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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 March 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 Identification No.)
incorporation or organization)
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 April 22, 1996
- - --------------------------------------- ------------------------------------
Common Stock, par value $.02 per share 23,675,816
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This document contains 13 pages.
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THE BISYS GROUP, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31,
1996 and June 30, 1995 . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Operations for the
three and nine months ended March 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows for the
nine months ended March 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 . . . . . . . . . . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 11
2
PART I
ITEM 1. FINANCIAL STATEMENTS
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
March 31, June 30,
1996 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $25,902 $7,296
Short-term investments . . . . . . . . . . . . . . . 2,604 6,645
Accounts receivable, net . . . . . . . . . . . . . 43,993 31,128
Deferred tax asset . . . . . . . . . . . . . . . . 1,225 5,003
Prepaid expenses and other . . . . . . . . . . . . 5,737 4,814
-------- --------
Total current assets . . . . . . . . . . . . . . . . 79,461 54,886
Property and equipment, net . . . . . . . . . . . . . 20,896 16,364
Intangible assets, net . . . . . . . . . . . . . . . 81,731 84,614
Other assets . . . . . . . . . . . . . . . . . . . . 4,072 5,385
Deferred tax asset . . . . . . . . . . . . . . . . . 1,167 4,089
-------- --------
Total assets . . . . . . . . . . . . . . . . . . $187,327 $165,338
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings . . . . . . . . . . . . . . $ -- $ 8,405
Accounts payable . . . . . . . . . . . . . . . . . 9,418 7,173
Accrued liabilities . . . . . . . . . . . . . . . . 34,122 33,982
-------- ---------
Total current liabilities . . . . . . . . . . . . . . 43,540 49,560
Other liabilities . . . . . . . . . . . . . . . . . . 504 1,151
-------- ---------
Total liabilities . . . . . . . . . . . . . . . . 44,044 50,711
-------- ---------
Stockholders' equity:
Common stock, $.02 par value, 80,000,000 and
40,000,000 shares authorized, 23,670,903 and
23,106,550 shares issued and outstanding,
respectively . . . . . . . . . . . . . . . . . 474 462
Additional paid-in capital . . . . . . . . . . . . 143,584 136,656
Accumulated deficit . . . . . . . . . . . . . . . . (775) (22,491)
--------- ----------
Total stockholders' equity . . . . . . . . . . . 143,283 114,627
-------- ---------
Total liabilities and stockholders' equity . . . . 187,327 $165,338
======== =========
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 Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
-------- -------- -------- --------
(Restated) (Restated)
Revenues . . . . . . . . . . . $ 65,923 $ 51,145 $174,138 $ 145,825
-------- -------- -------- ---------
Operating costs and expenses:
Service and operating . . . . 34,683 26,082 91,590 78,142
General and administrative . 10,638 14,658 30,558 35,174
Selling and conversion . . . 2,098 2,121 6,675 6,460
Research and development . . 2,536 2,432 7,568 6,959
Amortization of intangible assets 964 2,206 2,848 4,143
Merger transaction expenses . -- 3,292 -- 3,292
Cost to combine operations . -- 12,514 -- 12,514
Contract adjustment . . . . . -- 4,000 -- 4,000
Charge off of investment in
affiliate . . . . . . . . . -- 2,949 -- 2,949
-------- -------- -------- ---------
Operating earnings (loss) . . . 15,004 (19,109) 34,899 (7,808)
Interest expense (income), net (210) 305 (108) 658
-------- -------- -------- ---------
Earnings (loss) before income
tax provision . . . . . . . . 15,214 (19,414) 35,007 (8,466)
Income tax provision (benefit) 5,770 (4,291) 13,291 (1,353)
-------- -------- -------- ---------
Net earnings (loss) . . . . . . $ 9,444 $(15,123) $ 21,716 $ (7,113)
======== ======== ======== =========
Net earnings (loss) per common
share . . . . . . . . . . . . . $ 0.38 $ (0.62) $ 0.88 $ (0.30)
======== ========= ======== =========
Weighted average common and common
equivalent shares outstanding. 24,923 24,208 24,616 24,066
======== ======== ======== =========
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)
Nine Months Ended
March 31,
1996 1995
---------- ----------
(Restated)
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . $21,716 $(7,113)
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of intangible assets . . 7,211 8,120
Losses from and advances to affiliates . . . . . . . . -- (1,561)
Charge off of investment in affiliate . . . . . . . . . -- 2,949
Adjustments to carrying value of property and equipment -- 1,814
Deferred income tax provision . . . . . . . . . . . . . 6,700 (3,433)
Change in operating assets and liabilities . . . . . . (8,748) 14,055
-------- ---------
Net cash provided by operating activities . . . . . . . . 26,879 14,831
-------- ---------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . (9,487) (7,087)
Proceeds from maturities of short-term investments . . . 4,184 16,667
Purchase of intangible assets . . . . . . . . . . . . . -- (277)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,529 --
-------- ---------
Net cash provided by (used in) investing activities (3,774) 9,303
--------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings . . . . . . . . . . 6,800 --
Repayment of short-term borrowings . . . . . . . . . . (15,205) (23,542)
Exercise of stock options . . . . . . . . . . . . . . . 3,233 415
Payment on notes receivable for stock . . . . . . . . . -- 221
Issuance of common stock . . . . . . . . . . . . . . . . 673 251
-------- ---------
Net cash used in financing activities . . . . . . . . . . (4,499) (22,655)
-------- ---------
Net increase in cash and cash equivalents . . . . . . . . 18,606 1,479
Cash and cash equivalents at beginning of period . . . . 7,296 11,498
-------- ---------
Cash and cash equivalents at end of period . . . . . . . $25,902 $12,977
======== =========
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 1995 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.
During the year ended June 30, 1995, the Company merged with Concord Holding
Corporation ("Concord") and Document Solutions, Inc. ("DSI"). These mergers
were accounted for as poolings of interests and the condensed consolidated
financial statements give retroactive effect to these mergers.
2. Disposition of Loan Services Division
On August 11, 1995, the Company sold its Loan Services Division to a
financial services company. The division provided servicing for residential
mortgage loans primarily under subservicing contracts with mortgage banks.
The sale had no material impact on the Company's financial position or
results of operations for the nine months ended March 31, 1996.
3. Contingencies
For a description of certain legal proceedings related to the Company, refer
to Part II, Item 1 - "Legal Proceedings" and the 1995 Annual Report on Form
10-K.
4. Stockholders' Equity
On November 14, 1995, the Company's shareholders approved an increase in the
number of authorized shares of the Company's common stock from 40,000,000 to
80,000,000.
5. New Accounting Standard
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123) in October 1995 which changes the measurement, recognition
and disclosure standards for stock-based compensation. The new disclosure
requirements of SFAS No. 123 are generally effective for fiscal years
beginning after December 15, 1995. The Company is presently evaluating the
financial statement impact of SFAS No. 123 and has yet to determine whether
it will adopt the recognition or disclosure provisions of the new standard.
6
6. Subsequent Event
On April 22, 1996 the Company completed its acquisition of the Strategic
Solutions Group, Inc. through the issuance of 520,599 common shares of BISYS
common stock for all the outstanding shares of Strategic Solutions Group,
Inc. The transaction will be accounted for as a pooling of interests,
although historical financial statements will not be restated due to
immateriality. The value of the transaction is approximately $17.3 million
and the Company is expected to incur merger transaction expenses of
approximately $1.5 million, net of tax.
Strategic Solutions Group, Inc., headquartered in Atlanta, designs, develops
and provides automated marketing solutions to financial organizations.
7
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 Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
----- ------ ------ ------
Revenues . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
------- ------ ------ ------
Operating costs and expenses:
Service and operating . . . . . . 52.6 51.0 52.6 53.6
General and administrative . . . 16.1 28.7 17.6 24.1
Selling and conversion . . . . . 3.2 4.1 3.8 4.4
Research and development . . . . 3.8 4.8 4.4 4.8
Amortization of intangible assets 1.5 4.3 1.6 2.8
Merger transaction expenses . . . -- 6.4 -- 2.3
Costs to combine operations . . . -- 24.5 -- 8.6
Contract adjustment . . . . . . . -- 7.8 -- 2.7
Charge off of investment in
affiliate . . . . . . . . . . . -- 5.8 -- 2.0
----- ----- ------ -----
Operating earnings (loss) . . . . . 22.8 (37.4) 20.0 (5.3)
Interest (income) expense, net (0.3) 0.6 (0.1) 0.5
----- ----- ------ -----
Earnings (loss) before income tax
provision . . . . . . . . . . . . . 23.1 (38.0) 20.1 (5.8)
Income tax provision (benefit) 8.8 (8.4) 7.6 ( .9)
------ ------ ----- -----
Net earnings (loss) . . . . . . . . 14.3 % (29.6) % 12.5 % (4.9) %
====== ====== ===== =====
Comparison of the Three Months Ended March 31, 1996 with the Three Months Ended
March 31, 1995.
Revenues increased 28.9% from $51.1 million for the three months ended March
31, 1995 to $65.9 million for the three months ended March 31, 1996. This
growth was derived from sales to new clients, existing client growth, cross
sales to existing clients, and was partially offset by lost business and the
sale of the Loan Services business.
Service and operating expenses increased 33.0% from $26.1 million during the
three months ended March 31, 1995 to $ 34.7 million for the three months ended
March 31, 1996, and increased as a percentage of revenues from 51.0% to 52.6%.
These increases resulted from additional costs associated with greater
revenues.
General and administrative expenses decreased 27.4% from $14.7 million during
the three months ended March 31, 1995, to $10.6 million for the three months
ended March 31, 1996, and decreased as a percentage of revenues from 28.7% to
16.1%. These decreases resulted from additional costs associated with the
Concord acquisition in 1995, synergies gained from consolidation of the
acquired businesses and from further utilization of existing general and
administrative support resources.
Amortization of intangible assets decreased 56.3% from $2.2 million for the
three months ended March 31, 1995 to $1.0 million for the three months ended
March 31, 1996 and decreased as a percentage of revenues from 4.3% to 1.5%.
These decreases were due to the charge off of impaired goodwill of $1.3
8
million in the quarter ended March 31, 1995 associated with the Loan Services
business.
In connection with the Concord merger in March 1995, the following expenses
were incurred: merger transaction expenses of $3.3 million (legal and
financial); $12.5 million in costs to combine operations (severance,
facilities write offs, fixed asset and leasehold write offs and other
expenses); $4.0 million related to a contract adjustment; and $3.0 million
charge off of an investment in an affiliate due to a change of intent. In
total these expenses , $4.0 million of which are included in general and
administrative, total $19.0 million net of tax, representing $0.79 per share.
Operating earnings of $15.0 million for the three months ended March 31, 1996
increased from a $19.1 million operating loss during the three months ended
March 31, 1995. Costs associated with the integration of Concord, the charge
off of impaired goodwill associated with the Loan Services business in 1995
and the 28.9% growth in revenue accounted for most of this variance.
The income tax provision of $5.8 million for the three months ended March 31,
1996 increased from a $4.3 million benefit for the three months ended March
31, 1995 due to a partial tax benefit relating to nonrecurring charges in
1995. Additionally, the effective tax rate increased from 22% for the three
months ended March 31, 1995, to 38% for the three months ended March 31, 1996.
This change was primarily due to the impact of an adjustment to the deferred
tax asset valuation allowance.
Comparison of the Nine Months Ended March 31, 1996 with the Nine Months Ended
March 31, 1995
Revenues increased 19.4% from $145.8 million for the nine months ended March
31, 1995, to $174.1 million for the nine months ended March 31, 1996. This
revenue growth was derived from sales to new clients, existing client growth,
and cross sales to existing clients and was partially offset by lost business
and the sale of the Loan Services business.
Service and operating expenses increased 17.2% from $78.1 million during the
nine months ended March 31, 1995, to $91.6 million for the nine months ended
March 31, 1996, but decreased as a percentage of revenues from 53.6% to 52.6%.
This dollar increase resulted from additional costs associated with greater
revenues. The decrease as a percentage of revenues resulted from further
utilization of existing service and operating support resources.
General and administrative expenses decreased 13.1% from $35.2 million during
the nine months ended March 31, 1995, to $30.6 million for the nine months
ended March 31, 1996, and decreased as a percentage of revenues from 24.1% to
17.6%. These decreases resulted from additional costs associated with the
Concord acquisition in 1995, synergies gained from consolidation of the
acquired businesses and from further utilization of existing general and
administrative support resources.
Amortization of intangibles decreased 31.3% from $4.1 million during the nine
months ended March 31, 1995, to $2.8 million for the nine months ended March
31, 1996, and decreased as a percentage of revenues from 2.8% to 1.6%. These
decreases were due to the charge off of impaired goodwill associated with the
Loan Services business in 1995.
Operating earnings of $34.9 million during the nine months ended March 31,
1996 increased from a $7.8 million operating loss during the nine months ended
March 31, 1995. Costs associated with the integration of Concord, the charge
off of impaired goodwill associated with the Loan Services business in 1995
and the 19.4% growth in revenue accounted for most of this variance.
The income tax provision of $13.3 million for the nine months ended March 31,
1996 increased from a $1.4 million benefit for the nine months ended March 31,
1995 due to the partial tax benefit associated with the third quarter loss in
1995. Additionally, the effective tax rate increased from 16% for the nine
months ended March 31, 1995, to 38% for the nine months ended March 31, 1996
primarily due to the change in the deferred tax asset valuation allowance. The
Company periodically evaluates the deferred tax asset and adjusts the related
valuation allowance to an amount which is more likely than not to be realized
through future taxable income.
9
Liquidity and Capital Resources
At March 31, 1996, the Company had cash and cash equivalents of $25.9 million
and working capital of approximately $35.9 million. The Company has been able
to finance its cash requirements through cash flows from operations. In
addition, the Company has a $10.0 million revolving line of credit including a
$5.0 million letter of credit sub facility available to finance working
capital requirements, and a $90.0 million multiple draw acquisition term loan
facility. At March 31, 1996, the Company had $0.2 million outstanding in the
form of letters of credit. In August of 1995, the Company paid off all of its
outstanding term loan indebtedness.
For the nine months ended March 31, 1996, operating activities provided cash
of $26.9 million primarily through net earnings of $21.7 million. Investing
activities used cash of $3.8 million primarily from capital expenditures of
$9.5 million offset by $4.2 million of maturities of short-term investments.
Financing activities used cash of $4.5 million, $8.4 million being the
reduction of outstanding borrowings, offset by $3.9 million received from the
issuance of common stock and exercise of stock options.
Merger-Related Expenses
During the fiscal year ended June 30, 1995, the Company merged with Concord
and DSI in transactions accounted for as poolings of interests. As of March
31, 1996, approximately $6.0 million of costs to combine operations are
included in accrued liabilities. Although actions to combine such operations
were substantially completed by March 31, 1996, certain merger-related
payments may extend beyond June 30, 1996.
10
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. No trial date has been
scheduled.
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
11
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: By:
--------------- ---------------------------------------
Robert J. McMullan
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
12
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: By: /s/ Robert J. McMullan
------------------ ----------------------------------------------
Robert J. McMullan
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
13