10-Q 1 l88177ae10-q.txt THE BISYS GROUP, INC. FORM 10-Q 1 ================================================================================ 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, 2001 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: 0-19922 THE BISYS GROUP, INC. (Exact name of registrant as specified in its charter)
DELAWARE 13-3532663 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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: Class Shares Outstanding at April 30, 2001 -------------------------------------- ----------------------------------- Common Stock, par value $.02 per share 58,084,850 This document contains 15 pages. ---- ================================================================================ 2 THE BISYS GROUP, INC. INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Condensed Consolidated Balance Sheet as of March 31, 2001 and June 30, 2000 3 Condensed Consolidated Statement of Operations for the three and nine months ended March 31, 2001 and 2000 4 Condensed Consolidated Statement of Cash Flows for the three and nine months ended March 31, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and 9 Financial Condition PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15
3 PART I ITEM 1. FINANCIAL STATEMENTS THE BISYS GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
March 31, June 30, 2001 2000 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 256,517 $ 70,177 Accounts receivable, net 134,761 108,579 Deferred tax asset 9,868 8,808 Other current assets 22,876 16,734 --------- --------- Total current assets 424,022 204,298 Property and equipment, net 67,633 61,211 Intangible assets, net 365,121 188,349 Other assets 47,252 147,193 --------- --------- Total assets $ 904,028 $ 601,051 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings $ -- $ 115,000 Accounts payable 13,420 15,110 Other current liabilities 104,120 89,590 --------- --------- Total current liabilities 117,540 219,700 Long-term debt 300,000 -- Deferred tax liability 15,755 13,452 Other liabilities 8,496 6,258 --------- --------- Total liabilities 441,791 239,410 --------- --------- Stockholders' equity: Common stock, $.02 par value, 160,000,000 and 80,000,000 shares authorized, 57,547,148 and 27,091,270 shares issued and outstanding, respectively 1,151 556 Additional paid-in capital 273,199 220,558 Retained earnings 198,663 151,874 Less notes receivable from stockholders (10,776) (11,347) --------- --------- Total stockholders' equity 462,237 361,641 --------- --------- Total liabilities and stockholders' equity $ 904,028 $ 601,051 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 4 THE BISYS GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 --------- --------- --------- --------- Revenues $ 177,359 $ 145,657 $ 507,103 $ 416,014 --------- --------- --------- --------- Operating costs and expenses: Service and operating 98,276 80,313 292,574 241,432 General and administrative 21,576 19,147 65,509 57,901 Selling and conversion 7,851 7,145 23,212 20,403 Research and development 2,650 3,318 8,823 9,187 Amortization of intangible assets 5,120 2,886 14,639 8,520 Merger expenses and other charges -- -- 4,245 -- --------- --------- --------- --------- Operating earnings 41,886 32,848 98,101 78,571 Interest income (expense), net (1,133) 185 (4,763) (562) --------- --------- --------- --------- Income before income taxes 40,753 33,033 93,338 78,009 Income taxes 16,098 13,046 36,869 30,813 --------- --------- --------- --------- Net income $ 24,655 $ 19,987 $ 56,469 $ 47,196 ========= ========= ========= ========= Basic earnings per share $ 0.43 $ 0.36 $ 0.99 $ 0.86 ========= ========= ========= ========= Diluted earnings per share $ 0.41 $ 0.35 $ 0.94 $ 0.83 ========= ========= ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 5 THE BISYS GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended March 31, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 56,469 $ 47,196 Adjustments to reconcile net income to net cash provided by operating activities: Restructuring charge 4,245 -- Depreciation and amortization 30,925 22,702 Deferred income tax provision 9,021 3,341 Change in operating assets and liabilities, net of effects from acquisitions (22,354) (9,108) --------- --------- Net cash provided by operating activities 78,306 64,131 --------- --------- Cash flows from investing activities: Acquisitions of businesses, net of cash acquired (64,738) -- Proceeds from dispositions, net of expenses paid (1,682) 5,442 Capital expenditures, net (21,212) (20,466) Change in other investments (3,684) 2,768 Purchase of intangible assets (2,027) (5,242) Other -- 2,927 --------- --------- Net cash used in investing activities (93,343) (14,571) --------- --------- Cash flows from financing activities: Proceeds from short-term borrowings 52,800 71,400 Repayment of short-term borrowings (167,800) (114,400) Proceeds from convertible debt offering, net of expenses 292,050 -- Issuance of common stock 3,065 2,235 Proceeds from exercise of stock options, net of taxes paid 20,970 12,434 Repurchases of common stock -- (18,151) Other 292 -- --------- --------- Net cash provided by (used in) financing activities 201,377 (46,482) --------- --------- Net increase in cash and cash equivalents 186,340 3,078 Cash and cash equivalents at beginning of period 70,177 49,589 --------- --------- Cash and cash equivalents at end of period $ 256,517 $ 52,667 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 6 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 2000 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. Certain reclassifications have been made to the 2000 condensed consolidated financial statements to conform to the 2001 presentation. 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. STOCK SPLIT On September 21, 2000, the Board of Directors of the Company approved a two-for-one stock split effected in the form of a dividend, payable to shareholders of record on October 6, 2000. Accordingly, all historical weighted average share and per share amounts have been restated to reflect the stock split. 4. SHORT-TERM BORROWINGS In September 2000, the Company amended its senior unsecured revolving credit facility to increase the facility from $200 million to $300 million. All other significant terms under the credit facility remain substantially unchanged. At March 31, 2001, the Company had no outstanding borrowings under the facility, which bears interest at LIBOR plus a margin of 0.55%. 5. LONG-TERM DEBT In March 2001, the Company issued $300 million of convertible subordinated Notes (the "Notes") due March 2006. The Notes bear interest at 4% and require semiannual interest payments. The Notes are convertible at any time at the option of the holder into shares of the Company's common stock at a conversion price of $66.79 per share, subject to adjustment under certain conditions. At the Company's option, subject to the terms of its existing revolving credit facility agreement, the Notes are redeemable on or after March 2004 at a premium price of 101% declining to par in March 2005 and thereafter. 6 7 6. EARNINGS PER SHARE Basic and diluted EPS computations for the three and nine months ended March 31, 2001 and 2000 are as follows (in thousands, except per share amounts):
Three Months Ended Nine Months Ended March 31, March 31, ---------------------- ---------------------- 2001 2000 2001 2000 ------- ------- ------- ------- Basic EPS --------- Net income $24,655 $19,987 $56,469 $47,196 ======= ======= ======= ======= Weighted average common shares outstanding 57,368 55,282 56,966 54,712 ======= ======= ======= ======= Basic earnings per share $ 0.43 $ 0.36 $ 0.99 $ 0.86 ======= ======= ======= ======= Diluted EPS ----------- Net income $24,655 $19,987 $56,469 $47,196 ======= ======= ======= ======= Weighted average common shares outstanding 57,368 55,282 56,966 54,712 Assumed conversion of common shares issuable under stock option plans 2,955 2,060 2,810 2,056 ------- ------- ------- ------- Weighted average common and common equivalent shares outstanding 60,323 57,342 59,776 56,768 ======= ======= ======= ======= Diluted earnings per share $ 0.41 $ 0.35 $ 0.94 $ 0.83 ======= ======= ======= =======
The effect of the assumed conversion of the Notes into common stock would be antidilutive and therefore is excluded from the computation of diluted earnings per share. Certain stock options were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of common shares during the period, as follows (in thousands, except per share amounts):
Three Months Ended Nine Months Ended March 31, March 31, ----------------------------------------------------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Number of options excluded 137 32 179 976 Option price per share $51.06 to $56.06 $34.31 $43.00 to $56.06 $27.25 to $34.31 Average market price of common shares for the period $49.96 $29.84 $42.85 $27.24
7. BUSINESS COMBINATIONS On July 1, 2000, the Company completed its acquisition of Pictorial, Inc. (Pictorial) in a cash for stock transaction valued at approximately $129 million. Pictorial, headquartered in Indianapolis, is a provider of pre-licensing and continuing education training services and licensing solutions for insurance carriers, agencies, and agents. 7 8 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 have been accounted for by the purchase method of accounting and, accordingly, the operations of the acquired companies are included in the accompanying consolidated financial statements since the dates of acquisition. The cash and stock portions of the purchase price, including fees and expenses, were as follows (in thousands):
Pictorial Ascensus Total --------------- --------------- -------------- Estimated fair value of assets acquired $ 140,749 $ 49,377 $ 190,126 Liabilities assumed (11,648) (11,500) (23,148) Common stock options issued - (4,684) (4,684) --------------- --------------- -------------- Net cash paid $ 129,101 $ 33,193 $ 162,294 =============== =============== ==============
Of the total excess purchase price for both transactions, $110.6 million was allocated to goodwill and is being amortized on a straight line basis over periods ranging from 25 to 40 years, and $56.2 million was allocated to other identifiable intangible assets based on estimates of fair values and is being amortized on a straight line basis over periods ranging from 5 to 23 years. The following unaudited pro forma consolidated results of operations have been prepared as if the acquisitions of Pictorial and Ascensus had occurred at the beginning of fiscal 2001 and 2000 (in thousands):
Three months ended Nine Months ended March 31, March 31, ---------------------------------- ---------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues $ 177,359 $ 158,734 $ 508,955 $ 450,303 Net income 24,655 18,715 56,531 42,694 Diluted earnings per share $ 0.41 $ 0.33 $ 0.95 $ 0.75
On February 28, 2001, the Company completed its acquisition of The Advanced Markets, LLC and related companies ("TAM") in a cash for equity transaction that was accounted for by the purchase method of accounting. TAM, headquartered in Memphis, Tennessee, is a wholesale distributor of life insurance products and services for high-end clients of brokerage firms, financial institutions, and independent agents. Pro forma information has not been presented due to a lack of materiality. 8. MERGER EXPENSES AND OTHER CHARGES As a result of the acquisitions of Pictorial and Ascensus in the fiscal first quarter, the Company recorded a pre-tax restructuring charge of $4.2 million. The charge relates to restructuring activities in the existing businesses within the Insurance and Education Services segment and includes a provision of $2.1 million for severance-related costs for approximately 150 employees, $1.0 million for facility closure and related costs, and $1.1 million for impairments relating to the abandonment of certain software and product development efforts. For the nine months ended March 31, 2001, $3.9 million has been paid or charged against the restructuring accrual. At March 31, 2001, the remaining accrual is $0.3 million, and it is anticipated that all restructuring activities will be completed and amounts expended by the end of the current fiscal year. 9. SUBSEQUENT EVENT On April 11, 2001, the Company completed the acquisition of Boston Institutional Group and related companies ("BIG") in a stock for stock transaction valued at approximately $34 million. BIG, headquartered in Boston, is a provider of outsourcing services for mutual fund complexes. The transaction will be accounted for by the purchase method of accounting. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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 condensed consolidated statement of operations for the periods indicated:
Three Months Ended Nine Months Ended March 31, March 31, --------------------------------- --------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues 100.0% 100.0% 100.0% 100.0% --------------- -------------- -------------- --------------- Operating costs and expenses: Service and operating 55.4 55.1 57.7 58.0 General and administrative 12.2 13.1 12.9 13.9 Selling and conversion 4.4 4.9 4.6 4.9 Research and development 1.5 2.3 1.8 2.2 Amortization of intangible assets 2.9 2.0 2.9 2.1 Merger expenses and other charges - - 0.8 - --------------- -------------- -------------- --------------- Operating earnings 23.6 22.6 19.3 18.9 Interest income (expense), net (0.6) 0.1 (0.9) (0.1) --------------- -------------- -------------- --------------- Income before income taxes 23.0 22.7 18.4 18.8 Income taxes 9.1 9.0 7.3 7.4 --------------- -------------- -------------- --------------- Net income 13.9% 13.7% 11.1% 11.4% =============== ============== ============== ===============
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 WITH THE THREE MONTHS ENDED MARCH 31, 2000. Revenues increased 21.8% from $145.7 million for the three months ended March 31, 2000 to $177.4 million for the three months ended March 31, 2001. 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 divestitures. Internal revenue growth approximated 17% for the three months ended March 31, 2001. Service and operating expenses increased 22.4% from $80.3 million for the three months ended March 31, 2000 to $98.3 million for the three months ended March 31, 2001 and increased as a percentage of revenues from 55.1% to 55.4%. The dollar increase resulted from additional costs associated with greater revenues. General and administrative expenses increased 12.7% from $19.1 million during the three months ended March 31, 2000 to $21.6 million for the three months ended March 31, 2001 and decreased as a percentage of revenues from 13.1% to 12.2%. The decrease as a percentage of revenues resulted from further utilization of existing general and administrative support resources. Selling and conversion expenses increased 9.9% from $7.1 million for the three months ended March 31, 2000 to $7.9 million for the three months ended March 31, 2001 and decreased as a percentage of revenues from 4.9% to 4.4%. The decrease as a percentage of revenues resulted from improved utilization of selling and conversion resources and recent acquisitions having lower selling and conversion components. Research and development expenses decreased 20.1% from $3.3 million for the three months ended March 31, 2000 to $2.7 million for the three months ended March 31, 2001 and decreased as a percentage of revenues from 2.3% to 1.5%. The decrease as a percentage of revenues resulted from acquiring and merging with businesses that do not require substantial research and development. Amortization of intangible assets increased $2.2 million for the three months ended March 31, 2001 over the same period last year due to a higher level of intangible assets associated with recently acquired businesses. 9 10 The income tax provision of $16.1 million for the three months ended March 31, 2001 increased from $13.0 million for the three months ended March 31, 2000 due to higher taxable income. The provision represents an effective tax rate of 39.5% for both periods ended March 31, 2001 and 2000. Operating results, before amortization of intangibles, resulted in margins of 26.5% and 24.5% for the three months ended March 31, 2001 and 2000, respectively. The increase was primarily due to strong internal growth, efficient integration of acquired businesses, and faster growth from the higher-margin Insurance and Education Services Group. COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2001 WITH THE NINE MONTHS ENDED MARCH 31, 2000. Revenues increased 21.9% from $416.0 million for the nine months ended March 31, 2000 to $507.1 million for the nine months ended March 31, 2001. 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 divestitures. Service and operating expenses increased 21.2% from $241.4 million for the nine months ended March 31, 2000 to $292.6 million for the nine months ended March 31, 2001 and decreased as a percentage of revenues from 58.0% to 57.7%. The dollar increase resulted from additional costs associated with greater revenues. General and administrative expenses increased 13.1% from $57.9 million during the nine months ended March 31, 2000 to $65.5 million for the nine months ended March 31, 2001 and decreased as a percentage of revenues from 13.9% to 12.9%. The decrease as a percentage of revenues resulted from further utilization of existing general and administrative support resources. Selling and conversion expenses increased 13.8% from $20.4 million for the nine months ended March 31, 2000 to $23.2 million for the nine months ended March 31, 2001 and decreased as a percentage of revenues from 4.9% to 4.6%. The decrease as a percentage of revenues resulted from improved utilization of selling and conversion resources and recent acquisitions having lower selling and conversion components. Research and development expenses decreased 4.0% from $9.2 million for the nine months ended March 31, 2000 to $8.8 million for the nine months ended March 31, 2001 and decreased as a percentage of revenues from 2.2% to 1.8%. The decrease as a percentage of revenues resulted from acquiring and merging with businesses that do not require substantial research and development. Amortization of intangible assets increased $6.1 million for the nine months ended March 31, 2001 over the same period last year due to a higher level of intangible assets associated with recently acquired businesses. The income tax provision of $36.9 million for the nine months ended March 31, 2001 increased from $30.8 million for the nine months ended March 31, 2000 due to higher taxable income. The provision represents an effective tax rate of 39.5% for both periods ended March 31, 2001 and 2000. Operating results, before amortization of intangibles and merger expenses and other charges, resulted in margins of 23.1% and 20.9% for the nine months ended March 31, 2001 and 2000, respectively. The increase was primarily due to strong internal growth, efficient integration of acquired businesses, and faster growth from the higher-margin Insurance and Education Services Group. As a result of the acquisitions of Pictorial and Ascensus in the fiscal first quarter, the Company recorded a pre-tax restructuring charge of $4.2 million. The charge relates to restructuring activities in the existing businesses within the Insurance and Education Services segment and includes a provision of $2.1 million for severance-related costs for approximately 150 employees, $1.0 million for facility closure and related costs, and $1.1 million for impairments relating to the abandonment of certain software and product development efforts. At March 31, 2001, the remaining accrual is $0.3 million and it is anticipated that all restructuring activities will be completed and amounts expended by the end of the current fiscal year. 10 11 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had cash and cash equivalents of $256.5 million and working capital of $306.5 million. At March 31, 2001, the Company had no outstanding borrowings against its revolving credit facility and had $0.5 million outstanding in letters of credit. In March 2001, the Company issued $300 million of convertible subordinated Notes due March 2006. The Notes bear interest at 4% and require semiannual interest payments in the months of March and September. The Notes are convertible at any time at the option of the holder into shares of the Company's common stock at a conversion price of $66.79 per share, subject to adjustment under certain conditions. At the Company's option, subject to the terms of its existing revolving credit facility agreement, the Notes are redeemable on or after March 2004 at a premium price of 101% declining to par in March 2005 and thereafter. Accounts receivable represented 68 days sales outstanding at March 31, 2001, based on revenues for the quarter ended March 31, 2001. Other current assets included in the accompanying balance sheet consist primarily of prepaid expenses and inventory. At June 30, 2000, other assets included a $115 million deposit toward the purchase of Pictorial that closed on July 1, 2000. For the nine months ended March 31, 2001, operating activities provided cash of $78.3 million. Investing activities used cash of $93.3 million, primarily for the acquisition of businesses of $64.7 million, and capital expenditures of $21.2 million. Financing activities provided cash of $201.4 million, primarily from the net proceeds from the convertible debt offering of $292.0 million, the net proceeds from the exercise of stock options of $21.0 million, and $3.1 million from the issuance of common stock, offset by a net repayment of $115.0 million of short-term borrowings. In January 1999, the Company's Board of Directors authorized a stock buy-back program of up to $100 million of its outstanding common stock. Purchases have occurred and are expected to continue to occur from time-to-time in the open market to offset the possible dilutive effect of shares issued under employee benefit plans, for possible use in future acquisitions and for general and other corporate purposes. Since January 1999, the Company has purchased 746,500 shares (unadjusted for two-for-one stock split) of its common stock under the stock buy-back program for approximately $39.1 million in order to effect certain acquisitions and for the issuance of stock in connection with the exercise of stock options. SEGMENT INFORMATION The following table sets forth operating revenue and operating income by business segment and for corporate operations for the three and nine months ended March 31, 2001 and 2000. Merger expenses and other charges are excluded from the operating results of the segment for a better understanding of the underlying performance of each segment. 11 12
(in thousands) Three Months Ended Nine months Ended March 31, March 31, --------------------------------- --------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Operating revenue: Information Services $ 46,088 $ 46,332 $ 130,027 $ 130,492 Investment Services 89,027 76,142 259,643 221,723 Insurance and Education Services 42,244 23,183 117,433 63,799 --------------- -------------- -------------- -------------- Total operating revenue $ 177,359 $ 145,657 $ 507,103 $ 416,014 =============== ============== ============== ============== Operating income: Information Services $ 12,215 $ 12,610 $ 31,601 $ 30,065 Investment Services 16,412 14,846 41,244 37,070 Insurance and Education Services 17,435 8,742 42,005 21,063 Corporate (4,176) (3,350) (12,504) (9,627) --------------- -------------- -------------- -------------- Total operating income $ 41,886 $ 32,848 $ 102,346 $ 78,571 =============== ============== ============== ==============
Revenue in the Information Services business segment decreased $0.2 million, or 0.5%, during the three months ended March 31, 2001, compared to the same period last year. The decrease was primarily due to the sale of two business units, Research Services and Networking Services, in the fiscal 2000 fourth quarter and lower revenues in the check imaging software business. Operating income in the Information Services business segment decreased $0.4 million, or 3.1%, during the fiscal third quarter, resulting in operating margins of 26.5% and 27.2% for the three months ended March 31, 2001 and 2000, respectively. The margin decrease in the fiscal third quarter was primarily due to under-performance by the check imaging software business. Revenue in the Investment Services business segment increased $12.9 million, or 16.9%, during the three months ended March 31, 2001, compared to the same period last year. The revenue increase was due to strong internal growth, including the acquisition of several new clients in the 401(k) plan recordkeeping business. Operating income in the Investment Services business segment increased $1.6 million, or 10.6%, during the fiscal third quarter, resulting in operating margins of 18.4% and 19.5% for the three months ended March 31, 2001 and 2000, respectively. The margin decline primarily resulted from continued investments in the international mutual fund business, including support for the upgrade of the recently acquired Luxembourg operating platform. Revenue in the Insurance and Education Services business segment increased $19.1 million, or 82.2%, during the three months ended March 31, 2001, compared to the same period last year. The revenue increase was due to strong internal growth and the acquisitions of Pictorial and Ascensus. Operating income in the Insurance and Education Services business segment increased $8.7 million, or 99.4%, during the fiscal third quarter, resulting in operating margins of 41.3% and 37.7% for the three months ended March 31, 2001 and 2000, respectively. Margins increased in the fiscal third quarter due to strong revenue growth and realized savings from restructuring activities. Corporate operations represent charges for the Company's human resources, legal, accounting and finance functions, and various other unallocated overhead charges. Increased expenses of $0.8 million in the three months ended March 31, 2001 were in line with the Company's overall growth. FINANCIAL SERVICES MODERNIZATION ACT OF 1999 The Financial Services Modernization Act of 1999 (the "Act") repeals key provisions of the Glass-Steagall Act and lifts many restrictions limiting banks from the underwriting and distribution of securities. As a result of these regulatory changes, 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, 12 13 at this time the Company does not expect a material adverse impact on its business or results of operations as a result of the Act. 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. 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. 13 14 PART II ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On February 28, 2001, the Company issued 29,245 shares of its common stock, $.02 par value ("Company Common Stock"), to the owner of The Advanced Markets, LLC ("TAM"), in connection with the acquisition of TAM. Said shares of Company Common Stock were not registered under the Securities Act of 1933, as amended (the "Securities Act"). There was no underwriter or placement agent. On April 11, 2001, the Company issued 442,602 shares of Company Common Stock to the stockholders of Boston Institutional Group, Inc. and related companies ("BIG"). In addition, the Company assumed all the outstanding BIG stock options, which were converted into stock options to purchase 204,645 shares of Company Common Stock. There was no underwriter or placement agent. In connection with the issuance of shares of Company Common Stock to the stockholders of BIG and the owner of TAM in these transactions, the Company relied on exemptions from registration under Section 4(2) of the Securities Act, based upon, among other things, 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 Company and the transaction. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS None. (b) REPORTS ON FORM 8-K A current report on Form 8-K, dated March 8, 2001, was filed with the Securities and Exchange Commission on March 8, 2001 (Items 5 and 7) to report on the announcement of the offering of the Notes. A current report on Form 8-K, dated March 15, 2001, was filed with the Securities and Exchange Commission on March 15, 2001 (Items 5 and 7) to report on the announcement of the consummation of the sale of the Notes. 14 15 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 7, 2001 By: /s/ Dennis R. Sheehan ---------------- ------------------------------------------------ Dennis R. Sheehan Executive Vice President and Chief Financial Officer (Duly Authorized Officer) 15