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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, 1998
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)
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DELAWARE 13-3532663
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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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 REPORT(S), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO ___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
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<CAPTION>
Class Shares Outstanding at October 30, 1998
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Common Stock, par value $.02 per share 26,631,882
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This document contains 13 pages.
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THE BISYS GROUP, INC.
INDEX TO FORM 10-Q
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<CAPTION>
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1998
and June 30, 1998 3
Condensed Consolidated Statement of Operations for the three months 4
ended September 30, 1998 and 1997
Condensed Consolidated Statement of Cash Flows for the three months 5
ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations and 8
Financial Condition
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
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2
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PART I
ITEM 1. FINANCIAL STATEMENTS
THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
September 30, June 30,
1998 1998
--------- ---------
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ASSETS
Current assets:
Cash and cash equivalents $ 39,291 $ 93,403
Accounts receivable, net 80,263 73,693
Deferred tax asset 5,179 4,660
Prepaid expenses and other 14,268 8,484
--------- ---------
Total current assets 139,001 180,240
Property and equipment, net 45,180 37,478
Intangible assets, net 144,080 102,663
Other assets 21,227 13,720
--------- ---------
Total assets $ 349,488 $ 334,101
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 202 $ 124
Accounts payable 15,602 11,626
Short-term borrowings 10,000 --
Other current liabilities 77,388 70,668
--------- ---------
Total current liabilities 103,192 82,418
Long-term debt 2,404 1,578
Deferred tax liability 9,260 10,451
Other liabilities 5,203 1,364
--------- ---------
Total liabilities 120,059 95,811
--------- ---------
Stockholders' equity:
Common stock, $.02 par value, 80,000,000 shares authorized,
26,670,388 shares issued 533 533
Additional paid-in capital 179,096 173,683
Retained earnings 51,415 66,229
Less treasury stock at cost, 40,970 and 57,895 shares, respectively (1,615) (2,155)
--------- ---------
Total stockholders' equity 229,429 238,290
--------- ---------
Total liabilities and stockholders' equity $ 349,488 $ 334,101
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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Three Months Ended
September 30,
------------------------
1998 1997
--------- ---------
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Revenues $ 101,924 $ 91,462
--------- ---------
Operating costs and expenses:
Service and operating 59,872 54,218
General and administrative 16,385 15,606
Selling and conversion 5,039 4,156
Research and development 3,181 2,871
Amortization of intangible assets 1,508 888
Merger expenses and other charges 400 11,998
Acquired in-process research and development 19,000 --
--------- ---------
Operating earnings (loss) (3,461) 1,725
Interest income, net 797 1,025
--------- ---------
Income (loss) before income taxes (2,664) 2,750
Income taxes 6,535 1,127
--------- ---------
Net income (loss) $ (9,199) $ 1,623
========= =========
Basic earnings (loss) per share $ (0.35) $ 0.06
========= =========
Diluted earnings (loss) per share $ (0.35) $ 0.06
========= =========
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
Three Months Ended
September 30,
----------------------
1998 1997
-------- --------
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Cash flows from operating activities:
Net earnings $ (9,199) $ 1,623
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 4,903 3,472
Loss on disposition or write-down of property and equipment -- 2,520
Write-off of acquired in process research and development 19,000 --
Deferred income tax provision (benefit) -- (540)
Change in operating assets and liabilities, net of effects from acquisitions (11,284) 6,429
-------- --------
Net cash provided by operating activities 3,420 13,504
-------- --------
Cash flows from investing activities:
Acquisition of businesses (20,340) --
Net cash acquired in acquisitions 4,554 1,490
Capital expenditures (7,468) (5,377)
Proceeds from sales of investments -- 1,203
Purchase of investments (1,067) (5,000)
Other 285 39
-------- --------
Net cash used in investing activities (24,036) (7,645)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings 10,000 --
Repayment of debt (40) (2,043)
Proceeds from exercise of stock options 2,327 1,685
Repurchases of common stock (45,783) --
-------- --------
Net cash used in financing activities (33,496) (358)
-------- --------
Net increase (decrease) in cash and cash equivalents (54,112) 5,501
Cash and cash equivalents at beginning of period 93,403 79,951
-------- --------
Cash and cash equivalents at end of period $ 39,291 $ 85,452
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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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 1998 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. EARNINGS PER SHARE
Basic and diluted EPS computations for the three months ended September 30,
1998 and 1997 are as follows (in thousands, except per share amounts):
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Three Months Ended
September 30,
----------------------
1998 1997
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Basic EPS
- - -------------
Net income (loss) $ (9,199) $ 1,623
======== ========
Weighted average common shares
outstanding 26,351 26,104
======== ========
Basic earnings (loss) per share $ (0.35) $ 0.06
======== ========
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<CAPTION>
Three Months Ended
September 30,
----------------------
1998 1997
-------- --------
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Diluted EPS
- - --------------
Net income (loss) $ (9,199) $ 1,623
======== ========
Weighted average common shares
outstanding 26,351 26,104
Assumed conversion of common shares
issuable under stock option plans -- 1,331
-------- --------
Weighted average common and common
equivalent shares outstanding 26,351 27,435
======== ========
Diluted earnings (loss) per share $ (0.35) $ 0.06
======== ========
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Options to purchase 4,552,920 shares of common stock at various prices
ranging from $0.03 to $44.50 were outstanding at September 30, 1998, but
were not included in the computation of diluted EPS because of the net loss
for the period.
4. BUSINESS COMBINATIONS
On July 16, 1998, the Company completed its acquisition of Corelink
Resources, Inc. (Corelink), which the Company has held a minority interest
in since fiscal 1995. On August 10, 1998, the Company acquired Potomac
Insurance Marketing Group, Inc. (Potomac). Both transactions have been
accounted for by the purchase method of accounting and involved total cash
consideration of $20.3 million. The operations of both Corelink and Potomac
are included in the consolidated results of operations from the dates of
acquisition. Pro forma information has not been presented due to lack of
materiality.
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 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. Greenway's operations are
included in the consolidated results of operations from the date of the
acquisition. Pro forma information has not been presented due to lack of
materiality.
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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:
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Three Months Ended
September 30,
-------------------
1998 1997
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Revenues 100.0% 100.0%
----- -----
Operating costs and expenses:
Service and operating 58.7 59.3
General and administrative 16.1 17.1
Selling and conversion 4.9 4.5
Research and development 3.1 3.1
Amortization of intangible assets 1.5 1.0
Merger expenses and other charges 0.4 13.1
Acquired in-process research and development 18.7 --
----- -----
Operating earnings (loss) (3.4) 1.9
Interest income, net 0.8 1.1
----- -----
Income (loss) before income taxes (2.6) 3.0
Income taxes 6.4 1.2
----- -----
Net income (loss) (9.0)% 1.8%
===== =====
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COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1997.
Revenues increased 11.4% from $91.5 million for the three months ended
September 30, 1997 to $101.9 million for the three months ended September
30, 1998. 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 10.4% from $54.2 million during
the three months ended September 30, 1997 to $59.9 million for three
months ended September 30, 1998, and decreased as a percentage of revenues
from 59.3% to 58.7%. The dollar increase resulted from additional costs
associated with greater revenues.
General and administrative expenses increased 5.0% from $15.6 million
during the three months ended September 30, 1997, to $16.4 million for the
three months ended September 30, 1998, and decreased as a percentage of
revenues from 17.1% to 16.1%. The dollar increase primarily resulted from
additional costs associated with recent acquisitions. The decrease as a
percentage of revenues resulted from further utilization of existing
general and administrative support resources.
During the three months ended September 30, 1998, 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.
The income tax provision of $6.5 million for the three months ended
September 30, 1998 increased from $1.1 million for the three months ended
September 30, 1997 primarily due to higher taxable income. The provision
represents an effective tax rate of 40% for the three months ended
September 30, 1998, excluding the nonrecurring nondeductible charge of
$19.0 million related to acquired in-process research and development,
compared to an effective tax rate of 41% for the three months ended
September 30, 1997.
8
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents of $39.3
million and working capital of approximately $35.8 million. During the
three months ended September 30, 1998, the Company borrowed $10.0 million
against its revolving credit facility to support working capital
requirements and fund certain acquisitions completed in the first fiscal
quarter. The credit facility bears interest at LIBOR plus a margin not to
exceed 1.25%, which rate aggregated 6.25% at September 30, 1998. At
September 30, 1998, the Company had $0.6 million outstanding in the form
of letters of credit. The weighted average interest rate on other
outstanding long-term borrowings of $2.6 million at September 30, 1998 was
7.82%.
For the three months ended September 30, 1998, operating activities
provided cash of $3.4 million. Investing activities used cash of $24.0
million primarily for the acquisition of businesses of $20.3 million,
capital expenditures of $7.5 million and investments of $1.1 million
offset by cash acquired of $4.6 million. Financing activities used cash of
$33.5 million primarily for the repurchase of common stock of $45.8
million offset by borrowings of $10 million and $2.3 million of proceeds
from the exercise of stock options.
In accordance with the Company's previously announced stock buy-back
program, the Company purchased approximately 1.1 million shares of its
common stock for approximately $45.8 million in order to effect the
acquisition of Greenway and for issuance of stock in connection with the
exercise of stock options.
MERGER EXPENSES AND OTHER CHARGES
At September 30, 1998, approximately $2.1 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 $1.4 million of such
expenses were paid or charged against the related accruals during the
three months ended September 30, 1998.
YEAR 2000
The Company is addressing the Year 2000 issues associated with its
existing computer systems and software applications utilizing both
internal and external resources to identify and remediate these matters
throughout the organization. The Company has completed its risk assessment
and continues to remediate significant systems which are not currently
Year 2000 ready. The Company anticipates that all of its internal mission
critical information systems will be Year 2000 ready by December 31, 1998.
In the event such systems are not Year 2000 ready by December 31, 1999, it
could have a material adverse impact on the Company's business and results
of operations.
The Company uses third party provided software and systems for such tasks
as account and information statement processing, fund accounting, and
401(k) plan record keeping. If third parties upon which the Company
depends are unable to address their Year 2000 issues in a timely manner,
it could result in a material adverse financial risk to the Company. In
order to assure that this does not occur, the Company is devoting
resources necessary to develop appropriate business continuity plans.
These contingency plans will include alternative systems and vendors,
disaster recovery hot sites and manual processes. These contingency plans
are expected to be completed prior to June 30, 1999.
The Company's Year 2000 progress, the testing of remediated software, and
contingency plans have been and will continue to be the subject of
independent verification and validation by the Company's Internal Audit
function. Internal Audit reports on Year 2000 are reviewed by senior
management and the Company's Board of Directors.
The Company believes it has developed an effective plan to address the
Year 2000 issues and that, based on available information, its Year 2000
transition will not have a material effect on its business, operations, or
financial results. The Company anticipates expenditures for Year 2000
testing and remediation in the range of $3.0 to $4.0 million in fiscal
1999 and less than $1.5 million in the first half of fiscal 2000.
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,
9
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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
quarterly 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.
10
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PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 16, 1998, the registrant issued an aggregate of 968,202
shares of its common stock, $.02 par value ("Registrant Common
Stock"), to the stockholders of Greenway Corporation, a Georgia
corporation ("Greenway"), in connection with the acquisition of
Greenway through the merger of a wholly-owned subsidiary of the
registrant with and into Greenway (the "Merger"). Pursuant to the
Agreement and Plan of Merger entered into with respect to the
Merger, the 542,276 shares of Greenway common stock outstanding on
the effective date of the Merger were converted into shares of
Registrant Common Stock valued at $42.5238 per share. Said shares of
Registrant Common Stock were not registered under the Securities Act
of 1933, as amended (the "Securities Act"). There was no underwriter
or placement agent.
In connection with the issuance of shares of Registrant Common Stock
to the stockholders of Greenway in the 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 information
provided to the investors with respect to the registrant, Greenway
and the Merger.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 2 - Agreement and Plan of Merger, dated as of September 16,
1998, as amended, among the Registrant and Greenway Corporation.
(Reference is made to Exhibit 2.1 and 2.2 to the Current Report on
Form 8-K, dated September 16, 1998, filed with the Securities and
Exchange Commission, and incorporated herein by reference.)
(b) REPORTS ON FORM 8-K
A current report on Form 8-K, dated as of September 16, 1998, was
filed with the Securities and Exchange Commission on September 22,
1998 (Items 2 and 7).
11
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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: November 13, 1998 By: /s/ Dennis R. Sheehan
----------------- -------------------------------------
Dennis R. Sheehan
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
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THE BISYS GROUP, INC.
EXHIBIT INDEX
EXHIBIT NO. PAGE
(27) Financial Data Schedule.........................(electronic only)
13
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE BISYS GROUP, INC. AND SUBSIDIARIES FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 39,291
<SECURITIES> 0
<RECEIVABLES> 83,398
<ALLOWANCES> 3,135
<INVENTORY> 0
<CURRENT-ASSETS> 139,001
<PP&E> 88,083
<DEPRECIATION> 42,903
<TOTAL-ASSETS> 349,488
<CURRENT-LIABILITIES> 103,192
<BONDS> 0
0
0
<COMMON> 533
<OTHER-SE> 228,896
<TOTAL-LIABILITY-AND-EQUITY> 349,488
<SALES> 0
<TOTAL-REVENUES> 101,924
<CGS> 0
<TOTAL-COSTS> 59,872
<OTHER-EXPENSES> 8,220
<LOSS-PROVISION> 418
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> (2,664)
<INCOME-TAX> 6,535
<INCOME-CONTINUING> (9,199)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,199)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
