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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, 2004.
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: 001-31254
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.)
90 PARK AVENUE
NEW YORK, NEW YORK 10016
(Address of principal executive offices) (Zip Code)
212-907-6000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $0.02 PAR VALUE
(Title of Class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(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. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of December 31, 2003: $1,758,795,108.
State the aggregate market value of voting stock held by non-affiliates of
the Registrant as of September 8, 2004: $1,716,541,718.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of September 8, 2004: 120,502,456 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Fiscal 2004
Annual Report to Shareholders incorporated by reference in Part I, II and IV
herein; portions of the Registrant's definitive Proxy Statement for its November
11, 2004 Annual Meeting of Stockholders incorporated by reference in Part III
herein.
THE BISYS GROUP, INC.
FORM 10-K
JUNE 30, 2004
PAGE
- ----
Part I
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 15
Item 3. Legal Proceedings..................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders................................... 16
Part II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities...................................................... 16
Item 6. Selected Financial Data............................................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 17
Item 8. Financial Statements and Supplementary Data........................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 18
Item 9A. Controls and Procedures .............................................................. 18
Part III
Item 10. Directors and Executive Officers of the Registrant.................................... 19
Item 11. Executive Compensation................................................................ 20
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 20
Item 13. Certain Relationships and Related Transactions........................................ 20
Item 14. Principal Accounting Fees and Services................................................ 20
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and the documents incorporated by reference in this report
contain "forward-looking statements" within the meaning of the securities laws.
These forward-looking statements are subject to a number of risks and
uncertainties, many of which are beyond our control. All statements other than
statements of historical facts included or incorporated by reference in this
report, regarding our strategy, future operations, financial position, estimated
revenues and expenses, projected costs, prospects, and plans and objectives of
management are forward-looking statements. When used in this report or
incorporated by reference herein, the words "will," "believe," "anticipate,"
"intend," "estimate," "expect," "project," "plan," "target" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this report. We do not
undertake any obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Although we believe that our plans, intentions and expectations reflected in or
suggested by the forward-looking statements we make in this report and in
documents incorporated by reference herein are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. Factors
that could cause our results to materially differ from our expectations include,
but are not limited to, those factors set forth in this report under Item 1
"Business - Risk Factors." The cautionary statements qualify all forward-looking
statements attributable to us or persons acting on our behalf. Unless otherwise
indicated, all statistical information provided is as of June 30, 2004.
PART I
ITEM I. BUSINESS.
The BISYS(R) Group, Inc., together with its wholly owned subsidiaries,
supports more than 22,000 financial institutions and corporate clients with
products and services provided through three principal business groups: BISYS
Investment Services, BISYS Insurance and Education Services, and BISYS
Information Services. We distribute and administer approximately 2,200 mutual
funds, hedge funds, private equity funds and other investment products
representing more than $750 billion in assets under contract; provide retirement
plan recordkeeping services to more than 18,000 companies in partnership with 50
of the nation's leading bank and investment management companies; support
approximately 400,000 employers and four million IRA holders with ERISA plan
documents and ancillary services; provide life and commercial property/casualty
insurance distribution solutions, professional certification training and
continuing education, and licensing and compliance-related products and
services; and provide information processing and check imaging solutions to
approximately 1,450 banks, insurance companies and corporations nationwide.
We seek to be our clients' single source for our offered outsourcing
solutions and to improve their performance, profitability and competitive
position. We endeavor to expand the scope of our services through focused
account management, emphasizing services with recurring revenues and long-term
contracts. We increase our business base through (i) organic growth of our
clients, (ii) sales of additional products and services to existing clients,
(iii) direct sales to
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new clients, and (iv) acquisitions of businesses that provide similar and/or
complementary outsourcing solutions to financial organizations and other
customers.
We were organized in August 1989 to acquire certain banking and thrift
data processing operations of Automatic Data Processing, Inc. ("ADP"). Our
initial business was established in 1966 by United Data Processing, Inc., the
predecessor of the banking and thrift information processing operations of ADP.
Together with our predecessors, we have been providing outsourcing solutions to
the financial services industry for more than 38 years. We are incorporated
under the laws of Delaware, and our principal executive offices are located at
90 Park Avenue, New York, New York 10016 (telephone 212-907-6000).
Since our founding in 1989, we have completed more than 40 acquisitions as
part of our strategic growth plan. During the last fiscal year, we acquired the
following businesses, which now operate as part of the Insurance and Education
Services group:
November 2003 - USA Insurance Group, Inc., a Florida-based
property/casualty managing general agent, increasing our market share in
the property/casualty insurance marketplace; and
January 2004 - Uhlemeyer Services, Inc., a Midwest-based managing general
agent of workers compensation insurance products, expanding our
property/casualty insurance product offerings.
BUSINESS STRATEGY
Financial organizations today are challenged to compete more effectively,
improve productivity and maximize profits during periods of both economic growth
and decline. We provide viable alternatives for automating critical tasks and
functions, and provide specific expertise and experience to financial
organizations. Through our outsourcing solutions, we assist clients in achieving
operational and economic benefits, and provide our clients with opportunities to
generate incremental revenues.
Our objectives are to increase our client base and to expand the services
we offer to them. We seek to be the premier, full-service outsourcing business
partner focused on enhancing our clients' growth, profits and performance. We
seek to build value for our shareholders by increasing both revenues and
earnings per share, through a combination of organic growth from existing
clients, cross sales to existing clients, sales to new clients and strategic
acquisitions. Five primary tenets have guided us since our formation and
continue to shape our strategy:
FOCUS ON CLIENT SERVICE. We seek to understand the financial services
industry and proactively respond to our clients' evolving support
requirements. Our industry-recognized client service and rewarding levels
of client satisfaction are based on decades of day-to-day experience,
sophisticated support tools, and a company-wide commitment to unsurpassed
client service.
GROW INTERNALLY AND SELL AGGRESSIVELY. We seek to sell our business
process outsourcing solutions to new clients and cross sell additional
products and services to our existing clients. We intend to continue to
focus targeted sales initiatives on large and growing markets, and to
introduce innovative business solutions and processing
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capabilities that will enable our clients to retain and attract customers,
and enter new markets.
LEVERAGE BUSINESS AND PRODUCT SYNERGIES. We seek to leverage the synergies
inherent in providing our broad suite of complimentary products and
services to all major sectors of the financial services industry. We will
continue to seek to acquire companies that provide complementary products
and services, new clients and cross-sale opportunities, and expanded
geographical presence.
LEVERAGE TECHNOLOGICAL ADVANCEMENTS. We seek to continue to enhance our
outsourcing platforms by integrating leading-edge products, services and
technologies. We will continue to seek to leverage the power of the
Internet to innovatively deliver products, services and vital information.
OPTIMIZE HUMAN RESOURCES. We value the contribution of our associates who
represent every business and technical discipline in the financial
services industry. We depend on their collective experience and expertise
to sustain our industry leadership.
We provide our products and services principally through three major
business groups: BISYS Investment Services, BISYS Insurance and Education
Services, and BISYS Information Services. These business groups are separately
managed, strategic business units and are reported as operating segments.
Certain of the business segment information required to be included herein is
incorporated herein by reference to Note 16 of our consolidated financial
statements included in our 2004 Annual Report to Shareholders (the "Annual
Report") on pages 46 through 48. Portions of the Annual Report incorporated by
reference in this report are included in this report as Exhibit 13.
BISYS INVESTMENT SERVICES
Our Investment Services group provides a broad array of investment
services, including mutual fund, hedge fund, private equity fund and retirement
plan services.
We support approximately 100 domestic and offshore mutual fund clients,
representing more than 1,600 registered and non-registered funds, and more than
$645 billion in assets. Our fund services include administration and accounting,
transfer agency and shareholder services, compliance and regulatory support, and
marketing and distribution solutions. 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. Our fee
structure for mutual fund clients is, in some cases, based on the average net
asset value of the fund, subject to minimum charges, and in some cases consists
of or includes account-based fees and other fixed charges. Through our Financial
Research Corporation (FRC) subsidiary, we also provide the market analytics,
research and consulting services financial services firms need to develop and
distribute competitive products and services. These services are provided on a
subscription basis.
We are a leading global hedge fund administrator, supporting more than 500
hedge funds, funds of hedge funds and other alternative investments,
representing approximately $90
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billion in assets. Our full-service hedge fund solution includes fund accounting
and valuation, investor and transfer agency services, director and corporate
secretarial services, and legal, compliance, and tax support.
We are also a leading provider of accounting, administration and tax
services for private equity funds, supporting approximately 300 funds with
committed capital of approximately $35 billion.
Our fee structure for hedge fund and private equity fund clients is, in
some cases, based on the average net asset value or invested capital of the
fund, subject to minimum charges, and in some cases consists of or includes
fixed charges.
Through our relationships with 50 institutional clients, we support more
than 18,000 small and mid-size retirement plans and their approximately 1.4
million eligible employees. Our comprehensive retirement plan solution includes
prototype plan design and maintenance, administration and recordkeeping, ERISA
documents and forms, customized marketing and sales support, and staff training
and development. In addition, we provide a turnkey administration and
recordkeeping solution for owner-only Individual(k) plans. We also support
approximately 400,000 employers and four million IRA holders with ERISA
documents and ancillary services, and train approximately 12,000 industry
professionals annually. Our retirement services fee structure is generally based
upon the number of eligible employees or participants in a plan subject to
certain minimums, as well as fees based on assets held in the retirement plans
we service, and transaction fees. Our retirement services documents and forms
are sold on a per unit or annual subscription basis, and our ERISA training and
reference services are provided on a fee-for-service basis.
BISYS INSURANCE AND EDUCATION SERVICES
Our Insurance and Education Services group provides life insurance and
commercial property/casualty insurance distribution, financial services
education and licensing automation.
We are a leading independent distributor and provider of the support
services required to sell multiple lines of life-related insurance and annuity
products. We distribute the products of approximately 175 of the most highly
rated insurance companies through career and independent insurance agents and
financial services professionals. We support the entire sales process for term
life, fixed and variable life, long-term care, disability and annuity products
with a comprehensive suite of services, including agent licensing and
contracting, sales support, advanced case design, application processing,
medical underwriting support, commission reconciliation, and policy owner
services. We also provide a robust insurance administration system and advanced
Internet-based capabilities designed to expedite the sales process. The
insurance companies manufacture the insurance products and assume the
underwriting risk and full responsibility for the policy benefits, while the
agents and financial services professionals work directly with consumers.
Contracts with insurance carriers supplying products for our life insurance
services customers typically provide for compensation based on a percentage of
premiums paid and, in some cases, transaction charges, and are generally
cancelable on less than 90 days notice at the discretion of either party. We
also maintain long-term contracts with the distribution arms of a number of
insurance companies, producer groups, broker-dealers and banks to provide
insurance products and services. Our insurance services fee structure is
generally based on sharing with our clients a portion of commissions and/or
profits we receive from insurance companies.
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We are also a leading independent provider of commercial property/casualty
insurance products. We distribute the products of more then 75 property/casualty
insurance companies through approximately 3,000 retail brokers and agents. We
support the distribution process with complete sales and back-office support
services. We specialize in insurance solutions for complex property and casualty
risks, commercial and habitational real estate, such as apartment and
condominium complexes, high-limit property capacity and property catastrophe,
directors' and officers' liability, errors and omissions liability and
employment practices liability. We also act as managing general agent for
various commercial insurers, focusing primarily on the transportation industry
and the workers' compensation market. Contracts with commercial
property/casualty insurance carriers supplying products for our customers
typically provide for compensation based on a percentage of premiums paid, and
are generally cancelable on less than 90 days notice at the discretion of either
party.
We provide training solutions for insurance and investment professionals,
supporting compliance requirements at various stages of career development with
pre-licensing, continuing education and advanced designation courses. Financial
services professionals enroll in our courses, which are delivered through
traditional instructor-led and self-study programs, or through technology-based
alternatives including interactive online and computer-based programs. Our
education services products are generally provided to customers on an "as
needed" basis.
Our suite of integrated licensing products and services automates the
complex insurance licensing and securities registration processes, and
facilitates compliance with state and federal regulations. Insurance companies,
broker-dealers and banks utilize our integrated, Internet-enabled products and
services to automate and track the licensing process. Our relationship with our
licensing solutions clients are typically based on multi-year contracts. Our fee
structure is generally based on the type of services provided and the number of
insurance agents and registered representatives being serviced.
BISYS INFORMATION SERVICES
Our Information Services group supports approximately 1,450 banks,
insurance companies and corporations with information processing, asset
retention solutions, specialized back-office services required to support
corporate-sponsored cash management programs, health savings accounts and check
imaging solutions.
Our comprehensive banking platform supports banks with integrated core
deposit and lending, commercial and retail services, ATM and debit card
processing, electronic and Internet-based banking, branch automation, customer
relationship management, executive decision-support tools and document imaging.
We also provide a complete imaging platform, enabling our clients to convert
paper-based checks into digital or "virtual" checks and process them
electronically.
The American Bankers Association, through its Corporation for American
Banking subsidiary, endorses both our core information processing solution and
our check imaging platform on an exclusive basis as the recommended solutions
for community banks.
Our asset retention and corporate banking solutions leverage our
traditional banking services to provide an industry-leading suite of outsourced
solutions, including information and
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transaction processing, and call center services. These services enable life and
property/casualty insurance companies to establish ongoing customer
relationships with claimants and beneficiaries by offering personalized checking
accounts and online debit and stored value cards as alternatives to lump sum
payments. Our specialized back-office services also provide complete management
for corporate-sponsored cash management programs and health savings accounts. We
currently enable life and property/casualty insurance companies and corporations
to retain more than $17 billion in assets.
Our relationships with our banking solutions, asset retention and health
savings account clients are based on long-term contracts that renew for
successive terms unless terminated by either party. Our fee structure for these
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 or special options, services and features. Our
check imaging software is licensed subject to a one-time fee with recurring
maintenance fees.
CONTRACTS
As described above, we provide services to our clients, for the most part
and wherever possible, on the basis of long-term contracts that renew for
successive terms unless terminated by either party.
Although contract terminations and non-renewals have an adverse effect on
recurring revenues, we believe that the contractual nature of our businesses,
combined with our historical renewal experience, provides a high level of
recurring revenues.
CLIENT BASE
Our clients are located in all 50 states and several international
locations, principally Western Europe, Bermuda and the Cayman Islands. We
provide outsourcing solutions to commercial banks, mutual savings institutions,
thrift organizations, mutual funds, hedge funds, private equity funds, insurance
companies, insurance producer groups, corporate clients and other financial
organizations, including investment counselors and brokerage firms. Total
revenue from unaffiliated clients located outside the United States for fiscal
2002, 2003 and 2004 was approximately $36.5 million, $65.5 million and $81.9
million, respectively.
DISASTER RECOVERY SYSTEMS
We have implemented business continuity and disaster recovery plans and
procedures for each of our material processing platforms. The key restoration
services include off-site storage and rotation of critical files, availability
of third-party "hot sites" and telecommunications recovery capability. We
continue to modify our business continuity and disaster recovery plans to
reflect changes in our operating platforms. Our plans include provisions calling
for periodic testing of the plans, which, in some cases, is conducted in
cooperation with our clients.
SALES, MARKETING AND CLIENT SUPPORT
We market our services directly to potential clients. In addition, we
support insurance agents and companies, brokerage firms and other entities in
their endeavors to gain new clients. We have more than 80 sales offices located
throughout the United States.
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We utilize an account executive staff that provides client account
management and support. In accordance with our strategy of providing a single
source solution to our clients, the account executive staff also markets and
sells additional products and services to existing clients and manages the
contract renewal process. Using centralized resources, we provide our direct
sales staff and account executives with marketplace data, presentation materials
and telemarketing data. We maintain client support personnel that are
responsible for day-to-day interaction with clients, and also market our
products and services to our existing clients.
COMPETITION
We believe that the markets for our products and services are highly
competitive. We believe that we remain competitive due to several factors,
including our 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. We believe
that, by virtue of our range of product and service offerings, and our overall
commitment to client service and relationships, we compete favorably in these
categories. In addition, we believe that we have a competitive advantage as a
result of our position as an independent vendor, rather than as a cooperative,
an affiliate of a financial institution, a hardware vendor or competitor to our
clients.
Our principal competitors are third-party administration firms, mutual
fund companies, brokerage firms, insurance companies, distributors of insurance
products, independent vendors of computer software and services, in-house
service departments, affiliates of financial institutions or large computer
hardware manufacturers and processing centers owned and operated as user
cooperatives.
PROPRIETARY RIGHTS
We regard certain of our software as proprietary and rely upon trade
secret law, internal nondisclosure guidelines and contractual provisions in our
license, services and other agreements for protection. Other than one patent
relating to our check imaging system, we do not hold any registered patents or
registered copyrights on our software. We believe that legal protection of our
software is less significant than the knowledge and experience of our management
and personnel, and their ability to develop, enhance and market new products and
services. We believe that we hold all proprietary rights necessary to conduct
our business.
Application software similar to that licensed by us is generally available
from alternate vendors. In addition, in instances where we believe that
additional protection is required, the applicable license agreement provides us
with the right to obtain access to licensed software source code upon the
occurrence of certain events.
GOVERNMENT REGULATION
Certain of our subsidiaries are registered as broker-dealers with the
Securities and Exchange Commission ("SEC"). Much of the federal regulation of
broker-dealers has been delegated to self-regulatory organizations, principally
the National Association of Securities Dealers, Inc. ("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
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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 ("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
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, our 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 our ability to withdraw capital from our broker-dealer
subsidiaries. At June 30, 2004, each of our broker-dealer subsidiaries met or
exceeded the requisite net capital requirement. At June 30, 2004, our
broker-dealer subsidiaries had aggregate net capital of approximately $9.8
million, which exceeded the requirements of the Net Capital Rule by
approximately $8.4 million.
Under the Investment Company Act of 1940, our distribution agreements with
each mutual fund terminate automatically upon assignment of the agreement. The
term "assignment" includes direct assignments by us, as well as assignments
which may be deemed to occur, under certain circumstances, upon the transfer,
directly or indirectly, of a controlling block of our voting securities. The
Investment Company Act of 1940 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.
Our offshore Fund Services, Hedge Fund Services and Private Equity
Services operations are regulated by financial regulatory bodies in their
respective jurisdictions. These operating platforms are examined periodically by
such regulatory bodies and failure to comply with their rules and regulations
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 our offshore subsidiaries 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.
As a provider of services to banking institutions, we are not directly
subject to federal or state banking regulations. However, we are subject to
review from time to time by the FDIC, the
8
National Credit Union Association, the Office of Thrift Supervision, the OCC and
various state regulatory authorities. These regulators make certain
recommendations to us regarding various aspects of our operations. In addition,
our processing operations are reviewed annually by an independent auditing firm.
Banks and other depository institutions doing business with us 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 our bank clients
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.
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 our bank
clients to exercise over our activities.
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 of our operations are subject to regulation by the insurance
departments of the states in which we distribute insurance products. Certain of
our employees are required to be licensed as insurance producers in certain
states.
The Financial Services Modernization Act of 1999 and regulations
promulgated thereunder also impose restrictions on financial institutions with
respect to the use and disclosure of non-public consumer information. Some of
our businesses may be covered entities under the Act and therefore subject to
regulations governing privacy of non-public consumer information. In addition,
as a service provider to financial institutions, we are required by our
customers to safeguard non-public consumer information of their customers that
comes into our possession.
The USA PATRIOT Act and regulations promulgated thereunder impose certain
requirements on our clients and certain of our businesses to establish
anti-money laundering
9
programs. These programs are required to include processes for verifying the
identities of customers, identifying suspicious transactions and reporting such
transactions to the appropriate governmental agency, preventing transactions
with individuals in specifically designated countries and checking certain
customer names against published lists of terrorist organizations. We are
subject to similar laws and regulations in each of the foreign jurisdictions in
which we act as a transfer agent.
EMPLOYEES
As of June 30, 2004, we employed approximately 5,200 employees. None of
our employees are represented by a union and there have been no work stoppages,
strikes or organization attempts. We believe that our relations with our
employees are good.
The service nature of our businesses makes our employees an important
corporate asset. Most of our employees are not subject to employment agreements,
however, a limited number of executives of our operating subsidiaries have such
agreements that were entered into in connection with the acquisition of their
businesses.
AVAILABLE INFORMATION
We maintain a website with the address www.bisys.com. We are not including
the information contained on our website as part of, or incorporating it by
reference into, this Annual Report on Form 10-K. We make available, free of
charge, through our website, our Annual Report on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, and amendments to these reports,
as soon as reasonably practicable after we electronically file such material
with, or furnish such material to, the Securities and Exchange Commission.
RISK FACTORS
OUR BUSINESS CAN BE SIGNIFICANTLY AFFECTED BY DIRECT AND INDIRECT GOVERNMENTAL
REGULATION, WHICH REDUCES OUR FLEXIBILITY AND INCREASES THE COSTS OF DOING
BUSINESS.
Our business is affected by federal, state and foreign regulations. Our
noncompliance with these regulations could result in the suspension or
revocation of our licenses or registrations, including broker-dealer licenses
and registrations, and insurance producer licenses and registrations. Regulatory
authorities could also impose on us civil fines and criminal penalties for
noncompliance.
Some of our subsidiaries are registered with the Securities Exchange
Commission as broker-dealers. Much of the federal regulation of broker-dealers
has been delegated to self-regulatory organizations, principally the National
Association of Securities Dealers, Inc. and the national securities exchange.
Broker-dealers are subject to regulations which cover all aspects of their
securities business, including, for example:
- sales methods;
- trading practices;
- use and safekeeping of customers' funds and securities;
- capital structure;
- recordkeeping; and
10
- the conduct of directors, officers and employees.
The operations of our broker-dealers and their profitability could be affected
by:
- federal and state legislation;
- changes in rules and regulations of the SEC, banking and other
regulatory agencies, and self-regulatory agencies; and
- changes in the interpretation or enforcement of existing laws, rules
and regulations.
Banks and other depository institutions with whom we do business are also
subject to extensive regulation at the federal and state levels under laws and
regulations applicable to regulated financial institutions. They are also
subject to extensive examination and oversight by federal and state regulatory
agencies. Changes in the laws, rules and regulations affecting our client banks
and financial institutions, and the examination of their activities by
applicable regulatory agencies could adversely affect our results of operations.
Some of our subsidiaries, and officers and employees of these
subsidiaries, are required to be licensed as insurance producers in various
jurisdictions in which we conduct our insurance services business. They are
subject to regulation under the insurance laws and regulations of these
jurisdictions. Changes in the laws, rules and regulations affecting licensed
insurance producers could adversely affect our operations.
A portion of our revenues in our Insurance and Education Services group
are based on income tax-driven and estate planning-driven sales of life
insurance and annuity products. Changes in laws, rules and regulations relating
to income taxes and estate taxes could adversely affect this portion of our
business.
OUR REVENUES AND EARNINGS ARE SUBJECT TO CHANGES IN THE SECURITIES MARKETS.
A significant portion of our earnings are derived from fees based on the
average daily market value of the assets we administer for our clients. Changes
in interest rates or a substantial decline in the securities market could
influence an investor's decision whether to invest or maintain an investment in
an investment vehicle administered by us. As a result, fluctuations could occur
in the amount of assets which we administer. If investors were to seek
alternatives to those investment vehicles, it could have a negative impact on
our revenues by reducing the amount of assets we administer. Changes in the
securities markets could also have a negative impact on demand for our
securities training and education products and services.
WEAKNESSES IN OUR INTERNAL CONTROLS AND PROCEDURES COULD ADVERSELY IMPACT OUR
BUSINESS.
Effective internal controls and procedures are critical to our ability to
properly process and account for our business. Deficiencies and weaknesses in
our internal controls and procedures could have a material adverse effect on our
business, financial condition and results of operations. It should be noted that
the design of any system of controls is based upon certain assumptions about the
likelihood of future events, and there can be no assurance that such design will
succeed in achieving its stated objective under all potential future conditions,
regardless of how remote. As more fully described in Item 9A of this Report, we
have identified a material weakness in our internal controls over financial
reporting relating to the validation and monitoring of assumptions underlying
the estimates used to compute certain first year, bonus and
11
renewal commissions receivable and with respect to related documentation and
review processes for significant accounting entries, including entries relating
to acquisition accounting. Since the identification of the material weakness, we
have implemented and are continuing to implement various initiatives intended to
improve our internal controls and procedures to address this weakness. No
assurance can be given that we will be able to successfully implement all of our
revised internal controls and procedures or that our revised controls and
procedures will be effective in remedying all of these identified deficiencies
in our internal controls and procedures. There also can be no assurances that
this material weakness will be rectified or that additional significant
deficiencies and/or material weaknesses in our internal controls will not be
identified.
WE ARE CURRENTLY THE TARGET OF SECURITIES LITIGATION AND MAY BE THE TARGET OF
FURTHER ACTIONS, WHICH MAY BE COSTLY AND TIME-CONSUMING TO DEFEND.
Following our May 17, 2004 announcement regarding the restatement of our
financial results, seven putative class action and two derivative lawsuits were
filed against us and certain of our former officers in the United States
District Court for the Southern District of New York. The class action
complaints purport to be brought on behalf of all shareholders who purchased our
securities between October 23, 2000 and May 17, 2004 and generally assert that
we and certain of our officers allegedly violated the federal securities laws in
connection with the purported issuance of false and misleading information
concerning our financial condition. The class action complaints seek damages in
an unspecified amount against us. The derivative complaints purport to be on our
behalf and generally assert that certain officers and directors are liable for
alleged breaches of fiduciary duties, abuse of control, gross mismanagement,
waste, and unjust enrichment that purportedly occurred between October 23, 2000
and the present. The derivative complaints seek disgorgement, constructive
trust, and damages in an unspecified amount.
The ultimate outcome of these matters cannot presently be determined and
may require significant commitment of our financial and management resources and
time, which may seriously harm our business, financial condition and results of
operation. There can be no assurances that any of the allegations discussed
above can be resolved without costly and protracted litigation, and the outcome
may have a material adverse impact upon our financial position, results of
operations and cash flows.
WE ARE SUBJECT TO AN SEC INVESTIGATION AS A RESULT OF THE RESTATEMENT OF OUR
FINANCIAL STATEMENTS.
We notified the SEC in May 2004 of our intention to restate prior period
financial results. Subsequently, the SEC commenced an investigation into the
facts and circumstances related to the restatement. We have cooperated and
intend to continue to cooperate with the SEC's investigation. We cannot predict
when the SEC will conclude its investigation or the outcome or impact thereof.
CONSOLIDATION IN THE BANKING AND FINANCIAL SERVICES INDUSTRY COULD ADVERSELY
IMPACT OUR BUSINESS BY ELIMINATING THE NUMBER OF EXISTING AND POTENTIAL CLIENTS.
There has been and continues to be merger, acquisition and consolidation
activity in the banking and financial services industry. Mergers or
consolidations of banks and financial institutions in the future could reduce
the number of our clients or potential clients. A smaller market for our
services could have a material adverse impact on our business and results of
12
operations. Also, it is possible that the larger banks or financial institutions
that result from mergers or consolidations could decide to perform some or all
of the services themselves which we currently provide or could provide. If that
were to occur, it could have a material adverse impact on our business and our
results of operations.
OUR ACQUISITION STRATEGY SUBJECTS US TO RISKS, INCLUDING INCREASED DEBT,
ASSUMPTION OF UNFORESEEN LIABILITIES AND DIFFICULTIES IN INTEGRATING OPERATIONS.
Since our founding, we have acquired a number of other companies. We may
make additional acquisitions. We cannot predict if or when any additional
acquisitions will occur or whether they will be successful.
Acquiring a business involves many risks, including:
- incurrence of unforeseen obligations or liabilities;
- difficulty in integrating the acquired operations and personnel;
- difficulty in maintaining uniform controls, procedures and policies;
- possible impairment of relationships with employees and customers as a
result of the integration of new personnel;
- risk of entering markets in which we have minimal prior experience;
- decrease in earnings as a result of non-cash charges;
- dilution to existing stockholders from the issuance of our common stock to
make or finance acquisitions; and
- incurrence of debt.
OUR SYSTEMS MAY BE SUBJECT TO INFILTRATION BY UNAUTHORIZED PERSONS.
We maintain and process data on behalf of our clients, some of which is
critical to the business operations of our clients. For example, our Information
Services group maintains account information for our bank and insurance company
clients we service, and our Investment Services group maintains transfer agency
records and processes trades for our mutual fund clients. If our systems or
facilities were infiltrated and damaged by unauthorized persons, our clients
could experience data loss, financial loss and significant business
interruption. If that were to occur, it could have a material adverse effect on
our business, financial condition and results of operations.
DISRUPTION OF OUR DISASTER RECOVERY PLANS AND PROCEDURES IN THE EVENT OF A
CATASTROPHE COULD ADVERSELY AFFECT OUR OPERATIONS.
We have made a significant investment in our infrastructure, and our
operations are dependent on our ability to protect the continuity of our
infrastructure against damage from catastrophe or natural disaster, breach of
security, loss of power, telecommunications failure or other natural or man-made
events. A catastrophic event could have a direct negative impact on us or an
indirect impact on us by adversely affecting our customers, the financial
markets or the overall economy. While we have implemented business continuity
and disaster recovery plans, it is impossible to fully anticipate and protect
against all potential catastrophes. If our business continuity and disaster
recovery plans and procedures were disrupted or unsuccessful in the event of a
catastrophe, we could experience a material adverse interruption of our
operations.
13
WE FACE SIGNIFICANT COMPETITION FROM OTHER COMPANIES.
Many of our competitors are well-established companies, and some of them
have greater financial, technical and operating resources than we do.
Competition in our business is based primarily upon:
- pricing;
- quality of products and services;
- breadth of products and services;
- new product development; and
- the ability to provide technological solutions.
WE DEPEND ON KEY MANAGEMENT PERSONNEL, MOST OF WHOM DO NOT HAVE LONG-TERM
EMPLOYMENT AGREEMENTS.
Our success depends upon the continued services of our key senior
management personnel, including our executive officers and the senior managers
of our businesses. None of our executive officers have employment agreements
with us and substantially all of our other senior management personnel do not
have employment agreements with us. The loss or unavailability of these
individuals could have a material adverse effect on our business prospects.
WE DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN SKILLED PERSONNEL.
Our success depends on our ability to attract and retain highly skilled
personnel in all areas of our business. We cannot assure that we will be able to
attract and retain personnel on acceptable terms in the future. Our inability to
attract and retain highly skilled personnel could have an adverse effect on our
business prospects.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never paid cash dividends to stockholders and do not anticipate
paying cash dividends in the foreseeable future. In addition, our existing
credit facility limits our ability to pay cash dividends.
OUR STOCK PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE.
The market price of our common stock has been volatile. From July 1, 2003
to September 8th, 2004, the last sale price of our common stock ranged from a
low of $12.20 per share to a high of $19.98 per share.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market, or the appearance that such shares are available for sale, could
adversely affect the market price for our common stock. As of August 31, 2004,
we had 120,587,456 shares of common stock outstanding. As of August 31, 2004, we
also had options to purchase 14,124,840 shares of our common stock outstanding,
9,101,860 shares of our common stock reserved for issuance pursuant to options
available for issuance under our stock option plans and employee stock
14
purchase plan, and 8,983,740 shares of our common stock reserved for issuance
upon the conversion of our 4% Convertible Subordinated Notes due 2006.
ANTI-TAKEOVER EFFECTS OF CERTAIN BY-LAW PROVISIONS, DELAWARE LAW, AND OUR
SHAREHOLDER RIGHTS PLAN COULD DISCOURAGE, DELAY OR PREVENT A CHANGE IN CONTROL.
We have a shareholder rights plan. Under the plan, if a person or group
were to acquire or announce the intention to acquire 15% or more of our
outstanding shares of common stock, and in some cases 10%, each right would
entitle the holder, other than the acquiring person or group, to purchase shares
of our common stock at $175, the exercise price of the right, with a value of
twice the exercise price. This plan could have the effect of discouraging,
delaying or preventing persons from attempting to acquire us.
In addition, the Delaware General Corporation Law, to which we are
subject, prohibits, except under circumstances specified in the statute, a
corporation from engaging in any mergers, significant sales of stock or assets,
or business combinations with any stockholder or group of stockholders who own
at least 15% of our common stock.
ITEM 2. PROPERTIES.
All of our principal properties are leased. We maintain offices throughout
the United States, Western Europe and Bermuda. Our principal data centers and
operating centers are located in:
- Birmingham, Alabama (Information Services);
- San Francisco, California (Insurance and Education Services);
- Melbourne, Florida (Insurance and Education Services);
- Atlanta, Georgia (Insurance and Education Services);
- Lombard, Illinois (Information Services);
- Indianapolis, Indiana (Insurance and Education Services);
- Boston, Massachusetts (Investment Services and Insurance and Education
Services);
- Brainerd, Minnesota (Investment Services);
- Cherry Hill, New Jersey (Information Services);
- New York, New York (Corporate Headquarters and Investment Services);
- Columbus, Ohio (Investment Services);
- Dresher, Pennsylvania (Investment Services);
- Harrisburg, Pennsylvania (Insurance and Education Services);
- Houston, Texas (Information Services);
- Salt Lake City, Utah (Insurance and Education Services);
- Hamilton, Bermuda (Investment Services); and
- Dublin, Ireland (Investment Services).
Leases on our properties expire periodically during the next 14 years.
We own or lease central processors and associated peripheral equipment
used in our data processing operations and communications network, retirement
services business and electronic banking business.
15
We believe that our existing facilities and equipment, together with
expansion in the ordinary course of business, are adequate for our present and
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
Our Insurance Services division is involved in litigation with a West
Coast-based distributor of life insurance products, with which we had a former
business relationship. We intend to continue to vigorously defend the claims
asserted and have asserted a number of counterclaims. We believe that we have
adequate defenses against claims arising in such litigation and that the outcome
of this matter will not have a material adverse effect upon our financial
position, results of operations or cash flows.
Following the Company's May 17, 2004 announcement regarding the
restatement of our financial results, seven putative class action and two
derivative lawsuits were filed against the Company and certain of its current
and former officers in the United States District Court for the Southern
District of New York. The class action complaints purport to be brought on
behalf of all shareholders who purchased the Company's securities between
October 23, 2000 and May 17, 2004 and generally assert that the Company and
certain of its officers allegedly violated the federal securities laws in
connection with the purported issuance of false and misleading information
concerning the Company's financial condition. The class action complaints seek
damages in an unspecified amount against the Company. The derivative complaints
purport to be on behalf of the Company and generally assert that certain
officers and directors are liable for alleged breaches of fiduciary duties,
abuse of control, gross mismanagement, waste, and unjust enrichment that
purportedly occurred between October 23, 2000 and the present. The derivative
complaints seek disgorgement, constructive trust, and damages in an unspecified
amount. The Company intends to defend itself vigorously against these claims but
is unable to determine the ultimate outcome.
We are also involved in other litigation arising in the ordinary course of
business. We believe that we have adequate defenses and/or insurance coverage
against claims arising in such litigation and that the outcome of these
proceedings, individually or in the aggregate, will not have a material adverse
effect upon our 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 our security holders during the
fourth quarter of fiscal 2004.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Certain of the information required by this Item 5 is incorporated herein
by reference to page 48 of our 2004 Annual Report under the heading "Market
Price Information" and Note 5 to our consolidated financial statements included
therein. We have not paid or declared any cash dividends during our most recent
two fiscal years. Portions of the Annual Report incorporated by reference in
this report are included in this report as Exhibit 13.
16
Effective November 12, 2003, our Board of Directors authorized a new stock
buy-back program of up to $100 million. Purchases have occurred and will
continue to occur from time to time in the open market to offset the possible
dilutive effects of shares issued under employee benefit plans, for possible use
in future acquisitions, and for general and other corporate purposes.
The following table sets forth repurchases of our equity securities during
the fiscal quarter ended June 30, 2004:
(c) Total Number (d) Approximate
of Shares Dollar Value of
Purchased as Part Shares that May
of Publicly Yet Be Purchased
(a) Total Number (b) Average Price Announced Plans or Under the Plans or
Period of Shares Purchased Paid per Share Programs Programs
- -------------------------------------------------------------------------------------------------------
April 2004 80,412 $14.80 80,412 $86,954,051
May 2004 32,700 $14.57 32,700 $86,477,637
June 2004 3,379 $12.52 3,379 $86,435,340
Total 116,491 $14.67 116,491 $86,435,340
------- ------ ------- -----------
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item 6 is incorporated herein by
reference to page 19 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 by this Item 7 is incorporated herein by
reference to pages 20 through 28 of the Annual Report, included in this report
as Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not have material exposure to market risk from derivative or
non-derivative financial instruments. We do not utilize such instruments to
manage market risk exposures or for trading or speculative purposes. We do,
however, invest available cash and cash equivalents in highly liquid financial
instruments with original maturities of three months or less. As of June 30,
2004, we had approximately $139.9 million of cash and cash equivalents invested
in highly liquid debt instruments purchased with original maturities of three
months or less, including $26.0 million of overnight repurchase agreements. We
believe that potential near-term losses in future earnings, fair values and cash
flows from reasonably possible near-term changes in the market rates for such
instruments are not material to us. We manage our debt structure and interest
rate risk through the use of fixed- and floating-rate debt. While changes in
interest rates
17
could decrease our interest income or increase our interest expense, we do not
believe that we have a material exposure to changes in interest rates based on
the relative size of our interest bearing assets and liabilities. We do not
undertake any specific actions concerning exposure to interest rate risk and we
are not party to any interest rate management transactions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is incorporated herein by
reference to pages 29 through 48 of the Annual Report, included in this report
as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
As previously disclosed, we engaged in a review and analysis of estimates
used in determining the level of commissions receivable in our Life Insurance
Services division. As a result of our efforts, we have determined that
commissions receivable should be adjusted as described below. In addition, in
reviewing our past practices, procedures and processes, we have determined that
there needs to be revisions to such practices, procedures and processes. In this
regard, we concluded there was a material weakness in our internal controls over
financial reporting relating to the validation and monitoring of assumptions
underlying the estimates used to compute certain first year, bonus and renewal
commissions receivable and with respect to related documentation and review
processes for significant accounting entries, including entries relating to
acquisition accounting. We have taken, and continue to take, steps to rectify
these matters.
Based upon our review and analysis, we determined that an adjustment of
$80.0 million to commissions receivable in our Life Insurance division, together
with corresponding adjustments to revenues and expenses, should be recorded. We
also determined that the adjustment required a restatement of our financial
results for each of the fiscal years ended June 30, 2003, 2002 and 2001, as well
as our interim results for the quarters ended December 31 and September 30,
2003, to reflect the impact of the adjustment on each of the periods presented.
Such restatement was completed and reflected in our amended Form 10-K for the
fiscal year ended June 30, 2003, and our amended Forms 10-Q for the quarters
ended September 30, 2003 and December 31, 2003.
In connection with the aforementioned review, we also identified
adjustments relating to acquisition accounting for certain acquired entities in
the Life Insurance business, resulting in a reduction in goodwill and deferred
tax liabilities over the affected periods of $21.0 million, and adjustments to
commissions payable of $2.6 million as a result of an understatement in agent
commissions payable. These adjustments were also reflected in the restatement of
financial results described above.
To date, we have taken steps to improve our internal controls at our Life
Insurance Services division, including the following:
18
- Added personnel to the accounts receivable department to allow for more
timely reconciliation and adjustment of aged accounts receivable and
related agent payable accounts;
- Enhanced process for reviewing and monitoring reserves for commissions
receivable;
- Augmented review of commission revenue transactions to ensure adherence to
our revenue recognition policies;
- Improved process for documentation and review of significant accounting
entries;
- Initiated system enhancements to further automate processes associated
with accounts receivable and revenue recognition; and
- Implemented systematic review of data quality and control.
We intend to continue to monitor our internal controls, and if further
improvements or enhancements are identified, we will take steps to implement
such improvements or enhancements. Except as set forth above, there have been no
changes in our internal controls over financial reporting, which have materially
affected, or are reasonably likely to materially affect, such internal controls.
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our reports, filed pursuant to the
Securities Exchange Act of 1934, is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
We carried out an evaluation as of the end of the period covered by this
report on Form 10-K, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, other than the material weakness described above, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective. Subsequent to March 31, 2004,
the Company has implemented the steps described above and concluded that the
disclosure controls and procedures are effective as of the date of filing of
this report.
It should be noted that the design of any system of controls is based upon
certain assumptions about the likelihood of future events, and there can be no
assurance that such design will succeed in achieving its stated objective under
all potential future conditions, regardless of how remote. However, the
Company's Chief Executive Officer and the Company's Chief Financial Officer
believe the Company's disclosure controls and procedures provide reasonable
assurance that the disclosure controls and procedures are effective.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
We have adopted the Code of Ethics that applies to our Chief Executive
Officer and senior financial officers. The Code of Ethics is publicly available
on our website at www.bisys.com. Any waiver or amendment of the Code of Ethics
will be disclosed on our website or as otherwise permitted under applicable law.
19
The remaining information required by Item 10 of this report is
incorporated by reference from our definitive proxy statement, which is expected
to be filed with the SEC pursuant to Regulation 14A within 120 days after the
end of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of this report is incorporated by
reference from our definitive proxy statement, which is expected to be filed
with the SEC pursuant to Regulation 14A within 120 days after the end of our
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of this report is incorporated by
reference from our definitive proxy statement, which is expected to be filed
with the SEC pursuant to Regulation 14A within 120 days after the end of our
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of this report is incorporated by
reference from our definitive proxy statement, which is expected to be filed
with the SEC pursuant to Regulation 14A within 120 days after the end of our
fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 14 of this report is incorporated by
reference from our definitive proxy statement, which is expected to be filed
with the SEC pursuant to Regulation 14A within 120 days after the end of our
fiscal year.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
Our consolidated financial statements as of June 30, 2004 and 2003, and
for each of the three years in the period ended June 30, 2004, together with the
report of PricewaterhouseCoopers LLP dated September 3, 2004, are incorporated
herein by reference to pages 29 through 48 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) Exhibits:
3.1 Amended and Restated Certificate of Incorporation of The BISYS
Group, Inc., as amended by Certificates of Amendment to Amended and
Restated Certificate of Incorporation of The BISYS Group, Inc.
(Incorporated by reference to Exhibit
20
3.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 2001.)
3.2 Amended and Restated By-Laws of The BISYS Group, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 2002.)
4.1 Rights Agreement, dated as of May 8, 1997 (the "Rights Agreement"),
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.)
4.2 Amendment to the Rights Agreement, dated as of August 15, 2002.
(Incorporated by reference to Exhibit 4.2 of Form 8-A/A filed on
September 26, 2002 with the SEC.)
4.3 Indenture, dated as of March 13, 2001, between The BISYS Group, Inc.
and Chase Manhattan Trust Company, National Association, as trustee
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K dated March 15, 2001.)
10.1 Amended and Restated Deferred Compensation Plan, dated as of June
14, 2002. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 2003.)
10.2 Executive Life Insurance Plan (Incorporated by reference to Exhibit
10.3 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1998.)
10.3 The BISYS Group, Inc. Executive Officer Annual Incentive Plan.
(Incorporated by reference to Exhibit C to Registrant's proxy
statement for its 1999 annual meeting of stockholders.)
10.4 The BISYS Group, Inc. 1999 Equity Participation Plan. (Incorporated
by reference to Exhibit B to Registrant's proxy statement for its
1999 annual meeting of stockholders.)
10.5 BISYS 401(k) Savings Plan. (Incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999.)
10.6 The BISYS Group, Inc. Non-Employee Directors' Stock Option Plan, as
amended (Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998.)
10.7 Executive Loan Agreement (Incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.)
10.8 Credit Agreement, dated as of March 31, 2004, by and among the
Registrant, the Lenders party thereto, Fleet National Bank, JPMorgan
Chase Bank, Suntrust Bank, and Wachovia Bank, National Association,
as Documentation Agents, and The Bank of New York, as Administrative
Agent, without exhibits. (Incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004.)
10.9 Transition Services Agreement, dated as of October 30, 2002, by and
between The BISYS Group, Inc. and Lynn J. Mangum (Incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 2003).
10.10 Transition Services Agreement, dated as of October 6, 2003, by and
between The BISYS Group, Inc. and Dennis R. Sheehan (Incorporated by
reference to
21
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003.)
13* Pages 18 - 48 of the Registrant's 2004 Annual Report to
Shareholders.
21* List of significant subsidiaries of The BISYS Group, Inc.
23* Consent of PricewaterhouseCoopers LLP.
31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32* Section 1350 Certifications.
*Filed herewith.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed with the Securities and
Exchange Commission during the fiscal quarter ended June 30, 2004.
22
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 27, 2004 By: /s/ James L. Fox
-------------------------------
James L. Fox
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 27th day of September, 2004.
Signature Title
/s/ Russell P. Fradin Director, President and Chief
- -----------------------------------
(Russell P. Fradin) Executive Officer (Principal Executive Officer)
/s/ James L. Fox Executive Vice President and Chief Financial Officer
- ------------------------------------
(James L. Fox) (Principal Financial and Accounting Officer)
/s/ Robert J. Casale Director and Chairman of the Board
- ------------------------------------
(Robert J. Casale)
/s/ Denis A. Bovin Director
- ------------------------------------
(Denis A. Bovin)
/s/ Thomas A. Cooper Director
- ------------------------------------
(Thomas A. Cooper)
/s/ Richard J. Haviland Director
- ----------------------------------
(Richard J. Haviland)
/s/ Paula G. McInerney Director
- ------------------------------------
(Paula G. McInerney)
/s/ Thomas E. McInerney Director
- ------------------------------------
(Thomas E. McInerney)
/s/ Joseph J. Melone Director
- ------------------------------------
(Joseph J. Melone)
23
INDEX TO EXHIBITS FILED HEREWITH
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------
13 Pages 18 - 48 of the Registrant's 2004 Annual Report to
Shareholders.
21 List of significant subsidiaries of The BISYS Group, Inc.
23 Consent of PricewaterhouseCoopers LLP
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
32 Section 1350 Certifications
24