FISV

FISERV INC. 10-Q Summary: Quarter Ended March 31, 1999

Business Context and Reporting Period

This Form 10-Q covers the three-month period ended March 31, 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 corporate activities. As of March 31, 1999, 82,239,000 shares of common stock were outstanding. The financial statements are unaudited but include all normal recurring adjustments.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 23.1% year-over-year. Approximately 45% of this growth was attributed to acquired companies, while 55% resulted from organic growth (new clients, transaction volume increases, and price increases).
• Cost Structure: Total cost of revenues rose 23.2%, maintaining an 82.0% cost-to-revenue ratio. Salaries and related costs increased 24.5%, while data processing costs rose 11.8%.
• Profitability: Operating income grew 22.8% to $60.6 million. Net income increased 23.1% to $33.4 million. The effective tax rate remained stable at 41%.
• Cash Flow Volatility: Net cash provided by operating activities decreased significantly to $36.9 million from $82.8 million in the prior year. This decline was primarily driven by a $43.1 million net increase in securities processing receivables and payables, compared to a $33.2 million net decrease in the prior year.
• Capital Allocation: Investing activities used $182.4 million, largely due to $92.2 million in trust account investments and $19.9 million for business acquisitions. Financing activities provided $155.5 million, driven by a $100.5 million increase in short-term obligations.

Guidance, Outlook, and Risks

• Year 2000 Compliance: The company has substantially completed Year 2000 renovation for mission-critical systems. Remaining non-mission critical systems are expected to be completed by mid-1999. Estimated costs for 1999 are $10 million to $12 million. Management expects to meet compliance commitments without significant incremental expenses beyond current estimates.
• Liquidity and Debt: The company holds $355.1 million in long-term debt, including $184.7 million under a credit facility that expires May 17, 2000, and is reduced to $150 million on May 17, 1999. Management plans to refinance this facility on or before May 17, 1999.
• Corporate Actions: A 3-for-2 stock split was declared for shareholders of record as of April 16, 1999. Leslie M. Muma was appointed Chief Executive Officer, succeeding George D. Dalton.
• Risks: Forward-looking statements regarding Year 2000 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 compliance could have a material adverse effect on the business.

Investor Verification Checklist

• Verify the timeline and success of the refinancing for the $330 million credit facility expiring/reducing in May 1999.
• Monitor the completion status of non-mission critical Year 2000 systems scheduled for mid-1999.
• Assess the impact of the $43.1 million swing in securities processing receivables/payables on future working capital requirements.
• Confirm the integration progress of acquired companies contributing 45% of recent revenue growth.
• Review the valuation of the company's investments in Knight/Trimark Group, Inc. and The BISYS Group, Inc., which contributed to comprehensive income via unrealized gains.