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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 33-45417
THE BISYS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3532663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Clove Road, Little Falls, New Jersey
07424
(Address of principal executive offices)
(Zip Code)
201-812-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Shares Outstanding at October 18, 1996
- -------------------------------------- --------------------------------------
Common Stock, par value $.02 per share 24,993,952
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This document contains 12 pages.
1
THE BISYS GROUP, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30,
1996 and June 30, 1996 .......................................... 3
Condensed Consolidated Statement of Operations for the
three months ended September 30, 1996
and 1995 ........................................................ 4
Condensed Consolidated Statement of Cash Flows for the three months
ended September 30, 1996 and 1995 ............................... 5
Notes to Condensed Consolidated Financial Statements6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition ........................... 7
PART II. OTHER INFORMATION ............................................... 9
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES ................................................................ 10
EXHIBIT INDEX ............................................................. 11
2
PART I
ITEM 1. FINANCIAL STATEMENTS
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
September 30, June 30,
1996 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 42,678 $ 39,284
Short-term investments ........................... 3,000 --
Accounts receivable, net ......................... 53,119 47,846
Deferred tax asset ................................ 11,728 12,159
Prepaid expenses and other ........................ 6,015 5,126
--------- ---------
Total current assets ................................ 116,540 104,415
Property and equipment, net ......................... 26,839 25,264
Intangible assets, net .............................. 79,910 80,850
Other assets ........................................ 3,657 4,096
--------- ---------
Total assets .................................... $ 226,946 $ 214,625
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .............. $ 251 $ 306
Accounts payable .................................. 7,538 7,277
Accrued liabilities ............................... 60,110 56,384
--------- ---------
Total current liabilities ........................... 67,899 63,967
Long-term debt ...................................... 1,642 1,668
Deferred tax liability .............................. 4,391 5,425
Other liabilities ................................... 361 393
--------- ---------
Total liabilities ............................... 74,293 71,453
--------- ---------
Stockholders' equity:
Common stock, $.02 par value, 80,000,000
shares authorized, 24,990,976 and 24,782,101
shares issued and outstanding,
respectively .................................. 500 496
Additional paid-in capital ........................ 147,599 145,788
Retained earnings (accumulated deficit) ........... 4,554 (3,112)
--------- ---------
Total stockholders' equity ...................... 152,653 143,172
--------- ---------
Total liabilities and stockholders' equity ...... $ 226,946 $ 214,625
========= =========
The accompanying notes are an integral part of the
condensed consolidatedfinancial statements.
3
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
September 30,
------------------
1996 1995
-------- --------
Revenues ........................................ $ 72,395 $ 52,272
-------- --------
Operating costs and expenses:
Service and operating ......................... 40,015 27,504
General and administrative .................... 13,722 10,198
Selling and conversion ........................ 2,840 2,233
Research and development ...................... 2,608 2,539
Amortization of intangible assets ............. 936 942
-------- --------
Operating earnings .............................. 12,274 8,856
Interest (income) expense, net .................. (504) 114
-------- --------
Earnings before income
tax provision .................................. 12,778 8,742
Income tax provision ............................ 5,112 3,321
-------- --------
Net earnings .................................... $ 7,666 $ 5,421
======== ========
Net earnings per common share ................... $ 0.29 $ 0.22
======== ========
Weighted average common and common
equivalent shares outstanding .................. 26,341 24,366
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
September 30,
-------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net earnings ........................................... $ 7,666 $ 5,421
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ........................ 2,847 2,198
Deferred income tax provision (benefit) .............. (603) 3,000
Change in operating assets and liabilities ........... (1,768) (2,971)
-------- --------
Net cash provided by operating activities .............. 8,142 7,648
-------- --------
Cash flows from investing activities:
Capital expenditures ................................. (3,510) (3,892)
Proceeds from maturities of short-term investments ... -- 2,258
Purchase of short-term investments ................... (3,000) --
Other ................................................ 28 1,668
-------- --------
Net cash provided by (used in) investing activities .. (6,482) 34
-------- --------
Cash flows from financing activities:
Proceeds from debt ................................... -- 1,600
Repayment of debt .................................... (81) (8,405)
Exercise of stock options ............................ 1,815 663
-------- --------
Net cash provided by (used in) financing activities .. 1,734 (6,142)
-------- --------
Net increase in cash and cash equivalents .............. 3,394 1,540
Cash and cash equivalents at beginning of period ....... 39,284 7,296
-------- --------
Cash and cash equivalents at end of period ............. $ 42,678 $ 8,836
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
THE BISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company
The BISYS(R) Group, Inc. and subsidiaries (the "Company") is a leading
national provider of outsourcing solutions to and through financial
organizations.
The condensed consolidated financial statements include the accounts of The
BISYS Group, Inc. and its subsidiaries and have been prepared consistent
with the accounting policies reflected in the 1996 Annual Report on Form
10-K filed with the Securities and Exchange Commission and should be read
in conjunction therewith. The condensed consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary to present fairly this
information.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
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 revenue and
expenses during the reporting period. The most significant estimates are
related to the allowance for doubtful accounts, intangible assets, merger
expenses and other charges, income taxes and contingencies. It is
reasonably possible that actual results could differ from these estimates
in the near term.
3. Contingencies
For a description of certain legal proceedings related to the Company,
refer to Part II, Item 1 - "Legal Proceedings" and the 1996 Annual Report
on Form 10-K.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company provides outsourcing solutions to and through financial
organizations and reports as a single segment. The operating margins for each
business unit of the Company are not significantly different. The following
table presents the percentage of revenues represented by each item in the
Company's condensed consolidated statement of operations for the periods
indicated:
Three Months Ended
September 30,
-------------------
1996 1995
----- -----
Revenues .......................................... 100.0% 100.0%
----- -----
Operating costs and expenses:
Service and operating ........................... 55.3 52.6
General and administrative ...................... 18.9 19.5
Selling and conversion .......................... 3.9 4.3
Research and development ........................ 3.6 4.9
Amortization of intangible assets ............... 1.3 1.8
----- -----
Operating earnings ................................ 17.0 16.9
Interest (income) expense, net .................... (0.7) 0.2
----- -----
Earnings before income tax provision .............. 17.7 16.7
Income tax provision .............................. 7.1 6.3
----- -----
Net earnings ...................................... 10.6% 10.4%
===== =====
Comparison of the Three Months Ended September 30, 1996 with the Three Months
Ended September 30, 1995.
Revenues increased 38.5% from $52.3 million for the three months ended
September 30, 1995 to $72.4 million for the three months ended September
30, 1996. This growth was derived from sales to new clients, existing
client growth, and cross sales to existing clients, partially offset by
lost business.
Service and operating expenses increased 45.5% from $27.5 million during
the three months ended September 30, 1995 to $40.0 million for the three
months ended September 30, 1996, and increased as a percentage of revenues
from 52.6% to 55.3%. These increases resulted from additional costs
associated with greater revenues.
General and administrative expenses increased 34.6% from $10.2 million
during the three months ended September 30, 1995, to $13.7 million for the
three months ended September 30, 1996, but decreased as a percentage of
revenues from 19.5% to 18.9%. The dollar increase resulted from additional
costs associated with greater revenues. The decrease as a percentage of
revenues resulted from further utilization of existing general and
administrative support resources.
Operating earnings of $12.3 million for the three months ended September
30, 1996 increased from $8.9 million for the three months ended September
30, 1995, and remained flat as a percentage of revenues at approximately
17.0%.
The income tax provision of $5.1 million for the three months ended
September 30, 1996 increased from $3.3 million for the three months ended
September 30, 1995. The provision represents an effective tax rate of 40.0%
for the three months ended September 30, 1996, compared to 38.0% for the
three months ended September 30, 1995. The lower rate in the prior year was
primarily due to the impact of an adjustment to the valuation allowance
during the three months ended September 30, 1995.
7
Liquidity and Capital Resources
At September 30, 1996, the Company had cash and cash equivalents of $42.7
million and working capital of $48.6 million. The Company has been able to
satisfy its cash requirements through its cash flows from operations. The
Company is in discussion with its lenders to obtain a $100.0 million
revolving credit facility, and terminated its existing $10.0 million
revolving credit facility in October 1996. At September 30, 1996, the
Company had $0.2 million outstanding in the form of letters of credit. The
interest rate on other outstanding long-term borrowings of $1.9 million at
September 30, 1996 was 7.75%.
For the three months ended September 30, 1996, operating activities
provided cash of $8.1 million, primarily through net earnings of $7.7
million. Investing activities used cash of $6.5 million, primarily for
capital expenditures of $3.5 million and $3.0 million for purchases of
short-term investments. Financing activities provided cash of $1.7 million,
$1.8 million from the exercise of stock options, offset by $0.1 million for
the repayment of debt.
Merger Expenses and Other Charges
At September 30, 1996, approximately $7.9 million of costs to integrate new
operations arising from prior acquisitions and costs relating to the
combining of certain data center operations are included in accrued
liabilities on the accompanying balance sheet. Approximately $1.8 million
of such expenses were paid during the three months ended September 30,
1996.
Accrued liabilities also include $14.0 million of estimated commissions and
other expenses incurred in connection with the outsourcing alliance
agreement entered into in June 1996 between the Company and the mutual fund
division of Furman Selz LLC. During October 1996, $8.8 million of such
expense were paid by the Company to Furman Selz pursuant to the agreement.
It is anticipated that the actions to combine and integrate the
aforementioned operations will be substantially completed by June 30, 1997.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Except for the historical information contained herein, the matters
discussed in this quarterly 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.
8
PART II
ITEM 1. LEGAL PROCEEDINGS
On August 23, 1994 and September 9, 1994, two purchasers of
Concord's stock, Seymour Lazar and Joshua Teitelbaum, on behalf of
themselves and all others similarly situated, filed class action
complaints in the United States District Court for the Northern
District of California against Concord, its Board of Directors and
certain officers, Hambrecht & Quist Group, Bank of America NT&SA and
Montgomery Securities alleging violations of the federal securities
laws. The complaints allege that these individuals and entities
misrepresented Concord's business and future prospects during
Concord's initial public offering and in subsequent statements in
order to successfully consummate the offering and to sustain an
artificially inflated price for Concord's common stock. Accordingly,
the plaintiffs seek to recover losses allegedly sustained by a class
who purchased Concord's common stock between February 24, 1994, and
June 17, 1994. The complaints do not specify the amount of damages
sought. The two cases have been consolidated. The parties have
entered into a definitive agreement subject to final court approval.
Regardless of any settlement, management believes that the Company
has adequate defenses and/or insurance coverage against litigation
and that the outcome of these proceedings, individually or in the
aggregate, will not have a material adverse effect upon the
Company's financial position, results of operations, or cash flows.
The Company only considers insurance deemed probable when evaluating
loss contingencies.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement regarding computation of earnings per common
share.
(b) Reports on Form 8-K
None
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE BISYS GROUP, INC.
Date: November 13, 1996 By: /s/ Robert J. McMullan
---------------------------- ----------------------------
Robert J. McMullan
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
10
THE BISYS GROUP, INC.
EXHIBIT INDEX
Exhibit No. Page
(11) Computation of Earnings Per Common Share . . . . . 12
(27) Financial Data Schedule . . . . . . . . . . . . . (electronic only)
11