SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
August 11, 1995
FISERV, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of incorporation)
0-14948 39-1506125
(Commission File Number) (IRS Employer Identification No.)
255 FIserv Drive 53045
Brookfield, Wisconsin (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code
(414) 879-5000
Item 2. Acquisition or Disposition of Assets.
On August 1, 1995, the Registrant completed the acquisition of Lincoln Holdings,
Inc. (LHI) , which was approved by the Federal Deposit Insurance Corporation on
July 27, 1995. The primary business of LHI is the administration of self-
directed individual retirement accounts. The transaction is being accounted for
as a pooling of interests and, accordingly, the operations of LHI were included
with those of the Registrant in its quarterly report on Form 10-Q for the three
months ended June 30, 1995 (incorporated herein by reference), as permitted
under generally accepted accounting principles. The Registrant had previously
reported the acquisition on May 17, 1995 of Information Technology, Inc. (ITI)
on Form 8-K, which report is incorporated herein by reference. The acquisition
of ITI was accounted for as a purchase.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of Lincoln Holdings, Inc.:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1994 and 1993
Consolidated Statements of Income for the years ended December 31, 1994 and
1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31, 1994
and 1993
Notes to Consolidated Financial Statements
Consolidated Balance Sheet (unaudited) as of June 30, 1995
Consolidated Statements of Income (unaudited) for the six months ended
June 30, 1995 and 1994
Consolidated Statements of Cash Flows (unaudited) for the six months ended
June 30, 1995 and 1994
(b) Unaudited pro forma condensed financial information of FIserv, Inc., ITI and
LHI:
Pro Forma Combined Statement of Income of Fiserv, ITI and LHI for the Year
Ended December 31, 1994
Pro Forma Combined Statement of Income of Fiserv and ITI for the Six Months
Ended June 30, 1995
(c) Unaudited pro forma condensed financial information of FIserv, Inc. and LHI:
Pro Forma Combined Statements of Income for the Years Ended December 31,
1994, 1993 and 1992
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FISERV, INC.
By /S/ EDWARD P. ALBERTS
______________________
EDWARD P. ALBERTS
Senior Vice President - Finance
Date: August 11, 1995
INDEPENDENT AUDITORS' REPORT
Board of Directors
Lincoln Holdings, Inc.
Englewood, Colorado:
We have audited the accompanying consolidated balance sheets of Lincoln
Holdings, Inc. and its subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lincoln Holdings, Inc. and its
subsidiaries at December 31, 1994 and 1993 and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 2 to the consolidated financial statements, the
Company changed its methods of accounting for income taxes and investment
securities in 1993.
DELOITTE & TOUCHE LLP
DENVER, COLORADO
March 1, 1995
LINCOLN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS 1994 1993
ASSETS:
Cash and cash equivalents $1,388,514 $415,012
Investment securities (Note 2):
Trading portfolio 2,659,006
Available for sale portfolio 9,495,472
Held to maturity portfolio (fair value of
$217,541,095 and $191,207,004) 233,654,890 191,498,837
Accounts receivable - net 1,441,369 1,239,053
Interest receivable 1,305,108 981,012
Income tax receivable (Note 7) 192,729 525,222
Other receivables 11,745 30,516
Prepaid rent and other assets (Note 6) 237,496 466,402
Deferred income tax receivable (Note 7) 132,707 150,437
Property and equipment - net (Note 3) 1,518,262 1,787,516
Custodial and trust administration rights - net
of accumulated amortization of $1,270,939 and
$548,601, respectively (Note 4) 2,396,600 2,953,489
Goodwill (net of accumulated amortization of
$141,162 and $90,605) 707,799 758,356
------------ ------------
TOTAL $242,987,219 $212,960,330
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Money market $222,514,049 $195,758,655
Certificates and other 3,379,094 1,465,000
------------ ------------
Total deposits 225,893,143 197,223,655
Accounts payable and accrued expenses 616,961 403,614
Bank overdrafts 25,101 180,195
Interest payable 594,374 560,632
Notes payable (Note 5) 7,000,000 8,000,000
Stockholder purchase settlement (Note 5) 432,475
Capital lease obligations (Note 6) 341,794 514,301
------------ ------------
Total liabilities 234,471,373 207,314,872
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 5 and 6):
Preferred stock, non-voting, non-cumulative,
non-convertible; $0.10 par value; $496,177
liquidation amount; 6,000,000 shares
authorized and 4,961,770 issued and
outstanding 496,177 496,177
Common stock, $0.01 par value; 6,000,000 shares
authorized; 55,200 shares issued and
outstanding 552 552
Additional paid-in capital 181,600 181,600
Retained earnings 7,837,517 4,993,061
Unrealized loss on available for sale
portfolio - net of tax benefit (25,932)
------------ ------------
Total stockholders' equity 8,515,846 5,645,458
------------ ------------
TOTAL $242,987,219 $212,960,330
============ ============
See notes to consolidated financial statements.
LINCOLN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
INTEREST INCOME:
Interest on investment securities:
Obligations of U.S. government agencies $13,396,870 $10,607,540
Collateralized mortgage obligations 920,981 527,357
------------ ------------
Total interest income 14,317,851 11,134,897
INTEREST EXPENSE:
Deposits 5,770,733 4,799,650
Notes payable 518,313 637,422
------------ ------------
Total interest expense 6,289,046 5,437,072
------------ ------------
NET INTEREST INCOME 8,028,805 5,697,825
NON-INTEREST INCOME:
Trust administration 7,801,983 6,426,140
Gain on sale of investment securities (Note 2) 289,405
Data processing and other 61,460 148,732
------------ ------------
Total non-interest income 7,863,443 6,864,277
------------ ------------
NON-INTEREST EXPENSE:
Compensation 6,090,778 5,439,996
Operating 3,014,170 2,399,010
Occupancy and equipment 1,384,891 1,042,806
Amortization 772,895 499,962
Loss on sale of trading securities (Note 2) 58,294
Unrealized loss on trading securities 28,739
------------ ------------
Total non-interest expense 11,321,028 9,410,513
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING 4,571,220 3,151,589
INCOME TAX EXPENSE (BENEFIT) (Note 7):
Current 1,724,594 1,192,226
Deferred 2,170 90,538
------------ ------------
Total income tax expense 1,726,764 1,282,764
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING 2,844,456 1,868,825
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING - Through December 31, 1992,
of adopting a new method of accounting for
income taxes(Note 7) 151,537
------------ ------------
NET INCOME $2,844,456 $2,020,362
============ ============
See notes to consolidated financial statements.
LINCOLN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
Unrealized
(Loss) on
Additional Available Total
Preferred Common Paid-in Retained for Sale Stockholders'
Stock Stock Capital Earnings Portfolio Equity
BALANCES,
JANUARY 1, 1993 $496,177 $552 $181,600 $2,972,699 $3,651,028
UNREALIZED LOSS ON
AVAILABLE FOR SALE
PORTFOLIO - NET OF
TAX BENEFIT $ (25,932) (25,932)
NET INCOME 2,020,362 2,020,362
-------- ------ -------- ---------- --------- ----------
BALANCES,
DECEMBER 31, 1993 496,177 552 181,600 4,993,061 (25,932) 5,645,458
UNREALIZED GAIN ON
AVAILABLE FOR SALE
PORTFOLIO - NET OF
TAX BENEFIT 25,932 25,932
NET INCOME 2,844,456 2,844,456
-------- ------ -------- ---------- --------- ----------
BALANCES,
DECEMBER 31, 1994 $496,177 $552 $181,600 $7,837,517 $ $8,515,846
======== ====== ======== ========== ========= ==========
See notes to consolidated financial statements.
LINCOLN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993
OPERATING ACTIVITIES:
Net income before cumulative effect of change
in accounting principal $2,844,456 $1,868,825
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 640,892 407,577
Amortization 772,895 499,962
Loss (gain) on sale of securities 58,294 (289,405)
Deferred income tax expense 2,170 90,538
Amortization of premium on securities 261,178 324,911
Unrealized loss on trading securities 28,739
Gain on sale of assets (2,792) (1,043)
Changes in assets and liabilities:
Trading securities 2,600,712 3,076,739
Accounts receivable - net (202,316) (220,688)
Interest receivable (324,096) (75,468)
Income tax receivable 332,493 (525,222)
Other receivables 18,771 6,226
Prepaid rent and other assets 228,906 338,181
Accounts payable and accrued expenses 213,347 (97,253)
Bank overdrafts (155,094) 180,195
Interest payable 33,742 105,239
Income taxes payable (48,344)
------------ -------------
Net cash provided by operating activities 7,323,558 5,669,709
------------ -------------
INVESTING ACTIVITIES:
Purchase of securities (193,577,697)
Proceeds from maturity or sale of securities 171,826,126
Purchase of held to maturity securities (86,847,160)
Proceeds from maturity of held to maturity
securities 53,966,893
Additions to property and equipment (396,132) (1,069,098)
Proceeds from sales of assets 421 2,793
Purchase of custodial and trust administration
rights (165,449) (2,510,129)
------------ -------------
Net cash used in investing activities (33,441,427) (25,328,005)
------------ -------------
FINANCING ACTIVITIES:
Net increase in deposits 28,669,488 9,155,379
Repayment of notes payable (1,000,000) (1,450,000)
Payment on stockholder purchase settlement (432,475) (216,238)
Capital lease payments (145,642) (107,419)
Proceeds from notes payable 3,900,000
------------ -------------
Net cash provided by financing activities 27,091,371 11,281,722
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 973,502 (8,376,574)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 415,012 8,791,586
------------ -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,388,514 $ 415,012
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $1,343,500 $1,765,000
Interest paid 6,255,304 5,331,833
During the year ended December 31, 1994 and 1993, Lincoln Holdings, Inc.
financed $0 and $435,414, respectively of property with capital lease
obligations. During 1994, the Company disposed of capital leases totalling
$26,865.
During the year ended December 31, 1994, the Company designated $9,495,472 of
investments previously identified as available for sale as held to maturity.
See notes to consolidated financial statements.
LINCOLN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation - The accompanying consolidated financial
statements include the accounts of Lincoln Holdings, Inc. (the Company), its
wholly owned subsidiaries, Lincoln Retirement Services (LRS), Lincoln Trust
Company (LTC), and LTC's wholly owned subsidiary, LT Securities, Inc., all
Colorado corporations. All significant intercompany transactions and
balances have been eliminated in consolidation. LTC is chartered by the
State of Colorado as a state-regulated trust company offering Federal Deposit
Insurance Corporation (FDIC) insured deposit accounts to its self-directed
custody clients and others.
Cash Equivalents - Cash equivalents are amounts invested in money market
mutual funds and short-term securities with maturities of three months or
less at the time of purchase that are not designated as investment securities
by the Company.
Trading Securities - Trading securities are stated at market value as
determined by quoted market prices. Gains and losses on sales and changes in
market value are included in non-interest income or expense.
Investment Securities Available for Sale - Investment securities available
for sale are stated at market value as determined by quoted market prices.
Gains or losses on disposition are based on net proceeds and adjusted
carrying amount of the securities sold using the specific identification
method. Unrealized gains and losses, net of tax benefit, are reported as an
adjustment to equity.
Investment Securities Held to Maturity - Investment securities held to
maturity are stated at cost adjusted for amortization of premiums and
accretion of discounts, which are recognized as adjustments to interest
income. Gains or losses on disposition are based on net proceeds and
adjusted carrying amount of the securities sold using the specific
identification method. The Company has the ability to hold these investments
to maturity and intends to do so. See Note 4, Custodial and Trust
Administration Rights, for a discussion of liquidity.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization (including capital lease amortization) are
provided using the straight-line method over the estimated useful lives of
the respective assets, ranging from three to five years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
useful life of the asset or the lease term.
Custodial and Trust Administration Rights - Custodial and trust
administration rights are amortized on a straight-line basis over their
estimated lives of five years.
Goodwill - The Company's investment in LTC, including the additional
consideration discussed in Note 5, was $848,961 greater than its equity in
LTC's net assets at the date of acquisition. The difference is considered
goodwill and is being amortized on a straight-line basis over a 20-year life.
Income Taxes - During 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." See Note 7,
Income Taxes, for a discussion of the effects of the change in accounting.
The Company and all subsidiaries file consolidated tax returns.
Fair Value Disclosures- The Company believes that the carrying amount of its
financial instruments, other than its investment securities (see Note 2), are
a reasonable estimate of their fair values at December 31, 1994 using
available market information and appropriate valuation methodologies.
2. INVESTMENT SECURITIES
The Company accounts for investment securities under Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). SFAS No. 115 addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities.
. Trading Securities - debt and equity securities that are bought and held
principally for the purpose of selling them in the near term.
. Available for Sale Securities - debt and equity securities not classified
as either held to maturity securities or trading securities.
. Held to Maturity Securities - debt securities that the enterprise has the
positive intent and ability to hold to maturity. These securities are
reported at amortized cost.
The amortized cost and approximate market value (based on quoted market
prices or dealer quotes) of investment securities at December 31, 1994 and
1993 are summarized as follows:
Gross Gross Approximate
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
Held to maturity -
Obligations of U.S.
government agencies $218,092,452 $ $15,040,532 $203,051,920
Collateralized mortgage
obligations 15,562,438 1,073,263 14,489,175
------------ ---------- ----------- ------------
Total $233,654,890 $ $16,113,795 $217,541,095
============ ========== =========== ============
Gross Gross Approximate
Amortized Unrealized Unrealized Market
December 31, 1993 Cost Gains Losses Value
Available for sale -
Obligations of U.S.
government agencies $9,536,964 $3,974 $45,466 $9,495,472
------------ -------- -------- ------------
9,536,964 3,974 45,466 9,495,472
Held to maturity -
Obligations of U.S.
government agencies 180,060,842 413,069 699,994 179,773,917
Collateralized mortgage
obligations 11,437,995 19,981 24,889 11,433,087
------------ -------- -------- ------------
191,498,837 433,050 724,883 191,207,004
Total -
Obligations of U.S.
government agencies 189,597,806 417,043 745,460 189,269,389
Collateralized mortgage
obligations 11,437,995 19,981 24,889 11,433,087
------------ -------- -------- ------------
Total $201,035,801 $437,024 $770,349 $200,702,476
============ ======== ======== ============
Proceeds from sales of investment securities during the years ended
December 31, 1994 and 1993 were $2,629,451 and $20,314,291, respectively (all
trading security sales in 1994). Gross gains of $0 and $289,405 and gross
losses of $58,294 and $0 were realized on these sales during 1994 and 1993,
respectively.
At December 31, 1994, the Company's investment portfolio consists only of
mortgage-backed and other pass-through securities. Contractual maturities of
mortgage-backed and other pass-through securities have not been disclosed as
the actual maturities will differ from the contractual maturities.
LTC's investment in mortgage-backed and other pass-through securities is
secured by adjustable and fixed rate mortgage loan pools guaranteed by
various government agencies with interest rates ranging from 4.639% to
9.095%. Interest rates on adjustable rate securities are generally based
upon the Federal Home Loan Bank Cost of Funds Index. Certain investments in
adjustable rate securities are subject to interest rate caps and floors.
The market value of investments is categorized as follows at December 31,
1994:
Floating rate securities:
Monthly interest rate resets $ 24,494,551
Semi-annual interest rate resets 2,228,092
Annual interest rate resets 776,832
------------
27,499,475
Fixed rate securities 190,041,620
------------
$217,541,095
============
3. PROPERTY AND EQUIPMENT
Major classifications of property and equipment are as follows at
December 31:
1994 1993
Furniture and equipment $ 915,161 $ 1,129,897
Equipment under capital lease 601,199 677,858
Other data processing equipment and software 2,045,427 1,737,512
Leasehold improvements 81,179 81,179
----------- -----------
Total 3,642,966 3,626,446
Less accumulated depreciation and amortization (2,124,704) (1,838,930)
----------- -----------
Property and equipment - net $ 1,518,262 $ 1,787,516
=========== ===========
4. CUSTODIAL AND TRUST ADMINISTRATION RIGHTS
In June 1993, the Company acquired from Union Bank of California (Union)
certain custodial rights related to individual retirement accounts and
Defined Contribution Retirement Plan Accounts.
In December 1993, the Company acquired from California Pension Administrators
and Consultants, Inc. (CALPAC) trustee, administrator and recordkeeping
rights related to individual retirement accounts maintained by CALPAC and
certain trustee rights for the qualified accounts for which CALPAC served as
recordkeeper, administrator and sponsor. In addition, the Company acquired
the rights to act as sponsor and custodian of all new individual retirement
accounts for which CALPAC first commences to act as recordkeeper and the
rights to act as the sponsor of CALPAC's "Do It Yourself Plans" and "Self-
Trusteed Plans." As part of the acquisition of plans from CALPAC, the
Company entered into consulting agreements with two former officers of
CALPAC. Under these agreements the former officers will be paid a total of
$500,000 over the next three years. Although the agreement was executed on
December 9, 1993, the transfer of rights and the related deposit liability
and the underlying cash of $29,436,653 did not occur until January 4, 1994.
In January 1995, the Company acquired from Providence Trust Company
(Providence) trustee, administrator and recordkeeping rights related to
individual retirement accounts maintained by Providence for $2,500,000. In
connection with this acquisition, approximately $45,000,000 of related
deposit liabilities and the underlying cash was transferred to the Company.
LTC has used the proceeds of this transfer to invest primarily in short-term
securities to provide adequate liquidity.
5. DEBT
Notes Payable - The Company's notes payable (for which carrying amount
approximates market) consist of the following at December 31:
1994 1993
Norwest Bank (Bank), bearing interest at Norwest Bank
of Denver National Association's prime rate (8.5% at
December 31, 1994), secured note due July 1, 1995,
principal of $250,000 payable quarterly plus
interest beginning January 1, 1995, secured by 100%
of LTC's outstanding stock
$4,000,000 $5,000,000
Note secured by LTC's outstanding Series C preferred
stock and the personal guarantees of two
shareholders bearing interest at 10.5%, interest due
quarterly from October 1, 1992 to September 30,
1995, principal of $62,500 plus interest payable
quarterly from October 1, 1995 to September 30, 1999
1,000,000 1,000,000
Unsecured subordinated payable to a related party
bearing interest at 12%, due July 1, 1995, interest
payable quarterly
1,500,000 1,500,000
Unsecured subordinated payable to a related party
bearing interest at 12%, due March 27, 1996,
interest payable quarterly
500,000 500,000
---------- ----------
Total $7,000,000 $8,000,000
========== ==========
Principal payments due under notes payable are as follows:
1995 $5,500,000
1996 750,000
1997 250,000
1998 250,000
1999 250,000
----------
Total $7,000,000
==========
6. COMMITMENTS AND CONTINGENCIES
Capital Requirements - LTC's primary regulators, the Colorado State Banking
Division (Division) and the FDIC, require LTC to achieve and maintain total
capital (as defined) to risk-weighted assets of 8% and a minimum leverage
capital ratio of Tier I Capital (as defined) to total average assets of 4%.
At December 31, 1994, LTC's ratios were 18.69% and 4.98%, respectively.
Restrictions exist regarding the ability of LTC to transfer funds to the
Company in the form of cash dividends, loans or advances. Approval of the
Division is required for LTC to pay dividends to the Company in excess of
LTC's earnings retained in the current year plus retained net profits for the
preceding two years.
Lease Commitments - LTC has certain equipment under capitalized leases
recorded in the accompanying consolidated financial statements based on the
present value of future minimum lease payments.
LTC has also entered into noncancelable operating leases to lease office
space which expires October 1, 1999. The lease provided for prepayment of
gross annual rentals for the first two years of the lease term. The
prepayment amount represented annual rentals for two years discounted at 8%.
Subsequently, the lease calls for equal monthly rent payments over the
remaining term of the lease agreement. At the landlord's option, annual
prepayments of approximately $378,000 may be required beginning October 1,
1994. As of October 1, 1994 no prepayment was required.
Future minimum rental payments required under capital and operating leases as
of December 31, 1994 are as follows:
Capital Operating
Year ending December 31:
1995 $ 92,884 $ 466,232
1996 101,328 466,232
1997 101,328 415,445
1998 92,884 410,828
1999 308,121
-------- ----------
Total minimum lease payments 388,424 $2,066,858
Less amount representing interest 46,630 ==========
--------
Present value of net minimum lease payments
calculated at a discount rate of 7.0% $341,794
========
Rental expense was $478,664 and $433,547 for the years ended December 31,
1994 and 1993, respectively.
Severance Commitments - During the current year, LTC entered into a Change-
in-Control Severance Agreement with two of its officers. The agreement
provides that severance benefits amounting to the respective annualized base
salaries of these officers will be paid to such officers when there is a
change in control, as defined, and there is either: (a) an involuntary
termination within the severance period commencing six months prior to a
change in control and ending three years after a change in control; or (b) a
voluntary termination within six months of a change in control.
7. INCOME TAXES
The Company files a consolidated income tax return. Under an informal tax
agreement, income tax expense determined on a separate return basis is paid
to the Company by LTC, and related balances are included in Income Tax
Receivable.
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109) which is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's consolidated financial statements or tax
returns. In estimating future tax consequences, SFAS No. 109 generally
considers all expected future events other than the enactment or changes in
the tax law or rules. Under SFAS No. 109, the $151,537 cumulative effect of
adoption was included in the consolidated income statement in 1993.
The net deferred tax asset of the Company and its subsidiaries at
December 31, 1994 and 1993 is as follows:
1994 1993
Depreciation $ 72,287 $ 64,376
Vacation pay accrual 48,779 31,993
Bonus accrual 5,506 14,382
Unrealized loss on investments 15,560
Other 6,135 24,126
-------- --------
Total $132,707 $150,437
======== ========
9. EMPLOYEE BENEFITS
Employees participate in a 401(k) plan. The plan covers substantially all
employees who have completed at least one year of service with LTC.
Contributions to the plan consist of the employee portion and a 50% matching
employer amount. LTC contributed $80,712 and $59,048 to the plan in 1994
and 1993, respectively.
LINCOLN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET (Unaudited)
June 30,
1995
------------
ASSETS
Cash and cash equivalents $27,191,000
Accounts receivable 3,778,000
Prepaid expenses and other assets 390,000
Trust account investments 232,223,000
Property and equipment-net 1,263,000
Deferred income taxes 133,000
Identifiable intangible assets relating
to acquisitions-net 4,297,000
Goodwill-net 708,000
------------
Total $269,983,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $760,000
Accrued expenses 471,000
Accrued income taxes 101,000
Deferred revenues 449,000
Trust account deposits 250,763,000
Long-term debt 4,500,000
Other long-term obligations 3,309,000
------------
Total liabilities 260,353,000
------------
Stockholders' equity 9,630,000
------------
Total $269,983,000
============
LINCOLN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
for the Six-Month Periods Ended June 30, 1995 and 1994 (Unaudited)
Six Months Ended
June 30,
1995 1994
Revenues $9,182,000 $7,964,000
---------- ----------
Cost of revenues:
Salaries, commissions and payroll
related costs 3,497,000 2,990,000
Data processing expenses, rentals
and telecommunication costs 480,000 362,000
Other operating expenses 1,302,000 1,376,000
Depreciation and amortization of
property and equipment 799,000 656,000
---------- ----------
Total cost of revenues 6,078,000 5,384,000
---------- ----------
Operating income 3,104,000 2,580,000
Interest expense - net 203,000 258,000
---------- ----------
Income before income taxes 2,901,000 2,322,000
Income tax provision 1,190,000 929,000
---------- ----------
Net income $1,711,000 $1,393,000
========== ==========
LINCOLN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six-Month Periods Ended June 30, 1995 and 1994 (Unaudited)
Six Months Ended
June 30,
1995 1994
----------- -----------
Cash flows from operating activities:
Net income $1,711,000 $1,393,000
Adjustments to reconcile income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment 799,000 656,000
Cash provided (used) by changes in
assets and liabilities, net of effects
from acquisitions of businesses:
Accounts receivable (827,000) (536,000)
Prepaid expenses and other assets (152,000) 51,000
Accounts payable and accrued expenses (5,000) (155,000)
Deferred revenue 449,000 302,000
----------- -----------
Net cash provided by operating activities 1,975,000 1,711,000
----------- -----------
Cash flows from investing activities:
Capital expenditures (50,000) (221,000)
Payment for acquisition of businesses (2,396,000) (12,000)
Trust account investments 1,432,000 (37,305,000)
----------- -----------
Net cash used by investing activities (1,014,000) (37,538,000)
----------- -----------
Cash flows from financing activities:
Borrowings and other long-term
obligations-net (29,000) (575,000)
Trust account deposits 24,870,000 38,731,000
----------- -----------
Net cash provided by financing activities 24,841,000 38,156,000
----------- -----------
Change in cash 25,802,000 2,329,000
Beginning balance 1,389,000 415,000
----------- -----------
Ending balance $27,191,000 $2,744,000
=========== ===========
FISERV, INC., INFORMATION TECHNOLOGY, INC. and LINCOLN HOLDINGS, INC.
Proforma Combined Statement of Income
for the Year Ended December 31, 1994
(in thousands, except per share data)
Information Lincoln
Technology, Holdings, Proforma Proforma
FIserv, Inc. Inc. Inc. Adjustments Combined
------------ ----------- ----------- ----------- --------
Revenues $563,590 $115,331 $16,249 ($54,463) (1) $640,707
------------ ----------- ----------- ----------- --------
Cost of revenues:
Operating expenses 463,149 71,797 9,797 (54,463) (1) 490,280
Depreciation and amortization of
property and equipment 29,987 2,078 1,363 33,428
Amortization of intangible assets 10,846 9,163 (2) 20,009
Capitalization of internally
generated computer software-net (9,599) (9,599)
------------ ----------- ----------- ----------- --------
Total 494,383 73,875 11,160 (45,300) 534,118
------------ ----------- ----------- ----------- --------
Operating Income 69,207 41,456 5,089 (9,163) 106,589
Interest expense - net 6,433 (2,633) 518 25,019 (3) 29,337
------------ ----------- ----------- ----------- --------
Income before income taxes 62,774 44,089 4,571 (34,182) 77,252
Income tax provision 25,110 1,727 3,757 (4) 30,594
------------ ----------- ----------- ----------- --------
Net income $37,664 $44,089 $2,844 ($37,939) $46,658
============ =========== =========== =========== ========
Net income per common and
common equivalent share $0.95 $1.03
============ =========== =========== =========== ========
Shares used in computing net
income per share 39,854 840 4,574 45,268
============ =========== =========== =========== ========
Notes to proforma adjustments.
(1) In order to conform to the method of accounting followed by FIserv, Inc. in
recording equipment resales, revenues and cost of revenues have been
reduced by the cost of equipment resales.
(2) Amortization of goodwill is being recorded over a forty year life.
(3) Interest on funds borrowed to finance the acquisition, and elimination of
interest earned by ITI.
(4) Income taxes on proforma adjustments at 41%, and on income of ITI (a
subchapter S corporation for income tax purposes).
FISERV, INC. and INFORMATION TECHNOLOGY, INC.
Pro Forma Combined Statement of Income
for the Six Months Ended June 30, 1995
(in thousands, except per share data)
Information
Technology, Proforma Proforma
FIserv, Inc. Inc. Adjustments Combined
----------- ----------- ----------- --------
Revenues $330,649 $53,738 ($28,303) (1) $356,084
----------- ----------- ----------- --------
Cost of revenues:
Operating expenses 263,400 35,264 (28,303) (1) 270,361
Depreciation and amortization of
property and equipment 18,794 600 19,394
Amortization of intangible assets 6,351 3,436 (2) 9,787
Capitalization of internally
generated computer software-net (3,532) (3,532)
----------- ----------- ----------- --------
Total 285,013 35,864 (24,867) 296,010
----------- ----------- ----------- --------
Operating income 45,636 17,874 (3,436) 60,074
Interest expense - net 6,274 9,382 (3) 15,656
----------- ----------- ----------- --------
Income before income taxes 39,362 17,874 (12,818) 44,418
Income tax provision 16,138 2,073 (4) 18,211
----------- ----------- ----------- --------
Net income $23,224 $17,874 ($14,891) $26,207
=========== =========== =========== ========
Net income per common and
common equivalent share $0.55 $0.57
=========== =========== =========== ========
Shares used in computing net
income per share 42,157 3,431 45,588
=========== =========== =========== ========
Notes to proforma adjustments.
(1) In order to conform to the method of accounting followed by FIserv, Inc. in
recording equipment resales, revenues and cost of revenues have been
reduced by the cost of equipment resales.
(2) Amortization of goodwill is being recorded over a forty year life.
(3) Interest on funds borrowed to finance the acquisition, and elimination of
interest earned by ITI.
(4) Income taxes on proforma adjustments at 41%, and on income of ITI (a
subchapter S corporation for income tax purposes).
FISERV, INC. and Subsidiaries and LINCOLN HOLDINGS, INC.
proforma combined statements of income
Year ended December 31, 1994 1993 1992
Revenues $579,839,000 $467,862,000 $341,154,000
------------ ------------ ------------
Cost of revenues:
Operating expenses 472,946,000 385,969,000 282,983,000
Depreciation and amortization of
property and equipment 31,350,000 22,450,000 16,596,000
Amortization of intangible assets 10,846,000 9,098,000 6,589,000
Capitalization of internally
generated computer software-net (9,599,000) (7,185,000) (6,757,000)
------------ ------------ ------------
Total 505,543,000 410,332,000 299,411,000
------------ ------------ ------------
Operating income 74,296,000 57,530,000 41,743,000
Interest expense - net 6,951,000 4,353,000 2,452,000
------------ ------------ ------------
Income before income taxes 67,345,000 53,177,000 39,291,000
Income tax provision 26,938,000 20,464,000 14,925,000
------------ ------------ ------------
Net income $40,407,000 $32,713,000 $24,366,000
============ ============ ============
Net income per common and
common equivalent share $0.99 $0.83 $0.69
============ ============ ============
Shares used in computing net
income per share 40,694,000 39,414,000 35,379,000
============ ============ ============