-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T0zcxCFZ0FHSwKPVTCkmV/WGyRtC5ZgoDJXSv3J58OPYM/kds1lhqiPDcbLWacSP aqYuGMSntffE34Fl+Gismg== 0000950131-98-001255.txt : 19980223 0000950131-98-001255.hdr.sgml : 19980223 ACCESSION NUMBER: 0000950131-98-001255 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FISERV INC CENTRAL INDEX KEY: 0000798354 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 391506125 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14948 FILM NUMBER: 98546403 BUSINESS ADDRESS: STREET 1: 255 FISERV DR STREET 2: PO BOX 979 CITY: BROOKFIELD STATE: WI ZIP: 53045 BUSINESS PHONE: 4148795000 MAIL ADDRESS: STREET 1: 255 FISERV DRIVE CITY: BROOKFIELD STATE: WI ZIP: 53045 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal year ended December 31, 1997 Commission file no. 0-14948 FISERV, INC. ------------ (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, WISCONSIN 53045 - --------------------------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (414) 879-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE ---- (Title of Class) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.01 Par Value ---------------------------- (Title of Class) 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 State the aggregate market value of the voting stock held by non-affiliates of the registrant as of January 30, 1998: $2,788,108,403 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of January 30, 1998: 53,746,668 DOCUMENTS INCORPORATED BY REFERENCE: List the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated: (1) Any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. 1997 Annual Report to Shareholders - Parts II, IV Proxy Statement for March 24, 1998 Meeting - Part III Fiserv, Inc. and Subsidiaries Form 10-K December 31, 1997
PART I Page - ------ Item 1. Business 1 Item 2. Properties 9 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II - ------- Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters 10 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 8. Financial Statements and Supplementary Data 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 PART III - -------- Item 10. Directors and Executive Officers of the Registrant 10 Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners and Management 10 Item 13. Certain Relationships and Related Transactions 10 PART IV - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
PART I Item 1. Business Fiserv, Inc. is a leading, independent provider of financial data processing systems and related information management services and products to the financial industry. The Company was formed on July 31, 1984, through the combination of two major regional data processing firms located in Milwaukee, Wisconsin, and Tampa, Florida. These firms--First Data Processing of Milwaukee and Sunshine State Systems of Tampa--began their operations in 1964 and 1971, respectively, as the data processing operations of their parent financial institutions. Historically, operations were expanded by developing a range of services for these parent organizations as well as other financial institutions. Since its organization in 1984, Fiserv has grown through the continuing development of highly specialized services and product enhancements, the addition of new clients and the acquisition of firms complementing the Fiserv organization. Headquartered in Brookfield, WI, Fiserv operates centers nationwide for full- service financial data processing, software system development, item processing and check imaging, technology support and related product businesses. In addition, the Company has business support centers in Australia, Canada, England, Indonesia, Poland and Singapore. Based on market surveys of total clients served, Fiserv is the nation's leading data processing provider for banks and savings institutions; the leading data processing provider for credit unions (with the pending acquisition of CUSA Technologies, Inc.); the leading item processing provider for banks and savings institutions; the leading provider of clearing services to financial institution affiliated brokers; the leading independent processor of IRAs; and the number two data processing provider for mortgage banks. Business Strategy - ----------------- The market for products and services offered by financial institutions continues to undergo change. New alternative lending and investment products are being introduced and implemented by the industry with great frequency; the distinctions among financial services traditionally offered by savings and loan associations, banks and credit unions continue to narrow; and financial institutions diversify and consolidate on an ongoing basis in response to market pressures, as well as under the auspices of the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA). Although such market changes have led to consolidations which have reduced the number of financial institutions in the United States, such consolidations have not resulted in a material reduction of the number of customers or financial accounts serviced by the financial industry as a whole. New organizations entering the once limited financial services industry have opened new markets for Fiserv services. To stay competitive in this changing marketplace, financial institutions are finding they must aggressively meet the growing needs of their customers for a broad variety of new products and services that are typically transaction- oriented and fee-based. The growing volume and types of transactions and accounts have increased the data processing requirements of these 1 institutions. As a consequence, Fiserv management believes that the financial services industry is one of the largest users of data processing products and services. Moreover, Fiserv expects that the industry will continue to require significant commitments of capital and human resources to the information systems requirements, to require application of more specialized systems, and to require development, maintenance and enhancement of applications software. Fiserv believes that economies of scale in data processing operations are essential to justify the required level of expenditures and commitment of human resources. In response to these market dynamics, the means by which financial institutions obtain data processing services has changed. Many smaller, local and regional third-party data processors are leaving the business or consolidating with larger providers. A number of large financial institutions previously providing third-party processing services for other institutions have withdrawn from the business to concentrate on their primary, core businesses. Similarly, an increasing number of financial institutions that previously developed their own software systems and maintained their own data processing operations have outsourced their data processing requirements by licensing their software from a third party or by contracting with third-party processors to reduce costs and enhance their products and services. Outsourcing can involve simply the licensing of software, thereby eliminating the costly technical expertise within the financial institution, or the utilization of service bureaus, facilities management or resource management capability. Fiserv provides all of these options to the financial industry. To capitalize on these industry trends and to become the premier provider of data processing products and related services, Fiserv has implemented a strategy of continuing to develop new products, improving the cost effectiveness of services provided to clients, aggressively soliciting new clients and making both opportunistic and strategic acquisitions.
Acquisition History - ------------------- Formed Acquired Business Service - --------------------------------------------------------------------------------------------------------- 1964 July 1984 First Data Processing, Milwaukee, WI Data processing 1971 July 1984 Sunshine State Systems, Tampa, FL Data processing 1966 Nov. 1984 San Antonio, Inc., San Antonio, TX Data processing 1982 Oct. 1985 Sendero Corporation, Scottsdale, AZ Asset/liability management 1962 Oct. 1985 First Trust Corporation, Denver, CO DP for retirement planning 1962 Oct. 1985 First Retirement Marketing, Denver, CO Retirement planning services 1973 Jan. 1986 On-Line, Inc., Seattle, WA Data processing, forms 1966 May 1986 First City Financial Systems, Inc., Beaumont, TX Data processing 1962 Feb. 1987 Pamico, Inc., Milwaukee, WI Specialized forms 1975 Apr. 1987 Midwest Commerce Data Corp., Elkhart, IN Data processing 1969 Apr. 1987 Fidelity Financial Services, Inc., Spokane, WA Data processing 1965 Oct. 1987 Capbanc Computer Corporation, Baton Rouge, LA Data processing 1971 Feb. 1988 Minnesota On-Line Inc., Minneapolis, MN Data processing 1965 May 1988 Citizens Financial Corporation, Cleveland, OH Data processing 1980 May 1988 ZFC Electronic Data Services, Inc., Bowling Green, KY Data processing 1969 June 1988 GESCO Corporation, Fresno, CA Data processing
2 1967 Nov. 1988 Valley Federal Data Services, Los Angeles, CA Data processing 1984 Dec. 1988 Northeast Savings Data Services, Hartford, CT Data processing 1982 May 1989 Triad Software Network, Ltd., Chicago, IL Data processing 1969 Aug. 1989 Northeast Datacom, Inc., New Haven, CT Data processing 1978 Feb. 1990 Financial Accounting Services Inc., Pittsburgh, PA Data processing 1974 June 1990 Accurate Data On Line, Inc., Titusville, FL Data processing 1982 June 1990 GTE EFT Services Money Network, Fresno, CA EFT networks 1968 July 1990 First Interstate Management, Milwaukee, WI Data processing 1982 Oct. 1990 GTE ATM Networks, Fresno, CA EFT networks 1867 Nov. 1990 Boston Safe Deposit & Trust Co. IP Services, MA Item processing 1968 Dec. 1990 First Bank, N.A. IP Services, Milwaukee, WI Item processing 1979 Apr. 1991 Citicorp Information Resources, Inc., Stamford, CT Data processing 1980 Apr. 1991 BMS Processing, Inc., Randolph, MA Item processing 1979 May 1991 FHLB of Dallas IP Services, Dallas, TX Item processing 1980 Nov. 1991 FHLB of Chicago IP Services, Chicago, IL Item processing 1977 Feb. 1992 Data Holdings, Inc., Indianapolis, IN Automated card services 1980 Feb. 1992 BMS On-Line Services, Inc. (assets), Randolph, MA Data processing 1982 Mar. 1992 First American Information Services, St. Paul, MN Data processing 1981 July 1992 Cadre, Inc., Avon, CT Disaster recovery 1992 July 1992 Performance Analysis, Inc., Cincinnati, OH Asset/liability management 1986 Oct. 1992 Chase Manhattan Bank, REALM Software, NY Asset/liability management 1984 Dec. 1992 Dakota Data Processing, Inc., Fargo, ND Data processing 1983 Dec. 1992 Banking Group Services, Inc., Somerville, MA Item processing 1968 Feb. 1993 Basis Information Technologies, Atlanta, GA Data processing, EFT 1986 Mar. 1993 IPC Service Corporation (assets), Denver, CO Item processing 1973 May 1993 EDS' FHLB Seattle (assets), Seattle, WA Item processing 1982 June 1993 Datatronix Financial Services, San Diego, CA Item processing 1966 July 1993 Data Line Service, Covina, CA Data processing 1978 Nov. 1993 Financial Processors, Inc., Miami, FL Data processing 1974 Nov. 1993 Financial Data Systems, Jacksonville, FL Item processing 1961 Nov. 1993 Financial Institutions Outsourcing, Pittsburgh, PA Data processing 1972 Nov. 1993 Data-Link Systems, South Bend, IN Mortgage banking services 1985 Apr. 1994 National Embossing Company, Inc., Houston, TX Automated card services 1962 May 1994 Boatmen's Information Systems of Iowa, Des Moines Data processing 1981 Aug. 1994 FHLB of Atlanta IP Services, Atlanta, GA Item processing 1989 Nov. 1994 CBIS Imaging Technology Banking Unit, Maitland, FL Imaging technology 1987 Dec. 1994 RECOM Associates, Inc., Tampa, FL Network integration 1970 Jan. 1995 Integrated Business Systems, Glendale, CA Specialized forms 1977 Feb. 1995 BankLink, Inc., New York, NY Cash management 1976 May 1995 Information Technology, Inc., Lincoln, NE Software & services 1957 Aug. 1995 Lincoln Holdings, Inc., Denver, CO DP for retirement planning 1993 Sept. 1995 SRS, Inc., Austin, TX Data processing 1992 Sept. 1995 ALLTEL's Document Management Services, CA, NJ Item processing 1978 Nov. 1995 Financial Information Trust, Des Moines, IA Data processing
3
1983 Jan. 1996 UniFi, Inc., Fort Lauderdale, FL Software & services 1982 Nov. 1996 Bankers Pension Services, Inc., Tustin, CA DP for retirement planning 1992 Apr. 1997 AdminaStar Communications, Indianapolis, IN Laser print/mailing services 1982 May 1997 Interactive Planning Systems, Atlanta, GA PC-based financial systems 1983 May 1997 BHC Financial, Inc., Philadelphia, PA Securities processing services 1968 Sept. 1997 FIS, Inc., Orlando, FL, and Baton Rouge, LA Data processing n/a Sept. 1997 Stephens Inc. clearing business, Little Rock, AR Securities processing services 1986 Oct. 1997 Emerald Publications, San Diego, CA Financial seminars & training 1968 Oct. 1997 Central Service Corp., Greensboro, NC Data & item processing 1993 Oct. 1997 Savoy Discount Brokerage, Seattle, WA Securities processing services 1990 Dec. 1997 Hanifen, Imhoff Holdings, Inc., Denver, CO Clearing services
Technology Resources Fiserv is a technology company focused on serving the financial data processing and related information management needs of financial intermediaries and service providers throughout the financial industry. No matter what a client requires for automation, Fiserv offers a business-specific technology solution to satisfy its needs. Fiserv products and services are designed to help clients meet their ultimate goal of giving their customers the best possible service quickly, accurately and completely. As a technology partner, Fiserv offers multiple data processing solutions and delivery options based on the client's requirements. These include service bureau capabilities; in-house software systems; and strategic technology alliances including facilities and resource management services. A host of financial information technology products and services complement these delivery methods: item processing and imaging technology services; backroom automation software systems; electronic funds transfer services; plastic cards and other related card management services; rate risk management and decision support systems; complete data warehouse systems; self-directed retirement plan processing; network installation and integration services; human resources outsourcing; design and production of business forms and marketing literature; delivery and support of leading third-party software and hardware products; laser print/mailing services; securities processing, deep discount brokerage and clearing services; and financial seminars and training products. Through their relationship with Fiserv, clients gain the tools to enhance and expand their customer service: advanced technology, dependable and responsive support, product and system flexibility, and value for their money. Resources for financial data processing. The goal of any financial institution or service provider is to serve its customers by helping them move money. No matter how it's conducted, account and transaction processing remains the core business of Fiserv. Our role is to provide the technology that drives these transactions quickly and efficiently. Fiserv provides comprehensive data center service bureau or in-house processing solutions for multiple types and sizes of financial institutions and service providers worldwide. Maintained on multiple hardware platforms, these solutions provide clients a choice of on-line systems compatible with their existing equipment and preferred operating environment. Through ongoing R&D efforts among Fiserv centers worldwide, clients benefit from enhancements to existing products and development of innovative new services--all designed to help keep each client competitive and growing within its own market. 4 In-house software systems give clients a service delivery method that enables them to set-up an internal operation for designing and implementing new products, services or reporting systems. Specific to this solution is the option of migrating between in-house or on-line delivery services of Fiserv without new software conversion. Technology alliances offer clients the option of on-site data processing management by Fiserv personnel through a Facilities Management agreement; or management of their systems at a Fiserv data center with Resource Management services. Both solutions are designed to meet the unique requirements of the client by partnering to minimize operating costs, while allowing each client to direct their specific software applications. Fiserv offers a complete line of lending software, products and related services. Providing the only true client/server Windows(TM) solution for loan origination and secondary marketing, these specialized services are available to help clients effectively speed loan processing. Fiserv also provides the nation's premier private-label/revolving credit processing service. Resources for operations support. To provide quality customer service, a financial institution or service provider must offer the latest products and technological advancements, while maintaining top efficiency in all areas of its business. Fiserv technology encompasses the entire range of operations support services and products, helping clients make the best use of their available resources, both internal and external. Fiserv has the largest item processing (IP) client base in the financial industry and extensive experience in managing item processing workflows, imaging solutions and other back-office processes performed in financial data centers. With full-service item processing and imaging technology centers located throughout North America, the Fiserv network is well-positioned for large volumes, as well as offering specialized item processing and imaging alternatives to meet the specific needs of our clients. In a field where efficiencies are gained through volume, Fiserv leverages its resources and technological expertise for the benefit of IP services clients, providing a comprehensive range of specialized services. For imaging solutions, Fiserv provides high-quality, technologically advanced imaging software and integration services that offer efficiencies and new sources of revenue for clients of all sizes. These solutions are focused on enhanced business-to-customer communications and integrated information access. With considerable expertise in this increasingly popular technology, Fiserv offers a full range of image integration products and services. Fiserv provides PC-based productivity tools to deliver the software, service and support necessary to meet the backroom automation and customer service call center challenges facing the financial services industry. These systems are designed to streamline backroom operations by reducing time, keystrokes and labor. Comprehensive marketing communications solutions available through Fiserv include communications needs analysis, concept development and design, project management and print production for annual reports, web sites, company literature and other business communications. Also available are specialized solutions for business forms design, production and distribution. Resources for electronic banking. Technology is perhaps no more influential than in the field of electronic banking. To stay competitive, financial institutions and service providers can turn to Fiserv for the resources necessary to provide the latest electronic services. As a market leader in providing electronic funds transfer (EFT) services, Fiserv offers transaction authorization, comprehensive Automated Teller Machine/Point of Sale (ATM/POS) and debit card processing, and card management, laser printing and mailing services. These solutions combine product flexibility and innovative technology with access to major EFT 5 services networks, offering clients diversity in selecting the products and services that will best meet their customers' needs. Fiserv serves the plastic card, laser printing and mailing fulfillment requirements of major financial institutions, health care, telecommunications businesses and other leading card issuers nationwide. For cash management services, Fiserv offers a portfolio of software products that provide solutions for individual needs. With a full range of support services including electronic banking information reporting and transaction initiation services, Fiserv meets the demands of diverse market segments. From small businesses to Fortune 1000 corporations, these services are designed to afford maximum flexibility in the exchange of data, integration with other business management or investment systems, and the customization of specialized cash management offerings. Resources for information management. Managing financial information is a major task faced by all organizations, and it becomes even more daunting as technology continually streamlines the techniques available to gather and analyze this wealth of data. As a result, the development of decision-oriented performance measurement systems is critical to the ability of an organization to effectively compete in today's environment. Fiserv offers a comprehensive suite of PC-based financial decision-support and planning products worldwide. These products are designed to meet the needs of the financial function in financial institutions for profitability measurement, planning and financial accounting tools, as well as asset/liability management simulation models, profitability measurement, quarterly analysis of interest rate risk, and educational and consulting services. The Fiserv data warehouse solution provides an institution's decision makers and analysts with a single source for current, accurate and consistent information on profitability, customers and their marketplace. Resources for business solutions. The Fiserv technology portfolio includes a broad array of complementary products and services designed to help each client enhance its total service capabilities. Through subsidiary companies, Fiserv provides specialized account processing, administration and trusteeship of self-directed individual and business retirement plans. These companies specifically assist financial representatives and other financial service intermediaries in managing and reporting information through proprietary data base technology. Other related products available include financial seminars and training programs. Fiserv also provides a full range of traditional securities processing and support services, professional and correspondent clearing services and deep discount brokerage services for banks, insurance companies, brokerage firms, money managers and mutual fund companies. Office automation and communication network integration services are designed to meet specialized information technology needs. Services include conversions to new hardware and software, design and installation of office automation (LAN/WAN) and networking systems, and on-site education. Fiserv provides data processing information management systems for organizations that are seeking an outsourcing solution for all or part of their human resource and related operations. This solution is designed for and primarily aimed at the financial industry. It is also well suited for any large national or international organization that desires to enhance and streamline its personnel management tasks. 6 Servicing the Market The market for Fiserv data processing services and products has specific needs and requirements, with strong emphasis placed by clients on software flexibility, product quality, reliability of service, comprehensiveness and integration of product line, timely introduction of new products and features, and cost value. Through its multiple product offerings, the Company successfully services these market needs for clients ranging in size from start-ups to some of the largest institutions worldwide. Fiserv believes that the position it holds as an independent, growth- oriented company dedicated to its business is an advantage to its clients. The Company differs from many of the data processing resources currently available since it isn't a regional or local cooperatively owned organization, nor a data processing subsidiary, an affiliate of a financial institution or a hardware vendor. Due to the economies of scale gained through its broad market presence, Fiserv offers clients a selection of data processing solutions designed to meet the specific needs of the ever-changing financial industry. The Company believes this independence and primary focus on the financial industry helps its business development and related Client Service and Product Support teams remain responsive to the technology needs of its market, now and for the future. "The Client Comes First" is one of the Company's founding principles. It's a belief backed by a dedication to providing ongoing client service and support - --no matter the client size. The Company's commitment of substantial resources to training and technical support helps keep Fiserv clients first. Fiserv conducts the majority of its new and ongoing client training in its technology centers, where the Company maintains fully equipped demonstration and training facilities containing equipment used in the delivery of Fiserv services. Fiserv also provides local and on-site training services. Product Development In order to meet the changing technology needs of the clients served by Fiserv, the Company continually develops, maintains and enhances its systems. Resources applied to product development and maintenance are believed to be approximately 8% to 10% of Company revenues, about half of which is dedicated to software development. Unique to Fiserv, its network of development and financial information technology centers applies the shared expertise of multiple Fiserv teams to design, develop and maintain specialized processing systems around the leading technology platforms. The applications of its account processing systems meet the preferences and diverse requirements of the various international, national, regional or local market-specific financial service environments of the Company's many clients. Though all Fiserv centers rely on the Company's nationally developed and supported software, each center has specialized capabilities that enable them to offer system application features and functions unique to their client base. Where the client's requirements warrant, Fiserv purchases software programs from third parties which are interfaced with existing Fiserv systems. In developing its products, Fiserv stresses responsiveness to the needs of its clients through close client contact. Fiserv provides a dedicated system designed, developed, maintained and enhanced according to each client's goals for service quality, business development, asset/liability mix, local-market positioning and other user- defined parameters. 7 Competition The market for information technology products and services within the financial industry is highly competitive. The Company's principal competitors include internal data processing departments, data processing affiliates of large companies or large computer hardware manufacturers, independent computer service firms and processing centers owned and operated as user cooperatives. Certain competitors possess substantially greater financial, sales and marketing resources than the Company. Competition for in-house data processing and software departments is intensified by the efforts of computer hardware vendors who encourage the growth of internal data centers. Competitive factors for processing services include product quality, reliability of service, comprehensiveness and integration of product line, timely introduction of new products and features, and price. The Company believes that it competes favorably in each of these categories. In addition, the Company believes that its position as an independent vendor, rather than as a cooperative, an affiliate of a larger corporation or a hardware vendor, is a competitive advantage. Government Regulation The Company's data processing subsidiaries are not themselves directly subject to federal or state regulations specifically applicable to financial institutions such as banks, thrifts and credit unions. As a provider of services to these entities, however, the data processing operations are observed from time to time by the Federal Deposit Insurance Corporation, the National Credit Union Association, the Office of Thrift Supervision, the Office of the Comptroller of the Currency and various state regulatory authorities. These regulators make certain recommendations to the Company regarding various aspects of its data processing operations. Such recommendations are generally implemented by the Company. In addition, the Company's operations are reviewed annually by an independent auditor to provide required internal control evaluations for its clients' auditors and regulators. As trust companies under Colorado law, First Trust and Lincoln Trust are subject to the regulations of the Colorado Division of Banking. First Trust and Lincoln Trust historically have complied with such regulations and although no assurance can be given, the Company believes First Trust and Lincoln Trust will continue to be able to comply with such regulations. Commencing in 1991, First Trust received approval of its application for Federal Deposit Insurance Corporation coverage of its customer deposits. The Company's clearing businesses, BHC Securities and affiliates and Fiserv Correspondent Services (formerly Hanifen, Imhoff Clearing Corp.), are subject to the broker/dealer rules of the Securities and Exchange Commission and the New York Stock Exchange, as well as the National Association of Securities Dealers and other stock exchanges of which they are members. Employees Fiserv employs 10,090 specialists throughout the United States and worldwide in its information management centers and related product and service companies. This service support network includes employees with backgrounds in computer science and the financial industry, often complemented by management and other direct experience in banks, credit unions, mortgage firms, savings and other financial services business environments. 8 Fiserv employees provide expertise in sales and marketing; account management and client services; computer operations, network control and technical support; programming, software development, modification and maintenance; conversions and client training; financial planning; and related support services. Fiserv employees are not represented by a union, and there have been no work stoppages, strikes or organizational attempts. The service nature of the Fiserv business makes its employees an important corporate asset, and while the market for qualified personnel is competitive, the Company does not experience significant difficulty with hiring or retaining its staff of top industry professionals. In assessing companies to acquire, the quality and stability of the prospective company's staff are emphasized. Management attributes its ability to attract and keep quality employees to, among other things, the Company's growth and dedication to state-of-the-art software development tools and hardware technologies. Item 2. Properties Fiserv currently operates full-service data centers, software system development centers and item processing and back-office support centers in 86 cities (69 in the United States): Birmingham, AL; Little Rock, AR; Phoenix and Scottsdale, AZ; Covina, Fresno, Fullerton, Irvine, Los Angeles, Sacramento, San Diego, San Leandro, Van Nuys and Walnut, CA; Denver, CO; New Haven and Stamford, CT; Ft. Lauderdale, Jacksonville, Maitland, Miami, Orlando, Tampa and Titusville, FL; Atlanta, Macon and Norcross, GA; Honolulu, HI; Des Moines, IA; Arlington Heights, Chicago and Marion, IL; Indianapolis and South Bend, IN; Bowling Green, KY; Baton Rouge and New Orleans, LA; Boston, Braintree, Somerville and West Springfield, MA; Flint and Troy, MI; Minneapolis, MN; Greensboro, NC; Fargo, ND; Lincoln, NE; Piscataway, NJ; Brooklyn, Lake Success, Melville, New York, Syracuse and Utica, NY; Cleveland, OH; Oklahoma City, OK; Corvallis and Portland, OR; Philadelphia and Pittsburgh, PA; Newberry, SC; Amarillo (FM), Beaumont, Dallas, Houston and San Antonio, TX; Seattle, WA; Brookfield and Milwaukee, WI. International business centers are located in Sydney, Australia; Burlington, Calgary, Edmonton, Halifax, London, Montreal, Regina, St. Catherines, Toronto, Vancouver, Victoria and Winnipeg, Canada; London, England; Jakarta, Indonesia; Warsaw, Poland; and Singapore. The Company owns facilities in Brookfield, Corvallis, Covina, Fresno, Hartford, Lincoln, Marion, Miami, South Bend and Titusville; all other buildings in which centers are located are subject to leases expiring through 1998 and beyond. The Company owns or leases 136 mainframe computers (Data General, Hewlett Packard, IBM, NCR, Tandem and Unisys). In addition, the Company maintains its own national data communication network consisting of communications processors and leased lines. Fiserv believes its facilities and equipment are generally well maintained and are in good operating condition. The Company believes that the computer equipment it owns and its various facilities are adequate for its present and foreseeable business. Fiserv periodically upgrades its mainframe capability as needed. Fiserv contracts with multiple sites to provide processing backup in the event of a disaster and maintains duplicate tapes of data collected and software used in its business in locations away from the Company's facilities. Fiserv regards its software as proprietary and utilizes a combination of trade secrecy law, internal security practices and employee non-disclosure agreements for protection. The Company has not patented or registered the copyrights on its software. The Company believes 9 that legal protection of its software, while important, is less significant than the knowledge and experience of the Company's management and personnel and their ability to develope, enhance and market new products and services. The Company believes that it holds all proprietary rights necessary for the conduct of its business. Item 3. Legal Proceedings 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. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders of the Company. PART II Pursuant to Instruction G(2) for Form 10-K, the information required in Items 5 through 8 is incorporated by reference from the Company's annual report to shareholders included in this Form 10-K Annual Report as Exhibit 13. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Pursuant to Instruction G(3) for Form 10-K, the information required in Items 10 through 13 is incorporated by reference from the Company's definitive proxy statement which is expected to be filed pursuant to Regulation 14A on or before February 20, 1998, and included in the Form 10-K Annual Report as Exhibit 28. 10 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements: The consolidated financial statements of the companies as of December 31, 1997 and 1996 and for each of the three years in the period ending December 31, 1997, together with the report thereon of Deloitte & Touche LLP, dated January 30, 1998, appear on pages 23 through 40 of the Company's annual report to shareholders, Exhibit 13 to this Form 10-K Annual Report, and are incorporated herein by reference. Deloitte & Touche LLP relied upon the report of other auditors (Exhibit 99) for 1996 and 1995 as to BHC Financial, Inc. and subsidiaries (BHC), due to the acquisition of BHC by the Company in 1997 accounted for on a pooling of interests basis. (a)(2) Financial Statement Schedule: The following financial statement schedule of the Company and related documents are included in this Report on Form 10-K: Page ---- [S] [C] Independent Auditors' Report 14 Schedule II--Valuation and Qualifying Accounts 14 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Reports on Form 8-K: During 1997, the Company filed five reports on Form 8-K, three dated March 3, June 13 and June 25, 1997, relating to the acquisition of BHC Financial Inc., one dated October 22, 1997, relating to the acquisition of Hanifen, Imhoff Holdings, Inc., in which financial statements and other financial information previously presented in its 1996 Annual Report to Shareholders were restated to include, on a pooling of interests basis, the financial position and results of operations of BHC Financial, acquired in May 1997, and one dated December 22, 1997, announcing a stock buyback program. (c) Exhibits: 2.1 Stock Purchase Agreement, dated as of April 6, 1995, by and between Fiserv, Inc. and Information Technology, Inc. (filed as Exhibit 2.1 to the Company's Registration Statement on Form S-3, File No. 33-58709, and incorporated herein by reference). 3.1 Articles of Incorporation, as amended (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-4, File No. 333-23349, and incorporated herein by reference). 3.2 By-laws (filed as Exhibit 3.2 to the Company's Registration Statement on Form S-4, File No. 33-62870, and incorporated herein by reference). 11 4.1 Credit Agreement dated as of May 17, 1995, as amended, by and among Fiserv, Inc., the Lenders Party Hereto, First Bank National Association, as Co- Agent and The Bank of New York, as Agent. (Not being filed herewith, but will be provided to the Commission upon its request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.) 4.2 Note Purchase Agreement dated as of March 15, 1991, as amended, among Fiserv, Inc., Aid Association for Lutherans, Northwestern National Life Insurance Company, Northern Life Insurance Company and The North Atlantic Life Insurance Company of America. (Not being filed herewith, but will be provided to the Commission upon its request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.) 4.3 Note Purchase Agreement dated as of April 30, 1990, as amended, among Fiserv, Inc. and Teachers Insurance and Annuity Association of America. (Not being filed herewith, but will be provided to the Commission upon its request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.) 4.4 Note Purchase Agreement dated as of May 17, 1995, as amended, among Fiserv, Inc., Teachers Insurance and Annuity Association of America, Massachusetts Mutual Life Insurance Company, Aid Association for Lutherans, Northern Life Insurance Company and Northwestern National Life Insurance Company. (Not being filed herewith, but will be provided to the Commission upon its request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.) 11. Computation of Shares Used in Computing Diluted Earnings per Share. 13. The 1997 Annual Report to Shareholders. 21. List of Subsidiaries of the Registrant. 23. Consent of Independent Auditors. 28. The Company's definitive proxy statement for the 1998 annual meeting of shareholders to be held on March 24, 1998, to be filed pursuant to Regulation 14A under the Securities and Exchange Act of 1934. 99. Report of Independent Accountants. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: February 20, 1998 FISERV, INC. By /S/ George D. Dalton --------------------------- George D. Dalton (Chairman of the Board) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following person on behalf of the registrant and in the capacities indicated on February 20, 1998.
Signature Capacity /S/ George D. Dalton - --------------------------- George D. Dalton Chairman of the Board, Chief Executive Officer /S/ Leslie M. Muma - --------------------------- Leslie M. Muma Vice Chairman of the Board, President, Chief Operating Officer /S/ Donald F. Dillon - --------------------------- Donald F. Dillon Vice Chairman of the Board, President - Information Technology, Inc. /S/ Kenneth R. Jensen - --------------------------- Kenneth R. Jensen Senior Executive Vice President, Chief Financial Officer, Treasurer, Director /S/ Gerald J. Levy - --------------------------- Gerald J. Levy Director /S/ L. William Seidman - --------------------------- L. William Seidman Director /S/ Thekla R. Shackelford - --------------------------- Thekla R. Shackelford Director /S/ Roland D. Sullivan - --------------------------- Roland D. Sullivan Director
13 INDEPENDENT AUDITORS' REPORT Shareholders and Directors of Fiserv, Inc.: We have audited the consolidated financial statements of Fiserv, Inc. and subsidiaries as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated January 30, 1998; such financial statements and report are included in your 1997 Annual Report to Shareholders and are incorporated herein by reference. Our report on the consolidated financial statements indicates that our opinion as to the amounts included for BHC Financial, Inc. and subsidiaries as of December 31, 1996 and for the two years ended December 31, 1996 and 1995 is based solely on the report of other auditors. Our audits also included the financial statement schedule of Fiserv, Inc., listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin January 30, 1998 SCHEDULE II Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Year Ended Beginning Charged December 31, Balance to Expense Write-offs Balance ------------- ----------- ------------ ---------- ---------- 1997 $3,796,000 $3,483,000 ($376,000) $6,903,000 1996 5,026,000 (630,000) (600,000) 3,796,000 1995 4,187,000 1,164,000 (325,000) 5,026,000
14 EX-11 2 COMPUTATION OF SHARES EXHIBIT 11 COMPUTATION OF SHARES USED IN COMPUTING DILUTED EARNINGS PER SHARE
Year Ended December 31, 1997 1996 1995 ------------------------------------------------ Diluted: Weighted Average Shares Outstanding 52,009,000 50,993,000 49,348,000 Common Stock Equivalents 1,519,000 1,053,000 --* ------------------------------------------------ Shares Used 53,528,000 52,046,000 49,348,000* ================================================
* The Company reported a net loss in 1995, therefore the impact of common stock equivalents is anti-dilutive. EX-13 3 1997 ANNUAL REPORT EXHIBIT 13 1997 ANNUAL REPORT FISERV, INC. AND SUBSIDIARIES - --------- FINANCIAL - --------- CONTENTS/97/ - ------------------------------------------------------------------------------- Consolidated Statements of Operations 24 .................................................................... Consolidated Balance Sheets 25 .................................................................... Consolidated Statements of Changes in Shareholders' Equity 26 .................................................................... Consolidated Statements of Cash Flows 27 .................................................................... Notes to Consolidated Financial Statements 28 .................................................................... Management's Discussion and Analysis 35 .................................................................... Quarterly Financial Information 39 .................................................................... Independent Auditors' Report 40 .................................................................... Management's Statement of Responsibility 40 .................................................................... 23 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) Year ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------- REVENUES $974,432 $879,449 $769,104 - ----------------------------------------------------------------------------------------- COST OF REVENUES: Salaries, commissions and payroll related costs 454,850 394,932 351,180 Data processing expenses, rentals and telecommunication costs 100,601 97,721 100,908 Other operating expenses 189,982 164,003 141,100 Depreciation and amortization of property and equipment 49,119 44,120 40,486 Purchased incomplete software technology 172,970 Amortization of intangible assets 14,067 21,391 26,166 Amortization (capitalization) of internally generated computer software -- net 36 3,732 (6,382) - ----------------------------------------------------------------------------------------- TOTAL 808,655 725,899 826,428 - ----------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) 165,777 153,550 (57,324) Interest expense -- net 11,878 19,088 18,822 - ----------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES 153,899 134,462 (76,146) Income tax provision (credit) 63,099 54,754 (30,220) - ----------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 90,800 $ 79,708 $(45,926) - ----------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE: Basic $ 1.75 $ 1.56 $ (0.93) - ----------------------------------------------------------------------------------------- Diluted $ 1.70 $ 1.53 $ (0.93) - ----------------------------------------------------------------------------------------- SHARES USED IN COMPUTING NET INCOME PER SHARE: Basic 52,009 50,993 49,348 - ----------------------------------------------------------------------------------------- Diluted 53,528 52,046 49,348 - -----------------------------------------------------------------------------------------
See notes to consolidated financial statement. 24 CONSOLIDATED BALANCE SHEETS
(In thousands) December 31, 1997 1996 - -------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 89,377 $ 101,282 Accounts receivable 197,771 160,747 Securities processing receivables 1,386,169 729,354 Prepaid expenses and other assets 91,278 64,410 Trust account investments 1,082,740 970,553 Other investments 125,999 72,952 Deferred income taxes 35,233 34,144 Property and equipment--Net 149,055 148,413 Internally generated computer software--Net 73,163 70,487 Identifiable intangible assets relating to acquisitions--Net 50,426 54,548 Goodwill--Net 355,280 292,089 - -------------------------------------------------------------------------------------------------- TOTAL $3,636,491 $2,698,979 - -------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 53,828 $ 43,486 Securities processing payables 1,184,277 636,215 Short-term borrowings 94,975 33,200 Accrued expenses 123,380 80,866 Accrued income taxes 8,436 9,808 Deferred revenues 67,569 46,089 Trust account deposits 1,082,740 970,553 Long-term debt 252,031 272,864 - -------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,867,236 2,093,081 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock outstanding, 53,925,000 and 51,032,000 shares, respectively 539 510 Additional paid-in capital 427,785 352,916 Unrealized gain on investments 16,442 18,621 Accumulated earnings 324,489 233,851 - -------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 769,255 605,898 - -------------------------------------------------------------------------------------------------- TOTAL $3,636,491 $2,698,979 - -------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
25
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands) Year ended December 31, 1997 1996 1995 - -------------------------------------------------------------------------------------- SHARES ISSUED--150,000,000 AUTHORIZED: Balance at beginning of year 51,032 50,571 45,722 Shares issued under stock plans--net 585 327 274 Shares issued for acquired companies 2,308 134 4,575 ...................................................................................... Balance at end of year 53,925 51,032 50,571 - -------------------------------------------------------------------------------------- COMMON STOCK--PAR VALUE $.01 PER SHARE: Balance at beginning of year $ 510 $ 506 $ 457 Shares issued under stock plans--net 6 3 3 Shares issued for acquired companies 23 1 46 ...................................................................................... Balance at end of year 539 510 506 ...................................................................................... CAPITAL IN EXCESS OF PAR VALUE: Balance at beginning of year 352,916 345,448 214,396 Shares issued under stock plans--net 10,034 4,893 670 Income tax reduction arising from the exercise of employee stock options 5,000 2,000 2,400 Shares issued for acquired companies 59,835 575 127,982 ...................................................................................... Balance at end of year 427,785 352,916 345,448 ...................................................................................... UNREALIZED GAIN ON INVESTMENTS 16,442 18,621 15,268 ...................................................................................... ACCUMULATED EARNINGS: Balance at beginning of year 233,851 153,644 199,482 Net income (loss) 90,800 79,708 (45,926) Foreign currency translation adjustment (162) 499 88 ...................................................................................... Balance at end of year 324,489 233,851 153,644 ...................................................................................... TOTAL SHAREHOLDERS' EQUITY $769,255 $605,898 $514,866 - -------------------------------------------------------------------------------------- See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 90,800 $ 79,708 $ (45,926) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred income taxes 4,234 2,225 (59,085) Depreciation and amortization of property and equipment 49,119 44,120 40,486 Amortization of intangible assets 14,067 21,391 26,166 Charge for incomplete software technology 172,970 Amortization (capitalization) of internally generated computer software -- net 36 3,732 (6,382) ..................................................................................... 158,256 151,176 128,229 Cash provided (used) by changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable (19,191) (4,881) (10,014) Securities processing receivables/payables -- net (5,948) (3,660) 29,935 Prepaid expenses and other assets (7,073) 8,252 (26,616) Accounts payable and accrued expenses 23,681 8,034 399 Deferred revenues 17,313 5,232 9,283 Accrued income taxes 2,520 5,961 5,756 ..................................................................................... Net cash provided by operating activities 169,558 170,114 136,972 ..................................................................................... CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (39,765) (39,450) (46,322) Payment for acquisition of businesses, net of cash acquired (65,017) (8,025) (261,417) Investments (167,812) (133,979) 225,728 Due on sale of investments 97,446 (97,446) ..................................................................................... Net cash used by investing activities (272,594) (84,008) (179,457) ..................................................................................... CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of short-term obligations -- net (7,900) (8,700) (50,600) Proceeds from borrowings on long-term obligations 18,120 6,000 252,977 Repayment of long-term obligations (41,316) (116,940) (21,733) Issuance of common stock 10,040 4,896 638 Trust account deposits 112,187 53,364 (118,028) ..................................................................................... Net cash provided (used) by financing activities 91,131 (61,380) 63,254 ..................................................................................... Change in cash and cash equivalents (11,905) 24,726 20,769 Beginning balance 101,282 76,556 55,787 ..................................................................................... Ending balance $ 89,377 $ 101,282 $ 76,556 - ------------------------------------------------------------------------------------- See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ending December 31, 1997, 1996 and 1995 NOTE 1. Summary of Significant Accounting Policies DESCRIPTION OF THE BUSINESS The Company is a leading independent provider of financial data processing systems and related information management services and products to banks, credit unions, mortgage banks, savings institutions and other financial intermediaries. 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. In connection with the acquisition of Hanifen, Imhoff Holdings, Inc., referred to in Note 2, the Company filed a Form 8-K, dated October 24, 1997, with the Securities and Exchange Commission in which financial statements and other financial information previously presented in its 1996 Annual Report to Shareholders were restated to include, on a pooling of interests basis, the financial position and results of operations of BHC Financial, Inc. acquired in May 1997 for approximately 5,684,000 shares. The accompanying financial statements for 1996 and 1995 have been similarly restated. 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, 1997 and 1996 include $10,526,000 and $12,013,000, 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, 1997 and 1996. SECURITIES PROCESSING RECEIVABLES AND PAYABLES The Company's security processing subsidiaries had receivables from and payables to brokers or dealers and clearing organizations related to the following at December 31, 1997 and 1996 (in thousands):
1997 1996 - -------------------------------------------------------------------------- RECEIVABLES: Securities failed to deliver $ 22,280 $ 10,679 Securities borrowed 495,834 207,173 Receivable from customers 833,348 493,635 Other 34,707 17,867 .......................................................................... Total $1,386,169 $ 729,354 ========================================================================== PAYABLES: Securities failed to receive $ 32,091 $ 5,923 Securities loaned 567,253 219,530 Payable to customers 488,404 366,421 Other 96,529 44,341 .......................................................................... Total $1,184,277 $ 636,215 ==========================================================================
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. SHORT-TERM BORROWINGS The Company's security processing subsidiaries had short-term bank loans payable of $94,975,000 and $33,200,000 as of December 31, 1997 and 1996, respectively, which bear interest at the respective bank's call rate and were collateralized by customers' margin account securities. 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 $1,082,740,000 and $970,553,000 in 1997 and 1996, respectively. The related investment securities, including amounts representing Company funds, comprised the following at December 31, 1997 and 1996: 28 Fiserv. Inc. and subsidiaries (In thousands) Principal Carrying Market 1997 Amount Value Value - ---------------------------------------------------------------------------------------------------------------------- U. S. Government and government agency obligations $ 671,384 $ 682,218 $ 686,765 Corporate bonds 18,326 18,371 18,364 Repurchase agreements 95,227 95,227 95,227 Other fixed income obligations 371,514 370,714 371,840 ...................................................................................................................... TOTAL $1,156,451 1,166,530 $1,172,196 ...................................................................................................................... Less amounts representing Company funds: Included in cash and cash equivalents 22,985 Included in other investments 60,805 ...................................................................................................................... Trust account investments $1,082,740 - ---------------------------------------------------------------------------------------------------------------------- 1996 - ---------------------------------------------------------------------------------------------------------------------- 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 ...................................................................................................................... Substantially all of the investments have contractual maturities of one year or less except for government agency and certain fixed income obligations which have an average duration of approximately two years and four months. 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: (In thousands) December 31, 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Data processing equipment $ 197,422 $ 167,974 Purchased software 58,161 47,833 Buildings and leasehold improvements 56,307 52,329 Furniture and equipment 58,279 49,526 ...................................................................................................................... 370,169 317,662 Less accumulated depreciation and amortization 221,114 169,249 ...................................................................................................................... TOTAL $ 149,055 $ 148,413 - ----------------------------------------------------------------------------------------------------------------------
Fiserv, Inc. and subsidiaries 29 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, 1997 was as follows: (In thousands) 1997 1996 1995 ================================================================= Beginning balance $70,487 $ 73,863 $67,820 Capitalized costs 25,011 26,366 26,041 Acquisitions--net 2,712 356 - ----------------------------------------------------------------- 98,210 100,585 93,861 Less amortization 25,047 30,098 19,998 - ----------------------------------------------------------------- Ending balance $73,163 $ 70,487 $73,863 ================================================================= During the fourth quarters of 1997 and 1996, the Company recorded charges of $3,207,000 and $5,443,000, respectively, relating to the accelerated amortization of software resulting from the planned consolidation of certain product lines. Routine maintenance of software products, design costs, Year 2000 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: (In thousands) 1997 1996 ================================================================= Computer software acquired $ 30,205 $ 29,326 Other 65,035 71,155 - ----------------------------------------------------------------- 95,240 100,481 Less accumulated amortization 44,814 45,933 - ----------------------------------------------------------------- TOTAL $ 50,426 $ 54,548 ================================================================= Goodwill $387,750 $317,077 Less accumulated amortization 32,470 24,988 - ----------------------------------------------------------------- TOTAL $355,280 $292,089 ================================================================= Except as noted below, the cost allocated to computer software acquired in business acquisitions is being amortized on a straight-line basis over its expected useful life (generally five years or less). Other intangible assets comprise primarily contract rights, customer bases, trademarks and non- competition agreements applicable to business acquisitions. These assets are being amortized using the straight-line method over their estimated useful lives, ranging from five to 35 years. 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 have been 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 $63,620,000, $49,237,000, and $45,648,000, net of direct credits to customer accounts of $46,006,000, $40,686,000, and $43,191,000 in 1997, 1996 and 1995, respectively. Deferred revenues consist primarily of advance billings for services and are recognized as revenue when the services are provided. INCOME PER SHARE Basic income per share is computed using the weighted average number of common shares outstanding during the periods. Diluted income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Income per share for 1996 and 1995 has been restated to comply with Statement of Financial Accounting Standards No. 128, "Earnings per Share". SUPPLEMENTAL CASH FLOW INFORMATION (In thousands) 1997 1996 1995 ================================================================= Interest paid $ 17,358 $22,942 $21,184 Income taxes paid 58,643 45,308 19,556 Liabilities assumed in acquisitions of businesses 197,235 1,596 49,279 ================================================================= 30 Fiserv, Inc. and subsidiaries
NOTE 2 Acquisitions and Capital Transactions Acquisitions During 1997, 1996 and 1995 the Company completed the following acquisitions: Month Company Acquired Type of Business Consideration - ---------------------------------------------------------------------------------------------------------------- 1997: AdminaStar Communications Apr. Laser print and mailing services Cash for stock Interactive Planning Systems May Financial processing systems Stock for stock BHC Financial, Inc. May Securities processing and Stock for stock support services Florida Infomanagement Services, Inc. (FIS, Inc.) Sep. Data processing and software Cash for stock sales Stephens Inc., clearing brokerage operations Sep. Securities processing services Cash for assets Emerald Publications Oct. Financial seminars and training Stock for stock Central Service Corp. Oct. Data processing Cash for stock Savoy Discount Brokerage Oct. Securities processing services Cash for stock Hanifen, Imhoff Holdings, Inc. Dec. Clearing services Cash and stock for stock ................................................................................................................ 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 - ----------------------------------------------------------------------------------------------------------------
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 Lincoln Holdings, Inc. (LHI) and BHC Financial, Inc. (BHC), 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. The clearing operations of Hanifen, Imhoff Holdings, Inc. (HIH) were acquired as of the close of business December 31, 1997 and, accordingly, the accompanying financial statements include the balance sheet accounts of HIH as of that date but no operations for the year then ended. Pro forma information including the results of operations of HIH has not been presented due to lack of materiality. The acquisition of HIH was consummated for a consideration of approximately $110 million comprising approximately 1,185,000 shares of common stock of the Company and $52 million cash. In connection with certain acquisitions consummated during 1997, the Company issued approximately 1,123,000 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 the respective companies and the aggregate value of the transactions. No underwriter was involved in the transactions and no commission was paid. Fiserv, Inc. and subsidiaries 31 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 writeoff 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. Stock Option Plan The Company's 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 1995, 1996 and 1997 is summarized as follows:
SHARES ----------------------- WEIGHTED NON- PRICE AVERAGE INCENTIVE QUALIFIED RANGE EXERCISE PRICE - ---------------------------------------------------------------------------------------------------- Outstanding, December 31, 1994 30,420 2,471,827 $ 1.63-22.50 $15.02 Granted 440,434 21.50-27.50 21.99 Forfeited (115,493) 1.63-27.50 19.81 Exercised (10,140) (413,588) 1.63-21.81 9.95 - ------------------------------------------------------------------ Outstanding, December 31, 1995 20,280 2,383,180 1.63-27.50 16.87 Granted 617,354 26.50-36.75 29.45 Forfeited (89,147) 11.48-30.50 20.12 Exercised (18,590) (309,977) 1.63-30.50 15.56 - ------------------------------------------------------------------ Outstanding, December 31, 1996 1,690 2,601,410 5.77-36.75 19.89 Assumed from BHC 562,284 7.30-31.50 17.75 Granted 689,403 36.00-49.00 37.98 Forfeited (51,034) 6.21-36.00 28.75 Exercised (1,690) (640,365) 5.77-36.00 19.57 - ------------------------------------------------------------------ Outstanding, December 31, 1997 0 3,161,698 6.21-49.00 23.35 - ------------------------------------------------------------------ Shares exercisable, December 31, 1997 0 2,246,186 - ----------------------------------------------------------------------------------------------------
Options outstanding include 113,482 and 64,845 shares granted in 1996 and 1997 at $29.88 and $36.44 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, 1997, options to purchase 3,190,000 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 $2,200,000 and $981,000 in 1997 and 1996, respectively. Earnings per share-diluted would have been reduced by $.04 and $.02 in 1997 and 1996, respectively. The assumptions used to estimate compensation expense were: expected volatility of 18.3%, risk-free interest rate of 6.5% and expected option lives of five years. 32 Fiserv, Inc. and subsidiaries NOTE 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 $113,572,000 was in use at December 31, 1997 at an average rate of 6.26%. 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, 1997. 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:
(In thousands) December 31, 1997 1996 - -------------------------------------------------------------------------------- 9.45% senior notes payable, due 1998-2000 $12,857 $17,143 9.75% senior notes payable, due 1998-2001 10,000 12,500 8.00% senior notes payable, due 1999-2005 90,000 90,000 Bank notes and commercial paper 136,585 151,859 Other obligations 2,589 1,362 ................................................................................ TOTAL $252,031 $272,864 - --------------------------------------------------------------------------------
Annual principal payments required under the terms of the long-term agreements were as follows at December 31, 1997:
(In thousands) Year - ------------------------------------------- 1998 $ 8,783 1999 21,414 2000 149,668 2001 16,308 2002 13,714 Thereafter 42,144 ........................................... TOTAL $252,031 - -------------------------------------------
Interest expense with respect to long-term debt amounted to $16,964,000, $22,431,000 and $22,006,000 in 1997, 1996 and 1995, respectively. NOTE 4 Income Taxes A reconciliation of recorded income tax expense with income tax computed at the statutory federal tax rates follows:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- Statutory federal tax rate 35% 35% 35% Tax computed at statutory rate $53,865 $47,062 $(26,651) State income taxes net of federal effect 5,995 5,093 (4,877) Non-deductible amortization 1,408 1,504 1,239 Other 1,831 1,095 69 ....................................................................................................................... TOTAL $63,099 $54,754 $(30,220) - -----------------------------------------------------------------------------------------------------------------------
The provision for income taxes consisted of the following:
(In thousands) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- Currently payable $53,865 $50,068 $26,551 Tax reduction credited to capital in excess of par value 5,000 2,000 2,400 Deferred 4,234 2,686 (59,171) ...................................................................................................................... TOTAL $63,099 $54,754 $(30,220) - ----------------------------------------------------------------------------------------------------------------------
The approximate tax effects of temporary differences at December 31, 1997 and 1996 were as follows:
(In thousands) 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ Allowance for doubtful accounts $ 2,027 $ 1,529 Accrued expenses not currently deductible 16,835 7,649 Deferred revenues 8,688 9,815 Other 230 (232) Net operating loss and credit carryforwards 2,295 3,871 Deferred costs (4,314) (4,963) Internally generated capitalized software (29,999) (28,900) Excess of tax over book depreciation and amortization (5,992) (3,185) Purchased incomplete software technology 56,888 61,500 Unrealized gain on investments (11,425) (12,940) ...................................................................................................................... TOTAL $35,233 $34,144 - ----------------------------------------------------------------------------------------------------------------------
The net operating loss and tax credit carryforwards have expiration dates ranging from 1998 through 2010. Fiserv, Inc. and subsidiaries 33 NOTE 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 $14,383,000, $10,074,000 and $8,144,000 in 1997, 1996 and 1995, respectively. NOTE 6. Leases, Other Commitments and Contingencies LEASES Future minimum rental payments, as of December 31, 1997, on various operating leases for office facilities and equipment were due as follows:
(In thousands) Year - -------------------------------------------------------------------------------- 1998 $47,509 1999 36,817 2000 29,436 2001 20,789 2002 14,957 Thereafter 23,311 ................................................................................ TOTAL $172,819 - --------------------------------------------------------------------------------
Rent expense applicable to all operating leases was approximately $55,515,000, $52,638,000 and $51,144,000 in 1997, 1996 and 1995, respectively. OTHER COMMITMENTS AND CONTINGENCIES The Company's trust administration subsidiaries had fiduciary responsibility for the administration of approximately $20 billion in trust funds as of December 31, 1997. 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, 1997, the aggregate net capital of such subsidiaries was $100,847,000, exceeding the net capital requirement by $83,180,000. 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. 34 Fiserv, Inc. and subsidiaries 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) ----------------------------------------------------------- 1997 vs. 1996 vs. 1997 1996 1995 1996 1995 ----------------------------------------------------------- Revenues 100.0% 100.0% 100.0% 10.8% 14.3% - ------------------------------------------------------------------------------------------------- Cost of revenues: Salaries, commissions and payroll related costs 46.7 44.9 45.7 15.2 12.5 Data processing expenses, rentals and telecommunication costs 10.3 11.1 13.1 2.9 (3.2) Other operating costs 19.5 18.6 18.3 15.8 16.2 Depreciation and amortization of equipment and improvements 5.0 5.0 5.3 11.3 9.0 Amortization of intangible assets 1.5 2.4 2.1 (34.2) 31.7 Amortization (capitalization) of internally generated software--net 0.4 (0.8) (99.0) (158.5) ................................................................................................. Total cost of revenues 83.0 82.4 83.7 11.4 12.8 - ------------------------------------------------------------------------------------------------- Operating income 17.0% 17.6% 16.3% 8.0 22.3 - ------------------------------------------------------------------------------------------------- Income before income taxes 15.8% 15.3% 13.9% 14.5 26.0 - ------------------------------------------------------------------------------------------------- Net income 9.3% 9.1% 8.3% 13.9 25.1 - ------------------------------------------------------------------------------------------------------------------------------
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 $94,983,000 in 1997 and $110,345,000 in 1996. In both years, approximately half 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. The Company provides item processing services in the Canadian market through a joint venture with Canadian Imperial Bank of Commerce, the revenues from which are recorded on a fee basis. If the gross revenues from this activity were recognized, revenues for the current year would have increased by approximately $205,000,000 or 23%. Cost of revenues increased $82,756,000 in 1997 and $82,359,000 in 1996. As a percentage of revenues, cost of revenues increased .6% from 1996 to 1997 and decreased 1.3% from 1995 to 1996. 1996 revenues included a significant amount of termination fees with no related costs incurred. The make up of cost of revenues has also 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, securities processing, 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 decreased $7,324,000 from 1996 to 1997 and increased $5,143,000 from 1995 to 1996. The change from an increase in 1996 to a decrease in 1997 resulted primarily from accelerated amortization applied to completed software acquired in the acquisition of ITI. Capitalization of internally generated computer software is stated net of amortization and decreased $3,696,000 in 1997 and $10,114,000 in 1996. Net software capitalized approximated related amortization in 1997 and was more than offset by amortization in 1996 due primarily to the accelerated amortization of software in both years resulting from the planned consolidation of certain product lines. Operating income increased $12,227,000 in 1997 and $27,986,000 in 1996. As a percentage of revenues, operating income decreased .6% in 1997 and increased 1.3% in 1996. Fiserv, Inc. and subsidiaries 35 The effective income tax rate was 41% in 1997 and 1996 and 40% in 1995 (after the restatement for BHC). The effective income tax rate for 1998 is expected to remain at 41%. The Company believes that it has an effective plan to address the Year 2000 issue and expects to incur charges approximating $15 million a year in each of the next two years related to this issue. It is not anticipated that operating income as a percentage of revenues will be materially impacted by these charges. 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)
(In thousands, except per share data) Year ended December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------- REVENUES $ 974,432 $ 879,449 $ 769,104 ........................................................................................ COST OF REVENUES: Salaries, commissions and payroll related costs 454,850 394,932 351,180 Data processing expenses, rentals and telecommunication costs 100,601 97,721 100,908 Other operating expenses 189,982 164,003 141,100 Depreciation and amortization of property and equipment 49,119 44,120 40,486 Amortization of intangible assets 14,067 21,391 16,248 Amortization (capitalization) of internally generated computer software -- net 36 3,732 (6,382) ........................................................................................ TOTAL 808,655 725,899 643,540 ........................................................................................ OPERATING INCOME 165,777 153,550 125,564 Interest expense -- net 11,878 19,088 18,822 ........................................................................................ INCOME BEFORE INCOME TAXES 153,899 134,462 106,742 Income tax provision 63,099 54,754 43,034 ........................................................................................ NET INCOME $ 90,800 $ 79,708 $ 63,708 - ---------------------------------------------------------------------------------------- Net income per common share: Diluted $ 1.70 $ 1.53 $ 1.27 - ---------------------------------------------------------------------------------------- Shares used in computing net income per share: Diluted 53,528 52,046 50,298 - ----------------------------------------------------------------------------------------
Note: Supplemental information provided for comparative purposes. 1995 excludes certain charges associated with the acquisition of Information Technology, Inc. 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- diluted). 36 Fiserv. Inc. and subsidiaries The following supplemental schedule presents the results of operations of the Company for the periods presented as originally reported before restatement of 1996 and 1995 for BHC Financial, Inc. and before certain charges related to the acquisition in 1995 of Information Technology, Inc.
(In thousands, except per share data) Year ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- REVENUES $974,432 $798,268 $703,380 ............................................................................................................. COST OF REVENUES: Salaries, commissions and payroll related costs 454,850 371,526 330,845 Data processing expenses, rentals and telecommunication costs 100,601 90,919 95,798 Other operating expenses 189,982 145,230 125,498 Depreciation and amortization of property and equipment 49,119 42,241 38,480 Amortization of intangible assets 14,067 20,983 15,962 Amortization (capitalization) of internally generated computer software--net 36 3,732 (6,382) ............................................................................................................. TOTAL 808,655 674,631 600,201 ............................................................................................................. OPERATING INCOME 165,777 123,637 103,179 Interest expense--net 11,878 19,088 18,822 ............................................................................................................. INCOME BEFORE INCOME TAXES 153,899 104,549 84,357 Income tax provision 63,099 42,865 34,586 ............................................................................................................. NET INCOME $ 90,800 $ 61,684 $ 49,771 - ------------------------------------------------------------------------------------------------------------- Net income per common share: Diluted $ 1.70 $ 1.34 $ 1.13 - ------------------------------------------------------------------------------------------------------------- Shares used in computing net income per share: Diluted 53,528 46,198 44,008 - ------------------------------------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company's primary sources of funds: (In thousands) Year Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Cash provided by operating activities before changes in securities processing receivables and payables--net $175,506 $173,774 $107,037 Securities processing receivables and payables--net (5,948) (3,660) 29,935 ............................................................................................................. Cash provided by operating activities 169,558 170,114 136,972 Issuance of common stock--net 10,040 4,896 638 Decrease (increase) in investments (55,625) 16,831 10,254 Increase (decrease) in net borrowings (31,096) (119,640) 180,644 ............................................................................................................. TOTAL $ 92,877 $72,201 $328,508 - -------------------------------------------------------------------------------------------------------------
The Company has applied a significant portion of its cash flow from operations 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. Fiserv, Inc. and subsidiaries 37 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.
(In thousands, except per share data) Year Ended December 31, 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Revenues $ 974,432 $ 879,449 $ 769,104 $ 635,297 $ 519,996 Income (loss) before income taxes 153,899 134,462 (76,146) 84,098 70,832 Income taxes (credit) 63,099 54,754 (30,220) 33,067 27,107 Net income (loss) 90,800 79,708 (45,926) 51,031 43,725 Net income (loss) per share: Basic $1.75 $1.56 $(0.93) $1.10 $0.98 .................................................................................................. Diluted $1.70 $1.53 $(0.93) $1.08 $0.96 .................................................................................................. As originally reported $1.70 $1.34 $1.13 $0.95 $0.80 .................................................................................................. Total assets $3,636,491 $2,698,979 $2,514,597 $2,204,832 $1,874,939 Long-term debt 252,031 272,864 383,416 150,599 124,624 Shareholders' equity 769,255 605,898 514,866 425,389 370,740 - --------------------------------------------------------------------------------------------------
Note: The above information has been restated to recognize (1) a 3-for-2 stock split effective in May 1993 and (2) the acquisitions of Lincoln Holdings, Inc. in 1995 and of BHC Financial, Inc. in 1997 accounted for as poolings of interests. The net income (loss) per share as originally reported is before restatements due to poolings of interests and excludes the one-time after-tax charges of $2.49 per share related to the acquisition in 1995 of Information Technology, Inc. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(In thousands, except per share data) Quarters -------------------------------------------- 1997 First Second Third Fourth Total - ---------------------------------------------------------------------------------------------- Revenues $228,319 $238,386 $238,255 $269,472 $974,432 .............................................................................................. Cost of revenues 186,522 199,748 196,252 226,133 808,655 .............................................................................................. Operating income 41,797 38,638 42,003 43,339 165,777 .............................................................................................. Income before income taxes 38,310 35,297 39,302 40,990 153,899 .............................................................................................. Income taxes 15,707 14,472 16,114 16,806 63,099 .............................................................................................. Net income $ 22,603 $ 20,825 $ 23,188 $ 24,184 $ 90,800 .............................................................................................. Net income per share: .............................................................................................. Basic $0.44 $0.40 $0.44 $0.46 $1.75 .............................................................................................. Diluted $0.43 $0.39 $0.43 $0.45 $1.70 - ----------------------------------------------------------------------------------------------
1996 - ---------------------------------------------------------------------------------------------- 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: .............................................................................................. Basic $0.38 $0.40 $0.38 $0.40 $1.56 .............................................................................................. Diluted $0.38 $0.39 $0.37 $0.39 $1.53 - ----------------------------------------------------------------------------------------------
The above information has been restated to recognize the acquisition in 1997 of BHC Financial, Inc. accounted for on a pooling of interests basis. 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 NASDAQ National Market tier of the NASDAQ Stock Market under the symbol FISV.
1997 1996 Quarter Ended High Low High Low - ----------------------------------------------------------------- March 31 39 32 3/4 32 25 3/8 June 30 44 5/8 36 3/4 33 3/8 28 1/16 September 30 49 1/2 43 7/8 38 11/16 28 5/8 December 31 50 1/8 39 3/4 39 5/8 34 - -----------------------------------------------------------------
At December 31, 1997, the Company's common stock was held by 1,960 shareholders of record. It is estimated that an additional 28,000 shareholders own the Company's stock through nominee or street name accounts with brokers. The closing sale price for the Company's stock on January 16, 1998 was $51.00 per share. The Company's present policy is to retain earnings to support future business opportunities, rather than to pay dividends. Fiserv, Inc. and subsidiaries 39 INDEPENDENT AUDITORS' REPORT Shareholders and Directors of Fiserv, Inc.: We have audited the accompanying consolidated balance sheets of Fiserv, Inc. and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of BHC Financial, Inc. and subsidiaries as of December 31, 1996 and for the two years ended December 31, 1996, and 1995, which statements reflect total assets of $785,229,000 as of December 31, 1996 and revenues of $81,181,000 and $65,724,000 for the respective years ended December 31, 1996 and 1995. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for BHC Financial, Inc. and subsidiaries for such periods, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Fiserv, Inc. and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Milwaukee, Wisconsin January 30, 1998 MANAGEMENT'S STATEMENT OF RESPONSIBILITY The management of Fiserv, Inc. assumes responsibility for the integrity and objectivity of the information appearing in the 1997 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 40 Fiserv, Inc. and subsidiaries EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT State (Country) of Name under which Subsidiary does Business Incorporation Aspen Investment Alliance, Inc. Colorado BMS On-Line Services, Inc. Massachusetts Data-Link Systems, LLC Wisconsin FIserv CIR, Inc. Delaware FIserv Federal Systems, Inc. Delaware FIserv Fresno, Inc. California FIserv Government Services, Inc. Delaware FIserv Joint Venture, Inc. Delaware Fiserv Solutions, Inc. Wisconsin FIserv (Europe) Ltd. United Kingdom FIserv (ASPAC) Pte., Ltd. Singapore Fiserv Australia Pty Limited Australia Pt Fiserv Indonesia Indonesia First Retirement Marketing, Inc. Colorado First Trust Corporation Colorado Information Technology, Inc. Nebraska Lincoln Trust Company Colorado The Affinity Group, Inc. Colorado Bankers Pension Services, Inc. California Fiserv Solutions of Canada Inc. Ontario Fiserv Clearing, Inc. Delaware BHC Investments, Inc. Delaware BHC Trading Corporation Delaware NetVest, Inc. Delaware BHC Securities, Inc. Delaware TradeStar Investments, Inc. Delaware Fiserv Investor Services, Inc. Delaware BHCM Insurance Agency, Inc. Delaware F.T. Agency, Inc. Ohio Tower Agency, Inc. Ohio Fiserv Greensboro, Inc. North Carolina Fiserv Correspondent Services, Inc. Colorado Investment Consulting Group, Inc. Colorado WUB1 Investments, Inc. Colorado WUB2 Management Company Colorado WUB3 Capital Management, Inc. Colorado WUB4 Capital Partners, LLP Colorado EX-23 5 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333- 04417, 333-28113, 333-28115, 333-28117 and 333-28119 of Fiserv, Inc. on Form S-8 and Registration Statement Nos. 333-00913, 333-23581 and 333-31465 on Form S-3 of our reports dated January 30, 1998, appearing in and incorporated by reference in the Annual Report on Form 10-K of Fiserv, Inc. for the year ended December 31, 1997. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin February 18, 1998 EX-27 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the 1997 Annual Report to Shareholders and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1997 DEC-31-1997 89,377 1,082,740 197,771 0 0 2,847,335 370,169 221,114 3,636,491 2,615,205 0 0 0 539 768,716 3,636,491 0 974,432 0 794,552 14,103 0 11,878 153,899 63,099 90,800 0 0 0 90,800 1.75 1.70
EX-99.1 7 DEFINITIVE PROXY STATEMENT EXHIBIT 99.1 DEFINITIVE PROXY STATEMENT FOR 1998 ANNUAL MEETING OF SHAREHOLDERS FISERV, INC. AND SUBSIDIARIES EX-99.2 8 REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT 99.2 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of BHC Financial, Inc.: We have audited the consolidated statements of financial condition of BHC Financial, Inc. and Subsidiaries as of December 31, 1996 and the related consolidated statements of income, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1996 and the related financial statement schedules, not separately presented herein. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements and the related financial statement schedules referred to above present fairly, in all material respects, the financial position of BHC Financial, Inc. and Subsidiaries as of December 31, 1996 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 14, 1997, except for note 12 as to which the date is March 3, 1997 -----END PRIVACY-ENHANCED MESSAGE-----