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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 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 .
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
incorporation or organization) 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.02 PAR VALUE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [ ]
State the aggregate market value of voting stock held by nonaffiliates of
the Registrant as of September 18, 1997: $834,273,910.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of September 18, 1997: 26,123,069
DOCUMENTS INCORPORATED BY REFERENCE: List the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) Any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
FISCAL 1997 ANNUAL REPORT to Shareholders--Part II and IV; PROXY STATEMENT for
November 13, 1997 Annual Meeting--Part III
THE BISYS GROUP, INC.
FORM 10-K
JUNE 30, 1997
PAGE
Part I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 9
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............10
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................10
Item 6. Selected Financial Data........................................10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....10
Item 8. Financial Statements and Supplementary Data....................11
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................11
Part III
Item 10. Directors and Executive Officers of the Registrant.............11
Item 11. Executive Compensation.........................................11
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................11
Item 13. Certain Relationships and Related Transactions.................11
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................................11
PART I
ITEM I. BUSINESS.
The BISYS-Registered Trademark- Group, Inc. and its wholly-owned
subsidiaries ("BISYS" or the "Company") provide information and investment
outsourcing solutions to and through more than 6,000 financial organizations and
corporate clients. BISYS believes that it provides one of the financial
services industry's most technologically advanced family of image and financial
information outsourcing solutions and pricing analysis for account, item and
loan application processing, competitive product pricing research and marketing
services, and growth-enabling loan-by-phone and internet solutions. BISYS
provides network planning, design and implementation along with round-the-clock
network monitoring for multi-vendor local and wide area network environments.
BISYS is an industry leader in the design, administration and distribution of
proprietary mutual funds. It also provides 401(k) administration services to
some of the nation's leading bank and investment management companies; and
provides outsourcing services for the distribution of insurance services.
BISYS seeks to be the single source of all relevant outsourcing solutions
for its clients in order to improve their performance, profitability and
competitive position. BISYS endeavors to expand the scope of its services
through focused account management, emphasizing services with recurring revenues
and long-term contracts. It increases its business base through (i) direct
sales to new clients, (ii) sales of additional products and services to existing
clients, and (iii) acquisitions of businesses that provide complementary
outsourcing solutions to financial organizations.
BISYS was organized in August 1989 to acquire certain banking and thrift
data processing operations of Automatic Data Processing, Inc. ("ADP"). Its
traditional business was established in 1966 by United Data Processing, Inc.,
the predecessor of the banking and thrift data processing operations of ADP.
Together with its predecessors, BISYS has been providing outsourcing solutions
to the financial services industry for more than 30 years. BISYS is
incorporated under the laws of Delaware and has its principal executive office
at 150 Clove Road, Little Falls, New Jersey 07424 (telephone 973-812-8600).
Since its founding in 1989, BISYS has completed a number of acquisitions
and mergers as part of its strategic growth plan. Over the past five fiscal
years and through September 1997, BISYS acquired or merged with the following
businesses:
July 1993 -- The Barclay Group, Inc., now part of BISYS Plan Services,
provides 401(k) marketing, administrative support and participant
recordkeeping to client companies;
September 1993 -- Assets and certain liabilities of the Meyer Interest Rate
Survey, now part of BISYS Research Services, gathers specific information
on deposit and loan products offered by banking institutions and markets
such information to clients;
October 1993 -- The Winsbury Companies, now part of BISYS Fund Services,
creates, markets, and administers proprietary mutual funds, primarily for
banks;
March 1994 -- SunTrust Data Systems, Inc., now part of BISYS
TOTALPLUS-Registered Trademark- business, provides information services for
correspondent community banks of SunTrust Banks, Inc.;
March 1995 -- Concord Holding Corporation ("Concord"), now part of BISYS
Fund Services, creates, markets and administers proprietary mutual funds,
primarily for banks;
May 1995 -- Document Solutions, Inc. ("DSI"), now known as BISYS Document
Solutions, offers check and document imaging solutions to banks;
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April 1996 -- Strategic Solutions Group, Inc. ("SSG"), now known as BISYS
Creative Solutions, designs, develops and provides automated telephone and
internet based business generation solutions to financial organizations,
including the automated processing of consumer loan requests and
prequalification of home buyers for mortgage loans;
June 1996 -- T.U.G., Inc. ("TUG"), now part of BISYS Insurance Services,
provides insurance distribution services to the financial services
industry;
August 1997 -- Charter Systems, Inc. ("Charter"), an enterprise-wide
network services company which provides network planning, design,
implementation and 24-hour monitoring and performance analysis for
multi-vendor local and wide area network environments (see "Recent
Developments");
August 1997-- Dascit/White & Winston, Inc. and affiliated companies
("DWW"), an outsourcer of group health care and life insurance services,
now part of BISYS Insurance Services (see "Recent Developments"); and
September 1997-- Benefit Services, Inc. ("BSI"), an outsourcer of long-term
health care insurance services, now part of BISYS Insurance Services (see
"Recent Developments").
RECENT DEVELOPMENTS
In July 1997, BISYS was advised by the Board of Directors of the Pacific
Horizon Funds, managed by Bank of America, that BISYS' contract for mutual fund
administration and distribution services would be terminated in September 1997.
No specific reasons were given for the termination although BISYS understands
that Bank of America will serve as the new administrator. For fiscal year 1997,
revenues related to the agreements accounted for approximately $15 million. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
On August 15, 1997, BISYS acquired Charter through the merger of a
wholly-owned acquisition subsidiary of BISYS with and into Charter. The
transaction was completed through the issuance of 588,945 shares of BISYS common
stock, $0.02 par value ("Common Stock"), and exchange of 258,605 BISYS
equivalent stock options for all the outstanding shares and stock options of
Charter.
Effective August 22, 1997, BISYS entered into a strategic alliance with
Open Solutions, Inc. ("OSI"), provider of THE COMPLETE BANKING SOLUTION-TM-, a
client/server-based suite of integrated banking applications. Under the terms
of the agreement, BISYS became the exclusive national outsourcing provider of
OSI's client/server-based product line, and OSI has the right to integrate
BISYS' value-added products with its turnkey product offering. As part of the
agreement, BISYS also made an equity investment in OSI and is represented on the
OSI board of directors.
On August 29, 1997, BISYS acquired DWW through the merger of three separate
wholly-owned subsidiaries of BISYS with and into the three separate legal
entities comprising the DWW business: Dascit/White & Winston, Inc., Group Plan
Administrators, Inc., and Krauss & Trapani Co., Ltd. The transaction was
completed through the issuance of 134,396 shares of Common Stock in exchange for
all the outstanding shares of the three DWW companies.
On September 16, 1997, BISYS acquired BSI through the merger of a
wholly-owned acquisition subsidiary of BISYS with and into BSI. The transaction
was completed through the issuance of 71,448 shares of Common Stock, in exchange
for all the outstanding shares of BSI.
Although the acquisitions of Charter, DWW and BSI have been accounted for
as poolings of interests, historical financial statements will not be restated,
since the financial statement impact is not material.
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COMPANY STRATEGY
Financial organizations today are consistently challenged to compete more
effectively, improve productivity and maximize profits during periods of both
economic growth and decline. BISYS provides viable alternatives for automating
critical tasks and functions and provides specific expertise and experience to
financial organizations. BISYS outsourcing solutions deliver to its clients
operational and bottom line benefits as well as the resources to generate
incremental revenues. At the same time, BISYS realizes certain economies of
scale in providing client service, operations support and product development
for its diverse client base.
BISYS objectives are to increase its client base and to expand the services
it offers to them. The BISYS mission is to be the premier, full-service
outsourcing business partner focused on enhancing its clients' growth, profits
and performance, and to build shareholder value by consistently increasing both
revenues and earnings per share, through a combination of internal growth, new
sales and strategic acquisitions. Six key principles have guided BISYS since
its formation and continue to shape its business growth plan:
FOCUS ON SERVING CLIENTS. BISYS seeks to strengthen business relationships
with clients by offering new products and services designed to be
technologically advanced solutions for improving client performance, growth
and competitive position in a changing market.
GROW INTERNALLY AND SELL AGGRESSIVELY. BISYS seeks to grow internally by
aggressively selling services to new clients and cross-selling additional
services to existing clients through focused sales in growth markets.
BISYS also seeks to develop and sell new services to clients that help them
retain existing customers, and attract additional customers from new
markets. BISYS seeks to grow with and profit from its clients as a
growth-focused business partner.
EXPLOIT BUSINESS AND PRODUCT SYNERGY. BISYS seeks to capitalize on the
synergies among its business units and to acquire complementary companies
that support its client relationships and long-term business objectives.
MANAGE CONTEMPORARY ACQUISITION STRATEGY. Strategic acquisitions represent
an important growth tool for BISYS. To enhance shareholder value, BISYS
seeks to combine conservative valuation discipline and transition
experience to achieve market synergies and operating leverage.
LEVERAGE TECHNOLOGICAL ADVANCEMENTS. BISYS seeks to maintain its
leadership position in providing competitive, value-added outsourcing
solutions through investment in new technology and the further integration
of BISYS system capabilities.
OPTIMIZE HUMAN RESOURCES. BISYS seeks to attract and retain executives,
technical staff and financial services professionals with the expertise
required to enable BISYS to explore and develop new opportunities that will
sustain its growth and market leadership position.
BISYS provides outsourcing solutions for information processing to banking
institutions through an integrated family of services and products offered under
the registered service mark TOTALPLUS. Although the TOTALPLUS family of
services and products are adaptable to financial institutions of any size, BISYS
believes that its primary market consists of banks with $250 million to $10
billion in assets.
Using integrated central and client site solutions, the TOTALPLUS product
line supports most aspects of a banking institution's automation requirements.
TOTALPLUS is a comprehensive system, providing bank-wide automation which
enables community banks to compete with super regionals, banks serving a
national marketplace, and non-bank competitors. The TOTALPLUS family of
products and services provides bank-wide automation, integrating
mainframe-based, central site and PC-based, client site
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applications. The recent strategic alliance with OSI provides an evolutionary
path to a client/server platform utilizing network computing technologies. The
TOTALPLUS solution provides diverse financial organizations with the ability to
customize each application to meet unique processing requirements and
priorities.
BISYS currently has two major data processing centers located in the
Chicago, Illinois and Philadelphia, Pennsylvania metropolitan areas. These
regional service centers are uniformly automated with multi-tasking IBM (or
equivalent) mainframe computer systems on which all TOTALPLUS host computer
functions and client data are resident. Each client's individual operating
parameters and data are maintained separately, and extensive precautions are in
place to ensure data security and privacy of communications between the client
and the host. Both internal and external backup resources are maintained and
regularly tested for BISYS own disaster recovery purposes.
BISYS is a leader in providing image-based technology software to financial
institutions, including sophisticated Internet-based delivery and access
solutions. These imaging solutions convert traditional paper-based checks and
other documents into digital images that can be accessed electronically. More
than 650 banks, credit unions and service bureaus are using BISYS image-based
technology software representing approximately 70% of all bank check imaging
systems in the country for the community bank market. This software product,
designed to provide a fully integrated image environment, uses microcomputer
technology and supports the majority of image enabled transports available
today. This product family includes image capture and archive, image
statements, image proof of deposit, return item/image processing, image
signature verification, courtesy amount recognition, CD-ROM image delivery,
customer financial analysis and full internet access.
BISYS provides a complete package of enterprise-wide network management
solutions including planning, design and implementation of multi-vendor network
environments. Its services include its Inframax-Registered Trademark- remote
network monitoring and management system which supervises the network and the
operating system and related software that resides on the network. This
automated round-the-clock service provides monitoring, fault identification and
anticipation and overall network performance reporting.
BISYS provides automated business generation solutions to approximately 400
financial organizations across the United States. BISYS provides low-cost
automated telephone and internet-based business generation solutions to its
clients in an unattended service bureau environment on a seven day, 24 hour
basis, from its offices in Atlanta, Georgia. These services include Loan
Connection-TM-, which processes consumer loan requests, and Mortgage
Connection-TM-, which helps to prequalify home buyers for mortgage loans. Using
a client specific toll-free number and any touch-tone phone or a client's
Internet web site, prospective borrowers enter basic personal and financial
information in response to voice or screen prompts. Based on this input, BISYS
retrieves credit bureau information and applies the individual financial
organization's underwriting parameters and credit scoring criteria to provide
qualifying information to the financial organization and the prospective
borrower.
BISYS gathers information on deposit and loan products offered by more than
5,000 banks, thrifts and credit unions on a daily, weekly, or monthly basis.
BISYS markets and transmits this survey information in various formats and
frequencies to over 1,650 client institutions, including 23 of the nation's top
25 commercial banks. This data is used by both money center and community banks
to support their daily pricing decisions.
BISYS provides distribution, administration, fund accounting and transfer
agency services to over 60 mutual fund complexes encompassing more than 700
individual portfolios with a market value exceeding $170 billion in assets.
BISYS also provides 401(k) plan marketing support, administration and
recordkeeping services to 30 of the nation's leading bank and investment
management companies.
BISYS is a leader in distributing and administering proprietary open-end
"mutual funds" registered under the Investment Company Act (the "Investment
Company Act"), primarily for the bank managed mutual fund sector, a rapidly
growing sector in the mutual fund industry. BISYS provides distribution
services,
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including the development of joint and external sales and marketing programs and
administrative services, including responsibility for administration, transfer
agency, shareholder services, compliance and fund accounting. BISYS also
provides distribution services through its various wholly-owned broker/dealer
subsidiaries. In order to assist its clients' mutual fund sales efforts, BISYS
maintains a distribution sales force to raise additional assets for its clients'
funds. The banking institution, or a subsidiary or affiliate thereof, typically
acts as investment advisor and custodian to the fund.
BISYS integrates its banking and mutual fund expertise to provide a wide
array of specialized services. More than a traditional administrator and
distributor, BISYS takes a consultative approach to its client relationships,
offering innovative, fee-generating and cost-effective solutions to expand and
manage the banking institution's mutual fund business. BISYS offers its clients
a complete turnkey outsourcing solution for mutual fund operations which
includes comprehensive marketing, institutional sales, retail sales,
telemarketing, development of new products and markets and institutional and
retail shareholder servicing centers. BISYS designs, plans and implements
strategies to help mutual funds attain critical mass, reach new prospects and
markets and add value in an increasingly competitive market.
BISYS, one of the nation's leading providers of 401(k) plan services for
small- and medium-sized companies, provides outsourcing solutions to financial
organizations and corporate clients for marketing and sales support and
administration and participant recordkeeping services for corporate sponsored
401(k) plans. BISYS maintains partnerships with financial organizations
including banks and investment and insurance companies and provides marketing
and proposal support for their sale of their 401(k) plan investment products.
BISYS markets to and builds systems linkage with these investment manager
partners and enables them to concentrate on selling 401(k) plans while BISYS
provides the administrative and recordkeeping functions for a sponsoring
company. On an ongoing basis, BISYS performs 401(k) participant recordkeeping
and other services including daily valuation of participant balances,
administering 401(k) loans, discrimination testing, participant statements and
participant communications. Targeted at companies with fewer than 500 employees
- -- one of the fastest growing segments of the retirement plan market -- BISYS
services more than 5,000 corporate-sponsored retirement plans covering nearly
three-quarters of a million employee participants.
BISYS outsources life, group health and long-term care insurance services
to the financial services industry. BISYS is a full-service distributor and
administrator of insurance services and employs strategic alliances with major
insurance companies and national producer groups to provide outsourcing services
for insurance product distribution. BISYS services a network of, and markets
products and services through, more than 30,000 insurance agents and brokers
nationwide. BISYS offers a full-service, single source solution to support
banks' initiatives to offer insurance services to their customer bases. BISYS
allows clients to use their various distribution channels to offer insurance
products and services, ranging from annuities and commodity term products to
estate planning products. In addition to product solutions, BISYS provides
clients with the systems necessary to support their sale of insurance products,
including licensing management, marketing and proposal support, application
processing and advanced underwriting and commission accounting and processing.
CONTRACTS
Services are provided to BISYS clients, for the most part, on the basis of
a contract which renews for successive terms, unless terminated by either party.
BISYS management has pursued a policy of obtaining renewal terms equal to or
exceeding the original contract terms.
Contracts for distribution services to mutual funds, as required by the
Investment Company Act, provide that such contracts may continue for a period
longer than two years only if such continuance is specifically approved at least
annually by both a majority of the disinterested directors and either the other
members of the board of directors or the holders of a majority of the
outstanding shares of the fund.
5
BISYS fee structure for data processing clients is based primarily on
number of accounts, loans, participants and/or transactions handled for each
service, in some cases, subject to minimum charges, plus additional charges for
special options, services and features. BISYS fee structure for mutual fund
services clients is based primarily on the average daily net asset value of the
fund, in some cases, subject to minimum charges. BISYS 401(k) fee structure is
based upon the number of eligible participants in a plan subject to certain
minimums. BISYS check imaging software is licensed subject to a one-time fee
with recurring maintenance fees. BISYS telephone loan support services are
provided based on a one-time implementation fee plus a per-transaction fee.
BISYS fee structure for networking services is based on an annual fee for remote
monitoring, a one-time fee for project services, and recurring maintenance fees.
Contracts with insurance carriers providing products for BISYS customers provide
for compensation based on a percentage of premiums paid and transaction charges
and are generally cancelable at the discretion of the parties.
Although contract terminations and non-renewals have an adverse affect on
recurring revenues, BISYS believes that the contractual nature of its
businesses, combined with its historical renewal experience, provides a high
level of recurring revenues.
CLIENT BASE
BISYS clients are located in all 50 states. BISYS provides outsourcing
solutions to commercial banks, mutual savings institutions, thrift
organizations, mutual funds, insurance companies, insurance producer groups,
corporate clients and other financial organizations including investment
counselors and brokerage firms.
DISASTER RECOVERY SYSTEMS
Where appropriate, BISYS has implemented a disaster recovery system for its
various businesses. The key restoration services include off-site storage and
rotation of critical files, availability of a third-party "hot site" and
telecommunications recovery capability. BISYS believes that its single product
and consistent platform approach to data processing and communications and other
operating procedures enable it to achieve greater efficiencies in maintaining
and enhancing its disaster recovery systems, the capabilities of which are
routinely tested by BISYS with the cooperation of its clients. BISYS has also
developed and markets a microcomputer-based client site disaster recovery
planning product that is specifically designed to meet the compliance needs of
its financial institution clients.
SALES, MARKETING AND CLIENT SUPPORT
BISYS sells its services directly to potential clients or supports
insurance agents and companies, brokerage firms and other entities in their
endeavors to gain new clients. In addition to direct sales, BISYS utilizes
reseller/distributors to sell its software. BISYS has a number of sales offices
throughout the United States, including California, Florida, Georgia,
Massachusetts, Michigan, New York, Ohio, Pennsylvania, Texas and Virginia.
BISYS utilizes an account executive staff which provides client account
management and support. In accordance with BISYS strategy of providing a single
source solution to its clients, the account executive staff also markets and
sells additional services to existing clients and manages the contract renewal
process. Using centralized resources, BISYS provides its direct sales staff and
account executives with marketplace data, presentation materials and
telemarketing data. BISYS maintains client support staff at its principal
locations, which is responsible for day-to-day interaction with clients and also
markets BISYS products and services to existing clients.
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COMPETITION
BISYS believes the market for its services is highly competitive. BISYS
remains competitive due to several factors, including BISYS overall company
strategy and commitment, product quality, reliability of service, a
comprehensive and integrated product line, timely introduction of new products
and services, and competitive pricing. BISYS believes that, by virtue of its
range of product and service offerings and its overall commitment to client
service and relationships, it competes favorably in these categories. In
addition, BISYS believes that it has a competitive advantage as a result of its
position as an independent vendor, rather than as a cooperative, an affiliate of
a financial institution, a hardware vendor or competitor to its clients.
BISYS principal competitors are independent vendors of computer software
and services, in-house departments, affiliates of financial institutions or
large computer hardware manufacturers, processing centers owned and operated as
user cooperatives, insurance companies, third party administration firms, mutual
funds companies and brokerage firms. No single competitor offers the full range
of products and services that are offered by BISYS. Specific competitors
include Fiserv, M&I Data Services, Systematics, Federated Investors and SEI
Corporation, among others.
RESEARCH AND DEVELOPMENT
In order to meet the changing needs of the financial organizations that it
serves, BISYS continually evaluates, develops, maintains and enhances various
application software and other technology used in its business. During fiscal
1995, 1996, and 1997, BISYS spent approximately $9.4 million, $10.2 million,
and $10.4 million, respectively, on research and development, primarily focused
on its proprietary systems. Most of BISYS central site application software has
been developed internally, and a majority of the client site application
software is licensed from third parties and integrated with BISYS existing
systems.
PROPRIETARY RIGHTS
BISYS regards certain of its software as proprietary and relies upon trade
secret law, internal nondisclosure guidelines and contractual provisions for
protection. BISYS does not hold any registered patents or registered copyrights
on its software. BISYS believes that legal protection of its software is less
significant than the knowledge and experience of BISYS management and personnel
and their ability to develop, enhance and market new products and services.
BISYS believes that it holds all proprietary rights necessary for the conduct of
its business.
Application software similar to that licensed by BISYS is generally
available from alternate vendors, and in instances where BISYS believes that
additional protection is required, the applicable license agreement provides
BISYS with the right to obtain the software source code upon the occurrence of
certain events.
GOVERNMENT REGULATION
Certain BISYS subsidiaries are registered as broker/dealers with the
Securities and Exchange Commission (the "SEC"). Much of the federal regulation
of broker/dealers has been delegated to self-regulatory organizations,
principally the National Association of Securities Dealers, Inc. (the "NASD")
and the national securities exchanges. Broker/dealers are subject to regulation
which covers all aspects of the securities business, including sales methods,
trading practices, use and safekeeping of customers' funds and securities,
capital structure, recordkeeping and the conduct of directors, officers and
employees. Additional legislation, changes in rules and regulations promulgated
by the SEC, the Municipal Securities Rulemaking Board, the Office of the
Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board (the "FRB") and the self-regulatory
organizations or changes in the interpretation of enforcement of existing laws,
rules and regulations, may also directly affect the mode of
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operations and profitability of broker/dealers. The SEC, the FRB, the
self-regulatory organizations, state securities law administrators, the OCC and
the FDIC may conduct regulatory proceedings for violations of applicable laws,
rules and regulations. Such violations can result in disciplinary actions (such
as censure, the imposition of fines, the issuance of cease-and-desist orders or
the suspension or revocation of registrations, memberships or licenses of a
broker/dealer or its officers, directors or employees), as well as civil and
criminal penalties. The principal purpose of such regulations generally is the
protection of the investing public and the integrity of securities markets,
rather than protection of securities firms or their creditors or stockholders.
In addition, BISYS broker/dealer subsidiaries are subject to SEC Rule
15c3-1 (commonly known as the "Net Capital Rule"). The Net Capital Rule, which
specifies the minimum amount of net capital required to be maintained by
broker/dealers, is designed to measure the general financial integrity and
liquidity of broker/dealers and requires that a certain part of broker/dealers'
assets be kept in relatively liquid form. Failure to maintain the required
minimum amount of net capital may subject a broker/dealer to suspension or
revocation of licenses, registration or membership with the New York Stock
Exchange, Inc., the SEC, the NASD, and various state securities law
administrators and may ultimately require liquidation of the broker/dealer.
Under certain circumstances, the Net Capital Rule also prohibits payment of cash
dividends, redemption or repurchase of stock, distribution of capital and
prepayment of subordinated indebtedness. Thus, compliance with the Net Capital
Rule could restrict BISYS ability to withdraw capital from its broker/dealer
subsidiaries. At June 30, 1997, BISYS broker/dealer subsidiaries had net
capital of approximately $15.3 million, which exceeded the requirements of the
Net Capital Rule by approximately $13.9 million.
Under the Investment Company Act, the distribution agreements between each
mutual fund and a BISYS subsidiary terminate automatically upon assignment of
the agreement. The term "assignment" includes direct assignments by BISYS as
well as assignments which may be deemed to occur, under certain circumstances,
upon the transfer, directly or indirectly, of a controlling block of BISYS
voting securities. The Investment Company Act presumes that any transfer of
more than 25% of the voting securities of any person represents a transfer of a
controlling block of voting securities.
As a provider of services to banking institutions, BISYS is not directly
subject to federal or state banking regulations. However, BISYS may be subject
to review from time to time by the FDIC, the National Credit Union Association,
the Office of Thrift Supervision, the OCC and various state regulatory
authorities. These regulators make certain recommendations to BISYS regarding
various aspects of its operations. In addition, BISYS processing operations are
reviewed annually by an independent auditing firm.
Banks and other depository institutions doing business with BISYS are
subject to extensive regulation at the federal and state levels under laws,
regulations and other requirements specifically applicable to regulated
financial institutions, and are subject to extensive examination and oversight
by federal and state regulatory agencies. As a result, the activities of BISYS
client banks are subject to comprehensive regulation and examination, including
those activities specifically relating to the sale by or through them of mutual
funds and other investment products. BISYS is not presently aware of any facts
which would lead it to believe that any of its bank clients are not in
compliance with applicable federal and state laws, regulations and other
requirements concerning the administration and distribution of bank managed
mutual funds.
In this regard, the Glass-Steagall Act has been applied to prohibit banks
from engaging in the organization, sponsorship, underwriting and principal
distribution of mutual funds, but not to prohibit banks from providing
investment advisory, administrative, selling and other related services for, to
or with respect to the sale of mutual funds shares to their customers. Other
depository institutions laws, regulations and requirements do not impose
substantive limitations of a material nature on the activities which BISYS
client banks now perform with respect to their proprietary and other mutual
funds, but regulate in various respects the manner in which such activities may
be performed. Nevertheless, future changes in the application or the
interpretation of the Glass-Steagall Act or other banking laws and regulations,
or future legislative
8
changes in existing banking laws, may have a material and adverse impact on the
ability of BISYS client banks to engage in mutual fund activities, and
consequently on the business relationships between BISYS and its client banks.
BISYS is not presently aware of any pending regulatory developments, which, if
approved, would adversely affect the ability of its client banks to engage in
mutual fund activities. In addition, future changes in the Glass-Steagall Act
may remove the existing prohibition on banks engaging in the organization,
sponsorship, underwriting and principal distribution of mutual funds, permitting
banks to perform certain functions now required to be performed by third parties
such as BISYS. Any such change could affect BISYS in its provision of
distribution services through clients choosing to perform distribution functions
independently.
Federal regulatory agencies have promulgated guidelines or other
requirements which apply to depository institutions subject to their respective
supervisory jurisdiction with respect to the sale of mutual funds and other
non-FDIC insured investment products to retail customers. These requirements
apply to, among other things, sales of investment products on bank premises by
or through the use of third-party service providers. These requirements
generally require banking institutions which contract to sell investment
products through the use of third-party service providers to implement
appropriate measures to ensure that such activities are being conducted in
accordance with applicable bank and securities regulatory requirements
(including the agencies' retail sales guidelines), and may in some instances
impose certain "due diligence" obligations on regulated depository institutions
with respect to the nature and the quality of services provided by such
third-party service providers. Such regulatory requirements may increase the
extent of oversight which federal regulatory agencies may require BISYS client
banks to exercise over the activities of BISYS.
Federal and state banking laws grant state and federal regulatory agencies
broad authority to take administrative enforcement and other adverse supervisory
actions against banks and other regulated depository institutions where there is
a determination that unsafe and unsound banking practices, violations of laws
and regulations, failures to comply with or breaches of written agreements,
commitments or undertakings entered into by such banks with their regulatory
agencies, or breaches of fiduciary and other duties exist. Banks engaged in,
among other things, mutual fund-related activities may be subject to such
regulatory enforcement and other adverse actions to the extent that such
activities are determined to be unlawful, unsound or otherwise actionable.
Certain operations of BISYS are subject to regulation by the insurance
departments of the states in which BISYS sells insurance products. Certain
BISYS employees are required to be licensed as insurance producers in certain
states.
EMPLOYEES
As of June 30, 1997, BISYS employed approximately 2,000 employees. None of
its employees is represented by a union and there have been no work stoppages,
strikes or organization attempts. BISYS believes that its relations with its
employees are good.
The service nature of BISYS makes its employees an important corporate
asset. Most employees are not subject to employment agreements; however, a
limited number of BISYS employees have such agreements.
ITEM 2. PROPERTIES.
All principal properties of the Company are leased. The following table
provides certain summary information with respect to such principal properties
as of June 30, 1997:
9
LOCATION FUNCTION SQ. FEET EXPIRATION DATE
Little Falls, NJ Corporate headquarters 8,459 2000
Houston, TX Service Center 58,568 2001
Cherry Hill, NJ Data processing center 31,350 2000
Lombard, IL Data processing center 25,240 2000
Columbus, OH Mutual fund service center 126,686 2005
Ambler, PA Data processing center 53,605 2002
Birmingham, AL Service center 22,104 1999
In addition to the principal facilities listed above, BISYS also leases
certain other office and data processing facilities with leases expiring
periodically over the next five years.
BISYS owns or leases central processors and associated peripheral equipment
used in its data and item processing operations and communications network,
401(k) business and electronic banking business.
BISYS believes that its existing facilities and equipment, together with
expansion in the ordinary course of business, are adequate for its present and
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
BISYS is involved in litigation arising in the ordinary course of business.
Management believes that BISYS has adequate defenses and/or insurance coverage
against such litigation and that the outcome of these proceedings, individually
or in the aggregate, will not have a material adverse effect upon BISYS
financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Certain of the information required in Item 5 is incorporated herein by
reference to page 32 of the Company's 1997 Annual Report to Shareholders (the
"Annual Report") under the heading "Market Price Information" and Note 4 to the
Company's consolidated financial statements included therein. The Company has
not paid or declared any cash dividends during its most recent two fiscal years.
Portions of the Annual Report incorporated by reference in this report are
included in this report as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
The information requested in Item 6 is incorporated herein by reference to
page 17 of the Annual Report, included in this report as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required in Item 7 is incorporated herein by reference to
pages 18 through 20 of the Annual Report, included in this report as Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required in Item 8 is incorporated herein by reference to
pages 21 through 31 of the Annual Report, included in this report as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10 through 13 is incorporated by reference from the Company's definitive
proxy statement, which is expected to be filed pursuant to Regulation 14A within
120 days after the end of the Registrant's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The consolidated financial statements of the Company as of June 30, 1997
and 1996 and for each of the three years in the period ended June 30, 1997,
together with the report of Coopers & Lybrand L.L.P. dated August 15, 1997, are
incorporated herein by reference to pages 17 through 31 of the Annual Report,
included in this report as Exhibit 13.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted for the reason that they are
either not applicable or not required or because the information required is
contained in the consolidated financial statements or notes thereto.
(a)(3) Reports on Form 8-K
The Company filed a report on Form 8-K with the SEC on May 8, 1997
with respect to the adoption of a Shareholder Rights Plan.
(b) Exhibits:
2.1 -- Agreement and Plan of Merger dated as of December 9, 1994 among
the Registrant, BICON Acquisition Corp. and Concord Holding
Corporation. (Incorporated by reference to Exhibit 2.1 to the
Registrant's Registration Statement No. 33-87474.)
2.2 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
February 14, 1995 among the Registrant, BICON Acquisition Corp.
and Concord Holding Corporation. (Incorporated by reference to
the Registrant's Registration Statement No. 33-87474.)
3.1 -- Amended and Restated Certificate of Incorporation of The BISYS
Group, Inc. (Incorporated by reference to the Registrant's
Registration Statement No. 333-02932.)
3.2* -- Amended and Restated By-Laws of The BISYS Group, Inc.
4.1 -- Rights Agreement, dated as of May 8, 1997, by and between The
BISYS Group, Inc. and The Bank of New York, as Rights Agent
(including the form of Rights Certificate as Exhibit A).
(Incorporated by reference to Exhibit 2.1 of Form 8-A filed on
May 8, 1997 with the SEC.)
11
10.1 -- Letter Agreement dated May 12, 1995 between the Registrant and
Lynn J. Mangum. (Incorporated by reference to Exhibit 10.18 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.)
10.2 -- Letter Agreement dated May 12, 1995 between the Registrant and
Paul H. Bourke. (Incorporated by reference to Exhibit 10.19 to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995.)
10.3 -- Letter Agreement dated May 12, 1995 between the Registrant and
Robert J. McMullan. (Incorporated by reference to Exhibit 10.20
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995.)
10.4 -- The BISYS Group, Inc. Amended and Restated Stock Option and
Restricted Stock Purchase Plan. (Incorporated by reference to
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994.)
10.5 -- BISYS 401(k) Savings Plan. (Incorporated by reference to Exhibit
10.23 of the Registrant's Registration Statement No. 33-45417.)
10.6 -- The BISYS Group, Inc. Non-Employee Directors' Stock Option Plan.
(Incorporated by reference to Exhibit B to the Registrant's proxy
statement for its 1994 annual meeting of stockholders, filed with
the SEC on October 6, 1994.)
10.7 -- Lease of Little Falls, New Jersey facility dated January 9, 1991.
(Incorporated by reference to Exhibit 10.24 of the Registrant's
Registration Statement No. 33-45417.)
10.8 -- Lease of Cherry Hill, New Jersey facility dated November 29,
1990. (Incorporated by reference to Exhibit 10.25 of the
Registrant's Registration Statement No. 33-45417.)
10.9 -- Lease of Lombard, Illinois facility dated May 29, 1990.
(Incorporated by reference to Exhibit 10.27 of the Registrant's
Registration Statement No. 33-45417.)
10.10 -- Lease of Houston, Texas facility dated June 30, 1986.
(Incorporated by reference to Exhibit 10.28 of the Registrant's
Registration Statement No. 33-45417.)
10.11 -- Lease of Ambler, Pennsylvania facility dated April 4, 1989.
(Incorporated by reference to Exhibit 10.29 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993.)
10.12 -- Lease of Columbus, Ohio facility dated August 30, 1994 as amended
by First Amendment dated April 14, 1995. (Incorporated by
reference to Exhibit 10.36 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.)
10.13 -- Registration Rights Agreement dated March 29, 1995 among the
Registrant and the several persons named on Schedule I thereto.
(Incorporated by reference to Exhibit 10.9 to the Registrant's
Report on Form 8-K filed on April 12, 1995.)
10.14 -- Registration Rights Agreement dated April 22, 1996 among the
Registrant and the several persons named on Schedule I thereto.
(Incorporated by reference to Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1996.)
10.15 -- Registration Rights Agreement dated June 28, 1996 among the
Registrant and the several persons named on Schedule I thereto.
(Incorporated by reference to Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30,
1996.)
10.16 -- The BISYS Group, Inc. 1995 Stock Option Plan. (Incorporated by
reference to Exhibit A to the Registrant's proxy statement for
its 1995 annual meeting of stockholders, filed with the SEC.)
10.17 -- The BISYS Group, Inc. 1996 Stock Option Plan. (Incorporated by
reference to Exhibit A to Registrant's proxy statement for its
1996 annual meeting of stockholders.)
10.18* -- Credit Agreement by and among The BISYS Group, Inc., the Lenders
party thereto, and The Bank of New York, as Issuing Bank and as
Agent, with BNY Capital Markets, Inc., as Arranger, dated as of
March 5, 1997, without exhibits.
11* -- Computation of Per Share Earnings
13* -- Pages 16-32 of the Registrant's 1997 Annual Report to
Shareholders
21* -- List of subsidiaries of The BISYS Group, Inc.
23* -- Consent of Coopers & Lybrand L.L.P.
27* -- Financial Data Schedule
- -----------------------------
*Filed herewith.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: September 26, 1997 By: /s/ Robert J. McMullan
------------------------------------
Robert J. McMullan
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 26th day of September 1997.
Signature Title
/s/ Lynn J. Mangum Director, Chairman of the Board and Chief
- ---------------------- Executive Officer (Principal Executive
(Lynn J. Mangum) Officer)
/s/ Paul H. Bourke Director, Chief Operating Officer and President
- ----------------------
(Paul H. Bourke)
/s/ Robert J. McMullan Executive Vice President and Chief Financial Officer
- ------------------------ (Principal Financial and Accounting Officer)
(Robert J. McMullan)
/s/ Robert J. Casale Director
- ------------------------
(Robert J. Casale)
/s/ Thomas A. Cooper Director
- ------------------------
(Thomas A. Cooper)
/s/ Jay W. DeDapper Director
- -----------------------
(Jay W. DeDapper)
/s/ John J. Lyons Director
- -----------------------
(John J. Lyons)
/s/ Thomas E. McInerney Director
- ------------------------
(Thomas E. McInerney)
/s/ Neil P. Marcous Director
- ------------------------
(Neil P. Marcous)
13
INDEX TO EXHIBITS FILED HEREWITH
EXHIBIT NO. DESCRIPTION
3.2 -- Amended and Restated By-Laws of The BISYS Group, Inc.
10.18 -- Credit Agreement by and among The BISYS Group, Inc., the Lenders
party thereto, and The Bank of New York, as Issuing Bank and as
Agent, with BNY Capital Markets, Inc., as Arranger, dated as of
March 5, 1997, without exhibits.
11 -- Computation of Per Share Earnings.
13 -- Pages 16-32 of the Registrant's 1997 Annual Report to
Shareholders.
21 -- List of subsidiaries of The BISYS Group, Inc.
23 -- Consent of Coopers & Lybrand L.L.P.
27 -- Financial Data Schedule.