies 11 23 1
Three-for-two stock split 278
-------- -------- --------
Balance at end of year 833 539 510
-------- -------- --------
Additional Paid-in Capital:
Balance at beginning of year 427,785 352,916 345,448
Shares issued under stock plans--net 5,036 10,034 4,893
Income tax reduction arising from the
exercise of employee stock options 8,000 5,000 2,000
Shares issued for acquired companies 8,334 59,835 575
Three-for-two stock split (278)
-------- -------- --------
Balance at end of year 448,877 427,785 352,916
-------- -------- --------
Accumulated Other Comprehensive Income:
Balance at beginning of year 16,563 18,904 15,052
Unrealized gain (loss) on investments 23,492 $23,492 (2,179) ($2,179) 3,353 $3,353
Foreign currency translation adjustment (180) (180) (162) (162) 499 499
-------- -------- --------
Balance at end of year 39,875 16,563 18,904
-------- -------- --------
Accumulated Earnings:
Balance at beginning of year 324,368 233,568 153,860
Net income 114,274 114,274 90,800 90,800 79,708 79,708
-------- -------- -------- -------- -------- -------
Balance at end of year 438,642 324,368 233,568
--------- --------- ---------
Treasury Stock at Cost--1,200,000 Shares (42,430)
--------
Total Comprehensive Income $137,586 $88,459 $83,560
-------- -------- -------
Total Shareholders' Equity $885,797 $769,255 $605,898
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
26 Fiserv, Inc. and Subsidiaries
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 114,274 $ 90,800 $ 79,708
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 2,463 4,234 2,225
Depreciation and amortization of
property and equipment 60,697 49,119 44,120
Amortization of intangible assets 15,754 14,067 21,391
(Capitalization) amortization of internally
generated computer software - net (3,938) 36 3,732
--------- -------- --------
189,250 158,256 151,176
Cash provided (used) by changes in assets
and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable (22,860) (19,191) (4,881)
Securities processing receivables/payables - net 7,080 (5,948) (3,660)
Prepaid expenses and other assets 9,618 (7,073) 8,252
Accounts payable and accrued expenses 32,422 23,681 8,034
Deferred revenues 21,197 17,313 5,232
Accrued income taxes 13,109 2,520 5,961
--------- -------- --------
Net cash provided by operating activities 249,816 169,558 170,114
--------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures (77,542) (39,765) (39,450)
Payment for acquisition of businesses,
net of cash acquired (217,792) (65,017) (8,025)
Investments (30,779) (167,812) (133,979)
Due on sale of investments 97,446
--------- -------- --------
Net cash used by investing activities (326,113) (272,594) (84,008)
--------- -------- --------
Cash Flows from Financing Activities:
Repayment of short-term obligations - net (56,625) (7,900) (8,700)
Proceeds from borrowings on long-term obligations 143,245 18,120 6,000
Repayment of long-term obligations (6,785) (41,316) (116,940)
Issuance of common stock 5,041 10,040 4,896
Purchases of treasury stock (42,430)
Trust account deposits 16,032 112,187 53,364
--------- -------- --------
Net cash provided (used) by financing activities 58,478 91,131 (61,380)
--------- -------- --------
Change in cash and cash equivalents (17,819) (11,905) 24,726
Beginning balance 89,377 101,282 76,556
--------- -------- --------
Ending balance $ 71,558 $ 89,377 $101,282
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
Fiserv, Inc. and Subsidiaries 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ending December 31, 1998, 1997 and 1996
[Note 1] Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash and investments with original maturities
of 90 days or less.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets at December 31, 1998 and 1997 include
$10,180,000 and $10,526,000, respectively, relating to long-term contracts, the
profit from which is being recognized ratably over the periods to be benefited.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 carrying amounts of cash and cash equivalents, accounts receivable and
payable, securities processing receivables and payables, short and long-term
borrowings and derivative instruments approximated fair value as of December 31,
1998 and 1997.
Derivative Instruments
Interest rate hedge transactions are utilized to manage interest rate exposure.
The interest differential on interest rate swap contracts used to hedge
underlying debt obligations is reflected as an adjustment to interest expense
over the life of the contracts.
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, 1998 and 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1998 1997
---------- ----------
Receivables:
Securities failed to deliver $33,918 $22,280
Securities borrowed 586,210 495,834
Receivables from customers 758,669 833,348
Other 23,853 34,707
---------- ----------
Total $1,402,650 $1,386,169
========== ==========
Payables:
Securities failed to receive $20,935 $32,091
Securities loaned 703,164 567,253
Payables to customers 389,372 488,404
Other 94,367 96,529
---------- ----------
Total $1,207,838 $1,184,277
========== ==========
</TABLE>
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.
Short-Term Borrowings
The Company's securities processing subsidiaries had short-term bank loans
payable of $38,350,000 and $94,975,000 as of December 31, 1998 and 1997,
respectively, which bear interest at the respective bank's call rate and were
collateralized by customers' margin account securities.
Trust Account Investments and Deposits
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 $1,098,773,000 and $1,082,740,000 in 1998 and 1997,
respectively. The related investment securities, including amounts representing
Company funds, comprised the following at December 31:
28 Fiserv, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
(In thousands) Principal Carrying Market
1998 Amount Value Value
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Government and government
agency obligations $ 756,928 $ 765,152 $ 766,708
Corporate bonds 5,492 5,494 5,501
Repurchase agreements 41,370 41,370 41,370
Other fixed income obligations 357,230 358,710 360,496
---------- ---------- ----------
Total $1,161,020 1,170,726 $1,174,075
========== ========== ==========
Less amounts representing Company funds:
Included in cash and cash equivalents 756
Included in other investments 71,197
----------
Trust account investments $1,098,773
==========
1997
U.S. Government and government
agency obligations $ 671,384 $682,218 $ 686,765
Corporate bonds 18,326 18,371 18,364
Repurchase agreements 95,227 95,227 95,227
Other fixed income obligations 371,514 370,714 371,840
---------- ---------- ----------
Total $1,156,451 1,166,530 $1,172,196
========== ========== ==========
Less amounts representing Company funds:
Included in cash and cash equivalents 22,985
Included in other investments 60,805
----------
Trust account investments $1,082,740
==========
</TABLE>
Substantially all of the investments at December 31, 1998 have contractual
maturities of one year or less except for government agency and certain fixed
income obligations which have an average duration of approximately two years and
six months.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using primarily the straight-line method over the estimated useful
lives of the assets, ranging from three to 40 years:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1998 1997
-------- --------
<S> <C> <C>
Data processing equipment $227,346 $197,422
Purchased software 73,446 58,161
Buildings and leasehold improvements 75,158 56,307
Furniture and equipment 88,915 58,279
-------- --------
464,865 370,169
Less accumulated depreciation and amortization 285,431 221,114
-------- --------
Total $179,434 $149,055
======== ========
</TABLE>
Fiserv, Inc. and Subsidiaries 29
<PAGE>
Internally Generated Computer Software
Certain costs incurred to develop new software and enhance existing software are
capitalized and amortized over the expected useful life of the product,
generally five years. Activity during the three years ended December 31, 1998
was as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Beginning balance $ 73,163 $70,487 $73,863
Capitalized costs 30,579 25,011 26,366
Acquisitions--net 8,720 2,712 356
-------- ------- -------
112,462 98,210 100,585
Less amortization 26,641 25,047 30,098
-------- ------- -------
Total $ 85,821 $73,163 $70,487
======== ======= =======
</TABLE>
During the fourth quarters of 1997 and 1996, the Company recorded charges of
$3,207,000 and $5,443,000, respectively, relating to the accelerated
amortization of software resulting from the planned consolidation of certain
product lines. Routine maintenance of software products, design costs and
development costs incurred prior to establishment of a product's technological
feasibility are expensed as incurred. In addition, Year 2000 costs are expensed
as incurred.
Intangible Assets
Intangible assets relate to acquisitions and consist of the following at
December 31:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
-------- --------
<S> <C> <C>
Goodwill $590,684 $387,750
Other 96,571 95,240
-------- --------
687,255 482,990
Less accumulated amortization 92,101 77,284
-------- --------
Total $595,154 $405,706
======== ========
</TABLE>
The excess of the purchase price over the estimated fair value of tangible and
identifiable intangible assets acquired has been recorded as goodwill and is
being amortized over 40 years. Other intangible assets comprise primarily
computer software, contract rights, customer bases and trademarks applicable to
business acquisitions. These assets are being amortized using the straight-line
method over their estimated useful lives, ranging from three to 35 years. The
Company periodically reviews goodwill and other long-lived assets to assess
recoverability, and impairments would be recognized in operating results if a
permanent diminution in value were to occur.
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.
Revenue Recognition
Revenues from the sale of data processing services to financial institutions and
administration of self-directed retirement plans are recognized as the related
services are provided. Revenues include net investment income of $77,457,000,
$63,620,000 and $49,237,000, net of direct credits to customer accounts of
$50,180,000, $46,006,000 and $40,686,000 in 1998, 1997 and 1996, respectively.
Deferred revenues consist primarily of advance billings for services and are
recognized as revenue when the services are provided. Revenues from the sales of
software are recognized in accordance with the AICPA's Statement of Position No.
97-2, "Software Revenue Recognition".
Income Per Share
Basic income per share is computed using the weighted average number of common
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. Income per share for prior years has been
restated to reflect a three-for-two stock split effective in May 1998.
Supplemental Cash Flow Information
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest paid $21,111 $17,358 $22,942
Income taxes paid 66,066 58,643 45,308
Liabilities assumed in acquisitions
of businesses 39,816 197,235 1,596
</TABLE>
30 Fiserv, Inc. and Subsidiaries
<PAGE>
[Note 2] Acquisitions and Capital Transactions
Acquisitions
During 1998, 1997 and 1996 the Company completed the following acquisitions:
<TABLE>
<CAPTION>
Month
Company Acquired Service Consideration
-------- --------------------------------- -------------
<S> <C> <C> <C>
1998:
Automated Financial Technology, Inc. Jan. Account Processing Stock for stock
PSI Group laser printing and Feb. Laser printing Cash for assets
custom packing operations
The LeMans Group Feb. Automobile leasing software Cash for stock
Network Data Processing Corporation Apr. Insurance data processing Stock for stock
CUSA Technologies, Inc. Apr. Software and services Stock for stock
Specialty Insurance Service May Insurance data processing Cash for stock
Deluxe Card Services, a division of Aug. Automated card services Cash for assets
Deluxe Corporation
Federal Home Loan Bank of Topeka Oct. Item processing Cash for assets
item processing contracts
Life Instructors, Inc. Oct. Insurance and securities training Cash for stock
FiCATS Oct. Item processing Cash for assets
ASI Financial Services, Inc. Nov. PC-based financial systems Cash for stock
The FREEDOM Group, Inc. Dec. Insurance data processing Cash for stock
1997:
AdminaStar Communications Apr. Laser print and mailing services Cash for stock
Interactive Planning Systems May Financial processing systems Stock for stock
BHC Financial, Inc. May Securities processing services Stock for stock
Florida Infomanagement Services, Inc. (FIS, Inc.) Sep. Data processing and software Cash for stock
sales
Stephens Inc., clearing brokerage operations Sep. Securities processing services Cash for assets
Emerald Publications Oct. Financial seminars and training Stock for stock
Central Service Corp. Oct. Data processing Cash for stock
Savoy Discount Brokerage Oct. Securities processing services Cash for stock
Hanifen, Imhoff Holdings, Inc. Dec. Securities processing services Cash and stock
for stock
1996:
UniFi, Inc. Jan. Software and services Cash for stock
Bankers Pension Services, Inc. Nov. Retirement plan administrators Stock for stock
</TABLE>
Generally, the acquisitions were accounted for as purchases and, accordingly,
the operations of the acquired companies are included in the consolidated
financial statements since their respective dates of acquisition as set forth
above. Pro forma information for acquisitions accounted for as purchases is not
presented as the impact was not material. Certain of the acquisitions were
accounted for as poolings of interests. Except for the 1997 acquisition of BHC
Financial, Inc. (BHC), prior year financial statements were not restated because
the aggregate effect was not material.
Fiserv, Inc. and Subsidiaries 31
<PAGE>
In connection with certain acquisitions consummated in 1998, the Company issued
approximately 490,000 unregistered shares of its common stock. The Company
relied upon the exemption provided in Section 4(2) of the Securities Act of 1933
and Rule 505 of Regulation D, based upon the number of shareholders of the
respective companies and the aggregate value of the transactions. No underwriter
was involved in the transactions and no commission was paid.
Stock Option Plan
The Company's Stock Option 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, generally, 10 years from the date of
the award. Activity under the current and prior plans during 1996, 1997 and
1998, adjusted for a three-for-two stock split effective May 29, 1998, is
summarized as follows:
<TABLE>
<CAPTION>
Shares
---------------------- Weighted
Non- Average
Incentive Qualified Price Range Exercise Price
---------------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1995 30,420 3,574,770 $ 1.09 - 18.33 $11.25
Granted 926,031 17.67 - 24.50 19.63
Forfeited (133,720) 7.65 - 20.33 13.41
Exercised (27,885) (464,966) 1.09 - 20.33 10.37
----------------------
Outstanding, December 31, 1996 2,535 3,902,115 3.85 - 24.50 13.26
Assumed from BHC 843,426 4.87 - 21.00 11.83
Granted 1,034,104 24.00 - 32.67 25.32
Forfeited (76,551) 4.14 - 24.00 19.17
Exercised (2,535) (960,547) 3.85 - 24.00 13.05
----------------------
Outstanding, December 31, 1997 0 4,742,547 4.14 - 32.67 15.57
Granted 1,784,803 32.75 - 47.38 36.23
Forfeited (98,020) 6.76 - 36.00 29.22
Exercised (791,415) 4.14 - 36.00 12.64
----------------------
Outstanding, December 31, 1998 0 5,637,915 4.14 - 47.38 21.85
----------------------
Shares exercisable, December 31, 1998 0 3,562,594
----------------------
</TABLE>
Options outstanding include 87,000 and 223,000 shares granted in January 1997
and 1998 at $24.29 and $32.75 per share, respectively, under a stock purchase
plan requiring exercise within 30 days after a two-year period beginning on the
date of grant.
At December 31, 1998, options to purchase 2,570,000 shares were available for
grant under the Plan. The Company has accounted for its stock-based compensation
plans in accordance with the provisions of APB Opinion 25. Accordingly, the
Company did not record any compensation expense in the accompanying financial
statements for its stock-based compensation plans. Had compensation expense been
recognized consistent with Statement of Financial Accounting Standards (SFAS)
No.123, "Accounting for Stock-Based Compensation", the Company's net income
would have been reduced by approximately $3,700,000, $2,200,000 and $981,000 in
1998, 1997 and 1996, respectively. Earnings per share-diluted would have been
reduced by $.04, $.03 and $.01 in 1998, 1997 and 1996, respectively. The
assumptions used to estimate compensation expense for 1998 were: expected
volatility of 18.3%, risk-free interest rate of 4.6% and expected option lives
of five years.
Shareholder Rights Plan
On February 23, 1998 the Company adopted a Shareholder Rights Plan (the Plan).
Under the Plan, the shareholders of record as of March 9, 1998 were granted a
dividend of one preferred stock purchase right for each outstanding share of
Company common stock. The stock purchase rights are not exercisable until
certain events occur. The Company filed a Form 8-K with the Securities and
Exchange Commission on February 24, 1998 which provides a full description of
the Plan.
32 Fiserv, Inc. and Subsidiaries
<PAGE>
[Note 3] Long-Term Debt
The Company has available a $330,000,000 unsecured line of credit and commercial
paper facility with a group of banks, of which $248,000,000 was in use at
December 31, 1998 at an average rate of 5.73%. The loan agreements covering the
Company's long-term borrowings contain certain restrictive covenants including,
among other things, the maintenance of minimum net worth and various operating
ratios with which the Company was in compliance at December 31, 1998. A facility
fee ranging from 0.1% to 0.2% per annum is required on the entire bank line
regardless of usage. The facility is reduced to $150,000,000, on May 17, 1999
and expires on May 17, 2000. The Company plans to refinance the bank facility
prior to May 17, 1999.
During 1998, the Company entered into interest rate swap agreements to fix the
interest rate on certain floating rate debt at an average rate approximating
5.75% (based on current bank fees) for a principal amount of $200,000,000 with a
remaining life of five to seven years.
Long-term debt outstanding at the respective year-ends comprised the following:
<TABLE>
<CAPTION>
(in thousands)
December 31, 1998 1997
-------- --------
<S> <C> <C>
9.45% senior notes payable,
due 1999-2000 $ 8,571 $ 12,857
9.75% senior notes payable,
due 1999-2001 7,500 10,000
8.00% senior notes payable,
due 1999-2005 90,000 90,000
Bank notes and
commercial paper 279,641 136,585
Other obligations 3,910 2,589
-------- --------
Total $389,622 $252,031
======== ========
</TABLE>
Annual principal payments required under the terms of the long-term agreements
were as follows at December 31, 1998:
<TABLE>
<CAPTION>
(in thousands)
Year
<S> <C>
1999 $131,786
2000 186,215
2001 16,811
2002 13,857
2003 13,857
Thereafter 27,096
--------
Total $389,622
========
</TABLE>
Interest expense with respect to long-term debt amounted to $21,330,000,
$16,964,000 and $22,431,000 in 1998, 1997 and 1996, respectively.
[Note 4] Income Taxes
A reconciliation of recorded income tax expense with income tax computed at the
statutory federal tax rates is as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Statutory federal tax rate 35% 35% 35%
Tax computed at
statutory rate $67,789 $53,865 $47,062
State income taxes - net
of federal effect 7,601 5,995 5,093
Non-deductible
amortization 2,737 1,408 1,504
Other 1,283 1,831 1,095
------- ------- -------
Total $79,410 $63,099 $54,754
======= ======= =======
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Currently payable $68,947 $53,865 $50,068
Tax reduction credited
to additional
paid-in capital 8,000 5,000 2,000
Deferred 2,463 4,234 2,686
------- ------- -------
Total $79,410 $63,099 $54,754
======= ======= =======
</TABLE>
Fiserv, Inc. and Subsidiaries 33
<PAGE>
The approximate tax effects of temporary differences at December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
-------- --------
<S> <C> <C>
Purchased incomplete
software technology $ 52,276 $ 56,888
Accrued expenses not
currently deductible 25,329 18,862
Deferred revenues 14,558 8,688
Other (5,512) (1,789)
Internally generated
capitalized software (35,188) (29,999)
Excess of tax over book
depreciation and amortization (9,167) (5,992)
Unrealized gain
on investments (27,751) (11,425)
-------- --------
Total $ 14,545 $ 35,233
======== ========
</TABLE>
[Note 5] Employee Benefit Programs
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 also makes discretionary contributions based upon the
attainment of certain profit goals. Company contributions vest at the rate of
20% for each year of service. Contributions charged to operations under these
plans approximated $16,948,000, $14,383,000 and $10,074,000 in 1998, 1997 and
1996, respectively.
[Note 6] Leases, Other Commitments and Contingencies
Leases
Future minimum rental payments, as of December 31, 1998, on various operating
leases for office facilities and equipment were due as follows:
<TABLE>
<CAPTION>
(in thousands)
Year
<S> <C>
1999 $ 56,547
2000 48,102
2001 35,721
2002 28,019
2003 20,598
Thereafter 33,554
--------
Total $222,541
========
</TABLE>
Rent expense applicable to all operating leases was approximately $72,172,000,
$55,515,000 and $52,638,000 in 1998, 1997 and 1996, respectively.
Other Commitments and Contingencies
The Company's trust administration subsidiaries had fiduciary responsibility for
the administration of approximately $22 billion in trust funds as of December
31, 1998. With the exception of the trust account investments discussed in Note
1, such amounts are not included in the accompanying 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, 1998,
the aggregate net capital of such subsidiaries was $135,584,000, exceeding the
net capital requirement by $118,744,000.
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 financial statements of the Company.
34 Fiserv, Inc. and Subsidiaries
<PAGE>
[Note 7] Business Segment Information
The Company is a leading independent provider of financial data processing
systems and related information management services and products to financial
institutions and other financial intermediaries. In accordance with SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information" the
Company's operations have been classified into three business segments:
financial institution data processing and software services, securities
processing and trust services and other (including corporate). Summarized
financial information by business segment for each of the three years in the
period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
(in thousands)
Year ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Financial institution data processing and
software services $ 951,010 $ 753,209 $ 696,827
Securities processing and trust services 234,699 179,217 157,976
Other 47,961 42,006 24,646
---------- ---------- ----------
Total $1,233,670 $ 974,432 $ 879,449
---------- ---------- ----------
Operating income:
Financial institution data processing and
software services $ 148,774 $ 117,467 $ 101,240
Securities processing and trust services 70,074 51,770 51,431
Other (9,209) (3,460) 879
---------- ---------- ----------
Total $ 209,639 $ 165,777 $ 153,550
---------- ---------- ----------
Identifiable assets:
Financial institution data processing and
software services $1,049,741 $ 798,237 $ 775,976
Securities processing and trust services 2,790,318 2,753,523 1,871,858
Other 118,279 84,731 51,145
---------- ---------- ----------
Total $3,958,338 $3,636,491 $2,698,979
---------- ---------- ----------
Depreciation expense:
Financial institution data processing and
software services $ 46,880 $ 38,098 $ 35,876
Securities processing and trust services 8,631 7,285 6,817
Other 5,186 3,736 1,427
---------- ---------- ----------
Total $ 60,697 $ 49,119 $ 44,120
---------- ---------- ----------
Capital expenditures:
Financial institution data processing and
software services $ 60,075 $28,627 $ 28,541
Securities processing and trust services 11,255 6,667 6,627
Other 6,212 4,471 4,282
---------- ---------- ----------
Total $ 77,542 $ 39,765 $ 39,450
---------- ---------- ----------
</TABLE>
Fiserv, Inc. and Subsidiaries 35
<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 and the percentage change in those items from period
to period.
<TABLE>
<CAPTION>
Percentage of Revenues Period to Period Percentage
Year Ended December 31, Increase (Decrease)
---------------------------- -----------------------------
1998 vs. 1997 vs.
1998 1997 1996 1997 1996
---------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 26.6% 10.8%
----------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 46.4 46.7 44.9 26.0 15.2
Data processing expenses, rentals
and telecommunication costs 9.7 10.3 11.1 18.5 2.9
Other operating costs 21.0 19.5 18.6 36.4 15.8
Depreciation and amortization of
property and equipment 4.9 5.0 5.0 23.6 11.3
Amortization of intangible assets 1.3 1.5 2.4 12.0 (34.2)
(Capitalization) amortization of
internally generated computer
software--net (0.3) 0.4
----------------------------
Total cost of revenues 83.0 83.0 82.4 26.6 11.4
===========================
Operating income 17.0% 17.0% 17.6% 26.5 8.0
===========================
Income before income taxes 15.7% 15.8% 15.3% 25.9 14.5
===========================
Net income 9.3% 9.3% 9.1% 25.9 13.9
===========================
</TABLE>
Revenues increased $259,238,000 in 1998 and $94,983,000 in 1997. In 1998 and
1997, approximately 60% and 50%, respectively, of the growth resulted from the
inclusion of revenues from the date of purchase of acquired businesses as set
forth in Note 2 to the financial statements and the balance in each year from
the net addition of new clients, growth in the transaction volume experienced by
existing clients and price increases.
Cost of revenues increased $215,376,000 in 1998 and $82,756,000 in 1997. As a
percentage of revenues, cost of revenues remained the same in 1997 and 1998, and
increased .6% from 1996 to 1997. The make up of cost of revenues has been
affected in all years by business acquisitions and by changes in the mix of the
Company's business as sales of software and related support activities and
securities processing operations have enjoyed an increasing percentage of total
revenues.
A portion of the purchase price of the Company's acquisitions has been allocated
to intangible assets, such as goodwill, computer software and client contracts,
which are being amortized over time, generally three to 40 years. Amortization
of these costs increased $1,687,000 from 1997 to 1998 and decreased $7,324,000
from 1996 to 1997. As a percentage of revenues, intangible amortization has
decreased over the last three years due primarily to accelerated amortization in
1997 and 1996 for completed software acquired in the acquisition of Information
Technology, Inc. in 1995.
Capitalization of internally generated computer software is stated net of
amortization and increased $3,974,000 in 1998 and $3,696,000 in 1997. Net
internally generated software capitalized increased in 1998 as both 1997 and
1996 included accelerated amortization of software resulting from the planned
consolidation of certain product lines.
36 Fiserv, Inc. and Subsidiaries
<PAGE>
Operating income increased $43,862,000 in 1998 and $12,227,000 in 1997. As a
percentage of revenues, operating income was substantially identical in both
years.
The effective income tax rate was 41% in all three years, and the effective
income tax rate for 1999 is expected to remain at 41%.
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.
The following supplemental schedule presents the results of operations of the
Company for the periods presented as originally reported before restatement of
1996 for BHC Financial, Inc.
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended December 31, 1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Revenues $1,233,670 $974,432 $798,268
---------- -------- --------
Cost of Revenues:
Salaries, commissions and payroll related costs 573,187 454,850 371,526
Data processing expenses, rentals and
telecommunication costs 119,205 100,601 90,919
Other operating expenses 259,126 189,982 145,230
Depreciation and amortization of
property and equipment 60,697 49,119 42,241
Amortization of intangible assets 15,754 14,067 20,983
(Capitalization) amortization of internally
generated computer software -- net (3,938) 36 3,732
---------- -------- --------
Total 1,024,031 808,655 674,631
---------- -------- --------
Operating Income 209,639 165,777 123,637
Interest expense -- net 15,955 11,878 19,088
---------- -------- --------
Income Before Income Taxes 193,684 153,899 104,549
Income tax provision 79,410 63,099 42,865
---------- -------- --------
Net Income $ 114,274 $ 90,800 $ 61,684
---------- -------- --------
Net income per common share:
Diluted $ 1.35 $ 1.13 $ 0.89
---------- -------- --------
Shares used in computing net income per share:
Diluted 84,769 80,292 69,297
---------- -------- --------
</TABLE>
Fiserv, Inc. and Subsidiaries 37
<PAGE>
YEAR 2000 SYSTEMS EVALUATION
The Company provides data processing and other related services to financial
institutions of all kinds. Failure by the Company in making its proprietary
software systems Year 2000 compliant would have a material adverse effect on its
business. The Company believes, however, that its remediation process started in
1996 will be successful and anticipates no material processing problems.
The Company has completed its assessment of its proprietary systems and has
largely completed upgrading and revising the software it will continue to use in
providing service to its clients. The Company anticipates that all of its
proprietary systems will be completely upgraded to Year 2000 compliance, tested
(including client testing) and implemented by March 31, 1999. The Company's
contingency plans provide for a variety of actions in the event that a business
unit has not progressed sufficiently to meet its remediation goals, including
adding necessary resources, and/or migration of clients to other Company
software that is Year 2000 compliant. The Company does not anticipate the need
for these contingency plans based on the current system remediation status.
Testing and implementation of the remaining non-mission critical systems, which
are not material to the Company's business, are expected to be completed by mid-
1999.
The Company has received Year 2000 disclosures prepared by its principal vendors
indicating that they will be Year 2000 compliant in all material respects. The
Company's contingency plans include actions required should any vendor
experience Year 2000-related problems. In addition, the Company has no reason to
believe that its clients will not be Year 2000 compliant in all material
respects, and in many cases has assisted its clients in their Year 2000 efforts.
The Company believes that it has and will continue to meet its Year 2000
compliance commitments using existing resources, without incurring significant
incremental expenses. Although the Company does not maintain accounting records
that separately identify all of the costs associated with its Year 2000
activities, it has estimated that commencing with 1996 such costs have
approximated $15 million a year. Estimated cost for the year 1999 when the
project is scheduled for completion is approximately $10 to $12 million.
The disclosure set forth above contains forward-looking statements.
Specifically, such statements are contained in sentences including the words
"expect" or "anticipate" or "could" or "should". Such forward-looking statements
are subject to inherent risks and uncertainties that may cause actual results to
differ materially from those contemplated by such forward-looking statements.
The factors that may cause actual results to differ materially from those
contemplated by the forward-looking statements include the failure by third
parties to adequately remediate Year 2000 issues or the inability of the Company
to complete writing and/or testing software changes on the time schedules
currently expected. Nevertheless, the Company expects that its Year 2000
compliance efforts will be successful without any adverse effects on its
business.
38 Fiserv, Inc. and Subsidiaries
<PAGE>
Liquidity and Capital Resources
The following table summarizes the Company's primary sources of funds:
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Cash provided by operating activities before changes in
securities processing receivables and payables--net $242,736 $175,506 $ 173,774
Securities processing receivables and payables--net 7,080 (5,948) (3,660)
-------- -------- ---------
Cash provided by operating activities 249,816 169,558 170,114
(Purchases) issuance of common stock--net (37,389) 10,040 4,896
(Increase) decrease in investments (14,747) (55,625) 16,831
Increase (decrease) in net borrowings 79,835 (31,096) (119,640)
-------- -------- ---------
Total $277,515 $ 92,877 $ 72,201
======== ======== =========
</TABLE>
The Company has applied a significant portion of its cash flow from operations
to acquisitions and capital expenditures with any remainder in 1997 and 1996
applied to the reduction of long-term debt.
The Company believes that its cash flow from operations together with other
available sources of funds will be adequate to meet its funding requirements. In
the event that the Company makes significant future acquisitions, however, it
may raise funds through additional borrowings or issuance of securities.
Selected Financial Data
The following data, which has been materially affected by acquisitions, should
be read in conjunction with the financial statements and related notes thereto
included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended December 31, 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $1,233,670 $ 974,432 $ 879,449 $ 769,104 $ 635,297
Income (loss) before income taxes 193,684 153,899 134,462 (76,146) 84,098
Income taxes (credit) 79,410 63,099 54,754 (30,220) 33,067
Net income (loss) 114,274 90,800 79,708 (45,926) 51,031
Net income (loss) per share:
Basic $1.40 $1.16 $1.04 $(0.62) $0.73
---------- ---------- ---------- ---------- ----------
Diluted $1.35 $1.13 $1.02 $(0.62) $0.72
---------- ---------- ---------- ---------- ----------
As originally reported--Diluted $1.35 $1.13 $0.89 $0.75 $0.63
---------- ---------- ---------- ---------- ----------
Total assets $3,958,338 $3,636,491 $2,698,979 $2,514,597 $2,204,832
Long-term debt 389,622 252,031 272,864 383,416 150,599
Shareholders' equity 885,797 769,255 605,898 514,866 425,389
</TABLE>
Note: The above information has been restated to recognize (1) a three-for-two
stock split effective in May 1998 and (2) the acquisitions of Lincoln Holdings,
Inc. in 1995 and of BHC Financial, Inc. in 1997 accounted for as poolings of
interests. The net income (loss) per share as originally reported is before
restatements due to poolings of interests and excludes the one-time after-tax
charges of $1.66 per share related to the acquisition of Information Technology,
Inc. in 1995.
Fiserv, Inc. and Subsidiaries 39
<PAGE>
QUARTERLY FINANCIAL INFORMATION
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Quarters
-----------------------------------------------
1998 First Second Third Fourth Total
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $273,829 $311,220 $309,543 $339,078 $1,233,670
Cost of revenues 224,445 258,398 256,609 284,579 1,024,031
-------- -------- -------- -------- ----------
Operating income 49,384 52,822 52,934 54,499 209,639
-------- -------- -------- -------- ----------
Income before income taxes 46,017 48,594 48,936 50,137 193,684
Income taxes 18,867 19,924 20,063 20,556 79,410
-------- -------- -------- -------- ----------
Net income $ 27,150 $ 28,670 $ 28,873 $ 29,581 $ 114,274
-------- -------- -------- -------- ----------
Net income per share:
Basic $ 0.34 $ 0.34 $ 0.35 $ 0.36 $ 1.40
======== ======== ======== ======== ==========
Diluted $ 0.33 $ 0.33 $ 0.34 $ 0.35 $ 1.35
======== ======== ======== ======== ==========
1997
Revenues $228,319 $238,386 $238,255 $269,472 $ 974,432
Cost of revenues 186,522 199,748 196,252 226,133 808,655
-------- -------- -------- -------- ----------
Operating income 41,797 38,638 42,003 43,339 165,777
-------- -------- -------- -------- ----------
Income before income taxes 38,310 35,297 39,302 40,990 153,899
Income taxes 15,707 14,472 16,114 16,806 63,099
-------- -------- -------- -------- ----------
Net income $ 22,603 $ 20,825 $ 23,188 $ 24,184 $ 90,800
-------- -------- -------- -------- ----------
Net income per share:
Basic $ 0.29 $ 0.27 $ 0.30 $ 0.31 $ 1.16
======== ======== ======== ======== ==========
Diluted $ 0.29 $ 0.26 $ 0.29 $ 0.30 $ 1.13
======== ======== ======== ======== ==========
</TABLE>
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 National Market tier of the
Nasdaq Stock Market under the symbol FISV. Information for quarters ended March
31, 1998 and prior has been adjusted (to the nearest 1/32) to recognize a three-
for-two stock split effective May 29, 1998.
<TABLE>
<CAPTION>
1998 1997
- ------------- ------------------- ---------------------
Quarter Ended High Low High Low
- ------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
March 31 42 1/4 31 26 21 13/16
June 30 44 29/32 38 29 3/4 24 1/2
September 30 49 39 33 29 1/4
December 31 53 1/8 38 1/4 33 13/32 26 1/2
</TABLE>
At December 31, 1998, the Company's common stock was held by 2,534 shareholders
of record. It is estimated that an additional 28,000 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 19, 1999 was $51.625 per
share.
The Company's present policy is to retain earnings to support future business
opportunities, rather than to pay dividends.
40 Fiserv, Inc. and Subsidiaries
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of Fiserv, Inc. assumes responsibility for the integrity and
objectivity of the information appearing in the 1998 Annual Report. This
information was prepared in conformity with generally accepted accounting
principles 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.
Deloitte & Touche LLP, certified public accountants, audit the financial
statements of the Company in accordance with generally accepted auditing
standards. 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/ George D. Dalton
- -------------------------------------
George D. Dalton
Chairman and Chief Executive Officer
Fiserv, Inc. and Subsidiaries 41
<PAGE>
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, 1998 and 1997 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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 did not audit the
financial statements of BHC Financial, Inc. and subsidiaries for the year ended
December 31, 1996 which statements reflect total revenues of $81,181,000 for the
year then ended. Those financial statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for BHC Financial, Inc. and subsidiaries for such period, is
based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Fiserv, Inc. and subsidiaries at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Milwaukee, Wisconsin
January 29, 1999
42 Fiserv, Inc. and Subsidiaries
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State (Country) of
Name under which Subsidiary does Business Incorporation
<S> <C>
Aspen Investment Alliance, Inc. Colorado
BMS On-Line, Inc. Massachusetts
Data-Link Systems, LLC Wisconsin
FIserv CIR, Inc. Delaware
FIserv Federal Systems, Inc. Delaware
FIserv Fresno, Inc. California
FIserv Government Services, Inc. Delaware
FIserv Joint Venture, Inc. Delaware
Fiserv Solutions, Inc. Wisconsin
FIserv (Europe) Ltd. United Kingdom
FIserv (ASPAC) Pte., Ltd. Singapore
Fiserv Australia Pty Limited Australia
Pt Fiserv Indonesia Indonesia
First Retirement Marketing, Inc. Colorado
First Trust Corporation Colorado
Information Technology, Inc. Nebraska
Lincoln Trust Company Colorado
The Affinity Group, Inc. Colorado
Fiserv Solutions of Canada Inc. Ontario
Fiserv Clearing, Inc. Delaware
BHC Investments, Inc. Delaware
BHC Trading Corporation Delaware
NetVest, Inc. Delaware
BHC Securities, Inc. Delaware
TradeStar Investments, Inc. Delaware
Fiserv Investor Services, Inc. Delaware
BHCM Insurance Agency, Inc. Delaware
F.T. Agency, Inc. Ohio
Tower Agency, Inc. Ohio
Fiserv Insurance Agency of Alabama, Inc. Alabama
Fiserv Correspondent Services, Inc. Colorado
Investment Consulting Group, Inc. Colorado
FCS Funding, Inc. Colorado
WUB2 Management Company Colorado
WUB3 Capital Management, Inc. Colorado
WUB4 Capital Partners, LLP Colorado
Life Instructors, Inc. New Jersey
RK & DR Concepts, Inc. Utah
New Benchmark Computer Systems, Inc. Utah
Fiserv LeMans, Inc. Pennsylvania
Specialty Insurance Service California
The Freedom Group, Inc. Iowa
LeMans International, Inc. Pennsylvania
Specialty Software Service, Inc. California
Fiserv Mercosur, Inc. Delaware
Fiserv International (Barbados) Limited Barbados
</TABLE>
16
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-64353, 333-04417, 333-28113, 333-28115, 333-28117, 333-28119 and 333-28121
of Fiserv, Inc. on Form S-8; Registration Statement Nos. 333-44935 and 333-47199
on Form S-4; and Registration Statement Nos. 333-55909, 333-49615, 333-45841,
333-00913, 333-23581 and 333-31465 on Form S-3 of our reports dated January 29,
1999, appearing in and incorporated by reference in the Annual Report on
Form 10-K of Fiserv, Inc. for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 18, 1999
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE 1998 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH INFORMATION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 71,558
<SECURITIES> 1,098,773
<RECEIVABLES> 246,851
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,903,285
<PP&E> 464,865
<DEPRECIATION> 285,431
<TOTAL-ASSETS> 3,958,338
<CURRENT-LIABILITIES> 2,682,919
<BONDS> 0
0
0
<COMMON> 833
<OTHER-SE> 884,964
<TOTAL-LIABILITY-AND-EQUITY> 3,958,338
<SALES> 0
<TOTAL-REVENUES> 1,233,670
<CGS> 0
<TOTAL-COSTS> 1,012,215
<OTHER-EXPENSES> 11,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,955
<INCOME-PRETAX> 193,684
<INCOME-TAX> 79,410
<INCOME-CONTINUING> 114,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,274
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.35
</TABLE>
<PAGE>
EXHIBIT 99.1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
BHC Financial, Inc.:
We have audited the consolidated statement of financial condition of BHC
Financial, Inc. and Subsidiaries as of December 31, 1996 and the related
consolidated statement of income, stockholders' equity and cash flows for the
year ended December 31, 1996 and the related financial statement schedules, not
separately presented herein. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and the related financial
statement schedules referred to above present fairly, in all material respects,
the financial position of BHC Financial, Inc. and Subsidiaries as of December
31, 1996 and the results of their operations and their cash flows for the year
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1997, except for note 12
as to which the date is March 3, 1997
19
