SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2001 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______.
0-11521
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(Commission File Number)
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1701520
---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Great Valley Corporate Center
4 Country View Road
Malvern, Pennsylvania 19355
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(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 647-5930
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
32,862,342 Common shares, $.01 par value, as of May 03, 2001
Page 1 of 26 consecutively numbered pages
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. UNAUDITED FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2001 and September 30, 2000
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and 2000
Condensed Consolidated Statements of Operations -
Six Months Ended March 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, September 30,
2001 2000
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 64,183 $ 49,161
Short-term investments, including
accrued interest of $0 and $206 10,158 16,787
Receivables, including $58,146
and $64,075 of earned revenues
in excess of billings, net of
allowance for doubtful accounts
of $5,871 and $5,677 126,918 138,965
Prepaid expenses and other receivables 32,026 25,586
-------- --------
TOTAL CURRENT ASSETS 233,285 230,499
PROPERTY AND EQUIPMENT--at cost, net
of accumulated depreciation 60,849 63,335
CAPITALIZED COMPUTER SOFTWARE COSTS,
net of accumulated amortization 16,679 19,310
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, net of accumulated
amortization 14,956 15,738
OTHER ASSETS AND DEFERRED CHARGES 34,772 39,241
-------- --------
TOTAL ASSETS $360,541 $368,123
======== ========
Note: The condensed consolidated balance sheet at September 30, 2000 has
been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except per share amounts)
March 31, September 30,
2001 2000
(UNAUDITED) (NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,950 $ 10,639
Current portion of long-term debt 1,244 712
Income taxes payable 109 1,793
Accrued expenses 40,714 41,105
Deferred revenue 33,993 32,886
-------- --------
TOTAL CURRENT LIABILITIES 87,010 87,135
LONG-TERM DEBT, less current portion 77,113 77,521
OTHER LONG-TERM LIABILITIES 2,066 2,030
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per
share--authorized 3,000 shares,
none issued -- --
Common stock, par value $.01 per share--
authorized 100,000 shares, issued
37,515 and 37,264 shares 375 372
Capital in excess of par value 117,361 115,247
Retained earnings 102,666 111,879
Accumulated other comprehensive loss (491) (540)
-------- --------
219,911 226,958
Less
Held in treasury, 4,653 and 4,642 common
shares--at cost (25,059) (24,911)
Notes receivable from stockholders (500) (610)
-------- --------
194,352 201,437
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $360,541 $368,123
======== ========
Note: The condensed consolidated balance sheet at September 30, 2000 has
been derived from the audited financial statements at that date.
See notes to condensed consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
For the Three Months Ended
March 31,
2001 2000
Revenues:
Outsourcing services $ 32,001 $ 33,309
Software sales 7,174 19,297
Maintenance and enhancements 25,973 23,681
Software services 37,242 37,704
Interest and other income 1,339 279
-------- --------
103,729 114,270
Expenses:
Cost of outsourcing services 27,141 28,992
Cost of software sales and
maintenance and enhancements 23,249 22,812
Cost of software services 25,290 24,166
Selling, general and administrative 33,344 28,810
Asset impairment charge 11,585 --
Equity in losses of affiliates -- 2,220
Interest expense 1,207 1,136
-------- --------
121,816 108,136
Income (loss) before income taxes (18,087) 6,134
Provision (benefit) for income taxes (6,873) 2,515
-------- --------
Net income (loss) $(11,214) $ 3,619
======== ========
Net income (loss) per common share $(0.34) $ 0.11
Net income (loss) per share - assuming dilution $(0.34) $ 0.11
Common shares and equivalents outstanding:
Average common shares 32,811 32,324
Average common shares - assuming dilution 32,811 33,847
See notes to condensed consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
For the Six Months Ended
March 31,
2001 2000
Revenues:
Outsourcing services $ 62,699 $ 65,451
Software sales 23,303 24,223
Maintenance and enhancements 50,412 45,001
Software services 71,384 75,690
Interest and other income 2,958 584
-------- --------
210,756 210,949
Expenses:
Cost of outsourcing services 52,260 54,986
Cost of software sales and
maintenance and enhancements 44,247 42,661
Cost of software services 50,007 52,372
Selling, general and administrative 64,987 56,595
Asset impairment charge 11,585 --
Equity in losses of affiliates -- 4,761
Restructuring charges -- 1,000
Interest expense 2,421 2,292
-------- --------
225,507 214,667
Loss before income taxes (14,751) (3,718)
Benefit for income taxes (5,538) (1,130)
-------- --------
Net loss $ (9,213) $ (2,588)
======== ========
Net loss per common share $(0.28) $(0.08)
Net loss per share - assuming dilution $(0.28) $(0.08)
Common shares and equivalents outstanding:
Average common shares 32,771 32,230
Average common shares - assuming dilution 32,771 32,230
See notes to condensed consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Six Months Ended
March 31,
2001 2000
OPERATING ACTIVITIES
Net loss $ (9,213) $ (2,588)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Asset impairment charge 11,585 --
Depreciation and amortization 13,902 13,369
Provision for doubtful accounts 1,401 1,307
Deferred tax benefit (3,780) (120)
Equity in losses of affiliate -- 4,761
Changes in operating assets and liabilities:
(Increase) decrease in receivables 11,240 (3,376)
Increase in other current assets
principally prepaid expenses (8,273) (7,205)
(Increase) decrease in accounts payable 311 (4,547)
Decrease in income taxes payable (1,684) (1,541)
Increase in deferred revenue 348 1,059
Other, net (1,008) 920
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,829 2,039
INVESTING ACTIVITIES
Purchase of property and equipment (4,695) (3,028)
Capitalized computer software costs (471) (2,557)
Purchase of investments available for sale (9,100) (4,254)
Proceeds from sale or maturity of
investments available for sale 15,907 4,106
Purchase of subsidiary assets,
net of cash acquired (3,004) --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,363) (5,733)
FINANCING ACTIVITIES
Repayment of borrowings (348) (17,118)
Proceeds from borrowings, net of
issuance costs -- 16,800
Repurchase of Company stock (148) --
Decrease in notes receivable from stockholders 110 --
Proceeds from exercise of stock options 1,942 2,920
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,556 2,602
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 15,022 (1,092)
CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 49,161 27,030
--------- ---------
CASH & CASH EQUIVALENTS-END OF PERIOD $ 64,183 $ 25,938
========= =========
SUPPLEMENTAL INFORMATION
Noncash investing and financing activities:
Purchase of subsidiary - noncash portion $ 500 $ --
Conversion of subordinated debentures into
common stock 27 --
See notes to condensed consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 1O-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals, the fiscal year 2001 asset impairment charge,
and the fiscal year 2000 restructuring charge) considered necessary for a fair
presentation have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 2000.
Operating results for the three and six-month periods ended March 31, 2001, are
not necessarily indicative of the results that may be expected for the year
ending September 30, 2001.
NOTE B--CASH AND SHORT-TERM INVESTMENTS
Cash equivalents are short-term, highly liquid investments with a maturity of
three months or less at the date of purchase.
Short-term investments consist of corporate debt securities. Management
determines the appropriate classification of the debt securities at the time of
purchase. At March 31, 2001 the portfolio of debt securities has been classified
as available for sale and, as a result, is stated at fair value. The
available-for-sale portfolio is comprised of highly liquid investments available
for current operations and general corporate purposes and, accordingly, is
classified as current assets.
The contractual maturities of short-term investments held as of March 31, 2001
are:
Due in one year or less $ 9,704
Due after one year through four years 454
-------
$10,158
NOTE C--LONG-TERM INVESTMENTS
The Company made investments for strategic business purposes of $18.5 million in
common and preferred stock of various privately-held Internet companies and
recorded accounts receivable from these companies of $2.5 million. The fair
values of these investments, which are classified as long-term assets, are not
readily determinable; therefore, they are carried at cost. The Company regularly
reviews the underlying operating performance, cash flow forecasts, and recent
private equity transactions of these privately-held companies in assessing
impairment. The cost basis would be reduced and earnings would be charged if
there were an impairment that was found to be other than temporary at a balance
sheet date. In the second quarter of fiscal year 2001, the Company recorded
asset impairment charges of $11.6 million related to these strategic
investments. At March 31, 2001, the aggregate investment in privately-held
companies is $8.9 million, included in other assets and deferred charges, and
$0.5 million, included in prepaid expenses and other accounts receivable in the
consolidated balance sheet.
Throughout fiscal year 1999, the Company made a series of investments in Campus
Pipeline, Inc. As of March 31, 2001 the Company held an approximately 57%
interest in the common stock of this affiliate, with a carrying amount of zero.
The Company has determined that it does not control Campus Pipeline because
there are fully voting convertible preferred shares outstanding that lower the
Company's voting interest to approximately 42%. Therefore, the Company accounts
for its investment using the equity method of accounting. The Company will not
record any additional future losses of Campus Pipeline and will not record any
future earnings until the cumulative, unrecorded losses are offset.
NOTE D--ACQUISITIONS AND DISPOSITIONS
In November 2000, the Company acquired Omni-Tech Systems, Ltd., the developer of
JUROR for Windows, a jury management software solution for the justice market,
for consideration of $3.3 million, in the form of cash and a note payable. JUROR
for Windows is a comprehensive jury management solution that presides over all
aspects of jury management from the creation of pools of eligible jurors to the
calculation of jury payroll, and helps to streamline the jury management process
and free court staff from repetitive manual and paper-based tasks.
NOTE E--EARNINGS PER SHARE
(in thousands, except per share amounts)
A reconciliation of the numerators and the denominators of net income (loss) per
common share and net income (loss) per share - assuming dilution follows:
For the Three Months For the Six Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
Numerator:
Net income (loss) available to
common stockholders, used
for net income (loss) per
common share $(11,214) $3,619 $(9,213) $(2,588)
Effect of dilutive securities: -- -- -- --
Net income (loss) available
to common stockholders after
assumed conversions $(11,214) $3,619 $(9,213) $(2,588)
======== ====== ======= ======
Denominator:
Denominator for net income
(loss) per common share-
weighted average shares 32,811 32,324 32,771 32,230
Effect of dilutive securities:
Employee stock options -- 1,523 -- --
------- ------- ------- -------
Denominator for net income
(loss) per share - assuming
dilution 32,811 33,847 32,771 32,230
======= ======= ======= =======
Net income (loss) per common share $(0.34) $0.11 $(0.28) $(0.08)
====== ===== ====== ======
Net income (loss) per share -
assuming dilution $(0.34) $0.11 $(0.28) $(0.08)
====== ===== ====== ======
Potentially dilutive securities with an anti-dilutive effect (convertible debt
in all periods presented above and stock options in the fiscal year 2001 periods
and fiscal year 2000 six-month period) are not included in the above
calculation.
NOTE F--PRODUCT DEVELOPMENT
Product development expenditures, including software maintenance expenditures,
for the six months ended March 31, 2001 and 2000, were approximately $29.4
million and $27.9 million, respectively. After capitalization, these amounts
were approximately $29.0 million and $25.3 million, respectively, and were
charged to operations as incurred. For the same periods, amortization of
capitalized software costs (not included in expenditures above) amounted to $3.1
million and $2.9 million, respectively.
NOTE G--BUSINESS SEGMENTS
(in thousands)
The Company has four reportable segments: Global Education Solutions (GES);
Global Government Solutions (GGS); Global Manufacturing & Distribution Solutions
(M&DS) and Global Energy, Utilities & Communications Solutions (EUC). Summarized
financial information concerning the Company's reportable segments is shown in
the following table. The "All Other" column includes corporate-related items,
elimination of inter-segment transactions, amortization of intangible assets
purchased in business acquisitions, substantially all of the asset impairment
charge in fiscal year 2001, and the restructuring charge in fiscal year 2000.
Interest and other income is not included in the revenue disclosures below.
Certain prior year information has been reclassified to conform with the
current-year presentation.
Three months ended March 31, 2001
All
GES GGS M&DS EUC Other Total
Outsourcing services $ 9,846 $16,654 $ 1,281 $ 4,220 $ -- $32,001
Software sales and
maintenance and
enhancements 21,911 2,712 4,125 4,399 -- 33,147
Software services 13,966 2,915 7,347 13,014 -- 37,242
------- ------- ------- ------- ------- -------
External revenues 45,723 22,281 12,753 21,633 -- 102,390
Intersegment revenues 311 13 21 -- (345) --
Segment profit (loss) 4,338 (2,664) (5,384) (1,444) (12,933) (18,087)
Three months ended March 31, 2000
All
GES GGS M&DS EUC Other Total
Outsourcing services $10,245 $15,566 $ 3,713 $ 3,785 $ -- $33,309
Software sales and
maintenance and
enhancements 23,768 6,096 7,364 5,750 -- 42,978
Software services 14,290 3,296 7,009 13,109 -- 37,704
------- ------- ------- ------- ------- -------
External revenues 48,303 24,958 18,086 22,644 -- 113,991
Intersegment revenues 246 21 6 -- (273) --
Segment profit (loss) 8,075 2,831 (806) 1,894 (5,860) 6,134
Six months ended March 31, 2001
All
GES GGS M&DS EUC Other Total
Outsourcing services $20,028 $31,724 $ 2,562 $ 8,385 $ -- $62,699
Software sales and
maintenance and
enhancements 44,085 5,433 10,228 13,969 -- 73,715
Software services 26,377 5,698 13,266 26,043 -- 71,384
------- ------- ------- ------- ------- -------
External revenues 90,490 42,855 26,056 48,397 -- 207,798
Intersegment revenues 643 24 24 -- (691) --
Segment profit (loss) 9,484 (2,862) (8,842) 1,976 (14,507) (14,751)
Six months ended March 31, 2000
All
GES GGS M&DS EUC Other Total
Outsourcing services $21,183 $31,643 $ 5,310 $ 7,315 $ -- $65,451
Software sales and
maintenance and
enhancements 41,341 8,436 10,331 9,116 -- 69,224
Software services 27,321 6,116 16,357 25,896 -- 75,690
------- ------- ------- ------- ------- -------
External revenues 89,845 46,195 31,998 42,327 -- 210,365
Intersegment revenues 592 24 12 -- (628) --
Segment profit (loss) 10,516 1,678 (4,475) (520) (10,917) (3,718)
NOTE H--LONG-TERM DEBT
The Company has $74.75 million of convertible subordinated debentures bearing
interest at 5% and maturing on October 15, 2004. The debentures are convertible
into common stock of the Company at any time prior to redemption or maturity at
a conversion price of $26.375 per share, subject to change as defined in the
Trust Indenture. The debentures are redeemable at any time after October 15,
2000, at prices from 102.5% of par decreasing to par on October 15, 2003. In
October 2000, $27,000 of the convertible subordinated debentures were converted
into approximately 1,000 shares of common stock of the Company.
NOTE I--COMPREHENSIVE INCOME (LOSS)
(in thousands)
Total Comprehensive Income (Loss) is comprised of:
Three Months Six Months
Ended Ended
March 31, March 31,
2001 2000 2001 2000
Net income (loss) $(11,214) $3,619 $(9,213) $(2,588)
Other comprehensive income (loss) (44) (149) 49 (436)
-------- -------- -------- --------
Total Comprehensive Income (Loss) $(11,258) $3,470 $(9,164) $(3,024)
Other comprehensive income (loss) relates primarily to currency translation
adjustments related to foreign subsidiaries whose functional currencies are
their local currencies.
NOTE J--NEW ACCOUNTING STANDARDS
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which provides
guidance on recognizing revenue from software transactions. In 1998, it issued
two amendments to SOP 97-2: SOP 98-4, "Deferral of Certain Provisions of SOP
97-2," and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain Transactions." SOP 97-2 and SOP 98-4 were effective for
the Company's fiscal year beginning October 1, 1998, and SOP 98-9 was effective
for the fiscal year beginning October 1, 1999. Based on the Company's
interpretation of the requirements of SOP 97-2, as amended, the adoption of this
statement has not had and is not expected to have a significant impact on the
Company's results of operations. However, the accounting profession continues to
review certain provisions of SOP 97-2, as amended, with the objective of
providing additional guidance on implementing its provisions.
During the Company's fiscal year 2000, the Staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition."
The SAB provides examples of how the Staff applies the criteria to specific fact
patterns, such as bill-and-hold transactions, up-front fees when the seller has
significant continuing involvement, long-term service transactions, refundable
membership fees, retail layaway sales, and contingent rental income. The SAB
also addresses whether revenue should be presented on a gross or net basis for
certain transactions, such as sales on the Internet. In addition, the SAB
provides guidance on the disclosures that registrants should make about their
revenue-recognition policies and the impact of events and trends on revenue. The
Company is required to adopt the provisions of SAB 101 by the fourth quarter of
fiscal year 2001. The Company is currently evaluating the impact of SAB 101, but
at this time does not expect its adoption to have a significant impact on
reported results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The purpose of this section is to give interpretive guidance to the reader of
the financial statements.
RESULTS OF OPERATIONS
The following table sets forth: (i) income statement items as a percentage of
total revenues and (ii) the percentage change for each item from the prior-year
comparative period.
% of Total Revenues % Change from
Prior Year
Three Mos. Six Mos. Three Mos. Six Mos.
Ended Ended Ended Ended
March 31, March 31, March 31 March 31
2001 2000 2001 2000
Revenues:
Outsourcing services 31% 29% 30% 31% (4%) (4%)
Software sales 7% 17% 11% 12% (63%) (4%)
Maintenance and enhancements 25% 21% 24% 21% 10% 12%
Software services 36% 33% 34% 36% (1%) (6%)
Other 1% -- 1% -- 380% 407%
---- ---- ---- ----
Total 100% 100% 100% 100% (9%) (1%)
Expenses:
Cost of services, sales and
maintenance and enhancements 73% 67% 70% 71% -- (2%)
Selling, general and
administrative 32% 25% 31% 27% 16% 15%
Asset impairment charge 11% -- 5% -- -- --
Equity in losses of affiliates -- 2% -- 2% (100%) (100%)
Restructuring charges -- -- -- 1% -- (100%)
Interest expense 1% 1% 1% 1% 6% 6%
Income (loss) before
income taxes (17%) 5% (7%) (2%) (395%) (297%)
The following table sets forth the gross profit for each of the following
revenue categories as a percentage of revenue for each such category and the
total gross profit as a percentage of total revenue (excluding interest and
other income). The Company does not separately present the cost of maintenance
and enhancements revenue as it is impracticable to separate such cost from the
cost of software sales.
Three Months Six Months
Ended Ended
March 31, March 31,
2001 2000 2001 2000
Gross Profit:
Outsourcing services 15% 13% 17% 16%
Software sales and maintenance
and enhancements 30% 47% 40% 38%
Software services 32% 36% 30% 31%
--- --- --- ---
Total 26% 33% 29% 29%
Revenues:
Outsourcing services revenue decreased 4% in the second quarter and first six
months of fiscal year 2001 compared with the comparable prior-year periods.
These decreases are primarily the result of (i) significant pass-through revenue
related to expenses recorded for a client in the process manufacturing and
distribution market in the second quarter of fiscal year 2000 and (ii) the
termination of several small contracts in the government and higher education
markets and decreased services provided under several other contracts in the
fiscal year 2001 periods. These decreases were partially offset by increases
resulting from a first quarter fiscal year 2001 agreement with the City of
Memphis, Tennessee and a fourth quarter 2000 agreement with the Chicago
Department of Water.
Software sales decreased 63% in the second quarter of fiscal year 2001 compared
to the prior-year period due to significantly decreased licenses in each of the
Company's markets. The Company believes this decrease is primarily the result of
growing caution in the general business climate, which has been particularly
felt in the technology sector. The 4% decrease in software sales for the
six-month period reflects the above mentioned decreases offset by a revenue
increase of 227% in the first quarter of 2001 compared with the first quarter of
fiscal year 2000. This first quarter increase is the result of unusually low
revenue in the year 2000 period because of the year 2000 slowdown in enterprise
application software licensing.
The 10% and 12% increases in maintenance and enhancements revenue in the second
quarter and first six months of fiscal year 2001 were the result of the growing
installed base of clients in all of the Company's markets. The Company continues
to experience a high annual renewal rate on existing maintenance contracts in
these marketplaces, although there can be no assurances that this will continue.
Software services revenue decreased 1% and 6% in the second quarter and first
six months of fiscal year 2001 compared to the prior-year periods, respectively.
These decreases were primarily the result of decreased implementation and
integration services performed in the process manufacturing and distribution and
higher education markets. These decreases were primarily the result of (i) a
decline in license fee revenue upon which services revenue is dependent, and
(ii) a change in the sales mix in the process manufacturing and distribution
market toward a greater percentage of supply chain sales. Supply chain sales
generally require less revenue generating services than ERP sales, since the
implementation of the supply chain product generally requires less effort than
an ERP implementation.
The increase in interest and other income in the first six months of fiscal year
2001 is primarily attributable to interest income earned on the Company's
increased cash and short-term investments balances and the amortization of the
WebCT noncompete agreement signed in the Company's third quarter of fiscal year
2000.
Gross Profit:
Gross profit decreased as a percentage of total revenue (excluding interest and
other income) from 33% for the second quarter of fiscal year 2000 to 26% for the
second quarter of fiscal year 2001. The total gross profit percentage decreased
primarily because of a decrease in software sales during the quarter, without a
commensurate decrease in fixed expenses. This decrease was the result of
significantly decreased software licenses in all of the Company's markets,
primarily, the Company believes, as a result of a growing caution in the general
business climate, which has been particularly felt in the technology sector. The
software sales and maintenance and enhancements cost levels are based in part on
the Company's future revenue expectations. Due to lower than expected revenue
for the second quarter of fiscal year 2001, the Company did not reduce these
costs enough during the period to sustain the prior-year period gross profit
levels. Additionally the Company incurred increased development expenses during
the quarter primarily in the higher education business related to a new product
initiative. The software services gross margin also decreased in the second
quarter of fiscal year 2001 compared with the prior-year period. This decrease
was primarily the result of decreased utilization. These decreases were
partially offset by increases in the outsourcing services' gross profit, which
increased primarily as a result of new agreements signed at the end of fiscal
year 2000 and the first quarter of fiscal year 2001, coupled with the impact of
the significant pass through revenue related to expenses recorded for a client
in the process manufacturing and distribution market in the second quarter of
fiscal year 2000.
Gross profit as a percentage of total revenue (excluding interest and other
income) was 29% for the first six months of fiscal year 2000 and 2001; however,
the components of the gross profit percentage changed from the fiscal year 2000
period to the fiscal year 2001 period. The software sales and maintenance and
enhancement gross profit improved slightly because of increased maintenance and
enhancement revenue in the fiscal year 2001 period. The outsourcing services
gross profit also improved slightly in the first six months of fiscal year 2001
compared with the prior year period primarily as a result of new agreements and
the impact of the fiscal year 2000 pass through revenue discussed above. These
increases were offset by decreases in the software services gross margin, which
is primarily the result of decreased utilization in the process manufacturing
and distribution market.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased in the second quarter and
first six months of fiscal year 2001 compared with the prior year periods
primarily as a result of (i) the addition of sales personnel and marketing
expenses, primarily in the process manufacturing and distribution and higher
education markets, in an effort to increase sales volume and (ii) severance
costs, of approximately $0.5 million, incurred in the second quarter of fiscal
year 2001.
During the second quarter of fiscal year 2001, the Company announced that it
plans to implement initiatives during the third quarter of 2001 that will reduce
operating costs by approximately 5% on an annual basis. While the restructuring
plan has not yet been formalized, the Company is planning to eliminate some
programs and reduce related staff levels as well as make some management changes
in an effort to improve the Company's performance. As a result of the cost
reduction, the Company anticipates incurring a restructuring charge primarily
for severance and other employee-related costs in the third quarter of fiscal
year 2001.
During the quarter ended December 31, 1999, the Company implemented a
restructuring plan, which included the termination of employees and
discontinuation of noncritical programs. The restructuring was considered
necessary in light of significantly decreased license fees in the quarter. The
Company accrued $1 million related to severance and termination benefits based
on a termination plan developed by management, in consultation with the Board of
Directors, in December 1999. In January 2000, the Company terminated
approximately 100 employees engaged in marketing, administrative,
special-programs, and development functions. The Company began to experience
cost savings related to the restructuring in the second quarter of fiscal year
2000.
The Company made investments for strategic business purposes of $18.5 million in
common and preferred stock of various privately-held Internet companies and
recorded accounts receivable from these companies of $2.5 million. The fair
values of these investments, which are classified as long-term assets, are not
readily determinable; therefore, they are carried at cost. The Company regularly
reviews the underlying operating performance, cash flow forecasts, and recent
private equity transactions of these privately-held companies in assessing
impairment. The cost basis has been reduced as of March 31, 2001 and earnings
have been charged as a result of an impairment that is other than temporary at
the balance sheet date. Future earnings would also be reduced and earnings would
be charged if there were an impairment that was found to be other than temporary
at a future balance sheet date. The Company's future results of operations could
be materially affected by a future write down in the carrying amount of these
investments to recognize an impairment loss due to an other than temporary
decline in the value of these investments. In the second quarter of fiscal year
2001, the Company recorded an asset impairment charge of $11.6 million related
to these strategic investments. At March 31, 2001, the aggregate investment in
privately-held companies is $8.9 million, included in other assets and deferred
charges, and $0.5 million, included in prepaid expenses and other accounts
receivable in the consolidated balance sheet. The Company believes that the
impairment in these investments is the result of changes in the business models
of these companies. The Company believes this change will result in lower future
earnings achieved by these remaining companies than those projected when the
Company invested; however this does not reflect a deterioration in these
companies' viability.
Acquisitions and Dispositions:
In November 2000, the Company acquired Omni-Tech Systems, Ltd., the developer of
JUROR for Windows, a leading, jury management software solution for the justice
market, for consideration of $3.3 million in the form of cash and a note
payable. JUROR for Windows is a comprehensive jury management solution that
presides over all aspects of jury management from the creation of pools of
eligible jurors to the calculation of jury payroll, and helps to streamline the
jury management process and free court staff from repetitive manual and
paper-based tasks. The Company has begun to integrate the JUROR product with the
Company's case and financial management system so that the products share key
case, scheduling and disposition information.
Investment in Campus Pipeline, Inc.:
Throughout fiscal year 1999, the Company made a series of investments in Campus
Pipeline, Inc. As of March 31, 2001, the Company held an approximately 57%
interest in the common stock of this affiliate, with a carrying amount of zero.
The Company has determined that it does not control Campus Pipeline because
there are fully voting convertible preferred shares outstanding that lower the
Company's voting interest to approximately 42%. Therefore, the Company accounts
for its investment using the equity method of accounting. The Company will not
record any additional future losses of Campus Pipeline and will not record any
future earnings until the cumulative, unrecorded losses are offset.
Contingency:
The Company has been involved in litigation relating to a software
implementation in Broward County, Florida. The Company believed that it had
meritorious defenses and the probability of an unfavorable outcome against the
Company was unlikely. However, on October 31, 2000, an adverse decision was
rendered against the Company in this litigation. The Company's claim for
approximately $3.1 million -- which was included in the Company's accounts
receivable balances -- for software licensed, services rendered, and expenses
incurred was denied. In addition, the Company was ordered to pay damages in the
amount of approximately $3.2 million plus prejudgment interest on a portion of
that amount. On post-trial motions, the amount of the judgment was reduced by
approximately $0.6 million. The Company has appealed the decision and believes
that insurance proceeds may be available to cover a portion of the damages
awarded against it. As a result of the court's decision and the inability to
predict the possibility of overturning the judgment on appeal, the Company
recorded a pretax charge of $5.8 million for damages and other costs associated
with the action in the fourth quarter of fiscal year 2000. In the opinion of
management, this amount, plus amounts previously accrued should be adequate to
cover the ultimate loss resulting from this matter in the event that the
appellate court affirms the lower court's decision.
The Company is also involved in other legal proceedings and litigation arising
in the ordinary course of business. In the opinion of management, the outcome of
such proceedings and litigation currently pending will not materially affect the
Company's consolidated financial statements.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL POSITION
The Company's cash and short-term investments balance was $74.3 million and
$65.9 million as of March 31, 2001, and September 30, 2000, respectively, as a
result of cash provided by operations discussed below.
Cash provided by operating activities was $14.8 million for the first six months
of fiscal year 2001, compared with $2.0 million for the prior-year period. The
primary source of cash in the fiscal year 2001 period was a decrease in accounts
receivable. The decrease in accounts receivable is due to improved collections
and decreased revenue in the second quarter of fiscal year 2001.
The Company provides outsourcing services and software-related services,
including systems implementation and integration services. Contract fees from
outsourcing services are typically based on multi-year contracts ranging from
three to 10 years in length, and provide a recurring revenue stream throughout
the term of the contract. Software services contracts, including systems
implementation and integration services, usually have shorter terms than
outsourcing services contracts, and billings are sometimes milestone-based.
During the beginning of a typical outsourcing services contract, the Company
performs services and incurs expenses more quickly than during the later part of
the contract. Billings usually remain constant during the term of the contract.
In some cases when a contract term is extended, the billing period is also
extended over the new life of the contract. In certain software services
contracts, the Company performs services but cannot bill for them before
attaining a milestone. Revenue is usually recognized as work is performed,
resulting in an excess of revenues over billings in such periods. The Company's
Consolidated Balance Sheet reflects this excess as unbilled accounts receivable.
As an outsourcing services contract proceeds, the Company performs services and
incurs expenses at a lesser rate. This results in billings that exceed revenue
recognized in such periods, which causes a decrease in the unbilled accounts
receivable. Likewise, billings related to the achievement of a milestone in a
software services contract causes a decrease in the unbilled accounts
receivable. In both cases, additional unbilled accounts receivable will continue
to be recorded based on the terms of the contracts. The remaining unbilled
accounts receivable balance is comprised of software sales for which the Company
has shipped product and recognized revenue, but has not billed amounts due to
the contractual payment terms. The Company usually bills these unbilled balances
within one year.
Cash used in investing activities was $1.4 million for the first six months of
fiscal year 2001 compared with $5.8 million for the fiscal year 2000 six-month
period. In the fiscal year 2001 period, cash was used in the purchase of
investments, property and equipment, and subsidiary assets offset by cash
provided by the sale and maturity of available-for-sale investments. The primary
use of cash in the six months ended March 31, 2000 was the purchase of property
and equipment and the capitalization of software development costs.
The $1.6 million and $2.6 million in cash provided by financing activities for
the first six months of fiscal year 2001 and 2000, respectively consists
primarily of proceeds from the exercises of stock options.
The Company has a $30 million senior revolving credit facility available for
general corporate purposes. The credit facility agreement expires in June 2002
and includes optional annual renewals. There were no borrowings outstanding at
March 31, 2001, or September 30, 2000. As long as borrowings are outstanding,
and as a condition precedent to new borrowings, the Company must comply with
certain covenants established in the agreement. Under the covenants, the Company
is required to maintain certain financial ratios and other financial conditions.
The Company may not pay dividends (other than dividends payable in common stock)
or acquire any of its capital stock outstanding without a written waiver from
its lender.
The Company has convertible debentures outstanding, which bear interest at 5%
and mature on October 15, 2004. In October 2000, $27,000 of the convertible
subordinated debentures were converted into approximately 1,000 shares of common
stock of the Company. The remaining balance of convertible debentures at March
31, 2001, is $74.75 million. If these remaining debentures outstanding were
converted, 2.8 million additional shares would be added to common shares
outstanding. These debentures were antidilutive for the fiscal year 2001 and
2000 periods and therefore are not included in the denominators for net income
per share - assuming dilution.
The Company believes that its cash and cash equivalents, short-term investments,
cash provided by operations, and borrowing arrangements should satisfy its
financing needs for the foreseeable future.
New Accounting Standards:
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which provides
guidance on recognizing revenue from software transactions. In 1998, it issued
two amendments to SOP 97-2: SOP 98-4, "Deferral of Certain Provisions of SOP
97-2," and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain Transactions." SOP 97-2 and SOP 98-4 were effective for
the Company's fiscal year beginning October 1, 1998, and SOP 98-9 was effective
for the fiscal year beginning October 1, 1999. Based on the Company's
interpretation of the requirements of SOP 97-2, as amended, the adoption of this
statement has not had and is not expected to have a significant impact on the
Company's results of operations. However, the accounting profession continues to
review certain provisions of SOP 97-2, as amended, with the objective of
providing additional guidance on implementing its provisions.
During the Company's fiscal year 2000, the Staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition."
The SAB provides examples of how the Staff applies the criteria to specific fact
patterns, such as bill-and-hold transactions, up-front fees when the seller has
significant continuing involvement, long-term service transactions, refundable
membership fees, retail layaway sales, and contingent rental income. The SAB
also addresses whether revenue should be presented on a gross or net basis for
certain transactions, such as sales on the Internet. In addition, the SAB
provides guidance on the disclosures that registrants should make about their
revenue-recognition policies and the impact of events and trends on revenue. The
Company is required to adopt the provisions of SAB 101 by the fourth quarter of
fiscal year 2001. The Company is currently evaluating the impact of SAB 101, but
at this time does not expect its adoption to have a significant impact on
reported results of operations.
Factors That May Affect Future Results and Market Price of Stock:
The forward-looking statements discussed herein and elsewhere -- including
statements concerning the Company's or management's forecasts, estimates,
intentions, beliefs, anticipations, plans, expectations, or predictions for the
future -- are based on current management expectations that involve risks and
uncertainties that could cause actual results to differ materially from those
anticipated. The following discussion highlights some, but not all, of the risks
and uncertainties that may have a material adverse effect on the Company's
business, results of operations, and/or financial condition.
The Company's revenues and operating results can vary substantially from quarter
to quarter, owing to a number of factors. Software sales revenues in any quarter
depend on the execution of license agreements and the shipment of product. The
execution of license agreements is difficult to predict for a variety of
reasons, including the following: a significant portion of the Company's license
agreements is typically signed in the last month of each quarter; the Company's
sales cycle is relatively long; the size of transactions can vary widely; client
projects may be postponed or cancelled due to changes in the client's
management, budgetary constraints, or strategic priorities; and clients often
exhibit a seasonal pattern of capital spending. The Company has historically
generated a greater portion of license fees and total revenue in the last two
fiscal quarters, although there is no assurance that this will continue.
Because a significant part of the Company's business results from software
licensing, it is characterized by a high degree of operating leverage. The
Company bases its expense levels, in significant part, on its expectations of
future revenues. Therefore, these expense levels are relatively fixed in the
short term. If software licensing revenues do not meet expectations, net income
is likely to be disproportionately adversely affected. There can be no assurance
that the Company will be able to increase profitability or return to its
historical 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. This would likely have an adverse
effect on the price of the Company's common stock.
The success of the Company's business depends upon certain key management,
sales, and technical personnel. In addition, the Company believes that to
succeed in the future, it must continue to attract, retain, and motivate
talented and qualified management, sales, and technical personnel. Competition
for such personnel in the information technology industry is intense. The
Company sometimes has difficulty locating qualified candidates. There can be no
assurance that the Company will be able to retain its key employees or that it
will be able to continue to attract, assimilate, and retain other skilled
management, sales, and technical personnel. The loss of certain key personnel or
the inability to attract and retain qualified employees in the future could have
a material adverse effect on the Company's business, results of operations,
and/or financial condition.
The application software industry is characterized by intense competition, rapid
technological advances, changes in client requirements, product introductions,
and evolving industry standards. The Company believes that its future success
will depend on its ability to compete successfully, and to continue to develop
and market new products and enhancements cost-effectively. This necessitates
continued investment in research and development and sales and marketing. There
can be no assurance that new industry standards or changing technology will not
render the Company's products obsolete or non-competitive, that the Company will
be able to develop and market new products successfully, or that the Company's
markets will accept its new product offerings. Furthermore, software programs as
complex as those the Company offers may contain undetected errors or bugs when
they are first introduced or as new versions are released. Despite Company and
third-party testing, there can be no assurance that errors will not be found in
new product offerings. Such errors can cause unanticipated costs and delays in
market acceptance of these products and could have a material adverse effect on
the Company's business, financial condition or cash flows. In addition, new
distribution methods, such as the Internet and other electronic channels, have
removed many of the barriers to entry that small and start-up software companies
faced in the past. Therefore, the Company expects competition to increase in its
markets.
If the Company were to experience delays in the commercialization and
introduction of new or enhanced products, if customers were to experience
significant problems with the implementation and installation of products, or if
customers were dissatisfied with product functionality or performance, this
could have a material adverse effect on the Company's business, results of
operations, financial condition, or cash flows.
There can be no assurance that the Company's new products will achieve
significant market acceptance or will generate significant revenue. Additional
products that the Company plans to directly or indirectly market in the future
are in various stages of development.
Intense competition in the various markets in which the Company competes may put
pressure on the Company to reduce prices on certain products, particularly in
the markets where certain vendors offer deep discounts in an effort to recapture
or gain market share or to sell other software or hardware products. The
bundling of software products for promotional purposes or as a long-term pricing
strategy or guarantees of product implementations by certain of the Company's
competitors could have the effect over time of significantly reducing the prices
that the Company can charge for its products. Additionally, while the
distribution of applications through application service providers may provide a
new market for the Company's products, these new distribution methods could also
reduce the price paid for the Company's products or adversely affect other sales
of its products. Any such price reductions and resulting lower license revenues
could have a material adverse effect on the Company's business, results of
operations, financial condition, or cash flows.
The Company uses a common industry practice to forecast sales and trends in its
business. The Company's sales personnel monitor the status of prospective sales,
such as the date when they estimate that a customer will make a purchase
decision and the potential dollar amount of the sale. The Company regularly
aggregates these estimates to generate a sales pipeline. The Company compares
the pipeline at various points in time to look for trends in its business. While
this pipeline analysis may provide the Company with some guidance in business
planning and budgeting, these pipeline estimates are necessarily speculative and
may not consistently correlate to revenues in a particular quarter or over a
longer period of time. A variation in the conversion of the pipeline into
contracts or in the pipeline itself could cause the Company to improperly plan
or budget and thereby adversely affect its business or results of operations. In
particular, a slowdown in the economy may cause purchasing decisions to be
delayed, reduced in amount or cancelled which will therefore reduce the overall
license pipeline conversion rates in a particular period of time.
Building upon its original investment, the Company continues to strengthen its
strategic alliance with Campus Pipeline, Inc. The Company has enhanced the
integration of its higher education information systems with the Campus Pipeline
product to provide 24-hour access to campus and Internet resources and allow
students to enroll, register for classes, view grades, request transcripts and
loan status, obtain reading lists, buy books, access email, and participate in
interactive chat sessions. While some of these features have been included in a
product released by Campus Pipeline, other features are scheduled for future
releases.
During fiscal year 2000, the Company made an investment in WebCT and entered
into a strategic alliance with WebCT to exclusively market the WebCT e-learning
tools and e-learning hub to the Company's higher education client base. The
alliance builds upon the Company's existing relationship with Campus Pipeline,
Inc. and the Company's self-service Web for Students and Web for Faculty
products to offer a unified, on-line, connected e-learning solution. This
integrated solution will enable clients to access information systems, learning
tools, online services, campus communication, and community resources through a
single point of access. The Company intends to provide the real-time,
bi-directional exchange of data between the Company's student information system
and the WebCT course environment, eliminating manual synchronization of like
information.
During fiscal year 2000, the Company sold its eFile Management middleware to
CourtLink, an e-filing leader, for cash and a small equity investment in
CourtLink. The Company also entered into a strategic alliance with CourtLink to
market the product in connection with the Company's products. The middleware
complements CourtLink's e-filing and access solution for the government market
by integrating e-filing and Web access with a court's case and document
management applications. Through this alliance, the Company and CourtLink bring
together the essential components of electronic filing, creating a comprehensive
e-filing solution.
The success of these investments and strategic alliances depends upon: (i) the
ability of the Company and its alliance partners to meet development and
implementation schedules for products and to enhance the products over time,
(ii) the market acceptance of the products, (iii) the Company's ability to
integrate the alliance partners' products with the Company's products
cost-effectively and on a timely basis, and (iv) the ability of the Company's
alliance partners to achieve their financial goals.
Certain of the Company's contracts are subject to "fiscal funding" clauses,
which entitle the client, in the event of budgetary constraints, to reduce the
level of services to be provided by the Company, with a corresponding reduction
in the fee the client must pay. In certain circumstances, the client may
terminate the services altogether. While the Company has not been impacted
materially by early terminations or reductions in service from the use of fiscal
funding provisions in the past, there can be no assurance that such provisions
will not give rise to early terminations or reductions of service in the future.
If clients that represent a substantial portion of the Company's revenues were
to invoke the fiscal funding provisions of their outsourcing services contracts,
the Company's results of operations could be adversely affected.
Certain of the Company's outsourcing contracts may be terminated by the client
for convenience. If clients that represent a substantial portion of the
Company's revenues terminate for convenience, the Company's 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 during the period in
which the Company learns of facts requiring those revisions.
The impact on the Company of areas such as the Internet, online services, and
electronic commerce is uncertain. There can be no assurance that the Company
will be able to provide a product that will satisfy new client demands in these
areas. In addition, standards for network protocols and other industry standards
for the Internet are evolving rapidly. There can be no assurance that standards
the Company chooses will position its products to compete effectively for
business opportunities as they arise on the Internet and in other emerging
areas.
The Company relies on a combination of copyright, trademark, trade secrets,
confidentiality procedures, and contractual procedures to protect its
intellectual property rights. Despite the Company's efforts to protect its
intellectual property rights, it may be possible for unauthorized third parties
to copy certain portions of the Company's products, or to reverse engineer or
obtain and use technology or other Company-proprietary information. There can
also be no assurances that the Company's intellectual property rights would
survive a legal challenge to their validity or provide significant protection to
the Company. In addition, the laws of certain countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Accordingly, there can be no assurance that the Company will be able to
protect its proprietary technology against unauthorized third-party copying or
use, which could adversely affect the Company's competitive position.
Other factors that could affect the Company's future operating results include
the effect of publicity on demand for the Company's products and services;
general economic and political conditions; continued market acceptance of the
Company's products and services; the timing of services contracts and renewals;
continued competitive and pricing pressures in the marketplace; new product
introductions by the Company's competitors; the Company's ability to complete
fixed-price contracts profitably; and the Company's ability to generate capital
gains sufficient to offset the capital losses that are expected to be realized
upon the disposition of the investments held by the Company for which the
carrying value has been reduced for financial reporting purposes.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in quantitative or qualitative disclosures
for fiscal year 2001. Reference is made to Item 7A in the Annual Report on Form
10-K for the year ended September 30, 2000.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
The Company has been involved in litigation relating to a software
implementation in Broward County, Florida. The Company believed that it had
meritorious defenses and the probability of an unfavorable outcome against the
Company was unlikely. However, on October 31, 2000, an adverse decision was
rendered against the Company in this litigation. The Company's claim for
approximately $3.1 million -- which was included in the Company's accounts
receivable balances -- for software licensed, services rendered, and expenses
incurred was denied. In addition, the Company was ordered to pay damages in the
amount of approximately $3.2 million plus prejudgment interest on a portion of
that amount. On post-trial motions, the amount of the judgment was reduced by
approximately $0.6 million. The Company has appealed the decision and believes
that insurance proceeds may be available to cover a portion of the damages
awarded against it. As a result of the court's decision and the inability to
predict the possibility of overturning the judgment on appeal, the Company
recorded a pretax charge of $5.8 million for damages and other costs associated
with the action in the fourth quarter of fiscal year 2000. In the opinion of
management, this amount, plus amounts previously accrued should be adequate to
cover the ultimate loss resulting from this matter in the event that the
appellate court affirms the lower court's decision.
The Company is also involved in other legal proceedings and litigation arising
in the ordinary course of business. In the opinion of management, the outcome of
such proceedings and litigation currently pending will not materially affect the
Company's consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on February 23, 2001,
Thomas I. Unterberg and Michael D. Chamberlain were reelected as directors of
the Company for a term expiring at the Company's 2004 Annual Meeting of
Shareholders. There were 24,605,893 votes cast in favor of the election of Mr.
Unterberg and 1,812,586 votes were withheld, and there were 25,639,784 votes
cast in favor of the election of Mr. Chamberlain and 778,695 votes were
withheld.
The amendment to the Company's 1994 Long-term Incentive Plan increasing the
number of shares of the Company's Common Stock reserved for issuance thereunder
from 5,500,000 to 7,500,000 shares was approved. The amendment is filed as
exhibit 10.1 of this Form 10Q. There were 15,725,547 votes cast in favor of
approval of the amendment, 4,983,841 votes against, and 56,858 abstained.
The adoption of the Company's 2000 Employee Stock Purchase Plan was approved.
The Plan is filed as exhibit 4 to the Company's Form S-8 filed February 26,
2001. There were 19,025,619 votes cast in favor of approval of the Plan,
1,686,883 votes against, and 53,744 abstained.
Item 6 (a). Exhibits
Exhibit 10.1 Amendment to the Systems & Computer Technology Corporation 1994
Long-Term Incentive Plan, as previously amended.
Item 6 (b). Reports on Form 8-K
The registrant did not file any current reports on Form 8-K during the three
months ended March 31, 2001.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Registrant)
Date: 05/10/01 /s/ Eric Haskell
------------------------------------------------
Eric Haskell
Senior Vice President, Finance & Administration,
Treasurer, and Chief Financial Officer