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 March 31, 1997
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______ .
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.
14,309,632 Common shares, $.01 par value, as of May 9, 1997
Page 1 of 17 consecutively numbered pages
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I, UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1997 and September 30, 1996
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996
Condensed Consolidated Statements of Operations -
Six Months Ended March 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 1997 and 1996
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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
March 31, September 30,
1997 1996
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,759 $ 12,303
Receivables, including $60,099
and $51,382 of earned revenues
in excess of billings, net of
allowance for doubtful accounts
of $1,867 and $1,590 91,152 77,161
Prepaid expenses and other receivables 11,639 10,208
-------- --------
TOTAL CURRENT ASSETS 108,550 99,672
PROPERTY AND EQUIPMENT--net of
accumulated depreciation 36,719 35,222
CAPITALIZED COMPUTER SOFTWARE COSTS,
net of accumulated amortization 12,509 10,510
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, net of accumulated
amortization 8,430 8,740
OTHER ASSETS AND DEFERRED CHARGES 8,132 9,115
-------- --------
TOTAL ASSETS $174,340 $163,259
======== ========
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
March 31, September 30,
1997 1996
(UNAUDITED) (NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,689 $ 6,674
Current portion of long-term debt 1,145 200
Income taxes payable 387 398
Accrued expenses 18,968 12,358
Deferred revenue 9,727 12,653
-------- --------
TOTAL CURRENT LIABILITIES 36,916 32,283
LONG-TERM DEBT, less current portion 28,045 31,590
DEFERRED TAXES AND OTHER
LONG-TERM LIABILITIES 2,733 2,590
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
15,443,904 and 15,244,865 shares 154 152
Capital in excess of par value 62,264 60,526
Retained earnings 47,797 39,687
-------- --------
110,215 100,365
Less
Held in treasury, 1,150,941 common
shares--at cost (2,959) (2,959)
Notes receivable from stockholders (610) (610)
-------- --------
106,646 96,796
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $174,340 $163,259
======== ========
Note: The condensed consolidated balance sheet at September 30, 1996 has
been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share amounts)
For the Three Months Ended
March 31,
1997 1996
Revenues:
OnSite services $23,905 $21,969
Software sales 15,364 10,679
Maintenance and enhancements 13,390 10,568
Software services 14,608 9,326
Interest and other revenue 118 214
------- -------
67,385 52,756
Expenses:
Cost of OnSite services 19,469 17,862
Cost of software sales and
maintenance and enhancements 11,131 9,908
Cost of software services 11,880 9,059
Selling, general and administrative 16,622 14,017
Interest expense 540 544
------- -------
59,642 51,390
Income before income taxes 7,743 1,366
Provision for income taxes 3,175 600
------- -------
Net Income $ 4,568 $ 766
======= =======
Per common share:
Net income
Primary $ 0.31 $ 0.05
Fully diluted $ 0.29 $ 0.05
Common shares and equivalents outstanding
Primary 14,851,633 15,077,582
Fully diluted 16,763,244 15,077,582
See notes to condensed consolidated financial statements.
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share amounts)
For the Six Months Ended
March 31,
1997 1996
Revenues:
OnSite services $ 45,434 $ 40,011
Software sales 30,094 20,622
Maintenance and enhancements 25,401 20,378
Software services 26,743 19,214
Interest and other revenue 245 350
------- -------
127,917 100,575
Expenses:
Cost of OnSite services 37,134 32,014
Cost of software sales and
maintenance and enhancements 21,507 18,008
Cost of software services 21,951 17,910
Selling, general and administrative 32,456 26,317
Interest expense 1,123 1,087
------- -------
114,171 95,336
Income before income taxes 13,746 5,239
Provision for income taxes 5,636 2,210
------- -------
Net Income $ 8,110 $ 3,029
======= =======
Per common share:
Net income
Primary $ 0.55 $ 0.20
Fully diluted $ 0.52 $ 0.20
Common shares and equivalents outstanding
Primary 14,631,171 15,116,562
Fully diluted 16,738,525 15,116,562
See notes to condensed consolidated financial statements.
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
For the Six Months Ended
March 31,
1997 1996
OPERATING ACTIVITIES
Net income $ 8,110 $ 3,029
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 6,307 4,564
Changes in operating assets and
liabilities:
(Increase) in receivables (14,886) (9,647)
(Increase) in other current assets,
principally prepaid expenses (1,431) (2,594)
Increase in accrued expenses 6,610 3,197
(Decrease) in deferred revenue (2,926) (4,933)
Other, net 413 160
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,197 (6,224)
INVESTING ACTIVITIES
Purchase of property and equipment (4,517) (5,226)
Capitalized computer software costs (3,286) (3,699)
Proceeds from sale or maturity of
investments available-for-sale 0 13,504
Purchase of subsidiary assets, net of
cash acquired 0 (117)
-------- --------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (7,803) 4,462
FINANCING ACTIVITIES
Principal payments on short-term debt (200) (100)
Proceeds from borrowings 0 3,000
Repurchase and retirement of Company stock (1,271) 0
Proceeds from exercise of stock options 533 235
-------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (938) 3,135
(DECREASE)INCREASE IN CASH & CASH EQUIVALENTS (6,544) 1,373
CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 12,303 1,602
-------- --------
CASH & CASH EQUIVALENTS-END OF PERIOD $ 5,759 $ 2,975
======== ========
SUPPLEMENTAL INFORMATION
Noncash investing and financing actviities:
Conversion of subordinated debentures
to common stock 3,980 0
See notes to condensed consolidated financial statements.
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in thousands, except per share amounts)
March 31, 1997
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, 1996. Operating results for the three and six-month
periods ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending September 30, 1997.
NOTE A--RECLASSIFICATION
Certain prior year information has been reclassified to conform with
the current year format.
NOTE B--CASH AND CASH EQUIVALENTS
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.
NOTE C--INCOME PER SHARE
Primary income per share is computed using the weighted average number of
common shares outstanding, plus, to the extent dilutive, common stock
equivalents. 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 to the extent
dilutive, 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 is adjusted for
interest expense (net of tax) on the convertible subordinated debentures.
See Note E--New Accounting Standards.
NOTE D--STOCK REPURCHASE
In October 1996, the Company repurchased 184,757 shares of common stock at
$15 per share, originally issued in the acquisition of Adage Systems
International, Inc. in June 1995. The purchase of treasury stock reduced
stockholders' equity. All of these shares have subsequently been retired.
Pursuant to the stock repurchase, the Company agreed to pay $1,271
immediately, and signed a note for $1,500 with amounts payable in October
1997 and 1998.
NOTE E--NEW ACCOUNTING STANDARDS
On October 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121). The Statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
SFAS 121 also addresses the accounting for long-lived assets that are expected
to be sold or discarded. As the Company's accounting policies prior to the
adoption of SFAS 121 have provided for similar accounting treatment, the
effect of adoption was not material to the Company's financial condition or
results of operations.
Also on October 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". The Statement
requires that companies with stock-based compensation plans either recognize
compensation expense based on new fair-value accounting methods or continue
to apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and disclose in its annual
financial statements pro forma net income and earnings per share assuming the
fair value method had been applied. The Company has elected to adopt the
disclosure alternative, which will be presented in its year-end financial
statements, and continue accounting for its stock-based compensation plans
under the provisions of APB 25.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS 128), which is effective for periods
ending after December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements primary earnings per share will
exclude the dilutive effect of stock options and fully diluted earnings per
share must include the dilutive effect of stock options even if the dilutive
effect is immaterial. The impact of SFAS 128 on the calculation of primary and
fully diluted earnings per share would not be material to the quarters ended
March 31, 1997 and March 31, 1996.
NOTE F--OTHER
Product development expenses (which are included in cost of software sales
and maintenance and enhancements) not capitalized aggregated $8,663 and
$5,929 in the six-month periods ending March 31, 1997 and 1996, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
The purpose of this section is to give interpretive guidance to the reader of
the financial statements.
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 Mos. Six Mos. Three Mos. Six Mos.
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
Revenues:
OnSite services 35% 42% 35% 40% 9% 14%
Software sales 23% 20% 24% 21% 44% 46%
Maintenance and enhancements 20% 20% 20% 20% 27% 25%
Software services 22% 18% 21% 19% 57% 39%
Interest and other revenue 0% 0% 0% 0% (45)% (30)%
---- ---- ---- ----
Total 100% 100% 100% 100% 28% 27%
Expenses:
Cost of services, sales and
maintenance and enhancements 62% 70% 63% 68%
Selling, general and
administrative 25% 27% 25% 26%
Interest expense 1% 1% 1% 1%
Income before income taxes 12% 3% 11% 5%
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 sales and services.
Three Months Six Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
Gross Profit:
OnSite services 19% 19% 18% 20%
Software sales and maintenance
and enhancements 61% 53% 61% 56%
Software services 19% 3% 18% 7%
--- --- --- ---
Total 37% 30% 37% 32%
<PAGE>
Revenues
The 9% and 14% increases in OnSite services revenues in the second quarter and
first six months of fiscal year 1997 are primarily the result of increased
services provided to the City of Indianapolis, under amendments to a contract
which originally commenced in December 1995. Also adding to the increase were
new contracts with Raritan Valley Community College, the University of
Memphis, and Norshipco and increased services provided to Continental
Cablevision, Inc., under contract extensions.
Software sales increased 44% in the second quarter of fiscal year 1997
compared with the second quarter of fiscal year 1996 due primarily to
increased licenses of ADAGE Enterprise Resource Planning (ERP) software to the
manufacturing market and BANNER Customer Information System (CIS) software to
the utility market. These increases were off-set by decreases, compared to the
prior-year period, in software licenses in the higher education market.
Software sales increased 46% in the first six months of fiscal year 1997
compared with the comparable period in fiscal year 1996 due primarily to the
aforementioned second quarter software licenses and to the increased licenses
of BANNER CIS software to the utility market in the first quarter of fiscal
year 1997.
The 27% and 25% increases in maintenance and enhancements revenues in the
second quarter and first six months of fiscal year 1997 is the result of the
growing installed base of clients primarily in the higher education market. In
addition, the Company continues to experience a high annual renewal rate on
maintenance contracts.
Software services revenue increased 57% in the second quarter of fiscal year
1997 compared with the second quarter of fiscal year 1996 primarily as the
result of increases in implementations and integration services in the
international utility market as well as increases in ADAGE ERP implementations
and support services to the manufacturing market. Software services increased
39% in the first six months of fiscal year 1997 compared with the prior-year
period as a result of increases in ADAGE ERP implementations and support
services and increases in implementations and integration services in the US
and international utility markets and the higher education market.
Gross Profit
Gross profit increased as a percentage of total revenue (excluding interest
and other revenue) from 30% to 37% for the second quarter of fiscal year 1997
and from 32% to 37% for the first six months of fiscal year 1997. The OnSite
services gross profit decrease during the six-month period is the result of
lower margins on new contract signings compared with older contracts. The
increase in the software sales and maintenance and enhancements gross profit
was the result of significant growth in license fee revenue. Additionally,
the software services margin increased primarily as a result of increases in
the utility business gross margin. In the first six months of fiscal year
1996, the cost of software services reflected increased expenditures in the
utility business. In the second quarter of fiscal year 1996, the Company
recorded a contract loss provision of $1.25 million to reflect the cost of
satisfying certain obligations relating to the CIS product for U.S.
utilities. These obligations were satisfied in the first quarter of fiscal
year 1997.
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 cash equivalents balance was $5.8 million and $12.3
million at March 31, 1997 and September 30, 1996, respectively.
The cash and cash equivalents balances are derived from operations. Cash
provided by operating activities was $2.2 million for the first six months of
fiscal year 1997 compared to cash used of $6.2 million for the prior-year
period. Operating cash flows have increased primarily due to an increase in
income before depreciation and amortization. Additionally, increases in other
accrued expenses are primarily the result of employee related accruals and
OnSite contract commitments to purchase equipment. The increases in accounts
receivable at March 31, 1997 compared to September 30, 1996 balances are due
to increases in revenues and the timing of billings on the Company's software
services contracts and software licenses.
The Company provides OnSite services and software-related services, including
systems implementation and integration services. Contract fees from OnSite
services are typically based on multi-year contracts ranging from five to 10
years and provide a recurring revenue stream throughout the term of the
contract. Software services contracts generally have shorter terms than
OnSite services contracts, and billings are sometimes milestone based. During
the beginning of a typical OnSite services contract, services are performed
and expenses are incurred by the Company at a greater rate than in the later
part of the contract. Billings usually remain constant during the term of the
contract and, in some cases, when a contract term is extended, the billing
period is also extended over the new life of the contract. Revenue is usually
recognized as work is performed. The resulting excess of revenues over
billings is reflected on the Company's Consolidated Balance Sheet as unbilled
accounts receivable. As an OnSite contract proceeds, services are performed
and expenses are incurred at a lesser rate, resulting in billings exceeding
revenue recognized, which causes a decrease in the unbilled accounts
receivable, as will the achievement of a milestone in a software services
contract.
During the first six months of fiscal year 1997, the Company's primary use of
$7.8 million cash for investing activities was the purchase of equipment and
capitalization of newly developed software. During the first six months of
fiscal year 1996, the uses of cash for equipment purchases and software
capitalization were offset by the proceeds from the sale or maturity of
available-for-sale investments, which provided a net of $4.5 million in the
first six months of fiscal year 1996.
The Company anticipates a fiscal year 1997 decrease in capital expenditures
compared with fiscal year 1996, without taking into consideration any possible
business acquisitions. Expenditures for property and equipment are expected
to be lower during fiscal year 1997 as a result of no new facility or
significant facility improvement projects during fiscal year 1997. Fiscal
year 1997 capitalized software expenditures are expected to remain at
approximately the same level as fiscal year 1996 expenditures. Although there
has been a reduction in the capitalization of costs related to ADAGE ERP
software, which was completed and released in November 1996, these reductions
should be offset by increases in the capitalization of Banner products
particularly higher education software.
Cash used in financing activities was $0.9 million for the first six months of
fiscal year 1997 compared with cash provided by financing activities of $3.1
million in the first six months of 1996. Cash was used in the first six
months of 1997 to repurchase and subsequently retire 184,757 shares of stock
originally issued in connection with the purchase of Adage Systems
International, Inc. in June 1995. Pursuant to the stock repurchase, the
Company signed a note for $1.5 million with amounts payable in October 1997
and 1998.
On April 9, 1997, the Company announced that it called for redemption all of
its outstanding 6 1/4% convertible subordinated debentures due September 1,
2003The redemption date was May 9, 1997. Of the $27.3 million principal amount
of debentures outstanding at April 8, 1997, all but $55,000 have been
converted into shares of the Company's stock. This resulted in the issuance
of 1,816,000 shares of common stock, which shares were included in the fully
diluted earnings per share calculation for the second quarter and first half
of 1997. Interest expense related to the bonds was added back for purposes of
the fully diluted earnings per share calculation for the three and six-month
periods ending March 31, 1997. The remaining $55,000 principal amount of the
Debentures that were not surrendered for conversion have been redeemed at the
redemption price, which includes premium and accrued and unpaid interest from
March 1, 1997, of $1,053.62 for each $1,000.00 principal amount of such
debentures, for a total of $55,979.
At March 31, 1997 and September 30, 1996, there were no borrowings outstanding
under the Company's $20 million senior revolving credit facility. This credit
facility was renegotiated in April 1997. The amended agreement provides for a
permanent increase in the amount of the revolving credit to $30 million and
provided for a temporary increase in the revolving credit of up to an
additional $5 million to be used solely to fund redemption payments on the
above mentioned subordinated debenture call and will expire on October 9,
1997. The amended agreement expires in June 1999 with optional annual
extensions. 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, cash provided by
operations, and borrowing arrangements should satisfy its needs for the
foreseeable future.
Primary common shares and equivalents used in the income per share
calculations for the three and six-month periods ending March 31, 1997
decreased compared with the prior-year periods as a result of the
aforementioned common stock repurchase and retirement of 184,757 shares in
October 1996.
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 alleged
violations of certain disclosure and related provisions of the Federal
Securities Laws. The amended complaint sought damages in unspecified amounts
as well as equitable relief. In April 1996, the Company's motion to dismiss
the amended complaint was granted in part and denied in part. On February 3,
1997, the plaintiff filed a Second Amended Complaint alleging violations of
certain disclosure and related provisions of the Federal Securities Laws and
negligent misrepresentation. On February 18, 1997, the Company filed a motion
to dismiss the plaintiff's Second Amended Complaint, which motion is presently
pending before the Court. Management believes the claims in the Second
Amended Complaint are 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 presently be determined.
New Accounting Standards
On October 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). The Statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
SFAS 121 also addresses the accounting for long-lived assets that are expected
to be sold or discarded. As the Company's accounting policies prior to the
adoption of SFAS 121 have provided for similar accounting treatment, the
effect of adoption was not material to the Company's financial condition or
results of operations.
Also on October 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". The Statement
requires that companies with stock-based compensation plans either recognize
compensation expense based on new fair-value accounting methods or continue to
apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and disclose in its annual
financial statements pro forma net income and earnings per share assuming the
fair value method had been applied. The Company has elected to adopt the
disclosure alternative, which will be presented in its year-end financial
statements, and continue accounting for its stock-based compensation plans
under the provisions of APB 25.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS 128), which is effective for periods
ending after December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements primary earnings per share will
exclude the dilutive effect of stock options and fully diluted earnings per
share must include the dilutive effect of stock options even if the dilutive
effect is immaterial. The impact of SFAS 128 on the calculation of primary and
fully diluted earnings per share would not be material to the quarters ended
March 31, 1997 and March 31, 1996.
Cautionary Statement
The matters discussed herein and elsewhere that are forward-looking statements
are based on current management expectations that involve risks and
uncertainties which could cause actual results to differ materially from those
anticipated. Potential risks and uncertainties that could affect the
Company's future operating results include without limitation, the effect of
publicity on demand for the Company's products and services, general economic
conditions, the Company's ability to attract and retain highly skilled
technical, managerial, sales and marketing personnel, continued market
acceptance of the Company's products and services, the timing of the receipt
of software licenses, the timing of services contracts and renewals, the
timing and complexity of large transactions, continued competitive and pricing
pressures in the marketplace, the Company's ability to develop and market new
and updated products and enhancements cost effectively and on a timely basis,
and the Company's ability to complete fixed-price contracts profitably. 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.
Operating Leverage
Since a significant part of the Company's business results from software
licensing, the Company's business is characterized by a high degree of
operating leverage. The Company's expense levels are based, in significant
part, on the Company's expectations as to future revenues and are therefore
relatively fixed in the short term. If software licensing revenues do not
meet expectations, net income is likely to be disproportionately adversely
affected. There can be no assurance that the Company will be able to increase
or even maintain its current level of profitability on a quarterly or annual
basis in the future. It is therefore possible that in one or more future
quarters the Company's operating results will be below expectations. In such
event, the price of the Company's common stock could be adversely affected
<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 alleged 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.
In April 1996, the Company's Motion to Dismiss the Amended Complaint was
granted in part and denied in part. On February 3, 1997, the
plaintiff filed a Second Amended Complaint alleging violations of
certain disclosure and related provisions of the Federal Securities
Laws and negligent misrepresentation. On February 18, 1997, the
Company filed a motion to dismiss the plaintiff's Second Amended
Complaint, which motion is presently pending before the Court. Management
believes the claims in the Second Amended Complaint are 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 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on February 28, 1997,
Gabriel A. Battista was elected as a director of the Company for a term
expiring at the Company's 2000 Annual Meeting of Shareholders. There were
9,576,916 votes cast in favor of the election of Mr. Battista, 8,043 votes
withheld from his election and 115,006 votes abstained. There were no broker
non-votes.
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 March 31, 1997.
<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: 05/14/97 /s/
________________________________
Eric Haskell
Senior Vice President, Finance and Administration,
Treasurer and Chief Financial Officer
<TABLE>
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
<CAPTION>
Three months ended Six months ended
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1997 Mar. 31, 1996
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding 14,163,819 14,061,940 14,059,212 14,059,212
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 687,814 1,015,642 1,057,350 1,057,350
---------- ---------- ---------- ----------
Total 14,851,633 15,077,582 15,116,562 15,116,562
========== ========== ========== ==========
Net income $4,568,000 $ 766,000 $3,029,000 $3,029,000
========== ========== ========== ==========
Net income per share $0.31 $0.05 $0.20 $0.20
===== ===== ===== =====
FULLY DILUTED
Average shares outstanding 14,163,819 14,061,940 14,059,212 14,059,212
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 687,814 1,015,642 1,057,350 1,057,350
Assumed conversion of 6 1/4%
convertible subordinated debentures 1,911,611 0 0 0
---------- ---------- ---------- ----------
Total 16,763,244 15,077,582 15,116,562 15,116,562
========== ========== ========== ==========
Net Income $4,568,000 $ 766,000 $3,029,000 $3,029,000
Add 6 1/4 % convertible subordinated
debenture interest, net of
income tax effect 286,000 0 0 0
Net income, as adjusted $4,854,000 $ 766,000 $3,029,000 $3,029,000
========== ========== ========== ==========
Net income per share $0.29 $0.05 $0.20 $0.20
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
March 31, 1997 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000707606
<NAME> SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,759,000
<SECURITIES> 0
<RECEIVABLES> 93,019,000
<ALLOWANCES> 1,867,000
<INVENTORY> 0
<CURRENT-ASSETS> 108,550,000
<PP&E> 61,584,000
<DEPRECIATION> 24,865,000
<TOTAL-ASSETS> 174,340,000
<CURRENT-LIABILITIES> 36,916,000
<BONDS> 28,045,000
0
0
<COMMON> 154,000
<OTHER-SE> 106,492,000
<TOTAL-LIABILITY-AND-EQUITY> 174,340,000
<SALES> 127,672,000
<TOTAL-REVENUES> 127,917,000
<CGS> 80,592,000
<TOTAL-COSTS> 113,048,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,123,000
<INCOME-PRETAX> 13,746,000
<INCOME-TAX> 5,636,000
<INCOME-CONTINUING> 8,110,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,110,000
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.52
</TABLE>
