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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, 1995 Commission File No. 0-11521
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Exact name of Registrant as specified in charter)
Delaware 23-1701520
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
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
6 1/4% Convertible Subordinated Debentures Due 2003
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:
$257,425,273 at December 15, 1995
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
14,057,536 shares at December 15, 1995
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 23, 1996 is incorporated by reference to the extent provided in
Part III, Items 10-13.
TABLE OF CONTENTS
Page
Item Number and Caption Number
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
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 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
PART III
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
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
PART I
ITEM 1. BUSINESS.
Systems & Computer Technology Corporation ("SCT" or the "Company")
provides computing management services and administrative application software
in the higher education, local government, utilities, and
manufacturing/distribution markets.
The Company concentrates on meeting the current trend toward outsourcing
of administrative computing resources, allowing clients to improve the quality
and reliability of support services and reduce or contain costs. The Company
accomplishes this by focusing on specific vertical markets enabling it more
fully to understand client requirements and provide solutions which directly
address their needs. In addition, by providing both computing management
services and administrative application software, the Company makes available
to its clients the technology and the management tools necessary to manage
information resources efficiently and cost-effectively.
The Company was incorporated in Delaware in 1968.
BANNER[registerd trademark] and SCT[registerd trademark] are registered
trademarks of the Company and BANNERQuest[trademark], IA-Plus[trademark] and
ADAGE[trademark] are trademarks of the Company. All other trade names
referenced herein are the service marks, trademarks or registered trademarks
of their respective companies or organizations.
Markets
In fiscal year 1995, approximately 59% of the Company's revenues were
derived from the higher education market, approximately 22% were derived from
the local government market, approximately 16% were derived from the utility
market, and approximately 3% were derived from other markets. The Company's
foreign operations represented approximately 8% of the Company's fiscal year
1995 revenues.
Higher Education
The Company provides computing management services and application
software to higher education institutions. With extensive functional and
technical expertise in the software system needs of the higher education
market, SCT regularly develops new products to serve this marketplace.
Approximately 2,200 U.S. institutions of higher education, typically
those with enrollments greater than 1,000 students, represent the Company's
target market, of which approximately 1,400 are public institutions and the
other 800 are private. Many of these target customers are currently using
mainframe and minicomputer systems which are likely prospects for replacement,
as they are less cost effective and require a higher level of maintenance than
systems that the Company provides. The Company also targets institutions of
this nature in Canada and in other areas of the world. The Company serves
this market with a comprehensive set of its BANNER and IA-Plus application
software products. Approximately 500 of these institutions are potential
candidates for SCT's OnSite services.
Local Government
The computing management services and application software markets for
local government jurisdictions are highly fragmented, with many competitors,
including in-house computing departments of local governments, custom software
programmers and packaged application software companies. Local governments,
which are conservative in their decisions regarding capital expenditures and
long-term contracts, are influenced by the acceptance of a particular
company's product or service by other local governments.
The Company's target market consists of approximately 2,500 local
government entities. The Company serves this market with a comprehensive set
of its BANNER application software products. Approximately 1,000 of these
entities are potential candidates for SCT's OnSite services.
Utilities
The Company acquired an installed base of utility clients as a result of
acquisitions in July 1990 and March 1991. In December 1992, the Company
released its BANNER Customer Information System, an open systems RDBMS
application software package for the utility market. SCT's target utility
market includes approximately 1,000 water, gas and electric utilities serving
over 25,000 consumers.
Many of these target customers currently use custom-designed or
internally-developed software running on proprietary systems which are likely
prospects for replacement. In addition, many utilities use software systems
which run on open systems platforms, including ORACLE, for engineering
purposes, such as mapping, plant maintenance and computer-aided design.
Manufacturing/Distribution
The Company entered the Enterprise Resource Planning ("ERP") market
through its June 1, 1995 acquisition of Adage Systems International, Inc., now
SCT Manufacturing & Distribution Systems, Inc. The Company serves this
market, which is estimated at $3-$4 billion for calendar year 1996 and which
has proved to be receptive to client/server technology, with its newly
developed ADAGE product. This market essentially consists of two components:
discrete (such as metals, industrial equipment, electronics, automotive,
defense, aerospace) and process (such as chemicals, food and beverage,
petroleum, pharmaceutical, pulp and paper). SCT targets companies with over
$100 million in annual revenues. Worldwide, there are approximately 8,200
discrete and 8,400 process companies with such annual revenues.
Services and Products
The Company's revenues are derived from two primary sources: (i) OnSite
service contracts and (ii) software and hardware sales and services, which
include licensing, maintenance and enhancements and installation of the
Company's software products and the resale of software and hardware products
complementary to the Company's proprietary products.
OnSite Services
SCT provides OnSite services, a variety of computing management services
designed to assume total or partial control and responsibility of information
resources on a long-term or short-term basis. SCT provides management,
staffing and support with skilled information systems personnel and industry
specialists who are knowledgeable in both computer-based technologies and the
administrative aspects of its 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, short-term and long-range planning, user liaison
and functional consulting, technical support services, application and systems
software support, office automation, microcomputer maintenance, systems
integration, and telecommunications services and network integration.
Contracts for OnSite services may be either on a fixed price or time and
materials basis, and generally cover an initial period of five to ten 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 OnSite 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 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.
Application Software
The Company develops and licenses standardized administrative application
software designed to serve the specialized needs of its higher education,
local government, utility, and manufacturing/distribution markets. The
Company also provides support services to its licensees, including
implementation, modification, user training, consulting and maintenance
services. Clients typically also purchase specified initial services, such as
installation, training and other client support activities. In addition to a
license of the application software, clients typically also enter into a
maintenance agreement with the Company, usually for terms ranging from one to
seven years, which entitles the client to service and support, regulatory
updates and functional and technical enhancements. The annual maintenance fee
generally ranges from 12% to 15% of the license fee, and generally increases
each year by up to 10% of the preceding year's maintenance fee.
BANNER. BANNER is a comprehensive series of administrative software
systems, combining a graphical user interface ("GUI"), rule-based
architecture, hardware flexibility, fourth generation language and ORACLE, the
relational database management system of Oracle Corporation. BANNER operates
on a variety of UNIX-based hardware platforms and supports client/server
computing on PCs, Macintoshes and host terminals simultaneously. Rule-based
architecture permits clients to adapt the software to their particular
business requirements without programming modifications.
The Company offers a multitude of BANNER systems to the higher education
market, including Student, Financial Aid, Finance, Human Resources,
Alumni/Development and Strategic Enrollment Management systems, EDI.Smart
electronic document management/delivery software, and information access
solutions such as voice response, kiosk gateway, and BANNERQuest. To the
local government market, the Company offers its BANNER Finance, Human
Resources, Courts Case Management, Real Property Tax, Occupational Tax &
License, Records Indexing and Cash Receipts systems. BANNER systems which the
Company offers to the utility market include Customer Information, Finance,
Human Resources, and the Inventory Management, Procurement, and Fuels
Management systems purchased from another company in December 1994.
The Company currently has an agreement with Oracle Corporation pursuant
to which the Company has the right to sublicense a limited use ORACLE system,
which enables the client to use ORACLE in connection with BANNER at a
significantly lower cost than a full-use ORACLE license. The Company's
results of operations would be adversely affected if ORACLE's market
acceptance declined or its customer base eroded. The agreement expires in
February 1999.
IA-Plus. Like BANNER, IA-Plus is a comprehensive series of application
software systems designed to meet the administrative computing needs of the
higher education market. The IA-Plus systems operate on large-scale IBM and
DEC computers using proprietary operating systems rather than in an open
systems environment.
The IA-Plus Series of application software consists of five administrative
application software systems geared for the higher education market. Each
system may be sold in its entirety or in modules, with the five systems
comprising a total of 16 modules. The voice response and kiosk gateway
information access solutions are also available with IA-Plus. On the IBM
mainframe platform, IA-Plus can utilize DB2, IBM's relational database
software product.
ADAGE. ADAGE is a newly developed Enterprise Resource Planning ("ERP")
system which combines multi-site functionality with client/server technology,
use of object technology and a state-of-the-art graphical user interface. The
ADAGE product is intended to address the sales, engineering, procurement,
manufacturing, logistics, quality assurance and finance functions for hybrid
manufacturing (discrete and process industries) and order
fulfillment/distribution disciplines. ADAGE is designed to enable large
multi-site, often multinational manufacturers to integrate critical business
functions across business units, providing greater visibility and control over
operations as well as enhanced planning and decision support. The flexibility
of the system is achieved through the use of state-of-the-art tools that
enable the user to build job-specific workflows which can include dynamic
messaging, Internet access, multimedia, electronic authorizations, desktop
integration and other productivity enhancing features that enable a user to
manage its business more proactively. ADAGE is currently written in the CA-
OpenIngres relational database management system.
Software Related Services. The Company's English subsidiary, SCT
International Limited, provides systems integration and services related to
implementations of the Company's utility product to the utility industry in
the United Kingdom. In July 1995, the Company established a Systems
Integration Division utilizing existing SCT sales and marketing resources
which will support the Company's software product divisions in North America.
The services offered by SCT International Limited provide and the services to
be offered by the newly formed Systems Integration Division would provide
clients with the opportunity to unite diverse technical components to more
effectively and efficiently solve their business problems through the
application of technology, customized software development and networks.
Product 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
including student-related matters, finance, fund accounting, human resources,
financial aid, alumni development, utilities, manufacturing processes and
court administration. Technical experts include specialists in systems
software and operating systems (including ORACLE and DB2). Product
development expenditures, including expenditures for software maintenance, for
the fiscal years ended September 30, 1993, 1994 and 1995 were approximately
$6.8 million, $8.8 million, and $12.9 million, respectively. After
capitalization, $6.1 million, $7.4 million and $9.5 million, respectively, of
these amounts were charged to operations as incurred. For the same fiscal
years, amortization of capitalized software costs amounted to approximately
$762,000, $889,000, and $871,000, respectively.
SCT currently has several projects in the development stage. BANNER Web
for Student, expected to be released during fiscal 1996, will enable students
to update and query their own information stored in the BANNER Student system
through the World Wide Web. Students will be able to access information about
their grades, schedules and transcripts; query the system about their account
balances and addresses; check the availability of courses, build a schedule
and register on line; and determine admission status. In addition, scheduled
for release in fiscal 1996 is an IA-Plus system operating in an RS 6000
downsized environment, a graphical user interface to IA-Plus and World Wide
Web access for IA-Plus.
For the manufacturing/distribution market, the Company is currently
investing in a new version of the ADAGE software which the Company expects to
release in fiscal 1996. This new release will include enhanced functionality
and will be designed to operate on the ORACLE and Microsoft SQL/Server
databases in addition to CA-OpenIngres. The new release will also be designed
to operate under Microsoft NT and Windows 95.
Scheduled for release during fiscal 1996 for the government market are
new BANNER applications for Remote Access (will allow users to connect to the
BANNER Records Indexing system through World Wide Web) and Personal Property
Tax. Currently under development for the utilities market are new BANNER
applications for Electronic Work Queue, Customer Contact, and accrual-based
Finance, and BANNERQuest Customer Information System, as well as enhanced
versions of the Inventory Management, Procurement and Fuels Management systems
providing additional functionality and a graphical user interface.
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.
Sales and Marketing
The Company attracts clients primarily through the following means: its
own sales force of approximately 90 direct salespersons and support staff, of
which approximately 75 are engaged in selling licenses for the Company's
application software products and approximately 15 are engaged in selling the
Company's OnSite services; referrals from existing clients and others; and
active participation in industry conferences, trade shows and seminars within
its markets. In addition, the Manufacturing & Distribution Systems division
utilizes distributors in certain international markets. The Company engages
in cooperative marketing with other hardware and software suppliers, and
receives referrals as a result of these cooperative marketing arrangements.
The Company also advertises in trade journals and publications.
The sales cycle for OnSite services and software licenses typically
ranges from six to twenty-four 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 divisions 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 managers, industry
specialists and corporate and client based technical specialists.
Competition
In each of its markets, SCT has various 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 OnSite services business, the Company competes with several large
providers of systems integration and consulting services, including IBM,
Electronic Data Systems, Business Records Corporation and Andersen Consulting.
The Company also competes with in-house information management and resource
development staffs at potential customer sites. Competitive factors in the
computing management business 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.
In the application software business, the Company competes with companies
offering custom software and with other providers of packaged application
software. Competition also varies by vertical market. Within the higher
education market, the Company's principal competitor is Datatel. At the
higher end of the higher education market, the Company competes with
PeopleSoft and Oracle for Human Resources and Finance Systems. PeopleSoft
also has announced that it is developing a Student System for the higher
education market. The local government and utility markets are highly
fragmented and competition varies significantly within these markets depending
upon the customers' computing platforms. Competitors in the local government
market include PeopleSoft, Oracle, Bitech, and Ross Systems and in the
utilities market include Severn Trent, ORCOM, IBM and Andersen Consulting.
The manufacturing/distribution market is highly competitive and competitors
include SAP, Baan, Datalogix, Oracle, Systems Software Associates, Ross
Systems and qad Systems. Competitive factors in all the software markets
served by the Company include price/performance, technology, functionality,
portability, software support, and the level of market acceptance of the
competitor's products.
Backlog
At September 30, 1995, the revenues expected to be received by SCT under
OnSite services contracts, which are based on proposed budgeted amounts in
those contracts, and under software development and licensing agreements,
including enhancements, maintenance contracts, support services, and software
implementation, modification and training, amount to approximately $375
million as compared to approximately $320 million at September 30, 1994 and
extend through June 30, 2005. Of the $375 million, approximately $105 million
is expected to be recognized in fiscal 1996. Approximately $278 million of
the $375 million applies to OnSite services contracts. These figures include,
in connection with OnSite 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 educational institutions and
government jurisdictions. 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, 1995 includes approximately $152 million of OnSite 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 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, 1995, the Company employed approximately 1,900
employees, of which approximately 450 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 15 employees at one client
site. The Company considers its relationship with its employees to be
satisfactory.
When the Company receives a new OnSite 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 53 Chairman of the Board, President and Chief
Executive Officer; Director
Michael D. Chamberlain 51 Senior Vice President; President, SCT Software
Group; Director
Eric Haskell 49 Senior Vice President, Finance and
Administration, Treasurer, and Chief Financial
Officer
Richard A. Blumenthal 47 Senior Vice President, General Counsel and
Secretary
Susan R. Sheridan 42 Vice President, Human Resources and
Organizational Strategy
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. Prior thereto, he held
various senior management positions with General Electric Information Services
Company, a unit of General Electric Company. He is also a director of
National Media Corporation and CompuCom Systems, Inc.
Michael D. Chamberlain has served as a director of the Company since July
1989. He has served as Senior Vice President of the Company since July 1990,
and prior thereto, as Vice President since September 1986. He has been
President of the SCT Software Group since May, 1994 and prior thereto served
as President of the Software and Technology Services Division, the Company's
higher education software division.
Eric Haskell has served as Senior Vice President, Finance and 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.
Susan R. Sheridan has served as Vice President, Human Resources and
Organizational Strategy since May, 1994. Prior thereto, she served in various
marketing positions in the Company's Software and Technology Services division
since May, 1984, including Vice President, Marketing for that division since
July 1990.
ITEM 2. PROPERTIES.
SCT occupies three adjacent buildings in the Great Valley Corporate
Center in Malvern, Pennsylvania. The Company's corporate offices are located
in an approximately 47,000 square-foot facility owned by the Company, which
also includes employees of other divisions of the Company. The Company also
owns an approximately 56,200 square-foot facility and leases an approximately
48,900 square-foot facility under a lease which expires on August 15, 2005.
The Company owns and occupies an approximately 45,000 square-foot
facility in Rochester, New York and three buildings aggregating about 13,500
square feet in Baton Rouge, Louisiana. The Company leases an approximately
28,600 square-foot facility in Lexington, Kentucky under a lease which expires
on March 31, 1999. The Company owns a new approximately 60,000 square-foot
facility in Columbia, South Carolina, of which about 40,000 square feet is
occupied and fitted. SCT leases sales offices in Irvine, California, San
Diego, California, Reston, Virginia, and Dallas, Texas and also leases office
space in Basingstoke, England and Manchester, England.
SCT believes that its facilities are adequate for its present business
needs.
ITEM 3. LEGAL PROCEEDINGS.
On October 4, 1995, John J. Wallace filed a purported class action
lawsuit in the United States District Court for the Eastern District of
Pennsylvania against the Company, Michael J. Emmi, Chairman of the Board,
President and Chief Executive Officer of the Company, Michael D. Chamberlain,
Senior Vice President and a director of the Company and Eric Haskell, Senior
Vice President, Finance and Administration, Treasurer and Chief Financial
Officer of the Company. The plaintiff filed an amended complaint on November
28, 1995. The amended complaint alleges that the defendants violated sections
10 (b) and 20 (a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder by making misstatements and omissions regarding the
Company's financial performance in the second half of fiscal year 1995. The
class period alleged is from June 5, 1995 through October 2, 1995. The
amended complaint seeks damages in unspecified amounts as well as equitable
relief. Management believes the amended complaint is without merit and
intends to contest the allegations vigorously. While management, based on its
investigation to date, believes that resolution of this action will not have a
materially adverse effect on the Company's consolidated financial position,
the ultimate outcome of this matter cannot be presently determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
SCT's Common Stock is traded over the counter under the Nasdaq
symbol "SCTC." The following table sets forth the high and low sale prices on
the Nasdaq National Market for the specified quarter.
Period Year ended September 30, 1995
-----------------------------
High Low
-----------------------------
1st Quarter 21 16 3/4
2nd Quarter 21 1/4 15 7/8
3rd Quarter 21 5/8 15 3/4
4th Quarter 29 5/8 19 5/8
-----------------------------
Year ended September 30, 1994
-----------------------------
High Low
-----------------------------
1st Quarter 18 1/2 12 3/8
2nd Quarter 23 7/8 17 1/4
3rd Quarter 21 3/4 13 7/8
4th Quarter 18 3/4 13 3/4
-----------------------------
The approximate number of stockholders of record of SCT's Common Stock as of
September 30, 1995 was 559.
SCT has not paid any dividends for more than the last three 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.
Selected Financial Data
Year Ended September 30,
(in thousands except per share data)
------------------------------------------------
1995* 1994 1993 1992* 1991
------------------------------------------------
Revenues $176,148 $148,214 $120,168 $90,883 $65,366
------------------------------------------------
Income (Loss) Before Income Taxes
and Extraordinary Credit 10,316 17,794 11,223 (1,647) 5,159
------------------------------------------------
Provision for Income Taxes 7,258 6,148 4,511 803 2,167
------------------------------------------------
Income (Loss) Before Extraordinary Credit 3,058 11,646 6,712 (2,450) 2,992
------------------------------------------------
Extraordinary Credit: Net Operating
Loss Carryforwards 0 0 2,901 180 1,744
------------------------------------------------
Net Income (Loss) 3,058 11,646 9,613 (2,270) 4,736
------------------------------------------------
Primary Income (Loss) per Share
Before Extraordinary Credit 0.22 0.86 0.53 (0.21) 0.24
------------------------------------------------
Fully Diluted Income per Share
Before Extraordinary Credit 0.21 0.83 0.51 -- --
------------------------------------------------
Primary Net Income (Loss) per Share 0.22 0.86 0.75 (0.19) 0.38
------------------------------------------------
Fully Diluted Net Income per Share 0.21 0.83 0.74 -- --
------------------------------------------------
Primary Average Equivalent Shares Outstanding 14,030 13,517 12,780 11,848 12,506
------------------------------------------------
Fully Diluted Average Equivalent Shares
Outstanding 14,399 15,818 13,196 -- --
------------------------------------------------
Working Capital 63,555 59,239 50,432 20,159 25,849
------------------------------------------------
Total Assets 150,983 128,809 110,082 72,487 51,325
------------------------------------------------
Long-Term Debt 31,790 34,500 34,500 12,610 2,260
------------------------------------------------
Stockholders' Equity 85,565 65,481 51,282 40,674 41,664
------------------------------------------------
*Includes charge of $8,700 and $7,693 for purchased research and development in the years ended
September 30, 1995 and 1992, respectively.
Results without the charge for purchased research and development would have been:
1995 1992
----------------
Income before extraordinary credit $11,758 $3,628
Fully diluted income per share before extraordinary credit $ 0.80 $ 0.29
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.
Overview
Systems & Computer Technology Corporation derives revenue from OnSite services
contracts and software and hardware sales and services. Software and hardware
sales and services includes (i) licensing, (ii) maintenance and enhancements
and (iii) installation of the Company's software products, as well as the
resale of software and hardware products complementary to the Company's
proprietary products. The Company's client/server software applications enable
higher education institutions, local government jurisdictions, public and
private utilities and manufacturing and distribution enterprises to better
manage their administrative functions such as accounting and finance, customer
services, and production scheduling. Strategic acquisitions in recent years
have added to the Company's revenues and growth opportunities. In June 1995,
the Company acquired Adage Systems International, Inc. (Adage), which provides
client/server applications for manufacturing and distribution operations. In
June 1992, the Company acquired a supplier of administrative software to the
higher education market. In 1991 and 1990, the Company acquired businesses
which provide administrative and financial software to government
jurisdictions and not-for-profit organizations, as well as customer
information and billing software to utilities.
Contract fees from OnSite services are typically based on multi-year
contracts ranging from five to 10 years and provide a recurring revenue stream
throughout the term of the contract. During the first several years of a
typical OnSite services contract, services are performed and expenses are
incurred by the Company at a greater rate than in the later years of the
contract. Billings usually remain constant during the term of the contract and,
in some cases, when a contract term is extended, the billing period is also
extended over the new life of the contract. Revenue is recognized as work is
performed; therefore, 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 lesser rate, resulting in billings
exceeding revenue recognized, which causes a decrease in the unbilled accounts
receivable.
Results of Operations
The following table sets forth: (a) income statement items as a percentage of
total revenues and (b) for revenues, the percentage change for each item from
the prior year.
% Change from
% of Total Revenues Prior Year
Year Ended September 30,
---------------------------------------
1995 1994 1993 1995 1994
---------------------------------------
Revenues:
OnSite services 38% 43% 45% 5% 19%
Software and hardware
sales and services 41% 36% 33% 37% 32%
Maintenance and enhancements 20% 20% 22% 16% 16%
Interest and other revenue 1% 1% 0% 67% 174%
Total 100% 100% 100% 19% 23%
Expenses:
Cost of services, sales
and maintenance and
enhancements 63% 62% 64%
Selling, general and
administrative 25% 24% 26%
Charge for purchased
research and development 5% 0% 0%
Interest expense 2% 2% 1%
Income before
income taxes and
extraordinary credit 6% 12% 9%
---------------------------------------
The following table sets forth the gross profit for each of the following
revenue categories as a percentage of revenue for each such category and the
total gross profit as a percentage of total revenue (excluding interest and
other revenue). The Company does not separately present the cost of
maintenance and enhancements revenue as it is impracticable to separate such
cost from the cost of software and hardware sales and services.
Year Ended September 30,
------------------------
1995 1994 1993
------------------------
Gross Profit:
OnSite services 22% 22% 21%
Software and hardware sales
and services and maintenance
and enhancements 45% 50% 48%
Total 36% 38% 36%
------------------------
Revenues: Growth in OnSite services revenues is impacted by large contract
signings. The five percent increase in fiscal year 1995 was the result of
several new agreements, including a five-year agreement with Continental
Cablevision, Inc., which commenced in January 1995 and expanded throughout the
year. This contract represents SCT's initial entry into the cable industry.
The 19% increase in fiscal year 1994 was due primarily to a full year's
revenues from a 10-year contract with the University of Medicine and Dentistry
of New Jersey, which commenced in July 1993, as well as two additional
contracts signed during the year. Contract renewal rates, as a percentage of
annual revenue from contracts available for renewal, for the fiscal years
1995, 1994, and 1993, were 97%, 89%, and 100%, respectively. Contracts
available for renewal in a particular period include contracts with expiration
dates within the period, as well as contracts renewed during that period which
have expiration dates in a later period.
Software and hardware sales and services revenues have increased in each
period due to a continued demand for BANNER products, acquisitions and an
increased focus on the global marketplace. The 37% and 32% increases in fiscal
years 1995 and 1994, respectively, are attributable to increases in BANNER
related revenues to U.S. and international utilities and a continued demand
for BANNER products and related services in the global higher education
market.
The 16% increases in maintenance and enhancements revenues in fiscal years
1995 and 1994 are the result of continued high annual renewal rates and a
growing installed base of clients primarily in the higher education market.
Gross Profit: The decrease in total gross profit as a percentage of total
revenue (excluding interest and other revenue) from 38% to 36% for fiscal year
1995 resulted from a change in revenue mix. The percentage of software
services revenues to the international utilities market included in software
and hardware sales and services revenues increased relative to license fees
during the period. The Company is increasing its focus on software services
revenues, which may result in a decreased profit margin versus a revenue mix
with a higher percentage of license fees. The cost of software and hardware
sales and services may also increase as a result of the Company's increased
expenditures in the utility business to build a more stable and robust product
to serve a broader range of customers.
The increase in total gross profit as a percentage of total revenue
(excluding interest and other revenue) from 36% for fiscal year 1993 to 38%
for fiscal year 1994 is volume, mix, and operating leverage related. The
percentage of license fees included in software and hardware sales and
services revenues increased during the year compared to the prior year,
resulting in the mix improvement. In addition, there were revenue increases in
the fiscal year 1994 compared to the prior year which exceeded increases in
costs.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses decreased as a percentage of revenues in fiscal year
1994 from 26% to 24% due to continued cost control and increased revenues.
Adage Acquisition: In June 1995, the Company acquired Adage for
consideration of one million shares of common stock valued at approximately
$10.9 million. Adage offers a newly developed enterprise resource planning
system to multinational users in the manufacturing and distribution
industries. In conjunction with the acquisition, the Company incurred a charge
of $8.7 million for in-process research and development. Included in this
amount are the fair values of Adage products under development which had not
reached technological feasibility at the time of acquisition. These products
will be part of a 1996 release of ADAGE which is designed to operate on Oracle
and Microsoft SQL/Server databases in addition to the currently supported CA-
OpenIngres database. The anticipated costs of completing these functional
enhancements are not expected to have a material impact on the Company's
liquidity, capital resources or results of operations.
Income Taxes: The fiscal year 1995 provision for income taxes does not
reflect the customary relationship between income and tax expense principally
due to the write-off of purchased research and development, which is not
deductible for tax purposes. The fiscal year 1995 effective tax rate would
have been 38% without the write-off of purchased research and development. The
rate was further affected by the expiration of the research and development
tax credit as of June 30, 1995. The purchased research and development write-
off has an impact on both the state effective tax rate and the relationship
between income and the effect of the research and development tax credit.
Foreign Operations: The Company's foreign operations represented
approximately eight percent of the total fiscal year 1995 revenues. Product
licensing is denominated in U.S. dollars and services are denominated in
either U.S. dollars or the local currency where services are performed. At
September 30, 1995, the Company does not have a significant exposure to
currency deviations.
Seasonality: Certain factors have resulted in quarterly fluctuations in
operating results, including variability of software license fee revenues,
seasonal patterns of capital spending by clients, the timing and receipt of
orders, competition, pricing, new product introductions by the Company or its
competitors, levels of market acceptance for new products, and general
economic and political conditions. While the Company has historically
generated a greater portion of license fees in total revenue in the last two
fiscal quarters, the non-seasonal factors cited above may have a greater
effect than seasonality on the Company's results of operations. The 1995
fourth quarter results were less than expected as a result of several factors.
These factors included a slippage of software license fees during the quarter
and greater-than-expected expenditures related to building a sales force in
the new manufacturing and distribution business and higher product development
costs in the utility business.
Liquidity, Capital Resources and Financial Position
The Company's cash and short-term investments balance was $15.3 million and
$30.5 million at September 30, 1995 and 1994, respectively. The short-term
investment portfolio is classified as available-for-sale in accordance with
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
available cash and short-term investments balances are derived from continuing
operations and the September 1993 convertible debenture offering. Uses of cash
during the year ended September 30, 1995 included spending on new product
development, new facility construction, and investment in the new
manufacturing and distribution business infrastructure.
The increase in accounts receivable at September 30, 1995 is due to
increases in revenues and the timing of billings on the Company's software
services contracts and software licenses. The increase in prepaid expenses and
other receivables is the result of prepayments of income taxes. Estimated
income taxes were paid throughout the year based on the fiscal 1995 estimated
income. Actual operating results in the fourth quarter were less than budgeted
amounts which resulted in prepayments at the end of the year. The Company's
working capital was $63.6 million at September 30, 1995 and $59.2 million at
September 30, 1994.
Property and equipment at September 30, 1995 increased over September 30,
1994 balances as the result of construction of a new office building in
Columbia, SC and improvements to an office building, adjacent to the Company's
corporate headquarters in Malvern, PA, which was purchased in the fourth
quarter of fiscal year 1994.
The Company has outstanding $31.3 million of convertible subordinated
debentures bearing interest at 6 1/4% and maturing on September 1, 2003. The
debentures are convertible into common stock of the Company any time prior to
redemption or maturity at a conversion price of $15 per share. During the
fiscal year 1995, $3.2 million of the debentures were converted into 215,000
shares of common stock of the Company. The debentures are redeemable at any
time after September 10, 1996 at prices decreasing from 104.2% of the
principal amount at September 1, 1996, to par on September 1, 2002.
The Company has a $20 million senior revolving credit facility, available
for general corporate purposes, which expires in June 1996 with optional
annual extensions. At September 30, 1995, there were no borrowings
outstanding. As long as borrowings are outstanding and as a condition
precedent to new borrowings, the Company must comply with certain covenants,
and the Company is prohibited from paying any dividends other than stock
dividends. See Note F to Consolidated Financial Statements.
The Company believes that its cash and cash equivalents, short-term
investments, and borrowing arrangements, together with net cash provided by
operations, should satisfy its needs for the foreseeable future.
Primary common shares and equivalents used in the income per share
calculation increased as a result of employee stock option exercises during
the years ending September 30, 1995 and 1994 and, at September 30, 1995, by
shares issued for the Adage acquisition. Equivalent shares used in the fully
diluted income per share calculation increased at September 30, 1994,
primarily as a result of the inclusion of the increased number of shares that
would be outstanding assuming the conversion of the 6 1/4% convertible
subordinated debentures. Fully diluted equivalent shares decreased at
September 30, 1995 versus 1994 as a result of the anti-dilutive effect of the
aforementioned debentures at September 30, 1995.
Contingencies: A purported class action complaint was filed against the
Company and certain of its officers and directors on October 4, 1995. The
complaint alleges violations of certain disclosure and related provisions of
the Federal Securities Laws. The complaint seeks damages in unspecified
amounts as well as equitable relief. Management believes the complaint is
without merit and intends to contest the allegations vigorously. While
management of the Company, based on its investigation to date, believes that
resolution of this action will not have a materially adverse effect on the
Company's consolidated financial position, the ultimate outcome of this matter
cannot presently be determined.
Numerous factors could affect the Company's future operating results,
including general economic conditions, market acceptance of the Company's new
and existing products, the timing of contract signings and renewals, and
competitive pressures. Future revenue growth and operating results are in part
dependent upon increased license fee revenue and related services from the
Company's operations.
The Company's ability to sustain growth depends in part on the timely
development or acquisition of successful new and updated products. The Company
is investing in the development of new products and in improvements to
existing products; however, software development is a complex and creative
process that can be difficult to accurately schedule and predict. The Company
believes it has the resources to continue to compete effectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Balance Sheets
September 30,
---------------------------
Assets 1995 1994
---------------------------
Current Assets
Cash and short-term investments $ 15,312,000 $ 30,537,000
Receivables, including $46,746,000 and
$34,640,000 of earned revenues in excess of
billings, net of allowance for doubtful
accounts of $1,003,000 and $1,228,000 70,270,000 52,406,000
Prepaid expenses and other receivables 9,994,000 5,124,000
------------ ------------
Total Current Assets 95,576,000 88,067,000
Property and Equipment--at cost, net of
accumulated depreciation 28,899,000 20,002,000
Capitalized Computer Software Costs, net of
accumulated amortization of $6,105,000
and $5,234,000 5,532,000 3,003,000
Cost in Excess of Fair Value of Net Assets
Acquired, net of accumulated amortization
of $1,741,000 and $1,284,000 8,754,000 6,812,000
Covenants-Not-To-Compete, net of accumulated
amortization of $4,350,000 and $3,259,000 1,721,000 2,541,000
Other Assets and Deferred Charges 10,501,000 8,384,000
------------ ------------
Total Assets $150,983,000 $128,809,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 5,234,000 $ 3,660,000
Current portion of long-term debt 100,000 0
Income taxes payable 167,000 985,000
Accrued expenses 12,065,000 10,097,000
Deferred revenue 14,455,000 14,086,000
------------ ------------
Total Current Liabilities 32,021,000 28,828,000
------------ ------------
Long-Term Debt, net of current portion 31,790,000 34,500,000
Deferred Taxes 1,607,000 0
------------ ------------
Total Liabilities 65,418,000 63,328,000
------------ ------------
Stockholders' Equity
Preferred stock, par value $.10 per share--
authorized 3,000,000 shares, none issued
Common stock, par value $.01 per share--
authorized 24,000,000 shares, issued
15,159,804 and 13,581,235 shares 152,000 136,000
Capital in excess of par value 58,442,000 40,869,000
Retained earnings 30,568,000 27,510,000
------------ ------------
89,162,000 68,515,000
Less:
Held in treasury, 1,150,941 common shares--
at cost (2,959,000) (2,959,000)
Unearned compensation (28,000) (75,000)
Notes receivable from stockholders (610,000) 0
------------ ------------
85,565,000 65,481,000
------------ ------------
Total Liabilities and Stockholders' Equity $150,983,000 $128,809,000
============ ============
See notes to consolidated financial statements.
Consolidated Statements of Operations
Year Ended September 30,
------------------------------------------
Revenues 1995 1994 1993
------------------------------------------
OnSite services $ 66,904,000 $ 63,979,000 $ 53,685,000
Software and hardware sales
and services 72,007,000 52,712,000 39,979,000
Maintenance and enhancements 35,145,000 30,270,000 26,046,000
Interest and other revenue 2,092,000 1,253,000 458,000
------------------------------------------
176,148,000 148,214,000 120,168,000
------------------------------------------
Expenses
Cost of OnSite services 51,927,000 50,095,000 42,403,000
Cost of software and hardware
sales and services and
maintenance and enhancements 58,763,000 41,661,000 34,354,000
Selling, general and
administrative 43,746,000 36,144,000 31,172,000
Charge for purchased research
and development 8,700,000 0 0
Interest expense 2,696,000 2,520,000 1,016,000
------------------------------------------
165,832,000 130,420,000 108,945,000
------------------------------------------
Income before income taxes and
extraordinary credit 10,316,000 17,794,000 11,223,000
Provision for income taxes 7,258,000 6,148,000 4,511,000
------------------------------------------
Income before extraordinary credit 3,058,000 11,646,000 6,712,000
Extraordinary credit:
Utilization of net operating
loss carryforwards 0 0 2,901,000
------------------------------------------
Net income $ 3,058,000 $ 11,646,000 $ 9,613,000
==========================================
Per common share:
Income before extraordinary credit
Primary $ 0.22 $ 0.86 $ 0.53
Fully diluted $ 0.21 $ 0.83 $ 0.51
Net income
Primary $ 0.22 $ 0.86 $ 0.75
Fully diluted $ 0.21 $ 0.83 $ 0.74
Common shares and equivalents
outstanding
Primary 14,029,700 13,517,146 12,780,223
Fully diluted 14,399,182 15,817,862 13,195,672
------------------------------------------
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Year Ended September 30,
------------------------------------------
Operating Activities 1995 1994 1993
-------------------------------------------
Net income $ 3,058,000 $ 11,646,000 $ 9,613,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Charge for purchased research and development 8,700,000 0 0
Depreciation and amortization 8,942,000 7,376,000 6,197,000
Provision for doubtful accounts 508,000 570,000 923,000
Compensation earned 47,000 128,000 336,000
Deferred tax provision 1,073,000 (161,000) 0
Changes in operating assets and liabilities:
(Increase) in receivables (17,887,000) (13,095,000) (10,929,000)
(Increase) decrease in other current assets, principally
prepaid expenses (4,409,000) 205,000 (141,000)
Increase (decrease) in accounts payable 1,407,000 646,000 (162,000)
(Decrease) increase in income taxes payable (820,000) 1,941,000 (222,000)
Increase in other accrued expenses and liabilities 1,750,000 1,772,000 1,076,000
(Decrease) increase in deferred revenue (129,000) 1,170,000 4,405,000
Changes in other operating assets and deferred charges (963,000) (1,993,000) (1,514,000)
------------------------------------------
Net Cash Provided by Operating Activities 1,277,000 10,205,000 9,582,000
------------------------------------------
Investing Activities
Purchase of property and equipment (12,897,000) (9,167,000) (3,752,000)
Capitalized computer software costs (3,384,000) (1,447,000) (705,000)
Proceeds from reduction in key man life insurance 0 0 143,000
Proceeds from the sale or maturity of investments available-for-sale 20,829,000 0 0
Purchase of investments available-for-sale (11,687,000) 0 0
(Increase) in short-term investments 0 (22,852,000) 0
(Increase) in notes receivable from stockholders (610,000) 0 0
Purchase of subsidiary assets, net of cash acquired (1,374,000) 0 (1,009,000)
-------------------------------------------
Net Cash (Used In) Investing Activities (9,123,000) (33,466,000) (5,323,000)
-------------------------------------------
Financing Activities
Principal payments on long-term debt (305,000) 0 (17,710,000)
Proceeds from long-term debt 0 0 38,015,000
Proceeds from exercise of stock options 2,068,000 1,424,000 659,000
------------------------------------------
Net Cash Provided by Financing Activities 1,763,000 1,424,000 20,964,000
------------------------------------------
(Decrease) increase in cash and cash equivalents (6,083,000) (21,837,000) 25,223,000
------------------------------------------
Cash and cash equivalents at beginning of year 7,685,000 29,522,000 4,299,000
------------------------------------------
Cash and cash equivalents at end of year $ 1,602,000 $ 7,685,000 $ 29,522,000
==========================================
Supplemental Information
Noncash investing and financing activities:
Conversion of subordinated debentures for common stock $ 3,225,000 $ 0 $ 0
Purchase of subsidiary assets--noncash portions of cost $ 11,949,000 $ 0 $ 0
See notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity
Unearned
Compensation
and Notes Total
Common Capital in Receivable Stock-
Stock Excess of Retained Treasury from holders'
Par Value Par Value Earnings Stock Stockholders Equity
-----------------------------------------------------------------------------------
Balance at September 30, 1992 $131,000 $37,790,000 $ 6,251,000 $(2,959,000) $(539,000) $40,674,000
-----------------------------------------------------------------------------------
Stock issued under stock
option plans, 160,303 shares 2,000 657,000 659,000
-----------------------------------------------------------------------------------
Earned restricted stock compensation 336,000 336,000
-----------------------------------------------------------------------------------
Net income, year ended September 30, 1993 9,613,000 9,613,000
-----------------------------------------------------------------------------------
Balance at September 30, 1993 133,000 38,447,000 15,864,000 (2,959,000) (203,000) 51,282,000
===================================================================================
Stock issued under stock option plans,
including tax benefits, 294,588 shares 3,000 2,422,000 2,425,000
-----------------------------------------------------------------------------------
Stock exchanged under restricted stock
purchase plans, (1,187) shares 0
-----------------------------------------------------------------------------------
Earned restricted stock compensation 128,000 128,000
-----------------------------------------------------------------------------------
Net income, year ended September 30, 1994 11,646,000 11,646,000
-----------------------------------------------------------------------------------
Balance at September 30, 1994 136,000 40,869,000 27,510,000 (2,959,000) (75,000) 65,481,000
===================================================================================
Stock issued under stock option plans,
including tax benefits, 363,569 shares 4,000 3,482,000 3,486,000
-----------------------------------------------------------------------------------
Earned restricted stock compensation 47,000 47,000
-----------------------------------------------------------------------------------
Issuance of stock for acquisition,
1,000,000 shares 10,000 10,868,000 10,878,000
-----------------------------------------------------------------------------------
Conversion of 6 1/4% convertible
subordinated debentures, 215,000 shares 2,000 3,223,000 3,225,000
-----------------------------------------------------------------------------------
Notes receivable from stockholders (610,000) (610,000)
-----------------------------------------------------------------------------------
Net income, year ended September 30, 1995 3,058,000 3,058,000
===================================================================================
Balance at September 30, 1995 $152,000 $58,442,000 $30,568,000 $(2,959,000) $(638,000) $85,565,000
===================================================================================
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Note A--Significant Accounting Policies
Consolidation Policy: The accompanying consolidated financial statements
include the accounts of Systems & Computer Technology Corporation and its
subsidiaries. Intercompany items have been eliminated in consolidation.
Revenue Recognition: The Company provides computing management
services, consisting of OnSite services, and the licensing and maintenance
of client/server applications software, for the higher education,
government, utilities and manufacturing/distribution, and
cable/telecommunications markets. Certain contracts provide for
reimbursement of expenses, which are classified as a reduction of operating
expenses in the accompanying financial statements.
During the first several years of a typical OnSite 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 Sheets 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. Ninety-nine
percent of these unbilled receivables at September 30, 1995 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 to the estimates are reflected in operations in
the period in which facts requiring those revisions become known.
Certain of the Company's OnSite 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 requires delivery of software and a substantial payment by
the customer within normal trade terms prior to revenue recognition.
Customers may take an extended period of time to train personnel and
transfer their administrative functions to the software that they have
licensed from the Company. Payment terms for the remaining amounts
generally coincide with planned installations and the implementation
process. The Company's policy is to charge interest on or discount unbilled
accounts receivable not expected to be billed within one year, which were
approximately $1,541,000 and $674,000 at September 30, 1995 and 1994,
respectively. The Company classifies such receivables as current assets
consistent with its business cycle.
The Company has "bundled" contracts which include both OnSite management
services and software licenses. Because licensing of the software is not
dependent on continuation of the OnSite management services portion of the
contract, the software revenue is recognized upon delivery. The remainder
of the contract revenue is recorded consistent with other OnSite management
service contracts.
Fees for maintenance agreements, in conjunction with product licenses,
are recognized ratably over the term of the agreement and the software
services revenue is recognized as services are provided. The Company does
not separately present the cost of maintenance and enhancements revenues as
it is impracticable to separate such cost from the cost of software and
hardware sales and services.
Property and Equipment: Equipment is depreciated over its estimated
useful life, for periods ranging from three to ten years, using the
straight-line method. Buildings and related improvements are depreciated
using the straight-line method, for periods not to exceed 30 years.
Capitalized Computer Software Costs: The Company capitalizes direct
costs associated with the development of software for resale. Amortization
of such capitalized costs is the greater of the amount computed using (a)
the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues of that product or (b) 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.
Income per Share: Primary income per share is computed using the
weighted average number of common shares outstanding, plus, to the extent
dilutive, common stock equivalents. Fully diluted income per share is based
on an increased number of shares that would be outstanding assuming the
exercise of stock options when the Company's stock price at the end of the
period is higher than the average stock price within the respective period,
plus to the extent dilutive, the increased number of shares that would be
outstanding, assuming conversion of the 6 1/4% convertible subordinated
debentures. Net income used in the calculation of fully diluted income per
share is adjusted for interest expense (net of tax) on the convertible
subordinated debentures. The fully diluted income per share calculation for
the year ended September 30, 1995, did not include the anti-dilutive effect
of the convertible subordinated debentures.
Cost in Excess of Fair Value of Net Assets Acquired: This amount is
associated with companies acquired. It is amortized over periods ranging
between 15 and 20 years using the straight-line method. The Company
periodically reviews the cost in excess of fair value of net assets acquired
to assess recoverability by comparing the carrying value to the undiscounted
future cash flows of the related assets. An impairment would be recognized in
operating results if a permanent diminution in value were to occur.
Covenants-Not-To-Compete: These amounts are amortized using the
straight-line method over 60 months, their contractual lives, from their
respective acquisition dates.
Note B--Cash and Short-Term Investments
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: Effective October 1, 1994, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115). In accordance with the provisions of FAS 115, the Company has
classified marketable equity securities and debt securities as available-
for-sale.
Securities held as available-for-sale consist of certificates of
deposit, repurchase agreements, commercial paper, U.S.
Treasury securities, municipal securities, collateralized
mortgage obligations, and corporate obligations. The available-for-sale
portfolio represents highly liquid investments available for current
operations and, accordingly, is classified as short-term investments.
Available-for-sale securities are stated at approximate market value.
September 30,
--------------------------
1995 1994
--------------------------
Cash and cash equivalents $ 1,602,000 $ 7,685,000
Short-term investments,
including accrued interest
of $230,000 and
$209,000, respectively 13,710,000 22,852,000
--------------------------
Cash and short-term
investments $15,312,000 $30,537,000
==========================
The contractual maturities held at September 30, 1995 are:
Due in one year or less $ 5,500,000
Due after one year through
three years 7,980,000
------------
$13,480,000
============
The following is a summary of available-for-sale securities at September
30, 1995:
U.S. Treasury securities
and obligations of U.S.
government agencies $ 9,497,000
Corporate debt securities 3,983,000
------------
$13,480,000
============
During the fiscal year ended September 30, 1995, the gross realized gains
on sales of available-for-sale securities totaled $86,000 and gross
realized losses on sales totaled $52,000.
Note C--Acquisitions
In June 1995, the Company acquired Adage Systems International, Inc.
(Adage), including all existing Adage software, technology and operations
for consideration of one million shares of common stock valued at
approximately $10.9 million. Such shares are not registered and cannot be
sold immediately; as a result, the valuation reflects a discount from the
fair market value of the underlying shares.
Adage offers a newly developed enterprise resource planning system to
multinational users in the manufacturing and distribution industries. Under
the terms of the purchase agreement, the Company may be required to pay
additional consideration in either additional shares (up to 1.5 million
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 a base price. The
base price may not be lower than $15 or higher than $50, and will be
determined pursuant to a formula tied to the pretax 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 conjunction with
the acquisition, which was accounted for as a purchase, the Company
recorded a charge to operations of $8.7 million for in-process research and
development at the time of the acquisition. In addition, the Company
charged approximately $1.4 million 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 15 years. The purchase price was allocated
as follows:
Purchased software $ 2,800,000
Purchased research and development(a) 8,700,000
Cost in excess of fair value of assets acquired 2,435,000
Deferred taxes (1,039,000)
Net liabilities assumed (596,000)
-----------
Total purchase price $12,300,000
===========
(a) Purchased research and development, charged to expense at date of
purchase, represents the estimated fair value of specifically identified
projects under development which did not meet the applicable accounting
criteria for capitalization.
In December 1994, the Company acquired the IntelliSource Software
Group, a division of the privately-held Management Analysis Company.
IntelliSource Software Group products serve the utility market. The Company
will pay a purchase price of $1.2 million over a four-year period. Under
the terms of the purchase agreement, the Company may be required to make
additional payments contingent upon the performance of the IntelliSource
Software Group over a five-year period.
The proforma effect of these acquisitions on operations would be
immaterial.
Note D--Property and Equipment
September 30,
--------------------------
1995 1994
--------------------------
Land $ 1,316,000 $ 1,316,000
Buildings 14,656,000 10,610,000
Computer equipment 11,829,000 8,947,000
Other equipment, furniture,
fixtures and building
improvements 16,314,000 11,761,000
--------------------------
44,115,000 32,634,000
Less accumulated
depreciation 15,216,000 12,632,000
--------------------------
$28,899,000 $20,002,000
==========================
Depreciation expense for the years ended September 30, 1995, 1994 and 1993
was $3,495,000, $2,656,000 and $2,081,000, respectively.
Note E--Other Assets and Deferred Charges
September 30,
-------------------------
1995 1994
-------------------------
Deferred costs and sales
commissions related to
OnSite services contracts
in progress(a)(b) $ 2,284,000 $2,732,000
Purchased software(b)(c) 5,657,000 3,147,000
Deferred debt issuance
expenses(b)(d) 1,162,000 1,507,000
Other 1,398,000 998,000
--------------------------
$10,501,000 $8,384,000
==========================
(a)Being amortized over the remaining term of the OnSite service contract.
(b)Shown net of accumulated amortization.
(c)Includes software received as part of business acquisitions.
(d)Being amortized over the term of the related debt.
Note F--Long-Term Debt
September 30,
--------------------------
1995 1994
--------------------------
6 1/4% convertible
subordinated debentures,
due 2003 $31,275,000 $34,500,000
Promissory note, net of
interest of $185,000 615,000 0
--------------------------
Total long-term debt 31,890,000 34,500,000
Less current portion 100,000 $0
--------------------------
Long-term debt, net of
current portion $31,790,000 $34,500,000
==========================
Aggregate maturities, including interest, during the next five fiscal years
are $100,000, $200,000, $250,000, $250,000 and $0.
In September 1993, the Company issued $34.5 million of convertible
subordinated debentures bearing interest at 6 1/4% and maturing on
September 1, 2003. The debentures are convertible into common stock of the
Company at any time prior to redemption or maturity at a conversion price
of $15 per share, subject to change as defined in the Trust Indenture.
During the fiscal year ended September 30, 1995, $3,225,000 of the
convertible subordinated debentures were converted into 215,000 shares of
common stock of the Company. The debentures are redeemable at any time
after September 10, 1996 at prices decreasing from 104.2 percent of the
principal amount at September 1, 1996, to par on September 1, 2002. The
fair value of the convertible subordinated debentures at September 30, 1995
was approximately $48,000,000.
The Company has a $20,000,000 senior revolving credit agreement which
terminates in June 1996 with optional annual renewals. There were no
borrowings outstanding at September 30, 1995 or 1994. 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
Interbank Offered Rate (LIBOR). The weighted average interest rate on
borrowings outstanding during 1993 was 5.93%. Initially there was a 3/8%
commitment fee on the unused funds that are available for borrowing under the
agreement. This rate was reduced to 5/16% in June 1995. 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 established in
the agreement. Under the covenants, the Company is required to maintain certain
financial ratios and other financial conditions. In addition, the Company may
not pay dividends (other than dividends payable in common stock) or acquire any
of its capital stock outstanding.
The Company signed a promissory note on December 7, 1994, in connection
with the acquisition of the IntelliSource Software Group, with a face
amount of $800,000 and a fair value of $615,000. The note payments commence
on the first anniversary date and continue on each of the following three
anniversaries until the note is paid in full. Interest will be accreted over
the life of the note.
Interest paid on long-term debt during the years ended September 30,
1995, 1994, and 1993 was $2,093,000, $2,235,000 and $963,000, respectively.
Note G--Benefit Plans
Stock Option Plans: 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 September 30,
1995 only stock options have been issued pursuant to the plan.
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 not less than the fair market value
on the date of grant.
As of September 30, 1995 and 1994, respectively, options for 1,304,177
and 1,143,667 shares were exercisable. Outstanding options as of September
30, 1995 are exercisable at an average price of $13.43 per share and expire
on various dates through the year 2005. As of September 30, 1995, 1,299,196
shares of common stock were reserved for future grants under the stock
option plans.
Transactions under the previously stated option plans follow:
September 30,
---------------------------
1995 1994
---------------------------
Options outstanding,
beginning of year 2,599,000 1,731,000
Granted 530,000 1,193,000
Exercised (364,000) (295,000)
Cancelled or expired (169,000) (30,000)
---------------------------
Options outstanding,
end of year 2,596,000 2,599,000
===========================
Options were exercised in 1995 and 1994 at price ranges between
$2.63-$16.38 and $2.63-$7.38, respectively.
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, 1995 there were 1,088,321 shares
held by the ESOT.
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 sold 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, 1995, there were 81,002
restricted shares sold but not exchanged for unrestricted shares.
The Company has a 1985 Restricted Stock Incentive Plan, which expired on
June 30, 1995. Under the plan, shares were awarded to key persons and are
restricted with the effect that, for the term of the restrictions, the
recipient may not sell, assign, transfer or otherwise hypothecate any of
the shares. Restricted stock awards under the 1985 plan vest to the
recipients over a number of years, in equal annual installments as
determined by the Compensation Committee of the Board of Directors, and are
recorded at the fair market value of the shares on the date of the award as
unearned compensation. The unearned compensation is charged to operations
ratably over the vesting period. Under the plan, 605,000 shares were
issued.
Savings Plan: The Company also provides a defined contribution 401(k) plan
to substantially all its 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, 1995,
1994 and 1993 were $1,432,000, $1,061,000 and $822,000, respectively.
Note H--Income Taxes
The components of the provision for federal and state income taxes are as
follows:
Liability Liability Deferred
Method Method Method
Year ended September 30,
----------------------------------------
1995 1994 1993
----------------------------------------
State $1,974,000 $1,628,000 $1,401,000
Federal 5,284,000 4,520,000 3,110,000
----------------------------------------
$7,258,000 $6,148,000 $4,511,000
========================================
A reconciliation of the provision for income taxes to the federal statutory
rate follows:
Year ended September 30,
-------------------------
1995 1994 1993
-------------------------
Expected federal tax rate 35.0% 35.0% 34.0%
Adjustments due to:
Effect of state income tax 12.4% 6.0% 8.0%
Purchased research and
development 29.5% -- --
Reversal of valuation
allowance -- (2.2)% --
Research and development
tax credit (7.3)% (4.7)% (2.0)%
Other 0.8% 0.4% --
-------------------------
70.4% 34.5% 40.0%
=========================
The fiscal year 1995 provision for income taxes does not reflect the
customary relationship between income and tax expense principally due to
the write-off of purchased research and development, which is not
deductible for tax purposes. The effective tax rate would have been 38%
without the write-off of purchased research and development. The rate was
further affected by the expiration of the research and development tax
credit as of June 30, 1995. The purchased research and development write-
off has an impact on both the state effective tax rate and the relationship
between income and the effect of the research and development tax credit.
Significant components of the provision for income taxes for the year
ended September 30, 1995 are:
Current $6,185,000
Deferred 1,073,000
-----------
$7,258,000
The provision for income taxes for the years ended September 30, 1994 and
1993 relates primarily to current income taxes payable. The reversal of the
valuation allowance in fiscal year 1994 relates primarily to utilization of
research and development and minimum tax credits generated in prior years.
The Company has no valuation allowance for deferred tax assets at September
30, 1995 and 1994.
Income taxes paid during fiscal years ended September 30, 1995, 1994 and
1993 were $9,921,000, $3,903,000 and $2,146,000, respectively.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109), as of October 1, 1993. For fiscal
year 1993, the Company accounted for income taxes under the provisions of
APB 11. Adoption of FAS 109 was immaterial to the consolidated financial
statements and no cumulative adjustment was required. Deferred income taxes
for fiscal year 1995 reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.
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, 1995 are as follows:
September 30,
--------------------------
1995 1994
--------------------------
Deferred tax assets:
Purchased research and
development (1992 acquisition) $ 2,365,000 $2,538,000
Purchased software -- 462,000
Accrued expenses and reserves 1,001,000 1,203,000
Change in tax accounting method -- 134,000
Other 46,000 137,000
--------------------------
Total deferred tax asset 3,412,000 4,474,000
Deferred tax liabilities:
Depreciation and amortization (1,216,000) (2,067,000)
Software capitalization, net (2,176,000) (1,171,000)
Prepaids (501,000) (368,000)
Purchased software (412,000) --
Other (714,000) (707,000)
---------------------------
Total deferred tax liability (5,019,000) (4,313,000)
---------------------------
Net deferred tax (liability) asset $(1,607,000) $ 161,000
===========================
Note I--Commitments and Other Items
Product development expenditures, including software maintenance
expenditures, for the years ended September 30, 1995, 1994, and 1993, were
approximately $12,856,000, $8,834,000 and $6,825,000, respectively. After
capitalization (Note A) these amounts were approximately $9,472,000,
$7,387,000 and $6,120,000, respectively, and were charged to operations as
incurred. For the same years, amortization of capitalized software costs
amounted to $871,000, $889,000 and $762,000, respectively.
Warrants to purchase 250,000 shares of common stock at $4.38 per share
(fair market value at date of issuance) were issued in July 1990, of which
warrants to purchase 28,350 shares remained outstanding at September 30,
1995. The warrants expire June 30, 1996.
Rent expense for the years ended September 30, 1995, 1994, and 1993 was
$2,043,000, $1,995,000 and $1,542,000, respectively. Aggregate rentals
payable under significant non-cancelable lease agreements with initial
terms of one year or more at September 30, 1995, are as follows:
---------------------------------
Fiscal year Amount
---------------------------------
1996 $1,798,000
1997 1,556,000
1998 1,469,000
1999 1,172,000
2000 865,000
Thereafter 2,401,000
-----------
$9,261,000
------------------------------
Note J--Legal Matters
A purported class action complaint was filed against the Company and
certain of its officers and directors on October 4, 1995. The complaint
alleges violations of certain disclosure and related provisions of the
Federal Securities Laws. The complaint seeks damages in unspecified amounts
as well as equitable relief. Management believes the complaint is without
merit and intends to contest the allegations vigorously. While management
of the Company, based on its investigation to date, believes that
resolution of this action will not have a materially adverse effect on the
Company's consolidated financial position, the ultimate outcome of this
matter cannot presently be determined.
Note K--Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended September 30, 1995 and 1994 (in thousands except per share
data):
Three Months Ended
December 31, March 31, June 30, September 30,
-----------------------------------------------------------------------------
1994 1993 1995 1994 1995* 1994 1995 1994
-----------------------------------------------------------------------------
Revenues $39,199 $32,393 $43,191 $37,490 $46,705 $37,446 $47,053 $40,885
-----------------------------------------------------------------------------
Gross profits 14,630 11,309 15,025 14,049 17,219 13,386 16,492 16,461
-----------------------------------------------------------------------------
Income (loss) before income taxes 4,606 2,981 5,188 4,275 (2,188) 4,471 2,710 6,067
-----------------------------------------------------------------------------
Provision for income taxes 1,635 1,014 1,939 1,453 2,475 1,565 1,209 2,116
-----------------------------------------------------------------------------
Net income (loss) $ 2,971 $ 1,967 $ 3,249 $ 2,822 $(4,663) $ 2,906 $ 1,501 $ 3,951
-----------------------------------------------------------------------------
Primary net income (loss) per share $ 0.22 $ 0.15 $ 0.24 $ 0.21 $ (0.35) $ 0.22 $ 0.11 $ 0.29
-----------------------------------------------------------------------------
Fully diluted net income (loss) per share $ 0.21 $ 0.15 $ 0.23 $ 0.20 $ (0.35) $ 0.21 $ 0.10 $ 0.27
-----------------------------------------------------------------------------
*Includes a charge of $8,700 for purchased research and development.
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, 1995, and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1995. 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, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended September 30, 1995, 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.
As discussed in Note H to the Consolidated Financial Statements, in 1994 the
Company changed its method of accounting for income taxes.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 20, 1995
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not Applicable.
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 23, 1996
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 23, 1996
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 23, 1996
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 23, 1996
and is incorporated herein by reference.
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, 1995 and 1994
Consolidated Statements of Operations--Years Ended September 30,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity--Years Ended
September 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows--Years Ended September 30,
1995, 1994 and 1993
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.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
For the Three Years in the Period Ended September 30, 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------
Balance at Charged to Charged to Balance at
Description Beginning of Period Costs and Other Accounts Deductions-Describe End of Period
Expenses -Describe
- -----------------------------------------------------------------------------------------------------------------------------------
For the year ended September 30, 1995:
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term $109,000 $22,000 (1) $87,000
Long-term 0
Allowance for doubtful accounts 1,228,000 $508,000 733,000 (1) 1,003,000
---------- --------- --------- -------- ----------
Total $1,337,000 $508,000 $0 $755,000 $1,090,000
For the year ended September 30, 1994:
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term $153,000 $11,000 $55,000 (1) $109,000
Long-term 8,000 8,000 (1) 0
Allowance for doubtful accounts 1,321,000 559,000 652,000 (1) 1,228,000
---------- --------- --------- -------- ----------
Total $1,482,000 $570,000 $0 $715,000 $1,337,000
For the year ended September 30, 1993:
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term $181,000 $28,000 $153,000
Long-term 8,000 8,000
Allowance for doubtful accounts 834,000 $923,000 $41,000 (2) 477,000 (1) 1,321,000
---------- --------- --------- -------- ----------
Total $1,023,000 $923,000 $41,000 $505,000 $1,482,000
(1) Uncollectible accounts written-off during the year
(2) Adjustment to reserve for change in probability of repayment
(3) Exhibits (not included in the copies of the Form 10-K sent
to stockholders).
No. Exhibit
------ ----------------------------------------------------------------
2 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.]
3.1 Restated Certificate of Incorporation (Exhibit 3.1 to the
Registrant's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on September 1, 1993) 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
4 Form of Indenture under which the Registrant's 6 1/4% Convertible
Subordinated Debentures due 2003 are issued (Exhibit 4.1 to the
Registrant's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on September 1, 1993) 1
10.1 Warrant Agreement executed by the Registrant and Ralph A. Lousteau
(Exhibit 10.10 to the Registrant's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on
September 1, 1993) 1
10.2 VAR Agreement dated as of September 1, 1991 between Oracle
Corporation and the Registrant, together with Amendments One, Two
and Three thereto (Exhibit 10.12 to the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on September 1, 1993) 1
10.3 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
10.4 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
10.5 Systems & Computer Technology Corporation 1994 Long-Term Incentive
Plan (Exhibit 4.3 to the Registrant's Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on June
30, 1995) 1 2
10.6 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 2
10.7 Agreement of Purchase and Sale dated August 9, 1994 between
Provident Mutual Life Insurance Company of Philadelphia and the
Registrant (Exhibit 10.6 to the Registrant's Form 10-K for the
fiscal year ended September 30, 1994) 1
10.8 Employment Agreement dated June 1, 1995 between the Registrant and
Gerald F. O'Connell 2 3
10.9 Employment Agreement dated June 1, 1995 between the Registrant and
David Phelan 2 3
10.10 Agreement of Lease by and between Liberty Property Limited
Partnership and Systems & Computer Technology Corporation for
premises located at One Country View Road, Malvern, PA 3
10.11 Lease between International Business Machines Corporation and SCT
Public Sector, Inc. for premises located at 1733 Harrodsburg Road,
Lexington, KY 3
11 Statement re: Computation of Per Share Earnings 3
21 Subsidiaries of the Registrant 3
23 Consent of Ernst & Young LLP 3
27 Financial Data Schedule 3
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.
None.
- ---------------
1 Incorporated by reference
2 Compensatory Plan, Contract or Arrangement
3 Filed with this Annual Report on Form 10-K
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 Date: December 21, 1995
----------------------------------
Michael J. Emmi
Chairman of the Board, President
and Chief Executive Officer
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.
Signature Title Date
- --------------------------- ----------------------------- ----------------
/s/ Michael J. Emmi
- ---------------------------
Michael J. Emmi Chairman of the Board December 21, 1995
and Chief Executive Officer
(Principal Executive Officer);
Director
/s/ Michael D. Chamberlain
- ---------------------------
Michael D. Chamberlain Director December 21, 1995
/s/ Allen R. Freedman
- ---------------------------
Allen R. Freedman Director December 21, 1995
/s/ Thomas I. Unterberg
- ---------------------------
Thomas I. Unterberg Director December 21, 1995
/s/ Terrel H. Bell
- ---------------------------
Terrel H. Bell Director December 21, 1995
/s/ Eric Haskell
- ---------------------------
Eric Haskell Senior Vice President, December 21, 1995
Finance and Administration,
Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
Index of Exhibits Filed Herewith
Exhibit No. Exhibit Page
- ------------- --------------------------------------------------- -----
10.8 Employment Agreement dated June 1, 1995 between the
Registrant and Gerald F. O'Connell
10.9 Employment Agreement dated June 1, 1995 between the
Registrant and David Phelan
10.10 Agreement of Lease by and between Liberty Property
Limited Partnership and Systems & Computer
Technology Corporation for premises located at One
Country View Road, Malvern, PA
10.11 Lease between International Business Machines
Corporation and SCT Public Sector, Inc. for premises
located at 1733 Harrodsburg Road, Lexington, KY
11 Statement re: Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule