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 DECEMBER 31, 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 REPORT(S), 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 January 27, 1997
- -------------------------------------- --------------------------------------
Common Stock, par value $.02 per share 25,127,042
This document contains 15 pages.
THE BISYS GROUP, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of
December 31, 1996 and June 30, 1996. . . . . .. . . . . 3
Condensed Consolidated Statement of Operations for the
three and six months ended December 31, 1996 and 1995 . 4
Condensed Consolidated Statement of Cash Flows for the
six months ended December 31, 1996 and 1995 . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . 7
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 10
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART I
ITEM 1. FINANCIAL STATEMENTS
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
December 31, June 30,
1996 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 47,873 $ 39,284
Accounts receivable, net 59,516 47,846
Deferred tax asset 5,728 12,159
Prepaid expenses and other 5,375 5,126
--------- ---------
Total current assets 118,492 104,415
Property and equipment, net 27,967 25,264
Intangible assets, net 77,470 80,850
Other assets 4,086 4,096
--------- ---------
Total assets $ 228,015 $ 214,625
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 236 $ 306
Accounts payable 8,293 7,277
Accrued liabilities 51,104 56,384
--------- ---------
Total current liabilities 59,633 63,967
Long-term debt 1,623 1,668
Deferred tax liability 2,391 5,425
Other liabilities 361 393
--------- ---------
Total liabilities 64,008 71,453
--------- ---------
Stockholders' equity:
Common stock, $.02 par value, 80,000,000
shares authorized, 25,052,596 and
24,782,101 shares issued and outstanding,
respectively 501 496
Additional paid-in capital 149,995 145,788
Retained earnings (accumulated deficit) 13,511 (3,112)
--------- ---------
Total stockholders' equity 164,007 143,172
--------- ---------
Total liabilities and stockholders' equity $ 228,015 $ 214,625
--------- ---------
--------- ---------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues $ 74,797 $ 55,943 $147,192 $108,215
-------- -------- -------- --------
Operating costs and expenses:
Service and operating 40,782 29,403 80,797 56,907
General and administrative 13,033 9,722 26,755 19,920
Selling and conversion 3,125 2,344 5,965 4,577
Research and development 2,522 2,493 5,130 5,032
Amortization of intangible
assets 902 942 1,838 1,884
-------- -------- -------- --------
Operating earnings 14,433 11,039 26,707 19,895
Interest (income) expense,
net (493) (12) (997) 102
-------- -------- -------- --------
Earnings before income tax
provision 14,926 11,051 27,704 19,793
Income tax provision 5,969 4,200 11,081 7,521
-------- -------- -------- --------
Net earnings $ 8,957 $ 6,851 $ 16,623 $ 12,272
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings per common share $ 0.34 $ 0.28 $ 0.63 $ 0.50
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and
common equival equivalent
shares outstanding 26,394 24,676 26,279 24,551
-------- -------- -------- --------
-------- -------- -------- --------
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
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
December 31,
----------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net earnings $ 16,623 $ 12,272
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 5,682 4,619
Deferred income taxes 3,397 5,200
Change in operating assets and liabilities (16,660) (5,376)
----------- ----------
Net cash provided by operating activities 9,042 16,715
----------- ----------
Cash flows from investing activities:
Capital expenditures (7,675) (6,678)
Proceeds from maturities and sales of
short-term investments 3,000 2,341
Purchase of short-term investments (3,000) --
Proceeds from sale of businesses 3,827 --
Other 291 1,529
----------- ----------
Net cash used in investing activities (3,557) (2,808)
----------- ----------
Cash flows from financing activities:
Proceeds from debt -- 6,800
Repayment of debt (115) (15,205)
Proceeds from exercise of stock options 3,219 1,806
----------- ----------
Net cash provided by (used in) financing
activities 3,104 (6,599)
----------- ----------
Net increase in cash and cash equivalents 8,589 7,308
Cash and cash equivalents at beginning of period 39,284 7,296
----------- ----------
Cash and cash equivalents at end of period $ 47,873 $ 14,604
----------- ----------
----------- ----------
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 -Registered Trademark- 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. DISPOSITION OF ITEM PROCESSING DIVISION
On October 30, 1996, the Company sold, pursuant to a stock purchase
agreement, all of the outstanding stock of its Item Processing Division to
a third party transaction processing company. The Item Processing Division
provides item processing services to financial institutions across the
country through a number of processing facilities. The stock purchase
agreement provides for an initial cash payment and additional
consideration payable to the Company contingent upon the level of revenues
generated by existing and new customers of the Item Processing Division
during the two years following the sale. The sale had no material impact
on the Company's financial position or results of operations for the three
months ended December 31, 1996.
3. 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. Actual results
could differ from these estimates in the near term.
4. 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 which is reported 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 Six Months Ended
December 31, December 31,
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Service and operating 54.5 52.6 54.9 52.6
General and administrative 17.4 17.4 18.2 18.4
Selling and conversion 4.2 4.2 4.0 4.2
Research and development 3.4 4.4 3.5 4.7
Amortization of intangible assets 1.2 1.7 1.3 1.7
------ ------ ------ ------
Operating earnings 19.3 19.7 18.1 18.4
Interest (income) expense, net (0.7) -- (0.7) 0.1
------ ------ ------ ------
Earnings before income tax provision 20.0 19.7 18.8 18.3
Income tax provision 8.0 7.5 7.5 7.0
------ ------ ------ ------
Net earnings 12.0% 12.2% 11.3% 11.3%
------ ------ ------ ------
------ ------ ------ ------
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996 WITH THE THREE MONTHS
ENDED DECEMBER 31, 1995.
Revenues increased 33.7% from $55.9 million for the three months ended
December 31, 1995 to $74.8 million for the three months ended December 31,
1996. This growth was derived from sales to new clients, existing client
growth, cross sales to existing clients and revenues from acquired
businesses, partially offset by lost business.
Service and operating expenses increased 38.7% from $29.4 million during
the three months ended December 31, 1995 to $40.8 million for three months
ended December 31, 1996, and increased as a percentage of revenues from
52.6% to 54.5%. These increases resulted from additional costs associated
with greater revenues.
General and administrative expenses increased 34.1% from $9.7 million
during the three months ended December 31, 1995, to $13.0 million for the
three months ended December 31, 1996, and remained flat as a percentage of
revenues at approximately 17.4%. The dollar increase resulted from
additional costs associated with additional revenues.
Operating earnings increased 30.8% from $11.0 million during the three
months ended December 31, 1995, to $14.4 million for the three months ended
December 31, 1996, and decreased as a percentage of revenues from 19.7% to
19.3%.
Interest income was $0.5 million greater for the three months ended
December 31, 1996 compared to the same period in the prior fiscal year due
to higher levels of invested cash and cash equivalents.
The income tax provision of $6.0 million for the three months ended
December 31, 1996 increased from $4.2 million for the three months ended
December 31, 1995. The provision represents an effective tax rate of 40.0%
for the three months ended December 31, 1996 compared to 38.0% for the
three months ended December 31, 1995. The lower rate in the prior year was
primarily due to the impact of an adjustment to the deferred tax asset
valuation allowance during the three months ended December 31, 1995.
7
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1996 WITH THE SIX MONTHS ENDED
DECEMBER 31, 1995.
Revenues increased 36.0% from $108.2 million for the six months ended
December 31, 1995 to $147.2 million for the six months ended December 31,
1996. This revenue growth was derived from sales to new clients,existing
client growth, cross sales to existing clients and revenues from acquired
businesses, partially offset by lost business.
Service and operating expenses increased 38.7% from $56.9 million during
the six months ended December 31, 1995 to $80.8 million for the six months
ended December 31, 1996, and increased as a percentage of revenues from
52.6% to 54.5%. These increases resulted from additional costs associated
with greater revenues.
General and administrative expenses increased 34.3% from $19.9 million
during the six months ended December 31, 1995 to $26.8 million for the six
months ended December 31, 1996, and decreased as a percentage of revenues
from 18.4% to 18.2%. 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 $26.7 million for the six months ended December 31,
1996 increased from $19.9 million for the six months ended December 31,
1995, and decreased as a percentage of revenues from 18.4% to 18.1%.
Interest income was $1.0 million for the six months ended December 31, 1996
compared to interest expense of $0.1 million for the six months ended
December 31, 1995 due to higher levels of invested cash and cash
equivalents.
The income tax provision of $11.1 million for the six months ended December
31, 1996 increased from $7.5 million for the six months ended December 31,
1995. The provision represents an effective tax rate of 40.0% for the six
months ended December 31, 1996, compared to 38.0% for the six months ended
December 31, 1996. The lower rate in the prior year was primarily due to
the impact of an adjustment to the deferred tax asset valuation allowance
during the six months ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash and cash equivalents of $47.9
million and working capital of approximately $58.9 million. The Company
has been able to finance 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 line of credit facility in October 1996. At
December 31, 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 $1.6 million at December 31, 1996 was 7.75%.
For the six months ended December 31, 1996, operating activities provided
cash of $9.0 million primarily through net earnings of $16.6 million.
Investing activities used cash of $3.6 million primarily for capital
expenditures of $7.7 million offset by net proceeds from sale of businesses
of $3.8 million. Financing activities provided cash of $3.1 million, $3.2
million from the exercise of stock options, offset by $.01 million for the
repayment of debt.
8
MERGER EXPENSES AND OTHER CHARGES
At December 31, 1996, approximately $5.9 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 $2.0 million
of such expenses were paid during the three months ended December 31, 1996.
Accrued liabilities at December 31, 1996 also include $5.0 million of
estimated commissions and other expenses arising from the outsourcing
alliance agreement entered into in June 1996 between the Company and the
mutual fund division of Furman Selz LLC. Approximately $9.0 million of
such expenses were paid by the Company to Furman Selz pursuant to the
agreement during the three months ended December 31, 1996.
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.
9
PART II
ITEM 1. LEGAL PROCEEDINGS
On August 23, 1994, and September 8, 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 alleged 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 sought to recover losses allegedly sustained by a class
who purchased Concord's common stock between February 24, 1994, and
June 17, 1994. The complaints did not specify the amount of damages
sought. The two cases were consolidated into one case. The parties
entered into a definitive settlement agreement which was approved by
the court. On November 22, 1996, the court issued its order of final
judgment and dismissed the case with prejudice. The Company paid the
amount required in the settlement agreement during the three months
ended December 31, 1996 and has no further obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company, held on November
14, 1996, the Stockholders approved the following matters:
1. Re-election of all six Directors named below to hold office until
the next Annual Meeting of Stockholders and until their
successors have been duly elected and qualified:
Number of
Name of Director Votes in Favor
---------------- --------------
Lynn J. Mangum 21,921,011
Paul H. Bourke 21,908,469
Jay DeDapper 21,919,724
John J. Lyons 21,921,044
Thomas E. McInerney 21,921,044
Neil P. Marcous 21,903,708
For Against Abstain
2. 1996 Stock Option Plan 16,594,494 4,708,647 16,762
3. 1997 Employee Stock Purchase 21,214,176 97,263 8,464
Plan
4. Amendment to 1995 Stock 20,651,870 583,764 84,269
Option Plan
5. Amendment to 1989 Stock 20,489,306 624,891 34,801
Option and Restricted Stock
Purchase Plan
6. Appointment of Coopers & 21,930,913 2,873 7,129
Lybrand, L.L.P. as
independent accountants
for fiscal year 1997
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 11.1 - Statement regarding computation of earnings per common
share.
(b) REPORTS ON FORM 8-K
None
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: 2/14/97 By: /s/ Robert J. McMullan
------------- ----------------------------------------------------
Robert J. McMullan
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer)
12
THE BISYS GROUP, INC.
EXHIBIT INDEX
EXHIBIT NO. PAGE
(11) Computation of Earnings Per Common Share. . . . 14
(27) Financial Data Schedule . . . . . . . . . . . (electronic only)
13