Seeing the future of a converging financial world f i v e - y e a r f i n a n c i a l h i g h l i g h t s r e v e n u e s n e t i n c o m e 1,407.5 1,233.7 137.9 114.3 974.4 879.4 769.1 90.8 79.7 63.7 e a r n i n g s p e r s h a r e - d i l u t e d 1.09 .90 .75 .68 .56 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 doll ars in mi llions pro forma, do llars in million s pro forma, in dollars Th e a b o ve p ro fo r m a i n fo r m a t i o n e x c l u d e s c e r t a i n ch a rg e s i n 1 9 9 5 re l a t e d t o t h e a c q u i s i t i o n o f I n fo r m a t i o n Te ch n o l o gy, I n c . ( I TI ) a n d h a s b e e n re s t a t e d t o re c o g n i z e s t o ck s p l i t s a n d a c q u i s i t i o n s a c c o u n t e d fo r a s p o o l i n g s o f i n t e re s t s. r e v e n u e s n e t i n c o m e 1,407.5 1,233.7 974.4 798.3 703.4 137.9 114.3 90.8 61.7 49.8 e a r n i n g s p e r s h a r e - d i l u t e d 1.09 .90 .75 .59 .50 95 96 97 98 99 95 96 97 98 99 95 96 97 98 99 pro forma, dollars in millions pro fo rma, d ollars in million s pro forma, in dollars Th e a b o ve p ro fo r m a i n fo r m a t i o n i s b a s e d u p o n re s u l t s o f o p e ra t i o n s a s o r i g i n a l l y re p o r t e d ; i t e x c l u d e s c e r t a i n ch a rg e s i n 1 9 9 5 re l a t e d t o t h e a c q u i s i t i o n o f I T I a n d h a s b e e n re s t a t e d t o re c o g n i z e s t o ck s p l i t s b e fo re re s t a t e m e n t s fo r p o o l i n g s o f i n t e re s t s. * d e t a t s e r s a † d e t r o p e r y l l a n i g i r o s a * † 1 4 - y e a r s t o c k p r i c e h i g h l i g h t s 38.31 34.29 21.83 16.33 13.33 1.83 2.17 2.49 2.86 4.10 7.46 7.48 8.56 9.56 86 87 88 89 90 91 92 93 94 95 96 97 98 99 decem ber closing, spl it adjusted, in dollars page 2 | 3 C h a r t s n o t t o s c a l e. ta b l e o f c o n t e n t s page 2: seeing the future of a converging financial world Consumers today demand more and better service from their financial services provider, and the technology to fulfill these demands brings new opportunities and challenges. The result is an evolving financial institution. By Leslie M. Muma & George D. Dalton page 4: a portfolio of information technology (cid:2) Client relat institutions (cid:2) 208 million accounts p It’s no longer necessary for consumers to go to a bank for a checking account, a brokerage firm to trade securities or an insurance agency for a new policy. These services and more are available today through a single relationship with a financial institution. page 6: a commitment to future technology Where is the future taking the financial world? Electronic commerce and direct banking, fueled by Internet technology, are the market forces of tomorrow. page 8: technology that expands the financial world Today’s consumers are technology savvy. They surf the Internet, they use cellular phones, they watch satellite television. They also want their financial services delivered with the same focus on technological advancements. page 23: consolidated financial statements 19 9 9 f i n The success of Fiserv, as with any company, is reflected in the strength of our financial statements. page 45: the people behind the future of technology The management teams that guide the success of Fiserv include our Board of Directors, Management Committee and Executive Officers. Fiserv, Inc. is a leading technology resource for information management systems used by the financial industry. We serve more than 10,000 clients worldwide, including banks, broker-dealers, credit unions, financial planners and investment advisers, insurance companies, leasing companies, mortgage lenders and savings institutions. Our corporate offices are located in Brookfield, Wisconsin, and we can be found on the Internet at www.fiserv.com. Fiserv stock is traded on the NASDAQ National Market under the symbol FISV. t o o u r s h a r e h o l d e r s Our clients are facing a changing competitive landscape.The financial world is both converg- ing and expanding, as a new type of financial institution emerges. This financial institution incorporates banking, lending, insurance, secu- rities and financial planning, and its services are accessible through the Internet as well as the more traditional delivery channels. g e o r g e d . d a l t o n & l e s l i e m . m u m a What’s driving this evolution? Market demand, regulatory changes and technology. Today’s consumers are more sophisticated in money management. They demand more convenience in accessing information. They have an increasing expectation of service quality. And, therefore, a growing desire for anywhere, anytime, anyway transactions. At Fiserv, we’re ready to help our clients stay ahead of their competition and maximize their profitability.We’ve been the technology leader for banking and lending institutions for decades. Three years ago we moved into the securities processing industry. In 1998, we began servicing the administrative processing needs of insurance companies, and we’ve pioneered the technology that drives a wide variety of financial services on the Internet. Fiserv has developed the resources and expertise our clients need to broaden and expand their delivery channels and to take advan- tage of the recently passed federal legislation that opens up competition between banking insti- tutions, insurance companies and brokerage firms. 19 9 9 h i g h l i g h t s Achieving ongoing success in a changing environment is a lot easier with an underlying foundation of financial strength and stability. Our historically strong operating results continued in 1999, as we met our expectations for growth in revenues, net income and earnings per share. Fiserv annual revenues for 1999 were $1.41 billion, a 14% increase over the $1.23 billion reported in 1998. Net income for the year was $137.9 million or $1.09 per share-diluted, compared to net income of $114.3 million or $0.90 per share-diluted as reported in 1998. We once again have met our growth targets in 1999, and are on track for another strong year in 2000. Our pipelines for new sales activity, cross-sales to existing clients and acquisition oppor- tunities are accelerating across all of our major business lines. Our management teams continue page 2 | 3 t o o u r s h a r e h o l d e r s to work diligently to increase our internal sales and acquisition growth in all areas of financial institution processing, lending, securities clearing, insurance solutions, trust services and e-commerce. a s t r at e g i c v i s i o n Fiserv has a strategic vision that is driven by two basic concepts: respon- siveness and foresight. As a service company our livelihood depends on our responsiveness, and as a technology company our foresight is key to our longevity.We have a well-developed under- standing of client service and an intimate knowledge of our industry (because it’s the only one we serve), plus the talent and resources to keep abreast of technology. We act on this insight whenever and wherever it will best serve our clients. Our industry is ever-changing. Consumer demands, advancing technology, evolving regulations — all these dynamic forces constantly shape and reshape the financial marketplace. It’s becoming harder for financial institutions to do everything related to technology on their own, and fewer and fewer are trying. The question many financial institutions are asking is: Why spend the money, time and personnel on an area outside of our core business focus? For most, the answer is clear, especially with the resources available through Fiserv. One great example is the Internet.The power of the Internet as a financial delivery resource is accelerating, as shown by the growing number of financial services now available. As a proven technology provider supporting these services through our clients’ traditional brick-and-mortar locations, we were best situated to apply our expertise to this new medium. And we have continually taken the initiative in providing the technology that drives financial e-commerce services (for an overview of our e-commerce strategy, see page 6). The future is exciting, and thanks to the dedication and initia- tive of every Fiserv employee, we are better prepared than ever to embrace it. As long as there is a need for technological innovation and proven solutions, Fiserv people and products will be there. We thank you for your investment in our Company, and we look forward to providing the results that you, as our owners, expect. Leslie M. Muma Vice Chairman, President and CEO George D. Dalton Chairman of the Board February 28, 2000 i n f o r m at i o n t e c h n o l o g y s e r v i c e s g r o u p s f i s e rv i s u n i q u e ly p o s i t i o n e d t o h e l p f i n a n c i a l s e rv i c e s p r o v i d e r s m e e t t h e c h a l l e n g e s a n d o p p o r t u n i t i e s o f t o d a y ’ s d y n a m i c m a r k e t p l a c e . o u r c o r e b u s i n e s s i s s e rv i n g t h e n e e d s o f b a n k i n g , l e n d i n g , i n s u r a n c e , s e c u r i t i e s a n d f i n a n c i a l p l a n n i n g p r o v i d e r s . w i t h o u r w i d e a r r a y o f i n d u s t ry - s p e c i f i c p r o d u c t s , f i s e rv c l i e n t s c a n s at i s f y t h e i r c u s t o m e r s ’ g r o w i n g r e l i a n c e o n a n y w h e r e , a n y t i m e , a n y wa y f i n a n c i a l s e rv i c e s . f o l l o w i n g i s a r e v i e w o f o u r i n f o r m at i o n t e c h n o l o g y o p e r at i n g g r o u p s . f i n a n c i a l i n s t i t u t i o n o u t s o u r c i n g , s y s t e m s & s e r v i c e s g r o u p s Fiserv provides comprehensive solutions designed for the information processing requirements of financial institutions, including account and transaction processing services, item processing, loan servicing and lending systems.We offer our clients service bureau and in-house processing systems, e-commerce solutions and comple- mentary products. In essence, Fiserv provides all the technology a bank, credit union, mortgage lender or savings institution needs to run its operations — from deposit accounts to loans to general ledger to check processing. Our products, services and software solutions are available through multiple delivery channels to financial institutions in the United States, and many of our systems have applications designed for the unique requirements of financial institutions operating outside of North America. d i m e n s i o n s : (cid:2) Client relationships with over 7,300 financial institutions (cid:2) 208 million customer deposit, loan & lease accounts processed (cid:2) 4.3 billion checks processed annually u . s . m a r k e t p o s i t i o n : The largest provider of financial information technology to banks/savings insti- tutions, credit unions, mortgage lenders and auto leasing companies. A significant technology resource for revolving credit businesses. p r o d u c t s & s e r v i c e s : Account and transaction processing services for banks, credit unions and savings institutions; related software and services for banks, credit unions, mortgage lenders and savings institutions; lending systems; auto leasing systems; revolving credit services; item processing; e-commerce products and services; electronic funds transfer services; imaging technology; plastic card services; document solutions; printing and fulfillment services; human resource infor- mation services; treasury management solutions. g r o w t h p o t e n t i a l : Gaining market share through new sales and strategic acquisitions. Enhancing key relationships through cross-sales of complementary products and services to current clients. Growing item processing through sales of large outsourcing contracts and by adding volume to existing centers. Expanding technology services and solutions for e-commerce. Developing and acquiring new products and services. page 4 | 5 i n s u r a n c e s o l u t i o n s g r o u p s e c u r i t i e s g r o u p Fiserv brings expertise in information management technology and related administration processing services to the insurance and banking industries.The products and solutions we offer automate the full range of insurance services, and support the growing convergence between banking and insurance. d i m e n s i o n s : (cid:2) Client relationships with over 2,000 insurance companies (cid:2) 20 million policies processed on Fiserv systems u . s . m a r k e t p o s i t i o n : A leading, and rapidly growing, technology resource for insurance companies. p r o d u c t s & s e r v i c e s : Systems and software for life, annuity and health insurance, property/ casualty and workers compensation; general ledger and annual statements software; claims workstation system; computer-based training for insurance and securities; electronic sales platform. g r o w t h p o t e n t i a l : Continuing to grow through new client sales. Developing and acquiring new products and services. Gaining market share through strategic acquisitions. Fiserv provides comprehensive securities processing services to brokerage organizations and financial institutions. Utilizing advanced technology, customer service and increasing economies of scale, this business serves a fast-growing market. d i m e n s i o n s : (cid:2) Client relationships with over 350 broker-dealers and financial institutions (cid:2) 1.7 million active accounts (cid:2) 38,000 trades processed per day u . s . m a r k e t p o s i t i o n : The leading provider of information technology to bank-owned broker- dealers and a major provider to non-bank affiliated broker-dealers. p r o d u c t s & s e r v i c e s : Clearing, execution and facilitation of Internet and traditional brokerage services. g r o w t h p o t e n t i a l : Capitalizing on consolida- tion trends within the industry through strategic acquisitions. Utilizing Fiserv economies of scale to provide more service at competitive prices. Staying at the forefront of technological advancements that are impacting the securities industry. t r u s t s e r v i c e s g r o u p Fiserv is a leading provider of retirement plan adminis- tration and processing services to financial planners. From trustee services to proprietary mutual fund trading systems for registered investment advisers to financial seminars and marketing materials, this business serves the diverse technology needs of a specialized market. d i m e n s i o n s : (cid:2) Administering over 261,000 plans (87% in IRAs) (cid:2) More than $22 billion in assets under administration u . s . m a r k e t p o s i t i o n : The leading provider of retirement plan technology to financial planners. p r o d u c t s & s e r v i c e s : Self-directed retirement plan administration services; mutual fund software; financial marketing materials and related communication services. g r o w t h p o t e n t i a l : Capitalizing on the continuing profitability and stability of the retirement plan adminis- tration business. Growing by strategic acquisition and development of related new products. Expanding sales for financial marketing communication solutions, mutual fund products and related trust administration services. T he world of e-commerce is expanding rapidly, and Fiserv is positioned to help our clients stay ahead of the market. Today, literally thousands of financial services clients look to Fiserv for the add-on technology and expertise to support anywhere, anytime, anyway delivery of their products and services. Fiserv has a long history of designing, developing and implementing solutions for electronic delivery of financial services. Long before the Internet became a busi- ness force, we were providing the technology that was the forerunner of today’s e-commerce services. In the 1980s, we became an innovator in automated response systems for telephone banking, automated teller machine () and debit card transaction processing services. The trend in the mid-1990s was toward personal computers, so we developed systems that allowed our clients’ customers to conduct their financial business via s connected to our systems by conventional telephone lines. Today, we’ve taken that technology to the next level.We help our clients deliver banking services over the Internet by linking their core account banking (deposits, loans, reporting) with electronic retail delivery channels including s, kiosks, s and telephones.Add in numerous back-office operational resources including cash management, bill paying, check processing, call center and data warehousing, and our clients have at their fingertips a complete Internet bank. In 1999, market demand for Web-based for applications all types of finan- cial transactions exploded. So we packaged ePrimeSM@Fiserv®, an extensive array of e-commerce solutions for financial services providers. These e-solutions provide bankers, lenders, insurers, financial planners and brokerage firms with a combination of Fiserv technology offerings that support secure transactions over the Internet. ePrime@Fiserv enables our clients to capitalize on the evolution of the Internet as a dynamic new way of reaching their customers. c o m p r e h e n s i v e e - s o l u t i o n s With ePrime@Fiserv, any organization can start a direct bank with superior speed-to-market.We offer a suite of Internet-based banking components that can be combined into a solution set tailored to our clients’ specific needs for enhancing their customers’ direct banking experience. Our pioneering middleware architecture links customers with their account information via phone, , kiosk or the latest Internet-based devices. All of these online services can be customized to the organization’s own marketing and branding requirements. Fiserv technology provides the backbone for virtually all types of lending over the Internet, from new mortgages to debt consolidation to other consumer loans. And using our Web-based loan origination software products, consumers can shop for rates, pre-qualify and finalize their loan applications and funds disbursements, all online. ePrime@Fiserv incorporates the latest technology to support and debit card transactions and services. Other services available through ePrime@Fiserv include real-time brokerage clearing and processing, with back-office productivity systems to help streamline sales and administration of securities. For insurance companies, we provide Web-enabled policy processing and administrative support for our comprehensive line of insurance products and services. Our “Virtual University” provides educational services for insurance and securities professionals over the Internet. Fiserv also provides Web site services as an added convenience for all clients. Site design, devel- opment, maintenance and enhancement, along with site hosting, redundancy and disaster back- up complete the ePrime@Fiserv offering. ) t e c h n o l o g y t h at e x p a n d s t h e f i n a n c i a l wo r l d T echnology is changing our world almost daily.We communicate via e-mail.We do business using cell phones and pagers.We get cash from s, go online to trade stocks, and use the tele- phone to manage our insurance claims through customer service call centers.As a society we are becoming increasingly dependent on the technology that links us to our world and to each other. f i n a n c i a l i n s t i t u t i o n t e c h n o l o g y Financial institutions have turned to the Fiserv group of companies for their core account and transaction processing systems for over 30 years. We have built our reputation on serving this market, and will continue to focus on this important segment of our client base. As Fiserv grows, we’re continually expanding our existing core client relationships with cross-sales of other services and products. And, we’re adding new clients at a record pace. A key element of the Fiserv market mix is our ongoing devel- opment of products and services that meet the diverse require- ments of our financial institution clients. As with all aspects of our business, we also seek to enhance our technology and bolster our market share through strategic acquisitions. In 1999, we acquired Envision Financial Technologies, a major financial services provider focusing on the credit union market. With the resources this organization brings to Fiserv, we once again expanded our technology portfo- lio not only for credit unions, but for the entire financial services industry. Today’s consumers are much more sophis- ticated in their understanding of technology, and more demanding in their service requirements. This acceptance of and growing dependence on technology is equally evident in the financial arena, where consumers have come to rely on flexible and easy access to their services. This financial accessibility is especially important today, when time is a priority for most consumers. this ever-increasing Not surprisingly, reliance has created a growing demand for a broader range of readily accessible finan- cial products and services.The convenience of one-stop shopping, combined with avail- ability 24-hours-a-day and seven-days-a- week, is becoming a consumer priority. a n e v o lv i n g , c o m p e t i t i v e e n v i r o n m e n t Technology is not the only factor changing the financial world. Regulations that separated the banking, insurance and securities industries have continued to change, especially with the passage of recent federal legislation (..10).This new regulatory environment has evolved in response to an increased consumer demand for the con- venience of access to multiple financial products and services through a single provider. Other page 8 | 9 t e c h n o l o g y r e s o u r c e s factors influencing the industry include growing competition among financial serv- ices providers who are moving into new markets as they seek to expand their share of financial transaction volumes. Not only are more types of finan- cial services being aggregated, but there are growing demands for new delivery channels that provide convenient and flexible access to these services. Using the inter- connectivity made possible by technology, financial services providers are offering their products on and off the Internet, through s, s, kiosks, telephones or the latest hand-held electronic devices. l e n d i n g t e c h n o l o g y Technology impacts all aspects of the financial industry, bringing new products, new services and new ways of accessing information. To stay abreast of the competition, a financial institution needs a partner with industry know-how and special- ized resources. Through our expanding suite of lending products and services, Fiserv brings advanced technology resources and specialized expertise to our client base of mortgage lenders, banks, credit unions and savings institutions. Fiserv offers traditional mortgage and lending systems, loan origination services and automobile leasing solu- tions, as well as the latest in Internet-based mortgage technology. And in 1999, we further enhanced our lending services with the acquisition of RF/Spectrum Decision Science Corp., a provider of specialized software systems for analysis and risk-management within the mortgage industry. In so doing, we gained a key decision support system that complements our industry-leading servicing and application solutions. More and more financial institutions, insurance companies and brokerage firms are looking for ways to take advantage of changing consumer demands and an evolv- ing industry by expanding their product and service offerings. The traditional industry lines are blurring, as regulations ease and con- sumers increase their service expectations. To remain competitive, financial services providers need to increase and modify their product mixes as quickly as possible. Being first-to-market with innovative new services can be a daunting task. As a technology provider with considerable experience in multiple financial arenas, Fiserv can help make the transition easier. f i n d i n g o p p o r t u n i t i e s i n a c h a n g i n g m a r k e t Changing regulations and advanced tech- nology also mean that the opportunities are growing for financial institutions to attract new customers, as well as to strengthen existing customer relationships, by adding new products and services. For example, with the availability of securities and insurance services, a financial institu- The number of households banking on the Internet is expected to increase from 7 million in 1998 to 30 million in 2003. s o u r c e : d at a m o n i t o r t e c h n o l o g y r e s o u r c e s tion with the right resources can help its customers manage their entire investment portfolio from deposit and loan accounts to stocks and securities to insurance coverage. Likewise, insur- ance companies and investment banks are offering more traditional banking services. c h e c k p r o c e s s i n g t e c h n o l o g y Despite a common belief that we are moving toward a paperless monetary system, checks continue to play a major role in our financial transactions. In fact, the num- ber of checks written each year continues to increase. Fiserv technology, and our experienced pro- fessionals, are helping financial institutions throughout North America meet the pro- cessing demands of this vital operation. Check (or item) pro- cessing is a business of volume. Through both acquisitions and new sales, we are expanding our network of regional check processing centers to capitalize on greater volumes. Our growing resources and complementary technologies, such as check imaging, allow Fiserv to provide clients with processing efficiencies and economies of scale they could not achieve on their own. Imaging is being utilized more and more for a variety of information storage and retrieval applications. So in 1999, we acquired Alliance ADS, a provider of specialized imaging solutions to the financial services and staffing industries. The key for a financial institution is finding the resources necessary to provide these interrelated financial services efficiently and economically, and to bring them to market ahead of the competition.A financial institution can readily make the transition to offering this broader mix of products and services with Fiserv as their technology partner. Just consider the phi- losophy of “one-stop shopping.” Why go to three different stores if you can get everything from one place? So as financial insti- tutions look for ways to offer their customers securities, insurance products and traditional banking services, they’re turning to Fiserv. Because the same philos- ophy applies — why go to multiple ven- dors when you can get everything you need from one provider? a dy n a m i c i n d u s t r y Perhaps most importantly, Fiserv has made a commit- ment to providing future technology for the financial industry. In a dynamic market that’s facing a variety of competitive influences, this dedication is crucial to our clients’ present and future success. For today’s financial services providers, flexibility and responsiveness are business requirements, not options. page 12 | 13 t e c h n o l o g y r e s o u r c e s Fiserv is uniquely positioned to help the financial industry meet these challenges and opportunities. We understand the requirements and distinctive characteristics of the industry. This focus allows us to identify developing industry trends, create the products and services most in demand, and provide ongoing support and enhancements. By building on our core expertise in informa- tion management technology, our clients gain the freedom to devote their resources and expertise to their own business focus. r i s k m a n a g e m e n t t e c h n o l o g y The financial industry is evolving, which means that now, more than ever, financial institutions must be diligent and responsible in their business. As a leading provider of decision support and performance measurement solu- tions, Fiserv is positioned to help our clients man- age to this critical need. Our advanced technol- ogy resources, backed by the expertise of Fiserv professionals, helps us to better serve those clients who have complex risk management, investment and decision support requirements. With two acquisitions in this field completed in 1999, we’re better prepared than ever to meet this growing demand. t h e b u i l d i n g b l o c k s o f f i n a n c i a l Pinehurst Analytics, a leading provider of valuation soft- s e r v i c e With Fiserv, clients are plugged into the technology that moves money and information throughout the financial world. We provide the resources that enable our clients to connect to their cus- tomers through multiple products and multiple delivery channels. ware and related consulting services for financial institu- tions, brings a new dimension to our risk management and financial analysis solutions. And Eldridge & Associates provides an asset/liability management and financial reporting system specifically oriented to credit unions. Financial institutions rely on Fiserv for more than just account processing, because we provide comprehen- sive information management solutions. Financial transaction processing forms the basic building block of every financial services provider’s business. No matter how many other products and services are added on, it all comes down to moving and accounting for money. We’ve spent years developing, enhancing and supporting data processing and information management systems for the financial industry. Our core business is serving the needs of traditional banking, lending, insurance, securities and financial planning providers…it’s what we’ve always done, and what we do the best. Our technology foundation is strong, and our clients can count on us to provide the services they need, when they need them. Because we are focused on the financial industry, we can pro- By the end of 2000, more than 20% of large U.S. banks will offer insurance products. page £ s o u r c e : g a r t n e r g r o u p t e c h n o l o g y r e s o u r c e s vide market-leading products and technology designed specifically to meet the requirements of our clients and their customers. c o m p l e m e n t a r y b u s i n e s s s o l u t i o n s Financial institutions, like other organizations, have a variety of diverse business needs that can benefit from technology. Fiserv, as a leading technology resource, has a knowledge of information management systems that can be applied with success to many of these business needs. For example, by building on our base experience in account processing, customer service call centers and decision support systems, Fiserv provides solutions that allow large organiza- tions to outsource their human resource, benefit and payroll information services, and related data center operations. Our strategy within this growing field is to apply our expertise to help financial institutions and other organizations man- age their human resources more effectively through the use of advanced information technology, thereby improving cost-efficiency, productivity and performance. In addition to our ongoing internal development, in 1999 we enhanced our offerings to this market segment with the acquisition of Humanic Design, a provider of advanced, Internet-based human resource services targeted to the needs of major financial institutions. a l e a d e r i n f i n a n c i a l i n f o r m at i o n m a n a g e m e n t Account processing is a core requirement of every financial institution. It’s also vital to the operations of brokerage firms and insurance companies. No matter how delivery systems may change, or how the industry may consolidate and evolve, there will always remain the need for account processing. One day, consumers may access and manage all of their financial accounts over the Internet, without step- ping foot into a tradi- tional banking location. But that won’t change the fundamental requirements of their financial services provider to process those accounts.That’s where Fiserv is positioned — as a leader in financial information management. We create comprehensive account and transaction processing systems for all types and sizes of financial institutions. Each financial institution is different, with its own set of requirements. This is why Fiserv offers business-specific technology solutions. These core processing systems are delivered through a Fiserv service bureau, installed in-house at the client’s site, managed by Fiserv personnel at the client’s site, or supported by Fiserv professionals in a dedicated environment at one of our service centers. page 16 | 17 t e c h n o l o g y r e s o u r c e s Fiserv offers further specialization in account and transaction processing through systems specifically designed for retail or commercial banks and credit unions. We also provide solutions that are capable of handling the diverse requirements and multi-lingual, multi-currency applications of international financial markets. From a total comprehensive solution to a single product that fits a dis- tinctive need, our portfolio of information technology ser- vices can be tailored to meet our client’s specifications — no matter how large or how small the client. i n s u r a n c e t e c h n o l o g y The insurance industry is an important strategic market for Fiserv; a market where we continue to grow and excel. Through internal R&D, acquisition of complementary technology providers and a steadily growing client base, we are expanding our position as the provider of choice for insurance companies. Some of the largest insurers in the U.S. are turning to Fiserv for the advanced technology, backroom services and administration systems that will help enhance service to their cus- tomers and improve overall efficiency. During 1999, we expanded our insurance offerings with two acquisitions. FIPSCO, Inc. provides computerized systems for market- ing support and presentations used by the life insurance industry, while Progressive Data Solutions/ Infinity Software Systems offers many products that are industry-specific. In addition to specialized workers compensation administration soft- ware. Insurance companies, like any other business, need administration processing, there’s a demand for ancillary services including claims workstations, workers compen- As financial institutions continue to branch out into new services for their customers, Fiserv is there to provide the necessary technology, products and support. All of our core systems — from service bureau to in-house to e-commerce — can be com- plemented with a number of other prod- ucts that allow our clients to create their total servicing solutions.These complementary products and back-office solutions include treas- ury and investment management, decision support and performance measurement solutions, electronic funds transfer services, imaging systems, business forms, human resource informa- tion systems, plastic card fulfillment, call center systems, loan origination and tracking, auto leasing software, data warehousing/data mining and credit services. offers all these, and more. sation systems, marketing and training solutions. Fiserv i n s u r a n c e p r o c e s s i n g The insurance industry, like banking, requires basic administration services and information processing systems. As the barriers between these businesses continue Brokerage accounts on the Internet are growing at nearly 90% per year, with an estimated 20 million portfolios being tracked online. s o u r c e : d at a m o n i t o r t e c h n o l o g y r e s o u r c e s to come down, banks and insurance companies are facing the challenge of quickly and econom- ically expanding their product mix to offer their customers these new services.They also must market effectively against increasing competition. s e c u r i t i e s a n d b r o k e r a g e s e r v i c e s The financial services industry encompasses many different disciplines, ranging from securities to banking to insurance. And while each has its own unique require- ments, there are some basic services that apply to all. These include areas where Fiserv has proven experience and a strong reputation, particularly account processing and applied technology. On this foundation, we have built a significant presence providing securities processing and related services to brokerage firms and financial institutions. We’re continually enhancing our securities and brokerage services, through both internal R&D and strategic acquisitions. We added the securities clearing operations of JWGenesis in 1999, allowing the organization to expand services for their broker- age clients while increasing our own processing capabilities. And we’re taking advantage of an industry trend toward consolidation of processing and Fiserv provides comprehensive insurance processing services and related products to both insurance companies and financial institutions. Our insurance solutions cover the full spectrum — from administration services and software for life, annuity and health insurance, property/casualty and workers compensation to our award-win- ning claims workstation and comprehensive accounting financial systems.We also provide computer-based train- ing for insurance and securities, and elec- tronic sales platforms that can be delivered over the Internet. advanced technology and improved service. technology resources, while we leverage our size to apply ing volumes. This way, our clients gain the benefits of our clearing services to increase our client base and process- Insurance companies turn to us not only for their own internal administration pro- cessing services, but also for an entrée into the banking industry. Our existing and new bank clients know that we can provide the technology solutions that will allow them to open channels into the insurance industry. Fiserv is able to help our clients smooth the transition between these two converging financial markets. s e c u r i t i e s The securities business is about transactions and volume. It’s about advanced tech- nology that makes executing and clearing trades faster, easier and more economical. It’s about service excellence and customer satisfaction. In essence, it’s about applying technology to page 20 | 21 t e c h n o l o g y r e s o u r c e s enhance service to customers. That’s why Fiserv also is positioned as a leading provider of securities processing services and solutions. resources and Fiserv has assembled the technol- ogy industry knowledge required to meet the needs of brokerage firms and institutions that are financial expanding into this business. Technology is making it easier for consumers to manage their own portfolios, and as they begin to take a more active role in their investments, they want options. They want online trading. They want information.They want service.With Fiserv, brokerage organizations gain a tech- nology resource with the management expertise, products and services necessary to help satisfy customer needs. t r u s t a d m i n i s t r at i o n t e c h n o l o g y The administration of self-directed retirement plans is a highly specialized business that benefits, as do all finan- cial services applications, from technology. Fiserv has built a trusted reputation in retirement plan administra- tion and related trust services, which is another important strategic market for us. Our technology and expertise in this industry helps better pre- pare financial planners and investment advisers to serve their customers. With retire- ment investment services, as in all financial transaction- related services, customer satisfaction is vital. The retirement plan administration business is profitable and stable, and we’re continuing to grow this business segment by ongoing development of related new products and services, as well as by acquisition. In 1999, we announced our intent to acquire Resources Trust Company, a complementary business which specializes in the administration of self-directed retirement plan accounts and custodial investment accounts. This acqui- sition is expected to close in the first quarter of 2000. t r u s t s e r v i c e s Technology is the cor- nerstone of success for any financial services provider, because it drives account processing, enables product development and creates new service options. Within the world of investment services, where personal service often means the difference between one provider and another, technology can significantly impact service excellence. That’s where our experience in technological advancements makes a difference to our clients. Our trust business applies Fiserv expertise to technology for administration of self-directed retirement plans and related services.Through these resources, we’re continuing to develop new products and new technology to help our clients’ customers manage their money. t e c h n o l o g y r e s o u r c e s a v i s i o n o f t h e f u t u r e The financial industry, like any successful market, is evolving in response to consumer demands, competitive pressures, falling regulatory barriers and techno- logical breakthroughs. Banking services are merging with insurance products. Non-financial organizations are launching Internet banks. Securities providers are looking for new avenues to explore. It’s not a hard and fast industry anymore; the competition is growing and so are the opportunities. The financial world encompasses many different types of products, services and transactions. But it all comes down to one thing: moving money. Whether it’s a savings account, an insurance policy, an investment portfolio or a retirement fund, customers rely on their financial services providers to help manage their money. Providing the transaction processing technology that moves and accounts for money is what Fiserv does best. That is why Fiserv offers a broad array of financial services and technology applications, and why we will continue to expand our portfolio.We have a vision that has guided our company since its beginning. No matter where the financial industry goes, we are committed to being there…for our clients and for their customers. t h e f i s e r v v i s i o n To be the leading information services provider for the financial industry worldwide, while providing opportunities for our employees and increased value for our shareholders. t h e f i s e r v m i s s i o n To deliver products and services that help our clients grow their businesses and enhance service to their customers. To enable our people to achieve outstanding job performance and personal growth. To produce a favorable level of earnings and consistent earnings growth for our Company, and increased value for our shareholders. page 22 | 23 19 9 9 f i n a n c i a l c o n t e n t s 24 25 26 27 28 39 43 44 44 consolidated statements of income consolidated balance sheets consolidated statements of shareholders’ equity consolidated statements of cash flows notes to consolidated financial statements management’s discussion and analysis quarterly financial information management’s statement of responsibility independent auditors’ report f i s e r v , i n c . a n d s u b s i d i a r i e s c o n s o l i d at e d s tat e m e n t s o f i n c o m e (In thousands, except per share data) Year ended December 31, 1999 1998 1997 r e v e n u e s $1,407,545 $1,233,670 $974,432 c o s t o f r e v e n u e s : Salaries, commissions and payroll related costs Data processing expenses, rentals and telecommunication costs Other operating expenses Depreciation and amortization of property and equipment Amortization of intangible assets Amortization (capitalization) of internally generated computer software — net 677,226 573,187 454,850 111,163 272,616 63,713 22,600 119,205 259,126 60,697 15,754 100,601 189,982 49,119 14,067 7,142 (3,938) 36 t o t a l c o s t o f r e v e n u e s 1,154,460 1,024,031 808,655 o p e r at i n g i n c o m e Interest expense — net i n c o m e b e f o r e i n c o m e t a x e s Income tax provision 253,085 19,410 233,675 95,807 209,639 15,955 193,684 79,410 165,777 11,878 153,899 63,099 n e t i n c o m e $ 137,868 $ 114,274 $ 90,800 n e t i n c o m e p e r s h a r e : Basic Diluted s h a r e s u s e d i n c o m p u t i n g n e t i n c o m e p e r s h a r e : Basic Diluted See notes to consolidated financial statements. $1.12 $1.09 $0.93 $0.90 $0.78 $0.75 123,143 126,679 122,873 127,154 117,021 120,438 page 24 | 25 c o n s o l i d at e d b a l a n c e s h e e t s (Dollars in thousands) December 31, a s s e t s Cash and cash equivalents Accounts receivable — net Securities processing receivables Prepaid expenses and other assets Trust account investments Other investments Deferred income taxes Property and equipment — net Internally generated computer software — net Intangible assets — net t o t a l l i a b i l i t i e s a n d s h a r e h o l d e r s ’ e q u i t y Accounts payable Securities processing payables Short-term borrowings Accrued expenses Accrued income taxes Deferred revenues Trust account deposits Deferred income taxes Long-term debt t o t a l l i a b i l i t i e s c o m m i t m e n t s a n d c o n t i n g e n c i e s s h a r e h o l d e r s ’ e q u i t y : Common stock issued, 125,387,700 and 124,879,500 shares, respectively Additional paid-in capital Accumulated other comprehensive income Accumulated earnings Treasury stock, at cost, 2,804,400 and 1,800,000 shares, respectively t o t a l s h a r e h o l d e r s ’ e q u i t y t o t a l See notes to consolidated financial statements. f i s e r v , i n c . a n d s u b s i d i a r i e s 1999 1998 $ 80,554 235,350 2,196,068 89,378 1,298,120 335,573 – 195,333 75,263 802,071 $5,307,710 $ 66,400 1,764,382 234,350 176,443 12,736 131,476 1,298,120 59,963 472,824 4,216,694 $ 71,558 246,851 1,402,650 83,453 1,098,773 180,099 14,545 179,434 85,821 595,154 $3,958,338 $ 65,385 1,207,838 38,350 150,519 14,768 107,286 1,098,773 – 389,622 3,072,541 1,254 458,550 125,026 576,510 1,249 448,461 39,875 438,642 (70,324) 1,091,016 $5,307,710 (42,430) 885,797 $3,958,338 f i s e r v , i n c . a n d s u b s i d i a r i e s c o n s o l i d at e d s tat e m e n t s o f s h a r e h o l d e r s ’ e q u i t y (In thousands) Year ended December 31, s h a r e s i s s u e d — 3 0 0 , 0 0 0 , 0 0 0 au t h o r i z e d : Balance at beginning of year Shares issued under stock plans — net Shares issued for acquired companies Three-for-two stock split Balance at end of year c o m m o n s t o c k — p a r va l u e $ . 0 1 p e r s h a r e : Balance at beginning of year Shares issued under stock plans — net Shares issued for acquired companies Three-for-two stock split Balance at end of year a d d i t i o n a l p a i d - i n c a p i t a l : Balance at beginning of year Shares issued under stock plans — net Income tax reduction arising from the exercise of employee stock options Shares issued for acquired companies Three-for-two stock split Balance at end of year 1999 1998 1997 83,253 394 – 41,741 125,388 $ 833 4 – 417 1,254 448,877 5,090 5,000 – (417) 458,550 53,925 495 1,132 27,701 83,253 $ 539 5 11 278 833 427,785 5,036 8,000 8,334 (278) 448,877 51,032 585 2,308 – 53,925 $ 510 6 23 – 539 352,916 10,034 5,000 59,835 – 427,785 a c c u m u l at e d o t h e r c o m p r e h e n s i v e i n c o m e : Balance at beginning of year Unrealized gain (loss) on investments Foreign currency translation adjustment Balance at end of year 39,875 85,496 $ 85,496 (345) (345) 125,026 16,563 23,492 $ 23,492 (180) (180) 39,875 18,904 (2,179) (162) 16,563 $ (2,179) (162) a c c u m u l at e d e a r n i n g s : Balance at beginning of year Net income Balance at end of year t r e a s u r y s t o c k — at c o s t : Balance at beginning of year Purchase of treasury stock Shares issued under stock plans — net Balance at end of year 137,868 438,642 137,868 576,510 (42,430) (28,713) 819 (70,324) 324,368 114,274 438,642 – (42,430) – (42,430) 114,274 233,568 90,800 324,368 90,800 t o t a l c o m p r e h e n s i v e i n c o m e $223,019 $137,586 $ 88,459 t o t a l s h a r e h o l d e r s ’ e q u i t y $1,091,016 $885,797 $769,255 See notes to consolidated financial statements. page 26 | 27 c o n s o l i d at e d s tat e m e n t s o f c a s h f l o w s f i s e r v , i n c . a n d s u b s i d i a r i e s (In thousands) Year ended December 31, c a s h f l o w s f r o m o p e r at i n g a c t i v i t i e s : Net income Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes Depreciation and amortization of property and equipment Amortization of intangible assets Amortization of internally generated computer software Changes in assets and liabilities, net of effects from acquisitions of businesses: Accounts receivable Prepaid expenses and other assets Accounts payable and accrued expenses Deferred revenues Accrued income taxes Securities processing receivables and payables — net Net cash provided by operating activities c a s h f l o w s f r o m i n v e s t i n g a c t i v i t i e s : Capital expenditures Capitalization of internally generated computer software Payment for acquisition of businesses, net of cash acquired Investments Net cash used in investing activities c a s h f l o w s f r o m f i n a n c i n g a c t i v i t i e s : Proceeds from (repayments of ) short-term obligations — net Proceeds from borrowings on long-term obligations Repayment of long-term obligations Issuance of common stock Purchases of treasury stock Trust account deposits Net cash provided by financing activities Change in cash and cash equivalents Beginning balance Ending balance See notes to consolidated financial statements. 1999 1998 1997 $ 137,868 $ 114,274 $ 90,800 14,183 63,713 22,600 33,194 271,558 18,853 (3,299) 14,394 17,210 (1) (140,878) 177,837 2,463 60,697 15,754 26,641 219,829 (22,860) 9,618 32,422 21,197 13,109 7,080 280,395 4,234 49,119 14,067 25,047 183,267 (19,191) (7,073) 23,681 17,313 2,520 (5,948) 194,569 (69,697) (77,542) (39,765) (26,052) (30,579) (25,011) (210,587) (209,011) (515,347) (217,792) (30,779) (356,692) (65,017) (167,812) (297,605) 119,226 (56,625) (7,900) 103,523 (52,790) 5,913 (28,713) 199,347 346,506 8,996 71,558 $ 80,554 143,245 (6,785) 5,041 (42,430) 16,032 58,478 (17,819) 89,377 $ 71,558 18,120 (41,316) 10,040 – 112,187 91,131 (11,905) 101,282 $ 89,377 f i s e r v , i n c . a n d s u b s i d i a r i e s n o t e s t o c o n s o l i d at e d f i n a n c i a l s tat e m e n t s For the years ending December 31, 1999, 1998 and 1997 n o t e 1 . s u m m a r y o f s i g n i f i c a n t a c c o u n t i n g p o l i c i e s p r i n c i p l e s o f c o n s o l i d at i o n The consolidated financial statements include the accounts of Fiserv, Inc. and subsidiaries (the “Company”). All significant intercompany transactions and balances have been elim- inated in consolidation. c a s h a n d c a s h e q u i va l e n t s Cash and cash equivalents comprise cash and investments with original maturities of 90 days or less. u s e o f e s t i m at e s 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. fa i r va l u e s The carrying amounts of cash and cash equivalents, accounts receivable and payable, securities processing receivables and payables, short and long-term borrowings, and derivative instruments approxi- mated fair value as of December 31, 1999 and 1998. d e r i vat i v e i n s t r u m e n t s Interest rate hedge transactions are utilized to manage interest rate exposure. The interest differential on interest rate swap contracts used to hedge underlying debt obligations is reflected as an adjustment to interest expense over the life of the contracts. s e c u r i t i e s p r o c e s s i n g r e c e i va b l e s a n d p aya b l e s The Company’s securities processing sub- sidiaries had receivables from and payables to brokers or dealers and clearing organizations related to the following at December 31: (In thousands) r e c e i va b l e s : Securities failed to deliver Securities borrowed Receivables from customers Other t o t a l p aya b l e s : Securities failed to receive Securities loaned Payables to customers Other t o t a l 1999 1998 $ 41,554 829,573 1,283,326 41,615 $ 2,196,068 $ 45,255 1,076,235 523,275 119,617 $ 1,764,382 $ 33,918 586,210 758,669 23,853 $1,402,650 $ 20,935 703,164 389,372 94,367 $1,207,838 Securities borrowed and loaned represent deposits made to or received from other broker-dealers. Receivables from and payables to customers represent amounts due on cash and margin transactions. page 28 | 29 f i s e r v , i n c . a n d s u b s i d i a r i e s s h o r t - t e r m b o r r o w i n g s The Company’s securities processing subsidiaries had short-term bank loans payable of $234,350,000 and $38,350,000 as of December 31, 1999 and 1998, respectively, which bear interest at the respective banks’ borrowing rate (4.9% as of December 31, 1999) and were collateralized by customers’ margin account securities. t r u s t a c c o u n t i n v e s t m e n t s a n d d e p o s i t s 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 $1,298,120,000 and $1,098,773,000 as of December 31, 1999 and 1998, respectively. The related invest- ment securities, including amounts representing Company funds, comprised the following at December 31: (In thousands) 1 9 9 9 U. S. Government and government agency obligations Money market mutual funds Other fixed income obligations t o t a l Less amounts representing Company funds: Included in cash and cash equivalents Included in other investments Trust account investments 1 9 9 8 U. S. Government and government agency obligations Corporate bonds Repurchase agreements Money market mutual funds Other fixed income obligations t o t a l Less amounts representing Company funds: Included in cash and cash equivalents Included in other investments Trust account investments Principal Amount Carrying Value Market Value $ 609,304 201,600 563,382 $1,374,286 $ 756,928 5,492 41,370 21,220 336,010 $1,161,020 $ 606,113 201,600 550,931 $ 1,358,644 $ 766,708 5,501 41,370 21,220 339,276 $1,174,075 $ 614,855 201,600 562,560 1,379,015 3,329 77,566 $1,298,120 $ 765,152 5,494 41,370 21,220 337,490 1,170,726 756 71,197 $1,098,773 Substantially all trust account investments at December 31, 1999 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 six months. These investments are held to maturity and stated at cost as the Company has the ability and intent to hold these investments to maturity. Unrealized gains and losses at December 31, 1999 and 1998 were not significant. f i s e r v , i n c . a n d s u b s i d i a r i e s o t h e r i n v e s t m e n t s The Company determines the appropriate classification of investments in securities at the time of the purchase. Marketable securities available-for-sale are carried at market, based upon quoted market prices. Unrealized gains or losses on available-for-sale securities are accumulated as an adjustment to shareholders’ equity, net of related deferred income taxes. Realized gains or losses are computed based on specific identification of the securities sold.The Company owns 3,404,930 shares of Knight/Trimark Group, Inc. and 900,000 shares of The BISYS Group, Inc. Common stock of both companies trade on the NASDAQ National Market System. p r o p e r t y a n d e q u i p m e n t Property and equipment are stated at cost. Depreciation and amortization are computed primarily using the straight-line method over the estimated useful lives of the assets, ranging from three to 40 years. Property and equipment consist of the following at December 31: (In thousands) Data processing equipment Purchased software Buildings and leasehold improvements Furniture and equipment Less accumulated depreciation and amortization t o t a l 1999 $ 227,292 81,239 84,763 99,637 492,931 297,598 $ 195,333 1998 $227,346 73,446 75,158 88,915 464,865 285,431 $179,434 i n t e r n a l ly g e n e r at e d c o m p u t e r s o f t wa r e The Company capitalizes certain costs incurred to develop new software and enhance existing software in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” Amortization of capitalized costs is computed on a straight-line basis over the expected useful life of the product, generally five years. Activity during the three years ended December 31, 1999 is as follows: (In thousands) Beginning balance Capitalized costs Acquisitions and reclassifications Less amortization t o t a l 1999 $ 85,821 26,052 (3,416) 108,457 33,194 $ 75,263 1998 $ 73,163 30,579 8,720 112,462 26,641 $ 85,821 1997 $70,487 25,011 2,712 98,210 25,047 $73,163 Routine maintenance of software products, design costs and development costs incurred prior to establish- ment of a product’s technological feasibility are expensed as incurred. In addition, Year 2000 costs were expensed as incurred. i n t a n g i b l e a s s e t s Intangible assets relate to acquisitions and consist of the following at December 31: (In thousands) Goodwill Other Less accumulated amortization t o t a l page 30 | 31 1999 $ 793,908 128,107 922,015 119,944 $ 802,071 1998 $590,684 96,571 687,255 92,101 $595,154 f i s e r v , i n c . a n d s u b s i d i a r i e s 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 generally being amortized over 40 years using the straight-line method. Other intangible assets comprise primarily computer software, contract rights, customer bases and trademarks applicable to business acquisitions. These assets are being amortized using the straight-line method over their estimated useful lives, ranging from three to 35 years. i m p a i r m e n t o f l o n g - l i v e d a s s e t s The Company periodically assesses the likelihood of recovering the cost of long-lived assets based on current and projected operating results and cash flows of the related business operations using undiscounted cash flow analyses.These factors, along with management’s plans with respect to the operations, are considered in assessing the recoverability of property, equipment and intangible assets. Long-lived assets determined to be impaired are written down to fair value. i n c o m e t a x e s 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. r e v e n u e r e c o g n i t i o n Revenues from the sale of data processing services are recognized as the related services are provided. Revenues from securities processing and trust services include net investment income of $88,458,000, $77,457,000 and $63,620,000, net of direct credits to customer accounts of $63,519,000, $50,180,000 and $46,006,000 in 1999, 1998 and 1997, respectively. Revenues from the sales of software are recognized in accordance with the AICPA’s Statement of Position No. 97-2, “Software Revenue Recognition.” Maintenance fee revenue is recognized ratably over the term of the related support period, generally 12 months. Consulting revenue is recognized as the related services are provided. Deferred revenues consist primarily of advance billings for services and are recognized as revenue when the services are provided. n e t i n c o m e p e r s h a r e Basic net income per share is computed using the weighted average number of common shares outstanding during the periods. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options and are computed using the treasury stock method. Net income per share for prior years has been restated to reflect three-for-two stock splits effective in April 1999 and May 1998. Amounts utilized in net income per share computations are as follows at December 31: (In thousands) Weighted average common shares outstanding — basic Assumed conversion of common shares issuable under stock option plan Weighted average common and common equivalent 1999 123,143 3,536 1998 122,873 1997 117,021 4,281 3,417 shares outstanding — diluted 126,679 127,154 120,438 s u p p l e m e n t a l c a s h f l o w i n f o r m at i o n (In thousands) Interest paid Income taxes paid Liabilities assumed in acquisitions of businesses 1999 $ 26,075 81,499 1998 $ 21,111 66,066 1997 $ 17,358 58,643 246,120 39,816 197,235 f i s e r v , i n c . a n d s u b s i d i a r i e s a c c o u n t i n g s t a n d a r d s t o b e a d o p t e d In 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Company is currently evaluating the impact of this statement and does not anticipate that the adoption of this statement will have a material impact on the consolidated financial statements.This statement is required to be adopted in 2001. n o t e 2 . a c q u i s i t i o n s During 1999, 1998 and 1997 the Company completed the following acquisitions: Company 1 9 9 9 : QuestPoint Eldridge & Associates RF/Spectrum Decision Science Corp. FIPSCO, Inc. Progressive Data Solutions, Inc./ Infinity Software Systems, Inc. JWGenesis Clearing Corporation Alliance ADS Envision Financial Technologies, Inc. Pinehurst Analytics, Inc. Humanic Design Corporation 1 9 9 8 : Automated Financial Technology, Inc. PSI Group (laser printing and custom packing operations) The LeMans Group Network Data Processing Corporation CUSA Technologies, Inc. Specialty Insurance Service Deluxe Card Services, a division of Deluxe Corporation Month Acquired Service Jan. Feb. Feb. Mar. Apr. Jun. Jun. Aug. Oct. Dec. Jan. Feb. Feb. Apr. Apr. May Aug. Item processing PC-based financial systems Software and services Insurance marketing systems Insurance software systems Securities services Imaging technology Software and services PC-based financial systems Software and services Data processing Laser printing Automobile leasing software Insurance data processing Software and services Insurance data processing Automated card services Federal Home Loan Bank of Topeka Oct. Item processing (item processing contracts) Life Instructors, Inc. FiCATS ASI Financial Services, Inc. The FREEDOM Group, Inc. Oct. Oct. Nov. Dec. Insurance and securities training Item processing PC-based financial systems Insurance data processing Consideration Cash for assets Cash for assets Cash for stock Cash for stock Cash for stock Cash for stock Cash for assets Cash for stock Cash for assets Cash for stock Stock for stock Cash for assets Cash for stock Stock for stock Stock for stock Cash for stock Cash for assets Cash for assets Cash for stock Cash for assets Cash for stock Cash for stock page 32 | 33 f i s e r v , i n c . a n d s u b s i d i a r i e s 1 9 9 7 : AdminaStar Communications Interactive Planning Systems BHC Financial, Inc. Florida Infomanagement Services, Inc. (FIS, Inc.) Apr. May May Sep. Laser print and mailing services PC-based financial systems Securities services Data processing and software sales Cash for stock Stock for stock Stock for stock Cash for stock Stephens Inc. (clearing brokerage Sep. Securities services Cash for assets operations) Emerald Publications Central Service Corp. Savoy Discount Brokerage Hanifen, Imhoff Holdings, Inc. Oct. Oct. Oct. Dec. Financial seminars and training Data processing Securities services Securities services Stock for stock Cash for stock Cash for stock Cash and stock 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. Net cash paid in connection with these acquisitions was $210,587,000, $217,792,000, and $65,017,000 in 1999, 1998 and 1997, respectively, subject to certain adjustments. Pro forma information for acquisitions accounted for as purchases is not presented as the impact was not material. Certain of the acqui- sitions in 1998 and 1997 were accounted for as poolings of interests, and except for the 1997 acquisition of BHC Financial, Inc., prior year consolidated financial statements were not restated because the aggregate effect was not material. n o t e 3 . l o n g - t e r m d e b t The Company has available a $500,000,000 unsecured line of credit and commercial paper facility with a group of banks, of which $314,000,000 was in use at December 31, 1999 at an average rate of 6.10%. The credit facilities, which expire in May 2004, are comprised of a $250,000,000 five-year revolving credit facility and a $250,000,000 364-day revolving credit facility which is renewable annually through 2004. 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, 1999. In 1998, the Company entered into interest rate swap agreements to fix the interest rate on certain floating rate debt at an average rate approximating 5.90% (based on current bank fees and spreads) for a principal amount of $200,000,000 with remaining lives of four to six years. Long-term debt outstanding comprised the following at December 31: (In thousands) 9.45% senior notes payable, due 2000 9.75% senior notes payable, due 2000-2001 8.00% senior notes payable, due 2000-2005 Bank notes and commercial paper, at short-term rates t o t a l $ 1999 4,286 5,000 77,143 386,395 $ 472,824 $ 1998 8,571 7,500 90,000 283,551 $389,622 f i s e r v , i n c . a n d s u b s i d i a r i e s Annual principal payments required under the terms of the long-term agreements were as follows at December 31, 1999: (In thousands) y e a r 2000 2001 2002 2003 2004 Thereafter t o t a l $147,084 17,978 14,714 14,714 264,620 13,714 $472,824 Interest expense with respect to long-term debt amounted to $25,111,000, $21,330,000 and $16,964,000 in 1999, 1998 and 1997, respectively. n o t e 4 . i n c o m e t a x e s A reconciliation of recorded income tax expense with income tax computed at the statutory federal tax rates for the three years ended December 31, 1999 is as follows: (In thousands) Statutory federal tax rate Tax computed at statutory rate State income taxes — net of federal effect Non-deductible amortization Other t o t a l The provision for income taxes consisted of the following: (In thousands) Currently payable Tax reduction credited to additional paid-in capital Deferred t o t a l 1999 35% $ 81,786 9,375 3,161 1,485 $ 95,807 1999 $ 76,624 5,000 14,183 $ 95,807 1998 35% $67,789 7,601 2,737 1,283 $79,410 1998 $68,947 8,000 2,463 $79,410 1997 35% $53,865 5,995 1,408 1,831 $63,099 1997 $53,865 5,000 4,234 $63,099 page 34 | 35 f i s e r v , i n c . a n d s u b s i d i a r i e s Significant components of the Company’s net deferred tax (liability) asset consisted of the following at December 31: (In thousands) Purchased incomplete software technology Accrued expenses not currently deductible Deferred revenues Internally generated capitalized software Excess of tax over book depreciation and amortization Unrealized gains on investments Other t o t a l n o t e 5 . e m p l o y e e b e n e f i t p l a n s 1999 $ 47,663 25,407 13,693 (30,858) (19,438) (87,162) (9,268) $(59,963) 1998 $ 52,276 25,329 14,558 (35,188) (9,167) (27,751) (5,512) $ 14,545 s t o c k o p t i o n p l a n 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 10 years from the date of the award. Changes in stock options outstanding are as follows: Outstanding, December 31, 1996 Assumed from BHC Granted Forfeited Exercised Outstanding, December 31, 1997 Granted Forfeited Exercised Outstanding, December 31, 1998 Granted Forfeited Exercised Outstanding, December 31, 1999 Number of Shares 5,853,173 1,265,139 1,551,156 (114,827) (1,440,820) 7,113,821 2,677,205 (147,030) (1,187,123) 8,456,873 1,535,269 (350,093) (579,098) 9,062,951 Price Range $ 2.57 - $16.33 3.25 - 14.00 16.00 - 21.78 2.76 - 16.00 2.57 - 16.00 2.76 - 21.78 21.83 - 31.59 4.51 - 24.00 2.76 - 24.00 2.76 - 31.59 28.81 - 39.50 16.00 - 34.29 3.25 - 33.02 $ 2.76 - $39.50 Weighted Average Exercise Price $ 8.84 7.89 16.88 12.78 8.70 10.38 24.15 19.48 8.43 14.57 30.94 27.42 12.48 $16.89 f i s e r v , i n c . a n d s u b s i d i a r i e s The following summarizes information about the Company’s stock options outstanding and exercisable at December 31, 1999: Range of Exercise Prices $ 2.76 - $ 8.00 8.01 - 10.00 10.01 - 22.00 22.01 - 39.50 $ 2.76 - $39.50 Options Outstanding Weighted Weighted Average Remaining Contractual Life 1.8 4.3 6.2 8.3 5.8 Average Exercise Price $ 5.23 8.91 16.97 27.45 $ 16.89 Number of Shares 1,374,353 2,050,185 2,593,697 3,044,716 9,062,951 Options Outstanding and Exercisable Number of Shares 1,304,090 2,029,146 1,539,671 807,648 5,680,555 Weighted Average Exercise Price $ 5.51 8.91 16.50 26.07 $12.63 At December 31, 1999, options to purchase 2,667,755 shares were available for grant under the Plan. The Company has accounted for its stock-based compensation plans in accordance with the provisions of Accounting Principles Board Opinion 25. Accordingly, the Company did not record any compensation expense in the accompanying consolidated financial statements for its stock-based compensation plans. Had compensation expense been recognized consistent with SFAS No.123, “Accounting for Stock-Based Compensation,” the Company’s net income and net income per share-diluted would have been changed to the pro forma amounts indicated below: (In thousands, except per share amounts) Net income: As reported Pro forma Net income per share-diluted: As reported Pro forma 1999 1998 1997 $137,868 131,868 $114,274 110,574 $1.09 1.04 $0.90 0.87 $90,800 88,600 $0.75 0.74 The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions for grants in 1999: 1) expected dividend yield of 0%, 2) risk-free interest rate of 6%, 3) expected volatility of 41.8%, and 4) expected option life of five years. e m p l o y e e s t o c k p u r c h a s e p l a n Effective January 1, 2000, the Company adopted an employee stock purchase plan, subject to shareholder approval, under which 500,000 shares of common stock would be avail- able for issuance in 2000. Eligible employees may purchase a limited number of shares of common stock each quarter through payroll deductions, at a purchase price equal to 85% of the closing price of the Company’s common stock on the last business day of each calendar quarter. e m p l o y e e s av i n g s p l a n 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 makes discretionary contributions based upon the attainment of certain profit goals. Company contributions vest ratably at 20% for each year of service. Contributions charged to operations under these plans approximated $23,969,000, $16,948,000 and $14,383,000 in 1999, 1998 and 1997, respectively. page 36 | 37 f i s e r v , i n c . a n d s u b s i d i a r i e s n o t e 6 . s h a r e h o l d e r s ’ e q u i t y s h a r e h o l d e r r i g h t s p l a n On February 23, 1998, the Company adopted a Shareholder Rights Plan. Under this plan, the shareholders of record as of March 9, 1998 were granted a dividend of one preferred stock purchase right for each outstanding share of Company common stock.The stock purchase rights are not exercisable until certain events occur. The Company filed a Form 8-K with the Securities and Exchange Commission on February 24, 1998 which provides a full description of the Plan. c o m p r e h e n s i v e i n c o m e Total comprehensive income was $223,019,000 and $137,586,000 in 1999 and 1998, respectively.The increase in comprehensive income was primarily due to unrealized gains on other investments as of December 31, 1999. n o t e 7 . l e a s e s , o t h e r c o m m i t m e n t s a n d c o n t i n g e n c i e s l e a s e s Future minimum rental payments on various operating leases for office facilities and equipment were due as follows as of December 31, 1999: (In thousands) Year 2000 2001 2002 2003 2004 Thereafter t o t a l $ 64,931 56,812 47,248 37,318 29,342 41,447 $277,098 Rent expense applicable to all operating leases was approximately $78,620,000, $72,172,000 and $55,515,000 in 1999, 1998 and 1997, respectively. o t h e r c o m m i t m e n t s a n d c o n t i n g e n c i e s The Company’s trust administration subsidiaries had fiduciary responsibility for the administration of approximately $24 billion in trust funds as of December 31, 1999.With the exception of the trust account investments discussed in Note 1, such amounts are not included in the accompanying consolidated 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, 1999, the aggregate net capital of such subsidiaries was $161,943,000, exceeding the net capital requirement by $133,611,000. In the normal course of business, the Company and its subsidiaries are named as defendants in various law- suits 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. f i s e r v , i n c . a n d s u b s i d i a r i e s n o t e 8 . b u s i n e s s s e g m e n t i n f o r m at i o n The Company is a leading independent provider of data processing systems and related information manage- ment services and products to financial institutions and other financial intermediaries. In accordance with SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” the Company’s oper- ations have been classified into three business segments: Financial institution outsourcing, systems and services; Securities processing and trust services; and “All other and corporate.” The financial institution outsourcing, systems and services segment provides account and transaction processing solutions and services to financial institutions and other financial intermediaries. The securities processing and trust services segment provides securities processing solutions and retirement plan administration services to brokerage firms, financial planners and financial institutions.The “All other and corporate” segment provides plastic card services and document solutions, and includes general corporate expenses. Summarized financial information by business segment for each of the three years ended December 31, 1999 is as follows: (In thousands) r e v e n u e s : Financial institution outsourcing, systems and services Securities processing and trust services All other and corporate t o t a l 1999 1998 1997 $1,066,514 276,215 64,816 $1,407,545 $ 951,010 234,699 47,961 $1,233,670 $ 753,209 179,217 42,006 $ 974,432 o p e r at i n g i n c o m e : Financial institution outsourcing, systems and services Securities processing and trust services All other and corporate t o t a l i d e n t i f i a b l e a s s e t s : Financial institution outsourcing, systems and services Securities processing and trust services All other and corporate t o t a l d e p r e c i at i o n e x p e n s e : Financial institution outsourcing, systems and services Securities processing and trust services All other and corporate t o t a l c a p i t a l e x p e n d i t u r e s : Financial institution outsourcing, systems and services Securities processing and trust services All other and corporate t o t a l $ 175,194 80,125 (2,234) $ 253,085 $ 148,774 70,074 (9,209) $ 209,639 $ 117,467 51,770 (3,460) $ 165,777 $1,169,666 3,832,868 305,176 $5,307,710 $1,018,541 2,783,818 155,979 $3,958,338 $ 759,437 2,753,523 123,531 $3,636,491 $ $ $ $ 48,407 9,510 5,796 63,713 52,724 12,119 4,854 69,697 $ $ $ $ 46,880 8,631 5,186 60,697 60,075 11,255 6,212 77,542 $ $ $ $ 38,098 7,285 3,736 49,119 28,627 6,667 4,471 39,765 The revenues of each segment are principally domestic, and no single customer accounted for 10% or more of the consolidated revenues for the years ended December 31, 1999, 1998 and 1997. page 38 | 39 f i s e r v , i n c . a n d s u b s i d i a r i e s m a n a g e m e n t ’ s d i s c u s s i o n a n d a n a ly s i s o f f i n a n c i a l c o n d i t i o n a n d r e s u l t s o f o p e r at i o n s r e s u l t s o f o p e r at i o n s 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. Revenues Cost of revenues: Salaries, commissions and payroll related costs Data processing expenses, rentals and telecommunication costs Other operating expenses Depreciation and amortization of property and equipment Amortization of intangible assets Amortization (capitalization) of internally generated computer software — net Total cost of revenues Operating income Income before income taxes Net income Percentage of Revenues Year Ended December 31, 1998 1999 100.0% 100.0% 100.0% 1997 Period to Period Percentage Increase (Decrease) 1999 vs. 1998 vs. 1998 14.1% 26.6% 1997 48.1 7.9 19.4 4.5 1.6 0.5 82.0 18.0% 16.6% 9.8% 46.4 46.7 18.2 26.0 9.7 21.0 4.9 1.3 10.3 19.5 5.0 1.5 83.0 (0.3) 83.0 17.0% 17.0% 15.7% 15.8% 9.3% 9.3% (6.7) 5.2 5.0 43.5 12.7 20.7 20.6 20.6 18.5 36.4 23.6 12.0 26.6 26.5 25.9 25.9 Revenues increased $173,875,000 in 1999 and $259,238,000 in 1998. Revenue growth in 1999 and 1998 was derived from sales to new clients, cross-sales to existing clients, growth in the transaction volume expe- rienced by existing clients, price increases and revenues from acquired businesses. Revenues from acquired businesses approximated 45% and 60% of total revenue growth in 1999 and 1998, respectively. Cost of revenues increased $130,429,000 in 1999 and $215,376,000 in 1998. The make up of cost of rev- enues has been affected in all years by business acquisitions and changes in the mix of the Company’s business. Amortization of internally generated computer software is stated net of capitalization and increased as a percent of revenues from 1998 to 1999.The increase in 1999 was due to reduced capitalization resulting from Year 2000 activities and accelerated amortization due to the write-down of certain ancillary software products to net realizable value. Operating income increased $43,446,000 in 1999 and $43,862,000 in 1998.The Company’s operating margins increased by 1% from 1998 to 1999 and remained unchanged from 1997 to 1998. The effective income tax rate was 41% in all three years, and the effective income tax rate for 2000 is expected to remain at 41%. f i s e r v , i n c . a n d s u b s i d i a r i e s The Company’s growth has been accomplished, to a significant degree, through the acquisition of 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. s e g m e n t i n f o r m at i o n The following table sets forth revenue and operating income by business segment for the years ended December 31: (In thousands) r e v e n u e s : Financial institution outsourcing, systems and services Securities processing and trust services All other and corporate t o t a l o p e r at i n g i n c o m e : Financial institution outsourcing, systems and services Securities processing and trust services All other and corporate t o t a l 1999 1998 1997 $1,066,514 276,215 64,816 $1,407,545 $ 951,010 234,699 47,961 $1,233,670 $753,209 179,217 42,006 $974,432 $ 175,194 80,125 (2,234) $ 253,085 $ 148,774 70,074 (9,209) $ 209,639 $117,467 51,770 (3,460) $165,777 Revenues in the financial institution outsourcing, systems and services business segment increased $115,504,000 in 1999 and $197,801,000 in 1998. Revenue growth in 1999 and 1998 was derived from sales to new clients, cross-sales to existing clients, growth in the transaction volume experienced by existing clients, price increases and revenues from acquired businesses. Operating income in the financial institution outsourcing, systems and services business segment increased $26,420,000 and $31,307,000 in 1999 and 1998, respectively, while operating margins were consistent year to year. Revenues in the securities processing and trust services business segment increased $41,516,000 in 1999 and $55,482,000 in 1998. Revenue growth in 1999 and 1998 was derived primarily from sales to new clients, increased transaction volume from existing clients and revenues from acquired businesses. Operating income in the securities processing and trust services business segment increased $10,051,000 and $18,304,000 in 1999 and 1998, respectively, while operating margins were relatively consistent year to year. Revenues in the “All other and corporate” segment increased $16,855,000 in 1999 and $5,955,000 in 1998. The increase in revenues in 1999 over 1998 resulted primarily from sales to new clients and the full year 1999 impact of an acquisition which was completed in August 1998. Operating income in this business segment increased $6,975,000 in 1999 and decreased $5,749,000 in 1998.The increase in operating income in 1999 over 1998 was due to an acquisition and increased profitability in the Company’s plastic card operations. page 40 | 41 f i s e r v , i n c . a n d s u b s i d i a r i e s l i q u i d i t y a n d c a p i t a l r e s o u r c e s The following table summarizes the Company’s primary sources of funds for the years ended December 31: (In thousands) Cash provided by operating activities before changes in securities processing receivables and payables — net Securities processing receivables and payables — net Cash provided by operating activities Increase (decrease) in net borrowings t o t a l 1999 1998 1997 $ 318,715 (140,878) 177,837 169,959 $ 347,796 $273,315 7,080 280,395 79,835 $360,230 $200,517 (5,948) 194,569 (31,096) $163,473 The Company has used a significant portion of its cash flow from operations for acquisitions and capital expenditures with any remainder used to reduce long-term debt. 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 acqui- sitions, however, it may raise funds through additional borrowings or issuance of securities. s t o c k b u y b a c k p l a n During 1999, the Company’s Board of Directors authorized the repurchase of up to 3,250,000 shares of the Company’s common stock. Shares purchased under the authorization will be made through open market transactions that may occur from time to time as market conditions warrant. Shares acquired will be held for issuance in connection with acquisitions and/or in conjunction with employee stock option plans. y e a r 2 0 0 0 s y s t e m s e va l u at i o n The Company provides data processing and other related services to financial institutions of all kinds. The Company has completed the Year 2000 renovation of its systems. The Company has met its Year 2000 compliance commitments using existing resources, without incurring significant incremental expenses. Although the Company does not maintain accounting records that separately identify all of the associated costs with its Year 2000 activities, it has estimated that commencing with 1996, such costs have approximated $15 million annually. The Company does not expect to incur any significant costs in 2000 related to Year 2000 activities. m a r k e t r i s k fa c t o r s Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, correlations or other market factors, such as liquidity, will result in losses for a certain financial instrument or group of financial instruments.The Company is exposed primarily to interest rate risk on investments and borrowings. The Company actively monitors these risks through a variety of control procedures involving senior management. The Company’s trust administration subsidiaries accept money market account deposits from trust customers and invest those funds in marketable securities. Substantially all of the investments are rated within the highest investment grade categories for securities.The Company’s trust administration subsidiaries utilize simulation models for measuring and monitoring interest rate risk and market value of portfolio equities. A formal Asset Liability Committee of the Company meets quarterly to review interest rate risks, capital ratios, liquidity levels, portfolio diversification, credit risk ratings and adherence to investment policies and guidelines. Substantially all of the investments at December 31, 1999 have contractual maturities of one year or less except for government agency and certain fixed income mortgage backed obligations, which have an average duration of approximately two years and six months. f i s e r v , i n c . a n d s u b s i d i a r i e s The Company manages its debt structure and interest rate risk through the use of fixed- and floating-rate debt and through the use of derivatives.The Company uses interest rate swaps to hedge its exposure to interest rate changes, and to lower its financing costs. Generally, under these swaps, the Company agrees with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed principal amount. As of December 31, 1999, unrealized gains related to interest rate swap agreements are not material. Based on the controls in place, management believes the risk associated with these instruments at December 31, 1999 will not have a material effect on the Company’s consolidated financial position or results of operations. s a f e h a r b o r s t at e m e n t u n d e r t h e p r i vat e s e c u r i t i e s l i t i g at i o n r e f o r m a c t o f 1 9 9 5 Except for the historical information contained herein, the matters discussed in this annual report are forward- looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company’s operations, markets, services and related products, prices and other factors discussed in the Company’s prior filings with the Securities and Exchange Commission. Although the Company believes that the assumptions underlying the forward-looking state- ments contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included in this annual report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. s e l e c t e d f i n a n c i a l d at a 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, Revenues Income (loss) before income taxes Income taxes (credit) Net income (loss) Net income (loss) per share: Basic Diluted As originally reported-diluted Total assets Long-term debt Shareholders’ equity 1999 1998 1997 1996 1995 $1,407,545 $1,233,670 $ 974,432 $ 879,449 $ 769,104 (76,146) (30,220) (45,926) 193,684 79,410 114,274 134,462 54,754 79,708 153,899 63,099 90,800 233,675 95,807 137,868 $1.12 $1.09 $1.09 $0.93 $0.90 $0.90 $0.78 $0.75 $0.75 $0.69 $0.68 $0.59 $(0.41) $(0.41) $ 0.50 $5,307,710 $3,958,338 $3,636,491 $2,698,979 $2,514,597 383,416 514,866 472,824 1,091,016 272,864 605,898 389,622 885,797 252,031 769,255 Note: The above information has been restated to recognize (1) three-for-two stock splits effective in April 1999 and May 1998 and (2) the acquisition of BHC Financial, Inc. (BHC) in 1997, accounted for as a pooling of interest.The net income (loss) per share as originally reported- diluted is before the restatement due to the BHC pooling of interest and excludes one-time after-tax charges of $1.11 per share related to the acquisition of Information Technology, Inc. in 1995. page 42 | 43 q u a r t e r ly f i n a n c i a l i n f o r m at i o n ( u n a u d i t e d ) f i s e r v , i n c . a n d s u b s i d i a r i e s (In thousands, except per share data) 1 9 9 9 Revenues Cost of revenues Operating income Income before income taxes Income taxes Net income Quarters First $337,129 276,506 60,623 56,638 23,222 $ 33,416 Second $343,252 280,738 62,514 58,199 23,861 $ 34,338 Third $352,663 288,094 64,569 59,656 24,459 $ 35,197 Fourth Total $374,501 $ 1,407,545 1,154,460 309,122 253,085 65,379 233,675 59,182 95,807 24,265 $ 34,917 $ 137,868 Net income per share: Basic Diluted 1 9 9 8 Revenues Cost of revenues Operating income Income before income taxes Income taxes Net income Net income per share: Basic Diluted $0.27 $0.26 $0.28 $0.27 $0.29 $0.28 $0.28 $0.28 $1.12 $1.09 $273,829 224,445 49,384 46,017 18,867 $ 27,150 $311,220 258,398 52,822 48,594 19,924 $ 28,670 $309,543 256,609 52,934 48,936 20,063 $ 28,873 $339,078 $1,233,670 1,024,031 284,579 209,639 54,499 193,684 50,137 79,410 20,556 $ 29,581 $ 114,274 $0.22 $0.22 $0.23 $0.22 $0.23 $0.23 $0.24 $0.23 $0.93 $0.90 m a r k e t p r i c e i n f o r m at i o n 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. Information for all periods has been adjusted (to the nearest ¹⁄₃₂) to recognize the three-for-two stock splits effective April 1999 and May 1998. Quarter Ended March 31 June 30 September 30 December 31 1999 1998 High 37 ¹⁹⁄₃₂ 40 34 ⅛ 39 ³⁄₁₆ Low 30 31 ⁵⁄₁₆ 27 ¼ 24 ¾ High 28 ⁵⁄₃₂ 30 32 ²¹⁄₃₂ 35 ¹³⁄₃₂ Low 20 ²¹⁄₃₂ 25 ¹¹⁄₃₂ 26 25 ½ At December 31, 1999, the Company’s common stock was held by 2,590 shareholders of record. It is estimated that an additional 38,000 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 20, 2000 was $36.75 per share. The Company’s present policy is to retain earnings to support future business opportunities, rather than to pay dividends. f i s e r v , i n c . a n d s u b s i d i a r i e s m a n a g e m e n t ’ s s tat e m e n t o f r e s p o n s i b i l i t y The management of Fiserv, Inc. assumes responsibility for the integrity and objectivity of the information appearing in the 1999 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 accor- dance 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. l e s l i e m . m u m a Vice Chairman and Chief Executive Officer i n d e p e n d e n t a u d i t o r s ’ r e p o r t Shareholders and Directors of Fiserv, Inc. We have audited the accompanying consolidated balance sheets of Fiserv, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 1999.These financial statements are the responsi- bility of the Company’s management. Our responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in all material respects, the financial position of Fiserv, Inc. and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. d e l o i t t e & t o u c h e l l p Milwaukee,Wisconsin January 28, 2000 page 44 | 45 b o a r d o f d i r e c t o r s George D. Dalton, 71, Chairman of Fiserv, Inc.With more than 40 years in the data processing industry, Mr. Dalton has served as Chairman and Director since July 1984. Donald F. Dillon, 59, Vice Chairman of Fiserv, Inc. and Chairman of Information Technology, Inc.With more than 30 years in the financial and data processing industries, Mr. Dillon has served as Vice Chairman and Director since May 1995. Kenneth R. Jensen, 56, Senior Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of Fiserv, Inc.With more than 30 years in the data processing industry, Mr. Jensen has served as a Director since July 1984. Daniel P. Kearney, 60, Financial Consultant.With more than 30 years in the banking, insurance and legal industries, Mr. Kearney has served as a Director since November 1999. For complete profiles of the Fiserv Board of Directors, please see the proxy statement. Gerald J. Levy, 67, Chairman of the Board and CEO of Guaranty Bank, S.S.B. With nearly 40 years in the financial and business arenas, Mr. Levy has served as a Director since March 1986. Leslie M. Muma, 55, Vice Chairman, President and CEO of Fiserv, Inc.With more than 30 years in the data processing industry, Mr. Muma has served as a Director since July 1984. He became Vice Chairman in May 1995 and CEO in March 1999. L.William Seidman, 78, Chief Commentator for CNBC- TV, Publisher of Bank Director and Board Member magazines, and Industry Consultant.With more than 40 years in the business, financial and political arenas, Mr. Seidman has served as a Director since February 1992. Thekla R. Shackelford, 65, Educational Consultant.With more than 20 years in the fields of education and public service, Ms. Shackelford has served as a Director since November 1994. m a n a g e m e n t c o m m i t t e e 1 2 3 4 5 9 8 7 6 1 Gordon G. Rockafellow 2 Howard F. Arner 3 Robert H. Beriault 4 Charles W. Sprague 5 Frank R. Martire 6 Donald F. Dillon 7 Dean C. Schmelzer 8 Norman J. Balthasar 9 Leslie M. Muma Howard F. Arner, 59, President & COO, Insurance Solutions Group. Mr. Arner’s responsibilities include technology for insurance products and services, consulting, education, imple- mentation, actuarial and outsourcing services. He has more than 30 years experience in the insurance industry. Norman J. Balthasar, 53, President & COO, Financial Institution Outsourcing Group. Mr. Balthasar’s responsibilities include technology for bank servicing, lending systems and item processing services. He has nearly 30 years experi- ence in the financial industry. Robert H. Beriault, 48, President & COO, Securities Group. Mr. Beriault’s responsibilities include technology for security processing solutions, services and products for the brokerage industry. He has more than 20 years experience in the financial services industry. Donald F. Dillon, 59, see Board of Directors for profile. Frank R. Martire, 52, President & COO, Financial Institution Systems and Services Group. Mr. Martire’s responsi- bilities include technology for bank soft- ware and services, credit union software and services, e-products and services, and complementary products and services. He has more than 30 years experience in the financial industry. Leslie M. Muma, 55, see Board of Directors for profile. Gordon G. Rockafellow, 63, President & COO,Trust Services Group. Mr. Rockafellow’s responsibilities include technology for specialized account processing, administration and trusteeship of self-directed IRAs, business retirement plans and custodial accounts. He has nearly 30 years experi- ence in the marketing and financial services industries. Dean C. Schmelzer, 49, Executive Vice President – Marketing & Sales. Mr. Schmelzer’s responsibilities include overall company-wide sales and marketing management, expansion of the Fiserv sales organization, coordination of relationship management, and merger and acquisition support. He has nearly 25 years experience in the data process- ing industry. Charles W. Sprague, 50, Executive Vice President, General Counsel, Chief Administrative Officer and Secretary. Mr. Sprague’s responsibilities include administration of corporate legal services, human resources and insurance/travel services. He has nearly 25 years experi- ence in the legal profession and financial services industry. page 46 | 47 e x e c u t i v e o f f i c e r s financial institution outsourcing group Norman J. Balthasar, 53 President & COO, Financial Institution Outsourcing Group Kenneth R. Acheson, 52 President, Fiserv Solutions of Canada David G. Krystowiak, 50 President, Bank Servicing Division I Donald W. Layden, Jr., 42 President, Lending Systems Division James C. Puzniak, 53 President, Bank Servicing Division II Frank M. Smeal, 57 President, Bank Servicing Division III Keith D. Tarr, 56 President, Item Processing Service Bureau Division Stephen J. Ward, 47 Senior Vice President, Item Processing Outsourcing financial institution systems & services group Frank R. Martire, 52 President & COO, Financial Institution Systems & Services Group Paul T. Danola, 48 President, Credit Union Systems & Services Division; and President, E-Products & Services Division Thomas A. Neill, 50 President, Products & Services Division Rodney D. Poskochil, 47 President, Bank Systems & Services Division corporate officers Howard F. Arner, 59 President & COO, Insurance Solutions Group Norman J. Balthasar, 53 President & COO, Financial Institution Outsourcing Group Robert H. Beriault, 48 President & COO, Securities Group Donald F. Dillon, 59 Vice Chairman, Chairman – Information Technology, Inc Kenneth R. Jensen, 56 Senior Executive Vice President, Chief Financial Officer & Treasurer Frank R. Martire, 52 President & COO, Financial Institution Systems & Services Group Leslie M. Muma, 55 Vice Chairman, President & CEO Daniel F. Murphy, 50 Senior Vice President, Director of Audit Gordon G. Rockafellow, 63 President & COO, Trust Services Group Dean C. Schmelzer, 49 Executive Vice President, Marketing & Sales Charles W. Sprague, 50 Executive Vice President, General Counsel, Chief Administrative Officer & Secretary v r e s i f m o r f e c r u o s e r r e h t o n a , n g i s e d s n o i t a c i n u m m o c : n g i s e d insurance solutions group Howard F. Arner, 59 President & COO, Insurance Solutions Group Stephen F. Abbott, 45 President, Fiserv SIS Thomas L. Bittenbender, 41 President, Progressive Data Solutions Larry J. Kane, 54 President, The Freedom Group Anthony T. Perdichezzi, 52 President, Fiserv NDP John L. Sullivan, 52 President, Life Instructors, Inc. Barry W. Watkins, 52 President, FIPSCO securities group Robert H. Beriault, 48 President & COO, Securities Group Henry H. Clines, 58 President, Fiserv Investor Services, Inc. Lawrence E. Donato, 51 President, Fiserv Securities, Inc. George A. Johnson, 50 President, Fiserv Correspondent Services, Inc. trust services group Gordon G. Rockafellow, 63 President & COO, Trust Services Group Craig J. Faulkner, 46 President, Emerald Publications Joan K. Manning, 47 President, Lincoln Trust Company D. Terry Reitan, 53 President, First Trust Corporation Corporate Office 255 Fiserv Drive Brookfield,Wisconsin 53045 (262) 879-5000 World Wide Web fiserv.com Investor Relations (800) 425-FISV Transfer Agent EquiServe The First Chicago Trust Division P.O. Box 2500 Jersey City, New York 07303-2500 (800) 446-2617 2000 Annual Shareholders’ Meeting Thursday, March 30, 2000 Fiserv Corporate Office Brookfield,Wisconsin Fiserv is a registered trademark of Fiserv, Inc. “Where Money & Technology Meet” and ePrime@Fiserv are service marks of Fiserv, Inc. All product and brand names mentioned are the property of their respective companies. © 2000 Fiserv, Inc. All rights reserved.