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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999 Commission File No. 0-11521
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1701520
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4 Country View Road
Malvern, Pennsylvania 19355
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 647-5930
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
5% Convertible Subordinated Debentures Due 2004
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
$522,476,212 at December 15, 1999
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
32,142,006 shares at December 15, 1999
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders scheduled to be held on
February 25, 2000 is incorporated by reference to the extent provided in Part
III, Items 10-13.
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TABLE OF CONTENTS
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Page
Item Number and Caption Number
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PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
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Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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PART I
ITEM 1. BUSINESS.
Systems & Computer Technology Corporation ("SCT" or the "Company"),
incorporated in Delaware in 1968, develops, licenses, and supports a suite of
client/server, enterprise software and provides a range of information
technology services, including outsourcing, systems implementation, systems
integration, and maintenance and enhancements. The Company's primary markets are
higher education, process manufacturing and distribution, energy and utilities,
and government.
The Company's software and services allow clients to enhance their
ability to compete through improved quality of information. The Company's focus
on four vertical markets enables it to develop and utilize a base of industry
expertise to deliver products and services that address specific client
requirements. By offering a continuum of information technology solutions
ranging from application software to large-scale outsourcing contracts, the
Company makes available technology and management tools to enable clients to
manage information resources efficiently and cost-effectively.
Banner(R) and SCT(R) are registered trademarks of the Company, and
Adage(TM), Fygir(TM), Banner2000(TM), Plus2000(TM), SCT Aspire(TM), SCT Learning
Suite(TM), RSmart(TM), and SCT eFile Management(TM) are trademarks of the
Company. SCT OnSite(R) is a registered service mark and SinglePoint
Solutions(sm) is a service mark of the Company. All other trade names referenced
herein are the service marks or trademarks of their respective companies or
organizations.
Markets
In fiscal year 1999, approximately 41% of the Company's revenues was
derived from the higher education market, approximately 18% was derived from the
government market, approximately 21% was derived from the energy and utilities
market, and approximately 16% was derived from the process manufacturing and
distribution market. The principal markets for the Company's offerings are in
the United States. In fiscal year 1999, the Company's foreign operations
represented approximately 6% of revenues and the Company's export sales
represented approximately 3% of revenues. See Note I to the financial statements
for additional information with respect to the Company's industry market
segments.
Higher Education
The Company provides information technology services and application
software to higher education institutions. SCT has developed substantial
functional knowledge and technical expertise about the information technology
requirements of higher education institutions.
SCT targets the approximately 2,000 English-speaking institutions of
higher education with enrollments greater than 2,000 students for its software
and services (of which approximately 300 are potential candidates for SCT's
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outsourcing services). The Company serves this market with its Banner2000,
Plus2000, SCT Learning Suite and Web administrative software, Campus Pipeline
software which it markets, and SCT's service offerings. In fiscal 1999, SCT
acquired all of the issued and outstanding stock of RSmart Learning Systems
Corporation. RSmart had developed and marketed a three component distance
learning application software offering known as Learning Suite. The Company saw
Learning Suite as a complementary offering to its SCT Aspire software product,
and has undertaken to integrate the functionality of Aspire and Learning Suite
in a combined product now known as SCT Learning Suite.
Throughout fiscal 1999, the Company made a series of investments in
Campus Pipeline, Inc. As of September 30, 1999, the Company held an
approximately 60% interest in the common stock of Campus Pipeline. In August,
1999, Campus Pipeline issued approximately 4,600,000 shares of Series A
Preferred Stock, which are convertible into common stock on a one-for-one basis.
If converted, this would lower the Company's interest in the common stock of
Campus Pipeline to less than 50%.
Government
The information technology services and application software markets
for government jurisdictions are highly fragmented, with many competitors,
including in-house computing departments of governments, custom software
programmers, and packaged application software companies. Governments, which are
conservative in their decisions regarding capital expenditures and long-term
contracts, are influenced by the acceptance by other governments of a particular
company's product or service. The Company serves its target market of
approximately 1,000 government entities primarily with its SCT Courts
application software product, AS400 administrative systems, and SCT's service
offerings.
Energy and Utilities
The Company provides administrative and supply chain application
software and services to the energy and utilities market. SCT's target market
includes approximately 1,000 water, gas, and electric utilities. The Company
believes that deregulation of the utility market is driving significant
investment in information technology and customer services. Clients include
municipalities, investor-owned utilities and energy services companies.
Process Manufacturing and Distribution
SCT markets a suite of process supply chain management ("P/SCM")
software solutions for process manufacturers and distributors. The P/SCM suite
includes the Adage software, which is a supply chain execution system (also
known as an enterprise resource planning or "ERP" system), and the Fygir
software, which is a supply chain planning software solution that addresses
advanced planning and advanced scheduling (APS). SCT also markets services to
the process manufacturing and distribution industry. In May 1999, the Company
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acquired Advanced Planning Systems, Inc., which was developing a demand planning
product the Company intends to add to the P/SCM suite. The Company believes that
ERP, APS, and demand planning systems are being increasingly adopted by
manufacturers in order to better manage their supply chains. SCT targets the
approximately 8,000 process manufacturers and distributors that have over $100
million in annual revenue.
Services and Products
The Company's revenues are derived from several sources: outsourcing
services, software licenses, software services, and maintenance and
enhancements.
Outsourcing Services
The Company provides information technology outsourcing services, which
are comprised of a range of services including end-user computing solutions,
network management, applications outsourcing, and business process outsourcing.
These services are designed to assume total or partial control and
responsibility of clients' information resources, generally on a long-term
basis. The Company provides management, staffing, and support with skilled
information systems personnel and industry specialists who are knowledgeable in
both computer-based technologies and the functional aspects of clients'
activities.
SCT personnel located at a client's site become an integral part of the
client's operations, working with managers and users at all levels as a focal
point for information systems activity. SCT site personnel also draw upon SCT's
staff of specialists to address special issues and projects. SCT can manage,
staff and support most aspects of a client's information systems and operations,
including data center management and operations, disaster recovery, short-term
and long-range planning, user liaison and functional consulting, technical
support services, application and systems software support, office automation,
personal computer maintenance, systems integration, and telecommunications
services and network integration.
Contracts for outsourcing services may be either on a fixed price or
time and materials basis, and generally cover an initial period of three to
seven years. Fixed-price contracts require the Company to perform specified
services for a fixed payment, generally subject to annual adjustments to reflect
inflationary cost increases. The Company negotiates the fee to be charged based
on its estimate of the total expenses to be incurred in providing the services.
In the event the Company's costs to perform an outsourcing services contract
become greater than originally anticipated, the Company's profit on that
contract would be reduced; and in an extreme case, the Company could suffer a
loss. As many government and quasi government clients are restricted from
incurring binding commitments which extend beyond their current annual budgets
or appropriations, contracts often include a "fiscal funding" provision which
provides for the reduction or termination of services commensurate with
reductions in a client's allocated funding. The Company has not been impacted
materially by early terminations or reductions in service from the use of fiscal
funding provisions.
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The Company also offers its SinglePoint Solutions to assist utility and
energy companies in serving the newly deregulated utility market. By combining
software applications, information technology outsourcing and operations
management, a utility or energy service company can access SCT's customer
management application software products to assist it in operating its business.
Software Licenses
The Company develops and licenses application software to each of its
served vertical markets. The component applications of the Banner product line
are developed for a client/server, Oracle relational database environment. The
Adage software is an object based, supply chain execution/ERP system which
combines client/server technology with multi-site functionality using a number
of relational database platforms including Oracle and Microsoft SQL Server. The
Fygir software is an object based, APS system which uses client/server
technology and operates with a number of ERP relational database platforms. The
following are the Company's key application software products:
Banner2000 and Plus2000. Banner2000 is SCT's net-centric software for
administrative computing in higher education. This suite of software
applications is built with a business process orientation and a business
enterprise focus. The software enables institutions to process student
information including financial aid, student records, admissions, and
registration in a centralized or distributed information environment using
imaging and self service on the World Wide Web. In addition, Banner2000 offers
systems to assist with common administrative functions, including human
resources and financial management. Plus2000 offers a suite of Web-enabled
administrative applications to traditional mainframe and minicomputer-based
institutions.
Banner Web Applications. SCT's Web applications address client
requirements for decentralized routine processing and inquiry while maintaining
centralized control of information and access. These applications are currently
available for the higher education market under the product names Web for
Students, Web for Employees, Web for Executives, Web for Alumni, and Web for
Faculty & Advisors. Students can check the availability of courses, build a
schedule, and register on line; apply for financial aid; apply for admissions;
and determine admission status. Information about their grades, schedules, and
transcripts is available and they can query the system about their account
balances and addresses.
SCT Learning Suite. SCT Learning Suite is a Web-enabled distance
learning product designed to deliver both online and offline distributed
learning, and to support in-classroom instruction for both the traditional and
non-traditional learner. SCT Learning Suite can be integrated with the Campus
Pipeline offering to access the administrative data warehoused in the Company's
Banner2000 and Plus2000 product offerings.
Campus Pipeline. Campus Pipeline is an Internet portal product that
allows higher education users, including students, prospective students,
faculty, and staff to access the Internet from a customized home page that
integrates with SCT's Web-based application products. Institutions can elect to
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obtain a license under a fee-waived basis, in exchange for which the institution
agrees to allow commercial providers of goods and services to advertise their
offerings on the user's home page, or on a fee-paid basis under which no or
limited advertising is permitted. The Campus Pipeline product is owned by Campus
Pipeline, Inc., an affiliate of the Company, and is marketed by the Company
under the terms of an agreement with Campus Pipeline.
Banner for Energy and Utilities. SCT provides a suite of Banner
software applications to gas, electric, water, waste water, refuse and other
utilities. This software is Web-enabled and rule-based, can be quickly adapted
for changes in business strategy, and provides energy companies and utilities
with customer management, marketing, and supply chain management tools to
support their changing needs and competitive requirements. Banner CMS assists
energy companies and utilities in providing customer service, responding to
customer inquiries, supporting new service offerings, generating accurate and
timely billing, and managing resources. The Company also offers Banner Customer
Target+ for energy and utility marketing programs; Banner Customer Elink for
deregulated consumption and supply contract management; and Banner Customer Web
Access for customer self-inquiry and administration.
SCT Courts. In fiscal 1999, SCT continued to concentrate on the
changing conditions in the courts arena, enhancing its Courts case management
product which helps streamline complex court processing including docket
management and scheduling.
Adage and Fygir. SCT offers its supply chain management solutions,
Adage supply chain execution/ERP software and Fygir supply chain planning/APS
software, to the process manufacturing and distribution industries. Adage
consists of objects configured around industry-specific business and supply
chain processes. Adage enables users to integrate enterprise functions such as
planning, production execution, forecasting, procurement, formula and process
management, inventory management, customer service, customer order management,
logistics, distribution, and finance and accounting. Adage is designed to meet
the specific requirements of process manufacturers and distributors including
food and beverage, chemicals, metals, minerals, and consumer packaged goods
manufacturers on the Windows NT and UNIX platforms. The Fygir product suite
consists of two constituent modules for Advanced Planning and Advanced
Scheduling. The Fygir products enable users to improve their supply chain
management performance and make their manufacturing process more efficient by
applying mathematical techniques to optimize the supply chain. Fygir is designed
to meet the specific requirements of process manufacturers and distributors
including food and beverage, chemicals, consumer packaged goods, and
pharmaceutical manufacturers and runs on the Windows NT platform.
The Company currently has an agreement with Oracle Corporation allowing
the Company to sublicense a limited-use Oracle system, which enables a client to
use Oracle with Banner at a significantly lower cost than a full-use Oracle
license. The agreement expires in July 2003. The Company's results of operations
could be adversely affected if Oracle's market acceptance declined or its
customer base eroded.
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Software Services
The Company provides a variety of professional services, including
systems implementation, modification, training, support, and information systems
planning and integration. When obtaining a license to use SCT's application
software, clients typically purchase specific initial services, such as
installation, training, and other client support activities. The Company also
provides systems integration services for software implementations that include
training, data conversion, integration, and customizations for client systems.
These contracts are typically longer in term than software support services and
shorter in term than information technology outsourcing services. The Company
also markets separate service offerings which support Year 2000 issues and
disaster recovery services, allowing for scalable contracts based upon client
need.
Contracts for software services may be either on a fixed price or time
and materials basis. Fixed-price contracts require the Company to perform
specified services for a fixed payment. The Company negotiates the fee to be
charged based on its estimate of the total expenses to be incurred in providing
the services. In the event the Company's costs to perform a software services
contract become greater than originally anticipated, the Company's profit on
that contract would be reduced and the Company could suffer a loss.
Maintenance and Enhancements
In addition to a license of the Company's application software, clients
typically enter into a maintenance agreement with the Company, usually for terms
ranging from one to seven years, which entitles the client to telephone support,
regulatory updates, and functional and technical enhancements. The annual
maintenance fee generally is 15% of the license fee, and generally increases
each year by a specified percentage.
Product Development
Research and Development
SCT devotes substantial resources to product development in order to
address evolving clients' needs and provide new product offerings. The product
development staff is comprised of experts in various functional areas. Technical
experts include specialists in object technology, the Internet, systems
software, operating systems, and relational databases. Product development
expenditures, including expenditures for software maintenance, for the fiscal
years ended September 30, 1999, 1998, and 1997 were approximately $53,961,000,
$39,203,000, and $25,941,000, respectively. After capitalization approximately
$44,913,000, $31,188,000, and $18,434,000, respectively, of these amounts were
charged to operations as incurred. For the same fiscal years, amortization of
capitalized software costs (which are not included in the aforementioned
amounts) amounted to approximately $5,208,000, $4,924,000, and $2,850,000,
respectively.
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Development Strategies
In fiscal 1999, SCT's Enterprise Solutions Development group was
renamed the Cross-Industry Software Solutions team. This group focuses on
providing technology research and adoption services to the rest of the SCT
organization. These services will focus on research into innovative technologies
and knowledge dissemination. During fiscal 1999, the Cross-Industry Software
Solutions team continued development of SCT Workflow, a business process
framework that supports the flow of information and business processes between
role players in an organization.
For the higher education market, the Company acquired RSmart Learning
Systems Corporation and combined the SCT Aspire product and the RSmart
technology to create an object based, Web browser accessible distance learning
system that is fully integrated with the Banner2000, Plus2000, and Campus
Pipeline products. Also, in conjunction with a group of college and university
advisors, the Company began development of the SCT Relationship Leverage
Solution, an object oriented, Web-based system that will expand the Company's
higher education solutions to move beyond a transaction management system and
into an interaction management system to help customers achieve breakthrough
results from leveraging relationships with their key constituents. The SCT
Relationship Leverage Solution is being developed using industry standards such
as CORBA and Enterprise Java Beans and will use a distributed component
architecture and industry standard databases such as Oracle, IBM DB2, and SQL
Server.
For the process manufacturing and distribution market, the Company is
developing an Internet Business Suite, which is a business-to-business eCommerce
solution that links with ERP and supply chain applications. The Company is also
continuing development on the Fygir Demand Planning product it acquired in May
1999, a demand forecasting solution which will extend and complement its current
Fygir products and will support Web-based forecast analysis, which is a key
element of supply chain planning.
For the energy and utilities market, the Company is developing a
Web-enabled n-tiered customer management and fulfillment suite based upon the
Microsoft component architecture. This architecture supports a Web browser based
desktop client and the NT/SQL Server operating and data base systems which are
becoming standards for key energy and utility market segments both in the United
States and abroad.
For the government market, the Company is developing an eFile
management system which will bring electronic filing inside the court by
integrating with the court's internal case management and document management
applications. This Internet-based electronic filing system will allow courts to
manage, view, process, store, distribute, and retrieve electronic filings, and
to communicate key information with filers, offering productivity benefits to
both the court and its filers.
General
The Company's ability to sustain growth depends in part on the timely
development or acquisition of successful new products and improvements to
existing products. However, software development is a complex and creative
process that can be difficult to accurately schedule and predict.
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Sales and Marketing
The Company attracts clients primarily through the following means: its
own sales force of approximately 161 direct salespersons and support staff, of
which approximately 130 are engaged in selling software licenses and related
services and approximately 31 are engaged in selling the Company's outsourcing
and certain professional services; referrals from existing clients and others;
and active participation in industry conferences, trade shows, and seminars
within its markets. SCT International, headquartered in London, England,
operates as an international extension of the four industry market units. In the
higher education, energy and utilities and process manufacturing and
distribution markets, the Company utilizes distributors in certain international
markets. The Company also engages in cooperative marketing efforts with other
hardware and software suppliers, and advertises in trade journals and
publications.
The sales cycle for the Company's software and services typically
ranges from six to 24 months and involves product demonstrations and site
visits. Contracts are often offered by means of a public bidding procedure,
certain of which require the Company to appear at public hearings.
Although the Company's market units have separate sales organizations,
each focuses on cross selling opportunities to market the products and services
of the other. Each sales group is comprised of regional salespersons, industry
specialists, and corporate and client-based technical specialists.
Competition
In each of its markets, SCT has able competitors, which differ
depending upon the characteristics of the customer including its size,
geographic location, and computing environment. Many established competitors
have greater marketing, technical, and financial resources than the Company, and
there can be no assurance that SCT will be able to continue to compete
successfully with existing or new competitors.
In the outsourcing services business, the Company competes with several
large providers of services, including International Business Machines
Corporation ("IBM"), Electronic Data Systems Corporation ("EDS"), and Affiliated
Computer Services, Inc., as well as smaller providers such as Business Records
Corporation in the government market. In the software services business, the
Company competes with several large providers of systems integration services,
including IBM, EDS, Unisys, Andersen Consulting, Cambridge Technology Partners,
and the so-called Big Five accounting firms, as well as smaller providers of
software consulting services. The Company also competes with in-house
information management and resource development staffs at potential customer
sites. Competitive factors in these businesses include the technical expertise
of on-site and support personnel, functional and industry-specific expertise,
availability and quality of hardware and software support, experience,
reputation, and price.
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In the application software business, the Company competes with other
providers of packaged application software and companies offering to develop
custom software. Competition also varies by vertical market. Within the higher
education market, the Company's principal competitors are PeopleSoft and
Datatel. The government and energy and utilities markets are highly fragmented
and competition varies significantly within these markets depending upon the
customers' computing platforms. Competitors in the government market include
Unisys, IBM, Progressive Solutions, Inc., Crawford Consulting, and Justice
Systems Inc. Competitors in the energy and utilities market include SAP, Severn
Trent, ORCOM, SPL, IBM, and Andersen Consulting. The process manufacturing and
distribution market is highly competitive and competitors include SAP,
PeopleSoft, Baan, Oracle, J.D. Edwards, Ross, I2, Manugistics, and Logility.
Competitive factors in all the software markets served by the Company include
price and performance, technology, functionality, portability, software support,
and the level of market acceptance of the competitor's products.
Backlog
At September 30, 1999, the revenues expected to be received by SCT
under outsourcing services contracts, which are based on proposed budgeted
amounts in those contracts, and under software license and services agreements,
including systems integration, maintenance and enhancements, support services,
and software implementation, modification and training, amount to approximately
$682 million as compared to approximately $758 million at September 30, 1998 and
extend through December 2008. Of the $682 million, approximately $261 million is
expected to be recognized in fiscal 2000. Approximately $354 million of the $682
million applies to outsourcing services contracts. These figures include, in
connection with outsourcing services contracts, any guaranteed minimum price
increases provided in the contracts.
SCT is unable to predict the impact, if any, on its future revenues
that may result from reductions in the budgets of customers in its targeted
markets. Any such reductions could impact new contracts as well as existing
contracts. Certain educational institutions and government jurisdictions cannot
contractually commit beyond the fiscal year for which their budgets have been
approved. For this reason, their contracts with SCT usually contain a "fiscal
funding" clause which provides that if there is a reduction in the computing
services budget, the level of SCT services will be reduced accordingly, or
terminated in certain circumstances. If there is a substantial reduction in the
budget, SCT may, at its option, terminate the contract or reduce service levels
consistent with funding. The backlog at September 30, 1999 includes
approximately $181 million of outsourcing services contracts with fiscal funding
clauses.
Backlog is not necessarily indicative of actual revenues for any
succeeding period.
Proprietary Software Protection
SCT's software is proprietary and SCT relies primarily upon copyright,
trade secret laws, and internal non-disclosure safeguards generally incorporated
in its software license agreements to protect its software. There can be no
assurance that such protection will be effective. In addition, other holders of
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patents and copyrights may assert claims of infringement with respect to the
Company's products. To date, SCT is not aware of any material breach in the
security of its products or any claims of infringement asserted against it.
Employees
As of September 30, 1999, the Company employed approximately 3,700
employees, of which approximately 850 are resident in Malvern, Pennsylvania,
with the remainder resident primarily at the Company's various offices and
client sites. None of the Company's employees are subject to collective
bargaining agreements, except for approximately 13 employees at one client site.
The Company considers its relationship with its employees to be satisfactory.
When the Company receives a new outsourcing services contract, it
generally recruits most of the existing employees of the client's data
processing department to become SCT employees. However, the Company also
supplies some senior level personnel from its own group of trained specialists,
which requires the Company to identify employees willing to relocate to the
client's area.
Executive Officers of SCT
The Executive Officers of SCT are as follows:
Position and Office
Name Age Currently Held
- --------------------- --- --------------------------------------
Michael J. Emmi 57 Chairman of the Board, President, and
Chief Executive Officer; Director
Michael D. Chamberlain 55 President, Global Operations; Director
Eric Haskell 53 Senior Vice President, Finance &
Administration, Treasurer, and Chief
Financial Officer
Richard A. Blumenthal 51 Senior Vice President, General
Counsel and Secretary
Mark A. Cochran 42 Senior Vice President, Human
Resources & Organizational Strategy
Jerry A. Smith 40 Senior Vice President and Chief
Technology Officer
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Officers are appointed by the Board of Directors, typically at its
first meeting after the annual meeting of shareholders for such terms as the
Board of Directors shall determine or until their successors have been elected
and have qualified.
Business Experience During the Past Five Years of Each Officer
Michael J. Emmi has served as Chairman of the Board, President, and
Chief Executive Officer of the Company since May 1985. He is also a director of
CompuCom Systems, Inc., Safeguard Scientifics, Inc., and CDI Corporation.
Michael D. Chamberlain has served as a director of the Company since
July 1989. He has been President, Global Operations since July 1999 and prior
thereto was President of the SCT Software Group from May, 1994. Prior thereto,
he was Senior Vice President of the Company since July 1990 and Vice President
since September 1986 during which time he was President of the Software and
Technology Services Division, the Company's higher education software business.
Eric Haskell has served as Senior Vice President, Finance &
Administration, Treasurer, and Chief Financial Officer of the Company since July
1990, and prior thereto, as Vice President, Finance and Administration,
Treasurer, and Chief Financial Officer since March 1989.
Richard A. Blumenthal has served as Senior Vice President, General
Counsel and Secretary of the Company since July 1990, and prior thereto, as Vice
President, General Counsel and Secretary since July 1987. He has been General
Counsel of the Company since December 1985.
Mark A. Cochran has served as Senior Vice President, Human Resources &
Organizational Strategy since November 1998. Prior thereto, he served as Vice
President, Human Resources & Organizational Strategy from September 1997 and has
held the following positions in the Company's former Technology Management
Division: Vice President, East Region from August 1996 to September 1997; Vice
President, Atlantic Region from May 1995 to August 1996; and General Manager,
West Coast North Region from January 1995 to May 1995. Prior to joining the
Company, he was National Director, Biomedical Computer Systems for the American
Red Cross from January 1991 to January 1995.
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Jerry A. Smith has served as Senior Vice President and Chief Technology
Officer since August 1999. Prior thereto, he was Chief Technology Officer of
Lingafranca, d/b/a Semaphore Corporation, a global consulting and training firm,
from January 1997 to September 1999; President of Marketplace Technologies,
Inc., a software development and design firm, from January 1996 to January 1997;
and Senior Technologist of Xerox Corporation from August 1994 to January 1996.
ITEM 2. PROPERTIES.
SCT occupies four adjacent buildings and a portion of a fifth building
in the Great Valley Corporate Center in Malvern, Pennsylvania. The Company's
corporate headquarters are located in one of the five buildings in an
approximately 47,000 square-foot facility owned by the Company. Of the remaining
four adjacent office buildings, the Company owns an approximately 56,200
square-foot facility, used by its Global Education Solutions market unit, leases
an approximately 48,900 square-foot facility, used for general corporate
operations, under a lease which expires in August 2005, leases an approximately
70,000 square-foot facility, used by its Global Manufacturing & Distribution
Solutions market unit, under a lease which expires in November 2008 and leases
10,050 square feet of an approximately 95,000 square foot facility that is used
for general corporate operations.
In October 1998 the Company entered into a ten-year lease for an
approximately 73,900 square foot office building, used for its general corporate
operations, in Frazer, Pennsylvania, which is near its Malvern campus.
The Company owns and occupies an approximately 45,000 square-foot
facility in Rochester, New York that is used by its Global Education Solutions
market unit. In Lexington, Kentucky, the Company leases an approximately 55,400
square foot facility, used by its Global Government Solutions market unit which
expires in March 2004. In Columbia, South Carolina, the Company owns and
occupies an approximately 60,000 square-foot facility, has various leases for an
aggregate of approximately 27,700 square feet which expire on various dates
through September 2002 and owns a 80,000 square foot facility, all of which are
used by the Company's Global Energy, Utilities & Communications Solutions market
unit. In December 1998 the Company purchased an additional nine acres in
Columbia, South Carolina to allow for future growth. SCT leases offices in
various cities throughout the United States including an approximately 37,000
square foot facility in San Diego, California, used by its Global Education
Solutions and Global Energy, Utilities & Communications Solutions market units,
which expires in December 2002, and also leases office space, used by the
various market units, in London, England, Manchester, England, Sophia, France
and Rijswijk, the Netherlands.
SCT believes that its facilities are adequate for its present business
needs.
ITEM 3. LEGAL PROCEEDINGS.
On November 22, 1999, the Court approved the settlement of the class
action lawsuit filed on October 4, 1995 by John J. Wallace in the United States
12
<PAGE>
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 & Administration,
Treasurer, and Chief Financial Officer of the Company alleging violations of
certain provisions of the federal securities laws. Under the terms of the
settlement the Company paid $750,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
SCT's Common Stock is traded on the Nasdaq Stock Market under the
symbol "SCTC". The following table sets forth its high and low sale
prices (after giving effect to the stock split in May, 1998) on the
Nasdaq Stock Market for the specified quarter.
Period
Year ended September 30, 1999 HIGH LOW
1st quarter 22 8 1/2
2nd quarter 14 3/4 7 13/16
3rd quarter 18 9 1/4
4th quarter 19 1/2 12 1/4
Year ended September 30, 1998 HIGH LOW
1st quarter 26 1/4 16 3/4
2nd quarter 25 1/2 17 1/4
3rd quarter 29 20 3/8
4th quarter 30 7/8 11 1/2
The approximate number of stockholders of record of SCT's Common Stock
as of September 30, 1999 was 501.
SCT has not paid any dividends for more than the last two fiscal years.
The Company's revolving credit agreement prohibits the Company from
declaring or paying any dividends other than stock dividends.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
Year Ended September 30,
1999 1998* 1997 1996 1995**
<S> <C> <C> <C> <C> <C>
Revenues $466,211 $403,668 $290,046 $215,258 $176,148
Income before income taxes 35,416 38,232 38,617 16,003 10,316
Provision for income taxes 16,117 16,858 15,726 6,884 7,258
Net income 19,299 21,374 22,891 9,119 3,058
Net income per common share 0.59 0.64 0.76 0.32 0.12
Net income per share -- assuming dilution 0.58 0.59 0.69 0.31 0.10
Common shares outstanding 32,494 33,532 29,996 28,140 26,148
Common shares outstanding -- assuming dilution 33,531 36,035 34,124 33,090 30,102
Working capital $134,561 $151,017 $ 83,217 $ 67,389 $ 63,555
Total assets 335,052 332,954 209,704 163,259 150,983
Long-term debt 78,232 78,425 2,549 31,590 31,790
Stockholders' equity 188,276 182,922 150,425 96,796 85,565
*Includes a pre-tax charge of $16,063 for purchased research and development in the year ended September 30, 1998. Results
without the charge for purchased research and development would have resulted in net income of $31,815 and net income per
share -- assuming dilution of $0.88.
**Includes a pre-tax charge of $8,700 for purchased research and development in the year ended September 30, 1995. Results
without the charge for purchased research and development would have resulted in net income of $11,758 and net income per share
- -- assuming dilution of $0.42.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The purpose of this section is to give interpretive guidance to the
reader of the financial statements. For specific policies and breakdowns, refer
to the consolidated financial statements and disclosures. This Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains descriptions of the Company's expectations regarding future trends
affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995.
Overview
- --------------------------------------------------------------------------------
Systems & Computer Technology Corporation (the "Company") develops, licenses,
and supports a suite of client/server, enterprise software and provides a range
of information technology outsourcing services. In addition, the Company offers
a series of related services including systems implementation, systems
integration, and maintenance and enhancements. The Company's markets are higher
education, government, process manufacturing and distribution, and energy and
utilities. The Company's focus on four vertical markets enables it to develop
and utilize a base of industry expertise to deliver products and services that
address specific client requirements.
The Company licenses software under license agreements and provides support
services including training, installation, consulting, and maintenance and
enhancements. Maintenance and enhancement agreements provide for telephone
support and error correction for current versions of licensed systems, as well
as regulatory updates and functional and technical enhancements to licensed
systems if and when they become generally available.
The Company derives services revenues from a variety of professional services,
which include information systems planning, implementation, integration, and
customization services for client systems. These services contracts are
typically longer in term than software support services and shorter in term than
information technology outsourcing services.
The Company provides information technology outsourcing services, which are
comprised of a range of information technology areas including end-user
computing solutions, network management, applications outsourcing, and business
process outsourcing. These services are designed to assume total or partial
control and responsibility for clients' information resources, generally on a
long-term basis. The Company provides management, staffing, and support with
skilled information systems personnel and industry specialists who are
knowledgeable in both computer-based technologies and the functional aspects of
clients' activities.
Results of Operations
- --------------------------------------------------------------------------------
The following table sets forth: (i) income statement items as a percentage of
total revenue and (ii) the percentage change for each item from the prior-year
comparative period.
<PAGE>
<TABLE>
<CAPTION>
% of Total Revenue % Change from
Year Ended September 30, Prior Year
1999 1998 1997 1999 1998
<S> <C> <C> <C> <C> <C>
Revenues
Outsourcing
services 29% 31% 34% 8% 29%
Software sales 17% 24% 26% (19)% 27%
Maintenance and
enhancements 17% 16% 18% 25% 21%
Software services 37% 28% 22% 54% 78%
Other, primarily
interest -- 1% -- (69)% 776%
Total 100% 100% 100% 15% 39%
Expenses
Cost of services, software sales,
and maintenance
and enhancements 67% 63% 62% 23% 42%
Selling, general,
and administrative 24% 23% 25% 24% 28%
Charge for purchased
research and
development -- 4% -- -- --
Interest expense 1% 1% -- 16% 227%
Income before
income taxes 8% 9% 13% (7)% (1)%
</TABLE>
For the year ended September 30, 1999, selling, general, and administrative
expense includes equity in losses of affiliate of $3.2 million or 0.7% of total
revenues.
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 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.
Year Ended September 30,
1999 1998 1997
Gross Profit:
Outsourcing services 21% 19% 18%
Software sales and
maintenance and enhancements 46% 57% 64%
Software services 30% 27% 18%
Total 33% 36% 38%
<PAGE>
Revenues: The 8% and 29% increases in outsourcing services
revenue in fiscal years 1999 and 1998, respectively, are primarily the result of
(i) increases in outsourcing services provided to a number of existing
significant clients and (ii) full-period effects of contracts signed throughout
fiscal years 1998 and 1997. Contract renewal rates, as a percentage of annual
revenue from contracts available for renewal, for the fiscal years 1999, 1998,
and 1997 were 64%, 82%, and 71%, respectively. Contracts available for renewal
in a particular period include contracts with expiration dates within the
period, as well as contracts renewed during the period that have expiration
dates in a later period.
Software sales decreased 19% in the year ended September 30, 1999 compared to
the prior year period due primarily to decreased licenses of Banner Customer
Information System (CIS) software in the energy and utilities market and Adage
Enterprise Resource Planning (ERP) software to the process manufacturing and
distribution market. Also contributing to the decrease were decreases in
licenses of Banner2000 software in the domestic higher education marketplace.
The decreases in fiscal year 1999 were offset by increased licenses in the
international utility and education markets. Software sales increased 27% in
fiscal year 1998 compared with fiscal year 1997 due primarily to increased
licenses of Banner CIS software to the energy and utilities market and increased
Banner2000 software licenses to the higher education market. The Company
experienced a slight increase in license fee revenue in fiscal year 1998 versus
fiscal year 1997 in its Adage ERP software.
The 25% and 21% increases in maintenance and enhancements revenue in fiscal
years 1999 and 1998, respectively, were the result of the growing installed base
of clients in the higher education, energy and utilities, and process
manufacturing and distribution marketplaces. The Company continues to experience
a high annual renewal rate on existing maintenance contracts in these
marketplaces, although there can be no assurances that this will continue.
Software services revenue increased 54% and 78% in fiscal years 1999 and 1998,
respectively, compared to the prior year periods primarily as the result of
increases in implementation and integration services in the energy and
utilities, higher education, and process manufacturing and distribution markets.
The increases in fiscal year 1998 were offset by decreases, compared to the
prior-year period, in services provided to the international utilities market.
The fluctuations in other revenue in fiscal years 1999 and 1998 are primarily
attributable to fluctuations in interest revenue earned on the Company's cash
and short-term investments balances. Interest revenue increased in fiscal year
1998 due to the increased cash and short-term investments balances during the
year resulting from a debt issuance in October 1997. Cash and short-term
investments balances were lower during fiscal year 1999 primarily as a result of
the acquisition of Fygir Logistic Information Systems, B.V. in September 1998
and the purchase of $22.0 million in treasury stock in the first six months of
fiscal year 1999.
<PAGE>
Gross Profit: Gross profit decreased as a percentage of total revenue (excluding
other revenue) from 36% for fiscal year 1998 to 33% for fiscal year 1999. The
total gross profit percentage decreased primarily because of a decrease in the
software sales and maintenance and enhancements gross profit, which makes up the
greatest percentage of the Company's total gross profit. This decrease was
primarily the result of increases in non-capitalized product development
expenditures combined with decreased software licenses, primarily in the process
manufacturing and distribution and energy and utilities markets, and to a lesser
extent, in the higher education market. The decrease in the software sales and
maintenance and enhancements gross profit was partially offset by an increase in
the gross profit of outsourcing services as a result of cost savings in fiscal
year 1999, and an increase in the software services gross profit as a result of
improved productivity and increased implementation and integration services
performed during fiscal year 1999 in the energy and utilities and process
manufacturing and distribution markets. The Company is continuing to focus on
software services in each of its markets. Since services margins have
historically been lower than the margins derived from software sales and
maintenance and enhancements, an increase in services revenue as a percentage of
total revenue historically has resulted in a lower overall profit margin.
Gross profit decreased as a percentage of total revenue (excluding other
revenue) from 38% to 36% for fiscal year 1998 as compared with fiscal year 1997.
The total gross profit percentage decreased primarily because of a decrease in
the software sales and maintenance and enhancements gross profit, which makes up
the greatest percentage of the Company's total gross profit. This decrease was
primarily the result of an increase in non-capitalized product development
expenditures, principally in the process manufacturing and distribution market,
at a rate greater than the revenue rate increase. The outsourcing services gross
profit increased in fiscal year 1998 versus fiscal year 1997 as a result of
higher margins on new contract signings compared with older contracts. The
software services margin increased primarily as a result of increased
profitability in energy and utilities and process manufacturing and distribution
services, although margins continued to be impacted by unprofitable
international operations.
Acquisitions: In August 1999, the Company acquired RSMART Learning Systems
Corporation. The Company intends to embed RSMART functions into its SCT Aspire
distributed learning software and integrate this functionality with other higher
education applications. The purchase price was paid with approximately 174,000
shares of the Company's common stock valued at $2.2 million. The Company
recorded goodwill of $.5 million related to the acquisition.
<PAGE>
In May 1999, the Company acquired Advanced Planning Systems, Inc., which offers
a demand planning product to the process manufacturing and distribution market,
for total consideration of $2.2 million comprised of approximately 104,000
shares of the Company's common stock valued at $1.6 million and $.6 million
cash. The Company recorded goodwill of $1.0 million related to the acquisition.
In September 1998, the Company acquired all of the outstanding stock of Fygir
Logistic Information Systems, B.V. (Fygir). Fygir is a leading provider of
supply chain planning software to the process manufacturing and distribution
market. The total cost of the acquisition was $35.4 million. In conjunction with
the acquisition, which was accounted for as a purchase, the Company recorded a
charge to operations of $16.1 million for in-process research and development at
the time of the acquisition. Included in this amount were the fair values of
Fygir products under development that had not reached technological feasibility
at the time of the acquisition.
The in-process technology acquired in the Fygir acquisition consisted of
multiple significant research and development projects, most of which the
Company continues to develop. The Company believes that these projects, which
can be separated into three categories -- Significant New Features, New
Technology, and Tightly Integrated -- will all contribute to future generations
of the Company's software. At the time of the Fygir acquisition, the Company
assigned a value of $16.1 million to the Fygir in-process technology with the
assistance of an independent valuation.
Significant New Features projects represent significant improvements to existing
core technology acquired that could result in price and sales increases. New
Technology projects are associated with the design of the next generation Fygir
products. Tightly Integrated projects are related to integrating Fygir-developed
technology with the Company's technology.
The Company estimates that the Significant New Features, New Technology, and
Tightly Integrated projects were in the aggregate approximately 70%, 50%, and
60% complete, respectively, as of the date of acquisition. At the time of the
Fygir valuation, the Company made projections regarding future revenues and
investment for the Fygir solution. Although fiscal year 1999 sales and research
and development expenditures were lower than anticipated, the Company maintains
its original total revenue and investment projections. The anticipated remaining
development project expenses are approximately $20.0 million.
The nature of the efforts required to develop the acquired in-process technology
into commercially viable products principally relates to the completion of all
planning, designing, and testing activities that are necessary to establish that
the product or service can be produced to meet its design requirements,
including functions, features, and technical performance requirements. Future
developments in the supply chain management industry, changes in other product
and service offerings, or other developments may cause the Company to alter or
abandon these plans.
<PAGE>
Investment in Campus Pipeline, Inc.: Throughout 1999, the Company made a series
of investments in Campus Pipeline, Inc., and, as of September 30, 1999, held an
approximately 60% interest in the common stock of this affiliate, valued at $4.7
million. The Company has determined that its control of Campus Pipeline is
temporary, and therefore has accounted for its investment using the equity
method of accounting. There are convertible preferred shares outstanding that,
if converted, would lower the Company's interest to less than 50%. Campus
Pipeline is expected to integrate the Internet with the Company's higher
education information systems, which provides 24-hour access to campus and
Internet resources and allows students to enroll, register for classes, view
grades, request transcripts and loan status, obtain reading lists, buy books,
access e-mail, and participate in interactive chat sessions with their
professors. The Company's proportionate share of the affiliate's losses for the
year ended September 30, 1999 was $3.2 million. The Company expects that its
investment will be reduced to zero in fiscal year 2000 as the Company continues
to record its proportionate share of losses of the affiliate.
Income Taxes: The fiscal year 1999 provision for income taxes does
not reflect the customary relationship between income before income taxes and
tax expense principally due to not recording a tax benefit for losses related to
the Company's foreign operations. Increased research and development
expenditures in fiscal year 1999 resulted in an increased research and
development tax credit, which expired June 30, 1999. The provision for income
taxes for the year ended September 30, 1998 does not reflect the customary
relationship between income before income taxes and tax expense principally due
to the write-off of purchased research and development, which is not deductible
for state income tax purposes. The rate was further affected by the expiration
of the research and development tax credit as of June 30, 1998. Subsequent to
the 1998 fiscal year end, the research and development tax credit was
reinstated.
At September 30, 1999, the Company has $28.5 million net operating loss
carryforwards in various states and $14.5 million of net operating loss
carryforwards in foreign jurisdictions. The state carryforwards expire in
various periods ending on or before September 30, 2014. The foreign tax losses
can be indefinitely carried forward. At September 30, 1999 and 1998, the Company
has valuation allowances of $3.7 million and $2.0 million, respectively, with
respect to the deferred tax assets related to the state and foreign
carryforwards. The Company's foreign subsidiaries must generate approximately
$6.3 million in pretax earnings in order to realize the related net deferred tax
asset. Management believes that it is more likely than not that the results of
future operations of its foreign subsidiaries will generate sufficient taxable
income to realize the Company's net deferred tax assets.
<PAGE>
Cyclical Nature of Business: Certain non-seasonal 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,
year 2000 issues, 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 $27.0 million and $18.9
million at September 30, 1999 and 1998, respectively. The short-term investments
balance decreased to $4.1 million at September 30, 1999 from $59.4 million at
September 30, 1998.
Cash provided by operating activities was $20.2 million for fiscal year 1999
compared with $28.5 million for fiscal year 1998. Operating cash flows have
decreased as the result of decreases in income before charges for purchased
research and development and depreciation and amortization in the year ended
September 30, 1999 and increases in accounts receivable and other current assets
balances. The increases in accounts receivable balances at September 30, 1999
compared to September 30, 1998 are primarily the result of the timing of
billings on software licenses and increased revenues. The increase in other
current assets is primarily the result of increases in prepaid tax balances.
The Company provides outsourcing services and software-related services,
including systems implementation and integration services. Contract fees from
outsourcing services are typically based on multi-year contracts ranging from
three to 10 years in length, 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
outsourcing services contracts, and billings are sometimes milestone based.
During the beginning of a typical outsourcing 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. In certain systems
integration contracts, services are performed by the Company but cannot be
billed until a milestone is attained. 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
outsourcing 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 systems
<PAGE>
integration services contract, although additional unbilled accounts receivable
will continue to build based on the terms of the contracts. The remaining
unbilled accounts receivable balance is comprised of software sales for which
product has been shipped and revenue has been recognized but amounts have not
been billed due to the contractual payment terms established. These unbilled
balances are generally billed within one year.
The Company's working capital at September 30, 1999 was $134.6 million and at
September 30, 1998 was $151.0 million.
Cash provided by investing activities was $9.6 million for fiscal year 1999
compared with cash used in investing activities of $119.3 million in fiscal year
1998. The Company's net proceeds from sales and maturities of available-for-sale
investments of $54.1 million were offset by purchases of property and equipment
and the investment in Campus Pipeline described above. The Company incurred
fit-up and remodeling costs for two buildings on and near its Malvern campus and
construction and fit-up costs for a new building adjacent to the Company's
existing building in Columbia, SC. The Company's primary use of cash for
investing activities in fiscal year 1998 was the purchase of available-for-sale
investments from the proceeds of the bond offering during the first quarter of
fiscal year 1998 and the aforementioned cash acquisition of Fygir.
Cash used in financing activities was $21.7 million for fiscal year 1999. Net
proceeds from borrowings were offset by principal payments on short-term debt
and consist primarily of activity in the Company's revolving credit facility.
The primary use of cash in financing activities was the purchase of $22.0
million in treasury stock. During fiscal year 1998, cash provided by financing
activities of $79.9 million was primarily the result of the net proceeds of the
bond offering.
The Company has a $30 million senior revolving credit facility available for
general corporate purposes. The credit facility agreement expires in June 2001
with optional annual renewals. There were no borrowings outstanding under the
credit facility at September 30, 1999 or 1998. 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 Company may not pay dividends (other than dividends payable in
common stock) or acquire any of its capital stock outstanding without a written
waiver from its lender.
In October 1998, the Company's Board of Directors authorized the repurchase of
up to 3 million of its common shares. The Company repurchased 2.3 million of its
common shares for $22.0 million. The Company's senior revolving credit agreement
covenants were amended in October 1998 to allow the Company to repurchase
capital stock not to exceed $35 million and 3 million shares before April 15,
1999. The Company is unable to repurchase additional shares of common stock
without another amendment to its credit agreement.
<PAGE>
The Company believes that its cash and cash equivalents, cash provided by
operations, short-term investments, and borrowing arrangements should satisfy
its financing needs for the foreseeable future.
On April 16, 1998, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on May 15, 1998 to shareholders of record on May 1, 1998.
Stockholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from capital in excess of
par value to common stock the par value of the additional shares arising from
the split. In addition, all references in the financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations to number of shares and per share amounts have been restated.
On April 9, 1997, the Company called for redemption its outstanding 6 1/4%
convertible subordinated debentures due September 1, 2003. The redemption date
was May 9, 1997. During fiscal year 1997, 2.1 million shares were issued related
to the conversion of all but $55,000 of the remaining convertible subordinated
debentures, of which 1.8 million shares were issued on the redemption date. Had
these converted shares been outstanding for the full year ended September 30,
1997, net income per common share for the year ended September 30, 1997 would
have decreased by $.04 to $.72.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128), was effective for periods ending after December 15, 1997. As a result, the
Company changed the method used to compute income per share and restated all
prior periods presented. Under the requirements of SFAS 128, net income per
common share excludes the dilutive effect of both stock options and convertible
debentures, and net income per share -- assuming dilution must include the
dilutive effect of both stock options and convertible debentures even if the
dilutive effect is immaterial.
Financial Risk Management: The Company invests its cash in a variety of
financial instruments, including state and municipal securities, corporate debt
securities, and money market instruments. These investments are denominated in
U.S. dollars. Investments in both fixed rate and floating rate interest-earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Historically, the Company's investment income has not been material
to the Company's financial results, and the Company does not expect that changes
in interest rates will have a material impact on the results of operations. See
Note B to the financial statements for additional information with respect to
the investment portfolio.
<PAGE>
The Company also has issued fixed-rate debt, which is convertible to Company
stock at a pre-determined conversion price. Convertible debt has characteristics
that give rise to both interest rate risk and market risk because the fair value
of the convertible security is affected by both the current interest rate
environment and the price of the underlying Company stock. For the year ended
September 30, 1999, the Company's convertible debt, on an if-converted basis,
was not dilutive and, as a result, had no impact on the Company's net income per
share -- assuming dilution. In future periods, the debt may be converted, or the
if-converted method may be dilutive and net income per share -- assuming
dilution would be reduced. See Note F to the financial statements for additional
information with respect to the Company's long-term debt.
Although the Company conducts business internationally, most of its contracts
are denominated in the U.S. dollar. The Company's primary international
subsidiary's functional currency is the British pound. Foreign currency exposure
is limited, as most financial assets and liabilities denominated in the foreign
currency are short term in nature.
Contingencies: On November 22, 1999, the Court approved the settlement of the
class action lawsuit filed on October 4, 1995, by John J. Wallace 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 &
Administration, Treasurer, and Chief Financial Officer of the Company alleging
violations of certain provisions of the federal securities laws. Under the terms
of the settlement, the Company paid $750,000.
New Accounting Standards: On October 1, 1998, the Company adopted Statement of
Position 97-2, "Software Revenue Recognition" (SOP 97-2). In December 1998,
AcSEC issued Statement of Position 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions" (SOP 98-9). SOP 97-2
introduces a framework whereby revenue would be recognized for each element in a
software licensing arrangement when certain criteria are met. SOP 97-2 requires
license fees to be allocated to the separate elements of multiple-element
arrangements based on "vendor-specific objective evidence of fair value" and
provides guidance on postcontract customer support arrangements. SOP 98-9, which
is effective for fiscal years beginning after March 15, 1999, requires
recognition of revenue on undelivered elements of a contract using the residual
method, as defined in SOP 98-9. The adoption of SOP 97-2 did not, and the
adoption of SOP 98-9 is not expected to, have a significant
<PAGE>
impact on the results of operations. However, the accounting profession
continues to review certain provisions of SOP 97-2, with the objective of
providing additional guidance on implementing its provisions. Depending upon the
outcome of these reviews and the issuance of implementation guidelines and
interpretations, the Company may be required to change its revenue recognition
policies and business practices, and such changes could have a material adverse
effect on the Company's business, results of operations, and/or financial
condition.
On October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No.130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires
disclosure of the components of total non-stockholder changes in equity as
comprehensive income. This includes foreign currency translation gains and
losses and unrealized gains and losses on equity securities that have been
previously excluded from net income and reflected instead in stockholders'
equity.
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 forecasts,
estimates, intentions, beliefs, anticipations, plans, 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 the risks and uncertainties that may have a material adverse effect
on the Company's business, results of operations, and/or financial condition.
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 cancelled 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.
Many potential clients are now focusing their efforts on remediating
existing systems or implementing new systems to solve year 2000 issues. While
the Company believes that such evaluations favorably impacted demand for its
software products and services in fiscal years 1997 and 1998, such demand has
diminished in fiscal year 1999 since
<PAGE>
services to remediate year 2000 issues must be completed in a timely manner and
lead times required to complete systems implementations now preclude system
replacement as a timely solution to the year 2000 issue. 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. Customers have been slowing down computer software
purchases as they devote more time to preparing the testing of their systems for
year 2000 readiness, rather than evaluating and implementing new systems.
It is difficult to predict when customer software purchases will return to
normal levels.
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 would likely 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 necessary to continue to
attract, retain, and motivate additional talented and qualified management,
sales, and technical personnel. Competition for hiring such personnel in the
information technology 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,
results of operations, and/or financial condition.
The application software industry is characterized by intense competition, 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 compete successfully and to continue to develop
and market new
<PAGE>
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. In addition, new distribution methods, like electronic channels
and opportunities presented by the Internet and electronic commerce, have
removed many of the barriers to entry historically faced by small and start-up
companies in the software industry. The Company expects to face increasing
competition in the various markets in which it competes.
The Company has invested in and entered into a strategic alliance with Campus
Pipeline. The Company expects to integrate its higher education information
systems with the Campus Pipeline product to provide 24-hour access to campus and
Internet resources and allow students to enroll, register for classes, view
grades, request transcripts and loan status, obtain reading lists, buy books,
access e-mail and participate in interactive chat sessions. While some of these
features have been included in a product which has been released by Campus
Pipeline, other features are scheduled for future releases. The success of this
investment and alliance is dependent upon the ability of Campus Pipeline to meet
development and implementation schedules for the product and enhance the product
over time, the market acceptance of the Campus Pipeline product, and the
Company's ability to integrate the Campus Pipeline product with the Company's
products cost-effectively and on a timely basis.
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 outsourcing services contracts, the Company's results of operations
could be adversely affected.
<PAGE>
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.
The impact on the Company of emerging areas such as the Internet, on-line
services, and electronic commerce is uncertain. There can be no assurance that
the Company will be able to provide a product offering that will satisfy new
customer demands in these areas. In addition, standards for network protocols
and other industry standards for the Internet are evolving rapidly. There can be
no assurance that standards chosen by the Company will position its products to
compete effectively for business opportunities as they arise on the Internet and
in other emerging areas.
The Company relies on a combination of copyright, trademark, trade secrets,
confidentiality procedures, and contractual procedures to protect its
intellectual property rights. Despite the Company's efforts to protect its
intellectual property rights, it may be possible for unauthorized third parties
to copy certain portions of the Company's products or to reverse engineer or
obtain and use technology or other information that the Company regards as
proprietary. There can also be no assurances that the Company's intellectual
property rights would survive a legal challenge to their validity or provide
significant protection to the Company. In addition, the laws of certain
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. Accordingly, there can be no assurance that
the Company will be able to protect its proprietary technology against
unauthorized third-party copying or use, which could adversely affect the
Company's competitive position.
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>
Year 2000: This section is a year 2000 readiness disclosure pursuant to the Year
2000 Information and Disclosure Act of 1998. In the past, many information
technology systems were designed with two-digit year codes that did not
recognize century fields. As a result, these technology systems may not function
or may give incorrect results during the period surrounding the year 2000.
The Company's senior management sponsors a Company-wide year 2000 team to
identify and resolve year 2000 issues associated with the Company's internal
information technology (IT) systems, internal non-IT systems, material
third-party relationships, and the products and services sold by the Company.
The Company's year 2000 readiness program includes: corporate awareness,
adoption of year 2000 standards, inventory, assessment, remediation, validation
testing, and contingency planning.
The Company has identified its main internal IT systems, has completed
remediation of needed year 2000 related modifications, and has substantially
completed testing. The Company has completed the assessment of its internal
non-IT systems and has also completed its evaluation of third-party
relationships for year 2000 issues.
The Company has designed the most current versions of its products to be year
2000 ready. The Company is communicating with its clients regarding the status
of the Company's products relating to year 2000. For products that were
identified as needing updates to address year 2000 issues, the Company has
completed the updates of these products, and has made the updates available to
clients in 1998 and 1999. Some of the Company's clients are using product
versions that the Company will not support for year 2000 issues; the Company has
encouraged these clients to migrate to current product versions that are year
2000 ready. Also, in certain client outsourcing and services contracts, the
Company is evaluating year 2000 issues for its clients' computing environments
and implementing year 2000 related remediations. Some of this client remediation
effort was completed in 1998 with the remainder of the client remediation effort
completed throughout 1999.
The Company has developed contingency plans to deal with issues that may arise
during the period surrounding the year 2000. The focus of this effort was to
identify high-risk areas associated with mission-critical functions and then to
develop appropriate contingency plans. The areas of planning include: expected
increases in client upgrade and support activities, problems caused by client
delays in implementing Company or third-party upgrades, possible disruptions in
the Company's external support systems and internal systems, employee matters,
and test exercises of contingency plan elements.
<PAGE>
The Company has funded its year 2000 program from operating cash flows and has
not separately accounted for these costs in the past. The Company has incurred
and will continue to incur additional amounts related to the year 2000 program
for administrative personnel to manage the project and for technical support for
its products, services, and internal IT systems. The Company believes that the
vast majority of these costs are not incremental to the Company but represent a
reallocation of existing resources and does not believe that these costs have
been material to the Company's financial position.
The Company believes that it has taken adequate actions in planning for the
period surrounding the year 2000; however, there are no assurances that the
Company will not experience serious unanticipated negative consequences that
could be caused by: (i) undetected date issues in the Company's products, (ii)
services provided by the Company in evaluating year 2000 issues for client
outsourcing and services contracts, (iii) difficulties with internal IT systems,
and (iv) failures or disruptions of external support systems. There can be no
assurances that all year 2000 issues will be identified and remediated and it is
possible that the Company may experience increased expenses in addressing these
issues. The most reasonably likely worst-case scenarios would include: issues
originating from clients who do not migrate to current product releases or who
experience other year 2000 related problems, and issues originating from
services provided by the Company in evaluating year 2000 issues for client
outsourcing and services contracts. It is possible that any such issue could
have a material adverse impact on the Company's operations and financial
results. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Financial Risk Management: The Company invests its cash in a variety of
financial instruments, including state and municipal securities, corporate debt
securities, and money market instruments. These investments are denominated in
U.S. dollars. Investments in both fixed rate and floating rate interest-earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Historically, the Company's investment income has not been material
to the Company's financial results, and the Company does not expect that changes
in interest rates will have a material impact on the results of operations. See
Note B to the financial statements for additional information with respect to
the investment portfolio.
The Company also has issued fixed-rate debt, which is convertible to Company
stock at a pre-determined conversion price. Convertible debt has characteristics
that give rise to both interest rate risk and market risk because the fair value
of the convertible security is affected by both the current interest rate
environment and the price of the underlying Company stock. For the year ended
September 30, 1999, the Company's convertible debt, on an if-converted basis,
was not dilutive and, as a result, had no impact on the Company's net income per
share -- assuming dilution. In future periods, the debt may be converted, or
the if-converted method may be dilutive and net income per share -- assuming
dilution would be reduced. See Note F to the financial statements for additional
information with respect to the Company's long-term debt.
Although the Company conducts business internationally, most of its contracts
are denominated in the U.S. dollar. The Company's primary international
subsidiary's functional currency is the British pound. Foreign currency exposure
is limited, as most financial assets and liabilities denominated in the foreign
currency are short term in nature.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except per share amounts) September 30,
Assets 1999 1998
Current Assets
<S> <C> <C>
Cash and short-term investments $ 31,108 $ 78,306
Receivables, including $75,567 and $66,158 of
earned revenues in excess of billings, net of
allowance for doubtful accounts of $5,841 and $4,033 148,967 130,457
Prepaid expenses and other receivables 23,030 13,861
--------------------------------
Total Current Assets 203,105 222,624
Property and Equipment--at cost, net of accumulated
depreciation 69,049 55,862
Capitalized Computer Software Costs, net of accumulated
amortization of $20,545 and $15,337 22,097 18,257
Cost in Excess of Fair Value of Net Assets Acquired, net of
accumulated amortization of $5,301 and $3,522 17,772 17,763
Other Assets and Deferred Charges 23,029 18,448
--------------------------------
Total Assets $ 335,052 $ 332,954
--------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 14,002 $ 17,720
Current portion of long-term debt 652 1,100
Income taxes payable 2,137 1,444
Accrued expenses 36,412 33,659
Deferred revenue 15,341 17,684
--------------------------------
Total Current Liabilities 68,544 71,607
--------------------------------
Long-Term Debt, net of current portion 78,232 78,425
--------------------------------
Total Liabilities 146,776 150,032
--------------------------------
Stockholders' Equity
Preferred stock, par value $.10 per share--authorized
3,000 shares, none issued -- --
Common stock, par value $.01 per share--authorized
100,000 shares, issued 36,734 and 36,275 shares 367 363
Capital in excess of par value 110,230 102,302
Retained earnings 103,251 83,952
Accumulated other comprehensive loss (51) (126)
--------------------------------
213,797 186,491
Less:
Held in treasury at cost, 4,642 and 2,302 common shares (24,911) (2,959)
Notes receivable from stockholders (610) (610)
--------------------------------
188,276 182,922
--------------------------------
Total Liabilities and Stockholders' Equity $ 335,052 $ 332,954
--------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998 1997
Revenues
<S> <C> <C> <C>
Outsourcing services $135,062 $125,554 $ 97,677
Software sales 78,840 97,844 76,948
Maintenance and enhancements 79,395 63,297 52,109
Software services 171,261 111,559 62,694
Other, primarily interest 1,653 5,414 618
--------------------------------------------------
466,211 403,668 290,046
--------------------------------------------------
Expenses
Cost of outsourcing services 107,069 101,656 79,650
Cost of software sales and maintenance
and enhancements 84,833 69,792 46,879
Cost of software services 119,904 81,488 51,627
Selling, general, and administrative 114,353 92,449 72,053
Charge for purchased research and development -- 16,063 --
Interest expense 4,636 3,988 1,220
--------------------------------------------------
430,795 365,436 251,429
--------------------------------------------------
Income before income taxes 35,416 38,232 38,617
Provision for income taxes 16,117 16,858 15,726
--------------------------------------------------
Net income $ 19,299 $ 21,374 $ 22,891
--------------------------------------------------
Net income per common share $ 0.59 $ 0.64 $ 0.76
Net income per share--assuming dilution $ 0.58 $ 0.59 $ 0.69
Common shares and equivalents outstanding:
Average common shares 32,494 33,532 29,996
Average common shares--assuming dilution 33,531 36,035 34,124
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(in thousands) Year Ended September 30,
1999 1998 1997
Operating Activities
<S> <C> <C> <C>
Net income $ 19,299 $ 21,374 $ 22,891
Adjustments to reconcile net income to net cash
provided by operating activities:
Charge for purchased research and development -- 16,063 --
Depreciation and amortization 26,064 16,927 12,808
Provision for doubtful accounts 3,294 2,483 4,136
Equity in losses of affiliate 3,161 -- --
Deferred tax (benefit) (181) (4,586) (1,051)
Changes in operating assets and liabilities:
(Increase) in receivables (21,806) (31,303) (27,518)
Decrease (increase) in interest receivable 1,197 (1,199) --
(Increase) decrease in other current assets,
principally prepaid expenses (9,164) (4,856) 1,735
(Decrease) increase in accounts payable (3,879) 7,396 3,349
Increase in income taxes payable 3,979 1,053 4,809
Increase in accrued expenses 2,387 7,171 10,291
(Decrease) increase in deferred revenue (2,432) 742 3,711
Changes in other operating assets and deferred charges (1,700) (2,758) (1,690)
-------------------------------------------------
Net Cash Provided by Operating Activities 20,219 28,507 33,471
-------------------------------------------------
Investing Activities
Purchase of property and equipment (26,773) (23,602) (11,837)
Capitalized computer software costs (9,048) (8,015) (7,507)
Purchase of investments available for sale (9,324) (156,689) --
Proceeds from the sale or maturity of investments
available for sale 63,431 99,206 --
Purchase of subsidiaries, net of cash acquired (842) (30,219) --
Investment in affiliate (7,879) -- --
-------------------------------------------------
Net Cash Provided by (Used in) Investing Activities 9,565 (119,319) (19,344)
-------------------------------------------------
Financing Activities
Repayment of long-term debt and credit facility (57,552) (15,225) (7,955)
Proceeds from borrowings, net of issuance costs 56,907 88,548 9,659
Repurchase of Company stock (21,952) -- (1,367)
Proceeds from exercise of stock options 901 6,622 3,042
-------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (21,696) 79,945 3,379
-------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 8,088 (10,867) 17,506
-------------------------------------------------
Cash and Cash Equivalents at Beginning of Year 18,942 29,809 12,303
-------------------------------------------------
Cash and Cash Equivalents at End of Year $ 27,030 $ 18,942 $ 29,809
-------------------------------------------------
Supplemental Information
Noncash investing and financing activities:
Purchase of subsidiaries--noncash portion $ 3,792 -- --
Conversion of subordinated debentures into common stock -- -- $ 31,220
</TABLE>
See notes to consolidated financial statements
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
(in thousands)
Accumulated Notes Total
Common Capital in Other Receivable Stock-
Stock Excess Retained Comprehensive Treasury from holders'
Par Value of Par Value Earnings Income (Loss) Stock Stockholders Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ 304 $ 60,376 $ 39,687 $ (2) $ (2,959) $ (610) $ 96,796
Stock issued under stock option plans,
including tax benefits, 870 shares 10 3,233 3,243
Stock repurchase and retirement,
368 shares (4) (2,863) (2,867)
Conversion of 6 1/4% convertible
subordinated debentures, 4,162 shares 42 30,314 30,356
Comprehensive income
Foreign currency translation adjustment 6 6
Net income, year ended September 30, 1997 22,891 22,891
--------
Total comprehensive income 22,897
-------------------------------------------------------------------------------------
Balance at September 30, 1997 352 91,060 62,578 4 (2,959) (610) 150,425
-------------------------------------------------------------------------------------
Stock issued under stock option plans,
including tax benefits, 1,129 shares 11 11,242 11,253
Comprehensive income
Foreign currency translation adjustment (162) (162)
Unrealized gain on marketable securities 32 32
Net income, year ended September 30, 1998 21,374 21,374
--------
Total comprehensive income 21,244
-------------------------------------------------------------------------------------
Balance at September 30, 1998 363 102,302 83,952 (126) (2,959) (610) 182,922
-------------------------------------------------------------------------------------
Stock issued under stock option plans,
including tax benefits, 181 shares 2 4,138 4,140
Issuance of stock for acquisitions,
278 shares 2 3,790 3,792
Purchase of treasury stock, 2,340 shares (21,952) (21,952)
Comprehensive income
Foreign currency translation adjustment 110 110
Unrealized loss on marketable securities (35) (35)
Net income, year ended September 30, 1999 19,299 19,299
--------
Total comprehensive income $ 19,374
-------------------------------------------------------------------------------------
Balance at September 30, 1999 $ 367 $ 110,230 $ 103,251 $ (51) $ (24,911) $ (610) $ 188,276
-------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
Note A -- Significant Accounting Policies
Consolidation Policy: The accompanying consolidated financial statements include
the accounts of Systems & Computer Technology Corporation and its subsidiaries
(the "Company"). Intercompany items have been eliminated in consolidation. The
Company accounts for its investment in an affiliated company, in which it has a
60% interest, under the equity method of accounting because control is
temporary.
Nature of Operations: The Company develops, licenses, and supports
a suite of client/server, enterprise software and provides a range of
information technology outsourcing services. In addition, the Company offers a
series of related software services including systems implementation, systems
integration, and maintenance and enhancements. The Company's markets are higher
education, process manufacturing and distribution, energy and utilities, and
government.
Risks and Uncertainties: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Changes in the status of certain facts or
circumstances could result in material changes to the estimates used in
preparation of the financial statements and actual results could differ from the
estimates and assumptions used. Credit risk with respect to trade accounts
receivable is generally diversified due to the large number of entities
comprising the Company's customer base. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends, and other information.
Revenue Recognition: During the first several years of a typical outsourcing
services contract, services are performed and expenses are incurred by the
Company at a greater rate than in the later years of the contract. Since
billings usually remain constant during the term of the contract, and revenue is
recognized as work is performed, revenues usually exceed billings in the early
years of the contract. The resulting excess is reflected on the Company's
Consolidated Balance Sheet as unbilled accounts receivable. As a contract
proceeds, services are performed and expenses are incurred at a diminishing
rate, resulting in billings exceeding revenue recognized, which causes a
decrease in the unbilled accounts receivable balance. All of the unbilled
receivables at September 30, 1999 resulting from outsourcing services contracts
will be billed within the normal twelve-month business cycle, although
additional unbilled receivables will continue to build based on the terms of the
contracts. These contracts require estimates of periodic revenue earned and
costs to be incurred to deliver products or services and are subject to revision
as work progresses. Revisions in the estimates are reflected in operations in
the period in which facts requiring those revisions become known.
Certain contracts provide for reimbursement of expenses, which are classified as
a reduction of operating expenses in the accompanying financial statements.
<PAGE>
Certain of the Company's outsourcing services 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.
Revenues are recognized under such contracts only when the likelihood of
cancellation is considered by the Company to be remote.
The Company licenses software under license agreements and provides services
including training, installation, consulting, and maintenance and enhancements.
Maintenance and enhancement agreements provide for telephone support and error
correction for current versions of licensed systems, as well as regulatory
updates and functional and technical enhancements to licensed systems, if and
when they become generally available. Fees for maintenance and enhancements
agreements are recognized ratably over the term of the agreements. License fee
revenues are recognized when a license agreement has been signed, the software
product has been shipped, the fees are fixed and determinable, collection is
considered probable, and no significant vendor obligations remain. For customer
license agreements that meet these recognition criteria, the portion of the fees
related to software licenses will generally be recognized in the current period,
while the portion of the fees related to implementation and other professional
services is recognized as such services are performed. The Company does not
separately present the cost of maintenance and enhancements revenues because it
is impracticable to separate such cost from the cost of software sales. The
Company's policy is to charge interest on or discount unbilled software and
services receivables not expected to be billed within one year, which were
approximately $1,355 and $585 at September 30, 1999 and 1998, respectively. The
Company classifies such receivables as current assets consistent with its
business cycle.
The Company has "bundled" contracts, which combine either outsourcing services
or other software services with software licenses. The Company allocates revenue
to each component of the contract based on objective evidence of its fair value,
which is specific to the Company, or, for products not being sold separately,
the price established by management. Because licensing of the software is not
dependent on continuation of the outsourcing services or other software services
portions of the contract, the software revenue is recognized upon delivery. The
remainder of the contract revenue is recorded as earned in the Company's
consolidated statement of operations as outsourcing services or software
services revenue.
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.
<PAGE>
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.
Short-Term Investments: In accordance with SFAS 115, management determines the
appropriate classification of debt securities at the time of purchase.
Available-for-sale securities are stated at fair value.
Long-Lived Assets: Equipment is depreciated over its estimated useful life, for
periods ranging from three to 10 years, using the straight-line method.
Buildings and related improvements are depreciated using the straight-line
method, for periods up to 30 years.
Cost in excess of fair value of net assets acquired is associated with the
companies acquired, and is amortized over periods ranging from 10 to 20 years
using the straight-line method. The Company periodically reviews for impairment
the carrying value of the costs in excess of net assets acquired. The Company
will record an impairment in its operating results if the carrying value exceeds
the future undiscounted cash flows of the related assets.
Capitalized Computer Software Costs: The Company capitalizes direct and certain
qualifying indirect costs associated with development of software for resale.
Amortization of such capitalized costs is the greater of the amount computed
using (i) the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues of that product or (ii) the
straight-line method over the remaining estimated economic life of the product,
including the period being reported on. Amortization begins when the product is
available for general release to customers.
Common Stock Split: On April 16, 1998, the Company's Board of Directors
authorized a two-for-one stock split effected in the form of a 100% stock
dividend distributed on May 15, 1998 to shareholders of record on May 1, 1998.
Stockholders' equity has been restated to give retroactive recognition to the
stock split for all periods presented by reclassifying from capital in excess of
par value to common stock the par value of the additional shares arising from
the split. In addition, all references in the financial statements to number of
shares and per share amounts have been restated.
Income Per Share: Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS 128), was effective for periods ending after December 15, 1997.
As a result, the Company changed the method used to compute income per share and
restated all prior periods presented. Under the requirements of SFAS 128, net
income per common share excludes the dilutive effect of both stock options and
convertible debentures, and net income per share -- assuming dilution must
include the dilutive effect of both stock options and convertible debentures
even if the dilutive effect is immaterial. A reconciliation of the numerators
and the denominators of net income per common share and net income per share --
assuming dilution follows:
<PAGE>
1999 1998 1997
Numerator
Net income available to
common stockholders,
used for net income per
common share $19,299 $21,374 $22,891
Effect of dilutive securities:
6 1/4% convertible debentures -- -- 515
---------------------------------------
Net income available to
common stockholders
after assumed conversions $19,299 $21,374 $23,406
Denominator
Denominator for net income
per common share--weighted-
average shares 32,494 33,532 29,996
Effect of dilutive securities:
Employee stock options 1,037 2,503 1,826
6 1/4% convertible debentures -- -- 2,302
---------------------------------------
Dilutive potential common shares 1,037 2,503 4,128
Denominator for net income per
share--assuming dilution 33,531 36,035 34,124
---------------------------------------
Net income per common share $ 0.59 $ 0.64 $ 0.76
Net income per share
--assuming dilution $ 0.58 $ 0.59 $ 0.69
The Company has $74,750 of convertible debentures that were issued in October
1997 that, if converted, will add 2,834 additional shares to common shares
outstanding. These debentures were antidilutive for fiscal years 1999 and 1998
and therefore are not included in the above denominators for net income per
share--assuming dilution.
In September 1993, the Company issued $34,500 of convertible subordinated
debentures bearing interest at 6 1/4% and maturing on September 1, 2003. The
debentures were convertible into common stock of the Company at any time prior
to redemption or maturity at a conversion price of $15 per share. On April 9,
1997, the Company announced that it called for redemption all of its outstanding
6 1/4% convertible subordinated debentures. The redemption date was May 9, 1997.
During fiscal year 1997, 4,162 shares were issued related to the conversion of
all but $55 of the remaining convertible subordinated debentures. Had the 4,162
converted shares been outstanding for the full year ended September 30, 1997,
net income per common share would have decreased by $.04 to $.72. The Company
redeemed bonds not converted with a principal, accrued interest, and premium
amount of $58.
Covenants-Not-To-Compete: These amounts are amortized using the straight-line
method over two to five years, their contractual lives, from their respective
acquisition dates.
Foreign Currency Translation: The local currencies are the functional currencies
of the Company's foreign subsidiaries. Assets and liabilities of the foreign
subsidiaries are translated into U.S. dollars at current exchange rates and
resulting translation adjustments are included as a separate component of
stockholders' equity. Revenue and expense
<PAGE>
accounts of these operations are translated at average exchange rates prevailing
during the year. Transaction gains and losses, which were not material, are
included in the results of operations of the period in which they occur.
New Accounting Standards: On October 1, 1998, the Company adopted Statement of
Position 97-2, "Software Revenue Recognition" (SOP 97-2). In December 1998,
AcSEC issued Statement of Position 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions" (SOP 98-9). SOP 97-2
introduces a framework whereby revenue would be recognized for each element in a
software licensing arrangement when certain criteria are met. SOP 97-2 requires
license fees to be allocated to the separate elements of multiple-element
arrangements based on "vendor-specific objective evidence of fair value" and
provides guidance on postcontract customer support arrangements. SOP 98-9, which
is effective for fiscal years beginning after March 15, 1999, requires
recognition of revenue on undelivered elements of a contract using the residual
method, as defined in SOP 98-9. The adoption of SOP 97-2 did not, and the
adoption of SOP 98-9 is not expected to, have a significant impact on the
results of operations.
On October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
requires disclosure of the components of total non-stockholder changes in equity
as comprehensive income. This includes foreign currency translation gains and
losses and unrealized gains and losses on equity securities that have been
previously excluded from net income and reflected instead in stockholders'
equity.
Reclassifications: Certain prior year information has been reclassified to
conform with current year presentation.
Note B -- Cash and Short-Term Investments
- --------------------------------------------------------------------------------
At September 30, 1999, the Company has classified all securities held as
available for sale. The available-for-sale portfolio, stated at fair value, is
comprised of highly liquid investments available for current operations and
general corporate purposes and, accordingly, is classified as short-term
investments.
September 30,
1999 1998
Cash and cash equivalents $27,030 $18,942
Short-term investments, including accrued
interest of $2 and $1,199 (amortized cost
of $4,082 and $59,314), respectively 4,078 59,364
-------------------
Cash and short-term investments $31,108 $78,306
-------------------
Short-term investments
at September 30,
1999 1998
State and municipal securities $ -- $33,602
Corporate debt securities 4,078 25,762
-------------------
$ 4,078 $59,364
-------------------
<PAGE>
All securities held as available for sale at September 30, 1999 have contractual
maturities of less than one year, and have a weighted-average contractual
interest rate of 5.9%.
During the years ended September 30, 1999 and 1998, gross realized gains on
sales of available-for-sale securities totaled $114 and $56, respectively.
Note C -- Acquisitions/Investment in Campus Pipeline, Inc.
- --------------------------------------------------------------------------------
In August 1999, the Company acquired RSMART Learning Systems Corporation. The
Company intends to embed RSMART functions into its SCT Aspire distributed
learning software and integrate this functionality with other higher education
applications. The purchase price was paid with 174 shares of the Company's stock
valued at $2,219. The Company recorded goodwill of $546 related to the
acquisition.
In May 1999, the Company acquired Advanced Planning Systems, Inc., which offers
a demand planning product to the process manufacturing and distribution market,
for total consideration of $2,226, comprised of 104 shares of Company stock
valued at $1,573 and $653 cash. The Company recorded goodwill of $1,016 related
to the acquisition.
In September 1998, the Company acquired all of the outstanding stock of Fygir
Logistic Information Systems, B.V. (Fygir). Fygir is a leading provider of
supply chain planning software to the process manufacturing and distribution
market. The total cost of the acquisition was $35,374. In conjunction with the
acquisition, which was accounted for as a purchase, the Company recorded a
charge to operations of $16,063 for in-process research and development at the
time of the acquisition. Included in this amount were the fair values of Fygir
products under development that had not reached technological feasibility at the
time of the acquisition. In addition, the Company charged $874 to the cost of
the acquisition for incremental costs including professional fees and other
costs directly related to the acquisition. The cost in excess of fair value of
net assets acquired is being amortized over 10 years. The purchase price was
allocated as follows:
Net tangible assets acquired $ 1,272
Purchased software, including core technology 7,445
Purchased research and development (a) 16,063
Cost in excess of fair value of assets acquired 10,594
-------
Total purchase price $35,374
-------
(a) Purchased research and development, charged to expense at date of
purchase, represents the estimated fair value of specifically identified
projects under development that did not meet the applicable accounting
criteria for capitalization
The pro forma effect of these acquisitions on operations is immaterial.
Throughout 1999, the Company made a series of investments in Campus Pipeline,
Inc., a private company, and, as of September 30, 1999, held an approximately
60% interest in the common stock of this affiliate. There are convertible
preferred shares outstanding that, if converted, would lower the Company's
interest to less than 50%. The Company has determined that its control in the
affiliate is temporary, and therefore has accounted for its investment using the
equity method of accounting. The Company's proportionate share of the
affiliate's losses for the year ended September 30, 1999 was $3,161, which is
included in selling, general, and administrative expense in the Company's
Consolidated Statement of Operations
<PAGE>
Note D -- Property and Equipment
- --------------------------------------------------------------------------------
September 30,
1999 1998
Land $ 2,019 $ 1,596
Building and building improvements 28,209 23,091
Computer equipment and software 44,263 35,784
Other equipment, furniture,
fixtures, and leasehold improvements 37,564 28,909
--------------------
112,055 89,380
Less accumulated depreciation 43,006 33,518
--------------------
$ 69,049 $ 55,862
--------------------
Depreciation expense for the years ended September 30, 1999, 1998, and 1997 was
$13,589, $8,303, and $6,349, respectively.
Note E -- Other Assets and Deferred Charges
- --------------------------------------------------------------------------------
September 30,
1999 1998
Deferred costs and sales
commissions related to outsourcing
services contracts in progress (a) (b) $ 5,136 $ 5,180
Purchased software (b) (c) 9,585 8,398
Investment in Campus Pipeline, Inc. 4,718 --
Deferred debt issuance expenses (b) (d) 1,756 2,105
Deferred tax asset 305 1,540
Other 1,529 1,225
--------------------
$23,029 $18,448
--------------------
(a) Amortized over the remaining term of the outsourcing service contract.
(b) Shown net of accumulated amortization.
(c) Includes software acquired as part of business acquisitions.
(d) Amortized over the term of the related debt.
Note F -- Long-Term Debt
- --------------------------------------------------------------------------------
September 30,
1999 1998
5% convertible subordinated
debentures, due 2004 $74,750 $74,750
Financing agreement 4,134 4,030
Other -- 745
-------------------
Total Long-Term Debt 78,884 79,525
Less current portion 652 1,100
-------------------
Long-Term Debt, net of current portion $78,232 $78,425
-------------------
<PAGE>
Aggregate annual maturities of long-term debt are as follows: 2000 - $652; 2001
- - $712; 2002 - $2,770; and thereafter - $74,750.
In October 1997, the Company issued $65,000 of convertible subordinated
debentures bearing interest at 5% and maturing on October 15, 2004. In November
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 $26.375 per share, subject to change as defined in the Trust Indenture.
The debentures are redeemable at any time after October 15, 2000 at prices from
102.5% of the par decreasing to par on October 15, 2003. The fair value of the
convertible subordinated debentures at September 30, 1999 was approximately
$58,492. The Company has 2,834 shares reserved for issuance related to these
debentures.
The Company has a $30,000 senior revolving credit agreement, which terminates in
June 2001 with optional annual renewals. There were no borrowings outstanding at
September 30, 1999 or 1998. During the fiscal year ended September 30, 1999, the
Company borrowed and repaid $56,297 under the agreement. The interest rate under
the agreement is based on one of three formulae -- one tied to the prime rate of
the lender, one at a rate offered by the bank, and another tied to the London
Inter-bank Offered Rate (LIBOR). The weighted-average interest rate on
borrowings outstanding during 1999 was 5.35%. The commitment fee on the unused
funds available for borrowing under the agreement is 5/16%. The Company has the
right to permanently terminate the unused portion of the revolving commitment.
As long as there are borrowings outstanding, and as a condition precedent to new
borrowings, the Company must comply with certain covenants. Under the covenants,
the Company is required to maintain certain financial ratios and other financial
conditions. The Company may not pay dividends (other than dividends payable in
common stock) or acquire any of its capital stock outstanding without a written
waiver from its lender. In October 1998, the agreement covenants were amended to
allow the Company to repurchase capital stock not to exceed $35,000 and 3,000
shares before April 15, 1999.
In August 1997, the Company entered into a $4,275 financing agreement in
connection with an outsourcing services contract. At September 30, 1999, the
Company had $4,134 drawn on the agreement.
Interest paid on the convertible subordinated debentures and the revolving
credit agreement during the years ended September 30, 1999, 1998, and 1997 was
$2,288, $1,893, and $904, respectively.
<PAGE>
Note G -- Benefit Plans
- --------------------------------------------------------------------------------
Stock Option Plans: The Company has stock option plans for the benefit of its
key employees and non-employee directors that provide for the grant of options
to purchase the Company's common stock at an exercise price per share equal to
the closing price of the Company's common stock on the grant date.
The Company's 1994 Long-Term Incentive Plan provides for the issuance of stock
options, stock appreciation rights, restricted stock, and other long-term
performance awards. At the Company's Annual Meeting of Shareholders on February
24, 1998, an amendment to the Plan was passed increasing the number of shares of
common stock reserved for issuance by 2,000. At September 30, 1999 only stock
options have been issued pursuant to the plan.
There were 1,270 shares of common stock reserved for future grants under the
stock option plans at September 30, 1999. The outstanding stock options expire
on various dates through 2009. Options granted to employees generally have
10-year terms and vest and become fully exercisable at the end of three years of
continued employment. There are 1,540 options granted to senior management that
have 10-year terms and vest and become exercisable in five years from the date
of grant and have accelerated vesting if certain performance conditions are met.
At September 30, 1999, 960 of these options were exercisable. There are 828
options granted to senior management that have 10-year terms and vest and become
exercisable in three years from the date of grant and have accelerated vesting
if certain performance conditions are met. At September 30, 1999, 102 of these
options were exercisable. In addition, 260 options granted to non-employee
directors, of which 132 are exercisable at September 30, 1999, have 10-year
terms and vest and become exercisable ratably over five years.
In October 1995, the Financial Accounting Standards Board issued FASB Statement
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). This 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" (APB 25), and disclose pro forma net income and
earnings per share assuming the fair value method had been applied. The Company
has elected to follow APB 25 and related interpretations in accounting for its
employee stock options and make the pro forma disclosures required by SFAS 123.
The following pro forma amounts were determined as if the Company had accounted
for its stock options using the fair value method as described in that
statement:
Year Ended September 30,
1999 1998 1997
As Reported:
Net income $ 19,299 $ 21,374 $ 22,891
Net income per common share 0.59 0.64 0.76
Net income per share
--assuming dilution 0.58 0.59 0.69
Pro Forma:
Net income $ 15,901 $ 18,938 $ 22,462
Net income per common share 0.49 0.56 0.75
Net income per share
--assuming dilution 0.47 0.53 0.67
<PAGE>
Because the method of accounting under SFAS 123 has not been applied to options
granted prior to October 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of stock options granted was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998, and 1997, respectively: risk-free interest rates of
4.9%, 5.7%, and 6.0%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 53.1%, 50.8%, and 47.1%; and a
weighted-average expected life of the option of four years.
A summary of the Company's stock option activity and related information for the
years ended September 30 follow:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 4,635 $ 12.18 4,582 $ 7.57 5,200 $ 6.91
Granted 946 14.60 1,341 22.58 548 7.32
Exercised (181) 5.01 (1,129) 5.88 (870) 3.51
Cancelled (165) 17.83 (159) 11.78 (296) 7.99
Outstanding
at end of year 5,235 $ 12.73 4,635 $ 12.18 4,582 $ 7.57
Options exercisable
at year end 2,769 $ 9.68 2,319 $ 7.64 1,940 $ 5.19
Weighted-average
fair value of
options granted
during the year $ 6.75 $ 10.27 $ 3.20
</TABLE>
The following table summarizes information about stock
options outstanding and exercisable at September 30, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------- -----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (yrs.) Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
$ 1.47 - $ 9.69 2,632 3.17 $ 7.72 2,207 $ 7.67
9.88 - 21.88 1,963 7.22 16.11 350 14.29
22.88 - 28.53 640 8.14 22.96 212 22.94
$ 1.47 - $28.53 5,235 5.30 $12.73 2,769 $ 9.68
</TABLE>
Employee Stock Ownership Plan: The Company has a noncontributory Employee Stock
Ownership Plan (ESOP) covering eligible employees. The ESOP provides for the
Employee Stock Ownership Trust (ESOT) to distribute shares of the Company's
common stock as retirement and/or other benefits to the participants. The
Company discontinued its contributions to the ESOT subsequent to the 1986 plan
year. In accordance with the terms of the ESOP, the total amounts then allocated
to the accounts of the participants immediately vested. As of September 30, 1999
there were 1,924 shares held by the ESOT.
<PAGE>
Restricted Stock Plans: The Company had an Employees' Restricted Stock Purchase
Plan, which has been terminated, pursuant to which shares of the Company's
common stock were sold to key employees at 40% of the fair market value of
unrestricted shares on the date of sale. The shares are restricted, and may not
be sold, transferred, or assigned other than by an exchange with the Company for
a number of shares of common stock not so restricted, to be determined by a
formula. The formula reduces the number of unrestricted shares to be exchanged
to give effect to the 60% reduction from fair market value of shares not so
restricted. Certain of the shares sold are subject to the Company's option to
repurchase a fixed percentage of the shares during a specified period at the
employee's purchase price plus 10% a year from the date of purchase in the event
of certain terminations of employment. As of September 30, 1999, there were 160
restricted shares sold but not exchanged for unrestricted shares.
Savings Plan: The Company also provides a defined contribution 401(k) plan to
substantially all its U.S. employees, whereby the Company may make matching
contributions equal to a percentage of the contribution made by participants.
One half of the Company's contributions are used to buy shares of the Company's
common stock. Expenses under this plan for the years ended September 30, 1999,
1998, and 1997 were $4,279, $3,342, and $2,253, respectively.
Note H -- Income Taxes
- --------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
Year Ended September 30,
1999 1998 1997
Current:
Federal $11,533 $16,128 $13,090
State 4,765 5,316 3,687
--------------------------------
Total Current 16,298 21,444 16,777
--------------------------------
Deferred Benefit (181) (4,586) (1,051)
--------------------------------
$16,117 $16,858 $15,726
--------------------------------
A reconciliation of the provision for income taxes to the federal statutory
rate follows:
Year Ended September 30,
1999 1998 1997
Expected federal tax rate 35.0% 35.0% 35.0%
Adjustments due to:
Effect of state income tax 7.3% 9.5% 7.4%
Foreign net operating
loss not benefited 4.9% 1.1% --
Research and development
tax credit (4.3)% (2.7)% (3.1)%
Other 2.6% 1.2% 1.4%
--------------------------------
45.5% 44.1% 40.7%
--------------------------------
The fiscal year 1999 provision for income taxes does not reflect the customary
relationship between income before income taxes and tax expense principally due
to not recording a tax benefit for losses related to the Company's foreign
operations. Increased research and development expenditures in fiscal year 1999
resulted in an increased research and development tax credit, which expired June
30, 1999.
<PAGE>
The fiscal year 1998 provision for income taxes does not reflect the customary
relationship between income before income taxes and tax expense principally due
to the write-off of purchased research and development, which is not deductible
for state income tax purposes. The rate was further affected by the expiration
of the research and development tax credit as of June 30, 1998. Subsequent to
the 1998 fiscal year end, the research and development tax credit was
reinstated.
At September 30, 1999, the Company has $28,488 net operating
loss carryforwards in various states and $14,492 of net operating loss
carryforwards in foreign jurisdictions. The state carryforwards expire in
various periods ending on or before September 30, 2014. The foreign tax losses
can be indefinitely carried forward. At September 30, 1999 and 1998, the Company
has valuation allowances of $3,700 and $1,985, respectively, with respect to the
deferred tax assets related to the state and foreign carryforwards.
Income taxes paid during fiscal years ended September 30, 1999, 1998, and 1997,
were $15,060, $15,716, and $6,500, respectively.
The tax effects of the temporary differences that give rise to the significant
portions of the deferred tax assets and liabilities as of September 30, 1999 and
1998 are as follows:
Year Ended September 30,
1999 1998
Deferred Tax Assets:
Purchased research
and development $ 6,772 $ 7,364
Accrued expenses and reserves 4,570 3,808
Tax credits & loss carryforwards,
net of valuation allowance 2,695 2,630
Purchased software 688 521
Equity in losses of
Campus Pipeline, Inc. 1,264 --
-------------------
Total Deferred Tax Assets 15,989 14,323
-------------------
Deferred Tax Liabilities:
Depreciation and amortization (1,720) (1,238)
Unbilled accounts receivable (3,601) (2,651)
Software capitalization (7,928) (6,354)
Prepaids and other
accelerated expenses (2,435) (2,540)
-------------------
Total Deferred Tax Liabilities (15,684) (12,783)
-------------------
Net Deferred Tax Asset $ 305 $ 1,540
-------------------
Note I -- Business Segments
- --------------------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131), in fiscal year 1999. SFAS 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision maker is the chief executive
officer of the Company.
<PAGE>
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business develops and markets industry-specific products and services. The
Company restructured its business segments as of July 1, 1999 and has presented
prior years' segment profit and loss information to conform to its revised
segment reporting. Segment asset information for prior years is not readily
available on this basis and has not been presented.
The Company has four reportable segments: Global Education Solutions; Global
Government Solutions; Global Manufacturing & Distribution Solutions; and Global
Energy, Utilities & Communications Solutions. The Global Education Solutions
segment provides information technology services and application software to
higher education institutions. The Company targets English-speaking institutions
of higher education with enrollments greater than two thousand students for its
software and services. The Company's Global Government Solutions targets local
government entities with administrative application software and services.
Global Energy, Utilities & Communications Solutions provides administrative
application software and services to the utility market. The Company's target
market includes water, gas, and electric utilities that range from mid-size
municipalities to investor-owned utilities serving millions of customers. Global
Manufacturing & Distribution Solutions markets a suite of supply chain
management software solutions and services for process manufacturers and
distributors. The Company targets process manufacturers and distributors that
have over $100 million in annual revenue.
The Company evaluates performance and allocates resources based on profit or
loss from operations before income taxes, interest income, and interest expense.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The measurement of segment profit
and loss includes revenues and expenses incurred by the Company's foreign
subsidiaries; however, the assets and liabilities of the foreign subsidiaries
are not included in the segments' assets. Foreign assets are included in the
"All Other" column. Inter-segment sales and transfers are primarily recorded at
cost plus a markup that approximates current market prices.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The "All Other" column includes corporate related
items, elimination of inter-segment transactions, intangibles and related
amortization of assets purchased in business acquisitions, and results of
non-reportable segments whose products and services serve different markets than
the reportable segments. Interest income is not included in the segment
disclosures below.
<PAGE>
<TABLE>
<CAPTION>
Global Global Energy,
Global Global Manufacturing Utilities &
Education Government & Distribution Communications
Year Ended September 30, 1999 Solutions Solutions Solutions Solutions All Other Total
<S> <C> <C> <C> <C> <C> <C>
Software sales, maintenance and
enhancements, and software
services revenue $ 147,546 $ 22,232 $ 67,329 $ 79,588 $ 12,801 $ 329,496
Outsourcing services revenue 41,656 61,541 7,181 16,817 7,867 135,062
-------------------------------------------------------------------------------
Revenues from external customers 189,202 83,773 74,510 96,405 20,668 464,558
Intersegment revenues 1,483 195 105 2,363 (4,146) --
Segment profit (loss) * 42,214 (121) (3,447) (1,495) (1,735) 35,416
Amortization of capitalized software 1,884 652 1,814 858 -- 5,208
Research and development expenditures 20,718 4,040 10,588 14,628 3,987 53,961
Segment assets 237,704 37,286 5,766 30,437 23,859 335,052
Year Ended September 30, 1998
Software sales, maintenance and
enhancements, and software
services revenue $ 123,506 $ 20,622 $ 55,535 $ 69,436 $ 3,601 $ 272,700
Outsourcing services revenue 38,121 54,913 6,814 13,431 12,275 125,554
-------------------------------------------------------------------------------
Revenues from external customers 161,627 75,535 62,349 82,867 15,876 398,254
Intersegment revenues 250 974 210 2,421 (3,855) --
Segment profit (loss) ** 43,826 6,581 (16,916) 5,289 (548) 38,232
Amortization of capitalized software 1,272 468 1,652 1,532 -- 4,924
Research and development expenditures 17,061 4,403 7,087 7,982 2,670 39,203
Year Ended September 30, 1997
Software sales, maintenance and
enhancements, and software
services revenue $ 94,008 $ 16,990 $ 31,172 $ 49,514 $ 67 $ 191,751
Outsourcing services revenue 35,833 45,761 1,719 10,727 3,637 97,677
-------------------------------------------------------------------------------
Revenues from external customers 129,841 62,751 32,891 60,241 3,704 289,428
Intersegment revenues 377 197 57 786 (1,417) --
Segment profit (loss) 35,121 4,809 227 1,110 (2,650) 38,617
Amortization of capitalized software 582 367 1,014 887 -- 2,850
Research and development expenditures 11,459 1,063 7,526 5,389 504 25,941
</TABLE>
* The "All Other" column includes a $3,161 loss from investment in affiliate
accounted for under the equity method of accounting.
** The "Global Manufacturing & Distribution Solutions" column includes a pre-tax
charge of $16,063 for purchased research and development in the year ended
September 30, 1998. Results without the charge for purchased research and
development would have resulted in a segment loss of $853.
<PAGE>
The following table presents segment assets for the years ended September 30,
1999, 1998, and 1997 before the July 1, 1999 segment reorganization.
Year Ended September 30,
1999 1998 1997
Segment Assets
Services $ 83,456 $ 89,858 $ 58,578
Software 227,737 220,068 152,924
Other 23,859 23,028 (1,798)
---------------------------------
Total $335,052 $332,954 $209,704
---------------------------------
The following table presents revenues by country based on the location of the
customer, and property by country based on location of the asset.
September 30,
1999 1998 1997
Long-Lived Long-Lived Long-Lived
Revenues Assets Revenues Assets Revenues Assets
United
States $416,153 $111,045 $365,610 $ 90,404 $255,951 $ 69,320
Other
Countries 48,405 20,902 32,644 19,926 33,477 1,559
--------------------------------------------------------------------
Total $464,558 $131,947 $398,254 $110,330 $289,428 $ 70,879
--------------------------------------------------------------------
Note J -- Product Development, Commitments, and Other Items
- --------------------------------------------------------------------------------
Product development expenditures, including software maintenance expenditures,
for the years ended September 30, 1999, 1998, and 1997, were approximately
$53,961, $39,203, and $25,941, respectively. After capitalization (Note A) these
amounts were approximately $44,913, $31,188, and $18,434, respectively, and were
charged to operations as incurred. For the same years, amortization of
capitalized software costs (not included in expenditures above) amounted to
$5,208, $4,924, and $2,850, respectively.
Rent expense for the years ended September 30, 1999, 1998, and 1997 was $7,410,
$4,211, and $3,425, respectively. Aggregate rentals payable under significant
non-cancellable lease agreements with initial terms of one year or more at
September 30, 1999, are as follows:
Fiscal year Amount
2000 $ 6,990
2001 6,652
2002 6,289
2003 5,239
2004 4,248
Thereafter 16,011
-------
$45,429
-------
<PAGE>
Under the terms of the purchase agreement with Adage Systems International, Inc.
(Adage), the Company may be required to pay additional consideration in either
additional shares (up to 3,000 shares) of common stock or a combination of
additional shares of common stock and cash, in the event that the market price
of the common stock approximately five years after the closing is lower than the
base price. The base price may not be lower than $7.50 or higher than $25, and
will be determined pursuant to a formula tied to the pre-tax profits of Adage
during the five-year period commencing October 1, 1995. Certain future payments
would result in an adjustment to the purchase price.
In October 1998, the Company's Board of Directors authorized the repurchase of
up to 3,000 of its common shares. During the year ended September 30, 1999, the
Company repurchased 2,340 of its common shares for $21,952. The Company's senior
revolving credit agreement covenants were amended in October 1998 to allow the
Company to repurchase capital stock not to exceed $35,000 and 3,000 shares
before April 15, 1999. The Company is unable to repurchase additional shares of
common stock without another amendment to its credit agreement.
Note K -- Legal Matters
- --------------------------------------------------------------------------------
On November 22, 1999, the Court approved the settlement of the class action
lawsuit filed on October 4, 1995, by John J. Wallace 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 & Administration,
Treasurer, and Chief Financial Officer of the Company alleging violations of
certain provisions of the federal securities laws. Under the terms of the
settlement, the Company paid $750.
<PAGE>
Note L -- Quarterly Results of Operations (Unaudited)
- --------------------------------------------------------------------------------
The following is a summary of the quarterly results of operations for the years
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended December 31, March 31, June 30, September 30,
1998 1997 1999 1998 1999 1998 1999 1998*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 109,769 $ 87,281 $ 117,078 $ 96,084 $ 120,245 $ 105,040 $ 119,119 $ 115,263
Gross profits 34,422 31,712 36,844 34,173 40,560 37,682 40,926 41,751
Income (loss) before income taxes 7,444 10,926 7,585 12,322 11,886 15,991 8,501 (1,007)
Provision for income taxes 2,978 4,481 3,413 5,021 5,444 6,554 4,282 802
Net income (loss) $ 4,466 $ 6,445 $ 4,172 $ 7,301 $ 6,442 $ 9,437 $ 4,219 $ (1,809)
Net income (loss)
per common share $ 0.14 $ 0.19 $ 0.13 $ 0.22 $ 0.20 $ 0.28 $ 0.13 $ (0.05)
Net income (loss) per share
- --assuming dilution $ 0.13 $ 0.18 $ 0.13 $ 0.20 $ 0.20 $ 0.26 $ 0.13 $ (0.05)
</TABLE>
* Includes a charge of $16,063 for purchased research and development.
Certain quarterly information has been reclassified to conform to the September
30, 1999 classification.
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Systems & Computer Technology Corporation
We have audited the accompanying consolidated balance sheets of Systems &
Computer Technology Corporation as of September 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Systems & Computer Technology Corporation at September 30, 1999 and 1998, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 25, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required under this Item is contained in the Registrant's
Definitive Proxy Statement to be delivered to shareholders in connection with
the Annual Meeting of Shareholders scheduled to be held on February 25, 2000 and
is incorporated herein by reference. Also, see the information under the heading
"Executive Officers of SCT" appearing in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Information required under this Item is contained in the Registrant's
Definitive Proxy Statement to be delivered to shareholders in connection with
the Annual Meeting of Shareholders scheduled to be held on February 25, 2000 and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required under this Item is contained in the Registrant's
Definitive Proxy Statement to be delivered to shareholders in connection with
the Annual Meeting of Shareholders scheduled to be held on February 25, 2000 and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required under this Item is contained in the Registrant's
Definitive Proxy Statement to be delivered to shareholders in connection with
the Annual Meeting of Shareholders scheduled to be held on February 25, 2000 and
is incorporated herein by reference.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedule and Exhibits.
(1) The following consolidated financial statements of the Registrant
and its subsidiaries are included herein:
Consolidated Balance Sheets--September 30, 1999 and 1998
Consolidated Statements of Operations--Years Ended September
30, 1999, 1998, and 1997
Consolidated Statements of Cash Flows--Years Ended September
30, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity--Years Ended
September 30, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
(2) The following consolidated financial statement schedule of the
Registrant and its subsidiaries is included herein:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
For the Three Years in the Period Ended September 30, 1999
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------
Charged to Charged to
Description Balance at Costs and Other Accounts Deductions Balance at
Beginning of Period Expenses -Describe -Describe End of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended September 30, 1999
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term $ 56,000 $ 56,000
Long-term -- --
Allowance for doubtful accounts 4,033,000 $3,294,000 $ 1,486,000 (1) 5,841,000
---------- ---------- ---------- ---------- ----------
Total $4,089,000 $3,294,000 $ -- $1,486,000 $5,897,000
For the year ended September 30, 1998
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term $ 56,000 $ 56,000
Long-term -- --
Allowance for doubtful accounts 4,098,000 $2,483,000 $ 2,548,000 (1) 4,033,000
---------- ---------- ---------- ---------- ----------
Total $4,154,000 $2,483,000 $ -- $2,548,000 $4,089,000
For the year ended September 30, 1997:
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term $ 56,000 $ 56,000
Long-term -- --
Allowance for doubtful accounts 1,590,000 $4,136,000 $ 1,628,000 (1) 4,098,000
---------- ---------- ---------- ---------- ----------
Total $1,646,000 $4,136,000 $ -- $1,628,000 $4,154,000
</TABLE>
(1) Uncollectible accounts written-off during the year
<PAGE>
(3) Exhibits (not included in the copies of the Form 10-K sent to
stockholders).
No. Exhibit
--- -------
2.1 Agreement and Plan of Merger and Reorganization by and
among the Registrant, SCT Acquisition Corporation, Adage
Systems International, Inc. and Gerald F. O'Connell and
David Phelan (Exhibit A to the Registrant's Form 8-K
dated May 12, 1995) (1) [Attached to the Agreement and
Plan of Merger and Reorganization were disclosure
schedules generally relating to the business acquired
thereunder and documents executed in connection with
such Agreement. Copies of such schedules and documents
will be furnished to the Commission upon request.]
2.2 Stock Purchase Agreement dated as of September 1, 1998
among SCT Holdings Corporation, Fygir Logistic
Information Systems BV, Meunier BV, L.A.D. Holding BV,
Egon de Waart Resource Management BV, Cyberfocus BV,
Dupoirier Holding BV, Pieter Leijten and Jurriaan van
der Lingen (Exhibit 2.1 to the Registrant's Form 8-K
dated September 1, 1998) (1)
2.3 Assignment and Assumption Agreement dated as of
September 1, 1998 between SCT Holdings Corporation and
Systems & Computer Technology International B.V.
(Exhibit 2.2 to the Registrant's Form 8-K dated
September 1, 1998) (1)
3.1 Certificate of Amendment and Restated Certificate of
Incorporation (Exhibit 3 to Registrant's Form 10-Q for
the quarterly period ended March 31, 1998) (1)
3.2 Bylaws (Exhibit 3.2 to the Registrant's Registration
Statement on Form S-3 filed with the Securities and
Exchange Commission on September 1, 1993) (1)
3.3 Amendment to Bylaws adopted March 18, 1999 (Exhibit 3.3
to Registrant's Form 10-Q for the quarterly period ended
March 31, 1999) (1)
4.1 Form of Indenture under which the Registrant's 5%
Convertible Subordinated Debentures due 2004 are issued
(Exhibit 4 to the Registrant's Registration Statement on
Form S-3 filed with the Securities and Exchange
Commission on October 9, 1997) (1)
4.2 Rights Agreement, dated as of April 13, 1999, between
Systems & Computer Technology Corporation and
ChaseMellon Shareholder Services L.L.C., including Terms
of Series A Participating Preferred Stock, which is
attached as Exhibit A and Form of Right Certificate,
which is attached as Exhibit B to the Rights Agreement
(Exhibit 4.1 to the Registrant's Form 8-K dated March
18, 1999) (1)
- ----------------------------------
(1) Incorporated by reference
17
<PAGE>
10.1 Oracle Alliance Agreement dated as of May 31, 1998
between Oracle Corporation and the Registrant (Exhibit
10 to the Registrant's Form 10-Q for the quarterly
period ended June 30, 1998) (1)
10.2 Credit Agreement dated as of June 20, 1994 among the
Registrant and SCT Software & Resource Management
Corporation as Borrowers and Mellon Bank (Exhibit 10.4
to the Registrant's Form 10-K for the fiscal year ended
September 30, 1994) (1)
10.3 Subsidiary Guaranty Agreement dated as of June 20, 1994
entered into by SCT Utility Systems, Inc. in favor of
Mellon Bank. (Identical Subsidiary Guaranties, except as
to the identity of the guarantor, were entered into by
SCT Public Sector, Inc., SCT Financial Corporation, SCT
International Limited, SCT Software & Technology
Services, Inc., and SCT Property, Inc.) (Exhibit 10.5 to
the Registrant's Form 10-K for the fiscal year ended
September 30, 1994) (1)
10.4 Extension Agreement dated June 20, 1996 among Systems &
Computer Technology Corporation, SCT Software & Resource
Management Corporation and Mellon Bank, N.A. (Exhibit
10.12 to the Registrant's Form 10-K for the fiscal year
ended September 30, 1996) (1)
10.5 Amendment and Modification to Credit Agreement dated as
of April 8, 1997 among Systems & Computer Technology
Corporation and SCT Software & Resource Management
Corporation as Borrowers and Mellon Bank, N.A. (Exhibit
10.1 to the Registrant's Form 10-Q for the quarter ended
June 30, 1997) (1)
10.6 Second Amendment and Modification to Credit Agreement
dated as of April 8, 1997 among Systems & Computer
Technology Corporation and SCT Software & Resource
Management Corporation as Borrowers and Mellon Bank,
N.A. (Exhibit 10.2 to the Registrant's Form 10-Q for the
quarter ended June 30, 1997) (1)
10.7 Third Amendment and Modification to Credit Agreement
dated as of June 4, 1997 among Systems & Computer
Technology Corporation and SCT Software & Resource
Management Corporation as Borrowers and Mellon Bank,
N.A. (Exhibit 10.3 to the Registrant's Form 10-Q for the
quarter ended June 30, 1997) (1)
10.8 Fourth Amendment and Modification to Credit Agreement
dated as of May 6, 1998 among Systems & Computer
Technology Corporation and SCT Software & Resource
Management Corporation as Borrowers and Mellon Bank,
N.A. (Exhibit 10.8 to the Registrant's Form 10-K for the
fiscal year ended September 30, 1998) (1)
18
<PAGE>
10.9 Fifth Amendment and Modification to Credit Agreement
dated as of October 16, 1998 among Systems & Computer
Technology Corporation and SCT Software & Resource
Management Corporation as Borrowers and Mellon Bank,
N.A. (Exhibit 10.9 to the Registrant's Form 10-K for the
fiscal year ended September 30, 1998) (1)
10.10 Sixth Amendment and Modification to Credit Agreement
dated as of August 30, 1999 among Systems & Computer
Technology Corporation and SCT Software & Resource
Management Corporation as Borrowers and Mellon Bank,
N.A. (2)
10.11 Systems & Computer Technology Corporation 1994 Long-Term
Incentive Plan, as amended through November 18, 1997
(Exhibit 10 to Registrant's Form 10-Q for the quarterly
period ended March 31, 1998) (1,3)
10.12 Systems & Computer Technology Corporation 1994
Non-Employee Director Stock Option Plan (Exhibit 4.4 to
the Registrant's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on
June 30, 1995) (1,3)
10.13 Amendment One to the Systems & Computer Technology
Corporation 1994 Non-Employee Director Stock Option Plan
(Exhibit 10.1 to the Registrant's Form 10-Q for the
quarterly period ended December 31, 1998) (1,3)
10.14 Form of Severance Agreement dated as of April 21, 1999
by and between the Registrant and certain executive
officers and management of the Registrant (2,3)
21 Subsidiaries of the Registrant. (2)
23 Consent of Ernst & Young LLP. (2)
27 Restated Financial Data Schedule. (2)
SCT will furnish to any stockholder upon written request, any exhibit
listed in the accompanying Index to Exhibits upon payment by such stockholder to
SCT of SCT's reasonable expenses in furnishing such exhibit.
(b) Reports on Form 8-K.
The registrant did not file any current reports on Form 8-K during the
period from July 1, 1999 through September 30, 1999.
- ----------------------
(2) Filed with this Annual Report on Form 10-K
(3) Compensatory Plan, Contract or Arrangement
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Michael J. Emmi
--------------------------------------
Michael J. Emmi, Chairman of the Board
President and Chief Executive Officer
Date: December ___, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ------------------------------- ------------------
<S> <C> <C>
/s/ Michael J. Emmi Chairman of the Board, December 28, 1999
- --------------------------- President, and Chief
Michael J. Emmi Executive Officer; Director
(Principal Executive Officer)
/s/ Michael D. Chamberlain Director December 28, 1999
- ---------------------------
Michael D. Chamberlain
/s/ Allen R. Freedman Director December 28, 1999
- ---------------------------
Allen R. Freedman
/s/ Thomas I. Unterberg Director December 28, 1999
- ---------------------------
Thomas I. Unterberg
/s/ Gabriel A. Battista Director December 28, 1999
- ---------------------------
Gabriel A. Battista
/s/ Eric Haskell Senior Vice President, Finance December 28, 1999
- --------------------------- & Administration, Treasurer,
Eric Haskell and Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
Index of Exhibits Filed Herewith
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
10.10 Sixth Amendment and Modification to Credit Agreement dated as
of August 30, 1999 among Systems & Computer Technology
Corporation and SCT Software & Resource Management Corporation
as Borrowers and Mellon Bank, N.A
10.14 Form of Severance Agreement dated as of April 21, 1999
by and between the Registrant and certain executive
officers and management of the Registrant
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Restated Financial Data Schedule
</TABLE>
<PAGE>
Amendment and Waiver
Systems & Computer Technology Corporation
SCT Software & Resource Management Corporation
Great Valley Corporate Center
4 Country View Road
Malvern, PA 19355
Attention: Eric Haskell, Senior Vice President
and Chief Financial Officer
Re: Credit Agreement dated June 20, 1994 by and among
Mellon Bank, N.A. ("Bank"), Systems & Computer Technology
Corporation (the "Company") and SCT Software & Resource
Management Corporation ("Borrowing Subsidiary") (as amended, the
"Credit Agreement")
----------------------------------------------------------------
Dear Eric:
Upon acceptance of this letter agreement by the Company, the Borrowing
Subsidiary and the Guarantors (as defined in the Credit Agreement), this letter
agreement shall constitute the agreement among such parties and the Bank as to
the matters contained herein and, to the extent expressly provided herein, an
amendment to the Credit Agreement. All capitalized terms appearing herein which
are not defined herein shall have such meaning as provided in the Credit
Agreement.
1. Amendment to Credit Agreement. In order to provide for payment of
interest accruing at the As-Offered Rate monthly on the first day
of each calendar month, last sentence of the definition of
"Interest Payment Date" contained in Section 1.01 of the Credit
Agreement is hereby amended to be as follows: "As to any
As-Offered Rate Loan, the first day of each calendar month during
the term thereof."
2. Waiver. Bank hereby waives any event of default that may exist
under Section 6.02(i) of the Credit Agreement based on or arising
out of loans and advances in the aggregate principal amount of up
to Two Million Five Hundred Thousand Dollars ($2,500,000.00)
extended by the Company to Campus Pipeline, Inc. during June,
1999. Borrowers hereby represent, warrant and confirm to Bank
that, as of the date hereof, such loans and advances to Campus
Pipeline, Inc., and all other loans and advances by Borrowers, or
either of them, to Campus Pipeline, Inc., have converted to equity
interests in Campus Pipeline, Inc. and that the Company owns not
less than 60% of the total outstanding equity interests in Campus
Pipeline, Inc.
<PAGE>
3. Confirmation. Each Borrower does hereby ratify, confirm and
acknowledge that the Credit Agreement, as amended, and the other
Loan Documents continue to be and are valid, binding and in full
force and effect.
4. Inconsistencies. To the extent of any inconsistency between the
terms, conditions and provision of this letter agreement and the
terms, conditions and provisions of the Credit Agreement or the
other Loan Documents, the terms, conditions and provisions of this
letter agreement shall prevail. All terms, conditions and
provisions of the Credit Agreement and the other Loan Documents
not inconsistent herewith shall remain in full force and effect
and are hereby ratified and confirmed by Borrowers.
IN WITNESS WHEREOF, and intending to be legally bound, the parties
hereto have executed this letter agreement as of the 30th day of August, 1999.
MELLON BANK, N.A.
By: ____________________________________
Frank P. Mohapp, Vice President
SYSTEMS & COMPUTER TECHNOLOGY
CORPORATION
[CORPORATE SEAL]
By: ___________________________________
Eric Haskell, Senior Vice President
SCT SOFTWARE & RESOURCE MANAGEMENT
CORPORATION
[CORPORATE SEAL]
By: ___________________________________
Eric Haskell, Senior Vice President
<PAGE>
ACKNOWLEDGMENT AND CONSENT
--------------------------
The undersigned Guarantors hereby acknowledge and consent to the
foregoing Amendment and agree that the foregoing Amendment and Waiver shall not
constitute a release or waiver of any of the obligations of the undersigned to
the Bank under the terms of their respective Subsidiary Guaranty Agreements
dated June 20, 1994, all of which are hereby ratified and confirmed.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have executed this Acknowledgment and Consent, effective as of the date
of the foregoing Amendment and Waiver.
SCT UTILITY SYSTEMS, INC.
By: ________________________________________
Name/Title: __________________________________
SCT GOVERNMENT SYSTEMS, INC.
(formerly known as "SCT Public Sector, Inc.")
By: ________________________________________
Name/Title: __________________________________
SCT FINANCIAL CORPORATION
By: ________________________________________
Name/Title: __________________________________
SCT INTERNATIONAL LIMITED
By: ________________________________________
Name/Title: __________________________________
SCT PROPERTY, INC.
By: ________________________________________
Name/Title: __________________________________
<PAGE>
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT dated as of April 21, 1999 is made by and
between SYSTEMS & COMPUTER TECHNOLOGY CORPORATION, a Delaware corporation (the
"Company"), and ______________________________ (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its stockholders to foster the continuous employment of key
management personnel; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that, as is the case with many publicly held corporations, the
possibility of a Change in Control (as defined in the last Section hereof)
exists and that such possibility, and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definition of capitalized terms used in
this Agreement is provided in the last Section hereof.
2. Term of Agreement.
2.1. This Agreement shall commence on the date hereof and
shall continue in effect through December 31, 2000; provided, however, that
commencing on January 1, 2001 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Company or the Executive
shall have given notice not to extend this Agreement or a Change in Control
shall have occurred prior to such January 1; and further provided, however, if a
Change in Control shall have occurred during the term of this Agreement, this
Agreement shall continue in effect for a period ending on the last day of the
twenty-fourth calendar month beginning after the month in which such Change in
Control occurred.
2.2. During the initial term of this Agreement or any
subsequent renewal term of this Agreement, if, prior to a Change in Control, the
Executive ceases to be employed in the position of __________________, but
remains employed by the Company in a non-executive position, this Agreement
shall be deemed to have terminated as of the date the Executive ceases to be
employed in an executive position; provided, however, the Board, in its sole
<PAGE>
discretion, may designate that this Agreement shall remain in effect with
respect to the Executive's subsequent position with the Company, and, as a
result of this designation, the Company and the Executive shall continue to be
bound by the terms of this Agreement. Notwithstanding the foregoing, this
Section 2.2 shall not apply if the Executive ceases to be employed in an
executive position as the result of any action taken by the Company in
consultation with a Person with whom the Company has entered into an agreement
the consummation of which will constitute a Change in Control or if the
Executive terminates his employment with Good Reason prior to a Change in
Control (determined by treating a Potential Change in Control as a Change in
Control in applying the definition of Good Reason under Section 15(M)(i) through
(vii) hereof) if the circumstance or event that constitutes Good Reason occurs
at the direction of such Person.
3. Company's Covenants Summarized. To induce the Executive to remain
in the employ of the Company and in consideration of the Executive's covenants
set forth in Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the Severance Payments described in
Section 6.1 hereof and the other payments and benefits described herein in the
event the Executive's employment with the Company is terminated following a
Change in Control and during the term of this Agreement. Except as provided in
Section 9.1 hereof or Section 6.2 hereof, no amount or benefit shall be payable
under this Agreement unless there shall have been (or, pursuant to Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control. This Agreement shall
not be construed as creating an express or implied contract of employment and,
except as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants.
4.1. The Executive agrees that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will remain in the employ of
the Company until the earliest of (i) a date which is six (6) months from the
date of such Potential Change in Control, (ii) the date of a Change in Control,
(iii) the date of termination by the Executive of the Executive's employment for
Good Reason (determined by treating the Potential Change in Control as a Change
in Control in applying the definition of Good Reason under Section 15(M)(i)
through (vii) hereof) or by reason of death, Disability or retirement, or (iv)
the termination by the Company of the Executive's employment for any reason.
2
<PAGE>
4.2. While the Executive is employed by the Company and for
a period of one year after the effective date of Executive's termination of
employment if Executive's employment is terminated following a Change in Control
and Executive becomes entitled to receive any payment under Section 6.1 of this
Agreement, the Executive covenants and agrees that he will not, whether for
himself or for any other person, business, partnership, association, firm,
company or corporation, directly or indirectly, call upon, solicit, divert or
take away or attempt to solicit, divert or take away, any of the customers or
employees of the Company that are or were customers or employees at any time
during his employment with the Company. The Executive acknowledges that the
Company would be irreparably injured by a violation of this Section 4.2, and
agrees that the Company, in addition to other remedies available to it for such
breach or threatened breach, shall be entitled to a preliminary injunction,
temporary restraining order or other equitable relief restraining the Executive
from any actual or threatened breach of this Section 4.2 without any bond or
other security being required.
5. Compensation Other Than Severance Payments.
5.1. Following a Change in Control and during the term of
this Agreement, during any period that the Executive fails to perform the
Executive's full-time duties with the Company as a result of incapacity due to
physical or mental illness, the Company shall pay the Executive's full salary to
the Executive at the rate in effect at the commencement of any such period,
together with all compensation and benefits payable to the Executive under the
terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period, until the Executive's employment is terminated
by the Company for Disability.
5.2. If the Executive's employment shall be terminated for
any reason following a Change in Control and during the term of this Agreement,
the Company shall pay the Executive's full salary to the Executive through the
Date of Termination at the rate in effect at the time the Notice of Termination
is given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
5.3. If the Executive's employment shall be terminated for
any reason following a Change in Control and during the term of this Agreement
the Company shall pay the Executive's normal post-termination compensation and
benefits to the Executive when such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in accordance
with, this Company's retirement, insurance and other compensation or benefit
plans, programs and arrangements.
3
<PAGE>
6. Severance Payments.
6.1. The Company shall pay the Executive the payments
described in this Section 6.1 (the "Severance Payments") upon the termination of
the Executive's employment following a Change in Control and during the term of
this Agreement, in addition to the payments and benefits described in Section 5
hereof, unless such termination is (i) by the Company for Cause, (ii) by reason
of death or Disability, or (iii) by the Executive without Good Reason. The
Executive's employment shall be deemed to have been terminated, following a
Change in Control by the Company without Cause or by the Executive with Good
Reason if the Executive's employment is terminated prior to a Change in Control
without Cause after consultation with a Person who has entered into an agreement
with the Company the consummation of which will constitute a Change in Control
or if the Executive terminates his employment with Good Reason prior to a Change
in Control (determined by treating a Potential Change in Control as a Change in
Control in applying the definition of Good Reason under Section 15(M)(i) through
(vii) hereof) if the circumstance or event that constitutes Good Reason occurs
at the direction of such Person.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to the Applicable
Multiplier times the sum of (i) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or such salary in effect immediately
prior to the Change in Control, and (ii) the higher of (x) the target bonus for
the year in which the Notice of Termination is provided or (y) the highest
actual bonus paid or payable to the Executive pursuant to the Company's Bonus
Plan or any successor thereto (the "Bonus Plan") for any of the five years
completed immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based.
(B) Notwithstanding any provision of the Bonus Plan, the
Company shall pay to the Executive a lump sum amount, in cash, equal to the sum
of (i) any bonus amount which has been allocated or awarded to the Executive for
a completed fiscal year or other measuring period preceding the Date of
Termination under the Bonus Plan but has not yet been paid (pursuant to Section
5.2 hereof or otherwise) and (ii) a pro rata portion to the Date of Termination
of the aggregate value of all contingent bonus awards to the Executive for all
uncompleted periods under the Bonus Plan calculated as to each such award by
assuming the achievement of the target performance level within the performance
range established with respect to such award and basing such pro-rata portion
upon the portion of the award period that has elapsed as of the Date of
Termination;
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(C) For a ____________ month period after the Date of
Termination, the Company shall arrange to provide the Executive with life,
disability, accident and health insurance benefits substantially similar to
those which the Executive is receiving immediately prior to the Notice of
Termination (without giving effect to any reduction in such benefits subsequent
to a Change in Control if such reduction constitutes Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 6.1(C) shall be
reduced to the extent comparable benefits are actually received by or made
available to the Executive without cost during the above-referenced period. In
addition, any such benefits actually received by the Executive shall be reported
to the Company by the Executive.
6.2. (A) Whether or not the Executive becomes entitled to
the Severance Payments, if any of the Total Payments will be subject to the
Excise Tax, the Company shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state and
local income tax and Excise Tax upon the payment provided for by this Section
6.2, shall be equal to the excess of the Total Payments over the payment
provided for by this Section 6.2.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any payments or benefits received or to be received by the Executive in
connection with a Change in Control or the Executive's termination of
employment, whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions result in a
Change in Control or any Person affiliated with the Company or such Person (the
"Total Payments") shall be treated as "parachute payments" (within the meaning
of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel
selected by the Company's independent auditors and reasonably acceptable to the
Executive, such payments or benefits (in whole or in part) do not constitute
parachute payments, including by reason of section 280G(b)(4)(A) of the Code,
and all "excess parachute payments" (within the meaning of section 280G(b)(1) of
the Code) shall be treated as subject to the Excise Tax unless, in the opinion
of such tax counsel, such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered (within the
meaning of section 280G(b)(4)(B) of the Code), or are otherwise not subject to
the Excise Tax, and (ii) the value of any noncash benefits or any deferred
payment or benefit shall be determined by the Company's independent auditors in
accordance with the principles of sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the Executive shall
be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar year in which the Gross-Up Payment is to be
made, FICA taxes at the highest rate applicable with respect to wages in excess
of the Social Security taxable wage base in effect for the year of payment, and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of Termination (or
such other time as is hereinafter described), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
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(C) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of the Executive's employment (or such other time as is
hereinafter described), the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
or a federal, state or local income tax deduction) plus interest on the amount
of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the Executive's employment
(or such other time as is hereinafter described) (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or addition payable by the
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments. If an Executive who remains in the
employ of the Company becomes entitled to the payment provided for by this
paragraph, such payment shall be made no later than the later of (i) the fifth
day following the date on which the Executive notifies the Company that he is
subject to the Excise Tax and (ii) twenty days prior to the date on which the
Excise Tax is initially due.
6.3. The payments provided for in section 6.1 hereof (other
than Section 6.1(C)) and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that, if the
amounts of such payments cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an estimate, as determined in
good faith by the Company of the minimum amount of such payments to which the
Executive is clearly entitled and shall pay the remainder of such payments
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth (30th) day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code). At the time that payments are made under this section, the Company shall
provide the Executive with a written statement setting forth the manner in which
such payments were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Company has received from
outside counsel, auditors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
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6.4. The Company also shall pay to the Executive all legal
fees and expenses incurred in good faith by the Executive as a result of a
termination of the Executive's employment following a Change in Control and
during the term of this Agreement (including all such fees and expenses, if any,
incurred in disputing in good faith any such termination or in seeking in good
faith to obtain or enforce any benefit or right provided by this Agreement or in
connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of the Code to any payment or benefit provided
hereunder). For purposes of this Section 6.4, an Executive shall be deemed to
have acted in good faith unless an arbitrator finds that the Executive's action
resulting in such legal fees and expenses was frivolous. Such payments shall be
made within five (5) business days after delivery of the Executive's written
request for payment accompanied with such evidence of fees and expenses incurred
as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1. After a Change in Control and during the term of this
Agreement, any purported termination of the Executive's employment (other than
by reason of death) shall be communicated by written Notice of Termination from
one party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's Counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive
engaged in conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2. "Date of Termination," with respect to any purported
termination of the Executive's employment after a Change in Control and during
the term of this Agreement, shall mean (i) If the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day period), and
(ii) if the Executive's employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a termination by
the Company, shall not be less than thirty (30) days (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days from the date
such Notice of Termination is given).
7.3. If prior to the Date of Termination (as determined
without regard to this Section 7.3), either party notifies the other party that
a dispute exists concerning the termination, the Date of Termination shall be
the date on which the dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
dispute provided by the Executive only if such notice in given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
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7.4. If a purported termination occurs following a Change
in Control and during the term of this Agreement, and such termination is
disputed in accordance with Section 7.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given until the Date of Termination, determined in accordance with Section
7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other
amounts due under this Agreement (other than those due under Section 5.2 hereof)
and shall not be offset against or reduce any other amounts due under this
Agreement.
8. No Mitigation. The Company agrees that if the Executive's
employment by the Company is terminated during the term of this Agreement, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(C)) shall not be reduced by any compensation
earned by the Executive as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1. In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive were to terminate the Executive's employment for Good Reason after a
Change in Control, except that, for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the Date of
Termination.
9.2. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
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10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or mailed by United
states registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon actual receipt:
To the Company:
Systems & Computer Technology Corporation
4 Country View Road
Malvern, PA 19355
Attention: Chairman and Chief Executive Officer
To the Executive:
Name
Address
City, State ZIP
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction this Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania. All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law and any
additional withholding to which the Executive has agreed. The obligations of the
Company and the Executive under Sections 4.2, 6 and 7 shall survive the
expiration of the term of this Agreement.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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13. Counterparts; Coordination with Employment Agreement.
13.1. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instruments.
13.2. The terms of this Agreement shall be coordinated with and
applied in conjunction with the terms of the Executive's employment agreement,
if any, with the Company. In general, it is the intent of the parties that,
subsequent to a Change in Control and during the term of this Agreement, the
provisions of this Agreement shall supersede and substitute for those provisions
of the employment agreement relating to the Executive's entitlement to benefits
in connection with any termination of the Executive's employment, but shall not
supersede for any period the provisions of such employment agreement pertaining
to the terms of the Executive's employment. Except for circumstances relating to
a termination of employment following a Change in Control during the term of
this Agreement, as provided for herein, all terms and conditions of the
Executive's employment with the Company shall be governed by the terms of the
Executive's employment agreement (including but not limited to any such term
granting additional years of service to the Executive for purposes of any of the
Company's employee benefit plans).
14. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within sixty
(60) days after notification by the Board that the Executive's claim has been
denied. Any further dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of the Executive's right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Applicable Multiplier" means ____.
(B) "Base Amount" shall have the meaning defined in section
280G(b)(3) of the Code.
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(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Company of the Executive's
employment, after any Change in Control, shall mean (i) the willful and
continued failure by the Executive to substantially perform the Executive's
duties with the Company (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for Good
Reason by the Executive pursuant to Section 7.1 hereof) after a written demand
for substantial performance is delivered to the Executive by the Board, which
demand specifically identifies the manner in which the Board believes that the
Executive has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or
failure to act, on the Executive's part shall be "Willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best interest of
the Company.
(E) A "Change in Control" shall be deemed to have occurred if the
events set forth in any one of the following paragraphs shall have occurred:
(i) The acquisition in one or more transactions by any "Person"
(as the term person is used for purposes of Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial
Ownership" (as the term beneficial ownership is used for purposes of Rule 13d-3
promulgated under the 1934 Act) of fifty percent (50%) or more of the combined
voting power of the Company's then outstanding voting securities (the "Voting
Securities"), provided that for purposes of this Section 15(E)(i), the Voting
Securities acquired directly from the Company by any Person shall be excluded
from the determination of such Person's Beneficial Ownership of Voting
Securities (but such Voting Securities shall be included in the calculation of
the total number of Voting Securities then outstanding); or
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(ii) Approval by shareholders of the Company of (A) a merger,
reorganization or consolidation involving the Company if the shareholders of the
Company immediately before such merger, reorganization or consolidation do not
or will not own directly or indirectly immediately following such merger,
reorganization or consolidation, more than fifty percent (50%) of the combined
voting power of the outstanding voting securities of the corporation resulting
from or surviving such merger, reorganization or consolidation in substantially
the same proportion as their ownership of the Voting Securities immediately
before such merger, reorganization or consolidation, or (B) (1) a complete
liquidation or dissolution of the Company or (2) an agreement for the sale or
other disposition of all or substantially all of the assets of the Company; or
(iii) Acceptance by shareholders of the Company of shares in a
share exchange if the shareholders of the Company immediately before such share
exchange do not or will not own directly or indirectly immediately following
such share exchange more than fifty percent (50%) of the combined voting power
of the outstanding voting securities of the corporation resulting from or
surviving such share exchange in substantially the same proportion as the
ownership of the Voting Securities outstanding immediately before such share
exchange.
Notwithstanding the foregoing, a Change in Control shall not include
any event, circumstance or transaction occurring during the six-month period
following a Potential Change in Control which Potential Change in Control
results from the action of any entity or group which includes the Executive (a
"Management Group"); provided, however, that such action shall not be taken into
account for this purpose if it occurs within a six-month period following a
Potential Change in Control resulting from the action of any Person which is not
a member of the Management Group.
(F) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. References to specific sections of the code shall include any
successors thereto.
(G) "Company" shall mean SYSTEMS & COMPUTER TECHNOLOGY CORPORATION,
a Delaware corporation, and any successor to its business or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise
(except in determining, under Section 15(E) hereof, whether or not any Change in
Control of the Company has occurred in connection with such succession).
(H) "Date of Termination" shall have the meaning stated in Section
7.2 hereof.
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(I) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
for a period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
(J) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(K) "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
(L) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(M) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described in paragraph (i), (v), (vi) or (vii) hereof, such act or failure to
act is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(i) the assignment by the Company to the Executive of any
duties inconsistent with the Executive's status as an executive of the Company
or a substantial adverse alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the Change in
Control;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased from
time to time;
(iii) the relocation by the Company of its principal
executive offices to a location more than 30 miles from the location of such
office immediately prior to the Change in Control or the Company's requiring the
Executive to be based anywhere other than the Company's principal executive
offices except for required travel on the Company's business to an extent
substantially consistent with the Executive's present business travel
obligations;
(iv) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation, or to pay to the Executive any
portion of an installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of the date such
compensation is due;
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(v) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to the
Change in Control which is material to the Executive's total compensation,
including but not limited to the Bonus Plan and any similar or substitute plan
adopted prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of the Executive's participation relative to other participants, as
existed at the time of the Change in Control;
(vi) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance medical, health and accident,
or disability plans in which the Executive was participating at the time of the
Change in Control, the taking of any action by the Company which would directly
or indirectly materially reduce any of such benefits or deprive the Executive of
any material fringe benefit enjoyed by the Executive at the time of the Change
in Control, or the failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is entitled on the basis of
years of service with the Company in accordance, with the Company's normal
vacation policy in effect at the time of the Change in Control; or
(vii) any purported termination by the Company of the
Executive's employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 7.1; for purposes of this Agreement, no
such purported termination shall be effective.
In addition, Good Reason for termination by the Executive shall exist
during a thirty (30) day period commencing on the first anniversary of a Change
in Control if the Executive continues in service as an employee during the year
preceding the first anniversary of the Change in Control. For this purpose, the
term "Change in Control" shall not include any "Potential Change in Control,"
notwithstanding any provision of this Agreement to the contrary.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(N) "Gross-Up Payment" shall have the meaning stated in
Section 6.2 hereof.
(O) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
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(P) "Person" shall have the meaning given in section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
provided, however, that a Person shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(Q) "Potential Change in Control" shall be deemed to have
occurred if the events set forth in any one of the following paragraphs shall
have occurred:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in Control;
(ii) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(iii) any Person who both (x) is on the date hereof or
subsequently becomes the Beneficial Owner, directly or indirectly, of securities
of the Company representing at least 10% or more of the combined voting power of
the Company's then outstanding securities and (y) increases his or her
beneficial ownership of such securities by 5% or more over the percentage so
owned by such Person on the date hereof; or
(iv) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has occurred.
(R) "Severance Payments" shall have the meaning stated in
Section 6.1 hereof.
(S) "Total Payments" shall have the meaning stated in Section
6.2 hereof.
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IN WITNESS WHEREOF, this Agreement has been executed, as of
the date first above written, on behalf of this Company by its duly authorized
officer and by the Executive.
ATTEST: SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
________________________ By:__________________________________
Secretary Michael J. Emmi
Chairman & CEO
EXECUTIVE
By:__________________________________
Name
16
<PAGE>
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
SCT Software & Resource Management Corporation(1)
SCT Financial Corporation(1)
SCT Government Systems, Inc.(1)
SCT Property, Inc.(1)
SCT Utility Systems, Inc.(1)
SCT International Limited(2)
SCT Manufacturing & Distribution Systems, Inc.(1)
SCT Technologies (Canada) Inc.(3)
Systems & Computer Technology International B.V.(4)
Fygir Logistic Information Systems B.V.(4)
SCT Holdings Corporation(1)
Systems & Computer Technology International S.A.R.L.(5)
SCT Technologies de Mexico S. de R.L. de C.V.(6)
Systems & Computer Technology de Mexico S. de R.L. de C.V.(6)
--------------------
(1) Incorporated in Delaware
(2) Incorporated in the United Kingdom
(3) Incorporated in Ontario, Canada
(4) Incorporated in the Netherlands
(5) Incorporated in France
(6) Incorporated in Mexico
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-1343) pertaining to the various stock incentive plans of Systems &
Computer Technology Corporation listed therein and in the related prospectus, in
the Registration Statement (Form S-8 No. 33-43535) pertaining to the 1990
Employees' Stock Option Plan of Systems & Computer Technology Corporation and in
the related prospectus, in the Registration Statement (Form S-8 No. 33-56528)
pertaining to the 401(k) Savings Plan of Systems & Computer Technology
Corporation and in the related prospectus, in the Registration Statements (Form
S-8 No. 33-60831 and Form S-8 No. 333-50979) pertaining to the 1994 Long Term
Incentive Plan and the 1994 Non-Employee Director Stock Option Plan of Systems &
Computer Technology Corporation and in the related prospectus, and in the
Registration Statement (Form S-3 No. 333-37551) and related Prospectus of
Systems & Computer Technology Corporation for the registration of $60,000,000 of
Convertible Subordinated Debentures Due 2004, of our report dated October 25,
1999 with respect to the consolidated financial statements and financial
statement schedule of Systems & Computer Technology Corporation included in this
Annual Report (Form 10-K) for the year ended September 30, 1999.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the September
30, 1999, 1998 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000707606
<NAME> SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 27,030,000 18,942,000
<SECURITIES> 4,078,000 59,364,000
<RECEIVABLES> 154,808,000 134,490,000
<ALLOWANCES> 5,841,000 4,033,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 203,105,000 222,624,000
<PP&E> 112,055,000 89,380,000
<DEPRECIATION> 43,006,000 33,518,000
<TOTAL-ASSETS> 335,052,000 332,954,000
<CURRENT-LIABILITIES> 68,544,000 71,607,000
<BONDS> 78,232,000 78,425,000
0 0
0 0
<COMMON> 367,000 363,000
<OTHER-SE> 187,909,000 182,559,000
<TOTAL-LIABILITY-AND-EQUITY> 335,052,000 332,954,000
<SALES> 464,558,000 398,254,000
<TOTAL-REVENUES> 466,211,000 403,668,000
<CGS> 311,806,000 252,936,000
<TOTAL-COSTS> 426,159,000 361,448,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,636,000 3,988,000
<INCOME-PRETAX> 35,416,000 38,232,000
<INCOME-TAX> 16,117,000 16,858,000
<INCOME-CONTINUING> 19,299,000 21,374,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,299,000 21,374,000
<EPS-BASIC> 0.59 0.64
<EPS-DILUTED> 0.58 0.59
</TABLE>
