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EXHIBIT 20
SCB COMPUTER TECHNOLOGY, INC.
Contacts: T. Scott Cobb Michael J. Boling, CPA
Chief Executive Officer Executive Vice President - Finance
901-754-6577 and Chief Financial Officer
901-754-6577
SCB COMPUTER TECHNOLOGY, INC. ANNOUNCES
RESTATEMENT OF PRIOR FINANCIAL STATEMENTS,
FOURTH QUARTER AND FISCAL 2000 RESULTS,
APPOINTMENT OF INDEPENDENT AUDITORS, AND
UPDATED OPERATIONAL INFORMATION
MEMPHIS, Tenn. (July 3, 2000) - SCB Computer Technology, Inc.
(Nasdaq:SCBI,SCB) today announced that it will restate its financial statements
for fiscal 1998 and 1999 and the first three quarters of fiscal 2000. SCB also
provided guidance on its results for the fourth quarter of fiscal 2000 and for
the entire fiscal year, and announced that it has retained BDO Seidman LLP to
audit SCB's financial statements for fiscal 2000. In addition, SCB provided
updated information with respect to contract awards and a planned service that
were previously disclosed in fiscal 2000.
RESTATEMENT OF PRIOR FINANCIAL STATEMENTS
SCB's restated financial statements for fiscal 1998 and 1999 and the first
three quarters of fiscal 2000 will contain adjustments that fall into three
categories.
The first category of adjustments to SCB's financial statements arises
from the internal investigation conducted by the audit committee of SCB's board
of directors into the concerns raised by five employees on March 27, 2000,
regarding SCB's accounting treatment of certain matters. SCB initially disclosed
the audit committee's investigation in a press release issued on April 14, 2000.
The resulting adjustments relate to the accounting treatment of bonuses paid to
two employees, the correction of a contractual billing error, the sale of a
partial interest in a computer equipment lease, an outsourcing contract assumed
as part of an acquisition, the sale of residual interests in computer equipment
lease schedules, and the purchase of the assets of a computer equipment
reseller. Based on the results of the audit committee's investigation, SCB has
determined that it will restate its financial statements for fiscal 1998 and
1999 and the first three quarters of fiscal 2000 to account for these
adjustments.
The second category of adjustments to SCB's financial statements is the
result of SCB's internal review of financial information. The resulting
adjustments to SCB's financial statements relate to accounting matters
principally involving the timing of revenue recognition and expense accruals.
SCB has decided to make these adjustments in connection with the restatement of
its financial statements for fiscal 1998 and 1999 and the first three quarters
of fiscal 2000.
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The third category of adjustments to SCB's financial statements consists
of adjustments identified during the fiscal 1998 and 1999 audits which SCB
elected not to record in those periods on the basis of immateriality. SCB
subsequently recorded these adjustments in the third quarter of fiscal 2000, and
is now placing them in the fiscal periods to which they specifically relate. SCB
has elected to make these adjustments in connection with the restatement of its
financial statements.
The accompanying Adjustments to Financial Statements schedule shows the
net impact of all these adjustments on SCB's previously reported net income for
fiscal 1998 and 1999 and the first three quarters of fiscal 2000. The
information in the schedule is set forth on a per-category and aggregate basis.
The net impact of all adjustments on SCB's net income is a 20% decrease, a 76%
decrease, and a 191% increase compared to SCB's previously reported net income
for fiscal 1998, fiscal 1999, and the first three quarters of fiscal 2000,
respectively. On a per-share (diluted) basis, the net impact of all adjustments
on SCB's net income is a decrease of $0.07 from $0.34 to $0.27 for fiscal 1998,
a decrease of $0.14 from $0.18 to $0.04 for fiscal 1999, and an increase of
$0.02 from ($0.01) to $0.01 for the first three quarters of fiscal 2000.
SCB has begun the process of preparing amended quarterly and annual
reports containing the restated financial statements for fiscal 1998 and 1999
and the first three quarters of fiscal 2000. SCB intends to file these amended
reports with the Securities and Exchange Commission as soon as practicable.
FOURTH QUARTER AND FISCAL 2000 RESULTS
SCB expects to report a net loss for the fourth quarter of fiscal 2000 in
the range of $0.22 to $0.29 per share, and a net loss for fiscal 2000 in the
range of $0.21 to $0.28 per share. SCB's earnings were impacted negatively
during the fourth quarter of fiscal 2000 by the costs associated with the audit
committee's internal investigation, a slowdown in SCB's enterprise resource
planning business, greater than normal non-billable time between projects and
lower billing rates in SCB's professional services business, and an increase in
the allowance for doubtful accounts arising from four clients. SCB expects to
report its audited results for fiscal 2000 by the middle of August 2000.
APPOINTMENT OF INDEPENDENT AUDITORS
SCB has retained BDO Seidman, LLP ("BDO") to audit SCB's financial
statements for fiscal 2000. BDO expects to begin the fiscal 2000 audit this
week.
Ernst & Young LLP ("E&Y") served as SCB's auditor from fiscal 1996 until
its resignation on April 10, 2000, which SCB disclosed in a press release issued
on April 14, 2000. Although it resigned as SCB's auditor, E&Y assisted SCB's
audit committee in reviewing the accounting issues raised in its investigation
and agreed to perform additional audit procedures in connection with its audit
of SCB's restated financial statements for fiscal 1998 and 1999. E&Y has
completed substantially all of its extended audit procedures for these periods.
While additional audit procedures remain to be performed, E&Y has informed SCB
that, based on the results of the audit committee's investigation and the
extended audit procedures conducted to date, nothing has come to its attention
that would prevent E&Y from reporting on SCB's restated financial statements for
fiscal 1998 and 1999.
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UPDATED OPERATIONAL INFORMATION
SCB is providing updated information regarding two operational matters
that were previously disclosed by SCB in press releases issued during fiscal
2000. These matters were reviewed by SCB's audit committee as part of its
investigation.
The first operational matter concerns a press release issued by SCB on
January 20, 2000, which announced the awarding to SCB of four contracts worth
$50 million. With respect to the information contained in that press release,
SCB announces that -
- SCB's contract with the Arkansas Department of Information Systems ("ADIS")
is one of five contracts awarded to different vendors chosen by ADIS to
perform professional services. ADIS has an overall authorized budget of
$26.3 million for these services, and each vendor's contract provides for
maximum compensation in this amount. The contracts contemplate that the
vendors will offer to provide ADIS with professionals in various job
classifications, and that ADIS will make awards for each job classification
on a competitive basis. It is doubtful that SCB or any other vendor will
perform all of the services or will receive the full amount of authorized
compensation.
- SCB's contract award from a major state university, which had an estimated
value of approximately $10 million, was subsequently cancelled when an
unsuccessful bidder filed a protest apparently relating to the university's
bid procedures. The university is in the process of re-evaluating all
potential vendors' bids for the project (including SCB's bid) and has not
yet selected the winning bid or awarded the contract. In the meantime, SCB
has entered into an interim contract with the university pursuant to which
SCB is performing the services contemplated in the previous contract award
on a temporary basis until the university completes the bid re-evaluation
process and makes another contract award.
- SCB's contract with a major telecommunications company provides that SCB
will perform professional services pursuant to specific purchase orders to
be issued by the customer in the future. While the contract does not
specify the total amount of compensation payable to SCB for its services,
SCB initially believed that the contract would generate $10 million in
revenue for SCB during its three-year term. SCB to date has performed only
a nominal amount of services under the contract, and it is doubtful that
SCB will receive the full amount of compensation originally anticipated.
- SCB's contract with the Mississippi Department of Education ("MDOE")
provides that SCB will perform professional services for MDOE over a
three-year period. The maximum amount of compensation payable to SCB for
its services under the contract is approximately $3.2 million. SCB's
performance under this contract is ongoing.
The second operational matter relates to press releases issued by SCB on
May 26, 1999, and November 16, 1999, announcing SCB's development of a new
service to be offered to customers that initially was referred to as Enterprise
Management Services ("EMS") and later was renamed NetCardia(R). With respect to
the information contained in those press releases, SCB announces that it
recently ended its efforts to fully develop and implement NetCardia(R) for
commercial applications and, as a consequence, does not anticipate receiving any
revenue from this service.
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MESSAGE FROM CHIEF EXECUTIVE OFFICER
Commenting on the announcement, T. Scott Cobb, SCB's Chief Executive
Officer, said, "I sincerely appreciate the thorough, straightforward manner in
which SCB's audit committee conducted its investigation. By taking the actions
described in this press release, SCB is squarely addressing the issues that have
been raised." Cobb added, "I also am pleased with the progress that Mike Boling,
our new Chief Financial Officer, is making in consolidating and restructuring
the accounting functions of SCB's various operating units under the direction
and control of the corporate accounting department in Memphis." Cobb concluded,
"SCB's business remains fundamentally sound, and we are endeavoring to return
SCB to profitability by re-focusing our efforts on our core business
competencies."
Certain statements contained in this press release and related statements
by management of SCB may be deemed to be forward-looking statements. These
forward-looking statements involve a number of risks and uncertainties,
including those relating to SCB's future operations and results and the other
risks and uncertainties described in SCB's filings with the Securities and
Exchange Commission. SCB undertakes no obligation to update this forward-looking
information except as required by law.
SCB Computer Technology, Inc., is a leading provider of information
technology management and technical services to Fortune 1000 companies, state
and local governments, and other large organizations.
# # #
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SCB COMPUTER TECHNOLOGY, INC.
ADJUSTMENTS TO FINANCIAL STATEMENTS
(UNAUDITED)
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FISCAL QUARTER ENDED
DESCRIPTION JUL-97 OCT-97 JAN-98 APR-98 FY-98
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<S> <C> <C> <C> <C> <C>
1. Adjustments resulting from SCB audit
committee's investigation $ 18,475 $ 52,430 $ 47,858 $(1,860,595) $(1,741,832)
2. Adjustments resulting from SCB's internal
review -81,404 -611,391 -699,080 837,109 -554,766
3. Unrecorded audit adjustments for
fiscal 1998 and 1999 -16,625 -16,625 -16,625 -164,625 -214,500
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Pretax net impact -79,554 -575,586 -667,847 -1,188,111 -2,511,098
Income tax effect 31,822 230,234 267,139 475,244 1,004,439
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Increase (decrease) in net income -47,732 -345,352 -400,708 -712,867 -1,506,659
Net income as reported 1,788,441 2,018,635 1,539,090 2,245,950 7,592,116
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Adjusted net income $ 1,740,709 $ 1,673,283 $ 1,138,382 $ 1,533,083 $ 6,085,457
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Percentage change in net income -2.67% -17.11% -26.04% -31.74% -19.85%
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Repoted Net Income (Loss) per share - Diluted $ 0.08 $ 0.09 $ 0.07 $ 0.10 $ 0.34
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Adjusted Net Income (Loss) per share - Diluted $ 0.08 $ 0.07 $ 0.05 $ 0.07 $ 0.27
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Change in net income (loss) per share - Diluted $ (0.00) $ (0.02) $ (0.02) $ (0.03) $ (0.07)
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Weighted average number of common
shares - Diluted 22,634,148 22,734,298 22,744,304 22,911,445 22,756,000
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FISCAL QUARTER ENDED
DESCRIPTION JUL-98 OCT-98 JAN-99 APR-99 FY-99
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<S> <C> <C> <C> <C> <C>
1. Adjustments resulting from SCB audit
committee's investigation $ (80,848) $ (60,462) $(1,700,757) $(1,527,798) $(3,369,865)
2. Adjustments resulting from SCB's internal
review -861,571 11,322 -133,770 -739,634 -1,723,653
3. Unrecorded audit adjustments for
fiscal 1998 and 1999 118,375 -226,625 -16,625 -391,625 -516,500
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Pretax net impact -824,044 -275,765 -1,851,152 -2,659,057 -5,610,018
Income tax effect 329,618 110,306 740,451 1,063,623 2,244,007
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Increase (decrease) in net income -494,426 -165,459 -1,110,691 -1,595,434 -3,366,011
Net income as reported 896,267 2,150,620 2,257,175 -864,744 4,439,318
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Adjusted net income $ 401,841 $ 1,985,161 $ 1,146,484 $(2,460,178) $ 1,073,307
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Percentage change in net income -55.17% -7.69% -49.21% -184.50% -75.82%
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Repoted Net Income (Loss) per share - Diluted $ 0.04 $ 0.09 $ 0.09 $ (0.03) $ 0.18
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Adjusted Net Income (Loss) per share - Diluted $ 0.02 $ 0.08 $ 0.05 $ (0.10) $ 0.04
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Change in net income (loss) per share - Diluted $ (0.02) $ (0.01) $ (0.04) $ (0.06) $ (0.14)
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Weighted average number of common
shares - Diluted 25,114,168 24,844,604 24,918,710 24,709,965 24,921,000
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FISCAL QUARTER ENDED
DESCRIPTION JUL-99 OCT-99 JAN-00 FYTD-00
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<S> <C> <C> <C> <C>
1. Adjustments resulting from SCB audit
committee's investigation $ (252,596) $ 141,220 $ 303,470 $ 192,095
2. Adjustments resulting from SCB's internal
review 354,139 19,452 45,977 419,568
3. Unrecorded audit adjustments for
fiscal 1998 and 1999 209,375 -16,625 338,250 531,000
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Pretax net impact 310,918 144,047 687,697 1,142,663
Income tax effect -124,367 -57,619 -275,079 -457,065
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Increase (decrease) in net income 186,551 86,428 412,618 685,598
Net income as reported 2,199,474 1,395,754 -3,954,104 -358,876
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Adjusted net income $ 2,386,025 $ 1,482,182 $(3,541,486) $ 326,722
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Percentage change in net income 8.48% 6.19% 10.44% 191.04%
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Repoted Net Income (Loss) per share - Diluted $ 0.09 $ 0.06 $ (0.16) $ (0.01)
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Adjusted Net Income (Loss) per share - Diluted $ 0.10 $ 0.06 $ (0.14) $ 0.01
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Change in net income (loss) per share - Diluted $ 0.01 $ 0.00 $ 0.02 $ 0.02
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Weighted average number of common
shares - Diluted 24,711,924 24,711,924 24,711,924 24,711,807
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