FISERV INC 10-Q Summary: Quarter Ended June 30, 1999
Business Context and Reporting Period
This Form 10-Q covers the three and six-month periods ended June 30, 1999, for Fiserv, Inc., a leading independent provider of financial data processing systems and information management services. The company operates through three segments: financial institution data processing and software services, securities processing and trust services, and other. As of July 16, 1999, 123,554,000 shares of common stock were outstanding. Financial data has been adjusted to reflect a 3-for-2 stock split completed in April 1999.
Key Financial Metrics
| Metric | Q2 1999 | Q2 1998 | YTD 1999 | YTD 1998 |
|---|---|---|---|---|
| Revenues | $343.3M | $311.2M | $680.4M | $585.0M |
| Operating Income | $62.5M | $52.8M | $123.1M | $102.2M |
| Net Income | $34.3M | $28.7M | $67.8M | $55.8M |
| Diluted EPS | $0.27 | $0.22 | $0.53 | $0.44 |
| Operating Margin | 18.2% | 17.0% | 18.1% | 17.5% |
| Cash from Operations (YTD) | $106.1M (vs $81.2M YTD 1998) | |||
| Long-Term Debt | $390.9M (as of June 30, 1999) | |||
| Cash & Equivalents | $62.4M (as of June 30, 1999) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 10.3% in Q2 and 16.3% year-to-date compared to 1998. Approximately 40% of YTD growth is attributed to acquisitions, while 60% stems from organic growth (new clients, transaction volume, and price increases).
- Profitability: Operating income rose 18.3% in Q2 and 20.5% YTD. Operating margins improved slightly in both periods due to cost management and a favorable shift in business mix toward higher-margin software and securities processing.
- Balance Sheet: Total assets grew from $3.96B to $5.33B, driven largely by a significant increase in securities processing receivables ($2.38B vs $1.40B) and trust account investments. Short-term borrowings increased to $156.2M from $38.4M.
- Cash Flow: Net cash provided by operating activities increased to $106.1M YTD. However, investing activities consumed $311.9M, primarily due to $87.3M in business acquisitions and $149.5M in trust account investments.
Outlook, Risks, and Management Commentary
- Year 2000 Compliance: Management states that mission-critical systems are substantially complete, with non-mission critical systems expected to be finished by September 1999. Estimated Y2K costs for 1999 are $10M to $12M. The company expects to meet compliance commitments without significant incremental expenses beyond current estimates.
- Liquidity: The company maintains $500M in revolving credit facilities (expiring May 2004) with $235.4M currently advanced. Management believes cash flow and existing credit lines are adequate for funding requirements, though future acquisitions may necessitate additional borrowings or equity issuance.
- Tax Rate: The effective income tax rate was 41% for both 1999 and 1998 and is expected to remain consistent for the full year.
- Risks: Forward-looking statements regarding Y2000 compliance are subject to risks, including the failure of third-party vendors to remediate issues or the company's inability to test remaining systems. Failure to achieve Y2000 compliance could have a material adverse effect on the business.
Investor Verification Checklist
- Verify the sustainability of the 16.3% YTD revenue growth, specifically the portion attributed to acquisitions versus organic expansion.
- Monitor the completion status of non-mission critical Year 2000 systems by the September 1999 deadline.
- Assess the impact of the $36.2M net increase in securities processing receivables/payables on future working capital needs.
- Review the utilization of the $500M credit facility and the company's strategy for managing the $156M in short-term borrowings.
- Confirm that the 41% effective tax rate remains stable given changes in deferred tax assets and liabilities.