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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2003 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______.
0-11521
(Commission File Number)
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1701520
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Great Valley Corporate Center
4 Country View Road
Malvern, Pennsylvania 19355
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 647-5930
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
33,640,000 Common shares, $.01 par value, as of May 09, 2003
Page 1 of 33 consecutively numbered pages
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2003 and September 30, 2002
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2003 and 2002
Condensed Consolidated Statements of Operations -
Six Months Ended March 31, 2003 and 2002
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2003 and 2002
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, September 30,
2003 2002
UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 35,137 $ 72,820
Short-term investments, including
accrued interest of $230 and $701 43,052 60,754
Receivables, including $53,274 and
$41,446 of earned revenues in
excess of billings, net of allowance
for doubtful accounts of $3,009 and
$4,789 88,932 77,824
Note receivable 10,000 --
Prepaid income taxes 16,445 20,353
Prepaid expenses and other assets 18,535 17,130
-------- --------
TOTAL CURRENT ASSETS 212,101 248,881
PROPERTY AND EQUIPMENT--at cost, net
of accumulated depreciation 27,983 27,265
CAPITALIZED COMPUTER SOFTWARE COSTS,
net of accumulated amortization 3,331 4,427
GOODWILL 47,167 28,784
INTANGIBLE ASSETS, net of accumulated
amortization 19,665 10,689
OTHER ASSETS AND DEFERRED CHARGES 27,365 18,949
NET ASSETS OF DISCONTINUED OPERATIONS -- 28,869
-------- --------
TOTAL ASSETS $337,612 $367,864
======== ========
Note: The condensed consolidated balance sheet at September 30, 2002, has
been derived from the audited financial statements at that date. Certain
prior-year amounts have been reclassified to conform to this year's
presentation.
See notes to condensed consolidated financial statements.
3
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except per share amounts)
March 31, September 30,
2003 2002
(UNAUDITED) (NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,159 $ 6,402
Income taxes payable 1,130 1,096
Accrued expenses 47,512 39,212
Deferred revenue 19,374 24,948
-------- --------
TOTAL CURRENT LIABILITIES 74,175 71,658
LONG-TERM DEBT 33,790 74,723
OTHER LONG-TERM LIABILITIES 2,911 2,912
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share--authorized 3,000 shares,
none issued -- --
Common stock, par value $.01 per share--
authorized 100,000 shares, issued
38,178 and 38,029 382 380
Capital in excess of par value 126,335 125,586
Retained earnings 125,263 117,622
Accumulated other comprehensive loss (1,042) (583)
-------- --------
250,938 243,005
Less
Held in treasury, 4,550 and 4,582 common
share--at cost (24,202) (24,434)
-------- --------
226,736 218,571
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $337,612 $367,864
======== ========
Note: The condensed consolidated balance sheet at September 30, 2002, has
been derived from the audited financial statements at that date. Certain
prior-year amounts have been reclassified to conform to this year's
presentation.
See notes to condensed consolidated financial statements.
4
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
For the Three Months Ended
March 31,
2003 2002
Revenues:
Software sales and commissions $ 7,478 $ 6,913
Maintenance and enhancements 26,618 22,017
Software services 22,577 20,032
Outsourcing services 8,187 8,350
Interest and other income 483 1,217
------- --------
65,343 58,529
------- --------
Expenses:
Cost of software sales, commissions,
maintenance and enhancements 19,985 15,155
Cost of software services 17,851 15,933
Cost of outsourcing services 6,047 6,286
Selling, general and administrative 18,469 14,516
Retirement and restructuring charge 1,520 4,874
Interest expense 492 1,047
------- --------
64,364 57,811
------- --------
Income from continuing operations
before income taxes 979 718
Provision for income taxes 396 208
------- --------
Income from continuing operations 583 510
Discontinued operations
Loss from discontinued operations,
adjusted for applicable provision (benefit)
for income taxes of $755 and ($243) (1,794) (3,696)
Gain (loss) on sale of discontinued operations,
net of income tax provision (benefit)
of $865 and ($3,446) 6,633 (7,042)
------- --------
Income (loss) from discontinued operations 4,839 (10,738)
------- --------
Net income (loss) $ 5,422 $(10,228)
------- --------
Income from continuing operations
per common share $ 0.02 $ 0.02
per share -- assuming dilution $ 0.02 $ 0.02
Income (loss) from discontinued operations
per common share $ 0.14 $ (0.32)
per share -- assuming dilution $ 0.14 $ (0.32)
Net income (loss)
per common share $ 0.16 $ (0.31)
per share -- assuming dilution $ 0.16 $ (0.31)
Common shares and equivalents outstanding
average common shares 33,611 33,126
average common shares -- assuming dilution 33,633 33,445
See notes to condensed consolidated financial statements.
5
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
For the Six Months Ended
March 31,
2003 2002
Revenues:
Software sales and commissions $ 18,472 $ 12,969
Maintenance and enhancements 48,651 40,981
Software services 42,304 36,131
Outsourcing services 16,463 16,703
Interest and other income 2,428 2,714
-------- --------
128,318 109,498
-------- --------
Expenses:
Cost of software sales, commissions,
maintenance and enhancements 36,497 26,597
Cost of software services 35,504 29,837
Cost of outsourcing services 12,151 12,952
Selling, general and administrative 37,334 29,172
Retirement and restructuring charge 1,520 4,874
Interest expense 996 2,093
-------- --------
124,002 105,525
-------- --------
Income from continuing operations
before income taxes 4,316 3,973
Provision for income taxes 1,731 1,569
-------- --------
Income from continuing operations 2,585 2,404
Discontinued operations
Loss from discontinued operations,
adjusted for applicable provision (benefit)
for income taxes of $899 and ($1,229) (1,577) (5,028)
Gain (loss) on sale of discontinued operations,
net of income tax provision (benefit)
of $865 and ($3,446) 6,633 (7,042)
-------- --------
Income (loss) from discontinued operations 5,056 (12,070)
-------- --------
Net income (loss) $ 7,641 $ (9,666)
-------- --------
Income from continuing operations
per common share $ 0.08 $ 0.07
per share -- assuming dilution $ 0.08 $ 0.07
Income (loss) from discontinued operations
per common share $ 0.15 $ (0.36)
per share -- assuming dilution $ 0.15 $ (0.36)
Net income (loss)
per common share $ 0.23 $ (0.29)
per share -- assuming dilution $ 0.23 $ (0.29)
Common shares and equivalents outstanding
average common shares 33,571 33,101
average common shares -- assuming dilution 33,619 33,463
See notes to condensed consolidated financial statements.
6
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Six Months Ended
March 31,
2003 2002
Operating Activities
Net income (loss) $ 7,641 $ (9,666)
Adjustment to reconcile net income (loss) to net
cash used in operating activities
Gain on bond repurchase (1,350) --
Gain on sale of business (6,633) --
Depreciation and amortization 7,659 10,871
Provision for doubtful accounts 362 1,135
Deferred tax benefit (102) (1,504)
Changes in operating assets and liabilities:
Increase in receivables (7,822) (1,834)
Decrease (increase) in prepaid income taxes 943 (13,919)
Increase in other current assets (1,551) (769)
Decrease in accounts payable (243) (4,705)
Increase (decrease) in income taxes payable 34 (7,080)
(Decrease) increase in accrued expenses (14,439) 11,087
Decrease in deferred revenue (8,138) (4,955)
Decrease in other operating assets
and deferred charges 2,911 1,514
Decrease in net assets of discontinued
operations 8,739 --
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (11,989) (19,825)
Investing Activities
Purchase of property & equipment (3,228) (2,271)
Proceeds from sale of property & equipment -- 1,450
Capitalized computer software costs -- (563)
Purchase of investments available for sale (37,115) (69,844)
Proceeds from sale of discontinued operations 27,774 --
Proceeds from the sale or maturity of investments
available for sale 54,030 44,250
Purchase of business, net of cash acquired (27,032) (33,402)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 14,429 (60,380)
Financing Activities
Repayment of borrowings (41,103) (381)
Issuance of Company stock 232 213
Proceeds from exercise of stock options 748 964
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (40,123) 796
DECREASE IN CASH & CASH EQUIVALENTS (37,683) (79,409)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,820 101,475
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 35,137 $ 22,066
======== ========
Supplemental information
Noncash investing and financing activities:
Sale of business -- noncash portion 10,000 -
See notes to condensed consolidated financial statements.
7
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 1O-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals and the fiscal year 2002 and fiscal year 2003
restructuring charges) considered necessary for a fair presentation have been
included. During the quarter ended March 31, 2003, the Company completed the
sale of the Global Energy and Utilities Solutions ("EUS") business. The fiscal
year 2002 condensed consolidated balance sheet and condensed consolidated
statement of operations reflect the EUS business as a discontinued operation.
During the quarter ended June 30, 2002, the Company completed the sale of the
Global Manufacturing & Distribution Solutions ("MDS") business. The fiscal year
2002 condensed consolidated statement of operations reflects the MDS business as
a discontinued operation. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2002. Operating results for
the three and six-month periods ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2003.
Certain prior-year amounts have been reclassified to conform to this year's
presentation.
The statement of cash flows for the six months ended March 31, 2002 is based on
historical information and has not been restated to present the MDS and EUS
businesses as discontinued operations.
NOTE B--ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). No stock-based employee compensation cost is reflected in
net income, as all options granted under the option plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share
as if the Company had applied the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation (in thousands, except per
share amounts).
Three months ended Six months ended
March 31, March 31,
2003 2002 2003 2002
----------------------- ----------------------
Net income (loss), as reported $ 5,422 $(10,228) $ 7,641 $ (9,666)
Less: stock-based employee compensation
expense determined under fair value
method, net of related tax effects (738) (485) (1,309) (963)
---------------------- ----------------------
Pro forma net income (loss) $ 4,684 $(10,713) $ 6,332 $(10,629)
====================== ======================
Earnings (loss) per share:
per common share, as reported $ 0.16 $ (0.31) $ 0.23 $ (0.29)
per common share, pro forma $ 0.14 $ (0.32) $ 0.19 $ (0.32)
per share--assuming dilution, as reported $ 0.16 $ (0.31) $ 0.23 $ (0.29)
per share--assuming dilution, pro forma $ 0.14 $ (0.32) $ 0.19 $ (0.32)
8
NOTE C--CASH AND SHORT-TERM INVESTMENTS
Cash equivalents are short-term, highly liquid investments with maturities of
three months or less at the date of purchase.
Short-term investments consist of corporate, state and municipal, and federal
debt securities. Management determines the appropriate classification of the
securities at the time of purchase. At March 31, 2003, the portfolio of
securities has been classified as available for sale. These securities are
carried at fair value, based on quoted market values, with the unrealized gains
and losses, net of income taxes, reported as a component of accumulated other
comprehensive income (loss). The available-for-sale portfolio is comprised of
highly liquid investments available for current operations and general corporate
purposes and, accordingly, is classified as a current asset.
For the purpose of determining gross realized gains and losses, the cost of
securities sold is based on the specific identification method. Gross realized
gains on sales of available-for-sale securities were approximately $0.3 million
for the six months ended March 31, 2003.
Short-term investments at March 31, 2003, are comprised of (in thousands):
Corporate debt securities $20,189
State and municipal debt securities 17,606
Federal debt securities 5,257
-------
$43,052
=======
The contractual maturities of short-term investments held as of March 31, 2003,
are (in thousands):
Due in one year or less $24,854
Due after one year through four years 18,198
-------
$43,052
=======
NOTE D--LONG-TERM INVESTMENTS
The Company has made investments for strategic business purposes in the common
and preferred stock of WebCT, a privately held provider of web-based course
tools for the higher education market. The fair value of the investment in
WebCT, which is classified as a long-term asset, is not readily determinable;
therefore, it is carried at cost adjusted for other-than-temporary impairments
discussed below. On a quarterly basis, the Company reviews the underlying
operating performance, cash flow forecasts, private equity transactions, and
stock prices and equity values of publicly traded competitors of this privately
held company in assessing impairment. During fiscal year 2001 and the third
quarter of fiscal year 2002, the Company recorded asset impairment charges
totaling $13.2 million and wrote-off the non-compete agreement with WebCT, which
had a carrying value of $1.5 million, reducing the carrying value of the
investment in WebCT to $4.0 million, which is included in other assets and
deferred charges in the condensed consolidated balance sheet. At March 31, 2003,
the Company owns approximately 11% of the voting shares of WebCT.
9
NOTE E--RETIREMENT AND RESTRUCTURING CHARGES
In the second quarter of fiscal year 2003, the Company implemented a
restructuring action, principally in professional services, to better align
resources with available backlog. This resulted in a restructuring charge of
$1.5 million for severance payments related to the reduction in force of 65
employees. During the second quarter of fiscal year 2003, the Company made
payments of $0.5 million related to these charges and at March 31, 2003, $1
million of the accrual remains. The Company believes this amount is adequate to
cover remaining obligations.
In the second quarter of fiscal year 2002, Michael J. Emmi, former President,
Chief Executive Officer, and Chairman of the Board of Directors retired from the
Company. In connection with his retirement, Mr. Emmi received a compensation
package including a reduction of indebtednesses of $0.07 million, the
continuation of his life and health insurance and other fringe benefits for
periods ranging from two to five years, as well as an assignment to him of life
insurance policies covering him, and the immediate vesting of certain rights
under other compensation plans. All Company stock options held by Mr. Emmi
became vested and were amended to permit Mr. Emmi to exercise them by the
earlier of their original expiration date or two years from the date of his
resignation. The Company recorded a charge of approximately $3.5 million related
to the above actions in the second quarter of fiscal year 2002. During the first
six months of fiscal year 2003, the Company made payments of $0.08 million
related to these charges and at March 31, 2003, $0.6 million of the accrual
remains, which the Company believes is adequate to cover remaining obligations.
Also, during the quarter ended March 31, 2002, the Company implemented a plan
for restructuring, which included the termination of employees, management
changes, discontinuation of non-critical programs and the disposition of related
assets. During that quarter, the Company recorded a charge of $1.4 million
related to severance payments and disposition of assets. During the first six
months of fiscal year 2003, the Company made payments of $0.3 million related to
these charges and at March 31, 2003, $0.2 million of the accrual remains, which
the Company believes is adequate to cover remaining obligations.
10
NOTE F--ACQUISITIONS
Effective October 23, 2002, the Company acquired Campus Pipeline, Inc. for $36.4
million cash and the assumption by the Company of certain employee bonus and
severance obligations totaling $5.2 million (the "Merger Consideration"). Campus
Pipeline was a privately held corporation that provided digital and information
systems products and services to colleges and universities. In accordance with
the merger agreement, $3.5 million of the Merger Consideration will be held in
escrow until December 31, 2003 to secure certain indemnification obligations of
the former stockholders of Campus Pipeline in favor of the Company in case of
certain breaches of the merger agreement by Campus Pipeline. Pursuant to the
merger agreement and Campus Pipeline's Certificate of Incorporation, holders of
common stock of Campus Pipeline were not entitled to receive any portion of the
Merger Consideration. The total amount of funds used to pay the Merger
Consideration was obtained from the working capital of the Company.
The allocation of the Campus Pipeline purchase price is as follows (in
thousands):
Total cost of Campus Pipeline acquisition $36,391
Employee bonus and severance obligations 5,191
Accrued acquisition costs 8,473
-------
50,055
Net tangible assets acquired 11,598
Customer relationships 6,000
Purchased software 3,000
Trade names and trademarks 2,000
Deferred taxes 9,295
-------
31,893
Total goodwill $18,162
In the first quarter of fiscal year 2003, the Company recorded goodwill of $16.7
million related to the acquisition. In the second quarter of fiscal year 2003,
the Company provided an additional $1.5 million reserve for real estate related
costs, resulting in an adjustment to goodwill for that amount. The additional
reserve results from an evaluation of the Company's ability to sublet the
facilities at the terms previously anticipated. None of the goodwill is
deductible for tax purposes. Goodwill includes $8.5 million of costs (which
includes the $1.5 million additional reserve discussed above), including
professional fees and other costs directly related to the acquisition. Some of
these additional acquisition costs are estimates that may change and could cause
an adjustment to goodwill. Intangible assets acquired included $6.0 million of
customer relationships, $3.0 million of purchased software and $2.0 million of
trade names and trademarks. Intangible assets acquired have a weighted-average
amortization period of eight years. Additionally the Company recorded a deferred
tax asset of $9.3 million primarily to reflect the future benefit of net
operating losses of Campus Pipeline. The acquired net operating losses will be
used to offset the Company's future taxable income and expire in various periods
ending on or before September 30, 2022. The completion of this transaction
provides the Company with core technologies for the e-Education Infrastructure
with portal, platform, integration, and content management technologies designed
specifically for higher education. Based on open standards, these technologies
can be integrated with an institution's systems to connect information,
resources, and constituents.
Concurrent with the acquisition of Campus Pipeline, the Company began a detailed
evaluation of Campus Pipeline's operations, resulting in a plan to terminate
approximately 35 redundant employees and vacate space in a leased facility. The
Company provided a reserve of $4.2 million, which is included in the $8.5
million accrued acquisition costs discussed above, for these actions and
anticipates making payments for severance through the third quarter of fiscal
year 2003 and for the leased facility through fiscal year 2012. Additionally the
Company assumed certain employee bonus and severance obligations totaling $5.2
million and anticipates making payments on these obligations through fiscal year
2003. Of the $9.4 million total charges relating to the termination of
employees, leased facilities, and employee bonus and severance obligations, the
Company made, from the period of acquisition through March 31, 2003, cash
payments of $5 million related to these charges, primarily for severance
obligations. At March 31, 2003, approximately $4.4 million of these accruals
remain.
11
NOTE G--DIVESTITURES
On March 5, 2003, the Company consummated the sale of its Global Energy and
Utilities Solutions ("EUS") business to Indus International, Inc., for $37.8
million, subject to adjustment based on working capital at the closing date. Due
to such adjustment, principally related to receivable collections by the
Company, the sale price was reduced by $3.3 million, resulting in a net sale
price of $34.5 million. During the quarter, the Company received cash proceeds
of $27.8 million and a $10 million promissory note due within six months that is
secured by a guaranty and a mortgage on real property. In connection with the
sale of the EUS business, the Company retained deferred tax assets of $4.2
million and reserves pertaining to restructurings associated with the EUS
business of $1.2 million, both of which were previously included in the net
assets of the discontinued operations. The net assets of the discontinued
operations at September 30, 2002 have been restated to reflect these
reclassifications. Additionally, the Company retained liability for claims
(including the cost of defense of such claims) arising from certain client
matters. As a result, the Company accrued a $2 million reserve for the defense
of and resolution of these matters. The legal reserve and deferred tax asset
amounts are included in the calculation of the gain on sale. After such
considerations, the Company recorded a pretax gain of $7.5 million on the sale,
which net of an $865 thousand tax provision that included previously
unrecognized deferred taxes primarily from foreign operating losses, produced a
net gain of $6.6 million. EUS revenues were $23.9 million for the five-month
period ending March 5, 2003 and $38.7 million for the six-month period ending
March 31, 2002, respectively. The loss from discontinued operations, net of
taxes, was $1.6 million for both the five-month period ending March 5, 2003 and
for the six-month period ending March 31, 2002. The net assets of discontinued
operations at September 30, 2002, were $28.9 million. Such amounts were restated
as certain assets originally classified in discontinued operations were retained
by the Company.
The results of EUS have been reported separately as discontinued operations in
the consolidated statement of operations. During fiscal year 2002, the Company
declared EUS as discontinued, and as a result the prior year consolidated
statements of operations have been restated to present EUS as a discontinued
operation. For business segment reporting, EUS was previously reported as a
separate segment.
NOTE H--EARNINGS PER SHARE
A reconciliation of the numerators and the denominators of earnings per common
share and per share -- assuming dilution follows (in thousands, except per share
amounts):
Three Months Six Months
Ended Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Numerator:
Income from continuing operations
available to common stockholders $ 583 $ 510 $ 2,585 $ 2,404
Discontinued operations:
Income (loss) from discontinued
operations net of income taxes 4,839 (10,738) 5,056 (12,070)
------- -------- ------- --------
Net income (loss) available to common
stockholders $ 5,422 ($10,228) $ 7,641 ($9,666)
======= ======== ======= ========
Denominator:
Weighted average common shares 33,611 33,126 33,571 33,101
Effect of dilutive securities:
Employee stock options 22 319 48 362
------- -------- ------- --------
Weighted average common shares
assuming dilution 33,633 33,445 33,619 33,463
======= ======== ======= ========
Income from continuing operations
per common share $ 0.02 $ 0.02 $ 0.08 $ 0.07
per share -- assuming dilution $ 0.02 $ 0.02 $ 0.08 $ 0.07
Income (loss) from discontinued operations
per common share $ 0.14 ($0.32) $ 0.15 ($0.36)
per share -- assuming dilution $ 0.14 ($0.32) $ 0.15 ($0.36)
Net income (loss)
per common share $ 0.16 ($0.31) $ 0.23 ($0.29)
per share -- assuming dilution $ 0.16 ($0.31) $ 0.23 ($0.29)
Potentially dilutive securities with an anti-dilutive effect (convertible debt
in all periods presented) are not included in the above calculation.
12
NOTE I--PRODUCT DEVELOPMENT
Product development expenditures, including software maintenance expenditures,
for the six months ended March 31, 2003 and 2002, were approximately $15.8 and
$13.3 million, respectively, all of which were charged to operations as
incurred. For the same periods, amortization of capitalized software costs (not
included in expenditures above) amounted to $1.1 and $1.3 million, respectively.
NOTE J--BUSINESS SEGMENTS
The Company sold the Global Energy and Utilities Solutions business during the
second quarter of fiscal year 2003 and it sold the Global Manufacturing &
Distribution Solutions business in the third quarter of fiscal year 2002,
leaving the Company with one reportable segment: Global Education Solutions. The
financial statements presented above, exclusive of discontinued operations,
reflect the operations of the Global Education Solutions business.
NOTE K--COMPREHENSIVE INCOME (LOSS)
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) $ 5,422 $(10,228) $7,641 $(9,666)
Foreign currency translation adjustment (57) 12 (149) (74)
Unrealized loss on marketable
securities (46) (222) (310) (143)
---------------------- --------------------
Other comprehensive loss (103) (210) (459) (217)
---------------------- --------------------
Total Comprehensive Income (Loss) $ 5,319 $(10,438) $7,182 $(9,883)
====================== ====================
13
NOTE L--GOODWILL AND INTANGIBLE ASSETS
The Company's goodwill was $47.2 and $28.8 million at March 31, 2003, and
September 30, 2002, respectively. The increase in goodwill at March 31, 2003, is
primarily the result of the Campus Pipeline acquisition (see Note F). The
Company will be required to test the value of its goodwill at least annually.
The following table sets forth the Company's amortized and unamortized
intangible assets at the periods indicated (in thousands):
March 31, 2003 September 30, 2002
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized intangible assets
Purchased software 15,462 (5,777) 12,462 (4,558)
Covenants-not-to-compete 6,065 (6,037) 6,065 (5,687)
Customer relationships 7,652 (456) 1,652 (110)
Trade names and trademarks 2,000 (109) -- --
------------------- -------------------
31,179 (12,379) 20,179 (10,355)
=================== ===================
Unamortized intangible assets
Trade names and trademarks 865 865
------- ------
865 865
======= ======
Estimated amortization expense for amortized intangible assets for the next five
fiscal years ending September 30, are as follows (in thousands):
Fiscal Year
2003 $ 3,741
2004 3,413
2005 3,401
2006 3,401
2007 2,350
thereafter 4,518
-------
Total $20,824
Amortization expense on intangible assets was $2.0 and $0.5 million for the six
months ended March 31, 2003 and 2002, respectively.
NOTE M--BOND REPURCHASE
In several transactions during the first quarter of fiscal year 2003, the
Company repurchased $40.9 million face value of the $74.7 million, 5%
convertible subordinated debentures due October 15, 2004. The Company
repurchased the convertible debentures at prices ranging from $94 to $96, plus
accrued interest. The transaction included $39.2 million principal and interest
of $0.9 million for a total payment of $40.1 million including fees. The Company
recorded a gain of $1.3 million, included in interest and other income, in the
first quarter of fiscal year 2003 related to these transactions. The gain was
classified as interest and other income as a result of the Company's adoption of
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"), at the beginning of fiscal year 2003. SFAS 145
requires that gains and losses on extinguishments of debt be classified as
income or loss from continuing operations rather than as extraordinary items as
previously required under Statement No. 4.
14
NOTE N--NEW ACCOUNTING STANDARDS
Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of commitment to an exit or disposal
plan. SFAS No. 146 replaces previous accounting guidance provided by Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)" and is effective for exit or disposal
activities initiated after December 31, 2002. Adoption of this statement had no
significant impact on the Company's consolidated financial position,
consolidated results of operations, or liquidity.
NOTE O--SUBSEQUENT EVENTS
On May 1, 2003, as part of its repositioning initiative, the Company implemented
a restructuring action to improve fundamental business processes and reduce
costs. This resulted in the termination of approximately 85 employees engaged
primarily in product and product support activities. In connection with this,
the Company accrued a restructuring charge of approximately $1.7 million in the
third quarter of fiscal year 2003, principally for severance payments.
15
ITEM 2. 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. The following discussion excludes the results of the
Global Energy and Utilities Solutions ("EUS") and Global Manufacturing &
Distribution Solutions ("MDS") businesses as they were classified as
discontinued operations in fiscal year 2002.
RESULTS OF OPERATIONS
The following table sets forth: (i) income statement items as a percentage of
total revenues and (ii) the percentage change for each item from the prior-year
comparative period.
% of Total Revenue % Change
Three from Prior Year
Months Six Months Three Mos Six
Ended Ended Ended Mos Ended
March 31, March 31, March 31, March 31,
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Revenues
Software sales and commissions 11% 12% 14% 12% 8% 42%
Maintenance and enhancements 41% 38% 38% 38% 21% 19%
Software services 35% 34% 33% 33% 13% 17%
Outsourcing services 12% 14% 13% 15% (2)% (1)%
Interest and other income 1% 2% 2% 2% (60)% (11)%
------------ ------------- ------------------
Total 100% 100% 100% 100% 12% 17%
============ ============= ==================
Expenses
Cost of software sales, commissions,
services, and maintenance
and enhancements 67% 64% 66% 63% 17% 21%
Selling, general and administrative 28% 25% 29% 27% 27% 28%
Retirement and restructuring charges 2% 8% 1% 4% (69)% (69)%
Interest expense 1% 2% 1% 2% (53)% (52)%
Income from continuing operations
before income taxes 1% 1% 3% 4% 36% 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 income). The Company does not separately present the cost of maintenance
and enhancements revenue as it is impracticable to separate such cost from the
cost of software sales.
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Gross Profit
Software sales and maintenance
and enhancements 41% 48% 46% 51%
Software services 21% 20% 16% 17%
Outsourcing services 26% 25% 26% 22%
----------------------- ----------------------
Total 32% 35% 33% 35%
======================= ======================
16
Revenues:
- ---------
o Software sales and commissions revenue increased 8% compared to the second
quarter of fiscal year 2002 and 42% compared to the first six months of
fiscal year 2002 due to the acquisitions of Campus Pipeline, Inc. in the
first quarter fiscal year 2003 and Applied Business Technologies, Inc.
("ABT") in the second quarter of fiscal year 2002. Although traditional
Banner sales were down in the second quarter compared to the prior year,
they were flat in the first six months of fiscal year 2003 compared to the
prior year period.
o The 21% and 19% increases in maintenance and enhancements revenue in the
second quarter and first six months of fiscal year 2003 were the result of
the growing installed base of clients in all of the Company's product lines
and annual escalators on existing contracts. Maintenance and enhancements
revenue from the second quarter fiscal year 2002 acquisitions of ABT and
the Sallie Mae student systems business and the first quarter fiscal year
2003 acquisition of Campus Pipeline provided 30% of the increase over the
prior-year quarter and 41% of the increase over the prior-year first six
month period. Additionally, the Company's annual user conference held in
the second quarter of fiscal year 2003 and 2002 accounted for 31% and 19%
of the growth in maintenance and enhancements in the second quarter and
first six months of fiscal year 2003, respectively, due to increased
attendance. The Company continues to experience a high annual renewal rate
on existing maintenance contracts, although there can be no assurance that
this will continue.
o Software services revenue increased 13% in the first three months of fiscal
year 2003 compared with the prior-year period and 17% when compared to the
first six months of the prior fiscal year. The increase is primarily the
result of (i) increased implementation and integration services provided to
the Company's traditional Banner clients and (ii) new services business as
a result of the acquisitions of ABT and the Sallie Mae student systems
business in the second quarter of fiscal year 2002 and the Campus Pipeline
acquisition in the first quarter of fiscal year 2003.
o Outsourcing services revenue decreased 2% and 1% in the second quarter and
first six months of fiscal year 2003 compared with the prior-year periods.
This decrease is primarily the result of the Company's decision to focus
its efforts on servicing its existing outsourcing client base and obtaining
renewals from these clients as opposed to aggressively seeking new
outsourcing clients. As a result, the Company does not anticipate future
growth in its outsourcing business.
o Interest and other income decreased when compared to the second quarter of
the prior year as a result of the Company's decreased cash and short-term
investments balances. Interest and other income decreased when compared to
the first six months of the prior year as a result of the Company's
decreased cash and short-term investments balances and decreased interest
rates offset by the $1.3 million gain recorded in the first quarter of
fiscal year 2003 on the repurchase of $40.9 million face value of the
Company's $74.7 million, 5% convertible subordinated debentures due October
15, 2004.
17
Gross Profit:
- -------------
Although the Company's gross profit increased, the total gross profit as a
percentage of total revenue (excluding interest and other income) decreased from
35% for the second quarter and first six months of fiscal year 2002 to 32% for
the second quarter of fiscal year 2003 and 33% for the first six months of
fiscal year 2003. The software sales, commissions, maintenance, and enhancements
gross profit percentage decreased primarily as a result of the separate
development efforts related to the ABT and Sallie Mae products acquired in
fiscal year 2002 and the Campus Pipeline products acquired in the first quarter
of fiscal year 2003. The software services margin percent remained relatively
flat as margins on the acquisitions in both fiscal year 2002 and fiscal year
2003 were offset by decreased utilization. The services utilization decrease is
primarily the result of a disparity between client requirements of the Company's
growing backlog of services contracts and the Company's available resources. The
Company has developed methods to better analyze services backlog and has seen
margin improvement in the second quarter of fiscal year 2003 compared to first
quarter of fiscal year 2003. The Company anticipates maintaining the services
margin improvement over the year. The outsourcing services margin increased in
the fiscal year 2003 periods primarily as a result of contract renewals and
increased utilization of outsourcing professionals.
Selling, General and Administrative Expenses:
- ---------------------------------------------
Selling, general and administrative expenses increased by 27% and 28% in the
second quarter and first six months of fiscal year 2003, respectively compared
with the prior-year periods as a result of (i) amortization and employee costs
related to the acquisitions of ABT and the Sallie Mae student systems business
in the second quarter of fiscal year 2002 and the Campus Pipeline acquisition in
the first quarter of fiscal year 2003, (ii) investments the Company has made in
its sales and marketing organizations, and (iii) increased sales commissions as
a result of increased revenues.
Retirement and Restructuring Charges:
- -------------------------------------
In the second quarter of fiscal year 2003, the Company implemented a
restructuring action, principally in professional services, to better align
resources with available backlog. This resulted in a restructuring charge of
$1.5 million for severance payments related to the reduction in force of 65
employees. During the second quarter of fiscal year 2003, the Company made
payments of $0.5 million related to these charges and at March 31, 2003, $1
million of the accrual remains. The Company believes this amount is adequate to
cover remaining obligations.
In the second quarter of fiscal year 2002, Michael J. Emmi, former President,
Chief Executive Officer, and Chairman of the Board of Directors retired from the
Company. In connection with his retirement, Mr. Emmi received a compensation
package including a reduction of indebtednesses of $0.07 million, the
continuation of his life and health insurance and other fringe benefits for
periods ranging from two to five years, as well as an assignment to him of life
insurance policies covering him, and the immediate vesting of certain rights
under other compensation plans. All Company stock options held by Mr. Emmi
became vested and were amended to permit Mr. Emmi to exercise them by the
earlier of their original expiration date or two years from the date of his
resignation. The Company recorded a charge of approximately $3.5 million related
to the above actions in the second quarter of fiscal year 2002. During the first
six months of fiscal year 2003, the Company made payments of $0.08 million
related to these charges and at March 31, 2003, $0.6 million of the accrual
remains, which the Company believes is adequate to cover remaining obligations.
18
Also, during the quarter ended March 31, 2002, the Company implemented a plan
for restructuring, which included the termination of employees, management
changes, discontinuation of non-critical programs and the disposition of related
assets. During that quarter, the Company recorded a charge of $1.4 million
related to severance payments and disposition of assets. During the first six
months of fiscal year 2003, the Company made payments of $0.3 million related to
these charges and at March 31, 2003, $0.2 million of the accrual remains, which
the Company believes is adequate to cover remaining obligations.
Discontinued Operations:
- ------------------------
On March 5, 2003, the Company consummated the sale of its Global Energy and
Utilities Solutions ("EUS") business to Indus International, Inc., for $37.8
million, subject to adjustment based on working capital at the closing date. Due
to such adjustment, principally related to receivable collections by the
Company, the sale price was reduced by $3.3 million, resulting in a net sale
price of $34.5 million. During the quarter, the Company received cash proceeds
of $27.8 million and a $10 million promissory note due within six months that is
secured by a guaranty and a mortgage on real property. In connection with the
sale of the EUS business, the Company retained deferred tax assets of $4.2
million and reserves pertaining to restructurings associated with the EUS
business of $1.2 million, both of which were previously included in the net
assets of the discontinued operations. The net assets of the discontinued
operations at September 30, 2002 have been restated to reflect these
reclassifications. Additionally, the Company retained liability for claims
(including the cost of defense of such claims) arising from certain client
matters. As a result, the Company accrued a $2 million reserve for the defense
of and resolution of these matters. The legal reserve and deferred tax asset
amounts are included in the calculation of the gain on sale. After such
considerations, the Company recorded a pretax gain of $7.5 million on the sale,
which net of an $865 thousand tax provision that included previously
unrecognized deferred taxes primarily from foreign operating losses, produced a
net gain of $6.6 million.
The results of EUS have been reported separately as discontinued operations in
the consolidated statement of operations. During fiscal year 2002, the Company
declared EUS as discontinued, and as a result the prior year consolidated
statements of operations have been restated to present EUS as a discontinued
operation. For business segment reporting, EUS was previously reported as a
separate segment.
During the second quarter of fiscal year 2002, the Company declared the Global
Manufacturing & Distribution Solutions ("MDS") businesses as discontinued, and
sold the business on May 31, 2002. As a result, the fiscal year 2002 loss from
discontinued operations includes the results of the MDS business.
Cyclical Nature of Business:
- ----------------------------
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 and total revenue in the last two fiscal quarters, the nonseasonal
factors cited above may have a greater effect than seasonality on the Company's
results of operations.
19
Liquidity, Capital Resources, and Financial Position
The Statement of Cash Flows for the six-month period ending March 31, 2003 shows
the EUS business as a discontinued operation. The Statement of Cash Flows for
the prior year period is based on historical information and has not been
restated to present the MDS and EUS businesses as discontinued operations.
The Company's cash and short-term investments balance was $78.2 million as of
March 31, 2003 and $133.6 million as of September 30, 2002. The cash balances
decreased primarily as a result of the acquisition of Campus Pipeline and the
repurchase of the Company's convertible subordinated debentures in the first
quarter of fiscal year 2003, which were partially offset by the cash proceeds
received from the sale of the EUS business in the second quarter of fiscal year
2003. The Company anticipates using its cash and short-term investments balance
to fund future growth through various means, including strategic alliances and
acquisitions.
Cash used in operating activities was $12 million in the first six months of
fiscal year 2003 compared with $19.8 million used in the prior-year period. The
primary uses of cash in the fiscal year 2003 period were decreased accrued
expenses, decreased deferred revenue, and increased accounts receivable
partially offset by decreased prepaid income taxes. The decrease in accrued
expenses is primarily the result of employee bonus and severance payments
associated with the Campus Pipeline acquisition, other employee bonus payments,
interest paid on the Company's convertible debentures, and payments related to
settlement of certain legal matters in the first quarter of fiscal year 2003.
The increases in accounts receivable at March 31, 2003 compared to September 30,
2002, relate primarily to payment terms and slow collections. The Company has
implemented actions directed at improving payment terms and reducing days sales
outstanding. Prepaid income taxes decreased as a result of a refund received in
the first quarter of fiscal year 2003. Cash payments for the first six months of
fiscal year 2003 related to retirement and restructuring charges (which are
included in operating activities) were approximately $0.9 million, and are
expected to be approximately $1.2 million for the remainder of fiscal year 2003
and $0.6 million in total for all subsequent years, principally for severance
costs. Cash used in the fiscal year 2002 period primarily related to increased
other current assets, primarily prepaid income taxes; decreased accounts and
income taxes payable; and decreased deferred revenue. These were partially
offset by increased accrued expenses related to the retirement and restructuring
charges and the loss accrual for the sale of the manufacturing business.
Cash provided by investing activities was $14.4 million for the first six months
of fiscal year 2003 compared with cash used of $60.4 million for the fiscal year
2002 period. In the fiscal year 2003 period, the Company received cash proceeds
of $27.8 million for the sale of the EUS business. Additionally, net cash of
$16.9 million was provided by the sale or maturity of investments available for
sale. These were offset by the purchase of Campus Pipeline in the fiscal 2003
period for $27.0 million. The primary use of cash in the fiscal year 2002 period
was the purchase of the Sallie Mae student systems business and Applied Business
Technologies, Inc.
The $40.1 million in cash used in financing activities was primarily the
repayment of $40.9 million of the Company's 5% convertible subordinated
debentures due October 15, 2004.
20
The Company has a $30 million senior revolving credit facility available for
general corporate purposes. The credit facility agreement expires in June 2004
and includes optional annual renewals. There were no borrowings outstanding at
March 31, 2003 or September 30, 2002. 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. The Company has complied with all covenants and conditions at March
31, 2003. The Company may not pay dividends (other than dividends payable in
common stock) or acquire any of its capital stock outstanding without a written
waiver from its lender.
The credit agreement provides for the issuance of letters of credit. The amount
available for borrowing under the revolving credit facility is reduced by the
total outstanding letters of credit. At March 31, 2003, the Company had no
letters of credit outstanding and $30 million available under the revolving
credit facility. The Company pays a commitment fee of 5/16% on the unused
portion of the revolving credit facility.
The Company has convertible debentures outstanding, which bear interest at 5%
and mature on October 15, 2004. In several transactions in the first quarter of
fiscal year 2003, the Company repurchased $40.9 million face value of the $74.7
million debentures. The Company repurchased the convertible debentures at prices
ranging from $94 to $96, plus accrued interest. The transaction included $39.2
million principal and interest of $0.9 million for a total payment of $40.1
million including fees. The Company recorded a gain of $1.3 million, included in
interest and other income, in the first quarter of fiscal year 2003 related to
these transactions. If the remaining debentures outstanding were converted, 1.3
million additional shares would be added to common shares outstanding at March
31, 2003. The debentures were antidilutive for the fiscal year 2003 and 2002
periods and therefore are not included in the denominators for income from
continuing operations per share - assuming dilution, income (loss) from
discontinued operations per share - assuming dilution, or net income per share -
assuming dilution for these periods.
At March 31, 2003, the Company had performance bonds outstanding that could
require the Company's performance or cash payment in the event of demands by
third parties. The expiration periods of the performance bonds are: less than
one year, $9.4 million and one year through three years, $1.9 million.
The Company has guaranteed the obligations under a lease agreement assigned by
the Company. Such guarantee is effective through the end of the lease term,
which is March 2013. If the current leaseholder fails to meet its payment
obligations under the assigned lease, the Company would be responsible for
payments up to a maximum of $2.5 million. Based on experience with these
arrangements, the Company believes that any obligations that may arise will not
be material. Should the Company be required to make any payments under the
guarantee, it would then seek recourse from the current leaseholder.
In connection with the acquisition of Sallie Mae's student information systems
business, the Company could be required to make additional cash payments of up
to $5.3 million over the next four years, contingent upon the revenue derived
from license sales or other sales of the purchased product lines over that
period.
21
Contingency:
- ------------
In connection with the sale of the Utilities business, the Company agreed to
indemnify the Purchaser against all losses arising from certain claims asserted
against the Company. The Company maintained the exclusive right to control the
defense of these claims. As a result, a $2 million reserve was established for
the defense of and resolution of these claims. This amount is included in the
calculation of the gain on sale of the EUS business. Additionally, the Company
agreed to indemnify the purchaser for breaches of representations and warranties
made by the Company in the agreement. If indemnity claims are made against the
Company, the proceeds received by the Company for the sale may be subject to
adjustment. After consideration of the accrual for the aforementioned legal
matters, in the opinion of management any further indemnity obligations of the
Company that may result would not materially affect the Company's consolidated
financial statements.
The Company believes that its cash and cash equivalents, short-term investments,
and borrowing arrangements should satisfy its financing needs for the
foreseeable future.
Critical Accounting Policies:
- -----------------------------
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting policies require
significant judgments and estimates in the preparation of its consolidated
financial statements.
Revenue Recognition: The Company licenses software under license agreements and
provides services including training, installation, consulting, and maintenance
and enhancements. License fee revenues are recognized when a license agreement
has been signed, the software product has been shipped, the fees are fixed and
determinable, collection is considered probable, and no significant vendor
obligations remain. In certain license arrangements, the Company ships the
product and recognizes revenue, but has not billed the complete contract amount
due to contractual payment terms, resulting in an excess of revenues over
billings in such periods. The resulting excess is reflected as unbilled accounts
receivable; such amounts were approximately $11 million at March 31, 2003.
Maintenance and enhancement agreements provide for telephone support and error
correction for current versions of licensed systems, as well as regulatory
updates and functional and technical enhancements to licensed systems if and
when they become generally available. Fees for maintenance and enhancements
agreements are recognized ratably over the term of the agreements. Maintenance
and enhancement agreements are billed annually and often billed in arrears,
resulting in revenues in excess of billings as revenue is recognized ratably
over the contract term. The resulting excess is reflected as unbilled accounts
receivable; such amounts were approximately $27 million at March 31, 2003.
22
Software services are generally provided under time and materials contracts and
revenue is recognized as the services are provided. In some circumstances,
services are provided under fixed-price arrangements in which revenue is
recognized on the proportional-performance method, which relies on estimates of
total expected contract revenues and costs. Since accounting for these contracts
depends on estimates, which are assessed continually during the term of these
contracts, recognized revenues and profit are subject to revisions as the
contract progresses to completion. Revisions in estimates of costs to complete
are reflected in operations in the period in which facts requiring those
revisions become known. In certain software services contracts, the Company
performs services but cannot immediately bill for them. Revenue is usually
recognized as work is performed, resulting in an excess of revenues over
billings in such periods. The resulting excess is reflected as unbilled accounts
receivable; such amounts were approximately $11 million at March 31, 2003.
Billings in these software services contracts cause a decrease in the unbilled
accounts receivable, although additional unbilled accounts receivable will
continue to be recorded based on the terms of the contracts.
For client arrangements that include license fees and implementation and other
professional services, the portion of the fees related to software licenses is
generally recognized in the current period, while the portion of the fees
related to implementation and other professional services is recognized as such
services are performed.
The Company allocates revenue to each component of the contract based on
objective evidence of its fair value, which is specific to the Company, or, for
products not being sold separately, the price established by management. Because
licensing of the software is not dependent on the professional services portions
of the contract, the software revenue is recognized upon delivery. The remainder
of the contract revenue is recorded as earned as software services revenue.
Contract fees from outsourcing services are typically based on multi-year
contracts ranging from three to five years in length, and provide a recurring
revenue stream throughout the term of the contract. During the first several
years of a typical outsourcing services contract, the Company performs services
and incurs expenses 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 as unbilled
accounts receivable; such amounts were approximately $4 million at March 31,
2003. In some cases when a contract term is extended, the billing period is also
extended over the new life of the contract. 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. These contracts require estimates of periodic
revenue earned and costs to be incurred to deliver products or services and are
subject to revision as work progresses. Revisions in the estimates are reflected
in operations in the period in which facts requiring those revisions become
known. Many of the Company's outsourcing services contracts include contractual
termination provisions, which provide for payment of a fee to the Company in the
event a client terminates a contract early. The aggregate termination fees under
these contracts were approximately $7 million at March 31, 2003.
Restructuring: The Company recorded reserves in connection with restructuring
programs. These reserves include estimates pertaining to employee separation
costs, assumptions regarding idle facilities and sublease terms, and the
settlements of contractual obligations resulting from these actions. Although
the Company does not anticipate significant changes, the actual costs may differ
from these estimates.
23
Long-Term Investments: The Company has made investments for strategic business
purposes in the common and preferred stock of WebCT, a privately held provider
of web-based course tools for the higher education market. The fair value of
this investment, which is classified as a long-term asset, is not readily
determinable; therefore, it is carried at cost adjusted for other-than-temporary
impairments. The Company recorded asset impairment charges of $5.4 million and
$7.8 million in the third quarter of fiscal year 2002 and the second quarter of
fiscal year 2001, respectively. On a quarterly basis, the Company reviews the
underlying operating performance, cash flow forecasts, private equity
transactions, and stock prices and equity values of publicly traded competitors
of this privately held company in assessing impairment. Future earnings would be
reduced and earnings would be charged if there was an additional impairment that
was found to be other-than-temporary at a future balance sheet date. The
Company's future results of operations could be materially affected by a future
write-down in the carrying amount of this investment to recognize an impairment
loss due to an other-than-temporary decline in the value of the investment.
Goodwill and Intangible Assets: The Company's business acquisitions typically
result in goodwill and other intangible assets, which affect the amount of
future period amortization expense and possible impairment expense that the
Company will incur. The determination of the value of such intangible assets
requires estimates and assumptions that affect the consolidated financial
statements. The Company assigns intangible assets useful lives, which are
reassessed on an ongoing basis, ranging from two to 10 years, based on
estimates, assumptions, and third-party valuations.
The Company evaluates goodwill and other intangibles for potential impairment on
an annual basis unless circumstances indicate the need for impairment testing
between the annual tests. The judgments regarding the existence of impairment
indicators are based on legal factors, market conditions, and operational
performance of the Company. In assessing the recoverability of the Company's
goodwill and other intangibles, the Company would make valuation assumptions to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, the Company may be required to record
impairment charges which could have a material adverse impact on the Company's
financial condition and results of operations.
Deferred Taxes: The Company records a valuation allowance to reduce its deferred
tax assets to the amount that is more likely than not to be realized. While the
Company has considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for the valuation allowance, in
the event the Company were to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such
determination was made. Likewise, should the Company determine that it would not
be able to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.
Factors That May Affect Future Results and Market Price of Stock:
- -----------------------------------------------------------------
The forward-looking statements discussed herein and elsewhere -- including
statements concerning the Company's or management's forecasts, estimates,
intentions, beliefs, anticipations, plans, expectations, or predictions for the
future -- are based on current management expectations that involve risks and
uncertainties that could cause actual results to differ materially from those
anticipated. The following discussion highlights some, but not all, of the risks
and uncertainties that may have a material adverse effect on the Company's
business, results of operations, financial condition, and cash flows.
24
The Company's revenues and operating results can vary substantially from quarter
to quarter, owing to a number of factors. Software sales revenues in any quarter
depend on the execution of license agreements and the shipment of product. The
execution of license agreements is difficult to predict for a variety of
reasons, including the following: a significant portion of the Company's license
agreements is typically signed in the last month of each quarter; the Company's
sales cycle is relatively long; the size of transactions can vary widely; client
projects may be postponed or cancelled due to changes in the client's
management, budgetary constraints, strategic priorities, or economic
uncertainty; and clients often exhibit a seasonal pattern of capital spending.
The Company has historically generated a greater portion of license fees and
total revenue in the last two fiscal quarters, although there is no assurance
that this will continue.
Because a significant part of the Company's business results from software
licensing, it is characterized by a high degree of operating leverage. The
Company bases its expense levels, in significant part, on its expectations of
future revenues. Therefore, these expense levels are relatively fixed in the
short term. If software-licensing revenues do not meet expectations, net income
is likely to be disproportionately adversely affected. There can be no assurance
that the Company will be able to increase profitability on a quarterly or annual
basis in the future. It is, therefore, possible that in one or more future
quarters, the Company's operating results will be below expectations. This would
likely have an adverse effect on the price of the Company's common stock.
A significant part of the Company's business also results from the provision of
services by the Company to clients who license the Company's software. The
Company realizes lower margins on services revenues than on license revenues.
The Company bases its expense levels in the services area on various factors,
including the Company's expectation of future license sales and its expectation
of when clients who have licensed the Company's software will actually implement
the software. If software license revenues do not meet expectations, or if
clients delay implementation of software licensed, the Company's business,
results of operations, financial condition, and cash flows would be adversely
affected.
The success of the Company's business depends upon certain key management,
sales, and technical personnel. In addition, the Company believes that to
succeed in the future, it must continue to attract, retain, and motivate
talented and qualified management, sales, and technical personnel. Competition
for such personnel in the information technology industry is intense. The
Company sometimes has difficulty locating qualified candidates. There can be no
assurance that the Company will be able to retain its key employees or that it
will be able to continue to attract, assimilate, and retain other skilled
management, sales, and technical personnel. The loss of certain key personnel or
the inability to attract and retain qualified employees in the future could have
a material adverse effect on the Company's business, results of operations,
financial condition, and cash flows.
The application software industry is characterized by intense competition, rapid
technological advances, changes in client requirements, product introductions,
and evolving industry standards. The Company believes that its future success
will depend on its ability to compete successfully, and to continue to develop
and market new products and enhancements cost-effectively. This necessitates
continued investment in research and development and sales and marketing. There
can be no assurance that new industry standards or changing technology will not
render the Company's products obsolete or non-competitive, that the Company will
be able to develop and market new products successfully, or that the Company's
25
market will accept its new product offerings. Furthermore, software programs as
complex as those the Company offers may contain undetected errors or bugs when
they are first introduced or as new versions are released. Despite Company and
third-party testing, there can be no assurance that errors will not be found in
new product offerings. Such errors can cause unanticipated costs and delays in
market acceptance of these products and could have a material adverse effect on
the Company's business, results of operations, financial condition, and cash
flows. In addition, distribution methods, such as the Internet and other
electronic channels, have removed many of the barriers to entry that small and
start-up software companies faced in the past. Therefore, the Company expects
competition to increase in its market.
If the Company were to experience delays in the commercialization and
introduction of new or enhanced products, if customers were to experience
significant problems with the implementation and installation of products, or if
customers were dissatisfied with product functionality or performance, this
could have a material adverse effect on the Company's business, results of
operations, financial condition, and cash flows.
There can be no assurance that the Company's new products will achieve
significant market acceptance or will generate significant revenue. Additional
products that the Company plans to market directly or indirectly in the future
are in various stages of development.
Intense competition in the market in which the Company competes may put pressure
on the Company to reduce prices on certain products, particularly where certain
vendors offer deep discounts in an effort to recapture or gain market share or
to sell other software products, hardware products, or services. The bundling of
software products for promotional purposes or as a long-term pricing strategy or
guarantees of product implementations by certain of the Company's competitors
could have the effect over time of significantly reducing the prices that the
Company can charge for its products. Any such price reductions and resulting
lower license revenues could have a material adverse effect on the Company's
business, results of operations, financial condition, and cash flows.
The Company uses a common industry practice to forecast sales and trends in its
business. The Company's sales personnel monitor the status of prospective sales,
such as the date when they estimate that a customer will make a purchase
decision and the potential dollar amount of the sale. The Company regularly
aggregates these estimates to generate a sales pipeline. The Company compares
the pipeline at various points in time to look for trends in its business. While
this pipeline analysis may provide the Company with some guidance in business
planning and budgeting, these pipeline estimates are necessarily speculative and
may not consistently correlate to revenues in a particular quarter or over a
longer period of time. A variation in the conversion of the pipeline into
contracts or in the pipeline itself could cause the Company to improperly plan
or budget and thereby adversely affect its business or results of operations.
During fiscal year 2000, the Company made an investment in WebCT and entered
into a strategic alliance with WebCT to exclusively market the WebCT e-learning
tools and e-learning hub to the Company's client base. In the second quarter of
fiscal year 2003, the alliance with WebCT became non-exclusive, giving the
Company the ability to market other e-learning tools and e-learning hubs to the
client base. The alliance builds upon the Company's Campus Pipeline and Luminus
solutions and the Company's Banner Student Self-Service and Banner Faculty and
Advisor Self-Service products to offer a unified, on-line, connected e-learning
26
solution. This integrated solution enables clients to access information
systems, learning tools, online services, campus communication, and community
resources through a single point of access. The Company provides the real-time,
bi-directional exchange of data between the Company's student information system
and the WebCT course environment, eliminating manual synchronization of like
information. The continued success of this investment and strategic alliance
depends upon: (i) the ability of the Company and WebCT to enhance the products
over time, (ii) the market acceptance of the products, and (iii) the ability of
WebCT to achieve their financial goals.
Certain of the Company's contracts are subject to "fiscal funding" clauses,
which entitle the client, in the event of budgetary constraints, to reduce the
level of services to be provided by the Company, with a corresponding reduction
in the fee the client must pay. In certain circumstances, the client may
terminate the services altogether. While the Company has not been impacted
materially by early terminations or reductions in service from the use of fiscal
funding provisions in the past, there can be no assurance that such provisions
will not give rise to early terminations or reductions of service in the future.
If clients that represent a substantial portion of the Company's revenues were
to invoke the fiscal funding provisions of their contracts, the Company's
business, results of operations, financial condition, and cash flows would be
adversely affected.
Certain of the Company's outsourcing and software services contracts may be
terminated by the client for convenience. If clients that represent a
substantial portion of the Company's revenues terminate for convenience, the
Company's future business, results of operations, financial condition, and cash
flows would be adversely affected.
The Company provides software-related services, including systems implementation
and integration services. Services are provided under time and materials
contracts, in which case revenue is recognized as the services are provided, and
under fixed-price arrangements, in which case revenue is recognized on the
proportional performance method. Revisions in estimates of costs to complete are
reflected in operations during the period in which the Company learns of facts
requiring those revisions.
The Company relies on a combination of copyright, trademark, trade secrets,
confidentiality procedures, and contractual procedures to protect its
intellectual property rights. Despite the Company's efforts to protect its
intellectual property rights, it may be possible for unauthorized third parties
to copy certain portions of the Company's products, or to reverse engineer or
obtain and use technology or other Company-proprietary information. There can
also be no assurances that the Company's intellectual property rights would
survive a legal challenge to their validity or provide significant protection to
the Company. In addition, the laws of certain countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Accordingly, there can be no assurance that the Company will be able to
protect its proprietary technology against unauthorized third-party copying or
use, which could adversely affect the Company's competitive position.
27
In the second quarter of fiscal year 2002, the Company acquired the Sallie Mae
student information systems business and Applied Business Technologies, Inc. and
in October 2002, the Company acquired Campus Pipeline, Inc. These acquisitions
were entered into in order to increase the Company's opportunities in the higher
education market. The success of these acquisitions depends upon: (i) the
Company's ability to integrate the acquired products and operations with the
Company's products and operations cost-effectively and on a timely basis, (ii)
the Company's ability to complete development of and enhance the products
acquired efficiently and cost effectively, and (iii) the market acceptance of
the products and technologies acquired and the services related thereto. If
these acquisitions are not successful, acquired intangibles might become
impaired and the Company may be required to record impairment charges that could
have a material adverse impact on the Company's business, financial condition,
cash flows, and results of operations.
In connection with the acquisition of Sallie Mae's student information systems
business, the Company could be required to make additional cash payments of up
to $5.3 million over the next four years, contingent upon the revenue derived
from license sales or other sales of the purchased product lines over that
period.
On May 31, 2002, the Company consummated the sale of its process manufacturing
software business to Agilisys International Limited. The Company agreed to sell
substantially all of the assets of the process manufacturing software business
for $13.2 million in cash, subject to adjustment in certain circumstances. Due
to such adjustments, which principally related to the collection of receivables
by the Company, the net proceeds received by the Company were $10.5 million. The
Company could receive up to an additional $3.0 million based upon the
achievement by Agilisys of specified revenue targets over the three-year period
subsequent to the sale.
On March 5, 2003, the Company completed the sale of its Global Energy and
Utilities Solutions ("EUS") business to Indus International, Inc., for $37.8
million, subject to adjustment based on working capital at the closing date. Due
to such adjustment, principally related to receivables collections, the Company
will make a payment of $3.3 million to Indus International, Inc. in the third
quarter of fiscal year 2003.
Other factors that could affect the Company's future operating results include
the effect of publicity on demand for the Company's products and services;
general economic and political conditions in the United States and abroad; the
success of the Company's new business model; the success of the Company's
long-term strategy; continued market acceptance of the Company's products and
services; the timing of services contracts and renewals; continued competitive
and pricing pressures in the marketplace; new product introductions by the
Company's competitors; the Company's ability to complete fixed-price contracts
profitably; and the Company's ability to generate capital gains sufficient to
offset the capital losses that are expected to be realized upon the disposition
of the investments held by the Company for which the carrying value has been
reduced for financial reporting purposes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in quantitative or qualitative disclosures
for fiscal year 2003. Reference is made to Item 7A in the Annual Report on Form
10-K for the year ended September 30, 2002.
28
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of the Company's Disclosure Committee and the Company's
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of a date within 90 days prior to the date of filing this Quarterly Report on
Form 10-Q (the "Evaluation Date"). Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that, as of Evaluation Date,
the disclosure controls and procedures of the Company are effective to ensure
that information required to be disclosed by the Company in its Exchange Act
reports is recorded, processed, summarized and reported within the applicable
time periods. Since the Evaluation Date, there have been no significant changes
to the Company's internal controls or, to the Company's knowledge, in other
factors that could significantly affect these controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
29
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
In connection with the sale of the Utilities business, the Company agreed to
indemnify the Purchaser against all losses arising from certain claims asserted
against the Company. The Company maintained the exclusive right to control the
defense of these claims. As a result, a $2 million reserve was established for
the defense of and resolution of these claims. This amount is included in the
calculation of the gain on sale of the EUS business. Additionally, the Company
agreed to indemnify the purchaser for breaches of representations and warranties
made by the Company in the agreement. If indemnity claims are made against the
Company, the proceeds received by the Company for the sale may be subject to
adjustment. After consideration of the accrual for the aforementioned legal
matters, in the opinion of management any further indemnity obligations of the
Company that may result would not materially affect the Company's consolidated
financial statements.
The Company from time to time is involved in legal proceedings and litigation
arising in the ordinary course of business. In the opinion of management, the
outcome of such proceedings and litigation currently pending will not materially
affect the Company's consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on February 21, 2003,
Gabriel A. Battista and Robert M. Gavin, Jr. were reelected as directors of the
Company for a term expiring at the Company's 2006 Annual Meeting of
Shareholders. There were 26,097,981 votes cast in favor of the election of Mr.
Battista and 3,199,038 votes were withheld, and there were 27,199,109 votes cast
in favor of the election of Dr. Gavin and 2,097,910 votes were withheld.
Item 6 (a). Exhibits
Exhibit 10.1 Twelfth Amendment and Modification to Credit Agreement dated as
of March 5, 2003, among Systems & Computer Technology
Corporation and SCT Software & Resource Management Corporation
as Borrowers and Citizens Bank of Pennsylvania, successor to
Mellon Bank, N.A.
Exhibit 99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002.
Exhibit 99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002.
30
Item 6 (b). Reports on Form 8-K
On January 3, 2003, the Company filed a Current Report on Form 8-K/A amending
the Current Report on Form 8-K filed by the Company on November 5, 2002
regarding the merger on October 23, 2002 of CPI Acquisition Company, Inc., a
Delaware corporation and a wholly owned subsidiary of the Company ("Acquisition
Sub"), with and into Campus Pipeline, Inc., a Delaware corporation ("Campus
Pipeline") pursuant to an Agreement and Plan of Merger dated September 30, 2002
by and among the Company, Campus Pipeline and Acquisition Sub. The sole purpose
of the amendment was to provide the financial statements of the business
acquired as required by Item 7(a) and the pro-forma financial information
required by Item 7(b), which financial statements and information were excluded
from the November 5, 2002, Form 8-K filing in reliance on Items 7(a)(4) and
7(b)(2), respectively, of Form 8-K.
On March 12, 2003, the Company filed a Current Report on Form 8-K announcing
that on March 5, 2003 (the "Closing Date"), the Company and certain of its
subsidiaries sold the Energy and Utilities Solutions business (the "Business")
pursuant to a Purchase Agreement (the "Purchase Agreement") dated February 12,
2003 by and among the Company and certain of its subsidiaries and Indus
International, Inc., a Delaware corporation ("Purchaser"), as amended by that
certain Amendment No. 1 to the Purchase Agreement dated March 5, 2003. The
purchase price consisted of (a) the payment by the Purchaser to the Company of
an aggregate amount equal to $29,035,000 in cash, subject to an adjustment based
on a working capital target of the Business as of the Closing Date of $3,637,000
(the net proceeds received by the Company on the Closing Date was $27,774,000
based on an estimated working capital on the Closing Date, which amount is
subject to further adjustment when the actual working capital on the Closing
Date is determined) and (b) the delivery of a promissory note made by the
Purchaser in favor of the Company in an amount equal to $10,000,000, which is
secured by a guaranty by the business and a mortgage on real property owned by
the business that was transferred as a result of the sale.
31
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Registrant)
Date: 05/14/03 Eric Haskell
--------------------------------
Eric Haskell
Executive Vice President, Finance & Administration,
Treasurer, and Chief Financial Officer
32
CERTIFICATIONS
CEO CERTIFICATION
I, Michael D. Chamberlain, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Systems & Computer
Technology Corporation (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of the
Company's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
Michael D. Chamberlain
- ---------------------------------------
Michael D. Chamberlain, President and
Chief Executive Officer
33
CFO CERTIFICATION
I, Eric Haskell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Systems & Computer
Technology Corporation (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of the
Company's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
Eric Haskell
- -----------------------------------------
Eric Haskell, Executive Vice President,
Finance & Administration, Treasurer and
Chief Financial Officer
34