FISERV INC. 10-Q Summary: Quarter Ended June 30, 1997
Business Context and Reporting Period
This Form 10-Q covers the three and six-month periods ended June 30, 1997, for Fiserv, Inc., a provider of financial services technology. The financial statements are unaudited and have been restated to reflect the acquisition of BHC Financial, Inc. (BHC) on May 30, 1997, which was accounted for as a pooling of interests. Consequently, BHC's results are included for all periods presented.
Key Financial Metrics
| Metric | 3 Months Ended 6/30/97 | 3 Months Ended 6/30/96 | 6 Months Ended 6/30/97 | 6 Months Ended 6/30/96 |
|---|---|---|---|---|
| Revenues | $238.4 million | $217.5 million | $466.7 million | $432.6 million |
| Operating Income | $38.6 million | $39.2 million | $80.4 million | $78.0 million |
| Net Income | $20.8 million | $20.2 million | $43.4 million | $39.8 million |
| Diluted EPS | $0.39 | $0.39 | $0.82 | $0.77 |
| Operating Margin | 16.2% | 18.0% | 17.2% | 18.0% |
| Cash from Operations (6mo) | $95.7 million | |||
| Long-Term Debt | $253.4 million (as of 6/30/97) | |||
| Cash & Equivalents | $71.8 million (as of 6/30/97) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 9.6% for the quarter and 7.9% for the six-month period compared to 1996. Approximately 30% of year-to-date growth is attributed to acquisitions, while 70% stems from new clients, volume growth, and price increases.
- Cost Structure: Cost of revenues rose 12.0% for the quarter and 8.9% for the six-month period. This increase was disproportionate to revenue growth due to $3.6 million in severance payments related to a Chase Manhattan Bank contract restructuring and $3.7 million in merger-related expenses for the BHC acquisition.
- Profitability: Operating income decreased 1.5% for the quarter but increased 3.2% for the six-month period. Operating margins declined primarily due to one-time merger charges and reduced termination fees. Excluding merger charges, margins would have approximated prior year levels (17.5% for the quarter, 18.0% for six months).
- Interest Expense: Net interest expense decreased significantly ($1.7 million for the quarter, $3.9 million for six months) due to substantial debt reductions and lower effective rates.
Guidance, Outlook, and Risks
Management Commentary: Management expects the effective income tax rate of 41% to apply throughout the current year. The company believes cash flow from operations and available funding sources are adequate for current requirements, though significant future acquisitions may necessitate additional borrowings or securities issuance.
Liquidity: Cash and cash equivalents decreased by $29.5 million during the six-month period. This reduction was driven by a $68.8 million increase in investments, $10.7 million for business acquisitions, $32.7 million in net debt repayment, and $19.5 million in capital expenditures, partially offset by $95.7 million in operating cash flow.
Risks and Contingencies:
- Revenue Recognition: Revenues from a Canadian joint venture are recorded on a fee basis. If recognized on a gross basis, reported revenues would have been approximately 13% higher for the six-month period.
- Debt Obligations: Long-term debt includes $112.8 million in senior notes due between 1997 and 2001 and $113.2 million under a credit facility expiring in 2000.
Investor Verification Checklist
- Verify the impact of the BHC Financial acquisition on restated 1996 comparables versus original reporting.
- Confirm the classification of the $7.3 million in one-time charges (severance and merger expenses) and their effect on normalized operating margins.
- Review the terms of the $225 million unsecured line of credit and commercial paper facility expiring May 17, 2000.
- Assess the potential revenue upside if the Canadian joint venture revenues were recognized on a gross basis rather than a fee basis.
- Monitor the trajectory of debt reduction given the $32.7 million net repayment in the first half of 1997.