FISERV, INC. 10-Q Summary: Quarter Ended September 30, 1998
Business Context and Reporting Period
This Form 10-Q covers the quarterly and nine-month periods ended September 30, 1998, for Fiserv, Inc., a provider of data processing and related services to financial institutions. The report includes unaudited consolidated financial statements and management discussion. As of September 30, 1998, 81,974,000 shares of common stock were outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1998 |
|---|---|---|
| Revenues | $309.5 million | $894.6 million |
| Net Income | $28.9 million | $84.7 million |
| Diluted EPS | $0.34 | $1.00 |
| Operating Income | $52.9 million | $155.1 million |
| Operating Margin | 17.10% | 17.34% |
| Net Cash from Operating Activities | N/A | $182.6 million |
| Long-Term Debt | $333.6 million (Balance Sheet) | N/A |
| Cash and Equivalents | $87.8 million (Balance Sheet) | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 30% year-over-year for the quarter and 27% for the nine-month period. Approximately 65% of year-to-date growth is attributed to acquisitions, with the remaining 35% driven by new clients, transaction volume growth, and price increases.
- Profitability: Net income rose 25% for the quarter and 27% for the nine-month period compared to 1997. Operating margins remained stable at approximately 17%.
- Cost Structure: Cost of revenues increased 31% for the quarter and 27% for the nine-month period, tracking closely with revenue growth. Salaries and related costs remained the largest expense component at roughly 46% of revenues.
- Debt and Interest: Net interest expense increased due to higher borrowings used to fund acquisitions and treasury stock purchases. Long-term debt increased from $252.0 million at year-end 1997 to $333.6 million.
- Acquisitions: The company completed seven acquisitions in the first nine months of 1998, three of which were accounted for as poolings of interests.
Outlook, Risks, and Management Commentary
- Year 2000 Compliance: Management anticipates full compliance of proprietary systems by March 31, 1999. The company expects to meet these commitments using existing resources without significant incremental expenses. Contingency plans exist for business units that may lag in remediation.
- Liquidity: The company believes cash flow from operations, combined with available credit facilities (including a $280 million unsecured line), will be adequate for funding requirements. Future significant acquisitions may require additional borrowings or securities issuance.
- Tax Rate: The effective income tax rate was 41% for both 1998 and 1997 and is expected to remain consistent for the current year.
- Forward-Looking Risks: Risks include the failure of third-party vendors or clients to achieve Year 2000 compliance and the inability to complete software testing on schedule.
Investor Verification Checklist
- Verify the sustainability of revenue growth independent of acquisitions (organic growth rate).
- Confirm the status of Year 2000 remediation testing and implementation timelines.
- Review the terms and maturity schedule of the $333.6 million in long-term debt.
- Assess the impact of the three-for-two stock split issued in May 1998 on historical share counts and EPS comparisons.
- Monitor the integration progress of the seven acquisitions completed in the first nine months of 1998.