1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ending June 30, 1998
AMDOCS LIMITED
Tower Hill House Le Bordage GY1 3QT
St. Peter Port, Island of Guernsey, Channel Islands
Amdoc, Inc.
1610 Des Peres Road, St. Louis, Missouri 63131
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.)
FORM 20 F X FORM 40 F
(Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of
1934.)
YES NO X
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AMDOCS LIMITED
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
(Unaudited)
Consolidated Statements of Cash Flows
(Unaudited)
Notes to Unaudited Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
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ITEM 1. FINANCIAL INFORMATION
AMDOCS LIMITED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30, June 30,
1997 1998
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 53,732 $ 41,693
Accounts receivable, including
unbilled of $2,031 and
$3,590, respectively 48,565 64,186
Accounts receivable from related
parties, including unbilled
of $0 and $930, respectively 15,393 19,427
Deferred income taxes 12,532 12,705
Prepaid expenses and other
current assets 6,161 6,756
-------- --------
Total current assets 136,383 144,767
Equipment, vehicles and leasehold
improvements, net 28,287 39,155
Deferred income taxes 4,587 8,363
Intellectual property rights 25,982 24,017
Other noncurrent assets 25,343 21,621
-------- --------
$220,582 $237,923
======== ========
Liabilities and shareholders'
equity (deficit)
Current liabilities:
Accounts payable and accrued
expenses $ 30,543 $ 43,532
Accrued personnel costs 23,098 28,943
Short-term financing
arrangements 1,998 17,470
Unearned revenue 17,440 33,511
Notes payable to related parties 3,268 --
Short-term portion of capital
lease obligations 1,954 2,340
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Deferred income taxes and income
taxes payable 20,151 20,886
-------- ---------
Total current liabilities 98,452 146,682
Long-term debt and capital lease 7,370 101,847
obligations
Other noncurrent liabilities 20,507 22,678
Shareholders' equity (deficit):
Preferred Shares - authorized
25,000 shares; pound sterling 0.01 par
value; 0 shares issued and
outstanding -- --
Ordinary Shares - authorized
550,000 shares; pound sterling 0.01 par
value; 124,708 and 196,800
outstanding, respectively 1,996 3,149
Additional paid-in capital 105,779 447,597
Unearned compensation -- (10,333)
Accumulated deficit (13,522) (473,697)
--------- ---------
Total shareholders' equity
(deficit) 94,253 (33,284)
--------- ---------
$ 220,582 $ 237,923
========= =========
The accompanying notes are an integral part of these financial statements.
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AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three months ended June 30 Nine months ended June 30
1997 1998 1997 1998
Revenue:
License $ 6,851 $ 11,322 $ 15,568 $ 29,741
Service 70,238 95,175 186,547 257,322
--------------- ----------------- ----------------- ---------------
77,089 106,497 202,115 287,063
Operating expenses:
Cost of license 1,568 2,654 3,880 8,521
Cost of service 47,925 60,518 122,129 165,268
Research and development 4,167 7,172 12,178 18,127
Selling, general and
administrative 10,066 13,332 26,373 36,356
--------------- ----------------- ----------------- ---------------
63,726 83,676 164,560 228,272
--------------- ----------------- ----------------- ---------------
Operating income 13,363 22,821 37,555 58,791
Other expense (income), net:
Interest expense 184 9,212 696 23,013
Other, net (218) 723 (546) (1,241)
--------------- ----------------- ----------------- ---------------
(34) 9,935 150 21,772
Income before income taxes 13,397 12,886 37,405 37,019
Income tax expense 6,019 6,443 13,222 18,510
--------------- ----------------- ----------------- ---------------
Net income $ 7,378 $ 6,443 $ 24,183 $ 18,509
=============== ================= ================= ===============
Basic earnings per share $ 0.07 $ 0.04 $ 0.22 $ 0.13
=============== ================= ================= ===============
Diluted earnings per share $ 0.07 $ 0.04 $ 0.22 $ 0.13
=============== ================= ================= ===============
The accompanying notes are an integral part of these financial statements.
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AMDOCS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Nine Months Ended
June 30, June 30,
1997 1998
Net cash provided by operating activities $ 27,709 $ 51,269
Investing activities
Purchase of equipment and leasehold improvements (7,346) (17,412)
---------- ---------
Net cash used in investing activities (7,346) (17,412)
Financing activities
Net proceeds from issuance of Ordinary Shares - 332,223
Dividends paid (18,000) (478,684)
Borrowings under short-term financing arrangements 110,127 223,921
Payments on short-term financing arrangements (110,706) (208,449)
Payments on notes payable to related parties - (3,268)
Net proceeds from issuance of long-term debt - 357,877
Principal payments under long-term debt and
capital leases obligations (787) (269,516)
---------- ---------
Net cash used in financing activities (19,366) 45,896)
Net increase (decrease) in cash and cash equivalents 997 (12,039)
Cash and cash equivalents at beginning of period 16,083 53,732
---------- ---------
Cash and cash equivalents at end of period $ 17,080 $ 41,693
========== =========
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Supplementary Cash Flow Information
Interest and Income Taxes Paid For the Nine Months Ended
June 30, June 30,
1997 1998
Cash paid for:
Income taxes, net of refunds $ 8,800 $ 21,857
Interest 700 20,891
Non Cash Investing and Financing Activities
Capital lease obligations of $4,328 and $2,106 were incurred during the
nine months ended June 30, 1997 and 1998, respectively, when the Company
entered into lease agreements for vehicles.
The accompanying notes are an integral part of these financial statements.
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AMDOCS LIMITED
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 1 - THE COMPANY
Amdocs Limited (the "Company" or "Amdocs") and its subsidiaries provide
product-driven information system solutions to major telecommunication companies
in the United States and around the world.
NOTE - 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States. In the opinion of management, all adjustments considered
necessary for a fair presentation of the unaudited interim consolidated
financial statements have been included therein and are of a normal recurring
nature. The results of operations for the interim periods presented herein are
not necessarily indicative of the results to be expected for the full year.
These statements, however, do not include all information and footnotes
necessary for a complete presentation of financial position, results of
operations, and cash flow in conformity with generally accepted accounting
principles. For further information, refer to the Company's consolidated
financial statements for the year ended September 30, 1997 set forth in the
Company's Registration Statement on Form F-1 filed with the Commission on June
19, 1998.
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Stock Based Compensation
The Company has elected to account for stock-based compensation in
accordance with the provisions of the Accounting Principle Board's Opinion No.
25, "Accounting for Stock Issued to Employees," and to apply the disclosure
provisions of SFAS No. 123, "Accounting for Stock Based Compensation."
Compensation expense is recorded based on the difference between the exercise
price of options granted and the market value of the underlying shares at the
date of grant.
Financial Instruments
The Company utilizes derivative financial instruments to reduce its
exposure from changes in foreign exchange rates. The instruments primarily used
are forward exchange contracts.
The Company enters into forward exchange contracts to hedge foreign
currency transactions on a continuous basis for periods consistent with its
committed exposures. The United States dollar equivalent of contractual amounts
of the Company's forward exchange contracts to sell (purchase) the currencies
below, at June 30, 1998, consist of the following:
Great Britain Pounds 21,115
Austrian Shillings 15,332
Japanese Yen 7,507
Australian Dollars (44,107)
Other currencies (1,031)
Realized gains and losses on foreign exchange contracts are not
material in the periods ended June 30, 1998 or 1997.
Pending Adoption of New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company plans to adopt the new Statement effective July 1, 1998.
The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Changes in the fair value of derivatives used for
hedging purposes, depending on the nature of the hedge, will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings or recognized in other comprehensive income
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until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company estimates that the effect of its adoption of Statement 133
on the earnings of the Company will not be material.
NOTE - 3 INCOME TAXES
The provision for income taxes for the nine month periods ended June
30, 1997 and 1998, consists of the following:
1997 1998
-------- --------
Current $ 16,038 $ 20,260
Deferred (2,816) (1,750)
-------- --------
$ 13,222 $ 18,510
The effective income tax rate varied from the statutory Guernsey tax
rate as follows for the nine month periods ended June 30, 1997 and 1998:
1997 1998
---- ---
Statutory Guernsey tax rate 20% 20%
Guernsey tax-exempt status (20) (20)
Foreign taxes 30 50
--- ---
Effective income tax rate 30% 50%
The increase in the effective income tax rate in 1998 reflects the
estimated annual impact of certain expenses, primarily interest expense,
incurred in a tax jurisdiction in which the Company has tax-exempt status,
depriving the Company of a tax benefit which would otherwise offset tax expense
incurred in other jurisdictions.
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NOTE 4 - FINANCING ARRANGEMENTS
Long-term debt and capital lease obligations at June 30, 1998 consist of the
following:
Notes payable to affiliates of certain
shareholders, interest rate 10%, principal
due September 2004 $ 74,521
Revolving credit facility, variable interest
rate, 8.1% at June 30, 1998, principal due
at maturity December 2002 20,000
Capital lease obligations 9,666
----------
104,187
Less current portion of capital obligations 2,340
----------
$ 101,847
==========
NOTE 5 - STOCK OPTION PLAN
In January 1998, the Company adopted its 1998 Stock Option and
Incentive Plan (the "Plan"). Under the provisions of the Plan, 4,100 Ordinary
Shares are available to be granted to officers, directors, employees, and
consultants. In January 1998, options were granted to purchase 1,651 Ordinary
Shares at an exercise price of $1.92 per share with vesting over four years and
an option term of 10 years. On June 19, 1998, the Company granted options for an
additional 855.4 shares with vesting over 3.5 years and the same exercise price
as the options granted in January 1998. In connection with the June 1998 grants,
the Company recorded unearned compensation expense totaling $10,333 as a
separate component of shareholders' equity for the difference between the fair
market value per share at the date of grant and the exercise price of $1.92 per
share. Additional Paid in Capital was increased by the same amount. The unearned
compensation will be amortized ratably over the vesting
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period of 3.5 years.
In May 1998, options to purchase 21 Ordinary Shares were granted to two
non-employee directors at an exercise price equal to the offering price in the
Company's initial public offering.
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NOTE 6 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended June 30, Nine months ended June 30,
---------------------------- ---------------------------
1997 1998 1997 1998
-------- -------- ------- --------
Numerator:
Net Income $ 7,378 $ 6,443 $ 24,183 $ 18,509
======== ======== ======== ========
Denominator:
Denominator for
basic
earnings per
share -
weighted
average
shares 107,916 181,174 107,916 145,630
Effect of
dilutive
contingently
issuable
shares 2,584 -- 2,584 --
Effective of
dilutive
stock options
granted -- 1,522 -- 821
-------- -------- -------- --------
Denominator for
dilutive
earnings per
share -
adjusted
weighted
average
shares and
assumed
conversions 110,500 182,696 110,500 146,451
======== ======== ======== ========
Basic earnings per
share $ 0.07 $ 0.04 $ 0.22 $ 0.13
======== ======== ======== ========
Diluted earnings per
share $ 0.07 $ 0.04 $ 0.22 $ 0.13
======== ======== ======== ========
NOTE 7 - RELATED PARTY INFORMATION
The following includes income and expense resulting from
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transactions with related parties for the following periods:
Three months ended June 30, Nine months ended June 30,
--------------------------- --------------------------
1997 1998 1997 1998
------ ------ ------ ------
Revenue:
License $ -- $ 2,290 $ -- $ 2,290
Services 26,253 19,638 75,084 62,680
------ ------ ------ ------
26,253 21,928 75,084 64,970
Operating expenses:
Cost of license $ 1,568 $ -- $ 3,880 $ --
Cost of service 639 771 1,891 2,036
Selling, general,
and admini-
strative 95 115 282 304
------ ------ ------ ------
2,302 886 6,053 2,340
------ ------ ------ ------
Interest expense $ -- $ 1,102 $ -- $ 4,150
NOTE 8 - INITIAL PUBLIC OFFERING
On June 19, 1998, the Company raised net proceeds of $234,190 through
an initial public offering of 18,000 Ordinary Shares. On June 24, 1998 the
Company used these funds to repay $183,750 principal amount of outstanding term
loans incurred in December 1997 and $49,000 principal amount of the aggregate
$123,500 principal amount 10% subordinated debt financing completed in January
1998.
NOTE 9 - SUBSEQUENT EVENTS
On July 8, 1998, the Company established a $90,000 revolving line of
credit with a syndicate of banks. The Company borrowed $66,000 under the line of
credit to refinance its existing revolving credit facility and to repay an
additional $46,000 of its subordinated debt. The new revolving line of credit
bears a variable interest rate (6.5% at the establishment date). The credit
agreement has various covenants that limit the Company's ability to make
investments, incur debt, and dispose of property. The Company is also required
to maintain certain financial ratios as defined in the agreement. As of July 31,
1998, the Company had extinguished its remaining subordinated debt with cash
flows from operations.
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On July 17, 1998, pursuant to an over-allotment option granted by one
of the Company's shareholders, SBC International Inc. ("SBCI"), to the
underwriters involved with the Company's initial public offering, the
underwriters elected to exercise their over-allotment option with respect to
1,344 non-voting Ordinary Shares held by SBCI. Consistent with the Company's
Articles of Association, as a result of the transfer by SBCI of these non-voting
Ordinary Shares, such non-voting Ordinary Shares converted automatically into
voting Ordinary Shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This report contains certain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results reflected in those forward-looking statements, as a result of
various factors. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ITS
FORWARD-LOOKING STATEMENTS.
OVERVIEW
The Company's products for the telecommunications industry include
customer care and billing systems ("CC&B Systems") for wireless, wireline and
multiple-service or convergent network operators and service providers. Amdocs
also supplies advertising and media services for directory sales and publishing
systems ("Advertising and Media") to publishers of both traditional printed
yellow page and white page directories and electronic directories, such as
Internet, kiosk and CD-ROM directories. The Company's products are
mission-critical for a customer's operations. The complexity of the process and
the expertise required for system support also create opportunities for the
Company to provide ongoing support, system enhancement and maintenance services.
The Company derives its revenue principally from (i) the sale of the
Company's products and related services, including license fees and
customization and implementation services, and (ii) recurring revenue from
ongoing maintenance, support and related services provided to the Company's
customers and, to a lesser degree, from incremental license fees resulting from
increases in a customer's subscribers.
License revenue is recognized concurrently as customization work is
performed, using percentage of completion accounting. Service revenue that
involves significant ongoing obligations, including fees for customization,
implementation, maintenance and support services, is also recognized as work is
performed, under the percentage of completion method. Revenue related to ongoing
support is recognized as work is performed. Revenue from third party hardware
and software sales is recognized when systems are delivered. As a result of its
percentage of completion accounting policies, the Company's annual and quarterly
operating results may be significantly affected by the size and timing of
customer projects and the Company's progress in completing such
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projects.
Since 1992, the Company has invested substantial resources to develop
its information technology and to expand its family of products. As a result of
significant information technology expenditures made through 1995, the Company
was able to offer a full range of integrated applications for its CC&B Systems
at the same time factors such as increased demand for services, deregulation,
privatization and technological advancements began to transform the
telecommunications industry. The Company believes that the demand for CC&B
Systems will increase as the size and complexity of the telecommunications
industry increases and that CC&B Systems will account for a larger share of the
Company's total revenue over time.
Although the business of publishing traditional yellow page and white
page directories is a mature business in the United States, it continues to be a
significant source of revenue for the Company worldwide. The Company believes
that it is a leading provider of Advertising and Media in most of the markets it
serves. The Company believes that the demand for Advertising and Media will be
favorably impacted by increased competition among international directory
publishers, as well as by a broader introduction of electronic directories.
However, the Company anticipates that the relative contribution of license and
service fees for Advertising and Media to total revenue will decrease over time.
The Company has also recently introduced a number of new products for Internet
and electronic commerce applications. The Company anticipates that over the next
several years products developed or to be developed for such applications will
make a modest but increasing contribution to revenue.
The Company's research and development activities have historically
involved the development of new software modules and product offerings in
response to an identified market demand, usually in conjunction with a customer
project. The Company also expends additional amounts on applied research and
software development activities to keep abreast of new technologies in the
telecommunications market. In the next several years, the Company intends to
continue to make significant investments in its research and development
activities both for CC&B Systems and Advertising and Media.
YEAR 2000 ISSUES
The Company has completed the planning phase of its Year 2000
compliance program, and does not anticipate that it will incur significant
costs to modify its internal software or computerized systems, as substantially
all of the Company's software and computerized systems are believed to be Year
2000 compliant. The Company anticipates modifying or replacing its
non-compliant software or computerized systems by the end of fiscal 1999.
The Company believes that a small number of the Company's computer
products currently used by its customers are not Year 2000 compliant. The
Company has accrued $3.6 million as an estimate of the costs of modifying such
products. There can be no assurance that such costs will not significantly
exceed such estimate, in which case such costs could have a material adverse
effect on the Company's results of operations and financial condition.
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EUROPEAN MONETARY UNION CURRENCY
The European Monetary Union currency, or the euro, will be phased in
over a three-year period commencing January 1, 1999, when participating European
countries will begin using the euro currency for non-cash transactions. The
Company intends to offer software products that are capable of accepting the
euro currency and converting from local currencies to the euro. There can be no
assurance that the Company's software or software provided to the Company's
customers by other vendors will ensure an errorless transition to the euro
currency. The Company has accrued $2.5 million as an estimate of the costs to
modify its software products to accept the euro currency. There can be no
assurance that such costs will not significantly exceed such estimate, in which
case such costs could have a material adverse effect on the Company's results
of operations and financial condition.
CURRENCY FLUCTUATIONS
Approximately 85% of the Company's revenue and 60% of its operating
expenses are paid in U.S. dollars or are paid in other currencies with the
exchange rate linked to U.S. dollars. Other significant currencies in which the
Company receives revenue or pays expenses are Australian dollars, Austrian
shillings, British pounds, Israeli shekels and Japanese yen. Historically, the
effect of fluctuations in currency exchange rates has had a minimal impact on
the operations of the Company. As the Company expands its operations outside of
the United States, its exposure to fluctuations in currency exchange rates could
increase. In some cases, the Company utilizes hedging activities to mitigate
such risks. At June 30, 1998, the Company had no significant unhedged monetary
assets, liabilities or commitments denominated in currencies other than the U.S.
dollar.
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EMPLOYEE ARRANGEMENTS
In January 1998, the Company granted options to employees to purchase
an aggregate 1,651,000 Ordinary Shares at a price of $1.92 per share, which was
equivalent to the fair market value of such Ordinary Shares at such time. The
Company's Board of Directors concluded that the exercise price of such options
was at least equal to the fair market value at the time the options were
granted. Following the Company's initial public offering in June 1998, the
Company granted additional employees options for 855,400 Ordinary Shares at an
exercise price of $1.92 per share, the same price at which options were granted
to other employees. The Company recorded unearned compensation expense for the
difference between the per share fair market value of the Ordinary Shares after
the initial public offering and the exercise price of the options granted at
that time, totaling $10.3 million. The aggregate compensation expense will be
amortized ratably over fourteen fiscal quarters.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items in the Company's consolidated statements of operations reflected as a
percentage of total revenue:
Three months ended June 30, Nine months ended June 30,
--------------------------- --------------------------
1997 1998 1997 1998
------ ------ ------ ------
Revenue:
License 8.9% 10.6% 7.7% 10.4%
Service 91.1 89.4 92.3 89.6
------ ------ ------ ------
100.0 100.0 100.0 100.0
Operating Expenses:
Cost of license 2.0 2.5 1.9 3.0
Cost of service 62.2 56.8 60.4 57.6
Research and development 5.4 6.7 6.0 6.3
Selling, general, and
administrative 13.1 12.6 13.1 12.6
------ ------ ------ ------
82.7 78.6 81.4 79.5
Operating income 17.3 21.4 18.6 20.5
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Other income (expense), net 0.0 9.4 0.1 7.7
Income tax expense 7.7 6.0 6.5 6.4
Net income 9.6% 6.0% 12.0% 6.4%
NINE MONTHS ENDED JUNE 30, 1998 AND 1997
Revenue. Revenue for the nine months ended June 30, 1998 was $287.1
million, an increase of $84.9 million, or 42.0%, compared to the nine months
ended June 30, 1997. License revenue increased from $15.6 million in the nine
months ended June 30, 1997 to $29.7 million in the nine months ended June 30,
1998, an increase of 91.0%, and service revenue increased by $70.8 million in
the first nine months of fiscal 1998. Total CC&B Systems revenue for the nine
months ended June 30,1998 was $171.9 million, an increase of $59.1 million, or
52.3%, compared to the nine months ended June 30, 1997. Revenue attributable to
Advertising and Media was $115.1 million for the nine months ended June 30,
1998, an increase of $25.9 million, or 29.0%, compared to the nine months ended
June 30, 1997.
In the nine months ended June 30, 1998, sales to customers in North
America accounted for 54.3% of revenue and sales to customers in Europe and the
rest of the world accounted for 23.4% and 22.3% of revenue, respectively.
Cost of License. Cost of license for the nine months ended June 30,
1998 was $8.5 million, an increase of $4.6 million, or 119.6%, from cost of
license for the nine months ended June 30, 1997. The increase is due to the
amortization of intellectual property purchased in September 1997, partially
offset by the absence of royalty payments. Cost of license includes royalty
payments made by the Company to certain subsidiaries of SBC Communications Inc.
in connection with the grant to the Company of licenses to use certain software
jointly developed with such subsidiaries. Since the purchase of intellectual
property rights from such subsidiaries in September 1997, the cost of license
includes the amortization of the capitalized value of such rights.
Cost of Service. Cost of service for the nine months ended June 30,
1998 was $165.3 million, an increase of $43.1 million, or 35.3%, from cost of
service of $122.1 million for the nine months ended June 30, 1997. As a
percentage of revenue, costs of service decreased to 57.6% in the nine months
ended June 30, 1998 from 60.4% in the nine months ended June 30, 1997. The
21
absolute increase in cost of service is consistent with the increase in revenue
for the period, as these costs are predominately for compensation and reflect
increased employment levels needed to support the growth in revenue.
Research and Development. Research and development expense is primarily
comprised of compensation expense for employees engaged in research and
development activities, usually in conjunction with customer contracts. In the
nine months ended June 30, 1998, research and development expense was $18.1
million, or 6.3% of revenue, compared with $12.2 million, or 6.0% of revenue, in
the nine months ended June 30, 1997. The absolute increase in research and
development expense in the nine months ended June 30, 1998 represents ongoing
expenditures for both CC&B Systems and Advertising and Media.
Selling, General and Administrative. Compensation is the largest
component of selling, general and administrative expense. Selling, general and
administrative expense increased to $36.4 million, or 12.6% of revenue, in the
nine months ended June 30, 1998 from $26.4 million, or 13.1% of revenue, in the
nine months ended June 30, 1997, an increase of 37.9%.
Operating Income. Operating income in the nine months ended June 30,
1998 was $58.8 million, as compared with $37.6 million in the nine months ended
June 30, 1998, an increase of 56.5%. As a percentage of revenue, operating
income was 20.5% in the nine months ended June 30, 1998 as compared to 18.6% in
the nine months ended June 30, 1997.
Other Expense (Income), Net. Other expense (income), net is primarily
interest expense incurred by the Company related to senior bank debt and
subordinated debt, which debt was substantially repaid from the proceeds of the
Company's initial public offering. In the nine months ended June 30, 1998, other
income (expense), net was an expense of $21.8 million related to such debt, an
increase of $21.6 million from the nine months ended June 30, 1997.
Income Tax Expense. Income tax expense in the nine months ended June
30, 1998 was $18.5 million on income before taxes of $37.0 million. In the nine
months ended June 30, 1997, income tax expense was $13.2 million on income
before taxes of $37.4 million.
The increase in the Company's effective tax rate for fiscal 1998 is
attributable to the
15
22
interest expense related to senior bank debt and subordinated debt. The interest
expense was incurred in Guernsey, a jurisdiction in which the Company is
tax-exempt, and, therefore, on a consolidated basis, the Company was not able to
make use of a tax deduction related to such interest expense.
The Company's overall effective tax rate has historically been
approximately 30% due to the various corporate income tax rates of the countries
in which the Company operates and the magnitude of the activities of the Company
in those countries. The Company's effective tax rate for fiscal 1998 is
estimated at approximately 50%, which is higher than the historical 30% due to
the incurrence of the significant interest expense in Guernsey. The Company
anticipates that its effective tax rate will be positively impacted in the
future by favorable tax rates in Cyprus and the significant decrease of the
interest expense of the debt incurred by one of the Company's Guernsey
subsidiaries.
Net Income. The Company's net income was $18.5 million in the nine
months ended June 30, 1998 compared with net income of $24.2 million in the nine
months ended June 30, 1997. The decrease of $5.7 million was primarily the
result of an increase in financing costs offsetting the increase in operating
income.
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Revenue. Revenue for the three months ended June 30, 1998 was $106.5
million, an increase of $29.4 million, or 38.1%, from the third quarter of
fiscal 1997. License revenue increased from $6.9 million in the three months
ended June 30, 1997 to $11.3 million in the three months ended June 30, 1998, an
increase of 65.3%, and service revenue increased by $24.9 million in the third
quarter of fiscal 1998. Total CC&B Systems revenue for the three months ended
June 30, 1998 was $70.9 million, an increase of $29.0 million, or 69.0%, from
the three months ended June 30, 1997. Revenue attributable to Advertising and
Media was $35.6 million for the three months ended June 30, 1998, an increase of
$.4 million, or 1.3%, from the third quarter of fiscal 1997.
In the three months ended June 30, 1998, sales to customers in North
America accounted for 48.3% of revenue and sales to customers in Europe and the
rest of the world accounted for 29.7% and 21.9% of revenue, respectively.
Cost of License. Cost of license for the three months ended June 30,
1998 was $2.7 million, an increase of $1.1 million, or 69.3 %, from cost of
license for the three months ended June 30, 1997. The increase is due to the
amortization of intellectual
23
property purchased in September 1997, partially offset by the absence of royalty
payments.
Cost of Service. Cost of service for the three months ended June 30,
1998 was $60.5 million, an increase of $12.6 million, or 26.3%, from cost of
service of $47.9 million for the three months ended June 30, 1997. As a
percentage of revenue, costs of service decreased to 56.8 % in the three months
ended June 30, 1998 from 62.2% in the three months ended June 30, 1997. The
increase in cost of service is consistent with the increase in revenue for the
period, as these costs are predominately for compensation and reflect increased
employment levels needed to support the growth in revenue.
Research and Development. Research and development expense is primarily
comprised of compensation expense for employees engaged in research and
development activities, usually in conjunction with customer contracts. In the
three months ended June 30, 1998, research and development expense was $7.2
million, or 6.7% of revenue, compared with $4.2 million, or 5.4% of revenue, in
the three months ended June 30, 1997. The increase in research and development
expense in the third quarter of fiscal 1998 represents ongoing expenditures for
both CC&B Systems and Advertising and Media.
Selling, General and Administrative. Compensation is the largest
component of selling, general and administrative expense. Selling, general and
administrative expense increased to $13.3 million, or 12.6% of revenue, in the
three months ended June 30, 1998 from $10.1 million, or 13.1% of revenue, in the
three months ended June 30, 1997, an increase of 32.4%. The absolute increase in
costs is primarily attributable to increased marketing efforts for the Company's
CC&B Systems.
Operating Income. Operating income in the three months ended June 30,
1998 was $22.8 million, as compared with $13.4 million in three months ended
June 30, 1997, an increase of 70.8%. As a percentage of revenue, operating
income was 21.4% in the three months ended June 30, 1998 as compared to 17.3% in
the three months ended June 30, 1997.
Other Expense (Income), Net. Other expense (income), net is primarily
interest expense incurred by the Company related to senior bank debt and
subordinated debt issued in the first and second quarters of fiscal 1998. This
debt was substantially repaid from the proceeds of the Company's initial public
offering. In the three months ended June 30, 1998, other income
24
(expense), net was an expense of $9.9 million related to such debt.
Income Tax Expense. Income tax expense in the three months ended June
30, 1998 was $6.4 million on income before taxes of $12.9 million. In the three
months ended June 30, 1997, income tax expense was $6.0 million on income before
taxes of $13.4 million. The increase in the Company's effective tax rate for the
third quarter of fiscal 1998 was attributable to the interest expense related to
senior bank debt and subordinated debt. The interest expense was incurred in
Guernsey, a jurisdiction in which the Company is tax-exempt, and, therefore, on
a consolidated basis, the Company was not able to make use of a tax deduction
related to such interest expense.
Net Income. The Company's net income was $6.4 million in the three
months ended June 30, 1998 compared with net income of $7.4 million in the three
months ended June 30, 1997. The decrease of $1.0 million was primarily the
result of an increase in financing costs offsetting the increase in operating
income.
LIQUIDITY AND CAPITAL RESOURCES
Financing Transactions
The Company has primarily financed its operations through cash
generated from operations. Cash and cash equivalents totaled $41.7 million at
June 30, 1998. Net cash provided by operating activities amounted to $51.3
million for the nine months ended June 30, 1998.
In January 1998, the Company distributed $478.7 million in dividends to
its shareholders.
On June 19, 1998, the Company raised net proceeds of $234.2 million
through an initial public offering of 18,000,000 Ordinary Shares. On June 24,
1998 the Company used these funds to repay $183.8 million principal amount of
outstanding term loans incurred in December 1997 and $49.0 million principal
amount of the aggregate $123.3 million principal amount 10% subordinated debt
financing completed in January 1998.
On July 8, 1998, the Company established a $90.0 million revolving line
of credit with a syndicate of banks. The Company borrowed $66.0 million under
the line of credit to refinance its existing revolving credit facility and to
repay an additional $46.0 million of its subordinated debt. The new revolving
line of
25
credit bears a variable interest rate (6.5% at the establishment date). The
credit agreement has various covenants that limit the Company's ability to make
investments, incur debt, and dispose of property. The Company is also required
to maintain certain financial ratios as defined in the agreement. As of July 31,
1998, the Company had extinguished its remaining subordinated debt with cash
flows from operations.
As of June 30, 1998, the Company had a shareholders' deficit of $33.3
million as a result of the internal corporate reorganization effected between
September 1997 and June 1998 and the $478.7 million in dividends distributed to
shareholders in January 1998. The Company believes that cash generated from
operations and the Company's current lines of credit will provide sufficient
resources to meet the Company's capital needs over the next several years.
At June 30, 1998, the Company had short term revolving credit lines
totaling $72.0 million, of which $37.5 million was outstanding as of June 30,
1998. As of such date, the Company had also used $4.9 million of its revolving
credit facility to support outstanding letters of credit. In addition, as of
June 30, 1998 the Company had long-term obligations outstanding of $7.3 million
in connection with vehicle leasing arrangements.
Net Deferred Tax Assets
Based on management's assessment, it is more likely than not that all
the net deferred tax assets at June 30, 1998 will be realized through future
taxable earnings. No significant increase in future taxable earnings would be
required to fully realize the net deferred tax assets.
26
AMDOCS LIMITED
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Changes in Securities
On July 17, 1998, pursuant to an over-allotment option granted by one
of the Company's shareholders, SBCI, to the underwriters involved with the
Company's initial public offering, the underwriters elected to exercise their
over-allotment option with respect to 1,343,800 non-voting Ordinary Shares held
by SBCI. Consistent with the Company's Articles of Association, as a result of
the transfer by SBCI of these non-voting Ordinary Shares, such non-voting
Ordinary Shares converted automatically into voting Ordinary Shares.
Following the exercise by the underwriters of their over-allotment
option, SBCI, the sole holder of non-voting Ordinary Shares, now owns 30,234,700
non-voting Ordinary Shares and 14,500,000 Ordinary Shares.
Use of Proceeds
On June 19, 1998, the Company's Registration Statement on Form F-1 was
declared effective and the Company issued 18,000,000 Ordinary Shares at a price
of $14 per share, raising $252.0 million in the aggregate. The managing
underwriters were Goldman, Sachs & Co. and Morgan Stanley Dean Witter.
In connection with the offering, the Company incurred $17.8 million in
registration expenses, including $15.7 million for underwriting discounts and
commissions and $2.1 million for other related fees and expenses. The net
proceeds of the offering, after deducting the foregoing expenses, were $234.2
million.
On June 24, 1998 the Company used the net proceeds from its initial
public offering to repay $183.8 million principal amount of outstanding term
loans incurred in December 1997 and $49.0 million principal amount of the
aggregate $123.5 million principal amount 10% subordinated debt financing
completed in January 1998.
27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated July 29, 1998.
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Company
during this period.
28
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.
Amdocs Limited
/s/ Thomas G. O'Brien
Date: August 10, 1998 ----------------------------------------
Thomas G. O'Brien
Treasurer and Secretary
Authorized U.S. Representative
29
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Amdocs Limited Press Release dated July 29, 1998.
1
EXHIBIT 99.1
99.1. PRESS RELEASE.
AMDOCS LIMITED ACHIEVES RECORD THIRD QUARTER, TOP LINE GROWS 38% WHILE
OPERATING INCOME INCREASES 70%
- -Strong Growth Reflects Market Acceptance of Company's Total Solution
Approach-
St. Louis, MO -- July 29, 1998 Amdocs Limited (NYSE: DOX) today reported that
revenues for the third quarter ended June 30, 1998, grew by 38.1% to a record
$106.5 million compared to $77.1 million reported for the third quarter last
year. This represents the first time that the company's quarterly revenues
surpassed $100 million.
The company noted that revenue growth in the quarter was driven by particularly
strong performance in its customer care and billing business and continued,
consistent performance in its Advertising and Media business, which includes
traditional directories and directory-related Internet and e-commerce services.
Quarterly revenues include license revenues, which grew 65.3% to $11.3 million
compared to $6.9 million reported for the third quarter last year, and service
revenues, which grew 35.5% to $95.2 million compared to $70.2 million in the
third quarter of 1997.
Operating income increased 70.8% to $22.8 million compared to $13.4 million in
the third quarter of 1997.
Net income for the third quarter was $6.4 million compared to net income of $7.4
million in the third quarter of 1997. Third quarter 1998 net income reflected
the effects of approximately a $9.0 million net increase in interest expense. In
June of 1998, the company used a significant portion of the $234 million in
proceeds from its initial public offering to retire outstanding debt. As a
result, the company's interest expense will be significantly reduced throughout
the remainder of fiscal 1998 and 1999.
Diluted earnings per share were $0.04 based on 182,696,000 weighted average
shares outstanding, compared to $0.07 on 110,500,000 weighted average shares
outstanding in the prior period.
For the nine months ended June 30, 1998, revenues grew by 42.0% to $287.1
million compared to $202.1 million in the same period last year. Net income for
the nine months decreased by 23.5% to $18.5 million compared to $24.2 million in
the same period last year. Diluted earnings per share for the nine months were
$0.13 based on 146,450,000 weighted average shares outstanding compared to $0.22
on 110,500,000 shares outstanding for the first nine
2
months of 1997.
Avi Naor, Chief Executive Officer of Amdocs Management Limited, noted, "With
quarterly revenues exceeding $100 million for the first time, these results
represent a milestone for Amdocs. The consistent rapid growth we have achieved
is due to the distinctive benefits that our product-driven solution generates
for our customers, the premier telecommunications vendors in the industry. Their
growing demand for our product led to record revenues during the quarter as well
as new contracts with leading wireless and wireline carriers throughout Europe,
North America, South America and Japan."
Naor added, "Our ability to offer a total solution of leading-edge products
coupled with comprehensive services has proven to be a distinct competitive
advantage. We are able to provide this total solution approach due to our base
of over 2,600 information systems professionals, dedicated to developing our
products and serving our customers. Because we offer high-volume UNIX-based
solutions, which are the most sought-after in the marketplace, we have become a
leading resource to premier telecommunications companies."
Amdocs is uniquely positioned to benefit from the consolidation now taking place
in the industry because proven scalability is a key factor for these customers.
Typically, we service the leading telecommunications companies looking for
large-scale systems to support increased volumes and continued rapid growth. As
telecommunications companies expand through consolidation, we have found that
they turn to us for advanced customer care and billing solutions that can
service exploding customer populations," Naor continued.
Naor concluded, "Looking forward, we are confident that market conditions will
remain favorable for Amdocs and that we will be able to successfully execute our
operating plan. Given our long-term relationships with our customers we have
high visibility on the fourth quarter and beyond."
Amdocs is a leading provider of product-driven customer care and billing
solutions to premier telecommunications companies worldwide. Amdocs has an
unparalleled success record in project delivery of its mission-critical
products. With human resources of over 2,600 information systems professionals
dedicated to the telecommunications industry, Amdocs has an installed base of
over 250 successful projects in more than 50 major telecommunications
3
companies throughout the world. For more information visit our web site at
www.amdocs.com.
This press release may contain forward looking statements as defined under the
Securities Act of 1933, as amended. Such statements involve risks and
uncertainties that may cause future results to differ from those anticipated.
These risks include, but are not limited to, the adverse effects of market
competition, rapid changes in technology that may render the company's products
and services obsolete, potential loss of a major customer, and risks associated
with operating businesses in the international market. These and other risks are
discussed at greater length in the company's filings with the Securities and
Exchange Commission.
4
Amdocs Limited
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
Three months ended Nine months ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
Revenue:
License $ 11,322 $ 6,851 $ 29,741 15,568
Service 95,175 70,238 257,322 86,547
--------- --------- --------- ---------
106,497 77,089 287,063 202,115
Operating expenses:
Cost of license 2,654 1,568 8,521 3,880
Cost of service 60,518 47,925 165,268 122,129
Research and
development 7,172 4,167 18,127 12,178
Selling, general and
administrative 13,332 10,066 36,356 26,373
--------- --------- --------- ---------
83,676 63,726 228,272 164,560
--------- --------- --------- ---------
Operating income 22,821 13,363 58,791 37,555
Other expense (income), net:
Interest expense 9,212 184 23,013 696
Other, Net 723 (218) (1,241) (546)
--------- --------- --------- ---------
9,935 (34) 21,772 150
--------- --------- --------- ---------
Income before income taxes 12,886 13,397 37,019 37,405
Income tax expense 6,443 6,019 18,510 13,222
--------- --------- --------- ---------
Net income $ 6,443 $ 7,378 $ 18,509 $ 24,183
========= ========= ========= =========
Basic earnings per
share $ 0.04 $ 0.07 $ 0.13 $ 0.22
========= ========= ========= =========
Diluted earnings per
share $ 0.04 $ 0.07 $ 0.13 $ 0.22
========= ========= ========= =========
Weighted average diluted
shares outstanding 182,696 110,500 146,450 110,500
========= ========= ========= =========
5
Amdocs Limited
Consolidated Balance Sheet
(in thousands, except per share data)
June 30 September 30
1998 1997
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 41,693 $ 53,732
Accounts receivable, including unbilled
of $3,590 and $2,031, respectively 64,186 48,565
Accounts receivable from related
parties, including unbilled of $930 and
$0, respectively 19,427 15,393
Deferred income taxes 12,705 12,532
Prepaid expenses and other current 6,756 6,161
assets
--------- ---------
Total current assets 144,767 136,383
Equipment, vehicles and leasehold improvements, 39,155 28,287
net
Deferred income taxes 8,363 4,587
Intellectual property rights 24,017 25,982
Other noncurrent assets 21,621 25,343
--------- ---------
$ 237,923 $ 220,582
========= =========
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accounts payable and accrued $ 43,532 $ 30,543
expenses
Accrued personnel costs 28,943 23,098
Short-term financing arrangements 17,470 1,998
Unearned revenue 33,511 17,440
Notes payable to related parties -- 3,268
Short-term portion of capital lease 2,340 1,954
obligations
Deferred income taxes and income 20,886 20,151
taxes payable
--------- ---------
Total current liabilities 146,682 98,452
Long-term debt and capital lease obligations 101,847 7,370
Other noncurrent liabilities 22,678 20,507
Shareholders' equity (deficit):
Preferred Shares-Authorized 25,000
shares; (pound) 0.01 par value; 0 shares _ _
issued and outstanding
Ordinary Shares-Authorized 550,000
shares; (pound) 0.01 par value; 196,800 and
124,708 shares issued and outstanding,
respectively 3,149 1,996
Additional paid-in capital 447,597 105,779
Unearned compensation (10,333) --
Accumulated deficit (473,697) (13,522)
--------- ---------
Total shareholders' equity (deficit) (33,284) 94,253
--------- ---------
$ 237,923 $ 220,582
========= =========
