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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, 1997 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 incorporation or organization) (IRS Employer Identification No.)
4 Country View Road
Malvern, Pennsylvania 19355
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 647-5930
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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
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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.
$768,388,771 at December 12, 1997
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
16,618,011 shares at December 12, 1997
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 26, 1998 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
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PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
PART III
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Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
PART I
ITEM 1. BUSINESS.
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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 outsourcing services ("OnSite services"). In addition, the Company
offers a series of related services including systems implementation, systems
integration, and maintenance and enhancements (collectively "software
services"). The Company's served vertical markets are higher education,
manufacturing & distribution, utilities and local 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 which 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, ADAGE(TM),
BANNERQuest(TM), Banner2000(TM), Plus2000(TM) and BANNER Object:Access(TM) are
trademarks of the Company and SinglePoint Solutions(SM) and OnSite(SM) are
service marks of the Company. All other trade names referenced herein are the
service marks, trademarks or registered trademarks of their respective companies
or organizations.
Markets
In fiscal year 1997, approximately 45% of the Company's revenues was
derived from the higher education market, approximately 22% was derived from the
local government market, approximately 21% was derived from the utility market,
and approximately 12% was derived from the manufacturing & distribution market.
The Company's foreign operations represented approximately 7% of the Company's
fiscal year 1997 revenues.
Higher Education
The Company provides software and OnSite 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 2,200 English speaking institutions of higher
education with enrollments greater than 2,000 students for its software and
services. Many of these targeted customers are currently using computer systems
which are likely prospects for replacement, as they are less cost effective and
require a higher level of maintenance than systems that the Company provides.
The Company serves this market with its Banner2000, Plus2000, web enabled
administrative software and SCT's services. Approximately 300 of these
institutions are potential candidates for SCT's OnSite services.
Local Government
The information technology services and application software markets for
local government jurisdictions are highly fragmented, with many competitors,
including in-house computing departments of local governments, custom software
programmers, and packaged application software companies. Local governments,
which are conservative in their decisions regarding capital expenditures and
long-term contracts, are influenced by the acceptance by other local governments
of a particular company's product or service. The Company serves its target
market of approximately 1,000 local government entities with certain of the
BANNER application software products and SCT's software and OnSite services.
Utilities
The Company provides administrative application software and software and
OnSite services to the utility market. SCT's target market includes
approximately 1,000 water, gas and electric utilities. The Company believes that
deregulation of the utility market in the United States and the United Kingdom
is driving significant investment in information technology and customer
services. Clients range from mid-size municipalities to investor-owned utilities
serving millions of customers.
Manufacturing & Distribution
ADAGE software, an enterprise resource planning (ERP) system, and software
and OnSite services are marketed to the process manufacturing industry. The
Company believes that ERP systems are being increasingly adopted by
manufacturers, which are re-engineering their business processes to serve
customers better. SCT targets the approximately 8,400 process manufacturers and
distributors which have over $100 million in annual revenue.
Services and Products
The Company's revenues are derived from several sources: OnSite services,
software licenses, software services, and maintenance and enhancements.
OnSite Services
The Company provides OnSite services, which are comprised of a range of
information technology outsourcing services encompassing end-user computing
solutions, network management, applications outsourcing, and business process
outsourcing. These services are designed to assume total or partial control of
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.
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, microcomputer maintenance, systems integration, telecommunications
services, and network integration.
Contracts for OnSite services may be either on a fixed price or time and
materials basis, and generally cover an initial period of five to ten years.
Fixed price contracts require the Company to perform specified services for a
fixed payment, generally subject to annual adjustments to reflect inflationary
cost increases. The Company negotiates the fee to be charged based on its
estimate of the total expenses to be incurred in providing the services. In the
event the Company's costs to perform an OnSite services contract become greater
than originally anticipated, the Company's profit on that contract would be
reduced; and in an extreme case, the Company could suffer a loss. As many
clients are restricted from incurring binding commitments which extend beyond
their current annual budgets or appropriations, contracts often include a
"fiscal funding" provision which provides for the reduction or termination of
services commensurate with reductions in a client's allocated funding. The
Company has not been impacted materially by early terminations or reductions in
service from the use of fiscal funding provisions.
In fiscal 1997, SCT began offering "service objects," which are separate
service offerings, such as Y2K Solutions and Business Recovery Services,
allowing for scalable contracts based upon client need. The Company also began
offering its SinglePoint Solutions to assist utilities 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 while SCT operates the client's back office
functions.
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. ADAGE
software, introduced to the process and hybrid manufacturing & distribution
market in 1995, is an object based, 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 following are the
Company's key application software products:
Banner2000 and Plus2000. Banner2000 is SCT's net-centric, object based
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
workflow, 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 Internet 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, 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.
BANNER for Utilities. SCT provides a suite of BANNER software applications
to gas, electric, water, waste water, refuse, and other utilities. This software
is rule-based, can be quickly adapted for changes in business strategy and
provides utilities with customer management, marketing, and supply chain
management tools to support their changing needs and competitive requirements.
In fiscal 1997, the Company released a graphically enhanced version of its
BANNER Customer Information System (CIS) that provides multi-company support for
large utilities. BANNER CIS assists utilities in providing customer service,
responding to customer inquiries, supporting new service offerings, generating
accurate and timely billing, and managing back office resources.
BANNER for Government. SCT shifted its government software focus in fiscal
1997 to concentrate on the changing conditions in the courts arena. SCT enhanced
its BANNER Courts Case Management product which helps streamline complex court
processing including docket management, scheduling, and document management.
Other products available from SCT in the government market include records
indexing, cash receipts, occupational tax and license, property tax, finance,
and human resources.
ADAGE. SCT offers its ADAGE ERP software to the process and hybrid
manufacturing & distribution industries. ADAGE consists of objects configured
around industry-specific business and supply chain processes. ADAGE enables
users to integrate corporate functions such as manufacturing planning, sales
forecasting, procurement, inventory management, distribution, and finance. ADAGE
is designed to meet the specific requirements of process manufacturers including
food and beverage, chemicals, metals, minerals, and consumer packaged goods
manufacturers on the Windows NT and UNIX platforms.
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 February 1999. The Company's results of operations
could be adversely affected if ORACLE's market acceptance declined or its
customer base eroded.
Software Services
The Company provides support services to its software licensees, including
implementation, modification, user training, and consulting services. 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 in connection with the implementation of the Company's application
software. These services provide clients with the opportunity to unite diverse
technical components to more effectively and efficiently solve their business
problems through the application of technology, customized software development
and networks.
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 in an extreme case, 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
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, systems software, operating
systems, and relational databases. Product development expenditures, including
expenditures for software maintenance, for the fiscal years ended September 30,
1997, 1996 and 1995 were approximately $25,941,000, $21,247,000 and $12,856,000,
respectively. After capitalization approximately $18,434,000, $14,811,000, and
$9,472,000, respectively, of these amounts were charged to operations as
incurred. For the same fiscal years, amortization of capitalized software costs
amounted to approximately $2,850,000, $1,458,000 $871,000, respectively.
In fiscal 1996, SCT established the SCT Object Technology Center (the
"OTC") to focus on the development of innovative approaches to delivering high
quality products that require less end user training and reduce development and
maintenance costs. In addition to research and development efforts focused on
technical innovation, the OTC intends to evaluate solutions that consider "best
practices" for the markets served by the Company. Through the OTC, SCT intends
to continue to investigate and deploy object methodology, standards, and tools
and to monitor software industry standards in order to refine Company solution
architectures. During fiscal 1997, the OTC began developing SCT Workflow, a
business process framework that can underlie the Company's software solutions.
Several divisions of the Company have already developed and introduced
object-based technologies. Object technology and object based approaches have
enabled SCT to configure the ADAGE product around the core business processes of
key vertical industries. BANNER Object: Access allows standardized business
logic for ad hoc reporting in the higher education and government markets, and
is used more extensively in Banner2000 than in previous releases. The BANNER
Records Indexing product uses object technology to allow remote access
functionality through the World Wide Web so that pre-approved title companies,
attorneys, and others can perform title searches from a convenient location.
The Company is developing, for the commercial training and education
market, a web-enabled distance learning product, named SCT Aspire, to address
the administrative aspects of education in the non-traditional classroom. For
the higher education market, the Company is developing two more web products,
named Web for Executives and Web for Alumni, and is enhancing its Banner2000
products and the web-enabled graphical user interface for the Plus2000 products.
For the manufacturing & distribution market, the Company is developing
enhancements to its existing ADAGE software. Currently under development for the
utilities market are a new BANNER application for Work Management that will
focus on transmission and distribution management, web access products similar
in approach to the Company's higher education web products, and other customer
management solutions.
The Company's ability to sustain growth depends in part on the timely
development or acquisition of successful new products and improvements to
existing products. However, software development is a complex and creative
process that can be difficult to accurately schedule and predict.
Sales and Marketing
The Company attracts clients primarily through the following means: its own
sales force of approximately 117 direct salespersons and support staff, of which
approximately 99 are engaged in selling software licenses and related services
and approximately 18 are engaged in selling the Company's OnSite services;
referrals from existing clients and others; and active participation in industry
conferences, trade shows, and seminars within its markets. In the higher
education, utilities, and manufacturing & 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 divisions have separate sales organizations, each
focuses on cross selling opportunities to market the products and services of
the other. Each sales group is comprised of regional 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 OnSite services business, the Company competes with several large
providers of services, including International Business Machines Corporation
("IBM"), and Electronic Data Systems Corporation ("EDS"), as well as smaller
providers such as Business Records Corporation. In the software services
business, the Company competes with several large providers of systems
integration services, including IBM, EDS, Andersen Consulting, Cambridge
Technology Partners, and the so-called Big Six 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.
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, Inc. and
Datatel. The local government and utility markets are highly fragmented and
competition varies significantly within these markets depending upon the
customers' computing platforms. Competitors in the local government market
include Progressive Solutions, Inc., Crawford Consulting, and Justice Systems
Inc. in Courts; Eagle Computer Systems, Inc., New Vision, and Mainline in
Records Indexing; PeopleSoft, Oracle Corporation, Bitech Software, Inc., KPMG,
The Computer Center, Inc., and Ross Systems, Inc. in Finance and Human
Resources; and Eagle and Cole Layer Trumble in Property Tax. Competitors in the
utilities market include SAP, Severn Trent, ORCOM, IBM, and Andersen Consulting.
The manufacturing & distribution market is highly competitive and competitors
include SAP, PeopleSoft, Baan, Marcam Corp, Oracle, J.D. Edwards, Systems
Software
Associates, Ross, and qad Systems. Competitive factors in all the software
markets served by the Company include price/performance, technology,
functionality, portability, software support, and the level of market acceptance
of the competitor's products.
Backlog
At September 30, 1997, the revenues expected to be received by SCT under
OnSite services contracts, which are based on proposed budgeted amounts in those
contracts, and under software license and services agreements, including systems
integration, enhancements, maintenance, support services, and software
implementation, modification, and training, amount to approximately $638 million
as compared to approximately $415 million at September 30, 1996 and extend
through June 2007. Of the $638 million, approximately $188 million is expected
to be recognized in fiscal 1998. Approximately $404 million of the $638 million
applies to OnSite services contracts. These figures include, in connection with
OnSite services contracts, any guaranteed minimum price increases provided in
the contracts.
SCT is unable to predict the impact, if any, on its future revenues that
may result from reductions in the budgets of educational institutions and
government jurisdictions. Any such reductions could impact new contracts as well
as existing contracts. Certain educational institutions and government
jurisdictions cannot contractually commit beyond the fiscal year for which their
budgets have been approved. For this reason, their contracts with SCT usually
contain a "fiscal funding" clause which provides that if there is a reduction in
the computing services budget, the level of SCT services will be reduced
accordingly, or terminated in certain circumstances. If there is a substantial
reduction in the budget, SCT may, at its option, terminate the contract or
reduce service levels consistent with funding. The backlog at September 30, 1997
includes approximately $220 million of OnSite services contracts with fiscal
funding clauses.
Backlog is not necessarily indicative of actual revenues for any succeeding
period.
Proprietary Software Protection
SCT's software is proprietary and SCT relies primarily upon copyright,
trade secret laws, and internal non-disclosure safeguards generally incorporated
in its software license agreements to protect its software. There can be no
assurance that such protection will be effective. In addition, other holders of
patents and copyrights may assert claims of infringement with respect to the
Company's products. To date, SCT is not aware of any material breach in the
security of its products or any claims of infringement asserted against it.
Employees
As of September 30, 1997, the Company employed approximately 2,700
employees, of which approximately 600 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 12 employees at one client site.
The Company considers its relationship with its employees to be satisfactory.
When the Company receives a new OnSite services contract, it generally
recruits most of the existing employees of the client's data processing
department to become SCT employees. However, the Company also supplies some
senior level personnel from its own group of trained specialists, which requires
the Company to identify employees willing to relocate to the client's area.
Executive Officers of SCT
The Executive Officers of SCT are as follows:
Position and Office
Name Age Currently Held
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Michael J. Emmi 55 Chairman of the Board, President and
Chief Executive Officer; Director
Michael D. Chamberlain 53 Senior Vice President; President, SCT
Software Group; Director
Eric Haskell 51 Senior Vice President, Finance and
Administration, Treasurer, and Chief
Financial Officer
Richard A. Blumenthal 49 Senior Vice President, General
Counsel and Secretary
Mark A. Cochran 40 Vice President, Human Resources
and Organizational Strategy
Officers are appointed by the Board of Directors, typically at its first
meeting after the annual meeting of shareholders for such terms as the Board of
Directors shall determine or until their successors have been elected and have
qualified.
Business Experience During the Past Five Years of Each Officer
Michael J. Emmi has served as Chairman of the Board, President, and Chief
Executive Officer of the Company since May 1985. Prior thereto, he held various
senior management positions with General Electric Information Services Company,
a unit of General Electric Company. He is also a director of National Media
Corporation and CompuCom Systems, Inc.
Michael D. Chamberlain has served as a director of the Company since July
1989. He has served as Senior Vice President of the Company since July 1990, and
prior thereto, as Vice President since September 1986. He has been President of
the SCT Software Group since May, 1994 and prior thereto served as President of
the Software and Technology Services Division, the Company's higher education
software division.
Eric Haskell has served as Senior Vice President, Finance and
Administration, Treasurer and Chief Financial Officer of the Company since July
1990, and prior thereto, as Vice President, Finance and Administration,
Treasurer and Chief Financial Officer since March 1989. He is also a director of
Orbit/FR, Inc.
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 Vice President, Human Resources and
Organizational Strategy since September 1997. Prior thereto, he held the
following positions in the Company's 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.
ITEM 2. PROPERTIES.
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SCT occupies three adjacent buildings in the Great Valley Corporate Center
in Malvern, Pennsylvania. The Company's corporate offices are located in an
approximately 47,000 square-foot facility owned by the Company, which also
includes employees of other divisions of the Company. The Company also owns an
approximately 56,200 square-foot facility, and leases an approximately 48,900
square-foot facility under a lease which expires on August 15, 2005. In May 1997
the Company entered into a ten year lease for an approximately 70,000 square
foot new office building at its Malvern campus. The facility is currently under
construction and is scheduled to be completed in August 1998.
The Company owns and occupies an approximately 45,000 square-foot facility
in Rochester, New York. The Company leases an approximately 28,600 square-foot
facility in Lexington, Kentucky under a lease which expires on March 31, 1999.
The Company owns and occupies an approximately 60,000 square-foot facility in
Columbia, South Carolina. SCT leases sales offices in various cities throughout
the United States and also leases office space in Basingstoke, England and
Manchester, England.
SCT believes that its facilities are adequate for its present business
needs.
ITEM 3. LEGAL PROCEEDINGS.
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On October 4, 1995, John J. Wallace filed a purported class action lawsuit
in the United States District Court for the Eastern District of Pennsylvania
against the Company; Michael J. Emmi, Chairman of the Board, President and Chief
Executive Officer of the Company; Michael D. Chamberlain, Senior Vice President
and a director of the Company; and Eric Haskell, Senior Vice President, Finance
and Administration, Treasurer and Chief Financial Officer of the Company. The
plaintiff filed an amended complaint on November 28, 1995 and a second amended
complaint on February 3, 1997. The class period alleged is from June 5, 1995
through October 2, 1995. The second amended complaint sought damages in
unspecified amounts as well as equitable relief.
In April 1996, the Company's Motion to Dismiss the amended complaint was
granted in part and denied in part. In September 1997, the Company's Motion to
Dismiss the second amended complaint was granted in part and denied in part, and
plaintiff was permitted to pursue a claim that defendants violated section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder to
the extent that it alleges a failure to make certain disclosures in the
Company's Form 10-Q for the third quarter of fiscal 1995. On December 3, 1997,
the Court approved a Stipulation of Dismissal and Entry of Final Judgment filed
by the parties pursuant to which all remaining claims were dismissed with
prejudice and the Court entered a final judgment as to all claims in the action.
The Company anticipates that the plaintiff will file an appeal with respect to
those claims which were dismissed pursuant to the Company's Motions to Dismiss.
Management believes any appeal would be without merit and intends to contest
vigorously an appeal. While management, based on its investigation to date,
believes that resolution of this action will not have a materially adverse
effect on the Company's consolidated financial position, the ultimate outcome of
this matter cannot be presently determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS.
-------------------
SCT's Common Stock is traded on the Nasdaq Stock Market under the symbol "SCTC."
The following table sets forth the high and low sale prices on the Nasdaq Stock
Market for the specified quarter.
PERIOD
Year ended September 30, 1997 HIGH LOW
- -------------------------------------------------------------------------
1st Quarter 16 3/4 12 1/2
2nd Quarter 22 1/2 15 3/4
3rd Quarter 27 5/8 19 3/8
4th Quarter 45 1/4 26 1/2
Year ended September 30, 1996 HIGH LOW
- -------------------------------------------------------------------------
1st Quarter 27 16 7/8
2nd Quarter 20 1/4 13 1/2
3rd Quarter 18 1/4 10 3/4
4th Quarter 15 3/4 11 1/2
The approximate number of stockholders of record of SCT's Common Stock as of
September 30, 1997 was 470.
SCT has not paid any dividends for more than the last two fiscal years. The
Company's revolving credit agreement limits the amount of non-stock dividends
that may be paid.
ITEM 6. SELECTED FINANCIAL DATA.
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(in thousands except share amounts) Year Ended September 30 1997 1996 1995* 1994** 1993
- ----------------------------------------------------------------------- -------- -------- -------- --------
Revenues $290,046 $215,258 $176,148 $148,214 $120,168
Income before income taxes and extraordinary credit 38,617 16,003 10,316 17,794 11,223
Provision for income taxes 15,726 6,884 7,258 6,148 4,511
Income before extraordinary credit 22,891 9,119 3,058 11,646 6,712
Extraordinary credit: net operating loss carryforwards - - - - 2,901
Net income 22,891 9,119 3,058 11,646 9,613
Primary income per share before extraordinary credit 1.43 0.62 0.22 0.86 0.53
Fully diluted income per share before extraordinary credit 1.31 0.61 0.21 0.83 0.51
Primary net income per share 1.43 0.62 0.22 0.86 0.75
Fully diluted net income per share 1.31 0.61 0.21 0.83 0.74
Primary average equivalent shares outstanding 15,990 14,696 14,030 13,517 12,780
Fully diluted average equivalent shares outstanding 17,904 16,781 14,399 15,818 13,196
Working capital 83,217 67,389 63,555 59,239 50,432
Total assets 209,704 163,259 150,983 128,809 110,082
Long-term debt 2,549 31,590 31,790 34,500 34,500
Stockholders' equity 150,425 96,796 85,565 65,481 51,282
======== ======== ======== ======== ========
* Includes 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 income before extraordinary credit of $11,758
and fully diluted income per share before extraordinary credit of $0.80.
** Effective October 1, 1993, the Company adopted SFAS 109, "Accounting for
Income Taxes," with an immaterial cumulative effect. Prior to 1994, the benefits
of net operating loss and tax credit carryforwards were classified as
extraordinary credits.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATION.
----------------------------------
The purpose of this section is to give interpretive guidance to the reader of
the financial statements. For specific policies and breakdowns, refer to the
consolidated financial statements and disclosures.
OVERVIEW
Systems & Computer Technology Corporation (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, manufacturing & distribution, utilities, and government. 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 provides support services to its software licensees, including
implementation, modification, user training, and consulting services.
Maintenance and enhancements contracts allow customers access to telephone
support services, regulatory updates, and functional and technical enhancements.
Services revenues are derived from a variety of professional support services,
which include systems implementation and support, consulting and education
services, and information systems planning and integration.
The Company's systems integration services contracts provide for software
customization and integration to add functionality to a client's system. These
contracts are typically longer in term than software support services and
shorter in term than information technology outsourcing services.
The Company provides OnSite services, which are comprised of a range of
information technology outsourcing services encompassing end-user computing
solutions, network management, applications outsourcing, and business process
outsourcing. These services are designed to assume total or partial control of
and responsibility for clients' information resources, generally on a long-term
basis. The Company provides management, staffing, and support with skilled
information systems personnel, and industry specialists who are knowledgeable in
both computer-based technologies and the functional aspects of clients'
activities.
RESULTS OF OPERATIONS
The following table sets forth: (a) income statement items as a percentage of
total revenues and (b) for revenues, the percentage change for each item from
the prior year.
% Change from
% of Total Revenues Prior Year
------------------------- ----------------
Year Ended September 30 1997 1996 1995 1997 1996
- ------------------------------------------------------ ----- -----
Revenues:
OnSite services 34% 39% 38% 16% 26%
Software sales 26% 22% 23% 64% 16%
Maintenance and
enhancements 18% 20% 20% 24% 20%
Software services 22% 19% 18% 51% 31%
Interest and other
revenue - - 1% (10)% (67)%
----- ----- ----- ----- -----
Total 100% 100% 100% 35% 22%
===== ===== ===== ===== =====
Expenses:
Cost of services, sales,
and maintenance
and enhancements 62% 67% 63%
Selling, general and
administrative 25% 25% 25%
Charge for purchased
research and
development - - 5%
Interest expense - 1% 1%
Income before income
taxes 13% 7% 6%
===== ===== =====
The following table sets forth the gross profit for each of the following
revenue categories as a percentage of revenue for each such category and the
total gross profit as a percentage of total revenue (excluding interest and
other revenue). The Company does not separately present the cost of maintenance
and enhancements revenue as it is impracticable to separate such cost from the
cost of software sales.
1997 1996 1995
- ---------------------------- ----- -----
Gross Profit:
OnSite services 18% 19% 22%
Software sales and
maintenance
and enhancements 64% 57% 56%
Software services 18% 12% 19%
----- ----- -----
Total 38% 33% 36%
===== ===== =====
Revenues: Growth in OnSite services revenue largely results from significant
contract signings. The 16% increase in OnSite services revenue in the year ended
September 30, 1997 was primarily the result of (1) increases in outsourcing
services provided to the City of Indianapolis and MediaOne (formerly Continental
Cablevision, Inc.), (2) first quarter contract signings with the University of
Memphis and NORSHIPCO and (3) new contracts signed in the third quarter
including the University of Montevallo and Agrilink Foods (formerly Curtice
Burns Foods). This new contract with Agrilink Foods also included the license of
ADAGE enterprise resource planning (ERP) software and implementation services.
These fiscal year 1997 increases were partially offset by reduced revenues from
contracts that ended during the period. The 26% increase in OnSite services
revenue in the year ended September 30, 1996, was the result of new agreements,
including a five-year agreement with MediaOne and an agreement with the City of
Indianapolis. Contract renewal rates, as a percentage of annual revenue from
contracts available for renewal, for the fiscal years 1997, 1996, and 1995, were
71%, 88%, and 97%, respectively. Contracts available for renewal in a particular
period include contracts with expiration dates within the period, as well as
contracts renewed during that period which have expiration dates in a later
period.
Software sales increased 64% in fiscal year 1997 compared to fiscal year
1996 due primarily to increased licenses of ADAGE ERP software to the
manufacturing market, increased BANNER software licenses to the higher education
market and increased licenses of BANNER Customer Information System (CIS)
software to the utility market. Software sales increased 16% in fiscal year 1996
compared with fiscal year 1995 due primarily to increased licenses of ADAGE ERP
software. Additionally, licenses of BANNER to the utilities and local government
markets increased in fiscal year 1996 compared with the prior year.
The 24% and 20% increases in maintenance and enhancements revenue in fiscal
years 1997 and 1996 were the result of the growing installed base of clients in
the higher education, utility, and manufacturing and distribution marketplaces.
In addition, the Company continues to experience a high annual renewal rate on
existing maintenance contracts.
Software services revenue increased 51% in fiscal year 1997 compared to
fiscal year 1996, primarily as the result of increases in ADAGE ERP
implementation and support services to the manufacturing market and
implementation and integration services in the utility and higher education
markets. Software services revenue increased 31% in fiscal year 1996 compared
with fiscal year 1995 primarily as the result of increases in BANNER
implementation and support services to the higher education market and ADAGE ERP
implementation services in the manufacturing and distribution markets. Also
adding to the increase in software services revenue in 1997 and 1996 is the
continued growth of systems integration services provided to the international
utilities market.
The decrease in interest and other revenue in fiscal year 1996 is primarily
attributable to a decreased short-term investment portfolio compared with the
prior year.
Gross Profit: Gross profit increased as a percentage of total revenue (excluding
interest and other revenue) from 33% to 38% for fiscal year 1997 as compared
with fiscal year 1996. The increase in the software sales and maintenance and
enhancements gross profit was primarily the result of significant growth in
license fee revenue. The software services margin increased primarily as a
result of increases in the utility and manufacturing businesses' gross margin.
Additionally, in fiscal year 1996, the software services costs reflected
increased expenditures in the utility business, including a second quarter
contract loss provision of $1.25 million to reflect the cost of satisfying
certain obligations relating to the BANNER CIS product. These obligations were
satisfied during fiscal year 1997. The increases in software services' gross
profit for the year were partially offset by decreases in the international
utility gross profit, where additional costs were incurred in the third and
fourth quarters resulting from contract delays and cost overruns. The Company is
continuing to focus on installation and systems integration services in each of
its markets. These services have historically resulted in a decreased profit
margin when compared to a revenue mix with a higher percentage of license fees.
The decreased gross margin in OnSite services is the result of lower margins on
new contract signings compared with older contracts.
Gross profit decreased as a percentage of total revenue (excluding interest
and other revenue) from 36% to 33% for fiscal year 1996 compared to 1995. The
decreased gross profit in OnSite services was the result of lower margins on new
contract signings compared with older contracts. The decreases in software
services gross profit were primarily the result of the increased cost of
services required to satisfy certain contract obligations relating to the CIS
product, as well as increased expenditures associated with the manufacturing and
distribution business acquired in June 1995.
Adage Acquisition: In June 1995, the Company acquired Adage Systems
International, Inc. ("Adage") for consideration of one million shares of common
stock valued at approximately $10.9 million. Adage offered an enterprise
resource planning system to multinational users in the manufacturing and
distribution industries. In conjunction with the acquisition, the Company
incurred a charge of $8.7 million for in-process research and development.
Included in this amount were the fair values of Adage products under development
that had not reached technological feasibility at the time of the acquisition.
These products were incorporated into the June 1996 ADAGE 2.3 ERP software
release, which has subsequently been further enhanced through the releases of
ADAGE 2.4 and 2.5.
Income Taxes: The provision for income taxes for the year ended September 30,
1997 reflects the benefit of the research and development tax credit which was
in effect for the entire fiscal year, but is scheduled to expire in June 1998.
The provision for the year ended September 30, 1996 reflects the impact of
valuation allowances provided with respect to tax loss carryforwards in various
state and foreign jurisdictions and the relative impact of non-deductible
expenses. The fiscal year 1995 provision for income taxes does not reflect the
customary relationship between income and tax expense principally due to the
write-off of purchased research and development, which is not deductible for tax
purposes. The fiscal year 1995 effective tax rate would have been 38% without
the write-off of purchased research and development.
At September 30, 1997, the Company has $29.3 million of tax loss
carryforwards in various state and foreign jurisdictions. The state loss
carryforwards expire in various periods ending September 30, 2011. The foreign
tax losses have indefinite carryforwards. At September 30, 1997, the Company has
net deferred tax assets of $1.8 million related primarily to the expected
benefit of foreign tax loss carryforwards. The Company's foreign subsidiaries
must generate approximately $4.6 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 will generate sufficient taxable
income to realize the Company's net deferred tax assets.
The Company has filed an application for change in accounting method with
the Internal Revenue Service. If accepted, this method change could result in a
reclassification from current income taxes payable to deferred income taxes of
approximately $7 million.
Foreign Operations: The functional currency is the local currency of the
Company's foreign subsidiary. Foreign operations represented approximately 7% of
the Company's consolidated 1997 revenue. The net assets of the international
subsidiary is approximately $2 million at September 30, 1997. The Company does
not believe its foreign currency exposure is significant and analyzes the
desirability of hedging the exposure on an ongoing basis.
Cyclical Nature of Business: Certain factors have resulted in quarterly
fluctuations in operating results, including variability of software license fee
revenues, seasonal patterns of capital spending by clients, the timing and
receipt of orders, competition, pricing, new product introductions by the
Company or its competitors, levels of market acceptance for new products,
impending 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 $29.8 million and $12.3
million at September 30, 1997 and 1996, respectively. At September 30, 1997 and
1996, the Company had no short-term investments.
The available cash and cash equivalents balances are derived from
continuing operations. Cash provided by operating activities was $33.5 million
for fiscal year 1997 compared with $14.6 million for fiscal year 1996. The
increase in cash provided by operations reflects the increase in net income for
fiscal year 1997 compared to the prior year period. The increases in accounts
receivable at September 30, 1997 compared to September 30, 1996 balances are due
to increases in revenues and the timing of billings on the Company's software
services contracts and software licenses. Additionally, increases in other
accrued expenses are primarily the result of employee related accruals and
increases in commitments as the result of increased revenues at the end of the
year, such as increased payments due to third parties and increases in client
equipment purchase obligations resulting from OnSite services contracts. The
increase of $4.8 million in income taxes payable at September 30, 1997 compared
with September 30, 1996 reflects the aforementioned application for change in
accounting method. If accepted, this method change could result in a
reclassification from current income taxes payable to deferred income taxes of
approximately $7 million. The increase in deferred revenue at September 30, 1997
compared with 1996 is primarily the result of increases in prepayments for the
Company's maintenance and enhancements services, which are recognized as revenue
over the period of service.
The Company provides OnSite services and software-related services,
including systems implementation and integration services. Contract fees from
OnSite services are typically based on multi-year contracts ranging from five to
10 years and provide a recurring revenue stream throughout the term of the
contract. Software services contracts, including systems implementation and
integration services, usually have shorter terms than OnSite services contracts,
and billings are sometimes milestone based. During the beginning of a typical
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. 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 a 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 software services contract.
The Company's working capital at September 30, 1997 and 1996 was $83.2
million and $67.4 million, respectively.
Cash used in investing activities was $19.3 million for fiscal year 1997
compared with $4.1 million for fiscal year 1996. The Company's primary use of
cash for investing activities was the purchase of equipment and capitalization
of newly developed software. During fiscal year 1996, the uses of cash for
equipment purchases and software capitalization were largely offset by the
proceeds from the sale or maturity of available-for-sale investments.
The Company signed a long-term lease agreement in May 1997 for a new office
building at its Malvern campus. The Company anticipates that it will begin to
incur fit-up and remodeling costs in approximately the second quarter of fiscal
year 1998 with rent payments beginning shortly thereafter. Fiscal year 1998
capitalized software expenditures are expected to remain at approximately the
same level as fiscal year 1997 expenditures.
Cash provided by financing activities increased $3.2 million from September
30, 1996 to September 30, 1997. During fiscal year 1997, cash was provided by
the exercise of stock options by the Company's employees and borrowings on the
Company's financing arrangements. This was offset by cash used to repay the
borrowings and to repurchase and subsequently retire 184 thousand shares of
stock originally issued in connection with the purchase of Adage Systems
International, Inc. Pursuant to the stock repurchase, the Company signed a note
for $1.5 million with amounts payable in October 1997 and 1998. In fiscal year
1996, the Company's financing activities consisted primarily of the borrowing
and repayment of the Company's senior revolving credit facility.
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 thousand 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, primary earnings per share would have decreased by
$.09 to $1.34.
The Company has a senior revolving credit facility, available for general
corporate purposes, which was renegotiated during the quarter ended June 30,
1997. The amended agreement increased the amount of the revolving credit to $30
million. The credit facility agreement expires in June 1999 with optional annual
renewals. 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 covenants were amended in
1997 to allow the Company to pay non-stock dividends, repurchase capital stock,
and make distributions of assets to shareholders as long as the aggregate amount
does not exceed $5 million in any fiscal year. There were no borrowings
outstanding at September 30, 1997 or 1996.
On October 22, 1997, the Company issued $65 million of convertible
subordinated debentures bearing interest at 5% and maturing on October 15, 2004.
On November 6, 1997, pursuant to an underwriters' option, the Company issued an
additional $9.75 million 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 $52.75 per share, subject to change as defined
in the Trust Indenture. The debentures are redeemable at any time after October
15, 2000 at prices decreasing from 102.5% of the principal amount to par on
October 15, 2003.
The Company believes that its cash and cash equivalents, cash provided by
operations, and borrowing arrangements should satisfy its financing needs for
the foreseeable future.
Primary common shares and equivalents used in the income per share
calculation have increased as a result of (1) employee stock option exercises
during the years ended September 30, 1997, 1996 and 1995, (2) shares issued
pursuant to the aforementioned May 1997 redemption of $27.3 million principal
amount of convertible subordinated debentures, and (3) for 1995, shares issued
for the Adage acquisition. Equivalent shares used in the fully diluted income
per share calculation increased in 1997 versus 1996 primarily as a result of an
increased dilutive effect of stock options related to the Company's rising stock
price. The 1996 equivalent shares used in the fully diluted income per share
calculation increased versus 1995 primarily as a result of the inclusion of the
increased number of shares that would be outstanding assuming the conversion of
the 6 1/4% convertible subordinated debentures at the beginning of the period
presented.
Contingencies: On October 4, 1995, John J. Wallace filed a purported class
action lawsuit in the United States District Court for the Eastern District of
Pennsylvania against the Company; Michael J. Emmi, Chairman of the Board,
President and Chief Executive Officer of the Company; Michael D. Chamberlain,
Senior Vice President and a director of the Company; and Eric Haskell, Senior
Vice President, Finance and Administration, Treasurer and Chief Financial
Officer of the Company. The plaintiff filed an amended complaint on November 28,
1995 and a second amended complaint on February 3, 1997. The class period
alleged is from June 5, 1995 through October 2, 1995. The second amended
complaint sought damages in unspecified amounts as well as equitable relief.
In September 1997, the Company's Motion to Dismiss the second amended
complaint was granted in part and denied in part, and plaintiff was permitted to
pursue a claim that defendants violated section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder to the extent that it alleges
a failure to make certain disclosures in the Company's Form 10-Q for the third
quarter of fiscal 1995. On December 3, 1997, the Court approved a Stipulation of
Dismissal and Entry of Final Judgment filed by the parties pursuant to which all
remaining claims were dismissed with prejudice and the Court entered a final
judgment as to all claims in the action. The Company anticipates that the
plaintiff will file an appeal with respect to those claims which were dismissed
pursuant to the Company's Motions to Dismiss. Management believes any appeal
would be without merit and intends to vigorously contest an appeal. While
management, based on its investigation to date, believes that resolution of this
action will not have a materially adverse effect on the Company's consolidated
financial position, the ultimate outcome of this matter cannot presently be
determined.
New Accounting Standards: In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings Per Share" (SFAS 128), which is
effective for periods ending after December 15, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements primary
earnings per share will exclude the dilutive effect of stock options and fully
diluted earnings per share must include the dilutive effect of stock options
even if the dilutive effect is immaterial. The impact is expected to result in
an increase in primary earnings per share for the years ended September 30,
1997, 1996 and 1995 of $.10, $.03 and $.01 per share, respectively. The impact
of SFAS 128 on the calculation of fully diluted earnings per share for the year
ended September 30, 1997 is expected to result in an increase of $.06 and for
the years ended September 30, 1996 and 1995 is not expected to be material.
In November 1997, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which is
effective for fiscal years beginning after December 15, 1997. SOP 97-2
introduces a new framework whereby revenue would be recognized for each element
in a software licensing arrangement when certain criteria are met. The SOP
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. The
adoption of SOP 97-2 is not expected to have a material impact on the Company's
results of operations or financial condition.
Cautionary Statement: 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 could be adversely affected.
The Company's internal business information systems have been evaluated for
Year 2000 compliance and steps are being taken to resolve the Year 2000 issue.
The Company utilizes third-party vendor network equipment, telecommunication
products, and other third-party software products, which may or may not be Year
2000 compliant. The Company is currently taking steps to address the impact, if
any, of the Year 2000 issue surrounding third-party products. While delays in
the implementation of the Year 2000 solutions or failure of any critical
technology components to operate properly in the Year 2000 could adversely
affect the Company's operations, at this time, management believes that
resolution of the Year 2000 issue will not have a materially adverse effect on
the Company's results of operations. The Company's current software products
offered for license to end-user customers have been analyzed for Year 2000
compliance and are Year 2000 compliant. Where current clients are using older
versions of the Company's software under current maintenance contracts, the
Company is working with the clients to resolve their Year 2000 issues. The
Company does not believe any of the above elements will have a material impact
on the Company's results of operations or financial condition.
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 OnSite 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 matters discussed herein and elsewhere that are forward-looking
statements, including statements concerning the Company's or management's
intentions, beliefs, 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. Potential
risks and uncertainties that could affect the Company's future operating results
include without limitation the effect of publicity on demand for the Company's
products and services; general economic conditions; the Company's ability to
attract and retain highly skilled technical, managerial, sales, and marketing
personnel; continued market acceptance of the Company's products and services;
the extent to which demand for the Company's products and services may diminish
over time as organizations resolve the Year 2000 problem; the timing of the
receipt of software licenses; the timing of services contracts and renewals; the
timing and complexity of large transactions; continued competitive and pricing
pressures in the marketplace; the Company's ability to develop and market new
and updated products and enhancements cost-effectively and on a timely basis;
and the Company's ability to complete fixed-price contracts profitably. The
Company is investing in the development of new products and in improvements to
existing products; however, software development is a complex and creative
process that can be difficult to schedule and predict accurately.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts) September 30 1995 1996
- ------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 29,809 $ 12,303
Receivables, including $59,311 and $55,146 of
earned revenues in excess of billings, net of
allowance for doubtful accounts of $4,098 and $1,590 100,543 77,161
Prepaid expenses and other receivables 8,473 10,208
------------- -------------
Total Current Assets 138,825 99,672
Property and Equipment - at cost, net of accumulated depreciation 40,710 35,222
Capitalized Computer Software Costs, net of accumulated
amortization of $10,413 and $7,563 15,167 10,510
Cost in Excess of Fair Value of Net Assets Acquired, net of
accumulated amortization of $2,957 and $2,337 8,121 8,740
Other Assets and Deferred Charges 6,881 9,115
------------- -------------
Total Assets $209,704 $163,259
============= =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 10,023 $ 6,674
Current portion of long-term debt 1,225 200
Income taxes payable 5,000 398
Accrued expenses 22,649 12,358
Deferred revenue 16,711 12,653
------------- -------------
Total Current Liabilities 55,608 32,283
------------- -------------
Long-Term Debt, net of current portion 2,549 31,590
Deferred Taxes and Other Long-Term Liabilities 1,122 2,590
------------- -------------
Total Liabilities 59,279 66,463
------------- -------------
Stockholders' Equity
Preferred stock, par value $.10 per share - authorized
3,000 shares, none issued
Common stock, par value $.01 per share - authorized
24,000 shares, issued 17,573 and 15,245 shares 176 152
Capital in excess of par value 91,240 60,526
Retained earnings 62,578 39,687
------------- -------------
153,994 100,365
Less:
Held in treasury, 1,151 common shares - at cost (2,959) (2,959)
Notes receivable from stockholders (610) (610)
------------- -------------
150,425 96,796
------------- -------------
Total Liabilities and Stockholders' Equity $209,704 $163,259
============= =============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts) Year Ended September 30 1997 1996 1995
- -------------------------------------------------------------------------------------- ------------ --------------
Revenues
OnSite services $ 97,677 $ 84,183 $ 66,904
Software sales 76,948 46,821 40,376
Maintenance and enhancements 52,109 42,013 35,145
Software services 62,694 41,552 31,631
Interest and other revenue 618 689 2,092
------------ ------------ ------------
290,046 215,258 176,148
------------ ------------ ------------
Expenses
Cost of OnSite services 79,650 67,852 51,927
Cost of software sales and maintenance and enhancements 46,879 38,546 31,681
Cost of software services 51,627 36,586 27,082
Selling, general and administrative 72,053 53,921 43,746
Charge for purchased research and development - - 8,700
Interest expense 1,220 2,350 2,696
------------ ------------ ------------
251,429 199,255 165,832
------------ ------------ ------------
Income before income taxes 38,617 16,003 10,316
Provision for income taxes 15,726 6,884 7,258
------------ ------------ ------------
Net income $ 22,891 $ 9,119 $ 3,058
============ ============ ============
Per common share:
Net income
Primary $ 1.43 $ 0.62 $ 0.22
Fully diluted $ 1.31 $ 0.61 $ 0.21
Common shares and equivalents outstanding:
Primary 15,990 14,696 14,030
Fully diluted 17,904 16,781 14,399
============ ============ ============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except per share amount) Year Ended September 30, 1997 1996 1995
- ------------------------------------------------------------------------------ ---------- ---------
Operating Activities
Net Income $ 22,891 $ 9,119 $ 3,058
Adjustments to reconcile net income to net cash
provided by operating activities:
Charge for purchased research and development - - 8,700
Depreciation and amortization 12,808 10,961 8,942
Provision for doubtful accounts 4,136 1,212 508
Deferred tax provision (1,051) 740 1,073
Changes in operating assets and liabilities:
(Increase) in receivables (27,518) (8,103) (17,887)
Decrease (increase) in other current assets
principally prepaid expenses 1,735 1,557 (4,409)
Increase in accounts payable 3,349 1,440 1,407
Increase (decrease) in income taxes payable 4,809 231 (820)
Increase in accrued expenses 10,291 470 1,750
Increase (decrease) in deferred revenue 3,711 (1,560) (129)
Changes in other operating assets and deferred charges (1,690) (1,454) (130)
--------- -------- -------
Net Cash Provided by Operating Activities 33,471 14,613 2,063
--------- -------- -------
Investing Activities
Purchase of property and equipment (11,837) (10,404) (13,683)
Capitalized computer software costs (7,507) (6,436) (3,384)
Proceeds from the sale or maturity of investments available-for-sale - 13,504 20,829
Purchase of investments available-for-sale - - (11,687)
(Increase) in notes receivable form stockholders - - (610)
Purchase of subsidiary, net of cash acquired - (789) (1,374)
--------- -------- -------
Net Cash (Used in) Investing Activities (19,344) (4,125) (9,909)
--------- -------- -------
Financing Activities
Principal payments on long-term debt (7,955) (12,700) (305)
Proceeds from long-term debt 9,659 12,600 -
Repurchase and retirement of Company stock (1,367) - -
Proceeds from exercise of stock options 3,042 313 2,068
--------- -------- -------
Net Cash Provided by Financing Activities 3,379 213 1,763
--------- -------- -------
Increase (Decrease) in Cash and Cash Equivalents 17,506 10,701 (6,083)
--------- -------- -------
Cash and Cash Equivalents at Beginning of Year 12,303 1,602 7,685
--------- -------- -------
Cash and Cash Equivalents at End of Year $ 29,809 $ 12,303 $ 1,602
========= ======== =======
Supplemental Information
Noncash investing and financing activities:
Conversion of subordinated debentures into common stock $ 31,220 $ - $ 3,225
Purchase of subsidiary - noncash portion $ - $ - $11,949
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unearned
Compensation
and Notes
Common Capital Receivable Total
Stock in Excess of Retained Treasury from Stockholders'
(in thousands except per share amounts) Par Value Par Value Earnings Stock Stockholders Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 $136 $40,869 $27,510 $(2,959) $ (75) $ 65,481
Stock issued under stock option plans,
including tax benefits, 364 shares 4 3,482 3,486
Earned restricted stock compensation 47 47
Issuance of stock for acquisition, 1,000 shares 10 10,868 10,878
Conversion of 6 1/4% convertible subordinated
debentures, 215 shares 2 3,223 3,225
Notes receivable from stockholders (610) (610)
Net income, year ended September 30, 1995 3,058 3,058
Balance at September 30, 1995 152 58,442 30,568 (2,959) (638) 85,565
===================================================================================
Stock issued under stock option plans,
including tax benefits, 65 shares 1,960 1,960
Issuance of stock due to warrants exercised,
28 shares 124 124
Earned restricted stock compensation 28 28
Net income, year ended September 30, 1996 9,119 9,119
Balance at September 30, 1996 152 60,526 39,687 (2,959) (610) 96,796
===================================================================================
Stock issued under stock option plans,
including tax benefits, 435 shares 5 3,244 3,249
Stock repurchase and retirement, 184 shares (2) (2,865) (2,867)
Conversion of 6 1/4% convertible subordinated
debentures, 2,081 shares 21 30,335 30,356
Net income, year ended September 30, 1997 22,891 22,891
Balance at September 30, 1997 $176 $91,240 $62,578 $(2,959) $(610) $150,425
===================================================================================
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.
Intercompany items have been eliminated in consolidation.
Nature of Operations: The Company provides computing management services and
administrative client/server application software in the higher education, local
government, utilities, and manufacturing & distribution markets. In fiscal year
1997, approximately 45% of the Company's revenues was derived from the higher
education market, approximately 22% was derived from the local government
market, approximately 21% from the utility market, and approximately 12% was
derived from the manufacturing & distribution market. The principal markets for
the Company's offerings are in the U.S. In fiscal year 1997, the Company's
foreign operations represented approximately 7% of revenues and the Company's
export sales represented 4% of revenues.
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 OnSite services
contract, services are performed and expenses are incurred by the Company at a
greater rate than in the later years of the contract. Since billings usually
remain constant during the term of the contract, and revenue is recognized as
work is performed, revenues usually exceed billings in the early years of the
contract. The resulting excess is reflected on the Company's Consolidated
Balance Sheets as unbilled accounts receivable. As a contract proceeds, services
are performed and expenses are incurred at a diminishing rate, resulting in
billings exceeding revenue recognized, which causes a decrease in the unbilled
accounts receivable balance. Ninety-nine percent of the unbilled receivables at
September 30, 1997 resulting from OnSite 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 OnSite services contracts are subject to "fiscal
funding" clauses, which provide that, in the event of budgetary constraints, the
client is entitled to reduce the level of services to be provided by the Company
with a corresponding reduction in the fee to be paid by the client or, in
certain circumstances, to terminate the services altogether. Revenues are
recognized under such contracts only when the likelihood of cancellation is
considered by the Company to be remote.
The Company recognizes revenue upon delivery of software, receipt of a
signed contractual obligation, and substantial payment due from the customer
within normal trade terms, if no significant vendor obligations remain.
Maintenance and enhancement agreements provide for telephone support and error
correction for current versions of licensed systems, as well as additions or
modifications to licensed systems if and when they become generally available.
Fees for maintenance and enhancements agreements are recognized ratably over the
term of the agreement. 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 $1,375 and $1,000 at September 30, 1997 and 1996,
respectively. The Company classifies such receivables as current assets
consistent with its business cycle. 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 has "bundled" contracts, which include both OnSite management
services and software licenses. Because licensing of the software is not
dependent on continuation of the OnSite management services portion of the
contract, the software revenue is recognized upon delivery. The remainder of the
contract revenue is recorded consistent with other OnSite management services
contracts.
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: Effective October 1, 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS 115). In accordance
with the provisions of SFAS 115, the Company classifies marketable equity
securities and debt securities as available-for-sale. At September 30, 1997 and
1996, the Company had no short-term investments.
Long-Lived Assets: In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). The statement, which was adopted by the Company on October 1, 1996,
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be sold or discarded. As the Company's accounting policies
prior to the adoption of SFAS 121 have provided for similar accounting
treatment, the effect of adoption was not material to the Company's financial
condition or results of operations.
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
not to exceed 30 years.
Cost in excess of fair value of net assets acquired is associated with
companies acquired. It is amortized over periods ranging between 15 and 20 years
using the straight-line method. In accordance with SFAS 121, the Company
periodically reviews the cost in excess of fair value of net assets acquired to
assess recoverability by comparing the carrying value to the undiscounted future
cash flows of the related assets. An impairment would be recognized in operating
results if a permanent diminution in value were to occur.
Capitalized Computer Software Costs: The Company capitalizes direct costs
associated with development of software for resale. Amortization of such
capitalized costs is the greater of the amount computed using (a) the ratio that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues of that product or (b) the straight-line
method over the remaining estimated economic life of the product including the
period being reported on. Amortization begins when the product is available for
general release to customers.
Income per Share: Primary income per share is computed using the weighted
average number of common shares outstanding, plus, to the extent dilutive,
common stock equivalents. Fully diluted income per share is based on an
increased number of shares that would be outstanding assuming the exercise of
stock options when the Company's stock price at the end of the period is higher
than the average stock price within the respective period, plus to the extent
dilutive, the increased number of shares that would be outstanding, assuming
conversion of the 6 1/4% convertible subordinated debentures at the beginning of
the period presented. Net income used in the calculation of fully diluted income
per share in each period presented is adjusted for interest expense (net of tax)
on the convertible subordinated debentures. On May 9, 1997, the Company called
its 6 1/4% convertible subordinated debentures and all but $55 of the debentures
were converted into common stock. Subsequent to May 9, 1997, the weighted
average effect of the converted shares are included in primary income per share.
The fully diluted income per share calculation for the year ended September 30,
1995 did not include the anti-dilutive effect of the convertible subordinated
debentures.
Covenants-Not-To-Compete: These amounts are amortized using the straight-line
method over 60 months, their contractual lives, from their respective
acquisition dates.
Foreign Currency Translation: The functional currency is the local currency of
the Company's foreign subsidiary. Assets and liabilities of a foreign subsidiary
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. As of September 30, 1997, the currency translation
adjustment was immaterial to the Company's consolidated financial statements.
New Accounting Standards: In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings Per Share" (SFAS 128), which is
effective for periods ending after December 15, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements primary
earnings per share will exclude the dilutive effect of stock options and fully
diluted earnings per share must include the dilutive effect of stock options
even if the dilutive effect is immaterial. The impact is expected to result in
an increase in primary earnings per share for the years ended September 30,
1997, 1996 and 1995 of $.10, $.03 and $.01 per share, respectively. The impact
of SFAS 128 on the calculation of fully diluted earnings per share for the year
ended September 30, 1997 is expected to result in an increase of $.06 and for
the years ended September 30, 1996 and 1995 is not expected to be material.
In November 1997, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which is
effective for fiscal years beginning after December 15, 1997. SOP 97-2
introduces a new framework whereby revenue would be recognized for each element
in a software licensing arrangement when certain criteria are met. The SOP
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. The
adoption of SOP 97-2 is not expected to have a material impact on the Company's
results of operations or financial condition.
Reclassifications: Certain prior year information has been reclassified to
conform with current year presentation.
NOTE B - ACQUISITIONS
In June 1995, the Company acquired Adage Systems International, Inc. (Adage),
including all existing Adage software, technology and operations for
consideration of 1,000 shares of common stock valued at approximately $10,900.
At the time of the acquisition, these shares were not registered and could not
be sold immediately; as a result, the valuation reflected a discount from the
fair market value of the underlying shares.
Under the terms of the purchase agreement, the Company may be required to
pay additional consideration in either additional shares (up to 1,500 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 $15 or higher than $50, and will be determined pursuant to a formula tied
to the pretax profits of Adage during the five-year period commencing October 1,
1995. Certain future payments would result in an adjustment to the purchase
price. On October 17, 1996, the Company repurchased and subsequently retired 184
shares issued in the transaction for $2,867. As a result, the number of shares
subject to the terms of the additional consideration calculation has been
reduced. In conjunction with the acquisition, which was accounted for as a
purchase, the Company recorded a charge to operations of $8,700 for in-process
research and development at the time of the acquisition. In addition, the
Company charged approximately $2,000 to the cost of the acquisition for
incremental costs including professional fees and other costs directly related
to the acquisition. The cost in excess of fair value of net assets acquired is
being amortized over 15 years. The purchase price was allocated as follows:
Purchased software $ 2,800
Purchased research and development (a) 8,700
Cost in excess of fair value of assets acquired 3,018
Deferred taxes (1,039)
Net liabilities assumed (596)
--------
Total purchase price $ 12,883
========
(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.
In December 1994, the Company acquired the IntelliSource Software Group, a
division of the privately held Management Analysis Company. IntelliSource
Software Group products serve the utility market. The Company will pay a
purchase price of $1,200 in increments over a four-year period. Under the terms
of the purchase agreement, the Company may be required to make additional
payments contingent upon the performance of the IntelliSource Software Group
over a five-year period. At September 30, 1997, management does not anticipate
additional payments will be required.
The pro forma effect of these acquisitions on operations is immaterial.
NOTE C - PROPERTY AND EQUIPMENT
September 30 1997 1996
- ---------------------------------------------------------- --------
Land $ 1,377 $ 1,316
Building 20,092 14,968
Computer equipment and
software 27,209 20,030
Other equipment, furniture,
fixtures and building
improvements 20,099 20,896
-------- --------
68,777 57,210
Less accumulated depreciation 28,067 21,988
-------- --------
$ 40,710 $ 35,222
======== ========
Depreciation expense for the years ended September 30, 1997, 1996 and 1995 was
$6,349, $5,317 and $3,832, respectively.
NOTE D - OTHER ASSETS AND DEFERRED CHARGES
September 30 1997 1996
- ---------------------------------------------------------- --------
Deferred costs and sales
commissions related to
OnSite services contracts
in progress (a) (b) $ 3,528 $ 2,788
Purchased software (b) (c) 1,725 2,918
Deferred debt issuance expenses (b) (d) - 1,011
Covenants-not-to-compete (b) 157 779
Other 1,471 1,619
-------- --------
$ 6,881 $ 9,115
======== ========
(a) Amortized over the remaining term of the OnSite services contract.
(b) Shown net of accumulated amortization.
(c) Includes software received as part of business acquisitions.
(d) Amortized over the term of the related debt. During fiscal year 1997, the
6 1/4% subordinated debentures were called by the Company and all but $55 were
converted into common stock (Note E). Accordingly, the remaining unmortized debt
issuance costs were reflected as a reduction of capital in excess of par value.
NOTE E - LONG-TERM DEBT
September 30 1997 1996
- ------------------------------------------------------- ---------
Financing agreement $1,799 $ -
Promissory note issued in connection
with the repurchase of Company stock 1,500 -
Promissory note issued in connection
with the IntelliSource Software
acquisition 475 515
6 1/4% convertible subordinated
debentures, due 2003 - 31,275
---------- ---------
Total long-term debt 3,774 31,790
Less current portion 1,225 200
---------- ---------
Long-term debt, net of current portion $2,549 $31,590
========== =========
Aggregate annual maturities of long-term debt, including interest, are as
follows: 1998 - $1,225, 1999 - $1,020, 2000 - $360, 2001 - $360, and thereafter
- - $809.
In April 1997, the Company increased its senior revolving credit agreement
from $20,000 to $30,000. The credit agreement terminates in June 1999 with
optional annual renewals. There were no borrowings outstanding at September 30,
1997 or 1996. During the fiscal year ended September 30, 1997, the Company made
$7,700 in borrowings. The interest rate under the agreement is based on one of
three formulae - one tied to the prime rate of the lender, one at a rate offered
by the bank and another tied to the London Interbank Offered Rate (LIBOR). The
weighted average interest rate on borrowings outstanding during 1997 was 6.17%.
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 covenants
were amended in 1997 to allow the Company to pay non-stock dividends, repurchase
capital stock, and make distributions of assets to shareholders as long as the
aggregate amount does not exceed $5,000 in any fiscal year.
In August 1997, the Company entered into a $4,000 financing agreement in
connection with an OnSite services contract. At September 30, 1997, the Company
had $1,799 drawn on the agreement. The agreement provides for the Company to use
the balance in pre-determined increments by December 1998, at which time the
outstanding amount will be paid down in 60 equal monthly installments.
In October 1996, the Company signed a promissory note for $1,500 in
connection with the repurchase and retirement of shares originally issued in
connection with the acquisition of Adage (Note B). The note will be paid in two
installments commencing on the first anniversary date.
The Company signed a promissory note on December 7, 1994 in connection with
the acquisition of the IntelliSource Software Group, with an original face
amount of $800. The note payments commenced on the first anniversary date and
continue on each of the following three anniversaries until the note is paid in
full. Interest is accreted over the life of the note.
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. During the
fiscal year ended September 30, 1995, $3,225 of the convertible subordinated
debentures were converted into 215 shares of common stock of the Company. 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, 2,081 shares were issued related to the
conversion of all but $55 of the remaining convertible subordinated debentures,
of which 1,816 shares were issued on the redemption date. Had the 2,081
converted shares been outstanding for the full year ended September 30, 1997,
primary earnings per share would have decreased by $.09 to $1.34. The Company
redeemed bonds not converted with a principal, accrued interest, and premium
amount of $58.
On October 22, 1997, the Company issued $65,000 of convertible subordinated
debentures bearing interest at 5% and maturing on October 15, 2004. On November
6, 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 $52.75 per share, subject to change as defined in the Trust Indenture.
The debentures are redeemable at any time after October 15, 2000 at prices
decreasing from 102.5% of the principal amount to par on October 15, 2003.
Interest paid on the convertible subordinated debentures and the revolving
credit agreement during the years ended September 30, 1997, 1996, and 1995 was
$904, $2,183, and $2,093, respectively.
NOTE F - 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 not less than the fair market value on
the date of the grant.
The Company's 1994 Long-Term Incentive Plan provides for the issuance of
stock options, stock appreciation rights, restricted stock, and other long-term
performance awards. At September 30, 1997, only stock options have been issued
pursuant to the plan.
There were 585 shares of common stock reserved for future grants under the
stock option plans at September 30, 1997. The outstanding stock options expire
on various dates through 2007. Options granted to employees have 10-year terms
and vest and become fully exercisable at the end of three years of continued
employment. There are 885 options granted to senior management which have six-
year terms and vest and become exercisable when certain performance conditions
are met. At September 30, 1997 none of these options were exercisable. In
addition, 90 options granted to non-employee directors, of which 36 are
exercisable at September 30, 1997, have six-year terms and vest and become fully
exercisable in 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 1997 1996
- -------------------------------------------------------
As Reported:
Net income $22,891 $9,119
Primary income per share 1.43 0.62
Fully Diluted income per share 1.31 0.61
Pro Forma:
Net income $22,462 $8,950
Primary income per share 1.41 0.61
Fully Diluted income per share 1.29 0.61
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 1997 and 1996, respectively: risk-free interest rates of 6.0%
and 5.6%; dividend yields of 0%; volatility factors of the expected market price
of the Company's common stock of 47.1% and 45.1%; and a weighted-average
expected life of an option of four years.
A summary of the Company's stock option activity, and related information for
the years ended September 30, follows:
-----------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,600 $13.81 2,596 $13.47 2,599 $11.15
Granted 274 14.64 160 17.12 530 20.77
Exercised (435) 7.01 (65) 4.60 (364) 5.69
Canceled (148) 15.98 (91) 18.14 (169) 18.06
----------------------------- ----------------------------- -----------------------------
Outstanding at end of year 2,291 $15.14 2,600 $13.81 2,596 $13.47
============================= ============================= =============================
Options exercisable at year end 968 $10.35 1,220 $ 7.91 1,047 $ 6.01
Weighted-average fair value of options
granted during the year $ 6.40 $ 7.19
The following table summarizes information about stock options outstanding and
exercisable at September 30, 1997:
Outstanding Exercisable
-------------------- -----------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (yrs.) Price Shares Price
- --------------------------------------------------------------------------
$ 2.63 - $ 13.50 822 4.58 $ 7.71 594 $ 5.48
14.00 - 19.38 1,046 3.94 18.50 281 16.99
19.75 - 33.19 423 5.72 21.30 93 21.37
- -------------------------------------------------- ------------------
$ 2.63 - 33.19 2,291 4.50 $15.14 968 $10.35
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, 1997
there were 1,030 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, 1997, there were 81
restricted shares sold but not exchanged for unrestricted shares.
The Company has a 1985 Restricted Stock Incentive Plan, which expired on
June 30, 1995. Under the plan, shares were awarded to key persons and are
restricted with the effect that, for the term of the restrictions, the recipient
may not sell, assign, transfer or otherwise hypothecate any of the shares.
Restricted stock awards under the 1985 plan vested to the recipients over a
number of years, in equal annual installments as determined by the Compensation
Committee of the Board of Directors, and were recorded at the fair market value
of the shares on the date of the award as unearned compensation. The unearned
compensation was charged to operations ratably over the vesting period. Under
the plan, 605 shares were issued. At September 30, 1997 all shares were vested.
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, 1997,
1996, and 1995 were $2,253, $1,835, and $1,432, respectively.
NOTE G - INCOME TAXES
The components of the provision for income taxes are as follows:
Year ended September 30 1997 1996 1995
- ------------------------------------------------ ----------- -----------
Current:
Federal $13,090 $4,592 $4,059
State 3,687 1,957 1,974
Foreign - (405) 152
-------- -------- --------
Total Current 16,777 6,144 6,185
Deferred (1,051) 740 1,073
-------- -------- --------
$15,726 $6,884 $7,258
======== ======== ========
A reconciliation of the provision for income taxes to the federal statutory rate
follows:
Year ended September 30 1997 1996 1995
- ------------------------------------------------ ----------- -----------
Expected federal tax rate 35.0% 35.0% 35.0%
Adjustments due to:
Effect of state income tax 7.4% 6.1% 12.4%
Purchased research
and development -- -- 29.5%
Foreign net operating
loss not benefited -- 2.2% --
Research and
development tax credit (3.1)% (2.3%) (7.3)%
Other 1.4% 2.0% 0.8%
--------- --------- ---------
40.7% 43.0% 70.4%
========= ========= =========
The fiscal year 1995 provision for income taxes does not reflect the customary
relationship between income and tax expense principally due to the write-off of
purchased research and development, which is not deductible for income tax
purposes. The effective tax rate would have been 38% without the write-off of
purchased research and development. The rate was further affected by the
expiration of the research and development tax credit as of June 30, 1995. The
purchased research and development write-off has an impact on both the state
effective tax rate and the relationship between income and the effect of the
research and development tax credit.
At September 30, 1997, the Company has $29.3 million of tax loss
carryforwards in various state and foreign jurisdictions. The state tax loss
carryforwards expire in various periods ending September 30, 2011. The foreign
tax losses have indefinite carryforwards. At September 30, 1997 and 1996, the
Company has a valuation allowance of $1,258 and $1,048, respectively, with
respect to the deferred tax assets related to the state and foreign
carryforwards.
Income taxes paid during fiscal years ended September 30, 1997, 1996 and
1995 were $6,500, $6,029 and $9,921, 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, 1997 and 1996 are as follows:
September 30 1997 1996
- ------------------------------------------------------------------- -------
Deferred Tax Assets:
Purchased research and development
(1992 acquisition) $ 1,960 $ 2,163
Accrued expenses and reserves 2,941 1,573
Tax loss carryforwards, net of
valuation allowance 1,826 417
Purchased software 393 4
------- -------
Total Deferred Tax Assets 7,120 4,157
Deferred Tax Liabilities:
Depreciation and amortization (1,820) (948)
Software capitalization (5,983) (4,146)
Prepaids and other accelerated expenses (629) (1,400)
Purchased software -- (10)
------- -------
Total Deferred Tax Liabilities (8,432) (6,504)
------- -------
Net Deferred Tax Liability $(1,312) $(2,347)
======= =======
NOTE H - PRODUCT DEVELOPMENT, COMMITMENTS,
AND OTHER ITEMS
Product development expenditures, including software maintenance expenditures,
for the years ended September 30, 1997, 1996, and 1995, were approximately
$25,941, $21,247, and $12,856, respectively. After capitalization (Note A) these
amounts were approximately $18,434, $14,811, and $9,472, respectively, and were
charged to operations as incurred. For the same years, amortization of
capitalized software costs amounted to $2,850, $1,458, and $871, respectively.
Rent expense for the years ended September 30, 1997, 1996, and 1995 was
$3,425, $2,909, and $2,043, respectively. Aggregate rentals payable under
significant non-cancelable lease agreements with initial terms of one year or
more at September 30, 1997, are as follows:
Fiscal year Amount
- -------------------------------------------------------
1998 $ 3,339
1999 3,331
2000 2,920
2001 2,339
2002 1,679
thereafter 8,425
-------
22,033
=======
NOTE I - LEGAL MATTERS
On October 4, 1995, John J. Wallace filed a purported class action lawsuit in
the United States District Court for the Eastern District of Pennsylvania
against the Company; Michael J. Emmi, Chairman of the Board, President and Chief
Executive Officer of the Company; Michael D. Chamberlain, Senior Vice President
and a director of the Company; and Eric Haskell, Senior Vice President, Finance
and Administration, Treasurer and Chief Financial Officer of the Company. The
plaintiff filed an amended complaint on November 28, 1995 and a second amended
complaint on February 3, 1997. The class period alleged is from June 5, 1995
through October 2, 1995. The second amended complaint sought damages in
unspecified amounts as well as equitable relief.
In September 1997, the Company's Motion to Dismiss the second amended
complaint was granted in part and denied in part, and plaintiff was permitted to
pursue a claim that defendants violated section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder to the extent that it alleges
a failure to make certain disclosures in the Company's Form 10-Q for the third
quarter of fiscal 1995. On December 3, 1997, the Court approved a Stipulation of
Dismissal and Entry of Final Judgment filed by the parties pursuant to which all
remaining claims were dismissed with prejudice and the Court entered a final
judgment as to all claims in the action. The Company anticipates that the
plaintiff will file an appeal with respect to those claims which were dismissed
pursuant to the Company's Motions to Dismiss. Management believes any appeal
would be without merit and intends to vigorously contest an appeal. While
management, based on its investigation to date, believes that resolution of this
action will not have a materially adverse effect on the Company's consolidated
financial position, the ultimate outcome of this matter cannot presently be
determined.
NOTE J - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended September 30, 1997 and 1996:
December 31, March 31, June 30, September 30,
---------------------- -------------------- -------------------- ------------------
Three Months Ended 1997 1995 1997 *1996 1997 1996 1997 **1996
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 60,532 $ 47,819 $ 67,385 $ 52,756 $ 75,094 $ 56,316 $ 87,035 $ 58,367
Gross Profits 22,293 16,580 24,787 15,713 29,122 18,849 35,070 20,443
Income before income taxes 6,003 3,873 7,743 1,366 10,675 5,109 14,196 5,655
Provision for income taxes 2,461 1,610 3,175 600 4,270 2,197 5,820 2,477
Net income $ 3,542 $ 2,263 $ 4,568 $ 766 $ 6,405 $ 2,912 $ 8,376 $ 3,178
Primary net income per share $ 0.24 $ 0.15 $ 0.31 $ 0.05 $ 0.39 $ 0.19 $ 0.47 $ 0.22
Fully diluted net income per share $ 0.23 $ 0.15 $ 0.29 $ 0.05 $ 0.37 $ 0.19 $ 0.47 $ 0.21
====================== ==================== ==================== ==================
*Includes a charge of $1,250 for a contract loss provision.
**Includes a change in estimate primarily to reduce accrued employee benefits by
$750.
Certain quarterly information has been reclassified to conform to the
September 30, 1997 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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1997. 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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 1997, 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 24, 1997, except for
Note I, as to which the date
is December 3, 1997
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 26, 1998 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 26, 1998 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 26, 1998 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 26, 1998 and
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- ------- ---------------------------------------------------------------
(a) Financial Statements, Financial Statement Schedule and Exhibits.
(1) The following consolidated financial statements of the Registrant and
its subsidiaries are included herein:
Consolidated Balance Sheets--September 30, 1997 and 1996
Consolidated Statements of Operations--Years Ended September 30, 1997,
1996, and 1995
Consolidated Statements of Stockholders' Equity--Years Ended September
30, 1997, 1996, and 1995
Consolidated Statements of Cash Flows--Years Ended September 30, 1997,
1996, and 1995
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 VIII--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 VIII - VALUATION AND QUALIFYING ACCOUNTS
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
For the Three Years in the Period Ended September 30, 1997
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
Balance at Charged to Charged to
Description Beginning Costs and Other Accounts Deductions Balance at
of Period Expenses -Describe -Describe End of Period
- ------------------------------------------------------------------------------------------------------------------------------------
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
For the year ended September 30, 1996:
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term $ 87,000 $ 36,000 $ 67,000 (1) $ 56,000
Long-term - -
Allowance for doubtful accounts 1,003,000 1,212,000 625,000 (1) 1,590,000
---------------- ------------------ ------------ ---------------- -------------
Total $ 1,090,000 $ 1,248,000 $ 692,000 $ 1,646,000
For the year ended September 30, 1995:
Reserves and allowances deducted from
other assets and deferred charges:
Reserves for non-interest bearing
loans to employees
Short-term 109,000 $ 22,000 (1) $ 87,000
Long-term - -
Allowance for doubtful accounts 1,228,000 $ 508,000 733,000 (1) 1,003,000
---------------- ------------------ ------------ ---------------- -------------
Total $ 1,337,000 $ 508,000 $ 755,000 $ 1,090,000
(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 Agreement and Plan of Merger and Reorganization by and among the
Registrant, SCT Acquisition Corporation, Adage Systems
International, Inc. and Gerald F. O'Connell and David Phelan
(Exhibit A to the Registrant's Form 8-K dated May 12, 1995) /1/
[Attached to the Agreement and Plan of Merger and
Reorganization were disclosure schedules generally relating to
the business acquired thereunder and documents executed in
connection with such Agreement. Copies of such schedules and
documents will be furnished to the Commission upon request.]
3.1 Restated Certificate of Incorporation (Exhibit 3.1 to the
Registrant's Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on September 1, 1993) /1/
3.2 Bylaws (Exhibit 3.2 to the Registrant's Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on
September 1, 1993) /1/
4 Form of Indenture under which the Registrant's 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/
10.1 VAR Agreement dated as of September 1, 1991 between Oracle
Corporation and the Registrant (the "Oracle VAR Agreement"),
together with Amendments One, Two and Three thereto (Exhibit
10.12 to the Registrant's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on September 1,
1993) /1/
10.2 Amendment Four to the Oracle VAR Agreement (Exhibit 10.13 to the
Registrant's Form 10-K for the fiscal year ended September 30,
1996) /1/
10.3 Amendment Five to the Oracle VAR Agreement (Exhibit 10.14 to the
Registrant's Form 10-K for the fiscal year ended September 30,
1996) /1/
10.4 Amendment Six to the Oracle VAR Agreement (Exhibit 10.15 to the
Registrant's Form 10-K for the fiscal year ended September 30,
1996) /1/
10.5 Amendment Seven to the Oracle VAR Agreement (Exhibit 10.16 to the
Registrant's Form 10-K for the fiscal year ended September 30,
1996) /1/
10.6 Amendment Eight to the Oracle VAR Agreement (Exhibit 10.17 to the
Registrant's Form 10-K for the fiscal year ended September 30,
1996) /1/
- --------------------
/1/ Incorporated by reference
10.7 Amendment Nine to the Oracle VAR Agreement (Exhibit 10.18 to the
Registrant's Form 10-K for the fiscal year ended September 30,
1996) /1/
10.8 Amendment Ten to the Oracle VAR Agreement (Exhibit 10.19 to the
Registrant's Form 10-K for the fiscal year ended September 30,
1996) /1/
10.9 Amendment Eleven to the Oracle VAR Agreement (Exhibit 10.20 to
the Registrant's Form 10-K for the fiscal year ended September
30, 1996) /1/
10.10 Amendment Twelve to the Oracle VAR Agreement (Exhibit 10.21 to
the Registrant's Form 10-K for the fiscal year ended September
30, 1996) /1/
10.11 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/
10.12 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/
10.13 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/
10.14 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/
10.15 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/
10.16 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/
10.17 Systems & Computer Technology Corporation 1994 Long-Term
Incentive Plan (Exhibit 4.3 to the Registrant's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on June 30, 1995) /1//2/
10.18 Systems & Computer Technology Corporation 1994 Non-Employee
Director Stock Option Plan (Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on June 30, 1995) /1//2/
10.19 Employment Agreement dated June 1, 1995 between the Registrant
and Gerald F. O'Connell (Exhibit 10.8 to the Registrant's Form
10-K for the fiscal year ended September 30, 1995) /1//2/
10.20 Employment Agreement dated June 1, 1995 between the Registrant
and David Phelan (Exhibit 10.9 to the Registrant's Form 10-K for
the fiscal year ended September 30, 1995) /1//2/
11 Statement re: Computation of Per Share Earnings /3/
21 Subsidiaries of the Registrant /3/
23 Consent of Ernst & Young LLP /3/
27 Financial Data Schedule /3/
SCT will furnish to any stockholder upon written request, any exhibit
listed in the accompanying Index to Exhibits upon payment by such stockholder to
SCT of SCT's reasonable expenses in furnishing such exhibit.
(b) Reports on Form 8-K.
None.
- -------------------------
/2/Compensatory Plan, Contract or Arrangement
/3/Filed with this Annual Report on Form 10-K
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Registrant)
By: /s/ Michael J. Emmi
------------------------------
Michael J. Emmi, Chairman of the Board
President and Chief Executive Officer
Date: December 19, 1997
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 19, 1997
- -------------------------------- President and Chief
Michael J. Emmi Executive Officer; Director
(Principal Executive Officer)
/s/ Michael D. Chamberlain Director December 19, 1997
- --------------------------------
Michael D. Chamberlain
/s/ Allen R. Freedman Director December 19, 1997
- --------------------------------
Allen R. Freedman
/s/ Thomas I. Unterberg Director December 19, 1997
- --------------------------------
Thomas I. Unterberg
/s/ Gabriel A. Battista Director December 19, 1997
- --------------------------------
Gabriel A. Battista
/s/ Eric Haskell Senior Vice President, Finance December 19, 1997
- --------------------------------- and 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
- ----------- ------- ----
11 Statement re: Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule