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 December 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
(Commission File Number)
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1701520
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Great Valley Corporate Center
4 Country View Road
Malvern, Pennsylvania 19355
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 647-5930
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
33,111,123 Common shares, $.01 par value, as of February 5, 2002
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 -
December 31, 2001 and September 30, 2000
Condensed Consolidated Statements of Operations -
Three Months Ended December 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows -
Three Months Ended December 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 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)
December 31, September 30,
2001 2001
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 55,233 $101,475
Short-term investments, including
accrued interest of $870 and $206 98,805 62,854
Receivables, including $32,900
and $26,026 of earned revenues
in excess of billings, net of
allowance for doubtful accounts
of $6,259 and $5,802 81,332 88,680
Prepaid expenses and other receivables 28,632 18,962
-------- --------
TOTAL CURRENT ASSETS 264,002 271,971
PROPERTY AND EQUIPMENT--at cost, net
of accumulated depreciation 50,423 52,415
CAPITALIZED COMPUTER SOFTWARE COSTS,
net of accumulated amortization 12,394 13,369
COST IN EXCESS OF FAIR VALUE OF NET
ASSETS ACQUIRED, net of accumulated
amortization 13,217 12,690
INTANGIBLE ASSETS, net of accumulated
amortization 7,554 8,301
OTHER ASSETS AND DEFERRED CHARGES 28,388 29,095
-------- --------
TOTAL ASSETS $375,978 $387,841
======== ========
Note: The condensed consolidated balance sheet at September 30, 2001 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)
December 31, September 30,
2001 2001
(UNAUDITED) (NOTE)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,667 $ 9,188
Current portion of long-term debt 2,583 2,771
Income taxes payable 981 7,697
Accrued expenses 36,832 42,180
Deferred revenue 29,269 26,137
-------- --------
TOTAL CURRENT LIABILITIES 75,332 87,973
LONG-TERM DEBT, less current portion 74,723 74,723
OTHER LONG-TERM LIABILITIES 3,341 3,748
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
37,717 and 37,634 shares 377 376
Capital in excess of par value 120,564 120,040
Retained earnings 127,259 126,697
Accumulated other comprehensive loss (347) (340)
-------- --------
247,853 246,773
Less
Held in treasury, 4,619 and 4,630 common
shares--at cost (24,771) (24,876)
Notes receivable from stockholders (500) (500)
-------- --------
222,582 221,397
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $375,978 $387,841
======== ========
Note: The condensed consolidated balance sheet at September 30, 2001 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
December 31,
2001 2000
Revenues:
Outsourcing services $ 12,406 $ 15,628
Software sales and commissions 7,612 15,613
Maintenance and enhancements 26,040 22,234
Software services 28,886 31,359
Interest and other income 1,611 1,309
-------- --------
76,555 86,143
Expenses:
Cost of outsourcing services 9,356 12,101
Cost of software sales, commissions,
maintenance and enhancements 17,752 19,286
Cost of software services 22,043 22,365
Selling, general and administrative 25,359 28,320
Interest expense 1,108 1,214
-------- --------
75,618 83,286
Income from continuing operations
before income taxes 937 2,857
Provision for income taxes 375 1,112
-------- --------
Income from continuing operations 562 1,745
Discontinued operations:
Income from discontinued operations,
adjusted for applicable provision
for income taxes of $0 and $160 -- 318
-------- --------
Net income $ 562 $ 2,063
======== ========
Income from continuing operations:
per common share $ 0.02 $ 0.05
per share -- assuming dilution $ 0.02 $ 0.05
Income from discontinued operations:
per common share $ -- $ 0.01
per share -- assuming dilution $ -- $ 0.01
Net income:
per common share $ 0.02 $ 0.06
per share -- assuming dilution $ 0.02 $ 0.06
Common shares and equivalents outstanding:
Average common shares 33,068 32,729
Average common shares -- assuming dilution 33,471 33,336
See notes to condensed consolidated financial statements.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Three Months Ended
December 31,
2001 2000
OPERATING ACTIVITIES
Net income $ 562 $ 2,063
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 5,306 6,779
Changes in operating assets and liabilities:
(Increase) decrease in receivables 6,686 (6,037)
(Increase) decrease in other current assets (9,670) 1,390
Decrease in accounts payable (3,521) (2,250)
Decrease in income taxes payable (6,716) --
Decrease in accrued expenses (5,348) (3,818)
Increase in deferred revenue 2,842 604
Other, net 330 748
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (9,529) (521)
INVESTING ACTIVITIES
Purchase of property and equipment (1,065) (1,658)
Capitalized computer software costs (278) (288)
Purchase of investments available for sale (57,099) (4,442)
Proceeds from sale or maturity of
investments available for sale 21,835 12,506
Purchase of subsidiary assets, net of
cash acquired (527) (2,800)
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (37,134) 3,318
FINANCING ACTIVITIES
Repayment of borrowings (188) (172)
Issuance (repurchase) of Company stock 105 (148)
Decrease in notes receivable from stockholders -- 110
Proceeds from exercise of stock options 504 1,043
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 421 833
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (46,242) 3,630
CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 101,475 49,155
--------- ---------
CASH & CASH EQUIVALENTS-END OF PERIOD $ 55,233 $ 52,785
========= =========
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) 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, 2001. Operating results for the
three-month period ended December 31, 2001, are not necessarily indicative of
the results that may be expected for the year ending September 30, 2002.
NOTE B--CASH AND SHORT-TERM INVESTMENTS
(in thousands)
Cash equivalents are short-term, highly liquid investments with maturities of
three months or less at the date of purchase.
Short-term investments consist of corporate and municipal debt securities.
Management determines the appropriate classification of the securities at the
time of purchase. At December 31, 2001, the portfolio of securities has been
classified as available for sale. These securities are carried at fair value,
based on quoted market values, with the unrealized gains and losses, net of
income taxes, reported as a component of accumulated other comprehensive loss.
The available-for-sale portfolio is comprised of highly liquid investments
available for current operations and general corporate purposes and,
accordingly, is classified as current assets.
Short-term investments at December 31, 2001 are comprised of:
State and municipal securities $ 335
Corporate securities 98,470
--------
$ 98,805
The contractual maturities of short-term investments held as of December 31,
2001 are:
Due in one year or less $ 98,257
Due after one year through four years 548
--------
$ 98,805
NOTE C--LONG-TERM INVESTMENTS
The Company has made investments for strategic business purposes of $16.0
million in the common and preferred stock of WebCT, a privately held Internet
company. The fair value of this investment, which is classified as a long-term
asset, is not readily determinable; therefore, it is carried at cost adjusted
for an other-than-temporary impairment discussed below. The Company regularly
reviews the underlying operating performance, cash flow forecasts, and recent
private equity transactions of this privately held company in assessing
impairment. In the second quarter of fiscal year 2001, the Company recorded
asset impairment charges of $7.8 million related to this investment.
In the third quarter of fiscal year 2001, the Company earned $2.7 million in
shares of WebCT. The Company earned these shares as a result of a joint
marketing agreement with WebCT pursuant to which schools with cumulative
enrollments totaling one million students licensed a product jointly developed
by the Company and WebCT. Commissions in the form of shares of WebCT will
continue to be earned as additional schools license this product now that this
threshold has been met. At December 31, 2001, the Company owns approximately 10%
of the voting shares of WebCT. At December 31, 2001, the aggregate investment in
WebCT is $10.9 million, and is included in other assets and deferred charges in
the consolidated balance sheet.
Throughout fiscal year 1999, the Company made a series of investments in Campus
Pipeline, Inc. As of December 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--RESTRUCTURING CHARGES
During the second quarter of fiscal year 2001, the Company decided that
restructuring actions were necessary to improve the Company's performance. The
restructuring plan included the termination of employees, management changes,
consolidation of certain facilities, and discontinuation of non-critical
programs. During the quarter ended June 30, 2001, the Company accrued $3.5
million related to severance and termination benefits and $0.4 million of other
costs based on a termination plan developed by management in consultation with
the Board of Directors. As of December 31, 2001, $0.8 million of this accrual
remains. In May and June 2001, the Company terminated approximately 150
employees engaged primarily in marketing, administrative, special-programs, and
development functions.
The Company continued to evaluate its business prospects and forecasts during
the fourth quarter of fiscal year 2001. As a result of its evaluation, the
Company implemented another restructuring plan, which included the
discontinuation of non-critical programs, termination of employees, and
consolidation of certain facilities primarily in the energy and utilities
business. The restructuring was carried out in an effort to improve the
Company's performance. During the quarter, the Company accrued $0.5 million
related to severance and termination benefits and $0.6 million of other costs
based on a termination plan developed by management in consultation with the
Board of Directors. As of December 31, 2001, $0.5 million of this accrual
remains. In August 2001, the Company terminated approximately 40 employees
engaged primarily in marketing, administrative, special-programs, and
development functions.
NOTE E--EARNINGS PER SHARE
(in thousands, except per share amounts)
A reconciliation of the numerators and the denominators of net income per common
share and net income per share -- assuming dilution follows:
For the Three Months
Ended December 31,
2001 2000
Numerator:
Income from continuing
operations available to
common stockholders $ 562 $ 1,745
Discontinued operations:
Income from discontinued
operations, net of income taxes -- 318
Net income available
to common stockholders $ 562 $ 2,063
======== =======
Denominator:
Weighted average common shares 33,068 32,729
Effect of dilutive securities:
Employee stock options 403 637
------- -------
Weighted average common shares
-- assuming dilution 33,471 33,366
======= =======
Income from continuing operations
per common share $ 0.02 $ 0.05
per share -- assuming dilution $ 0.02 $ 0.05
Income from discontinued operations
per common share $ -- $ 0.01
per share -- assuming dilution $ -- $ 0.01
Net income
per common share $ 0.02 $ 0.06
per share -- assuming dilution $ 0.02 $ 0.06
Potentially dilutive securities with an anti-dilutive effect (convertible debt
in all periods presented) are not included in the above calculation.
NOTE F--PRODUCT DEVELOPMENT
Product development expenditures, including software maintenance expenditures,
for the three months ended December 31, 2001 and 2000, were approximately $11.6
million and $12.9 million, respectively. After capitalization, these amounts
were approximately $11.3 million and $12.6 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 $1.3
million and $1.4 million, respectively.
NOTE G--BUSINESS SEGMENTS
(in thousands)
The Company has three reportable segments: Global Education Solutions (GES);
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, and amortization of intangible assets purchased in
business acquisitions. Interest and other income is not included in the revenue
disclosures below.
Three months ended December 31, 2001
All
GES M&DS EUC Other Total
Outsourcing services $ 8,353 $ -- $ 4,053 $ -- $ 12,406
Software sales and
commissions, and
maintenance and
enhancements 25,020 3,608 5,024 -- 33,652
Software services 14,709 4,470 9,707 -- 28,886
------- ------- ------- ------- -------
External revenues 48,082 8,078 18,784 -- 74,944
Intersegment revenues -- -- 18 (18) --
Segment profit (loss) 5,203 (2,996) 745 (2,015) 937
Three months ended December 31, 2000
All
GES M&DS EUC Other Total
Outsourcing services $ 10,182 $ 1,281 $ 4,165 $ -- $ 15,628
Software sales and
commissions, and
maintenance and
enhancements 22,174 6,103 9,570 -- 37,847
Software services 12,411 5,919 13,029 -- 31,359
------- ------- ------- ------- -------
External revenues 44,767 13,303 26,764 -- 84,834
Intersegment revenues 332 3 -- (335) --
Segment profit (loss) 5,145 (3,457) 3,420 (2,251) 2,857
NOTE H--COMPREHENSIVE INCOME
(in thousands)
Three Months
Ended December 31,
2001 2000
Net income $ 562 $ 2,063
Other comprehensive income (loss) (7) 93
-------- -------
Total Comprehensive Income $ 555 $ 2,156
Other comprehensive income relates primarily to currency translation adjustments
related to foreign subsidiaries whose functional currencies are their local
currencies.
NOTE I--GOODWILL AND INTANGIBLE ASSETS
(in thousands, except per share amounts)
Effective October 1, 2001, the Company early adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which
resulted in discontinuing the amortization of goodwill. Under the Statement,
goodwill will instead be carried at its book value as of October 1, 2001, and
any future impairment of goodwill will be recognized as either a change in
accounting principle (with respect to the transitional impairment test conducted
within six months of adoption) or as an operating expense in the period of
impairment. However, under the terms of the Statement, identifiable intangibles
with identifiable lives will continue to be amortized.
The Company's goodwill was $12,690 and $13,217 at September 30, 2001 and
December 31, 2001, respectively. The Company is required to complete its
transitional impairment test of existing goodwill by March 31, 2002. The Company
has not yet completed its transitional impairment test and as such is currently
unable to assess the effect of this test on the earnings and financial position
of the Company. The Company will be required to test the value of its goodwill
at least annually.
The gross carrying amount and accumulated amortization of amortizing intangible
assets are as follows:
December 31, 2001 September 30, 2001
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Capitalized software costs $ 42,916 $ (30,522) $ 42,638 $ (29,269)
Purchased software 20,071 (13,351) 20,071 (12,770)
Covenants-not-to-compete 7,071 (6,237) 7,071 (6,071)
-------- --------- -------- ---------
$ 70,058 $ (50,110) $ 69,780 $ (48,110)
Estimated amortization expense for the next five fiscal years ending September
30, are as follows:
Fiscal Year
2002 $ 8,029
2003 6,236
2004 4,674
2005 2,210
2006 631
thereafter 168
-------
Total $21,948
Amortization expense on intangible assets was $2,000 and $2,147 for the three
months ended December 31, 2001 and 2000, respectively. In addition, the fiscal
year 2001 period included $368, net of taxes, related to the amortization of
goodwill.
The following table discloses the effect on net income and earnings per share of
excluding amortization expense related to goodwill, which was recognized in the
three months ended December 31, 2000, as if such goodwill had been recognized in
accordance with SFAS 142.
December 31, December 31,
2001 2000
Reported net income $ 562 $ 2,063
Plus: Goodwill amortization, net of taxes -- 368
------ -------
Adjusted net income $ 562 $ 2,431
Per common share:
Net income $ 0.02 $ 0.06
Goodwill amortization -- 0.01
------ -------
Adjusted net income $ 0.02 $ 0.07
Per share -- assuming dilution
Net income $ 0.02 $ 0.06
Goodwill amortization -- 0.01
------ -------
Adjusted net income $ 0.02 $ 0.07
NOTE J--NEW ACCOUNTING STANDARDS
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 adopted the provisions of SAB 101 during the fourth quarter of fiscal
year 2001.
NOTE K--SUBSEQUENT EVENTS
January 3, 2002, Michael J. Emmi, President, Chief Executive Officer, and
Chairman of the Board of Directors announced his retirement from the Company
effective immediately. Michael D. Chamberlain, who has served the Company in
various executive capacities since 1986, most recently as Chief Operating
Officer, and a member of the Board of Directors since 1989, was elected
President and Chief Executive Officer. Allen R. Freedman, a member of the
Company's Board of Directors since 1982, was elected non-executive Chairman of
the Board. Mr. Freedman was Chairman and Chief Executive Officer of Fortis,
Inc., a multi-billion dollar financial services company, prior to his retirement
in July 2000.
In connection with Mr. Emmi's retirement, he received a compensation package
including a reduction of indebtednesses, the continuation of Mr. Emmi's life and
health insurance and other fringe benefits for periods ranging from two to five
years, as well as an assignment, to Mr. Emmi, of life insurance policies
covering Mr. Emmi, and the immediate vesting of certain rights under other
compensation plans. All Company stock options held by Mr. Emmi became vested and
were amended to permit Mr. Emmi to exercise them by the earlier of their
original expiration date or two years from the date of his resignation. The
Company will record a charge of approximately $3.5 million related to the above
actions in the second quarter of fiscal year 2002. The Company may pay an
additional amount to Mr. Emmi if certain strategic corporate objectives
established by the Board before Mr. Emmi's termination are achieved on or before
December 31, 2002.
Effective January 10, 2002, the Company acquired USA Education, Inc.'s (commonly
known as Sallie Mae) student information systems business (the business) for the
higher education market. Under the terms of the agreement, the Company acquired
Sallie Mae's Exeter Student Suite and Perkins/Campus Loan Management product
lines and related resources based in Cambridge, MA for approximately $15.5
million cash. If the business achieves certain predetermined criteria during the
remainder of fiscal year 2002, the Company will make an additional cash payment
of up to $2.0 million at September 30, 2002. In addition, the Company could make
further cash payments of up to $5.3 million over the next four years, contingent
upon the revenue derived from the license or other sale of the purchased product
lines over that period. The Company purchased the business to increase its
market opportunities in the higher education market. The product lines purchased
include an Oracle-based set of solutions and technology, the components of which
are expected to be integrated into the Company's higher education product lines.
The purchased product lines also include a Microsoft-based solution that is
under development and when completed, will allow clients a technology choice.
On January 30, 2002, the Company announced that it has entered into an agreement
to acquire Applied Business Technologies, Inc. (ABT) of Newtown Square, PA for
$16.7 million cash. The consummation of the transaction is subject to certain
closing conditions. If the transaction is consummated, the ABT acquisition will
further increase the Company's market opportunities in the higher education
market. The acquisition will give the Company a Microsoft-based solution for
small to mid-sized institutions.
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 Months Ended
December 31,
2001 2000
Revenues:
Outsourcing services 16% 18% (21%)
Software sales and commissions 10% 18% (51%)
Maintenance and enhancements 34% 26% 17%
Software services 38% 36% (8%)
Interest and other income 2% 2% 23%
----- ----- -----
Total 100% 100% (11%)
Expenses:
Cost of services, software sales,
Commissions, and maintenance
enhancements 64% 62% (9%)
Selling, general and administrative 33% 33% (11%)
Interest expense 2% 2% (9%)
Income before income taxes 1% 3% (67%)
The following table sets forth the gross profit for each of the following
revenue categories as a percentage of revenue for each such category and the
total gross profit as a percentage of total revenue (excluding interest and
other income). The Company does not separately present the cost of maintenance
and enhancements revenue as it is impracticable to separate such cost from the
cost of software sales.
Three Months
Ended
December 31,
2001 2000
Gross Profit:
Outsourcing services 25% 23%
Software sales and maintenance
and enhancements 47% 49%
Software services 24% 29%
--- ---
Total 34% 37%
Revenues:
Outsourcing services revenue decreased 21% in the first three months of fiscal
year 2002 compared with the prior-year period. This decrease is primarily the
result of the completion of contracts in the third quarter of fiscal year 2001.
Software sales and commissions decreased 51% in the first quarter of fiscal year
2002 compared to the prior-year period due to decreased licenses in the
Company's process manufacturing and distribution and energy and utilities
markets. The Company believes these decreases are primarily the result of
caution in the general business climate, which has been particularly felt in the
technology sector, as well as concerns over deregulation in the energy and
utilities market.
The 17% increase in maintenance and enhancements revenue in the first quarter of
fiscal year 2002 was 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 8% in the first quarter of fiscal year 2002
compared with the first quarter of fiscal year 2001. The decreases are primarily
the result of decreased implementation and integration services performed in the
energy and utilities and manufacturing and distribution markets partially offset
by increases in the higher education market. These decreases were primarily the
result of a decline in license fees, which generate service orders.
Gross Profit:
Gross profit decreased as a percentage of total revenue (excluding interest and
other income) from 37% for the first quarter of fiscal year 2001 to 34% for the
first quarter of fiscal year 2002. The total gross profit percentage decreased
because of decreases in the software sales, commissions, maintenance, and
enhancements gross profit percentage and the software services gross profit
percentage. The software sales, commissions, maintenance, and enhancements gross
profit percentage decrease is primarily the result of decreased software sales
during the fiscal year 2002 period. These decreases were partially offset by
increases in maintenance and enhancement revenue and reduced development
expenses as a result of the restructuring measures taken in fiscal year 2001.
Software services margins decreased primarily as a result of decreased
utilization in the energy and utilities market. The Company anticipates reduced
services revenue in the energy and utilities market in fiscal year 2002 and
implemented a restructuring plan during fiscal year 2001 in an attempt to
improve future performance. These decreases were partially offset by increases
in the outsourcing services gross profit percentage primarily as a result of
fiscal year 2001 cost reductions and improved utilization on existing contracts.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased in the first quarter of
fiscal year 2002 compared with the prior year period primarily as a result of
(i) decreased administrative costs due to the restructuring plans implemented in
fiscal year 2001 and (ii) decreased sales commissions as a result of decreased
license fee revenues in the first quarter of fiscal year 2002.
Restructuring Charges:
The Company is currently evaluating the need for additional restructuring
actions in the second quarter of fiscal year 2002 to improve the Company's
performance. The Company is evaluating cost structures and non-critical programs
within the market units and corporate departments.
During the second quarter of fiscal year 2001, the Company decided that
restructuring actions were necessary to improve the Company's performance. The
restructuring plan included the termination of employees, management changes,
consolidation of certain facilities, and discontinuation of non-critical
programs. During the quarter ended June 30, 2001, the Company accrued $3.5
million related to severance and termination benefits and $0.4 million of other
costs based on a termination plan developed by management in consultation with
the Board of Directors. As of December 31, 2001, $0.8 million of this accrual
remains. In May and June 2001, the Company terminated approximately 150
employees engaged primarily in marketing, administrative, special-programs, and
development functions.
The Company continued to evaluate its business prospects and forecasts during
the fourth quarter of fiscal year 2001. As a result of its evaluation, the
Company implemented another restructuring plan, which included the
discontinuation of non-critical programs, termination of employees, and
consolidation of certain facilities primarily in the energy and utilities
business. The restructuring was carried out in an effort to improve the
Company's performance. During the quarter, the Company accrued $0.5 million
related to severance and termination benefits and $0.6 million of other costs
based on a termination plan developed by management in consultation with the
Board of Directors. As of December 31, 2001, $.5 million of this accrual
remains. In August 2001, the Company terminated approximately 40 employees
engaged primarily in marketing, administrative, special-programs, and
development functions.
Subsequent events:
January 3,2002, Michael J. Emmi, President, Chief Executive Officer, and
Chairman of the Board of Directors announced his retirement from the Company
effective immediately. Michael D. Chamberlain, who has served the Company in
various executive capacities since 1986, most recently as Chief Operating
Officer, and a member of the Board of Directors since 1989, was elected
President and Chief Executive Officer. Allen R. Freedman, a member of the
Company's Board of Directors since 1982, was elected non-executive Chairman of
the Board. Mr. Freedman was Chairman and Chief Executive Officer of Fortis,
Inc., a multi-billion dollar financial services company, prior to his retirement
in July 2000.
In connection with Mr. Emmi's retirement, he received a compensation package
including a reduction of indebtednesses, the continuation of Mr. Emmi's life and
health insurance and other fringe benefits for periods ranging from two to five
years, as well as an assignment, to Mr. Emmi, of life insurance policies
covering Mr. Emmi, and the immediate vesting of certain rights under other
compensation plans. All Company stock options held by Mr. Emmi became vested and
were amended to permit Mr. Emmi to exercise them by the earlier of their
original expiration date or two years from the date of his resignation. The
Company will record a charge of approximately $3.5 million related to the above
actions in the second quarter of fiscal year 2002. The Company may pay an
additional amount to Mr. Emmi if certain strategic corporate objectives
established by the Board before Mr. Emmi's termination are achieved on or before
December 31, 2002.
Effective January 10, 2002, the Company acquired USA Education, Inc.'s (commonly
known as Sallie Mae) student information systems business (the business) for the
higher education market. Under the terms of the agreement, the Company acquired
Sallie Mae's Exeter Student Suite and Perkins/Campus Loan Management product
lines and related resources based in Cambridge, MA for approximately $15.5
million cash. If the business achieves certain predetermined criteria during the
remainder of fiscal year 2002, the Company will make an additional cash payment
of up to $2.0 million at September 30, 2002. In addition, the Company could make
further cash payments of up to $5.3 million over the next four years, contingent
upon the revenue derived from the license or other sale of the purchased product
lines over that period. The Company purchased the business to increase its
market opportunities in the higher education market. The product lines purchased
include an Oracle-based set of solutions and technology, the components of which
are expected to be integrated into the Company's higher education product lines.
The purchased product lines also include a Microsoft-based solution that is
under development and when completed will allow clients a technology choice.
On January 30, 2002, the Company announced that it has entered into an agreement
to acquire Applied Business Technologies, Inc. (ABT) of Newtown Square, PA for
$16.7 million cash. The consummation of the transaction is subject to certain
closing conditions. If the transaction is consummated, the ABT acquisition will
further increase the Company's market opportunities in the higher education
market. The acquisition will give the Company a Microsoft-based solution for
small to mid-sized institutions.
Contingency:
The Company had 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
January 2002, the Company paid $2.5 million and the judgment was satisfied of
record. While this contract was originated within the Global Government
Solutions business, which was sold on June 29, 2001, the right to appeal and the
impact of the related outcome were retained by the Company.
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 following discussion of cash flow activity for the fiscal year 2001 period
is based upon historical information as the statement of cash flows for the
fiscal year 2001 period does not present the Global Government Solutions
business, which was sold on June 29, 2001, as a discontinued operation.
The Company's cash and short-term investments balance was $154.0 million and
$164.3 million as of December 31, 2001, and September 30, 2001, respectively.
The cash balances decreased primarily as a result of cash used in operations
discussed below.
Cash used in operating activities was $9.5 million for the first quarter of
fiscal year 2002, compared with $0.5 million for the prior-year period. The
primary uses of cash in the fiscal year 2002 period were increased other current
assets, primarily current deferred taxes, and decreased accounts payable and
other current liabilities. The decrease in liabilities is primarily the result
of the payment of income taxes. These charges were partially offset by decreased
accounts receivable and increased deferred revenue.
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 seven 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 immediately bill for them.
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
in a software services contract cause 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.
Long-Term Investments:
The Company has made investments for strategic business purposes of $16.0
million in the common and preferred stock of WebCT, a privately held Internet
company. The fair value of this investment, which is classified as a long-term
asset, is not readily determinable; therefore, it is carried at cost adjusted
for an other-than-temporary impairment discussed below. The Company regularly
reviews the underlying operating performance, cash flow forecasts, and recent
private equity transactions of this privately held company in assessing
impairment. In fiscal 2001, the cost basis was reduced and earnings were charged
as a result of an impairment that was other than temporary. Future earnings
would also be reduced and earnings would be charged if there was an additional
impairment that was found to be other than temporary at a future balance sheet
date. The Company's future results of operations could be materially affected by
a future write down in the carrying amount of this investment to recognize an
impairment loss due to an other than temporary decline in the value of the
investment. In the second quarter of fiscal year 2001, the Company recorded
asset impairment charges of $7.8 million related to this investment. In the
third quarter of fiscal year 2001, the Company earned $2.7 million in shares of
WebCT. The Company earned these shares as a result of a joint marketing
agreement with WebCT pursuant to which schools with cumulative enrollments
totaling one million students licensed a product jointly developed by the
Company and WebCT. Commissions in the form of shares of WebCT will continue to
be earned as additional schools license this product now that this threshold has
been met. At December 31, 2001, the Company owns approximately 10% of the voting
shares of WebCT. At December 31, 2001, the aggregate investment in WebCT is
$10.9 million, and is included in other assets and deferred charges in the
consolidated balance sheet.
Throughout fiscal year 1999, the Company made a series of investments in Campus
Pipeline, Inc. As of December 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.
Cash used in investing activities was $37.1 million for the first three months
of fiscal year 2002 compared with cash provided of $3.3 million for the fiscal
year 2001 three-month period. In the fiscal year 2002 period, cash was primarily
used in the purchase of investments using the available cash balances from
September 30, 2001. The primary source of cash in the three months ended
December 31, 2000, was the sale and maturity of available-for-sale investments.
Other cash uses included $0.5 million contingent consideration paid with respect
to the August 2000 EnerLink acquisition in the fiscal year 2002 period. In the
fiscal year 2001 period, other uses of cash included $2.8 million for the
purchase of Omni-Tech Systems, Ltd. assets, which were subsequently sold in the
June 2001 Global Government Solutions business sale.
The $0.4 million and $0.8 million in cash provided by financing activities for
the first quarter of fiscal year 2002 and 2001, 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 2003
and includes optional annual renewals. There were no borrowings outstanding at
December 31, 2001, or September 30, 2001. As long as there are borrowings
outstanding, and as a condition precedent to new borrowings, the Company must
comply with certain covenants established in the agreement. Under the covenants,
the Company is required to maintain certain financial ratios and other financial
conditions. The Company may not pay dividends (other than dividends payable in
common stock) or acquire any of its capital stock outstanding without a written
waiver from its lender.
The credit agreement provides for the issuance of letters of credit. The amount
available for borrowing under the revolving credit facility is reduced by the
total outstanding letters of credit. At December 31, 2001, the Company had $0.5
million of letters of credit outstanding and $29.5 million available under the
revolving credit facility. The Company pays a commitment fee of 5/16% on the
unused portion of the revolving credit facility.
The Company has convertible debentures outstanding, which bear interest at 5%
and mature on October 15, 2004. In 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
December 31, 2001, is $74.7 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 2002 and
2001 periods and therefore are not included in the above denominators for income
from continuing operations per share -- assuming dilution, income from
discontinued operations per share -- assuming dilution, or net income per share
-- assuming dilution for these periods.
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:
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 revenue recognition
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 adopted the provisions of SAB 101 in the fourth
quarter of fiscal year 2001. The adoption did not 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, strategic priorities, or economic
uncertainty; and clients often exhibit a seasonal pattern of capital spending.
The Company has historically generated a greater portion of license fees and
total revenue in the last two fiscal quarters, although there is no assurance
that this will continue.
Because a significant part of the Company's business results from software
licensing, it is characterized by a high degree of operating leverage. The
Company bases its expense levels, in significant part, on its expectations of
future revenues. Therefore, these expense levels are relatively fixed in the
short term. If software licensing revenues do not meet expectations, net income
is likely to be disproportionately adversely affected. There can be no assurance
that the Company will be able to increase profitability 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. 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 e-mail, 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.
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 would 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 future results of
operations would be adversely affected.
The Company provides software-related services, including systems implementation
and integration services. Services are provided under time and materials
contracts, in which case revenue is recognized as the services are provided, and
under fixed-price arrangements, in which case revenue is recognized on the
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.
On June 29, 2001, the Company sold its Global Government Solutions business to
Affiliated Computer Services, Inc., ("ACS") for $85 million in cash. These
proceeds may be subject to adjustment in certain circumstances. Based on a
formula contained in the purchase agreement, the purchase price reduction could
be as much as approximately $40 million, although the Company does not believe
that any material reduction will occur. In addition, the Company made certain
representations and warranties to ACS under the purchase agreement, which could
also result in adjustments to the proceeds received. If a purchase price
adjustment should result, or if the Company is found to have breached any of the
representations and warranties contained in the purchase agreement, the Company
may have to return cash proceeds and the Company's financial results could be
adversely affected.
In January 2002, the Company acquired the Sallie Mae student information systems
business and announced that it entered into an agreement to purchase Applied
Business Technologies, Inc. ("ABT"). These acquisitions were entered into to
increase the Company's opportunities in the higher education market. The success
of these acquisitions depends upon: (i) the Company's ability to integrate the
acquired products and operations with the Company's products and operations
cost-effectively and on a timely basis, (ii) the ability of the Company to meet
development and implementation schedules for the acquired products and to
enhance the acquired products over time, (iii) the market acceptance of the
products; and (iv) the ability of the Company to consummate the ABT acquisition.
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; the events of September 11, 2001;
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 2002. Reference is made to Item 7A in the Annual Report on Form
10-K for the year ended September 30, 2001.
SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
The Company had 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
January 2002, the Company paid $2.5 million and the judgment was satisfied of
record. While this contract was originated within the Global Government
Solutions business, which was sold on June 29, 2001, the right to appeal and the
impact of the related outcome were retained by the Company.
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 6 (b). Reports on Form 8-K
The registrant did not file any current reports on Form 8-K during the three
months ended December 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: 02/13/02 /s/ Eric Haskell
--------------------------------
Eric Haskell
Senior Vice President, Finance & Administration,
Treasurer, and Chief Financial Officer