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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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)
973-812-8600
(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
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
Class Shares Outstanding at October 20, 1997
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Common Stock, par value $.02 per share 26,139,800
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This document contains 15 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 September 30,
1997 and June 30, 1997. . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Operations for the
three months ended September 30, 1997 and 1996. . . 4
Condensed Consolidated Statement of Cash Flows for the
three months ended September 30, 1997 and 1996. . . 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
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
PART I
ITEM 1. FINANCIAL STATEMENTS
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
September 30, June 30,
1997 1997
------------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 85,452 $ 79,951
Accounts receivable, net 62,654 59,987
Deferred tax asset 6,718 5,083
Prepaid expenses and other 6,996 6,980
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Total current assets 161,820 152,001
Property and equipment, net 33,922 32,111
Intangible assets, net 74,909 75,719
Other assets 10,050 5,254
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Total assets $280,701 $265,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 149 $ 83
Accounts payable 9,116 6,673
Accrued liabilities 66,823 57,604
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Total current liabilities 76,088 64,360
Long-term debt 1,660 1,585
Deferred tax liability 7,955 6,860
Other liabilities 966 361
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Total liabilities 86,669 73,166
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Stockholders' equity:
Common stock, $.02 par value, 80,000,000 shares
authorized, 26,129,039 and 25,235,288 shares
issued and outstanding, respectively 523 505
Additional paid-in capital 160,716 153,775
Retained earnings 32,793 37,639
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Total stockholders' equity 194,032 191,919
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Total liabilities and stockholders' equity $280,701 $265,085
======== ========
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
September 30,
------------------
1997 1996
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Revenues $91,462 $72,395
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Operating costs and expenses:
Service and operating 54,218 40,015
General and administrative 15,606 13,722
Selling and conversion 4,156 2,840
Research and development 2,871 2,608
Amortization of intangible assets 888 936
Merger expenses and other charges 11,998 -
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Operating earnings 1,725 12,274
Interest income, net 1,025 504
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Earnings before income tax provision 2,750 12,778
Income tax provision 1,127 5,112
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Net earnings $ 1,623 $ 7,666
======= =======
Net earnings per common share $ 0.06 $ 0.29
======= =======
Weighted average common and common
equivalent shares outstanding 27,435 26,341
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
September 30,
------------------
1997 1996
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Cash flows from operating activities:
Net earnings $ 1,623 $ 7,666
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,472 2,847
Loss on disposition or write-down of property
and equipment 2,520 --
Deferred income tax provision (benefit) (540) (603)
Change in operating assets and liabilities,
net of effects from acquisitions 6,429 (1,768)
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Net cash provided by operating activities 13,504 8,142
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Cash flows from investing activities:
Net cash acquired in acquisitions 1,490 --
Capital expenditures (5,377) (3,510)
Proceeds from sales of investments 1,203 --
Purchase of investments (5,000) (3,000)
Other 39 28
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Net cash used in investing activities (7,645) (6,482)
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Cash flows from financing activities:
Repayment of debt (2,043) (81)
Proceeds from exercise of stock options 1,685 1,815
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Net cash provided by (used in) financing
activities (358) 1,734
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Net increase in cash and cash equivalents 5,501 3,394
Cash and cash equivalents at beginning of period 79,951 39,284
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Cash and cash equivalents at end of period $85,452 $42,678
======= =======
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 fiscal 1997 Annual
Report on Form 10-K filed with the Securities and Exchange Commission and
should be read in conjunction therewith. The condensed consolidated
financial statements include all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary
to present fairly this information.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. The most significant estimates
are related to the allowance for doubtful accounts, intangible assets,
merger expenses and other charges, income taxes and contingencies.
Actual results could differ from these estimates in the near term.
3. BUSINESS COMBINATIONS
On August 15, 1997, the Company merged with Charter Systems, Inc. (Charter)
by exchanging 588,945 shares of BISYS common stock and 258,605 BISYS
equivalent stock options for all the outstanding shares and stock options
of Charter.
On August 29, 1997, the Company merged with Dascit/White & Winston and
affiliated companies (DWW) by exchanging 134,396 shares of BISYS common
stock for all the outstanding stock of DWW.
On September 16, 1997, the Company merged with Benefit Services, Inc. (BSI)
by exchanging 71,448 shares of BISYS common stock for all the outstanding
shares of BSI.
The acquisitions of Charter, DWW and BSI have been accounted for as
poolings of interests, although historical financial statements have not
been restated due to immateriality. The acquired companies' results of
operations have been included in BISYS' results of operations effective
July 1, 1997. Total stockholders' equity at July 1, 1997 decreased $1.9
million due to the impact of the acquisitions. The Company incurred a
pre-tax charge of $5,263,000 during the quarter ended September 30, 1997
for costs associated with these mergers. The components of the charge are
as follows:
Merger transaction expenses (legal and financial) $1,805,000
Compensation related 1,475,000
Facilities related 1,100,000
Other 883,000
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$5,263,000
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6
4. REALIGNMENT CHARGE
During the quarter ended September 30, 1997, the Company incurred a pre-tax
charge of $6,735,000 to realign operations primarily in conjunction with a
client of the Company's Fund Services division terminating its distribution
and administrative agreements effective September 1997. The components of
the charge are as follows:
Compensation related $2,247,300
Facilities related 2,016,100
Systems related 1,752,000
Other 720,100
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$6,735,000
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5. NEW ACCOUNTING STANDARD
In March 1997, the Financial Accounting Standards Board issued FAS 128,
"Earnings Per Share." FAS 128 supersedes APB 15, "Earnings Per Share", and
changes the computation of earnings per share (EPS) by replacing the
"primary" EPS requirements of APB 15 with a "basic" EPS computation based
upon weighted average shares outstanding. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. FAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company will adopt FAS 128 in the second
quarter of fiscal 1998, as required.
The earnings per common share computed under the provision of FAS 128 for
the three months ended September 30, 1997 is $0.06 for both basic and
diluted earnings per share.
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
September 30,
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1997 1996
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Revenues 100.0% 100.0%
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Operating costs and expenses:
Service and operating 59.3 55.3
General and administrative 17.1 18.9
Selling and conversion 4.5 3.9
Research and development 3.1 3.6
Amortization of intangible assets 1.0 1.3
Merger expenses and other charges 13.1 -
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Operating earnings 1.9 17.0
Interest income, net 1.1 0.7
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Earnings before income tax provision 3.0 17.7
Income tax provision 1.2 7.1
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Net earnings 1.8% 10.6%
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COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1996.
Revenues increased 26.3% from $72.4 million for the three months ended
September 30, 1996 to $91.5 million for the three months ended September
30, 1997. This growth was derived from sales to new clients, existing
client growth, cross sales to existing clients and revenues from acquired
businesses, partially offset by lost business and revenue from the Item
Processing division which was sold in the second quarter of fiscal 1997.
Service and operating expenses increased 35.5% from $40.0 million during
the three months ended September 30, 1996 to $54.2 million for three
months ended September 30, 1997, and increased as a percentage of revenues
from 55.3% to 59.3%. These increases resulted from additional costs
associated with greater revenues.
General and administrative expenses increased 13.7% from $13.7 million
during the three months ended September 30, 1996, to $15.6 million for
the three months ended September 30, 1997, and decreased as a percentage of
revenues from 18.9% to 17.1 %. The dollar increase resulted from
additional costs associated with acquired businesses and additional
revenues. The decrease as a percentage of revenues resulted from further
utilization of existing general and administrative support resources.
Operating earnings decreased 85.9% from $12.3 million during the three
months ended September 30, 1996, to $1.7 million for the three months ended
September 30, 1997, and decreased as a percentage of revenues from 17.0% to
1.9%. The decrease in operating earnings resulted primarily from one time
charges of $5.3 million in connection with three acquisitions consummated
during the fiscal first quarter ended September 30, 1997 and a $6.7
million charge to realign operations.
8
Interest income was $0.5 million greater for the three months ended
September 30, 1997 compared to the same period in the prior fiscal
year due to higher levels of invested cash and cash equivalents.
The income tax provision of $1.1 million for the three months ended
September 30, 1997 decreased from $5.1 million for the three months ended
September 30, 1996 primarily due to lower taxable income. The provision
represents an effective tax rate of 41% for the three months ended
September 30, 1997 compared to 40% for the three months ended September 30,
1996. The increase in the effective tax rate was a result of certain
nondeductible costs associated with acquisitions completed in the quarter
ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash and cash equivalents of $85.5
million and working capital of approximately $85.7 million. The Company
has been able to finance its cash requirements through its cash flows from
operations. At September 30, 1997, the Company had $0.1 million
outstanding in the form of letters of credit. The interest rate on other
outstanding long-term borrowings of $1.8 million at September 30, 1997 was
7.75%.
For the three months ended September 30, 1997, operating activities
provided cash of $13.5 million. Investing activities used cash of $7.6
million primarily for capital expenditures of $5.4 million and an
investment of $5.0 million, offset by cash acquired in acquisitions of $1.5
million and proceeds from sale of investments of $1.2 million. Financing
activities used cash of $0.4 million, primarily for repayment of debt
acquired in a merger of $2.0 million offset by proceeds of $1.7 million
from the exercise of stock options.
MERGER EXPENSES AND OTHER CHARGES
In connection with the acquisitions of Charter, DWW and BSI, the Company
recorded transaction-related charges of $5,263,000 during the three months
ended September 30, 1997. Additionally, the Company incurred a one time
charge of $6,735,000 to realign operations primarily in conjunction with a
client of the Company's Fund Services division terminating its distribution
and administrative agreements effective September 1997.
At September 30, 1997, approximately $11.2 million of costs to integrate
new operations arising from prior acquisitions and costs relating to the
realignment of certain operations are included in accrued liabilities on
the accompanying balance sheet. Approximately $2.1 million of such
expenses were paid during the three months ended September 30, 1997.
It is anticipated that the actions to realign and integrate the
aforementioned operations will be substantially completed by June 30, 1998.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in this quarterly report are forward-looking statements which
involve risks and uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting the
Company's operations, markets, services and related products, prices,
and other factors discussed in the Company's prior filings with the
Securities and Exchange Commission.
9
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the period covered by this report, the registrant issued shares of
its common stock, $.02 par value ("Common Stock"), which were not
registered under the Securities Act of 1933, as amended (the "Securities
Act") in certain acquisition transactions, as follows:
(i) On August 15, 1997, the registrant issued an aggregate of 588,945
shares of Common Stock to the stockholders of Charter Systems,
Inc., a Massachusetts corporation ("Charter"), in connection with
the acquisition of Charter through the merger of a wholly-owned
subsidiary of the registrant with and into Charter (the "Charter
Merger"). Of the twenty-one stockholders of Charter, eleven were
accredited investors and two were trusts affiliated with two of
the eleven accredited investors. The other stockholders of
Charter were employees or former employees of Charter. There was
no underwriter or placement agent.
In connection with the issuance of shares of Common Stock to the
stockholders of Charter in the Charter Merger, the registrant
relied on an exemption from registration under Section 4 (2) of
the Securities Act, based, among other things, on certain
representations and warranties of the investors, and certain
information provided to the investors with respect to the
registrant and the Charter Merger.
(ii) On August 29, 1997, the registrant issued an aggregate of 134,396
shares of Common Stock to the stockholders of Dascit/White &
Winston, Inc., Group Plan Administrators, Inc. and Krauss and
Trapani Co., Ltd., three affiliated New York corporations (the
"DWW Companies"), in connection with the acquisition of the DWW
Companies through the merger of wholly-owned subsidiaries of the
registrant with and into the DWW Companies (the "DWW Merger"). Of
the eight stockholders of the DWW Companies, one was an accredited
investor and the other seven were members of the immediate family
of such accredited investor or members of the immediate family and
an affiliated trust of the Chairman and co-founder of the DWW
Companies. There was no underwriter or placement agent.
In connection with the issuance of shares of Common Stock to the
stockholders of the DWW Companies in the DWW Merger, the
registrant relied on an exemption from registration under Section
4 (2) of the Securities Act, based, among other things on certain
representations and warranties of the investors, the small number
of investors, the nature of the investors and certain information
provided to the investors with respect to the registrant and the
DWW Merger.
(iii) On September 16, 1997, the registrant issued an aggregate of
71,448 shares of Common Stock to the stockholders of Benefit
Services, Inc., a Maryland corporation ("BSI"), in connection with
the acquisition of BSI through the merger of a wholly-owned
subsidiary of the registrant with and into BSI (the "BSI Merger").
Of the three stockholders of BSI, one was an accredited investor
and all three were executive officers of BSI. There was no
underwriter or placement agent.
In connection with the issuance of shares of common stock to the
stockholders of BSI in the BSI Merger, the registrant relied on an
exemption from registration under Section 4 (2) of the Securities
Act, based, among other things, on certain representations and
warranties of the investors, the small number of investors, the
nature of the investors and certain information provided to the
investors with respect to the registrant and the BSI Merger.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 11.1 - Statement regarding computation of earnings per
common share.
(B) REPORTS ON FORM 8-K
None
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: /s/ Robert J. McMullan
------------------------------------------
Robert J. McMullan
Executive Vice President and Chief
Financial Officer (Duly Authorized
Officer)
12
THE BISYS GROUP, INC.
EXHIBIT INDEX
EXHIBIT NO. PAGE
(11) Computation of Earnings Per Common Share . . . 14
(27) Financial Data Schedule. . . . . . . . . . . . (electronic only)
13