SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1995
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______ .
0-11521
(Commission File Number)
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1701520
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Great Valley Corporate Center
4 Country View Road
Malvern, Pennsylvania 19355
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 647-5930
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 / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
14,061,362 Common shares, $.01 par value, as of February 5, 1996
Page 1 of 14 consecutively numbered pages
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I, FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1995 and September 30, 1995
Condensed Consolidated Statements of Operations -
Three Months Ended December 31, 1995 and 1994
Condensed Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Operations and Financial Condition
PART II, OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 1995
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and marketable securities $ 8,641,000 $ 15,312,000
Receivables, including $49,980,000
and $46,746,000 of earned revenues
in excess of billings, net of
allowance for doubtful accounts
of $1,010,000 and $1,003,000 74,378,000 70,270,000
Prepaid expenses and other receivables 9,915,000 9,994,000
------------ ------------
TOTAL CURRENT ASSETS 92,934,000 95,576,000
PROPERTY AND EQUIPMENT--net of
accumulated depreciation 31,520,000 30,135,000
CAPITALIZED COMPUTER SOFTWARE COSTS,
net of accumulated amortization 6,929,000 5,532,000
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, net of accumulated
amortization 8,700,000 8,754,000
OTHER ASSETS AND DEFERRED CHARGES 11,469,000 10,986,000
------------ ------------
TOTAL ASSETS $151,552,000 $150,983,000
============ ============
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1995 1995
(UNAUDITED) (NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,287,000 $ 5,234,000
Current portion of long-term debt 100,000 100,000
Income taxes payable 325,000 167,000
Accrued expenses 12,496,000 12,065,000
Deferred revenue 12,922,000 14,455,000
------------ ------------
TOTAL CURRENT LIABILITIES 30,130,000 32,021,000
LONG-TERM DEBT, less current portion 31,690,000 31,790,000
DEFERRED TAXES 1,706,000 1,607,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share--authorized 3,000,000 shares,
none issued
Common stock, par value $.01 per share--
authorized 24,000,000 shares, issued
15,209,977 and 15,159,804 shares 152,000 152,000
Capital in excess of par value 58,632,000 58,442,000
Retained earnings 32,831,000 30,568,000
------------ ------------
91,615,000 89,162,000
Less
Held in treasury, 1,150,941 common
shares--at cost (2,959,000) (2,959,000)
Unearned compensation (20,000) (28,000)
Notes receivable from stockholders (610,000) (610,000)
------------ ------------
88,026,000 85,565,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $151,552,000 $150,983,000
============ ============
Note: The condensed consolidated balance sheet at September 30, 1995 has
been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
December 31,
1995 1994
Revenues:
OnSite services $18,042,000 $15,753,000
Software and hardware sales and services 19,831,000 14,725,000
Maintenance and enhancements 9,810,000 8,258,000
Interest and other revenue 136,000 463,000
----------- -----------
47,819,000 39,199,000
Expenses:
Cost of OnSite services 13,934,000 11,974,000
Cost of software and hardware sales and
services and maintenance and enhancements 16,991,000 12,132,000
Selling, general and administrative 12,478,000 9,863,000
Interest expense 543,000 624,000
----------- -----------
43,946,000 34,593,000
Income before income taxes 3,873,000 4,606,000
Provision for income taxes 1,610,000 1,635,000
----------- -----------
Net Income $ 2,263,000 $ 2,971,000
=========== ===========
Per common share:
Net income
Primary $ 0.15 $ 0.22
Fully diluted $ 0.15 $ 0.21
Common shares and equivalents outstanding
Primary 15,124,101 13,650,439
Fully diluted 17,284,417 15,950,439
See notes to condensed consolidated financial statements.
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
December 31,
1995 1994
OPERATING ACTIVITIES
Net income $ 2,263,000 $ 2,971,000
Adjustments to reconcile net income to
net cash (used in) operating activities:
Depreciation and amortization 2,235,000 2,026,000
Changes in operating assets and
liabilities:
(Increase) in receivables (4,268,000) (2,092,000)
Decrease (increase) in other
current assets 79,000 (1,432,000)
Increase (decrease) in other accrued
expenses and liabilities 431,000 (1,337,000)
(Decrease) in deferred revenue (1,533,000) (1,921,000)
Other, net (1,714,000) (874,000)
------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES (2,507,000) (2,659,000)
INVESTING ACTIVITIES
Purchase of property and equipment (2,539,000) (1,038,000)
Capitalized computer software costs (1,615,000) (432,000)
Proceeds from sale or maturity of
investments available for sale 7,003,000 5,082,000
Purchase of investments available for sale 0 (2,228,000)
Purchase of subsidiary assets, net of
cash acquired (97,000) (400,000)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,752,000 984,000
FINANCING ACTIVITIES
Principal payments on long-term debt (100,000) 0
Proceeds from exercise of stock options 188,000 314,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 88,000 314,000
INCREASE(DECREASE) IN CASH & CASH EQUIVALENTS 333,000 (1,361,000)
CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 1,602,000 7,685,000
------------ ------------
CASH & CASH EQUIVALENTS-END OF PERIOD $ 1,935,000 $ 6,324,000
============ ============
See notes to condensed consolidated financial statements.
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1995
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 1O-Q and Rule
10-01 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 only of normal recurring accruals) considered
necessary for a fair presentation have been included. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1995. Operating results for the three month period ended
December 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1996.
NOTE A--RECLASSIFICATION
Certain prior year information has been reclassified to conform with current
year format.
NOTE B--CASH AND SHORT-TERM INVESTMENTS
Dec. 31, 1995 Sep. 30, 1995
Cash and cash equivalents $ 1,935,000 $ 1,602,000
Marketable securities, plus accrued
interest of $68,000 and $230,000 6,706,000 13,710,000
----------- -----------
Cash and marketable securities $ 8,641,000 $15,312,000
=========== ===========
Cash equivalents--Cash equivalents are defined as short-term highly liquid
investments with a maturity of three months or less at the date of purchase.
Securities available-for-sale--Marketable equity and debt securities are
classified as available-for-sale. The available-for-sale portfolio
represents highly liquid investments available for current operations and,
accordingly, is classified as current assets.
NOTE C--EARNINGS PER COMMON SHARE
Primary income per share is computed based on the weighted average number of
common shares outstanding, plus, to the extent dilutive, common stock
equivalents. If the inclusion of common stock equivalents has an
anti-dilutive effect in the aggregate, they are excluded from the income per
share calculation. Fully diluted income per share is based on an increased
number of shares that would be outstanding assuming the exercise of stock
options when the Company's stock price at the end of the period is higher than
the average stock price within the respective period, plus the increased
number of shares that would be outstanding, assuming conversion of the 6 1/4%
convertible subordinated debentures. Net income used in the calculation of
fully diluted income per share has been adjusted for interest expense (net of
tax) on the convertible subordinated debentures.
NOTE D--FOREIGN CURRENCY TRANSLATION
On October 1, 1995, the Company changed the functional currency of its foreign
subsidiary, SCT International Limited, from the U.S. dollar to the local
currency of the subsidiary, the Pound Sterling. The move to the Pound
Sterling was in recognition of the growth of and changes in the nature
of the business of the subsidiary, which was established in fiscal year 1994.
The subsidiary has become a self-sufficient unit and has recently established
its headquarters in Basingstoke, Hampshire and, additionally established a
European Product Support Center in Manchester. Additionally, the subsidiary
recently renegotiated its primary contract so that all contracts are now
denominated in the Pound Sterling.
The financial position and results of operations of the Company's foreign
subsidiary are measured using the local currency as the functional currency.
Assets and liabilities of this subsidiary are translated at the exchange rate
in effect at the end of the period. Income statement accounts are translated
at the average rate of exchange prevailing during the period. Translation
adjustments arising from differences in exchange rates from period to period
are included in the cumulative foreign currency translation adjustments
account (CTA) in stockholders' equity. Also included in the CTA are the
effects of exchange rate changes on intercompany transactions of a long-term
investment nature. Gains and losses resulting from the effect of exchange
rate changes on foreign currency transactions are included in income
currently.
The effect of this change in functional currency and the resulting
translation adjustment are immaterial to the equity of the Company at
December 31, 1995 and to the results of operations for the quarter then
ended.
NOTE E--OTHER
Product development expenses (which are included in cost of software and
hardware sales and services and maintenance and enhancements) not capitalized
aggregated $2,833,000 and $2,283,000 in the three month periods ended December
31, 1995 and 1994, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth: (a) certain income statement items as a
percentage of total revenues and (b) for revenues, the percentage change for
each item from the prior year comparative period.
% of Total Revenues % Change from
Prior Year
Three Months Ended
December 31,
1995 1994
Revenues:
OnSite services 38% 40% 14%
Software and hardware sales and services 42% 38% 35%
Maintenance and enhancements 20% 21% 19%
Interest and other revenue 0% 1% (71)%
---- ---- -----
Total 100% 100% 22%
Expenses:
Cost of services, sales and maintenance
and enhancements 65% 61% 28%
Selling, general and administrative 26% 25% 26%
Interest expense 1% 2% (13)%
Income before income taxes 8% 12% (16)%
The following table sets forth the gross profit for each of the following
revenue categories as a percentage of revenue for each such category and the
total gross profit as a percentage of total revenue (excluding interest and
other revenue). The Company does not separately present the cost of
maintenance and enhancements revenue as it is impracticable to separate such
cost from the cost of software and hardware sales and services.
Three Months Ended
December 31,
1995 1994
Gross Profit
OnSite services 23% 24%
Software and hardware sales and services
and maintenance and enhancements 43% 47%
--- ---
Total 35% 38%
Revenues
The 14% increase in OnSite services revenues in the first quarter of fiscal
year 1996 was primarily the result of a five-year agreement with Continental
Cablevision, Inc., which commenced in January 1995 and expanded
throughout the year. The Company signed an agreement with the City
of Indianapolis/Marion County in December 1995. This agreement could result
in annual revenues of up to $11.5 million for up to seven years. The City
may cancel the agreement after three years, provided the Company is given six
months notice and a termination fee.
The 35% increase in software and hardware sales and services revenues in the
first quarter of fiscal year 1996 is primarily attributable to the growth of
systems integration services provided to the international utilities market
and to the licenses of Adage Enterprise Resource Planning software. Adage,
which is marketed by the SCT Manufacturing and Distribution Systems division
of SCT, was acquired in June 1995. These increases were off-set by
decreases, compared to the prior year period, in software licenses in the
utility market.
The 19% increase in maintenance and enhancements revenues in the first quarter
of fiscal year 1996 is the result of continued high annual renewal rates and
the growing installed base of clients primarily in the higher education
market.
The first quarter 1996 pre-tax income was less than the prior year period
as a result of several factors. These factors included a slippage of
software license fees in the higher education market, decreased new licenses
in the utility market, and increased costs in the utility business
related to product development. The Company has embarked on an aggressive
program to invest in its manufacturing and distribution business. With this
ongoing level of expenditures, variances in new licenses could impact the
Company's results of operations.
Gross Profit
The decrease in total gross profit as a percentage of total revenue (excluding
interest and other revenue) from 38% to 35% for the first quarter of fiscal
year 1996 resulted from a change in revenue mix from the first quarter of
fiscal year 1995 and increased expenditures in the utility business. The
percentage of software services revenues to the international utilities
market included in software and hardware sales and services revenue increased
relative to license fees during the period. The Company is increasing its
focus on software services revenue, which may result in a decreased profit
margin versus a revenue mix with a higher percentage of license fees. The
cost of software and hardware sales and services increased as a result of
the Company's increased expenditures in the utility business to enhance its
software to a more stable and robust product to serve a broader range of
customers.
Income Taxes
The first quarter 1996 provision for income taxes reflects the impact of the
research and development tax credit which expired June 30, 1995 and has not
yet been reenacted.
Seasonality
Certain factors have resulted in quarterly fluctuations in operating results,
including variability of software license fee revenues, seasonal patterns of
capital spending by clients, the timing and receipt of orders, competition,
pricing, new product introductions by the Company or its competitors, levels
of market acceptance for new products, and general economic and political
conditions. While the Company has historically generated a greater portion of
license fees in total revenue in the last two fiscal quarters, the
non-seasonal factors cited above may have a greater effect than seasonality on
the Company's results of operations.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
The Company's cash and short-term investments balance was $8.6 million and
$15.3 million at December 31, 1995 and September 30, 1995, respectively. The
short-term investment portfolio is classified as available-for-sale and is
derived from continuing operations and the September 1993 convertible
debenture offering. Uses of cash during the first quarter of fiscal
year 1996 included investment in the new manufacturing and distribution
business infrastructure, spending on new product development and new facility
improvement. The Company has outstanding $31.3 million of convertible
subordinated debentures bearing interest at 6 1/4% and maturing on September
1, 2003. The debentures are convertible into common stock of the Company any
time prior to redemption or maturity at a conversion price of $15 per share.
The debentures are redeemable at any time after September 10, 1996 at prices
decreasing from 104.2 % of the principal amount at September 1, 1996, to par
on September 1, 2002.
The Company has a $20 million senior revolving credit facility, available for
general corporate purposes which expires in June 1996 with optional annual
extensions. At December 31, 1995 there were no borrowings outstanding. As
long as borrowings are outstanding and as a condition precedent to new
borrowings, the Company must comply with certain covenants, and the Company is
prohibited from paying any dividends other than stock dividends.
The Company believes that its cash and cash equivalents, short-term
investments, and borrowing arrangements, together with net cash provided by
operations, should satisfy its working capital needs and capital expenditure
requirements for the foreseeable future.
Foreign Operations
On October 1, 1995, The Company changed the functional currency of its
foreign subsidiary, SCT International Limited, from the U.S. dollar to the
local currency, the Pound Sterling. The net assets of SCT International
Limited are approximately $10.0 million at December 31, 1995. The Company
does not believe its foreign currency exposure is significant and analyzes
the need to hedge the exposure on an ongoing basis.
Contingencies
A purported class action complaint was filed against the Company and certain
of its officers and directors on October 4, 1995. The plaintiff filed an
amended complaint on November 28, 1995. The amended complaint alleges
violations of certain disclosure and related provisions of the Federal
Securities Laws. The amended complaint seeks damages in unspecified amounts
as well as equitable relief. Management believes the amended complaint is
without merit and intends to contest the allegations vigorously. While
management of the Company, based on its investigation to date, believes that
resolution of this action will not have a materially adverse effect on the
Company's consolidated financial position, the ultimate outcome of this matter
cannot presently be determined.
Numerous factors could affect the Company's future operating results,
including general economic conditions, continued market acceptance of the
Company's products and services, the timing of contract signings and
renewals, and competitive pressures.
The Company's ability to sustain growth depends in part on the timely
development or acquisition of successful new and updated products. The
Company is investing in the development of new products and in improvements to
existing products; however, software development is a complex and creative
process that can be difficult to accurately schedule and predict.
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
On October 4, 1995, John J. Wallace filed a purported class action lawsuit in
the United States District Court for the Eastern District of Pennsylvania
against the Company, Michael J. Emmi, Chairman of the Board, President and
Chief Executive Officer of the Company, Michael D. Chamberlain, Senior Vice
President and a director of the Company and Eric Haskell, Senior Vice
President, Finance and Administration, Treasurer and Chief Financial Officer
of the Company. The plaintiff filed an amended complaint on November 28,
1995. The amended complaint alleges that the defendants violated sections 10
(b) and 20 (a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder by making misstatements and omissions regarding the
Company's financial performance in the second half of fiscal year 1995. The
class period alleged is from June 5, 1995 through October 2, 1995. The
amended complaint seeks damages in unspecified amounts as well as equitable
relief. Management believes the amended complaint is without merit and
intends to contest the allegations vigorously. While management, based on its
investigation to date, believes that resolution of this action will not have a
materially adverse effect on the Company's consolidated financial position,
the ultimate outcome of this matter cannot be presently determined.
Item 6(b). Reports on Form 8-K
The registrant did not file any current reports on Form 8-K during the three
months ended December 31, 1995.
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Registrant)
Date: 02/14/96 /s/
________________________________
Eric Haskell
Senior Vice President, Finance and Administration,
Treasurer and Chief Financial Officer
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
Three months ended
Dec. 31, 1995 Dec. 31, 1994
PRIMARY
Average shares outstanding 14,050,674 12,458,579
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 1,073,427 1,191,860
----------- -----------
Total 15,124,101 13,650,439
=========== ===========
Net income $ 2,263,000 $ 2,971,000
=========== ===========
Net income per share $0.15 $0.22
===== =====
FULLY DILUTED
Average shares outstanding 14,050,674 12,458,579
Net effect of dilutive stock options--
based on the treasury stock method
using the end of period market price,
if higher than average market price 1,148,743 1,191,860
Assumed conversion of 6 1/4 % convertible
subordinated debentures 2,085,000 2,300,000
----------- -----------
Total 17,284,417 15,950,439
=========== ===========
Net Income $ 2,263,000 $ 2,971,000
Add 6 1/4 % convertible subordinated
debenture interest, net of income
tax effect 308,000 374,000
----------- -----------
Net income, as adjusted $ 2,571,000 $ 3,345,000
=========== ===========
Net income per share $0.15 $0.21
===== =====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
December 31, 1995 financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000707606
<NAME> SYSTEMS & COMPUTER TECHNOLOGY CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 8,641,000
<SECURITIES> 0
<RECEIVABLES> 75,388,000
<ALLOWANCES> 1,010,000
<INVENTORY> 0
<CURRENT-ASSETS> 92,934,000
<PP&E> 46,485,000
<DEPRECIATION> 16,186,000
<TOTAL-ASSETS> 151,552,000
<CURRENT-LIABILITIES> 30,130,000
<BONDS> 31,690,000
0
0
<COMMON> 152,000
<OTHER-SE> 87,874,000
<TOTAL-LIABILITY-AND-EQUITY> 151,552,000
<SALES> 47,683,000
<TOTAL-REVENUES> 47,819,000
<CGS> 30,925,000
<TOTAL-COSTS> 43,403,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 543,000
<INCOME-PRETAX> 3,873,000
<INCOME-TAX> 1,610,000
<INCOME-CONTINUING> 2,263,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,263,000
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
