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 March 31, 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)
American Depository Shares, Representing Ordinary Shares, $0.0025 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |x| No |_|
Number of shares outstanding of the registrant's class of Ordinary Shares as of
April 30, 1997 was 18,168,445.
<PAGE>
SAVILLE SYSTEMS PLC
FORM 10-Q REPORT
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as at March 31, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Income for the three months ended 4
March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows for the three months ended 5
March 31, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-11
PART II - OTHER INFORMATION
SIGNATURES 13
EXHIBIT INDEX 14
<PAGE>
<TABLE>
Saville Systems PLC
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
March 31 December 31
1997 1996
(unaudited)
- -------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents ...................................................... $ 27,935 $ 34,395
Marketable securities .......................................................... 8,000 1,000
Accounts receivable, less allowance for doubtful accounts
of $1,120 and $756, respectively .............................................. 22,594 15,308
Prepaid expenses and other assets .............................................. 1,715 1,511
60,244 52,214
Property and equipment, net .................................................... 4,378 4,275
$ 64,622 $ 56,489
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ............................................................... 1,973 1,711
Accrued compensation and related benefits ...................................... 2,193 2,704
Income taxes payable ........................................................... 3,283 2,910
Deferred revenue ............................................................... 3,801 1,420
Other current liabilities ...................................................... 824 770
Current portion of long-term debt .............................................. -- 43
12,074 9,558
Minority interest .............................................................. 327 320
Shareholders' equity
Share capital .................................................................. 93 93
Additional paid-in capital ..................................................... 29,019 27,778
Retained earnings .............................................................. 23,215 18,813
Cumulative translation account ................................................. (106) (73)
52,221 46,611
$ 64,622 $ 56,489
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
Saville Systems PLC
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars, except per share data)
Three months ended
March 31 March 31
1997 1996
(unaudited)(unaudited)
<S> <C> <C>
REVENUE
Services ....................................................................... $ 16,515 $ 9,032
License fees ................................................................... 3,615 1,523
20,130 10,555
EXPENSES
Cost of services ............................................................... 8,037 4,478
Cost of license fees ........................................................... 88 22
Sales and marketing ............................................................ 1,202 637
Research and development ....................................................... 1,481 860
General and administrative ..................................................... 3,909 2,321
14,717 8,318
Income from operations ......................................................... 5,413 2,237
Other income, net .............................................................. 354 243
Income before income taxes ..................................................... 5,767 2,480
Provision for income taxes ..................................................... 1,325 440
Income before minority interest ................................................ 4,442 2,040
Minority interest share in subsidiaries' net income ............................ 40 (2)
Net income ..................................................................... $ 4,402 $ 2,042
Net income per share ........................................................... $ 0.23 $ 0.11
Weighted average share and share equivalents (in thousands) .................... 19,275 18,685
</TABLE>
See accompanying notes
<PAGE>
<TABLE>
Saville Systems PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Three months ended
March 31 March 31
1997 1996
(unaudited)(unaudited)
- -------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 4,402 $ 2,042
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................ 278 147
Allowance for doubtful accounts .............................................. 370 75
Minority interest in net income .............................................. 40 (2)
Gain on sale of property and equipment ...................................... (19) --
Stock based compensation expense, net of related taxes ...................... 60 --
Changes in operating assets and liabilities:
Accounts receivable .......................................................... (7,662) (4,632)
Prepaid expenses and other assets ............................................ (205) (215)
Accounts payable ............................................................. 263 359
Accrued compensation and related benefits .................................... (512) (113)
Accrued royalties ............................................................ -- (163)
Income taxes payable ......................................................... 373 440
Deferred revenue ............................................................ 2,381 --
Other current liabilities ................................................... 54 287
Net cash used in operating activities .......................................... (177) (1,775)
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchase of property and equipment ......................................... (391) (428)
Purchase of marketable securities .............................................. (7,000) --
Net cash used in investing activities .......................................... (7,391) (428)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt .................................................... (43) (13)
Proceeds from share issuances .................................................. 706 --
Public offering costs .......................................................... (46) (45)
Tax benefit on employee stock transactions ..................................... 488 --
Net cash provided by (used in) financing activities ............................ 1,105 (58)
Effect of exchange rate changes on cash ........................................ 3 (12)
Net decrease in cash and cash equivalents ...................................... (6,460) (2,273)
Cash and cash equivalents, beginning of period ................................. 34,395 23,722
Cash and cash equivalents, end of period ....................................... $ 27,935 $ 21,449
Supplement disclosure of cash flow information:
Cash paid for interest ....................................................... 3 6
Cash paid for income taxes ................................................... 548 --
</TABLE>
See accompanying notes
<PAGE>
Saville Systems PLC
Notes to Consolidated Financial Statements at March 31, 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 March 31, 1997 and 1996 and the financial position at
March 31, 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 year ending and quarter ending December 31, 1997. The Company has not
determined the impact, if any, of SFAS 128 on its consolidated financial
statements.
3. Share Capital
The number of Ordinary Shares and Deferred Shares outstanding were 18,163,145
and 30,000, respectively at March 31, 1997 and 18,081,571 and 30,000,
respectively at December 31, 1996. During the quarter ended March 31, 1997, the
Company issued 81,574 Ordinary Shares to officers and employees for aggregate
cash consideration of approximately $706,000.
Subsequent to March 31, 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 following table summarizes the activity in Ordinary Share options from
December 31, 1996 to March 31, 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
Options granted (1,056,210) 1,056,210 37.55
Options exercised (81,574) 8.65
Options cancelled 38,175 (38,175) 19.04
Balance at March 31, 1997 1,674,197 2,437,377 $20.85
</TABLE>
<PAGE>
A summary of Ordinary Share options outstanding as of March 31, 1997 is as
follows:
<TABLE>
Total Outstanding Range of Weighted Weighted Exercisable at Weighted
Exercise Prices Average Average March 31, 1997 Average
Exercise Price Remaining Exercise Price
Contractual of Exercisable
Life (in years) Options
<S> <C> <C> <C> <C> <C>
10,490 $ 1.68 $ 1.68 2.3 10,490 $ 1.68
402,807 2.40 2.40 2.8 402,807 2.40
891,258 8.66 - 10.00 9.00 8.5 317,819 9.28
34,091 15.00 - 26.63 17.40 8.8 20,757 16.33
1,098,731 28.63 - 43.00 37.49 9.4 10,000 34.43
- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
2,437,377 $ 1.68 - 43.00 $ 20.85 7.9 761,873 $ 6.06
- ------------------ ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
Subsequent to March 31, 1997 the shareholders 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.
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 90.7 % from $10.6 million in the three months ended
March 31, 1996 to $20.1 million in the three months ended March 31, 1997. Both
service and license fee revenue increased as described below.
Services revenue increased 82.8 % from $9.0 million in the three months ended
March 31, 1996 to $16.5 million in the three months ended March 31, 1997. The
increase was attributable primarily to more customized development performed for
existing clients in both the AS/400 and UNIX development environments and, to a
lesser extent, the amount of new client initial customization including
requirement definitions.
License fees revenue increased 137.4 % from $1.5 million in the three months
ended March 31, 1996 to $3.6 million in the three months ended March 31, 1997.
Depending on the level of customization or enhancements required, license fees
are recognized at time of delivery, or amortized over the expected term of
initial customization. The license fee increase was attributable to increased
license fee amortization on existing customization projects and on new
installations in the United States and Europe.
<PAGE>
Cost of Services
Cost of services increased 79.5 % from $4.5 million in the three months ended
March 31, 1996 to $8.0 million in the three months ended March 31, 1997. As a
percentage of services revenue, cost of services remained relatively constant in
both periods, decreasing from 49.6 % in the period ended March 31, 1996 to 48.7
% in the same period in 1997. The overall increase in expenses was primarily due
to additional personnel hired to support the increased volume of business. The
number of personnel primarily responsible for consulting services increased
46.8% in the three months ended March 31, 1997 over the comparative period in
1996.
Cost of License Fees
Cost of license fees increased from $22,000 in the three months ended March 31,
1996 to $88,000 in the three months ended March 31, 1997. This increase was due
to employee sales commissions earned on new license fee agreements.
Sales and Marketing
Sales and marketing expenses increased 88.7 % from $637,000 in the three months
ended March 31, 1996 to $1.2 million in the three months ended March 31, 1997.
This increase was primarily due to the Company's continued expansion of its
sales force in the United States and Europe and the creation of a sales team to
address the Latin American market. The Company anticipates that continued
expansion of its sales force in North America and Europe and its intention to
establish a stronger sales presence in Latin America and Asia Pacific 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 72.2 % from $860,000 in the three
months ended March 31, 1996 to $1.5 million in the three months ended March 31,
1997. This increase was due to increased development efforts by the Company in
creating new and enhanced billing and customer care products. 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 68.4% from $2.3 million in the
three months ended March 31, 1996 to $3.9 million in the three months ended
March 31, 1997. The increase was attributable to increased management and
administrative salaries, recruitment, facilities and other expenses associated
with the corresponding growth in the employee base and the expansion of the
Company's business.
Other Income and Expenses
Other income, net of other expenses, increased 45.7% from $243,000 in the three
months ended March 31, 1996 to $354,000 in the three months ended March 31,
1997. Increased interest income on increased cash and cash equivalents balances
was the primary reason for the increase in other income. This was partially
offset by foreign exchange losses experienced due to fluctuations in the
Canadian and Irish currencies compared to the U.S. dollar.
<PAGE>
Provision for Income Taxes
The Company recorded a tax provision of $440,000 in the three months ended March
31, 1996 representing an effective tax rate of 17.7%. Comparatively, a tax
provision of $1.3 million was recorded in the three months ended March 31, 1997
representing an effective tax rate of 23.0%. 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 and cash equivalents decreased $6.5 million from $34.4 million at December
31, 1996 to $27.9 million at March 31, 1997. This decrease was attributable to a
$7.0 million increase in investments in short term marketable securities over
the same period. On a combined basis, therefore, there was a $540,000 increase.
During the three months ended March 31, 1997, $177,000 of cash was used in
operating activities representing a decrease of $1.6 million over the $1.8
million of cash used in the corresponding period in 1996. The major contributors
to this change were the cash provided by a $2.4 million increase in net income
and the $2.4 million increase in deferred revenue partially offset by the cash
used by a $3.0 million increase in accounts receivable.
The Company used $391,000 to purchase fixed assets during the three months ended
March 31, 1997. This represents a decrease of $37,000 over the corresponding
period in 1996. The Company continues to make fixed asset investments for
infrastructure to support its historical business growth and its anticipated
needs in future fiscal periods. The Company expects to continue its fixed asset
investments in the remainder of 1997 as the Company expands its locations
worldwide.
During the three months ended March 31, 1997 the Company issued Ordinary Shares
pursuant to exercises of options under the employee stock option plan for
proceeds of approximately $706,000.
As of March 31, 1997 the Company had $22.6 million in net accounts receivable.
The average days sales outstanding ("DSO") at March 31, 1997 was approximately
102 days as compared to approximately 110 at March 31, 1996. DSO is calculated
based on the average daily sales of the immediately preceding three month period
divided by the trade 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.
<PAGE>
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 establish a sales presence in Latin America and
Asia Pacific, 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 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 derived from
a 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 Channel 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.
<PAGE>
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
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held the 1997 Annual General Meeting of Shareholders (the
"Annual Meeting) on April 24, 1997. At the Annual meeting, the following actions
were taken.
1. The shareholders considered the audited accounts of the Company for the
year ended December 31, 1996 and the Reports of the Directors and the Auditors
thereon;
2. The shareholders re-elected John A Blanchard III, Brian E. Boyle,
Richard A. Licursi and John W. Sidgmore as Class II Directors of the Company,
each to serve for a three year term. Holders of 18,158,654 Ordinary Shares,
18,158,654 Ordinary Shares, 18,158,654 Ordinary Shares and 18,158,654 Ordinary
Shares voted for Messrs. Blanchard, Boyle, Licursi and Sidgmore, respectively;
3. The shareholders ratified the reappointment of Ernst & Young as the Company's
independent auditors by a vote of 18,158,654 Ordinary Shares for, and zero
Ordinary Shares against;
4. The shareholders authorized an amendment to the Company's 1995 Share
Option Plan by a vote of 17,435,154 Ordinary Shares for,711,000 Ordinary
Shares against and 12,500 Ordinary Shares not voting;
5. The shareholders authorized an amendment to the Company's Memorandum and
Articles of Association and an increase in the number of Ordinary Shares
that may be allotted by the Board of Directors to 75,000,000 Ordinary shares
by a vote of 17,436,154 Ordinary Shares for, 710,000 Ordinary Shares
against and 12,500 Ordinary Shares not voting;
6. The shareholders authorized the directors to
determine the remuneration of the independent auditors by a vote of 18,158,654
Ordinary Shares for, and zero Ordinary Shares against; and
7. The shareholders authorized the holding of the 1998 Annual General
Meeting of the Company in North America by a vote of 18,158,654 Ordinary
Shares for, and zero Ordinary Shares against.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the Exhibit Index as part of or included
in this report.
(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: May 13, 1997 By: /s/ John J. Boyle, III
--------------------------------------- ----------------------------
John J. Boyle, III
President & CEO
Date: May 13, 1997 By: /s/ Christopher A. Hanson
--------------------------------------- ---------------------------
Christopher A. Hanson
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
SAVILLE SYSTEMS PLC
FORM 10-Q REPORT
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX TO EXHIBITS
Exhibit No. Description Page
10.1 Amendment to 1995 Share Option Plan 15
10.2 Employment letter agreement with
Andrew Campbell dated November 12, 1996 16
10.3 Employment letter agreement with
Christopher A. Hanson dated January 28, 1997 17
11.0 Statement re: Computation of Per Share 18
Earnings
27.0 Financial Data Schedule 19
EXHIBIT 10.1
SAVILLE SYSTEMS PLC
AMENDMENT TO 1995 SHARE OPTION PLAN
Adopted by the Board of Directors on April 24, 1997
Approved by the Shareholders on April 24, 1997
Section 4 as amended and restated. Section 4 of the 1995 Share Option Plan of
Saville Systems PLC shall be deleted in its entirety and the following shall be
substituted in its place:
4. Stock Subject to the Plan.
Subject to adjustment as provided in Section 15 below, the maximum
number of Ordinary Shares which may be issued and sold under the Plan is
5,000,000 shares. If an option granted under the Plan shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject to such option shall again be available for subsequent option grants
under the Plan. If shares issued upon exercise of an option under the Plan are
tendered to the Company in payment of the exercise price of an option granted
under the Plan, such tendered shares shall again be available for subsequent
option grants under the Plan; provided, that in no event shall such shares be
made available for issuance to Reporting Persons or pursuant to exercise of
Incentive Stock Options.
EXHIBIT 10.2
November 12, 1996
Mr. Andrew Campbell
13 Dan St. Graceville
Qld. Australia 4075
Dear Andrew:
On behalf of Saville Systems Canada, Ltd., I am pleased to offer you the
position of Senior Vice President, Research and Development.
This position will be based in Edmonton and is offered with the understanding
that you will commence employment on or before January 2, 1997. Your base salary
will be $145,000 (US), with a year end bonus based on a combination of company
performance and personal performance up to 30% of your base salary. The benefits
plan will be the traditional Saville Systems benefits as outlined in the
attached summary. In addition, you will have three weeks vacation. As a signing
bonus, you will receive 50,000 stock options. The exercise price of the options
will be the closing market price on the date you commence employment.
With this offer, the following conditions apply:
1. Acceptance of this offer within 5 days be returning a signed copy of this
letter.
2. You agree to sign the attached Invention and Non-Disclosure Agreement.
Andrew, I look forward to hearing from you soon and welcoming you aboard Team
Saville.
Sincerely,
/s/Lorraine M. Kruper for: /s/Andrew Campbell
Signature of Acceptance
John J. Boyle III December 26, 1996
President and Chief Executive Officer Date
EXHIBIT 10.3
January 28, 1997
Mr. Chris Hanson
116 S. Lancaster Ave.
Mt. Prospect, Illinois 60056
Dear Chris:
On behalf of Saville Systems, I am pleased to offer you the position of Chief
Financial Officer.
This position will be based in Burlington, Mass. and is offered with the
understanding that you will commence employment on or before March 3, 1997. Your
base salary will be $145,000, with a year end bonus based on a combination of
company performance and personal performance up to 30% of your base salary. The
benefits plan will be the traditional Saville Systems benefits as outlined in
the attached summary. In addition, you will have three weeks vacation. As a
signing bonus, you will receive 50,000 stock options. The exercise price of the
options will be the closing market price on the date you commence employment.
With this offer, the following conditions apply:
1. Acceptance of this offer within 5 days be returning a signed copy of this
letter.
2. You agree to sign the attached Invention and Non-Disclosure Agreement.
3. Saville Systems agrees to pay your moving expenses, for which
receipts must be provided, and your closing real estate fees, up to an
aggregate cap of $40,000.
Chris, I look forward to hearing from you soon and welcoming you aboard Team
Saville.
Sincerely,
/s/John J. Boyle III /s/Christopher A. Hanson
Signature of Acceptance
John J. Boyle III January 30, 1997
President and Chief Executive Officer Date
EXHIBIT 11.0
SAVILLE SYSTEMS PLC
FORM 10-Q REPORT
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
Calculation of Shares Used in Determining
Net Income Per Share (1)
(in thousands, except per share data)
<TABLE>
Three months ended
March 31 March 31
1997 1996
unaudited) (unaudited)
<S> <C> <C>
Net income $4,402 $2,042
Weighted average share and share equivalents:
Ordinary shares 18,105 17,576
Non-qualified share options 1,170 1,109
19,275 18,685
Net Income per share $ 0.23 $ 0.11
</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
substantially 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
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 27,935
<SECURITIES> 8,000
<RECEIVABLES> 23,714
<ALLOWANCES> 1,120
<INVENTORY> 0
<CURRENT-ASSETS> 60,244
<PP&E> 6,036
<DEPRECIATION> 1,658
<TOTAL-ASSETS> 64,622
<CURRENT-LIABILITIES> 12,074
<BONDS> 0
0
48
<COMMON> 45
<OTHER-SE> 52,128
<TOTAL-LIABILITY-AND-EQUITY> 64,622
<SALES> 0
<TOTAL-REVENUES> 20,130
<CGS> 0
<TOTAL-COSTS> 9,327
<OTHER-EXPENSES> 4,662
<LOSS-PROVISION> 370
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 5,767
<INCOME-TAX> 1,325
<INCOME-CONTINUING> 4,402<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,402
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
<FN>
<F1> After deducting minority interest of 40.
</FN>
</TABLE>
