SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997 Commission file number 0-14948
FISERV, INC.
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(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1506125
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
255 FISERV DRIVE, BROOKFIELD, WI. 53045
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (414) 879 5000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
At March 31, 1997, 45,445,000 shares of common stock of the Registrant were
outstanding.
Exhibit Index appears at page 8.
1
PART I. FINANCIAL INFORMATION
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the Three Month Periods Ended March 31, 1997 and 1996
Three Months Ended
March 31,
1997 1996
----------------------------
(In thousands except
per share amounts)
Revenues ..................................... $ 206,450 $ 194,710
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Cost of revenues:
Salaries, commissions and
payroll related costs ....................... 99,483 90,692
Data processing expenses, rentals
and telecommunication costs ................. 22,813 24,274
Other operating expenses ..................... 35,813 34,409
Depreciation and amortization
of property and equipment ................... 11,083 10,309
Amortization of intangible assets ............ 3,543 5,317
Capitalization of internally
generated computer software ................. (521) (796)
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Total cost of revenues .......... 172,214 164,205
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Operating income ............................. 34,236 30,505
Interest expense-net ......................... 3,487 5,655
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Income before income taxes ................... 30,749 24,850
Income tax provision ......................... 12,607 10,189
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Net income ................................... $ 18,142 $ 14,661
=========== ==========
Net income per common and
common equivalent share ..................... $ 0.39 $ 0.32
=========== ==========
Shares used in computing
net income per share ........................ 46,544 45,919
=========== ==========
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
--------------------------
(In thousands)
ASSETS
Cash and cash equivalents ........................ $ 41,762 $ 80,833
Accounts receivable .............................. 180,236 160,747
Prepaid expenses and other assets ................ 57,510 54,354
Trust account investments ........................ 1,135,577 970,553
Other investments ................................ 108,462 53,556
Deferred income taxes ............................ 30,391 32,083
Property and equipment-net ....................... 146,843 143,661
Internally generated computer software-net ....... 71,438 70,487
Identifiable intangible assets relating
to acquisitions-net ............................. 48,145 50,156
Goodwill-net ..................................... 290,195 292,089
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Total ............................................ $2,110,559 $1,908,519
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ................................. $ 46,591 $ 43,486
Accrued expenses ................................. 61,246 60,747
Accrued income taxes ............................. 7,531 7,510
Deferred revenues ................................ 53,587 46,089
Trust account deposits ........................... 1,133,690 970,553
Long-term debt ................................... 278,598 271,502
Other long-term obligations ...................... 2,252 1,362
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Total liabilities ................................ 1,583,495 1,401,249
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Stockholders' equity:
Common stock outstanding, 45,445,000 and
45,348,000 shares, respectively ................ 454 453
Additional paid-in capital ....................... 325,194 323,268
Unrealized gain on investments ................... 18,576 18,621
Accumulated earnings ............................. 182,840 164,928
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Total stockholders' equity ....................... 527,064 507,270
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Total ............................... $2,110,559 $1,908,519
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See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Three-Month Periods Ended March 31, 1997 and 1996
Three Months Ended
March 31,
1997 1996
----------------------
(In thousands)
Cash flows from operating activities:
Net income .................................................. $ 18,142 $ 14,661
Adjustments to reconcile income to net cash provided
by operating activities:
Deferred income taxes ...................................... 1,835 4,581
Depreciation and amortization of property and equipment .... 11,083 10,309
Amortization of intangible assets .......................... 3,543 5,317
Capitalization of internally generated computer software-net (521) (796)
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34,082 34,072
Cash provided (used) by changes in assets and liabilities,
net of effects from acquisitions of businesses:
Accounts receivable ........................................ (9,137) (2,116)
Prepaid expenses and other assets .......................... (572) (3,114)
Accounts payable and accrued expenses ...................... (3,096) (12,841)
Deferred revenue ........................................... 7,552 3,559
Income taxes payable ....................................... 53 (1,338)
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Net cash provided by operating activities ................... 28,882 18,222
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Cash flows from investing activities:
Capital expenditures ....................................... (10,210) (9,525)
Investments and other assets ............................... (54,907) 1,175
Payment for acquisition of businesses ...................... (10,717) (484)
Trust account investments .................................. (165,011) (135,107)
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Net cash provided (used) by investing activities ............ (240,845) (143,941)
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Cash flows from financing activities:
Borrowings and other long-term obligations-net ............. 7,840 (19,275)
Issuance of common stock ................................... 1,915 423
Trust account deposits ..................................... 163,137 133,721
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Net cash provided (used) by financing activities ............ 172,892 114,869
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Change in cash .............................................. (39,071) (10,850)
Beginning balance ........................................... 80,833 59,743
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Ending balance .............................................. $ 41,762 $ 48,893
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See notes to consolidated financial statements.
4
Fiserv, Inc. and Subsidiaries
NOTES TO FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated balance sheet as of March 31, 1997, and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 1997 and 1996 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements have
been included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q, and
do not contain certain information included in the annual financial statements
and notes of Fiserv, Inc. and subsidiaries (the Company).
2. Shares Used in Computing Net Income per Share
Three Months Ended
March 31,
1997 1996
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(in thousands)
Weighted average number of common shares
outstanding 45,397 44,944
Shares issuable upon exercise of options reduced by
the number of shares which could have been
purchased with the proceeds of such exercise 1,147 975
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Shares used 46,544 45,919
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Income per common and common equivalent share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the periods.
3. Revenue Recognition
The Company provides item processing services in the Canadian market through a
joint venture with Canadian Imperial Bank of Commerce. Revenues from this
business are recorded on a fee basis. If the gross revenues from this activity
were recognized, the Company's revenues for the period would increase by
approximately $29 million or an additional 15%.
4. Accounting for Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating and tax
credit carryforwards. Significant components of the Company's net deferred tax
asset as of March 31, 1997 and December 31, 1996 are as follows:
March 31, December 31,
1997 1996
-------------------------
(in thousands)
Allowance for doubtful accounts ........... $ 1,529 $ 1,529
Accrued expenses not currently deductible . 6,919 5,588
Deferred revenue .......................... 8,576 9,815
Other ..................................... 569 (232)
Net operating loss and credit carryforwards 3,608 3,871
Purchased incomplete software technology .. 60,347 61,500
Deferred costs ............................ (4,931) (4,963)
Internally generated capitalized software . (29,289) (28,900)
Excess of tax over book depreciation and
amortization ............................ (4,029) (3,185)
Unrealized gain on investments ............ (12,908) (12,940)
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Total ................................. $ 30,391 $ 32,083
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5
5. Supplemental Cash Flow Information
Quarter Ended March 31,
1997 1996
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(In thousands)
Income taxes paid ............................... $10,647 $ 6,729
Interest paid .................................. 2,183 4,012
Liabilities assumed in acquisitions of businesses 5,724 1,236
6. Acquisitions
On March 14, 1997, the Company filed a registration statement with the
Securities and Exchange Commission relating to its proposed acquisition of all
the outstanding common stock of BHC Financial, Inc. (BHC) in exchange for
approximately 6,500,000 shares of Fiserv common stock. The transaction is
subject to approval by the shareholders of BHC which is expected to be
forthcoming during the second quarter of 1997. It is anticipated that the merger
will be accounted for as a pooling of interests and historical financial
statements of the combined companies for periods prior to the merger will be
presented as though the companies had been combined as of the beginning of all
periods presented. On April 1, 1997, the Company announced the acquisition of
AdminaStar Communications in a cash transaction which will be accounted for on
the purchase method of accounting.
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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 results of
operations as a percentage of revenues represented by certain income and expense
items and the percentage change in those items.
Three Months Ended
March 31, Percentage
1997 1996 Increase
--------------------- (Decrease)
Percent of Revenues ----------
Revenues ........................ 100.00% 100.00% 6.03%
---------------------
Salaries and related costs ...... 48.19 46.58 9.69
Data processing costs ........... 11.05 12.47 (6.02)
Other operating expenses ........ 17.35 17.67 4.08
Depreciation and amortization ... 5.37 5.29 7.51
Amortization of intangible assets 1.72 2.73 (33.36)
Capitalization of software-net .. (0.25) (0.41) (34.55)
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Total cost of revenues .......... 83.43 84.33 4.88
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Operating income ................ 16.57 15.67 12.23
====================
Revenues
Revenues increased 6.0% from $194.7 million in the first quarter of 1996 to
$206.5 million in the current first quarter. Less than 10% of this growth
resulted from the inclusion of revenues from the date of purchase of acquired
companies and more than 90% from increases in revenue from the addition of new
clients, growth in the transaction volume experienced by existing clients and
price increases. As indicated in Note 3, the Company provides item processing
services in the Canadian market through a joint venture with Canadian Imperial
Bank of Commerce, the revenues from which are recorded on a fee basis. If the
gross revenues from this activity were recognized, the Company's revenues for
the three months ended March 31, 1997 would have increased by approximately $41
million or 21%.
Cost of Revenues
Cost of revenues increased 4.9% from $164.2 million in the first quarter of 1996
to $172.2 million in the current first quarter. The increase in compensation
expenses was disproportionate to the increase in revenues due, primarily, to
severance payments arising in connection with restructuring of the item
processing contract with The Chase Manhattan Bank. Amortization of intangible
assets decreased due to reduced amortization of intangible assets recorded in
the acquisition of Information Technology, Inc.
Operating Income
Operating income increased 12% from $30.5 million in the first quarter of 1996
to $34.2 million in the current first quarter.
Net Interest Expense
As a result of declining debt levels, net interest expense decreased from $5.7
million in the first quarter of 1996 to $3.5 million in the current first
quarter.
Income Tax Provision
Income taxes were computed at 41% in both 1997 and 1996, which rate is expected
to apply throughout the current year.
Net Income
Net income grew 24% from $14.7 million in the first quarter of 1996 to $18.1
million in the first quarter of 1997, and net income per share increased 22%
from $.32 per share in the first quarter of 1996 to $.39 in the corresponding
period of 1997.
Liquidity and Capital Resources
During the three months ended March 31, 1997, cash and cash equivalents
decreased $39.1 million comprising primarily $28.9 million net cash provided
from operating activities, $7.8 million of net borrowings and $1.9 million from
the sale of common stock offset by $10.2 million capital expenditures, $10.7
million for acquisition of businesses and $56.8 million net increase in
investments. Long-term obligations amounted to $280.9 million at March 31, 1997.
The majority of this debt comprises $119.6 million senior notes due 1997 to 2005
and $133.2 million advanced under a $225 million unsecured line of credit and
commercial paper facility expiring May 17, 2000. A facility fee ranging from .1%
to .2% per annum is required on the entire bank line regardless of usage. The
Company has historically applied a significant portion of its cash flow from
operating activities together with proceeds of its common stock offerings and
long-term borrowings to acquisitions. The Company believes that its cash flow
from operating activities together with other available sources of funds will be
adequate to meet its funding requirements.
7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits
Index to exhibits
(11) Statement regarding computation of per share earnings (included on
page 5, Part 1).
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Registrant filed a report
on Form 8-K, dated March 3, 1997 announcing the proposed acquisition of
BHC Financial, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fiserv, Inc.
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(Registrant)
Date: April 22, 1997 by /S/ EDWARD P. ALBERTS
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EDWARD P. ALBERTS
Senior Vice President, Finance
and Controller
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