================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 33-45417
THE BISYS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3532663
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Clove Road, Little Falls, New Jersey
07424
(Address of principal executive offices)
(Zip Code)
201-812-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Shares Outstanding at April 28, 1997
-------------------------------------- ------------------------------------
Common Stock, par value $.02 per share 25,143,527
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This document contains 15 pages.
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<PAGE>
THE BISYS GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 1997
and June 30, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Operations for the three and
nine months ended March 31, 1997 and 1996 . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows for the nine months
ended March 31, 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 6. Exhibits and Reports on Form 8-K
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 57,566 $ 39,284
Accounts receivable, net 63,227 47,846
Deferred tax asset 4,000 12,159
Prepaid expenses and other 6,773 5,126
-------- ---------
Total current assets 131,566 104,415
Property and equipment, net 30,972 25,264
Intangible assets, net 76,584 80,850
Other assets 4,994 4,096
-------- ---------
Total assets $244,116 $ 214,625
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 98 $ 306
Accounts payable 9,932 7,277
Accrued liabilities 50,672 56,384
-------- ---------
Total current liabilities 60,702 63,967
Long-term debt 1,605 1,668
Deferred tax liability 4,839 5,425
Other liabilities 361 393
-------- ---------
Total liabilities 67,507 71,453
-------- ---------
Stockholders' equity:
Common stock, $.02 par value, 80,000,000 shares authorized,
25,134,569 and 24,782,101 shares issued and outstanding, respectively 503 496
Additional paid-in capital 151,643 145,788
Retained earnings (accumulated deficit) 24,463 (3,112)
-------- ---------
Total stockholders' equity 176,609 143,172
-------- ---------
Total liabilities and stockholders' equity $244,116 $ 214,625
======== =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $83,961 $65,923 $231,153 $174,138
------- ------- -------- --------
Operating costs and expenses:
Service and operating 44,586 34,683 125,383 91,590
General and administrative 13,809 10,638 40,564 30,558
Selling and conversion 3,098 2,098 9,063 6,675
Research and development 2,491 2,536 7,621 7,568
Amortization of intangible assets 886 964 2,724 2,848
Merger expenses and other charges 1,500 -- 1,500 --
------- ------- -------- --------
Operating earnings 17,591 15,004 44,298 34,899
Interest income, net 665 210 1,662 108
------- ------- -------- --------
Earnings before income tax provision 18,256 15,214 45,960 35,007
Income tax provision 7,304 5,770 18,385 13,291
------- ------- -------- --------
Net earnings $10,952 $ 9,444 $ 27,575 $ 21,716
======= ======= ======== ========
Net earnings per common share $ 0.42 $ 0.38 $ 1.05 $ 0.88
======= ======= ======== ========
Weighted average common and common
equivalent shares outstanding 26,237 24,923 26,191 24,616
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE>
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------
1997 1996
----- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 27,575 $ 21,716
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 8,651 7,211
Deferred income taxes 7,573 6,700
Change in operating assets and liabilities (21,632) (8,748)
-------- --------
Net cash provided by operating activities 22,167 26,879
-------- --------
Cash flows from investing activities:
Capital expenditures (12,763) (9,487)
Proceeds from maturities and sales of short-term investments 3,000 4,184
Purchase of short-term investments (3,000) --
Proceeds from sale of businesses 3,827 --
Other 453 1,529
-------- --------
Net cash used in investing activities (8,483) (3,774)
-------- --------
Cash flows from financing activities:
Proceeds from debt -- 6,800
Repayment of debt (271) (15,205)
Proceeds from exercise of stock options 3,790 3,233
Issuance of common stock 1,079 673
-------- --------
Net cash provided by (used in) financing activities 4,598 (4,499)
-------- --------
Net increase in cash and cash equivalents 18,282 18,606
Cash and cash equivalents at beginning of period 39,284 7,296
-------- --------
Cash and cash equivalents at end of period $ 57,566 $ 25,902
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
<PAGE>
THE BISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company
The BISYS(R) Group, Inc. and subsidiaries (the "Company") is a
leading national provider of outsourcing solutions to and through
financial organizations.
The condensed consolidated financial statements include the accounts
of The BISYS Group, Inc. and its subsidiaries and have been prepared
consistent with the accounting policies reflected in the 1996 Annual
Report on Form 10-K filed with the Securities and Exchange Commission
and should be read in conjunction therewith. The condensed
consolidated financial statements include all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of
management, necessary to present fairly this information.
2. Disposition of Item Processing Division
On October 30, 1996, the Company sold, pursuant to a stock purchase
agreement, all of the outstanding stock of its Item Processing
Division to a third party transaction processing company. The Item
Processing Division provides item processing services to financial
institutions across the country through a number of processing
facilities. The stock purchase agreement provides for an initial cash
payment and additional consideration payable to the Company
contingent upon the level of revenues generated by existing and new
customers of the Item Processing Division during the two years
following the sale. The sale had no material impact on the Company's
financial position or results of operations for the nine months ended
March 31, 1997.
3. Credit Facility
In March 1997, the Company entered into a new $100 million credit
facility with its banks. The new agreement establishes a $100 million
senior unsecured revolving credit facility (including a $10 million
letter of credit subfacility) to support working capital requirements
and fund the Company's future acquisitions. The facility expires in
March 2002.
Outstanding borrowings under the credit facility bear interest at
prime or, at the Company's option, LIBOR plus a margin not to exceed
1.25% based upon the ratio of the Company's consolidated indebtedness
to common stockholders' equity (the "Pricing Formula"). The credit
agreement requires the Company to pay an agent fee of $25,000 per
year and a commitment fee ranging from 0.15% and 0.25%, based on the
Pricing Formula, on the unused portion of the facility. The facility
is guaranteed by all subsidiaries of The BISYS Group, Inc. (except
for broker/dealer, insurance and non-operating companies).
The credit agreement, among other things, requires the Company to
maintain certain financial covenants and limits the Company's ability
to incur additional indebtedness and to pay dividends.
The Company can borrow under the facility through March 2002, up to
$100 million, reduced by the outstanding letters of credit ($226,000
at March 31, 1997). Interest is payable quarterly for prime rate
borrowings or at maturity for LIBOR borrowings, which range from
30-180 days.
4. 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.
6
<PAGE>
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 first quarter of fiscal year
1998, as required.
The pro forma earnings per common share computed under the provision
of FAS 128 for the three months and nine months ended March 31, 1997
are $0.44 basic earnings per common share and $0.42 diluted earnings
per share, and $1.10 basic earnings per share and $1.05 diluted
earnings per share, respectively.
6. Subsequent Event
On May 7, 1997, the Board of Directors adopted a Shareholder Rights
Plan whereby each holder of common stock of the Company will receive
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.
Each Right will entitle 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 if such person or group beneficially owns 10% 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.
7
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Operating costs and expenses:
Service and operating 53.1 52.6 54.2 52.6
General and administrative 16.4 16.1 17.6 17.6
Selling and conversion 3.7 3.2 3.9 3.8
Research and development 3.0 3.8 3.3 4.4
Amortization of intangible assets 1.1 1.5 1.2 1.6
Merger expenses and other charges 1.8 -- 0.6 --
----- ----- ----- -----
Operating earnings 20.9 22.8 19.2 20.0
Interest income, net 0.8 0.3 0.7 0.1
----- ----- ----- -----
Earnings before income tax provision 21.7 23.1 19.9 20.1
Income tax provision 8.7 8.8 8.0 7.6
----- ----- ----- -----
Net earnings 13.0% 14.3% 11.9% 12.5%
==== ==== ==== ====
</TABLE>
Comparison of the Three Months Ended March 31, 1997 with the Three Months Ended
March 31, 1996.
Revenues increased 27.4% from $65.9 million for the three months
ended March 31, 1996 to $84.0 million for the three months ended
March 31, 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.
Service and operating expenses increased 28.6% from $34.7 million
during the three months ended March 31, 1996 to $44.6 million for
three months ended March 31, 1997, and increased as a percentage of
revenues from 52.6% to 53.1%. These increases resulted from
additional costs associated with greater revenues.
General and administrative expenses increased 29.8% from $10.6
million during the three months ended March 31, 1996, to $13.8
million for the three months ended March 31, 1997, and increased as a
percentage of revenues from 16.1% to 16.4 %. The dollar increase
resulted from additional costs associated with additional revenues.
During the three months ended March 31, 1997, the Company incurred an
additional commission charge of $1.5 million as a result of increased
mutual fund assets serviced pursuant to the alliance with the mutual
fund division of Furman Selz LLC.
Operating earnings increased 17.2% from $15.0 million during the
three months ended March 31, 1996, to $17.6 million for the three
months ended March 31, 1997, and decreased as a percentage of
revenues from 22.8% to 20.9%.
Interest income was $0.5 million greater for the three months ended
March 31, 1997 compared to the same period in the prior fiscal year
due to higher levels of invested cash and cash equivalents.
8
<PAGE>
The income tax provision of $7.3 million for the three months ended
March 31, 1997 increased from $5.8 million for the three months ended
March 31, 1996. The provision represents an effective tax rate of 40%
for the three months ended March 31, 1997 compared to 38% for the
three months ended March 31, 1996. The lower rate in the prior year
was primarily due to the impact of an adjustment to the deferred tax
asset valuation allowance during the three months ended March 31,
1996.
Comparison of the Nine Months Ended March 31, 1997 with the Nine Months Ended
March 31, 1996.
Revenues increased 32.7% from $174.1 million for the nine months
ended March 31, 1996 to $231.2 million for the nine months ended
March 31, 1997. This revenue growth was derived from sales to new
clients, existing client growth, cross sales to existing clients and
revenues from acquired businesses, partially offset by lost business.
Service and operating expenses increased 36.9% from $91.6 million
during the nine months ended March 31, 1996 to $125.4 million for the
nine months ended March 31, 1997, and increased as a percentage of
revenues from 52.6% to 54.2%. These increases resulted from
additional costs associated with greater revenues.
General and administrative expenses increased 32.7% from $30.6
million during the nine months ended March 31, 1996 to $40.6 million
for the nine months ended March 31, 1997, and remained flat as a
percentage of revenues at approximately 17.6%. The dollar increase
resulted from additional costs associated with greater revenues.
Operating earnings of $44.3 million for the nine months ended March
31, 1997 increased from $34.9 million for the nine months ended March
31, 1996, and decreased as a percentage of revenues from 20.0% to
19.2% primarily as a result of the commission charges of $1.5 million
related to the alliance with Furman Selz.
Interest income was $1.7 million for the nine months ended March 31,
1997 compared to $0.1 million for the nine months ended March 31,
1996 due to higher levels of invested cash and cash equivalents.
The income tax provision of $18.4 million for the nine months ended
March 31, 1997 increased from $13.3 million for the nine months ended
March 31, 1996. The provision represents an effective tax rate of 40%
for the nine months ended March 31, 1997, compared to 38% for the
nine months ended March 31, 1997. The lower rate in the prior year
was primarily due to the impact of an adjustment to the deferred tax
asset valuation allowance during the nine months ended March 31,
1996.
Liquidity and Capital Resources
At March 31, 1997, the Company had cash and cash equivalents of $57.6
million and working capital of approximately $70.9 million. The
Company has been able to finance its cash requirements through its
cash flows from operations. At March 31, 1997, the Company had $0.2
million outstanding in the form of letters of credit. The interest
rate on other outstanding long-term borrowings of $1.7 million at
March 31, 1997 was 7.75%.
For the nine months ended March 31, 1997, operating activities
provided cash of $22.2 million primarily through net earnings of
$27.6 million. Investing activities used cash of $8.5 million
primarily for capital expenditures of $12.8 million offset by net
proceeds from sale of businesses of $3.8 million. Financing
activities provided cash of $4.6 million, primarily from proceeds of
$3.8 million from the exercise of stock options and $1.1 million from
the issuance of common stock.
9
<PAGE>
Merger Expenses and Other Charges
At March 31, 1997, approximately $4.9 million of costs to integrate
new operations arising from prior acquisitions and costs relating to
the combining of certain data center operations are included in
accrued liabilities on the accompanying balance sheet. Approximately
$1.0 million of such expenses were paid during the three months ended
March 31, 1997.
Accrued liabilities at March 31, 1997 also include $1.7 million of
estimated commissions and other expenses arising from the outsourcing
alliance agreement entered into in June 1996 between the Company and
the mutual fund division of Furman Selz LLC. During the three months
ended March 31, 1997, the Company incurred an additional commission
charge of $1.5 million as a result of servicing additional mutual
fund assets pursuant to the alliance with Furman Selz. Approximately
$4.8 million of expenses were paid by the Company to Furman Selz
pursuant to the alliance agreement during the three months ended
March 31, 1997.
It is anticipated that the actions to combine and integrate the
aforementioned operations will be substantially completed by June 30,
1997.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Except for the historical information contained herein, the matters
discussed in this quarterly report are forward- looking statements
which involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors
affecting the Company's operations, markets, services and related
products, prices, and other factors discussed in the Company's prior
filings with the Securities and Exchange Commission.
10
<PAGE>
PART II
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
<PAGE>
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: May 14, 1997 By: /s/ Robert J. McMullan
---------------------------
Robert J. McMullan
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
12
<PAGE>
THE BISYS GROUP, INC.
EXHIBIT INDEX
Exhibit No. Page
(11) Computation of Earnings Per Common Share. . . . 14
(27) Financial Data Schedule . . . . . . . . . . . . (electronic only)
13
<PAGE>
Exhibit 11
Page 1 of 1
THE BISYS GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
Primary 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings attributable to common stock $ 10,952 $ 9,444 $ 27,575 $ 21,716
======== ======== ======== ========
Weighted average number of common shares
outstanding 25,118 23,549 24,995 23,337
Common shares issuable under stock option
plans 3,377 2,938 3,344 2,949
Less shares assumed repurchased with proceeds (2,258) (1,564) (2,148) (1,670)
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 26,237 24,923 26,191 24,616
======== ======== ======== ========
Net earnings per common share $ 0.42 0.38 $ 1.05 0.88
======== ======== ======== ========
Fully - Diluted
Net earnings attributable to common stock $ 10,952 $ 9,444 $ 27,575 21,716
======== ======== ======== ========
Weighted average number of common shares
outstanding 25,118 23,549 24,995 23,337
Common shares issuable under stock option
plans 3,377 2,938 3,344 2,949
Less shares assumed repurchased with proceeds (2,258) (1,508) (2,148) (1,418)
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding 26,237 24,979 26,191 24,868
======== ======== ======== ========
Net earnings per common share $ 0.42 0.38 $ 1.05 $ 0.87
======== ======== ======== ========
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THE BISYS GROUP, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of The BISYS Group, Inc. and Subsidiaries for
the nine months ended March 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 57,566
<SECURITIES> 0
<RECEIVABLES> 65,304
<ALLOWANCES> 2,077
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 57,671
<DEPRECIATION> 26,699
<TOTAL-ASSETS> 244,116
<CURRENT-LIABILITIES> 60,702
<BONDS> 1,605
0
0
<COMMON> 503
<OTHER-SE> 176,106
<TOTAL-LIABILITY-AND-EQUITY> 176,609
<SALES> 0
<TOTAL-REVENUES> 231,153
<CGS> 0
<TOTAL-COSTS> 125,383
<OTHER-EXPENSES> 10,345
<LOSS-PROVISION> 1,068
<INTEREST-EXPENSE> 71,350
<INCOME-PRETAX> 45,960
<INCOME-TAX> 18,385
<INCOME-CONTINUING> 27,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,575
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
