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, 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.
16,663,358 Common shares, $.01 par value, as of February 4, 1998
Page 1 of 18 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 -
December 31, 1997 and September 30, 1997
Condensed Consolidated Statements of Operations -
Three Months Ended December 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -
Three Months Ended December 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 6. Exhibits and Reports on Form 8-K
SIGNATURES
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31, September 30,
1997 1997
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 31,744 $ 29,809
Short-term investments, including
accrued interest of $854 69,952 --
Receivables, including $56,029
and $59,311 of earned revenues
in excess of billings, net of
allowance for doubtful accounts
of $4,760 and $4,098 104,114 100,543
Prepaid expenses and other receivables 9,057 8,473
-------- --------
TOTAL CURRENT ASSETS 214,867 138,825
PROPERTY AND EQUIPMENT--net of
accumulated depreciation 40,918 40,710
CAPITALIZED COMPUTER SOFTWARE COSTS,
net of accumulated amortization 15,564 15,167
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, net of accumulated
amortization 7,894 8,121
OTHER ASSETS AND DEFERRED CHARGES 9,213 6,881
-------- --------
TOTAL ASSETS $288,456 $209,704
======== ========
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31, September 30,
1997 1997
(UNAUDITED) (NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,164 $ 10,023
Current portion of long-term debt 730 1,225
Income taxes payable 4,957 5,000
Accrued expenses 24,024 22,649
Deferred revenue 14,529 16,711
-------- --------
TOTAL CURRENT LIABILITIES 51,404 55,608
LONG-TERM DEBT, net of current portion 76,912 2,549
DEFERRED TAXES AND OTHER
LONG-TERM LIABILITIES 1,231 1,122
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share--authorized 3,000 shares,
none issued
Common stock, par value $.01 per share--
authorized 24,000 shares, issued
17,770 and 17,573 shares 178 176
Capital in excess of par value 93,277 91,240
Retained earnings 69,023 62,578
-------- --------
162,478 153,994
Less
Held in treasury, 1,151 common
shares--at cost (2,959) (2,959)
Notes receivable from stockholders (610) (610)
-------- --------
158,909 150,425
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $288,456 $209,704
======== ========
Note: The condensed consolidated balance sheet at September 30, 1997 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)
(in thousands, except per share amounts)
For the Three Months Ended
December 31,
1997 1996
Revenues:
OnSite services $27,600 $21,529
Software sales 21,851 14,730
Maintenance and enhancements 14,346 12,011
Software services 21,604 12,135
Interest and other revenue 1,880 127
------- -------
87,281 60,532
Expenses:
Cost of OnSite services 22,724 17,665
Cost of software sales and
maintenance and enhancements 12,705 10,376
Cost of software services 17,204 10,071
Selling, general and administrative 22,902 15,834
Interest expense 820 583
------- -------
76,355 54,529
Income before income taxes 10,926 6,003
Provision for income taxes 4,481 2,461
------- -------
Net Income $ 6,445 $ 3,542
======= =======
Per common share:
Net income
Earnings per common share $ 0.39 $ 0.25
Earnings per share assuming dilution $ 0.36 $ 0.23
Common shares and equivalents outstanding
Common shares 16,549 13,953
Common shares - assuming dilution 17,952 16,625
See notes to condensed consolidated financial statements.
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SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Three Months Ended
December 31,
1997 1996
OPERATING ACTIVITIES
Net income $ 6,445 $ 3,542
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 3,638 3,119
Changes in operating assets and
liabilities:
(Increase) in receivables (4,660) (6,916)
(Increase) decrease in other
current assets (584) 1,712
(Decrease) in accounts payable (2,859) (2,177)
Increase in other accrued expenses
and liabilities 1,375 1,318
(Decrease) in deferred revenue (2,196) (904)
Other, net 168 630
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 1,327 324
INVESTING ACTIVITIES
Purchase of property and equipment (1,913) (1,700)
Capitalized computer software costs (1,553) (1,509)
Purchase of investments
available-for-sale (69,412) --
-------- --------
NET CASH (USED IN) INVESTING
ACTIVITIES (72,878) (3,209)
FINANCING ACTIVITIES
Principal payments on short-term debt (1,250) (160)
Proceeds from borrowings, net of
issuance costs 72,681 --
Repurchase and retirement of Company stock -- (1,271)
Proceeds from exercise of stock options 2,055 87
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 73,486 (1,344)
INCREASE(DECREASE) IN CASH & CASH EQUIVALENTS 1,935 (4,229)
CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 29,809 12,303
-------- --------
CASH & CASH EQUIVALENTS-END OF PERIOD $31,744 $ 8,074
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share amounts)
December 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, 1997. Operating results for the three-month period ended
December 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1998.
NOTE B--CASH AND SHORT-TERM INVESTMENTS
Cash Equivalents: Cash and equivalents are defined as highly liquid
investments with a maturity of three months or less at the date of purchase.
Short-Term Investments: Short-term investments consist of commercial paper,
municipal debt securities, and corporate obligations. Management determines
the appropriate classification of debt securities at the time of purchase. At
December 31, 1997, the Company has classified all securities as
available-for-sale. The available-for-sale portfolio is comprised of highly
liquid investments available for current operations and general corporate
purposes and, accordingly, is classified as short-term investments.
Available-for-sale securities are stated at fair value.
Short-term investments at December 31, 1997 are comprised of:
State and municipal securities $23,465
Corporate securities 45,633
-------
$69,098
The contractual maturities of short-term investments held at December 31, 1997
are:
Due in one year or less $56,445
Due after one year through three years 12,653
-------
$69,098
During the quarter ended December 31, 1997, there were no gross realized
gains or losses on sales of available-for-sale securities.
NOTE C--LONG-TERM DEBT
On October 22, 1997, the Company issued $65,000 of convertible subordinated
debentures bearing interest at 5% and maturing on October 15, 2004. On
November 6, 1997, pursuant to an underwriters' option, the Company issued an
additional $9,750 of convertible debentures. The debentures are convertible
into common stock of the Company at any time prior to redemption or maturity
at a conversion price of $52.75 per share, subject to change as defined in
the Trust Indenture. The debentures are redeemable at any time after October
15, 2000 at prices decreasing from 102.5% of the principal amount to par on
October 15, 2003.
NOTE D--EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128), for the three-month period ended December 31,
1997. As a result the Company changed the method used to compute
earnings per share and restated the prior period presented. Under the new
requirements, basic earnings per share excludes the dilutive effect of stock
options and diluted earnings per share must include the dilutive effect of
stock options even if the dilutive effect is immaterial. A reconciliation of
the numerators and the denominators of the basic and diluted per share
calculations follow:
For the three months ended
December 31,
1997 1996
Numerator:
Net Income available to common
stockholders, used for basic
earnings per share $6,445 $3,542
Effect of dilutive securities:
6 1/4% convertible debentures -- 311
------ ------
Net income available to common
stockholders after assumed
conversions $6,445 $3,853
Denominator:
Denominator for earnings per common
Stockholder-weighted average shares 16,549 13,953
====== ======
Effect of dilutive securities:
Employee stock options 1,403 587
6 1/4% convertible debentures 2,085
------ ------
Dilutive potential common shares 1,403 2,672
Denominator for earnings per
share, assuming dilution 17,952 16,625
====== ======
Earnings per common share $0.39 $0.25
===== =====
Earnings per share - assuming
dilution $0.36 $0.23
===== =====
NOTE E--OTHER
Product development expenditures, including software maintenance
expenditures, for the three months ended December 31, 1997 and 1996, were
approximately $8,291 and $5,847, respectively. After capitalization these
amounts were approximately $6,738 and $4,338, respectively, and were charged
to operations as incurred. For the same periods, amortization of capitalized
software costs amounted to $1,157 and $658, 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 Months Ended
December 31,
1997 1996
Revenues:
OnSite services 32% 36% 28%
Software sales 25% 24% 48%
Maintenance and enhancements 16% 20% 19%
Software services 25% 20% 78%
Interest and other revenue 2% 0% 1380%
----- ----- -----
Total 100% 100% 44%
Expenses:
Cost of services, sales and
maintenance and enhancements 60% 63% 38%
Selling, general and
administrative 26% 26% 45%
Interest expense 1% 1% 41%
Income before income taxes 13% 10% 82%
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 Ended
December 31,
1997 1996
Gross Profit:
OnSite services 18% 18%
Software sales and maintenance
and enhancements 65% 61%
Software services 20% 17%
---- ----
Total 38% 37%
<PAGE>
Revenues
Growth in OnSite services revenue largely results from significant contract
signings. The 28% increase in OnSite services revenue in the three month
period ended December 31, 1997 compared with the prior year period was
primarily the result of (1) contracts signed after the first quarter of
fiscal year 1997 including Agrilink Foods and the City of Anaheim,
(2) increases in outsourcing services provided to the City of Indianapolis
and, (3) first quarter fiscal year 1998 contract signings with Texas Southern
University and Nashville Electric Service.
Software sales increased 48% in the first quarter of fiscal year 1998
compared to the first quarter of fiscal year 1997 due primarily to increased
BANNER software licenses to the higher education market and increased
licenses of ADAGE Enterprise Resource Planning (ERP) software to the
manufacturing market.
The 19% increase in maintenance and enhancements revenue in the first quarter
of fiscal year 1998 is the result of the growing installed base of clients in
the higher education marketplace. In addition, the Company continues to
experience a high annual renewal rate on existing maintenance contracts.
Software services revenue increased 78% in the first quarter of fiscal year
1998 compared to the first quarter of fiscal year 1997 as the result of
increases in ADAGE ERP implementation and support services to the
manufacturing market and implementation and integration services in the
utility and higher education markets. These increases were offset by
decreases, compared to the prior-year period, in services provided to the
international utility market.
The increase in interest and other revenue in the first quarter of fiscal
year 1998 is attributable to increased interest revenue resulting from the
increased cash and short-term investments balance at December 31, 1997 and
to a $695,000 gain on the sale of an inactive product line.
Gross Profit
Gross profit increased as a percentage of total revenue (excluding interest
and other revenue) from 37% in the first quarter of fiscal year 1997 to 38%
for the first quarter of fiscal year 1998. The increase in the software
sales and maintenance and enhancements gross profit was primarily the result
of growth in license fee revenue in the higher education market. This growth
was partially offset by a decrease in the gross profit margin in the
manufacturing market where the license fee mix included more third party
licenses resulting in lower profit margin in the first quarter of fiscal year
1998 than in 1997. The software services margin increased primarily as a
result of increases in the utility and manufacturing businesses' gross
margin. The increases in software services' gross profit for the year were
partially offset by decreases in the international utility gross profit,
where additional costs were incurred in the first quarter of fiscal year 1998
resulting from contract delays and cost overruns. The Company is continuing
to focus on installation and systems integration services in each of its
markets. These services have historically resulted in a decreased profit
margin when compared to a revenue mix with a higher percentage of license
fees.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL POSITION
On October 22, 1997, the Company issued $65 million of convertible
subordinated debentures bearing interest at 5% and maturing on October 15,
2004. On November 6, 1997, pursuant to an underwriters' option, the Company
issued an additional $9.75 million of convertible debentures. The debentures
are convertible into common stock of the Company at any time prior to
redemption or maturity at a conversion price of $52.75 per share, subject to
change as defined in the Trust Indenture. The debentures are redeemable at
any time after October 15, 2000 at prices decreasing from 102.5% of the
principal amount to par on October 15, 2003.
The Company's cash and cash equivalents balance was $31.7 million and $29.8
million at December 31, 1997 and September 30, 1997, respectively; and the
short-term investments balance increased to $70.0 million at December 31,
1997 as a result of the first quarter 1998 debenture offering.
Cash provided by operating activities was $1.3 million for the first quarter
of fiscal year 1998 compared with $324,000 for the first quarter of fiscal
year 1997. The increase in cash provided by operations for 1998 reflects the
increase in net income for the first quarter of fiscal year 1998 and
correspondingly smaller increases in accounts receivable for the first
quarter of 1998. Cash provided by operations was off-set in the first
quarter of 1998 by increases in other current assets and decreased deferred
revenue balances. The increases in accounts receivable at December 31, 1997
compared to September 30, 1997 balances are due to increases in revenues and
the timing of billings on the Company's software services contracts and
software licenses. The decrease in deferred revenue at December 31, 1997
compared with September 30, 1997 is the result of annual scheduled billings
on software maintenance contracts that increase the deferred revenue balance
in the fourth quarter and are recognized as revenue over the period of
service.
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, including systems implementation and
integration services, usually have shorter terms than OnSite services
contracts, and billings are sometimes milestone based. During the beginning
of a typical 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 a services 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.
Cash used in investing activities was $72.9 million for the first quarter of
fiscal year 1998 compared with $3.2 million for the first quarter of fiscal
year 1997. The Company's primary use of cash for investing activities was
the purchase of investments available-for-sale of $70.9 million from the
proceeds of the bond offering during the quarter.
The Company signed a long-term lease agreement in May 1997 for a new office
building at its Malvern campus. The Company will begin to incur fit-up and
remodeling costs in the second quarter of fiscal year 1998 with rent payments
beginning shortly thereafter. Fiscal year 1998 total product development
expenditures are expected to increase in proportion to growth in revenues.
Cash provided by financing activities increased $74.8 million from September
30, 1997 to December 31, 1997. The increase is primarily the result of the
proceeds from the bond offering of $75.8 million. Additionally, cash was
provided by the exercise of stock options by the Company's employees.
The Company has a $30 million senior revolving credit facility available for
general corporate purposes. The credit facility agreement expires in June
1999 with optional annual renewals. As long as borrowings are outstanding,
and as a condition precedent to new borrowings, the Company must comply with
certain covenants established in the agreement. Under the covenants, the
Company is required to maintain certain financial ratios and other financial
conditions. The covenants allow the Company to pay non-stock dividends,
repurchase capital stock, and make distributions of assets to shareholders as
long as the aggregate amount does not exceed $5 million in any fiscal year.
There were no borrowings outstanding at December 31, 1997.
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 financing needs for the foreseeable future.
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128), in the three-month period ended December 31,
1997. As a result the Company changed the method used to compute earnings
per share and restated the prior period presented. Under the new
requirements, basic earnings per share excludes the dilutive effect of stock
options and diluted earnings per share must include the dilutive effect of
stock options even if the dilutive effect is immaterial. Basic common shares
increased in the first quarter of fiscal year 1998 compared to the first
quarter of fiscal year 1997 as a result of shares issued pursuant to the May
1997 redemption of $27.3 million principal amount of convertible subordinated
debentures, and employee stock option exercises during the twelve-month
period ending December 31, 1997. Shares used in the diluted income per share
calculation increased in 1997 versus 1996 primarily as a result of an
increased dilutive effect of stock options related to the Company's rising
stock price.
CONTINGENCIES
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 and a second amended complaint on February 3, 1997. The class period
alleged is from June 5, 1995 through October 2, 1995. The second 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. In September 1997, the Company's Motion
to Dismiss the second amended complaint was granted in part and denied in
part, and plaintiff was permitted to pursue a claim that defendants violated
section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder to the extent that it alleges a failure to make
certain disclosures in the Company's Form 10-Q for the third quarter of
fiscal 1995. On December 3, 1997, the Court approved a Stipulation of
Dismissal and Entry of Final Judgment filed by the parties pursuant to which
all remaining claims were dismissed with prejudice and the Court entered a
final judgment in favor of the Company as to all remaining claims in the
action. On December 30, 1997 the plaintiff filed a notice of appeal with
respect to those claims which were dismissed pursuant to the Company's Motions
to Dismiss. Management believes the appeal is without merit and intends to
contest vigorously the appeal. 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
The matters discussed herein and elsewhere that are forward-looking
statements, including statements concerning the Company's or management's
intentions, beliefs, expectations, or predictions for the future, are based
on current management expectations that involve risks and uncertainties that
could cause actual results to differ materially from those anticipated.
The following discussion highlights some, but not all of these risks and
uncertainties which may have a material adverse effect on the Company's
business, financial condition and/or results of operations.
The Company's revenues and operating results can vary substantially from
quarter to quarter based on a number of factors. Software sales revenues in
any quarter are dependent on the execution of license agreements and shipment
of product. The execution of license agreements is difficult to predict for
a variety of reasons including the following: a significant portion of the
Company's license agreements are typically signed in the last month of each
quarter; the duration of the Company's sales cycle is relatively long; the
size of transactions can vary widely; client projects may be postponed or
canceled due to changes in the client's management, budgetary constraints or
strategic priorities; and clients often exhibit a seasonal pattern of capital
spending. The Company has historically generated a greater portion of
license fees in total revenue in the last two fiscal quarters, although there
is no assurance that this will continue.
Also, as the Year 2000 approaches, many potential clients are evaluating their
existing systems and must decide whether to repair or replace those systems
which have Year 2000 issues. While the Company believes that such evaluations
are favorably impacting demand for its software products and services, such
demand is subject to change as the Year 2000 approaches since services to
remediate Year 2000 issues must be completed in a timely manner and lead times
required to complete systems implementations preclude system replacement as a
timely solution to the Year 2000 issue as the millennium nears. Given the
lack of precedent for an issue of this magnitude, the Company's ability to
accurately forecast the impact of the Year 2000 issue on quarter to quarter
revenue achievement is limited.
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.
The success of the Company's business is dependent upon certain key
management, sales and technical personnel. In addition, the Company believes
that to succeed in the future it will be required to continue to attract,
retain and motivate additional talented and qualified management, sales and
technical personnel. Competition for hiring such personnel in the software
industry is intense and demand for such employees has, to date, exceeded
supply. The Company from time to time experiences difficulty in locating
candidates with appropriate qualifications. There can be no assurance that
the Company will be able to retain its key employees or that it will be able
to continue to attract, assimilate and retain other skilled management, sales
and technical personnel. The loss of certain of its existing key personnel or
the inability to attract and retain additional qualified employees in the
future could have a material adverse effect on the Company's business,
operating results and financial condition.
The application software industry is characterized by rapid technological
advances, changes in customer requirements, product introductions and evolving
industry standards. The Company believes that its future success will depend
on its ability to continue to develop and market new products and enhancements
cost-effectively, which will necessitate continued investment in research and
development and sales and marketing. There can be no assurance that the
Company's existing products will not be rendered obsolete or non-competitive
by new industry standards or changing technology, that the Company will be
able to develop and market new products successfully or that the Company's new
product offerings will be accepted by its markets. Furthermore, programs as
complex as those offered by the Company may contain undetected errors or bugs
when they are first introduced or as new versions are released. There can be
no assurance that, despite testing by the Company and by third-party test
sites, errors will not be found in new product offerings, with the possible
result of unanticipated costs and delays in market acceptance of these
products.
Many currently installed software products are not able to distinguish 21st
century dates from 20th century dates. As a result, computer software used by
many organizations may need to be upgraded to comply with Year 2000
requirements. Significant uncertainty exists in the information technology
industry concerning the potential effects associated with the Year 2000
problem.
The Company offers software products that are designed to be Year 2000
compliant. However, some of the Company's clients are running product
versions that are not Year 2000 compliant. The Company has been encouraging
such customers to migrate to current product versions. It is possible that
the Company may experience increased expenses in addressing migration issues
for such customers. In addition, there can be no assurances that the
Company's software products do not contain errors or defects associated with
Year 2000 date functions that may result in material costs to the Company.
Some commentators have stated that a significant amount of litigation will
arise out of Year 2000 compliance issues. Because of the unprecedented nature
of such litigation, it is uncertain whether or to what extent the Company may
be affected by it.
The Company's internal business information systems are being evaluated for
Year 2000 compliance. Although the Company is not aware of any material
operational issues or costs associated with preparing its internal systems
for the Year 2000, there can be no assurances that the Company will not
experience serious unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in its internal
systems.
Certain of the Company's contracts are subject to fiscal funding clauses,
which provide that in the event of budgetary constraints, the client is
entitled to reduce the level of services to be provided by the Company with
a corresponding reduction in the fee to be paid by the client, or in certain
circumstances, to terminate the services altogether. While the Company has
not been impacted materially by early terminations or reductions in service
from the use of fiscal funding provisions in the past, there can be no
assurance that such provisions will not give rise to early terminations or
reductions of service in the future. If clients of the Company representing
a substantial portion of the Company's revenues were to invoke the fiscal
funding provisions of their OnSite services contracts, the Company's results
of operations could be adversely affected.
The Company provides software-related services, including systems
implementation and integration services. Services are generally provided
under time and materials contracts and revenue is recognized as the services
are provided. In some circumstances, services are provided under fixed price
arrangements in which revenue is recognized on the percentage of completion
method. Revisions in estimates of costs to complete are reflected in
operations in the period in which facts requiring those revisions become
known.
Other factors that could affect the Company's future operating results include
the effect of publicity on demand for the Company's products and services;
general economic and political conditions; continued market acceptance of the
Company's products and services; the timing of services contracts and
renewals; continued competitive and pricing pressures in the marketplace; new
product introductions by the Company's competitors; and the Company's ability
to complete fixed-price contracts profitably.
<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 and a second amended complaint on February 3, 1997. The class period
alleged is from June 5, 1995 through October 2, 1995. The second 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. In September 1997, the Company's Motion
to Dismiss the second amended complaint was granted in part and denied in
part, and plaintiff was permitted to pursue a claim that defendants violated
section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder to the extent that it alleges a failure to make
certain disclosures in the Company's Form 10-Q for the third quarter of
fiscal 1995. On December 3, 1997, the Court approved a Stipulation of
Dismissal and Entry of Final Judgment filed by the parties pursuant to which
all remaining claims were dismissed with prejudice and the Court entered a
final judgment in favor of the Company as to all remaining claims in the
action. On December 30, 1997 the plaintiff filed a notice of appeal with
respect to those claims which were dismissed pursuant to the Company's
Motions to Dismiss. Management believes the appeal is without merit and
intends to vigorously contest the appeal. 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(a). Exhibits
Exhibit 27 -- Financial Data Schedule
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, 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: 02/17/98 /s/
________________________________
Eric Haskell
Senior Vice President, Finance and Administration,
Treasurer and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1997 financial statements and the December 31, 1996 financial
statements as restated. It is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 31,744,000 8,074,000
<SECURITIES> 69,952,000 0
<RECEIVABLES> 108,874,000 85,436,000
<ALLOWANCES> 4,760,000 2,000,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 214,867,000 100,006,000
<PP&E> 70,053,000 58,816,000
<DEPRECIATION> 29,135,000 23,368,000
<TOTAL-ASSETS> 288,456,000 163,617,000
<CURRENT-LIABILITIES> 51,404,000 31,384,000
<BONDS> 76,912,000 32,025,000
0 0
0 00
<COMMON> 178,000 151,000
<OTHER-SE> 158,731,000 97,499,000
<TOTAL-LIABILITY-AND-EQUITY> 288,456,000 163,617,000
<SALES> 85,401,000 60,405,000
<TOTAL-REVENUES> 87,281,000 60,532,000
<CGS> 52,633,000 38,112,000
<TOTAL-COSTS> 75,535,000 53,946,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 820,000 583,000
<INCOME-PRETAX> 10,926,000 6,003,000
<INCOME-TAX> 4,481,000 2,461,000
<INCOME-CONTINUING> 6,445,000 3,542,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,445,000 3,542,000
<EPS-PRIMARY> 0.39 0.25
<EPS-DILUTED> 0.36 0.23
</TABLE>
