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