<PAGE> 1
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 October 31, 1998.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934 For the transition period from _______to ______.
Commission File No.: 0-27694
------------
SCB Computer Technology, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1201561
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1365 W. Brierbrook Road
Memphis, Tennessee 38138
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
901-754-6577
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report)
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
------ ------
As of December 10, 1998, 24,674,875 shares of the Registrant's common stock were
outstanding.
<PAGE> 2
Index to Form 10-Q
SCB Computer Technology, Inc.
<TABLE>
<CAPTION>
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
<S> <C>
Consolidated balance sheets - October 31, 1998 and April 30, 1998........................................3
Consolidated statements of income - Three and six months ended October 31, 1998
and October 31, 1997.....................................................................................4
Consolidated statements of cash flows - Six months ended October 31, 1998
and October 31, 1997.....................................................................................5
Notes to consolidated financial statements...............................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations...........................................................................................8
Part II. Other Information
Item 1. Legal Proceedings.......................................................................................11
Item 2. Changes in Securities...................................................................................11
Item 4. Submission of Matters to a Vote of Security Holders.....................................................11
Item 6. Exhibits and Reports on Form 8-K........................................................................12
Signature........................................................................................................13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 31, 1998 April 30, 1998
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 387,130 $ 2,983,372
Accounts receivable:
Trade (net) 35,309,884 25,461,905
Prepaid expenses 3,421,632 2,632,076
Inventory 659,470 439,182
Deferred federal and state income tax 335,663 335,663
------------- ------------
Total current assets 40,113,779 28,868,826
Investment in direct financing leases 17,367,671 17,109,698
Equipment under operating leases (net) 4,650,496 5,266,429
Fixed assets:
Buildings 1,348,293 1,348,293
Furniture, fixtures, and equipment 34,574,001 15,221,841
Accumulated depreciation (8,565,311) (3,629,636)
------------- ------------
27,356,983 12,940,498
Land 209,912 209,912
------------- ------------
27,566,895 13,150,410
Goodwill (net) 45,906,166 26,115,672
Other 7,663,774 5,051,939
------------- ------------
Total assets $ 143,268,781 $ 95,562,974
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 4,926,652 $ 3,614,622
Accrued TVA settlement costs 1,759,236 --
Accrued and withheld payroll taxes,
insurance, and payroll deductions 1,711,230 662,622
Accrued vacation 1,061,938 924,296
Other accrued expenses 2,459,149 1,036,902
Current portion of long term debt 6,080,243 5,495,245
Deferred revenue 1,880,050 1,730,862
Accrued federal and state income taxes 1,510,343 1,380,801
------------- ------------
Total current liabilities 21,388,841 14,845,350
Deferred federal and state income taxes 1,009,648 1,648,220
Notes payable-revolving term loan 30,000,000 19,643,667
Notes payable-non recourse 18,315,484 18,072,026
Long term debt 13,991,885 3,138,455
Capital lease obligation 1,036,646 1,317,527
Total long term liabilities 64,353,663 43,819,895
Total liabilities 85,742,504 58,665,245
Shareholders' equity:
Preferred stock, no par value-authorized
1,000,000 shares, none issued -- --
Common stock-50,000,000 shares of $.01
par value authorized and 24,671,851
shares issued and outstanding at
October 31, 1998 and 22,529,965 shares
issued and outstanding at April 30, 1998 246,719 225,300
Additional paid-in capital 38,873,113 24,504,619
Retained earnings 18,406,445 15,151,182
------------- ------------
Total shareholders' equity 57,526,277 39,881,101
------------- ------------
Total liabilities & shareholders' equity $ 143,268,781 $ 98,546,346
============= ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 4
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
OCTOBER 31, OCTOBER 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 39,280,625 $ 28,054,205 $ 74,769,235 $ 49,387,407
Cost of services 26,945,679 19,356,691 50,988,093 34,210,657
------------ ------------ ------------ ------------
Gross profit 12,334,946 8,697,514 23,781,142 15,176,750
Provision for settlement of TVA matter -- -- 1,900,000 --
Severance payments 800,000 -- 800,000 --
Other selling, general and
administrative expenses 6,489,353 4,858,558 12,685,719 8,373,835
------------ ------------ ------------ ------------
Total operating expenses 7,289,353 4,858,558 15,385,719 8,373,835
------------ ------------ ------------ ------------
Income from operations 5,045,593 3,838,956 8,395,423 6,802,915
Other income (expenses):
Interest expense (1,185,292) (392,403) (2,079,953) (500,074)
Other, net (340,795) (160,254) (702,697) (89,071)
------------ ------------ ------------ ------------
Total other income (expenses) (1,526,087) (552,657) (2,782,650) (589,145)
------------ ------------ ------------ ------------
Income before income taxes 3,519,506 3,286,299 5,612,773 6,213,770
Income tax expense 1,368,886 1,267,664 2,566,186 2,406,064
------------ ------------ ------------ ------------
Net income $ 2,150,620 $ 2,018,635 $ 3,046,587 $ 3,807,706
============ ============ ============ ============
Net income per share-basic $ 0.09 $ 0.09 $ 0.12 $ 0.17
============ ============ ============ ============
Net income per share-diluted $ 0.09 $ 0.09 $ 0.12 $ 0.17
============ ============ ============ ============
Weighted average number of common
shares-basic 24,671,661 22,459,676 24,668,490 22,450,172
============ ============ ============ ============
Weighted average number of common
shares-diluted 24,844,604 22,734,298 24,979,386 22,684,223
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 5
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended
October 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,046,587 $ 3,807,706
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 5,712,428 2,789,377
Deferred income taxes (638,572) (296,461)
(Increase) decrease in:
Accounts receivable-trade (9,847,979) (4,407,242)
Prepaid expenses (789,556) (333,763)
Inventory (220,288) 513,229
Net investment in direct financing activity (257,973) 5,525,245
Deferred revenue (149,188) (49,939)
Other assets (1,282,959) (686,621)
Increase (decrease) in:
Accounts payable-trade 1,897,028 (288,793)
Accrued federal and state income taxes 129,542 671,868
Accrued vacation 137,642 121,139
Accrued TVA settlement costs 1,759,236 --
Other accrued expenses 1,422,247 (4,423)
Accrued and withheld payroll taxes,
insurance, and payroll deductions 1,048,608 (151,915)
------------ ------------
Total adjustments (1,079,784) 3,401,701
------------ ------------
Net cash provided by operating
activities 1,966,803 7,209,407
INVESTING ACTIVITIES
Purchases of fixed assets (18,736,227) (2,432,331)
Purchase of The Partners Group (7,127,437) (16,000,000)
Proceeds from land sale -- 234,758
------------ ------------
Net cash used by investing activity (25,863,664) (18,197,573)
FINANCING ACTIVITIES
Revolving term loan 12,000,000 16,000,000
Payments on revolving term loan (1,643,667) 729,103
Proceeds from loan 15,000,000 (8,259,000)
Options exercised 128,279 198,942
Repayment of capital lease obligations (280,881) (118,229)
Proceeds from non-recourse debt 3,000,000 693,517
Payments on non-recourse debt (2,756,542) (8,055,884)
Payments on long term debt (4,146,570) (551,302)
------------ ------------
Net cash provided (used) by financing
activities 21,300,619 637,147
------------ ------------
Net increase in cash and cash
equivalents (2,596,242) (10,351,019)
Cash at beginning of period 2,983,372 11,814,787
------------ ------------
Cash at end of period $ 387,130 $ 1,463,768
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 2,079,953 $ 500,434
Income taxes paid $ 2,436,644 $ 2,194,027
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 6
SCB COMPUTER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements (Unaudited)
October 31, 1998
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended October 31, 1998 are
not necessarily indicative of the results that may be expected for the fiscal
year ending April 30, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Registrant's Annual
Report on Form 10-K, as amended, for the fiscal year ended April 30, 1998 filed
with the Securities and Exchange Commission.
Note B - Change in Capitalization
On July 23, 1997, the Board of Directors of the Company declared a three-for-two
stock split in the form of a 50% stock dividend, paid on September 3, 1997, to
shareholders of record on August 20, 1997. On April 2, 1998, the Board of
Directors of the Company also declared a two-for-one stock split, which was
effected in the form of a 100% stock dividend and was paid on April 27, 1998 to
shareholders of record at the close of business on April 13, 1998. All share and
per share amounts have been retroactively restated to reflect the stock splits.
Note C - Earnings Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where necessary, restated to conform to the Statement 128
requirements.
6
<PAGE> 7
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31, 1998
----------------------------- ------------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net income $2,150,620 $2,018,635 $3,046,587 $ 3,807,706
========== ========== ========== ===========
Denominator for basic earnings per
share - weighted average shares 24,671,661 22,459,676 24,668,490 22,450,172
========== ========== ========== ===========
Effect of dilutive securities-stock options 172,943 274,622 310,896 234,051
---------- ---------- ---------- -----------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversion 24,844,604 22,734,298 24,979,386 22,684,223
========== ========== ========== ===========
Basic earnings per share $ 0.09 $ 0.09 $ 0.12 $ 0.17
========== ========== ========== ===========
Diluted earnings per share $ 0.09 $ 0.09 $ 0.12 $ 0.17
========== ========== ========== ===========
</TABLE>
Note D - Acquisitions
Effective June 30, 1997, the Company acquired all the capital stock of Partners
Resources, Inc. ("PRI"), an information technology outsourcing company, and
Partners Capital Group ("PCG"), a computer leasing company, which acquisitions
were accounted for using the purchase method of accounting. The cash
consideration initially paid for these entities was $16,000,000. The operating
results of PRI and PCG have been included in the Company's consolidated
statement of income since July 1, 1997. PRI and PCG have historically operated
as affiliated companies and are sometimes referred to collectively herein as
"The Partners Group."
In May 1998, the Company paid $21,382,212 as additional consideration to the
former shareholders of PRI. Such additional consideration was in the form of
$7,127,437 in cash and 1,580,582 shares of its common stock and was calculated
pursuant to the earnout formula contained in the original PRI acquisition
documents. At the same time, the Company received $962,154 on a return of
purchase price for the PCG acquisition because of PCG's failure to achieve
certain agreed to earnings targets. These transactions resulted in additional
goodwill that will be amortized over the remaining useful life.
In May 1998, the Company effected a business combination with Proven Technology,
Inc. ("PTI"), a company in substantially the same business as the Company. The
combination was accounted for using the pooling-of-interests method of
accounting. The Company exchanged 543,724 shares of its common stock for all the
outstanding stock of PTI of which 54,372 shares are being held in escrow to
secure potential indemnification claims. Because of its size, the transaction
does not require restatement of prior financial results.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenue increased from $28.1 million for the quarter ended October 31, 1997 to
$39.3 million for the quarter ended October 31, 1998, an increase of
approximately 40.0%. Revenue increased from $49.4 million for the first six
months of fiscal 1998 to $74.8 million for the comparable period for fiscal
1999, an increase of approximately 51.4%. The increase was attributable
primarily to the expansion of the Company's client base, an increase in
consulting and professional staffing services provided to existing clients, an
increase in equipment and software sales and leasing, and growth through
acquisitions.
Gross profit increased from $8.7 million for the second quarter of fiscal 1998
to $12.3 million for the second quarter of fiscal 1999, an increase of
approximately 41.8%. Gross profit increased from $15.2 million for the first six
months of fiscal 1998 to $23.8 million for the comparable period for fiscal
1999, an increase of approximately 56.7%. The increase was primarily
attributable to the increase in revenue over the prior periods. Gross profit
margin for the quarter increased from 31.0% to 31.4%, and gross profit margin
for the comparable six month periods increased from 30.7% to 31.8%, primarily
because of the movement of the revenue mix to higher margin consulting revenue
and a general increase in hourly rates.
Other selling, general and administrative expenses increased from $4.9 million
in the second quarter of fiscal 1998 to $6.5 million in second quarter of fiscal
1999, an increase of 33.6%. Other selling, general and administrative expenses
increased from $8.4 million for the first six months of fiscal 1998 to $12.7
million for the comparable period for fiscal 1999, an increase of approximately
51.5%. As a percent of revenue, other selling, general and administrative
expenses decreased from 17.3% in the second quarter of fiscal 1998 to 16.5% for
the second quarter of fiscal 1999, and was 17.0% for the first six months of
fiscal 1998 and the second quarter of fiscal 1999. The increase in the dollar
amount spent is primarily attributable to the increase in staffing as a result
of SCB's regional business units becoming fully operational and the increased
selling, general and administrative expenses attributable to acquired companies.
Expenses related to the government's investigation into the TVA billing matter
decreased from $99,000 for the second quarter of fiscal 1998 to $35,000 for the
second quarter of fiscal 1999, and also decreased from $137,000 for the first
six months of fiscal 1998 to $92,000 for the comparable period for fiscal 1999.
In addition, in the first quarter of fiscal 1999, the Company provided for an
accrual of $1,900,000, which is reflected separately on the income statement, in
anticipation of the settlement of the TVA billing matter as discussed herein.
See "Part II - Item 1. Legal Proceedings."
In connection with the resignation of an officer of the Company, SCB has
recorded a one-time severance expense of approximately $800,000 in the fiscal
quarter ended October 31, 1998, with non-compete payments to such former officer
(aggregating $980,000) being amortized ratably over future periods.
Interest expense increased from $392,000 in the second quarter of fiscal 1998 to
$1.2 million in the second quarter of fiscal 1999. Interest expense also
increased from $500,000 for the first six months of fiscal 1998 to $2.1 million
for the comparable period for fiscal 1999. The increase was primarily the result
of borrowings to fund a portion of the acquisition of The Partners Group, debt
assumed in the acquisition of The Partners Group, and the financing of equipment
associated with new outsourcing contracts. Other expenses, net, primarily the
amortization of goodwill in connection with the Company's recent acquisitions,
8
<PAGE> 9
increased from $211,000 for the second quarter of fiscal 1998 to $379,000 for
the second quarter of fiscal 1999, and also increased from $326,000 for the
first six months of fiscal 1998 to $777,000 for the comparable period for fiscal
1999, which amount reflects the full impact of goodwill amortization associated
with the additional earn-out consideration paid in May 1998 in connection with
The Partners Group acquisition.
Liquidity and Capital Resources
Prior to the acquisition of The Partners Group, cash on hand from the Company's
initial public offering in February 1996 and cash flow from operations had
historically been the Company's primary source of liquidity. Cash flows from
operations were $1,967,000 for the six months ended October 31, 1998, as
compared to $7,209,000 in the comparable period for fiscal 1998. The cash
provided by operations decreased during this period primarily because of an
increase in receivables and payment of expenses associated with the resignation
of a former officer of the Company.
Primarily as a result of the Company's recent acquisitions, borrowings have
become a more significant source of liquidity. The Company's current revolving
Credit Facility, which was amended on July 31, 1998, is comprised of a revolving
line of credit of up to $30 million, the proceeds of which can be used for
general corporate purposes, including acquisitions, and a term loan of $15
million, the proceeds of which were used to purchase certain equipment in
connection with an outsourcing engagement, which equipment serves as collateral
for the term loan. The Credit Facility bears interest at LIBOR plus a spread
over LIBOR, which varies based on certain financial ratios. The Company's
significant subsidiaries are co-borrowers under the Credit Facility. All
borrowings under the revolver mature on October 1, 2000. The term loan provides
for monthly payments of principal and interest of $130,348 until January 15,
1999, when monthly payments increase to $353,845 until the term loan matures on
July 15, 2002. At October 31, 1998, borrowings under the Credit Facility bore
interest at a rate of 6.91%. At October 31, 1998, the Company's credit line was
fully drawn. The maximum amount available under the revolver will reduce to
$28.75 million on February 1, 1999. The Company has funded certain projects
with the balance due upon completion. The Company anticipates that a
significant portion of its receivables related to these projects will be
collected by December 31, 1998.
The Company's working capital increased from $7,771,000 as of October 31, 1997
to $18,725,000 as of October 31, 1998, primarily due to increased accounts
receivable. The Company's current ratio at October 31, 1998 was 1.9:1.
The Company made capital expenditures during the first six months of fiscal 1999
of $18.7 million. Such capital expenditures related primarily to the purchase of
computer equipment for new outsourcing contracts for The Partners Group.
The Company is required to reduce its revolver by $1.25 million on February 1,
1999 and expects to pay $1.6 million in connection with the proposed settlement
of the TVA billing matter during fiscal 1999. Management believes that projected
cash flows from operations will be sufficient to enable the Company to fund
these payments, fund capital expenditures of approximately $2.0 million during
the remainder of fiscal 1999 and fund the Company's operating needs for at least
the next twelve months. Although the Company is currently in preliminary
discussions with several firms regarding potential acquisitions, presently there
are no definitive agreements with such firms, and no assurance can be made that
any transaction currently being discussed will be consummated.
9
<PAGE> 10
Year 2000
In fiscal 1998, the Company derived less then 10% of its revenue from Year 2000
("Y2K") consulting services and anticipates that such percentage will decrease
in fiscal 1999. Many of the Company's engagements, particularly with regard to
Y2K services, involve projects that are critical to the operations of its
clients' businesses and provide benefits that may be difficult to quantify. Any
failure in a client's system could result in a claim for substantial damages
against the Company, regardless of the Company's responsibility for such
failure. Furthermore, any litigation, regardless of its outcome, could result in
substantial costs to the Company, diversion of management's attention from
operations, and negative publicity, any of which could adversely affect the
Company's results of operations and financial condition.
Because SCB's business includes the assessment of clients' Year 2000 problems
and the recommendation and implementation of solutions to such problems, SCB has
long been aware of the potential adverse effects on a company if its systems are
not Year 2000 compliant. SCB has also made an assessment of its computer systems
and applications and believes its systems are Year 2000 compliant. Accordingly,
SCB does not expect to incur significant costs in order to remedy Year 2000
problems of its own systems, if any, and does not believe that Year 2000
problems associated with its own systems will have a material adverse effect on
SCB's business, operations, or financial condition.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which established standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic area, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and the Company
will adopt the new requirements for fiscal 1999, but it is not required to
disclose segment information until its April 30, 1999 year end annual report. In
the Company's first quarter report for July 31, 1999 and in subsequent quarters,
it will present the interim disclosures for both fiscal 2000 and comparative
fiscal 1999 interim information.
Forward-Looking Statements
This Quarterly Report on Form 10-Q may be deemed to contain certain
forward-looking statements regarding the anticipated financial and operating
results of the Company. The Company undertakes no obligation to publicly release
any revisions to any forward-looking statements contained herein to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Information contained in these
forward-looking statements is inherently uncertain and actual performance and
results may differ materially due to many important factors, many of which are
beyond the Company's control, including the Company's dependence on key clients;
the Company's dependence on the availability, recruitment, and retention of
qualified IT employees; the Company's potential liability to clients in
connection with the provision of IT services, particularly Year 2000 services;
the Company's dependence on key management personnel; the Company's ability to
finance, sustain, and manage growth; the Company's ability to integrate acquired
businesses; the timing and ultimate outcome of the governmental investigations
10
<PAGE> 11
of the Company, including the Company's ability to negotiate a definitive
settlement with the government related to the TVA matter on the terms described
herein and the tax and accounting treatment for payments related to such
settlement; competition; general economic conditions; and the like.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has reached a tentative agreement with the United States Attorney
for the Western District of Tennessee and the TVA to settle on a civil basis all
claims against the Company relating to the TVA billing matter. The Company has
agreed to pay $1,000,000 to the United States government and $600,000 to the TVA
in settlement of all claims against it. The Company anticipates that a
definitive agreement will be reached by mid-1999. Such settlement is contingent
on, among other things, the agreement by a former officer of the Company to
plead guilty to a single felony count of submitting a false claim of less than
$10,000. See "Item 3. Legal Proceedings" in the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 1998 for additional information.
ITEM 2. CHANGES IN SECURITIES.
Effective November 3, 1998, the Company's Amended and Restated Charter was
amended to increase the authorized shares of common stock from 50,000,000 to
100,000,000. The additional authorized shares of common stock may be issued by
the Board of Directors, at their discretion and without shareholder approval,
except as may be required by law or the rules of The Nasdaq Stock Market.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 3, 1998, the Company held its 1998 Annual Meeting of Shareholders.
At the Annual Meeting, the shareholders of the Company elected the following
persons to serve as directors for a term of one year and until their successors
are duly elected and qualified with the number of votes cast for or withheld as
set forth opposite their names:
<TABLE>
<CAPTION>
VOTES
-------------------------------------------
FOR WITHHOLD AUTHORITY
---------- ------------------
<S> <C> <C>
T. Scott Cobb .................. 20,502,924 164,916
Ben C. Bryant, Jr............... 20,499,734 168,106
James E. Harwood................ 20,500,272 167,568
Joseph W. McLeary............... 20,500,947 166,893
</TABLE>
The shareholders of the Company also voted to amend the Company's charter to
increase the number of authorized shares of Common Stock of the Company from
50,000,000 to 100,000,000 with the following number of votes cast for, against
or abstaining:
11
<PAGE> 12
<TABLE>
<CAPTION>
VOTES
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
<S> <C> <C>
20,425,277 234,307 8,256
- --------------------------------------------------------------------------------
</TABLE>
The shareholders of the Company also voted to amend the Company's 1997 Stock
Incentive Plan to increase the number of shares of Common Stock available for
issuance thereunder to 3,000,000 with the following votes cast for, against or
abstaining:
<TABLE>
<CAPTION>
VOTES
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
<S> <C> <C>
16,053,061 2,300,104 67,104
- --------------------------------------------------------------------------------
</TABLE>
The shareholders of the Company also voted on the ratification of Ernst &
Young LLP as the independent public accountants of the Company for fiscal 1999
with the following number of votes cast for, against or abstaining:
<TABLE>
<CAPTION>
VOTES
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
<S> <C> <C>
20,654,438 4,850 8,552
- --------------------------------------------------------------------------------
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits following the Signature page.
(b) A Current Report on Form 8-K was filed on September 4, 1998 with the
Securities and Exchange Commission reporting that the Company had
reached a tentative agreement with the United Stated Attorney for the
Western District of Tennessee and the TVA to settle on a civil basis
all claims against the Company and the resignation of an officer and
director of the Company.
12
<PAGE> 13
Signature
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.
SCB COMPUTER TECHNOLOGY, INC.
By: /s/ Gary E. McCarter
--------------------------------
Title: Chief Financial Officer
--------------------------------
Date: December 14, 1998
--------------------------------
13
<PAGE> 14
Index to Exhibits
Item Description
---- -----------
3 Amended and Restated Charter, as amended (restated in
electronic format for SEC filing purposes only).
27 Financial Data Schedule (for the SEC use only).
14
<PAGE> 1
EXHIBIT 3
(Restated in electronic
format for SEC fiilng
purposes only)
AMENDED AND RESTATED CHARTER
OF
SCB COMPUTER TECHNOLOGY, INC.
1. The name of the corporation is SCB Computer Technology, Inc.
2. The corporation is for profit.
3. The duration of the corporation is perpetual.
4. The street address and zip code of the corporation's principal
office in Tennessee shall be:
1365 West Brierbrook Road
Memphis, Tennessee 38138
County of Shelby
5. (a) The name of the corporation's registered agent is Gordon L.
Bateman.
(b) The street address, zip code, and county of the corporation's
registered office and registered agent in Tennessee shall be:
1365 West Brierbrook Road
Memphis, Tennessee 38138
County of Shelby
6. The corporation is organized to do any and all things and to
exercise any and all powers, rights, and privileges that a corporation may now
or hereafter be organized to do, or to exercise, under the Tennessee Business
Corporation Act, as amended.
7. The corporation is authorized to issue two classes of stock in the
following number of shares: (i) 100,000,000 shares of common stock, par value
$.01 per share (the "Common Stock"), and (ii) 1,000,000 shares of preferred
stock, no par value (the "Preferred Stock").
The preferences, limitations, and relative rights of the above classes
of stock shall be as follows:
<PAGE> 2
(a) Preferred Stock. Shares of Preferred Stock may be issued in one or
more classes or series at such time or times for such consideration as the Board
of Directors may determine. Each such class or series shall be given a
distinguishing designation. All shares of any one class or series shall have
preferences, limitations, and relative rights identical with those of other
shares of the same class or series and, except to the extent otherwise provided
in the description of such class or series, with those of other shares of
Preferred Stock. Authority is hereby expressly granted to the Board of Directors
to fix from time to time, by resolution or resolutions providing for the
establishment and issuance of any class or series of Preferred Stock, the
designation of such class or series, and the relative rights, preferences,
qualifications, and limitations of the shares of such class or series. Before
issuing any shares of Preferred Stock, the corporation shall deliver to the
Secretary of State for filing Articles of Amendment, which shall be effective
without shareholder action, that set forth (a) the name of the corporation, (b)
the text of the amendment determining the terms of the class or series, (c) the
date the amendment was adopted, and (d) a statement that the amendment was duly
adopted by the Board of Directors.
(b) Common Stock. Each share shall be entitled to one vote. Upon
dissolution of the corporation, each share of Common Stock shall be entitled to
receive a pro-rata share of the net assets of the corporation.
8. The shareholders of the corporation shall not have preemptive
rights.
9. All corporate powers shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be managed under the
direction of, a Board of Directors consisting of not less than three nor more
than nine directors, the exact number of directors to be determined in the
manner provided in the Bylaws of the corporation. Each director shall be elected
at the annual meeting of shareholders and shall hold office until the next
annual meeting and until his or her successor shall be elected and qualified,
subject, however, to prior death, resignation, retirement, disqualification, or
removal from office. Any vacancy on the Board of Directors, including a vacancy
that results from an increase in the number of directors or a vacancy that
results from the removal of a director with or without cause, shall be filled
either by the Board of Directors or the shareholders.
Any director may be removed from office but only for cause and only by
(a) the affirmative vote of the holders of a majority of the voting power of the
shares entitled to vote for the election of directors, considered for this
purpose as one class, unless a vote of a special voting group is otherwise
required by law, or (b) the affirmative vote of a majority of the entire Board
of Directors then in office.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies, and other features of such directorships shall be governed by the
terms of this Charter applicable thereto.
<PAGE> 3
10. To the fullest extent permitted by the Tennessee Business
Corporation Act as in effect on the date hereof and as hereafter amended from
time to time, a director of the corporation shall not be liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director. If the Tennessee Business Corporation Act or any successor
statute is amended after adoption of this provision to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Tennessee Business Corporation Act, as so
amended from time to time, or such successor statute. Any repeal or modification
of this Article 10 by the shareholders of the corporation shall not affect
adversely any right or protection of a director of the corporation existing at
the time of such repeal or modification or with respect to events occurring
prior to such time.
11. The corporation shall indemnify every person who is or was a party
or is or was threatened to be made a party to any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that he or she is or was a director or officer or is or was serving at the
request of the corporation as a director, officer, employee, agent, or trustee
of another corporation or of a partnership, joint venture, trust, employee
benefit plan, or other enterprise, including service on a committee formed for
any purpose (and, in each case, his or her heirs, executors, and
administrators), against all expense, liability, and loss (including counsel
fees, judgments, fines, ERISA excise taxes, penalties, and amounts paid in
settlement) actually and reasonably incurred or suffered in connection with such
action, suit, or proceeding, to the fullest extent permitted by applicable law,
as in effect on the date hereof and as hereafter amended. Such indemnification
may include advancement of expenses in advance of final disposition of such
action, suit, or proceeding, subject to the provision of any applicable statute.
The indemnification and advancement of expenses provisions of this
Article 11 shall not be exclusive of any other right that any person (and his or
her heirs, executors, and administrators) may have or hereafter acquire under
any statute, this Charter, the corporation's Bylaws, resolution adopted by the
shareholders, resolution adopted by the Board of Directors, agreement, or
insurance, purchased by the corporation or otherwise, both as to action in his
or her official capacity and as to action in another capacity. The corporation
is hereby authorized to provide for indemnification and advancement of expenses
through its Bylaws, resolution of shareholders, resolution of the Board of
Directors, or agreement, in addition to that provided by this Charter.
12. The Bylaws of this corporation may be amended, altered, modified,
or repealed by resolution adopted by the Board of Directors, subject to any
provisions of law then applicable.
13. The corporation shall hold a special meeting of shareholders only
in the event (a) of a call of the Board of Directors of the corporation or the
officers authorized to do so by the Bylaws of the corporation, or (b) the
holders of at least twenty-five percent of all the votes entitled to be cast on
any issue proposed to be considered at the proposed special meeting sign, date,
and deliver to the corporation's secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SCB COMPUTER TECHNOLOGY, INC. FOR THE SIX MONTHS ENDED
OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 387,130
<SECURITIES> 0
<RECEIVABLES> 35,449,884
<ALLOWANCES> 140,000
<INVENTORY> 659,470
<CURRENT-ASSETS> 40,113,779
<PP&E> 36,132,206
<DEPRECIATION> 8,565,314
<TOTAL-ASSETS> 143,268,781
<CURRENT-LIABILITIES> 21,388,841
<BONDS> 63,344,015
0
0
<COMMON> 246,719
<OTHER-SE> 57,279,558
<TOTAL-LIABILITY-AND-EQUITY> 143,268,781
<SALES> 74,769,235
<TOTAL-REVENUES> 74,769,235
<CGS> 50,988,093
<TOTAL-COSTS> 50,988,093
<OTHER-EXPENSES> 2,782,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,079,953
<INCOME-PRETAX> 5,612,773
<INCOME-TAX> 2,566,186
<INCOME-CONTINUING> 3,046,587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,046,587
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
