1
Exhibit 13
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following data should be read in conjunction with the consolidated financial
statements and related notes thereto and management's discussion and analysis of
results of operations and financial condition included elsewhere in this annual
report.
STATEMENT OF OPERATIONS DATA:
FOR YEARS ENDED JUNE 30, 2000 1999 1998 1997 1996
Revenues $ 571,401 $ 472,676 $ 386,344 $ 318,988 $ 247,061
- ---------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 326,315 266,800 221,767 170,717 131,708
General and administrative 78,719 69,696 58,061 54,638 39,980
Selling and conversion 26,949 22,509 17,064 12,410 9,248
Research and development 12,504 11,523 11,731 10,408 10,176
Amortization of intangibles 11,444 7,756 3,819 3,613 3,811
Business divestitures, merger expenses
and other charges, net (520) 400 11,998 1,500 22,250
Acquired in-process research and development -- 19,000 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Operating earnings 115,990 74,992 61,904 65,702 29,888
Interest income, net 49 1,200 4,849 2,216 372
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax provision 116,039 76,192 66,753 67,918 30,260
- ---------------------------------------------------------------------------------------------------------------------------------
Income tax provision 45,835 38,076 26,729 27,167 12,236
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 70,204 $ 38,116 $ 40,024 $ 40,751 $ 18,024
=================================================================================================================================
Basic earnings per share $ 2.56 $ 1.43 $ 1.52 $ 1.63 $ 0.76
Diluted earnings per share $ 2.46 $ 1.36 $ 1.46 $ 1.55 $ 0.72
=================================================================================================================================
BALANCE SHEET DATA:
JUNE 30,
Working capital $ 99,598 $ 22,084 $ 97,822 $ 87,641 $ 40,448
Total assets 601,051 459,661 334,101 265,085 214,625
Long-term debt, including current maturities -- -- 1,702 1,668 1,974
Stockholders' equity 361,641 288,506 238,290 191,919 143,172
=================================================================================================================================
18
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The BISYS Group, Inc. and subsidiaries (the "Company") provides outsourcing
solutions to and through financial organizations. The following table presents
the percentage of revenues represented by each item in the Company's
consolidated statement of operations for the periods indicated:
FOR YEARS ENDED JUNE 30, 2000 1999 1998
Revenues 100.0% 100.0% 100.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 57.1 56.4 57.4
General and administrative 13.8 14.8 15.0
Selling and conversion 4.7 4.8 4.5
Research and development 2.2 2.4 3.0
Amortization of intangibles 2.0 1.6 1.0
Business divestitures, merger expenses and other charges, net (0.1) 0.1 3.1
Acquired in-process research and development -- 4.0 --
- ---------------------------------------------------------------------------------------------------------------------------------
Operating earnings 20.3 15.9 16.0
Interest income, net -- 0.3 1.3
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax provision 20.3 16.2 17.3
Income tax provision 8.0 8.1 6.9
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 12.3% 8.1% 10.4%
=================================================================================================================================
Revenues increased $98.7 million in fiscal 2000 and $86.3 million in fiscal
1999, representing increases of 20.9% and 22.4%, respectively. Growth in fiscal
2000 and 1999 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 and divestitures. Revenue growth from acquired
businesses approximated $20.0 million in fiscal 2000 and $34.7 million in fiscal
1999.
Service and operating expenses increased $59.5 million in fiscal 2000 and $45.0
million in fiscal 1999, representing increases of 22.3% and 20.3%, respectively.
Service and operating expenses increased as a percentage of revenues in fiscal
2000 by 0.7% to 57.1%, and decreased by 1.0% to 56.4% in fiscal 1999. The dollar
increases resulted from additional costs associated with greater revenues.
General and administrative expenses increased $9.0 million, or 13.0%, and
decreased as a percentage of revenues by 1.0% to 13.8% in fiscal 2000 and
increased $11.6 million, or 20.0%, and decreased as a percentage of revenues by
0.2% to 14.8% in fiscal 1999. The dollar increase in fiscal 2000 and 1999
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.
Selling and conversion expenses increased $4.4 million, or 19.7%, and decreased
as a percentage of revenues by 0.1% to 4.7% in fiscal 2000, and increased $5.4
million, or 31.9%, and increased as a percentage of revenues by 0.3% to 4.8% in
fiscal 1999. The dollar increases in fiscal 2000 and 1999 resulted from added
costs associated with higher selling and conversion activities.
Research and development expenses increased $1.0 million to $12.5 million, or
8.5%, in fiscal 2000 and decreased as a percentage of revenues by 0.2% to 2.2%.
In fiscal 1999 such expenses decreased $0.2 million to $11.5 million, or 1.8%,
and decreased as percentage of revenues by 0.6% to 2.4%. The reduction in
percentage of revenues in both fiscal years was a result of acquiring and
merging with businesses which do not require substantial research and
development.
Amortization of intangible assets was $11.4 million in fiscal 2000, compared to
$7.8 million in fiscal 1999 and $3.8 million in fiscal 1998. The increase in
fiscal 2000 amortization was due to the higher level of intangible assets
associated with recently acquired businesses.
During the fourth quarter of fiscal 2000, the Company recorded a pre-tax gain of
$0.5 million for business divestitures, merger expenses and other charges, net.
Included in this amount is (1) a $4.3 million pre-tax gain for the divestiture
of two of its divisions, Research Services and Networking Services, and from the
sale of the retail third party marketing component of its Brokerage Services
division and (2) a one-time charge of $3.8 million for losses in connection with
an overseas client of the Fund Services division whose fund accounting contract
was terminated.
In fiscal 1999, the Company wrote off $19.0 million of acquired in-process
research and development associated with the acquisition of Greenway and
incurred $0.4 million of merger-related expenses.
In fiscal 1998, the Company recorded transaction-related charges of $5.3 million
related to the acquisitions of Charter Systems, Inc. (Charter), Dascit/White &
Winston and affiliated companies (DWW), and Benefit Services, Inc. (BSI).
Additionally, a one-time charge of $6.7 million was incurred to realign
operations primarily in connection with a client of the Company's Fund Services
division terminating its distribution and administration agreements.
19
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Operating earnings increased by $41.0 million to $116.0 million in fiscal 2000
and increased as a percentage of revenues from 15.9% to 20.3%. The increase was
primarily due to revenue gains, and reduction in acquired in-process research
and development. Operating earnings increased by $13.1 million to $75.0 million
in fiscal 1999, and decreased as a percentage of revenues from 16.0% to 15.9%.
The dollar increases were primarily due to revenue gains and the synergies
realized from consolidation of acquired businesses.
Operating results, before amortization of intangibles, business divestitures,
merger expenses and other charges, and acquired in-process research and
development, resulted in margins of 22.2%, 21.6%, and 20.1% for fiscal 2000,
1999, and 1998, respectively. The margin increases in each of the last two
fiscal years are attributable to strong internal growth combined with efficient
integration of acquired businesses.
Interest income decreased $1.2 million in fiscal 2000 and decreased $3.6 million
to $1.2 million in fiscal 1999. The decreases were due to lower levels of
invested cash and higher interest expense associated with short-term borrowings
for acquisitions.
The provision for income taxes increased to $45.8 million in fiscal 2000 from
$38.1 million in fiscal 1999 and increased from $26.7 million in fiscal 1998.
The provision for fiscal 2000 reflects a lower effective tax rate of 39.5% due
to recently completed tax planning initiatives. Exclusive of the nonrecurring,
nondeductible charge in fiscal 1999 of $19.0 million related to acquired
in-process research and development, the fiscal 1999 provision for income taxes
reflects an effective tax rate of 40%. The effective tax rate was also 40% for
fiscal 1998.
SEGMENT INFORMATION
The following table sets forth operating revenue and operating income by
business segment and for corporate operations for the years ended June 30, 2000,
1999, and 1998. Business divestitures, merger expenses and other charges and
acquired in-process research and development are excluded from the operating
results of the segment for a better understanding of the underlying performance
of each segment.
(in thousands)
2000 1999 1998
Operating revenue:
Information Services $ 178,454 $ 178,296 $ 151,372
Investment Services 303,106 237,909 211,714
Insurance and
Education Services 89,841 56,471 23,258
- -----------------------------------------------------------------------------------------------------------------------------
Total operating
revenue $ 571,401 $ 472,676 $ 386,344
=============================================================================================================================
Operating income (loss):
Information Services $ 44,816 $ 44,389 $ 34,320
Investment Services 53,212 42,499 42,764
Insurance and
Education Services 31,436 19,353 7,502
Corporate (13,994) (11,849) (10,684)
- -----------------------------------------------------------------------------------------------------------------------------
Total operating
income $ 115,470 $ 94,392 $ 73,902
=============================================================================================================================
Revenue in the Information Services business segment increased $0.2 million in
fiscal 2000 and $26.9 million in fiscal 1999, representing increases of 0.1% and
17.8%, respectively. The below normal revenue increase in fiscal 2000 was
primarily due to the sale of Research Services and Networking Services in the
fiscal 2000 fourth quarter, the June 1999 sale of the Marketing Solutions
business and weakness in the Document Solutions software sales due to the year
2000-related impact. The revenue increase in fiscal 1999 was due to internal
growth and the acquisition of Greenway Corporation. Operating income in the
Information Services business segment increased $0.4 million in fiscal 2000 and
$10.1 million in fiscal 1999, resulting in operating margins of 25.1%, 24.9%,
and 22.7% for fiscal 2000, 1999, and 1998, respectively. Margins were relatively
flat in fiscal 2000 and improved in fiscal 1999 primarily due to accelerated
growth within the Banking Solutions division and the sale of the Marketing
Solutions division.
Revenue in the Investment Services business segment increased $65.2 million in
fiscal 2000 and $26.2 million in fiscal 1999, representing increases of 27.4%
and 12.4%, respectively. The revenue increase in fiscal 2000 was due to strong
internal growth, including the acquisition of several new clients. The revenue
increase in fiscal 1999 was due to internal growth and the acquisition of
Brokerage Services. Operating income in the Investment Services business segment
increased $10.7 million in fiscal 2000 and decreased $0.3 million in fiscal
1999, resulting in margins of 17.6%, 17.9%, and 20.2% in fiscal 2000, 1999, and
1998, respectively.
20
4
Margins declined slightly in fiscal 2000 primarily due to conversion activities
associated with a significant new client in the Brokerage Services division and
costs incurred in the Fund Services division for the international expansion of
outsourcing services. Margins declined in fiscal 1999 primarily due to the
acquisition of Brokerage Services and lower margins in the Fund Services
division as a result of costs incurred for the international expansion of
outsourcing services and expansion of the business development sales force.
Revenue in the Insurance and Education Services business segment increased $33.4
million in fiscal 2000 and $33.2 million in fiscal 1999, representing increases
of 59.1% and 142.8%, respectively. Revenue growth in fiscal 2000 and fiscal 1999
was attributable to internal growth and revenue from acquired businesses.
Operating income in the Insurance and Education Services business segment
increased $12.1 million in fiscal 2000 and $11.9 million in fiscal 1999,
resulting in margins of 35.0%, 34.3%, and 32.3% in fiscal 2000, 1999, and 1998,
respectively. Margins increased in fiscal 2000 and 1999 due to strong internal
growth combined with efficient integration of acquired businesses.
Corporate operations represent charges for the Company's human resources, legal,
accounting and finance functions, and various other unallocated overhead
charges. Increased expenses of $2.1 million and $1.2 million in fiscal 2000 and
1999, respectively, were in line with the Company's overall growth.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents of $70.2
million and working capital of approximately $99.6 million. At June 30, 2000,
the Company had outstanding borrowings of $115.0 million against its revolving
credit facility to support working capital requirements and fund acquisitions.
The credit facility bears interest at LIBOR plus a margin of 0.55%, or 7.3% at
June 30, 2000. At June 30, 2000, the Company had $0.7 million outstanding in the
form of letters of credit.
Other current assets included in the accompanying balance sheet consist
primarily of prepaid expenses and inventory. At June 30, 2000, other current
assets also included a $115 million deposit toward the purchase of Pictorial,
Inc. that closed on July 1, 2000 (see Note 14).
For the year ended June 30, 2000, operating activities provided cash of $90.0
million, primarily as a result of net income of $70.2 million plus several
non-cash items including depreciation and amortization of $30.7 million, and
deferred income taxes of $2.7 million, offset, by the net gain from divestitures
of $4.3 million and changes in net operating assets and liabilities, net of
effects from acquisitions, of $9.3 million. These changes are primarily a result
of increases in accounts receivable due to revenue growth. Investing activities
used cash of $130.8 million, primarily for the acquisition of businesses of
$117.8 million, and capital expenditures of $28.0 million, offset by net
proceeds from dispositions of $17.6 million. Financing activities provided cash
of $61.4 million primarily from net borrowings of $63.0 million and $15.8
million of proceeds from the exercise of stock options, offset by the repurchase
of common stock of $19.7 million.
For the years ended June 30, 1999 and 1998, operating activities provided cash
of $52.3 million and $62.6 million, respectively. Investing activities used cash
of $91.1 million and $50.3 million in fiscal years 1999 and 1998, respectively,
and financing activities used cash of $5.0 million and provided cash of $1.2
million, respectively.
The Company's strategy includes the acquisition of complementary businesses
financed by a combination of internally generated funds, borrowings from the
revolving credit facility and common stock. The Company's policy is to retain
earnings to support future business opportunities, rather than to pay dividends.
In January 1999, the Company's Board of Directors authorized a new stock
buy-back program of up to $100 million of its outstanding common stock.
Purchases will occur from time to time in the open market to offset the possible
dilutive effect of shares to be issued under employee benefit plans, for
possible use in future acquisitions, and for general and other corporate
purposes. This new program supercedes and replaces the share repurchase program
previously authorized by the Board of Directors.
In fiscal 2000, the Company purchased 388,500 shares of its common stock for
approximately $19.7 million to effect the acquisition of Credit Lyonnais
International Fund Services (CLIFS) and for issuance of stock in connection with
the exercise of stock options. Under the Company's stock buy-back programs, the
Company has purchased approximately 1.6 million shares of its common stock
during fiscal year 1999 for approximately $70.4 million in order to effect the
acquisitions of Greenway Corporation (Greenway), EXAMCO, Inc. (EXAMCO), and
Dover International (Dover), and for issuance of stock in connection with the
exercise of stock options. Since January 1999, the Company has purchased 746,500
shares of its common stock under the new stock buy-back program for
approximately $39.1 million.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In September 1998, the Company acquired Greenway through the issuance of
common stock valued at approximately $43.8 million. Of the total purchase price,
$19.0 million was allocated to acquired in-process research and development,
which was charged to operations at the time of acquisition.
The amount allocated to acquired in-process research and development was based
on an independent appraisal,
21
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
employing a discounted cash flow approach, and relates to the development of
enhanced check imaging software. At the acquisition date, the products were
estimated to be between 50% and 75% complete, and were determined to have no
future alternative uses.
Significant assumptions used in the valuation of the acquired in-process
research and development were as follows:
Estimated costs to complete $2.1 million
Anticipated completion date January 2000
Projected annual revenues $30 million
Discount rate 20%
Discount period 9 years
Technological feasibility was attained in the third quarter of fiscal 1999.
Development efforts were substantially completed in the first quarter of fiscal
2000, and sales of the enhanced check imaging software began in the second
quarter of fiscal 2000.
Research and development expenditures related to this product development
effort, prior to attaining technological feasibility, approximated $500,000 for
the year ended June 30, 1999, and are included in the consolidated statement of
operations.
YEAR 2000
The Company has addressed any Year 2000 issues associated with its
existing computer systems and software applications in a timely manner.
The Company believes it developed an effective plan to address the Year 2000
issues and that, based on available information, its Year 2000 transition had no
material effect on its business, operations, or financial results. The Company
incurred expenditures for Year 2000 testing and remediation of approximately
$0.8 million in fiscal 2000 and $3.0 million in both fiscal 1999 and 1998.
RECENT LEGISLATION
The recent adoption of the Financial Services Modernization Act of 1999
lifts many restrictions limiting banks from underwriting and distribution of
securities. The Company expects that some of its bank customers with proprietary
mutual funds may, over time, internalize certain distribution functions
currently provided by the Company. At the same time, the Company believes this
change may result in additional demand for its outsourcing services as financial
institutions provide new services to their customers. The near-term and
long-term impact of this legislative change on the Company's business and
results of operations are uncertain. Although there can be no assurance, at this
time, the Company does not expect a material adverse impact on its business or
results of operations.
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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 statements 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.
22
6
MANAGEMENT'S STATEMENT
OF RESPONSIBILITY
The management of the Company assumes responsibility for the integrity and
objectivity of the information in the fiscal 2000 Annual Report. The information
was prepared in conformity with generally accepted accounting principles and
reflects the best 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.
PricewaterhouseCoopers LLP, independent accountants, audits the financial
statements of the Company in accordance with generally accepted auditing
standards. Such audit considers the Company's internal control structure and
includes a communication of recommendations for improvements in the Company's
internal control structure.
The Audit Committee of the Board of Directors ensures that management is
properly discharging its financial reporting responsibilities. In performing
this function, the Committee meets with management and the independent
accountants throughout the year. Additional access to the Committee is provided
to the independent accountants on an unrestricted basis, allowing discussion of
audit results, internal accounting controls, and financial reporting.
/S/ Lynn J. Mangum
LYNN J. MANGUM
Chairman and
Chief Executive Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE BISYS GROUP, INC.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of The BISYS
Group, Inc. and its subsidiaries at June 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2000 in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
August 4, 2000
23
7
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
FOR YEARS ENDED JUNE 30, 2000 1999 1998
Revenues $ 571,401 $ 472,676 $ 386,344
- -----------------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 326,315 266,800 221,767
General and administrative 78,719 69,696 58,061
Selling and conversion 26,949 22,509 17,064
Research and development 12,504 11,523 11,731
Amortization of intangibles 11,444 7,756 3,819
Business divestitures, merger expenses and other charges, net (520) 400 11,998
Acquired in-process research and development -- 19,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Operating earnings 115,990 74,992 61,904
Interest income, net 49 1,200 4,849
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax provision 116,039 76,192 66,753
Income tax provision 45,835 38,076 26,729
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 70,204 $ 38,116 $ 40,024
===================================================================================================================================
Basic earnings per share $ 2.56 $ 1.43 $ 1.52
Diluted earnings per share $ 2.46 $ 1.36 $ 1.46
===================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
24
8
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
JUNE 30, 2000 1999
ASSETS
Current assets:
Cash and cash equivalents $ 70,177 $ 49,589
Accounts receivable, net 108,579 104,608
Deferred tax asset 8,808 9,241
Other current assets 131,734 14,243
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 319,298 177,681
Property and equipment, net 61,211 54,855
Intangible assets, net 188,349 194,852
Other assets 32,193 32,273
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 601,051 $ 459,661
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 115,000 $ 52,000
Accounts payable 15,110 21,303
Accrued liabilities 89,590 82,294
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 219,700 155,597
Deferred tax liability 13,452 9,774
Other liabilities 6,258 5,784
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 239,410 171,155
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Common stock, $0.02 par value, 80,000,000 shares authorized,
27,807,047 and 27,091,270 shares issued at June 30, 2000
and 1999, respectively 556 542
Additional paid-in capital 220,558 193,500
Retained earnings 151,874 94,550
Less notes receivable from stockholders (11,347) --
Less treasury stock at cost, 1,575 shares at June 30, 1999 -- (86)
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 361,641 288,506
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 601,051 $ 459,661
=================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
25
9
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
FOR YEARS ENDED JUNE 30, 2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 70,204 $ 38,116 $ 40,024
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 30,695 23,558 14,836
Loss on disposition or write-down of property and equipment -- -- 2,684
Write-off of acquired in-process research and development -- 19,000 --
Net gain from divestitures (4,320) -- --
Deferred income tax provision 2,695 3,673 4,515
Change in assets and liabilities, net of effects from acquisitions:
Accounts receivable, net (6,487) (26,457) (8,103)
Other current assets (2,894) (2,799) (1,477)
Other assets (583) (6,800) (1,813)
Accounts payable (5,318) 5,140 148
Accrued liabilities and other 6,026 (1,131) 11,805
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 90,018 52,300 62,619
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (117,812) (59,273) (26,567)
Proceeds from dispositions, net of expenses paid 17,578 3,925 --
Capital expenditures, net (27,963) (27,740) (16,930)
Change in other investments 2,834 (6,871) (6,571)
Proceeds from sales and maturities of investments -- -- 1,365
Purchase of intangible assets (5,465) (1,183) (1,621)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (130,828) (91,142) (50,324)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net 63,000 52,000 --
Repayment of debt -- (1,093) (2,150)
Exercise of stock options 15,838 12,843 12,229
Issuance of common stock 2,235 1,691 1,369
Repurchases of common stock (19,675) (70,413) (10,291)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 61,398 (4,972) 1,157
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 20,588 (43,814) 13,452
Cash and cash equivalents at beginning of year 49,589 93,403 79,951
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 70,177 $ 49,589 $ 93,403
=================================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 2,137 $ 1,158 $ 338
Income taxes $ 38,843 $ 27,172 $ 19,432
=================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
26
10
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
COMMON STOCK ADDITIONAL NOTES TREASURY STOCK
FOR YEARS ENDED JUNE 30, 1998, ---------------- PAID-IN RETAINED RECEIVABLE FROM ------------------
1999 AND 2000 SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS SHARES AMOUNT
------ ------ ------- -------- ------------ ------ ------
BALANCE, JUNE 30, 1997 25,235 $505 $153,775 $ 37,639 $ -- -- $ --
=================================================================================================================================
Exercise of stock options 592 12 9,391 (4,965) -- (217) 8,136
Tax benefit of stock options exercised -- -- 4,607 -- -- -- --
Issuance of common stock 48 1 1,368 -- -- -- --
Common stock issued in acquisitions 795 15 4,542 (6,469) -- -- --
Repurchases of common stock -- -- -- -- -- 275 (10,291)
Net income -- -- -- 40,024 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 26,670 533 173,683 66,229 -- 58 (2,155)
=================================================================================================================================
Exercise of stock options 361 8 7,255 (7,135) -- (297) 12,787
Tax benefit of stock options exercised -- -- 5,458 -- -- -- --
Issuance of common stock 60 1 1,690 -- -- -- --
Common stock issued in acquisitions -- -- 5,414 (2,660) -- (1,314) 59,695
Repurchases of common stock -- -- -- -- -- 1,555 (70,413)
Net income -- -- -- 38,116 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 27,091 542 193,500 94,550 -- 2 (86)
=================================================================================================================================
Exercise of stock options 665 13 16,252 (12,890) (11,347) (375) 18,864
Tax benefit of stock options exercised -- -- 8,572 -- -- -- --
Issuance of common stock 51 1 2,234 -- -- -- --
Common stock issued in acquisitions -- -- -- 10 -- (15) 897
Repurchases of common stock -- -- -- -- -- 388 (19,675)
Net income -- -- -- 70,204 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 27,807 $556 $220,558 $ 151,874 $(11,347) -- $ --
=================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
27
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The BISYS Group, Inc. and subsidiaries ("BISYS" or the "Company") is a
leading national provider of outsourcing solutions to and through financial
organizations.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The BISYS
Group, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid debt instruments purchased
with original maturities of three months or less, including $16.3 million and
$9.9 million of overnight repurchase agreements at June 30, 2000 and 1999,
respectively. The Company maintains cash deposits in banks which from time to
time exceed the amount of deposit insurance available. Management periodically
assesses the financial condition of the institutions and believes that any
potential credit loss is minimal.
SHORT-TERM INVESTMENTS
Management determines the appropriate classification of investments in
debt and equity securities at the time of purchase. Marketable debt and equity
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 stockholders' equity, net of related deferred
income taxes. Realized gains or losses are computed based on specific
identification of the securities sold. Realized and gross unrealized gains and
losses on short-term investments were not significant for the years ended June
30, 2000, 1999 and 1998.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight line method over the estimated useful lives of
the assets as follows:
ESTIMATED
USEFUL LIVES
(YEARS)
Buildings and leasehold improvements 4 - 10
Data processing equipment and systems 3 - 7
furniture and fixtures 3 - 12
Software development costs 3 - 5
- -------------------------------------------------------
Depreciation expense for the years ended June 30, 2000, 1999 and 1998 was
$19,198,000, $15,804,000 and $11,092,000, respectively.
Expenditures for major renewals and improvements are capitalized, while minor
replacements, maintenance and repairs which do not improve or extend the life of
such assets are charged to expense as incurred. Disposals are removed at cost
less accumulated depreciation with the resulting gain or loss being reflected in
operations.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight line basis over the
estimated useful lives as follows:
ESTIMATED
USEFUL LIVES
(YEARS)
Cost in excess of net assets acquired 10 - 40
Customer relationships 25 - 30
Other 3 - 10
- -------------------------------------------------------
The Company evaluates, for impairment, the carrying value of intangible assets
by comparing the carrying value of intangible assets including goodwill, to the
anticipated future undiscounted cash flows from the businesses whose acquisition
gave rise to the asset. If an intangible asset is impaired, the asset is written
down to fair value. Intangible assets resulting from acquired customer
relationships are evaluated in light of actual customer attrition rates to
ensure that the carrying value of these intangible assets is recoverable.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses the likelihood of recovering the cost of
long-lived assets based on its expectations of future profitability and
undiscounted cash flows of the related business operations. These factors, along
with management's plans with respect to the operations, are considered in
assessing the recoverability of property, equipment, and purchased intangibles.
SOFTWARE COSTS
The Company charges to operations routine maintenance of software, design
costs and development costs incurred prior to the establishment of a product's
technological feasibility. Costs incurred subsequent to the establishment of a
product's technological feasibility are capitalized and amortized over the
expected useful life of the related product. For the year ended June 30, 1998,
the Company did not capitalize any internal costs related to the development of
new software. For the years ended June 30, 2000 and 1999, the Company applied
the provisions of SOP 98-1 and capitalized certain internal costs related to the
development of internal use software.
28
12
REVENUE RECOGNITION
The Company records revenue as earned as evidenced by contracts or
invoices for its services at prices established by contract, price list and/or
fee schedule less applicable discounts. The Company is generally not subject to
returns in its businesses. Revenues from the sales of software are recognized in
accordance with the AICPA's Statement of Position 97-2, "Software Revenue
Recognition." Maintenance fee revenue is recognized ratably over the term of the
related support period, generally twelve months. Consulting revenue and training
revenue are recognized upon delivery of the related service.
ACCOUNTS RECEIVABLE
A majority of the Company's receivables are from financial institutions
and investment companies which approximated $43.2 million and $23.8 million,
respectively, at June 30, 2000. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral for accounts
receivable. Bad debt expense for the years ended June 30, 2000, 1999 and 1998
approximated $1,705,000, $2,331,000 and $1,642,000, respectively. At June 30,
2000 and 1999, the Company's allowance for doubtful accounts was approximately
$2,468,000 and $5,477,000, respectively.
PER SHARE DATA
Basic earnings per share is computed using the weighted average number of
common shares outstanding during each year presented. Diluted earnings per share
is computed using the weighted average number of common and dilutive common
equivalent shares outstanding during each year presented. Common equivalent
shares consist of stock options and are computed using the treasury stock
method.
Amounts utilized in per share computations are as follows (in thousands):
YEAR ENDED JUNE 30 2000 1999 1998
Weighted average common
shares outstanding 27,458 26,696 26,313
Assumed conversion of
common shares issuable
under stock option plan 1,035 1,240 1,034
- --------------------------------------------------------------------
Weighted average common
and common equivalent
shares outstanding 28,493 27,936 27,347
====================================================================
Options to purchase 205,883 shares of common stock at various prices ranging
from $57.94 to $68.63 were outstanding at June 30, 2000, but were not included
in the computation of diluted EPS because the options' exercise prices were
greater than the average market price of common shares.
STOCK-BASED COMPENSATION
The Company applies APB opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock-based
compensation plans.
INCOME TAXES
The liability method is used in accounting for income taxes whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws.
RECLASSIFICATION
Certain reclassifications have been made to the 1998 and 1999 consolidated
financial statements to conform to the 2000 presentation.
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, business divestitures, merger expenses and other
charges, acquired in-process research and development, income taxes and
contingencies. It is reasonably possible that actual results could differ from
these estimates in the near term.
DISCLOSURE REGARDING FINANCIAL INSTRUMENTS
For all financial instruments, including cash and cash equivalents,
receivables, accounts payable and short-term borrowings, the carrying value is
considered to approximate fair value.
2. BUSINESS COMBINATIONS
On September 16, 1998, the Company completed its acquisition of Greenway
Corporation (Greenway) through the issuance of 968,202 shares of BISYS common
stock held in treasury and issuance of 148,795 equivalent stock options for all
of the outstanding shares and stock options of Greenway. The acquisition, valued
at approximately $43.8 million, was treated as a purchase for accounting
purposes, and, accordingly, the assets and liabilities were recorded
29
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on their fair values at the date of the acquisition. Of the total purchase
price, $15.6 million was allocated to goodwill, $7.4 million to other
identifiable intangible assets, and $1.8 million to net tangible assets. In
addition, $19.0 million was allocated to acquired in-process research and
development, which was charged to operations at the time of the acquisition.
In addition to Greenway, the Company also completed the following purchase
acquisitions of businesses and assets in fiscal years 2000, 1999 and 1998. The
acquisitions set forth below have been accounted for as purchases and,
accordingly, the operations of the acquired companies are included in the
consolidated financial statements since the dates of acquisition. Pro forma
information has not been presented due to lack of materiality.
During fiscal 1998, the Company merged with Benefit Systems, Inc. (BSI),
Dascit/White & Winston and affiliated companies (DWW), and Charter Systems, Inc.
(Charter), now known as BISYS Networking Services, by exchanging shares of BISYS
common stock and equivalent stock options for all the outstanding shares and
stock options of the acquired businesses.
The acquisitions of Charter, DWW and BSI have been accounted for as poolings of
interests. The acquired companies' results of operations have been included in
BISYS' results of operations effective July 1, 1997. The Company incurred a
pre-tax charge of $5,263,000 for the year ended June 30, 1998 for costs
associated with these mergers (see Note 9).
BUSINESS DATE ACQUIRED NATURE OF BUSINESS CONSIDERATION
- ----------------------------------------------------------------------------------------------------
Underwriters Service Agency May 1998 Life insurance distribution Cash for stock
and affiliates (USA)
CoreLink Resources, Inc. July 1998 Brokerage services Cash for stock
(CoreLink)
Potomac Insurance Marketing August 1998 Life insurance distribution Cash for stock
Group, Inc. (Potomac)
EXAMCO, Inc. (EXAMCO) April 1999 Education services Cash and stock
for stock
Poage Insurance Services April 1999 Life insurance distribution Cash for stock
(Poage)
Dover International (Dover) May 1999 Education and Cash and stock
support services for stock
Retained Asset Account Services June 1999 Financial processing Cash for assets
(RAA) services
Credit Lyonnais International May 2000 Fund administration Cash and stock
Fund Services (CLIFS) for assets
- -----------------------------------------------------------------------------------------------------
30
14
3. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS (IN THOUSANDS):
2000 1999
Other current assets:
Deposit on business acquisition $ 115,000 $ --
Other 16,734 14,243
- --------------------------------------------------------------------------------
$ 131,734 $ 14,243
================================================================================
Property and equipment, net:
Land $ -- $ 120
Buildings and leasehold
improvements 8,257 8,201
Data processing equipment
and systems 41,953 43,390
Furniture and fixtures 20,088 20,520
Software development costs 45,063 33,450
- --------------------------------------------------------------------------------
115,361 105,681
Less: accumulated depreciation
and amortization (54,150) (50,826)
- --------------------------------------------------------------------------------
$ 61,211 $ 54,855
================================================================================
Intangible assets, net:
Cost in excess of net
assets acquired $ 168,057 $ 171,833
Customer relationships 29,500 31,675
Other 25,757 17,384
- --------------------------------------------------------------------------------
223,314 220,892
Less: accumulated amortization (34,965) (26,040)
- --------------------------------------------------------------------------------
$ 188,349 $ 194,852
================================================================================
Accrued liabilities:
Compensation $ 19,511 $ 15,556
Deferred income 9,510 12,523
Income taxes 2 3,809
Marketing 22,752 17,868
Other 37,815 32,538
- --------------------------------------------------------------------------------
$ 89,590 $ 82,294
================================================================================
4. BORROWINGS
The Company has a $200 million senior unsecured revolving credit facility
(including a $20 million letter of credit subfacility) with its banks to support
working capital requirements and fund the Company's future acquisitions.
The facility expires June 30, 2004.
Outstanding borrowings under the credit facility bear interest at prime or, at
the Company's option, LIBOR plus a margin not to exceed 1.325% based upon the
ratio of the Company's consolidated indebtedness to consolidated earnings before
interest, taxes, depreciation and amortization (the "Pricing Formula"). The
credit agreement requires the Company to pay an agent fee of $25,000 per year
and an annual facility fee not to exceed 0.30%, or $600,000. The facility is
guaranteed by significant subsidiaries of The BISYS Group, Inc.
The credit agreement requires, among other things, the Company to maintain
certain financial covenants and limits the Company's ability to incur additional
indebtedness and to pay dividends. As of June 30, 2000, no amounts were
permitted for the payment of cash dividends.
The Company can borrow under the facility through June 2004 up to $200 million,
reduced by any outstanding letters of credit ($718,000 at June 30, 2000).
Interest is payable quarterly for prime rate borrowings or at maturity for LIBOR
borrowings, which range from 30-180 days. At June 30, 2000, the Company had
outstanding borrowings of $115 million bearing interest at LIBOR plus a margin
of 0.55% (7.30% at June 30, 2000).
5. INCOME TAXES
The significant components of the Company's net deferred tax asset (liability)
as of June 30, 2000 and 1999 are as follows (in thousands):
2000 1999
Deferred tax assets related to:
Accrued liabilities $ 9,058 $ 7,687
Accounts receivable 2,179 1,324
Tax carryforwards 1,246 4,061
Other 175 450
- --------------------------------------------------------------------------------
Deferred tax assets 12,658 13,522
Less valuation allowance (608) (648)
- --------------------------------------------------------------------------------
Net deferred tax assets 12,050 12,874
- --------------------------------------------------------------------------------
Deferred tax liabilities related to:
Property and equipment (6,853) (4,106)
Intangible assets (9,841) (9,301)
- --------------------------------------------------------------------------------
Deferred tax liabilities (16,694) (13,407)
- --------------------------------------------------------------------------------
Net deferred tax liability $ (4,644) $ (533)
================================================================================
At June 30, 2000 the Company had $4,913,000 of federal and state net operating
loss carryforwards available, expiring in fiscal 2007 to fiscal 2019.
The Company periodically evaluates the deferred tax asset and adjusts the
related valuation allowance on the deferred tax asset to an amount which is more
likely than not to be realized through future taxable income.
The components of the income tax provision for the years ended June 30, 2000,
1999 and 1998 are as follows (in thousands):
2000 1999 1998
Deferred federal
tax expense $ 1,849 $ 3,156 $ 3,867
Current federal tax expense 38,208 29,044 17,988
Deferred state tax expense 831 517 648
Current state tax expense 6,320 4,926 4,226
Current foreign tax expense 15 433 --
Deferred foreign tax
(benefit) expense (1,388) -- --
- --------------------------------------------------------------------------------
$ 45,835 $ 38,076 $ 26,729
================================================================================
A reconciliation of the Company's income tax provision and the amount computed
by applying the statutory federal
31
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
income tax rate to income before income tax provision for the years ended June
30, 2000, 1999 and 1998 is as follows (in thousands):
2000 1999 1998
Federal income tax
at statutory rate $ 40,614 $ 26,667 $ 23,364
Amortization and
charge-off of
non-deductible
intangible assets 2,327 8,620 781
Change in valuation allowance 396 (209) (462)
State taxes 4,189 2,985 3,091
Other, net (1,691) 13 (45)
- --------------------------------------------------------------------------------
$ 45,835 $ 38,076 $ 26,729
================================================================================
6. COMMITMENTS AND CONTINGENCIES
The Company leases office space under noncancellable operating leases with
remaining terms of up to fifteen years. The Company also leases certain office
and computer equipment and software under operating leases expiring through
2006. Rental expense associated with these operating leases for the years ended
June 30, 2000, 1999 and 1998 were $20,466,000, $20,164,000, and $16,434,000,
respectively.
The future minimum rental payments under noncancellable operating leases for the
years ending after June 30, 2000 are as follows (in thousands):
OPERATING
FISCAL YEAR LEASES
2001 $ 23,175
2002 18,696
2003 14,607
2004 12,378
2005 10,775
Thereafter 48,986
- --------------------------------------------------------------------------------
$128,617
================================================================================
The Company's broker/dealer subsidiaries are subject to the Uniform Net Capital
Rule of the Securities and Exchange Commission. At June 30, 2000, the aggregate
net capital of such subsidiaries was $13,834,000, exceeding the net capital
requirement by $11,248,000.
The Company is involved in litigation arising in the ordinary course of
business. 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.
7. SUPPLEMENTAL CASH FLOW INFORMATION
In fiscal 2000, 1999 and 1998, the Company recorded a reduction to taxes
currently payable related to tax benefits associated with stock options of
approximately $8,572,000, $5,458,000, and $4,607,000 respectively, with a
corresponding increase to additional paid-in capital.
During the years ended June 30, 2000, 1999 and 1998, the Company received
proceeds relating to the exercise of stock options of $15,838,000, $12,843,000,
and $12,229,000, respectively, and recorded a deduction to deferred compensation
of $233,000 in 2000 and $72,000 in 1999, with offsetting increases in additional
paid-in capital.
Net cash paid for acquisition of businesses was comprised of the following for
the years ended June 30, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
Fair value of assets acquired,
net of cash $ 4,419 $ 146,450 $ 27,771
Deposit on business
acquisition 115,000 -- --
Less: issuance of common
stock and stock options
pursuant to acquisitions (907) (62,449) --
Liabilities assumed (700) (24,728) (1,204)
- --------------------------------------------------------------------------------
Net cash paid $ 117,812 $ 59,273 $ 26,567
================================================================================
8. RETIREMENT SAVINGS PLAN
The Company has a contributory retirement and savings plan which covers all
employees and meets the requirements of Section 401(k) of the Internal Revenue
Code. Employees may contribute up to 15% of their compensation to the plan which
is matched 50% by the Company up to 6% of the employee's compensation not to
exceed $5,250.
The Company may, at the discretion of the Board of Directors, make additional
contributions to the plan. The Company's matching contribution vests 40% with
the employee after two years and 20% per year thereafter. The Company's expense
to match employee contributions for the years ended June 30, 2000, 1999 and
1998, was approximately $2,613,000, $2,496,000 and $2,253,000, respectively.
9. BUSINESS DIVESTITURES, MERGER EXPENSES AND OTHER CHARGES
During fiscal 2000, the Company sold two of its divisions, Research Services and
Networking Services, and sold the retail third-party bank marketing component of
its Brokerage Services division for combined net cash proceeds of approximately
$17.4 million. As a result of these divestitures, a pre-tax gain of $4.3 million
was recognized in fiscal 2000.
32
16
In fiscal 2000, the Company recorded a pre-tax charge of $3.8 million for losses
in connection with an overseas client of the Fund Services division whose fund
accounting contract was terminated in the fourth quarter of fiscal 2000.
As discussed in Note 2, the Company wrote off $19.0 million of acquired
in-process research and development associated with the acquisition of Greenway
and incurred $0.4 million of merger-related expenses during fiscal 1999.
During fiscal 1998, the Company incurred a charge of $6,735,000 to realign
operations in conjunction with the termination of distribution and
administrative agreements with a client of the Company's Fund Services division.
As discussed in Note 2, the Company recorded a charge of $5,263,000 during
fiscal 1998 for costs associated with the mergers of Charter, DWW, and BSI.
Total business divestitures, merger expenses and other charges recorded for the
years ended June 30, 2000, 1999 and 1998 consisted of the following (in
thousands):
2000 1999 1998
Net gain from divestitures $(4,320) $ -- $ --
Merger transaction expenses
(legal and financial) -- 1,805
Costs to combine or
realign operations:
Compensation related 400 3,722
Facilities or systems related -- -- 4,868
Other -- -- 1,603
Loss on contract 3,800 -- --
- --------------------------------------------------------------------------------
$ (520) $ 400 $11,998
================================================================================
During the years ended June 30, 2000 and 1999, the following costs were paid or
charged against the merger related accruals and the liability for loss on the
administrative services contract (in thousands):
2000 1999
Compensation related costs $ -- $ 741
Facilities or systems related costs 83 1,273
Other -- 1,393
Loss on contract 1,500
- --------------------------------------------------------------------------------
$1,583 $3,407
================================================================================
At June 30, 2000, $2.3 million of estimated costs are unpaid and included in
accrued liabilities on the accompanying balance sheet.
10. SHAREHOLDER RIGHTS PLAN
On May 7, 1997, the Board of Directors adopted a Shareholder Rights Plan and
declared a dividend distribution at the rate of one Right for each share of
common stock held of record as of the close of business on May 16, 1997 and for
each share of common stock issued thereafter up to the distribution date
(defined below).
Each Right entitles holders of common stock to buy one share of common stock of
the Company at an exercise price of $175.00. The Rights would be exercisable,
and would detach from the common stock (the "Distribution Date") only if a
person or group (i) were to acquire 15 percent or more of the outstanding shares
of common stock of the Company; (ii) were to announce a tender or exchange offer
that, if consummated, would result in a person or group beneficially owning 15
percent or more of the outstanding shares of common stock of the Company; (iii)
were declared by the Board to be an Adverse Person (as defined in the Plan) if
such person or group beneficially owns 10 percent or more of the outstanding
shares of common stock in the Company. In the event of any occurrence triggering
the Distribution Date, each right would entitle the holder (other than such an
acquiring person or group) to purchase the outstanding shares of common stock of
the Company (or, in certain circumstances, common stock of the acquiring person)
with a value of twice the exercise price of the Rights upon payment of the
exercise price. The Company will be entitled to redeem the Rights at $0.0025 per
Right at any time. The Rights will expire at the close of business on May 16,
2007.
11. STOCK BASED COMPENSATION PLANS
The Company has stock option and restricted stock purchase plans which provide
for granting of options and/or restricted stock to certain employees and outside
directors. The options vest primarily over a five-year period at each
anniversary date of the grant. These options expire following termination of
employment or within ten years of the date of the grant, whichever comes first.
Pro forma disclosures are provided for fiscal 2000, 1999 and 1998 as if the
company had adopted the cost recognition requirements of FAS 123 "Accounting for
Stock-based Compensation." At June 30, 2000, options to purchase 3,029,903
shares are available for grant under the plans.
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 fiscal 2000, 1999 and 1998: 1) expected dividend yields of 0%, 2) risk-free
interest rates ranging from 4.72% to 6.78%, 3) expected volatility of 35% in
fiscal years 2000 and 1999 and 30% in fiscal year 1998, and 4) an expected
option life of 5 years, 5 years and 4 years in fiscal 2000, 1999 and 1998,
respectively. For the purpose of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period of 5
years for employees. Using these assumptions, the weighted average fair value
per option at date of grant for options granted during fiscal 2000, 1999 and
1998 was $20.76, $17.02 and $10.25, respectively.
Had compensation expense been recognized for the Company's stock-based
compensation plans in accordance with FAS 123, the pro forma net income and
earnings per share for the years ended June 30, 2000, 1999 and 1998 would have
been as follows (in thousands, except per share data):
2000 1999 1998
Pro Forma Pro Forma Pro Forma
Net income $ 57,169 $ 31,023 $ 36,129
Basic earnings per share $ 2.12 $ 1.18 $ 1.40
Diluted earnings per share $ 2.04 $ 1.13 $ 1.34
================================================================================
33
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of stock option activity for the years ended June 30,
2000, 1999 and 1998:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning of year 4,204,521 $33.96 3,735,717 $28.00 3,441,628 $24.40
Options assumed in acquisitions _ _ 164,570 $ 4.57 258,605 $ 3.24
Options granted 1,225,033 $51.39 1,311,614 $47.39 1,542,994 $34.09
Options exercised (1,248,906) $75.57 (658,499) $19.19 (808,985) $15.09
Options cancelled (422,461) $43.36 (348,881) $34.75 (698,525) $29.45
- ---------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,758,187 $41.35 4,204,521 $33.96 3,735,717 $28.00
===============================================================================================================
Exercisable at end of year 1,207,618 $33.55 1,467,711 $23.27 1,196,740 $19.22
===============================================================================================================
The following summarizes information about the Company's stock options
outstanding at June 30, 2000:
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Life Exercise Price
Range of Exercise Prices Options Outstanding Price (in years) Exercisable of Exercisable
$ 0.01-$10.00 83,123 $ 2.20 5.0 79,428 $ 2.10
$10.01-$20.00 139,090 $19.24 3.3 139,090 $19.24
$20.01-$30.00 221,117 $24.27 4.9 137,917 $23.62
$30.01-$40.00 1,231,608 $34.97 7.0 470,209 $35.05
$40.01-$50.00 812,685 $44.37 7.6 299,727 $44.70
$50.01-$60.00 1,129,681 $52.29 8.9 81,247 $55.47
$60.01-$70.00 140,883 $64.22 9.2 _ $ _
==================================================================================================================
12. NOTES RECEIVABLE FROM STOCKHOLDERS
The Board of Directors has approved and the Company has made loans to certain
executive officers to assist them in exercising non-qualified stock options,
retaining the underlying shares and paying the applicable taxes resulting from
such exercises. These loans bear interest at rates ranging from 5.98% to 6.25%,
are full recourse, and are secured by shares of the Company's Common Stock
acquired pursuant to the exercise of the options representing up to 120% of the
principal amount of the loan. The principal is repayable the later of five years
from the date of the loan or the expiration date of the options exercised using
such loan proceeds. The principal is also repayable within one year of the
employee's death or termination of employment due to disability and within 30
days of voluntary resignation. Interest is payable annually on the anniversary
date of each loan.
The notes receivable of $11.3 million are reflected on the accompanying
consolidated balance sheet as a reduction in stockholders' equity.
13. BUSINESS SEGMENT INFORMATION
The Company is a leading provider of growth-enabling outsourcing solutions to
financial institutions and other financial organizations. The Company's
operations have been classified into three business segments: Information
Services, Investment Services, and Insurance and Education Services. Summarized
financial information by business segment and for corporate operations for the
years ended June 30, 2000, 1999 and 1998 is as follows (in thousands):
34
18
2000 1999 1998
Revenues:
Information Services $ 178,454 $ 178,296 $ 151,372
Investment Services 303,106 237,909 211,714
Insurance and Education Services 89,841 56,471 23,258
- -----------------------------------------------------------------------------------------------
Total $ 571,401 $ 472,676 $ 386,344
===============================================================================================
Operating earnings (loss):
Information Services $ 44,816 $ 44,389 $ 34,320
Investment Services 53,212 42,499 42,764
Insurance and Education Services 31,436 19,353 7,502
Corporate (13,994) (11,849) (10,684)
- -----------------------------------------------------------------------------------------------
Total $ 115,470 $ 94,392 $ 73,902
===============================================================================================
Assets:
Information Services $ 111,868 $ 132,271 $ 151,213
Investment Services 200,111 179,084 125,227
Insurance and Education Services 235,585 110,092 43,598
Corporate 53,487 38,214 15,467
Elimination of intercompany receivables -- -- (1,404)
- -----------------------------------------------------------------------------------------------
Total $ 601,051 $ 459,661 $ 334,101
===============================================================================================
Depreciation and amortization expense:
Information Services $ 12,004 $ 11,404 $ 8,273
Investment Services 11,335 7,930 5,542
Insurance and Education Services 6,649 3,702 665
Corporate 707 522 356
- -----------------------------------------------------------------------------------------------
Total $ 30,695 $ 23,558 $ 14,836
===============================================================================================
Capital expenditures:
Information Services $ 10,190 $ 10,063 $ 8,789
Investment Services 12,696 14,006 5,415
Insurance and Education Services 5,600 3,444 2,631
Corporate 1,151 1,784 757
- -----------------------------------------------------------------------------------------------
Total $ 29,637 $ 29,297 $ 17,592
===============================================================================================
The following is a reconciliation of operating earnings to the Company's
consolidated total (in thousands):
2000 1999 1998
Total operating earnings for reportable segments $ 115,470 $ 94,392 $ 73,902
Business divestitures, merger expenses
and other charges, net 520 (400) (11,998)
Acquired in-process research and development - (19,000) -
- -----------------------------------------------------------------------------------------------
Total operating earnings $ 115,990 $ 74,992 $ 61,904
===============================================================================================
The net revenues of each segment are principally domestic, and no single
customer accounted for 10% or more of the consolidated revenues for the years
ended June 30, 2000, 1999 and 1998.
14. SUBSEQUENT EVENTS
On July 1, 2000, the Company completed its acquisition of Pictorial, Inc.
(Pictorial) in a cash for stock transaction valued at $129 million. Pictorial,
headquartered in Indianapolis, is a provider of pre-licensing and continuing
education training materials and licensing solutions for insurance carriers,
agencies, and agents. The Company provided a cash deposit of $115 million to the
seller on June 30, 2000 toward the purchase of Pictorial in accordance with the
terms of the merger agreement. The deposit has been included in other current
assets on the accompanying balance sheet.
On July 31, 2000, the Company completed its acquisition of Ascensus Insurance
Services, Inc. (Ascensus) by the exchange of cash consideration and stock
options totaling approximately $43 million for all the outstanding shares and
stock options of Ascensus. Ascensus, headquartered in Salt Lake City, is a
leading distributor of life insurance products.
Both transactions will be accounted for by the purchase method of accounting.
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19
MARKET PRICE INFORMATION
(unaudited)
The following information relates to the Company's $0.02 par value common stock
which trades in the over-the-counter market and is quoted in the NASDAQ National
Market System under the symbol BSYS. Price information on the Company's common
stock is presented below:
FISCAL 2000
QUARTER ENDED HIGH LOW
September 30, 1999 $ 60 $ 45 1/16
December 31, 1999 65 1/4 41 31/32
March 31, 2000 68 5/8 48 1/4
June 30, 2000 67 3/8 58 1/8
================================================================================
FISCAL 1999
QUARTER ENDED HIGH LOW
September 30, 1998 $ 45 1/4 $ 36 3/4
December 31, 1998 51 5/8 38 3/8
March 31, 1999 58 1/2 47 1/8
June 30, 1999 59 19/32 50
================================================================================
At June 30, 2000, the Company's common stock was held by 1,305 stockholders of
record. It is estimated that an additional 5,000 stockholders own the Company's
common stock through nominee or street name accounts with brokers.
CONSOLIDATED QUARTERLY RESULTS
(unaudited, in thousands, except per share data)
FISCAL 2000
- ------------------------------------------------------------------------------------------
QUARTER ENDED SEP 30 DEC 31 MAR 31 JUN 30
Revenues $132,313 $138,044 $145,657 $155,387
Operating earnings 20,721 25,002 32,848 37,419
Income before income tax provision 20,471 24,505 33,033 38,030
Net income 12,283 14,926 19,987 23,008
==========================================================================================
Basic earnings per share $ 0.45 $ 0.55 $ 0.72 $ 0.83
Diluted earnings per share $ 0.44 $ 0.53 $ 0.70 $ 0.80
==========================================================================================
FISCAL 1999
- ------------------------------------------------------------------------------------------------------
QUARTER ENDED SEP 30 DEC 31 MAR 31 JUN 30
Revenues $ 101,924 $ 111,958 $ 121,302 $ 137,492
Operating earnings (loss) (3,461) 20,108 27,014 31,331
Income (loss) before income tax provision (2,664) 20,351 27,331 31,174
Net income (loss) (9,199) 12,209 16,400 18,706
======================================================================================================
Basic earnings (loss) per share $ (0.35) $ 0.46 $ 0.61 $ 0.69
Diluted earnings (loss) per share $ (0.35) $ 0.44 $ 0.58 $ 0.66
======================================================================================================
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