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 March 31, 2002 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
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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 April 15, 2002, there were 191,237,798 shares of common stock, $.01 par
value, of the Registrant outstanding.
1
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2002 2001
------------------------
Revenues:
Processing and services $ 559,824 $ 462,163
Customer reimbursements 72,104 65,488
-----------------------
Total revenues 631,928 527,651
-----------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 271,632 222,213
Customer reimbursement expenses 72,104 65,488
Data processing costs and equipment rentals 39,108 34,338
Other operating expenses 116,350 91,910
Depreciation and amortization 24,220 27,097
-----------------------
Total cost of revenues 523,414 441,046
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Operating income 108,514 86,605
Interest expense - net (2,687) (3,817)
Realized gain from sale of investment 915 1,821
-----------------------
Income before income taxes 106,742 84,609
Income tax provision 41,629 33,844
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Net income $ 65,113 $ 50,765
======================
Net income per share:
Basic $ 0.34 $ 0.27
======================
Diluted $ 0.33 $ 0.27
======================
Shares used in computing net income per share:
Basic 190,669 186,162
======================
Diluted 195,152 190,850
======================
See notes to consolidated financial statements.
2
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, December 31,
2002 2001
------------------------
ASSETS
Cash and cash equivalents $ 138,695 $ 136,088
Accounts receivable - net 294,985 311,217
Securities processing receivables 1,643,984 1,427,051
Prepaid expenses and other assets 109,011 108,003
Investments 1,799,519 1,885,063
Property and equipment - net 257,101 247,748
Internally generated computer software - net 98,518 97,250
Intangible assets - net 1,144,666 1,109,822
------------------------
Total $5,486,479 $5,322,242
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 83,184 $ 83,303
Securities processing payables 1,448,194 1,289,479
Short-term borrowings 165,186 112,800
Accrued expenses 206,673 241,904
Accrued income taxes 14,930 15,373
Deferred revenues 163,702 171,101
Customer retirement account deposits 1,391,594 1,420,956
Deferred income taxes 62,976 39,407
Long-term debt 260,684 343,093
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Total liabilities 3,797,123 3,717,416
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Shareholders' equity:
Common stock issued, 191,213,000 and 190,281,000
shares, respectively 1,912 1,903
Additional paid-in capital 583,393 564,959
Accumulated other comprehensive income 77,190 76,216
Accumulated earnings 1,026,861 961,748
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Total shareholders' equity 1,689,356 1,604,826
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Total $5,486,479 $5,322,242
========================
See notes to consolidated financial statements.
3
FISERV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2002 2001
-----------------------------------
Cash flows from operating activities:
Net income $ 65,113 $ 50,765
Adjustments to reconcile net income to net cash provided
by operating activities:
Realized gain from sale of investment (915) (1,821)
Deferred income taxes 22,411 16,416
Depreciation and amortization 24,220 27,097
Amortization of internally generated computer software 9,418 8,612
-----------------------------------
120,247 101,069
Changes in assets and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable 14,147 673
Prepaid expenses and other assets (1,312) 8,307
Accounts payable and accrued expenses (33,210) (46,776)
Deferred revenues (7,647) 2,314
Accrued income taxes 12,555 7,009
Securities processing receivables and payables - net (58,218) (3,167)
-----------------------------------
Net cash provided by operating activities 46,562 69,429
-----------------------------------
Cash flows from investing activities:
Capital expenditures (30,304) (16,708)
Capitalization of internally generated computer software (10,686) (9,094)
Payment for acquisitions of businesses, net of cash acquired (35,846) (90,903)
Investments 85,974 (90,751)
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Net cash provided by (used in) investing activities 9,138 (207,456)
-----------------------------------
Cash flows from financing activities:
Proceeds from (repayment of) short-term borrowings - net 52,900 (6,725)
(Repayment of) proceeds from long-term debt - net (82,560) 27,604
Issuance of common stock 5,443 3,206
Customer retirement account deposits (28,876) 97,232
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Net cash (used in) provided by financing activities (53,093) 121,317
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Change in cash and cash equivalents 2,607 (16,710)
Beginning balance 136,088 98,856
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Ending balance $ 138,695 $ 82,146
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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 month periods ended March
31, 2002 and 2001 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such consolidated 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 consolidated financial
statements and notes of Fiserv, Inc. and subsidiaries (the "Company"). Certain
amounts reported in prior periods have been reclassified to conform to the 2002
presentation.
2. Recent Accounting Pronouncements
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS
No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually. The Company has completed the first step of the transitional
impairment test for intangible assets with indefinite lives and has determined
that no potential impairment exists. The Company also is required to complete
the first step of the transitional impairment test for goodwill within six
months of adoption of SFAS No. 142 and to complete the final step of the
transitional impairment test by the end of the calendar year. The Company
anticipates the results of this assessment will not have a material impact on
the consolidated financial statements. Proforma net income and net income per
share for the three months ended March 31, 2001, adjusted to eliminate
historical amortization of goodwill and related tax effects, are as follows:
Three
months ended
March 31, 2001
----------------------
(In thousands)
Reported net income $ 50,765
Add: goodwill amortization, net of tax 4,573
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Pro forma net income $ 55,338
==========
Reported net income per share:
Basic $ 0.27
Diluted $ 0.27
Pro forma net income per share:
Basic $ 0.30
Diluted $ 0.29
In addition, effective January 1, 2002, the Company adopted Emerging Issues Task
Force Issue No. 01-14, "Income Statement Characterization of Reimbursements
Received for 'Out of Pocket' Expenses Incurred" which requires that customer
reimbursements received for direct costs paid to third parties and related
expenses be characterized as revenue. Comparative financial statements for prior
periods have been reclassified to provide consistent presentation. For the three
months ended March 31, 2002 and 2001, the Company has presented customer
reimbursement revenue and expenses of $72.1 million and $65.5 million,
respectively in accordance with Issue No. 01-14. Customer reimbursements
represent direct costs paid to third parties primarily for postage and data
communication costs. In addition, processing and services revenues and
salaries/data processing expenses were increased by $8.9 million and $8.3
million in 2002 and 2001, respectively. The adoption of Issue No. 01-14 did not
impact the Company's financial position, operating income or net income.
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. This table and the following discussion exclude the
revenues and expenses associated with customer reimbursements as discussed in
Note 2.
Three months ended
March 31,
2002 2001
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(Percent of Revenues)
Processing and services revenues 100.0 100.0
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Salaries and related costs 48.5 48.1
Data processing costs 7.0 7.4
Other operating expenses 20.8 19.9
Depreciation and amortization 4.3 5.9
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Total cost of revenues 80.6 81.3
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Operating income 19.4 18.7
=====================
Processing and Services Revenues
Processing and services revenues increased $97.7 million, or 21.1%, from $462.2
million in the first quarter of 2001 to $559.8 million in the current first
quarter. Approximately 25% of the revenue growth was derived from sales to new
clients, cross-sales to existing clients, increases in transaction volumes from
existing clients and price increases, with the remaining revenue growth from
acquired businesses. Revenue growth was positively impacted by strong growth of
$113.0 million, or 30.6%, for the first quarter of 2002 compared to 2001 in the
Financial institution outsourcing, systems and services segment which is the
Company's main operating segment. In addition, revenue growth was negatively
impacted by the Securities processing and trust services segment, primarily due
to lower transaction volumes from continued weakness in the United States retail
financial markets. Revenues for the Securities processing and trust services
segment declined $17.6 million for the first quarter of 2002 compared to 2001.
Cost of Revenues
Cost of revenues increased 20.2% from $375.6 million in the first quarter of
2001 to $451.3 million in the current first quarter. The make up of cost of
revenues has been affected by business acquisitions and changes in the mix of
the Company's business.
Depreciation and Amortization
Depreciation and amortization decreased from $27.1 million in the first quarter
of 2001 to $24.2 million in the current first quarter. The decrease was
primarily attributable to the adoption of SFAS No. 142 as discussed in Note 2
that resulted in a reduction of goodwill amortization expense of approximately
$6.0 million in the first quarter of 2002, offset by incremental depreciation
from capital expenditures.
Operating Income
Operating income increased from $86.6 million in the first quarter of 2001 to
$108.5 million in the current first quarter.
Realized Gain from Sale of Investment
During the first three months of 2002 and 2001, the Company recorded a pre-tax
realized gain from the sale of investment of $0.9 million and $1.8 million,
respectively.
Income Tax Provision
The effective income tax rate was 40% in 2001 and 39% in 2002. The effective
income tax rate for 2002 has declined from 2001 due to the impact of adopting
SFAS No. 142.
Net Income
Net income for the first quarter increased from $50.8 million in 2001 to $65.1
million in 2002. Net income per share-diluted (excluding realized gains from
sale of investment) for the first quarter was $0.33 in 2002, compared to $.26 in
2001. The impact of adopting SFAS No. 142 increased first quarter 2002 diluted
net income per share by approximately $.02 per share due to the elimination of
goodwill amortization.
6
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. As of January 1, 2002, financial information for the three months
ended March 31, 2001 has been restated to reflect the transfer of one business
unit representing $3.6 million in revenue and $0.3 million in operating income
from the Securities and trust services segment to the Financial institution
outsourcing, systems and services segment. Summarized financial information by
business segment has been restated and is as follows:
Three Months Ended
March 31,
2002 2001
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(In thousands)
Processing and services revenues:
Financial institution outsourcing, systems
and services $ 481,703 $ 368,723
Securities processing and trust services 54,763 72,394
All other and corporate 23,358 21,046
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Total $ 559,824 $ 462,163
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Operating income:
Financial institution outsourcing, systems
and services $ 101,789 $ 79,862
Securities processing and trust services 7,566 8,122
All other and corporate (841) (1,379)
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Total $ 108,514 $ 86,605
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Processing and services revenues in the Financial institution outsourcing,
systems and services business segment increased from $368.7 million in the first
quarter of 2001 to $481.7 million in the current first quarter. Operating income
in the Financial institution outsourcing, systems and services business segment
increased from $79.9 million in the first quarter of 2001 to $101.8 million in
the current first quarter and was positively impacted by the elimination of
goodwill amortization of approximately $5.0 million. Operating margins declined
in the current quarter due primarily to lower operating margins associated with
certain acquisitions closed in the fourth quarter of 2001.
Processing and services revenues in the Securities processing and trust services
business segment decreased from $72.4 million in the first quarter of 2001 to
$54.8 million in the current first quarter. The revenue decrease in the first
quarter of 2002 was primarily related to lower transaction volumes due to
continued weakness in the United States retail financial markets. Operating
income in this business segment (excluding a litigation reserve of $7.8 million
recorded in the first quarter of 2001) decreased from $15.9 million in the first
quarter of 2001 to $7.6 million in the current first quarter primarily as a
result of lower revenues.
7
Liquidity and Capital Resources
The following table summarizes the Company's primary sources (uses) of funds for
the three months ended March 31, 2002 and 2001:
2002 2001
-----------------------------------
(In thousands)
Cash provided by operating activities before changes
in securities processing receivables and payables - net $104,780 $72,596
Securities processing receivables and payables - net (58,218) (3,167)
-----------------------------------
Cash provided by operating activities 46,562 69,429
(Decrease) increase in net borrowings (29,660) 20,879
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TOTAL $ 16,902 $90,308
===================================
The Company has historically 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's strategy includes the acquisition of complementary businesses
financed by a combination of internally generated funds and borrowings from the
Company's credit facilities. 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 the issuances of securities.
Critical Accounting Policies
The Company does not consider any specific accounting policies to be critical to
the economic success of the entity. The Company does not participate in, nor has
created, any off-balance sheet financing or other off-balance sheet special
purpose entities, other than operating leases. In addition, the Company does not
enter into any derivative financial instruments for speculative purposes and
uses derivative financial instruments primarily for managing its exposure to
changes in interest rates.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company's quantitative and qualitative disclosures about market risk are
incorporated by reference in Item 7A of the Company's Annual Report on Form 10-K
for the year ended December 31, 2001 and have not materially changed since that
report was filed.
8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders held on March 28, 2002, the
Company's Shareholders approved the following matters:
For Withheld
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1. ELECTION OF THREE DIRECTORS TO SERVE
FOR A THREE-YEAR TERM EXPIRING IN 2005:
Donald F. Dillon 172,152,960 1,264,964
Gerald J. Levy 172,112,304 1,305,620
Glenn M. Renwick 171,409,216 2,008,708
ELECTION OF ONE DIRECTOR TO SERVE FOR
A ONE-YEAR TERM EXPIRING IN 2003*:
Leslie M. Muma 172,148,598 1,269,326
The other directors of the Company whose terms in office continued after the
2002 Annual Meeting of Shareholders are as follows: terms expiring at the 2003
Annual Meeting - Daniel P. Kearney and L. William Seidman; and terms expiring at
the 2004 Annual Meeting - Kenneth R. Jensen, Thekla R. Shackelford.
* Nominated for a one-year term in order to make the number of directors in
each class as even as possible.
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 March 31,
2002.
SIGNATURE
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 23, 2002 by /s/ Kenneth R. Jensen
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KENNETH R. JENSEN
Senior Executive Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
9