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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 June 30, 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.
33,818,000 Common shares, $.01 par value, as of August 8, 2003
Page 1 of 32 consecutively numbered pages
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2003 and September 30, 2002
Consolidated Statements of Operations -
Three Months Ended June 30, 2003 and 2002
Consolidated Statements of Operations -
Nine Months Ended June 30, 2003 and 2002
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 2003 and 2002
Notes to 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 6. Exhibits and Reports on Form 8-K
SIGNATURES
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30, September 30,
2003 2002
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,717 $ 72,820
Short-term investments, including
accrued interest of $508 and $701 51,794 60,754
Receivables, including $42,226 and
$37,725 of earned revenues in
excess of billings, net of allowance
for doubtful accounts of $2,803 and
$4,789 85,006 74,103
Note receivable 10,017 -
Prepaid income taxes 11,031 20,353
Prepaid expenses and other assets 17,994 17,130
-------- --------
TOTAL CURRENT ASSETS 200,559 245,160
PROPERTY AND EQUIPMENT--at cost, net
of accumulated depreciation 26,820 27,265
CAPITALIZED COMPUTER SOFTWARE COSTS,
Net of accumulated amortization 2,785 4,427
GOODWILL 47,355 28,784
INTANGIBLE ASSETS, net of accumulated
Amortization 18,807 10,689
OTHER ASSETS AND DEFERRED CHARGES 26,874 18,949
NET ASSETS OF DISCONTINUED OPERATIONS - 28,869
-------- --------
TOTAL ASSETS $323,200 $364,143
======== ========
Note: The 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.
These reclassifications relate to (i) certain assets and liabilities, which were
ultimately retained by the Company, related to the discontinued operations of
the Global Energy and Utilities business and (ii) a reclassification between
accounts receivable and deferred revenue.
See notes to consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except per share amounts)
June 30, September 30,
2003 2002
(UNAUDITED) (NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,571 $ 6,402
Income taxes payable 1,544 1,096
Accrued expenses 39,261 39,212
Deferred revenue 15,185 21,227
-------- --------
TOTAL CURRENT LIABILITIES 59,561 67,937
LONG-TERM DEBT 31,990 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
38,185 and 38,029 382 380
Capital in excess of par value 126,377 125,586
Retained earnings 126,297 117,622
Accumulated other comprehensive loss (215) (583)
-------- --------
252,841 243,005
Less
Held in treasury, 4,535 and 4,582 common
shares--at cost (24,103) (24,434)
-------- --------
228,738 218,571
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $323,200 $364,143
======== ========
Note: The 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.
These reclassifications relate to (i) certain assets and liabilities, which were
ultimately retained by the Company, related to the discontinued operations of
the Global Energy and Utilities business and (ii) a reclassification between
accounts receivable and deferred revenue.
See notes to consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
For the Three Months Ended
June 30,
2003 2002
Revenues:
Software sales and commissions $12,643 $10,871
Maintenance and enhancements 23,757 20,190
Software services 22,659 21,658
Outsourcing services 8,312 8,172
Interest and other income 782 517
------- -------
68,153 61,408
------- -------
Expenses:
Cost of software sales, commissions,
maintenance and enhancements 17,884 13,350
Cost of software services 16,492 17,598
Cost of outsourcing services 6,030 6,836
Selling, general and administrative 17,791 16,767
Asset impairment charge - 5,425
Retirement and restructuring charge 1,670 -
Interest expense 484 1,064
------- -------
60,351 61,040
------- -------
Income from continuing operations
before income taxes 7,802 368
Provision for income taxes 3,234 527
------- -------
Income (loss) from continuing operations 4,568 (159)
Discontinued operations
Loss from discontinued operations,
adjusted for applicable provision (benefit)
for income taxes of $629 and ($616) (629) (265)
Loss on sale of discontinued operations,
net of income tax provision (benefit)
of $2,905 and ($9) (2,905) (15)
------- -------
Loss from discontinued operations (3,534) (280)
------- -------
Net income (loss) $ 1,034 $ (439)
------- -------
Income from continuing operations
per common share $ 0.14 $ (0.00)
per share -- assuming dilution $ 0.14 $ (0.00)
Loss from discontinued operations
per common share $ (0.11) $ (0.01)
per share -- assuming dilution $ (0.11) $ (0.01)
Net income (loss)
per common share $ 0.03 $ (0.01)
per share -- assuming dilution $ 0.03 $ (0.01)
Common shares and equivalents outstanding
average common shares 33,641 33,323
average common shares -- assuming dilution 33,654 33,323
See notes to consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
For the Nine Months Ended
June 30,
2003 2002
Revenues:
Software sales and commissions $ 31,115 $ 23,840
Maintenance and enhancements 72,408 61,171
Software services 64,963 57,789
Outsourcing services 24,775 24,875
Interest and other income 3,210 3,231
-------- --------
196,471 170,906
-------- --------
Expenses:
Cost of software sales, commissions,
maintenance and enhancements 54,381 39,947
Cost of software services 51,996 47,435
Cost of outsourcing services 18,181 19,788
Selling, general and administrative 55,125 45,939
Asset impairment charge - 5,425
Retirement and restructuring charge 3,190 4,874
Interest expense 1,480 3,157
-------- --------
184,353 166,565
-------- --------
Income from continuing operations
before income taxes 12,118 4,341
Provision for income taxes 4,965 2,096
-------- --------
Income from continuing operations 7,153 2,245
Discontinued operations
Loss from discontinued operations,
adjusted for applicable provision (benefit)
for income taxes of $1,528 and ($1,845) (2,206) (5,293)
Gain (loss) on sale of discontinued operations,
net of income tax provision (benefit)
of $3,770 and ($3,455) 3,728 (7,057)
-------- --------
Income (loss) from discontinued operations 1,522 (12,350)
-------- --------
Net income (loss) $ 8,675 $(10,105)
-------- --------
Income from continuing operations
per common share $ 0.21 $ 0.07
per share -- assuming dilution $ 0.21 $ 0.07
Income (loss) from discontinued operations
per common share $ 0.05 $ (0.37)
per share -- assuming dilution $ 0.05 $ (0.37)
Net income (loss)
per common share $ 0.26 $ (0.30)
per share -- assuming dilution $ 0.26 $ (0.30)
Common shares and equivalents outstanding
average common shares 33,594 33,173
average common shares -- assuming dilution 33,631 33,639
See notes to consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Nine Months Ended
June 30,
2003 2002
Operating Activities
Net income (loss) $ 8,675 ($10,105)
Adjustment to reconcile net income (loss) to net
cash used in operating activities
Asset impairment charge - 5,425
Loss on sale of MDS discontinued operations 2,805 7,057
Gain on bond repurchase (1,384) -
Gain on sale of EUS business (6,533) -
Depreciation and amortization 11,358 16,010
Provision for doubtful accounts 313 1,813
Deferred tax benefit (87) (1,504)
Changes in operating assets and liabilities:
Increase in receivables (7,568) (7,290)
Decrease (increase) in prepaid income taxes 6,357 (16,207)
Increase in other current assets (1,010) (279)
Decrease in accounts payable (2,831) (2,373)
Decrease in income taxes payable (2,357) (7,099)
Decrease in accrued expenses (19,542) (6,592)
Decrease in deferred revenue (8,606) (9,738)
Decrease in other operating assets
and deferred charges 3,683 3,476
Decrease in net assets of discontinued
operations 8,739 -
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (7,988) (27,406)
Investing Activities
Purchase of property & equipment (4,253) (787)
Capitalized computer software costs - (770)
Purchase of investments available for sale (49,324) (85,232)
Proceeds from the sale or maturity of investments
available for sale 57,788 65,771
Proceeds from sale of discontinued operations 24,451 10,476
Purchase of business, net of cash acquired (27,032) (33,499)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,630 (44,041)
Financing Activities
Repayment of borrowings (42,871) (511)
Issuance of Company stock 331 333
Decrease in notes receivable from stockholders - 500
Proceeds from exercise of stock options 795 2,792
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (41,745) 3,114
DECREASE IN CASH & CASH EQUIVALENTS (48,103) (68,333)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,820 101,475
-------- --------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 24,717 $ 33,142
======== ========
Supplemental information
Noncash investing and financing activities:
Sale of business -- noncash portion 10,000 -
See notes to consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited 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 impairment charge;
the fiscal year 2002 and fiscal year 2003 retirement and restructuring charges;
and the fiscal year 2003 tax charge to discontinued operations) 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 consolidated balance
sheet and 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 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 nine-month periods ended June 30, 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. These reclassifications relate to (i) certain assets and
liabilities, which were ultimately retained by the Company, related to the
discontinued operations of the Global Energy and Utilities business and (ii) a
reclassification between accounts receivable and deferred revenue.
The statement of cash flows for the nine months ended June 30, 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 Nine months ended
June 30, June 30,
2003 2002 2003 2002
Net income (loss), as reported $1,034 $ (439) $ 8,675 $(10,105)
Less: stock-based employee compensation expense
determined under fair value method, net of
related tax effects (536) (478) (1,844) (1,441)
-------------------- --------------------
Pro forma net income (loss) $ 498 $ (917) $ 6,831 $(11,546)
==================== ====================
Earnings (loss) per share:
per common share, as reported $ 0.03 $(0.01) $ 0.26 $ (0.30)
per common share, pro forma $ 0.01 $(0.03) $ 0.20 $ (0.35)
per share--assuming dilution, as reported $ 0.03 $(0.01) $ 0.26 $ (0.30)
per share--assuming dilution, pro forma $ 0.01 $(0.03) $ 0.20 $ (0.34)
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 June 30, 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 nine months ended June 30, 2003.
Short-term investments at June 30, 2003, are comprised of (in thousands):
Corporate debt securities $22,775
State and municipal debt securities 22,248
Federal debt securities 6,771
-------
$51,794
-------
The contractual maturities of short-term investments held as of June 30, 2003,
are (in thousands):
Due in one year or less $26,639
Due after one year 25,155
-------
$51,794
-------
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 consolidated balance sheet. At June 30, 2003, the
Company owns approximately 11% of the voting shares of WebCT.
NOTE E--RETIREMENT AND RESTRUCTURING CHARGES
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 recorded a restructuring charge of approximately $1.7 million,
principally for severance payments. During the third quarter of fiscal year
2003, the Company made payments of $1.0 million related to these charges and at
June 30, 2003, $0.7 million of the accrual remains. The Company believes this
amount is adequate to cover remaining obligations.
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. Through June 30, 2003, the Company made payments of $1.1 million
related to these charges and at June 30, 2003, $0.4 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
nine months of fiscal year 2003, the Company made payments of $0.1 million
related to these charges and at June 30, 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 nine
months of fiscal year 2003, the Company made payments of $0.4 million related to
these charges. As of June 30, 2003, the charges recorded to this accrual are
substantially complete and the Company believes that the remaining accrual is
adequate to cover any outstanding obligations.
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 8,660
-------
50,242
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 $18,349
The Company recorded goodwill of $18.3 million related to the acquisition. None
of the goodwill is deductible for tax purposes. Goodwill includes $8.7 million
of costs, 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 $8.7
million accrued acquisition costs discussed above, for these actions and
anticipates making payments for severance through the second quarter of fiscal
year 2004 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
2004. 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 June 30, 2003, cash
payments of $5.9 million related to these charges, primarily for severance
obligations. At June 30, 2003, approximately $3.4 million of these accruals
remain, principally for lease obligations.
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 a sale
price of $34.5 million. The Company received cash proceeds of $24.5 million and
a $10.0 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. 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 $2.0 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. 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. During the
current quarter, the Company recorded an additional net tax benefit of $0.05
million to the gain on sale and discontinued operations of the EUS business. 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 statements of operations. For business segment reporting, EUS
was previously reported as a separate segment.
On May 31, 2002, the Company consummated the sale of its Global Manufacturing &
Distribution Solutions ("MDS") business to Agilisys International Limited
("Agilisys"). The Company sold substantially all of the assets of MDS for net
proceeds of $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. During the current quarter, the
Company recorded an additional $3.6 million tax charge to the discontinued
operations of the MDS business. Of this tax charge, $2.8 million was applied to
the loss on sale and $0.7 million was applied to loss from the discontinued
operations of the MDS business. The charge was determined during preparation of
the 2002 tax returns in the current quarter and relates to (i) additional
foreign taxes on the discontinued business for which the Company does not expect
to claim foreign tax credits and (ii) revisions to certain deductions which
initially had been included in the calculation of the tax benefit on the sale of
the MDS business. After consideration of the tax charge to the loss on sale, the
Company recorded a loss of $10.1 million, net of a $0.7 million tax benefit.
The results of MDS have been reported separately as discontinued operations in
the consolidated statements of operations. For business segment reporting, MDS
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):
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
------- ------- ------- --------
Numerator:
Income (loss) from continuing
operations available to common stockholders $ 4,568 ($159) $ 7,153 $ 2,245
Discontinued operations:
(Loss) income from discontinued
operations net of income taxes (3,534) (280) 1,522 (12,350)
------- ------- ------- --------
Net income (loss) available to common
stockholders $ 1,034 ($439) $ 8,675 ($10,105)
======= ======= ======= ========
Denominator:
Weighted average common shares 33,641 33,323 33,594 33,173
Effect of dilutive securities:
Employee stock options 13 - 37 466
------- ------- ------- --------
Weighted average common shares
assuming dilution 33,654 33,323 33,631 33,639
======= ======= ======= ========
Income from continuing operations
per common share $0.14 ($0.00) $0.21 $0.07
per share -- assuming dilution $0.14 ($0.00) $0.21 $0.07
(Loss) income from discontinued operations
per common share ($0.11) ($0.01) $0.05 ($0.37)
per share -- assuming dilution ($0.11) ($0.01) $0.05 ($0.37)
Net income (loss)
per common share $0.03 ($0.01) $0.26 ($0.30)
per share -- assuming dilution $0.03 ($0.01) $0.26 ($0.30)
Potentially dilutive securities with an anti-dilutive effect (convertible debt
in all periods presented) are not included in the above calculation.
NOTE I--PRODUCT DEVELOPMENT
Product development expenditures, including software maintenance expenditures,
for the nine months ended June 30, 2003 and 2002, were approximately $23.2 and
$20.8 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 $1.6 and $2.0 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 Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
------ ----- ------ --------
Net income (loss) $1,034 $(439) $8,675 $(10,105)
Foreign currency translation adjustment 664 (293) 515 (367)
Unrealized gain (loss) on marketable securities 163 334 (147) 191
----------------------------------------------
Other comprehensive income (loss) 827 41 368 (176)
----------------------------------------------
Total Comprehensive Income (Loss) $1,861 $(398) $9,043 $(10,281)
==============================================
NOTE L--GOODWILL AND INTANGIBLE ASSETS
The Company's goodwill was $47.4 and $28.8 million at June 30, 2003, and
September 30, 2002, respectively. The increase in goodwill at June 30, 2003, is
primarily the result of the Campus Pipeline acquisition (see Note F). The
Company is 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):
June 30, 2003 September 30, 2002
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Amortized intangible assets
Purchased software 15,462 (6,373) 12,462 (4,558)
Covenants-not-to-compete 6,065 (6,045) 6,065 (5,687)
Customer relationships 7,652 (647) 1,652 (110)
Trade names and trademarks 2,000 (172) - -
----------------------- ---------------------
31,179 (13,237) 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 $2.9 and $0.9 million for the nine
months ended June 30, 2003 and 2002, respectively.
NOTE M--BOND REPURCHASE
In June 2003, the Company repurchased $1.8 million face value of its 5%
convertible subordinated debentures due October 15, 2004. The Company
repurchased the convertible debentures at a price of $97.5, plus accrued
interest. The transaction included $1.8 million principal and interest of $0.01
million for a total payment of $1.8 million including fees. The Company recorded
a gain of $0.03 million, included in interest and other income during the
quarter ended June 30, 2003. 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.
Also, 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.
NOTE N---COMMITMENTS AND CONTINGENCIES
At June 30, 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. Historically, the Company has not experienced any claims that
resulted in payments from the performance bonds. However, this trend is not
necessarily indicative of future events. 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.
NOTE O--NEW ACCOUNTING STANDARDS
In January 2003, the Company adopted Financial Accounting Standards Board
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, an
Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB
Interpretation No. 34" ("FIN No. 45"). The interpretation requires that upon
issuance of a guarantee, the entity must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The initial recognition
and measurement provisions of FIN No. 45 are effective for guarantees issued or
modified after December 31, 2002. The Company's guarantees were in existence
prior to the effective date of FIN No. 45. The disclosure requirements of
FIN No. 45 are included in Note N. The adoption of this interpretation has not
had a material impact on the Company's consolidated financial position,
consolidated results of operations, or liquidity.
In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). This
interpretation clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN No. 46
applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Company will adopt the provisions of FIN No. 46
effective July 1, 2003. The Company does not believe that adoption of this
interpretation will have a material impact on its consolidated financial
position, consolidated results of operations, or liquidity.
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. This Management's Discussion and Analysis of Financial
Condition and Results of Operations contains descriptions of the Company's
expectations regarding future trends affecting its business. These
forward-looking statements and other forward-looking statements made elsewhere
in this document are made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. See also, Factors That May
Affect Future Results and Market Price of Stock.
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.
% Change from
% of Total Revenue Prior Year
Three Months Nine Months Three Mos Nine Mos
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002 2003 2003
---- ---- ---- ---- ---- ----
Revenues
Software sales and commissions 19% 18% 16% 14% 16% 31%
Maintenance and enhancements 35% 33% 37% 36% 18% 18%
Software services 33% 35% 33% 34% 5% 12%
Outsourcing services 12% 13% 13% 15% 2% 0%
Interest and other income 1% 1% 2% 2% 51% -1%
------------------------------------ ---------------------------
Total 100% 100% 100% 100% 11% 15%
==================================== ===========================
Expenses
Cost of software sales, commissions,
services, and maintenance and enhancements 59% 62% 63% 63% 7% 16%
Selling, general and administrative 26% 27% 28% 27% 6% 20%
Asset impairment charge 9% 3%
Retirement and restructuring charges 2% 0% 2% 3% (35)%
Interest expense 1% 2% 1% 2% (55)% (53)%
Income from continuing operations
before income taxes 11% 1% 6% 3%
====================================
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 Nine Months Ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Gross Profit
Software sales and maintenance and enhancements 51% 57% 47% 53%
Software services 27% 19% 20% 18%
Outsourcing services 27% 16% 27% 20%
-----------------------------------------------
Total 40% 38% 36% 36%
===============================================
Revenues:
- ---------
o Software sales and commissions revenue increased 16% compared to the third
quarter of fiscal year 2002 and 31% compared to the first nine months of
fiscal year 2002 primarily due to the acquisition of Campus Pipeline, Inc.
in the first quarter of fiscal year 2003.
o The 18% increase in maintenance and enhancements revenue in both the third
quarter and first nine 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 first quarter fiscal year 2003 acquisition of Campus
Pipeline provided 32% of the increase over the prior-year quarter and 24%
of the increase over the prior-year first nine month period. 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 5% and 12% in the third quarter and
first nine months of fiscal year 2003 compared with the prior-year periods.
The current quarter increase is primarily the result of new services
business connected to the Campus Pipeline acquisition in the first quarter
of fiscal year 2003. The increase over the first nine months of the prior
fiscal year is driven by 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 increased 2% in the third quarter of fiscal
year 2003 compared with the prior-year period and remained flat against the
first nine months of fiscal year 2003 compared with the prior fiscal year.
These minimal fluctuations are reflective 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 increased when compared to the third quarter of
the prior year as a result of the interest income earned on the note
receivable from Indus International, Inc. Interest and other income
remained flat when compared to the first nine 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 $1.4 million gain recorded in
fiscal year 2003 on the repurchase of $42.7 million face value of the
Company's $74.7 million, 5% convertible subordinated debentures due October
15, 2004.
Gross Profit:
- -------------
Gross profit increased to 40% for the third quarter of fiscal year 2003 from 38%
in the prior year's third quarter and remained flat at 36% for the first nine
months of both fiscal year 2003 and 2002. During the second and third quarters
of fiscal 2003 the Company implemented two restructuring actions, primarily in
the services and development areas, which are anticipated to reduce annualized
pre-tax costs by approximately $12.0 million. Although the anticipated quarterly
savings from both of these actions will not be fully realized until the fourth
quarter, the savings recognized in the current quarter from these actions has
contributed to gross profit improvement. 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; however, the cost actions taken in the
development areas are targeted at the integration of development activities and
are expected to result in increased productivity and efficiencies across all
product lines without compromising current systems or future development. The
software services margin percent increased over the third quarter and first nine
months of fiscal 2002. This increase is driven by an accrual recorded in the
prior year quarter for a decline in profitability of a contract, elimination of
under-utilized resources in connection with the fiscal 2003 restructuring
actions discussed above, improved services margins on the fiscal 2002
acquisitions, and services margins on the 2003 acquisition of Campus Pipeline.
In comparing the services margin for the first nine months, these positive
factors are slightly offset by a decrease in the services utilization. This
decrease in utilization is primarily the result of a disparity, which was
identified in the first quarter of fiscal 2003, 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 consistent margin improvement in both the second and third quarters
of fiscal year 2003. The outsourcing services margin increased in the fiscal
year 2003 periods primarily as a result of contract renewals, increased
utilization of outsourcing professionals, and additional costs provided in
fiscal 2002 for a contract termination.
Selling, General and Administrative Expenses:
- ---------------------------------------------
Selling, general and administrative expenses increased by 6% and 20% in the
third quarter and first nine months of fiscal year 2003, respectively compared
with the prior-year periods. The increase over the prior year quarter is driven
by (i) the 2003 acquisition of Campus Pipeline and (ii) additional amortization
expense related to intangible assets from the acquired India operations at the
end of fiscal 2002, in connection with the acquisition of the Sallie Mae student
systems business. These increases are slightly offset by a decrease in sales
commissions, which is driven by the signing of significant professional services
contracts in the prior year's third quarter. The increase over the first nine
months of the prior year is 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, and (ii) investments the Company has made
in its sales and marketing organizations.
Retirement and Restructuring Charges:
- -------------------------------------
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 recorded a restructuring charge of approximately $1.7 million,
principally for severance payments. During the third quarter of fiscal year
2003, the Company made payments of $1.0 million related to these charges and at
June 30, 2003, $0.7 million of the accrual remains. The Company believes this
amount is adequate to cover remaining obligations.
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. Through June 30, 2003, the Company made payments of $1.1 million
related to these charges and at June 30, 2003, $0.4 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
nine months of fiscal year 2003, the Company made payments of $0.1 million
related to these charges and at June 30, 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 nine
months of fiscal year 2003, the Company made payments of $0.4 million related to
these charges. As of June 30, 2003, the charges recorded to this accrual are
substantially complete and the Company believes that the remaining accrual is
adequate to cover any outstanding 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 a sale
price of $34.5 million. The Company received cash proceeds of $24.5 million and
a $10.0 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. 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 $2.0 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. 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. During the
current quarter, the Company recorded an additional net tax benefit of $0.05
million to the gain on sale and discontinued operations of the EUS business. 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 statements of operations. For business segment reporting, EUS
was previously reported as a separate segment.
On May 31, 2002, the Company consummated the sale of its Global Manufacturing &
Distribution Solutions ("MDS") business to Agilisys International Limited
("Agilisys"). The Company sold substantially all of the assets of MDS for net
proceeds of $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. During the current quarter, the
Company recorded an additional $3.6 million tax charge to the discontinued
operations of the MDS business. Of this tax charge, $2.8 million was applied to
the loss on sale and $0.7 million was applied to loss from the discontinued
operations of the MDS business. The charge was determined during preparation of
the 2002 tax returns in the current quarter and relates to (i) additional
foreign taxes on the discontinued business for which the Company does not expect
to claim foreign tax credits and (ii) revisions to certain deductions which
initially had been included in the calculation of the tax benefit on the sale of
the MDS business. After consideration of the tax charge to the loss on sale, the
Company recorded a loss of $10.1 million, net of a $0.7 million tax benefit.
The results of MDS have been reported separately as discontinued operations in
the consolidated statements of operations. For business segment reporting, MDS
was previously reported as a separate segment.
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.
Liquidity, Capital Resources, and Financial Position
The Statement of Cash Flows for the nine-month period ending June 30, 2003 shows
the EUS business as a discontinued operation. The Statement of Cash Flows for
the prior year period is based on historical information, which includes the
cash flows of the MDS and EUS businesses for a portion of the nine month period
ending June 30, 2002, and has not been restated to present the MDS and EUS
businesses as discontinued operations for that entire period.
The Company's cash and short-term investments balance was $76.5 million as of
June 30, 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 $8.0 million in the first nine months of
fiscal year 2003 compared with $27.4 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, severance payments connected to
the second and third quarter restructurings, transaction fees and bonus payments
related to the sale of the EUS business, and interest paid on the Company's
convertible debentures. The increase in accounts receivable at June 30, 2003
compared to September 30, 2002, relates primarily to increased sales. Prepaid
income taxes decreased as a result of a refund received in the first quarter of
fiscal year 2003. Cash payments for the first nine months of fiscal year 2003
related to retirement and restructuring charges (which are included in operating
activities) were approximately $2.6 million, and are expected to be
approximately $0.8 million for the remainder of fiscal year 2003 and $0.8
million in total for all subsequent years, principally for severance costs. Net
cash payments for the first nine months of fiscal year 2003 related to an idle
facilities lease were approximately $1.4 million, and are expected to be
approximately $0.7 million for the remainder of fiscal year 2003. The Company
expects to make net cash payments of approximately $3.8 million for the idle
facilities lease in subsequent years. 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; decreased accrued expenses;
and decreased deferred revenue. These were partially offset by the loss accrual
for the sale of the manufacturing business and a decrease in other operating
assets and deferred charges.
Cash provided by investing activities was $1.6 million for the first nine months
of fiscal year 2003 compared with cash used of $44.0 million for the fiscal year
2002 period. In the fiscal year 2003 period, the Company received cash proceeds
of $24.5 million for the sale of the EUS business. Additionally, net cash of
$8.5 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. and the net purchase of investments, offset by proceeds from
the sale of the MDS business.
The $41.7 million in cash used in financing activities was primarily the
repayment of $42.7 million of the Company's 5% convertible subordinated
debentures due October 15, 2004.
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
June 30, 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 June
30, 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 June 30, 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 and third
quarters of fiscal year 2003, the Company repurchased $42.7 million face value
of the $74.7 million debentures. The Company repurchased the convertible
debentures at prices ranging from $94 to $98, plus accrued interest. The
transaction included $40.9 million principal and interest of $1.0 million for a
total payment of $41.9 million including fees. The Company recorded a gain of
$1.4 million primarily in the first quarter of fiscal year 2003 related to these
transactions, which is included in interest and other income. If the remaining
debentures outstanding were converted, 1.3 million additional shares would be
added to common shares outstanding at June 30, 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 (loss) per share - assuming dilution for these
periods.
At June 30, 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. Historically, the Company has not experienced any claims that
resulted in payments from the performance bonds. However, this trend is not
necessarily indicative of future events. 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.
In connection with the sale of its EUS business to Indus International, Inc., on
March 5, 2003, the Company received a $10.0 million promissory note due in the
Company's fourth fiscal quarter that is secured by a guaranty and a mortgage on
real property.
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 $13 million at June 30, 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 $18 million at June 30, 2003.
Effective July 1, 2003, the Company implemented a policy whereby maintenance
agreements for its Banner products will be billed at the beginning of the
contract rather than in arrears.
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 $9 million at June 30, 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 $2 million at June 30,
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 $6.5 million at June 30, 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.
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:
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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.
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
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. 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 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. 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.
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.
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,
which resulted in net proceeds of $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.
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.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and its Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934) as of the end of the period covered by this quarterly report, have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in the reports
that it files under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in rules and forms of
the Securities and Exchange Commission.
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 6 (a). Exhibits
Exhibit 31.1 Chief Executive Officer Certification pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.
Exhibit 31.2 Chief Financial Officer Certification pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes Oxley Act of 2002.
Item 6 (b). Reports on Form 8-K
On April 9, 2003, the Company filed a Current Report on Form 8-K regarding its
press release reporting estimated earnings for its second quarter ended March
31, 2003 and a conference call on April 4, 2003 with investors to discuss the
Company's preliminary results announced in the press release.
On April 17, 2003, the Company filed a Current Report on Form 8-K regarding its
press release reporting financial results for its second quarter ended March 31,
2003 and that the Company would hold a conference call on April 21, 2003 to
discuss these results.
On April 25, 2003, the Company filed a Current Report on Form 8-K regarding the
conference call with investors, held on April 21, 2003, to discuss the Company's
financial results for its second quarter ended March 31, 2003.
On May 6, 2003, the Company filed a Current Report on Form 8-K regarding a
letter sent by the Company's Chairman of the Board of Directors to Tocqueville
Asset Management L.P. in response to their letter dated April 25, 2003.
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: August 14, 2003 Eric Haskell
--------------------------------
Eric Haskell
Executive Vice President, Finance & Administration,
Treasurer, and Chief Financial Officer