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
October 22, 1997
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 September 30, 1997 the Company announced an agreement to acquire all of the
outstanding shares of Hanifen, Imhoff Holdings, Inc. for $97.2 million in cash
and stock in a transaction to be accounted for as a purchase.
Item 7. Financial Statements and Exhibits.
(a) The following financial statements of Fiserv, Inc., with their notes, have
been restated to include, on a pooling of interests basis, the financial
position and results of operations of BHC Financial, Inc. as of December 31,
1996 and 1995 and for each of the three years in the period ending December 31,
1996.
Consolidated Statements of Operations
Consolidated Statements of Financial Position
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
(c) Exhibits.
(1) Agreement and Plan of Merger among Fiserv, Inc., Fiserv Clearing, Inc. and
Hanifen, Imhoff Holdings, Inc. dated as of September 30, 1997.
(2) News release by Fiserv, Inc., dated September 30, 1997, announcing an
agreement to acquire Hanifen, Imhoff Holdings, Inc. for cash and stock.
(23.1) Independent Auditors Report
(23.2) Independent Auditors Consent
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: October 22, 1997
FISERV, INC. and Subsidiaries Consolidated Statements of Operations
Year ended December 31, 1996 1995 1994
(In thousands, except per share data)
Revenues $879,449 $769,104 $635,297
==============================
Cost of revenues:
Salaries, commissions and payroll
related costs 394,932 351,180 298,997
Data processing expenses, rentals and
telecommunication costs 97,721 100,908 86,953
Other operating expenses 164,003 141,100 123,086
Depreciation and amortization of
property and equipment 44,120 40,486 33,751
Purchased incomplete software
technology 172,970
Amortization of intangible assets 21,391 26,166 11,060
Amortization (capitalization) of internally
generated computer software-net 3,732 (6,382) (9,599)
------------------------------
Total 725,899 826,428 544,248
------------------------------
Operating income (loss) 153,550 (57,324) 91,049
Interest expense - net 19,088 18,822 6,951
------------------------------
Income (loss) before income taxes 134,462 (76,146) 84,098
Income tax provision (credit) 54,754 (30,220) 33,067
------------------------------
Net income (loss) $79,708 $(45,926) $51,031
==============================
Net income (loss) per common and
common equivalent share $1.53 $(0.91) $1.08
==============================
Shares used in computing net
income per share 52,046 50,298 47,364
==============================
See notes to consolidated financial statements.
FISERV, INC. and Subsidiaries Consolidated Balance Sheets
December 31, 1996 1995
Assets (In thousands)
Cash and cash equivalents $101,282 $76,556
Accounts receivable 160,747 154,628
Securities processing receivables 729,354 580,025
Prepaid expenses and other assets 64,410 72,022
Due on sale of securities 97,446
Trust account investments 970,553 834,286
Other investments 72,952 69,562
Deferred income taxes 34,144 40,531
Property and equipment-Net 148,413 153,057
Internally generated computer software-Net 70,487 73,863
Identifiable intangible assets relating
to acquisitions-Net 54,548 62,069
Goodwill-Net 292,089 300,552
---------- ----------
Total $2,698,979 $2,514,597
========== ==========
Liabilities and shareholders' equity
Accounts payable $43,486 $43,948
Securities processing payables 636,215 490,546
Short-term borrowings 33,200 41,900
Accrued expenses 80,866 75,440
Accrued income taxes 9,808 6,538
Deferred revenues 46,089 40,754
Trust account deposits 970,553 917,189
Long-term debt 272,864 383,416
---------- ----------
Total liabilities 2,093,081 1,999,731
Commitments and contingencies
Shareholders' equity:
Common stock outstanding, 51,032,000 and
50,571,000 shares, respectively 510 506
Additional paid-in capital 352,916 345,448
Unrealized gain on investments 18,621 15,268
Accumulated earnings 233,851 153,644
---------- ----------
Total shareholders' equity 605,898 514,866
---------- ----------
Total $2,698,979 $2,514,597
========== ==========
See notes to consolidated financial statements.
FISERV, INC. and Subsidiaries Consolidated Statements of Changes in
Shareholders' Equity
Year ended December 31, 1996 1995 1994
(In thousands)
Shares issued-150,000,000 authorized:
Balance at beginning of year 50,571 45,722 39,661
Shares issued in pooling of BHC Financial, Inc. 5,684
Shares issued under stock plans--net 327 274 239
Shares issued for acquired companies 134 4,575 138
-------------------------------------
Balance at end of year 51,032 50,571 45,722
=====================================
Common stock--par value $.01 per share:
Balance at beginning of year $506 $457 $397
Shares issued in pooling of BHC Financial, Inc. 57
Shares issued under stock plans--net 3 3 2
Shares issued for acquired companies 1 46 1
-------------------------------------
Balance at end of year 510 506 457
-------------------------------------
Capital in excess of par value:
Balance at beginning of year 345,448 214,396 181,223
Acquired in pooling of BHC Financial, Inc. 29,648
Shares issued under stock plans--net 4,893 670 2,660
Income tax reduction arising from the
exercise of employee stock options 2,000 2,400 800
Shares issued for acquired companies 575 127,982 65
-------------------------------------
Balance at end of year 352,916 345,448 214,396
-------------------------------------
Unrealized gain on investments 18,621 15,268 11,054
-------------------------------------
Accumulated earnings:
Balance at beginning of year 153,644 199,482 122,023
Acquired in pooling of BHC Financial, Inc. 26,338
Net income (loss) 79,708 (45,926) 51,031
Foreign currency translation adjustment 499 88 90
-------------------------------------
Balance at end of year 233,851 153,644 199,482
-------------------------------------
Total shareholders' equity $605,898 $514,866 $425,389
=====================================
See notes to consolidated financial statements.
FISERV, INC. and Subsidiaries Consolidated Statements of Cash Flows
Year ended December 31, 1996 1995 1994
(In thousands)
Cash flows from operating activities:
Net income (loss) $79,708 $(45,926) $51,031
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred income taxes 2,225 (59,085) 11,912
Depreciation and amortization of
property and equipment 44,120 40,486 33,751
Amortization of intangible assets 21,391 26,166 11,060
Charge for incomplete software technology 172,970
Amortization (capitalization) of internally
generated computer software - net 3,732 (6,382) (9,599)
------------------------------------
151,176 128,229 98,155
Cash provided (used) by changes in assets
and liabilities, net of effects from
acquisitions of businesses:
Accounts receivable (4,881) (10,014) (12,194)
Prepaid expenses and other assets 8,252 (26,616) (3,988)
Accounts payable and accrued expenses 8,034 399 (7,061)
Deferred revenues 5,232 9,283 (123)
Accrued income taxes 5,961 5,756 1,855
Securities processing receivables and payables--net (3,660) 29,935 (39,954)
------------------------------------
Cash provided by operating activities 170,114 136,972 36,690
------------------------------------
Cash flows from investing activities:
Capital expenditures (39,450) (46,322) (55,722)
Payment for acquisition of businesses,
net of cash acquired (8,025) (261,417) (20,545)
Investments (133,979) 225,728 (204,965)
Due on sale of investments 97,446 (97,446)
------------------------------------
Net cash used by investing activities (84,008) (179,457) (281,232)
------------------------------------
Cash flows from financing activities:
(Repayment) proceeds of short-term obligations--net (8,700) (50,600) 38,520
Proceeds from borrowings on long-term obligations 6,000 252,977 39,165
Repayment of long-term obligations (116,940) (21,733) (14,344)
Issuance of common stock 4,896 638 1,918
Trust account deposits 53,364 (118,028) 174,567
------------------------------------
Net cash (used) provided by financing activities (61,380) 63,254 239,826
------------------------------------
Change in cash and cash equivalents 24,726 20,769 (4,716)
Beginning balance 76,556 55,787 60,503
------------------------------------
Ending balance $101,282 $76,556 $55,787
====================================
See notes to consolidated financial statements.
Fiserv, Inc. and Subsidiaries Notes to consolidated financial statements for the
years ended December 31, 1996, 1995 and 1994
1. Summary of significant accounting policies
Restatement of financial statements
The accompanying financial statements have been restated for the acquisition of
BHC Financial, Inc. (BHC) which occurred on May 30, 1997. The transaction was
accounted for as a pooling of interests and accordingly, the accompanying
financial statements were restated to include the accounts of BHC for all
periods presented. (See Note 2)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash and investments with original maturities
of 90 days or less.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets at December 31, 1996 and 1995 include
$12,013,000 and $17,817,000, respectively, relating to long-term contracts, the
profit from which is being recognized ratably over the periods to be benefited.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Values
The carrying amounts of cash and cash equivalents, accounts receivable and
payable, securities processing receivables and payables, short and long-term
borrowings approximated fair value as of December 31, 1996 and 1995.
Securities Processing Receivables and Payables
The Company's security processing subsidiaries had receivables from and payables
to brokers or dealers and clearing organizations relating to the following at
December 31, 1996 and 1995 (in thousands):
Receivables: 1996 1995
---------------------
Securities failed to deliver $10,679 $4,076
Securities borrowed 207,173 108,897
Securities purchased under agreements to resell 4,850 81,286
Receivable from customers 493,635 377,535
Other 13,017 8,231
---------------------
$729,354 $580,025
=====================
Payables: 1996 1995
---------------------
Securities failed to receive $5,923 $5,944
Securities loaned 219,530 103,188
Securities sold under agreements to resell 4,876 81,273
Payable to customers 366,421 270,761
Other 39,465 29,380
---------------------
$636,215 $490,546
=====================
Securities borrowed and loaned represent deposits made to or received from other
broker-dealers. Receivable from and payable to customers represent amounts due
on cash and margin transactions.
Trust Account Deposits and Investment Securities
The Company's trust administration subsidiaries accept money market deposits
from trust customers and invest the funds in securities. Such amounts due trust
depositors represent the primary source of funds for the Company's investment
securities and amounted to $970,553,000 and $917,189,000 in 1996 and 1995,
respectively. The related investment securities, including amounts representing
Company funds, comprised the following at December 31, 1996 and 1995:
Principal Carrying Market
1996 Amount Value Value
(In thousands)
----------------------------------------
U. S. Government and government
agency obligations $684,963 $695,955 $695,048
Corporate bonds 31,172 31,337 31,374
Repurchase agreements 41,888 41,888 41,888
Other fixed income obligations 263,878 262,293 261,939
----------------------------------------
Total 1,021,901 1,031,473 1,030,249
----------------------------------------
Less amounts representing Company funds:
Included in cash and cash equivalents 41,888
Included in other investments 19,032
---------
Trust account investments $970,553
=========
1995
U. S. Government and government
agency obligations $553,384 $558,893 $559,000
Corporate bonds 119,100 118,891 118,716
Repurchase agreements 96,671 96,671 96,671
Other fixed income obligations 59,877 59,831 59,831
------------------------------------
Total $829,032 834,286 $834,218
====================================
Substantially all of the investments have contractual maturities of one year or
less except for government agency obligations.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using primarily the straight-line method over the estimated useful
lives of the assets, ranging from three to 40 years:
December 31,
1996 1995
(In thousands)
--------------------
Data processing equipment $167,974 $160,129
Purchased software 47,833 39,810
Buildings and leasehold improvements 52,329 51,195
Furniture and equipment 49,526 38,940
--------------------
317,662 290,074
Less accumulated depreciation and amortization 169,249 137,017
--------------------
TOTAL $148,413 $153,057
====================
Internally Generated Computer Software
Certain costs incurred to develop new software and enhance existing software are
capitalized and amortized over the expected useful life of the product,
generally five years. Activity during the three years ended December 31, 1996
was as follows:
1996 1995 1994
(In thousands)
--------------------------------
Beginning balance $ 73,863 $67,820 $58,020
Capitalized costs 26,722 26,041 26,455
--------------------------------
100,585 93,861 84,475
Amortization 30,098 19,998 16,655
--------------------------------
Ending balance $ 70,487 $73,863 $67,820
================================
During the fourth quarter of 1996, the Company recorded a charge of $5,443,000
relating to the accelerated amortization of software resulting from the planned
consolidation of certain product lines. Routine maintenance of software
products, design costs and development costs incurred prior to establishment of
a product's technological feasibility are expensed as incurred.
Intangible Assets
Intangible assets relate to acquisitions and consist of the following at
December 31:
1996 1995
--------------------
(In thousands)
Computer software acquired $ 29,326 $ 30,949
Non-competition agreements 9,139 10,744
Contract rights and other 62,016 54,076
--------------------
TOTAL 100,481 95,769
Less accumulated amortization 45,933 33,700
--------------------
TOTAL $ 54,548 $ 62,069
====================
Goodwill $317,077 $318,410
Less accumulated amortization 24,988 17,858
--------------------
$292,089 $300,552
====================
Except as noted below, the cost allocated to computer software acquired in
corporate acquisitions is being amortized on a straight-line basis over its
expected useful life (generally five years or less). In connection with certain
acquisitions, the Company has entered into non-compete agreements with the
sellers. The values assigned are being amortized on the straight-line method
over the periods covered by the agreements (generally five years or less). Costs
allocated to various customer data processing contracts at the dates of
acquisition are being amortized on a straight-line basis over the remaining
terms of the contracts (generally six years or less). The excess of the purchase
price over the estimated fair value of tangible and identifiable intangible
assets acquired has been recorded as goodwill and is being amortized over 40
years. The Company periodically reviews goodwill and other long-lived assets to
assess recoverability, and impairments would be recognized in operating results
if a permanent diminution in value were to occur. In connection with the
acquisition in 1995 of Information Technology, Inc. (ITI) referred to in Note 2
below, the allocation of the purchase price to the various classes of assets was
determined on the basis of an opinion expressed by a nationally recognized
independent appraisal firm. Values determined for incomplete software have been
expensed and values for completed software are being amortized utilizing
accelerated methods.
Income Taxes
The consolidated financial statements are prepared on the accrual method of
accounting. Deferred income taxes are provided for temporary differences between
the Company's income for accounting and tax purposes.
Revenue Recognition
Revenues result primarily from the sale of data processing services to financial
institutions, software sales, and administration of self-directed retirement
plans. Such revenues are recognized as the related services are provided.
Revenues include investment income of $70,794,000, $65,047,000, and $52,891,000,
net of direct credits to customers accounts of $40,686,000, $43,191,000, and
$35,135,000 in 1996, 1995 and 1994, respectively. Deferred revenues consist
primarily of advance billings for services and are recognized as revenue when
the services are provided.
Income per Share
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.
Supplemental Cash Flow Information
1996 1995 1994
(In thousands)
-----------------------------------
Interest paid $22,942 $21,184 $8,871
Income taxes paid 45,308 19,556 18,443
Liabilities assumed in acquisitions
of businesses 1,596 49,279 3,416
2. Acquisitions and capital transactions
Acquisitions
On May 30, 1997, the Company acquired all of the outstanding common stock of BHC
Financial, Inc. (BHC) in exchange for 5,683,769 shares of Common Stock of the
Company. The transaction is being accounted for as a pooling of interests and
accordingly, the accompanying financial statements include the accounts of BHC
for all periods presented. Combined and separate results of the Company and BHC
for the years ended December 31, 1996, 1995 and 1994 (in thousands of dollars)
were as follows:
Company BHC Combined
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
Revenues $798,268 $81,181 $879,449
Net Income 61,684 18,024 79,708
Year ended December 31, 1995
Revenues 703,380 65,724 769,104
Net Income (Loss) (59,863) 13,937 (45,926)
Year ended December 31, 1994
Revenues 579,839 55,458 635,297
Net Income 40,407 10,624 51,031
During 1996, 1995 and 1994 the Company completed the following acquisitions:
Month
Company Acquired Type of Business Consideration
- -------------------------------------------------------------------------------------------------------------------------------
1996:
UniFi, Inc. Jan Software and services Cash for stock
Bankers Pension Services, Inc. Nov Retirement plan administrators Stock for stock
1995:
Integrated Business Systems Jan Forms Cash for stock
BankLink, Inc. Feb Cash management Cash for stock
Information Technology, Inc. May Financial processing systems Cash and stock
for stock
Lincoln Holdings, Inc. Aug Retirement plan administrators Stock for stock
SRS, Inc. Sep Data processing Cash for stock
Document Management Services Sep Item processing Cash for assets
Division of ALLTEL Financial Information
Services, Inc.
Financial Information Trust Nov Data processing Cash for stock
Outsource Technology L. C. Nov Data processing Cash for stock
1994:00:00
National Embossing Company, Inc. Apr Automated card services Cash for stock
Boatmen's Information Systems May Data processing Cash for assets
data processing business
Federal Home Loan Bank of Atlanta Aug Item processing Cash for assets
item processing contracts
Cincinnati Bell Information Systems Nov Image and document Cash for assets
banking business management services
RECOM Associates, Inc. Dec Network integration services Stock for stock
Generally, the acquisitions were accounted for as purchases and, accordingly,
the operations of the acquired companies are included in the consolidated
financial statements since their respective dates of acquisition as set forth
above. Certain of the acquisitions were accounted for as poolings of interests.
However, except for the acquisitions of BHC and Lincoln Holdings, Inc. (LHI),
prior year financial statements were not restated due to immateriality. Results
of operations of BHC and LHI have been included with those of the Company for
all periods presented. Certain of the acquisition agreements provide for
additional cash payments contingent upon the attainment of specified revenue
goals.
In connection with the acquisition of Bankers Pension Services, Inc. (BPS), the
Company issued approximately 112,000 unregistered shares of its common stock.
The Company relied upon the exemption provided in Section 4(2) of the Securities
Act of 1933 and Rule 505 of Regulation D, based upon the number of shareholders
of BPS and the aggregate value of the transaction. No underwriter was involved
in the transaction and no commission was paid.
The acquisition of ITI was consummated for a consideration of approximately $377
million comprising approximately 4,574,000 shares of common stock of the Company
and $249 million cash, including acquisition costs. Approximately 903,000 shares
of common stock of the Company were issued in the acquisition of LHI. Net income
of the Company for 1995 was determined after a pretax charge of $182.9 million
relating to the write-off of incomplete software technology and accelerated
amortization of completed software relating to the acquisition of ITI.
Accordingly, net income was reduced in 1995 by $109.6 million, or $2.18 a share,
relating to such charges.
Stock Option Plan
The Company's 1996 Stock Option Plan provides for the granting to its employees
and directors of either incentive or non-qualified options to purchase shares of
the Company's common stock for a price not less than 100% of the fair value of
the shares at the date of grant. In general, 20% of the shares awarded under the
Plan may be purchased annually and expire, generally, five to 10 years from the
date of the award. Activity under the current and prior plans during 1994, 1995
and 1996 is summarized as follows:
Shares
--------------------------
Non- Price
Incentive Qualified Range
-----------------------------------------
Outstanding, December 31, 1993 53,305 2,226,804 $1.63-20.17
Granted 559,497 20.00-22.50
Forfeited (3,380) (102,945)
Exercised (19,505) (211,529) 1.63-18.50
--------------------------
Outstanding, December 31, 1994 30,420 2,471,827 1.63-22.50
Granted 440,434 21.50-27.50
Forfeited (115,493)
Exercised (10,140) (413,588) 1.63-21.81
--------------------------
Outstanding, December 31, 1995 20,280 2,383,180 1.63-27.50
Granted 617,354 26.50-36.75
Forfeited (89,147)
Assumed from BHC 562,284 7.30-31.50
Exercised (18,590) (309,977) 1.63-30.50
--------------------------
Outstanding, December 31, 1996 1,690 3,163,694 5.77-36.75
==========================
Shares exercisable,
December 31, 1996 1,690 2,320,079
==========================
Options outstanding include 51,525 and 132,529 shares granted in 1995 and 1996
at $22.00 and $29.88 a share, respectively, under a stock purchase plan
requiring exercise within 30 days after a two-year period beginning on the date
of grant.
At December 31, 1996, options to purchase 4,597,000 shares were available for
grant under the Plan. The Company has accounted for its stock-based compensation
plans in accordance with the provisions of APB Opinion 25. Accordingly, the
Company did not record any compensation expense in the accompanying financial
statements for its stock-based compensation plans. Had compensation expense been
recognized consistent with FASB Statement 123 ("Accounting for Stock-Based
Compensation"), the Company's net income would have been reduced by
approximately $981,000 and $301,000 in 1996 and 1995, respectively. The related
impact on earnings per share was immaterial. The assumptions used to estimate
compensation expense were: expected volatility of 39.8%, risk-free interest rate
of 6.5% and expected option lives of five years.
3. Long-term debt
The Company has available a $225,000,000 unsecured line of credit and commercial
paper facility with a group of banks, maturing in 2000, of which $141,669,000
was in use at December 31, 1996 at an average rate of 5.86%. The loan agreements
covering the Company's long-term borrowings contain certain restrictive
covenants including, among other things, the maintenance of minimum net worth
and various operating ratios with which the Company was in compliance at
December 31, 1996. A facility fee ranging from .1% to .2% per annum is required
on the entire bank line regardless of usage. The facility is reduced to
$210,000,000 and $150,000,000, respectively, on May 17, 1998 and 1999 and
expires on May 17, 2000.
Long-term debt outstanding at the respective year-ends comprised the following:
December 31,
1996 1995
(In thousands)
---------------------------
9.45% senior notes payable, due 1997-2000 $ 17,143 $ 21,429
9.75% senior notes payable, due 1997-2001 12,500 15,000
8.00% senior notes payable, due 1999-2005 90,000 90,000
Bank notes and commercial paper 151,859 254,932
Other obligations 1,362 2,055
---------------------------
TOTAL $272,864 $383,416
===========================
Annual principal payments required under the terms of the long-term agreements
were as follows at December 31, 1996
Year (In thousands)
- ---------------------------------------
1997 $10,075
1998 8,074
1999 21,211
2000 162,424
2001 16,220
Thereafter 54,860
-----------
TOTAL $272,864
===========
Interest expense with respect to long-term debt amounted to $22,431,000,
$22,006,000 and $9,228,000 in 1996, 1995 and 1994, respectively.
4. Income taxes
A reconciliation of recorded income tax expense with income tax computed at the
statutory federal tax rates follows:
1996 1995 1994
--------------------------------
(In thousands)
Statutory federal tax rate 35% 35% 35%
Tax computed at statutory rate $47,062 $(26,651) $29,434
State income taxes net of federal effect 5,093 (4,877) 2,861
Non-deductible amortization 1,504 1,239 1,157
Other 1,095 69 (385)
--------------------------------
TOTAL $54,754 $(30,220) $33,067
================================
The provision for income taxes consisted of the following:
1996 1995 1994
----------------------------------
(In thousands)
Currently payable $50,068 $26,551 $20,346
Tax reduction credited to capital
in excess of par value 2,000 2,400 800
Deferred 2,686 (59,171) 11,921
----------------------------------
TOTAL $54,754 $(30,220) $33,067
==================================
The approximate tax effects of temporary differences at December 31, 1996 and
1995 were as follows:
1996 1995
------------------
(In thousands)
Allowance for doubtful accounts $ 1,529 $2,319
Accrued expenses not currently deductible 7,649 8,773
Deferred revenues 9,815 9,122
Other (232) 1,728
Net operating loss and credit carryforwards 3,871 6,739
Deferred costs (4,963) (9,143)
Internally generated capitalized software (28,900) (30,283)
Excess of tax over book depreciation
and amortization (3,185) (4,419)
Purchased incomplete software technology 61,500 66,305
Unrealized gain on investments (12,940) (10,610)
-------------------
TOTAL $34,144 $40,531
===================
The net operating loss and tax credit carryforwards have expiration dates
ranging from 1997 through 2010.
5. Employee benefit programs
The Company and its subsidiaries have contributory savings plans covering
substantially all employees, under which eligible participants may elect to
contribute a specified percentage of their salaries, subject to certain
limitations. The Company makes matching contributions, subject to certain
limitations, and also makes discretionary contributions based upon the
attainment of certain profit goals. Company contributions vest at the rate of
20% for each year of service. Contributions charged to operations under these
plans approximated $10,074,000, $8,144,000 and $8,900,000 in 1996, 1995 and
1994, respectively.
6. Leases, other commitments and contingencies
Leases
Future minimum rental payments, as of December 31, 1996, on various operating
leases for office facilities and equipment were due as follows:
Year (In thousands)
- -----------------------------------------------------
1997 $37,969
1998 31,245
1999 21,572
2000 16,845
2001 10,666
Thereafter 20,478
--------
TOTAL $138,775
========
Rent expense applicable to all operating leases was approximately $52,638,000,
$51,144,000 and $45,854,000 in 1996, 1995 and 1994, respectively.
Other Commitments and Contingencies
The Company's trust administration subsidiaries had fiduciary responsibility for
the administration of approximately $18 billion in trust funds as of December
31, 1996. With the exception of the trust account investments discussed in Note
1, such amounts are not included in the accompanying balance sheets.
The Company's securities processing subsidiaries are subject to the Uniform Net
Capital Rule of the Securities and Exchange Commission. At December 31, 1996,
the aggregate net capital of such subsidiaries was $56,506,000, exceeding the
net capital requirement by $46,150,000.
In the normal course of business, the Company and its subsidiaries are named as
defendants in various lawsuits in which claims are asserted against the Company.
In the opinion of management, the liabilities, if any, which may ultimately
result from such lawsuits are not expected to have a material adverse effect on
the financial statements of the Company.
7. Subsequent event
On September 30, 1997 the Company announced an agreement, subject to shareholder
approval, to acquire all of the outstanding shares of Hanifen, Imhoff Holdings,
Inc. for $97.2 million in cash and stock in a transaction to be accounted for as
a purchase.
MANAGEMENT'S DISCUSSION & 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 and the percentage change in those items from period to
period. The table is based upon the accompanying supplemental schedule which
excludes certain charges to 1995 operations associated with the acquisition of
Information Technology, Inc.
Percentage of Revenues Period to Period Percentage
Year Ended December 31, Increase (Decrease)
1996 vs. 1995 vs.
1996 1995 1994 1995 1994
-------------------------------------------- -------------
Revenues 100.0% 100.0% 100.0% 14.3% 21.1%
------------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 44.9 45.7 47.1 12.5 17.5
Data processing expenses, rentals
and telecommunication costs 11.1 13.1 13.7 (3.2) 16.0
Other operating costs 18.6 18.3 19.4 16.2 14.6
Depreciation and amortization of
equipment and improvements 5.0 5.3 5.3 9.0 20.0
Amortization of intangible assets 2.4 2.1 1.7 31.7 46.9
Amortization (capitalization) of
internally generated software - net 0.4 (0.8) (1.5) (158.5) (33.5)
------------------------------
Total cost of revenues 82.4 83.7 85.7 12.8 18.2
==============================
Operating income 17.6% 16.3% 14.3% 22.3 37.9
==============================
Income before income taxes 15.3% 13.9% 13.2% 26.0 26.9
==============================
Net income 9.1% 8.3% 8.0% 25.1 24.8
==============================
The following discussion is based upon the accompanying supplemental schedule
which excludes certain charges to 1995 operations associated with the
acquisition of Information Technology, Inc. aggregating $182.9 million.
Revenues increased $110,345,000 in 1996 and $133,807,000 in 1995. In both years,
approximately 55% of the growth resulted from the inclusion of revenues from the
date of purchase of acquired businesses as set forth in Note 2 to the financial
statements and the balance in each year from the net addition of new clients,
growth in the transaction volume experienced by existing clients and price
increases.
Cost of revenues increased $82,359,000 in 1996 and $99,292,000 in 1995. As a
percentage of revenues, cost of revenues decreased 1.3% from 1995 to 1996 and
2.0% from 1994 to 1995. The make up of cost of revenues has been significantly
affected in both years by business acquisitions and by changes in the mix of the
Company's business as sales of software and related support activities and item
processing and electronic funds transfer operations have enjoyed an increasing
percentage of total revenues.
A significant portion of the purchase price of the Company's acquisitions has
been allocated to intangible assets, such as client contracts, computer
software, non-competition agreements and goodwill, which are being amortized
over time, generally three to 40 years. Amortization of these costs increased
$5,143,000 from 1995 to 1996 and $5,188,000 from 1994 to 1995. As a percentage
of revenues, these costs also increased in both years.
Capitalization of internally generated computer software is stated net of
amortization and decreased $3,217,000 in 1995 and $10,114,000 in 1996. Net
software capitalized was more than offset by amortization in 1996 due to the
accelerated amortization of software resulting from the planned consolidation of
certain product lines.
Operating income increased $27,986,000 in 1996 and $34,515,000 in 1995. As a
percentage of revenues, operating income increased 1.3% in 1996 and 2.0% in
1995.
The effective income tax rate was 41% in 1996, 40% in 1995 and 39% in 1994. The
trend to higher income tax rates results from net increases in non-deductible
permanent differences. The effective income tax rate for 1997 is expected to
remain at 41%.
The Company's growth has been largely accomplished through the acquisition of
entities engaged in businesses which are complementary to its operations.
Management believes that a number of acquisition candidates are available which
would further enhance its competitive position and plans to pursue them
vigorously. Management is engaged in an ongoing program to reduce expenses
related to acquisitions by eliminating operating redundancies. The Company's
approach has been to move slowly in achieving this goal in order to minimize the
amount of disruption experienced by its clients and the potential loss of
clients due to this program.
Consolidated Statements of Income Supplemental Schedule
(unaudited)
Year ended December 31, 1996 1995 1994
(In thousands, except per share data)
Revenues $879,449 $769,104 $635,297
----------------------------
Cost of revenues:
Salaries, commissions and payroll
related costs 394,932 351,180 298,997
Data processing expenses, rentals and
telecommunication costs 97,721 100,908 86,953
Other operating expenses 164,003 141,100 123,086
Depreciation and amortization of
property and equipment 44,120 40,486 33,751
Amortization of intangible assets 21,391 16,248 11,060
Amortization (capitalization) of internally
generated computer software - net 3,732 (6,382) (9,599)
---------------------------
Total 725,899 643,540 544,248
---------------------------
Operating income 153,550 125,564 91,049
Interest expense - net 19,088 18,822 6,951
---------------------------
Income before income taxes 134,462 106,742 84,098
Income tax provision 54,754 43,034 33,067
----------------------------
Net income $79,708 $63,708 $51,031
============================
Net income per common and
common equivalent share $1.53 $1.27 $1.08
============================
Shares used in computing net
income per share 52,046 50,298 47,364
============================
Note: Supplemental information provided for comparative purposes. 1995 excludes
certain charges associated with the acquisition of Information Technology, Inc.
The following table sets forth certain financial highlights and pro forma
information for 1996, 1995 and 1994.
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Revenues $879,449 $769,104 $635,297
Net income (loss) 79,708 (45,926) 51,031
- -------------------------------------------------------------------------------------------------------
Net income (loss) per share $1.53 $(0.91) $1.08
- -------------------------------------------------------------------------------------------------------
Net income as originally reported and before certain charges
related to acquisition of Information Technology, Inc. 61,684 49,771 37,664
- -------------------------------------------------------------------------------------------------------
Net income per share as originally reported and before certain
charges related to acquisition of Information Technology, Inc. $1.34 $1.13 $0.95
- -------------------------------------------------------------------------------------------------------
The charges related to the acquisition of Information Technology, Inc. (ITI) in
1995 are a pre-tax special, one-time, non-cash charge of $173 million to expense
the purchased ITI Premier II research and development and a pre-tax charge of
$9.9 million for the accelerated amortization of the completed ITI Premier I
software. The combined after-tax charge was $109.6 million ($2.18 per share).
Liquidity and Capital Resources
The following table summarizes the Company's primary sources of funds:
Year Ended December 31,
1996 1995 1994
-----------------------------
(In thousands)
Cash provided by operating activities before changes in
securities processing receivables and payables-net $173,774 $107,037 $76,644
Securities processing receivables and payables-net (3,660) 29,935 (39,954)
-----------------------------
Cash provided by operating activities 170,114 136,972 36,690
Issuance of common stock-net 4,896 638 1,918
Decrease (increase) in investments 16,831 10,254 (30,398)
Increase (decrease) in net borrowings (119,640) 180,644 63,341
-----------------------------
TOTAL $72,201 $328,508 $71,551
-----------------------------
The change in securities processing receivables and
payables is funded primarily through changes in
short-term obligations which were as follows ($8,700) ($50,600) $38,520
-----------------------------
The Company has applied a significant portion of its cash flow from operations
and proceeds of its common stock offerings to acquisitions and the reduction of
long-term debt and invests the remainder in short-term obligations until it is
needed for further acquisitions or operating purposes.
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 issuance of securities.
Selected Financial Data
The following data, which has been materially affected by acquisitions, should
be read in conjunction with the financial statements and related notes thereto
included elsewhere in this Annual Report.
Year Ended December 31,
1996 1995 1994 1993 1992
----------------------------------------------------------------------
(In thousands, except per share data)
Revenues $ 879,449 $ 769,104 $ 635,297 $ 519,996 $ 384,803
Income (loss) before income taxes 134,462 (76,146) 84,098 70,832 52,597
Income taxes (credit) 54,754 (30,220) 33,067 27,107 19,603
Net income (loss) 79,708 (45,926) 51,031 43,725 32,994
Net income (loss) per share $1.53 $(0.91) $1.08 $0.96 $0.82
----------------------------------------------------------------------
Total assets $2,698,979 $2,514,597 $2,204,832 $1,874,939 $1,480,253
Long-term debt 272,864 383,416 150,599 124,624 78,683
Shareholders' equity 605,898 514,866 425,389 370,740 211,611
----------------------------------------------------------------------
Note: The above information has been restated to recognize (1) 3-for-2 stock
splits effective in May 1993 and June 1992 and (2) the acquisition in 1995 of
Lincoln Holdings, Inc. and BHC Financial, Inc. in 1997 accounted for as poolings
of interests.
QUARTERLY FINANCIAL INFORMATION (Unaudited)
Quarters
1996 First Second Third Fourth Total
(In thousands, except per share data)
---------------------------------------------------------
Revenues $215,059 $217,516 $215,332 $231,542 $879,449
---------------------------------------------------------
Cost of revenues 176,326 178,285 178,234 193,054 725,899
---------------------------------------------------------
Operating income 38,733 39,231 37,098 38,488 153,550
---------------------------------------------------------
Income before income taxes 33,078 34,155 32,804 34,425 134,462
---------------------------------------------------------
Income taxes 13,445 13,957 13,335 14,017 54,754
---------------------------------------------------------
Net income $19,633 $20,198 $19,469 $20,408 $79,708
---------------------------------------------------------
---------------------------------------------------------
Net income per share $0.38 $0.39 $0.37 $0.39 $1.53
=========================================================
1995
---------------------------------------------------------
Revenues $172,002 $189,742 $194,030 $213,330 $769,104
---------------------------------------------------------
Cost of revenues 146,437 159,430 159,505 361,056 826,428
---------------------------------------------------------
Operating income 25,565 30,312 34,525 (147,726) (57,324)
---------------------------------------------------------
Income (loss) before income taxes 23,728 25,875 28,112 (153,861) (76,146)
---------------------------------------------------------
Income taxes (credit) 9,585 10,422 11,271 (61,498) (30,220)
---------------------------------------------------------
Net income (loss) $14,143 $15,453 $16,841 $(92,363) $(45,926)
---------------------------------------------------------
---------------------------------------------------------
Net income (loss) per share $0.30 $0.31 $0.32 $(1.77) $(0.91)
=========================================================
Market Price Information
The following information relates to the closing price of the Company's $.01 par
value common stock, which is traded on the over-the-counter market and is quoted
on the NASDAQ National Market System under the symbol FISV.
1996 1995
- ----------------------------------------------------------------------------------------
Quarter Ended High Low High Low
- ----------------------------------------------------------------------------------------
March 31 32 25 3/8 27 3/4 21
June 30 33 3/8 28 1/16 28 3/8 25 3/4
September 30 38 11/16 28 5/8 31 25 1/2
December 31 39 5/8 34 30 1/8 25 1/2
At December 31, 1996, the Company's common stock was held by approximately
30,000 shareholders of record or through nominee or street name accounts with
brokers. The closing sale price for the Company's stock on January 17, 1997 was
$37.00 per share.
The Company's present policy is to retain earnings to support future business
opportunities, rather than to pay dividends.
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The management of Fiserv, Inc. assumes responsibility for the integrity and
objectivity of the information appearing in the 1996 Annual Report. This
information was prepared in conformity with generally accepted accounting
principles and necessarily reflects the best estimates and judgment of
management.
To provide reasonable assurance that transactions authorized by management are
recorded and reported properly and that assets are safeguarded, the Company
maintains a system of internal controls. The concept of reasonable assurance
implies that the cost of such a system is weighed against the benefits to be
derived therefrom.
Deloitte & Touche LLP, certified public accountants, audit the financial
statements of the Company in accordance with generally accepted auditing
standards. Their audit includes a review of the internal control system, and
improvements are made to the system based upon their recommendations.
The Audit Committee ensures that management and the independent auditors are
properly discharging their financial reporting responsibilities. In performing
this function, the Committee meets with management and the independent auditors
throughout the year. Additional access to the Committee is provided to Deloitte
& Touche LLP on an unrestricted basis, allowing discussion of audit results and
opinions on the adequacy of internal accounting controls and the quality of
financial reporting.
/s/ George D. Dalton
GEORGE D. DALTON
Chairman and Chief Executive Officer