UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-57495
SAVILLE SYSTEMS PLC
(Exact name of registrant as specified in its charter)
Republic of Ireland
(State or other jurisdiction of incorporation or organization)
Not Applicable
(I.R.S. Employer Identification No.)
IDA Business Park, Dangan, Galway, Ireland
(Address of principal executive offices, including zip code)
011-353-91-526611
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |x| No |_|
Number of shares outstanding of the registrant's class of Ordinary Shares as of
July 29, 1997 was 18,296,067.
<PAGE>
SAVILLE SYSTEMS PLC
FORM 10-Q REPORT
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as at June 30, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Income for the three months 4
and for the six months ended June 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows for the six months ended 5
June 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
<TABLE>
Saville Systems PLC
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share and per share amounts)
June 30 December 31
1997 1996
(unaudited)
- -------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments .............................................. $ 49,701 $ 35,395
Accounts receivable, less allowance for doubtful accounts
of $1,365 and $756, respectively ............................................. 23,690 15,308
Prepaid expenses and other assets ............................................ 3,064 1,511
Total current assets ....................................................... 76,455 52,214
Property and equipment, net .................................................... 5,205 4,275
Total assets ................................................................... $ 81,660 $ 56,489
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................................. $ 2,665 $ 1,711
Accrued compensation and related benefits .................................... 3,547 2,704
Income taxes payable ......................................................... 4,828 2,910
Deferred revenue ............................................................. 8,792 1,420
Accrued expenses and other liabilities ` ..................................... 2,883 770
Current portion of long-term debt ............................................ -- 43
Total current liabilities ...................................................... 22,715 9,558
Minority interest .............................................................. 383 320
Shareholders' equity:
Ordinary Shares, nominal value $0.0025 per share
Authorized: 75,000,000 and 40,000,000
Issued and outstanding: 18,296,067 (unaudited) and 18,081,571 ................ 46 45
Deferred Ordinary Shares, nominal value(pound)1.00 per share
Authorized, issued and outstanding: 30,000 ................................... 48 48
Additional paid-in capital ..................................................... 29,911 27,778
Retained earnings .............................................................. 28,656 18,813
Cumulative translation account ................................................. (99) (73)
Total shareholders' equity ................................................... 58,562 46,611
Total liabilites and shareholders' equity ...................................... $ 81,660 $ 56,489
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
Saville Systems PLC
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands of U.S. dollars, except per share data)
Three months ended Six months ended
June 30 June 30 June 30 June 30
1997 1996 1997 1996
- --------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE
Services ................................................ $20,088 $10,237 $36,603 $19,269
License fees ............................................ 5,405 2,068 9,020 3,591
25,493 12,305 45,623 22,860
EXPENSES
Cost of services ........................................ 9,448 5,112 17,485 9,590
Cost of license fees .................................... 128 26 216 48
Sales and marketing ..................................... 1,522 819 2,724 1,456
Research and development ................................ 2,530 1,021 4,011 1,881
General and administrative .............................. 4,913 2,476 8,822 4,797
18,541 9,454 33,258 17,772
Income from operations .................................. 6,952 2,851 12,365 5,088
Other income, net ....................................... 559 383 913 626
Income before income taxes .............................. 7,511 3,234 13,278 5,714
Provision for income taxes .............................. 1,995 597 3,320 1,037
Income before minority interest ......................... 5,516 2,637 9,958 4,677
Minority interest share in subsidiaries' net income ..... 75 75 115 73
Net income .............................................. $ 5,441 $ 2,562 $ 9,843 $ 4,604
Net income per share .................................... $ 0.28 $ 0.14 $ 0.51 $ 0.25
Weighted average share and share equivalents (in
thousands) .............................................. 19,566 18,892 19,421 18,788
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
Saville Systems PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Six Months Ended
June 30 June 30
1997 1996
- -------------------------------------------------------------------------------- -------- --------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 9,843 $ 4,604
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................ 600 318
Allowance for doubtful accounts .............................................. 614 116
Minority interest in net income .............................................. 115 73
Gain on sale of property and equipment ...................................... (24) --
Stock based compensation expense, net of related taxes ...................... 60 --
Changes in operating assets and liabilities:
Accounts receivable .......................................................... (8,997) (2,715)
Prepaid expenses and other assets ............................................ (1,555) (280)
Accounts payable ............................................................. 955 533
Accrued compensation and related benefits .................................... 843 465
Accrued royalties ............................................................ -- (329)
Income taxes payable ......................................................... 1,918 104
Deferred revenue ............................................................ 7,371 1,129
Accrued expenses and other liabilities ...................................... 2,113 104
Net cash provided by operating activities ...................................... 13,856 4,122
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchase of property and equipment ......................................... (1,525) (1,203)
Net purchase of short-term investments ......................................... (18,059) (5,000)
Net cash used in investing activities .......................................... (19,584) (6,203)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt .................................................... (43) (26)
Proceeds from share issuances .................................................. 1,439 2,930
Public offering costs .......................................................... (63) (413)
Tax benefit on employee stock transactions ..................................... 645 --
Net cash provided by financing activities ...................................... 1,978 2,491
Effect of exchange rate changes on cash ........................................ (3) 9
Net (decrease) increase in cash and cash equivalents ........................... (3,753) 419
Cash and cash equivalents, beginning of period ................................. 34,395 23,722
Cash and cash equivalents, end of period ....................................... 30,642 24,141
Short-term investments ......................................................... 19,059 5,000
Cash and short-term investments ................................................ $ 49,701 $ 29,141
Supplement disclosure of cash flow information:
Cash paid for income taxes ................................................... 833 933
Repayment of note receivable from share issuance ............................ -- (100)
</TABLE>
See accompanying notes
<PAGE>
Saville Systems PLC
Notes to Consolidated Financial Statements at June 30, 1997. (unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements are unaudited, except for the
balance sheet dated as of December 31, 1996, and have been prepared by the
Company in accordance with U.S. generally accepted accounting principles.
Certain information and footnote disclosure normally included in the Company's
audited annual consolidated financial statements have been condensed or omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission. The unaudited interim consolidated financial statements, in the
opinion of management, reflect all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation of the results of the
interim periods ended June 30, 1997 and 1996 and the financial position at June
30, 1997.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the fiscal year. These interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements of the Company which are contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
2. Net Income Per Share
The net income per share is computed based upon the weighted average number of
Ordinary Shares and dilutive share equivalents outstanding. The Financial
Accounting Standards Board has issued Statement of Financial Accounting Standard
No. 128 "Earnings per Share" (`SFAS 128'). SFAS 128 will be effective for the
Company's quarter and year ending December 31, 1997.
The Company's pro forma earnings per share, giving effect to SFAS 128, would be
as follows:
<TABLE>
Three months ended Six months ended
June 30 June 30 June 30 June 30
1997 1996 1997 1996
- --------------------------------------- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Pro forma basic earnings per share $0.30 $0.15 $0.54 $0.26
Pro forma diluted earnings per share $0.28 $0.14 $0.51 $0.25
- --------------------------------------- ---------------- ----------------- ---------------- ----------------
</TABLE>
3. Share Capital
During the three and six month periods ended June 30, 1997, the Company issued
132,922 and 214,496 Ordinary Shares, respectively, to officers and employees
pursuant to option exercises for aggregate cash consideration of approximately
$733,000 and $1,439,000, respectively.
On April 24, 1997 the shareholders authorized an amendment to the Company's
Memorandum and Articles of Association to increase the number of authorized
Ordinary Shares from 40,000,000 to 75,000,000. The shareholders also authorized
an amendment to the Company's 1995 Share Option Plan to increase the number of
shares authorized to be granted under the plan from 2,980,000 to 5,000,000.
<PAGE>
The following table summarizes the activity in Ordinary Share options from
December 31, 1996 to June 30, 1997:
<TABLE>
Number of Ordinary Share Options
---------------- ---------------- ----------------
Available for Unexercised Weighted
grant average price
per share
<S> <C> <C> <C>
Balance at December 31, 1996 2,692,232 1,500,916 $ 8.33
Increase in options available 2,020,000
for grant
Options granted (1,228,210) 1,228,210 37.44
Options exercised (214,496) 6.71
Options cancelled 46,249 (46,249) 20.92
Balance at June 30, 1997 3,530,271 2,468,381 $22.72
</TABLE>
During the three months ended June 30, 1997, 172,000, 132,922 and 8,074 of
Ordinary Share options were granted, exercised and cancelled, respectively.
A summary of Ordinary Share options outstanding as of June 30, 1997 is as
follows:
<TABLE>
- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
Total Outstanding Range of Weighted Weighted Exercisable at Weighted
Exercise Prices Average Average June 30, Average
Exercise Price Remaining 1997 Exercise Price
Contractual of Exercisable
Life (in years) Options
<S> <C> <C> <C> <C> <C>
341,685 $ 2.40 $ 2.40 2.5 341,685 $ 2.40
829,379 8.66 - 10.00 8.99 8.2 258,175 9.33
32,425 15.00 - 26.63 17.44 8.6 20,091 16.43
1,238,892 28.63 - 43.00 37.13 9.2 14,813 33.24
26,000 43.50 - 52.50 47.25 9.9 - -
- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
2,468,381 $2.40 - 52.50 $22.72 8.0 634,764 $ 6.39
- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
4. Contingency
On June 16, 1997 the Company received a letter from one of its clients
purporting to terminate its agreements with Saville and alleging certain
failures to perform by Saville. The client alleges damages of $12 million.
Saville has categorically denied all of the client's allegations and has
informed the client that its claims are without merit. There can be no
assurance, however, as to the outcome of this dispute.
5. Recently Issued Accounting Standards
In addition to SFAS 128, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 130 "Comprehensive Income"
(`SFAS 130') and No. 131 "Disclosures about Segments of an Enterprise and
Related Information" (`SFAS 131'). SFAS 130 and SFAS 131 will be effective for
the Company's December 31, 1998 year end. The Company has not determined the
impact, if any, of these pronouncements on its consolidated financial
statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following information should be read in conjunction with the unaudited
Consolidated Financial Statements and Notes thereto included in Item 1 of this
Quarterly Report, the audited Consolidated Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Results of Operations
Revenue
Total revenue increased 107.2 % from $12.3 million in the three months ended
June 30, 1996 to $25.5 million in the three months ended June 30, 1997, and
increased 99.6 % from $22.9 million in the six months ended June 30, 1996 to
$45.6 million in the six months ended June 30, 1997. Both services and license
fees revenue increased as described below.
Services revenue increased 96.2 % from $10.2 million in the three months ended
June 30, 1996 to $20.1 million in the three months ended June 30, 1997, and
increased 90.0 % from $19.3 million in the six months ended June 30, 1996 to
$36.6 million in the six months ended June 30, 1997. The increase was
attributable primarily to additional development services for existing clients
in both the AS/400 and UNIX development environments and, to a lesser extent,
initial customization services for new clients, including requirement
definitions.
License fees revenue increased 161.4 % from $2.1 million in the three months
ended June 30, 1996 to $5.4 million in the three months ended June 30, 1997, and
increased 151.2 % from $3.6 million in the six months ended June 30, 1996 to
$9.0 million in the six months ended June 30, 1997. Depending on the level of
customization or enhancements required, license fees are recognized at time of
delivery, or recognized over the expected term of initial customization. The
1997 change was attributable to increased license fee recognition on existing
customization projects and on new installations in the United States and Europe.
Cost of Services
Cost of services increased 84.8% from $5.1 million in the three months ended
June 30, 1996 to $9.4 million in the three months ended June 30, 1997, and
increased 82.3% from $9.6 million in the six months ended June 30, 1996 to $17.5
million in the six months ended June 30, 1997. As a percentage of services
revenue, cost of services remained relatively constant in both periods,
decreasing from 49.9% and 49.8 % in the three months and six months ended June
30, 1996 to 47.0% and 47.8 % in the same periods in 1997. The overall increase
in cost of services was primarily due to additional personnel hired to support
the increased volume of business. The number of personnel primarily responsible
for consulting services increased 29.2% in the three months ended June 30, 1997
over the comparative period in 1996.
Cost of License Fees
Cost of license fees increased from $26,000 in the three months ended June 30,
1996 to $128,000 in the three months ended June 30, 1997, and increased from
$48,000 in the six months ended June 30, 1996 to $216,000 in the six months
ended June 30, 1997. This increase was due to employee sales commissions earned
on new license fee agreements.
<PAGE>
Sales and Marketing
Sales and marketing expenses increased 85.8 % from $819,000 in the three months
ended June 30, 1996 to $1.5 million in the three months ended June 30, 1997, and
increased 87.1 % from $1.5 million in the six months ended June 30, 1996 to $2.7
in the six months ended June 30, 1997. This increase was primarily due to the
Company's expansion of sales efforts in the United States, Europe, Latin
American, and Asia Pacific. New sales offices in England and Singapore were
established in the three months ended June 30, 1997. As well, an office was
created shortly after the quarter end in Germany to address the central European
market. The Company has also increased its advertising and promotional efforts
during 1997. Global marketing, updating the corporate logo and attendance at
various billing and customer care conferences represent the majority of the
marketing expense increase. The Company anticipates that continued expansion of
its sales efforts and emphasis on international marketing will increase its
sales and marketing expenses through the remainder of 1997, which may have an
adverse effect on the Company's results of operations.
Research and Development
Research and development expenses increased 147.8 % from $1.0 million in the
three months ended June 30, 1996 to $2.5 million in the three months ended June
30, 1997, and increased 113.2 % from $1.9 million in the six months ended June
30, 1996 to $4.0 million in the six months ended June 30, 1997. The continued
increase in research and development expenses in 1997 resulted primarily from
costs associated with planned increases in personnel dedicated to development
efforts in creating new and enhanced billing and customer care products for both
the AS/400 and UNIX platforms. The Company intends to continue to invest
resources to expand its product offerings in the future and therefore expects
that research and development expenses will continue to increase.
General and Administrative
General and administrative expenses increased 98.4 % from $2.5 million in the
three months ended June 30, 1996 to $4.9 million in the three months ended June
30, 1997, and increased 83.9 % from $4.8 million in the six months ended June
30, 1996 to $8.8 million in the six months ended June 30, 1997. Increases were
experienced primarily in management and administrative salaries, recruitment
expenses and facilities and other related expenses. The increase is attributable
to growth in the internal systems and number of people necessary to support
overall increases in the scope of the Company's operations.
Other Income, net
Other income, net, increased 46.0% from $383,000 in the three months ended June
30, 1996 to $559,000 in the three months ended June 30, 1997, and increased 45.8
% from $626,000 in the six months ended June 30, 1996 to $913,000 in the six
months ended June 30, 1997. Increased interest income earned on larger cash and
short-term investment balances was the primary reason for the increase in other
income. Foreign exchange losses experienced due to fluctuations in the Canadian
and Irish currencies compared to the U.S.
dollar were not significant in the three months ended June 30, 1997.
Provision for Income Taxes
The Company recorded a tax provision of $597,000 and $1.0 million in the three
and six months ended June 30, 1996 representing effective tax rates of 18.5% and
18.1%, respectively. Comparatively, tax provisions of $2.0 million and $3.3
million were recorded in the three and six months ended June 30, 1997
representing effective tax rates of 26.6% and 25.0 %, respectively. The
effective tax rate for the six months ended June 30, 1997 approximates the
annual effective tax rate. The Company's effective tax rate is largely dependent
on the proportion of the Company's income earned in different tax jurisdictions.
The Company is currently eligible for a 10% tax rate on "manufacturing" income
earned in the Republic of Ireland. The rate is not available for other types of
income such as income earned by the Company on its cash investments. The
eligibility for the 10% tax rate is the reason that the Company's effective tax
rate is below the Irish standard rate of 38% (36% effective April 1, 1997), and
below the statutory rates of Canada and the United States. There can be no
assurances that the Company will continue to be eligible for this 10% tax rate
in future periods.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $49.7 million at June
30, 1997 compared to $35.3 million at December 31, 1996. The portfolio is
primarily invested in short-term securities (majority maturing within three to
six months) and are predominantly in U.S. dollar denominated securities. The
Company is investigating alternative investment vehicles to maximize the return
earned on these short term investments.
The Company has no long-term debt or outstanding bank financing. The Company is
currently investigating establishing a multi-currency line of credit to support
cash and foreign currency management efforts.
During the six months ended June 30, 1997, $13.9 million of cash was provided by
operating activities as the primary source of financing of the Company's growth.
Operations provided cash through increased net income, deferred revenue
(receipts in advance of recognition of revenues), and accrued and trade
payables, offset by an increase in trade receivables, prepaid expenses and other
assets.
The Company used $1.5 million to purchase capital assets during the six months
ended June 30, 1997. The Company continues to make capital asset investments for
infrastructure to support its business growth. The Company expects to continue
its capital asset investments in the remainder of 1997 as the Company expands
its locations worldwide.
During the six months ended June 30, 1997 the Company issued Ordinary Shares
pursuant to exercises of options under the employee stock option plans and the
employee stock purchase plan for proceeds of approximately $1.4 million.
As of June 30, 1997 the Company had $23.7 million in net accounts receivable.
The average days sales outstanding ("DSO") at June 30, 1997 was approximately 85
days as compared to approximately 86 at June 30, 1996. DSO is calculated based
on the average daily sales of the immediately preceding three month period
divided by the net accounts receivable balance at the end of the period.
The Company believes that existing cash balances and funds generated by
operations will be sufficient to meet its anticipated liquidity and working
capital requirements for the next twelve months.
Foreign Currency Exposure
The Company's international sales are predominately invoiced and paid in U.S.
currency with the exception of certain clients who are invoiced primarily in
Canadian dollars and Pounds Sterling. The impact of foreign currency translation
has not been material to the Company's operations. As the Company expands its
international operations, the foreign currency exposure may increase as sales
may not be invoiced and paid in U.S. currency and operating expenses may be
incurred in other than U.S. currency. This may have an adverse effect on the
Company's results of operation.
Certain Factors That May Affect Future Results
This Quarterly Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements, including statements
regarding the Company's plans to expand its international sales presence, the
Company's plans to continue to invest in research and development efforts, the
Company's expectation that it will continue to make capital asset investments in
1997, the Company's belief that its existing cash balance and funds generated by
operations will be sufficient to meet its anticipated liquidity and working
capital requirements through at least fiscal 1998, the possible adverse foreign
currency exposure involved with international expansion, and the Company's
general expectations of growth. A number of uncertainties exist that could
affect the Company's future operating results, including, without limitation,
the Company's ability to retain existing customers and attract new customers,
the Company's ability to attract and retain qualified employees, the costs
associated with significant increases in number of employees, the Company's
continuing ability to develop products that are responsive to the evolving needs
of its customers, increased competition, changes in operating expenses, foreign
currency exchange rates, the Company's continued ability to take advantage of
favorable tax treatment currently available to the Company, and general economic
factors.
To date, a substantial portion of the Company's total revenues has been derived
from a relatively small number of customers. This concentration of customers can
cause the Company's revenues and earnings to fluctuate from quarter to quarter,
based on these customers' requirements and the timing of their orders. A
significant decrease in business from any of its major customers would have a
material adverse effect on the Company's business, financial condition, and
results of operations.
The Company competes with both independent providers of systems and services
like the Company and with internal billing departments of existing
telecommunications service providers, many of which have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition, than the Company. There can be no assurance that the Company
will be able to compete successfully with its existing competitors or with new
competitors.
The Company's future success depends in large part on its ability to develop new
customer relationships with successful telecommunications service providers.
There can be no assurance that the Company will be able to develop such
relationships or that service providers that become customers of the Company
will be successful. Historically, the Company has been dependent on long-term
customer relationships and therefore, the failure of the Company's customers to
compete effectively in the telecommunications market could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Although the Company has developed software for UNIX-based operating systems
jointly with a distribution partner, the Company's billing and customer care
software currently runs primarily on the IBM AS/400 platform which represents a
leading platform for existing and new billing systems. If there should be a
rapid shift away from the current use of the AS/400 platform by the
telecommunications industry for billing, the Company would be required to expend
substantial capital resources to develop new software and likely experience
delays or losses in customer orders.
The Company's success will depend upon its ability to enhance its existing
products and to introduce new products and features to meet changing customer
requirements and to permit it to meet the needs of new customers. The Company is
currently devoting significant resources to refining and expanding its base
software modules and to continuing the development of billing software that will
operate on UNIX-based operating systems. If the Company were unable, due to
resource, technological or other constraints, to adequately anticipate or
respond to such changes, the Company's business, financial condition and results
of operations would be materially adversely affected.
The Company's international business is subject to risks such as fluctuations in
exchange rates, difficulties or delays in developing and supporting non-English
language versions of the Company's products, political and economic conditions
in various jurisdictions, unexpected changes in regulatory requirements, tariffs
and other trade barriers, difficulties in staffing and managing foreign
operations and longer accounts receivable payment cycles.
Recently, the Company has expanded its operations rapidly, which has placed
significant demands on the Company's administrative, operational and financial
personnel and systems. Additional expansion by the Company may further strain
the Company's management, financial and other resources. There can be no
assurance that the Company's systems, procedures, controls and existing space
will be adequate to support expansion of the Company's operations. The Company's
future operating results will substantially depend on the ability of its
officers and key employees to manage changing business conditions and to
implement and improve its operational, financial control and reporting systems.
If the Company is unable to respond to and manage changing business conditions,
the quality of the Company's services, its ability to retain key personnel and
its results of operations could be materially adversely affected.
Fluctuations in exchange rates may have a material adverse effect on the
Company's results of operations, particularly its operating margins, and could
also result in exchange losses. The impact of future exchange rate fluctuations
on the Company's results of operations cannot be accurately predicted. To date,
the Company has not sought to hedge the risks associated with fluctuations in
exchange rates, but may undertake such transactions in the future. There can be
no assurance that any hedging techniques implemented by the Company will be
successful or that the Company's results of operations will not be materially
adversely affected by exchange rate fluctuations.
The Company has significant operations and generates a substantial portion of
its taxable income in the Republic of Ireland, and, under an incentive tax
program due to terminate in 2010, is taxed on its "manufacturing income" at a
10% rate, which is substantially lower than U.S. tax rates. If the Company could
no longer qualify for this 10% tax rate or if the tax laws were rescinded or
changed, the Company's net income could be materially adversely affected. In
addition, if U.S., Canadian or other foreign tax authorities were to challenge
successfully the manner in which profits are recognized among the Company and
its subsidiaries, the Company's effective tax rate could increase, and its cash
flow and results of operations could be materially adversely affected.
<PAGE>
SAVILLE SYSTEMS PLC
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 16, 1997 the Company received a letter from one of its clients,
Billing Information Concepts, Inc. ("BIC"),purporting to terminate its
agreements with Saville and alleging certain failures to perform by
Saville. The client alleges damages of $12 million. Saville has
categorically denied all of BIC's allegations and has informed BIC that
its claims are without merit. There can be no assurance, however, as to
the outcome of this dispute.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule
(b) Reports on form 8-K
None
<PAGE>
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.
SAVILLE SYSTEMS PLC
(Registrant)
Date: July 31, 1997 By: /s/ John J. Boyle, III
--------------------------------------- ----------------------------
John J. Boyle, III
President & CEO
Date: July 31, 1997 By: /s/ Christopher A. Hanson
--------------------------------------- ---------------------------
Christopher A. Hanson
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 11.0
SAVILLE SYSTEMS PLC
FORM 10-Q REPORT
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
Calculation of Shares Used in Determining
Net Income Per Share (1)
(unaudited)
(in thousands, except per share data)
<TABLE>
Three months ended Six months ended
June 30 June 30 June 30 June 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income $5,441 $2,562 $9,843 $4,604
Weighted average share and share equivalents:
Ordinary shares 18,225 17,592 18,165 17,584
Non-qualified share options 1,341 1,300 1,256 1,204
19,566 18,892 19,421 18,788
Net Income per share (2) $0.28 $0.14 $0.51 $0.25
</TABLE>
(1) This Exhibit should be read in connection with "Net Income per share"
in Note 2 of the notes to the consolidated interim financial
statements.
(2) The calculation of fully diluted earnings per share is not
materially different from the primary earnings per share for the
periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 30,642 30,642
<SECURITIES> 19,059 19,059
<RECEIVABLES> 25,055 25,055
<ALLOWANCES> 1,365 1,365
<INVENTORY> 0 0
<CURRENT-ASSETS> 76,455 76,455
<PP&E> 7,185 7,185
<DEPRECIATION> 1,980 1,980
<TOTAL-ASSETS> 81,660 81,660
<CURRENT-LIABILITIES> 22,715 22,715
<BONDS> 0 0
0 0
48 48
<COMMON> 46 46
<OTHER-SE> 58,468 58,468
<TOTAL-LIABILITY-AND-EQUITY> 81,660 81,660
<SALES> 0 0
<TOTAL-REVENUES> 25,493 45,623
<CGS> 0 0
<TOTAL-COSTS> 11,098 20,425
<OTHER-EXPENSES> 6,637 11,299
<LOSS-PROVISION> 244 614
<INTEREST-EXPENSE> 3 7
<INCOME-PRETAX> 7,511 13,278
<INCOME-TAX> 1,995 3,320
<INCOME-CONTINUING> 5,441 <F1> 9,843 <F1>
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,441 9,843
<EPS-PRIMARY> 0.28 0.51
<EPS-DILUTED> 0.28 0.51
<FN>
<F1> After deducting minority interest of 75 and 115, respectively
</FN>
</TABLE>
