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 June 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
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
255 FISERV DRIVE, BROOKFIELD, WI 53045
- ------------------------------------------ -------------
(Address of principal executive office) (Zip Code)
(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 July 16, 2001, there were 124,616,000 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 Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---------------------------------- ----------------------------------
Revenues $472,646 $416,434 $926,558 $812,836
---------------------------------- ----------------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 227,194 198,029 445,889 387,601
Data processing expenses, rentals
and telecommunication costs 30,948 28,457 60,553 56,569
Other operating expenses 97,898 78,371 190,290 153,598
Depreciation and amortization of
property and equipment 18,758 17,419 37,063 34,168
Amortization of intangible assets 8,877 15,626 17,669 22,802
Amortization (capitalization) of internally
generated computer software-net 592 (856) 110 (244)
---------------------------------- ----------------------------------
Total cost of revenues 384,267 337,046 751,574 654,494
---------------------------------- ----------------------------------
Operating income 88,379 79,388 174,984 158,342
Interest expense - net (3,237) (6,000) (7,054) (11,806)
Realized gain from sale of investment 1,506 2,928 3,327 2,928
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Income before income taxes 86,648 76,316 171,257 149,464
Income tax provision 34,659 31,289 68,503 61,280
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Net income $51,989 $45,027 $102,754 $88,184
================================== ==================================
Net income per share:
Basic $0.42 $0.37 $0.83 $0.72
================================== ==================================
Diluted $0.41 $0.36 $0.81 $0.70
================================== ==================================
Shares used in computing net income per share:
Basic 124,372 122,991 124,240 122,807
================================== ==================================
Diluted 127,501 126,401 127,367 125,972
================================== ==================================
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
2001 2000
----------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents $77,963 $98,856
Accounts receivable-net 262,487 265,640
Securities processing receivables 1,505,743 2,193,291
Prepaid expenses and other assets 94,490 91,077
Investments 1,786,036 1,796,899
Property and equipment-net 217,131 205,555
Internally generated computer software-net 88,089 88,263
Intangible assets-net 918,992 846,739
----------------------------------
Total $4,950,931 $5,586,320
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $77,847 $80,633
Securities processing payables 1,287,605 1,977,323
Short-term borrowings 36,125 19,725
Accrued expenses 179,246 182,090
Accrued income taxes 43,015 22,207
Deferred revenues 157,082 156,668
Customer retirement account deposits 1,446,537 1,525,652
Deferred income taxes 37,303 34,992
Long-term debt 310,186 334,958
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Total liabilities 3,574,946 4,334,248
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Shareholders' equity:
Common stock issued, 125,387,700 shares 1,254 1,254
Additional paid-in capital 463,194 455,444
Accumulated other comprehensive income 73,427 78,869
Accumulated earnings 856,285 753,531
Treasury stock, at cost, 810,900 and
1,581,900 shares, respectively (18,175) (37,026)
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Total shareholders' equity 1,375,985 1,252,072
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Total $4,950,931 $5,586,320
==================================
See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2001 2000
-----------------------------------
Cash flows from operating activities:
Net income $102,754 $88,184
Adjustments to reconcile net income to net cash provided
by operating activities:
Realized gain from sale of investment (3,327) (2,928)
Deferred income taxes 4,990 8,209
Depreciation and amortization of property and equipment 37,063 34,168
Amortization of intangible assets 17,669 22,802
Amortization of internally generated computer software 16,656 19,085
-----------------------------------
175,805 169,520
Changes in assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable 11,189 2,533
Prepaid expenses and other assets (616) (8,826)
Accounts payable and accrued expenses (20,853) (14,531)
Deferred revenues (3,718) 3,114
Accrued income taxes 27,466 24,698
Securities processing receivables and payables - net (2,170) (76,494)
-----------------------------------
Net cash provided by operating activities 187,103 100,014
-----------------------------------
Cash flows from investing activities:
Capital expenditures (34,115) (43,563)
Capitalization of internally generated computer software (16,546) (19,329)
Payment for acquisitions of businesses, net of cash acquired (93,121) (48,691)
Investments 14,184 235,543
-----------------------------------
Net cash (used in) provided by investing activities (129,598) 123,960
-----------------------------------
Cash flows from financing activities:
Proceeds from short-term borrowings - net 16,400 36,950
Repayment of long-term debt - net (24,775) (16,598)
Issuance of common stock 9,092 16,463
Purchases of treasury stock - (9,884)
Customer retirement account deposits (79,115) (258,946)
-----------------------------------
Net cash used in financing activities (78,398) (232,015)
-----------------------------------
Change in cash and cash equivalents (20,893) (8,041)
Beginning balance 98,856 80,554
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Ending balance $ 77,963 $72,513
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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 six month periods ended
June 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").
2. Accounting Change and Derivative Instruments
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), 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. Business Combinations
During the first six months of 2001, the Company completed four acquisitions
accounted for by the purchase method for total cash consideration of
approximately $93.1 million. In addition to cash consideration, the Company also
issued approximately 220,000 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.
4. 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 ($3.8 million),
future lease and other contractual obligations ($6.2 million), and disposal and
write-down of assets ($2.3 million). 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.
5. 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
(liability) asset consisted of the following:
June 30, December 31,
2001 2000
--------------------------------
(In thousands)
Purchased incomplete software technology $40,745 $43,051
Accrued expenses not currently deductible 37,479 27,380
Deferred revenues 14,515 15,494
Internally generated capitalized software (35,236) (35,306)
Excess of tax over book depreciation and
amortization (22,845) (20,480)
Unrealized gains on investments (53,789) (53,722)
Other (18,172) (11,409)
--------------------------------
Total ($37,303) ($34,992)
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5
6. Supplemental Cash Flow Information
Six Months Ended
June 30,
2001 2000
---------------------------------
(In thousands)
Interest paid $10,956 $15,130
Income taxes paid 36,039 29,402
Liabilities assumed in acquisitions of businesses 11,100 397,313
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 Six Months Ended
June 30, June 30,
2001 2000 2001 2000
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(Percent of Revenues)
Revenues 100.0% 100.0% 100.0% 100.0%
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Salaries and related costs 48.1 47.6 48.1 47.7
Data processing costs 6.5 6.8 6.5 6.9
Other operating expenses 20.7 18.8 20.6 18.9
Depreciation and amortization 4.0 4.2 4.0 4.2
Amortization of intangible assets 1.9 3.7 1.9 2.8
Amortization (capitalization) of software-net 0.1 (0.2) 0.0 0.0
------------------------------- -------------------------------
Total cost of revenues 81.3 80.9 81.1 80.5
------------------------------- -------------------------------
Operating income 18.7 19.1 18.9 19.5
=============================== ===============================
Revenues
Revenues increased 13.5% from $416.4 million in the second quarter of 2000 to
$472.6 million in the current second quarter, and 14.0% from $812.8 million in
the first six months of 2000 to $926.6 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 $128.8 million for the first
six 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 $28.5 million
for the first six months of 2001 compared to 2000, excluding a $12.0 million
termination fee received from a broker-dealer customer acquired by a third party
in the second quarter of 2001. Revenues from acquired businesses approximated
55% of total revenue growth in the first six months of 2001.
Cost of Revenues
Cost of revenues increased 14.0% from $337.0 million in the second quarter of
2000 to $384.3 million in the current second quarter, and 14.8% from $654.5
million in the first six months of 2000 to $751.6 million in the first six
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
Footnote 4 above.
Amortization of Intangible Assets
Amortization of intangible assets decreased from $15.6 million in the second
quarter of 2000 to $8.9 million in the current second quarter, and from $22.8
million in the first six months of 2000 to $17.7 million in the first six months
of 2001. The decrease in amortization in 2001 compared to prior periods was due
primarily to an impairment charge recorded in 2000.
Operating Income
Operating income increased 11.3% from $79.4 million in the second quarter of
2000 to $88.4 million in the current second quarter, and increased 10.5% from
$158.3 million in the first six months of 2000 to $175.0 million in the first
six months of 2001.
6
Realized Gain from Sale of Investment
During the first six months of 2001 and 2000, the Company recorded a pre-tax
realized gain from sale of investment of $3.3 million and $2.9 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 second quarter increased 15.5% from $45.0 million in 2000 to
$52.0 million in 2001. Net income for the first six months increased 16.5% from
$88.2 million in 2000 to $102.8 million in 2001. Net income per share-diluted
(excluding realized gains from sale of investment) for the second quarter was
$.40 in 2001 compared to $.34 in 2000. Net income per share-diluted (excluding
realized gains from sale of investment) for the first six months of 2001 was
$.79 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 Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------------------------------ ------------------------------------
(In thousands)
Revenues:
Financial institution outsourcing, systems
and services $374,618 $313,092 $734,980 $606,180
Securities processing and trust services 81,627 87,727 157,649 174,174
All other and corporate 16,401 15,615 33,929 32,482
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Total $472,646 $416,434 $926,558 $812,836
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Operating income:
Financial institution outsourcing, systems
and services $78,548 $60,519 $158,144 $109,855
Securities processing and trust services 12,103 20,449 20,491 50,396
All other and corporate (2,272) (1,580) (3,651) (1,909)
------------- ------------- ------------- -------------
Total $88,379 $79,388 $174,984 $158,342
------------- ------------- ------------- -------------
Revenues in the Financial institution outsourcing, systems and services business
segment increased from $313.1 million in the second quarter of 2000 to $374.6
million in the current second quarter, and increased from $606.2 million in the
first six months of 2000 to $735.0 million in the comparable current period.
Operating income in the Financial institution outsourcing, systems and services
business segment increased from $60.5 million in the second quarter of 2000 to
$78.5 million in the current second quarter and increased from $109.9 million in
the first six months of 2000 to $158.1 million in the first six months of 2001.
Operating margin improvement in the first six 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 $87.7 million in the second quarter of 2000 to $81.6 million in
the current second quarter, and decreased from $174.2 million in the first six
months of 2000 to $157.6 million in the comparable current period. The revenue
decrease in 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 from a broker-dealer customer acquired
by a third party in the second quarter of 2001. Operating income in this
business segment decreased from $20.4 million in the second quarter of 2000 to
$12.1 million in the current second quarter, and decreased from $50.4 million in
the first six months of 2000 to $20.5 million in the first six months of 2001.
In the second quarter of 2001, the segment recorded charges of $12.3 million, as
explained in Footnote 4 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 six months ended June 30, 2001 and 2000:
2001 2000
------------------------------------
(In thousands)
Net cash provided by operating activities before changes
in securities processing receivables and payables $189,273 $176,508
Securities processing receivables and payables - net (2,170) (76,494)
------------------------------------
Net cash provided by operating activities 187,103 100,014
Proceeds from short-term borrowings - net 16,400 36,950
Repayment of long-term debt - net (24,775) (16,598)
------------------------------------
TOTAL $178,728 $120,366
====================================
Long-term obligations amounted to $310.2 million at June 30, 2001 and included
$216.4 million advanced under an aggregate of $572 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 June 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 July 23, 2001 by /s/ Kenneth R. Jensen
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KENNETH R. JENSEN
Senior Executive Vice President, Chief
Financial Officer, Treasurer and Assistant
Secretary
9