-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U1WcAO7+1xAXqDsHxxMW6kl8b1Le6tF/bGZhOmxJy3bzKbG5aek7GNJHKnoGO6so L+plSmIm40PEMr5hWfLL/Q== 0000707606-96-000004.txt : 19960216 0000707606-96-000004.hdr.sgml : 19960216 ACCESSION NUMBER: 0000707606-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYSTEMS & COMPUTER TECHNOLOGY CORP CENTRAL INDEX KEY: 0000707606 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 231701520 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11521 FILM NUMBER: 96519278 BUSINESS ADDRESS: STREET 1: GREAT VALLEY CORPORATE CTR STREET 2: 4 COUNTRY VIEW RD CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106475930 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark One) /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 1995 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______ . 0-11521 (Commission File Number) SYSTEMS & COMPUTER TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1701520 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) Great Valley Corporate Center 4 Country View Road Malvern, Pennsylvania 19355 (Address of principal executive offices) Registrant's telephone number, including area code: (610) 647-5930 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 14,061,362 Common shares, $.01 par value, as of February 5, 1996 Page 1 of 14 consecutively numbered pages SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES INDEX PART I, FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 1995 and September 30, 1995 Condensed Consolidated Statements of Operations - Three Months Ended December 31, 1995 and 1994 Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 1995 and 1994 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Operations and Financial Condition PART II, OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K SIGNATURES SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, September 30, 1995 1995 (UNAUDITED) (NOTE) ASSETS CURRENT ASSETS Cash and marketable securities $ 8,641,000 $ 15,312,000 Receivables, including $49,980,000 and $46,746,000 of earned revenues in excess of billings, net of allowance for doubtful accounts of $1,010,000 and $1,003,000 74,378,000 70,270,000 Prepaid expenses and other receivables 9,915,000 9,994,000 ------------ ------------ TOTAL CURRENT ASSETS 92,934,000 95,576,000 PROPERTY AND EQUIPMENT--net of accumulated depreciation 31,520,000 30,135,000 CAPITALIZED COMPUTER SOFTWARE COSTS, net of accumulated amortization 6,929,000 5,532,000 COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated amortization 8,700,000 8,754,000 OTHER ASSETS AND DEFERRED CHARGES 11,469,000 10,986,000 ------------ ------------ TOTAL ASSETS $151,552,000 $150,983,000 ============ ============ SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, September 30, 1995 1995 (UNAUDITED) (NOTE) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,287,000 $ 5,234,000 Current portion of long-term debt 100,000 100,000 Income taxes payable 325,000 167,000 Accrued expenses 12,496,000 12,065,000 Deferred revenue 12,922,000 14,455,000 ------------ ------------ TOTAL CURRENT LIABILITIES 30,130,000 32,021,000 LONG-TERM DEBT, less current portion 31,690,000 31,790,000 DEFERRED TAXES 1,706,000 1,607,000 STOCKHOLDERS' EQUITY Preferred stock, par value $.10 per share--authorized 3,000,000 shares, none issued Common stock, par value $.01 per share-- authorized 24,000,000 shares, issued 15,209,977 and 15,159,804 shares 152,000 152,000 Capital in excess of par value 58,632,000 58,442,000 Retained earnings 32,831,000 30,568,000 ------------ ------------ 91,615,000 89,162,000 Less Held in treasury, 1,150,941 common shares--at cost (2,959,000) (2,959,000) Unearned compensation (20,000) (28,000) Notes receivable from stockholders (610,000) (610,000) ------------ ------------ 88,026,000 85,565,000 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $151,552,000 $150,983,000 ============ ============ Note: The condensed consolidated balance sheet at September 30, 1995 has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended December 31, 1995 1994 Revenues: OnSite services $18,042,000 $15,753,000 Software and hardware sales and services 19,831,000 14,725,000 Maintenance and enhancements 9,810,000 8,258,000 Interest and other revenue 136,000 463,000 ----------- ----------- 47,819,000 39,199,000 Expenses: Cost of OnSite services 13,934,000 11,974,000 Cost of software and hardware sales and services and maintenance and enhancements 16,991,000 12,132,000 Selling, general and administrative 12,478,000 9,863,000 Interest expense 543,000 624,000 ----------- ----------- 43,946,000 34,593,000 Income before income taxes 3,873,000 4,606,000 Provision for income taxes 1,610,000 1,635,000 ----------- ----------- Net Income $ 2,263,000 $ 2,971,000 =========== =========== Per common share: Net income Primary $ 0.15 $ 0.22 Fully diluted $ 0.15 $ 0.21 Common shares and equivalents outstanding Primary 15,124,101 13,650,439 Fully diluted 17,284,417 15,950,439 See notes to condensed consolidated financial statements. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended December 31, 1995 1994 OPERATING ACTIVITIES Net income $ 2,263,000 $ 2,971,000 Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization 2,235,000 2,026,000 Changes in operating assets and liabilities: (Increase) in receivables (4,268,000) (2,092,000) Decrease (increase) in other current assets 79,000 (1,432,000) Increase (decrease) in other accrued expenses and liabilities 431,000 (1,337,000) (Decrease) in deferred revenue (1,533,000) (1,921,000) Other, net (1,714,000) (874,000) ------------ ------------ NET CASH (USED IN) OPERATING ACTIVITIES (2,507,000) (2,659,000) INVESTING ACTIVITIES Purchase of property and equipment (2,539,000) (1,038,000) Capitalized computer software costs (1,615,000) (432,000) Proceeds from sale or maturity of investments available for sale 7,003,000 5,082,000 Purchase of investments available for sale 0 (2,228,000) Purchase of subsidiary assets, net of cash acquired (97,000) (400,000) ------------ ------------ NET CASH PROVIDED BY INVESTING ACTIVITIES 2,752,000 984,000 FINANCING ACTIVITIES Principal payments on long-term debt (100,000) 0 Proceeds from exercise of stock options 188,000 314,000 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 88,000 314,000 INCREASE(DECREASE) IN CASH & CASH EQUIVALENTS 333,000 (1,361,000) CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 1,602,000 7,685,000 ------------ ------------ CASH & CASH EQUIVALENTS-END OF PERIOD $ 1,935,000 $ 6,324,000 ============ ============ See notes to condensed consolidated financial statements. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) December 31, 1995 The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 1O-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1995. Operating results for the three month period ended December 31, 1995 are not necessarily indicative of the results that may be expected for the year ending September 30, 1996. NOTE A--RECLASSIFICATION Certain prior year information has been reclassified to conform with current year format. NOTE B--CASH AND SHORT-TERM INVESTMENTS Dec. 31, 1995 Sep. 30, 1995 Cash and cash equivalents $ 1,935,000 $ 1,602,000 Marketable securities, plus accrued interest of $68,000 and $230,000 6,706,000 13,710,000 ----------- ----------- Cash and marketable securities $ 8,641,000 $15,312,000 =========== =========== Cash equivalents--Cash equivalents are defined as short-term highly liquid investments with a maturity of three months or less at the date of purchase. Securities available-for-sale--Marketable equity and debt securities are classified as available-for-sale. The available-for-sale portfolio represents highly liquid investments available for current operations and, accordingly, is classified as current assets. NOTE C--EARNINGS PER COMMON SHARE Primary income per share is computed based on the weighted average number of common shares outstanding, plus, to the extent dilutive, common stock equivalents. If the inclusion of common stock equivalents has an anti-dilutive effect in the aggregate, they are excluded from the income per share calculation. Fully diluted income per share is based on an increased number of shares that would be outstanding assuming the exercise of stock options when the Company's stock price at the end of the period is higher than the average stock price within the respective period, plus the increased number of shares that would be outstanding, assuming conversion of the 6 1/4% convertible subordinated debentures. Net income used in the calculation of fully diluted income per share has been adjusted for interest expense (net of tax) on the convertible subordinated debentures. NOTE D--FOREIGN CURRENCY TRANSLATION On October 1, 1995, the Company changed the functional currency of its foreign subsidiary, SCT International Limited, from the U.S. dollar to the local currency of the subsidiary, the Pound Sterling. The move to the Pound Sterling was in recognition of the growth of and changes in the nature of the business of the subsidiary, which was established in fiscal year 1994. The subsidiary has become a self-sufficient unit and has recently established its headquarters in Basingstoke, Hampshire and, additionally established a European Product Support Center in Manchester. Additionally, the subsidiary recently renegotiated its primary contract so that all contracts are now denominated in the Pound Sterling. The financial position and results of operations of the Company's foreign subsidiary are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated at the exchange rate in effect at the end of the period. Income statement accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments arising from differences in exchange rates from period to period are included in the cumulative foreign currency translation adjustments account (CTA) in stockholders' equity. Also included in the CTA are the effects of exchange rate changes on intercompany transactions of a long-term investment nature. Gains and losses resulting from the effect of exchange rate changes on foreign currency transactions are included in income currently. The effect of this change in functional currency and the resulting translation adjustment are immaterial to the equity of the Company at December 31, 1995 and to the results of operations for the quarter then ended. NOTE E--OTHER Product development expenses (which are included in cost of software and hardware sales and services and maintenance and enhancements) not capitalized aggregated $2,833,000 and $2,283,000 in the three month periods ended December 31, 1995 and 1994, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table sets forth: (a) certain income statement items as a percentage of total revenues and (b) for revenues, the percentage change for each item from the prior year comparative period. % of Total Revenues % Change from Prior Year Three Months Ended December 31, 1995 1994 Revenues: OnSite services 38% 40% 14% Software and hardware sales and services 42% 38% 35% Maintenance and enhancements 20% 21% 19% Interest and other revenue 0% 1% (71)% ---- ---- ----- Total 100% 100% 22% Expenses: Cost of services, sales and maintenance and enhancements 65% 61% 28% Selling, general and administrative 26% 25% 26% Interest expense 1% 2% (13)% Income before income taxes 8% 12% (16)% The following table sets forth the gross profit for each of the following revenue categories as a percentage of revenue for each such category and the total gross profit as a percentage of total revenue (excluding interest and other revenue). The Company does not separately present the cost of maintenance and enhancements revenue as it is impracticable to separate such cost from the cost of software and hardware sales and services. Three Months Ended December 31, 1995 1994 Gross Profit OnSite services 23% 24% Software and hardware sales and services and maintenance and enhancements 43% 47% --- --- Total 35% 38% Revenues The 14% increase in OnSite services revenues in the first quarter of fiscal year 1996 was primarily the result of a five-year agreement with Continental Cablevision, Inc., which commenced in January 1995 and expanded throughout the year. The Company signed an agreement with the City of Indianapolis/Marion County in December 1995. This agreement could result in annual revenues of up to $11.5 million for up to seven years. The City may cancel the agreement after three years, provided the Company is given six months notice and a termination fee. The 35% increase in software and hardware sales and services revenues in the first quarter of fiscal year 1996 is primarily attributable to the growth of systems integration services provided to the international utilities market and to the licenses of Adage Enterprise Resource Planning software. Adage, which is marketed by the SCT Manufacturing and Distribution Systems division of SCT, was acquired in June 1995. These increases were off-set by decreases, compared to the prior year period, in software licenses in the utility market. The 19% increase in maintenance and enhancements revenues in the first quarter of fiscal year 1996 is the result of continued high annual renewal rates and the growing installed base of clients primarily in the higher education market. The first quarter 1996 pre-tax income was less than the prior year period as a result of several factors. These factors included a slippage of software license fees in the higher education market, decreased new licenses in the utility market, and increased costs in the utility business related to product development. The Company has embarked on an aggressive program to invest in its manufacturing and distribution business. With this ongoing level of expenditures, variances in new licenses could impact the Company's results of operations. Gross Profit The decrease in total gross profit as a percentage of total revenue (excluding interest and other revenue) from 38% to 35% for the first quarter of fiscal year 1996 resulted from a change in revenue mix from the first quarter of fiscal year 1995 and increased expenditures in the utility business. The percentage of software services revenues to the international utilities market included in software and hardware sales and services revenue increased relative to license fees during the period. The Company is increasing its focus on software services revenue, which may result in a decreased profit margin versus a revenue mix with a higher percentage of license fees. The cost of software and hardware sales and services increased as a result of the Company's increased expenditures in the utility business to enhance its software to a more stable and robust product to serve a broader range of customers. Income Taxes The first quarter 1996 provision for income taxes reflects the impact of the research and development tax credit which expired June 30, 1995 and has not yet been reenacted. Seasonality Certain factors have resulted in quarterly fluctuations in operating results, including variability of software license fee revenues, seasonal patterns of capital spending by clients, the timing and receipt of orders, competition, pricing, new product introductions by the Company or its competitors, levels of market acceptance for new products, and general economic and political conditions. While the Company has historically generated a greater portion of license fees in total revenue in the last two fiscal quarters, the non-seasonal factors cited above may have a greater effect than seasonality on the Company's results of operations. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION The Company's cash and short-term investments balance was $8.6 million and $15.3 million at December 31, 1995 and September 30, 1995, respectively. The short-term investment portfolio is classified as available-for-sale and is derived from continuing operations and the September 1993 convertible debenture offering. Uses of cash during the first quarter of fiscal year 1996 included investment in the new manufacturing and distribution business infrastructure, spending on new product development and new facility improvement. The Company has outstanding $31.3 million of convertible subordinated debentures bearing interest at 6 1/4% and maturing on September 1, 2003. The debentures are convertible into common stock of the Company any time prior to redemption or maturity at a conversion price of $15 per share. The debentures are redeemable at any time after September 10, 1996 at prices decreasing from 104.2 % of the principal amount at September 1, 1996, to par on September 1, 2002. The Company has a $20 million senior revolving credit facility, available for general corporate purposes which expires in June 1996 with optional annual extensions. At December 31, 1995 there were no borrowings outstanding. As long as borrowings are outstanding and as a condition precedent to new borrowings, the Company must comply with certain covenants, and the Company is prohibited from paying any dividends other than stock dividends. The Company believes that its cash and cash equivalents, short-term investments, and borrowing arrangements, together with net cash provided by operations, should satisfy its working capital needs and capital expenditure requirements for the foreseeable future. Foreign Operations On October 1, 1995, The Company changed the functional currency of its foreign subsidiary, SCT International Limited, from the U.S. dollar to the local currency, the Pound Sterling. The net assets of SCT International Limited are approximately $10.0 million at December 31, 1995. The Company does not believe its foreign currency exposure is significant and analyzes the need to hedge the exposure on an ongoing basis. Contingencies A purported class action complaint was filed against the Company and certain of its officers and directors on October 4, 1995. The plaintiff filed an amended complaint on November 28, 1995. The amended complaint alleges violations of certain disclosure and related provisions of the Federal Securities Laws. The amended complaint seeks damages in unspecified amounts as well as equitable relief. Management believes the amended complaint is without merit and intends to contest the allegations vigorously. While management of the Company, based on its investigation to date, believes that resolution of this action will not have a materially adverse effect on the Company's consolidated financial position, the ultimate outcome of this matter cannot presently be determined. Numerous factors could affect the Company's future operating results, including general economic conditions, continued market acceptance of the Company's products and services, the timing of contract signings and renewals, and competitive pressures. The Company's ability to sustain growth depends in part on the timely development or acquisition of successful new and updated products. The Company is investing in the development of new products and in improvements to existing products; however, software development is a complex and creative process that can be difficult to accurately schedule and predict. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES PART II Item 1. Legal Proceedings On October 4, 1995, John J. Wallace filed a purported class action lawsuit in the United States District Court for the Eastern District of Pennsylvania against the Company, Michael J. Emmi, Chairman of the Board, President and Chief Executive Officer of the Company, Michael D. Chamberlain, Senior Vice President and a director of the Company and Eric Haskell, Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer of the Company. The plaintiff filed an amended complaint on November 28, 1995. The amended complaint alleges that the defendants violated sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making misstatements and omissions regarding the Company's financial performance in the second half of fiscal year 1995. The class period alleged is from June 5, 1995 through October 2, 1995. The amended complaint seeks damages in unspecified amounts as well as equitable relief. Management believes the amended complaint is without merit and intends to contest the allegations vigorously. While management, based on its investigation to date, believes that resolution of this action will not have a materially adverse effect on the Company's consolidated financial position, the ultimate outcome of this matter cannot be presently determined. Item 6(b). Reports on Form 8-K The registrant did not file any current reports on Form 8-K during the three months ended December 31, 1995. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION (Registrant) Date: 02/14/96 /s/ ________________________________ Eric Haskell Senior Vice President, Finance and Administration, Treasurer and Chief Financial Officer EX-11 2 EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES Three months ended Dec. 31, 1995 Dec. 31, 1994 PRIMARY Average shares outstanding 14,050,674 12,458,579 Net effect of dilutive stock options-- based on the treasury stock method using average market price 1,073,427 1,191,860 ----------- ----------- Total 15,124,101 13,650,439 =========== =========== Net income $ 2,263,000 $ 2,971,000 =========== =========== Net income per share $0.15 $0.22 ===== ===== FULLY DILUTED Average shares outstanding 14,050,674 12,458,579 Net effect of dilutive stock options-- based on the treasury stock method using the end of period market price, if higher than average market price 1,148,743 1,191,860 Assumed conversion of 6 1/4 % convertible subordinated debentures 2,085,000 2,300,000 ----------- ----------- Total 17,284,417 15,950,439 =========== =========== Net Income $ 2,263,000 $ 2,971,000 Add 6 1/4 % convertible subordinated debenture interest, net of income tax effect 308,000 374,000 ----------- ----------- Net income, as adjusted $ 2,571,000 $ 3,345,000 =========== =========== Net income per share $0.15 $0.21 ===== ===== EX-27 3
5 The schedule contains summary financial information extracted from the December 31, 1995 financial statements and is qualified in its entirety by reference to such financial statements. 0000707606 SYSTEMS & COMPUTER TECHNOLOGY CORP. 3-MOS SEP-30-1996 DEC-31-1995 8,641,000 0 75,388,000 1,010,000 0 92,934,000 46,485,000 16,186,000 151,552,000 30,130,000 31,690,000 0 0 152,000 87,874,000 151,552,000 47,683,000 47,819,000 30,925,000 43,403,000 0 0 543,000 3,873,000 1,610,000 2,263,000 0 0 0 2,263,000 0.15 0.15
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