<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 January 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
- -------------------------------------------------------------------------------
(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 March 16, 1998, 11,238,687 shares of the Registrant's common stock were
outstanding.
<PAGE> 2
Index to Form 10-Q
SCB Computer Technology, Inc.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - January 31, 1998 and April 30, 1997....... 3
Consolidated statements of income - Three months ended January
31, 1998 and January 31, 1997; Nine months ended January 31, 1998
and January 31, 1997.................................................... 4
Consolidated statements of cash flows - Nine months ended
January 31, 1998 and January 31, 1997................................... 5
Notes to consolidated financial statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 9
Part II. Other Information
Item 1. Legal Proceedings...................................................... 13
Item 6. Exhibits and Reports on Form 8-K....................................... 13
Signature...................................................................... 14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, 1998 April 30, 1997
----------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents
Cash $ 1,935,622 $ 947,083
Securities purchased under agreement to resell - 787,704
Marketable securities - 10,080,000
----------- -----------
Total cash and cash equivalents 1,935,622 11,814,787
Accounts receivable:
Trade (net) 19,200,842 11,338,535
Prepaid expenses 2,486,281 315,689
Inventory 436,853 28,182
Deferred federal & state income taxes 231,663 231,663
----------- -----------
Total current assets 24,291,261 23,728,856
Investment in direct financing leases 19,602,544 -
Equipment under operating leases, net
of accumulated depreciation of $2,135,648 3,773,844 -
Fixed assets:
Buildings 1,348,293 1,348,293
Furniture, fixtures, and equipment 17,206,529 1,813,920
Accumulated depreciation (5,105,893) (838,888)
----------- -----------
13,448,929 2,323,325
Land 209,912 444,670
----------- -----------
13,658,841 2,767,995
Goodwill 26,070,211 8,150,782
Other 1,402,581 446,741
----------- -----------
Total assets $88,799,282 $35,094,374
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 3,588,595 $ 1,072,451
Accrued & withheld payroll taxes,
insurance, & payroll deductions 484,807 299,859
Accrued vacation 818,950 660,763
Other accrued expenses 2,161,796 1,007,102
Current portion of long term debt 4,970,245 -
Deferred revenue 257,110 -
Accrued federal and state income taxes 1,651,672 149,941
----------- -----------
Total current liabilities 13,933,175 3,190,116
Deferred federal & state income taxes 1,181,500 270,761
Notes payable-revolving term loan 11,725,000 -
Notes payable-non recourse 19,146,990 -
Long term debt 5,698,398 -
----------- -----------
Total long term liabilities 37,751,888 270,761
----------- -----------
Total liabilities 51,685,063 3,460,877
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 11,229,481
shares issued and outstanding at
January 31, 1998 and 11,217,066 shares
issued and outstanding at April 30, 1997 112,296 112,171
Additional paid-in capital 23,932,143 23,812,192
Retained earnings 13,069,780 7,709,134
----------- -----------
Total shareholders' equity 37,114,219 31,633,497
----------- -----------
Total liabilities & shareholders' equity $88,799,282 $35,094,374
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE> 4
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
January 31, January 31,
1998 1997 1998 1997
----------------------------- ----------------------------
(Restated)
<S> <C> <C> <C> <C>
Revenue $28,275,210 $15,491,395 $77,790,942 $46,656,248
Cost of services 19,680,310 11,560,939 54,106,796 33,865,981
----------- ----------- ----------- -----------
Gross profit 8,594,900 3,930,456 23,684,146 12,790,267
Other selling, general and
administrative expenses 5,081,051 2,270,514 13,352,598 7,483,482
----------- ----------- ----------- -----------
Total operating expenses 5,081,051 2,270,514 13,352,598 7,483,482
------------ ----------- ----------- -----------
Income from operations 3,513,849 1,659,942 10,331,548 5,306,785
Other income (expenses):
Interest income 48,452 265,264 285,658 759,830
Interest expense (621,835) - (1,122,539) -
Other, net (212,330) (34,664) (538,564) (74,680)
----------- ----------- ----------- -----------
Total other income (expenses) (785,713) 230,600 (1,375,445) 685,150
----------- ----------- ----------- -----------
Income before income taxes 2,728,136 1,890,542 8,956,103 5,991,935
Income tax expense 1,189,046 725,700 3,595,110 2,214,605
----------- ----------- ----------- -----------
Net income $ 1,539,090 $ 1,164,842 $ 5,360,993 $ 3,777,330
=========== =========== =========== ===========
Net income per share:
Basic $0.14 $0.10 $0.48 $0.34
=========== =========== =========== ===========
Diluted $0.14 $0.10 $0.47 $0.34
=========== =========== =========== ===========
Net Income $ 3,777,330
Pro forma tax expense adjustment 177,000
-----------
Pro forma net income $ 3,600,330
-----------
Pro forma net income per share:
Basic $ 0.32
===========
Diluted $ 0.32
===========
Weighted average (basic) 11,236,427 11,215,679 11,228,866 11,215,679
=========== =========== =========== ===========
Adjusted weighted average shares
and assumed conversions (diluted) 11,372,332 11,242,173 11,352,185 11,250,221
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended
January 31,
-----------------------------
1998 1997
------------ ------------
(Restated)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,360,993 $ 3,777,330
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation & amortization 4,175,626 165,372
Deferred income taxes (412,261) 1,130
(Increase) decrease in:
Accounts receivable-trade (4,933,338) (1,446,055)
Prepaid expenses (1,842,601) (155,169)
Inventory 389,269 (4,126)
Net investment in direct financing activity 7,304,120 -
Deferred revenue (1,136,381) -
Other assets (105,310) (274,847)
Increase (decrease) in:
Accounts payable-trade (516,459) (107,166)
Accrued federal & state income taxes 1,578,449 24,154
Accrued vacation 158,187 (64,577)
Other accrued expenses 14,248 (5,526)
Accrued & withheld payroll taxes,
insurance, and payroll deductions 184,948 58,147
------------ -----------
Total adjustments 4,858,497 (1,808,663)
------------ -----------
Net cash provided by operating
activities 10,219,490 1,968,667
INVESTING ACTIVITIES
Purchases of fixed assets (5,251,317) (491,213)
Additional purchase price of subsidiaries (2,250,425) -
Purchase of The Partners Group (16,000,000) -
Proceeds from land sale 234,758 -
------------ -----------
Net cash used by investing activity (23,266,984) (491,213)
FINANCING ACTIVITIES
Revolving term loan 16,000,000 -
Payments on revolving term loan (4,275,000) -
Proceeds from loan 729,103 -
Cash dividends paid to Delta Software
Systems, Inc. shareholders prior to merger - (240,000)
Other - (45)
Options exercised 215,956 -
Repayment of capital lease obligations (118,229) -
Proceeds from non-recourse debt 693,517 -
Payment on non-recourse debt (9,369,363) -
Payments on long-term debt (707,655) -
------------ -----------
Net cash provided (used) by financing
activities 3,168,329 (240,045)
------------ -----------
Net increase (decrease) in cash & cash
equivalents (9,879,165) 1,237,409
Cash at beginning of period 11,814,787 19,401,015
------------ -----------
Cash at end of period $ 1,935,622 $20,638,424
============ ===========
Supplemental disclosures of cash flow
information:
Interest paid $ 630,621 $ -
Income taxes paid $ 2,514,248 $ 2,189,321
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
SCB COMPUTER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements (Unaudited)
January 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 three month and nine month periods
ended January 31, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending April 30, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Registrant's Annual Report on Form 10-K for the fiscal year ended April 30,
1997 filed with the Securities and Exchange Commission.
Note B - Change in Capitalization
In September 1997, the Company effected a three for two stock split, in the form
of a 50% stock dividend to shareholders of record at the close of business on
August 20, 1997. All share and per share amounts have been retroactively
restated to reflect the three for two stock split.
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 Nine months ended
January 31, January 31,
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator
Net Income $ 1,539,090 $ 1,164,842 $ 5,360,993 $ 3,770,330
=========== =========== =========== ===========
Net Income $ 3,770,330
Pro Forma Tax Expense 177,000
-----------
Pro Forma Net Income $ 3,600,330
===========
Denominator
Denominator for basic
earnings per share-weighted
averages shares 11,236,247 11,215,679 11,228,866 11,215,679
Effect of dilutive securities-
stock options 135,905 26,494 123,319 34,542
=========== =========== =========== ===========
Denominator for diluted
earnings per share-adjusted
weighted average shares
and assumed conversions 11,372,332 11,242,173 11,352,185 11,250,221
=========== ========== =========== ===========
Basic earnings per share $ .14 $ .10 $ .48 $ .34
=========== ========== =========== ===========
Diluted earnings per share $ .14 $ .10 $ .47 $ .34
=========== ========== =========== ===========
Pro forma net income per share:
Basic $ .32
===========
Diluted $ .32
===========
</TABLE>
7
<PAGE> 8
Note D - Recent Acquisitions
On September 26, 1996 the Company issued 461,536 shares of common stock in a
merger of Delta Software Systems, Inc. ("Delta Software") with and into a wholly
owned subsidiary of the Company. The merger was accounted for as a pooling of
interests. Accordingly, these consolidated financial statements have been
restated for all periods to include the results of operations and financial
position of Delta Software. For purposes of earnings per share computations, the
shares issued in the combination with Delta Software have been treated as
outstanding for all periods. In addition, in connection with the combination,
Delta Software's "S" corporation status for income tax purposes was terminated.
Pro forma information presents the combined pro forma tax expense periods of
Delta Software as if it had been a "C" corporation during the nine months ended
January 31, 1997.
Effective June 30, 1997, the Company purchased all of the issued and outstanding
capital stock of Partners Resources, Inc. ("PRI"). The purchase price was
$9,600,000, of which $8,640,000 was paid in cash to the former PRI shareholders
at closing, and $960,000 of which was delivered to an escrow agent, which amount
will be escrowed for one year in connection with potential indemnification
claims. As additional purchase price, an amount equal to 14 times PRI's net
income for the year ending December 31, 1997, as determined in accordance with
the terms of the PRI Stock Purchase Agreement, will, subject to certain
conditions, be paid to the PRI shareholders on or before May 1, 1998 in cash or
shares of SCB Common Stock.
Also effective June 30, 1997, the Company purchased all of the issued and
outstanding capital stock of Partners Capital Group ("PCG"). The purchase price
was $6,400,000 of which $5,760,000 was paid in cash to the former PCG
shareholders (who were the same persons as the PRI shareholders) at closing, and
$640,000 of which was delivered to an escrow agent, which amount will also be
escrowed for one year in connection with potential indemnification claims.
PRI and PCG have historically operated as affiliated companies and are sometimes
referred to collectively herein as "The Partners Group." PRI is an information
technology services company specializing in outsourcing projects and PCG is a
computer equipment leasing company.
As a result of the acquisition of PCG, the Company now has leasing operations.
The significant balance sheet captions related to the PCG leasing of data
processing equipment are:
Direct Financing Leases. Leases meeting the criteria for capitalization
in accordance with Statement of Financial Accounting Standards Number
13 are classified as direct financing leases. For direct financing
leases, the sum of the minimum lease payments and the unguaranteed
residual value is recorded as the gross investment in the lease. The
difference between the gross investment and the cost of the leased
property is recorded as unearned income. Income is recognized over the
life of the lease using the interest method.
8
<PAGE> 9
Operating Leases. Leases not meeting the criteria for capitalization
are classified as operating leases. For operating leases, lease
payments are recognized as rental revenue on a straight-line basis over
the life of the lease. Depreciation expense on equipment under
operating leases is recorded over the lease term. The amount subject to
depreciation is the total cost of the leased asset less the expected
gross residual value at the end of the lease.
Notes Payable Non-Recourse. To purchase assets leased under direct
financing and operating leases, the Company obtains non-recourse
financing, which is secured by the assigned lease payments and the
underlying leased property. The lender receives payments directly from
the lessee.
The significant balance sheet caption related to the acquisition of PRI is:
Deferred Revenue. The Company records deferred revenue for payments
received from certain customers on service contracts prior to the
performance of services required under the service contract.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenue increased from $15.5 million for the quarter ended January 31, 1997 to
$28.3 million for the quarter ended January 31, 1998, an increase of
approximately 82.5%. Revenue increased from $46.7 million for the first nine
months of fiscal 1997 to $77.8 million for the comparable period for fiscal
1998, an increase of approximately 66.7%. The increases were 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 $3.9 million for the third quarter of fiscal 1997 to
$8.6 million for the third quarter of fiscal 1998, an increase of approximately
118.7%. Gross profit increased from $12.8 million for the first nine months of
fiscal 1997 to $23.7 million for the comparable period for fiscal 1998, an
increase of approximately 85.2%. The increase was primarily attributable to the
increase in revenue over the prior periods. Gross profit margin for the quarter
increased from 25.4% to 30.4%, and gross profit margin for the comparable nine
month periods increased from 27.4% to 30.4%, primarily because of the movement
of the revenue mix to higher margin consulting revenue.
Other selling, general and administrative expenses increased from $2.3 million
in the third quarter of fiscal 1997 to $5.1 million in third quarter of fiscal
1998, an increase of approximately 123.8%.
9
<PAGE> 10
Other selling, general and administrative expenses increased from $7.5 million
for the first nine months of fiscal 1997 to $13.4 million for the comparable
period for fiscal 1998, an increase of approximately 78.4%. As a percent of
revenues other selling, general and administrative expenses increased from 14.7%
in the third quarter of fiscal 1997 to 18.0% for the third quarter of fiscal
1998, and also increased from 16.0% for the first nine months of fiscal 1997 to
17.2% for the comparable period for fiscal 1998. 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.
The increase, as a percentage of revenues, is primarily attributable to the
acquisition of The Partners Group, which has higher selling, general and
administrative costs as a percentage of revenues than the rest of the Company's
operations. Expenses related to the government's investigation into the TVA
billing matter decreased from $148,000 for the third quarter of fiscal 1997 to
$98,000 for the third quarter of fiscal 1998, and also decreased from $836,000
for the first nine months of fiscal 1997 to $235,000 for the comparable period
for fiscal 1998.
Interest income decreased from $265,000 for the third fiscal quarter of 1997 to
$48,000 in the third fiscal quarter of 1998, a decrease of approximately 81.7%.
Interest income decreased from $760,000 for the first nine months of fiscal 1997
to $286,000 for the comparable period for fiscal 1998, a decrease of
approximately 62.4%. The decrease was primarily attributable to the reduction in
the Company's cash and cash equivalents as a result of recent acquisitions.
Interest expense increased from none in the third fiscal quarter of 1997 to
$622,000 in the third fiscal quarter of 1998. Interest expense also increased
from none for the first nine months of fiscal 1997 to $1,123,000 for the
comparable period for fiscal 1998. 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
used in the Company's Arizona data centers. Other expenses, primarily the
amortization of goodwill in connection with the Company's recent acquisitions,
increased from $42,000 for the third quarter of fiscal 1997 to $328,400 in the
third quarter of fiscal 1998, and from $82,000 for the nine months of fiscal
1997 to $539,000 in the comparable period of fiscal 1998.
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 $10,219,000 for the nine months ended January 31, 1998, as
compared to $1,969,000 in the comparable period for fiscal 1997. The cash
provided by operations increased during this period primarily because of
increased profits and net investment in direct financing activities by The
Partners Group.
The Company's working capital decreased from $20,539,000 as of January 31, 1997
to $10,358,000 as of January 31, 1998, primarily due to the use of cash for the
acquisitions of Technology Management Resources, Inc. in February 1997 and The
Partners Group in June 1997. The Company's current ratio at January 31, 1998 was
1.7:1.
10
<PAGE> 11
The Company made capital expenditures during the first nine months of 1998 of
$5.2 million. Such capital expenditures related primarily to the build-up and
equipment purchases associated with the Company's Emerging Technology Centers in
Memphis and Nashville, equipment purchases and other expenses related to making
the Company's regional business units fully operational, and the purchase of
assets relating to new outsourcing contracts. Furniture, fixtures and equipment
also increased during the quarter as a result of the capitalization of certain
equipment leases acquired in the acquisition of The Partners Group.
On July 10, 1997, the Company entered into a credit facility providing for
borrowing of up to $16.0 million (the "Credit Facility"). The Credit Facility
bears interest at LIBOR plus a spread over LIBOR, which varies based on certain
financial ratios. Certain of the Company's existing subsidiaries are
co-borrowers or guarantors under the Credit Facility. All borrowings under the
Credit Facility mature on August 1, 2000. At January 31, 1998, approximately
$11.7 million was outstanding under the Credit Facility, which bore interest at
7.1%. The Company expects to negotiate an increase in amounts available for
borrowing under the Credit Facility in the near future.
The Company believes cash flows from operations and amounts available under the
Credit Facility will be sufficient to 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. Any such
transactions may be financed through borrowings under the Credit Facility, the
issuance of securities (including Common Stock), or a combination of both.
Year 2000
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 such systems are Year 2000 compliant. Accordingly,
SCB does not expect to incur significant costs in order to remedy Year 2000
problems of its own, 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
11
<PAGE> 12
December 15, 1997, and therefore the Company will adopt the new requirements
retroactively in fiscal 1999, which begins on May 1, 1998. Management has not
completed its review of the statement, but does not anticipate that its adoption
will have a significant effect on the Company's annual and interim reporting.
Recent Developments
In connection with the previously announced acquisition of substantially all of
the assets of Technology Management Resources, Inc. (now known as Marino
Holdings, Inc., "Marino") in February 1997, SCB initially agreed to issue Marino
up to $4,000,000 in SCB Common Stock as additional purchase price based on
growth in the acquired business's revenues and earnings for the fiscal years
ending April 30, 1998, 1999, and 2000. Effective December 30, 1997, SCB agreed
to pay Marino $1,200,000 in cash in full and final settlement of any additional
purchase price payments. Also effective as of December 30, 1997, SCB released
the $500,000 escrow amount that was being held to satisfy potential Marino
indemnification obligations and terminated the employment of one of Marino's
shareholders. The $1,200,000 additional purchase price will be treated as
additional goodwill and will be amortized over a period of 30 years from
February 1997.
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 of qualified IT employees; the Company's dependence on key
management personnel; the Company's ability to sustain and manage growth; the
timing and ultimate outcome of the governmental investigations of the Company
and certain members of its management; competition; general economic conditions;
and the like.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The government's investigation into the TVA billing matter is
continuing. In November 1997, the Company reported that Scott Cobb, its
Chairman; Steve White, an Executive Vice President; and their
administrative assistant have received letters notifying them that they
are targets of the investigation. See "Item 3. Legal Proceedings" in
the Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1997 for additional information.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits following the Signature page.
(b) No reports on Form 8-K were filed during the quarter ended January
31, 1998.
13
<PAGE> 14
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: March 16, 1998
-----------------------------------
14
<PAGE> 15
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -------------
<S> <C>
2 Settlement Agreement and Release dated as of December
30, 1997, by and among the Registrant, Technology
Management Resources, Inc. a wholly owned subsidiary of
Registrant, Marino Holdings, Inc., (formerly Technology
Management Resources, Inc.), Thomas R. Marshall and
Thomas V. Ruffino
27 Financial Data Schedule (for the SEC use only)
</TABLE>
15
<PAGE> 1
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release ("Agreement") is made and entered
into this 30th day of December, 1997, by and among SCB Computer Technology,
Inc., a Tennessee corporation ("SCB"), Technology Management Resources, Inc., a
Tennessee corporation and wholly owned subsidiary of SCB (formerly TMR
Acquisition, Inc.) ("TMR"), Marino Holdings, Inc., a Nebraska corporation
(formerly Technology Management Resources, Inc.) ("Marino"), Thomas R. Marshall
("Marshall"), and Thomas V. Ruffino ("Ruffino").
WITNESSETH:
WHEREAS, SCB, Marino, Marshall, Ruffino, and TMR are parties to that
certain Asset Purchase Agreement dated February 28, 1997 (the "Asset Purchase
Agreement");
WHEREAS, SCB, TMR, and Marshall are parties to that certain Employment
Agreement dated February 28, 1997 (the "Employment Agreement");
WHEREAS, the parties hereto desire to modify certain continuing rights
and obligations of the parties under the Asset Purchase Agreement; and
WHEREAS, Marshall desires to resign his employment with TMR and SCB,
TMR, and Marshall desire to terminate the Employment Agreement under the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. (a) On the Effective Date (as defined herein) of this Agreement, SCB
shall pay to Marino $1,200,000.00 by wire transfer of immediately available
funds in full and final satisfaction of all covenants, duties, and obligations
of SCB and TMR, whether arising on, before, or after the date hereof, contained
in the Asset Purchase Agreement, including any and all obligations to pay any
Earnout Consideration (as defined in the Asset Purchase Agreement) pursuant to
Section 1.4 of the Asset Purchase Agreement. The parties hereto acknowledge and
agree that no determination whether Earnout Consideration is due for the fiscal
year ending April 30, 1998 has been made and that the payment referenced in the
preceding sentence is in full satisfaction and discharge of any obligation on
the part of any party to make such determination or pay any Earnout
Consideration for the fiscal year ending April 30, 1998 or thereafter.
(b) Marshall, Ruffino, and Marino, on behalf of themselves, their
heirs, executors, predecessors, successors, and assigns, do release and forever
discharge the SCB Group (as defined herein) of and from all manner of actions,
causes of action, suits, debts, covenants, contracts, controversies, agreements,
promises, claims, and demands, whatsoever, known and unknown, in law or in
equity, which any of Marshall, Ruffino, or Marino ever had, now has, or may have
against any
<PAGE> 2
and all of the SCB Group arising out of or relating to the Asset Purchase
Agreement and the transactions contemplated thereby.
(c) SCB and TMR, on behalf of themselves, their predecessors,
successors, and assigns, release and forever discharge Marshall, Ruffino, and
Marino of and from all manner of actions, causes of action, suits, debts,
covenants, contracts, controversies, agreements, promises, claims, and demands,
whatsoever, known or unknown, in law or in equity, which SCB or TMR ever had,
now has, or may have against Marshall, Ruffino, or Marino arising out of the
Asset Purchase Agreement and the transactions contemplated thereby.
2. (a) Effective immediately, Marshall hereby resigns and voluntarily
terminates his employment and all positions with TMR and all of its affiliates,
and SCB, TMR and Marshall agree that all the obligations of SCB, TMR, and
Marshall set forth in the Employment Agreement shall cease and have no further
force or effect on or after the Effective Date hereof and that the Employment
Agreement will be terminated. The parties further agree that, contemporaneously
with the execution of this Agreement, SCB, TMR, and Marshall shall execute a
Non-Competition Agreement in the form of Exhibit A hereto.
(b) Marshall hereby releases and forever discharges the SCB Group
of and from (i) all manners of action, causes of action, suits, debts,
covenants, contracts, controversies, agreements, promises, claims, and demands,
whatsoever, known and unknown, in law or in equity, which he ever had, now has,
or may have against any and all of the SCB Group arising out of or related to
the Employment Agreement; and (ii) without limiting the generality of the
foregoing, any and all claims against any and all of the SCB Group under any
federal, state, or local law or ordinance, or any administrative regulation
prohibiting employment discrimination and any and all claims based on any legal
restrictions on the SCB Group's right to discipline or to terminate its
employees including, but not limited to, any claim based on any actual or
implied contract of employment. The foregoing release by Marshall specifically
encompasses all claims of employment discrimination based on race, color,
religion, sex, and national origin, or claims of retaliation, as provided under
Title VII of the Civil Rights Act of 1964, as amended, or any Executive Order,
all claims of discrimination based on age under the Age Discrimination in
Employment Act of 1967, as amended, all claims of discrimination based on
handicap or disability under the Americans with Disabilities Act, and all claims
of employment discrimination or retaliation under any state or local statute,
law, or ordinance.
(c) SCB and TMR hereby release and forever discharge Marshall of and
from all manners of action, causes of action, suits, debts, covenants,
contracts, controversies, agreements, promises, claims, and demands, whatsoever,
known and unknown, in law or in equity, which SCB or TMR ever had, now has, or
may have against Marshall arising out of or related to the Employment Agreement.
(d) Marshall and the SCB Group agree that neither will say, write,
or communicate in any manner to any person or entity any information derogatory
about the other, regardless of the
2
<PAGE> 3
truth or falsity of the information. Specifically, but without limitation, the
SCB Group agrees that in response to requests for professional references on
Marshall, the SCB Group will give only a neutral or favorable response, and
Marshall agrees not to discuss matters concerning any of the SCB Group with SCB
Group customers, current or former employees of any of the SCB Group, or persons
or firms who have or are considering instituting a working relationship with any
of the SCB Group, or with whom Marshall has had a relationship on behalf of any
of the SCB Group in the past.
(e) Marshall agrees to cooperate with the SCB Group for a period of two
years following the date hereof and to be available during such period on a
reasonable basis to answer any questions or furnish any information regarding
matters that Marshall handled or of which he has knowledge; provided, that such
cooperation will not interfere with Marshall's ability to seek or hold new
employment.
3. On the Effective Date, the Indemnity and Escrow Agreement, dated
February 28, 1997, by and among SCB, TMR, Boatmen's Trust Company (the "Escrow
Agent"), Marino, Marshall, and Ruffino (the "Escrow Agreement") shall be
terminated and the Escrow Fund established pursuant thereto shall be disbursed
to Marino. The parties hereby agree, contemporaneously with the execution of
this Agreement, to execute joint written instructions, in the form attached
hereto as Exhibit B, authorizing and instructing the Escrow Agent to release the
Escrow Fund to Marino. Such joint written instructions shall be delivered to the
Escrow Agent on the Effective Date.
4. This Agreement does not constitute an admission of any kind by SCB
or TMR that either of them, or any of their predecessors, successors, divisions,
affiliated enterprises, related companies, parent companies, subsidiaries,
affiliates, directors, officers, employees, agents, or attorneys (the "SCB
Group") have violated, or have not been in compliance with, any applicable state
or federal law, order, or resolution, including any rule of law or equity, or of
any contractual term, express or implied. Likewise, without limiting the
foregoing, the parties have agreed that this Agreement does not constitute an
admission of any kind that Marino, or any of its affiliated enterprises, related
companies, agents, or attorneys, Marshall, or Ruffino have violated, or have not
been in compliance with, any applicable state or federal law, order, or
resolution, including any rule of law or equity, or of any contractual term,
express or implied.
5. Marshall acknowledges that he has had a period of twenty-one (21)
days from the date that he received this document in which to consider this
Agreement and that he is being herein advised in writing to consult with his
attorney or other advisor. Each of Marshall, Ruffino, and Marino further state
that each has consulted with his or its respective attorney, that each
understands that this Agreement constitutes a general release, and that each
intends to be bound by the same. Marshall, Ruffino, and Marino acknowledge that,
in considering whether to sign this Agreement, they have not relied upon any
representation or statement, written or oral, not set forth in this Agreement
and that none of them have been threatened or coerced into signing this
Agreement by any official or representative of SCB or TMR. Marino, Marshall, and
Ruffino have each read this Agreement
3
<PAGE> 4
carefully and fully understand the terms and consequences or effect of this
Agreement and voluntarily agree to and accept the terms of this Agreement.
6. Marshall understands that he may revoke this Agreement at any time
during the seven (7) day period beginning from the date of his execution hereof.
This Agreement shall not become effective until such seven (7) day period has
expired (the "Effective Date").
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and date set forth above.
/s/ Thomas R. Marshall
--------------------------------------
Thomas R. Marshall
/s/ Thomas V. Ruffino
--------------------------------------
Thomas V. Ruffino
MARINO HOLDINGS, INC.
By: /s/ Thomas R. Marshall
----------------------------------
Title: President
-------------------------------
SCB COMPUTER TECHNOLOGY, INC.
By: /s/ Gordon Bateman
----------------------------------
Title: Chief Administrative Officer
-------------------------------
TECHNOLOGY MANAGEMENT RESOURCES, INC.
By: /s/ Gordon Bateman
----------------------------------
Title: Secretary
-------------------------------
4
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,935,622
<SECURITIES> 0
<RECEIVABLES> 19,200,842
<ALLOWANCES> (8,891)
<INVENTORY> 436,853
<CURRENT-ASSETS> 24,291,261
<PP&E> 18,764,734
<DEPRECIATION> 5,105,893
<TOTAL-ASSETS> 88,799,282
<CURRENT-LIABILITIES> 13,933,175
<BONDS> 0
0
0
<COMMON> 112,296
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 88,799,282
<SALES> 28,275,210
<TOTAL-REVENUES> 28,275,210
<CGS> 19,680,310
<TOTAL-COSTS> 19,680,310
<OTHER-EXPENSES> 785,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 621,835
<INCOME-PRETAX> 2,728,136
<INCOME-TAX> 1,189,046
<INCOME-CONTINUING> 1,539,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,539,090
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
