UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 2001
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from________________to______________________
Commission file number 0-14948
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FISERV, INC.
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(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1506125
-------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
255 FISERV DRIVE, BROOKFIELD, WI 53045
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(Address of principal executive office) (Zip Code)
(262) 879 5000
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(Registrant's telephone number, including area code)
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 ( )
As of October 16, 2001, there were 187,159,000 shares of common stock, $.01 par
value, of the Registrant outstanding.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---------------------- --------------------------
Revenues $ 467,173 $ 406,189 $ 1,393,731 $ 1,219,025
---------------------- --------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 227,949 198,617 673,838 586,218
Data processing expenses, rentals
and telecommunication costs 32,530 27,405 93,083 83,974
Other operating expenses 89,368 74,290 279,658 227,888
Depreciation and amortization of
property and equipment 19,544 18,249 56,607 52,417
Amortization of intangible assets 8,893 8,357 26,562 31,159
Amortization (capitalization) of internally
generated computer software-net (326) 1,048 (216) 804
---------------------- --------------------------
Total cost of revenues 377,958 327,966 1,129,532 982,460
---------------------- --------------------------
Operating income 89,215 78,223 264,199 236,565
Interest expense - net (2,501) (5,295) (9,555) (17,101)
Realized gain from sale of investment 1,000 2,907 4,327 5,835
---------------------- --------------------------
Income before income taxes 87,714 75,835 258,971 225,299
Income tax provision 35,085 31,093 103,588 92,373
---------------------- --------------------------
Net income $ 52,629 $ 44,742 $ 155,383 $ 132,926
====================== ==========================
Net income per share:
Basic $ 0.28 $ 0.24 $ 0.83 $ 0.72
====================== ==========================
Diluted $ 0.27 $ 0.23 $ 0.81 $ 0.70
====================== ==========================
Shares used in computing net income per share:
Basic 186,944 185,151 186,555 184,524
====================== ==========================
Diluted 191,541 190,568 191,214 189,495
====================== ==========================
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
2001 2000
--------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 92,751 $ 98,856
Accounts receivable-net 289,725 265,640
Securities processing receivables 1,509,328 2,193,291
Prepaid expenses and other assets 100,604 91,077
Investments 1,971,945 1,796,899
Property and equipment-net 218,199 205,555
Internally generated computer software-net 88,480 88,263
Intangible assets-net 957,197 846,739
--------------------------
Total $ 5,228,229 $ 5,586,320
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 78,176 $ 80,633
Securities processing payables 1,296,894 1,977,323
Short-term borrowings 129,500 19,725
Accrued expenses 220,591 182,090
Accrued income taxes 60,797 22,207
Deferred revenues 144,886 156,668
Customer retirement account deposits 1,599,392 1,525,652
Deferred income taxes 30,869 34,992
Long-term debt 250,283 334,958
--------------------------
Total liabilities 3,811,388 4,334,248
--------------------------
Shareholders' equity:
Common stock issued, 188,078,000 shares 1,881 1,881
Additional paid-in capital 465,097 454,817
Accumulated other comprehensive income 55,843 78,869
Accumulated earnings 908,914 753,531
Treasury stock, at cost, 1,010,100 and
2,372,900 shares, respectively (14,894) (37,026)
--------------------------
Total shareholders' equity 1,416,841 1,252,072
--------------------------
Total $ 5,228,229 $ 5,586,320
==========================
See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2001 2000
-------------------------
Cash flows from operating activities:
Net income $ 155,383 $ 132,926
Adjustments to reconcile net income to net cash provided
by operating activities:
Realized gain from sale of investment (4,327) (5,835)
Deferred income taxes 12,937 10,588
Depreciation and amortization of property and equipment 56,607 52,417
Amortization of intangible assets 26,562 31,159
Amortization of internally generated computer software 24,879 26,537
-------------------------
272,041 247,792
Changes in assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable (12,775) (19,409)
Prepaid expenses and other assets (2,590) (2,063)
Accounts payable and accrued expenses (4,638) 9,876
Deferred revenues (16,774) (2,159)
Accrued income taxes 49,144 16,597
Securities processing receivables and payables - net 3,534 15,236
-------------------------
Net cash provided by operating activities 287,942 265,870
-------------------------
Cash flows from investing activities:
Capital expenditures (46,587) (58,266)
Capitalization of internally generated computer software (25,095) (25,733)
Payment for acquisitions of businesses, net of cash acquired (141,230) (88,440)
Investments (191,344) 289,834
-------------------------
Net cash (used in) provided by investing activities (404,256) 117,395
-------------------------
Cash flows from financing activities:
Proceeds from short-term borrowings - net 109,775 (52,750)
Repayment of long-term debt - net (86,209) (7,629)
Issuance of common stock 12,904 17,161
Purchases of treasury stock - (9,884)
Customer retirement account deposits 73,739 (316,790)
-------------------------
Net cash provided by (used in) financing activities 110,209 (369,892)
-------------------------
Change in cash and cash equivalents (6,105) 13,373
Beginning balance 98,856 80,554
-------------------------
Ending balance $ 92,751 $ 93,927
=========================
See notes to consolidated financial statements.
4
FISERV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated financial statements for the three and nine month periods ended
September 30, 2001 and 2000 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"). The Company declared a
3-for-2 common stock split to shareholders of record as of August 10, 2001,
payable on August 31, 2001. The financial and share information presented herein
for all periods has been adjusted to reflect the stock split.
2. Accounting Change and Derivative Instruments
The Company uses interest rate swaps to hedge its exposure to interest rate
changes. Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended, which requires that all derivative
instruments be reported on the balance sheet at fair value. If the derivative
instrument is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivative instrument are either recognized in net income or in
other comprehensive income until the hedged item is recognized in net income.
The adoption of SFAS 133 on January 1, 2001, resulted in a cumulative after-tax
reduction to accumulated other comprehensive income included in Shareholders'
equity of $2.7 million.
3. Accounting Standards To Be Adopted
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations", and SFAS No.
142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually. The Company will adopt SFAS No. 142 on January
1, 2002. The Company is currently evaluating the impact of this pronouncement on
its financial statements.
4. Business Combinations
During the first nine months of 2001, the Company completed seven acquisitions
accounted for by the purchase method for total cash consideration of
approximately $141.2 million. In addition to cash consideration, the Company
also issued approximately 330,000 unregistered shares of its common stock in
conjunction with one of the acquisitions. The operations of these acquisitions
are included in the consolidated financial statements from the dates of
acquisition. The Company does not anticipate any significant adjustments to the
purchase price allocations. Pro forma information for acquisitions is not
presented as the impact was not material.
5. Restructuring and Other Charges
In the second quarter of 2001, the Company recorded $12.3 million of pre-tax
charges consisting of severance and related termination benefits, future lease
and other contractual obligations, and disposal and write-down of assets. These
charges relate to management's plan to improve overall business efficiencies by
consolidating the Company's securities processing operations and eliminating
duplicate operational functions. As of September 30, 2001, the remaining
accruals related to these charges were $10.0 million.
5
ITEM 2. 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.
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------------------------------------------------------------
(Percent of Revenues)
Revenues 100.0% 100.0% 100.0% 100.0%
-------------------------------------------------------------
Salaries and related costs 48.8 48.9 48.3 48.1
Data processing costs 7.0 6.7 6.7 6.9
Other operating expenses 19.1 18.3 20.1 18.7
Depreciation and amortization 4.2 4.5 4.0 4.3
Amortization of intangible assets 1.9 2.0 1.9 2.5
Amortization (capitalization) of software-net (0.1) 0.3 0.0 0.1
-------------------------------------------------------------
Total cost of revenues 80.9 80.7 81.0 80.6
-------------------------------------------------------------
Operating income 19.1 19.3 19.0 19.4
=============================================================
Revenues
Revenues increased 15.0% from $406.2 million in the third quarter of 2000 to
$467.2 million in the current third quarter, and 14.3% from $1,219.0 million in
the first nine months of 2000 to $1,393.7 million in the comparable current
period. Revenue growth was primarily derived from sales to new clients,
cross-sales to existing clients, price increases and revenues from acquired
businesses. Revenue growth was positively impacted by strong growth of $215.3
million for the first nine months of 2001 compared to 2000 in the Financial
institution outsourcing, systems and services segment which is the Company's
main operating segment. Revenue growth was negatively impacted by the Securities
processing and trust services segment, primarily due to significantly lower
transaction volumes from overall weakness in the United States retail financial
markets in 2001. Revenues for the Securities processing and trust services
segment declined $54.2 million for the first nine months of 2001 compared to
2000, excluding a $12.0 million termination fee received in the second quarter
of 2001 from a broker-dealer customer acquired by a third party. Revenues from
acquired businesses approximated 50% of total revenue growth in the first nine
months of 2001.
Cost of Revenues
Cost of revenues increased 15.2% from $328.0 million in the third quarter of
2000 to $378.0 million in the current third quarter, and 15.0% from $982.5
million in the first nine months of 2000 to $1,129.5 million in the first nine
months of 2001. The make up of cost of revenues has been affected by business
acquisitions and changes in the mix of the Company's business. In the second
quarter of 2001, the Company recorded charges of $12.3 million, as explained in
Note 5 above.
Amortization of Intangible Assets
Amortization of intangible assets increased from $8.4 million in the third
quarter of 2000 to $8.9 million in the current third quarter, and decreased from
$31.2 million in the first nine months of 2000 to $26.6 million in the first
nine months of 2001. The decrease in amortization for the first nine months of
2001 compared to the prior period was due primarily to an impairment charge
recorded in the second quarter of 2000.
Operating Income
Operating income increased 14.1% from $78.2 million in the third quarter of 2000
to $89.2 million in the current third quarter, and increased 11.7% from $236.6
million in the first nine months of 2000 to $264.2 million in the first nine
months of 2001.
6
Realized Gain from Sale of Investment
During the first nine months of 2001 and 2000, the Company recorded a pre-tax
realized gain from sale of investment of $4.3 million and $5.8 million,
respectively.
Income Tax Provision
The effective income tax rate was 40% in 2001 and 41% in 2000. The effective
income tax rate is expected to remain at 40% for the remainder of the current
year.
Net Income
Net income for the third quarter increased 17.6% from $44.7 million in 2000 to
$52.6 million in 2001. Net income for the first nine months increased 16.9% from
$132.9 million in 2000 to $155.4 million in 2001. Net income per share-diluted
(excluding realized gains from sale of investment) for the third quarter was
$.27 in 2001 compared to $.22 in 2000. Net income per share-diluted (excluding
realized gains from sale of investment) for the first nine months of 2001 was
$.80 compared to $.68 in the comparable 2000 period.
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. The Company's operations have
been classified into three business segments: Financial institution outsourcing,
systems and services; Securities processing and trust services; and All other
and corporate. Summarized financial information by business segment is as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
----------------------- ---------------------------
Revenues: (In thousands)
Financial institution outsourcing, systems
and services $ 393,599 $ 307,135 $ 1,128,579 $ 913,315
Securities processing and trust services 56,963 82,672 214,612 256,846
All other and corporate 16,611 16,382 50,540 48,864
--------- --------- ----------- -----------
Total $ 467,173 $ 406,189 $ 1,393,731 $ 1,219,025
--------- --------- ----------- -----------
Operating income:
Financial institution outsourcing, systems
and services $ 83,631 $ 56,893 $ 241,775 $ 166,748
Securities processing and trust services 7,539 22,383 28,030 72,779
All other and corporate (1,955) (1,053) (5,606) (2,962)
--------- --------- ----------- -----------
Total $ 89,215 $ 78,223 $ 264,199 $ 236,565
--------- --------- ----------- -----------
Revenues in the Financial institution outsourcing, systems and services business
segment increased from $307.1 million in the third quarter of 2000 to $393.6
million in the current third quarter, and increased from $913.3 million in the
first nine months of 2000 to $1,128.6 million in the comparable current period.
Operating income in the Financial institution outsourcing, systems and services
business segment increased from $56.9 million in the third quarter of 2000 to
$83.6 million in the current third quarter and increased from $166.7 million in
the first nine months of 2000 to $241.8 million in the first nine months of
2001. Operating margin improvement in the first nine months of 2001 when
compared to 2000 was primarily due to continued revenue growth, operational
efficiencies and increased operating leverage of existing operations.
Revenues in the Securities processing and trust services business segment
decreased from $82.7 million in the third quarter of 2000 to $57.0 million in
the current third quarter, and decreased from $256.8 million in the first nine
months of 2000 to $214.6 million in the comparable current period. The revenue
decrease for the first nine months of 2001 was primarily related to
significantly lower transaction volumes in the Securities processing and trust
services segment due to overall weakness in the United States retail financial
markets, partially offset by a termination fee of $12.0 million received in the
second quarter of 2001 from a broker-dealer customer acquired by a third party.
Operating income in this business segment decreased from $22.4 million in the
third quarter of 2000 to $7.5 million in the current third quarter, and
decreased from $72.8 million in the first nine months of 2000 to $28.0 million
in the first nine months of 2001. In the second quarter of 2001, the segment
recorded charges of $12.3 million, as explained in Note 5 above. Operating
margins were lower in 2001 when compared to 2000 due primarily to significantly
reduced transaction volumes for securities processing services.
7
Liquidity and Capital Resources
The following table summarizes the Company's primary sources (uses) of funds
from operating activities for the nine months ended September 30, 2001 and 2000:
2001 2000
-------------------
(In thousands)
Net cash provided by operating activities before changes
in securities processing receivables and payables $284,408 $250,634
Securities processing receivables and payables - net 3,534 15,236
-------------------
Net cash provided by operating activities 287,942 265,870
Proceeds (repayments) from short-term borrowings - net 109,775 (52,750)
Repayment of long-term debt - net (86,209) (7,629)
-------------------
Total $311,508 $205,491
===================
Long-term obligations amounted to $250.3 million at September 30, 2001 and
included $166.2 million advanced under an aggregate of $547.0 million in
revolving credit facilities. The Company has used a significant portion of its
cash flow from operations for acquisitions and capital expenditures with any
remainder used to reduce 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 issuances of securities.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, services
and related products, prices and other factors discussed in the Company's prior
filings with the Securities and Exchange Commission. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate.
Therefore, there can be no assurance that the forward-looking statements
included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
No exhibits are filed as part of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
2001.
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 October 22, 2001 by /s/ Kenneth R. Jensen
---------------- -----------------------------------------------
KENNETH R. JENSEN
Senior Executive Vice President, Chief
Financial Officer, Treasurer and Assistant
Secretary
9